This month in Ford’s history: its greatest market failure

From Benzinga:

This Day In Market History: The Debut Of The Edsel, Ford’s Biggest Flop…in 1957, Ford Motor Company unveiled the Edsel.

The Edsel is infamous as Ford’s costliest mistake in history. Experts estimate the Edsel cost Ford roughly $350 million ($2.3 billion in 2016 dollars) in losses, or roughly $3,200 per vehicle sold.

The Edsel had such a negative impact on Ford’s finances that the company’s net income per share dropped from $5.40 in 1957 to just $2.12 in 1958. Ford also cut its dividend from $2.40 to $2.00 to mitigate the Edsel’s impact on its balance sheet. Ford’s share price itself dropped from above $60 to below $40.

Experts cite a U.S. economic recession, the Edsel’s unappealing name, poor marketing, unreliability, unappealing design and other of potential explanations for the car’s poor performance in the market. Whatever the reason, Ford discontinued the Edsel in 1959, just two years after its launch.

Source: The Henry Ford

It is difficult to imagine this kind of event in the age of NFTs and red hot IPOs (that in some cases we may not be entirely sure what it is the company will produce, if anything). a Washington Post article concluded, “the idea for the Edsel came from Ford executives who were thinking about market niches when they should have been thinking about cars.” But the story is still cautionary from the standpoint of hype, and consumer sociology as the Edsel ultimately failed:

because consumers did not buy it…in reality, however, Ford terminated the Edsel largely because shortly before Ford introduced the car a change in leadership brought a change in corporate strategy that made the Edsel irrelevant to Ford Motor Company’s (FMCs) long-range plans (Dicke, 2010).

The same author in an interesting assessment of what went wrong strategically concludes:

The Edsel was also a reassuring failure in the sense that it in no way challenged the basic soundness of the American economy. As the Wall Street Journal pointed out in its editorial/obituary, consumers could reject any product for any reason or for no reason. After the 1958 model year people rejected the Edsel because they did not like the brand not because it had any serious mechanical deficiencies. Consumers could afford to reject a US$ 250 million investment by an automaker for trivial reasons because they had faith that the auto industry could absorb the loss and come up with something more in tune with their tastes (Dicke, 2010).

See the full paper on Wiley here

Vintage Edsel Car – Library of Congress


Alameda County revises COVID-19 death toll down by 25%

According to the County of Alameda:

Using the older definition of COVID-19 deaths, a resident who had COVID-19 but died due to another cause, like a car accident, this person would be included in the total number of reported COVID-19 deaths for Alameda County. Under the updated definition of COVID-19 deaths, this person would not be included in the total because COVID-19 was not a contributing factor in the death.

With much discussion on public trust, it is possible to suspend judgement but still ask about the timing of this decision and announcement? The County states, “aligning with the State’s definition will require Alameda County to report as COVID-19 deaths only those people who died as a direct result of COVID-19.” Why wasn’t this a discussion during the highest period of impact during the pandemic? See the full press release here.

Supply chain bottleneck: corporate panic buying

We are a full-orbed panic buy culture, and current behavior would indicate this will be the post-pandem norm as noted the other day:

But now it is bleeding over into corporate panic buying due to supply chain restraints. From Yahoo Finance, The World Economy Is Suddenly Running Low on Everything:

A year ago, as the pandemic ravaged country after country and economies shuddered, consumers were the ones panic-buying. Today, on the rebound, it’s companies furiously trying to stock up.

Mattress producers to car manufacturers to aluminum foil makers are buying more material than they need to survive the breakneck speed at which demand for goods is recovering and assuage that primal fear of running out. The frenzy is pushing supply chains to the brink of seizing up. Shortages, transportation bottlenecks and price spikes are nearing the highest levels in recent memory, raising concern that a supercharged global economy will stoke inflation.

Copper, iron ore and steel. Corn, coffee, wheat and soybeans. Lumber, semiconductors, plastic and cardboard for packaging. The world is seemingly low on all of it. “You name it, and we have a shortage on it,” Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said on a call this month. Clients are “trying to get everything they can because they see high demand,” Jennifer Rumsey, the Columbus, Indiana-based company’s president, said. “They think it’s going to extend into next year.”

The difference between the big crunch of 2021 and past supply disruptions is the sheer magnitude of it, and the fact that there is — as far as anyone can tell — no clear end in sight.

An end in sight is yet to be determined but these constraints are certainly related to some of the short-term inflation that is currently being somewhat over-reported but still exists, “essentially what people are telling us to expect is that it’s going to be hard to get supply up to a place where it matches demand.”

Consumer Price Index – Inflation as Expected

As expected, the CPI news release (April 2021) today shows significant inflation, as that has been the anecdote from almost everywhere. The surprise is just how much and how fast:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent in April on a seasonally adjusted basis after rising 0.6 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 4.2 percent before seasonal adjustment. This is the largest 12-month increase since a 4.9-percent increase for the period ending September 2008.

Pent up and bottlenecked economy

The question is why this pace of increase or does this signal long-term problems. The most immediate causes relate to the re-opening of the economy. From MarketWatch:

The pace of inflation has surged after years of languishing at unusually low levels largely due to the rapid reopening of the U.S. economy.

Businesses can’t keep up in demand, a problem exacerbated by ongoing bottlenecks in the global trading system tied to the pandemic. Computer chips are especially in short supply and that’s held up production of new autos and other manufactured goods.

Americans are also rushing to dine out, travel or go far away for vacation, activities they shied away from during the pandemic. That’s also driving up prices at popular vacation resorts and other venues where people plan to congregate.

The first two reasons are pretty straightforward, but the third reason (pent up demand) is beyond question, even if this one is the most difficult to measure as it’s anecdotal and not enirely precise but we all observe it – everywhere is packed with people looking to get out and do something, anything. But the impacts are real and tangible as seen in the BLS data:

See full interactive (and drillable detail) here.

Apple and Gold as Market Barometer

Benzinga posted a very interesting comparison between gold prices and Apple Computer, as a measurement potential trend:

Gold investors have been waiting for this, The metal has been trending lower since August and after rebounding in April, it ran into resistance around $1,780. That put a halt on the rally…Now that resistance has been broken and a big move higher has been made….There’s a good chance it continues. With inflation here and a potential energy crisis on the horizon, a flight to safety has begun.

But the unexpected correlation: “One reason why the flight to safety has begun and gold is moving higher is the weakness in Apple Inc.” Apple has met resistance for months and the suggestion is that Apple, being so strong in earnings and organizational performance, yet underperforming as a security – could be a bearish signal overall.

Here is gold over the last year:

Now Apple:

Of interest as well, the gold backed digital asset PAXG over the last three months:

Californians population declined for the first year since 1900

From the DOF:

California’s population dipped by 182,083 residents last year, bringing the state’s total to 39,466,855 people as of January 1, 2021, according to new population estimates and housing data released today by the California Department of Finance (May, 2021).

The press release also reports that some of the decrease was attributed to excess deaths in 2020:

The COVID-19 pandemic increased California deaths in 2020 by 51,000 
average death rate for the three preceding years. “Excess deaths” rates above the past threeyear average – were observed in 51 of the state’s 58 counties. 

But the story is a mixed bag – there is significant growth in a number of inland cities, northern and southern but certainly not limited to those areas as illustrated in the interactive graphic from Cal Matters (see Cal Matters excellent write up here).

Social media and the route to nowhere

Of all places to find a commentary of what we are doing to ourselves as a culture – Roger Daltrey (of The Who if you are under the age of 50), in a recent interview gave some interesting commentary as he looks down the road and sees a “miserable world.” It should give pause that someone who is not only toward the end of their life but also lived through the unique time (as a voice) in the 1960s, describe where we are headed, “you just know that it’s a route to nowhere.” What I think is relevant are the comments regarding the lack of geniune discourse in our present time, “it’s just getting harder to disseminate the truth…it’s almost like, now we should turn the whole thing off. Go back to newsprint, go back to word of mouth and start to read books again.”

Imagine that possibility, settling down long enough to enter into the mind of another in the contempletive activity of book length studies. The route to nowhere brings to mind the words of Neil Postman, “the press worked as a metaphor and an epistemology to create a serious and rational public conversation, from which we have now been so dramatically separated(1985).

When Stocks Only Go Up?

Spoiler alert to the Wall Street Journal post, What Happens When Stocks Only Go Up – they don’t. But far more interesting than the impossibility of predicting a major correction, whether this time it’s really different, or some other alternative, is the exploration into the psychology of the investor (or trader):

In February 2020, before the pandemic had fully hit home, these investors estimated the odds of such a bear market at an average of only 4%. By April, just after the S&P 500 had fallen by one third, their expectations that the market would plunge again in the coming year nearly doubled to 8%.

Those fears swiftly faded. By last December, investors in the Vanguard survey estimated the probability of another crash in the ensuing 12 months at only 5%. That was slightly lower than their average estimate during the three years before the pandemic.

But one group was different:

…those who went into early 2020 with the highest expectations for stock returns in the upcoming year. They ended up reducing their exposure to stocks much more sharply during the crash of February and March 2020 than those who had been expecting lower returns.

Again, not necessarily by way of prediction but a historical account of the madness of the crowds that should at least give pause, “in the 1920s, a “new era” of technological disruption made caution look absurd—until stocks crashed by 89%.”

Zoom CEO: “I have Zoom Fatigue”

Well over a year into this, the comments in the Wall Street Journal are sad, perplexing, and give pause to what we have done all at the same time:

After more than a year of working virtually during the pandemic, executives in banking and technology are pushing back on the idea that workers should be able to do their jobs entirely from home in the coming months. Though some said they expect more flexible work arrangements to endure going forward, they say there are clear signs of burnout in an era of nonstop video calls.

Eric Yuan, the CEO of Zoom, told a virtual audience of The Wall Street Journal’s CEO Council Summit Tuesday that he had personally experienced Zoom fatigue. On one day last year, he said he had 19 Zoom meetings in a row.

The post goes on to report that, “like many companies, Zoom is planning an eventual return to its offices,” phasing in on-site work. The inquiry really should be what is holding these firms back? Many CEOs like that of JPMorgan have observed what anyone over the age of 50 knows:

Remote work doesn’t work well for generating new ideas, preserving corporate culture and competing for clients—or “for those who want to hustle,” Mr. Dimon said, adding he has been back in the office for months. 

The technology is wonderful, and for working on specific projects that require a shared document or dataset, Zoom, Teams, et. al., work exceedingly well. But you cannot replicate the energy of face to face collaboration, and I think our culture would do well re-thinking some of what we have done over the last year. 

Optimism everywhere – as well as the expectation of inflationary pressures

A post in the Wall Street Journal last week reported pre-pandemic levels of consumer confidence and for good reason(s), “as more people received vaccinations, stimulus payments reached households and businesses more fully reopened.” Employment, stimulus, an opening economy, vaccinations – all very compelling and obvious drivers to an overall feel of things, as well as the continued disucssion of inflation and how this will shape policy choices in the mid to long-term.

The University of Michigan Surveys of Consumers shows a consistent trend (with the next update in two weeks):

The survey adds the following commentary on inflation the finds support for either direction with:

Each side in the current policy debate finds support in the consumer data. The recovery is far from complete as less than half of the fall in consumer sentiment has so far been recovered, and the current and prospective stimulus and infrastructure spending has the potential to spark a renewed inflationary psychology, although that will not occur immediately…

Inflationary psychology preceded actual inflation by about two years in the last bout in the 1970s. The key balance is not to underestimate the ultimate impact of those policies on jobs and inflation, and not to overestimate the ability of policies to bring any excesses to a painless soft-landing.

Similarly, in the May 1 Berkshire annual meeting Buffett noted on the one hand the last 20 plus years, “was not a highly inflationary period as a whole,” but what they are seeing is:

…very substantial inflation. It’s very interesting. We’re raising prices. People are raising prices to us, and it’s being accepted. Take home building. We’ve got nine home builders in addition to our manufactured housing operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, just every day they’re they’re going up. And there hasn’t yet been because the wage stuff follows. The UAW writes a three-year contract, we got a three-year contract, but if you’re buying steel at General motors or someplace, you’re paying more every day. So it’s an economy really, it’s red hot. And we weren’t expecting it.

When asked in the Q & A his thoughts on the worry of “more inflation or that we will have a pretty dramatic fiscal monetary collision,” Buffett diplomatically answered, “we don’t know.”

Ford vs. Ford – All-Electric Mustang Showdown

You don’t have to be a car enthusiest to appreciate Ford’s developement of a 1,400 horsepower EV that sounds like a landspeeder as the company doubles down on what is possible in the electrified market. Watch the Mustang Mach-E 1400 and all-electric Mustang Cobra Jet 1400 on the track at the same time:

From last year: Ford introduced its All-Electric Mustang Mach-E 1400 Prototype:

Ford introduces Mustang Mach-E 1400, an all-electric road rocket that shows just how much performance can be harnessed without using a drop of gas. Coming hot on the heels of the 1,400-horsepower all-electric Mustang Cobra Jet 1400, this one-off Mustang Mach-E with its seven electric motors and high downforce is ready for the track, drag strip or gymkhana course – anywhere it can show how electric propulsion promises extreme Mustang performance.

Her is the original introductory post from last year:

Blistering earnings and consumer sentiment (Apple Computer)

It is always interesting to observe blockbuster earning results (genuine fundamentals) and realize what is good for business, the economy, and employment, often has little or nothing to do with what drives the capital markets. In other words, what’s good for business is not necessarily good for stocks, and vice versa. Put another way still, investor and consumer confidence are two entirely different things, sometimes. Take just one example with Apple Computer and the 5-day price movement:

How does that reflect a company that just reported earnings that are on track to exceed last year by 30%? Additionally, Apple reported

Profit of $23.6 billion in the latest quarter as revenue rose 54% to $89.6 billion, far exceeding Wall Street expectations. The company also announced a 7% increase to its cash dividend to 22 cents a share and that the board had authorized an increase of $90 billion to an existing share-repurchase program (Ameritrade).

A similar assessment with the same question in Barron’s:

At least a dozen analysts raised their targets for the (AAPL) stock price…and every single one of them raised their earnings estimates in response to the results…previous (Goldman) view that iPhone sales would disappoint during the pandemic was “clearly wrong.”

…growth of 66% in iPhone sales, 70% for Macs, 79% for iPads, and 25% for Wearables, with 27% growth in Services. The company posted 56% growth in Europe, and a remarkable 88% in China…

One obvious question is what can Apple do as an encore?

The suggestion that the earning report might be a little “too good” kind of sound like a search something to say in the absence of any real explanation. But the question of what happens in post-pandemic consumer behavior is a valid one:

“Will there be a trough on the other side as Covid-driven wallet share shifts return to normal?”…“We think the answer is unequivocally yes. It’s just hard to know when and how big that trough might be. We believe that iPad and Mac strength could persist for the next two quarters, but even if the WFH trend persists, we doubt the surge will rival this year’s” (Barron’s).

So again, this week the positive news seems to continue the concern over what happens on the other side of pent up recovery and stimulus, as well as the threat of rising interest rates. But on the good for business and consumer side of things, it is noted, “Apple remains our top idea as we think the hardware business is still in the early parts of a multi-year growth cycle aided by product refreshes and work from home/hybrid work environments.”