🚫 Danger on the horizon?

What’s on the Menu 🍴

When things get over-heated, we get out of the kitchen.

And right now, things are boiling.

Let’s take a look:

• Is Trucking Forecasting a Recession? 🚚

•  Coinbase Stock: Too Far, Too Fast? 💨

•  4 Reasons NOT To Invest In Target-Date Funds 🎯

• Will Strong Consumers Drive a Santa Claus Rally? 📺

Today’s newsletter is a 4 minute read.

Is Trucking Forecasting a Recession? 🚚

In the wake of the Global Financial Crisis in 2008, the United States has experienced an era of remarkable economic growth since 2010.

This period has somewhat dimmed the collective memory of economic downturns among Americans.

But recent developments across various industries are pointing towards a potentially alarming economic future.

Trucking - A Canary in the Coal Mine?

• Historical Precedents:

  • July 1990: A trucking slowdown preceded a significant drop in LA housing prices.

  • March 2000: Another trucking recession was followed by the tech bubble burst.

  • April 2006: Trucking recession foreshadowed the Great Recession and housing collapse.

• Current State: The trucking industry is currently experiencing one of its worst recessions. This is significant because historically, a freight recession has often been an early indicator of broader economic downturns.

Recent Developments in Trucking:

• Bankruptcies and Shutdowns: Major companies like Yellow, Convoy, Surge Transportation, Freight Works, and Certified Freight Logistics have filed for bankruptcy or ceased operations. This wave of shutdowns and financial distress in the trucking industry suggests deep-rooted economic issues.

• Impact on Employment: The shutdown of these companies affects thousands of employees and highlights vulnerabilities in the trucking sector.

What Does This Mean For Investors?

• A decrease in freight activity indicates reduced consumer demand and increased economic uncertainty.

• While most industries in the U.S. have not shown significant declines yet, the signals from the trucking industry are worrisome. These indicators point to weakening economic conditions and potential recessionary pressures.

As the year ends, there is a palpable anxiety about what the future holds, with a looming question mark over the stability of the U.S. economy.

But trucking is only one piece of the macro economic pie. And here at the Daily Dough, we aim to help you see the whole picture from all angles.

Coinbase Stock: Too Far, Too Fast? 💨

The bull run in Bitcoin this year has given life to many crypto industry stocks, from the Grayscale trusts to miner stocks such as RIOT & MARA.

One crypto stock stands out for its stunning recent performance and that stock is Coinbase (ticker: COIN):

Coinbase stock is up over 250% year-to-date, and up more than 75% in the last month alone!

Contrast that to Bitcoin which is up 130% year-to-date and up 12% in the past month.

Given COIN’s meteoric rise lately, you’d think that revenue growth at the company must be on fire or something.

In reality, Coinbase has seen total revenue SHRINK by 16% through the first three quarters of 2023 versus the same period in 2022.

So what has investors so bulled up for COIN?

We think investors have gotten more optimistic about COIN’s future due to the following:

• The failure of competitors such as FTX, BlockFi, & others

• Regulatory action against remaining competitors such as Binance & Kraken

• Strength in Bitcoin & Ethereum prices

• Coinbase is custodian for most Bitcoin ETFs waiting on SEC approval

• Higher interest rates help COIN earn more revenue on cash & stablecoins

• Popular ETFs such as ARKK bought more COIN stock recently

• COIN’s revenue growth flipped positive in Q3

There’s no denying that COIN’s stock chart looks strong and business momentum seems to be improving.

However, we think COIN investors may have gotten a little ahead of themselves in the recent rally.

Our major concern? The continued decline in trading volumes and revenues in the core consumer trading segment of the business:

Consumer transaction fees remain the largest source of revenue for Coinbase, yet they continue to decline despite the recent rise in crypto prices and competitor failures.

Higher interest rates in 2023 have helped COIN offset the decline in transaction revenues, but the benefit will be short lived with rates expected to come down in 2024.

COIN earns less than 0.25% of assets under custody annually, so even with ETF approvals it’s unlikely custodial revenue will grow to more than 10% of total revenue.

With COIN sporting a $30 billion market cap but producing less than $1 billion of adjusted EBITDA (pre-tax profit), the current valuation looks elevated.

In fact, COIN has only traded at a higher valuation during the 2021 market euphoria.

We aren’t necessarily calling for the top in COIN stock, but we do think the magnitude & speed of the recent run warrant some caution.

We could get more bullish if 1) the stock pulls back and 2) COIN’s consumer trading revenue stops declining!

4 Reasons NOT To Invest In
Target-Date Funds 🎯

Target-date funds have become wildly popular in retirement plans.

A target-date fund is a mutual fund that has a specific “retirement year” that it invests around.

The fund will be invested in mostly stocks and automatically rebalance into bonds the closer you get to the “target retirement year”. People love them, because of the automatic rebalancing and “set it and forget it” aspect.

What’s not to like?

This is why these funds have become so popular in employer sponsored retirement plans.

But, there may be a few reasons to NOT invest in target-date funds.

1. It's a one size fits all risk tolerance.

   A target-date fund is not customizing your asset allocation for your risk tolerance. It’s one allocation for everyone investing in the fund. This may not be ideal for some people who have lower risk tolerance. Especially for when the fund is mostly in stocks in the beginning.

2. The fund alone may not diversify you enough across asset classes.

   These funds hold only stocks and bonds. So, if you’re looking to diversify across REITS (Real Estate Investment Trusts), Commodities or Cryptocurrency, this fund won’t do that for you.

   You’ll need to make sure that you invest separately into any other asset classes that the target-date fund doesn’t.

3. Less control over selling asset classes before and in retirement.

   This is one of the largest downsides of these types of funds.

   Flexibility around harvesting gains, or selling losses across asset classes during different market environments can come in handy. With a target-date fund, you have to sell the entire fun, which means you’re selling both stocks and bonds vs. choosing one or the other.

4. The glide path may not fit with your actual goal (can stay invested in stocks longer than expected).

   When the fund re-balances from stocks to bonds may not be favorable for your overall financial plan.

   There are some retirees who may not need to actually dip into their accounts at all (they plan to pass them to their heirs). So they may have more time available to stay in stocks longer than others.

All-around, target-date funds certainly are an easy solution for anyone not wanting to have to learn how to manage a portfolio in too much detail.

The auto rebalancing and set it and forget it nature do make them great funds for most people.

However, if you’re looking to have a bit more control over your strategy, you may want to consider the downsides.

Will Strong Consumers Drive a
Santa Claus Rally? 📺

Online shopping and holiday travel just broke a bunch of records…

And people are expecting a strong “Santa Rally” going into December.

Markets are looking strong and rates continue to fall…

But will we see a “Santa Claus Rally”?

Watch this week’s We Talk Money episode

You’ll also learn:

• Some investing wisdom (and mistakes) from Charlie Munger

• Why the consumer is still looking strong today

• How to spot euphoria in the charts

• And much more

Food For Thought 🧠

"The stock market has predicted nine of the past five recessions.”
- Paul Samuelson

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.