As General Motors goes, so goes the U.S. economy. And GM, which reported earnings Wednesday morning, is doing just fine, despite a chip shortage that is roiling the U.S. economy.
GM is an old company that investors have only just rediscovered. It’s the quintessential value stock, and value stocks are outperforming growth stocks by about 10 percentage points in 2021. GM, up 33%, has done even better.
Like many businesses, GM sales are booming in the post-Covid economic recovery. Dealers can’t keep cars on the lots, which is pushing up prices. What’s more, parts shortages are constraining production, exacerbating the supply issue.
GM didn’t let that bother it during the first quarter. The company reported $2.25 in adjusted per-share earnings, more than double analyst projections for $1.08 a share. Management didn’t raise guidance despite the blowout numbers, however. It still expects an operating profit of $5.5 billion during the first half of the year, despite reporting a profit of $4.4 billion during the first quarter.
GM shares are up 3% in premarket trading, but that shouldn’t be considered a vote of confidence. The stock has dropped 5% since Ford reported one week ago. Let’s call it a wash.
Yet, despite supply headwinds, things are OK. That’s true for the overall economy. Constrained production and part shortages are always preferable to a recession.
—Al Root
*** Join Jon Woloshin, head of U.S. real estate at UBS Wealth Management Chief Investment Office, and Beckie Strum, managing editor at Mansion Global, on Friday at noon to discuss the wild run U.S. real estate has had.Sign up here.
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Jeep and Maserati Maker Stellantis Warns of Worsening Chip Shortage
Stellantis, the European car maker created from the merger of France’s PSA Peugeot-Citroen and Italy’s Fiat-Chrysler, said Wednesday that the global semiconductor chip shortage that hit the automobile industry in the first quarter will worsen in the next three months.
- “We do expect it (the situation) to improve in the second half, but clearly I think it would be naive to expect it to just disappear,” chief financial officer Richard Palmer said, adding that “it is possible that it will leak into 2022.”
- In spite of a 14% rebound of revenue in the first quarter, the group said the shortages cut about 11% of its production during the period.
- Volkswagen, Ford and Daimler issued similar warnings last week about the worsening situation. The shortages, caused last year by the unexpected strength of the electronics goods and automotive industries’ rebounds, cut global production by 1.3 million in the first quarter according to IHS Markit.
- A fire at a Renesas Electronics plant in Japan, as well as serious outages in Texas after the storms in March, have exacerbated the tensions on the global semiconductor market and new problems—such as a drought in Thailand—are appearing.
What’s Next: Car makers are adapting in a hurry and can find solace in the hope that demand for their vehicles is only being delayed by a few months. But they have little visibility on whether the semiconductor industry will be able to meet demand in the next quarters.
—Pierre Briançon
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Yellen Walks Back Comments on Interest Rate Hike, Inflation
At The Wall Street Journal’s CEO Council Summit on Tuesday, Treasury Secretary Janet Yellen clarified her earlier comments about raising interest rates to combat inflation.
- Yellen told The Journal at the online event that she isn’t predicting the U.S. will face an inflationary problem, nor was she recommending the Federal Reserve raise interest rates. “I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,” Yellen said.
- She was addressing the reaction to her comments at The Atlantic’s Future Economy Summit.
- “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Yellen said during the earlier prerecorded interview.
What’s Next: Dallas Federal Reserve President Robert Kaplan told MarketWatch on Tuesday that he believes it’s time for the Fed to start talking about adjusting its asset purchases meant to support the economy.
—Connor Smith
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Goldman Sachs Asks U.S. Workers to Return to the Office This Summer
Goldman Sachs CEO David Solomon told U.S. workers on Tuesday to return to the office by June 14 and U.K. workers to come back by June 21, joining fellow investment bank JPMorgan Chase in coaxing employees back to pre-pandemic working conditions.
- “We know from experience that our culture of collaboration, innovation and apprenticeship thrives when our people come together,” Solomon said in a memo to employees, adding it was time to “activate the next steps” in the return strategy.
- Goldman, based in New York, has been operating with 20% of its staff in the office since last summer, the New York Times reported, and at about 25% in the U.K. Vaccinations, the relaxation of local health rules, and a wave of new employees starting this summer are pushing the return.
- JPMorgan Chase will bring employees back to the office starting May 17 and expects them back on a consistent basis by early July.
- CEO Jamie Dimon said at The Wall Street Journal’s CEO Council on Tuesday that remote offices don’t work “for those who want to hustle.” Former clients have told him that they took their business to rivals because “bankers from the other guys visited, and ours didn’t.”
What’s Next: As head of JPMorgan, the nation’s largest bank, Dimon told the Journal he is optimistic the economy will roar back to life and continue growing into 2023. “The boom is good. Employment is good. Growth is good. Everyone should enjoy it,” he said.
—Janet H. Cho
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Biden Sets New Goal: 160 Million Americans Fully Vaccinated by July 4
Now that many Americans who were eager to get vaccinated have done so and vaccination rates have slowed, President Joe Biden set two new goals for July 4: Getting at least one shot in the arms of 70% of Americans and getting 160 million Americans fully vaccinated.
- “We’re going to make it easier than ever to get vaccinated,” Biden said Tuesday, with walk-in hours at pharmacies, more doses for rural areas, mobile clinics, grocery store discounts, and sports giveaways. People can check vaccines.gov or text their ZIP Code to “438829” to find nearby doses.
- Maryland will give $100 to state employees who get vaccinated, West Virginia has started offering residents $100 savings bonds, Connecticut is buying vaccinated residents free drinks, and Virginia is dangling incentives to inmates, including phone or email credits and commissary snacks.
- Florida, on the other hand, has ended its remaining state and local Covid-19 restrictions and banned vaccine passports. While private businesses can still require masks and social distancing, schools, businesses and government entities can not deny services to unvaccinated people, Gov. Ron DeSantis said.
- At CoStar Group, a Washington, D.C.-based real estate data company, vaccinated employees who go to the office are eligible to win a daily $10,000 cash prize, a company-paid trip to Barbados, or a new Tesla. “You can incentivize people to do the right thing,” CEO Andrew Florance said.
What’s Next: If the Food and Drug Administration approves Pfizer’s request to authorize its vaccine for adolescents aged 12 to 15, Biden said doses will be sent directly to pediatricians and family doctors, so parents can ask questions and get as many students as possible vaccinated before they return to school.
—Janet H. Cho
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Dogecoin Surges, Egged on By Tweets from Telsa’s Elon Musk
Cryptocurrencies have gained wider acceptance—and garnered a lot of attention—in the last year, and it’s not just Bitcoin. The price of Dogecoin has soared more than 11,000% since the beginning of the year, as investors are egged on by tweets from Tesla founder Elon Musk.
- A $1,000 investment in Dogecoin at the beginning of the year—when it was worth 0.005405 cents—would be worth almost $100,000 today, according to MarketWatch.
- Dogecoin now trades at about 52 cents per coin on CoinDesk. It is considered a more accessible and affordable crypto than Bitcoin, which is trading at around $55,000 but has been as high as $64,800.
- The Oakland Athletics baseball team announced it would begin selling a pair of seats in its outdoor stadium for 100 Dogecoin, MarketWatch reported, valuing the two-seat pod at a total of about $50.
- Sotheby’s will accept cryptocurrency for Banksy’s Love in the Air, expected to fetch between $3 million and $5 million at auction on May 12. Sotheby’s calls it the first time an auction house has accepted cryptocurrency to pay for physical artwork.
What’s Next: Tesla’s Musk is scheduled to guest-host Saturday Night Live this weekend. He recently tweeted: “The Dogefather, SNL May 8,” something analysts said is creating a buzz around Dogecoin.
—Liz Moyer
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Dear Moneyist,
I have a mundane First World problem that may or may not warrant your attention. But I read your column, and thought you could help me. It’s something that has been troubling me for some time. Should I buy a $30,000 piece of jewelry?
I have a $500,000 stable annual income, no debt, my kids have their private college tuition and retirement fully funded, and I have an additional $1 million in investable assets in various bank and brokerage accounts. My husband and I are in our late 40s, early 50s.
We have always lived a financially disciplined lifestyle. We avoid impulse buys, while spending liberally on things we truly enjoy and care about, including annual multi-week vacations for the family, organic food, home upgrades for our hobbies, and supporting our favorite charities.
I personally adore quality designer jewelry, and get a little thrill every time I look at them on my wrist and finger. I have never spent $30,000 on one piece of jewelry, and I feel some guilt spending that much money on something primarily for myself, not the family.
This particular piece, a bracelet, has been on my radar since 2019, and I found myself coming back to it time and again. I spent hours following online discussion threads, researching its resale value (in case my daughter doesn’t want it) and insurance against loss, etc.
The good news is, this particular brand of jewelry has been holding its value very well over a long horizon; in fact, it boasts the highest resale value in the last couple of years, according to top luxury resale and consignment sites.
However, I just can’t bring myself to pull the trigger: spending almost 3% of our investable assets on a piece of jewelry just feels very excessive to me. I tell myself to reconsider in a few years when we get to a higher net worth to make the purchase easier to justify and stomach.
My husband said I should buy it sooner, and enjoy it for a few more years. I realize the jewelry aspect makes this a highly personal-preference question. I guess a more generic question could be, does a $30,000 discretionary spend sound reasonable in our financial situation?
—A Bracelet Lover
Read The Moneyist’s response here.
—Quentin Fottrell
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—Newsletter edited by Liz Moyer, Stacy Ozol, Mary Romano, Ben Levisohn
