Bringing Manufacturing Back Home | The Daily Peel | 4/11/2023

The Daily Peel...

Apr 11, 2023 | Peel #437


Market Snapshot

Happy Tuesday, apes.

Wasn’t it great being back in the office yesterday after a much-too-long long weekend? Yeah, I cried on my drive in too.

At least markets were open again, however, because, after three long hard days without trading, I was getting really sick of not losing money on stocks. Thankfully yesterday saved us as equity indices in the US opened depressively lower, only to rally back through the session, with the Dow leading the way.

Economically sensitive, aka “cyclical,” stocks buoyed a market otherwise dragged down by the gravitational pull of falling mega-caps. Despite the distinct lack of breadth, the S&P managed to stay on top of a short-term technical support level set last Wednesday.

Treasury yields, on the other hand, managed to maintain their equity-like volatility, with the 2-year yield once again reversing course and pushing just above 4% by the end of the day. Alongside that move, the dollar rode a powerful thrust higher, suggesting markets may see more rate hikes on the horizon following Friday’s jobs report. We’ll be hosting a pre-death vigil soon for the next bank to collapse if anyone wants to join.

Let’s get into it.


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Banana Bits

  • Not that anyone cares about earnings in real terms, but even only accounting for the cost increases brought on by inflation, Wall Street expects the coming earnings szn for Q1 to be one of the worst in a while
  • The Super Mario Bros. Movie debuted this weekend, smashing every record in the book for an animated film’s release (as it should) and lifting theater chain shares with it
  • If expectations from professional economists fail so miserably all the time, I can only imagine how the same guesstimates from consumers will turn out, but let’s just say they still aren’t exactly pumped for the future of inflation
  • Could another international trade deal be in the works to get Mr. Evan Kershkovich out of the hell he must be facing in a Russian prison?

Macro Monkey Says

Fat Factory Frenzy

First built by Thomas Newcomen in 1712, the steam engine finally managed to earn its first patent 57 years later, in 1769. As nice as that year was, the 5-decade wait clearly shows that this particular invention was a bit of a late bloomer.

But, like Michael Jordan getting cut from his basketball team or Walt Disney getting fired from his newspaper job because he “lacked imagination,” the steam engine was only getting started, shortly thereafter lighting the match of the first industrial revolution.

311 years later, the steam engine is up there with the typewriter, vinyl records, and Facebook, as they’re all pretty much only used by boomers who don’t know there are better options, of course, weird hipsters.

But far more so than those other three, the legacy of the steam engine continues to dominate global economic forces through the modern system of building sh*t that its invention created: manufacturing.

Despite this whole manufacturing thing coming out of the womb across the pond, the United States really took it and ran, showing off the nation’s key talent of stealing other countries’ ideas and making them better.

In the United States, however, and arguably unlike anywhere else of a similarly broad scale, manufacturing experience booms and busts like the ice caps experience melting: gradually, but with massive implications.

What has for the past few decades largely been an unmistakable trend of offshoring out of the US has made a U-turn in the post-pandemic days? Smith and Keynes can dap each other up on this one as both the invisible hand and government incentives are working together on this one.

We don’t need to dive into a far-too-long explanation of why companies are reshoring production in the US following the C-19 pandemic, as you wise apes probably remember, like Taylor Swift, how bad the overseas supply chain problems got all too well.

But the government thing is a new one here. Sectors determined to be of importance by national security standards, such as chips, telecom equipment, and EVs (apparently), practically have the Federal government on its hands and knees, begging for them to be made within the country’s borders.

And it’s working. Construction spend on manufacturing posted an all-time high of $108bn in 2022 thanks to these subsidies and underlying forces. Moreover, it can be argued that a manufacturing sector as tech-enabled as that of the US has become over the past 30-40 years is now approaching a cost-competitive state on a unitary basis, particularly for highly specialized goods. In short, “Made in America” is back.

And that tech enablement will be the not-so-secret secret ingredient to bringing “Made in America” back to the top of the global manufacturing leaderboard. Current industry estimates peg the sector at short ~800k workers, meaning we need either the human labor force or some sh*t like ChatGPT to step their game up ASAP.

Maybe a combination of both?


What's Ripe

Micron ($MU) ↑ 8.04% ↑

  • The last few weeks have been an emotional and share price roller coaster for Micron as the firm gets bullied by investors, China, and even themselves, but yesterday, things started to move in the right direction.
  • And that’s because Samsung came out and said they plan to kingly f*ck off from the segment of the memory chip market from which Micron gets about 60% of its revenue.
  • More than just the loss of a major competitor, this move also serves to soothe the industry-challenging problem of a drastic oversupply of chips plaguing markets and profit margins at these firms.

Pioneer Natural Resources ($PXD) ↑ 5.79% ↑

  • Exxon Mobil is apparently prepared to drop even more money than Elon Musk to make their dream of owning their favorite company come true.
  • Rumors have swirled in recent days of a potential acquisition of the $52bn hydrocarbon exploration giant by one of the largest oil companies in the world. The deal comes as Exxon seeks to secure a top spot in the US’s largest basin, the Permian Basin, that’s currently run by Pioneer, Chevron, and ConocoPhillips.
  • Hopefully, that $56bn in net income last year along with the $30bn in cash sitting on the firm’s balance sheet at the end of last year can come in handy here because despite not falling into the category of an “oil major,” Pioneer is still demanding a major paycheck.
  • But it’s important to keep in mind that talks are just preliminary for the time being. We’ll call you when someone puts pen to paper. Stay tuned.

What's Rotten

Tupperware ($TUP) ↓ 48.76% ↓

  • They sell a product that’s gotta be in literally every single house in the United States, but apparently, Tupperware’s days are numbered.
  • Yup, you guessed it, the company officially dropped the dreaded phrase of “going concern” late on Friday in a statement saying they had “substantial doubt about the company’s ability to continue as a going concern.” Oof.
  • If that’s not enough, shares are about to get delisted by the NYSE if the company can’t file its latest financial report within 15 days from when they were originally due. Oh yeah, and the firm is already under scrutiny for “material weaknesses existed in the Company’s internal control over financial reporting.”
  • Good luck, apes, and that goes out to any apes reading this that hold shares, as well as the apes running the company.

Block ($SQ) ↓ 2.56% ↓

  • “Small risks starting to add up” is how one analyst at KBW put Block’s current position as the firm hit Jack Dorsey’s payments app with a downgrade to market performance.
  • It wasn’t quite as damning as the “this company is a scam run by scum” message from Hindenburg recently, but it’s not something you want to hear. Shares fell an additional 2.6% on the day, adding to the firm’s almost 25% plummet in the last 2 months.
  • Still, somehow, shares remain up on the year. Musk’s first big hit was a payments service, yet now he runs the social media app Twitter. Dorsey’s first big hit was the social media Twitter, yet now he runs a payments service, the top competitor to the one Musk helped build, too. I guess fate really does love irony, but the funniest part is that neither one seem too good at the other’s former job.

Thought Banana

1,123 Days Later

On March 13th, 2023, the United States officially declared the C-19 outbreak a national emergency. This allowed the executive branch to take rapid, sweeping action that would otherwise be stalled by countless layers of bureaucracy in order to stop or slow whatever was causing that national emergency.

Yesterday, in a conspicuously quiet manner, the C-19 national emergency was officially lifted. Grab a bottle; it’s time to celebrate.

And after well over 3 years or about 26,952 hours, we can finally say that the pandemic emergency is over. So much for “Two Weeks to Stop the Spread.”

With that initial idea being about as effective as Leprechaun traps or staying up until midnight to see Santa, a lot has changed since March 13th of 3 years ago. Not only are you a little older, a little wiser, and a lot more germaphobic, but you’re also still here, so let’s take a look at some of the major changes since then.

Labor: In 2019, about 5% of all paid workdays across the US took place in one’s home. As of December ‘22, that number was pushing 30-40%, depending on which surveys you believe the most.

Moreover, while the location of labor has shifted, the mix of labor is still far from “back to normal.” Knowledge jobs, which were already gaining the most ground prior to the pandemic, have been taking PEDs for the past 3-years compared to roles in more blue-collar sectors that require actual hard work.

Still, we’ve got a major labor imbalance that hasn’t let JPow get a wink of sleep for 1,123 days, and while it is healing, that bus is about as slow-moving as getting out of that pandemic.

Leisure: Similar to labor, leisure time across the US has radically changed in the past 3 years as well. Up-to-date data is scarce, but anecdotal evidence observed by being a person in 2023 suggests that our attention spans have narrowed while screen time has ballooned.

Thanks, TikTok. But the part discussed far less frequently is also a lot less worrisome. Survey data shows other individual at-home activities like reading have taken off in popularity thanks to the pandemic as well.

Moreover, leisure time has largely grown but become a lot more blurred with one’s work life as living and working at home have become more and more intertwined. At the same time, radical increases in reported mental health issues have plagued the country, particularly the country’s youth, at the same time. Wonder if those things have anything to do with each other.

Learning: Do I even need to say it? Most of you reading this have either lived or are still living through the nightmarish horrors brought on in education from Pre-K to PhD.

Two words can kinda sum it up: Zoom and cheating. The combination of these two factors, despite the lack of clean data in the latter, has definitely skyrocketed since March 2020, leading to a whole new conversation about “learning loss.”

Most of this stems from the true youngens among us, those of whom it’s actually funny when they eat crayons, not psychological care-inducing like when we do. Not only have researchers reported scholastic underperformance, but the loss of social interaction at such a young, moldable, and key age can be a domino for plenty of other issues.

Now, that was just a light dusting of each of those randomly chosen yet alliterative categories, but that fact alone speaks to how profoundly these facets of life have changed. And the best part? Almost none of it is good.

But, like the White House kinda sorta said today, it’s all behind us now. Much of the underlying trends as described above have begun to normalize, but getting back to pre-pandemic levels of things like rates of mental health problems, working in an office, and achieving a satisfactory 3rd-grade reading level will, like anything, take their sweet time.

Let’s just hope the way out is more fun than the way in.

The big question: In what other areas of your life has the pandemic led to great disruption? Which of these and other trends are here to stay for the long term? Remember when people actually thought no one would ever shake hands again?


Banana Brain Teaser

Yesterday — I can bring tears to your eyes, resurrect the dead, make you smile, and reverse time. I form in an instant, but I last a lifetime. What am I?

A memory.

Today — It’s 100 bananas off the WSO's Elite Modeling Package for the first 3 correct respondents. LFG!

What belongs to you but others use it more than you do?

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


Wise Investor Says

“Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential.” — Warren Buffett


Happy Investing,

Patrick & The Daily Peel Team

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