WSO Platinum Banana: Finmeme of the Year

In this issue of the Peel:

• The BEA announced a revision to last quarter’s real economic growth rate from the 5.2% reported in their last estimate to 4.9%.
• Micron and Carnival Cruise Line had a ripe day, while Paychex and Paramount Global suffered share price declines.
• Under the category marked "Finmeme of the Year," the 2023 Platinum Banana award goes to the “If your boss looks like this…” Meme!

Market Snapshot

Happy Friday, apes.

We’re doing a great job continuing to contribute to the economy this holiday season apes, with 96% of shoppers planning to “overspend” during the most wonderful time of the year, according to a TD Bank Survey CNBC highlighted yesterday. Nicely done team, only 4% more to go!

Regardless of how that turns out, equities are loving it for now. U.S. markets continued to rally yesterday after a brief but dramatic single-day selloff allegedly triggered by the market’s new boogeyman, zero-day options. The Russell 2k led, gaining 1.70% on the day despite falling the most by far on Wednesday. Adding icing to the cake, all 11 S&P sectors were higher on the day.

The apes at WSO Alpha managed to get us in on some of the fun as well, gaining a respectable but still non-shockingly underperforming 0.99% gain.

Let’s get into it.

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Banana Bits

• Nike’s the latest on the chopping block , expecting to feel the wrath of slowing consumer spending into 2024.
• Big Dawg Joey B apparently isn’t too excited at the idea of a sale of U.S. Steel.
• The Leading Economic Indicators index continued to decline in November.
• Retail investors have started chugging the eggnog a little early this year as investor sentiment reached the highest levels since April 2021.

Macro Monkey Says

Third Try’s the Charm

We all know the importance of four-letter words that everyone from rappers to daily financial market newsletter writers loves to use (wonder who that could be), but for today, a three-letter word is clearly soaking up all the spotlight.

Well, I don’t actually know if this counts as a word, but it’s still just 3 letters: GDP.

We all know economists aren’t particularly talented when it comes to the subjects they spend years studying, but math is hard. And that’s why it takes a few tries before we can have some confidence in their “estimates.”

And when it comes to GDP growth, not only is this one of the most preeminent pieces of data that investors and civilians alike pay attention to, but it’s one of the most challenging to quantify. Hopefully, though, the Bureau of Economic Analysis got it right yesterday.

In their third estimate for Q3 GDP growth, economists did at least do something that they’re great at—kill the vibe. Per their third estimate, the BEA announced a downward revision to last quarter’s real economic growth rate from the 5.2% reported in their last estimate to the 4.9% reading we got yesterday.

Clearly, based on their above performance, markets shook this off without a second thought… at least in the short term. We’ll see if the gains yesterday come back to bite us, but all in all, 4.9% real annualized growth for a $25tn economy like the U.S. is still pretty damn good.

Plus, 4.9% still indicates a strong uptick in growth rates compared to every other quarterly reading we’ve seen since late 2021. Take a look:

"... 4.9% still indicates a strong uptick in growth rates ..."

Source

So, despite the downward revision, that rate of acceleration is still 2x that of Q2 at 2.1%. When we look under the hood, we find both good and bad news, as usual in the macro space. Plus, in only 4 months, that >30% growth from Q3’20 will be off the chart, and we’ll actually be able to eyeball-read the graph again!

The uptick from Q2’s 2.1% to 4.9% in Q3 is built on increased exports and mild growth in consumer spending and business investment. Imports were higher, too, pulling growth lower along with investment in nonresidential fixed projects.

"We say “probably” because nothing is ever certain in economics (remember when oil went negative?) ..."

To translate, that’s probably mostly a good thing. We say “probably” because nothing is ever certain in economics (remember when oil went negative?), but when consumer spending, exports, imports, and private investment are all moving higher, that’s generally a good sign.

That being said, all of those above readings were exactly what led to the downward revision—to translate again, meaning they weren’t as great as we originally thought, but they were still pretty okay after all.

Markets generally don’t react very strongly to GDP growth readings, and this is for a few reasons. First, markets are forward-looking, so they really couldn’t care less about an economic growth update from nearly 3-months ago. Secondly, GDP isn’t really an indicator in itself… because it’s the thing the other indicators are used to make an inference about. Indicators are a predictive means to an end; GDP growth is the end.

But hey, at least we’re not talking about housing again, right? This is just about the last major macro reading of the year, so hopefully, these decently good vibes will continue into 2023. Maybe if we all keep our fingers crossed…

What's Ripe

Micron (MU) $85.48 (↑ 8.63% ↑)

• While my memory only seems to get worse every day, hour, and minute, it was good to hear that’s not the case for everyone. Especially not Micron.
• After the computer memory and data storage space got eviscerated for much of 2023, Micron’s earnings yesterday give us a glimpse into an industry that recovers faster than a guy on steroids.
• Losses narrowed to just below expectations last quarter, reporting a $0.95/sh loss vs the $0.99/sh loss analysts were anticipating. Revenue surprised to the upside as well, but the real fun stuff came in Micron’s guidance. Management upped the ante from projected revenue of $5.03 billion to $5.3 billion in their next quarter.
• Prior to yesterday, most industry analysts were still down on this name, but the report shows that similar to digital ad markets, memory and storage spending by most businesses tends to snap back really quickly. If only my human brain memory could do the same…

Carnival Cruise Line (CCL) $19.19 (↑ 6.20% ↑)

• For maybe the first time since the pandemic destroyed the business model for cruise operators worse than the U.S. destroyed Hiroshima, this industry player is actually bringing its shareholders to the carnival.
• Sorry for the cringe… and the offense…. firing on all cylinders today. Anyway, Carnival managed to squeeze through analyst expectations to a solid quarter in its latest quarterly release. Losses totaled only $0.07/sh when adjusted for one-time gains/losses, while analysts had been expecting a $0.12/sh loss.
• More importantly to markets this quarter, however, Carnival was able to deliver an upside surprise on revenue as well, raking in $5.4bn vs. the expected $5.32bn. A close call, to say the least, but as always, a beat is a beat.
• And speaking of beats, management was also particularly upbeat when looking into next year. The company expects nearly 30% EBITDA growth and (hopefully) a staunch decline in “suspicious deaths ” this year.

What's Rotten

Paychex (PAYX) $118.90 (↓ 7.01% ↓)

• Is earnings szn back? Nobody told me, but here we go again, apes. This one, unfortunately (for shareholders, at least), wasn’t as pretty as the two above.
• Paychex must not have gotten the memo that you’re actually not supposed to miss revenue estimates this quarter. Analysts were hoping for $1.27 billion, while the firm only delivered $1.26 billion. Just pathetic, missing by a whole 0.7%.
• EPS, on the other hand, clocked in at $1.08/sh vs the $1.07/sh, so it could’ve been worse. But clearly, the top-line miss signals a lack of resilience in Paychex sales, which came to the forefront last quarter as B2B spending on services like this dried up.

Paramount Global (PARA) $15.77 (↓ 2.77% ↓)

• Don’t you love it when way smaller companies try to call what is clearly an “acquisition” a “merger”? Yeah, welcome to Paramount Global.
• Late in the day on Wednesday, news dropped (and then their stocks did too) that Paramount Global and Warner Bros Discovery—two media titans—were in talks to “merge.” At a market cap of about $28bn, Warner Bros is nearly 3x larger than the $10bn Paramount, so I think we know who's buying who here.
• However they label it, we know already that the controlling shareholder of Paramount’s parent company, Shari Redstone, is looking for a sale like most of us are looking for bulge bracket IB jobs.
• Warner Bros CEO David Zaslav has reportedly been in talks with Paramount CEO Bob Bakish, signaling that both sides are particularly keen on a sale. The consolidation in media continues, and it looks like we have another industry titan on our hands.

Thought Banana

Platinum Banana: Finmeme of the Year

After the brutal assault that market gods levied on our portfolios from sea to shining sea last year, 2023 became a year of anxious success. It was like we were all just waiting for that seemingly inevitable crash, but even a series of bank runs in March and an uptick in inflation couldn’t stop us.

Basically, the gain$ have been unstoppable. But, amid that wall of worry, we climbed all throughout 2023, something was needed to keep our mental health from falling as far and fast as our accounts did in the year before. That something? Memes.

"... solid memeing is the ultimate cure for poor mental states."

We’re no scientists, of course, but we’re also pretty damn sure that solid memeing is the ultimate cure for poor mental states.

So, it’s time to bless, honor, and sanctify one meme that spreads joy and market accuracy further and wider than any other by bestowing them with the highest possible honor in finance, our third official Platinum Banana award for 2023.

The 2023 Platinum Banana Award for Finmeme of the Year goes to…

The “If your boss looks like this…” Meme!

Anyone with a cell phone and a finance degree knows what the meme and the image above are referencing.

"... not only were these memes damn hysterical ..."

But just in case, recall that it’s meant to represent an “old school” boss (a.k.a. dressed like sh*t), and the captions of the meme would usually convey sentiment suggestive that they’d be able to avoid a recession, they wouldn’t allow WFH and other things like that.

The idea was for this to represent a reversion to more aggressive corporate America, back when wearing that shoes and pants combo would’ve been considered the drip of the day.

And not only were these memes damn hysterical, but they perfectly encapsulated sentiment—our fears of recession, our desire to WFH to play Battlefield in between calls, and more. After all, they say art imitates life.

Congratulations to our lucky winner. You can find plenty of examples of gold captions on this template right on the WSO IG … but you might have to scroll for a minute. Still, given this baby took home the high honor of a Platinum Banana, it’s gonna be worth it.

The Big Question: What other memes captured market sentiment well in 2023? How will we meme our way through 2024?

Banana Brain Teaser

Yesterday —

Josh is writing a book. He starts on page 1. When he finished, he used a total of 228 digits. How many pages does he have?

Answer

112 pages.

Today —

How many times do the hour and minute hands cross each other in a twelve-hour period?

Shoot us your guesses at [email protected] .

Wise Investor Says

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in” — John D. Rockefeller

How would you rate today’s Peel?

All the bananas

Decent

Rotten AF

Happy Investing,

Patrick & The Daily Peel Team