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From Steakhouse to the Dawghouse
🥖 Our dawgs are eating, but our chefs are not. Uncle Sam needs you to get drunk and clog your arteries in service to your country. Find out why below.
Silver banana goes to…
In this issue of the peel:
🥖 Our dawgs are eating, but our chefs are not. Uncle Sam needs you to get drunk and clog your arteries in service to your country. Find out why below.
🏦It’s poetic to see cr*pto and the industry it wants to destroy (banking) rise in tandem. Sadly, we can’t say the same for SaaS and chip companies.
💣 President-elect Trump receives a lot of praise for never starting a war. Well, there’s a first time for everything, so we’re predicting his first fight below.
Market Snapshot
Banana Bits
The S&P 500 is at its highest valuation since April 2021 based on its forward P/E ratio.
Elon Musk’s net worth hits an all-time record of $335bn, making him the richest person in history since Andrew Carnegie or John D. Rockefeller (estimates vary).
Private prison stocks ripped again on Monday as the Trump Admin looks to appoint illegal immigration hardliner Tom Homan as “border czar.”
It took the S&P 500 70.1 years to rack up its first 1,000 points and approximately 1/100th of that time to go from 5,000 to 6,000, according to Callie Cox.
Hope you’re thirsty—Water desalination might be booming more than AI right now.
Tesla and Zillow shares have ripped through our price targets on positive election and earnings news.
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PE market trends
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Don’t miss the latest insights on how firms are staying ahead in a tight market. Watch now.
Macro Monkey Says
All My Dawgs Gotta Eat
I’d hate to be a steaming hot plate of buffalo chicken wings with ranch and a side of fries when I walk into the room. Few things are more dangerous.
Last quarter, however, it was far more dangerous to be the guy selling that spicy, heart-clogging deliciousness based on the down bad results we’ve gotten from restaurant stocks.
Americans are the undeniable GOATs of getting fat and drunk. If we’re not going to restaurants, we’re in trouble.
Let’s get into it.
The Numbers
The restaurant industry can be a challenging one to size up. According to the National Restaurant Association, the industry is expected to pocket ~$1.1tn in sales this year.
Options range from the food trucks open between 12am and 2am on weekend nights in the heart of your local bar scene all the way up to Ruth’s Chris Steak House.
Although difficult, understanding consumer spending trends at restaurants gives an ideal lens into consumers' spending habits and economic outlook, as eating out (pause) is an easy budget item to pull back on when hard times are anticipated.
I never thought I’d see an America in which an establishment as fine and respected as the Outback Steakhouse is suffering, but according to yesterday’s earnings report from parent company Bloomin’ Brands, America has fallen.
As the parent of Outback, along with other casual dining places like Fleming’s, Carrabba’s, and Bonefish Grill, Bloomin’s results size up the mid-tier restaurant sector well.
Looking at the company’s U.S. operations alone, total sales fell 1.5% in the quarter ended Sept 29th compared to the same period last year.
Fleming’s, the firm’s priciest chain, was the only brand to post an annual sales increase, up a massive 1.2% YoY… or, in other words, down 0.3% after adjusting for Q3’s 1.5% PCE inflation.
Outback sales fell 1.3%, Carrabba’s was down 1.5%, and Bonefish crumbled 4.2%.
Results posted on Sept 19th from Darden Restaurants weren’t much better.
The parent of brands like Olive Garden. With brands like Longhorn, Yard House, Ruth’s Chris, and Capital Grille, Darden covers the full spectrum—from casual dining to a potential casualty for your wallet.
Longhorn was easily the top performer as the only brand to post revenue and margin expansion. However, the most significant aspect of the above image is the abysmal 2% rise in sales and 1% drop in net margin within Darden’s Fine Dining segment.
This implies that ingredient, material, and wage inflation has increased to a degree in which price hikes—generally easily digested at fine dining establishments—couldn’t compensate.
Management cites a “significant step down” in traffic throughout Q1 but concentrated in July as the primary driver. Bloomin’ Brands cited annual declines in traffic as well.
Neither firm references the word “traffic” in their press releases nor Q3 presentations, as they generally do when there’s good news to report. The omission speaks volumes, and it does so too at fast-casual purveyor Restaurant Brands International (RBI).
The biggest problem for the U.S. in the above chart is the fact that we still spent over $2.8bn at Burger King last quarter. But, for RBI, the issue is similar to the others.
Sales declines have persisted throughout 2024 at all of RBI’s brands while margins are facing similar cost pressures.
And, in case you hadn’t noticed, with all the complaints around McDonald’s pricing, raising fast food prices is about as popular as finding pineapple on every pizza.
The Takeaway?
This is not a good sign for the American consumer.
The bond market took Monday off for Veteran’s Day (by the way—thank you for your service to all our Daily Peel vets out there), but other asset classes spent the session setting nonstop record highs… again.
These movements reflect expected changes from the new Admin taking office in January but arguably ignore the underlying dynamics facing consumers.
Restaurant spending is often the first to go when cutting back. Although the labor market and wage growth remain strong, any worsening combined with a declining personal savings rate and increased credit utilization is not a good recipe.
We’re not saying this is bound to happen—we’ll want to closely watch spending here and on consumer items as the holiday season picks up—but it is a crucial trend to monitor as 66-70% of the economy is driven by consumers.
Now go get drunk and clog your arteries—your country needs you!
Career Corner
Question
Generally, with networking, should I only follow up if the person doesn’t reply? In the case he does, and we get to chat on the phone, how often should I message back to keep the relationship?
Also, I shouldn’t attach my resume when reaching out for networking, right?
Answer
If they don’t reply to your initial email, follow up in a week in the same thread. Every few months, I get back on the phone with them and ask more questions.
No, attach it once they agree to speak with you and you’re coordinating times. Generally, don’t send a resume until they ask for it.
Head Mentor, WSO Academy
What's Ripe
Digital Asset Stocks (COIN, MSTR, HOOD) 19.76%, 25.73%, 7.40%
SEC Chair Gary Gensler is getting ready to add “Open to Work” to his LinkedIn as the day in which President-elect Trump said he’d fire him is a very nice 69 days away.
Gensler has been a regulation-by-enforcement SEC Chair to the cr*pto sector, needlessly delaying progress in the sector. Traders can’t wait to get him out.
It’s not clear who his replacement will be, but Hester Peirce, an SEC commissioner, is allegedly at the top of the list.
BTC is actively setting record prices as I write this (6:48pm yesterday) and is currently at $88,690.66. Levered BTC Holdco MicroStrategy shares ripped 25.73%.
Bank Stocks (KBE) 2.84%
If there’s one thing that a businessman doing business loves to see, it’s a fellow businessman doing business… as long as they’re not prospecting the same clients.
Now that the bankruptcy, I mean *business king is back in the White House, bank investors are excited for a future of less regulation and more M&A activity.
Naturally, Wells Fargo jumped the most, even though they were already acting like regulation doesn’t exist. Sofi, Morgan Stanley, and BofA jumped, too.
What's Rotten
Monday.com (MNDY) 15.14%
Garfield was the top market forecaster this Veteran’s Day, as everyone agreed with his “I hate Mondays” sentiment. Clearly, he was talking about Monday.com.
The work management software reported strong earnings and raised FY’24 revenue guidance, but the midpoint of Q4 sales guidance slightly missed.
Usually, that’s not a huge issue. But, for Monday.com, which trades at trailing and forward P/E of 397x and 113x, respectively, their results didn’t live up to that valuation.
Taiwan Semi (TSM) 3.55%
Like when your spouse and best friend don’t get along, you gotta choose one over the other at some point. Unfortunately, Taiwan Semi is in the position right now.
The world’s largest chip foundry woke up Monday to fresh export bans from the U.S., banning all shipments of “AI chips” from TSMC to China.
China made up 12% of TSMC’s 2023 net income and revenue, providing a promising market for growth. They’re still able to sell chips, just not one that could one day compete with Nvidia.
Thought Banana
Trump’s First War
In May of 1856, Rep. Preston Brooks of South Carolina attacked Senator Charles Sumner of Massachusetts with a metal-tipped cane on the floor of the Senate chamber.
This marked the first bloody, violent event to occur inside the U.S. Senate. Don’t be surprised if the Fed enters the octagon next.
Let’s dive in.
What’s Happening?
After appointing and confirming Jerome Powell as Fed Chair in 2017, Trump made JPow’s next few years similar to my sophomore year of high school—nonstop bullying.
By the latter half of 2019, Trump was publicly pondering whether Powell or China’s President Xi Jinping was a greater threat to the United States.
Safe to say these two don’t like each other. Already, that was clear in the Fed’s latest press conference… and the guy ain’t even back in office yet.
Many of you likely saw clips last week of reporters asking Powell his thoughts on presumed Trump advisors already seeking to remove or demote JPow from the Chair position. Here’s the clip—if you haven’t seen it, please go watch it.
Anyway, Powell smelled trouble back in 2019 and 2020. At one point, he tasked Fed staffers with preparing a legal defense in case Trump tried to demote or remove him.
According to the 1913 Federal Reserve Act, a Fed Chair or governor may only be removed or demoted for “cause.” To date, that has been interpreted to mean misconduct, impropriety, or incapacitation.
But it’s definitely not allowed over policy disagreements. This is done to ensure the Fed remains as apolitical as possible. Believe it or not, Democrats and Republicans can actually agree they both want a strong economy.
Using interest rates to serve political rather than economic goals is a huge conflict of interest. A non-independent Fed allows for the possibility of influencing monetary policy to serve short-term political goals rather than long-term economic stability.
For example, politicians could pressure the Fed to keep interest rates artificially low to boost growth or employment ahead of elections, risking inflation or financial instability (although my portfolio probably wouldn’t mind).
The Takeaway?
Independence allows the Fed to make decisions based on data and economic principles, safeguarding its dual mandate of price stability and full employment without political interference.
Powell is actually a lawyer by training, so last week when he said that Trump's dismissal of him before his term ends in 2026 is “not permitted under the law,” we’re inclined to take his word for it.
Trump's first war won’t be in Ukraine or the Middle East but might be right within the Eccles Building in D.C.
We got Tyson-Paul this Friday night on Netflix, so maybe Dana White and Ted Sarandos can set up a Trump vs JPow bout next?
Big Question: Will Trump try to remove or demote Powell? What impact would that have on markets? Who would you bet on in a UFC fight between Trump and JPow?
Banana Brain Teaser
Previous
The annual interest rate earned by an investment increased by 10% from last year to this year. If the annual interest rate earned by the investment this year was 11%, what was the annual interest rate last year?
Answer: 10%
Today
In a numeric table with 10 rows and 10 columns, each entry is either a 9 or a 10. If the number of 9s in the nth row is n-1 for each n from 1 to 10, what is the average (arithmetic mean) of all the numbers in the table?
Send your guesses to [email protected]
There is no risk-free path for monetary policy.
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Happy Investing,
David, Vyom, Ankit & Patrick