?? Why Inflation Has Gotten Boring

In this issue of the Peel:

• ?? The U.S. economy continues to normalize as I fall asleep writing this…
• ?? Where is the meme army? Reddit stock is starting to take a hit.
• ?? SBF, a.k.a. Scum-Bag Fraud, was sentenced to 25 years in prison.

Market Snapshot ??

Banana Bits ??

• Pressure on the Fed to shift to a “lower for sooner” starts mounting starts mounting
• The average monthly mortgage payment in the U.S. just hit another all-time high
• But consumers are still feeling pretty damn good about the economy
• Investing in Trump’s stock is the new Red MAGA hat

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Macro Monkey Says ??

Inflated Boredom

Like UConn scoring 30 straight on Illinois this weekend, inflation in the U.S. has seemed damn near unstoppable for the past few years.

I mean, for a minute there, I was actually worried inflation would reduce my 11-leg parlays to only 8 or 9 legs, but thankfully, tragedy hasn’t struck just yet.

And despite that looming potential tragedy, Fed Chair JPow is standing on business, staring down inflation—both figuratively and literally—as it retreats to our 2% target like my dog retreats to his crate when he hears sirens from a cop car.

But also, just like my dog, inflation might finally have figured out how to stop biting me and every other consumer in the U.S.

The Numbers

It really was a Good Friday to close last week. If not confirmed by the Catholic church, then definitely confirmed by the Bureau of Economic Analysis.

Source

February’s Personal Consumption Expenditure price index, always the Fed’s favorite measure of inflation, clocked in at 0.3% for the month and 2.5% for the year. Respectively, these were slightly below and right in line with expert guesstimates.

The 2.5% annual reading is essentially the same rise we saw in January, but February’s 0.3% increase on the monthly side is slightly lower than the 0.4% seen in January.

Needless to say, that’s a great sign. We’ll take the W of slowing inflation anyway that we can, and looking further into February’s release, we can see where this is coming from.

Continuing that slow march lower is some early confirmation that JPow and his balls of steel have been right so far that holding the fed funds rate in the target range of 5.25%—5.5% has been restrictive enough (again, so far) to get inflation to chill.

Headline PCE did increase slightly from January, but nobody really cares because the Fed doesn’t really care. Core PCE, which excludes price changes in food and energy, is JPow’s favorite child in this case.

Core PCE has been riding higher than headline for nearly a year now, primarily as food and energy costs fell—or more accurately, stopped storming higher—sooner than other line items. That continued last month with Core PCE rising 2.8% YoY.?

But as always, the direction is more important than the level. With Core PCE continuing to move in the right direction (a.k.a. lower), we can safely say it was a happy (market) holiday.

Perhaps becoming even more important than inflation, however, are growth concerns. It’s pretty damn clear inflation is headed back down to 2%, hence why we’re all falling asleep talking about this again, but…

The most interesting item in the report came down to the spread in changes between real disposable personal incomes and consumer spending.

Spending grew 0.8%, a great sign for GDP and earnings, while incomes after taxes and inflation increased only 0.2%, a bad sign for bank accounts.?

Slowing growth in compensation could be indicative of a weakening labor market, which may suggest that rates are actually too restrictive already, causing labor demand to fall below its natural rate.

The tough part is that we can only know this information in retrospect. But, on Friday we’ll get the February jobs data, so that could be the Blue’s Clue we’re looking for.

The Takeaway?

Inflation has gotten so boring in the U.S. that I haven’t even heard anyone complain about the price of a filet mignon in, like, 5 entire minutes.?

Although the Fed’s Summary of Economic Projections forecasts a strong labor market throughout 2024, which is expected to remain around the current 3.9% level, weakening income data could suggest otherwise.

Source?

Overall, the economic normalization continued without a hiccup in February. So, as always in macro, personal incomes, and the labor market came in with something fresh and new to make sure we stay filled to the brim with anxiety.?

Stay tuned.

What's Ripe ??

RH (RH) ??17.3%

• It’s too bad this company changed its name because Restoration is the perfect word for the stock, company, and home furnishing market.
• As housing starts to get back on its feet, names like RH that supply furnishings and other home accessories are catching a bid from the macro trend.
• Plus, only rich people can afford homes at these rates and prices, and they’re more than happy to pay the absurd markups offered by RH.

Estée Lauder (EL) ??6.3%

• Just like what this company’s products do to customers’ appearance, shares were upgraded on Thursday with a much better outlook.
• BofA analysts noted the cosmetic company’s improved profitability and release of new products and sales channels (a.k.a. Amazon) as reasons to get hyped.
• The firm already carries a nearly 120x LTM P/E ratio, but despite the overvaluation, BofA analysts are down to ride.

What's Rotten ??

Reddit (RDDT) ??14.6%

• Price discovery is a pain, as Reddit learned the hard way. The social media firm’s shares have already been abused almost as much as your personal data given to these apps.
• Didn’t take long for insiders to start dumping shares, either. CEO Steve Huffman dumped 500k shares while the firm’s COO followed suit.
• Usually, there’s a lock-up period, but Reddit apparently said f*ck that. It’s not weird for insiders to sell after an IPO, but it is to do it so soon.

Palantir (PLTR) ??6.1%

• Markets apparently saw our coverage of Palantir and decided it was time to bail out. Or, I guess it could be the downgrade shares got a day later.
• Analysts at Monness, Crespi, Hardt & Co., an NYC-based broker, downgraded Palantir from neutral to sell amid the AI hype cycle.
• Basically, analyst Brian White said the firm carries an “egregiously high valuation.” Apparently, the markets agreed, sending shares off a cliff.

Thought Banana ??

Golden Boy To Silver Medalist

Before this past Holiday weekend, an NYC judge made Thursday a financial Holiday of its own right.

And now, it’s time to celebrate FTX founder and (former) CEO Sam Bankman-Fried, a.k.a. Scum-Bag Fraud.

He went from the most envied man on Wall Street, whom publications from Forbes to Business Insider called the next Warren Buffet and finance’s new “golden boy,” to instead becoming the next Bernie Madoff.

But he can’t be too mad because really all he did was go from gold to silver, taking home the 2nd place trophy for longest prison sentence related to white-collar fraud in U.S. history.

Congrats, Sam. I wonder if his parents still believe his bullsh*t.

What Happened?

On Thursday, disgraced digital asset fraudster and all-around garbage human being Sam Bankman-Friend (a.k.a. “SBF”) was sentenced to 25 years of rotting in a prison cell.

Source

SBF is up there with some legends of the fraud game, including the GOAT, Bernie Madoff, and other all-time greats like the CEOs of Enron, Worldcom, and Tyco.

Scum-Bag Fraud isn’t getting off easy with just 25 years either.

This *sshole will also be forced to forfeit $11bn in total and, assuming he survives those 25 years in jail, will be on 3 years of government-sponsored time out—or “supervised release” following the sentence.

At 32yrs old, SBF’s sentence, in total, works out to 87.5% of his life so far. When he’s 60yrs old and finally out of post-prison time out, he’ll have spent 46.67% of his life behind bars.?

Who Cares?

As always, in the U.S., people on both sides of the sentencing argument are pissed. Some think it’s too much, some too little, and that is how we know it’s probably a decently good judgment.

Source

Compared to Madoff’s sentence, it looks like SBF got off easy. But perhaps the biggest difference here is that FTX victims are actually going to get their money back.?

It turns out that Sam was a pretty good gambler, with many of FTX’s digital asset and venture investments achieving huge returns. Most notably, FTX gave seed money to Anthropic, which is now worth an estimated $800mn.

Already, more than $7bn in refundable cash has been recovered, according to new CEO John Ray and the firm’s bankruptcy attorneys.

Hell, even equity investors might not get totally wiped out as a newly expected surplus in recoverable assets is set to hit preferred shareholders after paying back creditors, vendors, and depositors. BTC’s has been another game-changer, too.

Source

Buuuuttt…. on the other hand, SBF’s crimes were of the most egregious nature when it comes to financial fraud. The guy was convicted of wire fraud, conspiracy to commit everything from securities fraud to money laundering, and lying about his veganism.

Like we always say—the U.S. does NOT f*ck around when it comes to white-collar financial and securities fraud. One reason U.S. capital markets are far and away the best in the world is our strict adherence and punishment to these laws.?

So, SBF serves as an example to the rest of the fraudster industry. Judge Kaplan, who presided over the October trial and issued Thursday’s sentence, also said he factored in Sam’s lack of any kind of remorse and his ex-bae Caroline Ellison’s damning testimony in making the decision.

SBF was also found guilty of perjury and witness tampering. Plus, Judge Kaplan was disgusted by Scum Bag’s media tour of apathetic “apologies” in the immediate aftermath of FTX’s collapse.

Kaplan summed it up best by saying “A thief who takes his loot to Las Vegas and successfully bets is not entitled to a sentencing reduction.”

The big takeaway here? If you’re gonna commit fraud, just don’t do it in the U.S… and if you do, just make sure you don’t get caught.?

?? The Big Question ??: How much of the 25 years will SBF actually end up serving? Can we expect any other high-profile digital asset crimes to follow? What long-term effect will this sentencing have on the industry?

Banana Brain Teaser ??

Previous ??

A retailer purchased eggs at $2.80 per dozen and sold the eggs at 3 eggs for $0.90. What was the retailer’s gross profit from purchasing and selling 5 dozen eggs??

Answer: $4.00

Today ??

In a set of 24 cards, each card is numbered with a different positive integer from 1 to 24. One card will be drawn at random from the set. What is the probability that the card drawn will have either a number that is divisible by both 2 and 3 or a number that is divisible by 7?

Answer: 7/24

Send your guesses to [email protected]

Wise Investor Says ??

"What he did with it afterward doesn't matter. This is like saying that if I break into the Federal Reserve Bank, make off with a million bucks, spend it all on Powerball tickets, and happen to win, it was okay.” — Judge Kaplan, During the FTX Trial

How Would You Rate Today's Peel??

??All the bananas? ? ? ? ? ? ? ? ? ? ? ? ???Meh? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF

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Happy Investing,

David, Vyom, Jasper & Patrick