The Buzz on Business for August 5th, 2024

In 2002, or thereabouts, I began working with a client who owned something like $1.5 million of stock in Intel, which was, at the time, the largest chip maker in the world, and by a wide margin. My client had been an Intel employee when he was young—he was mid-fifties at the time—had received the stock as part of his compensation and had bounced around a bit since leaving the company in the early nineties. God, this was so long ago!

Anyway, he didn’t have much beyond his Intel stock. A bit of a 401(k) a nice house, a good life but while a million and a half dollars of Intel stock is a lot of money, it doesn’t make you, by itself, rich.

As part of our planning process, I begged, BEGGED, him to sell it and to diversify. There were two problems with that idea from his perspective. The first was taxes. Selling his Intel would generate a huge tax bill. But the bigger problem was that just three years earlier, his position in Intel had been worth around $9 million.

It was obvious he wasn’t going to take any of my advice, I was busy at the time and couldn’t indulge this particular flavor of irrationality. As we were shaking hands after our last meeting he said, genuinely conflicted, “If it just gets back to $3 million.”

Well, it never did. Intel has bounced around a bit in the last quarter century, but it has basically been dead money.

But being dead money is now aspirational for Intel.

On Thursday, the company announced simply horrible second quarter results. It eliminated its dividend and laid off 15,000 employees, over ten percent of its workforce, and the stock got crushed on Friday, down over 25% on the day.

And adding a gigantic dollop of irony to the Intel saga, the company received an $8.5 billion grant from the US government, just last year, to, ya know, add jobs.

If my client, now in his mid-seventies, held onto his Intel stock, his position is now worth about $800,000.

If he had taken my advice, his $1.5 million would now be worth something like $6 million.

The lessons: One, Diversify. Always. Second, Don’t take money from strangers.

Stock Market Report

The major indexes sold off hard on Friday as volume soared once again. And again, we know the cause. A surprisingly weak jobs report and the comically bad earnings report from Dow, S&P and NASDAQ member Intel.

• The Dow Jones Industrials were off another 611 points. That’s 1.50% and they closed back below 40,000 at 39,737.
• The S&P 500 was off 1.8%, that’s 100 points on the S&P and they closed at 5,347.
• The NASDAQ Composite had a tougher go of things. The techs, led lower by Intel, were off 2.40%, 418 points, and closed at 16,776.
• And the small caps got the worst of it. The Russell 2000 was down over 3.50%, 77 points and they start the week at 2,109.

Bond Market Report

We’ve stated several times on this podcast that the decrease in rates we’ve seen over the last several weeks did not appear to us to be a sign of panic. Well, we’re gonna flip flop on that. Because rates fell dramatically in an obvious flight to safety.

• The yield on the 2-year treasury was off twenty-six basis points, over a quarter of a percent, and settled below 4% at 3.886%.
• The 20-year was off 17 ticks and closed at 4.181%

Oil, Gold, and Bitcoin

• Oil completely reversed its rally earlier in the week on Friday and fell a dramatic $2.79 to close at $73.52.
• Rates fell and again Gold did not rally. Indeed, it fell, $7.40 and a troy ounce will now set you back $2,480.00 even.
• And Bitcoin fell every day last week. It was off another $803.03 and at 4:00 PM ET Friday stood at $63,441.35.

Jobs Report Disappoints, Sahm Rule Activates

The Jobs Report was released on Friday, and it wasn’t good. The Sahm Rule activated and that’s not good either. We’re going to put off a discussion of the Sahm Rule until tomorrow, so stay tuned for that. But let’s take a look at these job numbers.

• Average hourly earnings rose 0.20% in June. That’s not awful but expectations were for a 0.30% increase, so. . .
• On the plus side, the Labor Force Participation Rate, our favorite economic statistic here at the Buzz on Business rose to 62.7% against expectations of 62.6%. Labor Force Participation has been steadily increasing for four years now, albeit still off its pre-pandemic highs.
• Now, the bad news: The economy created 114,000 new jobs in July, which missed both expectations, and June’s result, by a wide margin.
• And the unemployment rate spiked up to 4.3% from last month's 4.1%.

These aren’t good numbers, no doubt about it, but 4.3% unemployment is not horrible. 114,000 new jobs is better than a contraction in jobs. Still the question must be raised: has the Fed waited too long to start cutting rates. Has the economy already slipped into recession, as some commentators, typically those with a political axe to grind, have claimed.

The pace of earnings and economic reports slows a bit today and we will look at the case for and against an imminent recession, right here, tomorrow, on the Buzz.