Destroying Efficiency | The Daily Peel | 3/1/23

The Daily Peel...

Mar 1, 2023 | Peel #409

Silver banana goes to...

FibroBiologics.
 

Market Snapshot

Happy Wednesday, apes.

And Happy March, too. We’ve managed to battle through 1/6 of 2023, and I’m still not bankrupt, so we’ll take that as an absolute win. Markets, on the other hand, did not have a winning February. The Nasdaq and the S&P ended the month narrowly negative, at a 1.11% and a 2.61% loss, respectively. The Dow was much more down, on the other hand, shedding 4.19% (so close) as boomer stocks took the brunt of the fall.

Yesterday, equities were feeling the vibe until right around lunch when things turned south, pushing the day’s return into the red. Must’ve made the mistake of going to Burger King or some other trash for lunch, but treasury yields sure didn’t as the 2-year crossed 4.81% and hit its highest level since August. Strap in, apes; it’s gonna be another fun one.

Let’s get into it.

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Banana Bits

 

Macro Monkey Says

Destroying Efficiency

In general, I think it’s safe to say most people prefer not to be homeless. Might be a bold statement, so feel free to fight me in the comments (we want all the smoke).

Anyway, the economy really likes to make the whole “not being homeless” thing just about as difficult as possible for us. In December, that idea held true, but last month was, in fact, much kinder to us than pretty much all of 2022. Let’s take a look.

Yesterday, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, or Case-Shiller index for a non-book of a title, dropped yesterday, posting a staunch slowdown in home price appreciation. Millennials and Gen Z are loving it.

December saw the National average home price appreciate by 5.8%, which is still high, but a marked slowdown from November’s absurd 7.6%. This means that home prices are now approximately 4.5% lower than their peak last June, confirming that nature is healing.

Now to address the elephant in the room, today is the first day of March, and we’re sitting here talking about December, the way AI talks about practice. Yes, the Case-Shiller index operates on one hell of a lag, but like most other lagging indicators, these readings can serve as confirmations of trends, or they could throw a big fat wrench into everything we thought was going on. Luckily, December was the former. This economy is already more than confused enough.

Like bond prices falling as rates rise, home prices experience the same effect when mortgage rates increase. Last year JPow made it his 2022 resolution to financially ruin the lives of new home buyers, sending mortgage rates to a multidecade high, crossing 7% at one point. As a result, the prices of the assets for which that rate is paid, homes, had to decline. Rate up = price down, ‘nuff said.

But the housing market is unique. Homes aren’t just any other asset because aside from keeping their residents from being homeless, homes generally serve as the cornerstone of America’s financial lives.

This means sellers are extra-super motivated to maintain high prices, no matter what. Homes are often key elements in retirement plans and allow homeowners to access lines of credit pretty much whenever by using their residence as collateral. As a result of this seller-inelasticity, changes in home values move at an absolute snail’s pace, just waiting on the next marginal buyer and seller.

Is it really a surprise, however, that getting someone to sell where they literally live is a challenge? Residential real estate is the mother of all inefficient markets, and our boy JPow is on a mission to destroy efficiency in every realm in which he sees it. Can’t wait to see how this goes!

 

What's Ripe

Coinbase ($COIN) ↑ 9.96% ↑

  • The wide world of crypto is chock full of cringe, so it’s always nice to see when one company, like Coinbase, actually does something based.
  • Shares in the digital asset exchange firm are either wildly undervalued or heading to zero, depending on who you talk to. Yesterday, the market’s vote was decidedly for the former as Coinbase seems to be riding a high after recently announcing plans to launch their very own Ethereum layer-two (L2) network.
  • That probably seems meaningless to most of you, and rightfully so. But, this will essentially allow developers to build apps (or “dApps”) on the network as well as give Coinbase a chance to lower their ludicrous transaction fees.
  • Called Base, the launch of this L2 will solidify Coinbase as the first publicly traded company to support its very own execution network. Needless to say, I’m sure Gary Gensler will find a way to make millions off of it for the SEC, but for now, we’ll take the W.

Vimeo ($VMEO) ↑ 6.98% ↑

  • Three weeks ago, legendary investor and Wall Street titan Jim Cramer gave us some sage wisdom when he called Vimeo “not a buy.” A day following the firm’s earnings release, we know why Twitter rips on the guy so hard.
  • Also, needless to say, Cramer was wrong. Shares in YouTube challenger and video-hosting platform Vimeo surged just shy of 7% after a stellar earnings day that allowed us all to once again point and laugh at Jim Cramer.
  • Gotta respect the guy for getting out there and swingin’ every day, but with revenue topping analyst expectations while earnings only lost $0.03/sh, Cramer got creamed once again.
 

What's Rotten

Norwegian Cruise Lines ($NCLH) ↓ 10.18% ↓

  • Legendary American philosopher Eazy-E once said, “cruisin’ down the street in my ‘64.” If he was talking about Norwegian Cruise Lines’ performance yesterday, he could’ve stopped after that second word.
  • That’s because cruises were, in fact, down, with Norwegian and their sh*tty *ss earnings leading the way. The loss of $1.04/sh came in far wider than the Street’s expectation of -$0.86. Despite this, sales exploded 225% annually and beat the piss out of expectations.
  • That combo of a sales beat and earnings miss might sound okay, but it’s a major red flag. Investors take that as a sign that execs have been managing costs like Michael Scott manages workplace harassment cases (not at all).

Dish Network ($DISH) ↓ 6.48% ↓

  • Some people out there think 5G causes brain cancer or autism or something. According to David Barden, an analyst at BofA, those effects only impact Dish.
  • And that take became all too clear yesterday for Mr. Market. Shares tumbled almost 6.5% after the TV/broadband servicer was hit by Barden with the dreaded double downgrade.
  • BofA’s rating on shares went from “Buy” to “Underperform,” which is bad enough in itself, but the real kicker was the 2/3rd cut in target price BofA hit them with as well, lowering their call from $30/sh to $10/sh. For reference, that switch-up represents a ~160% swing in target price, from a 145% projected return all the way down to a projected loss of around 20%. Keep them fingers crossed!
 

Data Peel

S&P/Case-Shiller U.S. National Home Price Index

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Source

 

Thought Banana

The U.S. Does Not Share Its Chips

And it turns out, the U.S. isn’t much of a sharer of any of its high-tech gadgets, especially with you know who…

Yesterday, the beef between the United States and China only heated further. Per the WSJ, we found out on Tuesday that the Joey B administration is likely moving forward with plans to revoke export licenses allowing U.S. companies to sell things like chips to Chinese telecom giant Huawei.

Citing national security reasons, Biden and his homies are allegedly “reviewing” plans to further the division of economic ties between the U.S. and China by hitting them right where it hurts: in the tech sector.

Donnie T, during his administration, imposed restrictions on U.S. companies working with Huawei and basically ensured that products from the Chinese firm were nowhere to be found from sea to shining sea.

Now, Donnie T’s arch-rival Joey B appears to be continuing this legislative trend. The White House announced that it intends to not only maintain the existing rules around commerce with Huawei but signaled plans to fully revoke the ability of U.S. companies to sell just about anything to the firm.

Specifically, Joey B wants to make it illegal to sell semiconductors (aka chips) as well as the equipment needed to manufacture such products to China’s top telecom name. As we said before, this idea was floated in the spirit of national security, but as usual, that’s a sword with some hella sharp double-edges.

First and foremost, obviously, restricting the ability of U.S. firms to sell China the tools it needs to surpass the country in technological prowess makes sense right off the bat. China will, of course, continue its extensive IP theft practices in some way that nobody on this side of the pacific has been able to solve yet, but ending the direct transfer is viewed as a method for the United States to re-secure the top spot in the global tech trade.

BUT, on the other hand, legislation like this is a sign of a rather worrisome trend. See, throughout history, the top extinguisher of warfare (besides familial relations from all those whack *ss European “rulers”) has been economic ties. Basically, countries that trade with each other don’t generally like to subsequently fire guns, or ICBMs, at each other.

So, all in all, this legislation certainly could solidify U.S. tech leadership (for now), but it also shows signs of a growing trend meant to sever technological and economic ties between the two nations. Not to be overly dramatic, but where we sit right now, this either secures the U.S. another 5-10 decades as the global tech leader, or this legislation just pushed us one step closer to World War III. Place your bets, apes.

The big question: Are the U.S. and China ever going to kiss and make up? Will the 2020s decade see a continual ramping of beef between the two “superpowers”? How will China’s own legislative bodies react/retaliate?

 

Banana Brain Teaser

Yesterday — I have seven letters and am something you eat. My only anagram can help your pain. If you remove my first 2 letters I wear things down. Removing my first 3 letters is an adjective and removing my first 4 letters leaves a measure of time. What am I?

Sausage.

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

What word looks the same upside down and backwards?

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

 

Wise Investor Says

“The biggest risk in investing is not market volatility, but our own behavior. We have to be disciplined and stick to our long-term plan, even when things get tough.” — Josh Brown

 

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