Silver banana goes to…

In this issue of the peel:

• American consumers hold up the U.S. and, by extension, the global economy. But, recent data from Bank of America shows that our arms are starting to shake, weakening the macro outlook. Find out how bad it is below.

• Check your subscriptions—a lot of us forgot to cancel our 7-day free trials of FuboTV, according to their strong quarterly earnings. Tax evasion is on the decline, lifting shares in H&R Block. Meanwhile, Nikola might decide to actually generate revenue soon, while Applied Materials learned a hard lesson in Q2.

• The housing market didn’t get much better in July despite recent spikes in mortgage applications. Your rate might be lower, but when supply growth slows by this much, prices have only one way to go…

Market Snapshot

Banana Bits

• The Chicago Fed President said what we’re all thinking—neither Presidential candidate has a clue what they’re talking about when it comes to inflation.

• It’s not just Boeing’s planes that don’t work—it’s their spacecraft too.

• Sam Altman’s attempt at world domination is upsetting those already in world domination.

• “Deadpool and Wolverine” just became the biggest R-rated movie of all time, attempting to revive the box office.

• Adjusted for inflation, the S&P 500 is currently the third-most expensive it has been in over a century.

The Daily Poll

Previous Poll:

What is the most concerning sign for the American consumer right now?

More shopping at discount stores: 20.5% // Slower discretionary spending: 47.7% // Surge in mortgage applications: 13.6% // Rising S&P 500 short interest: 18.2%

Tilt the Odds in Your Favor

In the competitive world of high finance, every advantage counts. Our exclusive curriculum, designed by industry experts, sharpens your skills and knowledge, making you a top candidate.

Enjoy personalized coaching, targeted internship opportunities, and a robust network of finance professionals with WSO Academy. 

Macro Monkey Says

Spotlight: The American Consumer

Superman, Batman, Spiderman, the owner of your local Chinese food place that’s open until 4am—society needs heroes like this all the time.

But now is your chance to become an American hero of your own.

The U.S. economy is at an inflection point. The economic gods said you won’t rack up a mountain of credit card debt to keep this beautiful charity running.

It’s time to prove them wrong. Let’s get into it.

The Charts

According to Bank of America’s internal data, total donations to the economy in the form of consumer spending declined by 0.4% annually in July.

That’s an improvement from the 0.5% YoY decline in June, but given that the consumer drives ~68% of GDP, back-to-back declines are a troubling sign (bars).

Spending declines so far have been the culmination of the economy’s post-pandemic normalization process, along with responses to changes in monetary policy. Now, the question is whether this normalization could lead to a slowdown/recession.

BofA is optimistic, stating that a slowdown/recession remains a nonconsensus outcome. But, if some of the trends we’re currently observing stay in place long enough, that outcome may be inevitable.

The labor market and savings balances are the most glaring instances of the consumer walking a dangerous line.

The wage growth roller coaster appears to have become more of a merry-go-round since early 2023, slowing growth rates but decreasing volatility.

We can thank the labor market for that, as hiring slows and unemployment claims rise across all income tiers, leading to slower wage growth. The problem is that consumers tend to inflate their lifestyles alongside wage increases.

So, now that getting a raise is much harder and consumers still face the ~25% cumulative inflation since 2020, plus individually inflated lifestyles, many are forced to dip into savings, increase credit utilization, or cut back on spending to stay afloat.

And that’s exactly what we’re seeing in the data.

Here, we can see the decline in deposit balances mirroring the increase in credit utilization that’s occurred since early 2022. However, it appears that dipping into those savings and/or relying on additional credit could be reaching a breaking point.

That’s because BofA’s data also shows an increase in hardship withdrawals from 401k accounts along with a shift in spending towards lower-priced categories within grocery and apparel.

The above increase in hardship withdrawals implies that, well, hardship is on the rise. Consumers wanting to maintain a certain lifestyle or access cash for other reasons have become increasingly desperate.

Simultaneously, as spending on groceries and clothing declines, the “Value” (or lower-priced) items within these categories have slowed by a lesser degree, implying that consumers are cutting back and shifting to cheaper options.

The Takeaway?

I don’t know if The Avengers have much experience in fighting macro villains, but if someone could give them a call to find out, that’d be great.

Declining rates could help spur the labor market enough to keep us out of a recession, but as of right now, it certainly seems that’s the direction we’re heading.

Recent earnings calls have added to this as well. As Walmart CFO John Rainey put it in their assessment of the American consumer, he “wouldn’t say strength, but lack of weakness.”

We’re not throwing bands anymore. And we’re also not selling kidneys to cover the mortgage.

We achieved the post-pandemic soft landing. Now, the plane has taken off again, directly into a thunderstorm. Turbulence is increasing, and everyone on board is worried, but the wings are still attached… for now.

Let’s just hope our plane wasn’t made by Boeing…

What's Ripe

FuboTV Inc (FUBO) 16.79%

• Like winning the lottery on your honeymoon, FuboTV shares surged thanks to a favorable court ruling just days after delivering strong earnings. 

• A hero of a judge granted an injunction to block Venu Sports, a planned joint sports streaming service from Disney, Fox, and Warner Bros from launching.

• Plus, a lot more people apparently forgot to cancel their 7-day free trial as the firm grew subscribers 24% YoY while increasing revenue by 26%. 

H&R Block (HRB) 12.11%

• Damn, you guys are paying taxes? I wouldn’t expect that from you apes, but apparently, somebody is, as H&R Block shares surge on a solid quarter.

• Uncle Sam’s bagman reported full fiscal year 2024 earnings of $4.14/sh on $3.61bn in revenue, easily beating estimates. Quarterly figures beat too.

• The tax prep firm is also increasing its dividend by 17% and buying back $1.5bn of stock, boosting shares like the IRS boosting my chances of getting audited.

What's Rotten

Nikola (NKLA) 6.34%

• Who knew that having its founder go to jail and then sue the company for $1bn would be the least of Nikola’s problems… making cars is hard too.

• Analysts have learned in recent days that the EV “maker” has barely enough cash to last through the end of the year without further dilutive fundraising.

• The plan is to sell as many cars this year as Tesla sells about every 2hrs, ~300-350. With a whopping 14 fueling stations across the country, I’m sure that’ll go great.

Applied Materials (AMAT) 1.86%

• Earnings in the chip industry have been like going to the DMV this quarter. You show up with all the right papers, wait 6hrs in line, and still get told to f*ck off. 

• This semiconductor equipment maker learned that the hard way, reporting EPS of $2.12/sh on $6.78bn in sales vs estimates for $2.03/sh on $6.67bn.

• Guidance was in line with what the market wanted, causing the market to get pissed. The company’s results and outlook were good but not good enough at this valuation.

Thought Banana

Getting Lazy

Imagine if one day we just stopped being the best company on Earth for career development or stopped writing the most popular, insightful, funny, handsome, etc., newsletter of all time.

You’d probably say, “damn, these apes got lazy.”

That’s exactly how I feel when I see homebuilding data like this. Let’s get into it.

The Numbers

July’s New Residential Construction makes me slightly less filled with envy over the mortgage rates you future homebuying apes will get because it looks like growth in new supply may be on the decline. And we all know what that means for prices…

New Residential Construction fell across the board last month.

Completions declined by 9.8% compared to June, while Starts fell by 6.8% and Permits fell by 4.0%.

That’s not the vibe.

Homebuilders could simply be following the latest TikTok trends, looking to create a more demure and cutesy housing market. But I think we’d all prefer if they followed the Bill Belichick trend of doing your f*cking job.

Rates might be on the decline, but that doesn’t matter much for monthly payments if home prices still increase, given declining supply growth and seemingly endless demand.

However, as the heartbeat-monitor chart above suggests, growth in housing supply is highly volatile on a month-to-month basis.

Completions are still 13.8% above July of 2023. Starts and Permits, on the other hand, are 16% and 7% below that of last year.

The Takeaway?

Our worry comes from the fact that data in the early stages of the homebuilding process is getting limp. 

Prices continue to set record highs amid high demand, even with strong annual growth in completed housing units.

So, given that it appears future Completions will slow given lower Start and Permit data, July’s report implies the home price crisis won’t improve anytime soon.

Maybe we need another pandemic to help out…

The Big Question: Are declining Starts and Permits a long-term trend or simply from a bad month? What does this mean for the housing market long-term?

Banana Brain Teaser

Previous

When a subscription to a new magazine was purchased for m months, the publisher offered a discount of 75% off the regular monthly price of the magazine. If the total value of the discount was equivalent to buying the magazine at its regular monthly price for 27 months, what was the value of m?

Answer: 36

Today

What is the sum of the odd integers from 35 to 85, inclusive?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

ADVERTISE // WSO ALPHA // ACADEMY // COURSES // LEGAL