June 23, 2023 | Peel #487

Silver banana goes to...

In this issue of the Peel:

• Overstock.com and Amazon stocks rose, while iRobot and Darden Restaurants dipped.
• The housing market shows mixed signals with new projects popping up amidst high mortgage rates, while existing home sales growth remains slow. The rising rates and low inventory make it challenging for buyers.
• Global inequality is reportedly at its lowest in almost 150 years, led by the rise of India and China. While this is positive for global wealth distribution, it could potentially threaten the US's status.

Market Snapshot

Happy Friday, apes.

Hope you enjoyed your 2nd day of summer as much as the first. Equity markets sure did, albeit not by all too much.

The “unknown unknowns” spooking investors in recent down days seems to have abated for the time being, at least. Risk-on names drove the broad-based rise seen yesterday, with the Nasdaq leading the way with a 0.95% gain.

Treasury yields had a day of their own in the meantime, with investors seemingly rotating out potentially in favor of more risk-on assets. The 2-year surpassed 4.8% while the 10-year surged as well, reaching levels just about 100bps lower at 3.8%.

Let’s get into it.

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Banana Bits

• Powell wasn’t getting out of the hot seat after just one day, of course, heading back to the Hill for the Senate Banking Committee yesterday
• Ahh, the invisible hand at work: high rates take home prices down in May at the fastest clip since 2011
• The tragic ending to the story of the missing submarine that has captivated the internet

Macro Monkey Says

Existing Homes Sales

D-List musician MIMS is really only famous for one line: the immortal bar of “I’m hot cuz I’m fly, you ain’t cuz you not.” Little did he know it, but he was describing the 2023 housing market.

You may be wondering if, in this scenario, the housing market is hot or not. Well, it’s a big market, and according to the additional data we got yesterday, it’s both.

We learned earlier this week that housing starts—or projects targeting sales at least a few months down the line—were popping off.

Builders could very well be taking advantage of the still-elevated prices and overflowing demand present in the market, but with the investments they’re making, they better hope that lasts.

"Builders could very well be taking advantage of the still-elevated prices ..."

Of course, buyers hope the opposite.

Most volume in the housing market is driven by existing home sales, which we just got fresh data on yesterday. Some of what we learned include:

• Existing home sales rose 0.2% monthly throughout May
• Annually, sales were down 20.4% from last May
• Inventory of existing homes grew 3%, or ~3 months’ supply at current turnover rates

While builders are cranking away, homebuyers haven’t begun to budge. Both can largely blame the same trend for this: mortgage rates.

As of June 21st, the average 30-year fixed mortgage rate in the United States sat at 6.73% per the MBA’s weekly survey data.

The combination of low inventory and high rates puts buyers between a rock and their parents’ basement. Low-inventory levels after years of peak buying seen immediately post-pandemic implies the existing homes still available likely aren’t exactly the nicest place to hang your “Home is where the heart is” sign.

"Given the sheer size of the housing market ... as long as this behemoth keeps chugging along ..."

Moreover, low inventories mixed with high, demographically-driven demand makes it a lot harder for rising rates to do their job of pulling prices down.

But the important thing, as always, is to put this into the big picture. Given the sheer size of the housing market as a percentage of the US economy, as long as this behemoth keeps chugging along, JPow and the gang may actually have a runway to softly land on.

Speaking of which, Powell is, of course, back in the congressional hot seat today, going to battle with the Senate Banking Committee. In case you missed it, he’s largely making the same comments as yesterday. Higher rates for longer, two more hikes, monetary policy lags—yada, yada, yada.

Of course, we always recommend tuning in for the inevitable spar with good ol’ MA Senator Lizzy Dubs. Matter of fact, I’m gonna go watch that right now.

What's Ripe

Overstock.com (OSTK) ↑ 17.28% ↑

• Don’t let the name mislead you: based on their actions, it’s clear this website was anything but overstocked.
• Remember that piece of sh*t, Bed Bath & Bankrupt? Well, Overstock.com scooped up the remains yesterday, winning an auction and scooping up the firm’s digital assets and IP for the low, low price of $21.5mn.
• While there wasn’t exactly a clamoring for the assets in question, analysts always love to see companies get a nice discount. We’ll see what they can do.

Amazon (AMZN) ↑ 4.26% ↑

• Just days following the FTC’s right hook to Amazon’s face, shares have surged on a bevy of mixed news that seems to have traders hyped.
• JPMorgan Chase and Loop both reiterated their buy ratings on the stock, driving further optimism as the newly updated outlooks to Amazon Prime and the stock’s potential for multiple expansions.
• Meanwhile, rumors that Amazon is planning to close a deal with a grocery technology provider.

What's Rotten

iRobot (IRBT) ↓ 8.32% ↓

• Speaking of Amazon, they’re also the reason iRobot is getting shafted today.
• What was good news has turned to bad as the EU has begun the dreaded probe process into the bowels of the deal between Amazon and this Roomba maker. I think they make other things too, but the Roomba’s so sick we don’t even care to look.
• This is bound to add a few months to the deal’s process, at the very least, so stay tuned because the fun isn’t over yet. Place your bets now,

Darden Restaurants (DRI) ↓ 2.57% ↓

• Who doesn’t love some Olive Garden? Well, apparently, we all love it a little too much or too little as the Italian chain’s parent company disappoints on earnings.
• Either too many free breadsticks or not enough lobster mac orders were the clear problem, it seems. LongHorn Steakhouse, one of the firm’s other brands, carried the weight for this past quarter.
• And despite the mild success seen, a depressing outlook easily overwhelmed otherwise decent numbers.

Thought Banana

Equality Rises, US Says “Stop”

After years of witnessing wild stunts by the ridiculously rich, like Jeff Bezos’ 10-minute ride to space, Elon’s tunnel-digging adventures, and funding hot piles of trash like WeWork, you might not believe the next sentence you read.

Global inequality currently sits at the lowest level in almost 150 years, according to estimates from Foreign Affairs author and socio-economic researcher Branko Milanovic.

"The Gini coefficient ... seeks to assign a number to global wealth (in)equality."

You may be wondering, “How the hell is that possible?” like I was a couple of minutes ago. But, according to the Gini coefficient, it’s true.

The Gini coefficient (no idea why it’s called that) runs on a scale from 0-100 and seeks to assign a number to global wealth (in)equality. A 0 score is Marx’s dream, where everyone has an exactly equal share, while a 100 is Mansa Musa’s dream, where one person rakes it all in for themselves.

In 2000, the way-too-complicated-sounding Gini coefficient sat at a nice score of 69. In 2018, that figure was pegged at 60. While we don’t have very recently updated figures, the author asserts 2023’s score to be “almost certainly lower.” Just check it out:

Source

Getting a little nerdy with it, as usual—the index is broken down between measures of inter- and intra-national inequality. Or, in English, it measures inequality both between nations and within nations independently of other countries.

The latter half, measuring inequality within national borders, has ticked up a hair to 13 in recent years, according to the report.

The rise of India and China, in particular, have been huge drivers of this trend. Globally, lower-income earners in the US have been rich by global standards for a long time now. In this century, the same is slowly becoming true for those economies as well.

"Globally, lower-income earners in the US have been rich by global standards for a long time now."

While this is an objectively good thing overall, it’s not exactly great for current superpowers. That superpower position comes with and almost mandates economic supremacy relative to other nations, and for the US’s dominant global position, this isn’t an ideal trend.

I guess you win some, and you lose some. People being less poor is again objectively good, and not only because they clearly followed Paris Hilton’s age-old advice to “Stop Being Poor,” but anything comes with a cost. We hope the US can manage.

The big question: Will rising equality threaten the US’s position as the sole global superpower? How long and how rapidly, if at all, will this trend continue?

Banana Brain Teaser

Yesterday — Can you decipher this phrase: “KNOW-IT-NO”?

“No two ways about it.”

Today — Find a familiar English three-letter word using the following information:

1. RED has no common letter with it.
2. END has one common letter, but not in the correct place.
3. TIN has one common letter, in the correct place.
4. TIP has one common letter, not at the correct place.
5. AIR has one common letter, not at the correct place.

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

Wise Investor Says

“Success in investing comes not from being right but from being wrong less often than everyone else.” — Aswath Damodaran

Happy Investing,

Patrick & The Daily Peel Team

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