Can’t Beat Wall Street

Complaining in the United States has grown almost as much as our economy in recent years. Find out why it makes literally no sense below.

October 23, 2024

Silver banana goes to…

In this issue of the peel:

  • 💰🗽Complaining in the United States has grown almost as much as our economy in recent years. Find out why it makes literally no sense below.

  • 🚬 💣Cigarettes are still cool, according to Philip Morris, and the only thing Lockheed Martin bombed in Q3 was its own earnings

  • ⛏️🔥 We talk a lot about Elon Musk, but rarely—if ever—about his least favorite child. Get the full rundown on Musk’s most boring venture below.

Market Snapshot

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Macro Monkey Says

Grass Ain’t Greener

Sure, the United States doesn’t have things like public healthcare and education, safety from school shootings, or the ability to speak languages besides American.

But, we make up for it by having things like freedom (ever heard of it?), an undefeated record in Super Bowls & World Wars, and, most of all, a sh*t ton of money.

Still, Americans find a way to complain. Bemoanings like “The economy is f*cked” and even crazier ideas like “Billionaires should pay taxes” are espoused all too often.

We can talk billionaire taxes another time. For now, it’s time to see how un-f*cked the U.S. economy is compared to everywhere else. Let’s get into it.

The Numbers

Much like their home country in 1776, the English newspaper The Economist is starting to realize just how sick America is.

The publication put together an entire section of its website dedicated to how ‘roided up and jacked the U.S. economy is compared to the rest of the world. I’m sure we Americans will still complain after seeing this, but just know there’s no reason to.

For starters, The Economist touches on GDP growth.

Back in the olden days in 1990, U.S. GDP made up ~40% of the total economic output among G7 countries. Almost 35 years later, the U.S. accounts for more than 50% of the G7’s total GDP at prevailing currency exchange rates and at purchasing power parity. 

That means U.S. GDP has consistently outperformed peers in the last three and a half decades on both a nominal and real basis.

In fact, according to The Economist, American outperformance has only grown since the pandemic, with real GDP up 10% since early 2020, more than triple the average of our fellow G7 nations.

There are many reasons for this, but perhaps the greatest is that it dramatically outpaced productivity growth.

I didn’t even know this, but apparently, when Europeans aren’t busy napping, they bully us Americans for having fewer Holidays, thus making us seem more productive.

But, even after adjusting for the additional days of work and looking at productivity on a per-hour basis, the U.S. still runs bullets, I mean *circles around the others.

The Economist reports that since 1990, American per-hour productivity has been up 73% compared to 55% in the U.K. and Japan and a miserable 39% in the Eurozone.

Productivity expansions are largely driven by heavy investment in nascent technologies through public and private research & development (R&D) spending. At 3.5% of GDP, U.S. R&D expenditure is far and beyond that of other countries.

But another big reason for this is exactly what we ranted about yesterday—energy.

U.S. energy production has nearly tripled since 1950, outpacing that of consumption and certifying the U.S. as “energy secure,” even if not independent.

That largely translates to cheaper energy, allowing for more risk-on investment and enhanced productivity due to elevated levels of supply.

Sure, fracking doesn’t work as great for the environment as it does in the headline of the above chart, but as someone now wearing sweatshirts around my house, I’m kinda rooting for global warming.

And, of course, all of these factors feed into the most important thing a human being can do: finding the meaning of life the only way possible by creating shareholder value.

According to the nerds, I mean experts The Economist spoke to, the American stock market averaged a real annual return of 7% per year last century compared to just 4.9% for the rest of the world.

Considering that Europe has as many high-growth tech companies as it has Grand Canyons (not many), this makes sense intuitively. Japan had a moment back in the early 1980s, but it’s the consistency of the U.S. stock market that’s truly envious.

All of this… and yet, we still complain.

The Takeaway?

Don’t get me wrong—there’s plenty of reason to complain in the U.S. (just look at our Presidential candidates), just not about the economy.

The basic principle that separates the U.S. economy appears to be a willingness to accept more risk on both an individual and societal basis. Higher risk = higher reward, but also more significant losses.

So, we sacrifice things like social safety nets in favor of investing in R&D, the military, or (more likely) both. Plus, other factors, like exceptional geography, high rates of immigration, and much more, contribute significantly.

It’s no surprise either that the U.S. is more risk-on. Many, if not most, of our citizens count among their ancestry individuals crazy enough to hop on a boat across the ocean before aluminum had even been discovered.

Sounds like a pretty high-risk bunch to me.

Career Corner

Question

I'm having trouble with accounting questions about non-cash expenses and adding them back to the cash flow statement.

For one question, I thought I had to add back interest expenses on the cash flow statement, but that was wrong, and for another question about writing down assets, I incorrectly didn't add back the write-down to the cash flow statement.

What exactly determines whether an expense should be added back to the cash flow statement?

Answer

What they’re looking for is your ability to tell something is non-cash.

Depreciation is non-cash because the cash went out the door when you bought the factory.

Asset write-down is non-cash because, again, the cash went out the door when that asset was bought—not in the current period. Writing it down is similar to depreciation… you’re not using cash to effect that write-down.

In your example, interest IS a cash expense in the current period. No need to add anything back—that cash is going out the door this period (and interest is captured in Net Income).

Head Mentor, WSO Academy

What's Ripe

Philip Morris International (PM) 10.47%

  • We can officially confirm that ripping cigs still makes you cool as the chillest company on the planet burned through earnings. Zyn was a big help.

  • The world’s largest tobacco company delivered earnings of $1.91/sh on $9.91bn, both beating estimates. Shipment volumes grew 2.9%, and revenue was up 8.4% annually, suggesting strong pricing power.

  • PMI’s smoke-free unit was key to the strong Q3, growing organic revenue by 16.8% and operating income by 20.2% on increased shipments of Zyn and IQOS products.

General Motors (GM) 9.81%

  • They might not have stolen copyrighted material from a sci-fi movie for a product launch, but GM still put together a good Q3. The company reported a beat & raise.

  • GM earned $2.96/sh on $48.8bn in sales vs estimates for $2.43/sh on $44.6bn, causing the firm to hit the gas on guidance, adding $1bn to its full-year EBIT expectations.

  • Driving these results were strong pricing controls, selling above an average transaction price of $49k, pushing revenue up 10.5%. In a good sign for the economy, GM’s CFO stated, “The consumer has held up remarkably well for us.”

What's Rotten

Lockheed Martin (LMT) 6.12%

  • Failing to bomb nearly enough villages to satisfy investors in Q3, Lockheed Martin shares are tanking on underwhelming sales growth. 

  • Revenue grew just 1% YoY to $17.1bn, missing estimates for $17.4bn, despite a distinct spike in the odds of World War 3. Net income of $1.6bn fell 5.8%.

  • Weak sales of F-35 jets and in the company’s space unit hurt results, but sales of missiles and air defense systems like HIMARS held up strong… probably not good for anyone besides shareholders.

Verizon (VZ) 5.03%

  • After spending the quarter leaking customer data to the CCP, America’s already most hated company solidified its title even more. Now, it’s shareholder’s least favorite too.

  • Investors dumped shares on the firm’s Q3 numbers. Verizon reported EPS of $1.19/sh on $33.3bn in sales vs estimates for $1.18/sh on revenue of $33.4bn.

  • Weak performance in Verizon’s wireless hardware unit did the most damage, falling 8.4% YoY. However, broadband and postpaid accounts beat expectations.

Thought Banana

Tunnels Are Boring

I just realized we’ve gone a whole 5 minutes without even mentioning Elon Musk—sorry about that apes, won’t let it happen again.

To make up for it, let’s talk about Musk’s most underrated company, which is ignored so often that you’d think it lives underground.

Let’s tunnel in.

What’s Happening?

Musk’s favorite children, in order, seem to be: SpaceX, Tesla, X, xAI, Neuralink, his 12 actual children, and then, finally, The Boring Company.

We talk a lot about the other ventures, but it’s time to learn about the most Boring.

Almost 8 years ago, Elon sent out this tweet:

Despite what most thought at the time, he wasn’t kidding.

By early 2017, The Boring Company was formed with the explicit goal of solving traffic congestion. Analysts called the tunnel-digging “company” a publicity stunt, and honestly, it seemed like they were right… until recently.

The Boring Company’s first round of funding brought in $112.5mn, $100mn from Musk and $12.5mn from the sale of 20,000 “Not-A-Flamethrower” flamethrowers at $625 a pop (yes, you read that right).

With that funding, The Boring Company built its first proof-of-concept, a tunnel in Hawthorne, CA, at a cost of $10mn per square mile. Most traditional tunnels cost closer to $1bn per square mile and nearly $2bn in places like NYC.

So, after reducing the cost of boring tunnels by 99%, urban planners started paying attention.

2019 brought the company’s first actual dollars of revenue, winning a $50mn contract from the City of Las Vegas to build a 1.7-mile tunnel connecting the remote part side of the Las Vegas Convention Center to the main campus, which was done in just over a year.

According to Musk, this transforms the trip from a 45min ride to just 2min.

That allowed the firm to raise $675mn in April 2022 at a post-money valuation of nearly $5.7bn. Then, when employees were able to sell shares at this time last year, the valuation got a 23.2% boost to a clean $7bn.

In 2023, The Boring Company also expanded from just traffic solutions to utility solutions. This opened the company up to tunneling for things like water pipes, internet fiber, electrical cables, and more.

So far, Vegas is the only city working closely with the company on a few different projects. But, the firm also sells its tunnel boring equipment, such as the Prufrock, and earns revenue off of these massively expensive units.

We’ll see if any more cities hop on the train—or tunnel—soon.

The Takeaway?

Musk now officially controls the road with Tesla, the skies with SpaceX, and the underworld with The Boring Company. Expect a time-traveling boat company to come next.

The expansion to include utility tunnels could be a game-changer for the firm. If any new contracts arrive soon, they’ll almost definitely be for projects like this. 

If any apes are in Vegas, take a joyride on the Loop and let us know how it is. 

The Big Question: Will The Boring Company ever come close to SpaceX or Tesla in terms of value and/or societal importance? Is tunnel-digging really as massive an opportunity as the company wants us to believe?

Banana Brain Teaser

Previous

In a certain sequence, each term after the first term is one-half of the previous term. If the tenth term of the sequence is between 0.0001 and 0.001, then the twelfth term of the sequence is between?

Answer: 0.000025 and 0.000250

Today

What is the thousandth digit in the decimal equivalent of 53/5,000?

Send your guesses to [email protected]

❝

When something is important enough, you do it even if the odds are not in your favor.

Elon Musk

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Happy Investing,
David, Vyom, Ankit & Patrick