MoneyFitt

Happy Tuesday!

US large-cap S&P 500 closed 1.05% UPTech-heavy Nasdaq Composite closed 0.96% UPPan European STOXX Europe 600 closed 0.33% UP
HK’s Hang Seng Index closed 2.69% UP
Japan’s Nikkei 225 closed 1.21% UP

📊 IN THE MARKETS

Somehow Musk AgainZuck Cuts

📝 FOCUS

Ryanair: Low Fares, High Profits

📖   MoneyFitt EXPLAINS

🎓 Consensus Forecasts

📊 IN THE MARKETS

Oil prices and Asian stock markets remained buoyant partly on highly-paid analyst predictions that China’s unpopular Dynamic zero-COVID policy would someday end and that China would reopen sometime in the future, possibly early next year.

US markets were quite strong for a second day, with all eyes back on inflation. October Consumer Price Index (CPI) numbers are due on Thursday, with a Wall Street consensus 🎓 forecast of 8% up on the year before, compared to 8.2% in September. “Core” CPI, stripping out volatile food and energy prices is forecast to be up less, but at 6.6% still more than TRIPLE the 2% Fed target.

(The Fed actually targets the Personal Consumption Expenditures Price Index, or PCE, which is like the CPI but not just urban, and adjusts for how spending patterns shift when relative prices change.)

The other thing US investors are watching is Tuesday’s congressional midterm election.

Somehow Musk again

Aaaand we’re back to Elon Musk. Having sacked half the workforce at Twitter, he’s apparently trying to lure several dozen back. 

But not into teams involved in partnerships, marketing and content curation. So the midterm elections will be interesting for how well Twitter’s few remaining moderators handle the torrent of misinformation, fake videos, false allegations and unverified, baseless theories swirling around… and the resulting backlash (if any) from users and advertisers.

Related to this, the $8 monthly fee proposed for blue tick “verification” has been postponed till after the midterms. Paying for “verification” seems a bit self-defeating, and may not help the reason people are on Twitter, the “social” part of “social network” i.e. the other people on it. 

(Incidentally, the $41 million a year that Twitter would get if ALL 424k verified accounts paid $8 a month would only cover a couple of weeks of the US$1 billion of interest the company has to pay on the debt Musk saddled it with when taking it over.)

Zuck Cuts

Facebook owner Meta will start large-scale firing from this Wednesday, according to the Wall Street Journal. “Many thousands” of its 87,000 employees are expected to face the chop, with staff told to cancel non-essential travel.

The 72% collapse of the share price since the start of the year has sent it tumbling out of the Top 10 and down to 33rd largest company in the world by market capitalisation.) At US$250 billion it’s still a huge company, about the same size as Coca-Cola and pharma giant Merck, and a quarter larger than both McDonald’s and Shell Oil.

The company is suffering from the slowing global economy, which hurts digital ad spending, as well as the super strong US Dollar, which means earnings from overseas are translated into fewer US Dollars whether any money is sent home or not. 

But investors are also worried about the longer-term challenges from Apple’s iOS privacy changes (which dramatically reduces the transparency, effectiveness and therefore pricing of digital advertising) and competition from TikTok and potentially a resurgent Twitter under Elon Musk (him again!) Perhaps above all are concerns about immense spending (and losses) on the unproven metaverse, which CEO Mark Zuckerberg expects to take about a decade to bear fruit.

Classic Wall Street: news of coming redundancies was greeted with a 5% rally, but this time not just because of operating cost savings but also with the hope that restraint would bleed over to the money-losing metaverse business.

📝 FOCUS

Ryanair: Low fares, High profits

Ryanair, Europe’s biggest low-cost airline, swung to a profit before tax of €1.42 billion for the half year to September, from a loss of €100 million the same period last year. Revenues were three times what they were last year, and almost a quarter higher than in 2019, pre-pandemic. 

Seeing “no evidence in our forward bookings of the nervousness about recession,” the company is raising passenger forecasts a little for its fiscal year ending March 2023. It also said it expected a full-year after-tax profit, its first since the pandemic. (Unlike in the US, many UK and European companies report results just twice a year.)

At a market value (or market capitalisation, the number of shares times share price) of about US$16 billion, it doesn’t sound like an awful lot compared to the tech titans dominating most market commentary. For example, Meta just added US$13 billion with its admittedly quite big move today. 

But in airline rankings, it sits at number 4 globally, more than powerhouses such as Singapore Airlines and United Airlines and more than Qantas and Cathay Pacific combined. A little bigger are Air China and Delta Airlines, but at the top you have Southwest Airlines, the 55-year old OG of low-cost airlines, with a stock ticker “LUV” named after its home airport Love Field. 

LUV was the originator of the business model where strict cost control extended to choosing non-central airports and keeping planes in the air as much as possible with minimal turnaround time. Keeping fares much lower than regular airlines (with bloated costs and a reliance on premium passengers) meant they could keep the usually single aircraft type planes fuller and more efficient.

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS:

🎓 Consensus Forecasts

Consensus forecasts are simply some kind of average of forecasts from “expert” forecasters willing to tell survey-taking companies what they are expecting. (Sometimes it refers to the median, or the middle reading of a range sorted from highest to lowest.)

The range may actually be pretty wide, and it’s possible that NOBODY actually forecast the actual consensus number itself. Technically there could be two or more clusters of experts’ forecasts very far from one another despite looking at all the same available information (but most often they do cluster around the consensus reading.) 

But it’s still meaningful to be aware of what the combined IQs of tens of thousands of extremely well-paid individuals arrive at as it represents the distillation of all the publicly available information available at any one time, as well as how that number does or doesn’t move upon new developments.

The danger, of course, is that forecasters can be influenced by the published consensus numbers and either be sucked into groupthink or possibly make some ludicrously out-of-range forecast of their own for the sake of making some sensational headlines.

(Note that “consensus” is different from “implied” forecasts derived from the actual price of traded instruments like derivatives.)

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