Silver banana goes to…

In this issue of the peel:

• 📉 Rates are falling, and so is the Fed’s confidence that we’ve defeated inflation. Find out why markets threw up in response to what is usually good news.

• 📈 Netgear’s partying over a possible TP-Link ban, Birkenstock’s comfy earnings, while Sezzle’s sinking under a Hindenburg smackdown. General Mills? More like General Meh.

• 🏆 It’s the Platinum Banana Award for Investor of the Year! The drama, the numbers, the tweets—this year’s winner left their mark on Wall Street like never before.

Market Snapshot

Banana Bits

• Not that anyone should care about the Dow, but it just posted its first 10-day losing streak in 50-years.

• Get the full story of the Fed’s new path for rate cuts.

• Argentinian President Javier Milei is beginning his hero arc as the country finally steps out of a recession.

• Staying Alive—TikTok might have a shot at avoiding a U.S. ban/divestment.

The Daily Poll

Previous Poll:

Are quantum stocks the next big thing or hype?

Real tech breakthrough: 30.5% // Just pure speculation: 24.8% // Too early to tell: 32.4% // Don’t care, riding it: 12.3%

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Macro Monkey Says

JPow Speaks

Fed Chair JPow and the FOMC have initiated a new path for rate cuts that’s essentially the economic equivalent of “Alright, this is my last bong rip, then I’m done smoking for good,” as you check to see if any dispensaries are still open.

Much like my dog, when he realizes I didn’t actually throw the toy and just hid it behind my back, markets were shocked as the central bank did exactly what it said it was gonna do.

Let’s get into it.

What Happened?

Yesterday, the policy-setting arm of the Federal Reserve, the Federal Open Markets Committee (FOMC), wrapped up their final policy meeting of 2024.

As expected, the FOMC cut the target range of the federal funds rate by 25bps, or 0.25%, to a range of 4.25-4.50%.

This marks the third consecutive rate cut by the Fed and the third cut in 2024, beginning with a 50bp chop in September, followed by two 25bp cuts in November and yesterday.

Like the Fed’s 50bp cut in September—and unlike most policy decisions historically—this wasn’t unanimous. Cleveland Fed President Beth Hammack was the lone dissenter, preferring to leave the target range at 4.5-4.75%.

…and?

But this meeting comes with more than just a rate cut. As the last meeting of the year, the Fed also issued its latest Summary of Economic Projections (SEP), which, along with JPow’s post-meeting commentary, absolutely murdered the market’s vibe.

Stocks tumbled, and treasury yields spiked on the release of the SEP, and all of this freaking was over a measly little 50bps of interest rates.

Here, we see the dot plot, a tool monetary policy officials use to indicate their expectations for interest rates at the end of each year.

Compared to the September meeting, a lot has changed. Officials are now much more concentrated in their expectations for the level of rates at the end of 2025, now signaling only two cuts to come next year compared to the 4 previously expected.

Essentially, this had the effect of bringing the weighted expectation of the level of rates at the end of 2025 up from 3.35%, as anticipated in September, to the 3.84% now projected. Similarly, year-end rates for 2026 rose from 2.9% to 3.4%.

What Does This Mean?

By going through with their 25bp cut yesterday, the FOMC has brought rates to the lowest level in more than 2yrs and has officially shaved a full percentage point off the highs in the cost of borrowing seen from July 2023 through September.

But the market doesn’t care about what happened. Only what’s happening next.

Signaling fewer rate cuts over the next two years forced the market to anticipate a higher cost of borrowing over that period, discounting equity prices further than they otherwise would have been. 

Similarly, elevated rate expectations sent Treasury yields flying.

As usual in economics, this reset in rate expectations is both a good and a bad sign.

First, needing fewer rate cuts is, all else equal, a good thing. Rate cuts are supposed to be reserved to spur growth and employment. 

The fact that unemployment remains near historic lows at 4.2% while Q4 GDP growth is expected to grow by 3.2% means there’s no need for monetary intervention to “fix” either of these.

Then, for the bad part, we turn to our usual suspect: inflation. 

Back-to-back months of increases in the annual CPI have spooked central bankers and markets alike, adding credence to the argument that the war ain’t over.

I think Powell would prefer for his wife to cheat on him than for another uptick in inflation. Remember, his idol is Paul Volcker, the man who killed inflation in the 1980s after a brief uptick, so he’ll do anything he can to tame the beast.

As we saw in Tuesday’s retail sales report, consumer spending remains strong, particularly in credit-linked items like cars. 

So, the Fed could take this as a signal that aggregate demand is still elevated while rates have come down enough to trigger increased buying activity in goods that require an interest rate.

The Takeaway?

From higher-for-longer to lower-for-sooner and now at their usual stance of “wtf is going on?” it’s clear the Fed has as much control over the economy as a 4yrd old does when they try to walk their German Shepherd.

Markets now see over 90% odds of no rate cut in January, up from around 50% just a month ago.

Overall, slowing the path of rate cuts because the economy is performing so well is about as good as it gets. Smell the roses while you can.

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

Netgear (NTGR) 4.79%

• Youth unemployment in China might be heading for another spike, with WSJ reports that the U.S. is considering banning TP-Link. Looks like even the routers aren’t connecting well these days.

• On the other hand, Netgear—a U.S. router maker—is loving it. TP-Link is the U.S. market share leader, so Netgear investors are hyped at the potential clearing of competition.

• The WSJ’s report comes as the DOJ, DOD, and Commerce Department are each separately investigating the firm and its practices. Stay tuned.

Birkenstock (BIRK) 1.96%

• Glad to see that giving up on life is still in a bull market as the sweatpants of the footwear industry posted a stellar quarter. Consumers are loving Jesus’ favorite shoe brand.

• The German sandal maker delivered a massive 118% jump in non-GAAP earnings, led by 22% revenue growth and strong cost cutting, even as gross margins fell 6.4% from Q4’23.

• Guidance was solid as demand across the globe remains strong. Sales grew 19% in Europe, 21% in the Americas, and 38% in APAC, demonstrating resilience in the premium casual consumer market.

What's Rotten

Sezzle (SEZL) 23.16%

• Wall Street’s Ted Kaczynski is back in action as stock serial killer Hindenburg Research just dropped a bomb on a brand new target, BNPL firm Sezzle.

• The short seller said Sezzle is “borrowing expensive capital to make extremely risky loans through a struggling platform that is rapidly losing customers and merchants.”

• Damn, tell us how you really feel. Hindenburg goes on to highlight that executives are dumping shares faster than Zach Bryan dumps his girlfriends.

• It’s so bad that Sezzle CEO and Chairman Charlie Youakim has pledged 30% of the company’s total float as collateral for a damn margin loan. Yeah… good luck.

General Mills (GIS) 3.06%

• We hate to demote a veteran like General Mills, but after their latest earnings report, Lieutenant Mills is a much more accurate name. General Mid works, too.

• The maker of everything from pet food to Pillsbury to Cocoa Puffs beat analyst estimates for Q3, but weak earnings guidance for FY’2025 stole the show.

• General Mills now expects next quarter’s earnings to fall anywhere from 1-3%, down from prior guidance of down 1% to up 1%. At least RFK’s fat police are distracted by Froot Loops (for now)... sucks to be Kellogg.

Thought Banana

Platinum Banana Award: Investor of the Year

College football has the Heisman, FIFA has the Ballon d’Or, and every major sport has an MVP or two each season. That’s how we pick the GOAT for any given year.

Equally prestigious and even more highly followed, The Daily Peel’s Platinum Banana Award for Investor of the Year is essentially the Wall Street MVP. 

And it’s time to give it out for 2024. Let’s dive in.

Investor of the Year

In a year like 2024, where the S&P 500 is up nearly 30% with 8 trading days remaining, outperforming the index is like trying to win a race against a car by putting on rollerskates and tying yourself to the back of it—you’re gonna need a lot of luck.

However, we’re not just looking at performance. The Investor of the Year also captures the Wall Street mogul who had the most impact on markets, macro, money, and other investors.

With these factors in mind, it should be no surprise that The Daily Peel’s Platinum Banana Award for Investor of the Year 2024 goes to…

Bill Ackman of Pershing Square Capital Management!

When he’s not getting the Presidents of Harvard and MIT fired or sh*tting on Tim Walz via X like they’re in 7th grade, Ackman is putting up numbers.

Pershing Square keeps a tight portfolio, rarely holding more than 12 investments and currently holding just 10.

Ackman’s most notable investments of 2024 came in September, increasing his holdings of Brookfield Corp and Nike Inc by more than 400% each. 

Plainly, Ackman’s portfolio appears on its face as a bet on America. His primarily consumer-facing holdings, such as Chipotle, Nike, Alphabet, or Hilton, all appear to be bets on the resilience of consumer spending as rates and inflation decline.

Ackman and Pershing Square have played the AI trade more simply than most, choosing Alphabet as their champion. Pershing began to trim its holdings in the firm earlier this year yet still remains the hedge fund’s largest position.

But, the real reason Ackman gets the Investor of the Year crown in 2024 is because of his antics outside his brokerage account.

Boasting over 1.5mn followers on X, Ackman is far and away the most followed investor on the platform. His commentary on markets, macro, and money move markets like nobody else.

Earlier in 2024, Ackman also declared his full-throated support for President-elect Donald Trump, helping to rally the politically disparate investing community around a common cause.

Bill’s biggest misstep of the year came with his botched plans to list Pershing Square on U.S. markets under the “PSUSA” ticker. Initially, the fund was targeting $25bn in AUM, which then fell to $10bn, then $2bn, before ultimately withdrawing.

Despite gobs of investor attention, PSUSA ultimately didn’t come to fruition.

Ackman’s politics, fund structure, and the likelihood to trade at a discount to NAV as a closed-end fund were the main factors that killed the IPO, but Pershing is planning a Round 2 with a new fund structure for 2025.

The Takeaway?

Congrats again, Bill. I’m sure this is one of the biggest days of your life, so remember to take it all in.

No other investor had the returns and captured the culture like Bill in 2024. Now, let’s see if he can do it again in 2025.

The Big Question: What hot takes and events will help determine investor of the year in 2025? Who do you think should’ve won in 2024?

Banana Brain Teaser

Previous

In the xy-plane, the origin O is the midpoint of line segment PQ. If the coordinates of P are (r,s), what are the coordinates of Q?

Answer: (-r,-s)

Today

Company Q plans to make a new product next year and sell each unit of this new product at a selling price of $2. The variable costs per unit in each production run are estimated to be 40% of the selling price, and the fixed costs of each production run are estimated to be $5,040. Based on these estimated costs, how many units of the new product will Company Q need to make and sell for their revenue to equal their total costs for each production run?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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