Home Sales
For 12 months in a row existing home sales have been declining. Recent numbers coming out from December show a drop of 36.9% from December 2021, month over month we saw a decline of 0.7%. Not helping the situation is the median existing home sale price did increase 1.3% from a year ago to $359,000. The inventory of unsold homes has climb to 980,000 as of the end of January but that still is a low amount of supply at 2.9 months. Interest rates on a 10-year treasury continue to increase, this will put more downward pressure on the housing market throughout 2023. We will continue to see declining numbers in new and existing home sales.
Credit Card Fee’s
Running a small business is very hard, one must handle all the expenses, new accounts, and customers. But one thing that irritates me is when I go to a small business, and I use my credit card and they try to ding me for the 3% credit card fee. To me it’s just an easy out for them but it really is nothing more than a cost of doing business and is a convenient way for the customers to pay for their product. I’ve been going to the car wash place in Scripps Ranch for over 20 years and the last time I was there they charged me the 3% credit card fee, I told them that’s the last time they will see me. I’d rather see a business increase their prices and include all their expenses then try to hit me with a 3% credit card fee. What is next? Do they want us to pay their utilities? At my firm, we do allow our clients to pay for their financial planning fees by credit card and I would never think of charging them a 3% fee. I’m all for small businesses, but if you must charge a 3% credit card fee, you’re doing something wrong or you’re being greedy.
Inflation Decreasing
I continue to say that I believe we will see more of a decrease in inflation overtime because I look at the raw cost of the goods and the cost of shipping those goods. One cost is shipping a standard 40-foot container from China to California. The peak cost was in September 2021 with a cost of $12,000. Today the average cost for that same 40-foot container is $1444. That is a decline of $10,556 or 88%. Another reason why I think prices will continue to fall slowly going forward.
Short vs. Long Term Thinking
Last week’s strong economic information means we will probably see short term rates on the three- and six-month T-bill perhaps climb to 5% in the near future. Don’t get too excited about this. I want you to remember the old story about the tortoise and the hare. Do not drop your high-quality equities that are trading at reasonable valuations with decent dividends to rush into a 5% short term yield. Your short-term thinking will destroy your long-term investment results. Based on what we have in our portfolio, I would even be willing to bet that we should outperform the short-term treasuries. Remember in the fall equities are not looking where they are today but in the spring of 2024.
Valentine’s Day
Valentine’s Day has now come and gone. Hopefully you got your sweetheart the right gift. I was surprised to learn that the big gift this Valentine’s Day was candy at 57%. The total amount spent on candy for Valentine’s Day was $25.9 billion an increase of 8.4%. I know candy was not on my woman’s wish list for a gift. However, she is still smiling, so I think I did good this year.
Wall Street Journal Articles
Last week on the front page of the Wall Street Journal, there were two articles that are on a collision course. The first article was, “schools cut honors classes to boost equity, face, backlash”. Schools in California, New York and Wisconsin are cutting the advance placement classes because there are not enough African Americans or Latinos in the classes. Above that article was, “Facebook parent is getting tougher on staff”. Facebook parent meta-platforms say they are getting tougher on the reviews and while the company is trying to get more efficient, they are reducing subpar employees. In my opinion, school districts' need to understand that when kids get into the real world of business, during hard times, those who are not working hard will be the first to be let go. We will always have slackers in society, no matter the skin color. What’s important is that we teach kids that if you work hard, you can strive to be in advance placements and you will be the one that stays on with a company during tough times even if you didn’t make it into the advance placement classes, but you learned how to work hard and because you can handle the weight. I think we also need to realize that we are not all created equal. Some kids and people are smarter than others, they may have a better athletic ability, or they may have a unique skill. We should not try to suppress that but enhance each individual in whatever skill that is unique to them, regardless of their skin color. 70% of the NFL is black, I applaud the NFL for looking at athletic ability and not skin color. Can you imagine how boring the games would be if they recruited players on skin color?
Recycling
I’ve always tried to do my part when it comes to recycling and make sure I put all my plastics in the recycle. I was disappointed to learn this weekend that it is a waste of time to some degree. Why is that? It is still far cheaper to produce new plastic then to recycle the old plastic. Currently just 5% of plastic is recycled according to estimates from the US Department of Energy. Much of it is still ending up in landfills, incinerated, exported, or washed to sea. China used to love receiving the recycled plastic, now it just ends up in landfills in Asia. It is suggested that consumers can help by not buying disposable bottles and clamshell boxes. Also suggested to help was order less takeout and return fewer items on amazon.com. I don’t think that is going to happen. I think what we need to do is have companies spend a lot more time on research and development to come up with a way to make it profitable to recycle plastic to help reduce the growing demand of virgin plastic, which is now more than 500,000,000 tons a year worldwide. I will continue to do my part in recycling, it just won’t feel quite as good as it used to.
India
India is a friendly, quiet country you don’t hear much about. You may not realize this but their population at 1.4 billion people is now the same size as China. Their GDP growth far exceeds ours coming in at an estimated 7% for the current year. They have stayed out of world affairs, but they have had to use Russia for some of their imports like coal which climbed 148% and 2022. One can’t blame them because they really have no place else to go.
Garbage Companies
I always wanted to get into garbage. Excuse me. I mean to invest in garbage companies like waste management or republic services. They have quite the business. They have guaranteed contracts, an endless supply of garbage coming through, and can turn the methane gas in the landfills into natural gas and sell that. An analyst wrote over the weekend that both these companies are trading at the bottom range for earnings around 25 with a high of 30. I do have to remind investors that just because something is cheaper, it doesn’t mean it won’t get even cheaper. I would still need at least a forward PE ratio of around 13 on the bottom for me to get excited. In the meantime, I’ll keep watching the garbage go by.