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Post-Holiday Spending Check

đŸ§± As I scream into the void that is my wallet after the Holidays, I can’t help but wonder how the rest of America is doing. Find out below how the American consumer held up.

January 07, 2025

In this issue of the peel:

  • đŸ§± As I scream into the void that is my wallet after the Holidays, I can’t help but wonder how the rest of America is doing. Find out below how the American consumer held up.

  • đŸ“ș Disney anoints FuboTV as the king of sports streaming, more than tripling its share price yesterday alone. Fannie Mae may be going private, ServiceTitan is starting to get some haters, and Intel just cannot figure it out.

  • 🏭 Andrew Carnegie is the happiest man underground as President Biden blocks a deal that would’ve taken the company he founded to Japan.

Market Snapshot

Banana Bits

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Macro Monkey Says

How We Doing, Consumers?

After another Christmas of Santa yet again refusing to give me the one thing I asked for, I can’t help but wonder how the rest of you made out.

I mean, how hard is it to give a guy $100mn? Especially when it’s his 25th year in a row of asking for the same thing.

In total, this Holiday season, nearly $1tn changed hands in the U.S. alone
 and Santa won’t even give me 0.01% of that. Regardless, let’s check in on consumers and see how they’re doing after all that $pending.

Let’s get into it.

The Numbers

Fellow desk jockeys across the country are still crunching the final numbers, but according to the estimates, Holiday spending was expected to grow between 2.5% and 3.5% this year, right in line with GDP and broader economic growth.

We’ll let you know when we get the final data, but for today, all we care about is the health of the consumer during one of the most spending-intensive times of the year. Keep in mind—consumer spending makes up ~70% of GDP.

Going into the Holidays, consumers were in a fairly good spot.

According to Bank of America data from December 12th, American consumers in the aggregate—as represented by Bank of America account holders—remain in an overall more financially healthy spot than in 2019.

Wage gains remain strong, especially in lower-income cohorts, while deposit balances were still elevated vs 2019, and debt balances did what we all wish would happen to that of the federal government—stopped growing.

So, consumers were on good footing heading into the Holiday season. But, you wouldn’t have known it by asking consumers themselves.

We all know love is quantified by the amount you spend on someone’s gift, so while it might look like we set record levels of love in 2024, inflation has a thing or two to say about that.

According to the Conference Board, the average American spent $1,063 on the Holidays in their entirety this year. That’s 7.9% above 2023 and slightly above 2022’s $1,006 and 2021’s $1,022.

However, if we adjust this all back to 2017 dollars, the Holiday spending hasn’t recovered back to 2021 levels. In fact, 2024 is the first year since 2021 in which Holiday spending grew annually.

Outside of their wallets, consumers were feeling even worse.

Recent sentiment surveys showed a plunge in confidence among American consumers in December. 

It wasn’t immediately clear what drove such a drop-off, perhaps triggered by high prices right in their face, but given that most of the decline came from the Expectations index, this would imply consumers see trouble on the horizon.

The Takeaway?

Consumers are about as self-aware as Will Smith was when he slapped Chris Rock
 but maybe that’s a good thing.

Objectively, based on the latest data, broad U.S. consumer financial health is in a good position. However, it’s clear that consumers—as seen through both surveys and actual spending—don’t feel like they’re in a good position.

When consumers are in bad financial health, that’s obviously where you get slowdowns and recessions. But, when consumers are feeling themselves too much, that’s where we get inflation.

So, a healthy consumer base that doesn’t feel healthy might be the glass slipper that fits JPow’s feet. 

We’ll find out later this week with the jobs report if that’s still the case.

Career Corner

Question

Hi mentors, a question on the connection between S&T and IBD: is S&T involved in equity/debt capital raising for comps?

My understanding is no because S&T is facing more institutional investors (HF, PF, etc.) rather than companies. Is it the financing side of a firm’s IBD that typically executes capital-raising transactions?

Answer

There is a group that essentially sits between IB (insiders) and S&T (outsiders), called "Capital Markets". When IB has a transaction that involves investors, like an IPO, secondary offering, or bought deal, Capital Markets will quarterback the execution of the transaction, with S&T as the investor interface.

That can include everything from pricing an IPO to allocating orders.

S&T is the customer-facing distribution network that is responsible for "selling" the deal.

To your last question, ST executes the deal by soliciting and gathering orders from institutional investors for the debt securities being offered.

A fixed-income salesperson will regularly provide service to a fixed-income fund manager, who must decide whether or not to buy any of the issues... with help from their fixed-income salesperson (in ST).

Also, I wouldn't describe the divisions in terms of "public" and "private" because they all operate primarily in public financial markets.

Rather, think of client relationships: in IB, the client is a company, and in ST, the client is the institutional investor. They each serve their clients in different ways at different times.

I think the difference you are trying to capture is more "insider" and "outsider". IB is always an "insider" since they will have access to material non-public information about their clients (i.e., are the thinking of M&A, issuance, bankruptcy, whatever), while S&T (and research) operates exclusively as an "outsider" with ONLY public information to recommend investment strategies, execute market trades, etc.

Head Mentor, WSO Academy

What's Ripe

FuboTV (FUBO) 253.9%

  • Being the MD’s son when you’re looking for a job is nice, but you know what’s even cooler? Having him adopt you halfway through your first super day.

  • That’s effectively what Disney just did for FuboTV. In the hyper-competitive sports streaming market, ESPN and the large media rights owner have anointed FuboTV as their distribution partner of choice.

  • Disney will combine Hulu + Live TV with FuboTV, giving the small streamer unmatched distribution and really upsetting all the other bidders.

  • The original idea was for these two to combine with Fox and Warner Bros Discovery to launch “Venu Sports” as a separate, joint streaming venture. Now, FuboTV will pay $220mn to settle Venu’s case against it. 

Micron (MU) 10.5%

  • It looks like Micron caught the bouquet at Nvidia’s wedding. Analysts certainly think so, sending shares soaring as reports show steroid-induced demand for AI infrastructure.

  • Micron, a provider of memory and data storage solutions, ripped Monday as Foxconn, a contract manufacturer of chips and other hardware, reported record revenue last month.

  • This is a positive sign for AI demand as investors were getting weary about when demand could run dry. As of now, all we know is that it won’t be in 2025.

  • As AI models grow up from the training phase, Micron’s memory and storage products grow in importance, helping these models develop inference and reasoning capabilities. 

What's Rotten

ServiceTitan (TTAN) 3.9%

  • No more Mr. Nice Market for ServiceTitan. After going public less than a month ago, Wall Street banks are telling the SaaS firm how they really feel.

  • A provider of software solutions for trade service businesses, ServiceTitan has mostly traded flat since IPOing on December 12th, up 4.74% by Friday’s close.

  • Then, Monday happened. Goldman and Loop Capital issued Hold ratings as they initiated coverage, which seemed to dominate the Buy ratings given by Piper Sandler and Truist.

Intel (INTC) 3.4%

  • Anytime you’re feeling down on yourself, just remember you’re not Intel. At least you didn’t fumble a trillion-dollar bag during the most pivotal moment in company history.

  • There wasn’t much major news out of Intel, but analysts are now comparing FY’24 data to years past, and
 let’s just say it only pours salt in the wounds.

  • For example, in 2022, Intel’s revenue from data centers was 3x that of AMD. In 2024, AMD’s data center revenue surpassed that of Intel, which really tells us the full story in one nice stat.

Thought Banana

Stopping The Steel

In medieval Japan, samurai warriors who lost in battle would voluntarily fall on their swords and die in a process called “seppuku” to avoid falling into the enemy’s hands.

Clearly, Joe Biden is a big fan of this practice, forcing U.S. Steel to commit seppuku rather than fall to the evil, ruthless Nippon Steel.

Let’s dive in.

What Happened?

On December 18th, 2023, Pittsburgh-based U.S. Steel and Tokyo-based Nippon Steel announced an agreement for Nippon to acquire U.S. Steel in an all-cash deal at $55/sh, or $14.1bn.

That represented a ~40% premium to U.S. Steel’s value at the time and assumed a $14.9bn full enterprise value, which was unanimously agreed upon by both boards.

In addition to the premium price, Nippon Steel agreed to maintain all existing labor agreements with the United Steelworkers union and invest at least $2.7bn in U.S. steel projects to support domestic production.

By early 2024, a vote by U.S. Steel shareholders indicated approval from 98% of outstanding shares, overwhelming agreement, and solidly above the average acquisition approval rate of ~95%.

Then, last Friday, the U.S. blocked the deal.

What’s Happening?

Citing national security concerns and probably his longtime friendship with Andrew Carnegie, President Biden stopped Japan’s largest steel producer from purchasing the U.S.’s third-largest producer.

This was widely expected to be Biden’s final decision, as a post-pandemic sentiment of protectionism still dominates U.S. trade policy.

Clearly, you don’t want North Korea Steel Co. or Iran Steel Inc. in control of the U.S. third-largest producer, but risks to national security and supply chains seem much less threatened, given that Japan is one of the U.S.’s closest allies.

That’s essentially what Nippon and U.S. Steel are now saying. On January 6th, the two firms stormed the Capitol-I mean, filed lawsuits (sorry, habit) claiming that the Biden Admin’s “national security” excuse is bullsh*t and politically charged.

Both firms also claim the review process from CFIUS and the antitrust arm of the Justice Department was done unconstitutionally, in violation of due process and other laws.

The Takeaway?

Similar to how homebuilders were traumatized by the housing crisis, it seems that U.S. politicians and bureaucrats alike remain traumatized by the supply chain disruptions faced by critical industries when the pandemic hit.

Moreover, this is a rare instance where the two sides of the political aisle largely come together, with Republicans generally pro-protection of domestic industries and Democrats viewing it as a way to protect workers in the U.S. steel industry.

The only people that are upset are the ones actually involved in the deal. 

Judges and lawyers will be busy with this one over the next few months, as both U.S. Steel and Nippon Steel have requested an expedited court process, so this should get resolved in 2025.

Only one way to find out. Stay tuned.

The Big Question: Should the Biden Admin have allowed the deal to go through? What other steps could Nippon take to secure domestic U.S. steel production?

Banana Brain Teaser

Previous

A salesperson who had been driving at a speed of 100kmph slowed down to a speed of 47 kmph. Approximately how many miles per hour was the speed reduced? (1 kilometer ≈ 0.625 miles)

Answer: 33

Today

A dance troupe has a total of 50 dancers split into 2 groups. The costumes worn by Group A cost $80 each, and those worn by Group B cost $90 each. Of the total cost of all the costumes is $4,270, what is the total cost of the costumes worn by Group B?

Send your guesses to [email protected]

❝

If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.

John Bogle

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Happy Investing,
David, Vyom, Ankit & Patrick