Another Amazon Lawsuit

In this issue of the Peel:

• Increasing home prices confirms an already noticed trend, but the market definitely did not like it on Tuesday.
• Rivian and DraftKings had a ripe day, whereas United Natural Foods and Cintas struggled to remain afloat.
• Yesterday, an official lawsuit was filed by the FTC and 17 states against Amazon, alleging antitrust violations.

Market Snapshot

Happy Wednesday, apes.

Like it was for Alexander in that legendary children’s book, Tuesday was nothing short of a terrible, horrible, no-good, very bad day for our portfolios and net worth. As if mine wasn’t negative enough…

Stocks sure helped to make sure that it went even more negative yesterday. Everything tanked, nothing was green, and I wanted to cry all day. The Russell 2k’s 1.75% drop was the worst and spoke to the breadth of the overall bearishness.

Every sector was down, and key technical support levels allegedly may have been breached as well, leaving us all to wonder where exactly to look to find the bright spot.

At the same time, treasury yields were mostly higher, but potentially not to the degree we’d expect. The Dollar gained as well, surging over the 106 mark.

Let’s get into it.

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Banana Bits

• ChatGPT owner and AI trendsetter that’s 49% owned by Microsoft OpenAI is looking for an $80 - $90bn valuation in its latest share sale.

Macro Monkey Says

Homebuyers… Just Keep Scrolling

Your parent’s basement isn’t sounding too bad nowadays, huh? In case our fear-mongering expedition into the current state of the U.S. housing market on Friday wasn’t enough heat for you, it’s time to turn the furnace on once again.

I apologize in advance for homebuyers, but it’s a tough scene out there… we’d help if we could (I promise, pls don’t Venmo request me).

Yesterday, we got a slew of housing info flashing across our Terminals. To highlight some of the news we learned:

• Building permits grew 6.8% monthly
• New home sales declined 8.7% from the prior month
• The home price index rose 4.6% annually
• Home prices via S&P Case-Shiller rose 0.6% monthly and 0.1% annually

Much like a lot of the data we’ve talked about lately, this doesn’t exactly add up, according to your macro textbook.

"... this doesn’t exactly add up, according to your macro textbook."

For starters, the S&P CoreLogic Case-Shiller National Home Price Index (way too many words) is borderline useless in modern home price forecasting. As an example, last week’s Redfin data is relevant to the past week… the latest S&P report is from July.

There seems to be some kind of correlation between the number of words in an indicator’s name and its value in forecasting, but we digress. But still, the name carries weight, and despite the fact that I’m already carving pumpkins, the 1% increase was the real spooky part.

"... the problem outside of JPow’s Kamikaze-esque rate hiking obsession is largely housing supply."

Increasing home prices confirms an already noticed trend, but the market definitely did not like it on Tuesday. However, the 8.7% collapse in new home sales was—needless to say—unexpectedly horrid, sparking true concerns.

As if we needed more evidence, it’s increasingly obvious how non-digestible it is for (would-be) homebuyers to sign up for mortgage rates dancing around 7.5%... and that’s if you have a good credit score.

The latter data above is from August, so it’s a little more relevant as well. While new construction clearly isn’t being taken up yet, the problem outside of JPow’s Kamikaze-esque rate hiking obsession is largely housing supply. Based on the permitting data above, which is indicative of homes intended to be built, that problem appears to be easing.

With the market’s call of BS on JPow’s continued rate hikes along with a looming and gradual increase in supply, better days are likely ahead... but it sure won’t be too soon.

Especially if we’re judging by Case-Shiller.

What's Ripe

Rivian (RIVN) ↑ 5.35% ↑

• In the ballsiest move of the day on Tuesday, Baird analysts argued that the young EV startup is going to out-Tesla Tesla by disrupting that old, stinky OG of the EV market.
• Like the older firm disrupting the regular car market in the mid to late 2000s, analysts at the financial services giant said that delivery success this quarter will be won by Rivian, while Tesla is expected to post weaker numbers than otherwise anticipated.
• Basically, Baird cites gradual vertical integration and a maturing supply chain (aka, more cost-effective) for the drivers… no pun intended.

DraftKings (DKNG) ↑ 2.05% ↑

• Hopefully, all your NFL bets this past weekend went as well or better than DraftKings’ stock yesterday. But even if they went just as well, you certainly made out alright… or at least better than the Broncos.
• The stock didn’t get a “hell yeah” from Dre, but it did get one from JPMorgan. Analysts at the world’s largest bank upgraded the betting firm from neutral to overweight, sending shares in the opposite direction of everyone else.
• Now, shares have already gained 145% from last year, but still, the banking titan was bold enough to call this thing attractively priced, saying that “recent underperformance” (what?) made this thing a solid deal. No word yet on whether or not Buffett agrees.

What's Rotten

United Natural Foods (UNFI) ↓ 27.39% ↓

• One of the few American food makers that can’t claim a history of overthrowing Central American governments had a particularly tough day on Tuesday.
• A year ago, United posted an EPS of $1.27/sh. So, this past quarter’s >100% drop to a loss of $0.25/sh has investors sick to the stomach. Analysts had been expecting a loss closer to $0.40/sh, but guidance was the real disappointment.
• Sales grew but missed estimates in the meantime. Like other retailers, the company is blaming “elevated shrinkage”—aka increased theft—while also blaming the fact that they can’t use inflation to scalp customers as well as last year.

Cintas (CTAS) ↓ 5.27% ↓

• Absolutely brutal. Anyone of you who’s doing their American duty and working an unbearable 9 to 5 at some corporate sh*thole is all too familiar with the apparel maker, but man, did they really get punished on Tuesday.
• It’s one of those companies that has a super annoying fiscal year, posting “Q1 FY’2024” earnings yesterday. EPS of $3.70/sh managed to beat estimates of $3.67/sh. Sales beat expectations, and guidance was raised; sounds perfect, right?
• But the problem was that those updated estimates expanded to a range with a low end below that of analysts’ expectations.
• The borderline torturous decline, however, speaks to the lack of a “f*ck around and find out” nature of investors on the day, with risk fully off the table. And they might not be wrong, as with an alleged “looming recession” that’s loomed for 18 months or so now, the last thing companies are gorging on is team-building swag (kill me).

Thought Banana

Dropping the Gloves

The bare-knuckle corporate boxing match of the century has officially begun. In one corner, we have a $1.3tn sector-defining, quality-of-life enhancing behemoth out of Bellevue, WA… and in the other corner, an angry federal agency. Grab your popcorn.

Yesterday, an official lawsuit was filed by the FTC and 17 states against Amazon, alleging antitrust violations. It’s so on.

When describing themselves on job postings, Amazon explains/admits that “our legal team is at the heart of Amazon's operation.” Yeah, they and their shareholders better hope they’re not kidding.

The FTC-led suit alleges a few different violations, including:

• Anti-discounting measures, by punishing sellers that offered lower prices against competitors through various methods
• Compelling sellers to use Amazon logistics to qualify for Amazon Prime
• Excessive platform fees to sellers reliant on the site
• Intentionally listing their own products before competitors

"... the FTC asserted that Amazon unlawfully wields monopoly power over the digital commerce industry."

And a whole lot more. Basically, the FTC asserted that Amazon unlawfully wields monopoly power over the digital commerce industry. In immediate response, Amazon went with the smirking Kevin James defense and basically said, “But look how dope we are!”

From a consumer’s perspective, they’re sure hard to argue with. Prices are hella low, delivery is hella fast and reliable, and shareholders have made a capital-b Bag.

Essentially, the arguments come down on the two competing sides of U.S. antitrust law: competition vs. consumer harm.

If Amazon used its monopoly power (which kind of seems that it obviously has) to jack up prices, it’d be a clear-cut case. However, the courts will be forced to decide what is ultimately the appropriate application of the law.

Traditionally, consumer harm was thought to be driven by a lack of meaningful competition, but in this case. It seems that the consumer only benefits from that kinked competitive market.

"It seems that the consumer only benefits from that kinked competitive market."

Taking it a step further, Amazon’s general counsel David Zapolsky got the team fired up by saying, “The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court.”

But still, Amazon shared dumped even harder than the broader market yesterday, losing 4.03%. The gloves are off, and the punches won’t be long to follow. We’ll enjoy this one for a while.

The big question: Now that the case has been filed, how will applicable antitrust law be levied? Who will win the case? How will sellers and consumers be impacted? What about the poor, sweet shareholder?

Banana Brain Teaser

Yesterday —

When filling an empty barrel, which happens first?

A) 2/3 full B) 1/4 empty C) 1/2 full D) 3/4 empty

Answer

D) Since 3/4 empty means 1/4 full

Today —

Saturday and Sunday, I am big.

Tuesday through Thursday, I am small.

Monday and Friday, I am non-existent.

What am I?

Shoot us your guesses at [email protected].

Wise Investor Says

“The person who turns over the most rocks wins the game.” — Peter Lynch

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team