Elon’s $56B Ego Check

⚖️ A Delaware judge killed Elon Musk’s vibe, calling his $56 billion pay package “excessive” even after shareholders voted to approve it.

December 03, 2024

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In this issue of the peel:

  • 🚀 Equities kicked off the month flying higher than my ego after getting a fat bonus check with tech stocks leading the way. Clearly, the Trump bump is in full force.

  • ⚖️ A Delaware judge killed Elon Musk’s vibe, calling his $56 billion pay package “excessive” even after shareholders voted to approve it. 

  • 📉 Jerome Powell and the boys got a little trigger-happy in 2024, but investors are eying fewer rate cuts from here on out.

Market Snapshot

Banana Bits

This Smart Home Company Hit $10 Million in Revenue—and It’s Just the Beginning

No, it’s not Ring or Nest—it’s RYSE, the company redefining smart home innovation, and you can invest for just $1.75 per share.

RYSE’s patented SmartShades are transforming how people control their window shades—offering seamless automation without costly replacements. With 10 fully granted patents and a pivotal Amazon court judgment safeguarding their technology, RYSE has established itself as a market leader in an industry projected to grow 23% annually.

This year, RYSE surpassed $10 million in total revenue, expanded to 127 Best Buy locations, and experienced explosive 200% month-over-month growth. With partnerships in progress with major retailers like Lowe’s and Home Depot, they’re set for even bigger milestones, including international expansion and new product launches.

This is your last chance to invest at the current share price before their next stage of growth drives even greater demand.

Macro Monkey Says

Slow Your Roll Jerome

Jay Powell and the gang got drunk off their own power, raising rates sky-high in 2023 and then spending the rest of 2024 dealing with the ensuing hangover by cutting. Now, the Fed is in a precarious situation. 

The formula is clear-cut most of the time. When the economy is lagging and needs a shot of energy, the Fed cuts. When the economy is overheating and needs to be knocked off its pedestal, the Fed raises. That relationship is simple enough to understand. 

But what happens when rates are extremely high, and the economy is still humming along with sticky inflation?

Do you keep rates high and risk de-accelerating long-term economic growth and high unemployment? Or do you cut rates and risk sticky inflation and out-of-control growth? That is the dilemma that Jay Powell is facing. 

While markets widely anticipate a third rate cut this year at the December meeting, the outlook is murkier in 2025. 

Recent sticky inflation reports show that the economy is still growing, raising doubts that the Fed will continue cutting. Based on Bloomberg data, the market is currently projecting two cuts in 2025, with Wall Street Analysts generally settling in between two to four across the board.

The Numbers

The October reading of the PCE report showed prices increased 2.8% year-over-year. This is pretty solidly above the Fed’s 2% goal and adds confusion over the next move. 

According to Wells Fargo Senior Economist Sarah House, “It’s going to be harder and harder to justify additional rate cuts if declines in inflation slow.” 

On the other side of the equation, GDP is humming along, growing 3% in Q2 ‘24 and 2.8% in Q3 ‘24. Add a new administration taking the helm next month, and you have a pretty challenging situation. 

In 2020, it was a much clearer decision for the Fed to cut as the economy hit a brick wall and needed revitalization. In 2022, the case for hikes was clear as the Fed acted to control 8% inflation. Now, you have a convoluted situation of high inflation with just okay growth.  

The Takeaway

The Federal Funds rate is certainly restrictive at a current range of 4.5%—4.75%. The big question is how much the Fed can ease while maintaining economic continuity. They don’t want to overshoot by easing too quickly and creating expansionary monetary policy. 

On the other hand, they don’t want to remain too restrictive and clip the economy’s growth at its wings. The right interest rate is the level at which they are neither too restrictive nor overly supportive. 

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

What's Ripe

Super Micro Computer, Inc. (SMCI) 28.68% 

  • SMCI’s stock, which has been on a never-ending roller coaster ride since August, is at the “climb” part of the ride right now. Investors received a “we’re so back” headline, causing shares to surge over 28%

  • Hindenburg Research, the short-selling hitmen of the finance industry, put the red dot on SMCI in a report accusing the company of accounting manipulation. Adding more fuel to the fire was Ernst & Young, its main auditor, essentially firing SMCI as a client, saying it was unwilling to be associated with their financial statements.

  • This prompted a special investigation by a fancy committee, who reported today that they found no substantial concerns regarding the integrity of senior management and that the company’s financial statements are accurate.

  • SMCI’s stock staged a more impressive comeback than the 2017 Falcons against the Patriots. The company was facing a falling stock price, potential NASDAQ delisting, and potential criminal charges before reversing course.

Novocure Limited (NVCR) 48.96%

  • Novocure Limited is kicking cancer’s ass as its new electrical zapping device gets one step closer to regulatory approval.

  • The device, known as tumor-trading fields, is a wearable patch that delivers electric fields to the body, killing tumor cells. The device succeeded in a study of patients with pancreatic cancer, reducing the risk of death by 18% and sending the stock to the moon.

  • After the recent success, Novocure is taking its show on the road and planning to engage regulators in the US and Japan with a commercial launch slated for as early as 2026.

What's Rotten

Stellantis (STLA) 6.30%

  • Stellantis’ stock took a hit after it parted ways with CEO Carlos Tavares. To be honest, I am petty enough that if I ever got fired from my employer, I would take pleasure in the fact that the stock sunk on the news.

  • Tavares rose to the helm as CEO through the merger of Fiat Chrysler and French automaker PSA Peugeot. He sold many a dream during his tenure, with promises of double-digit percentage operating margins and cost cuts without cutting “too many” jobs. Investors’ patience seemed to be wearing thin.

  • While Tavares hadn’t planned to retire until 2026, such is the life of being a CEO. A wise man once told me that you don’t decide when to retire from the market, the market retires you. I’m sure he’s somewhere crying in Billionaire right now.

Upstart Holdings, Inc. (UPST) 14.47%

  • For a CEO of a publicly traded company, getting an Analyst downgrade is worse than the popular girl in school spreading a horrendous rumor about you.

  • The AI-powered lending platform got downgraded, along with several other fintech stocks, on growth and valuation concerns. Yikes.

  • Basically, once that happens, all other investors get weak diamond hands and sell the stock into oblivion, exerting undue pressure.

Thought Banana

The Santa Rally: Fact or Fiction? 

The season for panic-selling your stocks to purchase last-minute Christmas gifts for the fam is upon us. But before you crash out and hit the red button, keep in mind the Santa Rally. 

This is the market boost that often shows up right before Christmas and into the New Year. Kind of like Santa for adults, except instead of toys, he brings portfolio gains. Every year, stock prognosticators bring up the Santa rally, but is it fact or pure fable? 

What’s It All About

The Santa rally refers to an observed historical market trend where equities experience gains during the last five trading days of December and the first two days of January. 

The S&P clocks in at an average of 1.3% during this period, and markets post a positive performance 70% of the time. In fact, recent years show that the rally began a bit earlier, around the beginning of November when the S&P saw an average gain of 3.7% since tracking began in 1928.

Origins

The Santa Rally became an official thing in the 1970s when Yale Hirsch, creator of the Stock Trader’s Almanac, observed the pattern and put a name to it. There are several theories behind the rally, and we explore them below.

  • General Euphoria - Some say the holiday joy brings a sense of optimism among market participants, lifting stocks. Or, the hedge fund heavy hitters are in a drunken haze and don’t have the wherewithal to sell.

  • Taxes - Tax loss harvesting involves selling losing positions to reduce taxes. This selling must occur in October and might lead to reinvestment back into the market in November-December. This could also explain why October is one of the year's weakest months.

  • New Year Spirit Animals - Plain old human psychology will tell you that we have an unlimited capacity for new year optimism, no matter how much of an L we took the current year. Investors could very well be buying up stocks based on pure New Year’s vibes.

The Takeaway

Regardless of the origin, the rally has become a self-fulfilling prophecy, with investors purchasing stocks at the end of the year based on the expectation that they will increase. So much of the market is being reserved for “sophisticated investors.”

Banana Brain Teaser

Previous

Abdul, Barb, and Carlos all live on the same straight road, on which their schools are also located. The school is halfway between Abdul’s house and Barb’s house. Barb’s house is halfway between the school and Carlos’s house. If the school is 4 miles from Carlos’s house, how many miles is Abdul’s house from Carlos’s house?

Answer: 6

Today

During a certain time period, Car X traveled north along a straight road at a constant rate of 1 mile per minute and used fuel at a constant rate of 5 gallons every 2 hours. During this time period, if Car X used exactly 3.75 gallons of fuel, how many miles did Car X travel?

Send your guesses to [email protected]

❝

If Santa should fail to call, the bears may come to Broad and Wall

Yale Hirsch

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Happy Investing,
David, Vyom, Ankit & Patrick