To The Moon

In this issue of the Peel:

• For the past 21 months or so, the Federal Reserve has introduced 11 interest rate hikes and $95bn in assets runoff each month.
• Intuitive Surgical and Meta Platforms had a ripe day, while Aehr Test Systems and Chewy suffered share price declines.
• The SEC approved 11 spot BTC ETFs in one fell swoop yesterday, with many expected to begin trading as early as today.

Market Snapshot

Happy Thursday, apes.

It feels like January 2021 again with the way that gambling, degeneracy, and much more are confirmed BACK with the SEC’s approval of spot BTC ETFs in the U.S. After what they did around $GME and others, it’s about time they paid us back.

And speaking of paying us back, WSO Alpha is doing the exact same thing with the portfolio, rising 0.48% yesterday and pushing us even further into generating actual alpha for us apes.

I’m told the team’s first research report is just days (and potentially even hours) away from being published, and trust me when I say this time, you won’t want to miss this. Stay tuned here .

Let’s get into it.

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Banana Bits

• Like when Janet Jackson’s wardrobe malfunctioned at the Super Bowl halftime show, all eyes are now on today’s inflation report.
• Consolidation in the media landscape continues as Paramount is getting closer to finding a buyer.
• Ol’ Billy Ackman is following his legendary activist playbook, backing dissidents in a play for board seats at Harvard.
• It looks like the U.S. Presidential election is starting to lose some weight as former New Jersey governor Chris Christie has dropped out of the running, both figuratively and literally, it seems (lmao, I’m so sorry).

Macro Monkey Says

Quiet QT

If rate hikes are like taking shots of Everclear, the Fed’s balance sheet runoff is more like sipping a few beers. One gets it done much quicker, but with enough time, you’re gonna be hammered either way.

And because of that difference in speed, the financial Everclear shots we take in the form of rate movements soak up all the attention.

But like Supreme Court Justice Brett Kavanaugh said when he ever-so-wisely stated, “I liked beer, I still like beer… sometimes too many beers”, we still like the Fed’s balance sheet. Sometimes, and especially today, maybe even too much.

For the past 21 months or so, the Federal Reserve has been hitting us with the double whammy of 11 interest rate hikes and $95bn in assets runoff each month.

The balance sheet side of things hasn’t received much attention so far, but according to Dallas Fed President Lori Logan, that needs to change… and soon.

In a speech delivered on Saturday, Logan said it’s high time “to consider the parameters that will guide a decision to slow the runoff of our assets,” going further to suggest that “we should slow the pace of runoff as ON RRP balances approach a low level."

When she says “runoff” of the balance sheet, what Logan and other officials are referring to is the Fed’s process of allowing assets—like treasuries and mortgage-backed securities—to mature without replacement. It looks like this:

Source

This means that the assets held by the Fed, and corresponding Treasury and other agency liabilities, both get reduced by the same amount.

In effect, this process simply seeks to drain liquidity from financial markets, and Logan is calling for a slowdown in that process.

Surprisingly, and probably unlike money printer Powell, Logan doesn’t want to pursue this route only to ensure that the universal principle of “stocks only go up” remains true.

Usage of the Fed’s overnight reverse repurchase (ON RRP) facility has, in recent weeks, begun to decline even faster than the Fed’s balance sheet runoff.

The ON RRP is a lending facility in which both banks and “nonbanks” (primary dealers, money market funds, etc.) can park excess reserves (a.k.a. cash held that exceeds the institution’s reserve requirements) overnight, risk-free, and earn an actual rate of return.

Seeing this decline more rapidly suggests that liquidity at these banks is much like my grades in college—falling faster than expected. This can be seen in the widening spread between SOFR rates and that of the ON RRP, which has been ongoing since November.

So, just like the double whammy on the way up, if JPow and the rest of the FOMC gang do pursue rate cuts early this year, we could see a double whammy on the way down as the process of liquidity evisceration slows alongside potential (a.k.a. hopeful) rate cuts.

As long as our portfolios go up (as if that will ever happen), sounds good to me.

What's Ripe

Intuitive Surgical (ISRG) $364.45 (↑ 10.25% ↑)

• Robot surgery sounds like something out of a George Orwell nightmare, but whatever it takes to get the job done. And apparently, Intuitive Surgical is doing just that.
• In fact, they’re doing such a good job that the company bumped its revenue expectation for Q4 from $1.87bn to $1.93bn.
• It’s a small change, but it’s moving in the right direction, and as always, markets and analysts alike care much more about that direction rather than the level alone.

Meta Platforms (META) $370.47 +3.65%

• Turns out that spreading envy and depression around the world is still a phenomenal business model, at least according to Mizuho Securities analysts.
• I mean, I guess when you have over 3.1bn monthly active users, any business model is probably gonna work out just fine.
• But Meta is so compelling that the analysts at Mizuho said “f*ck it” and added nearly 20% to their price target on the firm, bumping their outlook on the stock from $400/sh to $470/sh yesterday.
• That implies a 26.86% upside from here, and to be honest, I don’t know if that’s enough to make me want to be associated with the sunscreen-wearing, cringe-inducing CEO that is Mark Zuckerberg.

What's Rotten

Aehr Test Systems (AEHR) $18.59 (↓ 16.82% ↓)

• Along with Stephen Hawking memes and fly-tacking judges in open court, 2024 has brought us a few other things. As Aehr Test Systems learned the hard way yesterday, one of the things is a loss of hype around semi stocks.
• Don’t get me wrong, there’s still plenty of hype to go around, but simply being in the same industry as Nvidia ostensibly is no longer as attractive as it was in 2023.
• So, when Aehr, a company specializing in test and burn-in products for the chip industry, issued a demand warning along with their quarterly numbers, no amount of earnings beats could overcome the selling.
• Looking under the hood, though, Aehr had a stellar quarter. Sales grew 45% annually to $21.4mn while earnings of $0.23/sh easily beat the $0.19/sh expected.

Chewy (CHWY) $19.94 (↓ 5.72% ↓)

• Finally, some good news for us in 2024 as good boys (and girls) from sea to shining sea have a brand new, not-for-profit online pharmacy where they can shop for their medicine.
• I guess it’s good news as long as you’re not a Chewy shareholder. The stock tumbled on the announcement of the American Kennel Club’s new online pharmacy for dogs, called AKCRx.
• At the same time, Chewy was getting hated on anyway. A block trade placed in the early hours of Wednesday’s session was sold at $20.45/sh, lower than the seller had been hoping for. Plus, Goldman figured it was time to add even more hate to this dumpster fire, lowering their price target from $50/sh to $46/sh.
• Now, if only my dog could become an actual dawg and start paying for this sh*t himself. He’s cute but has absolutely no hustle, and I couldn’t even get him to start dropshipping. Is it time to sign him up for Andrew Tate’s course or some other club exclusive for #hustlers??

Thought Banana

If You Can’t Beat ‘Em…

Welcome to history, apes.

Get the bottles poppin’, the music blaring, and, of course, the gambling going as spot BTC ETFs have officially been approved by the SEC.

This must be what it felt like when Mozart dropped his first mixtape—the long-awaited approval for one of the most anticipated ETFs in global financial history has finally arrived.

Yesterday, the SEC managed to go an entire day without their social media accounts getting hacked, and as a result, they were finally able to give the thumbs up to BTC ETFs.

11 spot BTC ETFs were approved in one fell swoop yesterday, and many are expected to begin trading as early as today.

It’s a big deal, but it probably shouldn’t be. In their announcement, the SEC unwittingly acknowledges their own mistakes in delaying the process for so long, pointing out that “Since 2004, this agency has had experience overseeing spot non-security commodity ETPs…”

Yet, they still threw a fit and took their sweet time in actually approving the asset class for ETF trading. It wasn’t necessarily the fact that BTC ETFs are a thing that makes this a big deal, but that the U.S. securities regulator has finally decided that it’s okay in their eyes for everyday investors to buy into the asset class.

But of course, and as the SEC notes as well, the agency “did not approve or endorse Bitcoin.” They only gave the thumbs up for retail investors like you and me to get in on the action.

Fidelity, BlackRock, WisdomTree, Grayscale, and 7 others were hyped at the chance to soak up even more assets to charge a microscopic fee to manage, but like other industry-based ETFs, it’s expected only 3-4 of them actually reach the scale needed to economically justify their existence.

Oh yeah, and another issuer—VanEck—easily has the coolest ticker among them all, going with the label “HODL.” It might be the best marketing decision since Old Spice put a guy on a horse.

Needless to say, this is one you’ll definitely want to stay tuned on.

The Big Question: What’s the next step for this asset class? Will it go to the moon? Are you getting in on this, and if so, which digital asset are you buying?

Banana Brain Teaser

Yesterday —

On Monday, the opening price of a certain stock was $100 per share, and its closing price was $110 per share. On Tuesday, the closing price of the stock was 10 percent less than its closing price on Monday, and on Wednesday, the closing price of the stock was 4 percent greater than its closing price on Tuesday.

What was the approximate percent change in the price of the stock from its opening price on Monday to its closing price on Wednesday?

Answer

An approximate increase of 3%

Today —

What is the perimeter, in meters, of a rectangular garden 6 meters wide that has the same area as a rectangular playground 16 meters long and 12 meters wide?

Shoot us your guesses at [email protected] .

Wise Investor Says

“I've always been deeply opposed to crypto, bitcoin, etc… If I was the government, I'd close it down.” — Jamie Dimon

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team

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