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Dog Days of Summer, but don’t fall asleep

| August 01, 2023

Today is the last day of July, and many people are on vacation or otherwise distracted from the markets.

Last week we discussed the central banks and what decisions they would likely make. It mostly played out as expected and the markets took it in stride.

In fact, it’s possible that nobody was paying attention to the markets because everyone was in the movie theaters watching the new ‘Barbie’ movie.

I guess I may be the only one not going to the theaters to see this movie. I’ll catch it on VHS!

Ok, back to much less interesting stuff.

Do you have an electric vehicle yet? Apparently, they are starting to stack up on dealer lots now.

Tesla has been moving its prices around as demand and supply ebbs and flows. That has been causing ripples in the industry as other manufacturers have been forced to lower prices to compete. You gotta love free markets! But even with the lowering of prices, dealers have more inventory than they can sell.  And oh, by the way, there is a tsunami of EVs coming in the next couple years. What happens when all of them come to market? Here’s a look at current inventory.

Almost double the number of days supply of EVs versus gas powered cars. That’s a big number, especially when auto makers are ramping up production. We will see how this plays out over the next year or two.

In the markets, we are continuing to see the markets broaden out and more areas of the market are participating and, in some cases, starting to lead the markets higher.

The equal-weight S&P 500 is within a few percent of its highs.

Meanwhile, the small caps, which had been lagging, are beginning to catch up and the chart is starting to look much better.

Finally, we have talked about the US dollar in the past. We said $105-$105.50 was a very important level and breaking down through that would likely be good for the markets. Not only did it do that, but it also has now re-tested the $105 range a few times and that level is now firm resistance.  In fact, the $100 level has been broken and is now being tested again. If that can’t hold (which would be my guess), you could see $90 on the dollar index over the next few years. That would end up being great for US-domiciled companies that have large parts of their sales and earnings coming from overseas (lower dollar means higher profits in foreign markets).

Moving back to the domestic side, on a sad note, the trucking company Yellow has ceased operations and will likely file for bankruptcy soon.

They hold debt of $1.3 billion, including a $700 million loan from the US Government (we the people) that was loaned in exchange for owning 30% of the company.

Wow, no kidding…‘Significant risk of loss’?  You think?

If you asked me (which you didn’t), if a company can’t run their business profitably, that’s what the bankruptcy courts are for, not the federal government to bail out every company that comes asking for money. That includes trucking companies, solar companies, auto manufacturers, banks, and all the rest. There are a lot of ‘zombie’ companies out there and we will see many of them go bankrupt over the next few years.

Lastly, one more thing of note. When policy makers say that things are contained, it’s best to assume that things are absolutely not contained. Case in point, the “banking crisis.” Remember just a few months ago when Silicon Valley Bank was taken over by FDIC? Then it spread to a few other banks, but then it was “contained.” I’m not raising any alarm bells and not saying the sky is falling, but there will be more banks failing in the next few years. See the latest one that got taken over by FDIC.

Not a big bank and certainly not “systemically important,” but likely not the last bank to fail. On a side note, we still have a few books left of ‘The Fourth Turning is Here’ available if you are interested (see last week’s blog for more info).

I hope you have a great week and please let us know if you have any questions.