Are Americans Richer Now?

In this issue of the peel:

• Last week, the University of Chicago’s NORC (National Opinion Research Center) began releasing findings from its triennial Survey of Consumer Finances.
• Deutsche Bank and Microsoft had a ripe day, whereas Alphabet and Snap Inc. suffered a decline in share price.
• Yesterday was Meta’s turn in the spotlight as this week of big tech earnings progresses, and, like Alphabet, good results apparently weren’t good enough.

Market Snapshot

Happy Thursday, apes.

Meta might not have included any further detail on Zuck’s alleged Coliseum brawl with Musk, but there’s plenty of drama to go around anyway. Alright, so we made it one sentence without crying about the performance of equities yesterday. Let’s see how long that can las-

Oh my god, the sky is falling! Wait, that's just all the stocks I own. Yesterday was one of those days we just pretended it didn’t happen (I hope), as nearly everything tanked across the board. The Nasdaq saw its worst day since February, and all the others were brutalized as well, with the tech-heavy index losing 2.43%. Microsoft was the only one trying to help, but nothing could be done with only utilities and staples moving higher.

Meanwhile, yields naturally moved higher. Everyone was selling everything as the 10-year yield stormed back towards that 5% level and likely induced even more selling in equities. The 2-year yield gained as well, poking 5.15%, and the 30-year yield reached all the way back to 5.1%. Enjoy this moment, apes, as seeing the 30-year yield lower than the 2-year but higher than the 10-year is like throwing a rock into a lake and watching it fly into outer space—it just doesn’t happen.

Let’s get into it.

Financial Modeling Skills Get You Paid

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

Banana Bits

• It appears that autoworkers and their employers have reached a tentative agreement to pause the strike, and now the deal awaits UAW leadership’s approval.
• Pick is the pick: Morgan Stanley CEO James Gorman announced the end of his 13-year tenure earlier this year, and MS has finally picked a successor: Ted Pick.
• SBF is now set to testify in his own trial soon because, apparently, we haven’t given him the opportunity to lie enough.

Macro Monkey Says

Consumer Finances

Apparently, all it takes to make us all rich is a once-in-a-generation pandemic. If you haven’t already, kindly go set fire to your economics textbook... it’s way more fun than studying and might even be the smarter move, too.

Last week, the University of Chicago’s NORC (National Opinion Research Center) began releasing findings from its triennial Survey of Consumer Finances. The study is sponsored by everyone’s favorite institutions, the trusty, ol’ reliable Federal Reserve and the U.S. Treasury Department.

The study is billed as “the only fully representative source of data on the financial condition of U.S. households,” and it’s super damn long but way too juicy to ignore.

"Damn, it’s been a while since we had some good news, huh?"

To hit on some of the most eye-popping “No Way!” findings first:

• The median net worth for American families has increased 37% since 2019.
• Real median incomes rose 3%, while average incomes rose >15% since 2019.
• Homeownership rates rose to 66.1%, and the value of those homes increased, but affordability declined to an average of 4.6x the median family income.
• The median and mean balances of credit card debt and all kinds of debt against one’s home have decreased since 2019.
• The rate of families participating in retirement plans, the stock market, and those who own businesses all increased.

Damn, it’s been a while since we had some good news, huh? While everyone and their mother feels broke as a joke for some reason, this report suggests it’s all in our heads as improvements were “near-universal across different types of families.”

Further, it may be important to remind you of what you learned in your 10th-grade stats class. The median is the middle of the dataset, while the average is basically the weighted middle of the dataset.

As trader, mathematician, and writer Nassim Taleb explains: If you and your friends are at the bar, the median and average net worths are fairly similar. When Bill Gates walks into the bar, the median stays almost the same, but now the average net worth makes you all billionaires (finally).

"... incomes on the upper end of the spectrum increased faster than lower income brackets."

So, when the above data shows a 3% increase in median real wages but 15% in average real wages, that means that incomes on the upper end of the spectrum increased faster than lower income brackets.

It's not ideal, but at least we’re all increasing! Especially in terms of net worth, with the median American getting 37% richer while his/her average counterpart increased 41%.

Now, net worth isn’t necessarily the metric to look at in order to assess financial stress on families, as incomes and short-term factors are often the primary drivers of emotional-financial well-being, but increasing net worths tends to have a positive impact long-term through the wealth effect, less strain on government-sponsored retirement programs, and other dynamics.

Tough to fathom, I know, but as we learned in the bulleted list above, decreasing debt levels has helped improve this metric. On the other side of the equation, “Assets” in the U.S. are generally comprised of home values and stocks. To measure those asset returns, the S&P 500 is up 29.26% since Dec. 27th, 2019 (the last trading day of the year), while median home values have risen over 31.7% since Q4 2019.

Not a bad deal. Returns like that for both stocks and homes are well above average in U.S. history, but when the Fed and Treasury dump buckets of money out to extinguish the fire of a pandemic, I guess it makes sense in hindsight.

So, in short, shoutout to JPow for the raise. Can’t wait to see that printer go brrr again!

What's Ripe

Deutsche Bank (DB) ↑ 7.36% ↑

• I never thought I’d say this, but I guess pigs are flying somewhere because Deutsche Bank actually pleased shareholders on Wednesday. Apparently, solid earnings will do that.
• Germany’s largest bank is the poster child for shenanigans and tomfoolery in the form of financial crime and fines. That said, the firm delivered pre-tax earnings nearly 10% above estimates at €1.7bn euros and a sizable increase in returns on tangible equity to 7.3%. Provided they’re not outright capping (because it is Deutsche, after all), it’s safe to say we’re impressed.
• And much like every infomercial ever, but wait, there’s more. Revenue beat estimates as well for the quarter while the firm’s common equity tier 1 (CET1), a measure of capital standing and resilience, grew to 13.9% against expectations to decrease.
• Provisions for credit losses were decreased, too. All around, it was one hell of a solid report. It takes a lot to get investors this hyped on a day like yesterday, so hats off to Deutsche for not ruining shareholders’ days… for once.

Microsoft (MSFT) ↑ 3.07% ↑

• Microsoft didn’t put the team on its back yesterday; it was the entire team. And the opposing one… and the referee… maybe the fans too.
• On the horrific, borderline traumatic day that was yesterday in equity markets, Microsoft was just about the only stock that remembered how to move higher as this Big Tech firm actually had good earnings.
• We dove into the earnings in yesterday’s Peel, so we won’t go too far into it again, but given that Microsoft is such a huge part of the S&P 500, Nasdaq, and others, we can only imagine the carnage if they didn’t put the market on a ventilator.
• As a reminder, the Big Boy from Bellevue saw 13% revenue growth, 27% growth in cloud, and a massive jump in profits, all on an annual basis. Raking in $2.99/sh on $56.5bn in sales beat the sh*t out of the $2.65/sh on $54.5bn expected.

What's Rotten

Alphabet (GOOG) ↓ 9.60% ↓

• For a complete 180 from above, Google-parent Alphabet should probably be arrested after the assault & battery they just perpetrated on our portfolios. Might have to get the International Courts involved in this low-key genocide.
• It wasn’t even that Alphabet’s quarterly numbers were terrible—they categorically weren’t. But, the deceleration in its business line Google Cloud wasn’t just the nail in the coffin—it was the weapon that put them in the coffin in the first place.
• Reporting that garbage 22% growth in Google Cloud next to Microsoft’s sexy 29% sure made it hurt a lot worse and even turned yesterday into the stock’s worst day since March of 2020… when we all thought the world was ending. Overall earnings and revenue beat estimates handily, but the $8.41bn in sales earned by GCP vs the $8.64bn expected clearly mattered way more.
• Plus, Google’s massive presence in the indices obviously helped drag down markets overall, but it was more so the sentiment around the cloud and what that means for the broader tech sector and economy that sent chills down the spines of traders. Hopefully, this is the real Halloween because my portfolio is scared.

Snap Inc (SNAP) ↓ 5.41% ↓

• Speaking of companies affected by Google, Snap and other digital ad-driven tech firms like Snap are at the top of the list. Unfortunately, that was not a list anyone wanted to be on yesterday.
• Usually, getting compared to Google is one of the biggest compliments a company can get. Not this time around, as Snap, who reported fairly good earnings, got caught in the middle of yesterday’s crossfire. Analysts were expecting a loss, but even a surprise profit couldn’t help Wednesday.
• Snap earned $0.02/sh, infinitely better than the $0.04/sh loss expected, while also beating with $1.19bn in revenue and coming just a hair above estimates for global DAUs at 406mn. The firm refused to offer Q4 guidance, citing ongoing wars and their uncertainty as the main reason, but…
• Snap did share their internal forecasts for Q4 earnings, suggesting an EPS range of $1.32-$1.38/sh, right in line with the $1.33 expected. Needless to say, none of this was enough because in order for shares to gain yesterday, they had to be named Microsoft. Even Roaring Kitty himself likely couldn’t have saved them.

Thought Banana

Earnings Spotlight: Meta Platforms

Don’t worry, apes, yesterday’s market rout was brutal, but our lord and savior, Mark Zuckerberg, is here to save the day! So lucky to have him.

In case Zuckerberg and his companies didn’t ruin your childhood enough, don’t worry—you still have a great opportunity to let him screw you over by buying his stock.

Of course, anything can happen. Yesterday was Meta’s turn in the spotlight as this week of big tech earnings progresses, and, like Alphabet, good results apparently weren’t good enough (so far, at least).

"Meta Platforms reported earnings of $11.58bn, or $4.39/sh, both well above estimates ..."

Meta Platforms reported earnings of $11.58bn, or $4.39/sh, both well above estimates and an insane 164% jump from the same period last year. While certainly crazy, that jump arguably speaks more to last year’s struggles than this year’s successes.

Estimates had been for EPS of $3.63/sh on the bottom and $33.5bn on the top, but the $34.2bn in revenues beat as well, representing 23% annual growth.

From this, we can see that the digital ad market is either your best friend or worst enemy, with absolutely no in-between. As recession fears continued to wind down, ad spending on Meta’s platforms (lmao) returned—the same is true with Snap above—suggesting that companies are feeling at least optimistic enough to spend that marginal ad dollar once again.

But Meta’s growth figures suggest a surprising degree of outperformance over the likes of Google and Snap, something to keep an eye on.

2.09bn poor souls counted themselves as the firm’s daily active users, while 3.05bn came in on the monthly side, both right in line with estimates. Revenue per user, however, came in on top at $11.23 vs expectations for $11.05.

"... Meta’s growth figures suggest a surprising degree of outperformance over the likes of Google and Snap ..."

Saving the truly embarrassing part for the end here, Meta’s reality labs segment also managed to bring operating losses for the VR segment to a grand total of $25bn set on fire since the start of 2022.

Reality Labs has since launched new products like the Quest 3, but the R&D spend on something as computationally intensive as VR paired with AI is something that needs a much longer time horizon than just a year-and-a-half to pay off.

We’ll see if the market can keep this energy leading into Thursday, and we sure hope it can for Zuck… but please just leave me and my 4 shares of 11 stocks alone.

The big question: Is the digital ad market BACK? Why is Meta outperforming competitors like Google so much? When is Zuck going to fight Elon?

Banana Brain Teaser

Yesterday —

I have a deck of cards from which some are missing. If I deal them equally among nine people, I have two cards to spare. If I deal them equally among four people, I have three cards to spare. If I deal them among seven people, I have five cards to spare. There are normally 52 cards in the deck.

How many cards are missing?

Answer

There are five cards missing, leaving 47 cards in the deck.

Today —

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?

Shoot us your guesses at [email protected].

Wise Investor Says

“Time is your friend, impulse is your enemy” — John Bogle

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team