DKI Takeaway:  The market has been expecting a total of 1.5% of rate cuts in 2024. DKI expects fewer interest rate reductions. There’s a huge quiet battle going on right now between the Federal Reserve which wants to get inflation under control and the combination of Congress and the Treasury which are engaging in massive spending and monetization which is inflationary. No one in Congress will cut spending in an election year (or a non-election year) so massive stimulus will continue making the Fed less likely to reduce rates than the market expects.

This week, we got two interesting pieces of data on the employment market. Job openings reversed a recent decline and moved back above 9MM. On Friday, we got the jobs report showing a huge 353k jobs added in January. This was far above expectations of 185k new jobs. The Federal Reserve has been trying to cool the employment market to stop a wage/price spiral where higher prices cause employees to seek higher wages which then leads to higher prices. The bond market responded by sending yields on the 10-year Treasury back above 4%.

DKI Takeaway:  The job market looks great on the surface. Underneath, it’s not as strong as it seems. Many/all of the jobs being added are people who no longer can find full-time work taking on multiple part-time positions. Many of the jobs being listed aren’t real. There are widespread reports of companies listing jobs to provide the illusion of growth, or to placate overworked employees who need help. However, when people apply, they may find that the company is making no effort to fill the position. Still, the Federal Reserve looks at these numbers, and wants to see a weaker job market. Absent that, it’s best to believe Chairman Powell when he says the Fed isn’t expecting to cut rates next month.

DKI Takeaway:  Worldwide oil production is almost 100MM barrels a day. On the surface, the Saudis not expanding production wouldn’t seem significant. However, despite the desires of environmentalists, billions of people around the world want a higher material quality of living and that means more demand for energy. Nothing is going to stop that demand. While the oil market is large, pricing typically gets determined by the price of the marginal (last) barrel. This means that growing demand combined with limitations on future supply are likely to lead to higher prices.

DKI Takeaway: In the last year, tutoring site, Chegg (NYSE:CHGG) has seen its stock get cut in half due partly to competition from AI and partly due to its bad reputation among educators. Direct competitor 2U (NASDAQ:TWOU) has seen its stock get obliterated from almost $13 to below $1 in the last year because its business model relies on selling online education at on-campus prices. Coursera has continued to deliver high-end university credentials and company-approved career development at deeply discounted prices. As a result of having a better business model, revenue growth has ranged from 21% to 59% over the past six years. The registered learner base of 142MM people is the largest dedicated learning platform in the world.

Information contained in this report, and in each of its reports, is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied. DKI makes no representation as to the completeness, timeliness, accuracy or soundness of the information and opinions contained therein or regarding any results that may be obtained from their use. The information and opinions contained in this report and in each of our reports and all other DKI Services shall not obligate DKI to provide updated or similar information in the future, except to the extent it is required by law to do so. 

The information we provide in this and in each of our reports, is publicly available. This report and each of our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion in this and in each of our reports are precisely that. Our opinions are subject to change, which DKI may not convey. DKI, affiliates of DKI or its principal or others associated with DKI may have, taken or sold, or may in the future take or sell positions in securities of companies about which we write, without disclosing any such transactions.

None of the information we provide or the opinions we express, including those in this report, or in any of our reports, are advice of any kind, including, without limitation, advice that investment in a company’s securities is prudent or suitable for any investor. In making any investment decision, each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose.