Silver banana goes to…

In this issue of the peel:

• Apple is an economy in and of itself, larger than the entire GDPs of countries like the U.K., France, and Russia. The product launches announced on Monday signal exactly where this economy is heading, and we want to tell you about it.

• Oracle shares took off on strong earnings, while Boot Barn was feeling themselves more than their average customer after spending $200 on boots they’ll forget at the Airbnb. JPMorgan’s record fall made me think the sky was falling, and Taiwan Semi’s August revenue disappointed investors.

• Credit is growing almost as quickly as election anxiety in the U.S., while delinquency rates just set a fresh 12-year high. Gotta be a coincidence, right? Nothing to worry about here?

Market Snapshot

Banana Bits

• 23-years ago today, thousands of Americans lost their lives in the worst terror attack the country has ever seen. We will Never Forget.

• We got two inflation reports on deck before the Fed breaks out its brand-new pair of scissors.

• The EU just fined Apple and Google a combined $17bn.

• Apollo just published this absolute book on the U.S. housing market.

• Elliott is winning already as Southwest’s CEO and Executive Chair both agree to step down.

• Ally Financial was an enemy to investors on Tuesday, down 17.6%, as warnings about struggling auto loan repayments triggered traders.

• Just as debt concerns grow in the U.S., the Fed is looking to reduce capital requirements by roughly half for the largest banks.

The Daily Poll

Previous Poll:

After the August jobs report, what do you think is the most pressing concern for the U.S. economy?

Potential recession: 39.6% // Weakening labor market data: 32% // Mistrust in government statistics: 16.8% // Interest rate uncertainty: 11.6%

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Macro Monkey Says

Apple Picking

It’s that time of year again—make sure you say your prayers to the pumpkin spice god for a fruitful harvest of flannel shirts, hayrides, and, most of all, apple picking. 

Personally, I think heated cider donuts are easily my favorite apple product. But, after Monday, the iPhone 16 looks pretty damn good too.

Let’s get into it.

What Happened?

On Monday, Apple unveiled a product line that got the tech bros going full “I wanna shake your hand!” to CEO Tim Cook.

Markets weren’t as excited about the immediate release. Shares were flat on launch day and opened down 0.85% yesterday, closing the session down 0.36%. Much of the release was already priced in, but let’s talk about some of the coolest sh*t.

It’s no secret that Apple’s revenue mix has undergone more change in recent years than most investment banker’s hairlines.

This dynamic came especially in focus as software launches were easily the best thing about this release. In the near term, new software could spur a faster upgrade cycle of hardware, but the long-term trend of Apple becoming a software firm remains.

Apple Intelligence, the firm’s in-house AI brand, stole the show with features like:

• Siri: A “more natural and flexible” system that can “switch fluidly between text and voice,” retain context from one request to the next, and understand even your worst drunken stumbling over words.

• Photos: Clean Up feature can remove objects from the background of images, and the Memories feature “enables users to create movies… by simply typing a description.” Users can also search for specific things in photos and videos.

• Personalized Notifications: A new Focus mode can show “only the notifications that might need immediate attention.” Users also get summarized emails and messages, urgent messages pushed to the top of their inbox, and reply suggestions.

• Notes & Phone Apps: Users get transcribed and summarized reports to “help recall key moments” of conversations when this feature is turned on.

And there’s plenty more to come.

Concerns with Apple Intelligence aren’t born out of performance worries but privacy. Luckily, Apple has been building privacy into products since Jobs and Wozniak were still in a garage, but the firm’s partnership with ChatGPT raises red flags.

Apple pinky promised that all intelligence processing would be done locally on-device or through a new system called Private Cloud Compute. PCC (CCP spelled backwards?) sends “more complex requests that require more processing power” to Apple servers.

That sounds scary, but the firm also pinky promised that “users’ data is never stored or shared with Apple” with “independent experts” that can continuously verify this remains the case.

Apple also continued to lean heavily into the healthcare space. The firm’s new AirPods Pro 2 functions as a “clinical grade hearing aid,” branded as the “world’s first all-in-one hearing health experience.”

New Apple Watches will also be able to detect additional health irregularities, such as the potential for sleep apnea. Both still require FDA approval, but Apple seemed confident they had it locked up.

On the hardware side, Apple pulled the classic move of throwing in a few speed and color upgrades, but nothing major. These included:

• AirPods Pro 2 and AirPods 4

• Apple Watch Ultra 2 & Apple Watch Series 10

• iPhone 16, 16 Plus, 16 Pro, and 16 Pro Max

The new iPhone starts at a base of $799 and goes up to $1,199 for the Pro Max. With a very nice 6.9in display, maybe it’s worth it. I just can’t wait for the new Apple Virgin, I mean *Vision Pro headset.

The Takeaway?

Frankly, Apple just showed it’s ass.

The software has a higher margin and carries revenue growth for the entire company. So, it’s no surprise Apple is more focused here than on new hardware products.

First, the continued effort to measure every heartbeat, sh*t, and now breath of Apple Watch users is a clear indication that healthcare is the next sector in Apple’s scope.

The partnership with Goldman from a few years ago made us think it could be financial services, but it now seems clear that Tim Cook wants to be your doctor too.

Secondly, Apple is gonna let others do the AI-heavy-lifting for them. Based on what industry experts say, base models will likely be open source and lack economic value.

It seems that Apple will focus higher up the stack with applications and monetize interaction that way. A premium version of Apple Intelligence could be an option, but with the wealthiest ~1.4bn already on their hardware, this shouldn’t be hard to solve.

You feeling bullish?

What's Ripe

Oracle (ORCL) 11.44%

• Basically, a senior citizen in the tech world, Oracle, in Q2, pulled the classic grandpa move after a waitress smiled at them, slyly saying, “I still got it.”

• But in this case, Oracle isn’t wrong. The firm crushed it in Q2 with an acceleration of their most crucial unit’s revenue growth, rising to 45% YoY from 42% in Q1.

• The firm has sneakily built a leading cloud business under its hood, expanding margins and causing analysts to raise targets with outperformance expected.

Boot Barn (BOOT) 9.94%

• Much like their average customer four drinks deep coming off the Nashville sidewalk, Boot Barn was feeling themselves on Tuesday with an updated sales report.

• The wannabe-cowboy/western apparel retailer released an update on recent performance, indicating an acceleration of its same-store sales in September.

• After declining 0.3% in July, same-store sales spiked to 6% in August and have clocked in at 8.2% in September so far, lifting expectations for Q2 results.

What's Rotten

JPMorgan Chase (JPM) 5.19%

• I thought the sky must’ve been falling with JPMorgan shares down this much. The world’s largest and most structurally important bank had its worst day since 2020.

• JPMorgan President Daniel Pinto issued a profit and cost warning, saying that consensus estimates for $90bn in net interest income next year are “not very reasonable.”

• He also said expectations for $94bn in total expenses are “a bit too optimistic.” That’s typical for banks with rates falling, but the big mistake here was being too damn honest. 

Taiwan Semi (TSM) 0.33%

• My parents always taught me that 33% annual revenue growth is a good thing, especially in high fixed-cost industries like semiconductor manufacturing.

• Clearly, some of y’all’s parents failed at this because shares in the world’s largest chipmaker sold off on a “weak” monthly revenue report.

• Sales were down 2.4% compared to July but up 30.8% for the January-August period. Still, investors have decided chip stocks aren’t cool anymore.

Thought Banana

Now It Makes Sense

Americans are good at pulling money out of thin air, as we learned all too well in 2020 and 2021.

In recent weeks, spending, wage, and savings data have created questions like “How tf are we still buying all this sh*t? Where’s the money coming from?”

Now, we have our answer.

What Happened?

Gotta give ‘em credit where credit is due; consumers f*cked around and found out a way to keep spending in that environment… by racking up credit card debt.

Total consumer credit increased 6% annually in July, five times the 1.2% increase in June and more than double the 2.8% increase in May.

Underneath the hood, revolving credit did most of the dirty work, gaining 9.4%, while nonrevolving facilities grew 4.8%.

Revolving credit includes things like credit cards, home equity lines of credit, personal loans, business loans, etc. Nonrevolving credit is almost entirely made up of mortgages, auto, and student loans.

At the same time credit balances balloon, delinquency rates are also on the rise:

At 3.25% in Q2, credit card delinquency rates are sitting at a high not seen since Q4 of 2011, more than 12-years ago.

The Takeaway?

No wonder the American people seem completely unconcerned with our federal government’s debt levels—we’re doing the exact same thing to ourselves.

As rates started increasing, so did credit balances, and delinquency rates started to creep back up. With rate cuts just a week away, this could offer some reprieve to borrowers, but likely not enough.

As of now, credit card debt doesn’t show signs of triggering a recession alone, but it certainly could if this growth gets out of hand.

Now, go pay off your credit card balance. In fact, I think I’ll go do the same (can anyone loan me $72k? Asking for a friend…)

The Big Question: How concerned should we be about rising card balances and delinquencies? Will this trend reverse with rate cuts?

Banana Brain Teaser

Previous

Today's Brainteaser: If the diameter of a circular skating rink is 60 meters, the area of the rink is approximately how many square meters?

Answer: 2800 meters (approx)

Today

For each trip, a taxicab company charges $4.25 for the first mile and $2.65 for each additional mile or fraction thereof. If the total charge for a certain trip was $62.55, how many miles at most was the trip?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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