Traders: ‘I’m going all-in to the market now that CPI (inflation) is declining. But no. We’re still fearful.
Banks: ‘Nope. A recession is coming. A mild one. But a recession nonetheless. Plus we’ve raised our credit loss provision substantially… because… well… the economy is screwed for 2023′
The Fed’s inflation fight
People like Jim Quinn are shelling out upwards of $6 and $7 for a dozen eggs. Quinn has run daytime eatery The Hungry Monkey Café in Newport, Rhode Island, with his wife, Kate, since 2009. As a breakfast and lunch joint, it leans heavily on eggs for the majority of dishes on its menu — and especially for the 15-egg King Kong omelet novelty food challenge at the restaurant. The cost of food is still hard to swallow, but the latest Consumer Price Index shows that those price increases — by and large — are at least growing at slower rates.
We’ve seen a decline in some measures of inflation but we have a lot more work to do, so I expect the [Federal Open Market Committee] will continue raising interest rates to tighten monetary policyMichelle Bowman, Federal Reserve Governor
Bowman continues: “I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time in order to restore price stability, which will in turn help to create conditions that support a sustainably strong labor market”
The business of banking
Recent fourth quarter results from the large-cap banks:
- Goldman Sachs: earnings of $3.32 per share vs. $5.48 estimate
- JP Morgan: earnings of $3.57 per share vs. $3.07 estimate
- Citigroup: earnings of $1.10 a share vs. $1.14 estimate
- Bank of America: earnings of 85 cents per share vs. 77 estimate
- Morgan Stanley: earnings of $1.26 per share vs. $1.19
- Wells Fargo: Earnings: 67 cents a share vs 66 estimate
Credit losses and wage inflation are to blame for Goldman Sachs’ hit to earnings. Here’s a free business tip if you run a bank: do not offer excessive salaries to ‘recruit and maintain talent’, shareholders will not be happy. Citigroup have the lowest PE ratio from this group at 7.07 at the time of publication.
Once a long term loser, always a long term loser
We need to talk about long-term FTSE 100 losers. Just one actually. Ocado (LSE: OCDO).
And to do that we need to take a quick look at the numbers.
Is it me or is the only positive aspect of the Ocado business the balance sheet? Speaking of which:
Following our recent successful financing, we now have a strong financial position and ample liquidity to fund the requirements of our existing and expected customer commitments into the mid-term. No additional Group financing will be needed as the business becomes cash flow positiveTim Steiner, Chief Executive Officer of Ocado Group
Unfortunatly, Steiner uses cash flow v free cash flow because free cash flow has been non-existent at Ocado, oh, for its entire operating history except for 2018. Also cashflow has been positive in the past yet for most of its operating history, Ocado has posted losses.
Ocado isn’t even on my watchlist.