We’ve Only Just Begun, Part I

Before the risin’ sun, we fly

So many roads to choose

We’ll start out walkin’ and learn to run

And yes, we’ve just begun

The song was originally written for a California savings bank commercial. Richard Carpenter heard the tune and immediately knew it would be a perfect platform to showcase his sister Karen’s amazing alto. Released 27 days before I was born, “We’ve Only Just Begun” catapulted The Carpenters from a one hit “Close to You” wonder to vinyl royalty. Their second monster hit is what love songs are meant to be – idyllic melodies for every “first” — from a kiss to a slow dance to… Or, I might just be a sucker for the Grammy Song of the Year from the first year I graced this planet. Though music snobs mock the tune as saccharine superficiality, the truth – even for those who disdain – is “We’ve Only Just Begun” remains the musical standard bearer for the bell-bottom generation.

Mad Money’s Jim “Booyah” Cramer was 15 when the megahit was released. Forty-three years later, in 2013, he coined the term “FANG,” with reference to Facebook (at the time), Amazon, Netflix and Google (again, at the time). The foursome had only just begun a run for the ages that would gather acolytes like so many speckles of dust along the way. The acronym matured along the way, enfolding Apple in 2017 to become a rambunctious four-year old FAANG. Last year, FANGMAN marked the original FANG’s crossing into adolescence, incorporating (former) highflyer NVIDIA and the original tech stock, Microsoft.

If we had to guess, the tempestuous teenage years are off the table. Watching the Nasdaq fight the good fight — as determined BTFD traders tried to lift up their BFFs of nearly a decade, and lose – closing in the red…Well, let’s just say, it feels differently than it has for years.

After a raft of unequivocally awful macro data hit the wires in the space of hours, the only conclusion we could draw was that as bad as it’s been… it’s only just begun. In a first, QI will have to break up the data into two Feathers – Parts I & II of “We’ve Only Just Begun.”

The foreshadowing to Thursday’s data arrived in a New York Times article shared with me Wednesday night at my first post-pandemic reunion with dear friend David Rosenberg. The rendezvous point was Carderos on the water in beautiful Vancouver. The article he flagged was “What Higher Interest Rates Could Mean for Jobs,” which quoted Challenger, Gray & Christmas’ Andy Challenger. The son of John, who founded the firm we’ve long admired, posited that, “We’re starting to gear up for what we anticipate to be a normalization where companies start to let people go again.” How very diplomatic a fashion to slap down Federal Reserve Chair Jerome Powell’s staunch insistence that the U.S. economy is “very strong” based on its overheated labor market.

Challenger’s prediction also thwarts the politicos who imagine Amazon’s layoffs to be contained to a subsector of companies that over-hired in the pandemic’s wake. Today’s left chart clearly indicates an inflection point this past March. As it so happens, March 19th marked the compressed cycle’s low in initial jobless claims. Since that 166,000 low, claims have steadily marched up to 218,000. As we preach, starting points matter. While off a low base, the 31.3% delta cannot be dismissed. As for any notion of ‘containment,’ the sole state that’s seen a year-over-year increase in claims is Kentucky, one of the country’s stalwart factory economies. Objectively, that signpost is a cyclically leading indicator, not an exception of convenience. More on the corroboration thereof in Monday’s Feather.

As for any desperate denials, all one needs see is the veritable crash in CEO Confidence (yellow line). For years, QI has been tracking the spread between the confidence of chief executives with that of U.S. households, as gauged by the University of Michigan twice a month (green line). If you prefer, the gap represents the differences in perceptions of the future between bosses and their employees. In October 2019, we observed a record divide between the two cohorts in The Outlook Gap. Back then, the stars were in alignment; the C-Suite occupants were wise to the slowing economy before their underlings.

In the words of QI’s Dr. Gates: “CEOs usually have more acute clairvoyance when it comes to a late-cycle environment that could land the economy in recession. The post-COVID 19 episode has, however, proven to be just the opposite. Consumers felt a bigger squeeze from inflation because they are “price takers.” Businesses, on the other hand, are “price setters.” In turn, CEO expectations diverged wildly from those of U.S. households. That’s no longer the case — the two have converged, both at levels that signal recession.”

FANGMAN fascination runs deep. We get that unlike the dotbombs of 2000, these companies have earned their keep honestly, with revenues, cash flows, and buybacks. But as we concluded of farmland in this week’s Quill, an attractive asset does not a solid investment make when valuations run wild. The sell-side has yet to trim its earnings estimates; kicking and screaming will be required. We expect CEOs, 61% of whom expect the economy to slow, up from 35% in the first quarter, to expedite the shift among the stubborn. Chieftains will deliver the message that it’s only just begun.


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