July 14, 2023 | Peel #500

In this issue of the Peel:

• Markets reacted positively to good inflation data and early favorable earnings results from major S&P names, while treasury yields sold off, driving investors to risk-on assets in the lead-up to the July 26th rate decision.
• Amazon's Prime Day saw U.S. online sales surpassing $12.7bn with more than 375 million individual items bought, hinting that consumers are still willing to spend big for the right deals, albeit majorly on lower-priced items. This could suggest consumer hesitation to make larger purchases.
• The DeFi space experiences tumult with allegations of major securities fraud against Celsius Networks and its CEO, Alex Mashinsky, questioning the future of the asset class and the companies involved.

Market Snapshot

Happy Friday, apes.

Let the good vibes roll. Wednesday’s positive equity momentum bled into Thursday in spades during the morning session, only to slow down mildly in the afternoon but maintaining a nice green print.

Equity markets rallied on the back of positive inflation data from yesterday, carrying over into today’s trade along with preliminary positive earnings data from larger S&P names. Delta was the headliner with a 50bps loss on the day, but at the same time, indexes were able to keep the party going.

Meanwhile, treasury yields continued to sell off throughout the day. Rate expectations barely moved, but investors still wanted to pile into risk-on assets in the days heading into the July 26th rate decision.

Let’s get into it.

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Banana Bits

• Actors joined their writer brethren in striking against Hollywood studios, as obviously, actors don’t make nearly enough money
• Big Dawg Joey B is apparently (allegedly) thinking of putting as many of 3,000 military reservists (aka U.S. troops) onto European battlefields
• In a classic battle of the acronyms, Lina Khan and the FTC have declared war on ChatGPT

Macro Monkey Says

A Prime Day for Shopping

Apes, your parents lied to you. Turns out Santa Claus really is real, only instead of St. Nick, he goes by the name of Jeff Bezos.

Or, I guess now, he goes by Andy Jassy, the current CEO of Amazon. Earlier this week, the true Most Wonderful Time of the Year went down, and we’re not talking about earnings szn this time.

"... it’s a day to celebrate what truly makes America great— capitalism ..."

On Amazon’s 20th birthday as a company, July 15th, 2015, the firm held the first-ever Prime Day event. Basically, it’s a day to celebrate what truly makes America great— capitalism—by giving fatty discounts on top products to Prime users.

And as much as we all loved capitalism before, American consumers really showed their anti-communist tendencies this year. Let’s take a look at the early box scores:

• Online sales in the U.S. exceeded at least $12.7bn over the two-day event
• More than 375mn individual items were bought, a 25% jump from last year
• The average order price tag was $54.07, while over 2/3rds of households placed multiple orders, bringing the average spend per Prime household to $155.67
• Tuesday, July 11th, 2023, was Amazon’s largest sales day ever at $6.4bn

Absolutely crazy. With $6.4bn in sales in a single day (that’s the notional value of purchase, not what Amazon brought in, btw) and 86,400 seconds in a day means Prime customers spent $74k per second on this former bookstore’s website.

Maybe even more shocking, but only 23% of items purchased cost more than $40 this Prime Day. Take a look:

Source

So while consumers enjoyed the spending as much as they always do, this year’s Wishlist seemed to contain lower dollar amount purchases than in years past. If Prime Day can be used as any indicator, that could signal a hesitance among consumers from making any big, durable goods purchases for the time being.

Moreover, the ancient Egyptians sure would’ve been proud of us, with the number one purchase on Amazon over the last 2-days being treats for the animals they worshipped: cats.

Temptation Cat Treats topped the list as the most sought-after item. Closely behind this was the Amazon Fire TV stick while the alcoholics among us loaded up on Liquid IV hangover recovery in 3rd place.

"Temptation Cat Treats topped the list as the most sought-after item. Closely behind this was the Amazon Fire TV stick ..."

Finally, let’s take a look at the average Prime Day shopper, per Numerator’s data. According to their data, if you bought something during Prime Day, you are most likely a “high-income suburban female between the ages of 35-44.”

More data will roll in over the coming days, but it seems that the key takeaways from this should-be National Holiday include:

• Consumers are still ready, willing, and able to drop bands for the right deal
• Big ticket purchases of large items were less favored than small-scale stuff
  - It could be attributed to a lack of funds to spend among consumers or an early deflationary sign that we’re already expecting prices to fall next month—or other factors we’re not considering, of course
• High-income earners remain in spend rather than save mode

Cheers, apes. Hope you scored a great deal, and we’ll see you next year.

What's Ripe

Coinbase (COIN) ↑ 24.49% ↑

• As you’ll see below, a huge piece of the digital asset space had a tough day yesterday. Included in that was just about everyone except Coinbase.
• On Thursday, shares in leading digital asset exchange Coinbase surged nearly 1/4th of Wednesday’s closing value on the news of a (potential) major reversal in legal consideration of the assets on their platform.
• Yesterday, a federal judge in a loosely watched case between the SEC and the company behind the notorious XRP token, Ripple Labs, issued a ruling that the XRP token, in fact, does not mean the definition of a security via the Howey Test… at least, not all the time.
• Most important, the judge opined that the nature of the transactions involved was the deciding factor. Institutional buyers purchasing through written contracts bought securities, according to the judge, while retail investors did not. This is a whole new application of this law, and although we say it all the time, you’re definitely gonna wanna stay tuned for this one.

Alphabet (GOOGL) ↑ 4.72% ↑

• The sneaky little minx that is Alphabet had themselves one helluva day yesterday, surging nearly 5% purely on AI and their buddy Bard.
• Europe was blessed yesterday morning as the company officially launched its AI chatbot Bard in the content while simultaneously updating the model to support over 40 languages worldwide.
• Moreover, many of you may have noticed that Google’s typical search service is now gradually being given the Bard AI feature that looks a little like this:

• Regardless, the message is clear: the AI hype is still here with plenty of room to run. Whether Bard itself is the Google search killer or not, hopefully, we’ll find out soon enough.

What's Rotten

Viasat (VSAT) ↓ 28.48% ↓

• Turns out that blowing up thousands of dollars worth of equipment isn’t an ideal business model. Unfortunately, Viasat learned that one the hard way on Thursday.
• This time, however, the only true explosion was in the company’s share price, plummeting nearly 28.5% on the day. Shares tumbled as an “unexpected event occurred” that “may materially impact” the performance of the firm’s satellite.

Progressive (PGR) ↓ 13.12% ↓

• We’re not sure if there’s a GC out there or anything, but Flo could sure use some emotional support from her homies like Jake from Statefarm.
• Shares in Flo’s Progressive Corp plummeted well into the double digits on the back of some earnings numbers that would make Jared from Subway look good.
• Warren Buffett, as the owner of Geico, sees Progressive as his biggest direct insurance competitor, and after yesterday’s earnings, he’s feeling pretty good. Analysts were pricing for a $0.88 EPS print, so when the company posted $0.50, this was enough to make analysts throw up.

Thought Banana

Can’t Stop, Won’t Stop

Much like douchebags and financial service companies, digital asset companies appear to have a match made in heaven of their own: fraud.

"So, if only TerraUSD could’ve kept its peg ... we might’ve avoided this whole collapse in its entirety."

Yesterday, U.S. regulators announced yet another major securities (and other) fraud charge in the digital asset spaces, this time levied against Celsius Networks and the (former) firm’s CEO Alex Mashinsky.

Celsius, as the veteran apes among us may recall, was among the first in a long line of digital asset bankruptcies last year, filing Chapter 11 on July 14th. To get a sense of how they fit in, it’s important to recall that:

• The collapse of TerraUSD and the loss of its peg against USD…
• …led to the collapse of Three Arrows Capital which filed for bankruptcy on July 1st, 2022…
• This collapse then triggered the bankruptcy of Voyager Digital, both companies having exposure to…
• Celsius Networks, which went bankrupt just about a week after Voyager

So, if only TerraUSD could’ve kept its peg (or JPow kept his rates low), we might’ve avoided this whole collapse in its entirety. However, obviously, there’s a reason I haven’t opened my Coinbase account in forever…

But yesterday’s announcement confirms this wasn’t just a case of classic corporate failure leading to bankruptcy but actual (alleged) fraud.

Mashinsky is 57 years old, making his charges a lot less cute than those of the cuddly, adorable Sam Bankman-Fried, aged 31. But the SEC says age is just a number and, as a result, Celsius and Mashinsky are expected to undergo a similar (but likely quieter) rigamarole to that of SBF.

"7 criminal counts were charged against Mashinsky personally, including the Big 3 frauds: securities, wire, and commodities."

7 criminal counts were charged against Mashinsky personally, including the Big 3 frauds: securities, wire, and commodities. The primary allegation that’ll have CNBC anchors the reddest in the face will be the market manipulation charges against the 57-year-old as well as the former chief revenue officer Roni Cohen-Pavon.

Given the charges were just announced, there’s still a lot to learn. But in the immediate aftermath, BTC, ETH, and other digital asset prices continued to rip, with BTC sitting above $31k at the time of writing.

Is fraud bullish? I guess we’ll find out soon enough.

The big question: How many more DeFi frauds and/or bankruptcies can we expect to see? How will these charges impact the value(s) of the ecosystem? What does this mean for the asset class and companies involved long term?

Banana Brain Teaser

Yesterday —

Crows fly high, in the air
The wind gives a sigh, silence everywhere
Women cry for I am there, your men shall die within my lair
I am not noble just a lie, truth be told I do not care
Who am I, who could be so unfair?

War.

Today — What statement is described by the following rebus?

It1
It 2
It3
It 4
It5
It 6
It7
It 8
It9

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser”.

Wise Investor Says

“Successful investing is about having a sense of when to be aggressive and when to be defensive.” — Howard Marks

Happy Investing,

Patrick & The Daily Peel Team

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