In this issue of the peel:

• 🚗 JPow wants the economy to grow faster than Ricky Bobby. And in Q3, it sure did, but not for the best reasons. Find out how what drove Q3 GDP growth below.

• 🍟 Fine dining is back in style as sales at Olive Garden are growing again while Accenture’s consultants reached record levels of insufferability. Micron’s Q3 earnings were a disappointment, and no one wants Lamb Weston’s fries anymore.

• 💰 Let’s end the week on a fun one. Today’s Platinum Banana Award goes to the Investment of the Year in 2024. You won’t want to miss this one. Check out the winner below.

Market Snapshot

Banana Bits

• If an agreement isn’t reached, the U.S. government could shut down tonight.

• Finding the Goldilocks level of rates is the Fed’s next great challenge, as the WSJ points out here.

The Daily Poll

Previous Poll:

Do you think the Fed's rate cut path is the right move?

Yes, rate cuts are a good sign: 30.6% // No, it’s too little, too late: 6.1% // Neutral, let's see how it plays out: 41.9% // Fed has no idea what they’re doing: 21.4%

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Macro Monkey Says

Fed Chair Ricky Bobby

NASCAR legend Ricky Bobby famously declared, “I wanna go fast!” in his 2006 biographical documentary Talladega Nights.

Meanwhile, Fed Chair Jerome Powell clearly shares that sentiment as he’ll soon be starring in his own epic biopic, GDP Nights, under the tagline, “I wanna grow fast!”

The good news is that both came true, especially in the third quarter.

Let’s get into it.

What Happened?

Counting is hard, so it takes the Bureau of Economic Analysis (BEA) a few tries to size up GDP growth accurately.

In fact, it takes the BEA exactly three tries to estimate GDP growth, issuing an updated growth figure each month for the three months following the close of any given quarter. Now that Q4 is about to end, we finally have the finalized data from the third quarter.

The Numbers

According to the third and final estimate, U.S. GDP grew 3.1% in Q3, up from the prior estimate of 2.8% and an increase from Q2’s 3.0% growth.

Hell yeah.

Most of the increase comes from where we’d want it—exports and consumer spending. Increases in these segments were slightly offset by increased imports and a decrease in private inventory investment.

Overall, an increased estimate in the growth rate of the private services industry was the top contributor, growing 3.6% in Q3. Government spending grew 2.1%, while the private goods industry grew 1.5%.

Driving the underlying growth in consumer spending and exports that powered the private services industry was primarily retail spending, healthcare and social assistance, and information services.

But this is where the news from this report goes from a 20-point lead to a 2-point lead. Similarly to the November retail sales report discussed earlier this week, much of the Q3 spending increase is attributable to a concentrated segment of spending.

Motor vehicles, vehicle parts, and durable goods were the leading spending categories within the retail trade sector. 

As a high ticket, often credit-linked purchases, the increased spending here could simply reflect a greater appetite for those credit-linked purchases as rates fell into and after the Fed’s 50bp cut in late September rather than an increase in aggregate demand.

Moreover, you’ll be good and sad to hear that the sector that drove the second-greatest increase in Q3 GDP was healthcare and social assistance.

That means consumers and the government are spending more on these services that absolutely no one looks forward to using. In fact, the single largest increase among spending categories in this sector came from ambulatory care services… not the best way to spend a Friday night.

The Takeaway?

So, to recap, in the past few days, we’ve learned that inflation is rising, GDP growth is strong and rising, and unemployment remains resilient. 

Now, the question inevitably becomes… why the f*ck are we cutting rates in this environment?

Rate cuts are reserved to spur growth, employment, or both. Neither are issues in the U.S. economy, so, at least in theory, the only thing rate cuts will do is inflate demand for credit, leading to inflationary pressures over a long enough time horizon.

I never thought I’d be upset about a rate cut, but, damn… clearly, Ricky Bobby must be running the economy if we’re gonna grow this fast.

Career Corner

Question

Had a great chat with a portfolio valuation guy at HL and even got put in touch with another portfolio valuation analyst after the chat (always a good sign).

Do you think there is a respectful way to ask to be connected to actual investment bankers in a way that won’t offend the portfolio valuation guys?

Answer

Not sure what your exact circumstances are, but I strongly suggest following the process to ensure that you are getting the most value out of your networking.

If you go out before you are ready, you could end up missing out on what could prove to be good connections.

Networking just to network isn’t super helpful; you need to have a strategy for when and why you are reaching out to maximize the outcomes.

If you are in an urgent situation, I would suggest setting up a time with a mentor to try to figure out how to best proceed.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Darden Restaurants (DRI) 14.74%

• Fine dining is back as gourmet locations across America, like Olive Garden and Longhorn Steakhouse, continue to ensure everyone’s eating well in the neighborhood.

• The parent of the exquisite establishments above, along with other, more mid options like Capital Grille and Ruth’s Chris, beat earnings expectations on a return to same-store sales growth.

• The company reported a beat on earnings and in-line revenue last quarter. Olive Garden, ~40% of gross revenue, grew same-store sales by 2% vs the 1.4% expected.

• In total, sales grew 6% thanks to increased foot traffic from diners with incomes between $50-100k/yr. We’ll take that as a good sign for consumer spending, too.

Accenture (ACN) 7.06%

• Didn’t it just feel like society was functioning better than usual in the last 3 months? Now we know why—Accenture was out here empowering actionable insights and streamlining synergies at record levels.

• We’re so lucky to have them. Shoutout to the 23-year-olds telling CEOs how to run their companies and earning $17.7bn to do so, well above the $17.1bn expected.

• Net income grew >15% to $2.28bn, also beating estimates. This is a strong sign that companies feel financially healthy and able to waste money, I mean, *spend on consulting services.

What's Rotten

Lamb Weston (LW) 20.10%

• It’s a good day for waistlines but a sad one for deliciousness in the U.S. as one of our national treasures, french fry maker Lamb Weston, is painfully down bad.

• Everything is going wrong. The company missed earnings, slashed guidance, and fired their CEO as inflationary pressures have swallowed up demand.

• Swinging to a quarterly loss on an 8% YoY sales decline, this weakness will likely boost support for activist Jana Partners and their plans to push the company to sell and go private.

Micron Technology (MU) 16.18%

• A masterclass in how to ruin a party, memory, and storage maker Micron shares are plunging as an earnings beat was overshadowed by weak guidance. 

• The firm, which consensus views as essential to scaling AI inference, delivered EPS of $1.79/sh on $8.71bn in sales vs estimates for $1.75/sh on equal revenue.

• Then, they made the mistake of being honest, guiding for EPS of $1.43/sh on revenue of $7.9bn while the Street was looking for $1.91/sh on $8.9bn—big swing-and-a-miss.

Thought Banana

Platinum Banana Award: Investment of the Year

To close out Wall Street’s Academy Awards ceremony for this week, we want to end on a fun one. 

Yesterday, we gave out the investor MVP award. Today, we’re giving out the MVP of specifics, individual investments—you’re welcome in advance to our lucky winner.

Let’s dive in.

Investment of the Year

Carrying the weight of such an estimable, highly followed, and almost sacredly regarded awards show like The Daily Peel’s Platinum Banana Awards gets challenging.

Especially this time. Sure, there are a lot of investors to choose from for Investor of the Year, but there’s gotta be at least 100x options to choose from for Investment of the Year.

In hindsight, the choice was obvious. You won’t be surprised to hear it, so with no further ado, let’s give an ape-sized congratulations to the winner of The Daily Peel’s Platinum Banana Award winner for 2024 Investment of the Year…

French Polymarket trader Théo’s $28mn bet on Trump to win the election!

Congratulations to Théo. I’m sure the $85mn profit he earned was a nice reward, but it can’t possibly compare to the honor bestowed by winning a Platinum Banana.

Théo, a pseudonym for one of the newly wealthiest people in France, made himself a bit of a legend with this one. Any trade that triggers investigations from regulators and the trading platform itself has my highest respect.

Why?

To recap, this Théo character didn’t accumulate his $28.6mn bet in a single day.

Building the position over the course of 3-months using 4 separate accounts on the blockchain-based prediction market Polymarket, under the names “Fredi9999”, “Theo4”, “PrincessCaro,” and “Michie.”

Given the size of the bet, Polymarket began its investigation before the actual outcome of the election, fearing that the weight of his trades artificially distorted odds on the platform, which would, in effect, be market manipulation.

But, the platform found no wrongdoing. And, after the AP called the November 5th U.S. Presidential election, bro collected ~$113.6mn, ~$85mn of which was pure profit.

Still, it’s not just the 297% gain that earned Théo this high honor.

Using a prediction market to bet on a U.S. election could not have existed in any other election year in American history, whether due to a lack of technology or regulations that made the practice illicit. 

The trade—and glowingly positive sentiment about it online—underscores the dynamic shift in society’s view on gambling, the evolving landscape of political and events-driven betting, and the impact one lone wolf trader can have on something as huge as the U.S. Presidency.

The Takeaway?

Plus, Théo had so much conviction in his position thanks to his unique polling strategy. 

The guy funded “neighbor polls” in the U.S., where people are asked who they think their neighbors are voting for rather than themselves, which dispels the shroud around the so-called “shy Trump voter” effect.

This allowed him to figure out what nobody in the entirety of the American media-industrial complex could do alone (looking at you, Nate Silver). We’ll see if that kind of creativity is needed to win this Platinum Banana in 2025.

The Big Question: What other investments should have been considered for the 2024 Investment of the Year? Any speculations on what kind of bet could win 2025?

Banana Brain Teaser

Previous

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?

Answer: 4,200 units

Today

A small business invests $9,900 in equipment to produce a product. Each unit of the product costs $0.65 to produce and is sold for $1.20. How many units of the product must be sold before the revenue received equals the total expense of the production, including the initial investment in equipment?

Send your guesses to [email protected]

How Would You Rate Today's Peel?

Happy Investing,
David, Vyom, Ankit & Patrick

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