Are Credit Conditions Better?

The recent Senior Loan Officer Opinion Survey has suggested improvements (still not ideal) in credit conditions [The Daily Peel... ]() November 7, 2023 | Peel #580 Silver banana goes to... [SRS Acquiom. ](=) In this issue of the Peel: - Warren Buffet's Berkshire Hathaway reported a less-than-ideal performance for the last quarter, but in all considerations, it wasn't bad. - Freshpet and Booking Holdings had a ripe day, whereas DISH Networks and Hilton Grand Vacations struggled to remain green for the day. - The recent Senior Loan Officer Opinion Survey has suggested improvements (still not ideal) in credit conditions with better supply and demand. Market Snapshot Happy Tuesday, apes. And happy reverse-7/11 day, a small cap Holiday we’re increasingly bullish on. Hope you enjoyed the first-ever Daily Peel Live show yesterday, and we better catch you later today, right around 10 am ET… and yes, we expect you Californians to be ready for it, too. Markets kicked off this beautiful week on a note that was more strong than weak. No one was excited about the returns, but we were all glad we didn’t lose money. U.S. equity indexes broadly rose despite only 4 of the 11 S&P sectors rising on the day. In both magnitude and breadth, it was much less bullish than the recent green print on Wall Street, but it’s a green print we’ll take. The Nasdaq’s 0.3% gain led while the Russell 2k dumped 1.25%. In the meantime, treasuries bounced off recent lows and began to move higher. The 10-year, which touched as low as 4.48% late Friday, came back to well over 4.6%, while the 2-year moved mildly higher as well but not enough to break back above 5%. Let’s get into it. Up Your M&A Game with Exclusive Deal Intel [image]( Gordon Gekko said it right: “The most valuable commodity I know of is information.” By that measure, SRS Acquiom is loaded—and we’re always happy to share the wealth. Take our Private M&A Deal Terms Quick Reference Guide. 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[It’s all right here](=) >> Banana Bits - One business day after Elon and the xAI team released the homie Grok, OpenAI and its big daddy Microsoft released [GPT-Turbo](), apparently going for a name that sounds like a 1950s car model. - As companies continue to struggle to fill their city-based offices, young people are still flocking to them, creating a big opportunity for landlords to convert [offices into apartments.]( - Almost forgot this existed, but apparently, NFT investors at a recent conference were so blind to see their investments are worthless that it took [literally going blind to convince them]( (RIP, though that sucks for those people). - But then again, [weekly inflows to digital asset](=) projects did hit a high since July of 2022, so maybe they’re onto something, eh? Macro Monkey Says Buffett's Big Bucks I don’t know if you apes are history buffs or anything like that, but in 1930, a guy named Warren Buffett was born. Apparently, he does pretty well for himself. Not only does he do pretty well for himself, but this Buffett character also does pretty well for his investors through his company that sounds like a national park or something, Berkshire Hathaway. Berkshire might not have done too well yesterday, losing 1.47% on earnings, but I think the years of making thousands, millions, and eventually billions of dollars might make up for it. Hopefully, the shareholders can forgive and forget. Well, we better hope they do because, despite Berkshire’s less-than-ideal performance yesterday, they actually had a pretty damn good quarter. To shout out some of the highlights real quick, Berkshire reported: "... they actually had a pretty damn good quarter." - $157.2bn in cash and equivalents on hand, a new record high - A $319bn investment portfolio, down from $353bn at the end of June - $10.76bn in operating earnings, over 40% higher than the same period last year - A 35.9% increase in their holdings of U.S. treasuries yielding >5% - A 93-year old Chairman and 99-year old Vice Chairman who are both still killing it Not bad, Buffett. Warren and his partner, the 99-year-old [jokester](=) Charlie Munger, managed their firm to a stellar operating performance for the quarter, while the conglomerate’s legendary investment portfolio had a weak showing. For Buffett and Berkshire, this quarter was all about buying as many treasuries as Secretary Janet Yellen would sell him. While high rates eviscerated the principal value of most of my portfolio (damn long-duration assets), it has been nothing but a boon to Berkshire. As rates have risen, so have their holdings of risk-free treasuries, eating up all those rate hikes and bringing the company’s cash pile to an amount that could literally purchase Intel, Disney, or Wells Fargo without breaking a sweat. But, for the other side of the investment portfolio, equities didn’t have a great performance. Much like when a Hall of Fame quarterback throws an interception, it’s hard to be mad at them for long, given their track record. Further, it’s even harder to be mad that Berkshire’s biggest holding, Apple—also the most valuable company in the world—was the primary culprit for the crime of weak performance. In total, their portfolio’s value lost $24.1bn, obviously met with the basic response of “meh, we’ll get ‘em next time” from the Chair and Vice Chair. [image] [Source](=) "... Berkshire does have to eat that loss in its own earnings ..." Unfortunately, however, Berkshire does have to eat that loss in its own earnings, bringing the company’s quarterly loss to $12.56bn. Meanwhile, parts of Berkshire’s operational units were killing it. Most notable was the firm’s energy unit, which saw revenues spike over 3x to $19.03bn on the back of new acquisitions in the space, along with an overall increase in the cost of energy. Berkshire’s prize, joy, and Buffett’s “favorite child” led by Geico saw strong sales gain as well, while extreme claims saw a staunch decline to just under $600mn thus far, a drastic improvement from Q3’22’s nearly $4bn in total payouts, which they largely thanked Hurricane Ian for… good times. The firm’s smaller units, however, tell a story of an economic environment we should be even more confused about than we already are. Berkshire’s hallmark railroad unit, BNSF, reported lower volumes and revenues, suggesting a lower demand for shipping transportation, while the firm’s real estate and underwear brands (they own Fruit of the Loom) also slumped. But of course, rich people are doing fine as the firm’s NetJets unit performed well, a company that sells “fractional ownership in private business jets,” according to Google. Essentially, it’s the private jet version of a timeshare, something I’m too poor to even know existed until 2-minutes before I wrote this. So, it could’ve been a lot worse for Buffett & Co., but as this conglomerate represents the American economy better than just about any other company on its own, it’s kind of a depressing sign for the rest of us, too. We’ll see how it goes, but we already know it’s not going well for shareholders… What's Ripe Freshpet (FRPT) ↑ 16.91% ↑ - Shoutout to my dog Rosco and all the other good boys and cats out there that have owners smart enough to buy Freshpet. No, this isn’t an ad for their company, but damn, I wish I saw an ad for their stock over the weekend. - Freshpet shares soared on the back of a strong earnings report that got all the big dawgs barking. Sales of $200.6mn and a loss of $0.15/sh beat the ~$195mn and $0.18/sh loss expected while execs did nothing but wave their tails in discussing the future. - Guidance was bumped from $750mn to $755mn, a slight increase, but it turns out investors do like to make more money, leading them to get even more pumped. - That would be a 27% jump from last year, more than enough to give shares the zoomies and send them on the nearly 17% ride yesterday. Booking Holdings (BKNG) ↑ 3.94% ↑ - “Cool as a cucumber” is not a great way to describe most investors, traders, and people in general. But, it is accurate for Booking Holdings CEO Glenn Fogel. - The company, which reported earnings on Thursday evening, facilitates travel needs like flights, hotels, and more. Naturally, they’ve seen a solid uptick since the world was freed from our bedrooms as the C-19 pandemic receded. - But, according to management, travel demand dropped off after the outbreak of War in the Middle East. Still, management isn’t worried, saying things like “wish they would look at this in a much longer-term… betting against human nature— they like to travel—is a bad bet” and “eventual normalization there too,” referring to a similar trend seen at the outbreak of Russia’s invasion of Ukraine. - And it seems to have worked as shares were upgraded over at DA Davidson from Hold to Buy, sending the stock on yesterday’s joy ride. What's Rotten DISH Networks (DISH) ↓ 37.43% ↓ - Doing the dishes sucks, and apparently, so does owning their stock as DISH Networks commits securities assaults on Monday, crashing nearly 40% in just one day. - Oh, the humanity—you’d think Nancy Pelosi came out and publicly shorted the stock or something. Nope, earnings were really just that bad. Earnings swung from $0.65/sh last year, and—despite analysts expecting only $0.11/sh this time around—they got a $0.26/sh loss instead. - Meanwhile, sales fell 10% to $3.7bn while subscribers jumped off a cliff—probably both literally and in terms of the overall count. We just hope your portfolio wasn’t subscribed to their shares. Hilton Grand Vacations (HGV) ↓ 8.03% ↓ - We also certainly hope Hilton Grand shareholders weren’t on vacation on Monday, as they might not have been able to sell before this embarrassment. Shares tanked as the firm looked to M&A for expansion. - Formerly the time-share program division of Hilton Inc., Hilton Grand Vacations shares were sent on a dive Monday as the firm announced its intention to purchase competitor Bluegreen Vacation Holdings for $1.5bn. - That’s more than a 100% premium from the $35.52 price shares closed at on Monday. Clearly, somebody fleeced somebody here, but getting bought out more than 2x of their recent closing price sent Bluegreen on a tear, rising >106%. - HGV also reported disappointing earnings in the meantime, showing declines in the top and bottom lines and likely providing some unintentional evidence of the firm’s need to acquire competitors in order to grow. Thought Banana SLOOS Noose Gets Loose Every once in a while, formerly useless economic data that only gets collected so the government can further waste your tax dollars for the sole purpose of entertaining macro nerds actually becomes relevant. Since JPow nuked us with rate hikes, the SLOOS has stepped up to the plate. The Senior Loan Officer Opinion Survey ([SLOOS](=)) on Bank Lending Practices (yes, that’s the official name) for the 3rd quarter dropped on Friday, and needless to say, Fed watchers are psyched. This survey seeks to gauge the willingness to lend from senior loan officers across the country. It’s a measure of credit restriction and, therefore, a measure of how afraid banks are to lend or of the future. "... economists and macro traders alike care more about trends in the direction of data and ... as opposed to the actual levels an index is at." Since rates began to rise back in March of 2022, willingness to lend has plummeted while demand for credit has largely followed. However, since the Fed’s “hawkish hold” of interest rates back in June of this year, those year-long dynamics have slowly begun to reverse. Often, with economic data, it’s more about the direction than the level. This means economists and macro traders alike care more about trends in the direction of data and what that means for their outlook as opposed to the actual levels an index is at. The change is what matters—it’s about the journey, not the destination. And in the third quarter, willful supply and demand of credit was still abysmal—don't get me wrong—but it stopped getting worse. In this economy, we’ll take it. Take commercial and industrial loans, for example. The net percentage of respondents tightening demand for these kinds of loans hovered around ~35%. That’s absurdly high by the standards of the last decade or so but much better than the nearly 50% net that was tightening these standards as of last quarter. Further, the net percent of banks increasing spreads over the banks' cost of funds fell from nearly 70% to just ~50% and just above 40% for small firms. This suggests that loan officers are more confident in the ability of firms to pay their loans back on time, allowing them to decrease their unitary profits by not increasing spreads as much. "Basically, to explain it like a human being and not an economist ... fewer banks are making lending standards more stringent." Easy enough, right? Basically, to explain it like a human being and not an economist (whatever they are), fewer banks are making lending standards more stringent. Most of them still are—again, don’t get me wrong—but to see a smaller percentage of these institutions jacking up loan requirements is a positive sign for the flow of capital. The big question: Will loan officers continue to tighten standards to a lesser degree? Is this some much-needed good news for prospective homebuyers? Banana Brain Teaser Yesterday — Chanelle has won 429 games and lost 431 games of her favorite computer card game. If she wins 3 out of every four games she plays from now on, how many more games must she play to bring her total winning percentage up to 55%? Answer Chanelle must play 220 more games. In these 220 games, she wins 3 out of every four games, bringing her total of games won to 594 out of 1,080 played (or 55%). Today — Some say I'm their worst enemy, Some say I'm their best friend. Some use me in brevity, You'll still pay for what I lend. There's proof that I can even kill, Too many take that path. There's claim also that I can heal, You'll have to do the math. Yes, uses for me do abound, You'll see me often; look around. Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “I think the internet is going to be one of the major forces for reducing the role of government. The one thing that's missing but that will soon be developed is a reliable e-cash.” — Milton Friedman (circa 1999) 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