Wow, what a hectic and exhausting week with everything going on.
Let’s dig into the obvious, the interesting earnings comments from the 3 notables that reported last night.
AMZN:
“We’ve seen that during periods of economic uncertainty, consumers are very careful about how they allocate their resources and where they choose to spend their money.”
“In our worldwide stores business with the ongoing economic uncertainty, coupled with the continuation of inflationary pressures, customers remain cautious about their spending behavior. We saw them spend less time on discretionary categories and shift to lower priced items and value brands in categories like electronics. We also saw them continue to spend on everyday essentials, such as consumables, beauty, and softlines.”
With respect to AWS, “Starting back in the middle of the third quarter of 2022, we saw our y/o/y growth rate slow as enterprises of all sizes evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions. As expected, these optimization efforts continued into the fourth quarter…As we look ahead, we expect these optimization efforts will continue to be a headwind to AWS growth in at least the next couple of quarters.”
AAPL:
“Let me discuss the three factors that impacted our revenue performance during the quarter. The first was the FX headwinds, which had a nearly 800 bps impact…The 2nd factor, which we described in a November 6th update, was Covid related challenges which significantly impacted the supply of iPhone 14 Pro and iPhone 14 Pro Max and lasted through most of December…The 3rd factor was a challenging macroeconomic environment, as the world continues to face unprecedented circumstances from inflation, to war in Eastern Europe, to the enduring impacts of the pandemic, and we know that Apple is not immune to it.”
GOOGL:
“It’s clear that after a period of significant acceleration in digital spending during the pandemic, the macroeconomic climate has become more challenging.”
“We’re committed to investing responsibly with great discipline and defining areas where we can operate more cost-effectively.” No more free wheeling hiring and cap ex in other words.
“In Search and Other, revenues grew moderately y/o/y, excluding the impact of FX, reflecting an increase in retail and travel, offset partially by a decline in finance.” I’m sure the ‘finance’ part was housing related.
“In YouTube and Network, the y/o/y revenue declines were due to a broadening of pullbacks in advertiser spend in the fourth quarter.”
Similar to what Apple had to say on 2 of the 3, “In 2022, our y/o/y revenue growth was affected by a number of challenges. First, we faced very tough comps, given the outsized recovery in 2021 from the impact of the pandemic. Second, FX headwinds grew throughout the year. And third, we were operating against the backdrop of a more challenging economic climate that also impacted many of our customers and which remains ongoing.”
No one is immune to an economic slowdown and the post Covid reversion to normal life after the Covid spikes in all of their businesses, continues on.
Moving on to the extreme level of market speculation the end of Fed rate hikes is stoking (and in the face of QT) and the lack of any Jay Powell pushback to the easing of ‘financial conditions.’ We have a Bed Bath and Beyond bond maturing in 2024 that is trading at just 6 cents on the dollar and its stock has doubled from when they told us they were going out of business. It also was up 18% yesterday and has equity value of $390mm that will very likely be worthless based on where the bonds are trading.
Also, we’ve seen a rather sharp rally in CCC bond land. The Bloomberg CCC High Yield spread to Treasuries has narrowed as of yesterday to 867 bps, the same level it stood at in May 2022, just two months into the Fed rate hiking cycle. That is also well below the late November high of 1200 bps. Its yield to worst is down to 12.4%, the lowest since August and off the 16.1% we saw at the end of October.
Again, David Wooderson needs to get a job and stop hanging out with high school kids. Those days are over.
CCC High Yield spread to Treasuries
For those who care about gold and own it like we/I do, the World Gold Council released some 2022 stats the other day. “Annual gold demand jumped 18% to 4,741 tons, almost on par with 2011, a time of exceptional investment demand.” Where did a lot of it come from outside of jewelry and investment demand? “A 2nd consecutive quarter of huge central bank demand took annual buying in the sector to a 55 yr high, the majority of which was unreported.” China doesn’t accurately report its buying. On the supply side, “Full yr mine production grew 1%…Annual recycling supply made only marginal gains, despite strong local currency price rises in many markets.” For those still looking at Bitcoin for their store of value because of limited supply, gold has very limited supply too. Bottom line, freezing Russian central bank assets was a wake up call to all foreign central banks that they need more physical gold that they control themselves and hold less dollars.
Thanks to the reopening, the China Caixin January services PMI rose almost 5 pts to 52.9. The estimate was 51. China won’t feel the full benefits of reopening until Q2 as “staff absences due to illness contributed to a slight fall in workforce numbers, and a stronger rise in backlogs of work.” Just as the US and Europe experienced growing pains on their reopenings in terms of being fully staffed up, China is seeing the same thing. When Macau reopened, not all the hotel rooms did because there weren’t enough workers to service them.
Hong Kong’s PMI got back above 50 too at 51.2 from 49.1. Singapore’s rose to 51.2 from 49.1. S&P Global said this with Singapore, “Demand conditions improved, supported by better external conditions including the easing of Covid restrictions in China, which heralds a positive start to the new year.” I remain bullish on the China reopening and what that means for the rest of the Asian region economically and for their stock markets.