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Kuby’s Commentary

Pessimists Off Target

Nov 21, 2022

Piling on Pessimism

The pessimism pendulum oscillated between fear of inflation and fear of recession, with a brief swing over to optimism following an encouraging report that confirmed the downward trend in inflation. The producer price index for October released on Tuesday came in below expectations, sparking a morning rally in the stock and bond markets. The PPI, which measures the prices that companies get for finished goods in the marketplace and largely on a wholesale basis, rose just 0.2% for the month, against the Dow Jones estimates for a 0.4% increase.

Further slowing of PPI in coming months would not surprise us given manufacturers and producers overproduced and overstocked in the latter months of the Covid crisis and many are now looking to clear that inventory by discounting to retailers; similarly, retailers are looking to clear their overstocked inventory, but any impact of that would impact the closely watched CPI which measures retail prices of goods and services.

Stocks turned lower Wednesday on economic slowdown concerns after Target reporting disappointing earnings and cautious guidance for the upcoming holiday season. Fedspeak didn’t help matters as St. Louis Federal Reserve President James Bullard said the central bank’s appropriate target for the federal funds rate could end up as high as 7%, and Boston Fed’s Susan Collins piled on, stating that she was not ruling out a 75-basis point rate hike in December.

A modest rally on Friday somewhat eased the losses for the week, with the S&P 500 dropping 0.7%, the Nasdaq Composite sliding 1.6%, and the Russell 2000 shedding 1.7%. The yield on the 10-year Treasury, gold, and the dollar were all essentially unchanged, while oil sank 10%, likely on recessionary concerns.

Perhaps the most notable, and economically pessimistic, statistical change last week was the ongoing widening of the spread between the yields on the 2-year U.S. Treasury and the 10-year U.S. Treasury, which ended Friday at -0.69, its widest spread in five years. When negative, or inverted from the normally upward-sloping yield curve, this metric is considered pessimistic; it suggests investors expect the economy to worsen over the long term. Therefore, investors are willing to accept lower risk-free investment returns for longer (10-years), rather than higher risk-free investment returns for shorter (2-years) because such investors believe that the economy will be in worse shape in 2 years than current conditions. If this indicator is accurate and a recession is forthcoming, or already underway, then Fed rate increases are likely near completion for this tightening cycle.

Stuffed Week

Wednesday will be packed with information, as the minutes from the last FOMC meeting will be released, as well as economic data on residential home sales, durable goods, the University of Michigan Sentiment survey, and both the Manufacturing and Services Purchasing Managers’ indexes.

The markets will be closed Thursday for Thanksgiving and will also close early on Friday.

Chicago Sports Scene

It was standing room only at the Ratner Center over the weekend to watch the University of Chicago basketball team host the Midway Classic. Unfortunately, the Maroons, with two star players on the IR, lost to both Colorado College and Colby. We still anticipate a great season for the Maroons.

We will be suspending comments on the Bears, Blackhawks, and Bulls, pending any one of them reaching a winning record for the season.

Stocks on the Move

-15.0% Delta Apparel Inc (DLA) designs, markets, and manufactures branded and private label active and headwear apparel. The Company’s products are sold to boutiques, department stores, outdoor and sporting goods retailers, college bookstores, screen printers, and the US military. Last week, DLA reported a fiscal fourth quarter loss of $(0.04) per share and full year earnings of $2.80 per share. Revenue of $115.5M was relatively flat y/y; however gross profit declined to $21.6M from $26.5M due to higher costs in the Activewear and DTG2Go businesses. Like many consumer companies, Delta Apparel had grown high-cost inventory during the year to offset supply chain issues and will be “recalibrating production” – including executing targeted shutdowns – to manage its inventory levels in FY2023.

-12.0% RGC Resources Inc (RGCO) and its subsidiaries distribute and sell natural gas and propane. The Company serves residential, commercial, and industrial customers in the Roanoke Valley and Bluefield areas of southwestern Virginia, as well as southern West Virginia.  Last week, RGCO reported a fiscal fourth quarter loss of $(1.16) per share while revenue of $14.11M was up about 5.6% y/y. The loss was mostly attributed to the ongoing write-down of the Mountain Valley Pipeline investment.

-12.6% 1-800-Flowers.Com Inc (FLWS) is an e-commerce provider of floral products and gifts. The Company’s product offerings include fresh-cut and seasonal flowers, plants, floral arrangements, home and garden merchandise, and gift baskets. There was no significant company news last week.

-10.2% PetMed Express Inc (PETS), doing business as 1-800-PetMeds, operates as a pet pharmaceutical company. The Company provides prescription and non-prescription pet medications, as well as health and nutritional supplements. There was no significant company news last week.

+12.1% ARC Document Solutions Inc (ARC) provides large format document reproduction and printing services, mainly to architectural, engineering, building operator, and construction firms. There was no significant company news last week.

+12.0% Inc (PRTS) retails automobile parts online. The Company offers mirrors, engines, headlights, brakes, interior and exterior accessories, tools, wheels, lighting, bumpers, and other aftermarket autobody parts in its network of over 1.2 million SKUs. There was no significant company news last week.

+10.3% Blue Bird Corporation (BLBD) designs and manufactures school buses and commercial buses for school districts, large national fleets, businesses, government agencies, and non-profit organizations. There was no significant company news last week.

-16.4% Value Line Inc (VALU) produces investment related periodical publications. The Company also provides investment advisory services to mutual funds, institutions, and individual clients. All total, Value Line collects data and provides analysis on around 7,000 stocks, 18,000 mutual fund and 200,000 options. There was no significant company news last week.

-11.4% The Blackstone Group Inc (BX) operates as an investment company. The Company focuses on real estate, hedge funds, private equity, leveraged lending, senior debts, and rescue financing. There was no significant company news last week.

+12.6% Paramount Global (PARA) operates as a multimedia company. The Company provides television and radio stations, produces and syndicates television programs, broadcasting, publishes books, and online content, as well as provides outdoor advertising. There was no significant company news last week.

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit

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