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Blind Sided By The Consumer

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

There aren't many Thanksgiving movies or songs that I could reference for this week's musing, so I picked a movie that has the Thanksgiving holiday in it, but also has being thankful as it's overall theme. In fact, the movie's Thanksgiving scene is reminiscent of the famous Normal Rockwell painting.  This week's inspiration comes from "The Blind Side." The movie's commercial success is undeniable - $29 million budget / $309 million worldwide gross. However, there are some discrepancies between the movie and the real life story as seen through Michael Oher's eyes. He has publicly criticized certain elements of the movie. Regardless, the Tuohy's showed compassion taking in Michael and aiding in his success. Some interesting things about the movie:

  • The high school Michael attended in Memphis was Briarcrest Christian School. However, the school did not like the way scenes in the movie depicted teachers doubting Michael's learning ability. The school refused to allow any likeness of the school in the movie.
  • Julia Roberts was offered the role of Leigh Anne Tuohy, which she turned down at least 3 times. Sandra Bullock took the role and even considered dropping out after the first few weeks of filming because she thought her own acting was bad. She ended up winning an Oscar for "Best Actress" and the movie was nominated for "Best Picture." Big mistake, Julia.
  • Oher's tutor in the film, Miss Sue, attempts to scare her pupil away from considering an offer from the University of Tennessee by telling him they put dead bodies under the field. In reality, UT has an off-campus facility where dead bodies are studies for decomposition. The anthropology department at the university is one of the best in country (unlike their football team - and I can say that as an alum).

Here's what we're seeing so far on this Thanksgiving week...

Economists Blind Sided by Consumers. There is talk lately about fear of recession in the coming months. However, there are two problems with this line of thinking - first, there is little acknowledgement of a "technical" recession in the 1st half of this year, and second, there is little acknowledgement of how resilient the consumer remains.  The biggest problem we have as a society (and in financial markets) is the proliferation of opinion over facts/data. We've posted about this a lot in 2021-22. The current administration in D.C. did not want to acknowledge the recession we experienced in January through June (i.e., two consecutive quarters of negative GDP growth).  So what happened, politicians, media, and the like just refused to label it as a recession, so the public disregarded it. And yet, the market was down more than 20% on June 30th - markets don't drop without any reason. Now, economists are all worried about a recession when Retail Sales were up 1.3% last week and Redbook Sales are up strong this week (oh, by the way, 3rd quarter GDP was up 2.6%). In fact, as we've previously mentioned, Redbook Sales are stronger this month than in the previous 8 Novembers (with the exception of last year). If we take the average of the previous 8 Novembers, Redbook Sales have grown on average 5.3% on a year-over-year basis. This November, we're averaging +7.9% year-over- year growth in Redbook Sales. That means the economy, for now, will continue to grow.

Excessive Blocking? Our fearless Fed Chairman Powell will have to deal with multiple "doves" at the next FOMC meeting.  Currently, there are 6 voting members of the FOMC that are considered "doves." There are only 2 members who are "hawks" and there are 4 members who are, shall we say, "noncommittal." Monday saw a near reversal of equities when San Francisco Fed Governor Mary Daly took the mic at the Orange County Business Control meeting and said that the Fed "must be mindful of the risk of tightening too much." Manufacturing and Housing provide enough evidence to support ending the current cycle of Fed rate hikes. In fact, majority of participants seem dovish given the latest release of FOMC minutes late Wednesday afternoon.  So far, the consumer and the lack of massive job layoffs has kept the economy afloat. The "doves" on the FOMC probably feel like the Referee in "The Blind Side" when it comes to stopping Chairman Powell from pushing rates too high. In the movie, the Referee throws a flag when Michael Oher block his man all the way out of the play and into the end zone. the following exchange occurs:

Coach Cotton: Was he holding?
Official: No.
Coach Cotton: Was he blocking after the whistle?
Official: No.
Coach Cotton: Then what was the flag for?
Official: I don't know. Excessive blocking.

That's where we are today. We're at the cusp of the economy coming out of this relatively unscathed from a historical standpoint. The S&P 500 Index at its worst point this year was down 26.7%, year-to-date. The market has rallied almost 15% since then and is now down only 16.5% for the year, which would make this most recent "technical" recession one of the least painful in history. In fact, the 4th quarter of 2018 was worse, with the market down more than 19%. The S&P 500 is now less than 30 points from exceeding the 200-day Moving Average. Markets responded Wednesday by moving higher after FOMC minutes from the November meeting showed the Fed is considering backing off further aggressive rate hikes.  Markets expectations are currently showing a 75% probability of a 50 basis point hike next month as opposed to a 75 basis point rate hike that was the prevalent thought just a couple of weeks ago.  Equities could march higher here in the short-term.



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