Making Hay Monday - October 28th, 2024
Introducing Our New MHM Format!
Special note: As you will soon see, we are making a format change in order to condense our Making Hay Mondays. The primary alteration is to move most of our line-item asset-class lists and specific security guidance (to the extent we can convey the latter) to a separate page, which is linked at the end.
This will make for an easier read for those who only want to see the most recent items we’ve highlighted. For MHM readers who would like to see the full list of those suggestions, you can still access those via the link. Hopefully, this revision will be all upside and no downside!
Charts of the Week
My good friend Jesse Felder, one of the best newsletter writers we know — and we know a lot of them — recently ran this chart dissecting the broad market’s reported cash flows. You’ll notice that the above is not the S&P 500 but the S&P 1500. This is because it includes a far larger quantity of small companies than does the main S&P. Clearly, those small enterprises are in the midst of a severe earnings recession. (Note that the above is based on EBIT, or earnings before interest and taxes.) For the S&P 500, the Magnificent Seven-type names have provided tremendous ballast to aggregate cash flows. Backing out the top 10% of largest market value companies results in a much less impressive picture.
It continues to be our belief and, we feel, simply stating the obvious, that the main reason the U.S. economy is growing faster than the rest of the developed world is America’s willingness to deficit spend at a rate far above its peers. In this regard, one of the most head-spinning factoids we’ve seen lately was courtesy of Sven Henrich, also known as the Northman Trader. In a CNBC interview last Friday, Sven stated that U.S. federal debt increased by $450 billion in three weeks and, likely, closer to $500 billion for the past month. Interestingly, this spending blow-out occurred after the end of the federal fiscal year on September 30th, possibly obscuring it from public scrutiny, at least for now.
“There is a lot of pressure on [environmental] compliance. The lower [U.S.] demand for EVs…. means that CO2 credits are now likely going to be needed for fleet flexibility and optionality and will be a critical strategy choice for any company.” -Ford CEO Jim Farley, effectively admitting his company will need to buy more emission credits from Tesla
“The consumer has held up remarkably well for us.” -GM’s chief financial officer, Paul Jacobson
High on Hybrids
Regular readers of this newsletter are aware that we are very optimistic about the future for hybrids. In general, that applies to automotive hybrids, but there is another type we believe has considerable investment appeal: those yield securities that are known as fixed-to-floaters but more colloquially as hybrids. They are this week’s Champion highlight…
