Tim Cook Ripping Lines | The Daily Peel | 6/6/2023

The Daily Peel...

June 6, 2023 | Peel #475

 

Silver banana goes to...

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In this issue of the Peel:

  • The U.S. has avoided the immediate risk of defaulting on its debt obligations
  • Unity Software and C3.ai are on the rise, while Coinbase and EPAM saw a decline
  • Apple’s recent announcements, including a new OS for Mac, iPad, Watch, the iOS 17, Mac Studio, Mac Air and Mac Pro with M2 Ultra chip, and the Vision Pro AR/VR headset, indicate a move towards spatial computing
 
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Market Snapshot

Happy Tuesday, apes.

Despite the mid numbers put up by most asset classes yesterday, the vibe on the Street felt more hectic than Jim Cramer’s sweat stains by the end of a Mad Money segment.

We can thank large caps for that in the equity space and the largest cap in particular. Apple’s late session reversal from up well over 2.2% to below 1.5% dragged the indices over the coals as breadth was largely lacking all day already. Other megacaps like Alphabet, Amazon, and Tesla helped carry the team.

The story was even more true in treasuries. Yields on 10-year treasury notes were unchanged, while the 2-year saw a decline milder than the teriyaki sauce at Buffalo Wild Wings.

Let’s get into it.

 

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Banana Bits

  • BTC and all that “real money” out there are crashing as the SEC comes knocking down doors with a battering ram
  • They were gettin’ cocky not too long ago, but now, bets on a JPow Pivot are retreating in force
  • Spotify announces a big reorg to the podcast business, hopefully including a reduction in the phrase “bro, we should start a podcast,” along with 200 job cuts
 

Macro Monkey Says

Debt Deal Dissection

Phew! That was a close one.

As anyone with an internet connection or carrier pigeon route is now all too aware of, the U.S. is no longer at immediate risk of defaulting on its debt obligations. Score one for the global economy, your retirement account, and the predictability of politicians.

Now, despite the hand-ringing of the past few weeks and months, it’s not much of a stretch to say that most expected lawmakers to get their heads out of each other’s asses and put pen to paper to avert a default. The problem was, back in the ol’ days of last week, the ramifications of a default would be far too disruptive to risk.

It was one of those low-probability, high-impact events Nassim Taleb has been tweaking about for the past 2 decades. Thankfully, we managed to steer clear.

"... it’s time to start getting the popcorn ready for December ‘24."

 

But it’s still Washington, meaning we’re far from sunshine and rainbows. The debt ceiling wasn’t stopped for good; the can was simply kicked down the road.

Officially, the U.S. has now suspended its self-imposed borrowing limit without a new dollar amount limit. Instead, the Fiscal Responsibility Act pauses the debt ceiling until January 1, 2025, after the 2024 elections. If this Presidential contest runs anything like the last one, however, then it’s time to start getting the popcorn ready for December ‘24.

This is both good and bad news. For one, we avoided an almost-certain economic catastrophe triggered by the would’ve-been evisceration of the “risk-free” status of U.S. debt that underpins financial markets—from your business loan to BTC’s value.

 

"... we’ve really just allowed ourselves to add fuel to the apparently ever-burning fire that is the federal government’s financial health."

At the same time, a more long-term perspective reveals that we’ve really just allowed ourselves to add fuel to the apparently ever-burning fire that is the federal government’s financial health. Once again, late 2024 is gonna be fun to watch.

In exchange for a suspension of the debt ceiling with no hard dollar limit, the Biden Admin led negotiations for the Dems against House Republicans and eventually acquiesced to requests from the right for things like permitting reforms to energy projects such as the Mountain Valley Pipeline in VA and WV, removal of signature Joey B climate policy, a cut to the IRS’s budget, an effective non-military spending freeze through 2024, and much more.

"Sure, nobody’s actually happy with the deal, but that’s usually a sign of a good compromise ..."

 

The strangest thing about the whole negotiations is honestly that this thing is actually bipartisan. Like, I’m trying to think of a way to make fun of it, but all I’m reminded of is that scene in Remember the Titans where the team finally comes together.

Sure, nobody’s actually happy with the deal, but that’s usually a sign of a good compromise…which is what our legislators are (ostensibly) supposed to do.

Now, the big question is how long can McCarthy hang on to the Speakership after this, especially with a decent chunk of the Republican side looking to bury him under the Capitol?

 

What's Ripe

Unity Software ($U) ↑ 17.16% ↑

  • You ever hear about how small birds will come and eat the bugs off like an elephant or something? Yeah, turns out that happens in corporate America too.
  • It’s a symbiotic relationship, so can’t be mad, but in this case, Unity is the small bird, and Apple is the most flea-infested elephant you’ve ever seen. Shares in the young video game developer boomed on the back of Apple’s AR/VR headset announcement (more below).
  • Basically, Apple shouted out a few homies developing apps and other functionality for its latest gadget. The others, including Microsoft, Adobe, and Cisco, were barely affected by the announcement.

C3.ai ($AI) ↑ 9.49% ↑

  • Much like you on a snow day getting woken up by your dad even earlier than usual to go shovel the elderly neighbor’s driveway, C3.ai was just minding its own business when all of a sudden…BOOM.
  • After a dismal end to the last week that saw shares weighed down by a stellar earnings report (naturally), shares in this much-hyped AI name surged nearly double-digits as investors finally had time to read the quarterly numbers.
  • C3.ai’s beat on the top and bottom lines for both FY’23 and Q4 were drastically overshadowed on earnings day by a weak-ass forecast through FY’24, where the company still has no plans on being legitimately profitable.
  • However, with the firm’s 220% YTD gain, last week’s bump in the road was nothing for anyone that’s held for more than two weeks. Imagine if that was you?
 

What's Rotten

Coinbase ($COIN) ↓ 9.05% ↓

  • Everyone’s mom warned them growing up about making friends with the wrong people. Some listened, some didn’t, but Coinbase took it as a challenge and befriended the worst of the worst.
  • Early yesterday, the SEC announced that they would commit aggravated assault against Binance and its chief, Chengpeng Zhao (CZ). The U.S. securities regulator is slapping the world’s largest crypto exchange with a fatty lawsuit alleging a score of securities violations.
  • The big one is what the SEC sees as the act of (allegedly) selling unregistered securities via the BNB and BUSD tokens. Of course, there’s a whole lot more going on, and the suit even specifically calls out CZ and Binance.US for the same (alleged) crimes.
  • As we said, Coinbase picked the wrong guy to be friends / mortal enemies with. The fear of enhanced regulation (like the “enhanced interrogation” down in Guantanamo) sent crypto shares like Coinbase into a tizzy.

EPAM Systems ($EPAM) ↓ 21.72% ↓

  • Hopefully, EPAM shareholders are used to eating SPAM because, after yesterday’s performance, they won’t be able to afford much else.
  • Shares absolutely cratered in this name following a disappointing earnings report that came alongside depressed guidance going forward. Management literally used the phrase “further deterioration” to describe expected demand for this quarter.
  • How many times do we have to say it: if you’re a public company CEO, just lie. Worked out for “Liz” Holmes, after all, right?
 

Data Peel

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Source

 

Thought Banana

We Want

Contrary to popular belief, the above is actually what Apple’s WWDC stands for. Like everything that George Santos said on the campaign trail, “World Wide Developer Conference” is clearly just a cover.

Naming aside, investors, tech nerds, and Apple users tune into releases from the WWDC as if Apple is dropping the Bible 2.0.

For the past few years, the event has been two words: “deliriously boring.” Now, that’s weird for Apple as the largest company in the world and maker of products that I’d bet at least 90% of you use on an hourly basis isn’t often thought of as boring.

But this year, Tim Cook seems to have ripped a line, punched a bouncer, and got the party going like it was 2007 again.

First, let’s just touch on the major announcements. Some of the sickest include:

  • New OS for Mac, iPad, and Watch
  • iOS 17 as the latest upgrade for the iPhone
  • Brand new Mac Studio with the firm’s new M2 Ultra chip
  • Brand new 15-inch Mac Air and Mac Pro, also with that M2 Ultra
  • You can now Facetime through your Apple TV
  • The “Vision Pro” AR/VR headset and visionOS powering the device

As we said, Tim Cook came on stage more hyped up than Cocaine Bear. With the announcements, Apple managed to hit an all-time high intraday, up over 2% at one point, only to pull back slightly late in the day to close at a $2.89tn valuation.

 

"Now, the first 5 of those announcements above are all fine and dandy."

Now, the first 5 of those announcements above are all fine and dandy. Certainly cooler than a lot of the stuff we’ve seen in recent years, but needless to say…

…The company’s highly-anticipated AR/VR headset, called the “Vision Pro,” was finally announced. Prices will begin at $3,499, and the device will become available as soon as Q1’24. All you keyboard warriors out there could get in on the fun early, however, as developer and other beta testing will begin soon.

"To Apple, this release is far more significant than a simple new product; it’s a whole new computing platform."

 

Given the hype over the last few years, we understand if you’re drowning in AR/VR boredom. But let me introduce a new word(s): spatial computing.

To Apple, this release is far more significant than a simple new product; it’s a whole new computing platform. If you’re as confused as my dad is, check the (honestly super sick) demo video.

We could sit around and predict what some of the major developments from this new computing platform may be, but when the last one was released (smartphones), I don’t think anyone was predicting we’d soon be using those things to pay for Zyns at the convenience store.

 

"I don’t think anyone was predicting we’d soon be using those things to pay for Zyns at the convenience store."

The possibilities are endless, but hit us with some wild predictions you have. We’d love to hear.

To highlight how non-boring this WWDC was, shares gained almost 1.5% at the close. Since 2013, the average has been closer to a 0.3% loss. I guess fun is bullish; who knew?

The big question: Will the introduction of spatial computing upend our lives as much as mobile computing? If so, how will this play out? What can we expect Apple to release next, and will we ever see that long-rumored iCar?

 

Banana Brain Teaser

Yesterday — The following clues give definitions for world capitals. These definitions describe what the capitals (just the city) sound like they would mean.

  1. This capital is a recently opened store for cooked meats.
  2. This capital is plant-covered bovine.
  3. This capital is a tool used for fighting.
  4. This capital is a royal weight.
  5. This capital is something you get from the sun.
  1. New Delhi (New Deli), India
  2. Moscow (Moss Cow), Russia
  3. Warsaw (War Saw), Poland
  4. Kingston (King’s Ton), Jamaica
  5. Bern (Burn), Switzerland

Today — It’s 150 bananas off the Elite Modeling Package for the first 3 correct respondents. LFG!

Always old, sometimes new. Never sad, sometimes blue. Never empty, sometimes full. Never pushing, always pulling. What am I?

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

 

Wise Investor Says

“Invest in inflation. It’s the only thing going up.” — Will Rogers

 

Happy Investing,

Patrick & The Daily Peel Team

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