Planes, Pains, and No Gains | The Daily Peel | 4/27/2023

Apr 27, 2023 | Peel #449

Silver banana goes to...

Market Snapshot

Happy Thursday, apes.

Talk about carrying the team on your back. Big names like Microsoft, Nvidia, AMD, and Amazon basically deadlifted the Nasdaq yesterday, pulling the index to a slightly positive return on the day, while the Dow and S&P simply could not hang.

The red was abundant, but the magnitude was hardly there, leading equities to another boring stumble.

Not missing out on the boringness, treasury yields were relatively unexciting at the same time. They mostly rose, with a spike and fall here and there, but mostly bounced around aimlessly. Again, uncertainty on full display.

Let’s get into it.

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Banana Bits

• In a waste of time for just about everyone, House Republicans passed a bill to raise the debt ceiling, dripping in demanded spending concessions the Senate and White House will never sign
• Amazon continues its internal gutting with a focus on HR and cloud
• We’ve said it before, and we’ll say it again: don’t f*ck with the Mouse. Now, Ron Desantis is finding out as the Florida Governor get hit with a suit from Disney
• Crude oil and gasoline inventories declined among higher demand across the US.

Macro Monkey Says

Rate Sensitives Change Incentives

Does that rhyme? Tried my best. But please feel free to debate this passionately.

Anyway, yesterday blessed us with further economic releases from the Commerce Department and others. Some of the big numbers reported for the day are particularly rate-sensitive, too, giving us as good a view as any into JPow’s now way-more-expensive economy.

For starters, the Mortgage Bankers Association (another respectless ‘MBA’ acronym) dropped figures on mortgage rates and demand, showing a jump in average 30-year fixed contracts from 6.43% to 6.55%.

But it wouldn’t stop homebuyers. For the same week, mortgage applications rose 3.7% overall and 5% for single homes, indicating less rate sensitivity than the past might suggest. At the same time, homebuyers could be trying to get the contract signed before the Fed raises again next week, but do consumers really track JPow’s moves like us psychos do?

Meanwhile, manufacturing saw as minor of an uptick as you’ve ever seen, but an uptick nonetheless. Durable goods orders increased by 3.2%, thanks primarily to Boeing supplying orders for new passenger planes, up almost 80% for the month.

For other major purchases, like cars and trucks, the figures were essentially flat in March. Excluding these bank-breakers, durable goods-ex-cars-and-trucks came up 0.3%, barely anything to sneeze at.

Planes really f*cked the data last month as we have to adjust across every metric, but the fact that demand is there for these bank-breaking buys shows some big dollar demand remains. It’s not good news, despite what it may seem at first glance, but it isn’t terrible either. This should really help clear up all that confusion in markets.

Expectations for no rate hike next week increased in yesterday’s session, per CME’s sick reading. The combination of rising mortgage rates, rising mortgage applications, mid-manufacturing orders, and a decrease in tightening expectations is a cocktail Mr. Market doesn’t often drink, and it sure sounds like one that could make him blackout.

We have exactly 6 days before JPow and Co. significantly bring down the average attractiveness levels of people on CNBC for a bit; maybe the only people in the world that could do such a thing.

Place your bets now.

What's Ripe

Chipotle Mexican Grill ($CMG) ↑ 12.53% ↑

• Did somebody say all-time high? And no, we’re not just talking about your mental state when you last ate their food.
• Not many stocks are making all-time highs these days, but Chipotle sure is. Burritos and Bowls are the new iPhones and cloud computing as EPS of $10.50 dominated expectations of $8.92 while revenue beat too on +17% annual growth.
• Customers are addicted to the chicken al pastor, as the product is set to be the company’s “most popular limited-time protein option ever,” which is apparently a huge deal. Meanwhile, prices have gained an average of 10% since last year, double last month’s annual consumer inflation rate.
• Serving a wealthier client base than the average competitor will help with that. Not only are fast-food / QSR-style restaurants considered defensive plays, but being on the luxury end is an extra layer of armor.

Microsoft ($MSFT) ↑ 7.24% ↑

• Yesterday, Microsoft added the market cap equivalent of Wells Fargo yesterday, ~$150bn. Meanwhile, its intended, half-that-size acquisition of Activision Blizzard faced the equivalent of dad saying no after mom already said yes.
• We talked about the firm’s newly released earnings reports yesterday, but today was confirmation that the numbers were truly next level. In fact, they were so good that the market barely blinked despite the firm’s biggest move in decades getting thrown down the garbage disposal yesterday.
• The UK’s Competition and Markets Authority, aka the British FTC, said yesterday it would block the deal on the grounds that the combination of ATVI’s game title popularity combined with Microsoft’s cloud network would easily allow the two to corner a brand new market.
• And while not a single Microsoft shareholder cared, with analysts calling the gaming company a “nice to have, not a must-have” for the tech giant, Activision Blizzard’s 11.45% cliff dive had something else to say.

What's Rotten

First Republic ($FRC) ↓ 29.75% ↓

• Joining the party that Bed, Bath, and Bankrupt started just a few days ago may soon be San Fran-based First Republic. The bank that had the 3rd highest percentage of uninsured deposits In February, behind great role models like SVB and Signature, is now on the brink of bankruptcy.
• When last quarter’s $100bn in gross deposit flight was revealed, investors and potentially (presumably) depositors ran for cover.
• The bank’s management is scrambling for a rescue package. But, larger banks are hesitant to provide another massive package, like the previous $30bn one it received, without FDIC or any other federal backing.
• Stay close to the headlines, like everything else that’s important; it’ll probably come down to the wire. This thing could collapse any minute, but a rescue package could be announced just as quickly. With a P/E of 0.76, it could be a deep-value play.

Enphase Energy ($ENPH) ↓ 25.73% ↓

• Well, solar stocks had to learn the hard way yesterday that it turns out the sun don’t always shine. (Good one, right?)
• Enphase got it the worst, reporting horrific earnings with a stark warning about declining US demand was simply not the vibe for Mr. Market yesterday. Rate hikes and state policy changes in California specifically have been kicking demand’s *ss, leading investors to close the shades.
• Enphase wasn’t alone. Companion sunny stocks Sunrun (-9.0%) and Solaredge (-10.4%) ate dust too.

Thought Banana

Digital Bads

As the world begins to realize what an embarrassment Meta’s whole rebrand around the metaverse is turning out to be, shares got a warm welcome from after-hours traders yesterday on the back of the firm’s latest earnings report.

Chinese retailers played wingman for the quarter, with the reopening of the world’s second-largest economy securing the bag.

2023 has been kind to Meta shareholders. Shares have posted gains of nearly 70% this year alone, and yesterday’s beat on the top and bottom line will only help from here. The firm raked in $2.20/sh on $28.65bn in revenue, while analysts had only anticipated $2.03/sh on $27.65bn.

When developed economies slow, digital advertising grinds to a halt. It’s one of the first things companies cut spending on, so naturally, the past year hasn’t been kind to FB and others who almost exclusively rely on this stuff.

Daily active users across all platforms remained more populated than China and the US combined (by a lot) at 2.04bn. Sadly, monthly active users came up just short of 3bn, hovering at ~37.375% of all humans on Earth.

What really got analysts going was the increase in ARPU, or average revenue per user – basically how much money they squeeze out of you. Adding fuel to that flame was the 3% growth in sales, the first time revenue has increased for a quarter in the last reports.

Zuckerberg’s forays into the metaverse continue to bleed, however, posting an operating loss of $4bn on sales of just under $400mn for the unit. Throughout the call, execs were questioned on investments in this business unit while AI dominates everything from the classroom to sh*tposts on Twitter. They’re still big on AI, no doubt, but it’s kinda obvious why shareholders would have concerns.

Zuck and the gang are fairly optimistic, and if the after-market activities continue into tomorrow, it’ll be clear investors agree. The only question can be whether it continues.

The big question: Can Meta’s return to sales growth continue for the long term? Will these investments in the metaverse ever payoff? How far behind OpenAI and others is Meta?

Banana Brain Teaser

Yesterday — What is higher without a head than with it?

A pillow.

Today — It’s 150 bananas off the Private Equity Master Package for the first 3 correct respondents. LFG!

There is a low railroad bridge in your town. One day you see a large truck stopped just before the underpass. When you ask what has happened, the driver tells you that his truck is one inch higher than the indicated height of the opening. This is the only road to his destination. What can he do to get through the underpass the easiest way?

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

Wise Investor Says

“You can only calculate expected returns. You cannot calculate expected risks.” — Nassim Taleb

Happy Investing,

Patrick & The Daily Peel Team

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