U.S. Dominance & Global Equities: A 2023 Review

🔎 Credit Suisse published its Global Investment Returns Yearbook. March 14, 2024 | Peel #667 Silver Banana goes to... [SRS Acquiom. ]( In this issue of the Peel: - 🐵 Us apes have been working too hard with sky-high productivity. - 🥊 An investment bank just raised its competitor’s rating… lol. - 🔎 Credit Suisse published its Global Investment Returns Yearbook. Market Snapshot 📸 = Banana Bits 🍌 - The U.S. House of Representatives officially passed a bill to [ban or force the sale of TikTok]() - MicroStrategy’s levered BTC purchases have [worked out phenomenally]( - The problem with U.S. tech? Where to [find EPS growth]() Due Diligence Trends: Data You Can Bank On What do 150 senior executives at U.S. investment banks with up to $1 billion in AUM know about due diligence? Shocker: quite a bit. That’s why SRS Acquiom and Mergermarket teamed up to talk with them about it. The survey covered both buy-side and sell-side, and included the bulge bracket, the boutique, and those firms in between. They had plenty to say, especially given how important it is to stay ahead of the curve in an M&A market like this one. A few spoilers: Is due diligence taking longer? Yep. Is regulatory scrutiny rising? Sure is. The point is, there’s a whole lot of intel to be absorbed (and applied), and it’s all in the new SRS Acquiom M&A Due Diligence Study. [Download it while it’s hot.]( Macro Monkey Says 🐒 Capital Wins Again? Coke vs Pepsi, the Red Sox vs the Yankees, and my dog going to the bathroom where he’s told to—three of the most intense, bitter rivalries on planet Earth. Add to that list Capital vs Labor. These two have been playing tug-of-war since even before the likes of Adam Smith and Voltaire put it into words. Over the past few years, labor has enjoyed a rare upper hand, but… That might not last long. The turn-tables, to quote Michael Scott, may be turning again of capital over we pathetic, disgusting laborers, so let’s get into it. What’s Happening? [Source]() This probably comes as a shock to most of you—and even more so to your boss—but you apes are simply too good at your jobs. A Bank of America report released this week shows a steep increase in labor productivity, setting an official, new all-time high. Labor productivity measures the amount of output vs the amount of labor used to create that output. In the above chart, BofA measures productivity as the last 12 months (LTM) revenue of S&P 500 companies divided by their total number of employees. And, based on that data, we’ve officially set a new record high of output per unit of labor among S&P 500 companies. [Source]( At the same time, real hourly compensation hasn’t kept up with those productivity gains for most of the past 50 years. That’s what we mean when we say that in recent years “labor has enjoyed a rare upper hand.” The brief period of hourly compensation outpacing labor productivity has come to an end. WTF Does That Mean? We hear the term “wage gap” thrown around a lot and, we’re not gonna get into the one that you’re thinking about, but the wage gap that matters is the spread between the two—productivity and compensation. When demand for labor outpaces the supply of that labor, the cost of that labor increases, translating to increased compensation. But, when the supply of labor outpaces demand, the exact opposite happens. And according to the BLS and BofA data, we’re actively watching that reversal occur in real-time. [Source](=) Already, we can see that trend emerging in other data as well. Hiring, as a proxy for labor demand, is once again outpacing wage growth, suggesting workers aren’t receiving a compensatory increase in pay for their increased output. It’s a damn tragedy. But this is also the normal state of play. Only during the immediate post-pandemic aftermath did we see labor have the upper hand for a hot minute. This is why job-switchers, as we’ve discussed previously, were getting such fat pay bumps compared to those two scared to tell their old boss to “f*ck off.” While hiring remains robust in the U.S., with 275k jobs added last month, economic growth (a.k.a. “output”) has ostensibly been able to outpace that growth in labor demand. The Takeaway? Yesterday, we quoted poet and philosopher Eminem to describe the February CPI report. Today, we can do the same thing— “back to reality.” Like we said above, capital having the upper hand over labor via productivity outpacing that of wage growth is the normal state of play for the U.S. economy. It’s not the end of the world, but workers are gonna have to be more conscious when considering leaving their current positions. Fat pay raises aren’t going to be as common going forward. So, hope you enjoy your current job! And to all the college apes out there—maybe consider failing a class or two… What's Ripe 🤩 Williams-Sonoma (WSM) 📈17.8% - All-time highs aren’t exclusive to BTC or the indexes, with Williams-Sonoma setting a new record high on strong earnings yesterday. - EPS of $5.44/sh on $2.28bn in sales beat estimates, despite sales falling 7%. Comparable brand revenue suffered less so, losing only 6.8%. - Given that Williams-Sonoma is a provider of home furnishings and other goods, it was even more of a surprise given the current U.S. housing market. Moelis (MC) 📈3.7% - Going full Benedict Arnold yesterday, analysts at Goldman upgraded their ratings on one of their key competitors, taking Moelis from sell to neutral. - With a market cap 33x that of Moelis, “competitors” is probably the wrong word, but GS is getting hyped on Moelis outperforming amid the M&A recovery. - Moelis almost exclusively operates in M&A advisory, so a larger share of their revenue is exposed to this recovery than other investment banks. What's Rotten 🤮 Dollar Tree (DLTR) 📉14.2% - Is this it? Is this foreshadowing of slowing U.S. consumer spending? It’s almost too scary to imagine, but 1,000 Family Dollar stores are closing. - Dollar Tree, owner of Family Dollar, said that theft, inflation, and “merger indigestion” will cause them to close 1k locations in the coming years. - This comes on the heels of Mcdonald’s stating that lower-income consumers are pulling back spending. That’s a 1-2 combo even Khabib couldn’t take. Tesla (TSLA) 📉4.5% - Don’t be surprised if Elon tweets something about Wells Fargo today, as in his eyes, they won the “hater of the day” award on Wednesday. - Calling Tesla a “growth company with no growth,” Wells analysts downgraded their price target on Tesla from $200/sh to $125/sh. - That implies a ~26% downside from here. But, the Street is still waiting for our report to be published at [WSO Alpha](=), so maybe that can lift the stock’s spirits… Thought Banana 🤔 2023 Yearbook There are a lot of red faces in my high school yearbook, and if my portfolio had a yearbook for 2023, we all know there’d be a lot of red in there, too… Thankfully, Credit Suisse’s 2023 investment yearbook is focused on the entirety of the equities market—not just my losses. The 2023 Global Investment Returns Yearbook was published by Credit Suisse a few weeks ago. And despite the bank being forcibly engaged to their larger rival, UBS, I guess they can still somehow brand this under the Credit Suisse name. How’d We Do? We know I did terribly, as always, but broader equity markets fared well compared to their historical performance. [Source]() In the above chart, we can see that annualized returns of equities have only expanded their outperformance against fixed income assets in recent years, although the data published only goes through 2022. The more interesting part of the report, however, centered around the geographic breakdown, especially if you’re an American investor. [Source]() Breaking down the percentage of the total global market cap of equity investments, we can see that U.S. outperformance has only gotten stronger so far this decade. Throughout the entirety of the 2010s, U.S. outperformance was heavily questioned and doubted, climbing a wall of worry along our domestic indexes. But so far, that outperformance shows no sign of slowing. Japan ate the U.S.’s lunch for a while in the 1980s and 90s, but since then, the U.S., China, and wherever this “Other” country is are the only ones seeing material improvement. The Takeaway? Amid U.S and equity outperformance over their comparables, it’s clear that, overtime, the risk premium among these outperformers has expanded. The Credit Suisse report point this out, but inflation is likely a contributing factor as well. Inflation drives investors to run for the bunkers, or, in other words, the safety of assets like large cap equities and U.S. stocks. [Source]() Plus, the report highlighted the three asset classes that continue to flex on the rest as inflation hedges. Spot and future commodities, along with gold (also a commodity), were the only assets to have positive correlations with inflation over the past 122 years. Basically, what’s old has been new again. We’ll see how long this outperformance and inflationary resilience can last, but for now, we’ll continue to take the gains. 💭 The Big Question 💭: How long can U.S. outperformance vs the rest of the world last? Will fixed income assets ever best equities? Is BTC an inflation hedge like other commodities? Banana Brain Teaser 💡 Previous 🗓 While a family was away on vacation, they paid a neighborhood boy $11 per week to mow their lawn and $4 per day to feed and walk their dog. If the family was away for exactly 3 weeks, how much did they pay the boy for his services? Answer: $117 Today 🕐 Last year $48,000 of a certain store’s profit was shared by its 2 owners and their 10 employees. Each of the 2 owners received 3 times as much as each of their 10 employees. How much did each owner receive from the $48,000? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “I would add that I am not persuaded that international funds are a necessary component of an investor's portfolio. Foreign funds may reduce a portfolio's volatility, but their economic and currency risks may reduce returns by a still larger amount.” — Jack Bogle 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