Another L for the Winklevoss Twins

Yesterday, New York Attorney General Letitia James criminally charged Gemini and Digital Currency Group [The Daily Peel... ]( October 20, 2023 | Peel #568 In this issue of the Peel: - Yesterday, Federal Reserve Chairman Jerome Powell spoke at an economic event in New York, hinting at a pause in rate hikes. - Netflix and AT&T had a ripe day, whereas Tesla and Blackstone suffered a share price decline. - Yesterday, New York Attorney General Letitia James criminally charged Gemini and Digital Currency Group with defrauding over 230,000 investors of $1.1bn. Market Snapshot Happy Friday, apes. Hope you’re not too hungover today because earnings szn is still here in full force, and you better be ready. We have a lot to talk about today, so without further ado… Equity markets certainly weren’t ready, for one. Markets traded higher for much of the morning, but as soon as more macro data came in alongside JPow’s comments at a conference in New York, the selling started. Of the major U.S. indices, the Dow declined the least with a 0.75% loss, while the Russell 2k once again took one for the team with its 1.59% fall. Treasuries kept the party going in the meantime, however. Yields on the 10-year note were as close to 5% as SBF is to a jail cell, while the 2-year yield—still hovering between 5.15% and 5.2%—moved slightly lower. An elimination of the inversion appears to be coming, just not in the right way… 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 JPow Calls for a Ceasefire After the miserable failures of the U.S. government’s War on Drugs, War on Crime, War on Terror, etc., we didn’t think there was a “war” this government could win again. Enter Jerome Powell. Fed Chair Jerome “JPow” Powell has had an all-time career, easily a first-ballot Hall of Famer in the category of Fed Financial F*ckery. His stats include trillions of dollars printed, millions of jobs gained, and unteachable stress creation along the way. But his biggest contribution to the league, however, was his declaration of a War on Inflation. Officially, that war began on March 16th, 2022, when the Fed raised interest rates for the first time since 2018. Inflation hit 8.5% that month, while 30-year mortgage rates were still a buyer’s dream, around 3.2%. "Officially, that war began on March 16th, 2022 ..." Now, the opposite is true. Inflation via CPI was last clocked at just 3.7% annually (still almost 2x the 2% target), with mortgage rates pushing 8%. And yesterday, amid this changing of the guard, JPow addressed these ongoing challenges in a speech at an economic event in New York. The main takeaway here was that the Fed plans to extend its rate pause, not moving in either direction anytime soon, effectively meaning Powell has called a temporary ceasefire against the wretched enemy that is inflation. In his prepared remarks, Powell made statements—in the most boring way possible—showing signs that the Fed is vibing with where the economy is right now, saying, “Incoming data over recent months show ongoing progress toward both…” with “both” mean the dual mandate of price stability and low unemployment. But, then again, he did also warn that the ongoing strong growth the economy is seeing along with financial conditions more broadly, like the selloff in the treasury market, “could put further progress at risk and could warrant further tightening of monetary policy.” Basically, a pause is confirmed for now, but the Fed is about as committed to that as Jada is to Will Smith. Some incoming data, like that relating to the housing market we got earlier this week, could be the difference maker. "Nothing makes sense, and no one makes cents." In case all that housing data we discussed yesterday wasn’t enough, today we were victimized again by more incoming info. Existing home sales have plunged to a 13-year low, we learned, almost entirely in response to the [see above] rate hiking battalion JPow has been leading. Sales are down 2% monthly and an almost unbelievable 15.4% from September 2022. Damn. But it gets worse—you might think that given the relative lack of demand, home prices would at least be moving in a manner favorable to buyers. But, the key mistake made in that line of thinking is that it makes sense—this is the post-pandemic U.S. economy we’re talking about here. Nothing makes sense, and no one makes cents. Home prices still managed to rise last month, with the median single-family home from sea to shining sea gaining 2.8% from last year to $394.3k. To all the wannabe homebuyers reading this, I promise we’ll double down on the good news too when the time comes… but that might be a while… or maybe it’s more of an “if” and not a “when.” So, unless you’re trying to switch up where you live or are the U.S. Treasury, JPow’s war against inflation has been an overall successful battle. There were some casualties (RIP SVB), but at least it doesn’t cost something like $7.19 for a dozen eggs anymore. What's Ripe Netflix (NFLX) ↑ 16.05% ↑ - Much like JPow above, Netflix has recently declared its own war against password sharing. Unlike Powell and the Fed, however, Netflix can actually declare victory. - Despite all the moaning, groaning, and phoning to your parents, Netflix’s password-sharing crackdown has put a big, fat smile on investors’ faces, like the Grinch when he stole that little girl’s presents. - That, among other things, led Netflix to one of its best quarters in a long time financially and in terms of user growth. EPS of $3.73/sh beat estimates of $3.49 while the top line also beat, pulling in $8.54bn vs expectations for $8.52bn. - But that phenomenal news was far from the best part. The streaming service also went ahead and added nearly 9mn users to its platform, trouncing earlier quarters and the brief dip in subscribers seen last year after pulling out of Russia. One thing that won’t be pulled out, however, is the company’s shares from investor portfolios. AT&T (T) ↑ 6.56% ↑ - Apparently, the more your customers hate you, the better the company does. Was it Peter Lynch who said that? - No, it must’ve been AT&T CEO John Stankey in response to his company’s latest quarterly earnings. Spoiler alert: they were anything but similar to his last name… - For one, the driver behind this earnings reaction wasn’t actually revenue of income but free cash flows, which should be the most important metric from an investor’s perspective. Guidance for free cash flows here was bumped to $16.5bn for the year as the firm’s return to subscriber growth amid cost-cutting efforts creates a great combo. - Even still, the company did beat on both the top and bottom lines. Revenue of $30.4bn grew 1% from last year while the firm raked in adjusted earnings of $0.64/sh. What's Rotten Tesla (TSLA) ↓ 9.30% ↓ - And for Elon’s next venture, he’ll be starting a pharmaceutical company to help shareholders recover from the sickness of watching yesterday’s stock price. Hope you’re ready to invest there too because, trust us, it’s gonna need a lot. - We profiled last quarter’s earnings in the highly-esteemed Thought Banana section yesterday, but today’s market reaction entirely negates the after-hours move we saw at the time. Shareholders dumped in response to misses on both the top and bottom line as just about everything else was bad. - The worst culprits included continued margin pressures from vehicle price cuts, increased expenses to expand AI research and development, and lower delivery numbers. But hey, at least starting on November 30th, you might start to see cybertrucks rolling around like a damn monster truck soon. Blackstone (BX) ↓ 7.90% ↓ - If “overpaid douchebag” was a company, well, we found it. Alternative asset manager Blackstone is one of the largest and best-known PE players in the world, but you wouldn’t have known that yesterday. - Shares plunged almost as much as bonuses to their associates did in 2022 on the back of not-so-hot quarterly earnings. Blackstone’s earnings to shareholders came up short, raking in only $0.94/sh vs estimates for $1.01, a 12% fall from last year. - Net profits from asset sales were the Grim Reaper of the report, it seemed. This segment—selling Blackstone’s investments like commercial real estate and businesses acquired via LBO—dove 36% annually, largely thanks to JPow setting fire to their buildings—I mean, *raising rates. Thought Banana New York vs. New Money It’s been a while since we used the term “defi” in the Peel, allowing us not to worry about deliverability issues due to “spammy” language (their words, apes, not mine). Today, consider yourself lucky if you actually received this. Yesterday, New York Attorney General Letitia James criminally charged Gemini and Digital Currency Group with defrauding over 230,000 investors of $1.1bn. Duh, duh, duh… The only person happier to see this news than TradFi boomers was FTX founder and professional liar Sam Bankman-Fried. Now, he might not be the only pasty rich kid within his cell block. "... New York Attorney General Letitia James criminally charged Gemini and Digital Currency Group ..." The charges pressed by James and the state of New York include all the best kinds of fraud, including lying to investors, creating fake documents, and doing both of those things to soothe the worries of the firm’s creditors. Those allegations were pointed directly at DCG and its subsidiary Genesis, while Gemini only got in about the same amount of trouble as your friend from another school who was at the dorm party when the cops came. Basically, the allegations allege that (allegedly) DCG’s primary broker, branded as Genesis, made loans to counterparties like… Three Arrows Capital and, of course, Alameda Research. So, Genesis would lend customer deposits (totally legal via rehypothecation agreements that brokers make clients sign) to trading firms and collect profits from the interest charged to clients. According to NY, Genesis and DCG did not do an adequate job of auditing those counterparties, which included some of the largest failures in U.S. business history in Three Arrows Capital and FTX/Alameda. " ... the Winklevoss twins ... were also in on it." Now, prosecutors allege that the Winklevoss twins, Mark Zuckerberg’s former nemeses, who run Gemini, were also in on it. Here, the charges are that Gemini did not do an adequate job of assessing counterparties for its high-yield Gemini Earn lending platform. These counterparties included Alameda, whose former CEO, Caroline Ellison, has been busy getting charged with fraud and testifying against her own former boss. Lending to them isn’t a crime itself, but having knowledge of the risks involved in lending to them and not disclosing that to customers is, according to NY AG James. Confused yet? That makes 2 of us. Stay tuned for updates because, while we may not be able to predict much in finance, this will be a fun one. The big question: Did these crypto firms do anything illegal? Will SBF have some company in JAIL? Banana Brain Teaser Yesterday — Mad Ade has left a glass of water on the window ledge in direct sunlight. On the first day, 1/3 of the water evaporates. On the second day, 3/4 of the remainder evaporates. By the end of the second day, Mad Ade remembers the glass. How much water is left? Answer 1/6 of the water is left. Today — In Delaware, you must pay a deposit on all bottles, and you can return your bottles to receive your deposit back. If you buy a bottle of soda for $2 and the deposit is $1.60 less than the actual cost of the soda, how much is the deposit for? Shoot your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “It has been far safer to steal large sums with a pen than small sums with a gun” — Warren Buffett 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? 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