Three things I learned
A trip to a Sunday matinee has me thinking the more things change, the more they stay the same
Today I went to the movies to watch a film with my wife and daughter. The film is called “Cabrini”, and it is based on the true story of the life of Frances Xavier Cabrini, who lived from 1850-1917. She is the first American saint, though she herself immigrated to the US from Italy.
The story is set in NYC around the turn of the 20th century. The city at the time was facing a massive problem of immigration, primarily from Italy, with 600k Italians coming in the 1890s and more than 2 million in the early 00s.
The sheer number of immigrants created all sorts of problems in the city, with people living in squalor and the issue becoming a very charged issue both politically and popularly. It is obvious the parallel one could draw to the current situation we have in the US. While not everything is exactly the same, the response to the situation seems remarkably similar.
Without spoiling anything, and I would highly recommend the movie especially to my American readers, Cabrini is fighting simply for dignity for the people. No special treatment, just a chance. As I watched, it had me thinking three things.
It is a firm grasp of the obvious, but immigrants have always been a part of the US story. Where does it stand now vs. 100 years ago?
This data is a little old, as it was from a Pew Research article in 2020 using 2018 data. Let’s just assume this line has continued much higher the last few years and that we are at, or maybe even about the historic high in terms of percent of the population. Thus, you can understand some of the strain on the system if we are at historic highs in terms of immigration, yet the infrastructure does not seem appropriate to handle the situation.
This strain on the system means this may be the single most important issue we will face in the election this year. We just got through Super Tuesday, and while most Americans did NOT want it, it looks like we will get a re-match of Trump vs. Biden. This expects to be a very contentious election cycle and ironically, the Democratic convention is in my home city of Chicago. The last time it was here was in 1968, which was an extremely contentious election cycle. History doesn’t repeat, but it rhymes. You can see above how the two candidates are polling but we are still very early in the process. Trump has a lead over Biden right now and we know they do not see eye to eye on immigration so expect this topic to continue to ring loudly.
As an aside, in my portfolio management class the students raised the question about how stocks do in election years. I looked it up and found this study by Schwab that went from 1933-2015. You may recall early last year, my podcast guest Jerry McNulty suggested stocks would have a really good year last year because it was the 3rd year in a Presidential Cycle. He was right. Might be time to have Jerry back on to talk about this year.
The same Pew article above forecasted far more growth in immigration in the US. You can see the projection above. There is quite a bit of academic research that is not conclusive at all in terms of the impact of population growth on economic growth. On the one hand, we can say that population growth + productivity growth should equal economic growth. This makes sense and in a developed economy it may well me. However, there are many cases in developing economies where population growth does not equal economic growth. Is this because productivity growth is negative in these countries? Perhaps. Could something else be at work? Maybe.
I would say that in some ways, I think there is covert fiscal stimulus in the large urban areas of the US as state and federal money is spent on handling this growing problem. I do think that immigration will be a story of 2024 in many ways, just like it was in the movie Cabrini.
Sometimes it is only women that can get things done.
In the movie, Cabrini has a great line. The mayor of NY says, “it is a shame you are a woman, because you would have made a great man”. She replies, “men can’t do what we do”.
She is right. It is not just the drive and ingenuity that makes her successful. In some regards, it is her amazing empathy that is the raison d’etre. It is hard for me to see many men that I know that have that same characteristic.
The movie also points out what a crazy old boys club the world was in the early 1900s. As we just celebrated International Women’s Day, and know there is still work to do, it is worth celebrating how far we have come.
This is only post WWII but that is arguably when the largest changes have occurred. You can see that from 1948-1999 there was a steady improvement of women in the labor force. Since 2000, it began to fall, perhaps as incomes improved, there was less need for double income families. However, post Covid, we are seeing this trend start to begin moving higher again. I think to the comment above on not just population growth leading to economic growth, but also labor force growth leading to economic growth potentially.
Speaking of labor force participation, we got the jobs number on Friday. Long-time readers may know of my disdain for non-farm payrolls, even though the media, the politicians and the market seem to care. It is a horrible number subject to massive revisions, seasonal adjustments and birth-death models. However, the market cares so we look at it. It was higher than expected at 275k; however, the net revisions to previous months came in at -167k. 13 of the last 14 months have been revised lower. That said it was better. Last week overall, we got many other labor data points that we can use to put together the picture. ISM employment is sub 50 and has been looking weaker since the end of last year. the Job Opening and Labor Turnover Survey (JOLTS) continues to show a decreasing number of jobs available, though relative to history the number is still high. Jobless claims are still strong, though the ratio of continuing claims to jobless claims does suggest weakness ahead. I do not show the ADP number or the Challenger & Gray layoff news but these give conflicting pictures. Overall, the labor market appears to still be fine, maybe even strong, but it is trending toward weaker.
One interesting data point was the unemployment rate rose to 3.9%, which means it is 0.5% off the lows it saw. The Sahm Rule says that when the 3-month moving average of the unemployment rate moves 0.5% above the lows, we will have a recession. We aren’t there yet but this is the first sign that we might be moving in that direction.
Thus, when it comes to the jobs number, it might be a to-MAY-to vs. to-MAH-to thing. Some market participants may be looking at the weakening labor trends and thinking about the Sahm Rule. They may say to themselves, 95% of investors see either a soft landing or no landing. Should that number come lower? One might sell stocks if that was the case. However, the other case to make is that if the labor market is weaker, this means the Fed is more likely to cut rates. The chart above is the December Fed Funds future. You can see in early January, it got to 96.20 which implies a Fed Funds of 100-96.20 or 3.8%. This is almost 7 rate cuts. By the end of February, we were at 95.35 or 4.65%, only about 3 cuts. We are now at 95.50 or 4.50 so getting closer to 4 cuts in for all of 2024. The March FOMC is going to be very interesting.
Idiosyncratic stories will still drive the day.
While I watched the movie, there was no mention of the ‘macro’ picture of how the overall economy was doing. Money was being raised and work done to build schools and hospitals. It was all very much a ‘micro’ story in that sense.
I made the comment on someone’s LinkedIn, when he was speaking about the bond market, that I was old enough to remember when the market rarely talked about the Fed. Now, this is ALL people will talk about on Twitter. Unless of course you are in Chicago and then it is ALL about Justin Fields vs. Caleb Williams.
However, there are still many idiosyncratic stories to focus on as well as some major themes. AI and GLP-1 drugs are interesting stories regardless of the Fed. I would argue Ether and Level 2 is another. There are many and this may be the place to focus.
One of those idiosyncratic stories had been AMC. I have no position in AMC but I only bring it up because in the previews before the movie, AMC actually thanked investors and rewards members for being there. I hadn’t seen this before. I will say, if I was an investor, I would have come home and sent an email to the CEO. This was a dine-in theater. The food quality was below average at best. The service was very poor and very poorly managed (too many ticket takers and not enough people cleaning up or preparing food). Finally, the cost for the food and drinks were pretty ridiculous. It is clear AMC is trying to expand their margins, but I did not leave the theater today thinking I want to look into the stock at all. Open to hear others’ experiences.
We stopped at Target for a few things on our way home because it is near the theater. My wife is a huge fan of the store. While the price/quality experience was definitely better, it was also clear even at Target, that they are facing labor problems. Whether it was food needing to be re-stocked or carts needing to be collected, it was clear there weren’t enough people. That said, the store was packed. Maybe that is why the stock’s fortunes have turned a bit. Still some problems to work through though.
I left thinking to myself that both places could use some more labor, and we have a lot of labor trying to come. Much of it is just stuck in tent cities. Why not put some people to work? However, just saying that, I feel it could get really political. Just like it was in the early 1900s.
Stay Vigilant
Shaping up to be a brutal year for theaters, especially those that do not generate cash (AMC). Writer's strike means theaters aren't selling as many tix so have to sell us a LOT of popcorn. But as evidenced by your attendance and a strong opening weekend from Dune, I think demand for theatrical releases is still alive and well. Plus, releases in theaters provide the debt-ridden studios with much needed cash. I think as content comes back in 2025+, more foot traffic will help the theaters that can afford to reinvest and they potentially won't need to gouge on food as much. Value with a catalyst!
"Here in America we are descendants in blood and in spirit from revolutionaries and rebels-men and women who dared to dissent from accepted doctrine. As their heirs, may we never confuse honest dissent with disloyal subversion." Dwight D. Eisenhower.