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Microtransactions to Unlock Features

I mentioned a couple weeks ago that we’d be entering a quiet period with little news between now and the third week of September when the Federal Reserve (FOMC) meets.  This week is a very good example of that.  In reviewing my notes, I find very little of consequence to write about.  The markets look to finish mostly flat, breaking a four-week upswing

.One thing I would like to point out is that we’re at a crossroad with the markets.  These past six weeks have been a nice reprieve from the slide that occurred over the first half of the year.  However, it remains unclear whether this is what is colloquially called a bear-market rally or an honest-to-goodness recovery.  The reason I say we’re at a crossroads is that the S&P 500, which bottomed around 3,674 on June 17 is now sitting at 4,224 or approx. a 15% move higher just two months later.  More importantly, it hit its 200-day moving average, which represents an important technical indicator.  The difficulty, and why technical indicators aren’t widely accepted, is that the market can break through the moving average to the upside, or it can just as easily act as a ceiling and bounce lower.  With the Federal Reserve still in tightening mode, I’d lean toward a slide down again before another turn higher, but if anyone told you they knew for sure they’d be lying.  Short-term indicators are notoriously fickle.

This week credit card data was released by all the major companies that issue credit.  I was keenly looking for signs of consumer weakness, or perhaps delinquency rates creeping higher.  To my surprise and pleasure, this was not the case.  Consumers appear to be spending and paying on their balances.  Along those lines, both Home Depot and Walmart reported earnings this week, and they both did better than expected.  With housing slowing, there was some concern Home Depot would see declining sales, but the company not only beat on the top and bottom lines, it also reaffirmed guidance.  As for Walmart which represents the largest retailer in the United States, analysts were looking for signs of weakening demand.  On the contrary, not only did the company beat expectations but also raised guidance.  The takeaway is that consumers have not cracked yet under the pressure of inflation.  Spending remains strong.

On the subject of spending, have you priced out hearing aids lately?  Probably not, but you would be surprised to discover they can cost thousands of dollars and require extensive testing in a doctor’s office.  Furthermore, hearing aids have seen little innovation over time, but that’s all about to change.  The FDA ruled hearing aids will be available without a prescription or medical exam.  Over-the-counter hearing aids could be available as soon as mid-October, the agency said.  The National Institute on Deafness and Other Communication Disorders (that’s a mouthful) says that approximately 29 million Americans could benefit.  Aside from innovation, this could foster competition and, one would hope, bring prices down.

In closing, let’s talk about another aspect of our lives falling prey to subscriptions.  A co-worker brought this story to my attention last week.  It seems General Motors will begin charging $1,500 for three years of optional car features.  So what do you say?  Well, you’re going to pay for those features whether you activate them or not.  OnStar, which had been an option on GM cars for many years (even decades?) is now no longer an option.  If you aren’t the kind of person who reads fine print, you may want to start.  GMC and Buick vehicles sold in North America and Canada have a line item added to sticker prices under “options and pricing.”  Consumer Reports noted in late 2020 that Audi, BMW, Cadillac, Porsche, and Tesla all have plans to add subscription features for certain services.  In Germany and South Korea, BMW is charging $18 per month to enable heated seats (that are already in the car but disabled), and $8.50 per month for automated high beam switching.  It’s coming.  Now you know.

P.S. For those of you who caught my poor use of the English language a couple weeks ago, I applaud you.  My wife pointed out, to my embarrassment, that it is a “tough row to hoe” not a “tough road to hoe.”  She asked me, “Who would hoe a road?”  Ironically, I looked this up on Google prior to writing it, and still got it wrong! 

Bruce J. Mason, MBA