Silver banana goes to…

In this issue of the peel:

• ✅ Wholesale inflation slowed in December, and with that, so did my heart rate (finally). Find out what the data says and what it could mean for today’s CPI print.

• 🏡 Quantum stocks are hot again, thanks to a lone analyst at a nearly bankrupt firm. KB Homes posts strong Q4 earnings, while Aehr Test Systems absolutely did not. Lastly, if only Eli Lilly could make a drug for shutting the hell up.

• 🇬🇱 Trip to Nuuk, anyone? The U.S. buying Greenland is the geopolitical equivalent of your uncle saying, ‘This time, I’ll win the lottery.’ Could this be the jackpot?

Market Snapshot

Banana Bits

• The SEC is suing Elon Musk over missed disclosures related to his Twitter acquisition.

• Details on how the U.S. plans to “Drill, baby, drill” are starting to emerge.

• The SEC charged Robinhood with 10 securities law violations and agreed to settle for $45mn.

• Jamie Dimon is losing his Charlie Munger as his “longtime number two,” Daniel Pinto, is leaving the firm.

• Meta is cutting 5% of its workforce to get lean for an “intense year.” 

• The U.S. budget deficit in December grew 40% from that of last year.

America's top homebuilder eyes "off-market" disruptor

You must be doing something right if the biggest names in your industry take an interest.

That’s the story with BOXABL. They’ve rethought housing by bringing assembly lines to new home construction. Not to mention, the company has gained the attention of investors like D.R. Horto.n

Where traditional homes take over 7 months to build, BOXABL factories can mass produce their signature Casita home in just four hours, plumbing, electrical, HVAC, and all. No wonder 190,000+ potential buyers already reserved one*. And they’re just getting started.

Now, everyday investors can join them too. When BOXABL opened their company to investment before, available shares sold out. Become an investor for just $0.80/share.

This is a paid advertisement for Boxabl’s Regulation A offering for $1,500. Please read the offering circular here.

* Reservations represent a non-binding indication of interest to purchase as Casita. A reservation does not require purchase of a Casita and there is no assurance of how many will result in actual purchases.

Macro Monkey Says

Wholesalers With the Hookup

Phew, that was close. My wallet officially avoided having to cover any hospital bills from my expected heart attack leading into this week’s inflation reports.

With the CPI print coming tomorrow, we’re not totally out of the woods yet. But, hopefully, we can remain just like the salary from your recent job offer—below expectations.

Let’s get into it.

What Happened?

Yesterday, the Bureau of Labor Statistics (BLS) released the Producer Price Index (PPI) report for December, the agency’s monthly report on inflation at the wholesale level.

Basically, the PPI reports the change in prices paid by retailers, who then pass the fun on to you. We’ll get December’s report on consumer inflation tomorrow, but for now…

The Numbers

Producer prices rose 0.2% monthly in December, below November’s 0.4% increase and economist’s expectations for the same print last month.

Final demand prices for goods did most—scratch that—all of the heavy lifting. Prices for wholesalers on this side of the economy jumped 0.6% to close out the year, while prices for services were flat from November.

Core PPI, which strips out prices of food, energy, and trade services, rose 0.1% for the month.

But wait, there’s more—I hope you’re not too excited yet because not only did wholesale price growth slow down in the last month of 2024, but the PPI for the full year also tripled compared to 2023! Ya- wait a minute…

Wholesale inflation grew 3.3% in 2024, triple that of 2023’s 1.1% annual growth. As a cherry on top, as you can see above, the annual PPI change has been steadily increasing all year.

Of course, part of that has to do with the fact that the index’s growth rate was declining for most of 2023.

However, last month, it had more to do with a few thorn-in-the-side in the line items. Gasoline prices rose 9.7% for the month, a huge jump for such a common expense. Similarly, natural gas prices were up 3.2%. And I hope you all are stocked up on hay—prices for hay and hayseed spiked by 25.4%.

Despite the annual jump in the index and spike in some key line items, investors barely noticed the report. Generally, markets care about the PPI insofar as it impacts the CPI, which they only care about insofar as it affects the PCE, which-

You get it. The BLS will drop December’s CPI print later today, which, when combined with the PPI, make up two elements that the BLS uses to calculate parts of the Fed’s preferred measure of inflation, the PCE Price Index.

When the Fed says they want “inflation at 2%”, what they really mean is that they want to see consistent annual PCE prints of 2% and/or consistent monthly prints of 0.165% (annualized monthly rate of 2% inflation).

Even better if the core PCE index, which excludes food and energy prices, does it, too. Unfortunately, we’ll have to wait until the 31st to get December’s PCE, but markets are wasting no time updating their inflation and interest rate assumptions.

There wasn’t much of a reaction in the equity market, but Treasury yields did fall slightly in the wake of the report. Meanwhile, the interest rate swap market remained basically just as sure JPow and the FOMC gang aren’t cutting anytime soon:

The Takeaway?

Wholesale inflation slowed on a monthly basis to close out 2024. 

Although the annual reading got a little rowdy compared to the prior year, no one cares (yet) because all eyes are on today’s CPI print and the end of the month’s PCE report.

We’ll let you know when to call the ambulance.

Career Corner

Question

When an application for a program asks you to detail your individual experiences, is it ok to copy and paste the role description from your resume, even when it asks you to submit the resume?

Answer

It’s fine, but I think the better approach is to rephrase a bit so you can use the space to your advantage, highlight your biggest achievements, and write in prose instead of bullets. But in the end, it probably won’t make a huge difference either way, so if you’re tight for time, it’s ok.

Head Mentor, WSO Academy

Check out WSO Academy

What's Ripe

Rigetti Computing (RGTI) 47.9%

• Looking more volatile than GameStop in 2021, although this company might actually be successful one day, Rigetti Computing soared again on Tuesday.

• Shares in this “quantum” computing (maybe someday) company ripped again as an analyst from nearly bankrupt B. Riley Financial says that commercialization is overhyped.

• The firm says that 1) recent advancements in quantum could increase the market’s near-term size if even quantum computing isn’t fully viable and 2) capital raises in late 2024 cleaned up liquidity concerns.

KB Home (KBH) 4.8%

• Although the U.S. housing market remains in an Ice Age, at least it’s still helping the people who matter most—shareholders. KB Homes had a strong Q4.

• The home builder specializing in custom homes squeezed past estimates, reporting EPS of $2.52/sh on $2bn in revenue vs estimates for $2.45/sh on $1.99bn.

• Usually, custom home customers come from the less-likely-to-shop-at-Costco crowd, so the firm’s unit economics are more insulated from macro struggles. It will be interesting to see how others like Lennar and DR Horton hold up.

What's Rotten

Aehr Test Systems (AEHR) 27.1%

• I can’t tell if it’s harder to pronounce this company’s name or figure out what they do, but all that mattered on Tuesday was how easy it was to hit “Sell.”

• Kicking off earnings szn on an awful note, semiconductor equipment test maker Aehr Test Systems missed sales and earnings estimates on a 37% YoY revenue decline.

• Aehr reported $0.02/sh on $13.5mn in sales vs the $0.03/sh on $15mn expected. Management blames high product prices and volatile timing of orders for the drop, but clearly, markets aren’t buying it (literally and figuratively).

• However, Aehr upheld FY’25 sales guidance of $70mn, or 5.7% YoY growth, primarily because the firm just got its first AI wafer-level customer last quarter.

Eli Lilly (LLY) 6.6%

• Feeling particularly masochistic yesterday, the world’s most valuable healthcare firm issued revenue updates that shareholders didn’t need and absolutely didn’t want.

• Eli Lilly said Q4’24 revenue is expected to be $13.5bn, below the $13.9bn analysts have penciled in. Weaker sales of weight loss drugs are to blame.

• Lilly said Q4 Mounjaro sales came in at about $3.5bn while the Street was hoping for $5.35bn. Still, the firm maintained FY’25 revenue guidance, calling for ~32% YoY growth. 

Thought Banana

So… How Green Is It?

Alright, Vikings, you got us on that one. You named the green one “Iceland” and the ice one “Greenland” to confuse us all—honestly, an all-time prank.

But now, the United States wants to prank everyone else back by f*ckin’ conquering the entire damn island and killing everyo- I mean, taking it over as a territory. This should be fun.

Let’s get into it.

What Happened?

Although he’s a bit of a stranger to the spotlight, Donald Trump has never been short of bold ideas.

As everyone—I mean, even people in Greenland have heard—the President-elect has once again floated the idea of the U.S. “taking over” Greenland.

What Does That Mean?

Great question.

Back in 1867, fresh off the Civil War and probably even drunker than usual, President Andrew Johson made America’s first offer to buy Greenland, bidding $5.5mn in gold. That’s roughly $870mn today.

President Taft had the same idea in 1910, although another formal offer wasn’t made until President Truman in 1946, who bid $100mn, or $1.3bn today.

As you all know, a deal was never done. Enter President-elect Trump.

In 2019, then-President Trump told reporters he thought of the island “strategically, it’s intriguing.” Now, the very-one-sided conversation (so far) of Greenland joining the USofA is reaching a peak once again.

The reasons for this might seem complex and esoteric, but really, it comes down to two pretty basic, intuitive ideas:

• Minerals: Greenland has an estimated 42 Mt of rare-earth elements, potentially making the island the second-largest holder of this critical resource outside of China. Other resources, like oil and natural gas, are plentiful, too.

• Trade Routes: As the ice caps keep melting, trade routes will open and become more geopolitically crucial in the Arctic Ocean. Below is a map of current territorial claims to this potential future Suez Canal.

However, the issue for the United States is that Greenland’s longtime owner, Denmark, really doesn’t want to sell it to us, as you can tell from our 3 prior rejections.

Outside of direct military force, which is generally frowned upon by co-members of an alliance, all the U.S. can really do is ask and hope. 

However, with diplomatic ties between these countries going back to 1783, creative solutions like making Greenland a mutually occupied territory and an absolutely disgusting amount of money from the U.S., don’t be surprised if something gets done.

The Takeaway?

It’s probably for the best that Donald Trump Jr., the President-elect’s son, was the first to start the negotiations by actually going to Greenland’s capital, Nuuk—I don’t think they’d want Truman there with his history.

If the U.S. does gain control of Greenland, it’s gonna be a long process, so expect to keep hearing about this for a while. The anticipated payoff is big in national security terms, so the price must be, too.

The Big Question: How might diplomatic ties between Denmark and the U.S. influence negotiations for Greenland’s future ownership or shared governance?

Banana Brain Teaser

Previous

The profit P, in dollars, for any given month at a certain company, is defined by P = I - C, where I represents total income in dollars, and C represents total costs in dollars for the month. For each of the first 4 months of the year, C = I + 32,000, and for each of the next 3 months, I = C + 36,000. If I = C + 10,000 for each of the 5 remaining months of the year, what was the company’s total profit for the 12-month year?

Answer: $30,000

Today

A manufacturer makes and sells 2 products, P and Q. The revenue from the sale of each unit of P is $20.00, and the revenue from the sale of each unit of Q is $17.00. Last yearm the manufacturer sold twice as many units Q as P. What was the manufacturer’s average (arithmetic mean) revenue per unit sold of these 2 products last year?

Send your guesses to [email protected]

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Happy Investing,
David, Vyom, Ankit & Patrick

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