Juggling Politics and Dessert Cravings | The Daily Peel | 5/18/2023

May 18, 2023 | Peel #464

Market Snapshot

Happy Thursday, apes.

We’re nearly a month out from the 4/20 festivals, but markets are apparently still celebrating with a whole lot of green. Yesterday was the best day for US markets in about 2 weeks, giving your portfolio and mental health a much needed break.

The Nasdaq led the way as mega caps pulled the rest of the market higher with them for the day. The S&P settled above a key technical level of 4,155, but people smarter than me say it won’t matter until that close is held on at least a weekly basis. Fingers crossed, we can hold until Friday.

Treasury yields continued to move higher on the day, with the 10-year flirting with 3.6% before a slight pullback late in the session. USD flopped around like a dead fish with very little idea of what was going on, but other “currencies” like BTC and ETH tanked before ripping violently higher in the after-hours.

Let’s get into it.

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Banana Bits

• The NY Fed dropped the scariest report of 2023 thus far in the Q1 household debt and credit report but turns out all that fear might’ve been a bit much
• The IRS’s first big purchase since that $80bn raise last year is exactly what Americans have been asking—no, begging*—them to do for *checks notes* ever
• Montana officially won the race as the first US state to ban TikTok, meaning we’re gonna get a steamy First Amendment battle

Macro Monkey Says

US vs. Everybody

Not really. But, for the most important American, of course being our spacey, geriatric, and ice-cream-lovin’ President Big Dawg Biden, that was the decision he had to make yesterday.

In the US, the President is the head honcho when it comes to issues both foreign and domestic. Other countries split those between something like a President and a “Prime Minister” (whatever that is), but the actual execution, approval, and, most importantly, results of such systems vary.

Nevertheless, Joey B was all set for his Japanese vacation involving just a little bit of work, such as meeting with the 6 other most developed nations on the planet in the hopes of pouring the foundation for a united economic, political, and military front against alleged aggressors like China, Russia, and others. You know, just the nice & easy stuff...nbd.

Despite his rumored excitement over hearing that Japan makes a deliciously unique kind of ice cream, President Biden did have to cut that trip short to handle a hometown debacle.

That, of course, is the debt ceiling. We wouldn’t blame Japan, Germany, France, the UK, Italy, and Canada (the other G7 nations) for missing their homie, the US, especially given it makes up over half of the group’s combined GDP alone, but candidly, Uncle Joe’s got bigger problems at home.

Maybe not “bigger” problems in the grand scheme of things, but certainly more immediate. Treasury Secretary Janet Yellen (or, as she prefers, JYell) has already made clear the US could be out of kidneys to sell for cash to pay its debt obligations by as early as June 1st.

Naturally, the Senate will be out of session next week, and both will take off a few days on and immediately after June 1st (bc obviously), so this week is the least chance to talk without pulling emergency measures.

“Civil and respectful” is how the White House described meetings with GOP Congressional leaders, and honestly, the fact they even had to say that is a tough scene. The most important of these meetings, of course, was that with Speaker Kevin McCarthy. By the end of the day, the Biden Admin also made clear they are “confident we’ll get the agreement on the budget and America will not default.”

It’s rare good news out of a debate in Washington, but it was just what investors wanted to hear. Markets seemed to react at least a little to the newfound optimism, despite the most reliable reports not being out just before the close.

Any deal seems to involve spending cuts, but not as much as GOP leaders may have hoped, along with stricter work requirements for welfare programs.

McCarthy echoed the White House’s shocking optimism on deal prospects saying, “I’m optimistic that now we have a structure that can work.” Yet, he remains skeptical about the timing, which makes sense given [see above] Congress’s timely vacation.

For markets, it was a tiny sliver of clarity in an environment in which macro factors seem even more opaque than they otherwise are. Mr. Market hates uncertainty even more than you do after sending that risky text, so when the macro equivalent of those iMessage 3 little bubbles popping up in the form of US debt ceiling clarity comes onto the scene, it’s hard to stay mad.

What's Ripe

Regional Banks ($KRE) ↑ 7.36% ↑

• Phew! This might finally be the relief regional banks have needed just about as badly as you need stimulants on Monday morning. The key driver: deposit growth.
• Yup, you read that correctly. According to Western Alliance ($WAL +10.19%), deposits have surged $2bn this quarter as of May 12th. This proved to be more than enough for investors close to being irredeemably downbad on this sector for the foreseeable future.
• PacWest led the way for regional banks, gaining 21.66%. The bank arguably won the superlative for “Most Likely to Have the Next Bank Run,” so shares snapping back more than others makes sense.
• The gains continue on good news from the regulatory front earlier this week, implying smaller banks will catch a break while FDIC regulators investigate recent behavior from larger banks in their deposit windfall as those not-to-be-named regional lenders failed.

Carvana ($CVNA) ↑ 11.32% ↑

• Who gave Morgan Stanley a medical degree? Never mind, it doesn’t matter; the firm still saves lives anyway, with Carvana being yesterday’s lucky patient.
• Once essentially buried alive, Carvana shares ripped higher on the day as analysts at MS reinstated their coverage of the embattled used car retailer that blinds people with their neon-blue car vending machines.
• With upwards of 70% short interest in this piece of sh*t down 97% from the peak, maybe analysts are pricing in a short squeeze with their +30%-implied return price target.

What's Rotten

World Wrestling Entertainment ($WWE) ↓ 7.29% ↓

• Names matter, and to Wall Street, wrestlers and fighters suck at naming things. Shares in the soon-to-be combined WWE and UFC partnership tanked as the latest news around the combination dropped (literally).
• Endeavor, the majority owner of the UFC, is reportedly looking to consummate a $20bn marriage out of this merger, which, when combined, will go by the named “TKO Group.”
• Ironically enough, a technical knockout is exactly what happened to shares yesterday too. WWE controller Vince McMahon and Endeavor CEO Ari Emmanual will take positions as executive chair and CEO, respectively.
• It’s only a day following the update, but shares have spoken for themselves—at least for now.

EVGo ($EVGO) ↓ 18.67% ↓

• The only charging that EV charge-station supplier EVGo made yesterday was straight into the ground. Shares tanked on news the 850-station strong leader of the sector announced a stock sale.
• Looking to raise $125mn, roughly 10% dilution as of yesterday’s closing market cap. Maybe investors actually do hate one thing more than uncertainty: dilution.
• Moreover, looking to raise cash is obviously not a great sign for any company, so many may have decided to simply collect their profits and get out. Regardless, the bears were having a lot of fun. What’s the opposite of a short squeeze?

Thought Banana

It Gets the People Goin’

Tesla Investor Day that is. That’s what gets the people going. At least, that was certainly the case yesterday.

We can debate his CEO / Technoking skills until we’re blue in the face, but one thing Elon Musk is undeniably GOATed at is throwing a party, especially in his company’s share prices. Yesterday’s 4.41% gain was a particularly fun one.

And that’s largely thanks to Elon getting shareholders fired up, conveniently just a few days after Elon absolved himself of ownership’s biggest complaint in the form of Linda Yaccarino’s installation as Twitter’s new CEO.

I can’t believe that sentence is factually accurate, but damn, I guess the pandemic really turned the crazy notch up a few dials.

Tesla’s Investor Day conference was headlined by the company’s teasing of 2 new models in the classic charmingly vague way that Musk has at announcing releases like this. Allegedly, Tesla will be able to make 5 million of those bad boys per year once they get up and going, and if history is any guide, demand for this EV maker’s sh*t should take care of itself.

At the same time, initial deliveries of the already-infamous Cybertruck are still in the game plan by year-end. Maybe traders were just excited to get their hands on one of these bad boys.

Lastly, Musk also teased that the famously-anti-advertising car maker would “try a little advertising” to test the waters a bit. The fact that the guy owns a social media company reliant on ad dollars is clearly just a coincidence and one that Musk joked about during the conference.

It’s always interesting with Tesla, that’s for sure. A stock as volatile as this can take just about anything, and with a $550bn valuation, moves like this are nothing short of a pleasure.

The big question: When and to what degree will some of these “teases” materialize and impact Tesla’s fundamentals?

Banana Brain Teaser

Yesterday —

A time to sow, a time to reap
But over a life, this time would creep

I was created in 46 BC.
Brought into being by Caesar’s decree

But still the seasons were unimpressed
Man-made and tropical slowly digressed

So good Pope Greg set everything straight
with inspired rules that worked out great

I am grander than my common peers
I come 97 times every 400 years

By following my rules, as widely agreed
We all know what day to plant our seed

What am I?

A Leap Year.

Today — It’s 50 bananas off the M&A Modeling Course for the first 3 respondents. LFG!

"H I J K L M N O"
What object does this represent?

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

Wise Investor Says

“Buy when everyone else is selling and hold when everyone else is buying. This is not merely a catchy slogan. It is the very essence of successful investment.” — J Paul Getty

Happy Investing,

Patrick & The Daily Peel Team

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