Apr 05, 2023 | Peel #434

Silver banana goes to...

Market Snapshot

Happy Wednesday, apes.

Well, markets continued to do what they’ve done for almost a full year now during yesterday’s session – bore the sh*t out of u- I mean, move sideways but mostly down.

Equities had a rocky day with a few of the enormous tech lifeboats like Amazon, Alphabet, and Google putting in all the work to make sure your portfolio didn’t suffer too much. Markets appear to be gearing up for the next major catalyst, set to print on Friday when we take a peak at the March jobs report. Stay tuned.

Meanwhile, of course, treasuries continued to give us the ol’ razzle-dazzle while the U.S. Dollar sank below 101.5 in the DXY. 2-year treasuries finished the day staunchly below 3.9% as the notes continued to trade wildly amid a wild backdrop.

Let’s get into it.

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Banana Bits

• Not to get political, but let’s get political as a certain former President was engaged in a certain thing yesterday (was that unbiased enough??)
• There was a big scare for depositors there for a while, but execs at Signature Bank had the bag secured the whole time
• In just about every currency not called the U.S. Dollar, gold has reached new all-time highs…this same accolade in USD could be coming soon
• Jamie Dimon continues his pursuit to literally be Warren Buffett in dropping his latest annual letter to shareholders with a whole lot of opinions on a whole lot of stuff

Macro Monkey Says

Just Chill

The absolute mayhem in financial conditions and markets experienced over a few weeks or even days last month certainly spooked investors. But, apparently, so did others, too.

Yesterday, the Commerce Department reported the latest figures on factory orders and, all too similar to the data reported yesterday, did not make us feel good about the economy.

To be clear, when considering factory orders as a reflection of the overall economy, it has more lag than trying to play Smash on a 3G network. In February (yes, February), new factory orders declined 0.7% after declining by a revised 2.1% in January. It’s less of a decline than we started with this year, but call us when this starts moving in the right direction.

As the name implies, orders for new [insert anything that gets manufactured] have fallen off hard this year, showing clear signs of a weakening production backlog.

Meanwhile, other data released yesterday joined hands with new factory orders and further suggested a present decline in activity. JOLTS reports from yesterday show that, for the first time in two years, there are less than 10mn open jobs in the United States right now.

Clocking in at 9.93mn, available positions haven’t been this scarce since May 2021. Rumors say that JPow is currently snorting coke off a toilet seat in celebration.

To sweeten the pot even more, the ratio of open positions to unemployed workers has been hovering right around 2.0 for much of the last few years. With these latest figures, that reading falls to around 1.68, forcing JPow to rip another line.

Sure, both of these metrics would suggest slowing growth and usually imply no-good, very-bad news for an economy, but Powell and the FOMC’s goal has explicitly been exactly for this: to slow down demand, especially for goods and, most of all, labor.

A decrease in labor demand typically precedes a decrease in labor cost (aka wage) growth as demand for that labor declines. In case you live under a thousand rocks, you know that wage-push inflation has been a, if not the primary driver of cost pressures over this past year, so to someone like JPow fighting the good fight against inflation, this is as good as it gets.

And it’s clear the market sees this too. Rate hike expectations for the Fed’s May meeting flipped a switch, with odds of a no-hike outcome going from ~42% yesterday up to nearly 60% at the time of writing. To Mr. Market, rate hikes are kind of like homework; they make him have to work harder and honestly just overall kill the vibe.

So, the fewer of those there are, the happier Mr. Market is. But hey, with a whole month before that next potential move in rates, literally anything from an earthquake to an alien invasion could occur, and we wouldn’t be even mildly surprised. Let’s see how this plays out.

What's Ripe

AMC Entertainment ($APE) ↑ 13.51% ↑

• You are currently looking at the only company in the world so fake and so f*cked that it’s probably the one single company that could have one tranche of shares gain 13.5% while another loses 23.5%.
• But that’s what happened yesterday. Basically, the company was able to reach a settlement (somehow) to convert its preferred shares, traded under the ticker $APE, into common equity and dilute the sh*t out of themselves.
• As a result, analysts now expect the prices of each share class to converge until $APE becomes normal $AMC. So, the only question is, you buying?

Butterfly Network ($BFLY) ↑ 21.39% ↑

• The maker of high-tech ultrasound technology exploded on a big thumbs up from the Food and Drug Administration, the agency that just okayed the company’s AI-powered tool for assessing lung health.
• I’m not even gonna try to explain what an Auto B-Line Counter is (because I don’t get it), but apparently, it’s faster and more accurate at detecting lung conditions, according to recent studies.
• Shares traded well over 3x their normal volume on the day, and I’m sure you can guess what direction that was heading in.

What's Rotten

C3.ai ($AI) ↓ 26.34% ↓

• It might’ve been as bad as the Hindenburg, but damn did C3.ai really come down in flames yesterday.
• As the forerunner of the current AI hype cycle among publicly traded equities, shares have ripped well over 120% already just this year. But, according to short-selling firm Kerrisdale Capital, it’s all bullsh*t.
• Shares absolutely tanked more than 1/4th of Monday’s closing value as Kerrisdale alleges drastic accounting flaws in the company’s financial statements, according to a letter sent from the Wall Street villains to C3.ai’s auditors (Deloitte).
• This isn’t the start of the beef either. Back in March, the same short-sellers published an admonishing report of C3.ai’s fundamentals, claiming that “all signs point to further weakening….” But hey, with a stock ticker like $AI in 2023, the artificial intelligence provider ain’t losing out too much.

Virgin Orbit ($VORB) ↓ 23.20% ↓

• Props to Virgin Orbit for literally going bankrupt and still performing better this week than C3.ai did yesterday alone.
• But that’s about all the props the company can afford for now. Virgin Orbit, billionaire Richard Branson’s satellite launch company, filed for Chapter 11 bankruptcy yesterday. To be fair, that ain’t as bad a Chapter 7 bankruptcy, where a company officially pulls the trigger on itself, but it’s def not bullish.
• Virgin Orbit is also just…weird. I mean, their satellite launch strategy is to strap that satellite to basically a Boeing 747 and launch them at high altitudes. I’m no scientist, in case that wasn’t obvious, but maybe being special and different like that isn’t as chill when rates are at 5%.

Thought Banana

Finland is In-Land

74 years ago yesterday, the North Atlantic Treaty Organization, aka NATO, was formed in the aftermath of WWII and preceding the Cold War. Then, there were 12 founding member nations. As of yesterday, there are now 31.

That’s because yesterday, Finland officially joined the Western military alliance, adding roughly 832 miles to NATO’s combined border with Russia. Wait, speaking of Russia…

On December 26, 1991, the Soviet Union officially collapsed as the “Supreme Soviet” of the country declared the nation dissolved. Since then, a whole lot has changed.

Specifically, what has changed is that NATO and the newly re-formed Russia went from not trusting each other to wanting to see each other SHIFT+DLT’d from the map. Several treaties and other agreements were signed in the few decades since, with one of them being a commitment from NATO to Russia about expanding “not one inch eastward.”

33 years after that phrase was coined, it’s clear that was complete cap, and Finland’s recent addition to the militaristic group chat is the biggest move yet. Prior even to NATO’s formation, the cold yet apparently very happy country was permitted to maintain strategic non-alignment with really anyone. In a major blow to Russia and its current aspirations, Finland forever severed that stance in yesterday’s historic addition to the military alliance.

But of course, Russia isn’t gonna take a flex this fat lying down. So far, the world’s geographically largest nation has simply vowed “countermeasures,” but given how the country’s invasion of Ukraine has played out so far, that doesn’t exactly narrow it down too much.

Regardless, the odds of any kind of lethal “countermeasures” on NATO soil, no matter how new the membership is, remains extremely low thanks to Article 5 of NATO’s defense clause, which states that an attack on one member is an attack on all and acts as a guarantee of alliance-wide (but mostly American) support in the conflict is certain.

Allegedly, Sweden will officially be following its northern European neighbor into NATO soon, but as they’re separated from Russia by, well, Finland, it’s a far less urgent matter…given Russia’s recent behavior with neighboring countries…

The big question: How will Finland’s addition to NATO shift the outcome of the war in Ukraine and impact geopolitics in the years to come? Will Finland’s giant love and commitment to its military (including mandatory conscription for men) make a significant impact on NATO’s collective strength?

Banana Brain Teaser

Yesterday — Looks like water, but it’s heat. Sits on sand, and lays on concrete. People have been known to follow it everywhere. But it gets them no place, and all they can do is stare. What is it?

A mirage.

Today — It’s 150 bananas off the Private Equity Master Package for the first 3 correct respondents. LFG!

I repeat only the last word you say. The more I repeat, the softer I get. I cannot be seen but can be heard. 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

“Geopolitics is the study of how geography, politics, and economics interact to shape the fate of nations and peoples. As an investor, it’s essential to keep a keen eye on geopolitical developments, as they can have a profound impact on the markets and the global economy.” — Ian Bremmer

Happy Investing,

Patrick & The Daily Peel Team

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