Surprising Latest GDP Figures

According to the Commerce Department on Thursday morning, U.S. GDP grew at an annualized rate of 4.9% in the third quarter. [The Daily Peel... ](=) October 27, 2023 | Peel #573 In this issue of the Peel: - According to the Commerce Department on Thursday morning, U.S. GDP grew at an annualized rate of 4.9% in the third quarter. - IBM and American Tower had a ripe day, whereas Align Technology and certain toymakers, including Hasbro and Mattel, suffered a share price decline. - Sam Bankman-Fried testified without a jury present, with the judge using this testimony as a chance to determine if he'd be allowed to make his case to the jurors. Market Snapshot Happy Friday, apes. Do we really have to turn the market on today? After these past two days, maybe let’s all just get some fresh air. That’s pretty tough to do in NYC, but maybe the smells of concrete and urine have the same effect. Speaking of smells, equities absolutely stunk up the place yesterday. With its 1.76% fall leading indices lower, you would’ve asked the Nasdaq to leave the party for smelling so bad. The Russell 2k thankfully put on some deodorant, however, and managed to eke out a 0.26% gain as large caps led the selloff. Materials, utilities, and real estate were the only non-loser sectors for the day, while tech and communications bit the dust. Yields, in the meantime, fell across the maturity spectrum too. Apparently, everyone was hitting “Sell” when they probably should’ve been hitting the gym, but we love to see 10-year yields back below 4.9%, especially if you plan to buy a home in the next… ever. The Dollar moved slightly higher, breaking through 106.5, spicing up the relatively boring action we’ve seen there lately. Let’s get into it. Crack the Code to PE Interviews [image]( Are you dreaming of the buyside? Do you want to learn how to ace not just the paper LBOs but the full-blown LBO modeling tests and PE cases? 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With the WSO PE Interview Course, you’ll be able to: - Learn from experts at top PE megafunds and UMMs - Practice with realistic and challenging LBO models and case studies - Gain confidence and clarity on how to talk about your deals and sound like an investor Don’t miss this opportunity to invest in your career and [achieve your PE goals.]() Macro Monkey Say Charity Donations The grass is green, the sky is blue, and the U.S. economy has been strong this year—three absolute facts, yet for some reason, we seem to have a tough time believing one of them. Fortunately, we can go outside—as crazy as it sounds—and touch grass or look at the sky to get confirmation of those statements. Unfortunately, we can’t “see” the economy like that, which might actually be a good thing because if we could, we’d be way too distracted by how hot it is. Or at least, we sure would have been this past quarter. According to the Commerce Department on Thursday morning, U.S. GDP grew at an annualized rate of 4.9% in the third quarter, way faster than expected and reminiscent of an elderly man running a 4.8 sec in a 40-yard dash. Needless to say, everyone was surprised. Economists and onlookers had been anticipating between 4.3%-4.7% growth over the period, but clearly, the U.S. saw that and said, “Hold my beer.” "... U.S. GDP grew at an annualized rate of 4.9% in the third quarter ..." And now, I have to thank you, apes—your spending and contributions to this great charity that is the U.S. economy were the primary drivers of that GDP acceleration. Spending, which rose just 0.8% in Q2, increased by 4% inflation-adjusted compared to the prior period. Recalling that spending will fall somewhere between 66%-71% of GDP for any given year, this growth leading into Q4 (where Santa and Jeff Bezos drastically jack up contributions to the economy) is a positive sign. Most of that acceleration stems from spending on things like prescription drugs (not ideal) but also includes jumps in spending on vehicles, recreation, and other things that make life slightly more sufferable. Anyway, at the same time, private investment leaped 8.4% for the quarter. Nonresidential fixed investments were really the only weak part here, as spending on inventories and other nonresidential capital expenditures dominated. Federal government spending increased as well, while state and local units overall decreased their outlays. Finishing up the GDP equation, we saw net exports rise slightly as well. "... market-implied odds for rate cuts at the December meeting have been spiking ..." With all that said, markets barely gave a f*ck. The reaction to the release was almost as minimal as my parent's reaction to the picture I drew for them last year, but this time, the lack of reaction seems warranted. Even the good parts of the report weren’t that great, with consumer spending primarily increasing on nondurable goods. The uptick in vehicle spending, however, along with the increase in private investment, could suggest that consumers and businesses alike are getting more acquainted with “higher for longer” rates. Lastly, at the same time that this realization is setting in, market-implied odds for rate cuts at the December meeting have been spiking (yes, you read that right, I said cuts), with current probabilities for a 25bps trim pegged at ~27% at the time of writing. At this point, economic surprises are becoming more and more the norm. I don’t think that actually makes sense, but the market’s limited reaction and all the nonsense of the past 18 months confirm the (apparently and hopefully) unrattled-able nature of the U.S. economy and our oh-so generous consumers. Remember to keep contributing! What's Ripe IBM (IBM) ↑ 4.87% ↑ - Boomers are still booming. At least, that’s the only explanation for yesterday’s price action in the tech sector. The old school bunch led for the session, driven by none other than the OG themselves, IBM. - Shares ripped on Thursday for the tech company founded back when our President was (allegedly) unable to remove himself from his own bathtub in 1911 during the Taft administration. Unlike Taft, IBM was able to get itself out of trouble, at least for now. - The firm reported much better than expected earnings yesterday, posting EPS of $2.20 vs estimates for $2.13/sh, while sales came in just a hair above at $14.8bn. IBM’s software division carried the team for the quarter while other units, like Consulting, were off from estimates… not to imply that consultants can ever be wrong, of course. American Tower (AMT) ↑ 8.11% ↑ - Do you ever see those giant electrical/utility poles driving down the highway or in the middle of nowhere? Exactly—that’s American Tower. - The firm is a real estate investment trust (REIT)—and the 2nd largest of them in the U.S., after Prologis (PLD, +0.90%)—meaning it is a holding company generating revenue by leasing space on its towers to cell phone and other companies like Comcast or Verizon. They also crushed it in their latest quarter’s earnings. - American Tower posted EPS of $2.58 on sales of $2.8bn vs analyst estimates for just $2.35 on $2.7bn. The beat comes amid higher-than-expected demand for [see above] tower space, largely as the 5G rollout continues to ramp up for the firm’s main clients. - Plus, since now we all know that 5G actively creates viruses like C-19 (or whatever the hell those id**ts were saying) nonstop simply by existing, an expansion to medical devices or PPE could be the move. Stay tuned. What's Rotten Align Technology (ALGN) ↓ 24.88% ↓ - Everyone knows dentistry is obviously a scam (I have to go 2x per year for one body part? Yeah, right), but it seems that Wall Street is leaning toward that, too. We can thank Align’s earnings for that realization. - The company behind the now (in)famous invisible braces brand, Invisalign, has slashed its demand forecasts and cut guidance going forward. Adding salt to the wound, last quarter was pretty gnarly too—Align reported EPS of $2.14 on $960mn top line vs the $2.26 on $995mn analysts were looking for. - So not only was last quarter bad, the company expects the next one to be worse. Guidance was chopped from $3.97-$3.99bn to $3.83bn-$3.87bn, a relatively dramatic decrease. - Real dentists are suffering from weaker demand, too. Cancellations have increased, and visits have decreased among adult patients, likely realizing that if you simply brush and your teeth don’t hurt, you probably don’t need to have some old guy shove his hands in your mouth every six months. Toy Makers (HAS, MAT) ↓ 9.63% ↓ (on average) - Barbie’s up, and everything else is down. That essentially sums up the performance of toy makers this year, but yesterday, things got especially bad for their stocks. - Two of the big dawgs of toy making, Hasbro and Mattel, reported earnings this week. Both slumped heavily in response, largely thanks to a quieter-than-usual holiday season expected. Hasbro is even going as far as to forecast a 13%-15% annual sales decline for FY23. - But Mattel has Barbie, so they must be fine, right? Well, even that might not be enough as just about every other business line was guided for lower performance in the coming quarter. Guess we’ll just have to wait for the Thomas the Tank Engine movie to finally drop… and damn, are we excited for that one. Thought Banana Sam to the Stand All those tweets, Twitter spaces (back when it was called Twitter), media interviews, and even the appearance on damn Good Morning America weren’t enough for SBF. He still wants to talk. Most of the time, defense lawyers will sacrifice their firstborn child rather than have their defendant testify in their own case. Naturally, SBF took the stand yesterday as the prosecution rested their case because, well, he needed to. The only situations in which someone like SBF would testify in their own trial is as an absolute hail-mary, last-ditch attempt to shave a few years off the eventual sentence. Prior to taking the stand, the judge actually dismissed the jury, taking this testimony as a chance to determine if he'd be allowed to make his case to the jurors. "... SBF took the stand yesterday as the prosecution rested their case ..." Needless to say, SBF was grilled the second he stepped up there. Assistant U.S. Attorney Danielle Sassoon was fired up from the get-go, going for the throat by asking questions about the $13bn hole in Alameda’s balance sheet, the use of the auto-delete function on Signal, and more. But, maybe the best part of the reported testimony was when SBF’s own lawyer, Mark Cohen, was taking his run at questioning. Both lawyers get to cross-examine any witness, and SBF is no different. Cohen was asking about a meeting with Bahamian regulators just days after the collapse of FTX and Alameda. As part of his response, SBF started to talk about an alleged hack into the company that began at the same time, and Cohen basically told him to shut up immediately. It's not a topic the defense wants to dive into, apparently. Sassoon, for her part, focused more on what led to the collapse, obviously. The use of privacy-first messaging app Signal was of top concern for her, asking if SBF and other top execs had sought approval from their legal team (aka a crackpot lawyer who’s [covered up frauds](=) before), to which SBF replied in the classically ambiguous way “I don’t know if I sought specific approval for that, no.” Aside from the questions themselves, you can’t help but think of Michael Lewis praising the guy in his book and 60 Minutes interview. "Sounds just like the stand-up, trustworthy guy I want ..." Literally, in the book Lewis wrote, he quotes SBF as saying, “I don't really have a soul… there's a pretty decent argument that my empathy is fake, my feelings are fake, my facial reactions are fake.” Sounds just like the stand-up, trustworthy guy I want to keep my assets safe. Or, maybe just keeping my assets. The big question: When will the trial end, and how will the jury rule? If guilty, what kind of sentence are we looking at for SBF? And most importantly, will customers ever get any funds back? Banana Brain Teaser Yesterday — Alex and Ethan go shopping for their mother on Mother's Day. Alex buys something for $12, and Ethan buys something for $28. They want to share the price. How much does Alex have to pay Ethan to get an even price for both of them? Answer $8. That would make Ethan's price $20 and Alex's price $20. Today — I need to get a new watch. The one I have loses exactly 20 minutes every hour. It now shows 4:00 am, and I know that it was correct at midnight when I last set it. I also happen to know that the watch stopped 4 hours ago. What is the correct time now? Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “Successful investing is anticipating the anticipations of others” — John Maynard Keynes 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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