The Economy’s Weekly Recap

11/18/24 - 11/25/24

Raymond Lin

This Week’s Prominent Events

Splitting a Media Giant

• Like GE and Kellogg, it seems another conglomerate will soon be divided as media conglomerate Comcast announced it would be spinning off some of its legacy media assets, such as MSNBC, CNBC, USA, Oxygen, and Golf Channel. Together, these assets generated $7 billion in the 4 quarters. The new company’s ownership structure will mirror Comcast’s, which means shareholders will gain a number of shares proportional to their current holdings,  but the new company will have its own executives, with current NBCUniversal Media Group chairman becoming the CEO of the new venture. 

• Comcast plans to hold on to other media assets though, keeping the NBC broadcast network, the Peacock streaming service, NBC Sports, and Universal theme parks. Once the crown jewel of its media empire, Comcast spinning off its legacy media assets highlights how those assets have struggled as Americans have ended their cable subscriptions and viewership has fallen. 

• It is anticipated that this new company will soon be attracting other buyers or sellers as consolidation of major media companies is predicted by Wall Street analysts. Craig Moffett, an analyst at MoffettNathanson, said that “investors have yearned for exactly this, or at least something close to it, for years.”

Nvidia’s Earnings

• While Phi Fiscal doesn’t usually highlight a singular company’s earnings, often grouping them together, Nvidia’s status as a bellwether of the AI industry makes understanding their earnings vital.

• In Q3, Nvidia reported sales of $35.08 billion and net income of 19.31 billion or EPS of $0.81. From the same time last year, Nvidia’s revenue grew 94% and net income more than doubled. However, the revenue growth is, unsurprisingly, slower than prior quarters where Nvidia had growth of 122%, 262%, and 265%. Still, both revenue and net income beat estimates by a significant margin, as expectations of $33.16 billion and EPS of $0.75 were beaten by 6% and 8% respectively. 

• Nvidia forecasts strong future growth as well. CFO Colette Kress has said that “Blackwell demand is staggering” for Nvidia’s next generation Blackwell AI chip, which is far more powerful than Nvidia’s current H200. The forecast for next quarter implies a 70% annual growth, which is still extremely high but is lower than prior quarters.

• Perhaps because of this inexorable bottlenecking of growth, Nvidia investors didn’t respond particularly positively to this fabulous earnings report. 5 days on from the earnings report, the stock is down around 11%.

Google Losing Chrome

• Back in July, Alphabet, Google’s parent company, was declared a monopoly in court. Following that ruling, the Department of Justice(DOJ) waited to decide on what it would pursue next, with some possibilities being completely breaking up Alphabet, breaking off Android, ending Google’s search engine agreements, etc. 

• This week, it asked the federal judge overseeing the antitrust lawsuit to force Alphabet to sell off Chrome, allow websites to opt out of AI training models, stop Google from paying other companies like Apple to make Google the default search engine, and force Google to either sell off its Android division or police Google from using Android to knee cap competitors. 

• While these are just DOJ demands and not guaranteed to be enforced by the court, the threat of the demands is serious, with VP of regulatory affairs calling the demands a “radical agenda that goes far beyond the legal issues in this case” and Alphabet’s stock falling around 5% in the days following the announcement. 

• The final decision is expected to be reached sometime in 2025. However, some reservations should be kept regarding the demands because it is uncertain whether Trump’s presidency will affect the lawsuit. President Elect Trump has previously questioned if splitting up Google could “destroy the company” and lead to “China [having] these companies”.

Bitcoin’s Highs and Lows

• Following Trump’s electoral victory around 3 weeks ago, Bitcoin optimism spiked as investors gleefully invested in anticipation of Trump’s crypto friendly administration, driving Bitcoin up over 40% in just the last month. 

• However, after a few weeks of extreme highs and nearing a valuation of $100,000 per Bitcoin, Bitcoin’s price has retreated and reached a recent low of around $91,000, still elevated compared to just a few weeks ago. This retreat was likely due to long term holders selling Bitcoin for a profit, and Bitcoin enthusiasts remain positive about Bitcoin further increasing in value during the Trump administration.

• One recent example of the wild success but also volatility of Bitcoin has been Microstrategy. The software company turned Bitcoin investor now owns $36 billion of Bitcoin and now has a market value of $91 billion. Its shares are up 77% this month and nearly six fold from last year, outpacing even Bitcoin’s growth. Microstrategy’s CEO attributes this success to taking on leverage when investing, but others have noticed this paradox of a Bitcoin investing company being valued more than and growing faster than the underlying Bitcoin. 

• Citron Research founder and short seller Andrew Left, a Bitcoin enthusiast, has said that Microstrategy’s stock is “detached from reality”, with others pointing out that the company has had a net loss of the previous 3 quarters and that the investor euphoria behind it is unsustainable.

Spirit Airlines Bankruptcy

• The first major US airline to do so since 2013, Spirit Airlines has filed for Chapter 11 bankruptcy, working with bondholders in a bid to restructure debt and continue operating into the future after losing $2.5 billion in the last 4 years and facing debt payments exceeding $1 billion in the next two years. 

• The airline has already negotiated a $350 million equity investment from bondholders and the conversion of $795 million of their debt into stock. Spirit Airlines has also secured a $300 million loan to help get through its restructuring. Since the announcement, Spirit Airlines’ stock has dropped around 50%, now down 96% YTD and 99% in the last 5 years, back when it was still making a profit. 

• Spirit Airlines’ collapse occurred for a few reasons, mostly down to the fact that it was poorly positioned for the post pandemic world. Its budget airline strategy left it especially vulnerable to higher labor costs, and new budget offerings from competitors snagged customers away. The DOJ blocking JetBlue and Spirit Airlines 2022 merger took away Spirit Airlines’ lifeline and eventually led to its bankruptcy last week.

Future Events

Trump’s Staff and Policies

• With Trump’s return to the White House, we can expect a number of changes, many of which will involve businesses and the economy. While we’ll have to wait and see what works and what doesn’t, Trump has already begun working towards his policies through his cabinet nomination and announced tariffs.

• Last week, President Elect Trump picked Scott Bessent as Treasury Secretary and Howard Lutnick as Commerce Secretary. Both are billionaires who made their money on Wall Street and appear to be staunch Trump loyalists. They have publicly supported and defended Trump’s tax policies and will play a role in smoothing out and implementing Trump’s policies.

• Speaking of Trump’s policies, he announced this week on his platform Truth Social that he would pursue a 25% tariff on all imports from Mexico as well as Canada. He also threatened an additional 10% tariff on China, which means Trump plans on using tariffs on our #1, #2, and #3 trading partners. In his post, Trump justified the tariffs as a punitive measure until Mexico and Canada stop the flow of drugs, fentanyl in particular, and migrants. He has also blamed China for not stopping shipments of illegal drugs to the US.

• Trump’s tariffs are generally thought of as economically unorthodox and economically harmful, but the costs for these tariffs could be especially high because of how close the US-Mexico-Canada economic relationship is. One only needs to take a look at the link between the automotive and energy relationship between the countries to understand the possible havoc Trump is courting. When considering that retaliatory tariffs may occur, such tariffs will likely be to the overall detriment of the US economy. 

US Housing Market

• For the last few years, the US housing market has been a tale of woe for many a hopeful homeowner as prices have continually risen accompanied by record high mortgage rates. However, there are some signs of hope and, unfortunately, some signs of woe as well.

• In terms of good news, US existing home sales increased in October, leading to the first annual increase since 2021, largely due to a short decline in mortgage rates. October’s home sales jumped 3.4% monthly and 2.9% annually, suggesting that the recent increasing supply of homes, which rose 0.7% monthly and 19.1% annually, may be encouraging homebuying once again. 

• In terms of more negative news, Census data shows that October’s building permits dropped by 0.6% monthly and 7.7% from last year. Meanwhile, housing starts fell by 3.1% monthly and 4% annually. Housing completions were a bit more positive at a 4% decrease monthly but a 16.8% annual increase. These reduced figures represent home builders' fears about Trump’s presidency as, despite his promised building deregulation possibly substantially lowering costs, Trump’s deportations are likely to hurt the construction workforce and his tariffs would lead to higher building materials costs and higher inflation, which would lead to higher interest rates. 

• Overall, it seems homeowners will have to wait a few more months to see if the housing market will ultimately improve under Trump’s new direction or if it will deteriorate.

State of Consumer Spending

• American consumers have long borne the cross of high interest rates. However, with rates coming down in recent months, consumer spending seems poised to increase alongside business investment, leading to greater GDP growth. 

• The latest Census Bureau data seems to confirm this as it reported 0.4% retail sales growth in October, above expectations of 0.3%. Additionally, the newest data revised September’s retail sales growth from 0.4% to 0.8%, showing that consumer spending is still going strong. With the holiday season ahead of us, it seems likely that this strong spending will only continue for the rest of 2024, making 2024 a year of solid American economic progress. 

• However, there is some nuance to this rosy picture. While Americans have continued spending, their spending has often been at select locations, mostly massive retailers that have the infrastructure to offer low prices, such as Amazon and Walmart. Meanwhile, other retailers have been struggling and closing thousands of stores.

• Walmart and Target’s recent earnings reports illustrate this point well. Walmart saw comparable store sales grow 5.3% and adjusted EPS of $0.58, beating estimates of 3.9% and $0.53. Meanwhile, Target’s same store sales grew just 0.3% and EPS was $1.85, below estimates of 1.5% growth and $2.3 EPS. 

Weekly Question

Comcast, media conglomerate and feature of today’s first story, is large, but what is its current market cap?

• A: $24 billion

• B: $9 billion

• C: $113 billion

• D: $166 billion

Answer: D. Despite having fallen in value over the last 5 years, the company is still worth around $166 billion, although we’ll have to wait and see how long that holds after its assets are spun off.