Slow Flow | The Daily Peel | 8/5/22

Market Snapshot

Futures started yesterday marginally higher. Treasuries have rebounded significantly since Monday, gaining back about 25 basis points. Gasoline demand is lower than during the summer of 2020, and we saw an eight-handle in the price of WTI Crude for the first time in a long while.

Your favorite DeFi benchmarks are still depressed, and the ten-year closed below 2.7% as jobless claims increased.

At the end of the day, the Dow lost 0.26%, and the S&P lost 0.08%. The Nasdaq, our lone winner, was up 0.41%.

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Banana Bits

  • Sometimes having a solid mentor can be the difference between a promotion or burnout
  • Europeans are cutting back on energy consumption in preparation for what could be a long winter
  • Pelosi's Asia Trip puts Taiwan Semi right back in the spotlight
  • Technology is ubiquitous, and these formerly conjoined twins in Brazil have it to thank for a successful, life-altering surgery

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Macro Monkey Says

Deal, or No Deal? - Frankly, looking at this year's trends, the answer, flat out, is No Deal.

What I mean is this: deal flow has been painfully slow-Bowser's acceleration in the original N64 Mario Kart kind of slow.

According to the data, IPO issuance has absolutely cratered, down 95% through the beginning of this month. Sure, the number is still around $5Bn, but this is nothing compared to the IPO szn that we saw during the bull days of the pandemic.

What does this mean for you? Well, if you're a finance pro or an aspiring finance pro, just know that the bonus pool ain't gonna be what it used to be. Investment bankers that work in this space will likely see bonuses that are slashed by up to 50%.

Two things here are noteworthy.

  1. It's a real oddity that bonuses are going to be slashed and that business is super slow in a year following what was by many metrics the best year in the history of banking.
  2. While some might scoff at the sob story, compensation across the industry is declining at the same time as inflation gobbles up a good chunk of our paychecks.

Such a change of pace after a raging bull market for equity issuance, SPACs, and IPOs is remarkable; rarely do we see actuations in the spigot that is deal flow that go from full on to full off so rapidly.

This is clearly attributable to a tougher macroeconomic environment, with rising interest rates and slowing growth dissuading many companies from pursuing the help of investment bankers as part of a fundraising strategy.

On my second point, I'd argue that inflation is still a concern for mostly young dudes and dudettes, statistically speaking, who work in finance.

Manhattan is the center of the finance world; have you looked at the price of anything here lately? Try buying milk and eggs at a bodega, and you're out like $12 for something that costs $6 in a flyover state.

I could write an entire edition of The Daily Peel about rent prices here. For roughly $80k of pre-tax income, you can get a broom closet in Tribeca.

Think about that. It takes like $80k of pre-tax income to afford a $4,500/month apartment that keeps commute within the realm of reasonableness, especially considering the long, late, and weekend hours analysts have to keep.

My point is this: if the younger generation of analysts and associates aren't well taken care of, they will leave the industry. When talent leaves the industry, we end up with a lower caliber talent pool to pick from to lead the financial system. That's a bad thing.

This is true of any industry; if the quality of life, or at least the appearance of being valued, does not exist, folks will pursue fulfillment elsewhere.

Is one bad bonus szn going to doom the future of our industry? Probably not. But if a generation of future leaders feels taken advantage of, a talent exodus could indeed be on the horizon. Not predicting this, but stranger things have happened.


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What's Ripe

Mercadolibre ($MELI) - South American payments and e-commerce platform Mercadolibre reported a massive earnings surprise to the upside, sending shares significantly higher yesterday

In a world that is slowing down, $MELI delivered solid growth across a slew of metrics, showing the Street that it isn't ready to slow down.

On the news, shares ripped higher by 16.16%.

Coinbase ($COIN) - Coinbase was through the roof yesterday after the announcement that it would partner with BlackRock to offer DeFi assets as investment opportunities for institutional investors.

Mind you, BlackRock is the largest asset management firm in the world. This will open a slew of doors to Coinbase in the long run. If they don't work out, $COIN might collapse. But for now, it's good news.

This sent shares ripping. They closed up only 10.01% after flirting with a 33% gain earlier in the trading session.

Ironically, this is on the heels of a fat 75% loss for Cathie Wood after she sold a whole truckload of $COIN at a massive loss. Better luck next time, Cathie.


What's Rotten

SiTime ($SITM) - Shares of $SITM got kicked in the teeth yesterday after crappy guidance. Sure, they posted both top and bottom line beats, but the news of the day for them is that the economy is slowing, and so is their business.

This negative revision in their guidance was not what Wall Street was looking for. At the end of the day, $SITM was down 34.90%.

Ball Corp ($BALL) - Sometimes, you lose money and your stock can still rip. Take Amazon, for example. They declared a little bit of a loss this quarter, and their shares moved from $120 to $140 in a hurry.

$BALL is the opposite of this. After posting a loss and complaining about a slowing economy as well as capital spending cuts, shares fell 18.58%.

This sounds like you'd expect it, but it turns out that their peers are beefing up capex. Not only are they not making any money, but they're also lagging the market when it comes to investment. Yikes.


Thought Banana

Who Takes the Credit? - We all like to giggle at the confusion amongst Joey B and Co. over the definition of a recession. Another running joke is the current price of gas.

Sure, the price of gas has fallen for almost two months straight. We are approaching $4 per gallon across the nation. Does this make me feel good if I am still paying $5.50 in California? Absolutely not, but I digress.

The White House and many of its mouthpieces have even begun to take a victory lap for all of their efforts in reducing the price of gas.

I'll say this: releasing a tiny fraction of daily global supply from the strategic petroleum reserve does not move the needle on satisfying global demand. This is particularly true with literally millions of barrels per day of Russian black gold labeled as toxic, introducing a supply-side wedge into the global commodity market.

Another interesting factoid is that gas prices have reached such a high point that demand for it has sputtered, even compared to the summer of 2020.

During the first summer of the pandemic, we were locked down and told that we were safer at home. So what did we do? We didn't drive; therefore, we never had to fill up.

Just a quick question: how come when gas prices were on the rise, Joey B adamantly declared that he didn't have a button in the oval that controlled gas prices? Why did the administration vehemently blame Putin and his Price Hike because of the war in Ukraine, arguing that the US was more or less powerless to stifle the rise in prices, but when prices start to trend towards the mean, it's all of a sudden time to take some credit?

In a recently reported AAA survey, two-thirds of American adults have altered their driving habits in light of higher gas prices. These new habits include driving less or combining trips and errands into single drives.

Drivers have actually cut back on demand for gasoline by between five and ten percent because they literally cannot afford to turn their cars on. Ironically, when you look at this in terms of barrels per day, this is about a million barrels per day of oil reduction in demand, equal to roughly the same amount of SPR being released on the daily.

I'd also argue that oil consumption globally is going to decline in the coming months, further reducing gas prices. With a recession on the horizon for Europe as well as one that will get worse here in the States, energy demand is going to naturally slow.

How low will they go? I don't know; I don't play limbo with gas prices. We are all waiting for a little reprieve at the pump.


Wise Investor Says

"At heart, 'uncertainty' and 'investing' are synonyms." - Benjamin Graham



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