40: Inflation, Personal Savings, Federal Funds Rate, Costco Earnings, Fauci In A Corner

Welcome to Sunday Edition, where I cover the markets, economy, relevant news, and uncover hidden gems across the internet.

What's New

  • New section titled We The People, where I cover interesting relevant news that I think most Americans should be aware of. I bypass 'news channels' and go directly to the source, sharing relevant links with you.

Quote of the week

"Stop depriving yourself of what you need to perform at the highest level. You need to be able to focus. You need sleep. You need to eat well. You need to stay healthy. Stop feeling guilty about taking care of yourself. It’s essential if you’re going to go the distance, and it’s the best way to take care of everyone else who’s relying on you."

Tim S. Grover, Winning

Markets

Economy

Inflation Cooling

Pretty sweet! Core PCE is one of the main metrics that the FOMC watches. They have a target of 2%, which is moving in the right direction, but that darn sticky inflation is still hanging on.

Personal Savings Rate

Personal savings rate is pretty low for my liking, showing that the average consumer is feeling more squeezed than usual:

Federal Funds Effective Rate

We're still hovering at 5.33%. Not terrible, but the average consumer is starting to feel the squeeze.

Sectors

Energy takes the cake this week with 2.1% gain while Information Tech gets the whip with -1.9%. Information tech still in the 5y lead at 22.1% annual CAGR:

Costco Earnings Update

This is pretty interesting. It's great to see Costco kicking butt here.

Source: Costco Earnings Call Transcript

Financial Performance

  • Reported net income for Q3 2024 was $1.68 billion or $3.78 per diluted share, up from $1.3 billion and $2.93 per diluted share in Q3 2023. Last year's results included a nonrecurring charge of $298 million pretax. 
  • Net sales for Q3 2024 were $57.39 billion, an increase of 9.1% from $52.6 billion in Q3 2023. 
  • Comparable sales for Q3 2024: U.S. 6.2%, Canada 7.7%, Other International 7.7%, and e-commerce 20.7%. 
  • Traffic (shopping frequency) increased by 6.1% worldwide and 5.5% in the U.S. 
  • Average transaction value increased by 0.5% worldwide and 0.7% in the U.S. 
  • Membership fee income for Q3 2024 was $1.123 billion, up 7.6% year-over-year. 
  • Gross margin rate for Q3 2024 was 10.84%, up 52 basis points year-over-year. 
  • SG&A rate for Q3 2024 was 8.96%, better by 15 basis points year-over-year. 

Membership and Renewal Rates

  • U.S. and Canada renewal rate at Q3 end was 93%, up 0.1% from Q2 end. Worldwide renewal rate was 90.5%. 
  • Costco ended Q3 with 74.5 million paid household members, up 7.8% year-over-year, and 133.9 million cardholders, up 7.4% year-over-year. 
  • Executive memberships increased by 661,000 since Q2 end, now representing over 46% of paid members and 73.1% of worldwide sales. 

Warehouse Expansion and Capital Expenditures

  • Opened 2 new warehouses in the U.S. during Q3 2024. [citation]
  • Since Q3 end, opened 2 more warehouses: one in Loomis, California, and one in Nanjing, China. 
  • Plan to open 12 more locations in fiscal '24: 9 in the U.S., 2 in Japan, and 1 in Korea. 
  • Q3 capital expenditures were approximately $1.06 billion, with full-year '24 capex projected between $4.3 billion and $4.5 billion. 

Key Themes and Product Performance

  • Nonfoods category had the highest comps, driven by toys, tires, lawn & garden, and health and beauty aids. 
  • Bakery sales showed strong momentum, with new items like Kirkland Signature Lemon Blueberry Loaf and Morning Buns. 
  • Food court sales were strong, particularly with the new Chocolate Chip Cookie. 
  • Inflation across core merchandise was flat, with slight inflation in food and sundries offset by deflation in nonfoods. 
  • New Kirkland Signature products, including men's walking shoes and facial wipes, performed well. 
  • Prices were reduced on several existing items like Kirkland Signature Pine Nuts and frozen shrimp SKUs. 

Digital and E-commerce

  • Total e-commerce sales growth was led by gold and silver bullion, gift cards, and appliances. 
  • Deliveries through Costco Logistics increased by 28% in Q3. 
  • Costco Next added 8 new vendors in Q3, bringing the total to 75. 
  • App downloads were up 32% year-over-year, with 2.5 million new downloads in Q3, totaling over 35 million. Site traffic increased by 16%, and average order value was up 8%. 
  • Expanded relationship with Uber Eats to cover all of Canada and 17 U.S. states, with plans to expand internationally. 
  • Uber gift cards will be sold globally, and discounted Uber One memberships will be offered to Costco members. 

Upcoming Announcements

  • May sales results for the 4 weeks ending June 2, 2024, will be announced on June 5, 2024, after market close. 
  • Fiscal Q4 2024 will have 16 weeks, compared to 17 weeks in fiscal Q4 2023. 

We The People

New segment here. I'll be highlighting interesting news that I found during the week. It should be noted that most news is just a recap of official documents from local and federal governments, so I will be bypassing much of 'news channels' and going directly to the source.

I feel it's important to stay abreast of political happenings in hopes that one day we will not be led by imbeciles and career politicians, who seem to be actively trying to hinder the greatness of this nation.

Fauci In A Corner

From: COVID Select Subcommittee Releases Dr. Fauci’s Transcript, Highlights Key Takeaways in New Memo - United States House Committee on Oversight and Accountability

Some quotes from the above link:

  1. "SOCIAL DISTANCING: The “6 feet apart” social distancing recommendation forced on Americans by federal health officials was arbitrary and not based on science. Dr. Fauci testified that this guidance — which shut down schools and small businesses nationwide — “sort of just appeared” and was not based on any scientific studies."
  2. MASKING: Dr. Fauci testified that he did not recall any supporting evidence for masking children. Concerningly, mask-wearing has been associated with learning loss and severe speech development issues in America’s children.
  3. TRAVEL RESTRICTIONS: Dr. Fauci unequivocally agreed with EVERY travel restriction issued by the Trump Administration at the height of the COVID-19 pandemic. This testimony runs counter to the public narrative that the Trump Administration’s travel restrictions were xenophobic. During his transcribed interview, the Biden Administration’s counsel curiously prohibited Dr. Fauci from answering questions on whether he recommended the travel restrictions.
  4. VACCINE MANDATES: Dr. Fauci admitted that vaccine mandates during the COVID-19 pandemic could increase vaccine hesitancy in the future. He also claimed that these mandates were not sufficiently studied ahead of the pandemic. Previously, Dr. Fauci advocated “that when you make it difficult for people in their lives, they lose their ideological bullshit, and they get vaccinated.”
  5. LAB LEAK THEORY: Dr. Fauci acknowledged that the lab leak hypothesis is not a conspiracy theory. This comes nearly four years after prompting the publication of the now infamous “Proximal Origin” paper that attempted to vilify and disprove the lab leak hypothesis.
  6. GAIN-OF-FUNCTION RESEARCH: Dr. Fauci repeatedly played semantics with the definition of “gain-of-function” research in an effort to avoid conceding that the NIH’s funded this dangerous research in China. As the head of NIAID and the face of America’s response to the pandemic, Dr. Fauci certainly understood the common definition of “gain-of-function.” Yet, he repeatedly refused — both behind closed doors and to Sen. Rand Paul during a 2021 hearing — to clarify a general understanding of the term and instead only referred to his own “operative definition.
  7. CONFLICTS OF INTEREST: Dr. Fauci claimed that his staff had no conflicts of interest regarding the origins of COVID-19, yet his Senior Advisor — Dr. David Morens — was “best-friends” with disgraced and soon-to-be debarred EcoHealth Alliance President Dr. Peter Daszak. Considering Dr. Morens worked under Dr. Fauci’s leadership for more than 20 years, it seems highly unlikely that Dr. Fauci was genuinely unaware of this relationship.
  8. GRANT APPROVAL: Dr. Fauci testified that he signed off on every foreign and domestic NIAID grant without reviewing the proposals. He was also unable to confirm if NIAID has ANY mechanisms to conduct oversight of the foreign laboratories they fund. NIAID’s flawed grant process — which relies heavily on trusting its grantees without verifying — leaves opportunities  for adversaries to exploit.
  9. FEIGNED IGNORANCE: Dr. Fauci claimed he “did not recall” numerous issues and events surrounding the pandemic more than 100 times. Specifically, Dr. Fauci testified that despite the fact EcoHealth Alliance was conducting risky gain-of-function research in China, he did not know any details about the grant, nor did he maintain a relationship with its President, Dr. Peter Daszak.

Portfolio

Still chugging along. I feel pretty good about this portfolio, but I'm eyeballing another company to add. Stay tuned.

QTD % YTD % 1 Year % Since Inception Annualized
S&P 500* 0.7 11.3 26.9 24.4 11.5
Portfolio -0.8 6.6 24.8 47.9 22.5
Performance data is indicative and should not be considered as advice. *S&P500 includes dividends reinvested. Inception date: 2022-04-18.

Here is the current portfolio:

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