What’s Affecting Your Wallets? | The Daily Peel | 2/14/23

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• Guesstimates peg today's CPI print at 0.4% for the month, or 6.2% annually…we'll see about that
• Oh, the thousands of pounds of irony…Amazon Chief Andy "Sassy" Jassy has vowed that the "e-commerce" company will "go big" into physical stores
• CNN shouts out some of the biggest flops and frenzies of the real best part of Sunday's game, the advertisements
• After the largest fraud in US financial history, regulators have just now decided to start enforcing laws…thanks, guys!!

Batten Down the Hatches

In celebration of V-Day, the Bureau of Labor Statistics (BLS) is giving us the greatest gift of all: the January CPI report.

We can already feel the tension in the treasury market, like walking into a party where you don't really know anyone and nobody's drunk yet. Yields haven't had a clue what to do since the last print, but there's a whole lot more than rate hikes and inflation impacting the money market.

Rate hikes get all the attention. I mean, it's clearly a cool, sexy topic everyone loves talking about, but behind the scenes, QT is far too often forgotten about, kind of like washing the back of your knees (yes, they smell, too, apes).

Fed Guy, aka Joseph Wang, a former trader at the Federal Reserve Bank of New York, spit some game on the subject yesterday and made one of those great points mainstream media frequently miss.

See, you may have noticed that the rate on your treasury bill or new loan is a whole lot higher than a year ago. But at the same time, the rate your checking and savings deposits earn is basically still zero. And in an environment where inflation is running at 6.5% per the December print, your "savings" are more like your "disappearings."

Apparently, there's an actual economic reason for that. Prior to 2022, banks basically had "superabundant levels of deposits," meaning there was really no incentivize to raise the deposit rate as there was no competition.

In the process of QT, the Fed is essentially using "brute force" to force banks to exchange some of their deposit base for treasuries. This, in effect, leads to a $60bn switcheroo from assets yielding 0% (deposits) to assets yielding 4% (treasuries) while also reducing the size of any given bank's deposit base, as Fed Guy puts it.

Drying up the deposit base is a big no-no for banks. Less supply of deposits leads banks to have an increased demand for them, especially as regulations passed post-GFC strongly incentivize deposit funding for bank activity, like giving out loans.

That, my fellow apes, is how your savings deposit rate increases. Similar to how the Fed used to rely much more on open market operations to control rates during the scarce reserve environment of the pre-ZIRP days, it relies on a similar function to influence monetary policy outside of rate hikes alone.

Don't get me wrong; at $60bn/month, it'll still take plenty of time for your savings rate to actually earn you anything in a real, inflation-adjusted sense. Today's CPI print will be a nice update on how boned we're all getting by loss of purchasing power, but according to the yield curve, a steep dropoff is still expected at some point over the next 1-2 years.

And lastly, just keep in mind what's important as you read through the January CPI report in full, as I know you all obvi do every month. Goods inflation is kinda already being priced in as dead and gone, but services inflation is where the market's eyes will be looking. Think home cost, wages, etc. It's gonna be another fun day of investing, but just make sure you keep your head on a swivel.

Monday.com ($MNDY) ↑ 10.90% ↑

• With a name like that, we can't help but wonder how this stock could ever go up. But I guess kicka** earnings might help. Well, apparently, they do, as shares in the B2B SaaS name popped off on…Monday.
• Monday's numbers soared past expectations, with sales leaping 57% YoY for the quarter and the surprise profit of $0.44/sh utterly destroying expectations of a $0.42/sh loss.
• If that's not enough, even the firm's guidance beat the guesstimates from the apparent rookies covering Monday.com. In the bizarro world that we've been living in since C-19, I guess we shouldn't be surprised that Mondays are actually the best of the best now.

Palantir ($PLTR) ↑ 16.79% (AH) ↑

• Did someone say surprise profit? "Hold my f*cking beer," said Palantir.
• Shares erupted 16.79% after-hours following the release of the firm's latest quarterly earnings, which did, in fact, contain a surprise profit as well. Peter Thiel's big data / government contractor / super secretive firm posted EPS of a whole $0.04 while sales beat by a slim margin.
• Not only was it a surprise profit, but it was the first time in its 20-year history that the firm that they actually even made a profit. Growth from 80 customers to 143 over the last year certainly helps, but the profit dollars couldn't have come at a better time.
• Recent years have allowed losers (literally) like Palantir to not make money because they know the VC-funding backstop was always there. JPow has taken that funding away and flipped off every founder in the Bay Area at the same time, meaning focusing on dollars is once again cool in business.