June 21, 2023 | Peel #485

Silver banana goes to...

In this issue of the Peel:

• There's a hint of skepticism around the unexpectedly high U.S. housing starts, with some attributing it to regional phenomena.
• Builders FirstSource and Tesla performed well yesterday, with BLDR gaining on housing start trends and TSLA benefiting from a recent partnership with Rivian. On the other hand, Lemonade and Alibaba had a disappointing performance, with Lemonade's future profitability in question and Alibaba's leadership shake-up causing concern.
• Reddit's recent changes, involving charging certain third-party app developers for API access, have stirred controversy. Over 80% of the top 5,000 subreddits have gone into blackout in protest.

Market Snapshot

Happy Wednesday, apes.

We’d like to say it was a happy Tuesday, but after asking Mr. Market, Reddit moderators, and those people stuck in that submarine, you’d be hard-pressed to make that argument. Anyway, we’re still here, so let’s see how this 24hr period goes.

For equity markets, they’re not exactly coming into the day on a high note. After a few days of bottle poppin’ and no-stock-droppin’, the tides have turned at the close of last and start of this week. What many are now calling the “worry rally” may have run its course, according to traders everywhere reducing their equity exposure given recent upswings.

Bull markets are often said to “climb a wall of worry” right up until people start calling for a bubble, so take it as you will.

Treasuries, on the other hand, saw a more moderate session. The 2- and the 10-year yields both fell, but barely. And in case you forgot, yes, in fact, they are still wildly inverted. Anyway.

Let’s get into it.

The Smartest Person in the Room

From mastering the concepts behind AI to navigating a sea of data, Brilliant helps you stay one step ahead of the pack.

They have thousands of bite-size, interactive lessons on everything from math and logic to data science and programming that make it easy to level up in just 15 minutes a day. Brilliant's highly-visual, first-principles approach makes even complex topics feel insanely understandable. Plus, hands-on problem solving keeps you engaged, so it’s easy to build a daily habit.

Try Brilliant for zero bananas for a full 30 days. Plus, Daily Peel readers will get a surprise when they click through.

Banana Bits

• Wall Street rotates from JPow to JYell, and it’s just what the treasury market ordered
• A bro-down between the leaders of the world’s largest democracies is set to begin Thursday as Big Daw Biden and India’s own Big Dawg Modi are set to meet
• Oh no. The $100bn man that’s fueled the likes of WeWork, Zume’s pizza-making robots, and even compared himself to literally Jesus Christ is back in the game as SoftBank sets its sights on AI
• The absolute nightmare scenario going on deep under the Atlantic right now is still raging. Prayers to those people involved and their families

Macro Monkey Says

Oprah’s Housing Starts

Many of you have no doubt heard about the U.S. government’s free lighthouse giveaway, but just like that push along with moves like Oprah giving away cars to anyone with a pulse, the U.S. housing market may be headed in a similar direction.

Well, the median sales price of an existing home in the U.S. is still approximately $388k away from $0, but still getting closer!

Nevertheless, nothing drives down prices like supply. And in May, the U.S. housing supply, as measured by groundbreaking on new single-family homes, hit a 33-year high. According to the Census Bureau:

• May saw a 291k increase in starts, the largest since January 1990
• That’s a 21.7% jump, the largest since October 2016
• Annual growth in starts was +16% in every U.S. region except the North East
• Growth in apartment building starts (5 or more units) grew almost 39.6% annually and 28.1% monthly and
• Homebuilder sentiment measured by the Wells Fargo Housing Market Index is up 77% since December (not the Census Bureau but f*ck it, this isn’t for a grade)

"Basically, they’re calling cap on the Census Bureau ..."

And those were just some of the highlights of the report. In fact, the rebound in U.S. housing starts was so stark that some, if not most, economists simply don’t believe what their eyes are seeing.

One Wall Street bank economist called the data “so far off trend that it calls substantially into question.” Another was even nerdier with his critique and quipped that “housing starts data tend to be volatile, and this figure may be revised down in coming months.”

Basically, they’re calling cap on the Census Bureau, if that wasn’t obvious enough. The idea is that numbers were so good and so against recent trends that minor, regional situations have to be considered.

For example, another nerd—excuse me—*economist reminded us that a brutal tornado season seen in the midwest has spurred a need for new construction, a phenomenon that can’t (and for the apes in the midwest shouldn’t) be relied upon for future support.

Nevertheless, the sheer magnitude of the change, the Fed’s decision to pause rate hikes, and the sheer acceleration of sentiment among homebuilders tell us there’s something new in the water.

"... breathed life into a sector that has seen the average interest rate on their products nearly double in just over a year."

Even though credit conditions continue to tighten given an adjustment of expectations to higher rates for longer, along with the lagged effect of those existing rate hikes barely having worked their way through the economy, JPow’s Pause appears to have breathed life into a sector that has seen the average interest rate on their products nearly double in just over a year.

And, as always, we’ll save the best news for last.

While we don’t have the hard data to confirm yet, the two key ingredients in knocking down the price of any asset are 1) higher discount rates and 2) increased supply. We already know the mortgage market has seen its fair share of #1 above in the past year, but it looks like #2 might be getting in the mix as well.

For all you millennials desperately trying to not be homeless once your lease ends, things may have just gotten a little easier to drop that down payment. Best of luck, apes.

What's Ripe

Builders FirstSource (BLDR) ↑ 4.41% ↑

• Allow us a second to take a bow on this one. Since our in-house Warren Buffett first snagged some BLDR on 6/25/2021 (happy early 2-year anniversary), shares are up well over 180%. The S&P in that time? 2.52%. Do your own research, of course, but maybe let us help out with that.
• Okay, gloating aside, Builders FirstSource had one hell of a day (for a $16bn homebuilder/grandpas stock), gaining almost 4.5% pretty much entirely on [see Macro Monkey].
• ‘Nuff said. Homes to the moon, but hopefully just their stock prices, not the actual ones for us youngins out here.

Tesla (TSLA) ↑ 5.34% ↑

• Speaking of recent successes from our in-house Buffett and the WSO / Berkshire collab (jk, calm down), Tesla has been winning for us, and hopefully you, for quite a while.
• Shares surged even further yesterday, once again riding the wave of some good news around those far-too-sparse EV chargers.
• After a deal announced yesterday, the two most memed and maybe most traded EV stocks of all joined hands and gained over 5% together. Rivian is signed up for Tesla’s SuperCharger network and is gonna be ready to “fuel” up (can we still say that?) in 2024.
• Shareholders in both camps loved it. More partnerships to come, maybe?

What's Rotten

Lemonade (LMND) ↓ 7.97% ↓

• So, we know what to do when life gives us lemons, obviously. But what do we do when life gives us Lemonade? Sell it, apparently—at least, that’s what traders said on Tuesday.
• The start to this 4-day trading week was not kind to Lemonade as shares took a nearly 8% tumble on shade being thrown from Morgan Stanley. Analysts at MS now price the fair value of LMND at $14, an implied expected return of -22.8% from yesterday’s close.
• MS cited a shaky path to profitability, a (somehow) still pricey valuation, and all around non-compelling risk-reward tradeoff. Okay, now let’s say all the nice things we think about the stock: ...

Alibaba (BABA) ↓ 4.53% ↓

• Alibaba is trying to take apart a massive ship in the middle of the water and still keep the thing afloat. Let’s just hope it’s nothing like a certain ship from 1912 that a certain submarine is still (allegedly) exploring.
• As part of the Chinese Amazon-like conglomerate’s plans to restructure into 6 separate business units, Alibaba has announced plans to shake up its leadership at the very top.
• Current CEO Daniel Zhang will be stepping down from the top slot and replaced by Eddie Wu, a co-founder of whom markets apparently aren’t big fans.
• It’s exactly this vote of (lacking) confidence that a new CEO hates to see but probably gives the old CEO a big ol’ smile on their way out the door. Let’s just enjoy it while it lasts.

Thought Banana

Have You Read It?

You know, the big changes going on at Reddit? So, have you read it?

Well, if not, fear not—we got you (as always).

Most of you likely got your introduction to Reddit when r/WallStreetBets became the world’s leading hedge fund and Bloomberg left actual airtime to explain meme lingo on the subreddit (sorry, that’s the best video I could find after a ~4min search).

But you get the point. Then, Reddit was all over the financial news and largely praised by retail traders for being a platform for the people. Now, the app is in the news for the exact opposite reason.

On June 8, 2023, Reddit co-founder and CEO Steve Huffman (aka “spez”) announced plans for the platform to begin charging certain third-party app developers for access to Reddit’s APIs (the tech bullsh*ts used to scrape data from a given site).

Huffman and Reddit claim the move is to create a “more sustainable business model” in addition to their ad sales platform as the app prepares for a long-awaited IPO (ideally) later this year. Now, Reddit has pissed off the group their business arguably relies on the most: the moderators (or “mods”).

"Huffman and Reddit claim the move is to create a “more sustainable business model” in addition to their ad sales platform ..."

The mods tend to be those power users that often rely on 3rd-party sites to browse the app. The role of the moderators is basically to manage their own specific subreddits or particular pages on the website focused on a specific topic, such as r/WallStreetBets, r/History, and our personal favorite, r/Aww.

Mods, who are unpaid and do it simply for the love of the game, enforce the community guidelines specific to their subreddit, basically doing all of Reddit’s work for them, including filtering out spam and other mundane tasks.

"Now, over 80% of Reddit’s top 5,000 subreddits by daily active users have gone full-blackout or partial blackout."

Now, over 80% of Reddit’s top 5,000 subreddits by daily active users have gone full-blackout or partial blackout. Meaning some are no longer allowing new users of posts in their forums (full blackout) while others have updated and memeified their rules, such as r/Aww limiting posts to content that involves John Oliver (aka John “Awwliver”).

It’s a battle for the ages and a standoff on par with that guy and that tank on that day when absolutely nothing happened in T. Square in ‘89.

Reddit isn’t backing down, but given the site’s reliance on users to create the content that then subsequently drives more usage, Huffman and his posse are caught between a keyboard and a hard place.

The big question: Who is going to win the epic Reddit Standoff of 2023? How will this move and the end result impact other businesses reliant on user-generated content?

Banana Brain Teaser

Yesterday — Unscramble the words below, then take the letters from each word as instructed to form another word that is the answer to this teaser:

• AXRET Take letters 1 & 4
• MBGHUU Take letters 1 & 3
• ENCLAC Take letters 1 & 2
• NIILST Take letter 5

Unscramble the letters you collected. What do you get?

Answer:

• AXRET, take letters 1 & 4: EXTRA, take E R
• MBGHUU, take letters 1 & 3: HUMBUG, take H M
• ENCLAC, take letters 1 & 2: CANCEL, take C A
• NIILST, take letter 5: INSTIL, take I

Unscramble the above letters to get CHIMERA.

Today — The following sentences have two blanks that can be filled with two words that are anagrams of each other. Please find those words.

1. Marcus had to take his telescope to a __________ location so he could watch the __________ showers back in June.
2. The jazz fest was made up __________ of adults over 30. On the other side of the fairgrounds, the art __________ had people from 8 to 88.
3. The anxious patient in the doctor's office was __________ that so little time had __________ between his appointment time and the time he was actually seen.

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

Wise Investor Says

“Investing without research is like playing stud poker and never looking at the cards.” — Peter Lynch

Happy Investing,

Patrick & The Daily Peel Team

Was this email forwarded to you? Be smart like your friend.

ADVERTISE // WSO ALPHA // COURSES // LEGAL