Keep On Tightening | The Daily Peel | 9/14/22

Silver Banana goes to...

Market Snapshot

August CPI is in. Drumroll, please…

…and it’s 8.3%. Womp, womp.

Markets went into freefall on the worse-than-expected print. It looks like JPow is gonna have to sharpen his elbows to bring prices down, either with a few more 75 bps hikes or even a 100-pointer.

At the close, the Dow sank 3.94%, the Nasdaq fell 5.16%, and the S&P lost 4.32%.

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Let’s get into it.

Banana Bits

A new slew of executives is taking over at Peloton after a brutal last 12 months for the fitness company
Goldman is planning hundreds of layoffs amid a slump in M&A activity. Wonder what they’ll do with an extra 80 hours per week on their hands
The showdown continues—Twitter shareholders are expected to approve Elon’s regretful $44bn takeover
A new drug beat chemotherapy in treating lung cancer
Getting a solid score on the GMAT could be the difference between a T20 school and working at Northwestern Mutual for the rest of your life

Banana Brain Teaser

Yesterday — You’re at a fork in the road in which one direction leads to the City of Lies (where everyone always lies) and the other to the City of Truth (where everyone always tells the truth). There’s a person at the fork who lives in one of the cities, but you’re not sure which one. What question could you ask the person to find out which road leads to the City of Truth?

“Which direction do you live?” Someone from the City of Lies will lie and point to the City of Truth; someone from the City of Truth would tell the truth and also point to the City of Truth.

Today — It’s 50 bananas off of our Investment Banking Interview Prep Course for the first 15 respondents. LFG!

A bad guy is playing Russian roulette with a six-shooter revolver. He puts in one bullet, spins the chambers and fires at you, but no bullet comes out. He gives you the choice of whether or not he should spin the chambers again before firing a second time. Should he spin again?

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

Macro Monkey Says

What Keeps JPow Up at Night — In his commentary at Jackson Hole a few weeks ago, JPow repeatedly emphasized a nasty aspect of inflation that can make it impossible to control.

Once people expect inflation to continue, their behavior reinforces more inflation, driving a feedback loop that can lead to runaway price increases.

That’s why it’s so key to bring inflation down quickly once it becomes a hot-button issue. As long as people think it’s here to stay, they’ll start demanding wage increases and buying up goods driven by the expectation of even more price increases.

August’s CPI reading wasn’t exactly horrifying—consumer prices were growing at single-digit percentages. Gas prices have been going down across the country, lessening the burden of travel costs on everyone.

But after looking at “core” CPI, or the basket minus food and energy, the picture darkens. That number was higher than in June and July, suggesting that inflation may actually be accelerating rather than slowing.

Now we get to see how resolute the Fed is in slaying the inflation dragon. A full percentage point increase is unlikely during the September meeting, but all eyes will be on the thinking of JPow and team.

Do they feel that their rate-hike schedule will be insufficient? Will they slam on the brakes and hike rates by a full percentage point at a future meeting to dampen inflation expectations?

Only time will tell, but markets aren’t expecting it to be pretty.

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What's Ripe

The VIX ($VIX) — If you live for the adrenaline rush from stock market volatility, it’s your lucky day.

The VIX surged Tuesday amid a broad market sell-off. Wall Street’s fear gauge still isn’t at the levels we saw earlier this year, but it’s spiked since mid-August.

“Fear” is relative in macro environments like this one. If you’re getting killed by your grocery bill each week, you’re praying for an inflation reduction, even if it dents your 401(k).

But if you’re long the S&P, the rate hikes necessary to get inflation down are much scarier.

The VIX ended the day up 16.25%.

Nintendo ($NTDOY) — You’ve heard of Mario Kart and Pokémon, but what about Splatoon 3?

The third-person shooter has exploded in Japan, with Nintendo reporting record sales for any Switch game in its catalog.

It’s a great signal for Nintendo ahead of the all-important holiday season. New Pokémon games are lined up for release in November, which should boost sales in the U.S. market.

$NTDOY gained 2.53% on the day.

What's Rotten

MicroStrategy ($MSTR) — Michael Saylor, head honcho at MicroStrategy, has turned a public company into essentially a bet on BTC.

$MSTR has been around since the ‘90s and has enjoyed success during the internet boom of the 2000s. But since then, its business intelligence unit has languished amid heavy competition.

Then, Saylor decided to put all his chips into BTC, betting that the dollar would weaken quickly under the weight of trillions in government debt.

Now, $MSTR has billions in BTC on its balance sheet, and its stock is essentially a bet on magic internet money. It has moved alongside the price of BTC and collapsed in the last year as a result.

Investors aren’t as confident in Saylor as they once were. $MSTR ended the day down 12.07%.

Carvana ($CVNA) — So much for yesterday’s 15%+ journey to the moon.

Carvana got hammered Tuesday amid a broader market sell-off triggered by a nasty August CPI.

While used car prices actually fell in August, an overall higher CPI means consumers have less spare change to upgrade their vehicles.

Buying a car out of a vending machine is cool, but if groceries are getting more expensive each month, it’ll have to wait.

$CVNA finished the session down 12.94%.

Thought Banana

A Turning Point in Ukraine — There weren’t too many updates on the war in Ukraine over the summer. For months, it seemed like both sides were slogging it out in a kind of stalemate, without much ground being given up on either end.

But that changed this week.

Ukrainian forces were able to notch significant territorial gains in the northeastern part of the country, stunning the Russians. It marks a key turning point in the war that some are comparing to D-Day.

I try to take these updates with a grain of salt because the game of telephone that starts on the front lines thousands of miles away can distort what’s really happening. The “fog of war” is always a factor.

But legit sources, including Secretary Blinken, are hyping up Ukraine’s counteroffensive and saying that it could hasten the end of the war. Or worse, light a fire under Putin to take more drastic action.

If an end to the war comes sooner than expected, it could change Europe’s near-term economic fortunes. Support for the war has been waning in the EU, with many more focused on an imminent recession and skyrocketing energy prices.

Ukraine is hoping its recent success will convince its Western supporters, including the U.S., to keep weapons and other resources flowing in.

Whatever happens from here will have huge implications for Europe’s economy. For a million reasons, let’s hope this ends soon.

Wise Investor Says

“A bull market is like sex. It feels best just before it ends.” — Barton Biggs

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