Data Dump | The Daily Peel

Jan 20, 2023 | Peel #382

Market Snapshot

Happy Friday, apes.

The 2022 market vibes were back and in full swing yesterday, with a bevy of macro data along with some high-stakes earnings releases spicing up the day for investors, traders, and degens from sea to shining sea.

Stocks fell, broadly speaking, while yields saw a slight bump up from the YTD lows set on Tuesday. At the same time, energy commodities partied like another war was occurring, and the dollar danced around in semi-no man’s land. At least it’s always interesting, that’s for sure.

Let’s get into it.

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Banana Bits

  • For a way less-funny take on Netflix’s latest earnings numbers, check this out
  • Learn what the “debt ceiling” even means below, then come back here and see how investors are panicki—uhh, preparing
  • The runner-up for the Fed Chair’s spot back in late 2021 spits game with her take on rate hikes
  • FT stands for Fear & Terror as the Financial Times puts you in the spot of the President amid an incoming nuclear holocaust

Macro Monkey Says

“‘The Ceiling is the Roof’ — Michael Jordan” — The GOP

Michael Jordan once famously stated that “the ceiling is the roof.” Sensational.

So sensational, in fact, that Congressional members of the GOP seem to have borrowed his eloquence and taken that idea to the highest levels of policy, economics, and, of course, markets.

But, if you’re like me and also spent most of your time in 2011 strategizing how you were gonna be in the MLB, the NFL, and the NBA all at the same time, then you might not have the best memory of the last time this thing called the “debt ceiling” became truly problematic. Well time to grow up because, yes, it’s happening again.

Believe it or not, the U.S. government actually does have a legislatively enforced cap on the amount of debt it can take on. Right now, that cap sits at $31.4tn, roughly 1.3x our projected 2022 GDP. There’s no way a single entity could possibly take on that much debt, right??

Wrong. As of Thursday morning, the U.S. gov’t has officially reached its debt ceiling. That means that until there’s a change in legislation, or until we just say f*ck it and turn to martial law, our federal government will not be allowed to issue new debt.

And that’s a huuuuuge problem for a lot of people. Not only does that carry the potential to eviscerate programs like social security and healthcare for veterans, but the U.S. treasury market—the backbone of the financial world—comes under heavy threat.

That threat is born out of the possibility of the U.S. defaulting for the first time ever on its “risk-free” debt obligations.

All the political mumbo jumbo aside, that fact alone would likely cause a global recession almost immediately. As EY macro chief Gregory Daco warns, impacts include “severe financial market dislocation” and a “self-inflicted recession.” Not ideal.

But the thing is, we’re chilling for now. The Treasury has ~$395bn in cold hard cash sitting in Chair Yellen’s wallet. As she put it yesterday, the department is now instituting “extraordinary measures” to avert reaching the so-called “X-date,” the date at which the U.S. runs out of money for realsies.

Congressional statutes allow the Treasury some flexibility to divert spending from certain programs like suspending new investments in the plethora of government financial accounts. That’s the extraordinary measures we’re talking about here. That pile of cash is expected to hold us over until anywhere from May to November of 2023, depending on whose forecast you believe and how Treasury chooses to react until then.

This could all be solved in several different ways. First, and the most non-brainless way to do so, is through raising the ceiling via legislation. House GOP members are staunchly against this idea unless their fellow legislators agree to drastic spending cuts. This is exactly what happened in 2011 when S&P actually downgraded U.S. debt from its AAA rating for the first time ever until a near-midnight compromise was reached.

Other ideas get a little funky. For example, it would technically be possible for Treasury to mint something like a $1tn “coin” and deposit that in the account at the Fed, allowing interest and principal payments on debt to be made.

Another solution would be to have Joey B take over and use the heavily debated clause of the 14th amendment to unilaterally raise the debt ceiling. The tough part is that if the government shuts down from this, he’d have no staffers to point him to his desk or wherever he needs to go to sign the legislation. He, like all of us, would be lost.

To all the members of Congress reading this (as I’m sure they all do), please save my portfolio. 2022 was bad enough, and I need at least one day per millennium where I don’t live in constant fear of my past investment decisions. For now, it’s fingers crossed.

What's Ripe

Netflix ($NFLX)

  • Sure, earnings didn’t drop until after hours, but what are we gonna do? Wait until Monday? The story will be older than how (former) CEO Reed Hastings looked before the billions of dollars.
  • Shares did technically fall over 3% during the day, but after reporting well over 7.6mn new paid subscribers in Q4, well above the 4.5mn the firm itself anticipated, shares closed up over 4.6%.
  • Believe it or not (bc I sure as hell didn’t), but Netflix is actually up nearly 90% since May 11th. Might be the only tech name to do so, but the firm’s revenue did actually come in line with forecasts while EPS missed just barely.
  • The big news, however, was the loss of founder and “Co”-CEO Reed Hastings from the top spot. Rather than just going with the one overly paid but underly-working Chief position, Netflix is once again committing to sharing the role, elevating its former COO. Sharing is caring, I guess.

Marathon Digital Holdings ($MARA) ↑ 6.22% ↑

  • BTC is back, and as a result, so is this BTC ETF. Okay, maybe that’s not exactly what it is, but it sure functions like one…just don’t tell Gary Gensler.
  • Marathon Digital and their investors had shoestrings around their necks all 2022, just watching this thing crater 95% from its peak. 2023, however, has been far better, gaining ~116% so far YTD.
  • And while that’s a Big W, it’s almost entirely not because of the company’s “success.” The things legit just tracks the whims of the crypto markets, which have actually decided to stop plummeting so far this year. But, by the time you finish this newsletter, 5 mins will have gone by, so who tf knows what could’ve happened in the meantime.

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What's Rotten

Northern Trust ($NTRS) ↓ 8.60% ↓

  • Bad week to be a ban. Or really any financial services company. No one learned this lesson harder than this dude yesterday.
  • Shares in Northern Trust plunged as much as 10% by midday, rebounding mildly by EoD but still an embarrassing performance. Lower revenues at the giant asset manager combined with things like higher provisions for credit losses and a jump in non-interest expenses left investors, well, not interested.
  • The fat miss on top and bottom lines led to a day where Northern Trust decided to follow the teachings of an immaculate Zach Bryan song and just kept Headin’ South.

Charles Schwab ($SCHW) ↓ 6.22% ↓

  • Utterly refusing to learn from its peers earlier this week and directly above this paragraph, Charles Schwab had a pretty foul day following Q4 earnings as well.
  • After reporting earnings a day prior, shares continued to tumble as the haters at BofA hit Charles with a double downgrade, dropping from Buy straight to Sell.
  • Chuckie Schwab is “arguably the biggest beneficiary” of rate hikes across the financial sector, according to analysts, as nearly two-thirds of its revenue comes from rate-derived fees and charges. But it’s a bit of a double-edged sword.
  • Rate hikes also drive down deposits, impacting the firm’s balance sheet as Schwabians move their liquid cash into things like money market funds. Either way, if you trade on this platform, you might be glad to know it was just who was downbad last quarter.

Thought Banana

Data Dump

Sometimes nothing happens for decades, but then, sometimes decades happen in no time.

Or something like that; idk how the OG quote goes. Just Google it. Anyway, U.S. bureaus and companies have all of a sudden decided to drop f-loads of data on us this week after seemingly just chilling, vibing there for a while. For U.S. macro data, yesterday was hot af.

No, not hot in terms of sentiment, just hot in terms of amount. We went for a quantity over quality type of vibe with macro releases yesterday, some of which include:

  • Initial jobless claims hitting a 4-month low of 190,000
  • Continuing claims rose to 1.65mn
  • Construction starts fell 1.4% against the (revised) November numbers
  • Building permits fell 1.6% MoM
  • 2022 registered a 3% decrease in home starts compared to ‘21

And that’s just some of the data we got.

So, what does it all mean? Well, you saw the markets yesterday; did it look good to you?

That’s because it’s not. Just to be clear, home starts falling on an annual basis is almost unheard of in the U.S. and has not occurred since 2009. Over 4,600% rate increases in a single year will do that to you, though.

That’s just the demand destruction JPow wants to see. With the ~40% rise in average home prices between the pandemic and the panic, we essentially saw a decade’s worth of increases crammed into two years. For future new home buyers like you and me, that’s not ideal.

But still, the lack of future supply will hurt…just probably (hopefully) not that bad.

The employment front, on the other hand, is still kind of like your career—just not going anywhere.

All my boy JPow wants to see is a tangible reduction in labor demand. That’s it! And with jobless claims hitting new lows, he sure ain’t getting his post-Christmas wish. But not only is this employment data supportive of further hikes in rates, but pair it with the housing releases along with yesterday’s macro dumps, and you’ve got recession worries mixed in, too.

If we were to look for an optimistic perspective, as we love to do at the Peel, we can at least sleep in peace at the fact that (besides employment) bad data is back to being bad data, while good data…well, next time we get some I’ll let you know. This was really first realized on Wednesday when retail sales and industrial production data showed weakness, and markets actually followed through with a selloff.

As thin as it may be, this slight silver lining of markets reacting badly to bad shows that we may not be living in a total bizarro world anymore. As far as steps in the right direction go, we’ll f*cking take it.

The big question: Is bad data bad and good data good again?

Banana Brain Teaser

Yesterday — What is special about these words: job, polish, herb?

They are pronounced differently when the first letter is capitalized.

Today — It’s 50 bananas off the WSO's M&A Modeling Course. LFG!

If I am holding a bee, what do I have in my eye?

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

Wise investor says

“Fear incites human action far more urgently than does the impressive weight of historical evidence.” — Jeremy Siegel

Happy Investing, Patrick & The Daily Peel Team


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