📝 The Latest PCE Report

The good, bad, ugly, and, most of all, the scary of the April PCE report June 3, 2024 | Peel #722 Silver Banana goes to... [Aphinity. ]( In this issue of the Peel: - 📈 The good, bad, ugly, and, most of all, the scary of the April PCE report - 🏪 Discount retailers continue to rack up Ws while AI isn’t always helpful - 💼 Bill Ackman is getting creative again Market Snapshot 📸 Banana Bits 🍌 - The legend himself, Keith Gill, has finally disclosed his GameStop position, but this time in [r/SuperStonk](… oh, and it’s worth over $210mn - Billion-dollar beef has been squashed as Elon Musk and Jamie Dimon [kiss and makeup]() - Nvidia’s next-gen chips haven’t been released yet, but the firm is already onto its next generation as [competition finally shows up]( - Breaking down why software stocks [sh*t the bed to close the week]() - The Chicago PMI unexpectedly fell [through the floor last month]() Smart 1:1 coffee chats to boost team engagement with Aphinity.ai ☕ Coffee chats are a big part of growing your career, and large banks use tools like [Aphinity.ai](=) to create 1:1 intros between employees every week. 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[Click here to get Aphinity.ai for your organization](=) Macro Monkey Says 🐒 The S-Pend-ulum Swings Back Few activities are more fun than ripping it off a rope swing into a nearby body of water… especially when that body of water looks more like Hepatitis than Dasani. But, failing to jump at the zenith of the swing is a one-way ticket to no fun at all unless, of course, it’s your friend that falls on their face. Nobody wants to be on the pendulum when it's time to swing back. Sadly, in macroeconomics, it's not as easy to jump off the swing at the right time. Based on the latest spending and inflation report from the Bureau of Economic Analysis (BEA), we might all be headed to that same fall directly on our faces. I just hope it’s as funny as that would be. But, for now, let’s get into it. The Numbers On Friday, for the first time in a long time, the consumption part of the Personal Consumption & Expenditures (PCE) report mattered more than the price index. The PCE price index is Fed Chair JPow’s favorite way to track inflation, as it’s slightly less sh*tty than other approximations like the CPI. For the month of April, headline prices increased by 0.3%, while core prices (excluding food and energy) increased by 0.2%. [Source](=) Annually, that translated to 2.7% and 2.8%. Both were expected to clock in at 2.7%, so while it’s great to see that one actually listened, the inflation story remains unchanged. Price growth is slowing along with economic growth and likely will continue to do so unless (until?) JPow f*cks it up. Keep in mind—inflation occurs when an economy is too strong because there is too much demand, leading to too much spending, thus pushing prices higher. However—when we get spending data like this, inflationary concerns take a quick backseat. Incomes and spending—measured as disposable personal income and total expenditures—both increased 0.2% from March. That means that, against headlining inflation, real incomes and spending both decreased in April. [Source]( If you need another reason to keep you up at night, declines in real spending should be at the tippy top of that list. It’s not like this was totally unexpected, however. Slowdowns in the hiring market and increases in jobless claims have gradually decreased wage growth since late 2023 and all throughout early 2024, so JPow better be happy with his plans to make us poorer. Meanwhile, spending growth has been trending lower since early 2023. We’ve recently seen a return to the mean in credit card delinquency rates and personal savings rates, suggesting that consumers are starting to be more cautious. At the same time, inflation is acting like a stubborn dog on a walk that smells something in the grass—it’s still moving in the right direction, but it’s being egregiously dramatic and slow about it. The interesting/scary part comes in when we took a look at the categories in which spending is trending lower. Looking at the below table, we can see it’s almost entirely from decreases in durable goods purchases. [Source](=) That implies that American consumers are deciding to put off big-ticket purchases like appliances and vehicles. There’s a lot that goes into those decisions, but some combination of slowing wages, outlook uncertainty, and high rates are sure to blame. The Takeaway? If you need another reason to make Monday worse, we’re happy we were able to provide it for you. Inflation, incomes, and spending are all trending lower in the U.S., seeming to confirm the overall slowdown seen in last week’s updated GDP estimate for Q1. It’s great to see inflation to continue to move lower, but the reason to get concerned comes from the fact that incomes and spending started to slow further than inflation in April, leading to the negative real growth seen in the PCE report. But, this “slowdown” that we’re seeing might be catching a bad label. Four years after the initial pandemic disruption, the U.S. economy appears to be returning to pre-pandemic growth trends but with a much higher rate of inflation. Factoring in a housing market that works great for social security recipients but not the ones currently paying those checks, we might have a problem on our hands. We’ll see how wages and hiring are trending in the next employment report on Friday; keeping a close eye on this as it’s incredibly hard to have a recession in the U.S. with a sub-4% unemployment rate. But, JPow’s already done a lot that other Fed Chairs have never done before… so we won’t be surprised to see if he makes this a first too. What's Ripe 🤩 Gap Inc (GPS) 📈28.6% - Once again, poet and financial advisor Kanye West’s advice was prescient. This time, his recommendation to “... go back, back to the Gap” destroyed the S&P. - The operators behind brands like Gap (shocking), Old Navy, and Athleta saw improvements in all segments, from discount to premium product lines. - Rationalization of inventory levels helped humiliate analyst estimates, too, reporting $0.41/sh on $3.39bn in sales vs the $0.14/sh on $3.28bn expected. Dollar General (DG) 📈7.0% - Leading the WSO Alpha portfolio on Friday, this discount retailer specializing in protecting you from inflation finally got credit for a solid Q1. - Shares tanked on Thursday despite reporting positive earnings before the open but quickly caught up on Friday as the Street smelled a buying opportunity. - Dollar General earned $1.65/sh vs the $1.57/sh expected, with cost controls leading the way as revenue beat by just 0.47%. - Stay ahead of the market with us next time through [WSO Alpha](. Portfolio tracking, exclusive Discord, and research reports (Tilray Brands $TLRY coming out this week) are all included… with more to come soon. What's Rotten 🤮 MongoDB (MDB) 📉23.9% - Despite the efforts by recent First Ladies of the U.S. to end bullying, Mr. Market is still alive and well. Sadly, MongoDB was the latest victim of his assault. - Markets sold off nearly a quarter of the firm’s value despite 22% YoY sales growth and beating on revenue and earnings as guidance was lowered. - The database manager guided for revenue ~$7mn lower than the $470mn expected in Q2, while full-year estimates were lowered by ~$30mn. - This is the adult equivalent of throwing a tantrum in the candy aisle. And just like those parents ask themselves, the question now is, should you buy? Dell (DELL) 📉17.9% - One company’s treasure is another company’s heaping pile of garbage, and Dell learned that the hard way last week. AI isn’t always a stock’s savior. - Dell plunged on mostly good earnings, beating slightly on both its top and bottom lines, but the firm’s new AI servers aren’t helping the bottom line. - Margins remained flat YoY despite an additional $1.7bn in sales from AI-related products and actually fell in a key segment for the firm, leading to the selloff. = Thought Banana 🤔 Public Square Between campaigning for Jamie Dimon to run for President and making documentaries about companies he’s shorting, it turns out that this famed X user actually has a day job. Bill Ackman, the 58-year-old hedge fund manager who looks exactly like an AI-produced image of a 58-year-old hedge fund manager, is up to some more shenanigans. Being respected as one of the best activists and hedge fund managers of all time isn’t good enough for ol’ Bill. So, he’s getting creative and reportedly now plans to take his hedge fund public in the not-so-far-off future. But this one’s a little more complicated than a standard IPO. Let’s get into it. What’s Happening? Pershing Square Capital Management, or Pershing Square, was founded by Ackman over 20 years ago in early 2004. Through successful activist battles, most famously when he convinced Wendy’s to spin off Tim Horton’s, the firm has made quite a name for itself. Right now, the fund holds positions in only 8 companies, ranging from Chipotle to Google. = [Source]() Most of the capital flows for Pershing Square occur on the other side of the Atlantic through its managed fund, Pershing Square Holdings, listed on the London Stock Exchange and the Euronext in Amsterdam. But recently, the firm filed to create Pershing Square U.S.A, basically the American version of Europe’s Pershing Square Holdings. Partly to raise money for that fund and partly to seize on a perceived market opportunity, Ackman reportedly has decided to take all of Pershing Square public on U.S. exchanges as early as late 2025 or the first half of 2026. In doing so, Pershing Square has already raised over $1bn in a pre-IPO funding round, expecting to put about $500mn of that into Pershing Square U.S.A and use the rest to fund future funds after this fund goes public. So, despite a distinct lack of creativity around fund names, Ackman and his team are surely bursting with ideas about how to suck the most money out of markets. Who Cares? It’s been more than a decade since we saw this much noise around hedge funds going public, stemming back to the immediate-post-GFC days. That didn’t last long as investor interest died along with Lehman and Bear Sterns, but ol’ Bill has stumbled into some newfound fame by becoming what many see as the “voice of reason” for many social issues on X. I mean, this guy basically single-handedly got the Presidents of several Ivy League schools to resign over plagiarism and antisemitism, so with that newfound fame, it seems like the firm decided it was time to cash in. = [Source]( While his latest Tweet is just another sick meme, Ackman’s real X fame was born of long-form essay threads arguing on moral grounds on subjects like the Israel-Gaza conflict and academic integrity in research papers. Those might help you catch some sleep tonight if the slowdown in real spending discussed above keeps you up. While already finance-famous prior to becoming a social justice warrior (the good kind) this newfound level of fame has taken his hedge fund to a new found level of valuation. With $16.3bn in AUM, Ackman’s fund was valued at ~$10.5bn in this pre-IPO round. According to [numbers from the WSJ](=), if Pershing Square carried the same multiple as other funds like Brookfield and Blue Owl, it should have ~1/10th of that valuation. The Ackman Premium has already proven powerful, so don’t expect much to be different when the entire holding company goes public. The Takeaway? Hedge funds going public has historically coincided with exuberance in asset prices, so this could be a canary in the coal mines to pessimistic investors. But to others, this could be a win-win for funds like Ackman’s that enjoy a high degree of public recognition. Companies like Titan offer the ability to invest in hedge fund strategies, including Ackman’s, but why bother with that when you can buy shares in the whole thing? Moreover, it seems like Ackman is trying to position Pershing Square as a more broad-based asset manager rather than just a hedge fund manager. As always, the goal on Wall Street is to make more money than you did before and more than the person next to you. So, although a creative strategy, this is just another iteration of that same chase. Oh, and by the way, because I know you’re dying to know—on the left in the photo below is the image ChatGPT gave me on the first try on the prompt “Generate an image of a 58-year-old hedge fund manager.” On the right is Bill Ackman… literally uncanny. = The Big Question: Will a public Pershing Square cause more funds to follow suit? What benefit will the company receive after listing? What other motives might be behind this decision? Banana Brain Teaser 💡 Previous 🗓 Clarissa will create her summer reading list by randomly choosing 4 books from the 10 books approved for summer reading. She will list the books in the order in which they are chosen. How many different lists are possible? Answer: 5,040 Today 🕐 If n is a positive integer and the product of all the integers from 1 to n, inclusive, is divisible by 990, what is the least possible value of n? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “I'm an extremely, extremely persistent person. Extremely. And when I believe I am right, and it is important, I will go to the end of the earth.” — Bill Ackman How Would You Rate Today's Peel? 😁[All the bananas](=) 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]() // [WSO ALPHA]( // [ACADEMY](=) // [COURSES]() // [LEGAL]() [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States