Palantir's Big Move | The Daily Peel | 5/9/2023

May 9, 2023 | Peel #457

Market Snapshot

Happy Tuesday, apes.

Thanks to some not-so-bad news and a bullish Buffett this weekend, Mr. Market was able to (mildly) keep Friday’s good vibes going through to the start of this week. We’ll see how that one goes as more data, including April’s CPI out tomorrow, rolls in.

For now, equities were feeling themselves. The tech-heavy Nasdaq saw the largest increase among major U.S. indices while the Dow slacked, thanks largely to strong performance out of the more speculative sectors out there. The S&P still hasn’t been able to break through that damn 4,155 mark, but bulls are sure keeping their fingers crossed.

Treasuries kept up the vibe as well. The 2-year and 10-year yields both continued to slide, with yields rising in lockstep for the two maturities, both gaining 0.08% on the day. Dollar-dollar bills (y’all), in the meantime, fell for most of Monday only to storm higher once international trading got going late in the evening. Do you see how late we stay up for you apes??

Let’s get into it.

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Banana Bits

• Like Mario and Bowser sitting down to settle their differences, Biden and Speaker McCarthy will allegedly hash out the debt ceiling later today
• $3tn and whole lotta farmland later, people are starting to get a little sick of the color green
• Lending reports from yesterday have Fed officials and watchers shook, but markets don’t seem to share in that care (yet)
• Now that we’ve all had a few days to parse through the world’s greatest boomer humor, here’s what the Street is most scared of from Buffett this weekend

Macro Monkey Says

Sleuths Turn to SLOOS

Every once in a while, a normally-obscure data point on the economy becomes of tremendous importance. To kick off this wonderful week, that data point was the SLOOS, or Senior Loan Officer Opinion Survey.

Most traders expected to go right from the SLOOS to the noose, but markets had a different idea in mind. Honestly, it kind of summed up 2023’s trade in a single day’s session.

In the morning hours, markets traded hesitantly higher in anticipation of nasty numbers from this report following 3 of the U.S.’s largest-ever bank failures occurring during the survey period. Then, the numbers dropped, markets sh*t themselves for a sec, then we were right back to the morning’s trepidatious trend.

Like has been occurring all year, we build up the importance and fear around these releases just enough to cause everyone to freak tf out on the release only to realize it ain’t as bad as expected. Let’s just hope that “ain’t as bad as expected” can hold true long-term.

Anyway, yesterday’s SLOOS report was, like others, not as bad as expected. Unlike other economic reports, it’s tough to pull out one number in particular from the Fed’s SLOOS report. But let’s try our best.

• 46.0% of Large and Medium banks reported tightening lending standards for commercial and industrial (C&I) loans
• That figure was 46.7% for small banks
• 62.3% of Large and Medium banks increased the spread on C&I loans, while 58.3% of Small banks did, compared to just 44% and 32% (respectively) in January
• The net percentage of Large and Medium banks reporting higher demand for C&I loans was -55.6%, and -53.3% for small banks

Those are just some of the highlights. 46.7% of small banks reporting tightening lending standards may sound wild, but it’s a marginal increase compared to what was expected from January’s reading of 31.8%.

Further, the dynamics of large and medium banks are fundamentally different than that of small banks. Since they carry massive balance sheets and endless demand for, well, money, they often don’t have to compete as hard with the interest rates they issue on originated loans, hence allowing the higher degree of spread increases, for example.

Regardless, small, medium, and large banks all expect to continue tightening lending standards over the next year. Citing expected slowing GDP growth and wary deposit dynamics, loan officers simply can’t have the confidence in their borrowers now that they did last year. Maybe they should just hit the gym instead. That’s always a good confidence boost.

To sum it up, tighter lending standards and weaker demand for those tighter loans was the story of the day. The slowdown in loan growth is arguably the primary concern, however, and directly speaks to the reaction of small and medium-sized businesses to JPow’s nuclear rate hikes.

And, (un)ironically, that lending tightening is exactly what Fed economists fear in their coin-flip expectations of a possible 2023 recession. Idk apes. Just keep your fingers crossed.

What's Ripe

Zscaler ($ZS) ↑ 20.63% ↑

• The bulls were waiting for any excuse on this one. Without even dropping their actual earnings, shares in cloud security co Zscaler zoomed higher on preliminary earnings data, bringing the stock from down 18.8% to down just 2.1% for the year.
• In March, Zscaler was a little too honest with guidance for slowing orders from large customers, but apparently, being honest does work out in the long run (sometimes).
• Yesterday, the firm stated that expected earnings, revenue, and guidance would all come in ahead of expectations and what management had previously issued for 2023’s full-year expectations. We won’t talk about the numbers until they’re “real,” but needless to say, we’re excited.

Six Flags Entertainment ($SIX) ↑ 18.71% ↑

• All this talk about red flag this and that online lately is getting out of hand. The only flag we investors care about is, well, 6 of them.
• And on Monday, traders really cared about these 6 apparent green flags. Shares in the $2.2bn amusement park operator ripped on the back of a jacked-up earnings report that just got done shooting horse steroids. Despite a 5% decline in attendance, an increase in guest spending and ticket prices (looking at you, inflation) drove the 3% top line growth needed to beat expectations.
• EPS losses of $0.84/sh widened from last year but still came in line with guesstimates. Despite a “looming” recession, it looks like fun remains in a bull market.

What's Rotten

Catalent ($CTLT) ↓ 25.74% ↓

• Oof. One of the most boring companies in the world had anything but a boring day to kick off the week, and shareholders couldn’t regret it anymore.
• Maybe boring is good? That’s what Buffett says, but he’s probably never even heard of $PEPE coin, so wtf could he know? Still, Catalent wishes they had some boredom after the firm yesterday issued guidance expecting $400mn less in top line sales for the year while delaying the release of quarterly numbers.
• That’s two very not-good things at once right there for anyone that’s counting. A guidance trim can be tolerable, but with $400mn being almost 10% of 2022’s revenue, it’s no secret why this got ugly fast.

Tyson Foods ($TSN) ↓ 16.41% ↓

• Y’all gotta start eating some more protein. Not only for your own health but for the health of factory farming giant Tyson Foods and its poor, sweet shareholders.
• This lack of protein-eating-apes showed all too clearly in Tyson’s latest earnings report. The meat slinger is going through a lot rn, including declining chicken prices, weak pork demand, and a shortage of cows. Naturally, this led shares to one of their worst-ever days and brought the stock’s 1-year return to a 45% loss.
• Analysts had been expecting Tyson to pull $0.79/sh on $13.1bn. Although they got just about to their sales target, the $0.04/sh EPS reported drove the market’s vomitous response.
• If that wasn’t enough, management also shot guidance in the head, kind of like what they do to their cows and chickens. Moral of the story: eat your protein, and your portfolio will eat your profits.

Thought Banana

Hot Cuz I’m Fly

Following on the heels of one massive tech bubble (looking at you, crypto) is the hottest tech trend since the invention of the steam engine, printing press, and maybe even agriculture or fire.

Artificial intelligence has been covered wall to wall since the release of OpenAI’s ChatGPT, but the thing is, unlike digital currencies, we’re talking about actual things that are happening – not just ideas and “but blockchain fixes this” tweets.

Clearly, the intelligence powering the digital currency trade was undeniably artificial. But although that hype wasn’t real (looking at you, Dogecoin), the hype around AI might actually be smart.

Yesterday, we got some (additional) major news from a could-be-key player in the space going forward following some wild announcements from the weekend.

Palantir, the big data/defense firm whose name sounds oddly similar to one of its founders Peter Thiel. Revenue and EPS both beat mildly, but honestly, most analysts probably expected a beat after the performance of similarly economically exposed stocks earlier this earnings szn. The real surprise was wildly upbeat guidance with one thing in focus.

Palantir announced intentions to start to essentially license out LLM technology, that of which is behind ChatGPT and the other know-it-all chatbots out there, to individual companies, allowing firms to have what sound like basically company-specific ChatGPTs.

You know, all those times that you have to run to your manager or operations team with a question about what form goes where or how the client needs to sign your documentation? Yeah, never again with this tech, it sounds like.

But that announcement wasn’t the only AI news in recent days to shock the world. These updates are happening so fast they are starting to appear as just run-of-the-mill software updates like the ones Apple seems to have on never-ending mode for iOS, but it’s a whole lot different. To highlight some highlights:

• Google’s “Godfather of AI,” Geoffrey Hinton, resigned so that he could openly sh*t on AI and expose the dangers without bias
• Former Secretary of State and National Security Advisor (under Nixon and Ford) Henry Kissinger warned of an AI “arms race”
• Google announced that it would announce features that seriously step its game up this week, with advancements to Bard and Search as well as the release of a new LLM that is somehow different than the others (I guess?) called PaLM 2
• OpenAI partnered with Figure to develop an even more terrifying AI bot than the Tesla and Boston Dynamics bots

And that’s just some of the big names. Small, nimble players like Midjourney and this dude McKay Wrigley crank out seemingly groundbreaking tech on an hourly basis, so scrolling through their Twitter feeds might be worthwhile.

Keep your eyes peeled here, apes. No one wants to miss this wave.

The big question: How far will AI go? Will we as a species live long enough to see the full extent of AI? How long until OpenAI’s robots team up with Tesla and Boston Dynamics to take over the world?

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Wise Investor Says

“Invest for the long haul. Don’t get too greedy, and don’t get too scared.” — Shelby M.C. Davis

Happy Investing,

Patrick & The Daily Peel Team

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