In this issue of the peel:

• Homebuilders have started to do their jobs once again, but does the national housing market even matter to most wannabe buyers?

• Starbucks is getting some much-needed help, while CrowdStrike wasn’t the only name in trouble on Friday

• CrowdStrike’s shenanigans remind us that cyberspace is still less safe than walking through a bad neighborhood with your life savings hanging out of your pockets

Market Snapshot

Banana Bits

• President Joe Biden has officially stepped out of the 2024 election, endorsing VP Kamala Harris and giving the whole nation a sigh of relief. Check out the market’s current odds of who will win

• American wealth continues to grow like never before

• China cuts interest rates in a surprise move to encourage spending and investment in a bid to stem deflationary pressures

• Hawaiian Electric shares boomed 37.3% last Friday as a settlement deal for burning down an entire island may be reached at a cost of $1.5bn

Macro Monkey Says

Murphy’s Law of Housing

Yes, it’s true—I do cry myself to sleep every night as I realize I bought a house at a market top nobody’s seen since Dutch tulips in early 1637.

It doesn’t help that my last name is eponymous to the universal law that says, “anything that can go wrong will go wrong.”

But the good news is that builders are building again, so there shouldn’t be many more like me to come.

Let’s get into it.

The Numbers

Recent New Residential Construction reports seek to put an end to the Murphy’s Law Housing Market that’s existed for prospective homebuyers since early 2022.

In June, conditions remained far from ideal, but data on permits, starts, and completions of new residential housing units markedly improved from May.

It’s all about the small wins in the housing market. In order for conditions to become “good,” they first must become “better.”

And that’s exactly what happened last month. The number of permits issued for single-family housing units increased by 3.4% for the month yet fell by 3.15% compared to June 2023. While not ideal, that’s a helluva lot better than the 9.53% annual decline in May.

Housing starts saw a similar story. The total number of groundbreakings on new residential properties grew 3.0% compared to May but fell 4.4% annually.

However, like permits, the decline in housing starts seen in June was a drastic improvement from the borderline-criminal 19.33% decline in the month prior.

Finally, the number of completions had almost as good a month as Paul Skenes, with newly completed residential units increasing a huge 10.1% for the month and even huge-er 15.5% annually.

The spike in completions is reflective of an outsized increase in permits and starts observed in earlier periods. Interestingly, permits and starts have set recent peaks in February and December, respectively, and declined since then.

Normally, the depressingly cold and gray months of December-April are a bottom in housing permits and starts on an annual, seasonally adjusted basis. But that is not what we’re seeing now.

This could imply that the Fed’s dovish pivot, beginning in December of last year and confirmed in recent weeks, could finally be the incentive homebuilders needed to actually do their jobs once again.

At the risk of beating a dead horse, I have to again say that this is not a huge change that will magically heal the horrors of housing in the U.S. But it’s a sign things are getting better.

The Takeaway?

Honestly, though, this stuff hardly matters.

The national housing market is relevant in terms of assessing the financial stability of the American populous and its links to consumer spending.

But, it’s regional and, more so, local housing markets truly matter to wannabe homebuyers.

So, while regions like the North East remain more frozen than a Secret Service agent being told there’s a sniper on the roof, the South is as active as Twitter following an assassination attempt.

What's Ripe

Intuitive Surgical (ISRG) 9.3%

• After high school, it takes an additional 13-18 years of education and an average of ~$300k to become a surgeon. I’d be real nervous if I just got my lab coat.

• That’s because Intuitive Surgical, a maker of robotic surgical systems, is killing it. The firm beat across the board in its Q2 earnings, with profits up 26% YoY.

• A 17% jump in da Vinci system procedures and a 14% growth in its surgical systems installed base led to the quarter’s success as robots are here to stay.

Starbucks (SBUX) 6.9%

• The new hot trend in stocks is no longer AI or falling rates. It's Elliott’s activist investments. This sh*t has led to more gains in 2024 than actual earnings.

• Hedge fund Elliott Mgmnt picked a new lucky winner on Friday in Starbucks, adding to recent activist plays in Softbank, Southwest Airlines, and more.

• The WSJ couldn’t determine the size or goals in its initial reporting, but the market is loving it. Before Friday, shares were down 40% since June ‘21.

What's Rotten

CrowdStrike (CRWD) -11.1%

• This is why you gotta take it easy on Thursdays. A clearly hangover-induced f*ck up at CrowdStrike has the firm looking as incompetent as the Secret Service.

• Employees were as hyped on Friday morning as managers and travelers were pissed that a faulty update from the cybersecurity firm caused IT outages worldwide.

• The issue was caused by “a defect found in a single content update for Windows hosts,” impacting 8.5mn Microsoft devices and 24k CrowdStrike customers.

• Allegedly, the bug has been fixed, but it may take weeks to fully resolve all issues caused. The real question is—is this a buying opportunity?

Haliburton (HAL) -5.6%

• I hope those people who keep blocking highways are happy because shareholders certainly are not after Haliburton’s revenue miss.

• In its Q2 report, the O&G operator reported a 2% miss on sales and EPS in line with estimates at $0.80/sh. The U.S. market was its biggest detractor.

• North American revenue fell 3% amid a 10% YoY decline in rigs. Internationally, the total rig count is down only 1%, with non-U.S. revenue up 3%.

Thought Banana

We’re In Trouble

We all make mistakes now and then. But, for most of us, our mistakes don’t lead to digitally setting the entire world on fire.

CrowdStrike’s fat-fingered, hungover rookie mistake on Friday revealed just how fragile the global cyber ecosystem is. And they’re (allegedly) one of the good guys.

So, let’s take a look at how the bad guys are doing.

The Numbers

According to CrowdStrike’s 2024 Global Threat Report, cyberattacks increased 60% globally in 2023, rising 73% in the second half of the year compared to 2022 alone.

Financial and investing firms are particularly vulnerable, growing 13% YoY, with 95.7% of firms in the space reporting at least one successful attack in 2023.

The average cost of a data breach last year sat at $4.45mn. In 2024, CrowdStrike projects the global cost paid to resolve cyberattacks will reach an enormous $10.5tn—roughly the equivalent to the GDPs of Japan, Germany, and Australia combined.

In the first quarter of this year, the number of attacks per organization was already up 28% compared to the last quarter of 2023, according to CheckPoint Blog.

Most of the attacks come in the form of ransomware driven by phishing or other human-triggered attacks. A common example is emailing an employee of a company, getting them to click a link, and using this to enter protected systems.

The only good news I could find in the report is the fact that the amount of time hackers have access to data has been reduced… marginally.

The Takeaway?

Cyberattacks are about to get so much worse.

With the advent of generative AI, increasing digitization around the world, and the number of elections in 2024, it’s like shooting fish in a barrel for attackers.

This just adds to the embarrassment CrowdStrike should be feeling. Like Ang in Avatar The Last Airbender, when the world needs them most, they f*ck it all up.

Solutions like two-factor authentication and others have been somewhat effective in reducing attacks, but clearly, hackers are staying one step ahead, and generative AI will only add to that.

The need for robust, anti-fragile cybersecurity systems is reaching a point of necessity equivalent to water. But that also means it could be an attractive space to find long-term investment returns.

So, we ask again: you buying this dip?

The Big Question: What can companies and organizations do to better protect their data? Should we just adopt the same rules that they have in Dune and ditch technology?

Banana Brain Teaser

Previous

Seven pieces of rope have an average (arithmetic mean) length of 68 centimeters and a median length of 84 centimeters. If the length of the longest piece of rope is 14 centimeters more than 4 times the length of the shortest piece of rope, what is the maximum possible length, in centimeters, of the longest piece of rope?

Answer: 134cm

Today

The letters D, G, I, I, and T can be used to form 5-letter strings such as DIGIT or DGIIT. Using these letters, how many 5-letter strings can be formed in which the two occurrences of the letter I are separated by at least one other letter?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Jasper & Patrick

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