Sticky Inflation | The Daily Peel | 10/13/22

Silver Banana goes to...

Market Snapshot

Another month, another report of higher than expected price increases.

The producer-price index showed a slight 0.4% YoY uptick, double the expected 0.2% increase. It’s only a modest gain but still going the wrong direction.

Now you have the likes of Jamie Dimon saying the S&P could crater another 20%. Despite the dour mood, after weeks of punishing gains, markets mostly traded flat Wednesday.

At the close, the Dow ticked down 0.1%, the Nasdaq dropped 0.09%, and the S&P fell 0.33%.

M&A Science is hosting an online two-day intensive course titled, “An Introduction to Financial Modeling” on November 5-6. This course is beneficial for new and experienced practitioners who want to learn and refresh their skills in constructing a circular 3-statement financial model of a public company.
Learn more

Let’s get into it.

Monkey Meme of the Day

Source

Banana Bits

The Treasury Department dinged crypto exchange Bittrex with a $29mn penalty for violating international sanctions
Prime Day 2.0 has been a dud so far, with sales reflecting just another day on the site
If the last time you learned about financial statements was in college, check out M&A Science’s An Introduction to Financial Modeling Course from November 5-6
Pepsi nailed its earnings report yesterday, as it continues to enjoy higher prices across its product lines
American chip makers are pulling out of Chinese facilities after the Commerce Department announced restrictions

Banana Brain Teaser

Yesterday —I have a name, but it isn’t my name. My face shows signs of age. I always mean the same thing, no matter what I say. I’m born in mourning, and I last ’til the end of days. Men plant me, but I never grow. They run from me, but I never move. They look at me and see their future, rotting in the fields where I bloom. What am I?

Tombstone.

Today — It's 100 bananas off the Investment Banking Interview Course for the first 20 correct respondents. LFG!

I can fly but have no wings. I can cry but I have no eyes. Wherever I go, darkness follows me. What am I?

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

Macro Monkey Says

Cracks Are Showing In Fed Ranks — The resolve of the Fed to keep on cranking rates higher has been unbroken, despite a cranky stock market and pleas from the rest of the world to pump the brakes.

But the tone is starting to shift ever so slightly.

Vice Chair Lael Brainard recently wondered aloud about how the combination of prior rate increases, along with the expectation of more to come, will hurt the economy
Prior rate hikes are still working their way through the economy and could reduce inflation significantly by themselves without more hikes
With 300 bps of total hikes since March, the Fed has raised rates at the fastest pace in nearly 50 years

The expectation is that we’ll get another 75-pointer in November. If it’s anything less than that, markets would rip.

Credibility is one of the most valuable things the Fed has, and losing it could mark the end of its effectiveness as an institution. Trust in it was already dented when it repeatedly claimed inflation was transitory.

If it overshoots on rate hikes, the market could start to be wary of its monetary policy moves in the future. It really has to nail this cycle.

M&A Science Academy’s
2-Day Financial Modeling Course

M&A Science is hosting an online two-day intensive course titled, “An Introduction to Financial Modeling” on November 5-6.

This course is beneficial for new and experienced practitioners who want to learn and refresh their skills in constructing a circular 3-statement financial model of a public company. Participants will learn how to leverage the annual report of a publicly traded company to construct a financial model and discounted cash flow analysis, and gain exposure to shortcuts and efficiencies.

Learn more

What's Ripe

Moderna ($MRNA) — Moderna shareholders probably thought the company’s breakthrough vaccine technology would keep shares elevated for years.

It ended up getting slammed along with the rest of the market on the back of rate hikes, and investors have been looking for new growth opportunities.

A new cancer vaccine and partnership with Merck announced Wednesday could be just what it’s looking for.

$MRNA was up 8.28% by the end of the day.

PepsiCo ($PEP) — Inflation doesn’t hurt much when you can pass on all cost increases to your customers.

That’s essentially what Pepsi told investors this week, as consumers ponied up for higher-priced drinks and snacks.

Sales and profit guidance were raised for the balance of the year, sending the stock higher.

$PEP was up 4.18% by the end of the day.

What's Rotten

Nissan Motor ($NSANF) — 1 euro.

That’s how much Nissan sold its Russian business for, booking a $687mn loss in the process.

That will sting for a while, but Nissan’s earnings forecast for the rest of the year was unchanged.

$NSANF ended the day down 7.04%.

Peloton ($PTON) — The dramatic crash and burn continued Wednesday, as an analyst report suggested that website trends didn’t look good in September.

This comes a few days after news that co-founder John Foley levered up on his shares in the company and faced repeated margin calls as the stock plummeted.

If this thing turns around, it’ll be a miracle.

$PTON is down 13.93% in the last month.

Thought Banana

Growing Out of Oil Wealth — If you haven’t seen the renderings of Saudi Arabia’s gargantuan new city plan, “Neom,” you should check it out.

The futuristic project is just the latest venture that the oil-rich state is taking to diversify itself in preparation for oil’s declining importance in world energy markets.

So, is this latest venture just a shiny new toy for its leaders? Or could this mammoth investment actually pay off?

Oil wealth has been a blessing and a curse for many countries
Venezuela has failed to translate its oil endowment into a functioning economy, while Norway has turned it into one of the world’s largest sovereign wealth funds
An economy that depends on one industry is extremely fragile, and transitioning into more diverse industries is necessary for long-term health

Catapulting one’s country from relative poverty to economic abundance is easier said than done since many constraints get in the way.

These include available labor within a country, available land, and a sound “business environment” that includes safe city centers and enforceable contracts.

Between LIV Golf and this megacity project, Saudi Arabia is swinging for the fences with its new ventures.

Will it pay off? Big swings could mean big wins, but huge spending could also draw down oil wealth sooner than expected.

Wise Investor Says

“A great company is not a great investment if you pay too much for the stock.” — Ben Graham

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