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Can high end consumers continue to subsidize to the low end?

Can high end consumers continue to subsidize to the low end?

Raising the price for your high-end cars in the name of margin expansion is one thing, but to do it under the guise of equity and equality is a reminder that the system is rigged.

RIGD REPORT
April 21, 2023

Tesla raises prices for two high end models

Yesterday the market punished $TSLA and Elon for even thinking about selling a car at breakeven. Selling was relentless the entire session with the stock nearly closing down 10%. Tesla responded by raising the price of their two high-end models (if you can call them that) by 2% to 3%. The X and Y are still down considerably compared to their 2023 starting price.

Ultimately the price increase won’t fix free cash flow or their inventory glut. It’s always a bad sign when management rushes a reactionary move the day after an earnings release.

However given today is MOPEX (monthly options expiry), we wouldn’t be surprised to see the stock close up around it’s max pain level (the price at which the highest number of call and put options expire worthless) of $170. Right now that’s an increase of ~ 4.3%.

[ bloomberg ]

Can high end consumers continue to subsidize to the low end?

Raising the price for your high-end cars in the name of margin expansion is one thing, but to do it under the guise of equity and equality is a reminder that the system is rigged.

Here’s the news:

Starting May 1 Fannie Mae and Freddie Mac will enact fees known as loan-level price adjustments (LLPAs) that will tweak the interest rates paid by the vast majority of homebuyers.

LLPAs are fees charged from lenders to borrowers to compensate for risks associated with the loan like; property type, loan-to-value ratio and credit score.

Homebuyers with higher-credit will see the largest increase while riskier buyers will see their fees reduced.

Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%.

When absorbed into a long-term mortgage rate, the increase is the equivalent of slightly less than a quarter percentage point in mortgage rate.

Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates.

For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.

NYPOST

Congratulations, you worked hard and paid off your student loan debt. You got a promotion and skipped Cancun to party in the redneck riviera (Myrtle Beach). You saved enough money to put down 20% on a home to qualify for a better mortgage. Now the government is cancelling student loan debt and throwing on a cool 25bps on your mortgage rate. Someone please remind us why we paid taxes on Monday.

Nothing screams #rigd more than punishing the everyday American for being a good citizen.

Housing stocks remain unaffected.

China’s reopening good for one thing…

The China reopening trade crushed the two camps expecting to see the biggest gain; popular megacaps like $JD, $BABA, $PDD look ready to retest their October lows meanwhile oil bulls got crushed once again. The oil market is so bad OPEC had to announce emergency cuts to keep the price just high enough to taunt Biden to refill the strategic petroleum reserve.

The biggest beneficiary has been the French fashion houses of LVMH, Hermes and Dior which are all trading at all-time highs. Not 52-week highs, the highest ever.

Let’s look at LVMH’s earnings reported last week:

LVMH said its fashion and leather goods business grew sales by 18 per cent in the first quarter of 2023 on an organic basis to €10.73 billion. The group’s total sales grew 17 per cent to €21 billion, beating the consensus of 9 per cent. Growth was led by Europe (24 per cent) and Japan (34 per cent), while the rest of Asia grew 14 per cent and the US by 8 per cent.

In China, LVMH CFO Jean-Jacques Guiony said fashion and leather goods sales grew in the double-digits in the first quarter. “We registered some pretty nice pickup in China, which bodes well for the rest of the year. We see a normalisation of this market, with people returning to our stores and internet business picking up. We are extremely hopeful and should benefit from a strong push from mainland China in 2023, certainly in fashion and leather and probably as well in jewellery. Cosmetics remains a little bit under pressure.”

Vogue business

We’ve interpreted it to mean reversion followed by growth in Asia will compensate for the slowdown in the US until the fed cuts rates or prints stimmies so everyone can buy the latest LV bag and matching wallet.

YTD returns:

$LVMH 41.16%

$HESAF 36.60%

$CHDRF 15.83%

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