Rotten Apples and Political Orchards

Hindenburg's allegations against the Adani Group in India intensify, implicating Indian Prime Minister Narendra Modi... [The Daily Peel... ]() September 1, 2023 | Peel #535 In this issue of the Peel: - U.S. stock indices struggled while Nasdaq gained 0.11%; Cybersecurity stocks like CrowdStrike performed well, while Chewy and Dollar General saw dips. - Core PCE increased 4.2% annually for July, reflecting an uptick in inflation. Despite this, market reactions were calm. The rate hike odds increased by 1%. - Hindenburg Research's allegations against the Adani Group in India intensify, implicating Indian Prime Minister Narendra Modi and raising questions ahead of upcoming elections. Market Snapshot Happy Friday, apes. Allow me to put you in an even better mood on this beautiful Friday and remind those who forgot that, yes, we really do have a long weekend ahead of us. Equities clearly wanted to celebrate early as U.S. indices fought hard to squeeze out some green, but the effort proved futile. Nasdaq was the only one to gain on the day, even though it was just 0.11%. Megacaps weren’t around to help too much, but the lack of breadth also came with a lack of gains. Treasury yields had a similarly boring day, somewhat surprising in the face of an upward-trending inflation print. The U.S. Dollar took care of all the gains, however, surging through 103.5 by close. Let’s get into it. Financial Modeling Skills Get You Paid [image](=) Attention all financial wizards and career climbers, are you ready to take your modeling skills to the next level? If you're looking for an undervalued investment in your career, look no further than [WSO's Elite Modeling Package!]() With 6 courses designed to turn you into an absolute Excel master, this is the package that keeps on giving. From building a 3-statement model to tackling complex LBO modeling and M&A transactions, this package has got you covered. You'll also build a solid foundation in trading comparables and precedent transactions analysis and DCF modeling, all using the versatile and relatable example of Nike, Inc. And as if that wasn't enough, the first 3 Peel readers to sign up for the Elite Modeling Program in the next 24 hours will also get access to our Foundations Program! That's right, a two-for-one deal that'll have you feeling like a baller in no time. So don't miss out on this opportunity to boost your career and invest in [WSO's Elite Modeling Package](=) now! #ModelOn #FinancialGains #CareerGoals Macro Monkey Says Core Day If the American economy is serious about getting in shape, it’s gonna start with a solid core. We’re certainly far from that 6-pack, V-line abs everybody wants, but it seems like the economy is at least hitting the gym. We’ll take it. Yesterday, Fed Chair Jerome Powell’s favorite inflation indicator was released for the month of July. Last month’s Core PCE increased 4.2% annually and 0.2% compared to the prior month. As you’ll see in the below chart, the 4.2% annual rate is an uptick in the rate of inflation growth compared to June’s 4.1% reading. But importantly, and like the mature, reasonable investors we all obviously are, we didn’t all freak out. [image] [Source]() As a reminder, PCE is the Personal Consumption Expenditure. It uses actual, real-world breakdowns of consumer spending by adjusting weightings more frequently, along with inherently smoothing out big swings in prices. Further, the PCE gives a clearer view of the Goods vs. Services breakdown, whereas with CPI, we actually have to do the math ourselves (foul). Core PCE is the same thing but with food and energy stripped out, as these readings tend to be overly volatile. Aside from the uptick in the annual growth rate, the big headline was the preference of Americans to dump cash into services and experiences as opposed to goods. As one economist put it, “The goods economy is on a completely different trajectory than the services economy.” "... goods are good ... but with services ... it’s been a far tougher battle." Basically, goods are good. Inflation driven by supply chain f*ck ups that largely drove the spike in goods prices are mostly resolved, but with services—the one on which the Fed’s rate hikes are focused—it’s been a far tougher battle. Overall, consumers spiked their spending in the month of July, largely driven by the cringely-named “she-conomy” driven by concert tours from Taylor Swift, Beyonce, and, of course, Barbenheimer. Lastly, it’s important to understand why Mr. Market didn’t completely lose his sh*t as a result. Inflation started to chill out just a bit around this time last year, meaning the annual comparison or the “base effects” make July’s increase less pronounced. At the same time, wage growth has been moving in the right direction for JPow but definitely in the wrong direction for you (and me). Still, the [odds of a further rate hike]() increased by a whopping 1% for the day, so maybe we should take a xanny. What's Ripe CrowdStrike Holdings (CRWD) ↑ 9.28% ↑ - Cybersecurity <> AI stole the spotlight as the name of the game yesterday, with names like CrowdStrike leading the charge. - Solid earnings secured this thing away from a down day as sales of $731mn beat out both Wall Street’s and management’s guidance while earnings of $0.74/sh trounced the $0.56/sh Mr. Market was pricing in. - Adding the cherry on top, guidance for Q3 and the full FY both got a tasty boost. Alongside CrowdStrike, other cloud-based cybersecurity names like Okta (+13.51%) were basking in their own glory as well, also delivering a beat down on earnings that most analysts haven’t received since middle school. UBS Group AG (UBS) ↑ 5.66% ↑ - Who knew buying out your rival at a dirt cheap price with full government support and even financial backing could bring shares to all-time highs? Definitely not holders of UBS stock. - But nonetheless, that’s exactly what we’re seeing now. After dropping their first earnings report as a (semi)-combined company, the combined UBS and Credit Suisse shocked the world with its results. Given the Patrick Star-level of confusion caused by this giant acquisition, most analysts didn’t even try to put an estimate on it, but… - Safe to say, the Swiss bank served portfolios well yesterday. We can’t confirm that’s true for actual wealth management clients of the combined firm, but the $16bn in net new assets and $18bn in deposits raked in over the quarter seems to have been enough for traders. - We’ll be talking about UBS and Credit Suisse as the “combined entity” and other bullsh*t, nerdy terms like that until at least 2026 when the acquisition is expected to be finalized. But with an expected $10bn in cost reductions and 3,000 layoffs between now and then, anything could happen…even more than usual. What's Rotten Chewy (CHWY) ↓ 12.26% ↓ - Looking at results like this and considering all the theft going down in retail stores lately, you might think that pet owners are dropping their dogs off to rob Chewy while they go rob Target or Dick’s Sporting Goods. - Luckily, however, Chewy’s clients (mostly) don’t have opposable thumbs. Despite the solid numbers printed last quarter, this post-earnings dive can be attributed to plain ol’ bad business. - The online retailer delivered a surprise $0.04/sh profit on $2.78bn in sales, both beating handily as the firm was expected to post a $0.05/sh loss. That was just about the only piece of positivity in the report, however, as active users number fell annually, bringing shares to the pound for the day. - Active users of 20.39mn were off from the 20.49mn reported in Q2’22. Now, analysts gave the stock the dreaded label of “uncertain growth” going forward. As always, there’s nothing Mr. Market hates more than uncertainty. Dollar General (DG) ↓ 12.15% ↓ - Dollar General has been demoted to Dollar Lieutenant or maybe even Dollar Private after the quarter they just had. In fact, maybe if they brought in actual Privates, Lieutenants, and Generals, that might fix their main problem. - Of course, the main problem was theft, just like other retailers this quarter. The company saw a 1.2% reduction in gross margins compared to last year, while Dollar Tree saw a 2.2% fall, both attributed to “inventory shrink”—aka, theft. - Sales and earnings both missed, reporting $2.13/sh on $9.8bn in sales vs. estimates for $2.47/sh on $9.9bn. Even without all the criminal activity, I’m sure investors would love to press charges for portfolio assault already. Thought Banana “Oh, the Humanity!” It’s going down in the world’s largest democracy right now. And once again, this “tragedy” was caused by a Hindenburg. A few months ago, short-selling firm and stock serial killer Hindenburg Research published a piece claiming the Adani Group—one of India’s largest conglomerates and the plaything of one of the world’s richest men, Gautam Adani—was total bullsh*t. "... a complicated series of offshore accounts ... to manipulate their share price." Basically, the claims were that the company used a complicated series of offshore accounts and other smart people legal things to manipulate their share price. Obviously, that’s a big no-no. Shares tanked, and Adani tried to fight back, but yesterday, things only got worse for the Indian conglomeration. In fact, it got so bad that India’s Prime Minister Narendra Modi just might be involved. Modi, India’s head of state since 2014, oversees the world’s largest democracy and soon-to-be world’s most populous country. Naturally, the (formerly) $120bn man that was Gautam Adani before these reports emerged was a big donor to Modi’s campaign. Throughout his administration, the Modi government has passed laws heavily supportive of the Adani Group, including laws that allowed them to hang onto important coal mines and caused Modi critics to allege that he is “handing over the country’s wealth to the Adani Group.” "... caused Modi critics to allege that he is 'handing over the country’s wealth to the Adani Group.'" Basically, the big takeaway here is that the Adani Group seems even more screwed over than they were before. Now, Modi is getting pulled in, too, and with elections just a year away in India, it’ll be interesting. The big question: Did the Adani Group and Chairman Gautam Adani manipulate markets? Is there some kind of collusion going on between the country’s richest man and its Prime Minister? How does this impact Modi’s campaign? Banana Brain Teaser Yesterday — I am found in great fields. With my kin, provide great yields. Decapitate me with no regret. What makes me bread is what you’ll get. Cut once again, again I implore And you will do this thing evermore. What have you found from me? Give me the words above, all three. Answer: “Wheat” is found in great fields. With its kin, provides great yields. Decapitate “wheat” with no regret. And the word “heat” is what you’ll get. Cut once again, again I implore And you will “eat,” yes, eat evermore. What have you found with this treat? The three words above, “wheat,” “heat,” and “eat.” Today — You have been given two definitions. Each pair of definitions is for two unrelated words. Your task is to discover what these two words are. In the answer to the second word, we took the first word but changed one of its letters to make a completely different word. (i.e., table - fable) - An instrument used to measure time - an outer garment. - An instrument used in woodworking for smoothing wood - a shallow dish used for eating food. - A deep basin used to hold liquids or food - to utter a loud, prolonged cry. - A position of authority - a group of singers. Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “Investing is a business where you can look very silly for a long period of time before you are proven right.” — Bill Ackman 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? [Be smart like your friend](). [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