POP QUIZ

Which U.S. states consume the most whiskey per capita? (The answer is at the bottom of this email!)

IN THE NEWS

👀 The Real Reason Sentiment Surveys Are So Bad

Photo by Scott Graham on Unsplash

You’ve heard it before — all the reasons individuals and businesses are pessimistic about the economy.

For the past year, the job market has boomed, and the economy has grown, yet consumer and corporate sentiment surveys have routinely painted bleak outlooks, fueling recession speculation.

• The usual explanations are high rates of inflation and rising interest rates, even though wages and corporate earnings growth have largely outpaced inflation.

Rationalizing pessimism: Perhaps folks are still reckoning with sticker shock, though? And while many companies haven’t yet refinanced debt issued during the low-rate pandemic era, bypassing the sting of higher interest rates, they know it’s coming.

• Deteriorating housing affordability as mortgage rates have jumped is also to blame for pervasive pessimism, at least among consumers.
• Another explanation is that survey data is compromised by partisan politics, where roughly one-half of the country’s economic outlook automatically worsens when the opposing party from their own occupies the White House, controls a majority in Congress, or both.

Economic reality (hard data) has frequently been better than survey expectations (soft data) — From Bloomberg

As mentioned, these are all widely used arguments in the ongoing debate about why survey outlooks haven’t matched reality for over a year.

To uncover a fresh explanation, Bloomberg’s Joe Weisenthal dove into recent surveys of manufacturers and small businesses.

• As Weisenthal puts it, “The numbers are ok. The vibes are dismal.”
• In other words, financial results have been stable, but many firms have been less than optimistic about the future for some time.

In the weeds: Zooming in on a business survey from the Federal Reserve’s Dallas branch, nearly 30% of companies with positive outlooks credited factors unique to their firms, whereas just 5% of businesses with negative outlooks cited firm-specific explanations.

• Instead, they opted to blame macroeconomic or industry-wide trends.

The conclusion? Weisenthal suggests that “when things are going good, managers are inclined to assign themselves credit. And when things are going bad, they blame broader factors outside of their control.”

• The logic is the same for consumers. We all think we’ve “earned” a pay raise or deserved to be hired. We take ownership of the good things in our lives, while higher prices for stuff generally or getting laid off are easily blamed on a bad economic environment.
• Thus, individuals and business managers tend to overstate the negative effects of macro realities. But they’re less likely to attribute positive developments to macro trends, opting instead to take credit for them.

It’s just one of many explanations for the cognitive dissonance between economic reality and outlooks in 2023, but it’s interesting.

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😎 Reddit to Lead 2024 IPO Class

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As 2023 winds down, investment bankers and stock investors are watching 2024’s “IPO Class” of companies that hope to have their shares traded on major stock exchanges next year.

• At the top of the class sits Reddit, the social media platform your nephew or your day-trader friend probably uses. The platform was famously Ground Zero for the 2021 meme-stock frenzy.

What to know: As interest rates have risen, investors have more alternatives to earn solid returns, making investing in newly public companies “IPOing” less attractive compared to, say, 2021’s IPO bonanza.

A few notable IPOs (initial public offerings) happened this year, like the fast-casual Mediterranean restaurant Cava, whose stock has dropped almost 25% since listing, leaving other companies hesitant to partake.

• Instead, companies have kicked the can on planned IPOs, waiting for a window in which they are more confident about how much money they can raise by issuing new shares of stock to the public.
• (If not raising money in an IPO, companies may still want to avoid a plunging stock price, which can hurt brand perception, executive compensation, and the value of employee stock options and employee morale.)

In short, it’s typically best to wait until other companies have successfully transitioned from being exclusively privately owned to listing their shares on public stock exchanges. Still, someone has to test the waters after an IPO market freeze like this year’s.

From S&P Global

Investors think Reddit will be the first big-name listing to test the waters, reportedly contemplating a Q1 2024 IPO at a $15 billion valuation.

For context: 2023 will just barely beat out 2022 for IPO activity, the worst year in over a decade. But after four IPOs in September and October flopped, many gave up on IPO hopes in 2023.

• However, as Wall Street embraces hopes that the Federal Reserve is done hiking interest rates and may soon begin cutting, optimism for 2024’s IPO market has rebounded.

Who else could be in 2024’s IPO class? Rubrik Inc., a Microsoft-backed cloud and data security startup, is in the mix, as is Kim Kardashian’s Skims underwear label, which has a $4 billion valuation.

• The Chinese fast-fashion giant Shein has also filed with U.S. regulators for a potential stock listing next year.

How the first few IPOs of 2024 pan out will undoubtedly shape many other companies’ plans to go public next year.

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📦 Amazon Is Now America’s Biggest Delivery Business

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Amazon isn’t just an enormous e-commerce business; it’s also America’s biggest delivery giant, surpassing UPS and FedEx. The Seattle-based behemoth delivers the most packages to U.S. homes.

• Amazon was once a major customer for UPS and FedEx. Some analysts and executives mocked Amazon for thinking it could one day surpass them. Yet a decade later, Amazon continues to grow steadily.
• By Thanksgiving, Amazon had delivered more than 4.8 billion packages in the U.S. That’s before the busy holiday season. Amazon could hit around 5.9 billion packages by year-end, up from 5.2 billion in 2022.

No chest-thumping: FedEx and UPS have said they’re not in a race to deliver the most packages. Rather, they focus on the most profitable parcels.

• FedEx and Amazon parted ways in 2019 — in other words, you won’t get an Amazon package from a FedEx delivery guy, though you can still receive Amazon packages from UPS.
• Amazon is about 11% of UPS’s revenue, but Amazon isn’t celebrating the delivery milestone.
• “There’s not a lot of perceived value in chest-thumping on being the biggest,” a former senior Amazon logistics executive told The Wall Street Journal, which reported that “instead of a celebration marking the jump on the leaderboard, Amazon executives high-fived and got back to work.”

Overall, shipping volume has fallen this year as some consumers have cut back on spending on goods and instead spent on services, travel, and entertainment.

From The Wall Street Journal

What’s somewhat funny about Amazon’s rise to the top is that just seven years ago, FedEx’s then-CEO Fred Smith said Amazon being a threat was “fantastical” in a now-infamous comment that sounds like the executives at Blockbuster and Kodak.

• Smith’s comment was in 2016, when Amazon was in a distant third place. But Amazon quickly gained ground, building one of the largest logistics networks in the world. It might soon ship double the number of packages as FedEx.

Amazon’s logistics success is rooted in a few initiatives, including a program where entrepreneurs could start their own franchise, delivering Amazon packages for as low as $10,000. Amazon has also opened hundreds of new warehouses, nearly doubling the size of its network between March 2020 and late 2021 alone.

Another logistics lesson: Amazon regionalized its network to reduce the distance packages travel to reach Americans’ doorsteps, boosting profitability.

• “These delivery speed improvements have been a key driver of growth and are resulting in increased purchase frequency by our Prime members,” said Amazon’s CFO this month.

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TRIVIA ANSWER

Kentucky has the highest per capita consumption of whiskey, followed by New Hampshire, Wyoming, Washington D.C., Missouri, and Alaska.