Silver banana goes to…

In this issue of the peel:

• The August jobs report just dropped… and so did the markets. We can’t tell if the data or the data provider is the bigger issue, but we certainly can say that diving into the numbers is a great way to ruin your day. Check it out below.

• It’s a great day to be a tree and a terrible one to be Dwight Schrute as Docusign continues to win the war against paper. Plus, Nio’s quarterly report shows the EV market is still going strong… for rich people. Meanwhile, chip stocks took a dive, and Tesla got hammered to celebrate a strong week.

• Usually, nationwide economic policy isn’t the ideal place to f*ck around and find out. However, former President Trump is not the usual candidate. He recently added some further “detail” to his policy proposals and, well, we have to talk about it.

Market Snapshot

Banana Bits

• Not sure if we read the same report, but U.S. Treasury Secretary Janet Yellen is Janet Chillen’ after the August jobs report.

• Musk continues to stealthily tie his businesses into a budding empire.

• Football is back. College and the NFL seasons began in earnest, and I can’t tell who the bigger winner is—streaming services or whoever I’m playing in fantasy. 

• A great, short summary of current macro conditions in the U.S. in the wake of last week’s jobs report.

• Apple’s quest for the “next big thing.”

The Daily Poll

Previous Poll:

Which of these recent stock market events are you most closely following?

Nvidia's antitrust probe: 61.9% // Vaxcyte’s vaccine news: 15% // Morgan Stanley and Unity: 10% // U.S. Steel sale controversy: 13.1%

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Macro Monkey Says

Bad Goldilocks

Goldilocks has no idea how good she had it.

For her, the porridge that was “not too hot nor too cold” was considered “just right.”

For us, labor market data that’s equally not too hot nor too cold is considered “what the f*ck is the Fed gonna do to interest rates now?”

Let’s get into it.

The Numbers

According to the Bureau of Labor Statistics (BLS), the U.S. economy added 142k jobs in August.

That’s the highest monthly additions since May, but still clocked in ~11.8% below consensus guesstimates for 161k.

Moreover, that’s ~28.2% below the 12-month rolling average of monthly additions and 38.2% below the 24-month rolling average.

However, considering the BLS has been exposed as worse at counting than I am at coaching a fantasy football team, last month’s figures are likely closer in line with revised nonfarm additions.

Speaking of revisions, the BLS knocked 86k jobs off the total counted in the two months prior to August’s report. July’s additions were revised down by 25k, while June was pushed lower by a huge 61k.

Despite this clear weakening in job growth, somehow, the unemployment rate ticked down in August. 

After reaching 4.3% in July, the BLS is now reporting a national unemployment rate of 4.2%, claiming that many job losses in July were temporary and that those workers had broadly returned to full-time employment.

Sounds exactly like what I told my mom after I got fired from Papa Gino’s in high school.

Revisions in the last 12-18 months, along with the lack of a shared understanding of how illegal/undocumented immigrants impact these numbers, both work to eviscerate trust in the figures reported by the BLS. Maybe it’s time to drop the “L” from their acronym.

Assuming that the BLS reports are as accurate as possible, the August report only creates more questions for JPow and the FOMC. 

The numbers weren’t weak enough to lock in the 50bs cut many investors are looking for in a few weeks, but it also wasn’t strong enough to alleviate concerns of a looming recession.

If anything, this puts Powell in a tougher position as lukewarm additions, and a falling unemployment rate only adds uncertainty to ongoing labor market dynamics.

Interest rate expectations barely budged in the wake of the report, with the odds of a 25bp cut increasing by 1% and the odds of a 50bp cut losing 1%.

Lastly, wages in August were up 3.8% compared to last year. That might sound great compared to the 1.7% Core PCE inflation rate we’re seeing, but it’s a clear continuation of the secular slowdown in labor demand observed in the last 2-years.

Considering that the U.S.’s personal savings rate has declined ~1.5% in the past year as wage growth has slowed from 4.5% to 3.8%, the high incomes that powered equally strong GDP growth in 2023 have disappeared quicker than Biden’s memory.

The Takeaway?

I’m not sure what the bigger long-term risk here is—weak labor market data creating the potential for a recession or deteriorating trust in statistics reporting agencies creating the potential for even further division among the American populace.

The only clear aspect of this report is that Powell should’ve cut earlier. As the saying goes, it’s always better to loosen policy when you can not when you must.

Mix in sub-2% core inflation, a down bad housing market, slowing sales growth for companies, minimally planned capex, weakness in manufacturing, falling wage growth, and NFL games being played in emerging market economies and…

Suddenly, it’s hard to have much confidence in Uncle Sam. Don’t worry though—when World War 3 starts, Lockheed Martin will save us from a recession… I hope.

What's Ripe

Docusign (DOCU) 3.97%

• How can I short Dunder Mifflin stock? Docusign is here to ruin Dwight Schrute’s life by making paper obsolete. Unfortunately for him, that mission is going well.

• The document signing and management firm delivered earnings of $0.97/sh on $736mn in revenue against estimates of $0.80/sh on $727mn.

• Guidance came in line with estimates, which, of course, is hugely disappointing for analysts who are apparently looking for more from AI-enabled new product offerings.

Nio (NIO) 3.51%

• Who knew that 140% delivery growth would be a bad thing? Well, when sales are up “just” 99%, it’s a clear sign of a pricing issue for this Chinese EV maker.

• That appears to be the only reason Nio didn’t immediately become larger than Tesla on these quarterly results. I mean, gross profit was up an absurd 1,841% annually. 

• The firm easily beat estimates to secure a 40% market share in China’s premium EV market. Demand is robust from high-end consumers despite challenges with the broader consumer base.

What's Rotten

Chip Stocks (SOXX) 4.28%

• We’re reaching the “licking-dust-off-our-fingers” stage of demand within the chip industry. A shaky macro outlook is calling AI spending into question.

• Once thought of as borderline unlimited, markets pulled forward demand for AI spending in the form of enormous valuations for stocks like Nvidia and others.

• However, in the week-and-a-half since Nvidia’s report, it’s clear that the idea of “unlimited demand” is about as true as NFTs not being screenshot-able.

• Now, valuations are getting hit with a hard reset. Nvidia shares have been down 13.9% since reporting, while Broadcom has lost 15.9% and AMD has fallen 5.9%.

Tesla (TSLA) 8.45%

• After the damn good week Tesla’s had, it’s no surprise investors want to spend their Friday getting hammered. Just probably not this kind of hammered.

• Shares crashed as an auto sales report indicated Americans purchased just 15.1mn cars in August, down from the 15.8mn bought in July.

• As Tesla is the highest-beta auto name, shares took a page from the playbook of their cars and sold off the fastest. This week’s optimism turned out as artificial as the company’s intelligence. 

Thought Banana

Bold Strategy, Cotton

To say that American politics has become a parody of itself is the understatement of the century.

Unfortunately for my mental stability, I’m a sucker for f*ckin’ around and finding out. And it seems that both leading candidates are relying on this strategy to espouse their economic proposals.

Former President Trump threw out some further “details” related to his economic agenda if he wins in November, and… we have to talk about it.

What Happened?

Speaking at the Economic Club of Nerds, I mean, *New York, last Thursday, Donnie T’s economic proposals, including some ideas that can best be described as bold moves.

We don’t get political here, so don’t take anything I say as an opinion. I eat crayons and use velcro shoe laces, but I felt it was important to share these creative proposals.

Basically, Trump threw out three bold headlining moves:

• A 15% corporate tax rate, 

• An American sovereign wealth fund, and

• Elon Musk

For starters, the former President proposed lowering the corporate tax rate to 15% for companies that make their products exclusively in the United States.

The idea here is to incentivize corporations to invest in domestic production. However, at a time when the national debt and annual deficits grow in focus among economically literate Americans, lowering taxes without compensatory spending cuts is, again, bold.

This is probably a surprise to most because it’s obviously so unlike him, but not only did Trump propose an American sovereign wealth fund (SWF), he wants it to be the world’s largest.

Days after proposing the idea, the Biden Admin hopped on board with plans to establish the said fund. Developing these plans only took slightly longer than it took every economist in the world to say this is probably not a great idea.

He’s not the first to propose a U.S. SWF, nor would this be the country’s first. Alaska famously pays residents $1,000/yr from its statewide SWF.

However, the general take among economists is that the U.S. doesn’t need one as we don’t rely on natural resources for national wealth. Plus, to be the largest in the world, the U.S. would have to more than double its expected FY '24 deficit to fund it.

That’s gonna be hard to do alongside his third proposal, hiring Elon Musk.

The idea behind hiring Musk comes from his legendary axing of heads after purchasing Twitter. It seems that the former President wants to bring this idea of cutting waste to the Federal level.

That’s hard to disagree with from a pure macro perspective. However, it would be quite a conflict of interest given that the implied role would allow Musk to regulate the agencies that regulate his companies.

The Takeaway?

I’d be surprised if any of these actually went into effect, but the 15% corporate tax rate easily has the best odds.

Regardless of the proposals themselves, policy creativity is something I’m sure we can all get behind. Unless, of course, you’re of the belief that the economy is working great for rich and regular people alike. 

The Big Question: What other creative policy proposals should the U.S. consider?

Banana Brain Teaser

Previous

Items that are purchased together at a certain discount store are priced at $3 for the first item purchased and $1 for each additional item purchased. What is the maximum number of items that could be purchased together for a total price that is less than $30?

Answer: 27

Today

The average (arithmetic mean) of the positive integers x, y, and z is 3. If x < y< z, what is the greatest possible value of z?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper & Patrick

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