Month: August 2024

Following the European Commission’s announcement in June that Apple violated the Digital Markets Act with its App Store anti-steering rules, the world’s most valuable company has revised its policy.

Apple introduced a new fee structure for the EU App Store’s “link-outs.” This allows app developers to include a link that redirects customers to a web page where they can complete a transaction.

For context, the tech blog 9to5Mac explained:

Previously, Apple enforced strict rules that dictated how apps in the EU were allowed to link out. This included requirements that the link be statically defined, and go directly to their own website, without any parameters to identify the logged-in user in the URL. This limited the ability of apps to directly send users to a webpage where they could pay to add upgrades to their account.

As for the new fee structure, 9to5Mac explained further:

Under today’s changes, all of those restrictions are now gone. Apps can offer actionable links with as many dynamic URLs as they please. These links can take the user to anywhere, including as a way to promote other sales channels like alternative app marketplaces. The URLs can include parameters, as long as those parameters are not used for advertising or user profiling.

These links also used to be required to kick the user outside of the current app and into their web browser, like Safari. However, Apple is now allowing these links to be opened inside the originating app, as a modal web view.

Apple is also updating the user disclosure sheet with a new design that is more friendly, and includes an interface toggle for users to opt-out of seeing disclosure sheets when tapping external purchase links in the future. For now, developers have to continue to implement this sheet manually, but Apple announced it will be automatically managed and presented by the ExternalPurchaseCustomLink API in a future iOS update.

Moreover, developers can now take advantage of these capabilities in the EU, without agreeing to alternative business terms. That means they can remain in the App Store and avoid paying the Core Technology Fee on installs. However, there is a new substitute fee structure instead …

Apple will also introduce two new fee structures for apps that link out of its App Store, including an initial 5% acquisition fee for new users and a 10% store services fee for any sales made by app users on any platform within the 12 months of the app installation.

9to5Mac pointed out:

Apple says the new structure results in lower fees for developers in both the alternative and existing terms for linking out, especially for existing users. This is because previously Apple charged upwards of 17% and the Core Technology Fee, for the privilege of linking out to an alternative payment method.

In June, the commission officially investigated Apple App Store’s anti-steering rules outside the platform. 

Apple is changing its App Store policies to comply with the Digital Markets Act and avoid fines by the EU. 

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Jamie Dimon, the chief executive of JPMorgan Chase, warned that the chance of the U.S. economy making a “soft landing” is not a certainty, coming amid volatility spikes seen in the major U.S. stock indexes over the past week.

“There’s a lot of uncertainty out there,” Dimon told CNBC on Wednesday. “I’ve always pointed to geopolitics, housing, the deficits, the spending, the quantitative tightening, the elections, all these things cause some consternation in markets.”

For the past few years, Dimon has been issuing warnings about persistently high inflation and whether a soft landing, meaning the economy would avoid a recession, is feasible.

The executive added that he’s not sure whether the Federal Reserve can meet its inflation goal of about 2 percent. He told CNBC that the chance of a soft landing is about 35 or 40 percent.

JP Morgan CEO Jamie Dimon on CNBC:

> America is alive and well
> Skeptical of inflation reaching 2% goal
> Fed commentary and rate cuts don’t matter as much as people think
> Savings could impact spending
> Credit doesn’t indicate we’re in a recession$SPY $SPX #Stockmarkets pic.twitter.com/8MNpMKfTWZ

— Nick W (@NiklasWebb) August 7, 2024

“There’s always a large range of outcomes,” Dimon said. “I’m fully optimistic that if we have a mild recession, even a harder one, we would be okay. Of course, I’m very sympathetic to people who lose their jobs. You don’t want a hard landing.”

In April, in an interview with The Associated Press, he said that people “should be worried about” the possibility of stagflation but was still hopeful for a soft landing. “I’m just a little more dubious than others that a [soft landing] is a given,” he said at the time.

The Federal Reserve rapidly raised interest rates in 2022 and 2023 after inflation hit the highest levels in decades. Officials with the central bank said they want to lower rates at some point with the 2 percent goal as their target.

Dimon’s prediction comes as the three major U.S. stock indexes saw another loss on Wednesday as tremors from Monday’s plunge continue to reverberate. But on Thursday’s opening, the Dow Jones Industrial Average rose 0.69 percent, or about 300 points, while the Nasdaq Composite index increased nearly 1 percent. The S&P 500 also rose nearly 1 percent Thursday morning.

The market rose as it was reported by the U.S. Department of Labor that first-time filings for jobless benefits fell to 233,000 for the past week, or a decline of 17,000 from the previous one. New U.S. unemployment claims have been rising and hit their highest since August last year in the most recent week before that.

Other Activity

Outside the United States, European shares fell and Japan’s Nikkei 225 index closed 0.7 percent lower, undoing some of the calm a day earlier when the Bank of Japan (BOJ) indicated it would be more cautious with any future interest rate increases. The South Korea-based Kospi index also dropped slightly, closing down 0.45 percent.

Deputy BOJ Governor Shinichi Uchida told reporters and business leaders in the Japanese city of Hakodate on Wednesday that the central bank will not increase interest rates when markets are experiencing instability.

“As we’re seeing sharp volatility in domestic and overseas financial markets, it’s necessary to maintain current levels of monetary easing for the time being,” Uchida said, adding that the interest rates will “obviously” be changed if the volatility affects the price outlook.

But he stressed that “we won’t raise interest rates when financial markets are unstable.”

Europe’s continent-wide Stoxx 600 index fell 0.9 percent after climbing 1.5 percent on Wednesday. Germany’s DAX index was down 0.6 percent and Britain’s FTSE 100 decreased by 1 percent.

In late August, Federal Reserve Chair Jerome Powell is expected to offer remarks on what he believes the United States needs when global bankers and Fed officials gather at an annual economic symposium in Jackson Hole, Wyoming. After that, the Fed’s Open Market Committee is slated to meet in mid-September.

“If we do get the data that we hope we get, then a reduction in our policy rate could be on the table at the September meeting,” Powell said last week.

Reuters contributed to this report.

Just over a year ago, we commented on the “massive” revisions that the statistical arm of Biden administration’s Department of Energy – the Energy Information Administration (EIA)…

The Biden admin will not stop fabricating data and draining the SPR to push the price of oil lower https://t.co/mxYq4hyCnY

— zerohedge (@zerohedge) June 30, 2023

Adding to those who questioned the ‘fabrication’ that:

When is the last time demand estimates were revised lower

— zerohedge (@zerohedge) June 30, 2023

Zoom forward a year and the ‘revisions’ across multiple (government-supplied) macro data items are now well known and widespread… and statistically noteworthy that the revisions tend to be negative (implying the initial data was ‘optimistic’)…

Payrolls (7 of the last 10 months have seen downward revisions)…

Consumer Confidence (9 of the last 12 months have seen confidence revised lower)…

The situation has become so widespread that even the mainstream media is forced to admit that there is something odd going on.

Specifically, circling back to our initial thoughts, Reuters reports this morning that a string of dramatic revisions to official U.S. oil consumption data have unnerved market participants who rely on the figures to trade.

The EIA published a monthly update last week that showed U.S. oil consumption at a seasonal record in May as motorists burnt more gasoline than even before the pandemic.

That data conflicted with weekly updates published that month showing oil and fuel demand struggling to even match last year’s levels.

The EIA says the weekly figures for May were off because preliminary readings overestimated gasoline output and undercounted exports. The agency does not expect weekly estimates to be as accurate as monthly data, but to be consistent in showing general trends.

Of course it just happens that the initially ‘weak’ demand figures helped lower crude and gasoline prices at a time when inflation was rearing its ugly head once again and Bidenomics was hitting the wall. And as is the case with payrolls revisions (or consumer confidence), traders reactions to the revisions are dramatically less sensitive than they are to the original prints.

However, as Reuters reports, these discrepancies (we are being polite) are starting to make market participants question the version of reality they are being sold.

“It makes you wonder why anyone is paying attention to the weekly numbers,” said Tom Kloza, head of energy analysis at Oil Price Information Service (OPIS). Many fuel marketers have expressed disbelief over the revisions the EIA made to its numbers in May, he added.

A trader at one of the largest commodities distribution firms said the revisions left them befuddled, and warned such changes could ultimately hurt consumers as decisions on how much fuel to import are influenced by the EIA data.

“It’s a trend that’s a little concerning to me,” GasBuddy analyst Patrick De Haan says.

“The EIA has been the bedrock for analysts, but skeptics may be gaining more validity to arguments that the EIA numbers aren’t jiving to the real world.“

Since when did the ‘real world’ have anything to do with macro data during an election year?

Authored by Louis-Vincent Gave via EvergreenGavekal.com,

Back in 2000, when technology stocks hit the wall, one of Gavekal’s first clients told us: “It’s OK. Bear markets serve an important purpose: they return capital to its rightful owners.”

Behind this cynicism lies an inherent truth.

Bear markets do tend to shake out “weak hands,” clean out retail investors, and punish those who operate with too much leverage. Another key function of bear markets is to transfer leadership from one country or sector or asset class to another.

This brings us to today’s single most important question: is the current shakedown in the Nasdaq, Nikkei, and US dollar an opportunity to buy more of these assets on the dip? Or is it now time for investors to look for new stories?

The answer to this all-important question might well be provided by the Federal Reserve. Unsurprisingly given the recent market action, the clamor for the Fed to cut interest rates is now as loud as a pair of Justin Trudeau’s socks. But what would a cut mean for asset prices?

Let’s start with the old Gavekal notion that assets have value (i) because they are rare, like gold, diamonds, vintage Ferraris and impressionist paintings, or (ii) because they are useful, i.e. because they generate cash flows. Bearing this distinction in mind, it becomes obvious that the bull market of recent years was primarily a bull market in “efficient” assets rather than a bull market in “scarce” assets. And few things are as efficient at generating cash flows as large-cap technology stocks. So, what has triggered the market meltdowns of recent days?

• A shakedown of over-leveraged investors, who through cheap credit in yen leaned too far over their skis. If so, the Fed doesn’t really need to cut. All we are seeing is assets being transferred from weak to strong hands, or as our client would put it, “capital returning to its rightful owners.”

• A reflection of an unfolding economic slowdown. If so, a Fed rate cut would make sense.

• The sudden realization by investors that their expectations of future efficiency had departed massively from reality. In this case, a bear market in efficiency assets has now started.

Gavekal clients who have taken the time to read the reports I have put out over the last couple of months will know I have planted my flag firmly on the third explanation. The hype over artificial intelligence, and the consequent heady valuations of AI-related stocks, departed too far from any possible reality. Now we have started the adjustment phase.

The market environment has therefore changed. But would a Fed rate cut put Humpty Dumpty together again? It is unlikely.

Instead, a Fed rate cut, if and when it happens, will amplify a number of trends that are already starting to emerge.

1) The underperformance of the US dollar. One interesting feature of the current sell-off is that the US dollar has failed to catch a safety bid. Instead, Asian currencies (apart from the Indian rupee) have risen over the past couple of weeks. This is highly unusual. But it may not be that surprising. Over the last couple of years, China has been running trade surpluses on a scale the world has never seen before. Even so, we haven’t seen the US dollars that China has earned abroad flow home to push the renminbi and local asset prices higher. Instead, the entrepreneurs behind China’s trade surpluses have likely chosen to recycle their US dollar earnings into the one asset class that seemed absolutely fire-proof: large-cap US stocks. If these stocks are now rolling over, what will China’s trade surpluses be recycled into? What if they end up in high-yielding domestic assets? In such a world, the renminbi will benefit from powerful tailwinds, as there are no natural sellers of the Chinese currency.

2) The strength of precious metals. Gold has been very strong lately in spite of China’s economic weakness, the hawkishness of the Fed and the strength of the US dollar. If some or all of these variables now reverse, gold could really surge. This brings me back to the question I started with: if the Fed starts to cut rates meaningfully in the weeks to come, will we go back to the same Mag-7, US tech, US dollar bull market? Or will belief in US exceptionalism go out the window, and—as in the first decade of the century—will we get a bull market in commodities and emerging markets, the usual beneficiaries of a weak US dollar environment?

My belief is that a looser Fed will not reignite the bull market in efficiency shares.

That ship has now sailed.

In fact, big holders of the Mag-7 should be lobbying for the Fed to sit on its hands, because only with a structurally strong US dollar will Microsoft, Alphabet, Nvidia and the rest attract the foreign and domestic capital needed for these stocks to recapture their highs, and power on to higher heights.

By contrast, a looser Fed will help to confirm the transition away from efficiency shares to scarcity assets.

Cathie Wood appears to be doing what she does best: buying the ‘dip’ in an overvalued market, socking away aggressively valued companies that have a knack for plunging far further than market indexes on selloffs.

The ARKK fund manager is buying shares of Amazon.com Inc., Advanced Micro Devices Inc. and Roku Inc. amidst the recent market volatility, Bloomberg reported this week. 

But ARKK closed at its lowest levels since November and at YTD lows on Wednesday, amidst the volatility, while the NASDAQ was still in green territory for the year, the report says. Wood’s flagship ‘innovation’ fund is down about -24% YTD versus the QQQ, which is up about 6.8%, as of Thursday mid-morning. 

That’s a pretty noticeable underperformance for just 8 months into the year. And investors seem to be taking note: about 75% of ARKK’s value from 2021 has been wiped away and, as of Tuesday, investors have withdrawn $2.2 billion from ARKK in 2024, setting it up for its worst year of outflows since its 2014 inception, Bloomberg writes.

Overall, Cathie Wood’s seven active ETFs have experienced $11.5 billion in outflows since early 2021, according to Strategas data.

Todd Sohn, an ETF strategist at Strategas said: “The past few years, really, have been a challenge. Ark has a history of high-conviction, concentrated investing via their ETFs — there’s a tendency for the team to use sharp market selloffs as an opportunity to add long exposure to their strongest ideas.”

The only problem? Many would argue a quick snapback from all time highs may not be a “sharp market selloff”. 

In late May, Zero Hedge contributor Quoth the Raven was quick to criticize Cathie Wood blaming a ‘great depression’ for her poor performance – all before the recent volatility even took place. 

Post-Tesla’s 2020 surge, QTR argued that Wood’s fund has been dead money: “Since then, Wood’s ARKK flagship fund has been dead money when compared to its NASDAQ benchmark. One by one, investors have watched other investments that Wood has made alongside Tesla get decimated.

For example, the “visionary” tech investor made a strategic decision to hold off and miss the surge in Nvidia — literally the hottest name in tech the last 2 years — while riding names like Invitae and Ginkgo Bioworks into bankruptcy and the toilet, respectively.”

“To compound her dreadful numbers, Wood has offered up bizarre, hallucinogenic price targets, unbridled optimism about her own performance going forward that, in my opinion, has been very misleading, and bursts of macro-sounding non-sequiturs as excuses,” he wrote. 

In May with the market sitting at all-time highs—Wood claimed markets were experiencing “a search for cash and safety.”

In fact, she said the search for safety at the beginning of the summer had been “as intense as that during the Great Depression in the early 1930s.” 

Back in February, Morningstar listed her as one of the top 15 funds that have destroyed the most wealth over the past decade and said the ARK family of funds had wiped out $14.3 billion in shareholder value.

ARK, home of the flagship ARK Innovation ETF ARKK, tops the list for value destruction. After garnering huge asset flows in 2020 and 2021 (totaling an estimated $29.2 billion), its funds were decimated in the 2022 bear market, with losses ranging from 34.1% to 67.5% for the year. Many of its funds enjoyed a strong rebound in 2023, but that wasn’t enough to offset their previous losses. As a result, the ARK family wiped out an estimated $14.3 billion in shareholder value over the 10-year period—more than twice as much as the second-worst fund family on the list. ARK Innovation alone accounts for about $7.1 billion of value destruction over the trailing 10-year period.

Wood was top of the heap in wealth-destroying:

Authored by Dave DeCamp via AntiWar.com,

The majority of Americans oppose the idea of US troops being used to defend Israel if it comes under attack by Iran, according to a poll conducted by the Chicago Council on Global Affairs that was released on Tuesday.

The poll, conducted from June 21–July 1, 2024, found that 56% of Americans oppose US troops defending Israel, while 42% support the idea. Support for defending Israel is stronger among Republicans, with 53% in favor and only 32% of Democrats in favor.

The survey also found that 55% of Americans oppose US troops defending Israel if it comes under attack by a neighboring country.

The results come as the Biden administration is vowing to defend Israel from an expected Iranian reprisal attack for the killing of Hamas’s political chief, Ismail Haniyeh, in Tehran.

A major coordinated attack launched by Iran and its allies could result in American casualties, and the US support for Israel risks a major regional war.

The US defended Israel from an Iranian attack in April, which came in response to the Israeli bombing of the Iranian consulate in Damascus, Syria.

The Biden administration intervened directly to protect Israel and is pledging to do so again without any authorization from Congress or any debate on the matter.

The Chicago Council showed the lowest level of support for defending Israel among Americans since the Chicago Council began asking the question in 2010. In 2015, 2018, and 2021, the majority of Americans (53%) supported the idea.

The Chicago Council attributed the lower level of American support for defending Israel to Israel’s onslaught in Gaza. “The unrelenting Israeli attacks against Gaza have likely dampened American willingness to defend Israel, especially among Democrats,” reads an article published on the Chicago Council website.

After yesterday’s dire 10Y auction, which sent yields surging and stocks tumbling, the last thing the market needed was another debacle of an auction, but that’s precisely what it got moments ago when today’s 30Y auction tailed by 3.1bps, the exact same as yesterday’s 10Y sale, and predictably yields spiked after both.

Stopping at a high yield of 4.314%, today’s sale of $25 billion in 30Y paper saw the lowest yield since January’s 4.229% and was down sharply from the 4.405% in July. And, like last month, today’s auction tailed and by a substantial amount: with the When Issued trading at 4.283%, this was the biggest tail since November.

The Bid to Cover was also in line with last month: at 2.308, it was right on top of last month’s 2.299 if below the six-auction average of 2.406.

The internals were a modest improvement to last month, with Indirects taking 65.3%, up from last month’s 60.8%, but below the 6-auction average 66.4%. And with Directs awarded 15.5%, or also well below the recent average of 18.4%, Dealers were left holding 19.2%, the highest since last November.

Overall, this was another ugly auction, with the one redeeming quality perhaps being that yields have tumbled in recent days, which is why buyers in the second market were few and far between, and are merely waiting for bond prices to retrace some more of their recent gains before they step in.

 

Restaurant Brands International, the owner of Burger King, Tim Hortons, Popeyes, and Firehouse Subs, posted second-quarter earnings that were weaker than expected by the average Wall Street analyst. This is more evidence that the consumer downturn theme is gaining momentum as low/mid-tier consumers pull back on spending amid elevated inflation and high interest rates. 

“Our priorities and balance of thoughtful investments with cost discipline allow us to navigate short-term consumer pressures and drive sustainable results for our business and our franchisees,” CEO Josh Kobza stated in the second quarter earnings result press release.  

Here’s a snapshot of what RBI reported compared with what the average Wall Street analyst tracked by Bloomberg was expecting:

• Comparable sales +1.9% vs. +9.6% y/y, estimate +2.88% (Bloomberg Consensus)

RBI’s earnings per share, excluding certain items, and revenues were roughly in line for the quarter. 

• Adjusted EPS 86c vs. 85c y/y, estimate 87c

• Revenue $2.08 billion, +17% y/y, estimate $2.03 billion

Comparable sales beat at Tim Hortons but missed at Burger King, Popeye’s, and Firehouse Subs. 

• Tim Horton’s comparable sales +4.6%, estimate +3.77%

• Burger King comparable sales -0.1%, estimate +3.42%

• Popeye’s comparable sales +0.5%, estimate +3.3%

• Firehouse Subs comparable sales -0.1%, estimate +2.46%

Bloomberg pointed out:

The company missed estimates for sales growth at restaurants open more than 13 months, as a stronger-than-foreseen showing for Tim Hortons’ Canada business couldn’t offset unexpected weakness in the rest of the operation. System-wide sales, which also include newer restaurants, was also just short of expectations.

Consumers around the world are pulling back from dining out as they cope with elevated prices and less spending money. Chains have responded with a series of deals, including Burger King’s $5 meal in the US, which it launched ahead of rival McDonald’s Corp. in a fight for market share.

RBI reaffirmed its long-term guidance from a February investor event, forecasting an average growth of 3% in comparable sales and 5% in net restaurant growth through 2028.

RBI joins the growing list of companies exposed to low/mid-tier consumers who have warned about a pullback in customer spending. These companies have either been cutting prices or offering ‘deals.’ 

Recall our note from July 9 titled “Restaurant Stocks Slide As Wall Street Sours On Consumer.” 

On Wednesday, new revolving credit data from June unexpectedly tumbled as consumers near a breaking point. 

Maxed out credit cards and record low savings, no wonder consumers are pulling back on restaurant spending. 

Let’s not forget this. 

Even Disney warned this week that sliding theme park demand and “moderating consumer demand” should weigh on experiences in the coming quarters. 

Consumers are under severe stress. And you bet these folks will vote with their empty wallets come November. ​​​​​​

Authored by James Rickards via DailyReckoning.com,

This Means War!

Not surprisingly, the stock market bounced back today after yesterday’s mini-crash — the “buy the dip” theme is deeply entrenched in today’s market.

But don’t make the mistake of thinking that stocks will continue on their way to record highs. There are too many red flags to ignore, although Wall Street would like you to ignore them.

Meanwhile, yesterday’s market swoon distracted people from a major developing story that I originally planned to address:

We’re staring at the prospect of a major new Middle East war. We’re confronting a very dangerous situation with major implications for global markets.

Any day now, or even any minute now, Iran is expected to take strong military action against Israel. By the time you read this article, it may have already started.

At this point, it’s not a matter of if, but of when.

Israel Escalates Bigly Against Iran

Iran’s pending action is a response to two recent Israeli assassinations of key figures strongly linked to Iran:

• The first assassination killed a leader of Hezbollah, a key Iranian proxy. That occurred in Lebanon, Hezbollah’s base

• Less than 24 hours later, Israel assassinated the political leader of Hamas, Ismail Haniyeh. That assassination actually occurred in Iran itself, as Haniyeh was in Tehran to attend the swearing-in ceremony for Iran’s new president.

Israel hasn’t accepted responsibility for Haniyeh’s killing, but there’s little reason to believe it wasn’t Israel. It’s still not clear how the assassination actually occurred.

Some reports claim a missile killed him in the Tehran apartment in which he was staying. That means the missile would have been launched from within Iran, which raises a lot of questions.

Other reports say Haniyeh was killed by remotely detonated explosives, previously planted in the apartment by Israeli operatives, potentially with the collaboration of Iranian security agencies.

The conflicting claims aren’t insignificant. Under certain interpretations of international law, the use of explosives isn’t a casus belli, or a justification for war. But the use of a missile is.

Either way, I don’t think Iran appreciates that distinction.

Iran Vows “Harsh” Revenge

Iran has pledged “harsh” revenge for the two assassinations. Sources report that neighboring Arab states, along with the U.S., are pleading with Iran to limit its retaliatory action.

Jordan has even dispatched its senior diplomat to Tehran to argue for a limited response. That’s Jordan’s first official visit to Iran in over 20 years, which underscores the severity of the situation.

All reports indicate that Iran has rebuffed these overtures. It’s determined to hit Israel hard, even if it results in a large-scale war. From Iran’s perspective, a strong response makes sense.

Let’s revisit April’s Iranian missile and drone attacks on Israel which, again, were launched in retaliation for Israel’s strike on Iran’s consulate in Syria.

Iran’s attack was almost staged. It was telegraphed in advance, giving Israel (as well as U.S. forces in the region) time to prepare for it. The great majority of Iranian drones and missiles were shot down, and Israel suffered very little damage.

We Don’t Really Mean It?

It was as if Iran was saying, “We have to retaliate for your attack on our consulate, but we don’t want further escalation. So we’re going to let you know what we’re going to do and give you time to prepare for it. Our attack won’t really hurt you, but we have to do it in order to save face.”

Israel conducted its own retaliatory strike on Iran, but it was limited, and that was the end of it. Both sides could wipe their hands clean and move on.

But Israel’s latest assassinations changed all that. They represented significant escalations against Iran, especially the assassination in Iran’s own territory.

Imagine the U.S. response if Russia, for example, assassinated a key U.S. ally attending the inauguration of an American president.

So why would Iran listen to pleas for a limited, measured response this time? It took that approach in April, and Israel escalated anyway. So in this instance, Iran has no incentive to limit its retaliation. In its view, deterrence has failed. The only logical response is to punish Israel as hard as it can.

That of course raises the question: How might Iran retaliate?

Iran’s Options

It could take the form of drone and missile attacks, similar to the ones in April, only more intense. Iran could also enlist its proxies like Hezbollah to attack Israel from southern Lebanon, forcing Israel to fight a two-front war (Gaza being the first, which is still ongoing).

Or it could be a combination of both. Hezbollah is a much more formidable fighting force than Hamas, so Israel will have its hands full if it has to confront Hezbollah.

Meanwhile, The U.S. is sending warships and aircraft to the region to support Israel. What can go wrong? It’s not hard to envision a scenario in which the U.S. is dragged into the fighting.

Yesterday, a rocket attack on a U.S. base in Iraq injured five personnel. It’s not known who’s responsible at this point, but it could very likely be an Iranian proxy. It’s hard to imagine the timing was just coincidental.

Here’s the larger point: Israel’s assassinations and Iran’s pending retaliation illustrate the dangers of having a weak, unfit, lame-duck American president like Joe Biden. Here’s why…

Geopolitical Consequences of Biden’s Weakness

The U.S. has previously restrained Israel from taking stronger action against Iran. The U.S. has been pursuing a Gaza ceasefire and a hostage deal. Sources claim the Biden administration felt it was close to a breakthrough before the assassinations.

The two assassinations torpedoed whatever chances there were of a hostage deal. Would Israel have acted against strong U.S. interests if a firm president was in office? It’s highly unlikely. It’s apparent that Benjamin Netanyahu has little respect for a greatly diminished, lame-duck Biden who’s on the way out.

That’s why Biden’s diminished condition isn’t just a domestic concern. It has potentially serious geopolitical consequences, which are presently unfolding. And does anyone believe Kamala Harris is a viable alternative? Netanyahu almost certainly doesn’t.

If we’re not in a recession already (I believe we entered one in May or June), we’re clearly heading for one. A new Middle East war will drive up the price of oil, maybe dramatically depending on how the conflict unfolds. That means higher prices at the pump, which are already too high for many Americans.

What if Iran shuts down the Strait of Hormuz, ending all oil exports from the Persian Gulf (or the Arabian Gulf, depending on who you’re talking to)?

That could be the final nail in the coffin of the Biden economy. We’d be staring in the face of a major recession that would crush average Americans.

All I can say is put on your crash helmet. You might need it very soon.

Shares of Monster Beverage fell in premarket trading after the energy drink maker reported second-quarter earnings per share that fell short of the average Wall Street analyst tracked by Bloomberg. The report also revealed that drink volumes slid to their worst rate since the beginning of the virus pandemic. All of this reaffirms our view low/mid-tier consumers are continuing to pull back on spending.

“We are a blue-collar brand and our consumers are more hard-pressed than consumers in other categories,” Monster Co-Chief Executive Officer Rodney C. Sacks told investors on an earnings call. 

Second-quarter revenue increased at the slowest pace since Q2 2020, rising just 2.5% to $1.9 billion. This missed the average analysts’ expectations tracked by Bloomberg of $2.02 billion. Sales volumes also fell short, coming in at 212 million cases in the quarter, missing the 215 million estimate.

Here’s a snapshot of second-quarter earnings (courtesy of Bloomberg):

• EPS 41c vs. 39c y/y, estimate 45c (Bloomberg Consensus)

• Net sales $1.90 billion, +2.5% y/y, estimate $2.02 billion

• Monster Energy Drinks net sales $1.74 billion, estimate $1.84 billion

• Strategic Brands net sales $109.2 million, estimate $108.7 million

• Alcohol Brands net sales $41.6 million, -32% y/y, estimate $66.9 million

• Other net sales $7.0 million, -4.1% y/y, estimate $7.44 million

• Net sales outside the United States $746.0 million, +4.3% y/y

• Volume 212.19 million unit cases, +6.9% y/y, estimate 215.42 million

• Average net sales per case $8.73, -3% y/y, estimate $8.91

• Gross margin 53.6% vs. 52.5% y/y, estimate 53.5%

• Operating margin 27.7% vs. 28.2% y/y, estimate 29%

• Operating expense $492.3 million, +9.3% y/y, estimate $497 million

Shares of Monster plunged 11% in premarket trading. 

Goldman’s Bonnie Herzog commented on the report, telling clients, “We maintain our Buy rating on MNST despite a disappointing Q2 that caught most by surprise.” 

“Expectations heading into MNST’s Q2 print had pulled back, the result of a slowdown in US energy drink category growth recently, which mgmt acknowledged at their recent shareholder meeting, weighed largely by pressured c-store traffic levels and some reduction in consumer spending,” Herzog said. 

She continued, “That said, MNST’s Q2 topline growth of +2.5% y/y (vs our/cons ests of +8.9%) was even worse than feared, dragged in part by unfavorable FX headwinds – with FX neutral sales growth of +6.1% (+7.4% ex-alcohol brands). While US sales were pressured as expected, up just 1.3%, the big surprise was international sales which were up only 4.3% (although up 13.7% ex f/x) as the energy drink category in certain European countries saw a slowdown.” 

Volume trends across the entire US energy drink industry have turned negative, signaling that cash-strapped consumers are pulling back after a series of price hikes. These volume trends are at their lowest levels since the early Covid lockdowns.

Sales growth trends for energy drinks appear to have slowed a couple of quarters after Jerome Powell & company began raising interest rates in early 2022. Elevated inflation and high interest rates financially crushed working-poor and middle-class households. 

Herzog lowered Monster’s 12-month price target to $63 versus the prior target of $66 “based on an equal-weighted P/E of 31.5x and EV/EBITDA of 23.0x, both on our FY25 estimates (both unchanged),” adding that estimates and price targets could change based on deteriorating C-store traffic and weakness in sales. 

Here’s what other Wall Street analysts are saying about the downturn in the energy drink market (courtesy of Bloomberg):

Jefferies (buy)

• The quarter was worse than feared, analyst Kaumil Gajrawala says
• “The plan to increase prices in the US by 5% seems at odds with a slowing category and consumer weakness”
• PT lowered to $60 from $61

Citi (buy)

• As analyst Filippo Falorni had expected, the results were “very soft,” though the magnitude was worse than anticipated
• International sales were well below Falorni’s forecast, impacted by shipment weakness in EMEA
• “We continue to see near-term downside given the scanner data weakness, but remain Buy rated on a 12-month basis as we believe the US category slowdown is more cyclical than secular”
• PT cut to $54 from $60

Piper Sandler (neutral)

• Near-term headwinds are growing as global growth slows, analyst Michael Lavery writes
• Notes US energy drink category momentum has slowed; however, Monster is still going through with a price hike in the US, pointing to rebounds in categories momentum in other markets that have previously weathered slowdowns of their own
• “While we agree with this thinking, it is unclear how long any such rebound may take to materialize”
• PT cut to $46 from $59

Bloomberg Intelligence

• “US energy-drink sales are under pressure from a more price- conscious consumer and tougher category competition than in prior periods,” analyst Kenneth Shea writes

The downturn in the energy drink market is another ominous sign that the consumer slowdown is gaining momentum ahead of the presidential election. It underscores how failed Bidenomics has been detrimental to the working poor and middle class.