In the last year the gallon price of diesel has fallen from $4.50 to $2.45.
Last week we noted that J.B. Hunt was calling the situation a freight recession. Often the obvious is in plain sight, one just needs to observe it. Here is a sample of headlines just this week.
Google Posts 2nd straight Fall in Ad Revenue – MSFT Growth is Muted – GAP Cuts Hundreds of Corporate Jobs – 3M Sales Slide – UPS Gives Gloomy View (remember the Transport Index leads) – Stocks Aren’t Close to Cheap – Economy Cools – Intel Suffered Its Largest Ever Quarterly Loss
And yes, I know, the DJIA posted its largest gain Thursday since January – a hefty 524 points. The usual suspects were the source of the rally. Every one of the 17 social media and tech stocks on my stock charts page gained ground. And the averages weight those stocks to more influence the average. Facebook Meta jumped 14% and AMZN added 4.6%. Recall that eight stocks make up half the total capitalization of the SPX.
Here is a big picture view to keep in mind, from 1981 to 2020, interest rates fell. Mortgages fell from 14% to less than 3%. If you were borrowing to finance real estate holding and well your plan was not quite working, every three or four years you could re-finance at a lower rate. That is no longer the case. Mortgage rates in the last two years jumped from 3.5% to 7%. In addition, COVID/work from home, upended the commercial real estate market. Last week we noted Houston has 25% vacancy rate. San Francisco has a 30% vacancy rate.
Here is what that means. California Street in San Francisco is Wall Street West. Rents run $75 per square foot per year, but then again, the restaurants are fabulous. One 22 story building was valued at $300M just four years ago. Now with lots of empty space, it may only fetch $60M, a drop of 80%. This is the same thing that happened as we entered the 1930s Depression.
First Republic Bank shares have dropped from $125 to less than $10 in the wake of the Silicon Valley Bank collapse. These air pocket drops are early warning indicators of a deflation effect amid worries about overall inflation.
Last week we reported crude oil was filling that $4 gap after the Saudis and Russia announced production cuts. The 200 week moving average is $66.81. and price has fallen to $74.76. I am guessing this level holds, summer driving season is around the corner. ExxonMobil remains strong at $116.
We are entering seasonal weakness for stocks, be cautious.
