Weekly Reflection for October 28, 2022

Market Update in Charts

The markets have been rallying, for what appears to be the seventh time this calendar year. After bottoming out on September 30th for the Dow, and two weeks later on October 14th for the S&P 500 and Nasdaq, the indices are up 13%, 10% and 9% respectively. Still, the increases are only a a sliver of what has been lost for the year, as indicated by the numbers in the black box above.

This was a big week for investors with some 165 companies listed in the S&P 500 reporting on their third quarter business results. All eyes were on the five technology goliaths - Microsoft (MSFT), Alphabet (GOOGL), Meta Platforms (FB), Apple (AAPL), and Amazon (AMZN). These five companies together represent roughly 20% of the S&P 500 index price and had the chance to cut the rally short with their miserable results. And the results, along with investor reaction, was miserable. Only Apple is still holding onto a gain since September 30th.

The outlook for China’s economic growth is dropping. Expectations are that the Covid Zero policy will slowly go by the wayside, since it is a major factor in the slump. Growth is forecast at less than 5% for the next two years, a stark change from the last 12 years when growth was often in the double-digits. On the other hand, inflation will stay in the range of 2.7%.

College in the U.S. is expensive, especially when compared to post-secondary schools in the rest of the world. There are other reasons to choosean international experience but cost is increasingly becoming a compelling factor. For those who jump through the right hoops, tuition could be free at a German university, €2,770 annually in France and €15,000 in the Netherlands. Costs are a little steeper in the U.K. but there's a bonus - students can earn degrees in as little three years, not four, or five or more.

Silver Linings

When we hear a pundit say “the consumer is strong”, is this what you think of? What the pundit should say is that the consumer has not wanted to slow down purchases, vacations,

going to concerts and so on. But it does not mean that the consumer is all that strong, handily affording everything they are swiping their credit card to buy. The personal savings rate just dropped to 3.3%. This is what is left over after paying taxes and necessary expenses. It's amongst the lowest since stats were kept going back to 1947. Since the pandemic, savings have fallen 88% and compared to the before-times, savings are down 60%.

To underscore the point that bank accounts are low, just take a look at credit card balances, which are up 9% from the beginning of the year. Credit-reporting company Equifax says that balances are as high as they were in December 2019. This is a bad sign given everything we know about our slogging economy.

Data is lagging on the overall rates for credit cards. But this report, published in 2021 by the Consumer Financial Protection Bureau, shows the range of interest rates on balances, broken down from "Superprime" borrowers with stellar credit ratings to "Deep Subprime", those borrowers extremelyunlikely to pay their bill. Consider that this data predates our current high interest rate environment and you can just imagine how expensive carrying a balance on a credit card is for everyone.

It is inevitable that people will either start cutting back on spending and/or exhaust their savings by spending their income on essentials. This will help inflation come down but also help with that recession that is either here or just around the corner, depending on who you ask.

The Un-Dead

The Kingdom of Serbia in the 1720s was a time of relative peace. The Hapsburgs were in charge, having just conquered the area from the Ottoman Empire, though they would lose it again in 1739. There was self-rule for the people, a rising middle class and a healthy growing population. Petar and Anna Blogjevic were a farming couple in the village of Kisiljevo, a small north-eastern town on the border of present day Romania. History refers to them as peasants but whatever their status was, their lives were typical all the way upthe time of Petar death of natural causes around age 62 in 1725. His death was not considered unusual until other villagers began dying. One after another, a total of nine died within a week, all suffering suddenly and intensely. On their deathbeds, they claimed that Petar was returning from the dead to strangle them. Anna ramped up the hysteria by telling her neighbors that dead Petar had visited her in the night and stolen her shoes. She was so terrified that she packed up and ran away. The week ended with Petar’s son who, refusing his still-dead father food, was bitten and died after his blood was consumed. Villagers demanded that Petar’s body be dug up so that they could look for signs of life, such as growing hair and nails. With a very reluctant priest in tow, the body was exhumed and indeed, appeared a little too vibrant – the nails and hair looked healthy and there was blood in his mouth. This was all the town needed to see and they drove a stake through Petar's heart and burned his body.

In 1890, Bram Stoker walked into a library in England and asked for a book on the (now) Romanian provinces of Wallachia-Moldavia, on the border of Serbia. (Then it was a rare and protected book; today it is available on Amazon for $7.25.) Weaving together various details from the book

along with the second-hand accounts of an eastern European ship that had run aground on the coast of England with only a few surviving crew members, Stoker worked for years to write Dracula, originally titled The Un-Dead.

He submitted Dracula to his publisher as a work of non-fiction but it was firmly rejected due to concerns about the stress that Londoners were already under after years of violence and murder courtesy of Jack the Ripper, among others. Stoker’s publisher required major edits and said it would be published as fiction or not at all. The first 101 pages were stripped out and published as fiction, becoming an immediate hit. In the 1980s the original manuscript, albeit starting at page 102, was found in a barn in Pennsylvania. The “truthy” part is nearly lost to history but some of it remains in the 120-year old Icelandic version, Makt Myrkranna, where Stoker likely sought to save his work outside of the reach of his British publisher.

So when you see little vampires roaming your neighborhood this Halloween, you can wonder if Petar was just a regular guy or was he....?, could he have been....? Nah.