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đď¸ If home is where the heart is, the U.S. economy became slightly less heartless in October. Existing home sales increased annually for the first time in 3yrs.
In this issue of the peel:
đď¸ If the home is where the heart is, the U.S. economy became slightly less heartless in October. Existing home sales increased annually for the first time in 3yrs.
âď¸ Turns out Snowflakes can melt up while getting BJâs is becoming a little more expensive. PDD Holdings learned that even 44% revenue growth isnât fast enough, and Alphabetâs antitrust antics finally hit its share price.
đŞ IS BTC $100k here? No, seriously, Iâm asking youâit was right on the precipice last night and may very well be there as youâre reading this.
Market Snapshot
Banana Bits
The first victim in future health czar RFKâs crusade against joy in eating? Froot Loops.
Apple doesnât want any of the smoke Googleâs getting from the DOJ, so itâs asking a judge to toss the agencyâs smartphone monopoly case.
Former Florida Attorney General Pam Bondi gets Trumpâs nomination as his Attorney General following the dropout of his original pick.
Chinaâs digital advertising market falls victim to the economic slowdown as Baidu reels on earnings.
The trend of going from the Forbes 30-Under-30 list to federal prison is strong as this AI âcompanyâ âfounderâ was charged with defrauding investors out of $10mn.
The PE quest for liquidity â watch the webinar now
PE firms are making movesâeven in a sluggish market. Hear from a panel of experts from leading PE firms as they explore the inventive strategies that have kept PE deals thriving, maintaining strong valuations despite economic challenges.
Topics include:
PE market trends
The rise in secondary buyouts
The implications of continuation and secondaries fundraising
The Datasite view on todayâs liquidity landscape
Donât miss the latest insights on how firms are staying ahead in a tight market. Watch now.
Macro Monkey Says
Dangerous Words
Some say, âTreat others the way you want to be treatedâ is the Golden Rule.
But at this point, we should all know the Golden Rule of investing: Anytime you hear phrases like âThis time is differentâ or anything that rambles out of Jim Cramerâs mouth, you can safely bet the exact opposite.
Well, someone needs to explain the rules to the NARâs Chief Economist, who just said, âThe worst of the downturn in home sales could be over.â
Letâs get into it.
What Happened?
Yesterday, the National Association of Realtors (NAR) released a report on existing-home sales in October.
For the first time since July 2021, the number of existing-homes sold in the U.S. increased on an annual basis.
Since October 2023, existing home sales are up 2.9% in the U.S. Not exactly blistering growth, according to experts, but certainly a helluva better than less-than-zero.
Compared to September, sales completed in October grew 3.4%, which brought the seasonally adjusted number of sales last month to 3.96mn. Thatâs the highest monthly increase since February.
However, this comes with an asterisk as big as the one next to the Lakers 2020 NBA âChampionshipâ âwin.â The vast majority of sales completed in October reflect buying decisions made in August and September.
Because the sale of a house moves slower than me when Iâm asked to fix a model, involving so much red tape that even Uncle Sam is impressed, itâs clear that this uptick in âOctoberâ reflects purchases made from mid-late summer.
This period also coincides with the lowest mortgage rates wannabe-homebuyers have seen in just over 2-years.
Now that mortgage rates have climbed back up, the forecast from the NARâs Chief Economist will be put to the test.
By now, itâs been years since buyers or re-financers could reasonably expect to ball out with a 30-year rate below 4 or even 5%.
However, the key development needed to juice the housing marketâbesides building more supplyâis waiting until would-be sellers accept their fate of moving into a higher rate loan.
Thatâs the only way to fix the basic, underlying problem of vacant supply because, clearly, builders would rather sit on their thumbs.
Luckily, the unsold inventory of existing homes increased in October as well. Listing is a lot less complicated than completing a transaction, so we can be confident these actually went online last month.
Unsold inventory of existing homes now sit at 1.37mn, a 0.7% increase and reflective of 4.2 months worth of supply at prevailing purchase rates.
However, the increase in listings and climb higher in mortgage rates didnât do much to slow price growth.
Paradoxically, elevated prices could be a lubricant in this market. Given that the primary issue is a lack of supply, higher prices incentivize selling for homeowners considering a move.
Thereâs a non-zero probability that, even if rates remain elevated, prices doing so too convinces grandma & grandpa to finally sell their 4-bedroom, 3-bath they bought in 1963 for $2,000 and a bag of chips.
The Takeaway?
The American housing market is healing.
Thankfully, the NARâs Chief Economist used the term âcould beâ rather than âisâ in hypothesizing that depressed activity couldâve hit its breaking point.
The U.S. housing market is arguably the most important asset class in the world, encompassing 15-18% of American GDP in any given year and acting as the primary asset for the vast majority of citizens.
If this market gets back on track⌠roll on, roaring twenties!
Career Corner
Question
What is the general perception around reaching out to your first-round interviewer to get tips on the upcoming round, or the firm in general, say inviting them for a coffee chat? Is it commonly done? Or is it frowned upon?
Answer
This is just my opinion. If your first-round interviewer thought you did well enough to send you to the next round, I would think they are at least a little bit invested in your success by now, so they should be willing to give you some pointers. The worst case scenario is they say no good luck.
I would not do this BEFORE an interview with this person, to be clear. It depends on the circumstances.
If you have a previously existing relationship/commonality with them (for example, you went to the same college or high school), or if you really hit it off and they specifically offered to give tips for later rounds, then yes.
But otherwise, I wouldnâtâit would be asking a lot of time from them (since the conversation would be time-sensitive and canât be âwhenever works best for themâ down the line), and most importantly, every conversation you have with the team is still an interview.
So, in my view, if you ask for a lot of help here and ask maybe naive questions or seem like you need too much hand-holding through the process, that could negatively impact your candidacy.
Just asking about culture is different, so I think itâs more okay to do that, but it still maybe a burden on their time, so back to back.
Head Mentor, WSO Academy
What's Ripe
Snowflake (SNOW) 32.71%
Usually, snowflakes fall and melt in the heat. But, as my mom calls me, this special snowflake melted up on some of the strongest earnings of Q3 so far.
This data analytics and storage maker beat estimates like they owed it money. Sales grew 28.3% YoY to $942.1mn. Despite that, GAAP losses widened by ~$113mn. Adjusted EPS of $0.20/sh beat estimates for $0.15/sh, however.
Adjusted EPS was only profitable after adding back $381mn in stock-based compensation and $17mn in restructuring charges. But apparently, no one cared.
Snowflakeâs 127% net retention rate stole the show, an exceptional figure for a $56bn firm with a run rate of nearly $4bn/yr.
BJâs Wholesale (BJ) 8.24%
BJâs are, I mean, *is getting more expensive these days. Get your mind out of the gutter, apes. Iâm obviously talking about the increases in membership fees at this Costco competitor.
Anyway, alongside announcing an increase to their annual membership fees, the warehouse retailer announced Q3 earnings of $155mn on $5.1bn in sales, mixed against estimates for $124mn in profit off sales of $5.11bn.
Same-store sales rose 1.5%, slightly below the 1.6% expected. But, analysts were most hyped about the fee raise, rising from $55 and $110/yr to $60 and $120/yr.
What's Rotten
PDD Holdings (PDD) 10.64%
This firm meant to order a good earnings report, but they accidentally ordered it from their own subsidiary, Temu. Naturally, the delivery fell apart in transit.
The company posted embarrassing revenue growth of only 44% YoY and even worse net income growth of 60%. Both missed estimates due to clearly slow growth.
Regulatory, geopolitical, and other challenges from stiffening competitors heated up more than expected in Q3. With a more hawkish U.S. administration on its way, optimism was as scant as freedom for the Chinese firm.
Alphabet (GOOG) 4.56%
Clearly quoting Eminem from âStill Donât Give a F*ck,â the DOJ said, âI just murdered the Alphabet.â Markets found the body, and now the autopsy begins.
Late Wednesday, the Department of Justice formally filed a 23-page document requesting a federal judge force Google-parent Alphabet to sell Chrome.
The sale is estimated to fetch at least $20bn. Three questions remain: 1) Will a judge approve the request? 2) Whoâs the buyer? and 3) Will a Trump-run DOJ agree with the request?
Thought Banana
No Cigar
Whoever this Satoshi guy is made a big mistake. Has anyone told him (or her, or, more likely, them) that their startup called BTC is now worth $2tn?
It might be worth even more by the time you read this. For now, letâs get into it.
Whatâs Happening?
Digital assets have been on a run any company not named Nvidia would dream of.
The largest digital asset, BTC, is now up 122% so far in 2024 at the time of writing, while the price trades at $98,449.67. It seems that every tick sets a new all-time high.
Big moves in this market frequently happen overnight in Eastern time. So, today could very well be the day that virgins, I mean cr*pto bros, achieve their dream, I mean *wet dream of BTC $100k.
Sooooo close. But as of yet, no cigar.
The recent rally has been carried on the back of hopes that the next presidential administration will be friendlier to the industry, and they are already planning on nominating an SEC chair that wonât regulate via enforcement.
Howeverâbelieve it or notâthe basic fundamentals of supply and demand work here, too, not just pure drunken speculation.
In April, BTC experienced its 4th halving event, where the complexity of producing a new BTC doubled, causing the production of new coins (supply) to halve (hence the name âhalvingâ).
Meanwhile, the launch of spot BTC ETFs in January has encouraged record institutional buying, jacking up demand before the planned supply reduction and spontaneous bout of speculation.
The Takeaway?
Conditions couldnât get better for the digital asset market as it stands right now.
The next halving isnât until 2028, expected to occur again in April. To maintain these levels, often-hyped regulatory frameworks must be developed, and/or institutional asset managers have to keep their appetite high.
Weâll see how it plays out, but the industry seems ripe to hit that level of losers, which digital asset holders have been dreaming of since 2009.
The one thing we know about BTC is that predicting its price moves is about as hard as solving the math problems needed to produce the next BTC.
The Big Question: Will BTC hit $100k? Is it already there as you read this? What other catalystsâor risksâare on the horizon?
Banana Brain Teaser
Previous
A technician makes a round-trip to and from a certain service center by the same route. If the technician completes the drive to the center and then completes 10% of the drive from the center, what percent of the round-trip has the technician completed?
Answer: 55%
Today
From 2000 to 2003, the number of employees at a certain company increased by a factor of 1/4. From 2003 to 2006, the number of employees at this company decreased by a factor of 1/3. If there were 100 employees at the company in 2006, how many employees were there at the company in 2000?
Send your guesses to [email protected]
It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self-fulfilling prophecy.
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Happy Investing,
David, Vyom, Ankit & Patrick