Post 249

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

  • The US economy seems to be slowing.
    • While prices are rising again.
  • US savings rates continue to fall.
    • Credit card spending continues to rise.
  • Pepsi continues to sacrifice volumes on the altar of price increases.
    • Volume falling the most in North America.
  • JetBlue ticket prices are nowhere near as low as its share price.
  • Hilton Worldwide:
    • A little history.
    • Revenue per room:
      • Luxury hotels: Growing
      • Discount hotels: Falling
  • Hasbro sales continue to fall.
  • Americans continue to rack up credit card debt.
    • Just when interest rates on credit card balances are at all-time highs.
  • Shipping volumes with UPS and Federal Express are still falling.
  • Caterpillar sales are flat and growth continues to decline sequentially in North America.
  • Deere sales declines accelerating.
  • Facebook sales booming
  • So too Microsoft,
    • But sales of their Surface laptop are still falling.
  • Financial Ructions:
    • Of course we look at the imploding Japanese Yen.
    • The country which has increased its holdings of US debt the most over the last 12 months:
      • Canada

News

Slowing Economy?

US GDP growth by quarter (over the previous quarter) (BEA)

  • 3Q: 4.9%
  • 4Q: 3.4%
  • 1Q: 1.6%

Personal consumption spending on goods:

  • 3Q: +4.9%
  • 4Q: +3.0%
  • 1Q: -0.4%
    • Durable goods: -1.2%

Rising Prices?

Personal Consumption Expenditures Price (PCE) Index (BEA)

  • Jan: 2.5%
  • Feb: 2.5%
  • Mar: 2.7%
    • Goods: 0.1%
    • Services: 4.0%

Note that declining energy prices had helped lower inflation for five straight months.

  • But flipped in March to contribute to higher prices.

Core PCE excluding food and energy:

  • Jan: 2.9%
  • Feb: 2.8%
  • Mar: 2.8%

Personal Savings Rate (savings as a percent of after-tax income):

  • Jan: 4.1%
  • Feb: 3.6%
  • Mar: 3.2%

PM: And credit card spending rising: see below.

Price Over Volume

Pepsi

1Q/2024 Results

  • Adjusted sales: +3.0%
    • Price: +5%
    • Volume: -2%
  • Frito Lay North America:
    • Price: +3%
    • Volume: -2%
  • Beverages North America:
    • Price: +6%
    • Volume: -5%
  • Europe:
    • Price: +7%
    • Volume: +3%

Kimberly-Clark

1Q/2024 Results:

  • Adjusted sales: +6%
    • Price: +4%
    • Volume: +1%

From my post in April 2023

Kimberly-Clark

  • Founded in 1872 in Wisconsin and used to operate paper mills.
  • Some of their brands are:
    • Huggies
    • Pull-Ups
    • Depend
    • Kleenex
    • Cottonelle
    • Scott
    • Kotex
    • Viva
  • Every day nearly a quarter of the world’s population uses their products (Manufacturing-Today).

Feeling Blue

JetBlue Airways is a low-cost airline founded in New York.

  • Started flying out of JFK in the year 2000.
  • The founders originally wanted to call the airline Taxi.
  • They have 291 planes:
    • Airbus A220: 29
    • Airbus: A320: 127
    • Airbus: A321: 97
    • Embraer ERJ-190 (Brazilian manufacturer): 38
  • 1Q/2024 Results
    • Total sales: -5.1%
      • Number of passengers: -6.0%
      • Number of flights: -8.9%
      • Average ticket price: $214.39
        • +0.1%
      • The company has also been impacted by inspections of their Pratt and Whitney Houston we have a problem engines.
        • It’s expected to impact capacity in 2024 by around 3.5%.
    • Fuel cost per gallon: -17.3%
    • Salaries, wages and benefits: +11%
  •  The company expects its sales to be negative for the full year.

Share price performance:

  • From peak in 2003: -81%
  • From peak in 2015: -78%
  • From pre-COVID: -72%

Hilton Worldwide

It owns 23 different brands including:

  • Waldorf Astoria
  • Conrad
  • Tapestry
  • Hilton
  • DoubleTree
  • Embassy Suites
  • Hilton Garden Inn
  • Hampton

A brief history

  • 1919: Conrad Hilton started the business in Texas.
  • 1927: Installed air conditioning in its public rooms.
    • Air conditioning was invented in 1902.
    • PM: Reminds me of the old joke – “If you’re nostalgic for the way things used to be just turn off the air conditioner.”
  • 1943: Bought the Plaza in New York City.
    • Originally opened in 1907.
  • 1947: The Roosevelt Hilton in New York City was the first hotel in the world to have TVs in guest rooms.
  • 1954: Bought the Waldorf Astoria
    • It was originally built in 1893.
    • Was razed to the ground in 1929 to make room for the Empire State Building.
  • 1964: Spun off its international hotels into a separate organization: Hilton International.
    • It was acquired by TWA (Trans World Airlines) in 1967.
    • For many years there were two separate hotel brands called Hilton: One international and one in the US.
  • 2005: Reacquired Hilton International.

Note that Hilton owns the Hilton hotel brand and very few of its properties.

Hilton hotels have featured in a number of movies Wikipedia:

  • 2001: A Space Odyssey
  • 1971: Diamonds are Forever (Las Vegas Hilton)
  • 1992: The Bodyguard: Fontainebleau Hilton in Miami
  • 1995: Goldeneye: Langham Hilton in London
    • PM: I used to stay at this hotel back in the day.  They had a really cool lobby bar called the Chukka Bar.
    • It was filled with polo paraphernalia.
    • A polo match is divided into periods of time called chukkas.
      • There are 4-6 chukkas per match.
      • Each chukka is 7 minutes long.
      • PM: Sounds like a good drinking game.
  • 1999: The Insider at the Seelbach Hilton in Louisville, Kentucky.
    • 96% on Rotten Tomatoes: Holy smokes!
  • 2006: New York Hilton.
    • Spider-Man 3
    • Clayton
    • American Gangster

1Q/2024 Results

  • Sales were up 12.2%
  • RevPAR means revenue per available room.
    • +2.0%
    • By region:
      • US: -0.4%
      • Americas (excl. US): +7.3%
      • Europe: +9.7%
      • Middle East & Africa: +14.8%
      • Asia Pacific: +7.9%
    • By brand:
      • Waldorf Astoria: +3.0%
      • Conrad: +14.6%
      • LXR Hotels: +8.8%
      • Hilton Garden Inn: -0.7%
      • Hampton: -1.7%
      • Tru by Hilton: -1.2%
      • Homewood Suites: -1.0%
      • Home2 Suites: -1.1%
    • Expected to increase 2-4% for all of 2024.

Toys Out The Pram

Hasbro 1Q/2024 Results

  • Adjusted sales: -9%.
  • Consumer Products is their largest division and sales fell 20.6%.
    • North America: -14%
    • Europe: -34%
    • Asia Pacific: -23%
    • Latin America: -19%

From my post of October 2023:

Hasbro is one of the world’s largest toy/game manufacturers, which was founded in 1923 and made pencil boxes before switching to toys in the 1940s.

  • Mr. Potato Head was the first toy advertised on TV: 1952
  • It launched the first action figure GI Joe in 1964
  • Some of Hasbro’s other brands include:
    • Easy-Bake
    • Marvel
    • My Little Pony
    • Nerf
    • Play-Doh
    • Power Rangers
    • Monopoly
    • Twister
    • Tonka.
  • And owns the trademarks Kenner, Milton Bradley and Parker Brothers.

Visa

2Q/2024 Results

  • Sales: +10%
  • Payments volume: +8%

Credit card outstanding balances in the US are over $1 trillion (FRED)

  • Pre-COVID: $852 billion
  • Apr 2024: $1.053 trillion
    • Up 24% (5.4% per annum).
  • Credit card rates (FRED):
    • Pre-COVID: 15.1%
    • Feb 2024: 21.6%
  • Annual interest paid on credit cards assuming above balances and rates:
    • Pre-COVID: $129 billion
    • 2024: $227 billion
      • Up 76%

UPS

1Q/2024 Results:

  • Sales: -5.2%
  • Volume decline by region:
    • US: -3.2%
    • International: -5.8%

Federal Express

3Q/2024 Results:

  • Sales: -2%
    • Total package revenue: 0%
      • US package: -2
    • Total Freight revenue: -12%
      • US: -10%
  • They cited a “difficult demand environment.”
  • They expect sales to fall for the full year.

Union Pacific Railroad

1Q/2024 Results:

  • Sales were flat compared to last year.
    • Growing:
      • Energy & specialised markets: +11%
      • Fertilizer: +8%
      • Food & refrigerated: +8%
      • Industrial chemicals & plastics: +7%
      • Automotive: +4%
    • Falling:
      • Coal & renewables: -23%
      • Metals & minerals: -4%
      • Intermodal: -6%
  • They cited “soft economic conditions.”

Caterpillar

1Q/2024 Results

  • Sales: 0%
    • Construction: -5%
    • Resource Industries: -7%
    • Energy & Transportation: +7%
    • Other segments: -2%
  • Sales by region:
    • North America: +7%
    • Latin America: +2%
    • Europe, Africa, Middle East: -17%
    • Asia Pacific: -5%
    • Sales in North America by quarter:
      • 1Q/2023: +30%
      • 2Q/2023: +32%
      • 3Q/2023: +25%
      • 4Q/2023: +11%
      • 1Q/2024: +7%

Oh Deere

Quarterly sales for Deere:

 AgricultureSmall Ag & TurfConstruction and ForestryTotal
4Q-2022+59%+26%+20%+37%
1Q-2023+55%+14%+26%+32%
2Q-2023+53%+16%+23%+30%
3Q-2023+12%+3%+14%+12%
4Q-2023-6%-13%+11%-1%
1Q-2024-7%-19%0%-4%

PM: Notice a trend?

Meta (owner of Facebook)

  • 1Q/2024 Results
    • Sales: +27%
      • Family daily active people: +7%
      • Ad impression: +20%
      • Average prices per ad: +6%
    • Advertising accounts for 97.7% of their total sales.
    • Employees:
      • Down 10% from last year.

Microsoft

3Q/2024 Results:

  • Sales: +17%
    • By category:
      • Office Commercial products: +12%
      • Office Consumer products: +4%
      • LinkedIn: +9%
      • Dynamics products: +17%
      • Server products and cloud services: +24%
      • Windows: +11%
      • Devices: -16%
        • Surface laptops, Xbox etc.
      • Xbox content and service revenue: +61%
      • Search and news advertising: +12%

Financial Ructions

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

Coming Home To Roost

Japanese Yen to the Dollar:

  • 1971: 357.4
  • 1985: 216.5
    • Plaza Accord struck to weaken the USD vs. other main currencies.
  • 1987: 153
    • Plaza Accord worked too well.
    • Struck the Louvre Accord to stop the USD depreciating.
      • A strong JPY was not good for the Honda Accord.
  • 2012: 76.34
    • Peak strength of Yen vs. USD
  • Feb 2020 (Pre-COVID): 108.12
  • Apr 2024: 157.4
    • The Yen has weakened vs. the USD by 51% in 12 years.

It was rumoured that the Japanese government recently intervened in currency markets and sold US dollars to support the Yen.

  • They have a lot to sell.

Largest holders of US Treasuries and year-over-year change:

  1. Japan: $1.168 trillion
    • +$87 billion
  2. China: $775 billion
    • -$74 billion
  3. UK: $701 billion
    • +$66 billion
  4. Luxembourg: $379 billion
    • +$52 billion
  5. Canada: $354 billion
    • +$118.5 billion
      • Up over 50%!

Total US debt held by foreigners: $7.965 trillion:

  • Up $637 billion from last year.
    • Canada accounted for almost 20% of the increase??
  • Foreigners hold approximately 30% of total US debt held by the public.

Key central bank rates:

  • US: 5.25-5.50%
  • Japan: 0-0.1%

Debt to GDP (IMF):

  • Japan: 261%
  • US: 126%
  • Sweden: 36%

Houston, we have a problem.

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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