June 28, 2023 | Peel #490

Silver banana goes to...

In this issue of the Peel:

• Market indicators reveal promising signs, with an increase in durable goods orders, new home sales, and consumer confidence. The macroeconomic climate reflects buoyant consumer spending and robust business investments despite a 5.25% interest rate, signaling resilience in the US economy.
• Delta Airlines and Meta Platforms have shown remarkable performance, whereas Lordstown Motors and Regeneron struggle.
• The emerging psychedelic drugs industry is set for growth, with the potential market expected to double by 2029 to $12bn, despite current legal challenges.

Market Snapshot

Happy Wednesday, apes.

Even if you weren’t feeling great driving home from that dreaded Tuesday shift, your portfolio almost definitely was. Yeah, it was Tuesday, but at least your stocks were up—there’s always a bright side, right?

And the only way to describe the “side” of the equities trade yesterday was green. Markets ripped higher just about continuously throughout the session in the US. Only healthcare had a down day among the S&P sectors, losing just 0.2%, while riskier sectors like tech and discretionaries ripped 2% or higher.

Meanwhile, treasuries had a far more muted day, just what we want to hear. The 2- and 10-year yields both saw moderate dips before spiking back up late in the session. The US Dollar had a similarly boring performance yesterday, but we promise that’s not what you’ll find below so…

Let’s get into it.

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Discover high-potential creators and learn more about this innovative new platform

Banana Bits

• How many export restrictions can there even be on chips and AI? One correct answer: More
• While we’re on the subject, it looks like global confidence in the US economy is coming back harder than beers on the beach season
• We’re really riding the US today already, but how could we not be as we begin to learn that our sh*tty inflation levels have been less sh*tty on average than everyone else’s? A win is a win
• Retailers are going to war with a common enemy that you very well may be one of: shoplifters

Macro Monkey Says

Hot, Hot, Hot

Everyone on Earth played the riveting game of “Hot or Not” at least once between the ages of 12-16 (don’t even act like you didn’t). But yesterday, the macroeconomic version of that game gave its own spin: Hot or Hot.

After a slow start to the week, we had to back up the truck to load all the fresh macro data Tuesday gave us. I know you’re dying for it, so here are the headline numbers:

• New Durable Goods orders jumped 1.7%, rising for a 3rd month straight
• New Home Sales rose 12.2% monthly and 20.0% annually
• Consumer Confidence jumped to a 17-month high of 109.7

All of those figures came in higher than economist expectations for May. Needless to say, dropping all three of these at once was like pouring out lines in front of Jesse Pinkman—you know they’re gonna go crazy.

And that’s just what they did. After a recent few-day pullback, equities regained their rally yesterday on the back of all this news, as you saw above.

Each one of these topics could very well get its own Macro Monkey, so let’s not waste any more time. What the hell does this mean?

"... is a clear sign that businesses are confident to continue to invest ..."

Well, starting with the start, durable goods orders 8:30 am drop got the early hours nice and pre-heated. Although US manufacturing remains outside of pre-pandemic trends, 3 straight months of rising new orders for durable goods is a clear sign that businesses are confident to continue to invest heavily in their short and long-term future. It’s a vote of confidence from businesses that they, at the very least, don’t expect even more sh*t to hit the fan.

Oh, and by the way, economists had been expecting a 0.9% decline for the May period.

That said, we know things that economists (along with everyone else) tend to get things like this wrong. For instance, no one expected a month in which we’d see the first annual decline in the S&P Case-Schiller home price index in over 11 years, contemporaneous with a massive jump in demand for new homes. Just take a look at this spike:

Something’s different in the water in 2023. Existing homes have been having a much tougher time rebounding in the face of rising rates and what-have-been rising prices, but it seems like we’re getting to the point where soon-to-be homebuyers are saying, “If I’m gonna buy a house, it’s gonna be expensive regardless, so might as well get the nicest, newest one I can.”

"To the Average Joe, things are looking (mostly) good."

With housing putting the team on its back, it’s constructive (no pun intended) to see prices fall alongside still rising demand in a sign of housing market normalization.

And of course, last but not least, we just have to know what’s on the consumers’ minds. These days, it’s a 6% inflation rate over the year (3x the 2% target and 1.33x last month’s CPI), and about half the population recognizes job availability in the labor market as abundant. To the Average Joe, things are looking (mostly) good.

As we know, Average Joes tend to know somehow even less than people like economists do. Nevertheless, these three readings give us one clearly defined fact about the US economy: businesses and consumers alike love spending money, even with 5.25% rates. Let the resilience reign!

What's Ripe

Delta Airlines (DAL) ↑ 6.84% ↑

• Comedian John Mulaney once famously quipped that Delta Airlines is “where life is a f*cking nightmare.” He definitely wasn’t wrong, but that doesn’t seem to spot us from handing them cash hand over fist.
• Delta put out new guidance for its fiscal year on Tuesday. The airline upped the ante a bit, driving shares higher as the firm now expects FY’23 earnings to reach the upper bound of a previously guided for range now as a base case. “One small shift in expectations can lead to giant leaps in share price,” that’s how the quote goes, right?
• Now expecting $2.25-$2.50/sh for Q2 and $6/sh for the full year, Delta says the driver of this bump in expectations is simply the fact that consumers can’t seem to spend enough time in the sky. Higher demand for travel also comes with travelers willing to pay up, creating a win-win I’m personally jealous of.

Meta Platforms (META) ↑ 3.08% ↑

• Was buying $META at $88.09/sh the trade of the century? Citi analysts sure seem to think so, reiterating their Buy rating and raising the firm’s PT to $360.
• The stock is already up well over 125% YTD and almost 225% from recent lows, but that’s not enough for analysts at Citi. They say that shares can continue to rip higher, and surprisingly enough, the primary driver is the feature you make the most of.
• Citi expects Reels to take off in a similar-seeming way that IG stories became on par with Snap stories. If Reels can do half of that for TikTok, Mark Zuckerberg may as well just be crowned king of the world.

What's Rotten

Lordstown Motors (RIDE) ↓ 17.18% ↓

• It might’ve taken a bit longer than expected, but “EV startups declaring bankruptcy” was definitely on the bingo card over the last few years. Finally, their number has been called.
• At least, it’s been called for one of them, Lordstown Motors. Founded in 2018 with a ~$50mn market cap at last week’s close and a cumulative total of $0.00 of revenue earned over those 5 years in business, we can’t think of a single reason how this could’ve happened.
• Or, maybe investors facing a nearly 5% hurdle rate via the 2yr yield realized that setting money on fire isn’t a great business model. But they’re not going down alone, deciding to pull out a lawsuit against Foxconn at the buzzer. Stay tuned.

Regeneron (REGN) ↓ 8.71% ↓

• Dammit, alright, everyone put on their science caps. Time to go nerd for a minute.
• Big dawg of biotech Regeneron saw shares eat dirt on the back of a decisively negative finger-wave from the FDA. Basically, Regeneron was seeking designation to sell an increased dosage of a wildly popular wet, age-related macular degeneration drug, Eylea.
• Needless to say, they did not get that approval. Apparently, markets had been pricing it in for a while now, but this news came in solely to crush all that hope.
• Believe it or not, but that word salad ending the two-above paragraph is actually the leading cause of elderly blindness. So, we may have some frustrated, visually impaired seniors out there, but who cares—it’s not like they could even read this news anyway.

Thought Banana

Change Your Mind

No, like, literally, do you want a different brain? Because that’s effectively what psychedelic drugs can offer.

Now, whether that “different” is better or worse is up to you. But one thing we already know is that Silicon Valley and soon-to-be Wall Street (probably) are leaning hard into the “better camp.”

Much of which is for obvious reasons. Despite being used for literally thousands of years, including involvement during religious ceremonies in ancient Greece and Rome for a longer period of time than Christianity has existed, we treat them like the devil.

But, in recent years, bodacious and venturesome scientists, researchers, and the like have taken to these strange plants and compounds to find out what the actual f*ck is going on.

"Well, believe it or not, you can already get industry exposure through a plethora of names ..."

As the WSJ points out, a lot of big-name CEOs ingest some dosage of psychedelic drugs on a somewhat-regular basis, even the biggest name of all.

According to current projections, the size of the psychedelic drug industry is expected to more than double between 2022 and 2029, reaching values as high as $12bn. You might be wondering how the hell that’s legal, given the staunch, Nixonian-type hatred towards psychedelics in Washington. Well, believe it or not, you can already get industry exposure through a plethora of names like:

• ATAI Life Sciences
• Compass Pathways
• MindMedicine
• AdvisorShares Psychedelic ETF

Yup, there’s enough of them to make a damn ETF already.

Despite the illegality, investor excitement around the sector is already sprouting, and for obvious reasons. Human beings love to alter their state of consciousness, and what better way to do so than taking the same stuff the Beatles took to write “Yellow Submarine.”

"Despite the illegality, investor excitement around the sector is already sprouting ... Human beings love to alter their state of consciousness ..."

Like how we always cheer on smoking weed while buying weed stocks (aka, both you and your portfolio getting high), now we’ll have to take that to a new level. Let’s trip while our portfolio goes on a trip…to the moon! (sorry for that, I tried).

The big question: Will psychedelic stocks follow a similar, legislatively-driven boom-bust cycle as cannabis stocks? Would Americans ever partake in these substances on a broad scale? How does the legality of the sector look by 2030 or even 2050?

Banana Brain Teaser

Yesterday — Mo was nine years old when he was taken from his home to a soft, dark place. A couple hours later, a fairy came and took him away, and he was never seen again.

What happened?

Mo was a molar. He fell out and was put under a pillow until the tooth fairy came and took him away.

Today — What do you use from your head to your toes and the more it works the thinner it grows?

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

Wise Investor Says

“Investing is the intersection of economics and psychology.” — Seth Klarman

Happy Investing,

Patrick & The Daily Peel Team

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