The Financial Times recently reported that “Chinese consumers helped drive an unprecedented boom in the global luxury sector in recent years but a deepening slowdown in the crucial market is now taking its toll on some of the sector’s biggest names. Shares across the industry dropped this week after Dior owner LVMH, the world’s biggest luxury group, reported a fall in third-quarter sales on the back of weakening Chinese demand. Sales in LVMH’s core fashion and leather goods division - the industry bellwether that houses top brands including Louis Vuitton and Dior - fell 5 per cent, the first contraction since the start of the Covid-19 pandemic in 2020 and worse than consensus expectations.”
Entirely unrelated to above, Bloomberg reported that “Harley-Davidson Inc.’s motorcycle shipments fell in the latest quarter on lower overall demand and fewer sales of its highest-margin bikes, prompting a downward revision in its full-year forecast. The company trimmed its forecast for all of 2024, projecting motorcycle revenue down 14% to 16% and operating profit margins between 7.5% and 8.5%. It had previously projected a 5% to 9% decline in motorcycle revenue and a margin of 10.6% to 11.6% for the full year.”
Peter Berezin, the Chief Global Strategist and Director of Research at the Bank Credit Analyst (@bcaresearch, and @PeterBerezinBCA) recently asked the pertinent question: “Are earnings estimates fake news? Since December 2021, the S&P 500 has risen 25%, 12-month forward earnings estimate have risen 18%, operating earnings have risen 5%, but GAAP profits have increased less than 1%!”
The purpose of discussing the mediocre earnings outlook is to demonstrate that there is a clear dichotomy between what the exuberant strategists and the media are telling investors about future earnings, and the economic reality, which is poor. Furthermore, in view of a rather dismal global economic outlook, I stumbled across a fascinating note in The Kobeissi Letter, which read: “We are witnessing history: Today's rally puts the S&P 500 officially up +40% over the last 12 MONTHS. This is a larger 12-month gain than ANY annual return in the S&P 500 dating back to 1954. How did a generational rally occur during times of historic uncertainty?"
Easy to respond. Speculation is visible in just about every asset class, and US stocks as well as precious metals are selling at record prices because liquidity is plentiful. According to BofA Global Investment Strategy, “September 2024 is the biggest month of monetary easing since April 2020.”
According to the Biden Administration and its bureaucrats as well as the optimists on Wall Street the economy is strong. However, a closer analysis reveals a more somber picture. Retail sales have tended to surprise on the upside but we should not forget the large number of immigrants, which boosted the US population and unquestionably consumption at the same time. Furthermore, as Charlie Bilello observed, “US Retail Sales increased 1.4% over the last year but after adjusting for higher prices they were down 0.9%. Both of these numbers are well below the historical averages of +4.6% nominal and +2.0% real.”
Above, we looked at the luxury goods industry in order to find out about the true state of the global economy. A more reliable indicator of economic activity would be the results of companies that supply the world with staples such as Unilever, Nestle, and Starbucks, which just announced that it was suspending the 2025 guidance and that its same-store sales dropped by 7% in the quarter ending September 30th. [Traffic at its North American stores tumbled by 10%.]
It would seem to me that the price of gold is a far better barometer of price increases within the economy than the CPI. Measured in gold the S&P 500 Index topped out in real terms at the end of 2021 and it is at present no higher than in 2018. The global real economy is today about where it was in 2018/2019 or most likely down from that time.
The BofA Global FMS average cash level (as a percentage of Assets under Management - AUM) seems to be near record lows. In other words, global fund managers are extremely optimistic about the outlook for equities. This almost euphoric investment stance is also confirmed by the Euphoriameter, which is published by Topdown and stands at a record.
As I have maintained in recent reports, I am a believer that shortly a massive Economic and Financial Calamity could occur which would likely arise from current US Monetary Policies and Fiscal Deficits. This calamity would likely lead to Multiple Turning Points in Asset Markets! ***
The elevated reading of the Euphoriameter would suggest that far too many investors believe they have ther found the key to successful in trading in commodities, cryptos, stocks, etc. This reminds me of a quote by Joe Granville who opined that, “as soon as you think you've got the key to the stock market, they change the lock.”
Granville also thought that “If it's obvious, it's obviously wrong.”
I am enclosing with this report an essay by my friend Alex Story (@alexpstory) about Britain’s new Prime Minister Keith Starmer. It is a rather sobering read. In the UK, Alex Story writes for GBnews (www.gbnews.com).
Finally, my readers should have no illusions about the intentions of our governments and remember the words of Henry Hazlitt:
“The only way government bureaucrats know of keeping prosperity going is to inflate some more - to increase the deficit or to pump more money into the system,” and that, “The consequences of inflation are malinvestment, waste, a wanton redistribution of wealth and income, the growth of speculation and gambling, immorality and corruption, disillusionment, social resentment, discontent, upheaval and riots, bankruptcy, increased government controls, and eventual collapse.”
I wish all our readers a wonderful festive season in peace and tranquility.
With kind regards
Yours sincerely
Marc Faber
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