Wrapping up 2023 Q4 Economic Data:
Unmasking the Devil in the Economic Finale with Inflation's Discord
This week's economic data invites us to heed the haunting words of the Rolling Stones, echoing through the corridors of our financial landscape: "Please to meet you, hope you guess my name." Inflation, the unsung protagonist of our economic woes, continues to cast its shadow, akin to the devil's piano playing in the background. Let's explore this weeks major data and see how inflation is orchestrating a symphony of economic challenges.
First on stage is Tesla, a once-dazzling performer that has now missed its earnings cue with it stock price crashing almost -60% in just 2 years (adjusting for inflation in the same time span it is down -80%).
With a pre-earnings release PE ratio of 70, investors were hoping for a crescendo of growth. Alas, revenue only managed a tiny 3% increase for the quarter, and Elon Musk's note on the potential slowdown in vehicle volume growth for 2024 which struck a dissonant chord for investors.
As interest rates soar, customers costs to finance their products are reaching record highs, and with margins slashed from 16% to 8% for the company making each car sold now even less profitable. Inflation, like the devil's piano keys, is playing tricks on Tesla, casting doubt on its return to glory any time soon.
Transitioning to the housing market, we witness a tale of falling prices, reminiscent of the Stones' lyrics: "Please to meet you, hope you guess my name." Inflation-driven interest rates around 7% have led to a dramatic -17% drop in new home prices and an -8% decline in existing home prices from their peaks.
The cost to own a home is reaching historic peaks for people who need to take on a monthly mortgage, dampening demand to record lows. The issue now is some people who bought a home may be in over tier heads as they may have thought they could refinance this year to lower rates or wdid’t expect other monthly cost like insurance and property taxes to rise which maybe a reason we are seeing a rise of supply of homes even though demand is not picking up. As the Stones hinted, the devil may indeed be in the details of homeownership costs.
And now, the grand finale—the Q4 2023 GDP report. As the Stones sang, "Pleased to meet you, hope you guess my name," we must decipher the economic game. A quick refresher GDP is the total cost of goods and services bought in the economy, and since we are in an inflation monetary system where prices go up every single year, GDP goes up. The real GDP growth reported for the last quarter was at 3.1%, but the total increase was actually 5.7%, the silent architect, distorts the tune.
The government then uses what they call is a GDP deflator, this subtracts a declared inflation rate of 2.4%, leaving us with a seemingly robust 3.1% growth. However, when we consider the core inflation of 4% for 2023, the real growth in consumption dwindles to a mere 1.7%.
Many people think that government is under reporting the real rate of inflation, and so growth may actually be negative if the inflation was reported more accurately, meaning we are paying more and actually receiving less goods and services then before.
In conclusion, the economic symphony persists, with inflation taking center stage. As the Stones' lyrics echo the reality of inflation, 'been around for a long, long year, stole many a man's soul and faith,' it becomes increasingly evident. Just as the Rolling Stones proclaim, 'Pleased to meet you, hope you guess my name,' the enigma of inflation becomes clear. Amidst growing awareness of inflation, it's akin to a rendezvous with the devil himself. 'But what's puzzling you is the nature of my game.'
