Banks In Their Feels, Making Deals | The Daily Peel | 3/17/23

The Daily Peel...

Mar 17, 2023 | Peel #421

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Happy Friday, apes.

And much more importantly, happy St. Paddy’s Day. Regardless of how you choose to celebrate, hopefully, the luck of the Irish helped your bracket and helps us out of this multinational banking crisis.

I mean, it definitely won’t, but at least we have an excuse to consume copious amounts of alcohol and beg people to “kiss me, I’m Irish” a little more than usual. Thursday’s Markets certainly set us up for a solid day, with equity markets rallying like Big Donnie T in 2016 into the close after we learned these banks are probably (hopefully) going to be just fine.

As they do, treasuries did the opposite. The risk-off sentiment of yesterday yanked up yields and brought down prices, with the 2-year settling around 4.18% after reaching as low as 3.83% during yesterday’s session. Banks still have their money, and markets still have volatility; nature is healing.

Let’s get into it.


Last year, I paid thousands of dollars on crypto tax software that didn’t work, only to spend days with my CPA manually reviewing transactions.

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  • Awaken is 10x more accurate. It’s the only DIY software that captured all of my NFT and DeFi transactions and calculated the cost basis correctly for everything.
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Banana Bits

  • Not something you hear very often, but big banks are coming to the rescue (but take that word “rescue” with a grain of salt)
  • Despite the presumed disagreement from his nice, 69-year-old wife, the 45-year-old President of France, Emmanuel Macron, has decided to push forward with changes to the nation’s retirement plans, even if he has to do it alone
  • Happy Anniversary! One year ago yesterday, JPow decided to begin roughing up the entire US economy at once, no lube required
  • Bold move, Satya: Microsoft has decided to layoff the entire team dedicated to making sure ChatGPT doesn’t turn into SkyNet…let’s see how it plays out

Macro Monkey Says

Rates in Paris

And across the whole Eurozone, more accurately.

Feels like every day is JPow this, JPow that, and sometimes it just makes me want to j-pow my head off. So today, let’s check out what’s going on across the pond.

Believe it or not but turns out other countries, and even other continents, have their own central banks too. Headquartered in Frankfurt, Germany, sits one of the most powerful central banks in the world, arguably second only to Mr. Money Printer himself.

The ECB is currently headed by Christine Lagarde, the President of the ECB, who is actually from Paris and tends to strike a more dovish, accommodative tone than the long history of ECB leaders.

Yesterday, however, she and her gang of FOMC-equivalents were anything but dovish. The European Central Bank announced Thursday that the central bank is hiking rates by 50 bps, sticking to their game plan announced in early February despite the looming collapse of one of the continent’s largest, most well-known banks.

Stating, “Inflation is projected to remain too high for too long,” Lagarde made clear that she don’t give af about sacrificing plans to kill inflation once and for all in order to ease the Eurozone’s banking system, and quite honestly, she probably doesn’t need to.

Credit Suisse watched nearly 40% of its assets in the latter half of 2022 as clients fled amid an anticipated collapse. Rate hikes sure won’t help them out, but considering most of the FUD circling the European banking community stems from one now-infamous, San Francisco-based bank that apparently let goldfish run their MBS portfolio, she probably doesn’t have a whole lot of worrying to do.

Across the 20 countries that use the Euro, overall inflation spiked 8.5% in February. Ever since the Russian invasion of Ukraine and globally-observed price accelerations began last Spring, European inflation has tended to outpace the US on an annual basis. Despite this, the rate hikes have been slower and steadier.

Yesterday’s half-point rise brings the ECB rate to 3.5%, still a full point lower than the US lower bound of 4.5% and only the region’s second hike of that degree. Given that context of higher inflation yet slower rate hikes over the past year, the fact that Lagarde and the homies stuck to the 50 bps plan set forth 6 weeks ago is a clear sign that central banks aren’t letting the SVB / CS debacle rattle them too much.

Despite ongoing banking collapses, inflation remains the primary target. Like the US, inflation in the Eurozone has been steadily trending down from peaks that surpassed double-digits, but given the universal 2% inflation target, they’ve still got a lot of work to do.

We’ll find out Wednesday if JPow and the gang here stateside will follow suit in Lagarde’s resolute rate hikes or if Powell can stare down a bond market screaming for him to chill out.

The US isn’t exactly one to follow Europe, and like Atlas holding up the sky, JPow has been holding up the rate hike expectations for seemingly an eternity. See, another 25 bps doesn’t seem so bad anymore, huh?


What's Ripe

FedEx ($FDX) ↑ 11.59%, AH ↑

  • Because FedEx will ship my packages so late and so fast, I guess we’ll do the same in writing about their earnings.
  • Yesterday’s widespread rally across equity markets gave $FDX shares a good vibe to bring onto their earnings call, and the numbers sure didn’t disappoint. EPS of $3.41 obliterated expectations by almost a full dollar, carrying shares on its back after hours in the face of a mild revenue miss.
  • Like all the other cool, hip companies these days, FedEx got much of its late-day boost from cost-cutting plans designed to act as the corporate version of cognitive behavioral therapy in a preemptive strike on the expected weakness in demand for the rest of the fiscal year.

Adobe ($ADBE) ↑ 5.90% ↑

  • After all that talk above about a sizable earnings beat, it’s no surprise that Adobe has now entered the chat.
  • The company behind the PDF files that your boss still can’t figure out to open doesn’t care that he can’t figure out how to double-click; all they care about is that his check cleared. And clear it did, as the massive software maker delivered respectable beats on both sales and earnings.
  • Not settling for a beat this quarter, Adobe actually had the balls to raise guidance for the year as well. Being maybe the only company on Earth to expect a good 2023, investors didn’t have much convincing to load up.
  • Still, lingering antitrust troubles over the insanely overprice $20bn Figma acquisition is causing headaches to execs and investors alike. Rumors say it’s gotten so bad that CEO Shantanu Narayen almost told Figma to ligma.

What's Rotten

Dollar General ($DG) ↓ 2.96% ↓

  • Given the inflation of the last year and the apparently pending doom of the old world financial system, don’t be surprised when Dollar General changes to Bitcoin General soon.
  • Shares in the saddest yet also the sickest general merch retailer around sagged over 2.95% on a tough earnings report. EPS missed by a hair but was basically right on target, while top line sales missed by around 3%.
  • Credit where credit is due, however, as Dollar General still managed to flex on Dollar Tree (aka $1.25 Tree) by still keeping their merch at that crucial $1 level.
  • News that inflation s driving higher-income shoppers into DG stores did basically nothing to quell the market’s tears on the results, but still, there is one thing rich people are really good at: spending money. Fingers crossed, the General can get the ball rolling next quarter; it looks like they’re gonna need it.

LivePerson ($LPSN) ↓ 57.73% ↓

  • Based on yesterday’s returns, this company might have to add “Una” to the first three letters of its name soon. Damn, this was ugly.
  • (Una)LivePerson reported earnings so trash that Mr. Market, even amid a market rally and an AI hype cycle, couldn’t stand it one bit. We knew earnings were gonna be a sh*tshow going in, but damn, no one expected sales to come in as poorly as they did.
  • Revenue came in just over $122mn for the quarter, well below what was priced in. To add salt to their self-inflicted wound, LivePerson also guided for a sales drop (plummet) of 15-18% for the full 2023 fiscal year.
  • For a company that’s entire business is built around selling AI chatbots to companies so they can bullsh*t their customers, it seems like they could’ve come up with a better story for themselves.

Thought Banana

Banks In Their Feels, Making Deals

Wow, what a DAY…if you’re a huge finance nerd, like all of us, of course. Yesterday saw two massive deals get put to work to save the lives of banks quite literally half a world over from each other. Not that the banks in question had a whole lot to do with each other, but the timing is just uncanny.

Now, civilians outside the financial realm probably couldn’t care less, but this was huge for the Patagonia vest-wearers among us.

On Thursday, just before the US close, the WSJ reported that 11 large US banks had pooled together ~$30bn to save the far smaller homie, First Republic. The Big 4 banks (JPMC, BofA, WF, and Citi) each tossed $5bn into the pot while players like GS and MS gave in $2.5bn a piece, rounding things up with names like State Street and PNC throwing another billy on it, just for fun.

First Republic desperately needed a deal like this to magically appear, and fortunately, the luck of the Irish came a day early. See, First Republic was arguably even dumber than the idiots running SVB; they didn’t even have enough “high-quality” collateral on their books to use the Fed’s BTFP.

It might seem weird that companies as “evil” as JP Morgan and Goldman Sachs would give essentially charity to a smaller rival, but at the end of the day, it only takes a few more SVBs and FRCs for the larger banks’ “fortressbalance sheet to turn into a sand castle.

Meanwhile, across the pond, the Swiss National Bank managed to talk Credit Suisse back off the ledge with a nice $54bn check. According to CS, the move is “pre-emptive,” but according to the rest of us, the bank should change that C to a B.

$3bn of the $50bn being tossed around is already earmarked, with $2.5bn planned to buy back senior CS debentures traded in the US and the rest to do the same but on their home continent’s turf. Still, rumors are swirling that Credit Suisse’s Swiss big brother UBS might have to come in a full-on takeover to save the day once and for all.

In the financial world, that’s like if the Red Sox ran into troubles so great they had to get bought out by the Yankees.

By close Thursday, two things were clear: 1) liquidity will be there when banks need it, and 2) the two-tiered banking system has officially been set in stone. As long as you get so big that your failure would quite literally cause an economic depression, mommy and daddy will have their checkbooks out, ready to save the day.

Thanks, government!

The big question: How long will the psychological impact of these banking troubles ring throughout the economy? Are the big banks like JP Morgan in the US and UBS in Switzerland set to be the real winners here?


Banana Brain Teaser

Yesterday — I dig out tiny caves, and store gold and silver in them. I also build bridges of silver and make crowns of gold. They are the smallest you could imagine. Sooner or later, everybody needs my help, yet many people are afraid to let me help them. Who am I?


Today — It’s 50 bananas off the DCF Modeling Course for the first 3 correct respondents. LFG!

You can hold me in your hand and yet I can fill the entire room. What am I?

Shoot us your guesses at [email protected] with the subject line Banana Brain Teaser or simply click here to reply!


Wise Investor Says

“Save to invest, don’t save to save.” ― Oscar Auliq-Ice


Happy Investing,

Patrick & The Daily Peel Team

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