July 13, 2023 | Peel #499

Silver banana goes to...

In this issue of the Peel:

• June inflation rates have considerably slowed down, causing the Consumer Price Index to grow by just 0.2% monthly.
• Recursion Pharmaceuticals and Domino's Pizza showed positive performance, with the former receiving a $50mn investment from Nvidia and the latter announcing a partnership with Uber. Meanwhile, Lucid Group and Palo Alto Networks are experiencing setbacks, with the former reporting below-expectation delivery numbers and the latter being outcompeted by Microsoft's Entra.
• A recent record was set by the TSA, screening nearly 2.9 million passengers on June 30th, 2023. This surge in travel indicates a strong demand that is benefiting airline stocks.

Market Snapshot

Happy Thursday, apes.

We were right about it being a Happy Wednesday, and despite the fact that you woke up still not a billionaire today, we like our odds to be right today as well.

That is, of course, if equity and other markets can keep the feel-good vibes from yesterday going. Shares rallied yesterday on positive inflation data, surprising to the downside (more below, obviously). Equities gained modestly, with the Nasdaq’s 1.15% ride leading the way.

Treasury yields sank in the meantime. Yields plummeted on the lower inflation data as price increases play a more direct role in fixed-income prices. The 2-year yield headed towards 4.7% by the session’s close from briefly breaching 5.1% days ago. Naturally, USD prices fell against a basket of others as well.

Let’s get into it.

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Banana Bits

• CPI pumps at lowest rate since 2021 last month
• “They hate how much they love him”; Disney CEO Bob Iger gets his contract re-upped through 2026
• China’s plan to fight back against recent export controls against it have triggered export controls of their own

Macro Monkey Says

Chillin’-flation

Apes, it’s a great day. Not only did June inflation slow enough to make a grown man cry, but I finally got to use the above header I’ve been sitting on for literal months. You better like it.

Anyway, yesterday, we got CPI for the month of June. As you can probably tell by your portfolio’s performance, the surprise was entirely to the upside.

The Consumer Price Index for all items grew 0.2% monthly in June and just 3% annually. Before you get too excited, let me go ahead and burst that bubble—last month’s annual comp was the highest inflation rate since about halfway through Reagan’s first term.

The June 2022 print gave us that dreaded 9.1% print that really sent JPow into hardo-mode. Check it out:

Source

Definitely moving in the right direction, but when the lowest annual print in over 2 years happens to be 1 year after the highest rate in almost 42 years, it’s not as “JPow to the rescue” as it may seem.

Plus, when we exclude food and energy, the degree of disinflation gets a lot more reasonable. Core consumer prices rose 4.8% compared to last year, implying that stark upticks in these items were seen last year, particularly in energy (down -16.7% annually), and retractions since are mostly to blame.

"... so JPow and his rate hikes may not be the primary driver here, but that sure doesn’t mean this is bad news."

Alright, so JPow and his rate hikes may not be the primary driver here, but that sure doesn’t mean this is bad news. Price increases continue to broadly slow, and food and energy, while volatile, are arguably the two shoved most directly into the unsuspecting face of the American consumer.

Specifically, we can see that:

• Poultry, meat, eggs, and fish prices declined 0.4% monthly
• Egg prices alone are down 7.3% annually
• Energy service costs fell 36.6% annually
• Shelter costs increased 0.4% for the month and 7.8% annually and accounted for 70% of the growth

That last one caught you by surprise, huh? Me too. Given shelter’s respectively (and ridiculously) high weighting in the overall index, any moves here are always outsized. When it’s working against other large items, like food and energy, the effects only grow.

"Given shelter’s respectively (and ridiculously) high weighting in the overall index, any moves here are always outsized."

Lastly, to end on a high note, if you’re thinking, “Oh, at least wages are increasing, so I’m probably making more,” you’re very wrong. Wages grew 1.2% annually, according to the report, by real average hourly earnings. Congrats on being poorer!

Even the good news isn’t all that good anymore, and well, I guess this is why we can’t have nice things.

What's Ripe

Recursion Pharmaceuticals (RXRX) ↑ 115.29% ↑

• Imagine if Michael Jordan showed up to your middle school basketball practice, pointed at you, and said, “I’m gonna get you to the NBA.” That is essentially what happened to Recursion Pharma yesterday.
• Except, in this case, instead of basketball and middle school players, we’re talking AI and all those dime-a-dozen small-cap biotech names. The Michael Jordan of AI, Nvidia, has thrown $50mn at Recursion and said, “Come play in the big leagues.”
• That $50mn investment from Nvidia comes in the form of a private investment in public equity (or PIPE), which basically allows the buyer to get their hands on shares at a discount.
• Recursion will use the funds to power AI-driven drug discovery businesses for themselves and Nvidia. In case it’s not obvious enough, this is just about the best news a stock could get in 2023, besides maybe if a CEO assassinated Putin or something.

Domino’s Pizza (DPZ) ↑ 11.09% ↑

• The pizza spot with more haters than Jake and Logan Paul is dancing all over the market right now, confirming that reliance on drunken food orders is a valid business model.
• Not only is it valid, apparently, but utterly stellar. Everyone likes to make fun of Domino’s pizza quality, but let me know what you’re craving on Friday at 1:39 am.
• Turns out it just got a whole lot easier to satisfy those cravings as well. Shares surged on Wednesday thanks in large part to a newly announced partnership with Uber that will allow orders to come in through its family of delivery apps.
• A win-win if I ever saw one. Uber shares may have barely moved as a result (+0.43%), but a win is a win.

What's Rotten

Lucid Group (LCID) ↓ 11.82% ↓

• Electric vehicle companies appear to be heading in one of two directions right now: there’s the Tesla Way and now the Lordstown Way. Unfortunately for shareholders yesterday, at least, it’s clear which Way Lucid is leaning.
• Now, the firm is still a lot farther off from legitimate bankruptcy than competitors like defunct Lordstown and shitco Nikola, but the delivery numbers reported by Lucid yesterday were about as abysmal.
• 1,404 Lucid Airs were delivered last quarter, well off the 2,000 mark the Street had set. Whether it’s a one-time thing or a cough leading to corporate lung cancer, that’s for you to decide (and bet on) now.

Palo Alto (PANW) ↓ 7.03% ↓

• Many-a-tech-company have experienced the same problem: all is going well, and then—BOOM—enter Microsoft.
• The same exact thing is happening here, except instead of Microsoft, it’s enter Entra—which is, naturally, a division of Microsoft. The Big Tech bringer of doom has announced its net victims are set to be cloud network security names, such as Palo Alto Networks.
• Basically, MSFT announced the launch of its own network security program, entering the space via Entra. We’re still in the fetal stages of this thing, but if history is any guide, Microsoft’s entrance into a new sector is generally similar to that of smallpox on the American continents.
• Raking in $20bn in security revenue last year, but according to leaked memos, Microsoft expects that to quintuple (that’s 5x) by 2030. Palo Alto, Zscaler, Cloudflare, and others were last seen crying in the corner and could not be reached for comment.

Thought Banana

Busy Day for TSA

As much as everyone in the United States loves stripping down and unpacking their personal belongings in public, for some reason, the TSA (“The Sh*ttiest Agency”) has a lousy reputation.

Weird, huh? Obviously, it’s not a problem that everyone hates the Transportation Security Administration and that in 2017 they failed to detect up to 80% of weapons, drugs, and explosives that passed through its gates. Anyway, now that we’re all feeling nice and safe, it’s fun to know that they had their busiest day ever recently.

On Friday, June 30th, 2023, the TSA screened 2,883,595 passengers to mark its busiest day ever, impressive for the 22-year-old agency.

The previous record, Sunday, November 24th, 2019, was beaten out by ~0.023%. Anyone who’s been to the airport recently, which I’m guessing is most of you, has likely (sadly) experienced this firsthand and realized that—yes, everyone else really is there too.

"American demand for travel is showing absolutely no signs of stopping."

As if we needed more evidence for it, American demand for travel is showing absolutely no signs of stopping. Travel restrictions have been effectively gone since November 8th, 2021, when foreign tourists were allowed back in the U.S. What many initially expected to be an intermittent bump in bumpin’ around is clearly still going stupid.

Not only was this pre-4th of July weekend the busiest single day ever for our overly angry travel overlords, but the span from Thurs-Sun set record amounts of records as well.

"... or maybe we really did reassess priorities as a population and start to value our freedom of movement more."

Airline stocks (and their shareholders) have been feeling the effects all year, however. Names like Delta and United are both >45% higher YTD, while American (piece of sh*t) is only up a measly little 30% (*spits*).

Basically, the travel boom ain’t going nowhere. Either people are still nearly 2 years on getting the travel itch out of them, or maybe we really did reassess priorities as a population and start to value our freedom of movement more. Weird.

The big question: Is the travel boom here to say? How is the TSA still operational?

Banana Brain Teaser

Yesterday — The following words have a similar characteristic. Can you tell me what that is, apart from the fact that they are all nouns?

1. Case
2. Keeper
3. Maker
4. Plate
5. Seller
6. Mark
7. Store

By adding the noun “book” in front of them, you form a new noun.

Today —

Crows fly high, in the air
The wind gives a sigh, silence everywhere
Women cry for I am there, your men shall die within my lair
I am not noble just a lie, truth be told I do not care
Who am I, who could be so unfair?

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

Wise Investor Says

“Don’t mistake luck for skill in investing. Be wary of narratives that explain past success, as they often neglect the role of randomness.” — Nassim Taleb

Happy Investing,

Patrick & The Daily Peel Team

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