CPI, PPI, Ceiling Solutions, Short Positions, and who was Joe Muse?
A little wordy this week, but I think it’s good information: the economy, the debt ceiling, bits and pieces, short selling explained (kind of), and Joe Muse.
Last Week in the Economy
The big news was inflation: it went down 0.1% year over year.
The CPI – Consumer Price Index - was expected to come in at 5%, and it came in at 4.9%. We are in the fours!!
Core CPI – that’s when you take out food and fuel costs – is still much higher at 5.5%, but it met expectations, being down from 5.6%.
Not making as much news was the PPI – the Producer Price Index. This is the measurement of price increases that wholesalers get selling to retailers.
It’s at 2.3%, down from 2.7%.
Core PPI is at 3.4%, down from 3.7%. I think this is very good news; it’s kind of a trickle-down effect that, at some point, the consumer will see. That’s good Good News.
Folks, the trend is your friend. That will certainly put a pause on rate increases unless something odd happens. Like the debt ceiling problem. But let’s not jinx ourselves.
Congress is still debating the debt ceiling.
What is being proposed is:
Reduce government spending to 2022 levels – these are the cuts that some folks are not happy with.
So, if I reduce my spending to what it was last year, you’ll increase my line of credit? Sounds like a deal to me.
One politician said that would result in the closing of 125 air traffic control towers.
Hmm. I can’t find anything that says we opened 125 air traffic control towers in 2023, so why would we have to close them?
Sometimes, folks just don’t listen to what they are saying.
Increase government spending to a maximum of 1 %/year for the next 10 years.
Military spending is not included. Good news for defense stocks.
Claw back unspent covid-19 funds.
Impose new work requirements for government benefits
Able-bodied people aged between 18 and 55 without children must work 20 hours/week to qualify for Medicaid. That is currently set at 18 to 49 years of age.
Block student loan debt forgiveness. No sympathy there. You took the money, now pay it back. If u r not hapy with your edjucasion, sue your school. Some people are.
Repeal clean energy subsidies that were authorized in the last spending bill. That’ll be tough to put that toothpaste back in the tube.
Repeal the funding for 80,000 IRS workers. Yeah, more toothpaste out of the tube that’s not going back in.
So now, all they need to do is negotiate this out. At least there’s a starting point.
Bits & Pieces
May is the month to contact prospects
In the three years I have been sending out this report, the fewest out-of-office emails are generated in the month of May. It’s a good month to finally make contact with a decision-maker. If you can make the sale, it gives you time to close the deal by year end, depending on what kind of industry you are in. GET ON IT!!
Your Workers are Happy. At least that’s what they told folks in 2022.
A survey of 1,680 workers by the Conference Board in November revealed that workers are happier than they’ve been in decades.
That’s when the massage therapists at Google still had jobs.
Job satisfaction hit a 36-year high in 2022 as several things happened:
wages increased.
work flexibility increased.
workers moved into a position that was a better fit.
62.3% were happier, up from 56.8% in 2020.
The key piece? Work-life balance and workload.
Funny how working remotely takes care of both those issues.
Let’s see what the report says for 2023 now that the pink slips have been issued.
Covid public health emergency ends – but we must remain vigilant!
The Federal government formally ended its crisis response to the covid pandemic.
Most people ended it about this time last year, and some never started. Better late than never, I suppose.
The Feds also ended vaccine requirements for federal workers.
All covid related meds will now be covered by health insurance, like any other malady subject to your deductible.
And the CDC just lifted the requirement to be vaccinated to enter the United States by air. Note the “by air” part.
I guess Novak Djokovic will be allowed to play in the US Open later this summer.
Up until last week, you still had to show proof of vaccination to enter the United States “by air”.
Oddly enough, there really wasn’t any mention of entering the country by car. Or walking.
Today’s Thesis: What is Short Selling?
Not to be confused with buying shorts at Kohl’s.
So, what are these short sellers that the news keeps talking about? On its face, it’s a bit bizarre but stick with me on this. There is also something called “buying puts”, but everyone has been saying shorting stock, so we’ll go with that.
When done on its own, it’s pure speculation and you are betting that the stock you choose to short will go down. Here are the mechanics.
First, you borrow the stock of the company you want to short from a broker. Let’s say it’s Atlantic East Bank.
However, to borrow it, you first have to put up collateral, such as cash or stock, to secure your borrowing. The person lending you the stock has to make sure you are going to give it back to them. In case you don’t, they cash in the collateral.
Second, you sell that stock and you pocket the money. Say you “borrowed” 1000 shares of Atlantic East Bank at $10/share. At some point, you have to give that borrowed stock back, but in the meantime, you have $10,000 in your pocket from having sold it.
Third, assuming you have chosen wisely, you wait until you feel the stock has gone down to some predetermined point where you then buy it. Let’s say it drops to $5/share. Now it only costs you $5000 to buy those 1000 shares.
And now, you return the borrowed shares, but since it only cost you $5000, you keep the other $5000. Score!!
But wait, what if the stock had gone up? And up, and up? Let’s say instead of going down to $5, it goes up to $20. At some point, you are going to stop your losses, but how is it you are losing? Let’s review the steps.
You borrow 1000 shares and sell them at $10/share and you have $10,000.
The stock goes to $20. The broker may send you a polite note reminding you that you owe them 1000 shares of stock.
The stock keeps edging up and you decide to end this game of chicken and give the broker their 1000 shares back.
The only problem is that it is now going to cost you $20,000 to buy the shares you need to give back, but you only have $10,000. That’s when your collateral gets cashed in.
You just lost $10,000. And that’s what can happen when you speculate.
And that’s how shorting a stock works. Or doesn’t.
Here’s the problem with shorting:
This can be bad because, let’s say I have a gazillion dollars and I use some of my cash to put up collateral so I can borrow 5 million shares of stock. I then sell it right away and pocket $50,000,000, but all the market sees is that someone sold a big chunk of Atlantic East Bank. So the market starts to sell because the market is always thinking someone else might know something they don’t know.
Shorting can turn into a self-fulfilling prophecy, and the stock can spiral down, out of control. Then mysteriously, someone buys 5,000,000 shares and the stock price starts to stabilize.
And this is what is happening to some regional bank stocks. In the meantime, it really sucks to be a shareholder of Atlantic East Bank.
Who was Joe Muse?
As an advertising major at Michigan State U in the ‘70s, he was assigned to create an ad for a fictitious water purification firm. His ad showed him urinating into a lake. That kind of sells you on a filter.
He said, “It was clear to me then that being provocative sells.”
Mr. Muse was black, and instead of trying to make his way into a mainstream ad firm, he worked in PR and sales before he created his own ad firm: Muse Cordero Chen.
It’s ok to assume that the other two fellows were Hispanic and Asian.
Ad agencies targeting specific ethnicities were common, but Mr. Muse, along with Messrs. Cordero and Chen, hit a trifecta. They were able to find zones of commonality. In his words: “We can change colors like a chameleon.”
They met while competing to create ads for the California State Lottery.
He was inducted into the American Advertising Federation’s Hall of Fame in 2022. He died last month at the age of 72. That’s a bit too soon if you ask me.
Mr. Muse: “I learned to proceed in life by knowing who I am and not pretending to be something I’m not.” This is very important in sales and marketing; many clients can tell when you are not being genuine.
He had many pearls of wisdom:
“When in doubt, do the work.”
“Ideas don’t care who their parents are.”
“If this doesn’t work out, we can always sell insurance.”
Like many successful business owners, he didn’t keep hitting his head on a wall hoping for a different result. He made his own path, filling a need that he had created. Remember that the next time you hit your head on the wall for the fifth time.
Enjoy the week. Memorial Day in two weeks - clean off the BBQ grill!
