JPow's Been Hitting The Gym 💪

The FOMC is meeting again this week—place your bets on rates. January 29, 2024 | Peel #635 Silver Banana goes to... [Coefficient. ]( In this issue of the Peel: - 🗓 The FOMC is meeting again this week—place your bets on rates. - 🏦 Lending to the world’s wealthiest makes a good business model… - 🤖 Tech firms are investing more than Venture Capitalists?! Market Snapshot 📸 = Banana Bits 🍌 - With 25% of S&P companies reporting, only a very (not) nice 69% [have beaten EPS estimates](=). - Chart lovers are gonna call out sick after seeing this rundown on earnings so far from [Daily Chartbook](=). - This week, the treasury gives us an update on their [financing needs](). - Can’t wait to see the scumbaggery Big Pharma get into with [these patent cliffs](). You know the Excel drill: constant downloads, uploads, and endless copy-paste from QuickBooks, your CRM, your database. It's tedious, mistakes happen, & data immediately becomes stale. Connect Excel to any data source in clicks, import the data you need, & set it on a refresh schedule. 20,000+ teams like Miro & Klaviyo use [Coefficient](=) to power forecasting & models for real-time financial insights. Macro Monkey Says 🐒 JPow’s Six Pack Core The United States loves to try to be “Number One” in everything, all the time. We can’t help it. And over the past few years, we’ve ostensibly tried our damnest to have the Number One highest inflation rate in the world. Unfortunately, countries like Argentina, Venezuela, Turkey, and the U.K. all had us beat. And trust me, to an American, there’s nothing worse than losing to the U.K. But after peaking in June 2022 with an annual inflation rate of 8.9%, our shot at the inflationary gold medal has done nothing but plummet. And that continued in December… [Source](=) Inflation continued to tick lower in December, as measured by the Fed’s preferred measure, the Personal Consumption Expenditure (PCE) price index. On Friday, the Bureau of Economic Analysis (BEA) released the monthly PCE report for December, just a day after releasing data for the quarter along with preliminary GDP figures. The Numbers As we can see in the above chart, PCE inflation is flirting with the Fed’s 2% annual target like they’re on Love Island. Headline PCE increased at a 0.2% monthly and 2.6% annual rate in December. Stripping food and energy costs, we get the Fed’s favorite inflation index, Core PCE, which also grew at a rate of 0.2% for the month and hit 2.9% for the year. Meanwhile, core inflation over the last 6 months has already fallen below the Fed’s 2% target, clocking in at 1.86% in December, while headline inflation over the last 6 months is right at that goldilocks level, posting 2.01%. Time to party? Maybe… The good news is that while price increases get wrangled back to right where we want it, incomes walking this inflationary tightrope have been able to hold their balance and increase as well. Personal incomes in December accelerated 0.3% monthly and 4.2% annually, meaning real incomes grew, even if only by 0.1% for the month. [Source]( But hey, that’s 0.1% more groceries, 0.1% more beers on Friday night and 0.1% more donations to the economy overall. Speaking of donating to the economy, personal spending blew past expectations for the month, ripping 0.7% in December. That easily beat both expectations and the 0.4% revised spending increase we got in November. So, now, the only question to ask is… What’s Next? I don’t mean to blow any minds here with this take, but inflation appears to be slowing down, and we love to see it. However, we do have to put a Kim Kardashian-sized but here as well because in the U.S., we’re certainly no strangers to re-accelerating inflation. Just take a look: [Source](=) There’s no doubt JPow was bumping Grateful Dead bangers with champagne and cocaine on all weekend, but the Sunday scares must’ve hit him harder than anyone. The FOMC meets once again on Wednesday of this week. With a rate decision right on the horizon, every trader knows that they ain’t touching rates this time. Don’t Be Surprised... If the already-hailed rate cuts expected this spring take longer to materialize. JPow is a student of history and a big admirer of legendary Fed Chair Paul Volcker. History buffs and economic nerds will recall that Volcker is the definition of a “balls to the wall” public figure. As we can see in the above chart, inflation was out of control going into the 1980s. To quell the beast, Volcker jacked the effective fed funds rate through the roof, all the way to 19.1% in June of 1981. And at the time, everyone hated him for it. Although bond yields moved lower and equities moved higher already, seemingly pricing in foreseeable cuts, JPow can’t be expected to be influenced by the market. Cutting too early risks allowing inflation to hit us with the Uno reverse card and head back higher. Cutting too late, given the steroid-fueled strength of our economy, might slow things down, but the risks of that putting us into recession seem far lower. Plus, according to Goldman, Bloomberg, and the Chicago Fed, financial conditions have already eased quite a bit, doing the Fed’s job for it: [Source](=) So, while JPow’s core of inflation is looking as chiseled as a six-pack on an ancient Greek statue, don’t be surprised if he opts for the more gradual route. We’ll get an update from the Big Dawg himself in just 2 days, so stay tuned. What's Ripe 🤩 American Express (AXP) 📈7.1% - When you’re the card investors used to getting everything from airport lounge access to $300 in SoulCycle credits, apparently, they don’t care if you miss earnings. - Reporting $2.62/sh on $15.8bn vs the $2.64/sh on $16bn the Street was looking for, Amex’s full-year 2024 guidance was the key driver in Friday’s gains. - The firm is calling for 9-11% revenue growth and EPS slightly above estimates. Turns out that lending to the world’s wealthiest is an okay-ish business model. Airbnb (ABNB) 📈5.3% - You know that feeling when you go to an Airbnb and can’t help but think, “This is fine, but damn, I wish there were more fees!” Well, congrats—they listened. - Shares popped as the firm announced a new 2% exchange fee on cross-border transactions, implying the firm is leaning into its international push. - Clearly, this got investors hyped. Especially for us, as the late-afternoon pop-in shares gave [WSO Alpha]() strong outperformance to close the week (LFG). What's Rotten 🤮 Spirit Airlines (SAVE) 📉13.4% - It’s almost poetic how holding Spirit shares this year has been exactly like their flights—bumpy, fear-inducing, and you never know what’s gonna screw you next. - On Friday, negative news related to their desperate merger with JetBlue ruined the day yet again. This time, they can’t blame it on a robe-wearing lawyer. - Turns out Spirit might not have even met the closing requirements set in their merger agreement, so JetBlue is ready to take off without them (JBLU, +3.56%). Intel Corp (INTC) 📉11.9% - Misery loves company, and nowhere has been a better place to find that company than by holding Intel stock this century. Friday was no different. - Shares tumbled on a garbage outlook in Q1’24, but the company was able to beat EPS estimates to close out 2023. Revenue missed by 0.06%. - Mobileye, programmable chips, PCs, and servers are expected to lag to start off 2024, which is an especially tough scene when your primary peers are Nvidia and AMD. Thought Banana 🤔 Throwing Bands Along with markets, cringe levels reached an all-time high back in 2020 and 2021, primarily driven by the cringiest of all—venture capitalists. Speaking of which, shoutout to this [GOATed X account](=) for documenting such cringe—truly doing the lord’s work. But now, these VCs face an even greater challenge than overcoming their internal cringe, and it’s a monster of their own creation. Big tech companies, once funded by these not-so-humble VCs, are now dominating the industry. [Source]( AI and data-based venture investments by 4 of the 5 most valuable companies in the world (excluding Apple) ballooned in 2023. Needless to say, these industries for investment were and continue to be—by far—the hottest areas for venture dollars. But, due to the thwacking VC firms took in 2022 and the recovery time needed in 2023, the big dawgs like Microsoft, Alphabet, Amazon (AWS), and Nvidia loaded up the cap tables of AI and data startups in place of the very firms that gave them life. Who Cares? As if Microsoft, Alphabet, Amazon, and Nvidia—combined worth $8.067tn, by the way—weren’t going to dominate this industry already, their dominance in early-stage investments in this space all but assures it. That’s not to say there won’t be great new AI and data-based companies, but that when these do emerge, they’ll likely be 1) already owned by or 2) soon to be acquired by these (or other) large tech firms. The big get bigger as, given the insane cost associated with building, training, and maintaining any AI model worth its salt, a $50k or $100k check that might be a miracle in other industries is nothing in the artificial intelligence space. Classic economic theory would tell you that 3 of the primary drivers to lead an industry toward consolidation include: - High fixed costs, - Many small players, and - Rapid technological change …sound familiar?? That perfectly describes the state of play in the AI industry right now. So, it may be wishful thinking to expect you’re gonna get in on an AI company and ride it to a $1tn market cap. Now, that still could happen, but probably only if Amazon or Nvidia buys them. 💭 The Big Question 💭: Will we see any new mega-cap tech companies emerge from this AI wave? If so, what will their core product be? Can VCs catch up and take back control of this space? Banana Brain Teaser 💡 Friday 🗓 A certain drive-in movie theater has a total of 17 rows of parking spaces. There are 20 parking spaces in the first row and 21 parking spaces in the second row. In each subsequent row, there are 2 more parking spaces than in the previous row. What is the total number of parking spaces in the movie theater? Answer: 596 Today 🕐 Ada and Paul received their scores on three tests. On the first test, Ada’s score was 10 points higher than Paul’s score. On the second test, Ada’s score was 4 points higher than Paul’s score. If Paul's average score on the three tests was 3 points higher than Ada’s average score on the three tests, then Paul’s score on the third test was how many points higher than Ada’s score? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “Investors are pinched between two kinds of fear: fear of investing in startups that fizzle, and fear of missing out on startups that take off.” — Paul Graham How Would You Rate Today's Peel? 😁 [All the bananas]() 😐 [Meh]() 😩 [Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE](=) // [WSO ALPHA]() // [ACADEMY](=) // [COURSES]( // [LEGAL]( [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States (617) 337-3353