Post 240

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.



Food and Booze Again To The Rescue

Total retail sales in the US grew from January to February: +0.6%

  • The decline in January was revised lower:
    • Originally: -0.8%
    • Revised: -1.1%
  • February sales vs. the same month last year: +1.5%
  • As a reminder, these numbers are not adjusted for inflation, which in February was 3.2%.
    • So, people are paying more money but buying less stuff.
  • Biggest year-over-year movers:
    • Up:
      • Non-store retailers: +6.4%
      • Food and drinking places: +6.3%
    • Down:
      • Furniture stores: -10.1%
      • Building materials and garden: -6.1%
      • Gas stations: -4.5%
      • Department stores: -4.4%
      • Sporting goods, hobbies: -3.0%


In the last three months of 2023:

  • Transactions processed: 57.5 billion.
    • Up 9% from the previous year.
    • That’s over 7,200 transactions per second around the clock.
      • PM: New target for my wife Cynne.
    • Concurs with the record credit card balances outstanding: $1 trillion+ (CNBC).
      • Credit card balances to GDP:
        • 2007: 2.3%
        • 2023: 3.7%


  • The world’s third largest retailer.
  • 875 warehouse stores.
  • Membership:
    • 73.4 million households

2Q/2024 Results

  • Adjusted sales: +5.8%
    • US: 4.8%
    • Canada: 9.0%
    • Other International: 8.2%
  • Membership fees were up 8%.
    • More members are signing up.
    • Upgrades made to Executive Membership
      • Executive members are almost half of total members.
    • Higher renewal rates i.e. 90.5%
      • A higher percentage of members renewing their membership.
  • Price inflation was 0% in the three-month period.
    • Benefitting from:
      • Lower freight costs.
      • Lower commodity prices.
    • They have been lowering prices on many items.
    • Their strategy is to always be the first to lower prices.


Disney 1Q/2024 Results:

  • Sales growth: 0%
  • Some highlights:
    • Disney+ core subscribers fell to 111.3 million
      • Down 1%
      • Impacting the decline in subscribers is likely that the amount Disney makes from subscribers in the US and Canada increased 9% from the previous year i.e. price hikes.
    • Sales for their sports (ESPN) division: +1%
      • A fall in paid subscribers of 3% was more than off-set by an increase in revenue per subscriber of 14% i.e. price hikes.
    • Sales were down at Price Gouging World Walt Disney World due to a lower number of visitors.
      • Disney partially off-set the volume decline with higher prices.
    • Disney Cruises grew due to more passengers and higher prices.
    • Consumer products sales were up 14%.
    • Spider Man contributed to the strong growth.

Can You Spare A Dollar?

Dollar stores in the US which sell a lot of groceries are suffering due to reductions in Food Stamp benefits, which had previously been increased during COVID.

  • In Florida, for a family of 5 the household income must be below $70,280 in order to be eligible to receive food stamps.
    • At a $70,000 income, the family could be eligible to receive up to $1,155 per month.

Real Estate Commissions

The New York Times reports that the National Association of Realtors (N.A.R) has settled a number of lawsuits and will pay $418 million.

  • The biggest impact is on commissions.
  • When people sell a home they typically pay a 5-6% commission to their agent who then shares it with the buyer’s agent.
  • The lawsuit was brought forward by home sellers who argued that they shouldn’t be paying a commission that ultimately gets shared with the buyer’s agent.
    • And that the buyers should have to negotiate their own commission agreement with their own broker.
  • One potential outcome is that realtors will now start advertising their fees which will make the market more competitive.
  • TD Cowen expects real estate broker commissions to fall 25-50%.
    • PM: From 6% down to 3%-4.5%
  • So, if TD Cowen is right, then the commission for a $1 million home:
    • Previously: $60,000
    • Soon: $30,000-$45,000
  • Housing experts expect this to result in lower home prices.
    • PM: But if it’s due to lower commissions then they will only be 2.5-3% lower.
      • And that’s if all of the savings go to the buyer.
  • For comparison, in the UK, it seems that commissions are paid by both seller and purchaser.
    • Seller’s agent average commission in 2024 ‘here’: 1.42%
    • Buyer’s agent average fee is between 1-3% (here) so assume 1.5%.
    • Total: 2.92%

US Manufacturing

The ISM® Manufacturing PMI® index has been in contraction territory for 15 straight months.

  • Order backlogs have been falling for 16 straight months.
  • And the employment index fell for the fourth month in a row.
  • PM: Last year layoffs were more about Technology and Finance.
    • Perhaps layoffs are expanding into the broader economy.
  • PM: We see some anecdotal evidence with sales of some of last year’s highflyers coming down to earth.

Quarterly sales for Deere:

 AgricultureSmall Ag & TurfConstruction and ForestryTotal
  • Even Caterpillar sales have come off, although still growing:
    • Sales in North America by quarter:
      • 1Q/2023: +30%
      • 2Q/2023: +32%
      • 3Q/2023: +25%
      • 4Q/2023: +11%

The Great Fall Of China

Prices for second hand homes in China’s most developed cities are falling.

Chocolate Inflation

Chocolates comes from the cocoa bean which comes from the cacao tree:

  • 81% of them are in West Africa.
    • Ivory Coast
    • Ghana
    • Cameroon
    • Nigeria
  • The region is suffering from weather related low crop yields.

Cocoa Prices per metric ton (CNBC)

  • March 2022: $2,537
  • March 2023: $8,140
    • Up: 220%

My post from July 2023:

You’re Ghana Pay More For Chocolate

Cocoa prices are up 32% this year and at their highest level in four decades, due to:

  • Global shortfall in production
  • Bad weather in West Africa
  • Strong demand
  • Demand this season will exceed production by 142,000 metric tons.
    • Equivalent to 355 million pounds of chocolate bars.
    • But there are over a million tons in stock.

The Ivory Coast and Ghana produce around 60% of the world’s cocoa beans.

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

Normal For Longer?

In an opinion piece in the FT, Katie Martin says that:

  • Market should get used to interest rates being “higher for longer.”
  • And that higher interest rates are a good thing because they reflect strength in the underlying economy.
  • PM: What they reflect is out of control deficit spending and an explosion in the money supply that drove inflation to levels not seen in 40 years.
  • PM: Rates at these “normal” levels will slowly continue to turn the screws as more and more debts mature and get renewed at significantly higher rates.
  • PM: Knowing when things might unravel and to what degree is impossible.

As I Was Saying

  • According to S&P Global:
    • The number of companies globally that have defaulted on their debt so far this year is the highest since 2010.
      • Companies particularly hit were those related to consumer spending.
    • They also note that the US speculative-grade default rate is rising:
      • Dec 2023: 4.5%
      • 10-year average: 3.1%
      • Although defaults so far this year are lower than last year (here).

Bond, Junk Bond

China real estate developer Country Garden.

  • The price of their 2030 5.625% bond:
    • March 2021: 109
    • March 2024: 7.7

No Money “In” The Market

In a WSJ article Telis Demos discusses why the record levels of money market funds ($6 trillion+) in the US should not be looked at as cash on the sidelines waiting to enter the stock market.

  • PM: I have written about this before.
    • Let’s say you want to buy $10,000 worth of stocks.
    • You obtain the cash by selling your money market funds and the total of money market funds goes down by $10,000.
    • You then buy the $10,000 worth of stocks.
    • The seller of the stocks receives your $10,000 and needs to find a home for that money and buys money market funds.
      • Money market funds go back up by $10,000.
    • Take it to the extreme and assume all of that $6 trillion of money market funds was used to buy stocks.
      • The sellers of the stocks would receive $6 trillion and possibly put right back into money market funds.
      • “Hey look, there’s another $6 trillion waiting to come back in the market.”
    • There is no money “in” the market, it simply changes hands.
    • Whether that $6 trillion+ of money is sitting in money market funds, or bank accounts the money will still exist.
      • Right now, much of it is gravitating to money market funds because of the superior return offered compared to bank accounts and the relatively low risk of money market funds.
        • Meanwhile uninsured depositors may worry about the safety of their deposits in regional banks.
        • However, as we saw last year, the Fed would likely come to the moral hazard rescue once again.
    • So, most of that “wall of cash” is likely not destined for the stock market.
    • On the other hand, what “can” drive stock markets higher is an increase in the money supply.
      • Which started growing again the week of Oct 23, 2023: M2
      • That was exactly the same week that markets stopped falling from their August highs.
        • And are now up 24% in less than five months.

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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