Post 230

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Summary

  • UPS continues to see the volume of packages fall.
    • They are letting go 12,000 people.
  • Danish firm Novo Nordisk has been growing rapidly for over two decades.
    • First by targeting diabetes.
    • Now by “catering” to the weight-loss category.
  • Over 80% of new cars sold in Norway are electric.
  • New business openings in the US are very strong.
    • Particularly in the home services sector.
  • Alcohol consumption:
    • Something doesn’t add up.
    • And Moldova leads the world.
  • In the US, foreign-born workers are leading the charge.
  • Credit card delinquencies are rising and the highest in over ten years.
  • Some company results:
    • Amazon: This year you’ll be able to buy a Hyundai car on Amazon.
    • Microsoft: Continue to rapidly grow sales, but devices (Surface laptop, Xbox) are falling.
    • Apple growth is barely in positive territory.
      • Hurt by China.
      • But the US is also slow.
  • In an opinion piece the claim is made that soaring housing prices in Vancouver are about demand and not supply.
  • In Financial Ructions
    • Chinese property group Evergrande is court-ordered to liquidate.
    • Chinese tariffs on Australian wines are causing problems.
    • How were US Jobs numbers in January?
      • It depends who you ask.

News

UPS announced that it is laying-off roughly 12,000 employees.

  • Those affected will be primarily:
    • Management staff
    • Contract workers.
  • The company said that this is a result of a new way of doing business (better technology) and thus none of those employees are expected to be rehired if business picks up.
    • Union workers are unaffected by the layoffs:
      • Last year they negotiated a new contract where full-time drivers earn $170,000 in pay and benefits.
  • Starting in March employees are expected to be in the office five days a week.

UPS announced their 4Q/2023 results.

Adjusted sales: -8.1%

  • US Domestic Package: -7.3%
    • Volume: -7.4%
  • Intl Package: -7.8%
    • Volume: -8.3%
  • Supply Chain Solutions: -12.0%

The sales decline is in spite of an increase in price per package.

For the full year, sales were down 9.2%.

  • Price per package was up 1.9%.

They expect sales to be up 1-3% in 2024.

  • They had expected 2023 sales to fall 1-3% rather than the actual 9.2%.

Germany Inflation

  • Dec: 3.8%
  • Jan: 3.1%

Novo Nordisk

Novo Nordisk is a Danish company and the world’s leading producer of insulin with around 45% of the global market.

  • In 1923 they successfully extracted insulin from a cow’s pancreas.
  • In the 20s the company split into two: Novo and Nordisk.
    • They competed with each other for 60 years.
  • In 1982 Novo developed the first human insulin: it was chemically altered insulin from a pig.
  • 1989: Novo and Nordisk merged.
  • 2000: The company spun-off its enzymes business known as Novozymes.
    • Today, Novozymes is the largest enzymes manufacturer in the world.
    • I’ve toured their plant in Denmark.
      • The enzymes are grown in large fermentation tanks.
      • It looks like a brewery.
    • Enzymes are used in a whole host of things and in particular laundry detergent.
      • They are much more effective than chemicals but cost more.

As you know, Novo Nordisk also produces the weight-loss drug Wegovy as well as the diabetes drug Ozempic that many instead use for weight-loss.

So, Novo Nordisk targets two large, growing and related markets of:

  • Diabetes
  • Obesity

They announced their full year 2023 results:

  • Adjusted sales: +36%
    • GLP-1 (Ozempic and others): +52%
      • Of which Ozempic: +66%
    • Insulin: -6%
    • Obesity Care (Wegovy): +154%
      • Of which Wegovy: +420%
        • Note that this growth is off of a low base, but still.

Novo Nordisk share price appreciation:

  • 1yr: +64%
  • 5yr: 388%
  • 24yrs: 7,728%

Electric Vehicles

  • In Norway, over 82% of new cars sold were electric in 2023 (VisitNorway).
  • Government is pushing EV adoption via:
    • Subsidies
    • Allowing EVs to use bus lanes.
    • Cheaper parking
    • Higher taxes on ICE (Internal Combustion Engines)
  • By 2025 Norway will ban the sale of new gasoline cars.

US New Business Openings: Growing

According to Yelp:

  • New business openings in 2023 were up 20% over 2022.
    • They exceeded those of pre-COVID in every state in the US.
    • The highest category of new business openings was Home Services.
      • Yelp speculates that this may be due to the fact that many people are effectively locked into their home with very low mortgage rates that would reset higher if they moved.
      • Growth of business in sub-categories of Home Services:
        • Wallpapering: +116%
        • Carpenters: +54%
        • Masonry and concrete: +40%
      • Sub-categories that saw falling new businesses:
        • Vehicle shipping: -39%
        • Packing supplies: -25%
        • Mortgage brokers: -16%
        • Mortgage lenders: -8%
    • Travel agents were up 52%

Drink-Up

According to Gallop, the percentage of the US population that drinks alcohol has remained fairly stable in the low 60% range since the late 1980s.

  • It peaked in 1976-1978 at 71%.
  • Yet when asked if drinking has ever been a problem in their family, the number has increased:
    • 1978 (peak consumption): 22%.
    • 2023: 30%

Drinking Frequency:

  • Drink every day: 5%
    • PM: Guilty.
  • Never drink: 30%
    • PM: Seriously?
  • Only on special occasions: 33%
    • PM: Yeh right.
  • A few times a week: 13%
  • Once a week: 10%
  • Less than once a week: 9%

The poll also shows that when asked the last time they had an alcoholic drink, 32% said they had one within the last 24 hours.

  • PM: I’m not sure this math works.
    • 63% of people don’t drink at all or only on special occasions.
    • Another 19% drink once a week or less
    • That’s a total of 82% of people.
    • So, we know that the 5% of people who drink every day had a drink within the last 24 hours.
      • PM: Guilty.
    • If we then assume that all of the people who drink a few times a week just happened to have had a drink the day before that still only brings the total up to 18% i.e. far short of the 32% of people who said they had a drink the day before.
    • Must have been a lot of people who drink once a week or less who just happened to have a drink the day before.
      • Either that or there were a lot of special occasions.
      • Or someone’s lying.

PM: This reminds me of a statistic I saw years ago.

  • I can’t remember the exact numbers, but it was something along these lines.
  • Canadians were polled to see what percentage of them flossed every day.
    • The poll results were, say, 20%.
    • Yet, based on the total amount of dental floss sold in the country in a year, no more than 10% could have been flossing every day.
    • You gotta love this stuff.

Alcohol Consumption

According to Wikipedia, the per capita consumption in liters of pure alcohol by those 15yrs or older in 2016:

  • No. 1 Moldova: 15.2
  • No. 2 Lithuania: 15.0
  • No. 3 Czech Republic: 14.4
  • No. 5: Germany: 13.4
  • No. 7: Ireland: 13.0
  • No. 24: UK: 11.4
  • No. 45: US:  9.8

There are 33.8 ounces in one liter.

  • One standard drink is considered around 0.6 ounces of alcohol.
    • Beer is 12 ounces with 5% alcohol = 0.6 ounces.
    • Wine is 5 ounces with 12% alcohol = 0.6 ounces.

So in the US, if every person drank every day, it would equate to 1.5 drinks per person a day.

US Jobs Growth: Driven By Foreign Born Workers

Number of native-born workers (FRED) vs. foreign born workers (FRED)

Pre-COVID:

Native-born:

  • Pre-COVID: 130,320,000
  • Jan 2024: 129,807,000
    • Down: 513,000

Foreign-born:

  • Pre-COVID: 27,697,000
  • Jan 2024: 29,842,000
    • Up 2,145,000

Credit Card Delinquencies

According to the Philadelphia Fed.

  • “All stages of delinquency rates now exceed pre-pandemic level for the first time and are approaching series highs since 2012.”
    • That is, balances with payments past due 30 days, 60 days and 90 days are all highest in over ten years.

Company results:

Amazon 4Q/23 Results:

  • 13: Lucky For Some
  • Adjusted sales: +13%
    • North America: 13%
    • International: 13%
    • Amazon Web Services (AWS): 13%
  • The company expects 8-13% sales growth for 1Q/24.

This year, Amazon will offer on-line sales of Hyundai cars.

They are expanding their Prime Air drone deliveries to more regions.

  • Prime Air delivers packages weighing 5 pounds or less in one hour or less.

Amazon Prime is now showing advertisements.

  • If you want the ad-free version, you’ll have to pay an extra $3 per month.
  • Amazon said they need the advertising revenue to create more content.
    • It seems the $37 billion they made last year in operating income is not enough.

Microsoft: Strong Everywhere Except Devices

Microsoft 2Q/24 Results

  • Adjusted sales: +16%
    • Productivity and Business Processes: +12%
      • Office Commercial: +13%
      • Office Consumer: +4%
      • LinkedIn: +8%
      • Dynamics products: +19%
    • Intelligent Cloud: +19%
    • More Personal Computing: 18%
      • Windows: 9%
      • Devices: -10%
      • Xbox: 60%
      • Search and news advertising: 7%

Apple

Sales growth: +2%

  • US: 2.3%
  • Europe: 9.8%
  • Greater China: -12.9%
  • Japan: 15.0%
  • Rest of Asia Pacific: 6.6%

Their installed base of active devices now exceeds 2.2 billion.

Housing: Supply Is Not The Problem

In a Globe and Mail opinion piece by Kerry Gold, she cites economist David Williams:

  • Price increase (adjusted for inflation) of houses in Vancouver from 2016 to 2021:
    • New Homes: 8%
    • Existing homes: 46%
  • He points out that the resale market is significantly larger than the new home market and so the supply of housing is relatively fixed or increasing slowly over time.
    • Therefore, the ridiculous surge in home prices over the last number of years is not about supply, but about demand.
      • Demand caused by government stimulus.
      • In the last three years, he points out that Canada has added $450 billion in mortgage credit.
    • PM: Of course, the surge in home prices is also a result of central banks taking interest rates down to zero in order to drive asset prices higher because they believe that a crackpot economic doctrine of a wealth effect is good for the economy.
      • It’s not.
        • It’s good for asset holders.
        • It’s really bad for everyone else.

Financial Ructions

A court in Hong Kong has ordered the liquidation of troubled Chinese property firm Evergrande.

  • The company has over $300 billion in debt.
  • Here is the price progression of their June 2025 8.75% bond issue of $4.68 billion:
    • Dec 2017: 104 cents on the dollar
    • Feb 2024: 1.1 cents on the dollar

Want Some Whine With That Cheese?

The FT reports that Australian wine maker Accolade has been suffering from lower wine prices in Australia caused by tariffs imposed on wine by China.

  • Bulk wine prices are down 40%.
  • With debt 17x greater than their profit (EBITDA).
  • They believe that the debt of Accolade was recently bought by Bain from Carlyle at 40 cents on the dollar.

US Job Numbers:

Each month the US government releases jobs numbers according to two different surveys.  See in-depth description ‘here’:

  1. Establishment or Payroll Survey
    • Survey of 119,000 businesses and government agencies.
    • If a person holds more than one job it counts as two jobs.
      • I.e. it measures the number of jobs.
  2. Household Survey
    • Survey of 60,000 households.
    • If a person holds more than one job it counts as one job.
      • I.e. it measures the number of people who are employed.
  • So my understanding is that if an increasing number of people have more than one job the Establishment Survey will show employment rising faster than the Household Survey would indicate.

A private company called ADP also publishes a monthly report.

  • They handle payroll for around a fifth of “privately-employed” US workers.

Job growth for January:

  • Establishment Survey: Up 353,000
  • Household Survey: Down 31,000
  • ADP: 158,000

Job growth for 2023:

  • Establishment Survey: 2.8 million
  • Household Survey: 1.0 million

Establishment Survey

  • Oct: 105,000
  • Nov: 199,000
  • Dec: 333,000
  • Jan: 353,000
    • Government jobs were up 36,000
      • Monthly average of 57,000 in 2023.
        • 684,000 new government jobs for the year.
        • According to Zip Recruiter, the average salary for a US government employee is $62,000.
    • $106,000 for a Federal government worker.
      • Assuming $50,000 salary per new employee that equates to $34.2 billion.

Average weekly hours worked: 34.1 hours.

  • Down:
    • 0.2 hours from December
    • 0.5 hours from last year.
  • Note that the last time the average weekly hours worked was this low was:
    • Early 2010 i.e. coming out of the Great Financial Crisis recession.
    • COVID recession.
    • See FRED chart ‘here.’
    • Since 2006 the weekly hours worked has only fallen this much or more month-over-month around 5% of the time.

Household Survey

Number of jobs:

  • Nov: 161,866,000
  • Dec: 161,183,000
    • Down: 683,000
  • Jan:161,152
    • Down: 31,000
    • But still up 1,000,000 from January 2023.

The US ADP National Employment Report:

Jobs created in the private sector:

  • Nov: 103,000
  • Dec: 158,000
    • Only 5% were goods-producing jobs
      • 95% service-producing.
  • Jan: 107,000
    • Goods-producing: 30,000
    • Service-providing: 77,000

Pay increases for job stayers:

  • Nov: 5.6%
  • Dec: 5.4%
  • Jan: 5.2% (7.2% for job changers)

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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