Alchanati Campbell & Associates
Dear Climber,Failure. At what point do you give up? When do you know that you’ve failed? Is it when you can’t find a viable solution? Is it when you can no longer continue forward? Is it when you’ve tried your best and didn’t succeed? Failure; a problem many don’t have because they fear it. How unfortunate. The world doesn’t lack motivated people. It lacks those with the drive to follow through. It’s better to act and fail than to have not acted and floundered. Stuck in the same place at a different time because you fear to leave. Change scares you. The possibility of success haunts you. “I can’t really be that guy in that fancy car wearing that fancy watch walking in those fancy shoes.” Or in my world: “I can’t really be that knowledgeable and that deeply in love, surrounded by loved ones who I can teach and learn from, traveling the world building my circle of competence, making a difference, finding purpose and forgetting fame.” But really, you can and I can. What you think will manifest into reality, and if you believe it, you're on your way. Let’s get to it:
The Market. “While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals,” (Powell). Debt among 19 – 29-year-old Americans exceeded $1 trillion at the end of 2018. Student loans (with an 11.42% 90 days+ delinquency rate) made up the majority followed by mortgage debt. What drives US consumer debt? Mortgage debt, student loans, auto loans, credit cards, HE revolving and other. CBD (Cannabidiol) has the potential market value of $16 billion by 2025, with 7% of Americans already using it. The cannabis industry could reach $130 billion by 2029. Warren Buffett says he would support Mike Bloomberg as President. March 1st deadline for new tariffs to be imposed on an additional $200 billion worth of Chinese imports was waived by Trump. The 2019 healthiest countries are Spain, Italy, Iceland, Japan and Switzerland with the US ranked at #36. GDP for the 4th quarter of 2018 increased by 2.6%. There were increases in consumer spending, business investment, exports and inventory investment. GDP is projected to go down 1.3 points to 1.8 in 2019.
The Feds. Investors expect the Fed to refrain from any hikes this year. The markets have priced in a flat 2019 interest rate path and no hikes this year would please Trump. The Fed will remain patient in light of uncertain economic and market data. The probability that a slowdown turns into recession decreases if the Fed promptly eases policy, and to cause a recession, the Fed needs to over-tighten monetary policy. But now, the Feds are taking the opposite approach: they are easing policy by announcing that they are “patient” and are ready to cut rates if needed. Powell emphasized that wages have gone up, but inflation has not. So why should the Fed raise the rates now? He also said that the Fed is going to cease their balance sheet runoff by the end of 2019. However, Mr. Powell also had some discouraging things to say. Markets, in general, are more volatile right now, while U.S. economic growth is expected to slow down. On a global front, a larger economic slowdown in China presents a real risk to the global economy, which would then subsequently threaten the U.S. economy.
Tesla. Following an ominous tweet by Elon Musk, the long-awaited $35,000 Model 3 is finally here. Curiously enough the announcement came just a day before Tesla had $920 million of debt due. Investors who had been following Tesla closely, myself included, had expected that Tesla would find a way out of the nearly $1 billion dollars in debt looming over their heads. The debt was due in convertible bonds, which are certificates a company can issue that work similar to bonds except that the bondholders have the option to convert the bonds into stock. If Tesla had been able to keep the stock above $354 then most of those bonds may have been converted into stock, saving the company badly needed cash, but after losing their CFO, large layoffs, and the closure of their retail stores, they were unable to keep the stock at that crucial price point. Wall Street has been bearish on Tesla despite the company posting their first consecutive profitable quarter, but this may change in the coming months as the first truly mass-market electric vehicle is finally ready for purchase. Another important note was lost in all the Model 3 excitement but a subtle change to Tesla’s website that announced full self-driving capabilities by the end of the year.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.