We Did It, Jerome!

[The Daily Peel... ]() Jan 3, 2022 | Peel #370 Market Snapshot Happy Tuesday, apes. And, of course, Happy 2023! Or at least, we sure hope it’s a happy 2023 because that last one was…well, let’s just say we could’ve done without the highest inflation in 40 years and the worst combined stock and bond returns in modern financial history. Regardless, markets ended the year on a relatively quiet note with light trading volumes as investors hit the bars and started drowning their sorrows as early as they could. But it’s 2023 now, so without further ado… Let’s get into it. Break Into PE and Climb Your Way to LP [image]() Analysts up and down the Street are brushing up on their skills as we speak, so there’s no time to waste. [Sign up today](=) Banana Bits - Morningstar hooks it up with an in-depth 2022 Year In Review & 2023 Outlook summary [here](), while CNBC rounds up the market’s 2022 stats [here]( - CNN Business hooked it up with a summary of the biggest [winners and losers](=) in 2022 (spoiler alert: the biggest loser, surprisingly, wasn’t you) - Yes, that stat you saw on Twitter really is true. Global stocks and bonds shed [over $30tn]( in value in the last 12 months, equivalent to losing Jeff Bezos’s wealth 28x over - Find out what topic du jour spiked our anxiety with [this dope visual]( from Neville Medhora Macro Monkey Says We Did It, Jerome! The Fed can now officially borrow a deeply wise and borderline legendary quote from our Vice President Kamala Harris and say, “We did it, Jerome!” Well, kind of. Unlike winning an election (before 2020, at least), monetary policy and its effects lay in a bit of a gray area. When the Fed makes a move, it can take a while for the +$23tn ship we call our economy to change course. But one thing has been made clear now that we’ve shut the doors on the fetal-position-inducing year that was 2022: earners at the bottom quintile of wages saw the most outsized gains in 2022. In English, that means that the bottom 20% of income earners saw the largest gains to their wallets in 2022 and, more broadly, since the pandemic began. That is the exact opposite of what’s occurred in other recent recessions, as indicated by the chart below: [image] [Source]( According to the study where this chart comes from, researchers at the Federal Reserve used tax data ranging from pre-pandemic days until the end of 2022 to determine that the lowest earning among us actually received the greatest benefit in earnings since C-19 showed up. How is this possible? Well, let me introduce you to the nearly $10tn spent since C-19 showed up on our shores. We can quibble day and night about how imperfect the stimulus given was from both a monetary and fiscal perspective, but one thing is clear: they (mostly) had their intended effect. As a proud member of that bottom quintile (I think), in which I’m guessing a lot of you join me, this is great news. Sure, I didn’t realize this fact until the data was put out, but the simple idea that the stimulus issued by the government actually helped out those who needed it most is a monumental step in policy from the last two recessions. Buuuuut, of course, there’s always a downside. The massive printing of ungodly amounts of money purely out of thin air is also what caused the price of your eggs to triple, your energy bill to skyrocket last year, and my portfolio to commit seppuku. Whether or not JPow’s frantic printing of money like he’s downing shots at closing time had an overall good or overall bad economic impact depends entirely on your personal situation. But, if you’re in the bottom quintile of earners, congratulations—it probably helped you out. What's Ripe TG Therapeutics ($TGTX) ↑ 13.75% ↑ - Sure, nearly 14% up in a day is nice, but how about up nearly 70% in 2.5 days? That’s how investors in TG Therapeutics ended 2022, and, to be honest, I’m deliriously jealous. - Shares popped as the biotech darling received the A-Okay from the FDA for its multiple sclerosis drug. Basically, the firm developed a monoclonal antibody that treats relapsing MS in patients. (They’re gonna have to give me an honorary MD if biotechs keep doing this, god damn.) - Anyway, this was much needed as TG’s lymphatic cancer drug was pulled earlier this year. Now, wielding a new drug estimated to rob customers of an egregious $30k/yr, investors are psyched up again. Shaw Communications ($SJR) ↑ 9.06% ↑ - Canadian markets are basically just like US markets, except up north, they actually remember to take their schizophrenia pills and even say “please” and “thank you” in their Bloomberg chats. It’s a lot chiller (and chillier), and as a result, this usually keeps them from the spotlight. - Not on Friday. On Friday, one of Canada’s largest-ever mergers took a major step toward completion. The nation’s Competition Tribunal (aka a British-sounding version of the US FTC antitrust commission) gave the thumbs up to Roger Communications’s $26bn merger with rival Shaw Communications. - The creatively named firms are pure-play competitors, so nerves abounded that the deal would get axed by regulators. But after the tribunal said the merger was unlikely to “prevent or lessen competition substantially” (basically dirty talk from a competition regulator), shares were off to the races. What's Rotten Nikola ($NKLA) ↓ 9.62% ↓ - Not really sure how this company is still operating, but after falling to a price of $2.16 on Friday, we can kinda see the direction this thing is going. - Shares continued their dive to close out 2022, losing almost 10% and bringing their return since mid-2020 to a stellar -97%. This time, the plunge was triggered by a plan to raise $125mn in additional financing through convertible debt issuance. - Honestly, I would’ve thought getting my ownership in this company diluted away would be a good thing, but I guess some people still love trucks that [just roll down hills without actually being driven](=). GrowGeneration ($GRWG) ↓ 5.08% ↓ - Is it the 1980s again? Because why does everyone hate weed all of a sudden? In fact, there are basically 3 kinds of ETFs that currently sit below their C-19 lows: [China, Cathie Wood, and good ol’ pot](. While Cathie and China have been all over the news, weed stocks flew more under the radar last year. - Hopes of national legalization/decriminalization have gradually faded throughout the Biden presidency as we slowly find out Uncle Joe might actually not be chill like that. - Even hopes of allowing banks to bank weed companies are now DOA after being excluded from the $1.7tn omnibus bill. - The selloff continues, with GrowGeneration ending the year down over 5%. Better luck next omnibus. Thought Banana Dividends to the Rescue Dividends are, for lack of a better word, boring. Like bonds, there’s just something about knowing the return you’re gonna get over the life of the asset that takes all the fun and degeneracy out of it. But also, like bonds, dividends matter WAY more than we give them credit for. Over time, these payments, and the potential reinvestment of those payments, will take you into another tax bracket. Just look at the numbers. Over the past 100 years, the S&P ex-dividends posted an average annual return of 6.34%. Adding in dividends spikes that to 10.40%, a 64% bump, and causes the insane difference shown in the chart below: [image] Despite the weight of carrying around all that extra money, I still think I’d rather be the orange guy. Anyway, you might be thinking, like I was about 30 mins ago, that these divvies took a tumble with *checks notes* everything else in 2022. But also, like me 30 mins ago, you’re very, very wrong. S&P 500 companies actually set a record for dividend payments last year, shelling out $565bn to investors. That’s a ~10% increase from 2021, outpacing inflation by about 3%. Back in the glory days of 0% interest rates, no one cared about divvies even a little bit. Attractive yields were harder to find than spotting a good song on Kanye’s last 2 albums as investors poured money into the highest duration assets they could find. Now that we’re back in an adult’s stock market, demand for duration has shortened drastically. That means that the spread in the value of “money now” compared to “money at some future date” has tightened up drastically and reignited the competition for current income. The S&P’s dividend yield has fallen woefully from its 1930s peak of over 13% to a measly 1.78% today. But, with high cash balances still around and a 10-year treasury yield of ~4%, investors expect dividends to start mattering again. The question then comes down to whether or not those dividends will get hiked enough to matter more than other income-investment alternatives like those of treasury yields or other fixed income assets. From a realistic perspective, it’s not like investors compare a stock or index’s dividend yield directly to a US treasury’s, but the fact that divvies matter again will have major impacts on the way we size up individual stocks. Moreover, the 0% rate age has pushed CFOs more on the side of share buybacks to pay investors. Now that they can’t borrow at 1.5% to repurchase stock and drive a much higher gain than that 1.5%, they’ll have to use their brains again and may very well decide that dishing out straight cash is the way to keep investors happy (or at least, to keep them from dumping shares). Either way, if a company is paying me even more money for sitting on my a** while I happen to hold those shares, I sure won’t complain. The big question: Will investors begin to position equity portfolios to take more advantage of dividend-paying firms? How will the CFO dilemma of buybacks vs. divvies play out in a non-0% rate world? Banana Brain Teaser Yesterday — The cost of making only the maker knows, Valueless if bought, but sometimes traded. A poor man may give one as easily as a king. When one is broken, pain and deceit are assured. What is it? A promise. Today — It’s 100 bananas off the [WSO's PE Interview Course]( for the first 10 respondents. LFG! If I was 21 four days ago, and next year I will be 24. When is my birthday? Shoot us your guesses at [vyomesh@wallstreetoasis.com](mailto:vyomesh@wallstreetoasis.com?subject=Banana%20Brain%20Teaser) with the subject line “Banana Brain Teaser” or simply [click here to reply!](mailto:vyomesh@wallstreetoasis.com?subject=Banana%20Brain%20Teaser) Wise Investor Says “The biggest risk of all is not taking one.” — Mellody Hobson How would you rate today’s Peel? [All the bananas]() [Decent]() [Rotten AF]() Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? Sign up for the WSO Daily Peel [here](. [ADVERTISE](=) // [WSO ALPHA]() // [COURSES](=) // [LEGAL](=) Don't want The Daily Peel? [Unsubscribe here](=). Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States