Big vs. Giant | The Daily Peel | 4/25/2023

Apr 25, 2023 | Peel #447

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Banana Bits

• Big shake-ups in big newsrooms have to spell big trouble for someone, as Tucker Carlson leaves Fox News on the same day Don Lemon got canned by CNN. This could be one spicy podcast (or Presidential ticket?) for sure
• Pepsi challenges Coca-Cola with its new health strategy: more potato chips and soda, claiming that happiness is the best medicine
• Apple plans to launch a journaling app to help you cope with the stress of being an Apple user

Macro Monkey Says

Y’all Still Got Them Laser Eyes?

As we roll into a data-packed week to come, Monday pulled a classic Monday move and sucked compared to every other day of the week. As such, let’s check the pulse (literally and figuratively) on 2019-2021’s favorite asset class.

In just about every market wrinkle we’ve ever seen, the same three suspects keep coming up as the primary culprits: duration, leverage, and liquidity. In normal markets, just one is enough to bring down the beast. In the last few years, digital currencies have been slammed by all three at the same time in a historical manner.

Yet, it’s still here.

It’s not exactly common for things like completely brand-new asset classes to appear out of thin air, but that does seem to be what digital assets did. We don’t have a whole lot of comparisons, and while we can’t yet confirm this stuff is as fruitful as something like equities, we can confirm it’s not tulips.

Early last week, BTC hit nearly a 1-year high out of absolutely nowhere as it surpassed at least $30.3k. At the time, it was the sneakiest +80% return, something that grew back to a >$500bn market cap has ever seen, but now people are talking again.

ETH has followed a similar path, with a slightly lower return for most of the way. But, it also has shown signs of falling less than BTC when sh*t hits the fans, which occurs at least once a week, it seems, in this space. Maybe we should start calling ETH “the bonds of crypto”?

Without any immediately apparent truly massive/big-name buyers, people pumping this on SNL, and the next halving not until a year from this Thursday, no one really seems to understand the drivers behind this move…and we sure don’t either.

At the time of writing, BTC sits at $27.4k and ETH at $1.8k, both down in the last hour, 24 hours, and 7 days. This year, both remain at least 50% higher, so this recent pullback hasn’t been massive, but it sure does buck the trend.

The most obvious theory could be that expectations for rate hikes and further Fed tightening going forward, aka liquidity and expected liquidity, have been the primary driver. As markets have, over the past few weeks, drifted up into the 90% range and higher in terms of expecting yet another hike from the boy JPow, it’s possible the two are at least somewhat correlated.

Long story short, we have no idea what’s going on, but something is clearly going on.

Many have made the case that the mere fact that assets like BTC and ETH refuse to go away is a bullish case in itself. I mean, after these past 12-18 months, shouldn’t those in that camp be more bullish than ever? Keep in mind BTC itself turns 15 years old in 2023.

Now, there are still no obvious broad-scale use cases for almost anything in the digital asset space (don’t even come at me with remittances) and arguably no intrinsic value by traditional financial theory, so don’t get all laser-eyes on me again just yet. The intransigence of an apparently solidly sized group of religious-like believers will clearly never sell this thing, so as long as there is always someone else to buy at some price, it could just be a game of time.

Technologies have been made before their time in the past, and if we are to believe that digital assets aren’t going away, well, forever is a long time for it to develop.

F*ck it, let’s see what happens.

What's Ripe

First Republic ($FRC) ↑ 12.20% ↑

• This might be the first time ever we have a stock so Ripe and so Rotten that we simply have no choice but to talk about it. Congrats on being part of history.
• And the stock taking us into The Daily Peel’s version of 1776 is none other than First Republic, the bank many expected to be next at the guillotine last quarter. It survived, but per yesterday’s quarterly report, not by much.
• $72bn in net outflows hit deposits at FRC last quarter, ~40% of the bank’s deposit base. Factoring in the $30bn injection received from large bank rivals, that’s total outflows in excess of $100bn.
• Makes sense then that shares are down >86% YTD even after yesterday’s open-session gain. Layoffs are coming along with a massive balance sheet restructuring as execs scramble to keep the lights on. But, if the real first Republic (of course being the Roman Republic) is any indicator, it’s not a pretty position to be in.

Credit Suisse ($CS) ↑ 2.11% ↑

• After years of scandals, a federally mandated marriage with its top rival, and countless creditor lawsuits, poor, sweet Credit Suisse has dropped what many expect to be the firm’s last-ever independent earnings report. RIP to a legend of the game – the definition of “f*ck around and find out” in banking.
• Yeah, it was as bad as you think. If anything, this report is merely a rundown on just how screwed UBS could be as they try to absorb this dumpster fire. $68bn in assets left in Q1 with plenty more on their way out the door, but according to management, the flight in assets has slowed.
• In moments like this, rival wealth management firms are licking their chops trying to score big books of business from CS to their own teams and away from where they otherwise would’ve gone, of course being UBS, already the world’s largest wealth manager.
• Apparently, almost $70bn heading out the door was already priced in, as CS moved slightly higher while UBS bumped up a cold 1.33% as well.

What's Rotten

Bed Bath & Beyond ($BBBY) ↓ 35.67% ↓

• The name change that we suggested months ago is officially official: Bed Bath & Beyond is now Bed Bath & Bankrupt. RIP to another legend, this time one of the best in the college-dorm-shopping game and pretty much nothing else.
• Although, this RIP could be premature. Bed & Bath filed under Chapter 11 bankruptcy, aka the “good bankruptcy,” when compared to Chapter 7, as filing in this manner allows the firm to stay operational while repaying debtholders.
• That said, Bed & Bath has indicated their likelihood to liquidate everything and close this sh*tshow down for good. Why the stock is trading at $0.19/sh instead of $0.00 is beyond me, but we’ve still got 100% of the way left to fall.

Fox Corp ($FOXA) ↓ 2.91% ↓

• Like Brady leaving New England, Trump “leaving” Twitter, and Jerry Seinfeld leaving Seinfeld, Tucker Carlson has left Fox News.
• Pour one out for every 
   in mourning this week as one of, and at times, the most popular prime-time hosts in cable television, averaging 3.25mn viewers in Q1 according to the NYT.
• Losing an asset like that hurts, hence the >5% drop in Fox’s share price in the 20 minutes following the release, a loss of ~$800mn in market cap. Carlson was easily Fox’s most important person, with his face and name synonymous with the media brand. To some, it’s a huge win, while others may never be the same. We all know Fox sure won’t be.

Thought Banana

Big vs. Giant

Salesforce completed its acquisition of Slack on July 21, 2021. Before that, Slack was a cute, cuddly lil’ company pushing its objectively best-in-class corporate messaging service against big, bad Microsoft.

It was so bad, in fact, that Slack levied a formal complaint against Microsoft for its practice of bundling its own messaging and video conferencing app, Teams, with the seemingly universally used Office product suite with the EU’s antitrust regulators.

Yesterday reports out of the FT allege that Microsoft, seeking to continue avoiding its beloved practice of not poking the bear of antitrust violations, has agreed to stop bundling Teams by default. None of this is confirmed yet, but according to these reports, the Bellevue-based behemoth will now offer a Teams-free version of Office in the EU.

Essentially, they’re trying to avoid the dreaded probe – the antitrust probe. Implicitly, Microsoft has determined that whatever loss in market share and therefore value it loses by removing the bundled-default option will be less than whatever penalties and legal costs the European Commission comes at them with.

Given the Commission’s past behavior, like hitting Google with an original, combined fine of $8bn, we don’t blame them. But at the same time, it was a lot easier to feel bad for Slack when it wasn’t owned by the $200bn, Dow-component Salesforce.

Honestly, the real story here could be that, once again, we’re seeing the EU take the lead on key legislative issues. The last significant antitrust law created in the US was in 1914. The EU adopted the GDPR in 2016.

Here we have yet another example of Congress failing to act in a meaningful time period while the FTC has been weak for decades. Antitrust law is massively important in a capitalist economic model, yet we’ve allowed it to get to the point where we rely on another continent to tell US-based companies how to behave with each other.

I mean, at least someone’s doing it.

The big question: Will Microsoft’s alleged concessions be enough to fend off EU attacks? When will US policymakers and regulators adopt innovative, impactful, or at the very least, competent new laws again?

Banana Brain Teaser

Yesterday — It is in the rock, but not in the stone; it is in the marrow, but not in the bone; it is in the bolster, but not in the bed; it is not in the living, nor yet in the dead. What is it?

The letter R.

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

What is it that no man ever yet did see, which never was but always is to be?

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

Wise Investor Says

“The stock market is a giant distraction from the business of investing.” — Jack Bogle

Happy Investing,

Patrick & The Daily Peel Team

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