Silver banana goes to…

In this issue of the peel:

• Consumers are just as confused as economists when it comes to the economic outlook in the U.S. Hopes are high, expectations aren’t quite as much, but credit growth sure is. Get the full view of how Americans are feeling below.

• Summit Therapeutics rises 56%. You might think, “What, these guys cure cancer?” but the answer is actually close to yes. Meanwhile, Palantir is joining the S&P 500 while Big Lots is going BK. Finally, Oracle investors were nervous going into earnings, only to feel the opposite after hours.

• The idea of an American Sovereign Wealth Fund has been plaguing my timeline on X. Let’s talk about how that would work using other large SWFs as an example and maybe consider starting one for the Daily Peel…

Market Snapshot

Banana Bits

• Consumer credit increased by 6% in July, the fastest growth since November 2022.

• At the same time, delinquencies are on the rise.

• Apple unveiled its highly anticipated iPhone 16 yesterday.

• Goldman Sachs’ brief stint of dealing with poor people is costing them $400mn.

• Valuing NFL quarterbacks as if they’re stocks. 

• Somehow, fraud in the digital asset space is still rising.

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Macro Monkey Says

Uhh-Mericans

“Manifesting” things have become so popular these days that you’d think the U.S. is still working on its destiny.

In reality, the only thing people who believe this sh*t really need to do is manifest a few more brain cells.

However, in economics, manifesting actually, unironically does work… just not in the way the manifest-ers among us would think.

Let’s get into it.

What Happened?

Yesterday, the New York branch of the Federal Reserve published its latest Consumer Expectations Report, a monthly survey asking consumers how they expect the economy to change in 1, 3, and 5-year intervals.

Economists have no idea what’s gonna happen, but I’m sure some guy who just manifested his 6th beer knows the exact monetary policy path to get us to the NAIRU.

Anyway, the NY Fed’s report focuses on three broad subjects: Inflation, the Labor Market, and Household Finances.

Focusing on inflation first, this is where macro manifestation carries the most impact. If consumers expect high inflation, they tend to create it by buying products today before they get too expensive tomorrow.

This expectation of higher prices in the future causes current demand to increase, thus pushing prices higher, assuming supply remains constant.

So, seeing inflation expectations continue to coalesce around 2% in each of the above timeframes tells us that 1) consumers don’t expect inflation to roar back to life, and 2) barring any external shocks, inflation won’t roar back to life.

However, despite low inflation expectations, consumers broadly expect their own financial condition to worsen over the next 12-months:

44.8% of respondents expect their household financials to remain “About the same” over the next year. However, increases at the bottom of the chart reflect an anxious consumer base.

More than 1/5th of respondents expect to be “Somewhat worse off” a year from now,  while those answering “Much worse off” has steadily climbed from 2.8% in March to 4.6% as of August.

The reason behind the increase in doom & gloom appears to stem from labor market expectations. Consumers expect wage growth to remain healthy, collectively projecting a 2.9% raise for themselves.

Getting paid for a job is easy, according to consumers. Keeping those jobs is where conditions get a little more dangerous:

Compared to July, expectations for unemployment to rise over the next year increased by 1.1% to 37.7%. Even Main Street smells trouble in the labor market, hopefully signaling JPow it’s time to kindly hit himself in the face with a hammer.

Although unemployment expectations are on the rise, consumers are more confident that they themselves will keep their jobs over the same period.

This is indicative of similar sentiments found in most macro surveys. Americans tend to be pessimistic about everyone else, but they themselves are doing just fine.

Above, we can see that expectations of quitting and getting fired both dropped simultaneously with the increase in expected unemployment. Americans are basically saying, “I won’t lose my job, but other people will.”

Outside of quitting to jack up the unemployment rate so we get more rate cuts, consumers, unfortunately, don’t carry as much manifestation power in the labor market.

Actually… collectively quitting to force more rate cuts doesn’t actually sound like too bad of an idea…

The Takeaway?

Consumers are just as confused as economists.

It’s common to see more conviction in forecasts from consumers than economists in these surveys, largely due to political ideologies and the Dunning-Kruger effect.

Although consumers are confused, it’s clear that economic conditions are becoming more challenging. I mean, the only thing growing faster than uncertainty is outstanding credit balances.

What's Ripe

Summit Therapeutics (SMMT) 55.99%

• Just like Joe Montana after Tom Brady won his 5th Super Bowl, Merck is getting real nervous that their Keytruda cancer therapy is no longer the GOAT.

• That’s because Summit just released data showing its cancer therapy, Ivonescimab, reduced the risk of progression or death by 49% vs Keytruda.

• In addition to a catchier name, Summit’s therapy needs much more testing before bringing tangible ROI. Keytruda is the best-selling (legal) drug of all time, so no wonder investors are hyped.

Palantir (PLTR) 14.04%

• With the first pick in the Q3’24 S&P 500 draft, the index selects Palantir Technologies to replace American Airlines! 

• Shares popped on the validation, just like your ego when you get a Tinder like. Plus, the big data analytics firm announced a new contract with oil giant BP.

• The deal involves a 5-year extension of their ongoing relationship, signaling that Palantir’s customers love their products and providing further validation.

What's Rotten

Big Lots (BIG) 40.22%

• You want the good news or the bad news first? The bad news is bankruptcy—not ideal—but at least it’s the good kind of bankruptcy, if that exists.

• Big Lots spiced up its Q2 earnings report by announcing Chapter 11 bankruptcy proceedings in which the company has sold itself to Nexus Capital.

• This move secured $707.5mn in interim liquidity during the sale process. If all goes well in court proceedings, the transaction should close in Q4.

Oracle (ORCL) 1.35%

• Oof. Anyone selling this tech company on Monday almost immediately regretted it as shares popped more than 8% after-hours once the firm reported earnings.

• Investors were nervous heading into the report, but confidence was restored when Oracle reported $1.39/sh on $13.3bn vs estimates for $1.32/sh on $13.2bn.

• Cloud infrastructure revenue led, rising 45% and accelerating from the prior quarter’s 42% growth. Net income jumped 8% as AI is already improving margins.

Thought Banana

Daily Peel Wealth Fund

Since both of our most recent presidents have been fired up about a Sovereign Wealth Fund, we figured it was time to start our own right here at the Daily Peel global headquarters.

Then, we realized we were missing the main thing that’s required for starting one: Wealth.

But f*ck it. That’s never stopped us before, and it sure won’t today. Let’s dive in.

What Happened?

Yesterday, we talked about new economic proposals from a leading Presidential candidate, one of which included a potential American Sovereign Wealth Fund.

It’s an interesting idea, at the very least, and our current President expressed similar interest in such a mechanism, so let’s talk briefly about what that would really mean.

Expanding yesterday’s visualization of the world’s 6 largest sovereign wealth funds (SWFs) above, we can see the global top 10—many of which are based in China.

One commonality among most of these countries is their non-democratic governance styles, with Norway and Singapore being notable exceptions. Norway may still have a constitutional monarchy, but these days, it's more ceremonial than anything else.

Secondly, aside from Singapore and China, each SWF is funded by natural resources controlled directly or indirectly by the state. For both Singapore and China, a massive trade surplus allows these nations to fund their SWFs.

As anyone whose family works in manufacturing knows, the U.S. does the opposite:

In July, the U.S. trade deficit clocked in at $(78.79)bn. Instead, the U.S. rakes in foreign investment like Pete Davidson does on Tinder.

So, the U.S. doesn’t have a government structure or funding source similar to any of the world’s largest SWFs. At this point, it doesn’t seem like a question of “should” the U.S. start and SWF, but a question of “how.”

Congress would have to fund the investment vehicle via fiscal appropriations or another revenue source. Trump has proposed using tariffs, but these are also intended to fund proposed tax cuts.

The Takeaway?

Arguments on both sides of the debate make some sense. High-level Pros and Cons could include:

Pros:

• Economic Stability via SWF funds instead of fiscal or monetary tools.

• Long-Term Wealth Creation via investing directly in financial markets.

• Increased Domestic Investment via less reliance on foreign assets and the ability to invest in strategic initiatives like infrastructure, technology, or resources.

Cons:

• Lack of Consistent Funding Source… I mean, do you have any ideas about how we’d fund this thing??

• Political Instability via potential weaponization of investments to pursue political rather than economic goals.

• Market Distortions via crowding out other investors due to the presumed enormous size of such a fund.

We’ll let you know when we open donations for the Daily Peel Wealth Fund. For now, feel free to send them here.

The Big Question: Should the U.S. start a SWF? How would we do so? What would that do to my portfolio?

Banana Brain Teaser

Previous

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?

Answer: 6

Today

If the diameter of a circular skating rink is 60 meters, the area of the rink is approximately how many square meters?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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