AM Brew, Jun 29th 2022

After a year in London, back in the states. It only took 2 days to understand that I had underestimated the malaise. On a lark, I went to McDonalds to get an ice cream cone. For years, that small refreshing $1 cone was the best bargain in restaurant-land. Yesterday including tax it was $2.34 - so in four years it went from $1 to $2.34 - that is over 23% annualized inflation. This morning, my favorite frozen burrito was $0.79 up from $0.59 eleven months ago which is a 33% increase in a year.

Why are things worse than I thought?

• Traffic is bad all through the day ( for the first time in history you can't avoid it ). In London, retail petrol was $8.60 a gallon and the roads were clogged everywhere like never before. That means $8.60 a gallon is too cheap - it will take $15 gas to clear out the jams - mark my words, fuel is inelastic. I expected less traffic after fuel doubling but the traffic got worse.

• The news is absolutely horrific: underperforming city schools almost taken over by the state, threats of church/state separation reversal (now that Roe v Wade overturned), Trump wanting Pence dead?

• Brand new railcars from China unusable

• Store shelves 1/2 empty at the Supermarket. Why ?

• My favorite restaurant changed the bill - last year it suggested 15%, 18% and 20%. This year it suggested 18%, 20% and 25%. Its now cheaper to eat out in London where 12% gratuity is automatic, no thinking necessary.

• My part-time finance professorship to teach a summer class at a prestigious top-50 school, where they have pricing power kept the salary constant. In fact, the salary is the same as 2019, so that is 2019, 2020, 2021 & 2022 all at the same rate. The university can do this to part-time faculty because there is no other prestigious place to go for that job, which is not about the money. This is significant because they gave raises through the 2000-2002 downturn and the 2008-2010 GFC. What else? The class is capped at 35 students and has been since 1997! This year? Enrollment over 40 students - even Universities are shrinking the candy bar. Things are bad out there.

• My battery died & AAA replaced it on amortized warranty - they lied about the facts & overcharged me. This is new.

• Was completely shocked at the price of toilet paper and the lack of selection. Econ 101 told me that there would be more supply at higher prices - the USA is swiping left on that assertion.

A decade ago, I predicted that after almost 20 years of low productivity, excessive government borrowing and high consumer spending that the American standard of living would drop 20% to 25%. Now it has happened and life is still good: restaurants still busy, roads are packed, life is good here. Unfortunately, the pain has just begun. It appears that there is more standard of living pressure ahead, and this means that we are heading into a long & dark period. Only the Fed can save us - two days on the east coast and I am confident that the printing presses will be back in action soon.

I didn't click on the story, but wow, the headline "Bed Bath & Beyond CEO ousted as sales collapse 27%". Yesterday, I was reading some bullish commentary about how July earnings releases will be surprisingly good - that is likely 50% true, with another 25% being ok and the final 25% abysmal. Look for estimate charts that look like this:

Futures are positive as of 8:30 AM EDT but that means nothing after yesterday where the pre-market futures were strong and the equity market was up around 1% at 10:00 am then collapsed to end down massive. Crude is back to its "up every day routine" - crude is the thing to watch. Fossil fuels drive inflation more than the Fed. Bitcoin is flirting again with the $20k level. Bitcoin Jesus is refuting rumours that he is delinquent on a $47 million USDT debt. Crypto's flirt with institutional funds is over - crypto is for real, but its not going to be an institutional category. The JPG NFT Index is down 70% since April.

Carnival stock is weak after Morgan Stanley notes that stock can go to zero - we were saying similar things a few weeks back in this letter, although my strategy would be to consider buying the stock at $1.00 as an option.

NIO is weak in Hong Kong after a short-seller reported that revenue is inflated. Tesla's small workforce adjustment is worrisome and not a good omen for tech-land employees.

My strategy here: don't buy, wait for the opportunity to steal. The time for offense will come - play defense for now.