July 6, 2023 | Peel #495

Silver banana goes to...

In this issue of the Peel:

• The Fed's meeting minutes reveal uncertainty about short-term rate decisions despite the economy moving in the right direction.
• C3.ai and Rivian Automotive stocks are on the rise, with impressive delivery numbers and a growing customer base, respectively. On the other hand, Generac and United Parcel Service experienced declines; Generac’s performance being tied to the weather, and UPS is embroiled in a union dispute.
• Instagram has launched Threads, a competitor to Twitter, and while exact user numbers are not available, Threads has the potential to take over a significant portion of Twitter’s screen time on your phone.

Market Snapshot

Happy Thursday, apes.

Quick question: was yesterday the worst day in the office you’ve ever had, or just close to it? Midweek 4th of July is absolutely brutal. But that’s what we’ll get until Friday, July 4th, 2025, so don’t get too excited yet—just a solid 729 days to go!

Bring us back to the present; equity markets reversed their quiet uptrend on Monday with a quiet downtrend yesterday. Major US indices saw mostly red on the day as the Fed minutes stole the show for the day.

Speaking of which, the Fed minutes also gave fixed-income traders quite a headache. Yields spiked in an early response only to moderate slightly before spiking into the overnight session. Expectations for a 25bps hike at the end of the month crept slightly higher along with USD.

Let’s get into it.

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Banana Bits

• Apparently, there were some haters of the “no hike” move by the Fed last month, but you wouldn’t know it by returns in the equity market since then
• Recent economic data has started to show signs of a potential global slowdown, and commodity prices do not like it one bit
• Speaking of which, orders for goods in the US missed expectations last month, arguably changing them into orders for bads (lmao)
• The battle continues to rage in Eastern Europe

Macro Monkey Says

Take A Minute

Attention all apes looking for a new role: the Fed is hiring. The position? Well, it’s one I’m sure we all have tons of experience in—Professional Vibe Killer.

Oh, wait a minute, I think the position has been filled. Some dude named Jerome “JPow” Powell beat us to the bunch, but I gotta say, the guy’s got the talent for the above role.

JPow wasted no time in showing off just how good he is at killing Mr. Market’s vibe. Yesterday, he and the rest of the FOMC gang got together and dropped some bars from their latest meeting to give us an update on where their heads are at. Before we dive in, let’s take a look at some of our favorite quotes:

• Almost all participants noted…that they judged that additional increases in the target federal funds rate during 2023 would be appropriate
• …participants observed that leaving the target range unchanged at this meeting would allow them more time to assess the economy’s progress toward the Committee’s goals of maximum employment and price stability
• The participants favoring a 25 basis point increase noted that the labor market remained very tight, momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2 percent objective…

"... JPow has to be as long-winded as possible ..."

I know. Those were long, and I’m sorry. Feel free to go take a nap and come back when you’re ready.

Much like just about each and every recent comment from the flaps of the FOMC, the message remained to be “We’re moving in the right direction, but we’re worried if we stop here, we could ruin all our progress, so we are not confident in guiding short-term rate decisions right now.”

Naturally, however, JPow has to be as long-winded as possible, but we’ll take it. As a reminder, the Fed minutes detail conversation and insights from the previous Fed meeting, not really providing a whole lot of new information leading into the next potential rate hike in 20 days.

"... not really providing a whole lot of new information leading into the next potential rate hike in 20 days."

So why does anyone care about the Fed minutes? Well, it’s kind of like when you get dumped: you know the decision right away, but damn, you’d love to have heard the conversation your (former) boyfriend/girlfriend had with their friends beforehand.

And JPow’s remarks are great and all, but this is really analysts’ chance to dive into the discussions, arguments, and justifications driving Fed moves.

Don’t fight the Fed, apes. That quote is becoming almost as close to gospel as “buy low, sell high” at this point…or wait, is it the other way around??

What's Ripe

C3.ai (AI) ↑ 7.04% ↑

• Let’s see what’s going on in AI land today. For one, this pure-play name on the technology, whose >260% YTD rise may rest entirely on the stock’s ticker, is still feeling the love.
• C3.ai is in one of those classic tech stock scenarios where customer growth and name recognition are booming while financials grow at about the same speed and effectiveness as Joe Biden coming up with his own sentence.
• C3.ai’s business model of building out turn-key enterprise AI applications and solutions has certainly seen user success, but this hasn’t necessarily translated to monetization success. Still, with a 334x forward P/E, it seems like the market has cast its vote already. Just wait until it gets weighed.

Rivian Automotive (RIVN) ↑ 4.45% ↑

• Unfortunately for Digiorno, this one is delivery. Only we’re not talking pizza, but wildly expensive EVs.
• Following in Tesla’s $885bn footsteps, fellow EV makers like Rivian also dropped their latest delivery numbers in recent days. Markets that had soured on EVs along with other risk-on names for much of last year were hyped with what they saw.
• Rivian posted 12,640 deliveries vs. the 11,000 the Street had priced in. Meanwhile, fellow “EV company” Nikola (NKLA, +4.38%) shares ripped on beating delivery estimates too. Nikola managed to double its deliveries, which sounds great, but when that number is 66, it kinda loses some steam.
• Either way, the good news rolled for Rivian yesterday as Amazon poured gas on the fire by announcing plans to take the EV startup’s talents across the pond to start being used in Europe.

What's Rotten

Generac (GNRC) ↓ 8.05% ↓

• Being the worst at anything sucks, but someone’s gotta do it. Yesterday, Generac shares took that one for the team by putting up the worst day in the S&P 500.
• There wasn’t a whole lotta news out on this name yesterday, but shares have been on an absolute tear thus far in 2023, so maybe it was time for a little reversion to the mean.
• Unlike most, this company’s primary driver has literally nothing to do with Generac itself: the weather. This thing essentially trades on temperature forecasts across the US, and with this Independence Day being the hottest day ever, we can see why the YTD runup has gone so well.
• That said, could you view this thing as an anti-ESG investment? Given people want their generators more when the weather is sweltering (or ridiculously cold), maybe we just keep the cars running overnight and all pile into Generac. Idk, just an idea,

United Parcel Service (UPS) ↓ 2.07% ↓

• In baseball, you get three strikes before you’re out. When it comes to unions, just one can do plenty of damage.
• That’s exactly the problem with UPS’s stock right now. Right now, the company is beefing heavy with the International Brotherhood of Teamsters, who has already authorized a strike if ongoing negotiations fall through.
• By the way, a teamster (I just learned) is just an old-timey word for truckers or couriers. Safe to say UPS kinda relies on those guys, and despite the CEO’s $19mn in earnings last year, we’re not too sure she can sub in for the teamsters. Stay tuned to this one.

Thought Banana

Lining Up the Troops

Yesterday evening, Instagram launched its brand new, carbon-copy Twitter competitor, Threads.

Sources say Mark Zuckerberg hasn’t had an original thought since he was baked in a college dorm room stealing companies from the Winklevoss twins (allegedly). As a result, stealing from other companies has become their bread and butter.

Stories, Reels, VR Headsets, you name it. If you come up with it, Meta will steal it and, at the very least, try to crush you under their $754bn iron fist.

"... Meta would need a ~20% conversion rate of Instagram users to get on Threads ..."

Based on platform usage, Meta would need a ~20% conversion rate of Instagram users to get on Threads in order to match Twitter’s numbers. Since going public and in the past focusing on monetizable users only, getting monthly active user data on Twitter is tough. Estimates put it at 450mn, just under 20% of Instagram’s 2.35bn MAUs.

Sadly, the numbers may not be exact, but the message remains all too clear: Threads (in theory) shouldn’t have too difficult of a time stealing Twitter’s screen time on your phone.

"... maybe this release from the Zuck is exactly what they were waiting for."

Moreover, high-profile users of each platform are, at least anecdotally, kind of on opposite sides of the political spectrum.

A certain half of the country really seemed to freak tf out when a certain individual paid a certain $44bn check to take over Twitter, so maybe this release from the Zuck is exactly what they were waiting for.

Now we can’t help but wonder. Is Musk / Twitter going to launch an Instagram competitor? I’m sure he’ll make some kind of meme about it at the very least, but maybe their fistfight in the Colosseum will be enough to settle the score.

The big question: How successful will Threads be for Meta, and how damaging for Twitter? Are you downloading Threads? Based on your answer to that, what does that say about your view on Meta shares?

Banana Brain Teaser

Yesterday — In each sentence below, two words are incomplete. The two words end in the same three letters, so they look like they should rhyme, but they don’t. See if you can figure out the missing letters in each sentence.

Example: One symptom of bronchitis is a ro___ co___. (The two words are: rough & cough.)

1. I was in the l___ until I tripped and ended up d___ last.
2. I cr___ the last time I sk___ because I broke a leg.
3. We want to know wh___ book you ch___ for the award.
4. A particular fast car could be called a qu___ Bu___.

Answers:

1. lead, dead
2. cried, skied
3. whose, chose
4. quick, Buick

Today — Look at the letters and figure out what letter replaces the blank.

• ACD
• BEG
• BKM
• COR
• DDH
• LN _

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

Wise Investor Says

“Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.” — Paul Tudor Jones

Happy Investing,

Patrick & The Daily Peel Team

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