# 682 – 😖 The US economy’s wobbly Q1 – The Average Joe

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    # 682 – 😖 The US economy’s wobbly Q1

    victorlei

    April 26, 2024

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    Good morning. Ever lie awake at night, wondering where all that plastic you use ends up? Probably in landfills, on beaches, or worse, in the ocean. It’s not fun to think about, but here’s a staggering fact: just 56 companies produce half of the world’s plastic. Coca-Cola ($KO) tops the list, accounting for 11%, while PepsiCo ($PEP) and Nestlé ($NSRGY) also contribute quite a bit as well.

    On the bright side, these companies are starting to feel the weight of their plastic footprint — with many pledging to switch to recyclable packaging by 2025.


    GLOBAL

    Mexico Is Becoming One of The Hottest Destinations for Global Manufacturing — And That’s Sending The Mexican Peso Soaring

    Superman may be the GOAT in the DC universe (sorry, Batman), but in the world of currencies, the “Super Peso” has taken flight as investors' favorite. The Mexican Peso claimed the title of 2023’s best-performing currency, soaring to its highest real effective exchange rate since 2005. Its stellar performance has even made skeptical investors think twice about it.

    Peso’s secret sauce: In recent years, factors like record remittances, nearshoring, and increased investments in Mexico have propelled the country’s currency against the US dollar. In 2023, the Peso notched its largest annual gain of 15% against the dollar — and since the end of 2016, it’s climbed 25%.

    • Record-high 11.25% interest rates fueled a 40% surge in foreign direct investments in 2023 — making Mexico one of the top manufacturing destinations for global companies.

    • With the US embracing “friend-shoring” with Mexico to reduce economic reliance on geopolitical rivals like China, Mexico has cemented itself in a favorable global trade position.

    Put your Pesos where your mouth is

    Between 2022 and 2023, the value of goods imported from Mexico to the US grew ~5% to over $475B — while US imports from China dropped 20% (BI). That helped Mexico surpass China as the leading US importer for the first time in two decades. But Mexico’s container imports from China jumped 35% last year — rising to a 60% increase in January, which Xeneta’s chief analyst says is due to tactics to avoid US tariffs (BBG).

    • That’s accelerated investments in Mexico from Chinese electric vehicle (EV) companies looking to sidestep the hefty 27.5% tariffs on Chinese EVs imported to the US.

    • BYD, which briefly overtook Tesla ($TSLA) as the world’s largest EV competitor, is one of at least a dozen Chinese EV companies that have invested or expanded their investments in Mexico in recent years.

    Mexico gets in on AI: In response to US-China export bans affecting the AI supply chain, major American AI companies are urging their Taiwanese suppliers to shift manufacturing to Mexico. Foxconn, a leading AI server manufacturer, has poured ~$690M into Mexico since 2020 — and the growing presence of Taiwanese firms could “dramatically modify the industrial structure of Mexico in the next 10 years,” according to Francisco Cervantes, head of Mexico’s largest private-sector organization (WSJ).


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    The Lithium Boom

    It takes 10K iPhone batteries worth of lithium to make one EV. With over 350 million EV sales projected by 2030, lithium demand will soar — and current extraction methods can’t meet it.

    So when EnergyX revealed their technology extracts 300% more than traditional methods, investors everywhere took note.

    They’ve inked deals with top producers including POSCO, secured a $50M strategic investment from GM, and won a $5M DOE grant. Most recently, they acquired 90,000 acres in Chile with ~5.5M tons of lithium.

    Now, EnergyX is accepting shareholders for a limited time. This is a unique ground-floor opportunity as the company is set to unlock a massive lithium supply.

    Learn more about becoming an EnergyX shareholder here.


    LARGECAP RECAP

    📉 The economy’s sturdy foundation is starting to crack

    It’s okay to admit it — few expected the US economy to stay this strong after the Fed’s relentless push to raise interest rates. The US has seen records across its stock market, consumer spending, and productivity in recent months. But with rates at generational highs and inflation proving stubborn, the once-solid foundation of this strength is finally starting to show cracks.

    • Yesterday, the Commerce Department announced that first-quarter gross domestic product (GDP) grew by only 1.6% — falling short of the 2.4% forecast by economists polled by WSJ.

    • This unexpected slowdown stemmed from weaker household and government spending and a sluggish pace in domestic trade.

    Complicating matters: In response to the news, the 10-year Treasury yield soared within earshot of 5%, marking its highest level since November — and the Dow fell over 400 points (-1%). Ordinarily, such a report might prompt central bankers to consider cutting rates. But with inflation still running high at 3.5%, according to the latest report, the US economy is unlikely to catch a break… unless a significantly dramatic shift occurs.

    👑 Reigning supreme in the luxury sector

    In a tough luxury landscape, Hermès ($HESAY) has emerged as the clear leader, boasting a massive 17% sales increase in the first quarter. This puts it ahead of rivals LVMH ($LVMUY) and Kering ($PPRUF) — whose sales grew by 2% and declined by 10%, respectively. Hermès’ dominance is nothing new — it has been outshining the turbulent luxury sector for four years.

    • According to the report, Hermès recorded a 14% sales surge in Asia (excluding Japan) — a major win given the slowing demand for luxury goods in China.

    • The brand’s loyalty remains strong, thanks to demand for its famed Birkin bag — which recently made headlines due to a lawsuit alleging that customers had to “pre-spend” on other items before gaining access to the luxury symbol.

    Luxury in flux: Despite Hermès’ resilience, industry analysts at Bain predict another middling year for the luxury market overall — with a modest 1-4% growth forecast as consumer spending is dampened by China troubles, sticky inflation, and rising interest rates. That’s why brands like Gucci are shifting their focus toward catering to even wealthier customers — rather than targeting price-sensitive “aspirational” clientele.


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    Markets & Economy

    Boeing ($BA) troubles hit airline profits: After Q1 losses, American Airlines’ ($AAL) CEO had a straightforward message for Boeing: “Get your act together.” Southwest ($LUV) was also down, leading to its withdrawal from certain airports due to Boeing’s delayed orders. [Read]

    Chipotle ($CMG) beats earnings expectations: Even as the burrito chain jacks up prices, net sales rose 14.1% — with revenue reaching $2.7B, narrowly clearing the anticipated $2.68B. Demand for the brand’s chicken al pastor is so hot that management isn’t letting employees eat it during their lunch breaks. [Read]

    Microsoft-backed Rubrik ($RBRK) enjoys strong market debut: The cybersecurity firm soared nearly 16% during its IPO yesterday — despite pricing its shares at the upper end of the range. The company closed the day at a $6.6B valuation, raising just over $750M. [Read]

    Business & Wealth

    FDA and USDA recalls surge to pre-pandemic levels: Reports reveal that recalls by America’s food and beverage regulators reached their highest point since before the pandemic — with an 8% increase in recalls in 2023. [Read]

    Employers consider layoffs for recent Gen Z hires: In a survey of hiring managers, 78% expect to lay off recent grads due to advances in AI — and while it might be cold comfort, about half of those surveyed expect the layoffs to be somewhat limited. [Read]

    New regulations for flight cancellations: Airlines are now obligated to provide refunds if they cancel or significantly delay flights, with refunds issued in cold hard cash within seven days, not vague “travel credits.” [Read]

    *Thanks to our sponsors for keeping the newsletter free.


    CHART


    DIGIT OF THE DAY

    Venice's controversial new €5 entry fee is the first in the world — and a warning for global explorers

    Venice is one of Italy’s most historic and picturesque cities — but its famous canals, cathedrals, and red rooftops have created an overcrowding conundrum in its narrow streets. The city is testing out a first-of-its-kind tourist entry fee during peak vacation seasons to reduce crowds. While that may be less than a Starbucks drink, the fee has sparked controversy and riots among locals and travelers alike.

    • Under the plan, visitors will be charged €5 on select busy days — with exemptions carved out for those staying in city hotels or individuals under 14.

    • The aim isn’t to generate tax revenue but to discourage day-trippers and tourists from visiting on the 29 designated “peak days” between now and Jul. 14.

    Rise of the (travel) junk fee: This move marks a departure from the norm of imposing tourism taxes on hotels and services, as seen in cities like Amsterdam, Manchester, and various parts of Spain. Venice’s entry fee pilot, coupled with stringent penalties for fee evasion, sets it apart and draws attention as other countries step up efforts to prevent overtourism through surcharges. Even in the US, Hawaii is considering a flat tourism tax to bankroll conservation efforts for its beaches and forests.


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