August 16, 2023 | Peel #523

Silver banana goes to...

In this issue of the Peel:

• The Advance Retail Sales report for July shows a significant 0.7% monthly growth, indicating strong consumer spending which makes up 65-70% of U.S. GDP. This unexpected rapid growth, alongside global inflation concerns, has the markets worried it could lead to more inflation spikes domestically.
• Home builder stocks like D.R. Horton, Lennar, and DNV Corp saw growth, likely influenced by recent investments from Warren Buffett's Berkshire. Sea Limited faced a significant decline after poor earnings and tempered future expectations. Discover Financial also saw a drop following the sudden departure of its CEO.
• There's speculation and banter around a possible fist fight between Elon Musk and Mark Zuckerberg. While it’s largely seen as jest and a way to attract attention, there’s genuine curiosity regarding the outcome if it were to happen.

Market Snapshot

Happy Wednesday, apes.

Glad to see you made it back again today. We’re officially more than halfway through the most boring, hot, and sweaty month of the year now, and man, we can’t wait to see some action for the rest of this year.

Anyway, equity markets got into exactly the wrong kind of action yesterday, losing across the board as a too-good economy is scaring traders worse than Ron Swanson’s fear of his ex-wife Tammy. The Russell 2k led the way lower with a 1.32% loss while big dawg names like Nvidia, Eli Lilly, Oracle, and a few others tried to save the day.

But even for treasuries, the day couldn’t be saved. Across the maturity spectrum, U.S. debt yields spiked higher in response to the economy’s retail sales data that dropped yesterday at 8:30 am. The 10-year managed to finish the session higher while the 2-year was off slightly.

Let’s get into it.

Stock Advisor is Now $79 For New Members

If you're tired of reading about other people getting rich in the stock market, this might be a good day for you. The Motley Fool is offering new members a big discount off the list price of its top stock-picking service, plus a complete membership fee-back guarantee. Join over half a million investors, who like you, are on their investment journey with us. Once you sign up, you'll have access to our library of expert stock recommendations and much more. If you’ve heard about The Fool and our market-tripling stock picks, you probably don’t want to miss checking this out.

Join Today

Banana Bits

• No, racketeering isn’t a crime committed on the pickleball court, but it is one that former President Donnie T just got charged with
• For the first time ever, cable and broadcast TV made up less than half of all TV watching last month, according to Nielsen and as reported on by…one of the largest cable TV networks
• Already, Hawaiian Electric is getting pummeled with lawsuits related to the island’s horrific wildfires
• Doesn’t get much better than a surprise profit in your first earnings report as a public company, as Cava found out late yesterday

Macro Monkey Says

Retail S-ail Mary

Alright, I know that all year we’ve been encouraging—no, begging—you all to go out and spend in order to make much-needed charitable donations to the economy. Now, we need you to stop.

Yesterday, the Census Bureau dropped the hottest new track of the summer in the form of the Advance Retail Sales report for July. Here, economists seek to measure the total spend on final demand goods purchased by consumers at retail and food service spots.

Basically, it’s a proxy for consumer spending, and in case you forgot, keep in mind that consumer spending tends to be responsible for 65-70% of U.S. GDP in any given period. So, when retail sales grow, that’s generally good, but…

Source

The above chart, which looks like it was drawn around the same time Adam Smith invented macroeconomics, might be a little too good.

"For now, that’s both very good and (potentially) just as bad."

As you can see, retail sales in the U.S. accelerated by 0.7% monthly in July and 3.2% from July ‘22. That 0.7% is more than 2x the 0.3% monthly growth seen in June and beat the sh*t out of economist expectations. For now, that’s both very good and (potentially) just as bad.

First and foremost, the resilience of the American consumer can’t be understated. Despite the economic woes experienced over the last few years, consumers are now experiencing higher wages, slowing inflation, rising asset prices, non-falling home prices, and 5.5% risk-free yields, so it’s no wonder they’re spending like the boom we’re in.

But, at the same time, inflation and rates weigh heavy.

On the same day as this report dropped, the Canadian gov’t released data showing inflation had ticked back up through July, just like in the U.S., and the U.K. is actively giving out global warnings not to start popping bottles on a win in the war against inflation just yet.

From a global lens, the fight against inflation ain’t even close to over. So, when U.S. retail sales are still pushing as rapidly as this, it’s only natural to think that could lead to further inflation spikes domestically as well.

"From a global lens, the fight against inflation ain’t even close to over."

Traders, for their part, aren’t pricing that possibility in at this time, but we did see implied probabilities on rate moves throughout 2024 become less confident in the cuts we were previously pricing in.

It’s so good that it scared the Street into thinking it could lead to something bad. In summary, up is down, down is up, violet is blue, and either way, you are screwed.

Again, Happy Wednesday.

What's Ripe

Home Builder Stocks (DHI, LEN, NVR)

• Turns out the ol’ geyser Warry B still has a few tricks and the commanding respect of every single person that can spell “investing” up his sleeve.
• Construction and home builder names, including D.R. Horton, Lennar, and DNV Corp, saw solid outperformance on Tuesday as recent 13-F filings showed Buffett and Berkshire were loading up on the belief that home is where the money is.
• Needless to say, Warren’s buying is bullish alone, but he has fairly good reason. These wildly undervalued names have seen their inventory prices hold up well in the face of massively higher rates, a sign of the pure demographic demand coming from millennials, the largest generation in American history, for a place to live.

What's Rotten

Sea Limited (SE) ↓ 28.68% ↓

• Guess shareholders didn’t $SE this one coming as shares in Shoppee-owner Sea Limited nosedived on garbage earnings.
• The firm missed revenue estimates, for one, but the e-commerce, digital finance, and gaming company managed to disappoint even more by tempering expectations for future earnings by announcing big investments in the e-commerce side.
• Sure $0.54/sh in earnings was a nice beat this quarter, but once again, we have a case of management failing on the most important thing: hype about the future. It’s a rough punishment for a company that was already off over 83% from its highs, but it’s tough to make friends on and/or with Wall Street.

Discover Financial (DFS) ↓ 9.44% ↓

• The company behind the credit card that I’d bet my life 95% of you (and me) either have or have had at one point in our lives was vehemently declined by analysts yesterday.
• Almost as embarrassing as when the bartender yells out, “IT GOT DECLINED,” Discover lost nearly 10% as a result of CEO Roger Hochschild apparently stepping down effective immediately, according to yesterday’s announcement.
• Interim CEO John Owen must feel like a real piece of sh*t right now. The disgust is mostly a result of a departing CEO who let his company lose only 10% throughout 2022 and hold up, overall, much better than others in recent years.

Thought Banana

Shamefully Excited

Elon might be right with his idea that “the most entertaining outcome is the most likely,” but he sure does rig the odds in his favor on that one. Is that insider trading?

Specifically, he does so by challenging fellow centi-billionaires to fist fights, obviously.

Somebody tell me, are Elon and Zuck really gonna fight? And more importantly, if so, who do I put my money on?

The lines on this fight will be absolutely ridiculous, I’m sure, but nothing could be quite as wild as the actual fight itself. While we’re all hoping, praying, and begging with whatever higher power you believe in that this magically embarrassing & entertaining brawl actually happens, Elon has had no shortage of trash talk on his timeline.

"The lines on this fight will be absolutely ridiculous, I’m sure, but nothing could be quite as wild as the actual fight itself."

In case you haven’t heard, which I can’t imagine because my parents asked me about it, Mark Zuckerberg and Elon Musk have been flirting with fighting with each other for a few weeks now, and yes, I chose those words very intentionally. Let’s recap.

• Elon Tweeted / X’d basically a threat / challenge to Zuck to fist fight when Twitter-competitor (carbon copy) Threads launched
• Zuck responded with “SEND ME LOCATION” on his Instagram story
• Elon threw out several more threats / challenges on Twitter / X while the Italian government offered to host the fight in the literal f*ckin Colosseum
• Zuck Thread’d (is that what it’s called?) a response saying that Musk “clearly isn’t serious”
• Musk unloads a firestorm of Tweets / X’s on Twitter / X telling exactly how much of a wimp Zuck is for not disregarding his $776BN firm’s priorities

"Look, I don’t know what 11-year-old boy’s dream simulation we walked into here ..."

And that’s basically where we stand now. Look, I don’t know what 11-year-old boy’s dream simulation we walked into here, but the overlords need to program this fight to happen and, more importantly, live up to expectations.

Both would likely embarrass themselves, their families, their companies, and most importantly, their share prices, but let’s keep our fingers crossed Elon pokes the Zuck so much that it becomes bad for his stock if he doesn’t put up the dukes against the older, larger man.

Speaking of which, my early money is on Zuck. He’s got the youth and the training compared to Musk’s only advantage in size—both physically and financially. Any takers on this action?

The big question: Will Elon and Zuck fight each other? If so, who wins? What happens to their share prices? Is a Bezos-Pichai fight next on deck?

Banana Brain Teaser

Yesterday — The following are disguised versions of the names of famous entertainers.For example, given “chop subsidy,” the answer would be “Hugh Grant” (hew grant).The hint gives each entertainer’s gender and profession. Can you get all five of them?

1. opposite of the strong terminus
2. make tea negative response the red planet
3. the little finger without the ending
4. denim computer security breach male
5. valley nearby

1. The Weeknd (the weak end)
2. Bruno Mars (brew no Mars)
3. Pink (pinky - y = pink)
4. Gene Hackman (jean hack man)
5. Glenn Close (glen close)

Today —

A life sustainer
But match restrainer

The farmer's top aid
I quell a parade

What am I?

Shoot us your guesses at [email protected].

Wise Investor Says

“We search through historical data looking for anomalous patterns that we would not expect to occur at random.” — Jim Simons

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team

Was this email forwarded to you? Be smart like your friend.

ADVERTISE // WSO ALPHA // COURSES // LEGAL