June 8, 2023 | Peel #477

Silver banana goes to...

In this issue of the Peel:

• JP Morgan anticipates borrowings will reach at least $1.1tn by the end of 2023.
• Icahn Enterprises and GameStop saw significant increases in shares. However, tech giants Amazon and Alphabet, as well as Campbell’s Soup, had disappointing performances.
• Soccer legend Lionel Messi is joining the US MLS with Inter Miami, already driving up ticket prices.

Market Snapshot

Happy Thursday, apes.

And happy eve to the nicest day of the year, conveniently letting itself be celebrated on a Friday this year. Hopefully, markets will be celebrating with us by then.

Sadly, the celebrations yesterday were few and far between. US indices broadly diverged yesterday as exposure to large-cap tech, usually a winning lottery ticket, weighed heavily on portfolios on Wednesday. The price-weighted (insane) Dow gained 0.27%, while the market-cap-weighted Nasdaq sank 1.29%.

Treasuries, meanwhile, chilled the hell out for a little bit. The 2- and 10-year yields both moved within an 8bps range as traders eye JPow and the gang’s meeting next week. USD was on a similar vibe, moving only mildly on the day.

Let’s get into it.

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Banana Bits

• Like when they burned the White House during the War of 1812, another fire started by Canadians is really bugging the Americans
• A massive dam erupted in the heart of battle in Ukraine recently, changing the dynamics of the ongoing fighting; those who saw the burst could only say, “Well, damn.”
• In yet another baby step towards WWIII, the US and Japan are teaming up Taiwan to optimize and share data across their respective drone network
• All-out war is also ensuing in the world of DeFi as Coinbase fires back at the SEC and Gary Gensler in a legendary battle

Macro Monkey Says

Shockwaves & Shock Rates

Alright, your multi-day breath of relief is over. Yes, our brilliant government overlords managed to avoid an entirely self-inflicted financial disaster (for now), but just because our debt obligations have been certified valid until January 1st, 2025, doesn’t mean we’re out of the woods yet.

In fact, it could even be the opposite, as the government’s obvious first move was to immediately begin borrowing nuclear levels of debt.

Now, not only is that funny/ironic for Treasury Secretary JYell, but it is also necessary. When a government runs deficits like freshman-year athletes run sprints, the only way to meet your obligations is through borrowing. In short, JYell’s hand was forced.

Essentially, what you see above is the level of cash the treasury has on hand at any given time, measured weekly. As we can all (unfortunately) see, the treasury is more broke than that kid from your high school that posts their CashApp on their Instagram story.

So, in order to keep funding the sh*t we all want and sadly need, well, let the borrowing begin.

The good news is that the treasury is able to do so again. The bad news is just about everything else.

For starters, JPMorgan anticipates borrowings will reach at least $1.1tn by the end of 2023 and exceed $850bn over the next 4 months. When the treasury borrows, that is done through the issuance of newly minted treasury bills.

"For starters, JPMorgan anticipates borrowings will reach at least $1.1tn by the end of 2023 and exceed $850bn over the next 4 months."

New treasury bills increase their supply in the market—and by a lot if JPMorgan’s estimates are believed—which will drag down prices and spike yields even higher than they’ve already ran up.

For the individual investor buying treasuries, this could be great news as higher yields imply higher coupon payments. But, this will only add fuel to the fire in the ongoing war between treasury bills, money market funds, and bank deposits.

"... deposit flights from checking & savings accounts at banks across the nation will likely pick up ..."

As yields on treasuries and other safe, short-term debt spike, investors’ appetite for those investments spikes too. Who wouldn’t want to earn a higher rate of return?

But that means deposit flights from checking & savings accounts at banks across the nation will likely pick up too, bringing us right back to the problem that murdered SVB, Signature, and First Republic.

Analysts expect this bill issuance to take home the Bronze Medal for the deepest flood of short-term treasury issuance in history, losing out only to the GFC and C-19 eras.

Keep in mind that, at the same time, the Fed is reducing its ownership of treasury debt. While they’re not exactly sellers, the lack of demand from JPow is a little bit like getting rejected in the Red Light District—it’s a shock to confidence that only makes things worse.

But as always, we gotta end with the bright side. The kitchen fire burning down the house in the form of the debt ceiling debates has been extinguished, but that doesn’t mean there isn’t gonna be a lot of ash leftover and cleaning up to do (we’re just killing it with the metaphors today, huh?).

What's Ripe

Icahn Enterprises ($IEP) ↑ 12.53% ↑

• When there’s not a lot of game-changing news swirling around, not-sucking is one key competency any company would love to have, and it’s one Carl Icahn has wielded for 87 years.
• The man, myth, legend, and demon to some (most) behind Icahn Enterprises yesterday saw shares deeper in green territory than you when you pick your nose. After the firm was brutally attacked by the stock serial killer and short-selling researcher Hindenberg earlier this year, shares appear to be bouncing back as Wall Street finds faith in the old tycoon.
• We all know he’s Icahn-ic by now, mostly for his ability to raid corporations and fire people at will, but we have a feeling the man almost fired himself this year with how poorly shares have performed.
• All jokes aside, there actually wasn’t any meaningful news around this stock for the day. Assigning reasons for shares to surge on a day like that is akin to blindfolding a monkey and handing it an AK-47, but the simple fact that shares moved higher in the double-digit percentage range at least shows that Wall Street ain’t too worried.

GameStop ($GME) ↑ 5.75% ↑

• F*ck all, is this nightmare back again? I thought JPow’s firehose of rate hikes washed away all this idiocy, but alas, I stand corrected.
• As cringe as the Reddit-induced gain back in the good ol’ days of 0%-rates was, one fact can’t be denied: people were making money. Most of them ended up losing that money, of course, but a win is a win, right?
• Anyway, at least this gain has some kind of an actual purpose. It turned out to be completely wrong, but shares gained in a positioning trade as investors placed trades backing their view in anticipation of a strong post-earnings move. Instead, the company missed on its numbers and fired its CEO without reason.
• Shares were down almost 20% after-hours, mostly in response to the firm’s revenue miss. Maybe man-child Ryan Cohen’s naming as executive chairman had something to do with it too. After all, the guy’s other big bet was Bed, Bath, and Beyond, ‘nuff said.

What's Rotten

Amazon.com, Alphabet Inc ($AMZN, $GOOGL)

• Even the best have to sit out sometimes. Well, to be fair, Michael Jordan dropped 38-pts with the flu, but apparently, names like Amazon ($AMZN -4.25%) and Alphabet ($GOOGL -3.78%) aren’t built the same.
• For much of the past year, markets have been held above what experts call “flaming hell” levels in markets, to use the technical term. Yesterday, the opposite dynamic played out.
• Maybe their backs were hurting, but something changed in Wednesday’s trade. A lack of breadth in smaller cap tickers has been keeping technicians up at night, so hopefully, they got some much-needed rest last night.

Campbell’s Soup ($CPB) ↓ 8.91% ↓

• For a stock that actually rose in 2022 (yes, those exist), expectations around earnings must be sky-high. Sadly, one particularly delicious soup company didn’t get the memo.
• Campbell’s Soup is one of those names traditionally thought of as a defensive play. Selling cheap, easy-to-make soup that functions as a cold medicine too will help with that, and this reputation bred sky-high expectations for the quarter.
• With $0.68/sh earned last quarter and $3/sh expected for the full fiscal year vs. expectations of $0.69/sh and $3.01/sh, respectively, Campbell’s just keeps missing all the good stuff.
• Still, results essentially came right in line with expectations. But no one cared, and CEO Mark Clouse’s locker room speech during the company’s call failed to get the people fired up. Oh well, hopefully, he goes and grabs some chicken noodle tonight and feels a little better.

Thought Banana

Messi’ng Things Up

I’d argue we’re just slightly past the peak of the annual sports calendar, but nevertheless, the past few days have shown us there’s a reason why “ESPN” starts with “E” for “Entertainment.”

Even when they’re not playing, teams, leagues, and players, most of all, have been lighting up the newswires. In the latest edition, yesterday, the world received word that Lionel Messi, who most of my soccer fan friends tell me is now the undeniable GOAT, will be joining the US’s Major League Soccer (MLS) with Inter Miami CF.

Immediately, ticket prices soared well over 10x for Inter Miami games. As low as $29 on Tuesday, according to Reuters, the cheapest tickets for Messi’s first (new) home game bottom out at $329.

According to analysts, that game is expected to be the priciest in MLS history. If that’s not good enough, those same analysts anticipate road games could set the same record for each individual professional soccer stadium across the country.

And as crazy as it sounds, it’s probably for good reason. As a reminder, Messi claims as his own records already:

• 7 Ballon d’Or (MVP, in American) awards, the most of any player in history
• 6 golden boot awards, also the most ever
• 3x Champions League winner and 1x winner of the Copa America and the f*ckin’ World Cup
• The second most career goals in pro soccer history

And those are just a few of the big, big ones.

"More broadly, things are changing in the world of sports."

As we can see with the ticket prices above, Messi is already having a major impact on the league and potentially even the sport in the United States.

More broadly, things are changing in the world of sports. Being a fan today is not like being one back in 1992 with a 6-pack, recliner, and strained vocal cords.

Along with the PGA-LIV merger announced yesterday and the Endeavor-WWE acquisition, the world of sports hasn’t been able to evade 2023’s chaos.

Gradual developments like inking deals with big tech companies and their streaming platforms, a boom in sports betting, college athletes (and high school) signing NIL deals, and more suggest times they are a-changin’.

Back to Messi, this guy is not only the GOAT, he’s certifiably crazy. The man turned down $1.3bn on a gold-crusted, diamond platter from Riyadh-based and (obviously) Saudi-backed pro team Al Hilal in exchange for a deal from Inter Miami, Adidas, and Apple.

"Apple shelled out a measly $2.5bn last year in order to secure itself as the exclusive streaming provider ..."

Apple shelled out a measly $2.5bn last year in order to secure itself as the exclusive streaming provider for the MLS in 100+ countries for a decade. Now, Messi will be claiming a percentage of every dollar in new signups for the big tech firm’s MLS coverage.

Fellow league sponsor Adidas, who just happened to sign Lio to a lifetime deal in 2017, also happens to supply all the uniforms and balls to the American soccer league. Now, as the WSJ points out, the brand can ensure its “most famous asset” is always decked out in the three stripes.

Plus, not to mention, living in Miami doesn’t seem too bad when you’re rich as f*ck.

The big question: Have we slept on the shifting dynamics in the world of sports over the last few years? What kind of an impact will Messi have on the MLS and soccer as a cultural element in the US?

Banana Brain Teaser

Yesterday — When you behead a word, you remove the first letter and still have a valid word. You will be given clues for the two words, the longer word first.

Example: Begin -> Sour, acidic

Answer: The words are Start and Tart.

1. More heat -> Semi-aquatic mammal
2. Flying mammal -> Specifies location
3. Hibernating mammal -> Sensory organ
4. Emote; touch -> Snake-like fish
5. Type of fish -> Donkey
6. Wild pig -> Boat tool
7. Black bird -> Move a boat

Answers:

1. Hotter -> Otter
2. Bat -> At
3. Bear -> Ear
4. Feel -> Eel
5. Bass -> Ass
6. Boar -> Oar
7. Crow -> Row

Today — I have three sisters, and all of us are mothers. My sister Kay has two nephews and three nieces. My sister Jane has one nephew and three nieces. My sister Belle has one nephew and five nieces. I have one daughter. How many nephews and nieces do I have?

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

Wise Investor Says

“I love to compete. To me, business is the ultimate sport. It’s always on. There is always someone trying to beat me.” — Mark Cuban

Happy Investing,

Patrick & The Daily Peel Team

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