Silver banana goes to…

In this issue of the peel:

• The housing market’s trying to make a comeback, but it’s like watching your favorite sports team make a late playoff push—exciting but ultimately futile. Existing home sales are up a smidge, while new home sales are also rising, but the prices? They’re still soaring like a balloon in a hot air balloon race.

• Hain Celestial is outperforming Hershey, proving that even Veggie Straws can be a hot commodity. Meanwhile, Cava’s execs are selling shares like they’re going out of style, and Bank of Montreal’s credit loss provisions are making us all sweat.

• We took a deep dive into Treasury market troubles, where the U.S. is racking up debt faster than a college student racks up credit card bills. If the trend continues, we might need to rethink our “risk-free” asset status.

Market Snapshot

Banana Bits

• Paramount Global’s acquisition saga needs a 12-season Netflix series now that it appears finally over.

• Eli Lilly has picked its next target—Hims & Hers self-pay, a direct-to-consumer model for generic prescription drugs.

• Apparel retailer Nordstrom rips 11% after-hours on strong earnings.

• The NFL is close to opening the gates to the barbarians in private equity… but only if they can get a cut from any team sales.

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Macro Monkey Says

Knocking On Housing’s Door

A healthy housing market is starting to feel like the Cowboys winning a Super Bowl or hearing back from Goldman on your Summer Analyst 2025 application.

It’s a nice goal, but it ain’t happening anytime soon.

Recent days have seen housing market data get dumped harder than Ben Affleck. Sales and prices are the primary focus, so let’s get into it.

What Happened?

Between Thursday and Tuesday, the National Association of Realtors, Census Bureau, and S&P CoreLogic each dropped the latest on the most important data in housing.

Starting with Thursday, we saw the release of the existing home sales data for July.

Sales of existing homes grew 1.3% to a seasonally adjusted annualized rate of 3.95mn, breaking a four-month streak of declining sales volumes.

Single-family home sales grew slightly faster, up 1.4% monthly.

Annually, however, single-family sales were down 1.4%, while total sales of all existing housing units fell 2.5%.

Prices of existing homes didn’t get the memo and continued rising 4.2% annually to a median of $422.6k. But, the good news was the supply of existing homes on the market snuck up slightly higher to 1.33mn, or four months' worth of supply.

But, like when Jayson Tatum is out and Jaylen Brown has to step up, new home sales performed well last month.

The number of newly built single-family units sold rose an impressive 10.6% compared to June and 5.6% vs July 2023.

Prices followed in the footsteps of existing homes, with the median growing to $429.8k. Meanwhile, the average sale came in at $514.8k, symptomatic of a top-heavy market.

That represents a 3.1% monthly increase in the median sales price and, surprisingly, a 1.4% decline from July of last year.

However, the revival of homebuilders who actually do their jobs seems to have played out, as the month’s supply of new homes declined 10.7% to 7.5 months.

In July, existing homes accounted for 74.2% of total home sales. Add in an increasingly top-heavy market where a growing proportion of sales come from the highest price ranges, and the chart below starts to make sense.

According to S&P CoreLogic and their Home Price indices, prices continued their perpetual path higher. 

But the team at S&P is a little slow. They’re counting prices from June, which means we can have a little more confidence in their data since these sales are solidified as opposed to the advance estimates included in both reports above.

Using a three-month rolling average to measure prices, S&P’s National Home Price Index clocked in at $325.23k. In the country’s 20 largest cities, the index sits at $335.45k, while the 10 largest cities posted $352.91k.

The Takeaway?

The U.S. housing market remains in certifiably weird status. 

Demand remains particularly elevated due to the frozen state of the market in recent years. As if millennials and Gen Z entering their homebuying years isn’t enough by itself, many purchases were put on hold until rates declined.

That’s pushed a lot of demand back until… now.

At the same time, sellers were understandably hesitant to forgo their sub-4% mortgages to get in at nearly double that rate. This has created the market dynamic of chronically elevated demand and inadequate supply.

With rates set to continue falling for the foreseeable future, that will only juice prices further.

There are few things I enjoy more than complaining, especially when it comes to the housing market. But, compared to other countries, the U.S. is doing just fine.

However, if these trends don’t eventually subside, a nation of renters will emerge. Who knows, we could end up with a housing market like Canada’s… or even the U.K.'s. But hey, there are worse things, right?

What's Ripe

Hain Celestial Group (HAIN) 18.59%

• In the latest sign of the collapse of the American empire, shares in good ol’ Hershey are falling while the company that makes Veggie Straws is booming.

• Barely missing on sales, Hain Celestial reported $418.8mn, off by $600k. EPS beat at $0.13/sh as the company’s products easily maintained their premium.

• Sales fell 6% annually, but margins expanded. GAAP losses per share of $0.03 gave the market confidence the company is close to profitability.

Travel Stocks (TCOM, BKNG, EXPE) 8.57% 2.20% 2.68%

• The most underrated flywheel in business: Buy shares in a travel company, book a trip through them, causing shares to rise, and then use profits for the next trip.

• It’s working out for Trip.com. The China-based travel services firm beat across the board in Q2, driven by packaged trips revenue increasing 42% YoY, helping grow margins.

• It’s not just the U.S. undergoing a travel boom. Higher-income consumers worldwide are still prioritizing travel, leading Trip.com’s earnings to lift the sector. 

What's Rotten

Cava Group (CAVA) 6.12%

• When telling your friends to look at someone else in public, you gotta make sure they don’t all look at the same time. Cava execs have not learned this lesson.

• They might as well have all turned with their phones out and flashes on because everyone is selling shares according to a storm of SEC disclosures.

• CEO Brett Schulman sold $25mn, a cofounder sold $12.4mn, their CFO sold $630k, a board member also sold $630k, and another board member sold $190k.

• There are many valid reasons to sell shares. But, when executives offload simultaneously—especially after rising 54% in one month and 180% YTD—the company is telling the market they’re overvalued.

Bank of Montreal (BMO) 6.45%

• The only thing gaining more attention than Sabrina Carpenter right now? Provisions for credit losses. Racking up expected future losses dented the firm’s latest EPS.

• Reporting EPS of C$2.64/sh on C$8.21bn in revenue, the firm missed estimates on both. Credit loss provisions of $906mn are up $201mn from Q1 and 84% YoY.

• Revenue growth was flat annually and up ~3% for the quarter. Markets sold off on the weak results and expectations that cyclicality will pull away from BMO’s favor.

Thought Banana

Fighting Words

I’m certain Denmark doesn’t want the smoke from the United States, but one of their emigrants sure does.

Our boy, certified smarty pants Torsten Slok, Apollo’s Chief Economist, just published essentially the U.S. Treasury version of Martin Luther’s 95 Theses.

It’s nothing but fighting words. Let’s see what he had to say.

What Happened?

The Treasury market has undergone significant change in recent years, most notably marked by gradually widening tails due to lower demand for U.S. debt.

I can’t imagine why.

In his note published yesterday, Slok gives the rundown of what he sees as 10 important facts investors should keep in mind related to the Treasury market.

Some of the most important included pointing out that:

• U.S. national debt will eventually grow from 100% to 200% of GDP.

• Deficits will exceed $1tn for the next decade.

• Shorter-term T-Bills are growing in proportion to total debt outstanding (27%).

• Debt servicing costs are 12% of government spending.

• From 2019 to 2023, daily interest payments doubled to $2bn.

Slok then tells investors to “keep an eye on 1) treasury auctions, 2) rating agencies, and 3) the term premium.”

His goal seems to be to warn investors of what he perceives as still underappreciated risks from the Treasury market.

With federal deficits expected to cross $2tn in 2031 and federal debts expected to reach $50tn by 2033, it’s no surprise that demand is falling for the alleged “risk-free rate.” However, the implications of this falling demand could bring major side effects.

The Takeaway?

Falling Treasury demand is a big problem if sustained at current rates, especially when demand is falling most rapidly for long-term bonds.

Some implications include:

• Rising interest rates and bond prices fall → Makes paying interest harder, poses a threat to bank balance sheets, and increases the cost of borrowing economy-wide.

• Lower liquidity → Increase volatility in global financial markets and currency risks for emerging market economies.

• Risks to growth → The above would lead to an economic slowdown due to higher borrowing costs and bank solvency risks. Plus, global financial markets could lose their “risk-free” rate, making it much harder to price fixed-income assets.

Doesn’t sound very fun. Now, should we nuke Denmark—just kidding, of course!

The Big Question: How close is the U.S. to losing its status as the global safe haven/risk-free rate? What can the federal government do to stop this issue?

Banana Brain Teaser

Previous

For every even positive integer m, f(m) represents the product of all even integers from 2 to m, inclusive. For example, f(12) = 2 × 4× 6 ×8 10 × 12. What is the greatest prime factor of f(24)?

Answer: 11

Today

A window is in the shape of a regular hexagon, with each side length of 80cm. If a diagonal through the center of the hexagon is w centimeters long, then w =?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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