In this issue of the peel:

• 💸 The Fed was right—inflation was transitory—they just meant declining inflation was transitory. Makes a lot of sense now after getting the highest inflation in almost 2-years last month.

• 🥞 CVS Health’s Ponzi scheme worked wonders in Q4, while Barrick Gold rode the best combined year ever for stocks and gold. Denny’s needs to start having fights or making edible food, and Lyft crumbled despite its first-ever year of profit.

• 🪙 We can confirm—it costs more to make a penny than they’re worth. The same is true for nickels, and now, President Trump wants to put a stop to it.

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Macro Monkey Says

CP-High

I’m so glad we don’t quote equity price returns in real terms. Imagine how much less fun that would be.

In nominal terms, $100 invested in a broad U.S. stock index 100-years ago would be worth $1,742,579.86 today. In real terms, that’s just $98,380.04.

Not bad, but you don’t get B2-bombers flying over stadiums packed with >100k people to watch a bunch of 18–22-year-olds give each other CTE with real returns.

Unfortunately, we do quote the economy in inflation-adjusted terms. And even more unfortunately, that bullsh*t is back on the rise.

Let’s get into it.

The Numbers

Inflation accelerated again in January nearly across the board this time.

Consumer prices grew by 0.5% from last month, according to the January Consumer Price Index (CPI) report released yesterday by the Bureau of Labor Statistics (BLS).

I wish the chart of my portfolio balance looked like that, but unfortunately, that’s just the loss in its purchasing power.

We can officially say that inflation has now been on the rise for the past 6-months. So, it turns out the Fed was right about inflation being “transitory.” They were just talking about declining inflation as transitory.

Now, a wrench has been thrown in JPow and the FOMC gang’s plans to continue rate cuts as long as the economy held up and inflation remained docile. The economy’s still holding up, but apparently a bit too well if we’re pushing prices this much higher.

At 0.5%, January’s CPI showed the highest monthly inflation since August 2023. Core CPI, which excludes volatile food and energy prices, grew 0.4% in January, the highest since March 2024.

Annually, consumer inflation didn’t get much better. Both headline and core prices accelerated their increases last month.

Headline inflation, which has been on the rise since September, hit a 6-month high at 3.0%. Core inflation, which has remained largely disinflationary while the headline CPI stormed higher, jumped in January, too, up 0.1% to 3.3%. 

Rising inflation across the board spooked markets, but it was the uptick in annual core inflation that sent yields spiking. The 2-year Treasury yield lept higher from 4.292% going into the report to 4.386% by 9am EST.

Basically, anything related to getting you to/from somewhere was the primary driver of the monthly print. Transportation services, car insurance, gasoline, and most of all, used vehicles contributed the most heavily to the headline and core increase.

Annually, the primary drivers of January’s increase in inflation were exactly who you’d expect. The usual suspects are back at it as the cost of not being homeless continues to spike.

Total shelter costs grew 4.4% annually and 0.4% monthly. Within shelter, the owner’s equivalent rent grew 4.6% annually and 0.3% for the month.

That 4.6% annual increase accounted for ~40% of the headline increase. Meanwhile, the total shelter index’s 0.4% jump for the month contributed to 30% of January’s print.

While rising shelter costs aren’t ideal, the market seems to be aware that this is an outlier pushing inflation higher than it otherwise would be. Since shelter costs are reported on a lag and continue to slow their annual appreciation, investors seemed to shrug off the concern.

The Takeaway?

Hate to be the bearer of bad news, but inflation is officially back on the rise in the United States.

No one is more down bad than recent and prospective homebuyers who were praying for mortgage rates to come down to allow cheaper financing. 

The Fed meets again on March 18th–19th to decide the fate of our economy for the following 6–8 weeks. Unless January’s PCE report, February’s jobs report, or February’s CPI can show evidence against this trend, don’t expect a St. Paddy’s Day rate cut.

Speaking of which, I’m gonna go ahead and cancel my refinancing appointment scheduled for March 20th.

Career Corner

Question

I was recently asked this question and would love to get some input on how I should answer it: "What are some line items that might be included in the COGS section of the income statement of a tech and/or biotech company?"

Answer

Look up the public financials of a tech company and a biotech company, and you'll see what they include in COGS (directly below revenue, above gross profit). You want to make sure these line items are directly tied to the production of revenue.

Then, research each of the line items and learn about what they are.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

CVS Health Corp. (CVS) 14.9%

• Only CVS can call itself a “health” company while stocking their shelves with Twinkies, king-size Snickers bars, and gallons of Monster Energy. But, clearly, it’s working.

• Maybe it’s genius as the firm can fatten up customers and then charge higher premiums on their Aetna memberships. Either way, it’s hard to be a hater when earnings look this good.

• EPS of $1.19/sh on revenue of $97.8bn smashed estimates for $0.93/sh on $97.2bn. Sales grew 4.2%, led by the company’s pharmacy and health insurance units.

• Markets were concerned higher health insurance costs would dampen margins, but CVS managed this better than competitors like Humana and UnitedHealth. Q1 and FY’25 guidance were in line with estimates.  

Barrick Gold (GOLD) 6.4%

• 2024 was the first year in market history in which both gold and U.S. stocks returned more than 25% in the same year. Must’ve been a good time to be a gold stock.

• Damn right, it was as Barrick enjoys the fruits of a Q4 that beat expectations, reporting $996mn in net income, a 108% jump from 2023. Execs celebrated by announcing a $1bn share buyback program.

• Gold production grew 15% quarterly but fell 3.5% in Q4. A 33.7% jump in realized gold prices and strength in the firm’s copper business—brown gold—made up for it.

What's Rotten

Denny’s (DENN) 23.8%

• Denny’s shareholders were as miserable as their customers yesterday as the diner chain with sh*ttier food than IHOP and fewer fights than Waffle House struggles to find its niche.

• Denny’s missed on both sales and earnings, reporting $0.14/sh on $114mn in sales vs $0.15/sh on $116mn expected. Sales are down 5.1% in the last 5-years while EPS is off 8%.

• Execs guided for sales growth of 1.9% in FY’25, which will likely underperform inflation. I don’t know if I’d go to a Denny’s if they paid me, but best of luck to ‘em!

Lyft (LYFT) 7.9%

• Imagine that right when your kid is taking their first steps, your dog sprints by and sends them right back to crawling. That’s exactly what happened to Lyft after announcing both their first annual profit and buyback program.

• However, it’s hard to celebrate when you miss earnings. Uber’s little brother delivered $0.15/sh in EPS on sales of $1.6bn vs estimates for $0.20/sh on $1.56bn.

• Bookings guidance came up short at just $4.05–$4.2bn while markets were looking for $4.23bn. Income estimates of $90–$95mn were closer to the $93.7mn expected by the Street, but like most Lyft rides, that’s still far from good.

Thought Banana

It’s About Time

We all know that the U.S. government has never once in our 238-year history made any sense. However, since the Coinage Act was passed 232-years ago, we have been making cents.

Sure we then immediately throw those cents into the never-ending hellfire inferno, that is, our federal debt balance, but it turns out the little cents we made did more harm than good.

Let’s dive in.

What Happened?

As my fellow older Gen Zers know well, one of the first “facts” you learn in elementary school and then wonder for the rest of your life if it’s actually true or not is the fact that pennies cost more than one cent to make.

Yes, I officially can confirm that the friend who told you that in 3rd grade—and now who you probably wonder what they’re doing with their life—was absolutely right on. Today, it costs Uncle Sam $0.0369 to produce our coin worth $0.01.

That means for every penny we produce, we lose $0.0369. 

This revelation comes as the Department of Government Efficiency embarks on its crusade to un-f*ck the waste, fraud, and abuse that seems rampant at the federal level.

It’s a politically charged topic, so we’ll stay away from DOGE in its entirety for a bit. But, it turns out that, as DOGE and Sherwood News point out, it’s not just the penny that Uncle Sam loses money to produce.

Since 2006, it has cost the U.S. Mint more than 5 cents to produce nickels. As of now, it costs 13.78 cents to make one nickel. That’s a better loss margin than pennies, but it’s definitely not exactly an ideal margin profile.

Meanwhile, dimes, quarters, and nickels all pay for themselves once they’re made.

According to Sherwood News, in 2023, the American taxpayer lost $179mn to the production of pennies and nickels. Similarly, according to the AP, the U.S. Mint as a whole reported a loss of $85.3mn in 2024.

President Trump has already claimed that he’s directed the Treasury to stop minting pennies. However, I can’t find any formal evidence of that (he probably just mentioned it to Secretary Bessent), plus, according to the AP, an act of Congress may be required.

The Takeaway?

Step-by-step, or penny-by-penny, DOGE seems to be doing an effective job thus far in identifying easy opportunities to reduce Uncle Sam’s annual burn.

Putting those into effect is a different story. The U.S. Constitution vests the ability to issue appropriations (a.k.a., spend money, or the “power of the purse”) with Congress. It’s much less clear on stopping spending.

The President can issue a rescission detailing exactly which programs he wants to cut. Then, the Senate and House Appropriations committees have 25-days to review the rescission. They can approve, amend, or reject the rescission.

After this, even if the committees do nothing, the rescission goes to the floor of both houses of Congress and is subject to debate and then vote. A rescission requires only a simple majority in both chambers to become law.

Then, the program can have its funding cut off constitutionally. It’s extraordinarily unclear what DOGE is doing and has done already, but hey, the federal government hasn’t completely crumbled to the ground yet! (unfortunately)

The Big Question: Should the U.S. stop minting loss-making coins? Is the penny-by-penny approach enough to right-size the U.S. government? 

Banana Brain Teaser

Previous

Each person who attended a company meeting was either a stockholder in the company, an employee of the company, or both. If 62% of those who attended the meeting were stockholders and 47% were employees, what percent were stockholders who were not employees?

Answer: 53%

Today

One inch represents 20 miles on Map K and one inch represents 30 miles on Map L. An area of 3 square inches represents how many more square miles on Map L than on Map K?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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