Homes, Not Homies | The Daily Peel | 4/19/2023

Apr 19, 2023 | Peel #443

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Market Snapshot

Happy Wednesday, apes.

Earnings szn continues to thrill, with big names reporting a little movement in broader markets. The days of “good news for one is good news for all” is over (thanks, JPow) as analysts start to actually look at individual companies. Wild stuff.

Bank of America, Goldman Sachs, Netflix, and Johnson & Johnson headlined the day while we get to see under the hood of companies like Tesla, Morgan Stanley, and IBM today. However, broad market indices actually couldn’t have cared less. Some sectors ripped, some reverted, but overall it was such a mid-a** day that it looked a lot like your transcript…just, meh.

At this point, the only thing that I hope is the 2-year holds around 4.20% for at least tomorrow’s open. Not for any reason, but the memes would be fuego. In that regard, the bill sure did its job today just kinda posted at that level for much of the session. The dollar was mostly lower, but by such a small amount that not even JYell cared, while expectations for future rate hikes were little changed from yesterday.

Let’s get into it.

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Banana Bits

• Interest rates go brrr, low-income countries go oof
• Airbnb's journey from rejection to $75 billion: cereal-ously impressive
• Asia is lowkey ghosting Heineken, but Europe is still their bae
• Glencore slides into Teck's DMs with a higher bid

Macro Monkey Says

Homes, Not Homies

Maybe we should consider just fist-fighting each other for property again. I mean, this is just getting ridiculous.

Am I the only one that’s just plain confused with the housing market? Permitting and new other housing start metrics were in the gutter, while readings like single-family homes under construction did the exact opposite. What a time to be alive.

Single-family homebuilding increased on a weekly basis once again, but at the same time, permits for single-family units crashed by 8.8%. At the most simplistic level, this suggests that homebuilding plans put in place before rates were higher than Wiz Khalifa remain well underway while the nation’s disease of ~6.3% average 30-year fixed mortgage rates has scared builders off as of late.

But, even homebuilding itself was carried largely by one region: the Midwest. Not sure who wants to move to cities like St. Louis or Columbus, Ohio, but homebuilders are at least feeling cocky that a lot of people (idiots) do.

Meanwhile, single-family home building in the Western region plunged over 16% last month, confirming that literally no one on Earth wants to move to Cali anymore.

But don’t worry; multifamily housing got in on the mayhem too. Permits for housing units with 5 or more occupancies fell 24.3%. Starts for this kind of housing plunged 6.7% as rental prices continue to spike while demand waves like it’s at a baseball game.

To put things in perspective, housing tends to be a lagging measure across the board. It serves more as confirmation of things that become obvious over time and get confirmed by data releases. Like how CPI and other inflation readings are dependent on shelter prices, it’s kind of insane how much weight is put on these readings.

But it makes sense. For the vast majority of Americans, their home is by far their most valuable asset from both a practical and financial perspective, so it’s no wonder why we care so much.

Overall, the Fed’s rate hikes pretty much baked this into the pie for traders along the way of JPow’s crusades. It’s not exactly surprising to see starts, permits, and the like crash while mortgage rates surge amid a literal bank run panic. At a certain point, we gotta cut ourselves some slack.

Of course, the inevitable downside is for all of you 20-somethings out there who want to move out of your split studio apartment/parent’s basement into your own “castle” someday. Psh…couldn’t be me…

Btw, anyone looking for a new roommate??

What's Ripe

Bank of America ($BAC) ↑ 0.63% ↑

• Yup, let’s just address it right up front: we might not have a whole lot of price action in today’s stocks, but we sure do have a lot of market cap. Feel free to send thank you notes to your recovering alcoholic, apparently responsible now uncle, Mr. Market.
• Bank of America, the second-largest consumer bank in the U.S. (behind you know who) based out of Charlotte, NC, posted results that danced on the graves of Wall Street guesstimates. EPS of $0.94/sh on revenue of $26.4bn for the quarter handily beat the priced-in $0.82/sh on $25.1bn.
• Net interest income boomed at the same time, gaining as the bank’s namesake country did in the post-WWII decade, as it rose 15% to $8.2bn for the period. Once again, shareholders have only JPow to thank.
• Trading revenues were absolutely all over the place in the meantime, with the newly boring as f*ck equity side losing 19% compared to last year, while FI, currency, and commodity trading revenues boomed nearly 28%. At least someone’s doing their job…

Lockheed Martin ($LMT) ↑ 2.40% ↑

• Speaking of doing their job, Lockheed Martin and its products over in a certain eastern European country might be doing their job a little too well…
• Shares gained 2.4% on the day as it was confirmed that weapons demand is, in fact, sitting at a multiyear high, largely thanks to Russia’s invasion of Ukraine. But, increased demand from countries like Taiwan is helping pad last quarter’s stats, even if future orders are looking a little light, as the company stated.
• Still, the 16% increase in sales across the company’s space unit proved the most uplifting. EPS and revenue both beat on sales of $15.1bn coming in just above the $15.0bn expected, while Lockheed raked in $6.61/sh against expectations of $6.05.
• Revenue was the most surprising as the company’s CFO literally said last month that sales would be pretty weak this quarter, but is it still fraud when it works out for shareholders? Just kidding, just kidding…but…? (Pls don’t Javelin me.)

What's Rotten

Goldman Sachs ($GS) ↓ 1.69% ↓

• Despite its name, Goldman Sachs was unable to post a quarter that would satisfy the Greasers in The Outsiders, failing to stay gold for Pony Boy.
• Adjusted (aka, bullsh*t) earnings massacred expectations, posting $9.87/sh vs. expectations for $8.10 while revenue came in hella light. The investment bank pulled $12.2bn in top line for the quarter while Wall Street had the firm pegged at $12.8bn. That’s a 5% decline in sales from a year ago, for those counting.
• To be fair, last year’s first quarter was one of the firm’s best ever, so comparing against that is a tall task, but as shares are already down 16% from an early 2022 high, it seems like Mr. Market was ahead of the ball on this one.
• A heavy reliance on revenue from trading and M&A activity sure came back to bite them this quarter. But that’s the nature of the game with that strategy – you wanna gain the most from the booms? You gotta take the most from the busts. Rumors have swirled that CEO DJ D-Sol will bump his top 30 EDM hits in all office buildings worldwide until shares hit $375 again. These might help.

Johnson & Johnson ($JNJ) ↓ 2.81% ↓

• And to cap off the day of focusing on moving market cap rather than share price percentages, we come to the biggest dawg of them all, $JNJ.
• Despite the immediately above misinformation, JnJ has been confirmed to, in fact, not have that dawg in ‘em. For starters, the nation’s 12th-largest company by market cap literally lost money last quarter, thanks to charges related to Johnson & Johnson’s cancer-causing habit through its talc powder as well as charges related to an ongoing spinoff.
• It’s not Johnson separating from Johnson or anything, but the spinoff of the company’s consumer health unit did drive additional costs so that when we add these to the talc/cancer scumbaggery and net that out of earnings, the company actually did beat EPS estimates of $2.50, reporting $2.68 instead.

Thought Banana

Microsoft x Samsung + …JPMorgan?

Apple has gotten to be so Apple that it’s like the company was founded by Steve Jobs or something. See how that nonsense somehow makes sense? Yeah, that just about summarizes Apple.

Hopefully, you didn’t have a stroke while reading that, but the dominance of Apple across so many facets of your and my life, whether willingly or unwillingly, has reached new heights. With Goldman Sachs as its trusted partner, the U.S.’s largest company has launched a high-yield savings account earning 4.15% APY, and this is almost sure to only get crazier.

Now, GS is basically only there to dot the I’s and cross the T’s so that the funds can access the bank’s FDIC insurance backstop as opposed to actually becoming a full-on bank. Moreover, Goldman’s own high-yield savings accounts under the Marcus brand are 3.9%. I’m no mathematician, but something seems a little off there…

The best part is there is no minimum balance required to grab that sweet, sweet 4.15% yield (17.3x the national average of 0.24%), and it’s entirely accessible through your phone, automatically, without you having to call some random “financial advisor” to get your sh*t right.

Jamie Dimon must be out here praying to…himself…as the inescapable fear of Apple’s potential in this market keeps the King up at night.

But for Tim Cook and his lieutenants in Cupertino, this move isn’t only deliciously capitalist, it’s just straight-up based. To achieve the performance that the average Apple shareholder expects over the next 5-10 years, the number of industries the company can spawn into is a bit limited. The financial services industry is up there with things like healthcare and education in overall size, so this is kind of a no-brainer from a shareholder perspective (albeit in hindsight).

To get even more capitalist with it, Amazon has already made their healthcare intentions clear while Google’s career certificate thing is well known, encouraging Apple to go at the remaining one listed above. Even if it’s not a full foray just yet, rumor has it that getting into finance is pretty fun.

The big question: How far will Apple’s push into financial services go? How successful will this brand-new savings program be?

Banana Brain Teaser

Yesterday — Never resting, never still. Moving silently from hill to hill. It does not walk, run, or trot. All is cool where it is not. What is it?

Sunshine.

Today — It’s 100 bananas off the Hedge Fund Interview Course for the first 15 correct respondents. LFG!

Three lives have I. Gentle enough to soothe the skin. Light enough to caress the sky. Hard enough to crack rocks. 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

“The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Ben Graham

Happy Investing,

Patrick & The Daily Peel Team

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