An Offer We Can Refuse | The Daily Peel | 2/10/23

• The OG Bob is back at Disney, and big changes are coming. Old man Nelson Peltz calls off proxy battle
• Joey B wants all the smoke with billionaires since calling them out in the State Of the Union
• The US is once again trying to kill Elon's vibe, but this time it's related to an alleged "illegal movement" of various hazardous pathogens by Neuralink, so…actually might be kinda messed up maybe
• Coinbase and other exchanges plan to get b*tch-slapped by the SEC on staking rules, sending shares and coins like ETH tumbling

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An Offer We Can Refuse

"The largest trade deficit in the history of trade deficits, maybe ever." That's how that classic, ol' Donnie T quote goes, right? Something like that…

Regardless, it is certainly the case. Earlier this week, the Commerce Department dropped some data on the United State's performance in international trade last year. And, as yesterday was the NBA trade deadline, this seems like an apt time to take a look at the US 2022 season. Spoiler: it was far from an MVP year.

The trade deficit is a measure of the difference between a country's imports and exports.

Exports > Imports = a Surplus; Imports > Exports = a deficit; it's that simple.

But, the trade deficit is just one part of a larger calculation called the Balance of Payments. The Balance of Payments is kind of like a country's balance sheet with respect to its dealings with the rest of the world. On one side, you have the current account, measuring the flow of goods and services from a country to the rest of the world. The other side of the equation is the capital account, a measure of the flow of financial assets from a country to the rest of the world.

In theory, the Balance of Payments should always equal zero. Remember, it's economics, so a theory is more of a "theory," but this one tends to hold up, albeit with minor measurement-driven errors. Every dollar in needs a corresponding dollar (or good/service in the value of $1) out.

Are you confused enough yet? Good, because the US 2022 trade deficit of $948.1bn was the largest ever recorded, representing a 12.2%, or $103bn, jump from 2021.

That might sound like a HUGE problem, but controlling the global reserve currency gives the US a bit of gravitas in the game of global trade. Much like my bank account, a growing deficit has become economic normalcy for the US.

And that's largely what this record deficit represents. As the impacts of the pandemic subside, global supply chains, demand, and exchanges of goods and services are slowly but surely returning to pre-C-19 trends. The widening deficit reinforces the US's reliance on other countries for goods and services (mostly goods) and generally gets accounted for by increased foreign investment into the US and, less so, increased borrowings from foreign countries.

Basically, what we're seeing confirms a couple of things. The US does not make nearly enough stuff to satiate consumer and business demand. Legislation like the CHIPS act seeks to remedy this, but it's nearly impossible for US goods to be cost-competitive with those from overseas.

Moreover, the US remains the investment capital of the damn universe. Dollars flow in hand over fist for a variety of investments, notably last week into treasury securities sitting on top of newly jacked-up interest rates.

And that right there was the big story of the year: the strength of the US dollar. There are about 752 bajillion things that impact a currency's exchange rate, but one of the largest drivers is the monetary policy of that currency's nation. You may have noticed things got just a tad bit tighter in the US last year, spiking the value of the USD against basically everything else.

This is super-duper helpful for driving foreign investment but super not helpful for reducing a trade deficit. As the USD value skyrockets, goods priced in USD become relatively more expensive, reducing demand for US exports. On the other hand, this will only increase imports as foreign-made goods become relatively cheaper to consumers buying in USD.

Let's take a breath because even my brain is fried after reading that over.

TL;DR: a rising USD value contributed strongly to normalizing international trade by spurring a larger US trade deficit while driving more investment to the US. It's a long road back to 2019 times, but directionally, we're coming.

Sonos ($SONO) ↑ 16.46% ↑

• You hear that? That sound blaring through your speaker? Yeah, that's the sound of money. Specifically, that's the sound of Sonos absolutely raking it in like they did last quarter.
• If there was a gold medal for flexing on Wall Street, Sonos took home the gold yesterday. Shares popped well over 16% on the back of a monstrous EPS beat, posting numbers nearly 75% higher than expectations, while sales of $672mn beat the piss out of guesstimates, too.
• Few firms suffered more supply chain disruptions throughout C-19 than Sonos. Execs kept alleging the demand was there, but the supply wasn't. Now that the world is just about as normal (or weird) as it should be, the company actually had enough stock to meet demand. Hell, they could even actually run ads last quarter, which happened to be over the Holidays, giving the stock the alley-oop they needed.

Madison Square Garden Entertainment ($MSGE) ↑ 11.49% ↑

• Boom. That's how you manage a live-entertainment biz through a god damn global pandemic. Good on ya, MSG.
• As much as I hate the teams that play at MSG in New York, I gotta tip my strictly-Bostonian cap to the firm on the last quarter. Sales boomed 24% from last year while the firm's EPS came in nearly double those guesstimates, clocking in at $2.25/sh vs. expectations of $1.17.
• As they say in the industry, but wait - there's more! MSGE took plenty of time on its call to hype up the incoming MSG Sphere in Las Vegas, and although I still don't quite understand how a spherical building works, investors certainly got excited. After results like that, time to change from MSG to LFG. Well deserved.