CPI Report - “C” Is For “Confusing”
In this issue of the peel:
Market Snapshot
Banana Bits
AI-ighty Potential
Dubbed the "the rocket fuel of AI" by Wired, this groundbreaking innovation has sparked fervent excitement across Wall Street. And with projections soaring to a potential market cap of $80 trillion – equivalent to 41 Amazons – the magnitude of its impact cannot be overstated.
But here's the real deal: nestled within this tech revolution lies an opportunity for sharp investors to invest in a remarkable company poised to dominate its corner of this burgeoning market.
And thanks to The Motley Fool, the full narrative of this extraordinary tech trend has been compiled into an exclusive report, designed to arm you with the insights needed to make informed investment decisions.
Macro Monkey Says
Confusing Price Index
Remember yesterday when we were all hyped up on inflation chilling tf out to the end of 2024?
Haha yeah… about that…
As sick of a prank as that was, it turns out I’m a huge liar. Wholesaler inflation might be moving in the right direction, but we’re gonna have to have words with headline consumer inflation.
Let’s get into it.
The Numbers
On Wednesday, the Bureau of Labor Statistics (BLS) released the December Consumer Price Index (CPI) report, sizing up consumer inflation for the month.
While I’d like the chart below to be what my savings account looks like, I’d rather it not be my country’s inflation rate.
According to the BLS, the CPI increased 0.4% in December, marking the highest monthly print since March. Sadly, this does continue the trend of rising inflation we’ve seen in recent months, especially since rate cuts began in September.
If you’re looking for something to blame, look no further than energy.
Energy costs rose 2.6% for the month, accounting for over 40% of the index’s jump. Gasoline and fuel oil prices rose 4.4% MoM but declined on an annual basis.
Energy prices had been on the decline for much of 2022 and 2023. So, tracking the trend in this index over the next few months will be crucial to understanding inflation’s trajectory.
Core CPI, which strips out food and energy costs, was where the party was at. The core index rose just 0.2%, it’s smallest increase since July and below the 0.3% expected by economists.
Even better, inflation on an annual basis was slightly less change-of-pants-inducing.
The headlining index rose 2.9% annually last month, up from 2.8% in November. As the third month in a row of rising inflation, that’s officially a streak. However, since annual core inflation declined to 3.2%, markets were okay with it.
Our usual suspect—shelter costs—were back up to their dirty tricks but wasn’t as much of an outlier pulling up the rest of the index as it had been for most of the year.
Total shelter costs, which accounted for 36.7% of December’s print, rose 0.3% monthly and 4.6% annually. Owner’s equivalent rent—the BLS’s braindead method of quantifying most of the shelter cost index—rose 4.6% for the year.
If my math is right, 4.6% annual inflation is still higher than the Fed’s 2% target. But we can’t be too mad—that was the lowest annual increase in shelter costs since January 2022.
Plus, markets are all too aware of how poor and lagging the methodology for quantifying shelter costs in the CPI is. So, strong jumps in this index dont make traders flinch.
Of course, I had to save the worst part for last. As much as I hate to be the bearer of bad news, unfortunately, prices for cigarettes rose 7.8%.
The Takeaway?
Underlying inflation mostly (probably) continued its trajectory towards 2% last month.
A blip in energy prices and the longtime thorn in the side that has been shelter prices appear to explain the vast majority of the jump in the headline index. Given the broader context of these markets, investors weren’t too worried.
Equity prices soared, and Treasury yields tanked in the aftermath of the report, with hella-strong earnings from banks like JPMorgan helping build a tide to lift all boats.?
Career Corner
Question
I have a question about networking and applying for positions on the website.
Should I apply to a firm first and then connect with employees to set up calls, or should I reach out to employees at the firm, connect with them, and schedule a call before applying for a position? What would be the best strategy?
Answer
It depends on specific roles and timelines. Ideally, it is great to network before applying, but if the application is open, you need to submit it.
You don’t want to be left out of the process just because you were too late! Most of these applications are rolling, so if you wait too long to apply, you could miss it entirely
Head Mentor,?WSO Academy
领英推荐
What's Ripe
Tesla (TSLA) 8.0%
Bank Stocks (C, GS, WFC) 6.5%, 6.0%, 6.7%
What's Rotten
Lululemon (LULU) 3.1%
Hershey (HSY) 2.3%
Thought Banana
Beating The House
Getting denied entrance to a casino is a common problem for card-counting geniuses, such as myself (in case that wasn’t already obvious).
I get it, they don’t want the smoke. And it definitely has nothing to do with my strategy of sending grandmas into comas to grab their slot machine winnings.
But, now, the rest of us degenerate gamblers could face a similar problem, too. We’re getting too good at sports betting—let’s dive in.
What Happened?
Great philanthropic institutions like casinos and sportsbooks have been kind enough to allow us all the opportunity to earn financial freedom for ourselves and our families.
Simply put, they’ve replaced the U.S. government as the provider of the American Dream. However, recent reports show that we might be taking too much from these charities.
Last Tuesday, FanDuel, the leading sportsbook subsidiary of Ireland-based Flutter Entertainment, announced that bettors have gotten problematically good, especially in NFL games.
In an update to investors, FanDuel lowered estimates for FY’24 revenue and EBITDA after realizing how badly they were getting smoked by users on NFL games.
We can’t blame them—coming from Ireland, they probably just learned what football is (real football, that is).
But learning the hard way comes with a hefty price to pay.?
If you’re a sportsbook, you want users to win their bets just enough to keep them coming back, but hopefully at a net loss overall, however, when bettors get on a winning streak, that can become the equivalent of a run on the bank for these firms.
According to FanDuel, “The 2024/2025 NFL season to date has been the most customer-friendly since the launch of online sports betting with the highest rate of favorites winning in nearly 20 years.” We can see this dynamic in the above chart.
As a result, Flutter had to slash FY’24 revenue guidance late in the year, pulling expectations down from $6.15bn to $5.78bn.
Total revenue reductions from the period of Nov. 12th-Dec. 31st amounted to $438mn. According to the firm, that will translate to a full-year decline in U.S. revenue of $370mn and a reduction in U.S. EBITDA of $205mn.
FanDuel’s biggest U.S. competitor, DraftKings, issued a similar warning in November.
At the time—which was BEFORE what FanDuel called the “most customer-friendly” game outcomes in nearly two decades—DraftKings CEO Jason Robins estimated that NFL games had already created a $250mn headwind.
Shares sold off ~7% at the time.
The Takeaway?
We won’t know the true impact of genius bettors on these platforms for a few weeks.?
Flutter Entertainment reports their Q4 earnings in late March, while DraftKings is scheduled for February 20th. I can’t wait to see how this plays out.
The Big Question: Did sportsbooks update their odds and pricing well enough to stop the bleeding? How will markets price in a more active yet accurate user base? What locks have you guys got for this week?
Banana Brain Teaser
Previous
A manufacturer makes and sells 2 products, P and Q. The revenue from the sale of each unit of P is $20.00, and the revenue from the sale of each unit of Q is $17.00. Last year, the manufacturer sold twice as many units Q as P. What was the manufacturer’s average (arithmetic mean) revenue per unit sold of these 2 products last year?
Answer: $18.00
Today
A worker carries jugs of liquid soap from a production line to a packaging area, carrying 4 jugs per trip. If the jugs are packed into cartons that hold 7 jugs each, how many jugs are needed to fill the last partially filled carton after the worker has made 17 trips?
Send your guesses to [email protected]
?
The game taught me the game. And it didn’t spare the rod while teaching.
Jesse Livermore
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Happy Investing,
David, Vyom, Jasper & Patrick