McLaren Economy?

The U.S. economy is becoming more McLaren than Toyota. Yesterday’s Durable Goods report is the perfect example—it looks great on the outside but isn’t exactly something you want to invest in.

August 27, 2024

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In this issue of the peel:

  • The U.S. economy is becoming more McLaren than Toyota. Yesterday’s Durable Goods report is the perfect example—it looks great on the outside but isn’t exactly something you want to invest in.

  • It’s a bad time to be a famous painting, as Morgan Stanley sends the oil stock flying. Meanwhile, rumors that Papa John’s is getting acquired could be the first sale the company makes that a customer actually enjoys. PDD Holdings just had its worst day in a long time, and Carl Icahn regrets not retiring.

  • Boeing must’ve hired Homer Simpson as its lead engineer because, wow, this is hardly even funny anymore. The company’s latest f*ck up is the most dramatic of all, requiring Elon Musk and SpaceX to save the day.

Market Snapshot

Banana Bits

 

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“Ease” being the key word. With automated tools like portfolio rebalancing and dividend reinvestment, Betterment makes investing easy for you, and a total grind for your money.

 

Macro Monkey Says

The McLaren Economy

Toyotas don’t look great, but under the hood, most of those babies will outlast civilization.

Meanwhile, McLarens look dope, but you’d be hard-pressed to find one still functioning that was produced before you started reading this sentence.

You probably think I’m a 37-year-old mom about to ask for the manager when I roll up in my RAV4, but as long as I am able to roll up, that’s all that matters. Similarly, we want our economic reports to be Toyotas—not flashy, but get the job done.

Monday’s Durable Goods report was a 750S Spider. It looked great, but under the hood… well, let’s get into it.

The Numbers

Yesterday, the Census Bureau released the “Monthly Advance Report on Durable Goods Manufacturers' Shipments, Inventories, and Orders” for July.

While they desperately need a catchier name, even more so, we need activity.

 

The headlining figure for New Orders of durable goods surged 9.9% from June to July, the largest monthly increase since May 2020.

“Durable goods” include tangible products that can be stored or inventoried and have an average expected lifetime use of more than 3yrs. Think of big things like cars, appliances, computer equipment, industrial machinery, etc.

So, when new orders for durable goods explode by the most in more than four years, you’d think consumers and businesses are healthy enough to splurge on big purchases.

Not so fast.

Breaking down the report's details shows that new orders had a decent month—not the adrenaline rush the headline suggests, but more like sipping a mild coffee.

Some of the most important consumer-facing durable goods had weak performances, like computers & electronics, motor vehicles & parts, and electrical equipment, appliances, & components.

Transportation equipment carried the team, surging 34.8%. Capital goods, which are durable goods used to produce other goods, also exploded, gaining 34.3% monthly. 

Much of the heavy lifting was done by aircraft-related spending. The line item for defense aircraft and parts grew 12.9%. But taking off from negative $4bn in spending in June, nondefense aircraft and parts broke the sound barrier and grew to $23.43bn.

I can’t imagine who tf is buying Boeing planes right now, but hopefully their new CEO brings in tools beyond the duct tape and WD-40 the company is apparently limited to right now.

That’s why when we adjust from capital goods to core capital goods (excludes aircraft), new orders growth falls from 34.3% to a hearty decline of 0.1%.

The Takeaway?

If you include aircraft, U.S. manufacturing is soaring. If you exclude aircraft, the sector can’t get off the ground (no puns intended).

A separate report from the Dallas Fed focused on the state’s manufacturing sector told a similar story. Activities in Texas—the U.S.’s second-largest manufacturer—reported a decline in July, but growth was less negative than the prior month.

Broadly, this is Exhibit A of the Fed’s rate hikes at work. 

“Higher for longer” has officially become “too high for too long” as activity and job growth suffer in this leading economic sector.

Thankfully, a solution is already on its way as the FOMC just took the rate-cut chicken out of the freezer to thaw before throwing it on the stove on September 18th. Then, we’ll start cooking.

What's Ripe

Petrobras (PBR) 8.69%

  • Greta Thunberg just added Morgan Stanley to her hit list. The investment bank spent the morning hyping up oil, especially Petrobras.

  • The Brazilian oil major soared on an upgrade from M.S. due to the reintroduction of the company’s extraordinary dividend and confidence in their new CEO.

  • Investors clearly agreed. But, I’d be real worried if I was a famous piece of art right now…

Papa John’s (PZZA) 5.81%

  • I was gonna call Papa John’s a pizza place, but I don’t want to disrespect places that actually know what pizza is. So… this slop manufacturer might get acquired.

  • Speculation emerged Monday that Restaurant Brands Intl. may acquire Papa John’s, joining with other mid-*ss knockoffs like Burger King and Tim Horton’s.

  • Rumors spread when a 3G Capital jet, a major investor in RBI, was seen in Louisville, home to Papa John’s headquarters. Everyone knows there’s no other reason to go to Lousiville, so that’s gotta be it, right?

What's Rotten

PDD Holdings (PDD) 28.51%

  • Uh oh. PDD Holdings must be new here because they just said the worst thing possible on their earnings call. 86% revenue growth wasn’t nearly enough.

  • Amazingly, sales growth missed estimates, but EPS beat. The Chinese e-commerce site and Temu owner suffered from weak consumer spending.

  • But, the worst part was that the firm acted like a mature adult. PDD is “prepared to accept short-term sacrifices and potential decline in profitability.”

  • Operating profit and net income nearly tripled vs 2023. Combined with the horror that the firm isn’t solely focused on near-term profitability, valuation could hold.

Icahn Enterprises (IEP) 11.49%

  • Following in Brett Favre's and Joe Biden's footsteps, the legendary investor Carl Icahn has gotta regret not retiring when he should’ve. 

  • At 88 years old, this guy should be making offputting remarks to the diverse staff of a diner somewhere. Instead, he’s raising $400mn for his fund.

  • Icahn Enterprises is looking to raise cash through an at-the-market offering to pursue acquisitions. Existing investors were not happy with the dilution.

Thought Banana

Stranded In Space

You’d think that getting blasted into space by 1.5mn pounds of thrust generated by a few million pounds of pure explosives would be the hard part of any mission…

Not for Boeing. These guys have a talent for f*cking up the world hasn’t seen since Nixon was in office.

I’m sure you’ve heard about the two astronauts currently stranded at the ISS with no way home. Let’s dive into what’s going on.

What Happened?

On June 6th, 2024, astronauts Butch Wilmore and Suni Williams left Earth onboard a Boeing Starliner, the aerospace and defense company’s ferry to and from low Earth orbit (LEO) destinations, such as the International Space Station (ISS).

Originally meant to return in early September, the Starliner spacecraft that took Butch and Suni into the deep, dark nowhere will be returning empty.

NASA announced Saturday that due to technical glitches and not wanting astronauts to die, Starliner will make its return voyage empty-capsuled, and the agency will leave Butch and Suni aboard the ISS until February 2025.

Then, the astronauts will hop aboard a SpaceX Dragon spacecraft with two other astronauts from the SpaceX Crew-9 mission and finally come home.

Who Cares?

To summarize this in one word, without being hyperbolic or joking, the optimal term is simply “humiliating.”

If Boeing were a person, you’d call your local therapist and police officers to make sure they didn’t do anything permanent (if you catch my drift…).

Space flight has been in a multidecade bear market since the Apollo program ended. But, in recent years, there has been a revival of interest in going beyond the beyond.

The final frontier presents many new scientific and economic challenges and opportunities. From space-based manufacturing to colonizing Mars, the one industry segment that needs no assistance is ambition.

As NASA said as part of their statement, “Spaceflight is risky, even at its safest and most routine. A test flight, by nature, is neither safe nor routine.”

If we’re going to figure out space—and, most importantly, create shareholder value from it—we have to figure this out. 

My first step recommendation? Cancel Boeing like it’s Harvey Weinstein.

The  Big Question: Can Boeing overcome its recent spaceflight failures and restore confidence in its ability to safely and reliably explore the final frontier?

Banana Brain Teaser

Previous

There are 5 cars to be displayed in 5 parking spaces, with all the cars facing the same direction. Of the 5 cars, 3 are red, 1 is blue, and 1 is yellow. If the cars are identical except for color, how many different arrangements of the 5 cars are possible?

Answer: 20

Today

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)?

Send your guesses to [email protected]

❝

A lot of people died fighting tyranny. The least I can do is vote against it.

Carl Icahn

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Happy Investing,
David, Vyom, Ankit & Patrick