Befuddled on Wall Street

Plus: Power Grid vs. EVs, Chapter Two ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

February 6, 2023

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TOGETHER WITH

Good morning and happy Monday — unless you’re a business trying to maintain a (previously free) social media presence.

After introducing an $8-per-month subscription plan to allow regular folks access to the coveted blue checkmark, Twitter is again preparing to manufacture revenue streams. This time, Elon Musk’s social media company is proposing that business-affiliated accounts that want to maintain their golden checkmarks start cutting checks. Big ones, too. Twitter is planning to roll out a golden checkmark tier for businesses starting at the low, low price of… $1,000 a month, according to a report from The Information this weekend. Time to update an old proverb: if speaking is silver, then tweeting is gold.

Morning Brief

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The state of the economy is in the eye of the beholder.

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What happens when everyone has an electrical vehicle?

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Southwest needs pilots.

Markets

Absolutely Nobody Can Agree on What’s Happening With the Economy Right Now

We might need an addendum to the old adage that there are decades in which nothing happens and weeks in which decades happen. Apparently, there are also weeks where nobody knows what–in-the-you-know-what has happened… last week was one of them.

The Fed rate-hike deceleration slammed right into a Bureau of Labor jobs report so ludicrously and unexpectedly “positive” — arguably proof of an economy still running white-hot — it rocked everyone’s baseline outlook. Now short-sellers are scrambling to cover while blue chip companies are expecting their first profit drop in years, and the only thing anyone is certain about is that there is no longer any such thing as certainty. In other words, happy Monday.

More Powell to You

The January jobs report saw 517,000 nonfarm jobs added, versus the 187,000 many expected, bringing the unemployment rate to 3.4%, its lowest level since 1969. Whether or not that’s proof the economy is recovering is almost beside the point. For Jerome Powell, it’s proof that the economy can sustain the future rate-hiking body blows that he continues to insist are still coming.

All that said, if there’s one person in all this mess who can even pretend to know what they’re doing, it’s Powell himself. Navigating the uncharted route to a soft landing, in which inflation cools without flatlining the overall economy, does not come without its fair share of backseat drivers. Practically half of Wall Street thinks his rate hikes have cribbed progress, while the other half contends that scaling down hikes too soon could ultimately land the economy in 70s-style stagflation. But some simple data suggests we may be headed in the right direction: since the start of the fourth quarter, the S&P 500 Index has climbed 15%, close enough to catch the sweet whiff of a bull running after a 20% climb.

The result? An outbreak of Wall Street head-scratching and nothing close to a consensus:

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Companies on the S&P 500 are projected to see a year-over-year fall in profits of over 5%, according to FactSet data, the biggest dropoff since Q3 2020. FactSet’s senior analyst John Butters tells the Financial Times that companies are on track for their worst performance against expectations since 2008. Yikes.

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And yet, the market is strong enough to stomp short-selling firms as it steadfastly rallies. The suddenly glass-half-full crowd just executed its largest burst of short coverings since November 2015, the FT reports.

Summer Time: At least one prominent bear has grown cautiously optimistic. Lawrence Summers, who once spoke in apocalyptic terms about the macroeconomic landscape, took a different tone in a chat with CNN’s Fareed Zakaria this weekend: “I’d say I’m encouraged, but I still think it would be a mistake to say we’re out of the woods.” Like a lost hiker, he’ll just have to keep blowing that whistle.

– Brian Boyle

Energy

America’s Push for EVs Could Leave the Power Grid Feeling Drained

(Photo Credit: Matthew Henry/Unsplash)

Electric vehicles existed in the early 1900s, believe it or not — there were more than 4,000 of them — but they were not built for highways, which of course didn’t exist back then. So if you lost power 10 miles outside of town, you had to get ready to do some pushing.

And while the US is now outfitted with tens of thousands of charging stations, the 21st Century proliferation of EVs could be too much for our national grid if adoption rates continue at their current pace, according to The Wall Street Journal. So either infrastructure needs to adapt, or we need to remember how to push.

Need More Power

EVs are all the rage today and appear to be the wave of the future, but they began life in the mid-1800s, right around the same time cars with combustion engines debuted. Despite being quieter, having better handling, and not requiring a hand crank to start the dang thing, EVs lagged behind gas-powered cars for the same reason they struggle today: America’s power grid just wasn’t, well, powerful enough. Will the grid become a choke point yet again as EVs look to take over?

Multiple brands like Cadillac, Mercedes-Benz, and Volvo plan to be EV-only in roughly the next decade. Ford recently jumped into a war with Tesla and slashed prices for its new Mustang Mach-E. And last week, amid the White House’s aggressive push for greener transportation, the US Department of the Treasury rewrote the rules for EV tax breaks, allowing even more vehicles to be eligible for government subsidies.

Car makers and DC could have bitten off more than the country’s energy sector can chew:

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EVs currently make up about 7% of cars on the road in the US, but that could increase to a third or even half of all light vehicles sold annually, according to the WSJ. The good news is that right now, EVs really don’t consume all that much energy. A study by the Argonne National Laboratory, found that the roughly 2.1 million EVs on the road in 2021 accounted for less than a percent of electricity consumption.

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While many energy experts believe the US’s power grid will be up to the task, it will require a lot of money. Charging a vehicle at home is not like turning on a light or plugging in a phone. You need a huge boost in electrical-transmitting capacity at the local level. Power industries nationwide might need to spend $10 billion through 2030 updating their infrastructure to charge all the new EVs, Thomas Baker of Boston Consulting Group told the WSJ.

Some parts of the country are already hitting speed bumps. Last September, California asked residents to not charge their cars in the evening during a heat wave. That might be the plan for the foreseeable future in some areas — charging at only certain hours of the day.

Give a Little, Get a Little: In Michigan, DTE Energy has a pilot program where the power company can pause charging during hours of high demand. Duke Energy and Pacific Gas & Electric are testing a method where EVs can actually add energy to the power grid, and then drivers get it back when the demand has eased. While it’s already hard enough to keep road rage under control, get ready to start shouting “Serenity Now” before you’ve even left the driveway.

-Griffin Kelly

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Aviation

Southwest Reducing Training Time Needed for New Pilots

We’d like to think that learning on the job shouldn’t apply to the person in the cockpit of the 500,000-pound commercial airliner you’re flying.

As it looks to increase hiring amid a pilot glut, Southwest Airlines announced it will reduce the amount of experience needed for aviators — by half!

Your Flight’s Been Delayed

The Federal Aviation Administration requires pilots to have 1,500 hours of flight time total. Southwest will still meet that standard, but the new measure is reducing a company requirement for specific aircrafts. Starting Tuesday, applicants will need only 500 hours of “turbine time” in jets and turboprop planes compared to the previous 1,000.

The US airline industry as a whole has been struggling to retain pilots. According to estimates from consulting firm Oliver Wyman, the sector is short 8,000 pilots, or 11% of the total workforce, and that deficit could reach 30,000 by 2025:

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A lot of this is due to unions looking for better contracts, an unforeseen number of pilots accepting buyout packages or early retirements during the pandemic, and a lack of educated fliers. Today, plenty of military aviators have more experience operating a drone than an actual plane, so those public sector skills don’t translate to commercial aviation as well as they used to.

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There’s no better example of this struggle than Southwest. For nearly three years union aviators in the Southwest Airlines Pilots Association have been negotiating for a better contract. And after last month’s tech meltdown that disrupted flights across the board, Southwest led the industry in delays with 49% of flights being grounded. SWAPA, which represents about 10,000 pilots, has since called for a strike authorization vote that will run through the month of May.

“This is to address the shrinking pool of pilots interested in coming to Southwest,” SWAPA President Casey Murray told Bloomberg. “They’re having problems hiring them, they’re also having trouble keeping them.”

Let’s Fly Away: The pilot shortage is not likely to go away anytime soon as travel demand continues to ramp up. By November, the International Air Transport Association was reporting that global air travel rates had already reached 75% of pre-pandemic levels, and China opened up its borders since then. So basically, expect delays and bring one of those neck pillows. And just pray your pilots aren’t faking it until they make it.

– Griffin Kelly

Extra Upside

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Watch it Pop: US shoots down “Chinese spy balloon” over South Carolina coast.

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Country Fried Love: Cracker Barrel is offering a free year of food to select couples who propose in their restaurants on Valentine’s Day.

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Just For Fun

The original runaway balloon.

Rainbow road.

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