Dow soared 385, advancers over decliners a hefty 8-1 & NAZ advanced 191. The MLP index rose 3+ to the 248s & the REIT index jumped 10 to the 339s. Junk bond funds remain in demand & Treasuries had very heavy buying, sharply reducing yields. Oil is fractionally higher to the 81s & gold inched up 1 to 1898.
AMJ (Alerian MLP Index tracking fund)
The cost of labor unexpectedly declined in the 3rd qtr, providing at least some relief on the inflation front, the Labor Dept reported. Unit labor costs, a measure of hourly compensation against productivity, fell 0.8% for the Jul-Sep period at a seasonally adjusted rate. The forecast had been looking for a gain of 0.7%. On a 12-month basis, unit labor costs increased 1.9%. The breakdown reflected a 3.9% increase in hourly compensation, offset by a 4.7% rise in productivity. That increase in productivity also was more than expected, beating the estimate for a rise of 4.3% for the biggest quarterly gain since the 3rd qtr of 2020. Output climbed 5.9%, while hours worked rose 1.1%. The developments come as the Federal Reserve is seeking to tamp down inflation through a series of interest rate increases. Yesterday, Fed Chair Jerome Powell said wage gains “have really come down significantly over the course of the last 18 months to a level where they’re substantially closer to that level that would be consistent with 2% inflation over time,” the central bank's target.
Labor costs show surprise decline in the third quarter
The Treasury Dept recently dropped a financial bomb, announcing the deficit for fiscal year 2023 was $1.7T & it just released new numbers projecting borrowing of $1.6T in just the first ½ of fiscal year 2024. As if the 23% growth in last year's deficit wasn't enough, the Treasury is now on track to borrow almost as much in just 6 months as it did in the previous 12. That's nearly a doubling of the deficit. It means the Treasury is on track to borrow over $3T this fiscal year, 50% more than previously estimated by the Congressional Budget Office. Besides the pandemic in 2020, America has never run deficits like the previous, current, or next qtr, at $1T, $776B & $816B, respectively. In the 4 qtrs that preceded the pandemic, the Treasury had an average deficit of under $300B, about ½ to 1/3 of today's levels. Borrowing was much too high even before 2020. But the fact that borrowing is now almost 3 times as high speaks volumes about how quickly things are spiraling out of control. The federal gov's financial situation resembles a stereotypical bomb from a cartoon or cinema, spherical in shape with an impractically long fuse. The long delay between the bomb being lit & exploding allows the incendiary to be thrown between people, none of whom want to be holding it when it goes off. As the fuse gets shorter, people more quickly throw the bomb to someone else, & that's exactly what’s happening with Treasuries (bills, notes & bonds) today. After the 1990s, the federal gov seemed to completely abandon the idea of a balanced budget, let alone paying off the debt. Artificially low interest rates, courtesy of the Federal Reserve's monetary manipulations, allowed politicians of both parties to eventually rack up a federal debt that was larger than the economy but still required only small annual interest payments to service the debt. Such irresponsibility is how a nation builds a fiscal bomb. Bidenomics, perhaps best defined as the gov spending, borrowing & printing too much money, not only made the bomb larger, but also caused inflation, which forced up interest rates. That was the match that lit the fuse. Because the federal debt is $33.7T, just a 1% increase in yields adds $337B to the annual cost of servicing the debt over time, as more of the debt is rolled over at higher interest rates. That adds to the administration's already large deficits, so that higher interest costs grow the debt even faster. The Treasury is already spending an annualized $1T to service the debt.
The fuse on America's debt bomb just got shorter
Eli Lilly (LLY) reported 3rd-qtr revenue & adjusted earnings that topped estimates on strong demand for its diabetes drug Mounjaro, but slashed its full-year profit guidance due to charges primarily related to its recent acquisitions. For the qtr ended Sep 30, LLY posted a loss of $57.4M (6¢ a share) compared with a profit of $1.45B ($1.61 a share) a year earlier. Excluding one-time items, the company
posted EPS of 10¢. The pharmaceutical giant
generated 3rd-qtr revenue of $9.5B, up 37% from the same
period a year ago. That increase was primarily driven by growth from
Mounjaro & other treatments, including breast cancer pill Verzenio &
diabetes medication Jardiance, & the sale of one of its drug
portfolios. The company recorded pretax “in-process research and
development” charges of $2.98B, which are primarily related to a
slew of recent buyouts, including Dice Therapeutics, Versanis Bio &
Emergence Therapeutics. That compares with charges of $62M in the 3rd qtr of 2022. “This
is essentially the future value of business development deals we have
done,” CEO David Ricks said. The
company lowered its 2023 adjusted EPS guidance to $6.50-$6.70, from a previous range of $9.70-$9.90. But LLY reiterated its full-year revenue forecast of $33.4-$33.9B. Mounjaro, the company's Type 2 diabetes injection, posted $1.4B in sales for the qtr. The drug was first approved in the
US in May 2022 & had just $97.3M in sales in the year-ago
period. Analysts had expected the drug to bring in $1.3B in worldwide sales. The
lion's share of Mounjaro revenue came from the US, where it raked in
$1.28B, reflecting increased demand & higher realized prices
due to decreased use of savings card programs. The stock surged 25 (almost 5%).
If you would like to learn more about LLY, click on this link:
club.ino.com/trend/analysis/stock/LLY_aid=CD3289&a_bid=6aeoso5b6f7
Eli Lilly results top estimates on Mounjaro strength but slashes profit outlook
The Dow's grim performance was reversed in the last week (see below). Risky investments (like stocks) are being welcomed. Even if the rate hikes end, businesses still have to live with interest rates at very high levels & that is not good going forward. Additionally, growing federal deficits are troubling.Dow Jones Industrials
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