Time to Loosen the Reins?

The slowing of U.S. consumer spending is evident, with rising credit growth outpacing income increases. July 9, 2024 | Peel #746 Silver Banana goes to... [Harvest Returns. ]( In this issue of the Peel: - Credit Growth + Spending Slowdowns = WTF, JPow? - Eli Lilly smells opportunity in bowels while the Paramount saga is finally over - The Battle of Southwest is only a month in and already getting hot Market Snapshot 📸 Banana Bits 🍌 - AI meets specialty glass as Corning shares [pop off on earnings](=) - Check out this primer on bank earnings [coming up this week]() - Alliances are finally forming in [the Streaming Wars]( - Think fundraising for a startup is hard? Try [fundraising for big dawg Joey B]() Cultivate Your Investment Portfolio with Agriculture = Cultivate Your Investment Portfolio with Agriculture - Unlock Exclusive Opportunities: High-performing investments in agriculture were once reserved for the wealthy. Now, Harvest Returns lets you invest in farms, ranches, and innovative AgTech companies for as little as $5,000. - Diversify & Earn More: These investments offer advantages like: - Passive Income: Generate steady returns. - Inflation Hedge: Protect your portfolio against rising food prices. - Uncorrelated Assets: Add stability by diversifying beyond the stock market. - Create Positive Impact: Be part of the solution! Your investment supports sustainable food production to feed a growing population of 10 billion people by 2050. [Invest in a Brighter Future. Register for Free with Harvest Returns Today!](=) Macro Monkey Says 🐒 Ice Cream to Milkshakes Last week’s 4th of July may have been the first time I’ve touched grass since July 2023. But the holiday is always a brutal reminder of the appalling heat that comes with Q3. Although I celebrated in the true spirit of Independence Day (...independently), I still fell victim to watching my helpless ice cream turn into a milkshake in front of my very eyes. And like anyone else, it reminded me of just one thing—the gradual softening of U.S. consumer spending. We’ve recently gotten some data on just how bad it is, so… Let’s get into it. The Numbers Yesterday, the Federal Reserve hooked up losers—I mean, *macro watchers, with some hot, new data on consumer credit growth throughout May. The data wasn’t terrible. But like Bank of America’s latest Consumer Checkpoint, it’s clear the economy is facing a challenge similar to President Biden—an obvious slowdown. [Source]() Bank of America’s above chart is the clearest sign of this slowdown. Pairing this May spending data with the Fed’s credit data from May, we can get into the minds of American consumers. I can’t imagine a place scarier than the mind of an average American, but understanding their spending habits is, unfortunately, crucial to the health of my wallet. Incomes are still on the rise, as the latest jobs report showed. However, credit growth is rising even faster, with revolving consumer credit growing by 6.3% last quarter. Revolving credit is primarily made up of credit card spending. So, when we see this proxy of nationwide credit utilization rising faster than growth in the money we’re gonna use to pay it off, it starts to get concerning. We know that excess savings have been in decline, we know incomes are on the decline, and we know unemployment is rising. Meanwhile, our obligations are on the rise. These coalescing forces together paint a picture of a weakening American consumer, and more so than simple labor market metrics or poorly assessed underlying inflation via CPI, this should signal Fed Chair JPow that the time to cut is coming close. Every macro data point we look at ultimately traces back to GDP. Within GDP, consumer spending consists of ~70% of the total pie in the U.S. So, if we’re facing a combination of: - rising unemployment, - slowing wage growth, - still sky-high interest rates, and - growing revolving credit lines Then, the intermediate-term implications for U.S. growth could be scary…almost as scary as our economy becoming like Europe (gasp!). The Takeaway? The primary risk for the Fed has long been that inflation would reaccelerate. However, recent data has flipped the script—and the bird—to the Fed. Now, the primary challenge facing the Fed is leaving policy too restrictive for too long, inducing an economic slowdown or even a recession. Like most good Americans, I’d sooner drown in a pile of my own high-interest debt than see our economy turn European. But this time around, it might be time for some Fed intervention, maybe even by this month’s meeting. What's Ripe 🤩 Morphic Holding (MORF) 📈75.06% - Eli Lilly, the world’s largest healthcare firm, is getting bigger. Announcing a $3.2bn acquisition, they smell opportunity in this bowel disease biotech. - Morphic, an MA-based firm developing integrin therapies for chronic illness, is close to un-constipating the market for inflammatory bowel disease. - Eli Lilly wants a piece of that and the other oral-based therapies Morphic is working on. Shares boomed as the $3.2bn all-cash price tag represents a 79% premium from Friday’s close. SolarEdge (SEDG) 📈27.37% - Little orphan Annie was finally right on Sunday as the sun did come out “Tomorrow,” lighting up solar-related stocks. - Bank of America analysts upgraded SolarEdge, calling it undervalued. The rest of the sector got the message, with Invesco’s Solar ETF TAN up 1.10%. What's Rotten 🤮 Paramount Global (PARA) 📉-5.33% - When literally no one is happy with a merger’s outcome, you know it must’ve been a good deal. And no one is happy at Paramount, least of all investors. - Negotiations are finally over as Skydance, Redbird, and KKR are paying $8bn to buy National Amusements for $2.4bn and invest the rest in Paramount. - Class A shareholders will receive $23/sh and B holders $15/sh in some combo of cash and stock. Skydance CEO David Ellison will run the new media giant. Chipotle Mexican Grill (CMG) 📉-5.16% - Like the amount of chicken in their bowls, Chipotle shares are headed lower after a rowdy last few weeks. The 50-for-1 split is over, and now analysts wonder what’s next. - Prices have surged in recent years, turning off increasingly price-conscious customers. Plus, [damning analysis]( from that Wells Fargo analyst shows the company has a long way to go in standardizing portion sizes. Thought Banana 🤔 The Battle of Southwest Activism has a wide range of strategies. On one end, you have the Greta Thunberg method—skip school, scream at people, block highways, and desecrate sacred art and monuments. And on the other extreme, you have Elliott Management—buy up chunks of a company, then publicly bully them until they’re humiliated enough to follow orders. I’m not sure which is more annoying for those involved. But we sure know which one works a helluva lot better. What Happened? In the four short weeks since Elliott showed up at Southwest’s door, discussions have gone from polite conversation to Game of Thrones-level plotting, pillaging, and, most of all, poisoning. Normally, Wall Street throws a party for the share price of any company lucky enough to get bullied by Elliott. However, given that this is Elliott’s first attempt at hijacking an airline (no pun intended), analysts are scratching their heads at the $1.9bn investment made by the activist fund. With ~11% of Southwest shares under its control, Elliott’s only clear demands so far have been to : - fire CEO Bob Jordan, - fire Chairman Gary Kelly, and - allow Elliott CEO Jon Pollock’s son to sit in the cockpit during all future flights That last one might not be true, according to rumors, but it would make as much sense as the fund’s campaign so far. Here’s the thing about airlines—they’re all terrible. Small seats, constant delays, the risk of death (in a Boeing 737, at least) when something goes wrong, and countless other inconveniences make fixing an airline a lot different than fixing f*ckin’ [Pinterest.]( Further, unlike other targets of Elliott’s activism, Southwest is already in defense mode. Marc Benioff, CEO of other recent Elliott target Salesforce, said he has “thoroughly enjoyed getting to know” the team at Elliott. Meanwhile… Southwest has elected to shoot itself in the foot, face, and head by adopting a poison-pill strategy at 12.5%. Basically, that means that if/when “any investor” (wonder who it could be in this case) amasses more than a 12.5% stake in Southwest, the firm will automatically begin selling new, discounted shares to existing investors. The poison pill strategy allows management to maintain undisputed control of the firm at the risk of damaging the company’s reputation by entrenching executives to avoid accountability. News will emerge (hopefully) over the next few weeks that will uncover whether Elliott has a plan or plans to figure it out along the way. Stay tuned. The Big Question: What kind of turnaround does Elliott have in store? You buying Southwest along with Elliott? Banana Brain Teaser 💡 Previous 🗓 If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college? Answer: $20,000 Today 🕐 In a small snack shop, the average (arithmetic mean) revenue was $400 per day over a 10-day period. During this period, if the average daily revenue was $360 for the first 6 days, what was the average daily revenue for the last 4 days? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “If you want to be a millionaire, start with a billion dollars and launch a new airline.” — Richard Branson 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