Man, Movie Star, Mogul | The Daily Peel | 3/16/23

Mar 16, 2023 | Peel #420

Market Snapshot

Happy Thursday, apes.

Today’s trade was decidedly the exact opposite style of SVB’s balance sheet: risk-off. The Nasdaq led the way, trading flat and finishing barely up at all, while the S&P and Dow had way less fun. Banking system fears are suddenly back as Mr. Market has apparently let the voices in his head take over.

Meanwhile, treasury yields fell sharply because after yesterday’s risk rally, obviously, investors had to pour all their cash back into fixed income today. The dollar did the opposite, moving just as sharply higher while expectations for no rate hike next week doubled since Tuesday.

Let’s get into it.

Take Your Finance Career to the Next Level

Attention all financial wizards and career climbers, are you ready to take your modeling skills to the next level?

If you're looking for an undervalued investment in your career, look no further than WSO's Elite Modeling Package! With 6 courses designed to turn you into an absolute Excel master, this is the package that keeps on giving.

From building a 3-statement model to tackling complex LBO modeling and M&A transactions, this package has got you covered. You'll also build a solid foundation in trading comparables and precedent transactions analysis and DCF modeling, all using the versatile and relatable example of Nike, Inc.

And as if that wasn't enough, the first 3 Peel readers to sign up for the Elite Modeling Package in the next 24 hours will also get access to our Foundations Package! That's right, a two-for-one deal that'll have you feeling like a baller in no time.

So don't miss out on this opportunity to boost your career, and invest in WSO's Elite Modeling Package now! #ModelOn #FinancialGains #CareerGoals

Banana Bits

• Turns out the evil bankers of the evil Goldman Sachs wanted to save SVB but couldn’t
• Hide your kids because Big Dawg Biden fr wants to ban their favorite app
• Credit Suisse lands a late $54bn in funding from Switzerland’s central bank
• 2023’s hottest fashion show went down yesterday as NASA flexed the drippy-ass space suits the Artemis astronauts will wear on the moon. Although, it looks like it’ll be a lot harder to spot any floating-away astronauts

Macro Monkey Says

Inflation Won’t Stop

Inflation *Data* Won’t Stop. My bad, apes, typo.

In case you didn’t have enough fun with Tuesday’s CPI print, yesterday’s PPI and retail sales data is sure to get you right. Let’s check it out.

Basically, markets expect daddy JPow to become the printer-king he truly is at heart again, kinda. Basically, PPI data came in light while retail sales actually fell for the month, jacking market expectations for no-rate hike by this time next week to doubling in two days.

Starting with producer price inflation, the February PPI rose 4.6% annually and actually declined 0.1% on a monthly basis. Not slowing growth, but declining prices. Now I only have one question - do you believe in miracles?

This came as a bit of a surprise to economists that pegged expectations at 5.4% and 0.3% growth on an annual and monthly basis, respectively. Without a reading this below expectations, yesterday’s renewed fears of a banking implosion easily could’ve dominated markets into another down horrendous day. LFG.

Meanwhile, retail sales for the same period dropped to $698bn compared to $701bn in January, a 0.4% decline. A decline in retail sales is less surprising than PPI, all things considered, monthly changes tend to be a bit more volatile.

Even so, most economists have developed a take basically viewing February’s decline as too small to even really pay attention to, which to an economic reading like retail sales must be like a child hearing that their parents don’t love them.

Taken together, these metrics give JPow and us plenty more firepower to make a decision for this coming Wednesday’s rate decision. Despite the fact the U.S. now has the 8th most expensive Big Mac’s in the world, this further confirmation that price growth has passed its peak could be a good start to falling back in the rankings.

In response to the monthly declines in both PPI and retail sales, trader expectations for JPow to not hike rates at all shot up to almost 44%, more than doubling the 21% odds given just days ago. With the two-year yield falling at a low of 3.8% yesterday as well, the bond market is absolutely screaming at JPow not to hike further. Essentially, fixed-income traders are daring Powell to raise again. Who blinks first?

Who knows, but I know that we only trust two things: dogs and the bond market. We very well could get betrayed, but as fixed-income markets are considered like a responsible older cousin to equity markets, we’re far more inclined to believe them than stocks.

Speaking of which, equity markets measured by index price movements managed to hold up decently well. Breadth sure wasn’t there, but support in mega and large-cap names managed to keep returns from cracking through the floor.

As of now, all we “know” is that JPow will be “data dependent” going into next week’s meeting. Based on the cap he’s given us before, like how they weren’t “actively considering” hikes above 50bps last year, we’ll just have to wait and see.

What's Ripe

Canadian Pacific Railway ($CP) ↑ 5.66% ↑

• Smell that? Yeah, me too. That right there is the sweet smell of an approved merger, and Canadian Pacific investors are smelling it up like someone just poured a certain white powder onto the table.
• Yesterday, regulators in the U.S. finally approved the nearly $30bn merger of Canadian Pacific and (former) rival Kansas City Southern.
• Not that they have the blessing of the Surface Transportation Board, but this combination will produce the first rail network linking the North American homies of the U.S., Canada, and Mexico.

Charles Schwab ($SCHW) ↑ 5.06% ↑

• Never let a good crisis go to waste. Not sure if there ever has been a “good” crisis, but considering Charles Schwab amid the shenanigans going on across the regional banking space, this might be the first.
• Charles Schwab, mostly known for its investing and custody services, tumbled 35% at one point within the last week as any company with the word “financial” in its description was treated like a cordyceps-infected person in The Last of Us.
• Management could’ve come out and said anything to soothe investors’ nerves, but instead of spinning some obvious bullsh*t story like banks usually do, the firm let its actions do the talking. CEO Walter Bettinger filled up on shares like a California driver does to their car when gas is below $4.50/gal.
• Man bought 50,000 shares over the last few days. I mean, there is simply just no stronger way to show confidence in your own company than to load tf up on shares (aka to “be greedy”) when others are fearful. Warren would be proud.

What's Rotten

Credit Suisse ($CS) ↓ 13.77% ↓

• Credit Suisse showed up to the party yesterday with noise-canceling headphones and 911 on speed dial, immediately killing the vibe for the rest of the sector.
• This has basically nothing to do with SVB and the other shitco banks under pressure in the U.S. right now. But still, as Credit Suisse has been experiencing outflows and other issues, particularly in the last few years, management’s tomfoolery is now coming under increasing pressure.
• And that pressure is bound to heat up when the bank has a potential need for additional financing, first asking its largest shareholder, the Saudi National Bank, to which they replied, “the answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory.”
• Needless to say, that shook investors - not just in $CS shares or exclusive to Euro banks, but across the U.S. too. However, Swiss regulators have confirmed they’re here to provide liquidity to the 170-year-old banking titan of Europe when and if needed. As the old saying goes, when you need money, ask the Swiss (just not Credit Suisse).

Energy Stocks ($XLE) ↓ 5.37% ↓

• Exhibit A: here, we have a prime example of “even if you know what’s gonna happen, you don’t know what’s gonna happen.” How many of us apes would’ve guessed when Russia invaded Ukraine that energy prices would be lower a year on? Exactly.
• Even when there’s a “textbook” play, such as war = higher demand & lower supply of oil on the global front = price go up, it doesn’t always work. That’s largely because people are not pawns. We all know the plays to make and when to make them; our reactions to an event change that event’s outcome.
• And now, oil prices sit at their lowest level since November 2021, right around $68/bbl. Traders sold that sh*t like it was their job (well, I guess it is their job) on Wednesday as banking fears stemming from [See Above] pushed markets into a major risk-off vibe.
• Moreover, stockpiles are rising quickly in the U.S., and Big Dawg Biden just gave the thumbs up to a major drilling project in the utter wasteland that is Northern Alaska. The nearly 15% drop since Monday will (hopefully) lighten the hit to our wallets at the pump while simultaneously sending Big Oil to therapy. Biiiig win-win.

Thought Banana

Man, Movie Star, Mogul

As if any of us stood a chance against Ryan Reynolds, to begin with, now he’s beating us at our own game.

Not only is this man hysterically funny, dynamic, and unbelievably hot, but he’s an absolutely killer deal-maker, too, apparently. Reynolds bought a stake in Mint Mobile in 2019. Sources are unclear on whether or not this was simply to hire himself to be the spokesperson, but no matter what, he’s not gonna care once that check clears.

That’s because T-Mobile purchased Ka’ena Corporation, the parent company of Mint Mobile as well as other “affordable, premium” branded cell providers, including Ultra Mobile and Plum, for $1.35bn.

Reynolds went with a little LinkedIn-style cringe on Twitter following the announcement, but hey, credit where credit is due. Now, we don’t exactly know how much the man owns of the company as this has never been publicly disclosed (according to ChatGPT, lol), but we do know he will remain on the team as the spokesperson.

Most of the revenues going into Mint and Ka’ena’s pockets stem from prepaid wireless services, a segment T-Mobile was already looking to expand into.

For all the Mint homies out there, just know that T-Mobile CEO Mike Sievert pinky promised not to raise prices in a newly released YouTube video that is probably the lowest-viewed piece of content Reynolds has ever made. Plans will remain $15/month (for now). 

T-Mobile allegedly admires the marketing talent at Mint Mobile as well, but more importantly, this is a clear sign that dealmaking is confirmed back. Compared to that $43bn Seagen deal we talked about the other day, this $1.35bn check might not seem like much, but like a win is a win, a deal is a deal.

It also demonstrates the recent M&A uptick isn’t quite as sector-specific as it may have seemed, given all the pharma/biotech deals going on.

At the end of the day, the most important thing of all is that Reynolds is now sure to always have an acting career as he owns a telecom company that runs a whole lotta commercials. Good for him.

The big question: How material will this deal be to T-Mobile’s overall business? Did we just get confirmation that M&A activity is, in fact, back?

Banana Brain Teaser

Yesterday — What type of house weighs the least?

A lighthouse.

Today — It’s 100 bananas off the WSO's Elite Modeling Package. LFG!

I dig out tiny caves, and store gold and silver in them. I also build bridges of silver and make crowns of gold. They are the smallest you could imagine. Sooner or later, everybody needs my help, yet many people are afraid to let me help them. Who 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 nature of any human being, certainly anyone on Wall Street, is ‘the better deal you give the customer, the worse deal it is for you.” — Bernie Madoff