Silver banana goes to…

In this issue of the peel:

• 💸 The U.S. economy is so jacked that we simply cannot stop creating inflation. Luckily, it wasn’t too bad in November, but somewhere, JPow’s shaking in his shoes.

• 🚗 Car sales spiked last month, especially in the EV market, charging up Lucid shares. Warren Buffett’s partnership with the host of Call Her Daddy continues to pay off while Novo Nordisk and Trump Media are both suffering from success.

• 🤝 From $60bn buyouts to the $2k you negotiated off the price of your $50k car, 2024 was a year of deals. Find out which one came out on top below…

Market Snapshot

Banana Bits

• India leads the world’s IPO market in 2024, taking strength from the U.S.

• The WSJ’s how-to on avoiding U.S. tariffs.

• Private prison stocks (sounds like it should be an oxymoron) are popping off on high hopes for deportations.

• Quantum and BTC appear to get along as well as Gary Gensler and BTC, but the asset class actually might be safer than you think.

• Santa’s reindeer, I mean Amazon workers, are on strike this holiday season.

The Daily Poll

Previous Poll:

What’s the most surprising factor driving Q3 GDP growth?

Increased consumer spending: 41.0%% // Rise in exports: 12.1% // Higher healthcare spending: 22.7% // Government spending: 24.2%

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Macro Monkey Says

Too Jacked To Cut

Finally, something cool happened. 

Americans have been acting like a bunch of dorks, worried about nerdy sh*t like “inflation” and “recessions” and other three-syllable words I always have to Google.

It’s about time we have cool sh*t to worry about again, like drones/aliens looking for radiation over the state of New Jersey. Hint: maybe check Snooki’s bathroom trash can.

Anyway, the good news is that inflation isn’t the only problem driving Americans to wild conspiracies on Twitter anymore. But it is our favorite one, so let’s get into it.

What Happened?

On Friday, the Bureau of Economic Analysis (BEA) released the monthly Personal Consumption and Expenditures (PCE) report for November.

Essentially, this report sizes up the incomes, spending, and prices paid by Americans from sea to shining sea, with the PCE price index—the Fed’s favorite inflation gauge—as the headlining data point.

The Numbers

Speaking of PCE inflation, the price index rose 0.1% monthly in November and 2.4% against November of 2023. Both metrics came in below economist guesstimates, which were looking for 0.2% monthly and 2.5% annual. 

Keep in mind—the Fed targets 2% annual inflation, which translates to a monthly target of 0.165%. Expanding the decimal in November, monthly inflation clocked in at 0.128%, below the annualized monthly rate needed to reach the Fed’s target.

Core PCE, which measures inflation excluding food and energy prices, looked similar, up 0.1% for the month and 2.8% annually. To no surprise, economist estimates were wrong here too, expecting slightly higher data.

That’s the good news. The bad news is that both headline and core inflation have been steadily increasing for a few months now. Core PCE inflation is up to 2.8% from 2.6% in July, while headline PCE is up to 2.4% from 2.1% in September… right when rate cuts started.

These upticks in inflation, along with those seen in the CPI since September, have led the Federal Reserve to reconsider policy. 

In September, officials expected core PCE inflation to fall to 2.6% and 2.2% by the end of 2025 and 2026. Now, expectations are to end 2024 at 2.8% and—fingers crossed—2025 at 2.5%. This has led to a 0.5% increase in year-end rate expectations since September as well.

What Else?

Still, the market took Friday’s report as a good sign for the economy overall. The uptick in inflation appears to reflect underlying strength in incomes and consumer spending.

Speaking of incomes and consumer spending, both grew strongly in November.

Personal incomes for Americans increased 5.3% annually in November and 0.3% for the month, both in line with ongoing growth trends. 

Adjusting for taxes, disposable personal incomes grew 0.3% monthly and 5.1% from November of last year. Real disposable personal incomes—adjusting for both taxes and inflation—grew a healthy 0.2% for the month and 2.6% annually.

Consumer spending—the Holy Grail of the U.S. economy as it makes up ~70% of GDP—posted similarly strong growth powered by rising incomes.

Personal consumption rose 0.4% monthly and 5.5% since November of last year. Real personal consumption, meanwhile, grew 0.3% through the month and 2.9% over the course of the last year.

All of these changes are intrinsically related. A fundamentally strong labor market is driving continued strength in incomes that leads to strong growth in consumer spending, potentially so strong that it forces the aggregate price level to increase.

The Takeaway?

It seems like, over the past few weeks, the Fed has kinda said to itself, “f*ck, we f*cked up” by cutting rates too early, fast, or a combination of the two.

With very little concern about GDP growth and employment present, the idea of rate cuts seemed tacitly focused on the housing market and the federal government’s interest expense.

However, now that there’s evidence to suggest rate cuts could be re-triggering inflation, wannabe homebuyers and Uncle Sam alike will have to wait a while longer.

Career Corner

Question

I am applying for an Equity Research role (that I believe fits me well despite focusing on IB). The position is 1 week old and has over 100 applicants; would I stand out if I wrote an interesting statement as asked by LinkedIn?

Answer

I don’t have a strong view of these LinkedIn applications, but I assume marking them as your top choice can’t hurt.

But also, importantly, you should be networking! That will likely have a bigger impact than whether or not you check this box.

And strong interview prep with a strong stock pitch will go a long way! (Also, as an aside, you can’t trust the number of applications on LinkedIn—some submissions are completely unqualified, and some are bots).

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Lucid Group (LCID) 14.83%

• No, the CEO of this EV company isn’t joining the Trump Administration, too (as far as we know). But, in case you forgot, sales matter too—not just the number of Happy Meals shared with the Commander in Chief.

• Lucid and the rest of the EV industry jumped Friday after a Cox Automotive report showed a 13.6% annual and 10% monthly rise in the number of EVs sold in the U.S.

• This comes as part of a broad uptick in auto spending, but it was particularly concentrated in EVs, likely due to the perceived threat of lost tax credits with the coming administration. 

SiriusXM (SIRI) 12.15%

• Warren Buffett’s decision to team up with his idol, Call Her Daddy host Alex Cooper, at SiriusXM continues to pay off in spades. The Oracle is buying again.

• Shares in SiriusXM—along with Occidental Petroleum (OXY, +3.9%)—jumped as it was revealed that Warren Buffett’s Berkshire Hathaway has increased its stake in both holdings.

• You might not think that a 94-year-old buying shares in a company whose entire strategy relies on 131-year-old technology is bullish, even though that would be like the Nvidia of Europe. But this is Buffett we’re talking about.  

What's Rotten

Novo Nordisk (NVO) 17.83%

• One of RFK’s chief lieutenants in his war against fat people took a plus-size tumble on Friday as trial results for a new obesity drug didn’t carry much weight.

• The make of Ozempic and Wegovy, Novo Nordisk’s newest obesity drug, CagriSema, showed similar efficacy to Eli Lilly’s Zepbound in a Phase 3 trial published Friday.

• Without nerding out (because I don’t understand it), CapriSema was expected to be more effective than Zepbound, stealing market share. Now that that’s been put on hold, Lilly shares gained 1.35%.

Trump Media & Technology Group (DJT) 1.98%

• A titan of the global tech and media landscape, Trump Media & Technology Group shares sank on Friday as the company’s dear leader moved his shares.

• President-Elect Donald J. Trump moved Trump Media stock into the Donald J. Trump Revocable Trust, of which he is the sole beneficiary… I wish we could all love ourselves that much.

• Donald J. Trump Jr. is the sole trustee, meaning he exclusively makes investment decisions. Trump received no payment from the transfer and now indirectly owns his 114.75mn share stake, worth $3.982bn. 

Thought Banana

Platinum Banana Award: Deal of the Year

Welcome back, apes, to the shining jewel on the crown of Wall Street award shows—The Daily Peel’s Platinum Banana Awards.

I hope you’re fired up for a fun Holiday, which is either happening or just starting this week—time to kick off the festivities with 2024’s Deal of the Year.

Let’s dive in.

Deal of the Year

Investing legends, journalists, and people from both the Pulitzer and Nobel prize organizations have been reaching out nonstop, as I’m sure you can imagine since we began this year’s Platinum Banana Awards last week.

Obviously, we had to turn them all down because we’re right in the middle of cooking. And for today’s meal, we’re locked in on the single biggest, baddest, and most impactful Deal of the Year in 2024.

With no further ado, it’s time to congratulate the winner of the Platinum Banana Award for Deal of the Year 2024…

Apple and TSMC’s $40bn semiconductor fabrication partnership!

Congratulations to our lucky winners, Apple and TSMC. As the 1st and 10th largest companies on the planet, I’m sure this is the highest, most prestigious honor ever received.

In case you forgot, Apple and TSMC have been building up to this deal since 2020 but finally worked out the details this year.

TSMC is investing $32bn in capex with another $8bn from the CHIPS Act to fund the facility's construction. Apple, as of earlier this year, negotiated its way into being the plant’s “primary buyer,” meaning they have priority access over a “significant” portion of the production.

As TSMC’s largest customer already, accounting for 25% of their revenue, Apple has dibs on the 20k/month wafer expected to be produced. However, other players like AMD, Qualcomm, and… what’s that other one called? Nv something… I forgot, there will be buyers, too.

This one was a tough call, with strong competition for Deal of the Year, but we had to give the nod to Apple and TSMC because this deal…

• Underscores the importance of securing semiconductor supplies in the age of AI.

• Highlights the importance of domestic production of the country’s most important resources as 63% of global chips are exclusively made in Taiwan.

• This signifies the deteriorating relationship between the U.S. and China, as the U.S. government was willing to chip in (no pun intended) to diversify away from reliance on China and Taiwan.

• Although production will earn lower margins for TSMC due to the higher cost of employing American workers, both companies are expected to earn a nice return.

Some of our runners-up for today’s award included:

• The completion of the Microsoft-Activision deal

• Trump’s deals with Elon, Vivek, cr*ptobros, and others that helped him win

• Exxon’s $60bn acquisition of Pioneer Natural Resources

• Spirit’s failed deals with Frontier and JetBlue

• Reddit’s IPO

The Takeaway?

Congrats again to Apple and TSMC. Tim, I know you’re reading this, so keep up the good work.

Let us know how wrong we were if you think another deal was more deserving. 

The Big Question: Will Apple and TSMC’s investments in this deal pay off? What other deals should we have considered, or should we have one? Who’s an early candidate to win for 2025?

Banana Brain Teaser

Previous

A small business invests $9,900 in equipment to produce a product. Each unit of the product costs $0.65 to produce and is sold for $1.20. How many units of the product must be sold before the revenue received equals the total expense of the production, including the initial investment in equipment?

Answer: 18,000 units

Today

When n liters of fuel were added to a tank that was already 1/3 full, the tank was filled to 7/9 of its capacity. In terms of n, what is the capacity of the tank in liters?

Send your guesses to [email protected]

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Happy Investing,
David, Vyom, Ankit & Patrick

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