June 13, 2023 | Peel #480

In this issue of the Peel:

• The term “green shoots” is gaining prevalence in the financial world, with top brass from Morgan Stanley and Goldman Sachs suggesting some cautious optimism in macroeconomic developments.
• Carnival Corp and Oracle shares surged after analyst upgrades and strong earnings respectively, while Nasdaq Inc’s share price fell following an acquisition announcement, and digital assets companies faced losses amid regulatory pressures.
• UBS and CS merged in a monumental move that signals a potential new bailout strategy for struggling major banks.

Market Snapshot

Happy Tuesday, apes.

We’re just sipping on a nice bowl of confidence heading into the major macro news of the week, huh? With CPI today and an FOMC on deck, Mr. Market’s performance yesterday was about as confident as your friend is when you have to snatch the car keys out of their hands.

And that was clear as equities pushed higher seemingly across the board in the U.S. From the small caps in the Russell 2k (+0.40%) to the Nasdaq 100’s +1.76% day, market caps small to large were enjoying the green. All eyes seemed to be pointed toward today and tomorrow’s major macro events, so buckle up…just in case.

As the often-considered more “sober” older sibling of the stock market, the bond market had a much more mediocre day. It wasn’t terrible, but watching it sure was as the 2-year bounced between the wide range of ~4.55% to 4.63% all session. But bonds are supposed to be boring, and that’s the way we like it.

Let’s get into it.

Banana Bits

• Lina Khan and the FTC have stepped up to the plate against one of their, quite literally, largest foes: the Microsoft-Activision deal
• Didn’t take long for your favorite store to hop aboard the AI train
• In an early sign, it looks like Speaker McCarthy might actually keep his job despite his failure to allow the US to default and cause a global financial calamity…the nerve!
• Finally, someone’s actually talking about the absurd tip screens that seem to be ranging everywhere from your coffeeshop to your damn landlord

Macro Monkey Says

Green Shoots

While “green shoots” may have been a term you and your moron friends from college used to describe a certain plant you dabbled with once every too much, it’s actually a thing in the world of macro. Let’s put some respect on its name.

"... both Morgan Stanley CEO James Gorman and Goldman Sachs CEO David Solomon used it to describe their industry ..."

A “green shoot” describes kind of what it sounds like: basically an infrequent and minimal yet positive economic sign that gets interpreted as a perceived precursor to a better macro world ahead. Naturally, to be an accepted term on Wall Street, they had to make it sound violent.

But we’re for it. Now that we know what it means, it’s helpful to know that both Morgan Stanley CEO James Gorman and Goldman Sachs CEO David Solomon used it to describe their industry in recent days.

• “We’re clearly seeing more green shoots” — Gorman
• “We’re starting to see some green shoots” — Solomon

Coincidence? Considering both of these occurred surrounding Morgan Stanley’s annual conference, not it probably isn’t…but that’s not very fun.

"... this can’t help but to make the bulls feel a little bit better."

Regardless, to be speaking in such a positive fashion heading into a major macro week, one in which we’ll see fresh inflation data with the CPI tomorrow at 8:30 am ET and a Fed rate decision the next day at 2 pm ET, this can’t help but to make the bulls feel a little bit better.

Both, of course, commented for much longer, but does it really matter what any two people think?? In this case, maybe.

"For one, Goldman Sachs makes the lion’s share of its buck from M&A fees in IB, along with trading revenues in capital markets."

As Solomon and Gorman both run shops that I’m guessing most of you would kill each other to land a superday at, they certainly offer a practical perspective. From the highly related lens of hiring, deal activity, and trading flows, the two signaled some classic cautious optimism.

For one, Goldman Sachs makes the lion’s share of its buck from M&A fees in IB, along with trading revenues in capital markets. And it’s not just a sudden vibe shift; big deals have been slowly creeping back for a minute now, like:

• Fast casual restaurant chain Cava plans to IPO at $2.3bn this week
• Amgen threw $26bn at Horizon Therapeutics in late 2022
• CVS announced an $8bn acquisition of Signify in March
• Spoiler alert: Nasdaq’s $10.5bn acquisition of Adenza

Those are just the first ones that came to mind. But the point is that deal activity might just be confirmed to be back. Not sure how late you IBers among us have been staying at the office, but something tells me every additional minute you’re there is another basis point added to my portfolio.

The real news of the week starts today, or in all actuality, started hours ago based on the time you (probably) woke up to read this. Either way, the next two days will be fun.

What's Ripe

Carnival Corp (CCL) ↑ 12.45% ↑

• What a coincidence. Sell-side analysts really have their timing down; I’m sure it’s nothing like working together to maintain their relationships with corporate issuers or anything.
• What we’re alluding to, of course, is the fact the US’s two largest banks, JPMorgan and Bank of America, both slapped upgrades on one of the nation’s largest cruise operators yesterday, Carnival Corp.
• Obviously, shares took off. Don’t get me wrong, the stock is still down nearly 80% in the last 5 years, but yesterday was a mild reprieve from all the suffering that goes along with a business model involving trapping people in a floating box in the middle of the ocean for weeks at a time.
• Both banks raised this thing from neutral to buy. The hype was so effusive fellow ocean-death-box operators Norwegian (NCLH, +7.22%) and Royal Caribbean (RCL, +2.57%) saw healthy boosts too.

Oracle (ORCL) ↑ 5.99% ↑

• Essentially your grandparents’ version of Salesforce, Oracle shares managed to have a day for themselves to kickstart this week.
• The boomer computer company managed to deliver a stellar earnings report, even in this environment, as the company’s largest revenue driver in Cloud & Licensing Support saw sales surge well over 22% in the past year. EPS of $1.67 vs. $1.58 expected on a narrow sales beat was the story of the day.
• Unlike some of the firm’s products, like its CRM tool, PeopleSoft, shares didn’t go down for a second seemingly all day. Impressive stuff.

What's Rotten

Nasdaq Inc (NDAQ) ↓ 11.81% ↓

• Yes, the Nasdaq is a public company, too, not just an index. Just wait until you find out about S&P Global (SPGI) too.
• And as a public company, sometimes these firms have sh*tty days. Yesterday was one of those for Nasdaq (not the Nasdaq).
• Traders vomited at a hott-off-the-presses release Monday morning that the exchange will be purchasing San Fran-based financial data company Adenza for a cool $10.5bn in cash and stock from PE firm Thoma Bravo.
• If it’s not clear enough, Mr. Market basically appears to be telling Nasdaq that they’re wildly overpaying at the very least. This is, after all, Nasdaq’s largest acquisition of all time. But still, despite the doubters, rumors assured me that Nasdaq CEO Adena Friedman bought this thing for way more reasons than just because Adenza’s name is basically the exact same as hers.

Digital Asset Cos (MVIS, COIN) ↓ 8.36%, 5.11% ↓

• The wrath of the SEC continues to permeate the world of digital assets. After all those years, actually more like months, of telling us to “have fun staying poor,” it seems like the only one having any fun at all is Chair Gary Gensler.
• Although the newsfeed across the sector was mild compared to recent days, investors continued to fold out of any company associated with the rise of laser eyes on Twitter.
• While we’re thankful the laser eyes thing is in a bear market, few that hold these shares are exactly too pleased with their portfolios as well as their SEC chair. But still, Coinbase and probably plenty of players in the space are here for the fight.

Thought Banana

And Then There Was One

In the world’s most expensive arranged marriage in history, two Swiss banking giants finally consummated their marriage on Monday, officially becoming one.

And like any other long-term, happy marriage, this one began with the two keys to a successful relationship: hatred and rules.

The UBS and Credit Suisse merger was a wild one for a plethora of reasons. The speed and scale were more than enough to make headlines, but the real driving force that got even non-financial civilians interested was the fact that these two banks had hated each other for well over 150 years.

“UBS” was officially founded in 1998, but it actually first began in 1852 as the Bank in Winterthur in, you guessed it, Winterthur, Switzerland. Since then, the firm has acquired or merged with ~370 financial institutions (maybe 371 now) to form the modern [current market cap unknown] behemoth.

Just 4 years later, in 1856, Credit Suisse was founded as the Swiss Credit Institution. Both UBS and CS were born during the creation period of the Grossbanken (awesome word, I know) in Switzerland as the nation’s—and the continent’s—development of rail mandated the need for ample credit.

But history is dusty (even though it’s sick), and we only make money on the future. Now, there is no longer a Credit Suisse; as of yesterday, UBS officially brought the death-bed bank under the umbrella.

"Given Credit Suisse’s Gold Medal-worthy history of scandals and crimes (although UBS isn’t exactly innocent itself) ..."

In a not-so-lowkey subtweet of a corporate release, newly minted UBS CEO Sergio Ermotti made it ironclad that “We will never compromise on UBS’s strong culture, conservative risk approach or quality service.”

Given Credit Suisse’s Gold Medal-worthy history of scandals and crimes (although UBS isn’t exactly innocent itself), it’s pretty clear that what he meant to say was, “We’re not f*cking around.”

As part of that, the FT reports UBS has outlined over 20 “redlines” that, presumably, if violated, will get you canned on the spot. These include things like:

• Ban on opening accounts for clients from sensitive countries (places like Russia, Syria, Venezuela, DPRK, etc.)
• Ban of the same kind for Ukrainian officials and state-owned enterprises
• A ban on offering “complex financial products” without approval from a legacy UBS manager
• Requirement for CS employees to obtain UBS employee approval for loans >$60mn backed by personal assets like yachts and real estate

UBS Chairman Colm Kelleher didn’t mince words nearly as much as the CEO, saying straight up that “we are worried about ‘cultural contamination’...” - that’s not even a subtweet; that’s like nailing a letter to someone’s door.

"... after such a big and risky merger that sent UBS shares tanking, shouldn’t they be worried about money?!"

And you may be wondering, after such a big and risky merger that sent UBS shares tanking, shouldn’t they be worried about, I don’t know, money?! Well, the firm has a $10bn loss guarantee worked out with the marriage arranger, the Swiss government.

Today is literally day 2 of the combined Swiss banking institution even existing. Shares in UBS managed to gain mildly on the day, but we’ll see how this one goes going forward.

The big question: Could this effective private-sector bailout be the new strategy for governments when major banks fail rather than direct public bailouts? How will this impact the Swiss, European, and global banking sector, particularly in wealth management, long term?

Banana Brain Teaser

Yesterday —

Surrounded by hills,
I rest on an isle
Known for its castles
And “baggy” music style

I can hide a monster
At least some think
But for what it’s worth
I’m one of nature’s sinks

What am I?

Loch Ness in Scotland.

Today — Each group of three definitions describes three words that are spelled the same, except for one letter (each group describes a different set of words). Example: king, ring, wing.

1a) competition
1b) satisfied
1c) the circumstances surrounding an act or event

2a) to contaminate
2b) to force into something
2c) flea

Shoot us your guesses at [email protected] with the subject line “Banana Brain Teaser”.

Wise Investor Says

“The key to making money in stocks is not to get scared out of them.” — Peter Lynch

Happy Investing,

Patrick & The Daily Peel Team

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