Could a Recession Still Be Years Away? Steady Growth, Moderating Inflation Improve Odds of Extended Expansion; Everyday Investors Are Thriving in a World Awash in Yield; Articles about Elon Musk, Twitter, and Starlink; Visiting two readers in Seattle; In Odesa, Attacks Stoke Hatred of Russia

1) This will mark the fifth consecutive month that stocks are up – the longest streak since 2021.

This is leading some prognosticators to predict that they're due for a fall – for example, see my friend Doug Kass' bear case that I shared in my July 21 e-mail.

Bears also point to a return of "silly-pump season," when penny stocks like Tupperware Brands (TUP) suddenly soar 350% on no news:

But while I'm certainly more cautious than I was at the beginning of the year – when I was pounding the table on stocks, especially big-cap tech ones like Meta Platforms (META) – I'm not ready to call the top.

In fact, I think the major indexes will finish the year higher than where they are today, for reasons outlined in this Wall Street Journal article over the weekend: Could a Recession Still Be Years Away? Steady Growth, Moderating Inflation Improve Odds of Extended Expansion. Excerpt:

Economic expansions don't die of old age, economists like to say; they are murdered by the Federal Reserve.

No wonder, then, that as the Fed has raised interest rates 5.25 percentage points since early last year, including a quarter point Wednesday, forecasters have predicted a recession was imminent.

But they have postponed the recession's start date as growth remains steady. The economy grew a better-than-expected 2.4%, annualized, in the second quarter, the Commerce Department reported Thursday.

Actually, in one respect a recession in the next six months would be unusual. It would mean the current expansion, which began in April 2020, will have lasted just four years. That is less than half the 8.6-year average of the four prior expansions, dating back to 1982.

This shows what is at stake in the Fed's current balancing act. It hopes rates have risen enough to push inflation down, but not enough to push the economy into contraction – a so-called soft landing. Based on the actuarial tables, a soft landing would mean another four or five years before the next recession.

On Wednesday, Fed Chair Jerome Powell said a soft landing has long been his base case, and his confidence in it had grown. "We've seen so far the beginnings of disinflation without any real costs in the labor market," he told reporters after the Fed's policy meeting. "That's a really good thing."

Powell also disclosed that the Fed staff, which earlier this year projected a recession, no longer does.

2) When I say "I'm certainly more cautious than I was at the beginning of the year," it doesn't mean I'm selling stocks – but it does mean that I haven't bought any new positions in a while.

Given how much I'm now being paid to sit on cash, I'm quite content to do so until something truly mouth-watering comes along. I'm not alone, as this WSJ article notes: Everyday Investors Are Thriving in a World Awash in Yield. Excerpt:

Interest rates are hovering at their highest level in more than two decades. For individual investors, that has been an unexpected blessing.

Although it is more expensive for consumers to borrow money now than it was 18 months ago, they also have more options to put their cash to work.

American households are earning an additional $121 billion from income on investments annually versus a year ago, according to Commerce Department data through June, blunting the $151 billion increase in interest payments on mortgages, credit cards and other loans.

Americans have a record $5.5 trillion in money market assets, as this chart from the WSJ article shows:

And as the next chart from the WSJ article shows, this money is earning the highest rates in years:

This is great news for investors because it means they're no longer being "forced" to buy stocks due to TINA – "there is no alternative."

Instead, they now have two good options: stocks should do fine (though I suggest having modest expectations after their huge run so far this year) plus they're getting paid well to simply hold cash.

3) I sent three in-depth articles to my Tesla (TSLA)/Elon Musk e-mail list recently (if you wish to subscribe to my it, simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com). All have plenty of grist for both Tesla/Musk lovers and haters (I consider myself among the 1% in the middle)...

a) This is one of the most insightful and balance profiles of Elon Musk (and Twitter before and after he took over) I've read, by Esther Crawford, who sold her startup to Twitter in 2020 and stayed on until Musk let her go recently. Last week she posted a 15-minute video and transcript with her thoughts here. Excerpt:

Although I didn't know much about Elon I was cautiously optimistic – I saw him as the guy who built incredible and enduring companies like Tesla and SpaceX, so perhaps his private ownership could shake things up and breathe new life into the company.

My take on what's happened since then is full of lived nuance.

When people ask why I stayed it's easy to answer: optimism, curiosity, personal growth and money.

From the beginning I saw that some changes Elon was going to make were smart and others were stupid, but when I'm on a team I uphold the philosophy of "praise in public and criticize in private." I was far from a silent wallflower. I shared my opinions openly and pushed back often, both before and after the acquisition.

I made peace with the fact that I didn't have psychological safety at Twitter 2.0 and that meant I could be fired at any moment, and for no reason at all. I watched it happen repeatedly and saw how negatively it impacted team morale. Although I couldn't change the situation I did my best to shine a light on folks who were doing important work while being an emotionally supportive leader for those who were struggling to adapt to the more brutalist and hardcore culture.

In person Elon is oddly charming and he's genuinely funny. He also has personality quirks like telling the same stories and jokes over and over. The challenge is his personality and demeanor can turn on a dime going from excited to angry. Since it was hard to read what mood he might be in and what his reaction would be to any given thing, people quickly became afraid of being called into meetings or having to share negative news with him.

At times it felt like the inner circle was too zealous and fanatical in their unwavering support of everything he said. When individuals encouraged me to be careful about what I said I politely thanked them and said I would not be taking their advice. I had no interest in adding to a culture of fear or walking on eggshells around Elon. Either he would respect me for being real or he could fire me. Either outcome was okay.

I quickly learned that product and business decisions were nearly always the result of him following his gut instinct, and he didn't seem compelled to seek out or rely on a lot of data or expertise to inform it. That was particularly frustrating for me since I believed I had useful institutional knowledge that could help him make better decisions. Instead he'd poll Twitter, ask a friend, or even ask his biographer for product advice. At times it seemed he trusted random feedback more than the people in the room who spent their lives dedicated to tackling the problem at hand. I never figured out why and remain puzzled by it.

I don't think things had to be as difficult or dramatic as they turned out to be but I can't say I'd bet against Elon or count him out. He's smart and has enough money to make a lot of mistakes and then course correct when things go awry. As the largest shareholder he can tank the value in the short-term, but eventually he'll need things to turn around.

His focus on speed is incredible and he's obviously not afraid of blowing things up, but now the real measure will be how it get reconstructed and if enough people want the new everything app he is building.

I learned a ton from watching Elon up close – the good, the bad and the ugly. His boldness, passion and storytelling is inspiring, but his lack of process and empathy is painful.

Elon has an exceptional talent for tackling hard physics-based problems but products that facilitate human connection and communication require a different type of social-emotional intelligence.

Social networks are hard to kill but they're not immune from death spirals. Only time will tell what the outcome will be but I hope X finds its footing because competition is good for consumers.

In the meantime, I have a lot of empathy for the employees who are working tirelessly behind the scenes, the advertisers who want a stable platform to sell their stuff on, and the customers who are experiencing chaotic updates. It's been a madhouse.

Twitter moved at the speed of molasses and suffered from bureaucracy but now X is run by a mercurial leader whose instinct is driven by the unique and undoubtedly weird experience of being the biggest voice on the platform...

I'd be remiss if I didn't note that in all of this there is also a cautionary tale for anyone who succeeds at something – which is that the higher you climb, the smaller your world becomes. It's a strange paradox but the richest and most powerful people are also some of the most isolated.

I found myself frequently looking at Elon and seeing a person who seemed quite alone because his time and energy was so purely devoted to work, which is not the model of a life I want to live.

Money and fame can create psychological prisons which may worsen mental health conditions. We've all seen high profile cases of celebrities who end up with some combination of depression, paranoia, delusions of grandeur, mania and/or erratic behavior.

Living in an echo chamber is dangerous and being at the top makes a person even more susceptible to being surrounded by yes people when nearly everyone around you is on the payroll and somehow stands to benefit from being in your orbit.

Figuring out how to keep "better angels" around in the form of family, friends, and teammates is critical to staying on the rails and enduring intense ups and downs. Everyone needs to hear hard truths sometimes and if you fire all the people who speak up then the reality distortion field may just turn into a vortex.

I was drawn to Twitter because I'm obsessed with the problem of loneliness and connection between people. I find it fascinating & troubling that humans are getting lonelier as we simultaneously create a world that's both safer and wealthier. I don't believe that trade-off has to exist, which is why I keep returning to that theme in my personal and professional life.

I realize this is too long of a tweet but Twitter was a weird and special place on the internet, and I'm grateful to have played a teeny tiny role in its story and evolution.

I'm here for whatever comes next – on this app and in new places. Consumer social is very much alive and at a fascinating juncture, so I'll be watching and participating and sharing hot takes because I don't want to, and probably can't, turn that part of me off.

Perhaps X becomes a resounding success. Or it fails epically.

Either way, I expect it will continue to be a very entertaining ride.

b) Bloomberg published a three-part series on its latest survey of Tesla owners: Tesla Owners Have Soured on Elon Musk, But Still Love Their Model 3s. Excerpt:

Tesla's most ardent early adopters have, to a significant extent, soured on the boss. Out of dozens of questions repeated verbatim from our 2019 survey, the steepest change of opinion was the drop in Musk's approval.

In total, the follow-up survey posed more than 130 questions; the lowest scores went to Musk's 2022 acquisition of Twitter – which he renamed X – and to the divisive tweets that followed.

The survey comments were intense, and many felt conflicted. Model 3 owners still overwhelmingly loved their cars and had a lot to say about Tesla's technology, which we cover extensively in this three-part presentation of the results.

Most owners planned to stick with the brand. But they also reported feeling a sense of betrayal as Musk picked political fights online, downplayed the potential consequences of climate change and backed controversial figures and ideas.

c) The New York Times took an in-depth look at Starlink, an extraordinary thing Musk has built with SpaceX that I think is literally changing the course of history by giving Ukraine a critical tool to defeat Russia – but which also gives one very unpredictable man perhaps more unchecked power than anyone in history... Elon Musk's Unmatched Power in the Stars. Excerpt:

Mr. Musk, who leads SpaceX, Tesla and Twitter, has become the most dominant player in space as he has steadily amassed power over the strategically significant field of satellite internet.

Yet faced with little regulation and oversight, his erratic and personality-driven style has increasingly worried militaries and political leaders around the world, with the tech billionaire sometimes wielding his authority in unpredictable ways.

Since 2019, Mr. Musk has sent SpaceX rockets into space nearly every week that deliver dozens of sofa-size satellites into orbit. The satellites communicate with terminals on Earth, so they can beam high-speed internet to nearly every corner of the planet.

Today, more than 4,500 Starlink satellites are in the skies, accounting for more than 50 percent of all active satellites. They have already started changing the complexion of the night sky, even before accounting for Mr. Musk's plans to have as many as 42,000 satellites in orbit in the coming years.

The power of the technology, which has helped push the value of closely held SpaceX to nearly $140 billion, is just beginning to be felt.

Starlink is often the only way to get internet access in war zones, remote areas and places hit by natural disasters. It is used in Ukraine for coordinating drone strikes and intelligence gathering. Activists in Iran and Turkey have sought to use the service as a hedge against government controls. The U.S. Defense Department is a big Starlink customer, while other militaries, such as in Japan, are testing the technology.

But Mr. Musk's near total control of satellite internet has raised alarms.

A combustible personality, the 52-year-old's allegiances are fuzzy. While Mr. Musk is hailed as a genius innovator, he alone can decide to shut down Starlink internet access for a customer or country, and he has the ability to leverage sensitive information that the service gathers. Such concerns have been heightened because no companies or governments have come close to matching what he has built.

In Ukraine, some fears have been realized. Mr. Musk has restricted Starlink access multiple times during the war, people familiar with the situation said. At one point, he denied the Ukrainian military's request to turn on Starlink near Crimea, the Russian-controlled territory, affecting battlefield strategy. Last year, he publicly floated a "peace plan" for the war that seemed aligned with Russian interests.

At times, Mr. Musk has openly flaunted Starlink's capabilities. "Between, Tesla, Starlink & Twitter, I may have more real-time global economic data in one head than anyone ever," he tweeted in April.

4) I was in Seattle for a wedding this weekend, which gave me the opportunity to meet two of my readers/Ukraine supporters yesterday. Here's a picture of us:

On the left is Carl, an Army veteran who took a leave of absence from his job (and very patient wife!) and went to Ukraine shortly after the invasion last year and became a Legionnaire, fighting on the front lines for six months before returning home where he continues to raise money and send much-needed supplies via Ukraine Defense Support.

In the middle is Robert, a lifetime Empire subscriber who told me he has been reading my stuff for more than a decade.

He's a graduate of the U.S. Naval Academy who served in the Navy for seven years before going into the private sector. He is a senior executive at a cool, venture-backed drone company in Seattle called Brinc Drones, which makes drones used by police to handle dangerous situations like a shooter holed up in a house or finding people trapped in a collapsed building.

While its drones don't have military uses, Brinc donated $150,000 of them to Ukraine for things like search and rescue – see: "Technology to save lives": Brinc Drones Support Ukraine.

5) I asked Carl about Ukraine's fighting spirit, and he had a brilliant reply:

Putin has succeeded in doing what no politician could do: uniting the Ukrainian people. If there is one last Ukrainian, with his last breath, he will grab a knife to stab an invader.

Carl's comments perfectly encapsulate what many folks don't understand: there will be no peace deal until the Ukrainians expel every last Russian from every square inch of Ukrainian soil. So if you want peace (as I do), help Ukraine achieve this.

Here's an article from the NYT that captures the total, burning hatred every Ukrainian feels toward the Russian forces that are murdering, torturing, raping, and terrorizing their people: 'We Can Never Forgive This': In Odesa, Attacks Stoke Hatred of Russia.

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.