Disney's Latest Proxy Battle

In this issue of the Peel:

• The Personal Consumption Expenditure report for October was released by the Commerce Department yesterday.
• ImmunoGen and Salesforce had a ripe day, whereas Pure Storage and Ford suffered share price declines.
• Nelson Peltz, CEO of Trian Fund Management, is storming the castles of Disney's Mouse House.

Market Snapshot

Happy Friday, apes.

And Happy December. Oh, and happy (belated) first birthday to ChatGPT yesterday. The AI chatbot that has taken the world by storm and made cheating so much easier, that I thought about going back to school, has officially terrified, enraged, and entertained us for over an entire year. Personally, I’m just glad we’re still here.

Equity markets are, too. The release of ChatGPT and the ensuing AI/Nvidia wave arguably led to this year’s strong performance from stocks (so far), but damnit, it didn’t do much to help out yesterday. Markets broadly rose mildly, with the S&P and the Russell 2k tying, strangely enough, to lead the day up 0.38%. Meanwhile, the team at WSO Alpha tried their best to do their job (allegedly) and outperform, but the day's 0.25% gain wasn’t exactly too exciting.

Treasury yields had no clue what to do in the meantime. Bond markets appeared at first to have strong reactions to the day’s inflation report (more below) but settled the day on a fairly chill note. The 10-year rose to just over 4.3%, while the 2-year spiked immediately to 4.8% and settled closer to 4.7%.

Let’s get into it.

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Banana Bits

• The Dow, an index no one should care about but for some reason still do, closed at its highest level since January 2022 yesterday.
• Even better, global stocks as a whole had their best month in the past 3-years this November.
• Even after one of the biggest shitshows in Silicon Valley, Wall Street, and probably Corporate American history, OpenAI is still valued at $86bn.
• Coinbase officially has permission to Fortnite-dance over the graves of SBF and CZ as its stock rises 60% at the same time that other leaders of massive exchanges are (“potentially”) on their way to prison.

Macro Monkey Says

PCE Peace

For a lot of people, the key to life is simply to “live, laugh, love.” Now, I’m sure several of you can picture a sign in your parent’s kitchen that says the same thing, and you probably just threw up after reading those 3 words, but I want a 3-word sign of my own.

“Employment, inflation, interest rates”—poetic, right? I think if we hung this sign in every house, school, and economics department from sea to shining sea, we might actually be able to solve some problems.

Or, we can just keep hoping that if we “live, laugh, love” enough, we can fix our problems. In fact, the opposite has been true for the macro picture lately, and this was confirmed even more so yesterday.

Inflation has (allegedly) been the biggest thorn in the side of the U.S. economy for the past 2-years, despite the fact that consumers keep spending like there’s no tomorrow, but that’s a story for another time. Those consumers will be happy to know that, in the month of October, prices didn’t really move much.

"Inflation has (allegedly) been the biggest thorn in the side of the U.S. economy for the past 2-years ..."

The Personal Consumption Expenditure report for October was released by the Commerce Department yesterday. According to them, inflation was flat on the month, rising “less than 0.1%” compared to September, and increased by just 3% compared to October of last year.

Not bad, but sadly, JPow doesn’t care. The Fed’s favorite way to measure inflation comes from this report, but all of the FOMC eyes are focused on Core PCE.

Just like CPI, Core PCE strips out food and energy prices. This reading, which again is the one the Fed pays the most attention to, increased just 0.2% monthly and 3.5% for the year. And unfortunately, we gotta hand it to economists on this one—those were both right in line with consensus expectations. Credit where credit is due, but just don’t open a new line of credit in this rate environment…

Anyway, given that this came right in line with expectations and, as a result, doesn’t do anything to change the market’s view on future interest rate moves by the FOMC, there wasn’t much of a reaction from Mr. Market.

Even the “smart money”—which we might have to start calling “Dr. Market”—over in the fixed income world didn’t react nearly as much as we may expect. Both the 10 and 2-year yields moved higher, but it wasn’t by much.

Now, the PCE report also delves into personal incomes and the spending that came along with that. Like PCE inflation, personal incomes and outlays both rose 0.2% for the month—meaning our wages and spending are right in line with inflation, by this measure at least.

"... the bad news comes when we compare those rates to September's."

But the bad news comes when we compare those rates to September's. Spending had increased 0.7% in that month, so watching consumer spending slow markedly could be cause for concern. Then again, that is exactly what the Fed wants. JPow and the FOMC seem to be playing a game of chicken against the American consumers' desire to spend, seeking to f*ck the economy just enough so spending growth slows but doesn’t dip below 0%.

PCE reports were a monthly Super Bowl for markets just a few months ago. Now, we care about it just as much as the average NFL does when they show Travis Kelce’s girlfriend clapping for the Chiefs. Sorry, what’s her name again??

Regardless, sentiment has quite swiftly shifted from caring the most about inflation to simply the odds of a recession. Thankfully, the latter of the two is even harder to quantify than inflation, so we probably won’t even realize it until after the fact.

What's Ripe

ImmunoGen (IMGN) ↑ 82.75% ↑

• Serious question here, apes—did we discover a cure for cancer, and you *ssholes just never told me? Sure seems like it, especially based on this >80% single-day move.
• Honestly, great prank by not telling me. You guys got me good apes. ImmunoGen develops cancer treatments called antibody-drug conjugates, or “ADCs,” that are designed to kill cancer cells without harming healthy ones.
• Uhhh, that sounds like a cure to cancer to me, so no wonder AbbVie decided to buy this thing for $10.1bn, a 95% premium to Wednesday’s close. Despite that premium, even AbbVie shareholders were hyped, sending the stock up 2.80%.
• So, this deal is absolutely not accretive to shareholders like most deals should be when the acquirer’s stock rises on the day of the announcement, but healthcare investors have recently fallen in love with the idea of large biopharma names like AbbVie getting involved in the ADC space.

Salesforce (CRM) ↑ 9.35% ↑

• Keeping the most wonderful time of year alive, Salesforce got the people goin’ late Wednesday and all day Thursday following the release of their third-quarter earnings.
• Following the 2023 Zuckerbergian playbook of cutting costs and eviscerating the livelihoods of their employees, Salesforce was able to deliver a photo surprise and raise guidance much to the liking of analysts.
• Sales grew 11% to $8.72bn for the quarter, right in line with estimates but slower than the firm is used to, reflecting the still-reduced spending by businesses given macro uncertainty. EPS came in at $2.11/sh vs expectations for $2.06/sh, and the firm now expects operating cash flows to surge 33% in FY’24 instead of 30%.

What's Rotten

Pure Storage (PSTG) ↓ 12.18% ↓

• Guess this company should’ve stored some more cash under its mattress. Maybe then Mr. Market wouldn’t have laughed so hard at the company’s guidance for the next quarter.
• Actually, it would’ve been even easier for the firm to store BTC on its data storage products because, apparently, this is not a physical storage company (which I definitely knew before writing this) but a data storage firm.
• Apparently caught up in a similar snag as Salesforce with companies looking to tighten their belts, Pure Storage is expecting its next quarter to be a tough one. The firm expects operating income of $150mn on revenue of $782mn, disgustingly below the $199mn and $919mn markets had been pricing in.
• But, there was really nothing wrong with last quarter. Pure’s $0.50/sh earnings beat the $0.41/sh estimate, while sales of $763mn narrowly beat the $760mn estimate. Once again, we see that even a W on Wall Street is an L for shareholders.

Ford (F) ↓ 3.12% ↓

• Send an F in the chat for Ford as soon as you can. Apes, they need all the support they can get. After coming to an agreement with the UAW, Ford reinstated guidance… but Wall Street remained pissed.
• On Thursday, Ford came out swinging and let us know that the UAW strike cost the firm $1.7bn in earnings… already. If that’s not exciting enough, the deal is expected to cost Ford an additional $8.8bn through the life of the contract, which ends in 2028.
• The power of labor has been put on full display. Earnings and free cash flows were projected lower than anticipated previously, bringing shares into the hands of the bears on Thursday.

Data Peel

Thought Banana

Old Dudes Squaring Up

Bill Burr’s new Netflix movie Old Dads was pretty good. Unfortunately, we’re not talking about Old Dads here, just some old dudes.

Actually, I’m pretty sure the main characters in this should-be pay-per-view heavyweight bout are literally dads, but that’s beside the point. Nelson Peltz is storming the castles of the Mouse House once again.

Peltz, who is ostensibly an avid David Goggins fan as he is still #grinding the activist investor game at 81 years old, has decided that yes, actually, he would like a seat on Disney’s board. Actually, make that 2.

"... Nelson Peltz is storming the castles of the Mouse House once again."

Peltz is the founder and CEO of Trian Fund Management. Already a billionaire, the OG’s love for the game has kept him going long enough to pick 2 fights with the same company in a single year. After backing off of his activist campaign earlier this year upon hearing Iger’s plan to cut costs and streamline efforts on the company’s most important business units, Peltz called off his attack.

But that didn’t mean he sold his stake in the firm. After last quarter’s earnings and assuredly some behind-the-scenes nonsense, Peltz has once again geared up for battle.

Now, Trian and its CEO are teamed up with former Disney executive Isaac “Ike” Perlmutter, who is also an octogenarian and was fired from his position running Marvel Entertainment earlier this year. It's safe to say he’s got a bit of a grudge.

Between the two, Peltz and Perlmutter own ~$3bn in Disney stock held at Trian, although most of it is technically “for the benefit of'' Perlmutter. Apparently, they weren’t pleased with newly-back CEO Bob Iger and Disney’s latest quarterly results, as a “person familiar with the matter” leaked to the media yesterday that Trian is seeking two board seats at Disney.

"Recently, Disney has added two new board members ..."

Iger essentially said, “Over my dead body,” which Peltz and/or Perlmutter very well could be soon, but at 72 years old himself, that could actually become true for Iger, too.

Recently, Disney has added two new board members, soon-to-be-former Morgan Stanley CEO James Gorman, and Sky TV head Jeremy Darroch, which Peltz has called an “improvement from the status quo” but fails to address the heart of Disney’s issues.

Looks like Peltz has one more pelt he wants to add to his esteemed collection, this time expected to come from the biggest Mouse of them all. Stay tuned.

The Big Question: How will this proxy battle unfold? Will Peltz manage to secure the 2 board seats at Disney? What will that mean for Disney’s stock price? Are you buying this stock?

Banana Brain Teaser

Yesterday —

What's the probability of rolling a 6-sided dice three times and getting a sum of 5?

Answer

The sum 5 has two combinations: 3+1+1 or 2+2+1. Each combination has 3 different possible orders, which total 6 different permutations.

Three dice have a total of 6^3=216 outcomes, and so the probability is 6/216=1/36.

Today —

Three men had $227 altogether. Joe had $35 more than George, while Craig had $7 more than Joe.

How much did they each have?

Shoot us your guesses at [email protected]

Wise Investor Says

“Disinflation is like a cat. You can't really tame it.”—Paul Samuelson

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team