Weekly Reflection for May 26, 2023

The Week - An Update in Charts

Another emotional week for stocks. Instead of Wall St, eyes were focused on the comings and goings along Pennsylvania Ave. A deal to save the United States from debt default seems like it will come in at the 11th hour.

The move up in stocks is not as strong as it may seem. Note the Dow Jones is negative for the week and it is for the year too, in contrast to the S&P 500 and the Nasdaq. However, the average stock is down; those in the S&P 500 are down -0.2% year-to-date.

A normal bond yield curve, which is the plotting of interest rates over different maturity dates, would slope up to the right, not down. But investors are madly selling short-term securities, sending rates on 1 and 2-month U.S. Treasury bills to over 6% annualized. This is out of fear that the government may default, or just come way too close to default, for comfort.

Due to the worry, noted above, of potential default on U.S. Treasury obligations, investors have entered a Bizarro World. Currently the debt of companies like Microsoft and Johnson & Johnson are trading as if they are safer than the U.S. Government. These two companies stand out with near perfect credit ratings with the balance sheets to back them up. Ahem, Uncle Sam, take note.

Inflation in April jumped by 0.5%, the biggest leap this year. Spending was also up but personal income growth was flat. So if everyone is still spending, and prices are rising, but incomes are not, personal bank accounts must be shrinking.

Europe began raising interest rates to tame inflation after the U.S. did. Stubborn inflation there was in part to higher energy prices, which have taken a toll on the continent more so than in the states. Yesterday it was reported that Germany is officially in recession after two back-to-back quarters of negative GDP. It may be short-lived. German Chancellor Olaf Scholz is already declaring the economic outlook "very good.”

The Economist calls it a "cheesy pop fest" that is "low quality and high camp". This would be, of course, the Eurovision Song Contest, which wrapped up earlier this month. Songs only or partly in English have taken the prize 33 times - more than any other language lyrics. Oddly this bucks the trend of English declining in music popularity overall. The winner this year is a repeat from 2012, Sweden's Loreen, singing "Tattoo" in English. We shall see if Loreen is a breakout beyond the contest. Not many acts have found success,

regardless of language, other than ABBA or Celine Dion.

Optimism in IPOs

There are now fewer publicly traded companies than 30 years ago. Per McKinsey, nearly 6,000 companies in the U.S. traded on public exchanges in the mid-1990s. Now there are less than 4,500. As of March 2023, 1,807 companies were listed on the New York Stock Exchange and 2,765 on the Nasdaq. (Some companies in this count are dual-listed, meaning they trade on both exchanges, which increases their prestige, the stock’s liquidity and

corporate expenses.)

Several sectors have been responsible for the majority of the decline. Finance is a major one. For many years banking regulations prevented states from operating across state lines and the industry was fragmented; the “Interstate” Act of 1994 removed many obstacles. Subsequent consolidation in banking companies has led to fewer listed financial companies. There are also less technology and industrial companies trading now too. The only sector with more is healthcare – primarily pharmaceutical and biotech firms. In any case, while the number of investable companies has declined from the 1990s, it has been fairly steady since 2010.

A funny trend has been emerging in 2023.

Even though sentiment is sour and no one can take their eyes off of a looming recession, companies have begun lining up to go public. This is typically the worst time to debut a business or ask investors to get fired up about treading in new waters. However, these businesses may not have a choice.

With all of the regional banking turmoil and knock on effect of less money available to borrow, firms are under pressure. Offering shares to the public is one way to bring in dough. Although 2023 IPOs are well off of last year’s trend, only 68 year-to-date versus 115 by May of 2022, the pipeline for the rest of the year is bustling. Some 1,000 companies are filing paperwork and reading the tea leaves on the economy to choose the most opportune time to make their entrance. Among the most familiar names are Stripe, the payments company and Instacart, the grocery-delivery business.

Memorializing

If you are feeling like life is expensive right now, death is too. The cost of aburial or cremation is generally between $7,000 and $9,000. Part of the cost is due to the scarcity of resources surrounding the situation. And yes, agreed, the topic leaves one squeamish, but it is a real problem to be tackled.

As our planet now approaches 8 billion humans, there is less land available to bury the recently departed. Small and heavily populated regions are having the most issues. Think Europe, for example. Packed cities and space constraints are bumping up against different rituals for honoring lives. Catholics sometimes use cremation methods but prefer burials. Muslims are always buried. Most Hindus are cremated. Both cremation and burial can be

hard on the environment too, with chemicals and materials leaching into the ground or air.

A entrepreneurial Dutch company, Loop Biotech has found a speedy and cost effective option to the issue – mushroom coffins. Using mycelium, the root structure of mushrooms, along with hemp fiber, the company grows coffins in just about a week. Once in the ground, it breaks down in about 6 weeks. The company provides urns for cremation too, sometimes including a sapling that can grow into a tree. Coffins cost around $1,000, versus $2,500 or more for a traditional option. Urns are $212, roughly the same price as a non-biodegradable option.

Over 3 million people die in the U.S. every year. According to a recent survey, 11% plan their funeral ahead of time while 70% say they do NOT want their families to spend big on a box. Cardboard would be just fine. Planning for death might be the most uncomfortable tasks any one of us has to tackle. Since it is no small feat for a family to handle such details along with the emotional impact a loss leaves, discussing your wishes ahead of time is yes, squeamish, but can go a long way towards setting financial expectations.