June 22, 2023 | Peel #486

Silver banana goes to...

In this issue of the Peel:

• The latest inflation reading in the UK has confirmed an annualized rate of 8.7%, which is double the inflation rate in the US. Jpow’s testimony signaled a likely continuation of interest rate hikes, stirring the markets.
• Digital assets like BTC and Dollar Tree shares saw an uptick, while Intel and FedEx stocks took a hit.
• The FTC is accusing Amazon of duping millions of consumers into unknowingly subscribing to Amazon Prime. FTC Chair Lina Khan, known for her criticisms of Amazon, seems set for a protracted legal battle against the retail giant.

Market Snapshot

Happy Thursday, apes.

Yesterday was the summer solstice, the longest day of the year in the northern hemisphere, and it damn well felt like it. JPow spoke, the UK dropped some inflation numbers.

Despite all that, equity markets mostly traded like there was a ghost pulling down markets. Recently revised rate and inflation expectations may be weighing on Mr. Market, as you’ll see below, and likely drove yesterday’s mildly lower trade.

Treasuries were just as boring. Yields were practically flat compared to the day prior, with the 2-year still hovering just over 4.70%, indicating big, bad bond traders still aren’t buying the cut of JPow’s jib (what a great expression).

Currency markets saw a mild day in USD leading to a start pullback as it became tomorrow in other parts of the world.

Enough boredom for today; let’s get into it.

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Banana Bits

• Something tells us we’re gonna keep hearing the phrase “long way to go” right up until the day before we get a 2% CPI print, but let’s see what else JPow has in store for us later today
• The US moves to cozy up to and ramp up the influx of citizens from India with an updated immigration policy for skilled workers from the nation
• And on the other hand, the Eagle and the Dragon continue to trade verbal blows as Chinese President Xi is not at all pleased with recent remarks from Joey B
• An update on those poor souls trapped well below the surface of the Atlantic Ocean

Macro Monkey Says

Spooky Season

We’re a long way off from Halloweeen, but central bankers on both sides of the pond are wasting no time spooking markets. To be fair, they pretty much do that all year round anyway.

But yesterday, the central bank-induced spook seems to have rallied off the lows, potentially even setting a new YTD high (can someone start measuring this please? thank you).

An inflation reading in the land of fish & chips combined with JPow spitting a fiery game in Congress yesterday was not the vibe markets were looking for.

If you’re a fan of the 4% inflation we’ve had over the past year in the US, well, then you’re gonna love this. Over in the UK, inflation last printed at an annualized rate of 8.7%—the same rate as the month prior—and shows no sign of slowing down.

So Americans are now seeing about half the inflation that their English brethren are experiencing, kind of like when we halved their empire back in 1776.

Speaking of beating England, the only beating we saw in Washington yesterday was on none other than Mr. JPow himself. To be fair, it was a less heated lashing than some he’s seen in the past.

But just wait until the Fed’s silver fox locks eyes with his biggest hater, Senator Elizabeth Warren, later today. These two lowkey look like siblings, and just like siblings, their past battles have been absolute spectacles.

Given the Fed’s semiannual monetary policy testimony is a 2-day event, with the first day serving as a warm-up in the House of Representatives while the real sh*t goes down on Day 2 with the Senate, we’ll likely see some more action today.

"But nevertheless, JPow ... still managed to captivate markets yesterday."

But nevertheless, JPow—always such a showman, like most Federal Reserve chairmen, of course—still managed to captivate markets yesterday.

Some of his key bars included:

• [the FOMC will] “...make our decisions meeting by meeting, based on the totality of incoming data.”
• “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”
• “…considering how far and how fast we have moved, we judged it prudent to hold the target range steady to allow the Committee to assess additional information and its implications for monetary policy.”
• “Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace.”

Just to name a few.

Powell tends to harken a little bit less than the average Fed Chair on the idea of “Fedspeak,” but the guy certainly still could use a translator most of the time.

As usual, we got you. What he meant to say was:

• We’ve kicked a lot of inflationary ass over the last year, but we’ve gotta hit it a few more times before declaring a knockout
• June’s “pause” in rate hikes wasn’t a “pause” but a “wait-and-see,” which to every non-financial civilian in the world means the exact same thing
• Rates are probably still going higher (aka “f*ck your calls”), but we’re going to be dependent on new data coming out, given the lag of monetary policy
• We (probably) won’t see any more major bank runs in the short-term

"... traders had begun to price in a more dovish view out of the central bank."

Overall, it was a mostly hawkish message that hit the ears of markets. But for those of us not obsessed with each muscular tick of the Chair’s face that could be interpreted as “emotion,” the headlining macro news is still a lot better than most were predicting back at the start of the year.

Still, coming off a “relief rally” that many Street watchers are now calling a “wall of worry,” traders had begun to price in a more dovish view out of the central bank.

Powell could very well be trying to keep markets calm with this language, or it simply could actually just be him saying exactly what he thinks. But as we all know much too well, saying what you think is few and far between in Washington, especially at the Fed.

What's Ripe

Digital Assets (BTC)

• Shares in digital assets like BTC surged on a strong earnings beat reported yesterd-
• Can you imagine? Obviously, jk, but the numbers still don’t lie. As I type this, BTC and other digital asset tokens are spiking higher with the big dawg holding (so far) over $30k, a key psychological level for some reason.
• It’s not like Satoshi revealed himself or we found out FTX wasn’t a scam or anything fun like that, but BlackRock’s recent application to list a spot BTC ETF seems to have re-hyped the haters in this market. We’ll see how long it lasts.

Dollar Tree (DLTR) ↑ 4.56% ↑

• Dollar-Twenty-Five Tree shares stepped at least a full leg over the rest of the market yesterday, as literally, nothing happened at all.
• While that’s not entirely true, the big news on the day is basically a wing and a prayer. Management said they expect to reach EPS of $10/sh in 2026, finally making the bump in prices from $1 to $1.25 worth it for someone at least.
• I mean, why not say that? It’s not like it actually has to happen; simply the fact that management said it is more than enough to get that sh*t priced in early.
• Meanwhile, activist activities continue to lurk behind the scenes, potentially driving optimism higher while margins are set to (allegedly) expand greatly over the next 3 years. It’s a sick double-whammy if they can pull it off, but this is also a company called “Dollar” Tree when almost nothing in the store actually costs just $1 anymore. Take it as you will.

What's Rotten

Intel (INTC) ↓ 6.00% ↓

• I guess we were just throwing things out to 2026 yesterday as Intel shares tank on management’s game plan to stop sucking.
• While rivals AMD and Nvidia are up well over 500% and TSMC over 160% in the past 5 years, shares in INTC have fallen nearly 40% in the same period. Something’s clearly gotta change, but yesterday, investors weren’t having it.
• Part of their “5 nodes in 4 years” plan to become more on par with TSMC’s foundry tech by 2026, Intel plans to begin reporting these manufacturing ongoings in a separate P&L. CFO David “Zyn-God” Zinsner was hyping the plan up only to have investors immediately tear shares down.
• The goal is to chop $10bn in costs off the bottom line, certainly no small feat for a firm whose operating expenses were $24.5bn in 2022. Best of luck!

FedEx (FDX) ↓ 2.51% ↓

• But it turns out that just simply saying good things about the future can’t always be enough for a stock. FedEx was greatly jealous of Dollar Tree yesterday as the transportation/shipping name failed to rizz up Mr. Market.
• FedEx apparently didn’t get the memo that earnings szn is well over. Nevertheless, we’re sure they regret their decision to report despite beating earnings expectations of $4.89/sh with their reported $4.94/sh hauled in.
• Revenue came in just a hair below estimates, while weak guidance was the real disappointment du jour.

Thought Banana

Best Enemies

FTC Chair Lina Khan does not like Amazon…not even a little bit.

Despite that, she and millions of other Americans very well could have (allegedly) been fooled into sliding into a Prime subscription without even knowing it.

With how sweet Amazon Prime objectively is, you’d think Amazon would receive praise and applause for such an action. Unfortunately, no matter how sick the product is, the FTC won’t let you shove it down customers’ throats without their consent.

"Don’t worry; the government knows we’re idiots, too. They got us covered."

Basically, the FTC filed yet another suit against Amazon, alleging that the Big Tech kingpin “knowingly duped millions of consumers into unknowingly enrolling in Amazon Prime.” Again we ask—Prime is sweet; where’s the crime??

Well, despite attempting to hook customers up, companies are unfortunately not allowed to take your money from you without a reasonable basis to believe you knew what you were getting yourself into. Don’t worry; the government knows we’re idiots, too. They got us covered.

For Khan, who rose to fame in the legal space for her 96-page doctoral thesis against “Amazon’s Antitrust Paradox,” it’s safe to say she’s been itching to take a big swing at her oldest and fiercest enemy.

Part of the suit further alleges Amazon made it unreasonably difficult to cancel a Prime subscription, kind of like every single gym membership in America.

But as the FTC points out, this might matter just a bit more given that Prime is literally the single largest subscription product in the world with over $25bn in revenue, per the FTC’s allegations.

"Given their history, the seriousness of the allegations ... we’ll likely be hearing about this one for a while."

Amazon, for its own part, appears to agree with our analysis. The firm said, “The truth is that customers love Prime…” facts—going on to say—“...and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership.”

Given their history, the seriousness of the allegations, and Amazon’s still-in-hot-water purchase of Roomba maker iRobot, we’ll likely be hearing about this one for a while. Hope you’re not bored just yet.

The big question: The fighters have squared up, but who’s going to win the battle of Amazon vs. the FTC? What does this mean for other subscription products? Can other Big Tech companies expect similar brutality?

Banana Brain Teaser

Yesterday — The following sentences have two blanks that can be filled with two words that are anagrams of each other. Please find those words.

1. Marcus had to take his telescope to a __________ location so he could watch the __________ showers back in June.
2. The jazz fest was made up __________ of adults over 30. On the other side of the fairgrounds, the art __________ had people from 8 to 88.
3. The anxious patient in the doctor’s office was __________ that so little time had __________ between his appointment time and the time he was actually seen.

1. Remote, Meteor
2. Largely, Gallery
3. Pleased, Elapsed

Today — Can you decipher this phrase: "KNOW-IT-NO"?

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser”.

Wise Investor Says

“We like to buy stocks which we feel are undervalued, and then we have to have the guts to buy more when they go down.” — Walter Schloss

Happy Investing,

Patrick & The Daily Peel Team

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