AM Brew, Jun 9th 2022

Yesterday CCL was down -6% as Morgan Stanley questioned its ability to meet interest payments. Morgan Stanley was busy yesterday, as their analysts negative comments about Attria sent MO down -8%. This is what bear markets are about, stocks going down for good reason or not. CCL is not a good stock: avoid purchase until it becomes a $1 or $2 option. MO is more like a high-yield bond than a stock and it just got more investable after Morgan's comments.

Cathie was on camera pumping her book via a deflation thesis - too much inventory out there is a big deflationary risk. Lets be clear: deflation is not gonna happen.

Oil is not rising monotonically, but it sure feels like it. Now its the oil inventory data pushing prices higher. If you want to fill up the tank in metro-London, its gonna cost you $8.60 a gallon, and frankly more people are driving in the UK than ever - public transportation is so 2019. If retail gasoline at the pump in LA goes to $8.60, people are going to pay it and frankly, if you don't think that is cheap, then think again. Of course, if you want to fill up cheap, you can move to Tehran where gas is $0.09 a gallon (but globalpetrolprices.com/Iran/gasoline_prices/ says 95 octane there is $0.20 :-).

Its not the perfect storm out there, but there are many bad news items on the horizon. For example, Federal Student Loans have been on payment pause since March 2020. This expires August 31st, and even if Biden extends this, eventually it has to come to roost. Since about 1/3rd of people earning $250k are going paycheck to paycheck, when this eventually hits, another important demographic is going to feel the pain to the tune of about $400 a month. Ouch. Another point of pain is that starting this year, the IRS is requiring online payment processors to send out 1099-K forms to most online goods sellers. A lot of people are going to be faced with a tax surprise come April 2023. Covid and work-from-home has led to a rise in second properties. Thus there is a lot of empty space out there we didn't have 3 years ago. If the economy tightens, many of these properties will come back on the market. We are hearing that although the job market is still tight, its not as tight as before. For the first time in years, there are widespread hiring freezes. Could it be that employers hired any beating pulse and will want to cull the bottom ranks in 2023? Its not a perfect storm, but there are many worrisome trends. Our Florida real estate checks are showing strength below $600,000 but normal weakness above that price point. The uptick in crime has derailed "defund the police" and there is a growing contingent that wants to fund the police - that money has to come from somewhere.

A lot of the above will be partially offset by likely tariff cuts by the Biden administration. Tariff cuts will be good for consumers, bring inflation down, and it will also be good for the US/China relationship.

Earlier we said that if gas was $8.60 or $9, you are going to pay it. Bespoke shows it another way:

Futures this morning as of 8:20 am New York time are very quiet – really nothing going on anywhere. Maybe oil doesn’t rise today – lets hope !