Always been a fan of this and the rail index. They are both easy to measure and hard to fudge.
Q4 2022 hedge fund letters, conferences and more
“Davidson” submits:
The Trucking Tonnage Index(TTI) was reported higher with positive revisions to Dec 2022. The index now resides above the former trend line. Real Retail Sales likewise were revised higher(previously reported). Grudgingly analysts have reduced their recession forecasts from ‘hard landing’ to ‘soft landing’ to now ‘perhaps no landing’. In my opinion, this shift is being forced by the economic data as it emerges monthly and is slowly overriding responses by those reading calamity into every short-term dip and endless predictions of 20%+ declines from current levels. The data continues not to support this pessimism even with pessimism remaining high.
Real Personal Income vs Household Survey(Employment) which have been previously reported for comparison are in uptrends. A myopic belief that high tech and recently favored ‘growth issues’ are the only issues representing general economic growth is misplaced. There are another 85%-90% of issues, which are not ‘Go-Go issues’ of this cycle, providing goods and services essential to economic growth without which the ‘Go-Go issues’ would not have a marketplace. While the majority of ‘Go-Go issues’ grow revenue, they operate at negative Free Cash Flows and negative Net Income. Some will eventually prove profitable but 10yrs later some of the largest of these have yet to add lasting value to GDP. Meanwhile, those that are the basis for rising GDP producing essential goods and services. These issues with rising Gross, Operating and Net Income margins have languished. In my opinion, markets are being forced to turn away from ‘Go-Go issues’ as quarterly reports emerge plodding along one after another. Real Retail Sales, Trucking Tonnage, Employment and Real Personal Income trends will refocus investors to these the next 2yrs-3yrs.
The US economy has a successful history of operating during inflation periods and higher rates. Where trouble lurks is when market psychology develops into a prolonged period of speculation which traps investors and businesses in longer-term assumptions that are not justified. In other words, recessions occur when most are too far over their skis on borrowed money coupled with borrowed time. That is not today’s condition. Today, the consensus has only in recent weeks shifted away from a hard recession towards perhaps a soft-spot or even no recession.
There are many well-operated economically-essential companies priced at levels so low that even just returning to past valuations one can envision ridiculous returns. This cycle is not ending as has been heavily forecast but still emerging post-COVID. In my opinion, we still remain in early stages of that recognition.
