Another tough week for clients, so I addressed the concern around a looming recession. I’ve even spoken to some clients who think we are already in a recession.
The objective was to hypothesize how bad it could get if and when we dip into a recession. Reach out if you’d like a copy to send to your clients.
The consumer is fine (for now)
Lots of panic this week over Walmart and Target earnings. Basically, people are spending more when they shop but are taking fewer trips to stores. That’s the textbook effect of inflation on consumer spending.
But I don’t see this as binary either. Yes, inflation is probably starting to impact spending, but I’m skeptical of just how much. For example, dig deeper into Target’s earnings, and you’ll see that electronics and furniture were down, but interestingly luggage rose 50% and kids toys surged.
This suggests that consumers are normalizing their spending – shifting back to services from goods. It makes complete sense that people aren’t buying TVs right now. They bought them last year when the government handed over their credit card. This year, they are buying luggage and toys because everyone wants to travel and go back to wasting money on 1st and 2nd birthday parties.
To be clear, I’m not trying to put lipstick on a pig. All I’m saying is the headline data rarely tells the full story. Right now, I see this more of a normalization of spending than inflation starting to push consumers to demand destruction.
Gun to the back of my head and I’d say it’s 80/20 right now (normalization/inflation). Yes, inflation is having an impact in some areas but not widespread. A year from now may be a different story.
As a reminder…
My longstanding view on Environmental, Social, and Governance investing, or ESG, is that it’s a scam and makes zero sense through virtually any investment lens. I’ve written about this ad nauseum, but the short version is that:
- ESG investing has zero effect on a company’s cost of capital, revenues, CEO pay, etc. None, zilch.
- If investors are concerned about stuff like climate change, they should be doing the EXACT OPPOSITE of ESG investing. In that, they should be buying up stock of companies they dislike and forcing their way on the board like Engine No. 1 did to Exxon.
- A better way to support a cause is to take the gains from investing and donate them to a charity that is actually making a change. You’ll also get a tax write off.
- This job is already hard enough so why voluntarily erect additional hurdles that, as explained above, provide zero value?
- Just for fun, compare the expense ratios of ESG ETFs versus those that don’t use an ESG screen. Reach out over the weekend if you see a pattern emerge.
I know this sounds harsh but it’s actually meant to help. And to be fair, I see these anti-woke ETFs the same way. Why would anyone ever want to mix politics with investing? When has anything, anywhere, at any time been improved when politics were mixed in?
Tesla got the boot
That little rant was meant to tee up the funniest story of the week. The number one electric car maker on the planet was just removed from the S&P Global ESG Index. You can’t make this stuff up.
The justification has to do with workplace conditions and Elon’s success at killing union drives. Oh and it looks like they got dinged because their cars keep catching on fire.
But I’m here to defend Tesla by focusing on what remains in the index:
- Exxon!!! I’m not joking. It’s #8 (see below). How, how, how, how, how are they not only in the index but a top 10 holding?!?!
- Apple: There are hundreds of articles circling the media about Apple and their reliance on inhumane working conditions in parts of China. Apple is #1 in the index.
- United Health: I’ve got nothing against UNH (or apple or any other stock for that matter), but how is a managed care provider viewed as ESG friendly? Sure, they may not be polluting, but come on. There’s a reason why medical inflation was like triple broad inflation for the last two decades. UNH is #6.
- Coke, Pepsi, and McDonalds: Same question here – under what lens are these ESG friendly? I have to know.
The lesson learned here is that 50% of these indices are a bunch of people in a room arbitrarily picking stocks. The other 50% uses a computer to pick the stock. Do we really want to tie our clients’ financial futures to this stuff?
Enjoy the weekend…