🟪 Friday Do Everything Charts

Markets traded dutifully lower on Wednesday after Chair Powell told us not to expect a rate cut in March — rate cuts are good, so no rate cut must be bad, right?

This issue is brought to you by:

"Technology lets you do more and more with less and less until eventually you can do everything with nothing."

- Buckminster Fuller

Friday Do Everything Charts

Markets traded dutifully lower on Wednesday after Chair Powell told us not to expect a rate cut in March — rate cuts are good, so no rate cut must be bad, right?

But equities finished the week at another all-time high, because there are more important things than whether Fed funds are 25 bips this way or that, many of which have been on prominent display.

Just this week, companies reported booming profits, employment surprised to the upside, science advanced, common sense prevailed and babies trained AI.

How could equities not be at all-time highs?

The cynical view of markets is that stocks go up when things are bad (because the Fed artificially inflates prices). 

The naive view of markets is that stocks go up when things are good (because things are good).

And things are pretty good, as even Chair Powell had to admit on Wednesday: "This is a good situation. Let’s be honest. This is a good economy," he conceded.

It’s often bad news when the Fed Chair says things are good, but we’re securely in the naive phase of markets now, so good news is good news.

Could the news get even better?

It could! 

AI may already have us on the path towards doing everything with nothing, in which case, things could get a lot better.

It won’t happen fast, of course.

In reporting booming profits this week, Microsoft’s CEO noted that the company’s customers (i.e., everyone) are mostly using AI for making pictures (5 billion of them!) and "summarization." 

Summarizing Zoom calls and email threads hardly seems world-changing.

But to appreciate where we might be going, we have to think long-term — like this church in Germany where a 639-year-long organ piece is being performed. 

By the time it finishes, I expect we will indeed be doing everything with nothing.

(Assuming humans are still around to do things, that is.)

The year 2663 is probably a little beyond your investment horizon, of course, so we’ll have to keep tabs on what’s happening now, too.

So let’s check the charts.

We’re gonna need a bigger chart:

There’s meant to be a dot at the top of that green line, but the Atlanta Fed’s chart can’t quite accommodate its current Q1 forecast of 4.3% — GDP growth is literally off the charts.

We’ve got a bigger job market:

The job market is accelerating just as it was meant to be sputtering. The US added 353,000 jobs in December, according to this morning’s data (vs. 185,000 expected). Even better, the previous month’s number was revised up from a good 216,000 to a great 333,000.

Also accelerating:

At 0.6%, US average hourly earnings rose twice as fast as expected in January. This pushes the three-month average up to an annual rate of 5.4% — far above inflation and maybe even re-accelerating. 

Oh, to be young again:

Wages continue to rise fastest for Gen-Z and slower for each preceding generation.

Oh, to be young and in manufacturing:

The US added a robust 23,000 factory jobs in January, and if this chart on manufacturing investment from Nathaniel Bullard is any indication, there are a lot more coming.

Can we have it both ways?

GDP, jobs and wages are rising, but inflation is falling. This week’s data eliminated any possibility the Fed might cut rates in March, but good news on inflation may soon force their hand, even if the economy continues to boom.

Not a bubble?

The never-ending rally in the Magnificent 7 is generally seen as a sign that investors are behaving increasingly irrationally. But this chart from Koyfin showing the correlation of Nvidia’s stock price to its free cash flow suggests investors are simply acknowledging the good news. US Mega Tech is trading at an expensive, but not ridiculous 22x FCF.

How’d that work out?

I’m stretching the definition of "chart" here, but I love this Bloomberg headline from Oct. 17, 2022

A full 15 months later, recession seems less likely than ever.

I take that as a reminder to think in probabilities, not certainties, and to expect the unexpected — like doing everything with nothing.

Have a great weekend, do-it-all readers.

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