“The individual investor should act consistently as an investor not as a speculator.”
– Benjamin Graham
Perhaps, not ironically, we’re under another tornado warning here in Baltimore. You may recall, we conceived the Wiggin Sessions while on lockdown in the pandemic, during a tornado warning.
Alas, we trudge on.
As is our custom we focus on investments exclusively on Friday’s. Today we fetter in three investment themes from our “Moneyball Economics” guest, Andrew Zatlin.
Let’s begin, at the beginning, with the “Moneyball” name itself. (For reference, we borrow a few sentences from Emily Clancy writing in the 5 Min. Forecast. She nailed a review of our latest offering with Mr. Zatlin!)
“The idea that I should trust my eyes more than the stats, I don’t buy that… I’ve seen magicians pull rabbits out of hats and I know that the rabbit’s not in there,”said baseball icon Billy Beane — of Moneyball fame — who was the Oakland Athletics’ general manager from 1997–2016.
Beane is best known for his statistics-based philosophy that brought the A’s all the way to the ALCS Championship Series in 2006.
In a completely different space, economist Andrew Zatlin earned his MBA from the Haas School of Business at UC Berkeley and was a research fellow at Kyoto University Economic Research Institute. But more recently, Mr. Zatlin adopted Beane’s pragmatic approach — founding a business he calls “Moneyball Economics” — with a focus on consumer trends.
“My best ideas are based on the data coming from the jobs market,” says Mr. Zatlin on The Wiggin Sessions this week, where he tackles big questions about the market, inflation… and how to make smart decisions with your money.
“I got into airlines a little too prematurely, but if you listen to the latest earnings release from United Airlines, and the CEO. The CEO came out with his recent earnings with the comment: “I haven’t seen it this incredibly awesome.” And we haven’t even seen business travel pickup. And I got into an ETF called Jets. Waiting for that one to take off.
“See what I did there? I’m waiting for JETS to take off.”
You may recall our Session with Frank Holmes from US Global Investors early in the pandemic. Frank had the unique experience of launching the Jets ETF in January of 2020… right before the lockdowns began.
“Near the bottom,” Frank recalls, “Warren Buffet came out and said, he’s out of the airline industry. Selling everything. The world is coming to an end. And a week later they took off and they surged something like 57%. We signed up 25,000 young new investors, through Robinhood.. And then there was all this negative news of millennials beginning to invest. I didn’t understand because I saw they were making money and there’s a data point, you can see daily how many new accounts. They were also coming into the Gold GOAU ETF. But the Jets ETF was the first unprecedented growth.
“I was curious, where did they learn about the airlines? It was YouTube and podcasts.
“I discovered Robinhood was propelling my Jets ETF. And then the news came out that Schwab and TD Waters said they opened 600,000 online accounts in March. Robinhood opened millions. So there was a new phenomenon taking place. And during this 70-day run, this fund went from $70 million to $35 million, and then a billion dollars came into it over 70 days. They say it’s unprecedented,
Mr. Zatlin is also keeping an eye on high speed trains. “A few weeks back,” Andrew begins, “the People’s Bank of China lowered its RRR by 25 basis points. That means it’s now at a 20-year low.
Why did it do this? Simple. Because it sees a global economic slowdown on the horizon!
China’s in an interesting position:
As it relates to the world’s economy, it acts as the tail and the dog. In other words, it relies on global exports (the tail) and domestic consumption (the dog).
To explain what I mean, take a look at this illustration of China’s high-speed rail system:
“As you can see,” Andrew shares, “in 2008, China’s high-speed rail system was almost nonexistent. But by 2020, it covered the entire country. What does this tell us? It tells us that, after years and years of building, China is maxing out.
“And it’s finally on the down slope of growth. Consumer demand has peaked. That’s why it’s lowering its RRR: it wants to stimulate the economy! But here’s why this signal has me so concerned:
China’s economic slowdown can only mean one of two things: Domestic consumption is slowing; or exports are tapering off.
Either way, this is bad news for American companies…
The U.S. exports a lot of products to China. So if domestic consumption in China is slowing, that’s bad for American companies that are exporters.
And if demand for Chinese exports is cooling, that means a global economic pullback almost certainly lies ahead.
Andrew’s third trend to watch: Food.
“It’s no secret that food prices are skyrocketing,” Andrew notes. “In fact, they’re downright out of control.
“A shortage of crops” — and fertilizer — “has led to massive food inflation,” he adds. “This is a global problem. In fact, here’s a chart with the world’s top 10 wheat-producing countries. Look how many are in turmoil right now,” including their production cuts…
“But consumers still have to put food on the table!
“When food prices soar, consumers shift their spending,” says Andrew. “From an investment perspective, this creates winners and losers.
“It was the same situation during the Great Recession of 2008–2009. What we saw then was that two sectors became winners. In other words, two sectors grew (while the rest of the market crashed): discount retailers and discount food providers.
“Makes sense, right? Consumers don’t have as much money to spend. So they’re looking to stretch their dollars,” he notes. “That’s why Whole Foods, a higher-end supermarket, ran into trouble in 2008. Kroger (NYSE: KR), which is a budget-friendly chain, did just fine.
“We can expect the same thing in the wake of Farmageddon,” says Andrew. “Consumers will be ditching expensive brand names and reaching for affordable private labels. “In fact, this shift is already underway. And companies are acting accordingly,” Andrew says. “Based on my proprietary data, they’re hiring!
“For example, look at chocolate company Hershey (NYSE: HSY)…
“Hershey isn’t overly affected by the rising prices of wheat or corn,” he says. “So it’s been able to keep costs down and continue hiring.
“It’s the same thing with Conagra Brands (NYSE: CAG):
“These are just a [couple] of the expected winners,” says Andrew. “As for the losers — keep in mind that luxury purchases take a backseat when money is tight.
“That could mean spending less on expensive gourmet coffee. For example, take a look at hiring for Keurig Dr Pepper (NASDAQ: KDP), maker [of] pricey coffee pods:
“At the end of the day, consumers speak with their wallets,” Andrew says. “When it comes to food, they need to stretch their dollars. And that means changing what they buy, and changing where they buy from.
“I just shared a few of the companies I believe will be the winners from this shift,” he says. “What’s your move now?”
Follow your bliss,
Founder, The Wiggin Sessions