Holy Wholesale | The Daily Peel | 4/14/2023

Apr 14, 2023 | Peel #440

Silver banana goes to...

Market Snapshot

Happy Friday, apes.

Get excited because not only is it Friday, but it’s also the official first day of the most wonderful time of the year: earnings szn.

Like an alcoholic that fell off the wagon, hopefully, the numbers out of companies like JP Morgan and Blackrock can mix a little excitement into Mr. Market’s drink. Yesterday certainly got us off to a good start, with equities ripping throughout the day. The Nasdaq led, gaining nearly 2%, suggesting the risk-on trade in tech could (allegedly) be back.

Volatility was the name of the game in yields, however, being much less decisive in the day’s direction than their equity market brethren. The 2-year danced around like it was doing an Irish jig while that and other yields, particularly of longer maturities, finished the day with a sizable uptick.

Let’s get into it.

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Banana Bits

• Where Presidents can’t, Central Bank chairs can, as exhibited by Fed Chair Jerome Powell’s meeting with PBoC counterpart Yi Gang to go over economic relations
• China’s Belt and Road Initiative sizes up to what may well be its greatest challenge yet: making money
• Gold nears an all-time high as everything else sucks and was only green today due to envy
• Imagine you’re just posted at home, and all the sudden Federal agents have you on the ground wondering where you messed up…well, that’s apparently what happens when you’re suspected of leaking national intelligence info

Macro Monkey Says

Holy Wholesale

MI-SSI-CPI-PPI…that’s how it goes, right?

We all remember back in the day when we thought spelling Mississippi was, like, the smartest thing you could possibly do. Little did we know that attempting to stem rapid inflation while avoiding a major economic contraction was something we’d have to face.

Regardless, if we learned one, we can learn the other…and yesterday’s PPI report might just be another tip in the Fed’s (potential) soft landing cap, or of course, it could be an early sign of an evisceration in demand that clearly overdid it. Let’s see.

The Producer Price Index, or PPI, for final demand goods, actually fell last month by 0.5%, according to the Bureau of Labor Statistics (BLS). On an annual basis, PPI still grew, but only by 2.7%, which just so happens to be the slowest growth since January of 2021 and adds more evidence to the case that the big, scary inflation monster is well on its way to retreating.

Basically, no one saw this coming. Expectations were for producer prices to remain unchanged from the preceding period, which they clearly did not.

February’s data was revised up in the meantime, going from a 0.1% decline to a flat, unchanged month-over-month rate.

Despite the further evidence of submission in economic exuberance to JPow’s death-blow-style rate hiking endeavors, market-implied expectations for a rate hike at May’s meeting were strangely stable. Nicely, the market seems to expect about a 69% chance for yet another hike of 25bps the next time the FOMC gets the band back together.

This could potentially suggest anywhere from none to all f the below bullets, but let’s speculate wildly on why all this evidence of macro headwinds isn’t altering the market’s expectation for further hiking in a few weeks:

• The market has no doubt JPow is going to stick by his rate-hiking, credit-yikes-ing pursuit of higher rates
• Markets have been pricing in this 25bps hike the whole time and continue to operate around that number
• Markets might be in a particularly jovial mood on May 3rd if the 475bps-500bps range is held at the next meeting

And that’s just to name a few. As we try to make clear, Mr. Market is a delusional, paranoid schizophrenic in the short term, so who the hell knows what it’s thinking.

Or, maybe people just straight up aren’t paying attention anymore as a clear downtrend in price pressures has been established while, on the other side of the coin (pun intended), recession fears have clearly increased, potentially shifting investor focus.

We got 19 days until May 3rd and a whole lot of earnings, data, and probably some ridiculous like alien invasion-type sh*t to come in that time period. Hold on to your hats and place your bets now.

What's Ripe

Crispr Therapeutics ($CRSP) ↑ 16.31% ↑

• Now, moving over to actual scientific, smart-people-sh*t, Crispr Therapeutics - the firm behind the launch of the gene editing train - has once again done some smart people sh*t.
• Although I’m sure only a few of you realize this, I am not actually a scientist myself, but we’re gonna try our best. Yesterday, Crispr, along with Vertex Pharma, received an allegedly unsolicited vote of confidence that the jointly-developed “exa-cel” gene editing therapy might possibly actually be economically viable.
• The treatment would apparently cure/solve sickle cell disease and other blood issues among patients, according to people with IQs double that of mine.
• FDA approval remains the needle in a haystack, but to investors, this vote of confidence is a sign of an increase in the probability of receiving FDA approval, enough to move shares ~16.3% higher. Already, the therapy has earned quite a few accolades from the FDA, but in our world, the big one is the only thing that matters. Stay tuned.

Amazon ($AMZN) ↑ 4.67% ↑

• So, yesterday we mentioned how ChatGPT is better at picking stocks than you…but today, we found out that if the AI simply just picks itself, it’ll be a hell of a lot better than everyone.
• For example, if ChatGPT had packed, say, Amazon yesterday, shareholders sure wouldn’t be mad. When the Bellevue-based company announced that it was “heavily investing” in large language model technology similar to that which powers the now (in)famous chatbot, shareholders got hyped.
• Amazon has demonstrated a masterful job of managing the only two things that matter in 2023: 1) cost-cutting and 2) AI integration. Both of these have led investors to flock to the company, which, despite remaining ~45% off its all-time highs, has still managed to rip about 20% higher this year.

What's Rotten

Progressive Corp ($PGR) ↓ 6.71% ↓

• On the show “Biggest Loser,” falling by the most was the clear goal and ultimately decided the winner. Apparently, Progressive is a little confused and decided they wanted to become yesterday’s biggest loser in the S&P 500.
• Not exactly a goal to be striving for, but a trash earnings report like the one Flo & Co reported yesterday was borderline embarrassing. EPS came in disgustingly below expectations, while sales barely managed to keep pace.
• Despite EPS coming up as short as Muggsy Bogues, this metric still showed solid growth from last year, which was unfortunate because literally no one cared.
• Rumors allege that Flo has been shopping her resume around as the MVP-sized contract she carries might be too much for Progressive to handle; shouldn’t be too hard because, despite being several years later, I hear Subway is still looking for a new spokesperson.

Rent the Runway ($RENT) ↓ 4.60% ↓

• Want to look like a runway model but can’t afford the money for their clothes or the time required in the gym? Congratulations, you’re just like everyone else.
• For those that don’t know, Rent the Runway essentially operates as a rental service for designer clothes and other hair-brained schemes like that. As someone who just learned what they do and has never had involvement with their products, I can confidently say this is arguably just sad and something that most people can only do when rates are 0.25%.
• Naturally, since JPow has ripped the dollars away from your very eyes, demand for this garbage has been mediocre at best. Yesterday, the company dropped its annual report for 2022, showing that while they continue to edge close to profitability, the firm remains about as far off from that as you do from the actual runway. Good luck.

Thought Banana

“Oh No” From the Overlords

What do Orville Wright, George Orwell’s 1984, and the U.S. economy all have in common?

That’s right, they all have big brother(s). Sure, some might be better or worse than others, but in our case, the big brothers we care about are institutions like the Federal Reserve, IMF, and a handful of others.

But, it just so happens that the two overlords name-dropped above are both about as nervous about the state of the economy later this year as Chris Rock was when Will Smith stepped on stage during last year’s Oscars.

Earlier this week, we got the release of the Fed meeting minutes from the March rate decision debacle. At the time, officials stood behind a commonly held view that “projection[s] at the time of the March meeting included a mild recession starting later this year.” Duh, duh, duhhh…

Meanwhile, the International Monetary Fund (IMF) came out earlier this week in essentially complete agreement with the Fed. White JPow and the Fed only care about the U.S. economy, the IMF has to worry about the whole global kit and kaboodle. But as the saying goes, when the U.S. sneezes, the rest of the world tends to catch pneumonia.

So, it shouldn’t be much of a surprise that these two overlords joined hands this week to sing songs and warn about an upcoming slowdown in U.S. and global economic growth.

Bank failures were the topic of the week from these institutions. On the one hand, the Fed essentially said that fallout lurking from the SVB-ignited banking turmoil seen earlier this year is expected to bleed throughout the economy for the rest of the year, with particular drawbacks faced on credit availability.

The IMF, meanwhile, cites U.S. banking along with anticipated national debt defaults (like the one we’re just mere weeks ahead of in the U.S.) as primary culprits for a foreseen slowdown in lending on a national scale later this year.

The message is clear: credit conditions are expected to tighten, with or without an additional rate hike at the May 3rd FOMC meeting. And this tightening won’t be restricted to U.S. markets either, so congrats to everyone else for getting the honor to join in on the fun.

But, the big difference is that the Fed, in their minutes, suggested the possibility of a recession in the U.S. later this year. The IMF, on the other hand, simply tapered their growth projection…two VERY different things that we combined together as the underlying factors driving these forecasts are basically identical.

Well, I guess they’re about as identical as Zack and Cody…they sure look similar, and they’re basically the same thing, but you’d have to be a real idiot to get them confused with each other.

The big question: Are the economic overlords correct to project recession and slowdown for the U.S. and global economics later this year? If so, how bad will it get? Will Zack and Cody ever reunite for a Suite Life reunion?

Banana Brain Teaser

Yesterday — What is made of wood but can’t be sawed?

Sawdust.

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

I am always hungry, I must always be fed. The finger I touch will soon turn red. What am I?

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

Wise Investor Says

“Markets are never wrong, opinions often are. Don’t argue with the market, but instead learn to adapt to it.” — Jesse Livermore

Happy Investing,

Patrick & The Daily Peel Team

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