🇯🇵 A Lesson From The BoJ

The BoJ is showing JPow how to really pump stock prices May 30, 2024 | Peel #720 Silver Banana goes to... [CapLinked. ]( In this issue of the Peel: - 👀 We’re playing hide-and-seek with excess savings… and winning - 🐾 Pet investors earned a lot of treats, and airlines lost seats yesterday - 🇯🇵 The BoJ is showing JPow how to really pump stock prices Market Snapshot 📸 = Banana Bits 🍌 - Salesforce is nosediving on its [first revenue miss in 18 years](=) - Big oil leader ExxonMobil flexed its big, pollutive muscles yesterday by [beating out activist shareholders]( - [Dick’s Sporting Goods]( and [Abercrombie & Fitch](=) are showing it’s not all retailers that are down this earnings szn - Don’t let them tell you meme-ing can’t take you a long way—former Pres Donnie T wants to give [Elon Musk an advisory spot]() Get with the program and try Caplinked. Change is a good thing! Are you still trying to close deals with the same VDR software the partners used when boy bands topped the charts and Y2K was a genuine concern? It's time to let go of that prehistoric tech! Upgrade to our state-of-the-art data room — faster, sleeker, and infinitely easier to use than the digital dinosaur you’re currently stuck with. Today’s markets move at lightning speed. Don't get left in the dial-up dust; embrace the future with technology that actually belongs in this century. And really, if your VDR is as old as MySpace, it's not retro cool — it’s just ancient. [Time to upgrade,]( unless you're still hoping for a Friendster comeback! Macro Monkey Says 🐒 Economic Hide-and-Seek Although I was never particularly good at hide-and-seek, it did teach me some important lessons, like how to be thorough when searching for something or how to hide well when IRS auditors are looking for me. They haven’t caught me yet, so I think I finally have the whole “hide” part down. But when it comes to seeking, one of the most important things we’re all looking for—and that I’m especially bad at finding—is, of course, money. The game of seek-and-seek among investors has stepped up in recent years, and I’m (fortunately) not talking about GameStop or AMC. The Holy Grail investors are seeking these days is none other than yields, so let’s get into it. What Happened? One of the biggest stories in the post-pandemic era thus far has been the explosion in excess savings. [Source]( Early tax refunds have helped drive this higher in recent months, and while still elevated, the excess savings rate enjoyed by consumers is now fading away. When trillions of dollars fall out of a helicopter, as occurred in the U.S. in 2020 and 2021, nobody wonders where the excess cash came from. However, the better question is—what the hell did we do with all that money? The first part of that answer is easy—we spent it, a lot of it, especially back in 2021 and early 2022 when those Trump and Biden checks were fresh in our pockets. Yet even now, 3 years later, private data shows most consumers still carry some “excess savings,” loosely defined as having a savings rate above pre-pandemic trends. With rising wages throughout most of the post-C-19 years, most consumers—especially among lower-income consumers—had an income buffer allowing them to not dip into those excess savings… key word there being had. Now, wage growth has stagnated, and Uncle Sam isn’t hitting our Venmos anymore. As this pile of excess savings continues to dwindle, we’re seeking exactly where it may have gone. And maybe I am getting better at seeking because it didn’t take long at all to stumble across this chart: [Source]( Why the headline on this chart isn’t “In On The Auction” is beyond me, but what we’re seeing is the total dollar amount (in billions) of retail investor participation in Treasury auctions. Quick Explainer: The treasury sells bonds through an auction where competitive bids are from institutional investors and “noncompetitive” bids are from retail traders, loosely defined. This allows markets to decide the price they’re paying and the yield they’re getting, with institutions acting as “price makers” and individuals acting as “price takers.” So, the above chart is a back-of-the-envelope metric to gauge retail interest in U.S. treasuries. And as we can see, sh*ts been popping off, up nearly 10x compared to retail demand for these assets in the ZIRP (low rate) era before 2022. As 2-year yields flirt with 5% harder than a drunk frat bro at what’s supposed to be a “girl’s night out,” investors are becoming more and more interested… unlike the women at that girl’s night out. We have heard a lot about investors moving cash from sweep accounts into money market funds, but now, it seems like Main Street has gotten the message about high yields in treasuries as opposed to dogs*t deposit rates. Further, it’s not like most people care about this. Non-losers, a.k.a. people who don’t know what “DCF” stands for, tend to hear about this stuff through annual/semi-annual meetings with their advisors or from their brokers. Combining the slow transmission of info from brokers and advisors with the conveniently timed reduction in excess savings and run-up in retail involvement at Treasury auctions, I think we’ve finally found where excess savings are hiding. The Takeaway? There’s a lot to take away here. For starters, we’re glad to see retail investors getting smart—if you have savings that you could invest (a.k.a. that you don’t need for the maturity period), it’s always better to take 5% in bonds than legit 0.01% at Chase. More important is of course wild speculation about where all this additional money could go. Earning an additional 5% is great, but do investors tend to just roll that into a new bond via a ladder-style strategy? Maybe instead they use it to pump GameStop and AMC? Or, more broadly, could it be that the income earned from interest payments gets reinvested into equity markets for longer-term holdings, thus adding liquidity and further increasing equity prices? Like I said, it’s wild speculation, but that certainly could be where much of the demand for index funds, ETFs, and individual stocks like Nvidia and others that have seen recent run-ups is coming from. What's Ripe 🤩 Chewy (CHWY) 📈27.1% - My dog often advises me when danger is afoot (a.k.a. wind is blowing), but I should’ve been taking his financial advice this whole time, too. Pet stocks are popping. - The supplier of the boxes my dog hates (is scared of) but toys and food he loves (destroys) ripped yesterday on strong earnings and an improved outlook. - Chewy earned $0.31/sh on sales of $2.88bn against estimates of $0.21/sh on $2.85bn thanks to 6.4% growth in the firm’s Autoship offering. - Autoship allows pet owners (not saying “parents”) to sign up for recurring shipments, and its growing popularity is partially driving Chewy’s increased margin guidance. Marathon Oil (MRO) 📈8.4% - The butt print of banker’s chairs, along with their outlooks on life, are set to sink even further than the oil Marathon is drilling for on news of this acquisition. - ConocoPhillips is buying Marathon for $17.1bn in an all-stock deal, giving MRO investors 0.255 shares of their new parent co. for each Marathon share they own. - Like other recent energy deals, ConocoPhillips is looking to shore up O&G properties for future use as their CEO expects a “shale 2.0” era in the U.S. What's Rotten 🤮 American Airlines (AAL) 📉13.5% - Like Boeing planes compared to those of Airbus, American Airlines has been stuck on the tarmac for weeks as United and Delta have taken off with ease. - Now, they’re paying the price. The airline lowered its outlook for 2024 and fired its Chief Commercial Officer, Vasu Raja, on weaker relative performance. - America’s struggles to regain business travelers post-C-19 is getting put on blast as unit revenues are now expected to fall 6% this year. - The airline with the most freedom has also struggled to improve margins thanks to an ostensibly failed strategy to drive traffic through third-party ticketers. Advance Auto Parts (AAP) 📉11.0% - Blaming everything from the weather to “uncertainty about the balance of the year” (wtf), I think we can help sum up Advance’s quarter—the vibes were off. - The auto parts maker is facing volume declines as the combo of inflation and high rates shift spending away from new air filters and new cars with 15% rates. - The company reported $0.67/sh on $3.4bn in sales vs estimates for $0.68/sh on $3.43bn. But, they did stop some of the bleeding by raising sales guidance. Thought Banana 🤔 BoJ Knows We’ve been on this one for a while—why isn’t Fed Chair JPow yolo-ing American tax dollars and bank deposits on equities? Seems irresponsible. They literally only go up. Fortunately, other central banks have caught on to this free-money glitch. Across the Pacific, the Bank of Japan (BoJ) just recorded its largest-ever gain on stocks for a fiscal year, so let’s get into it. What Happened? “Europe is a museum, Japan is a nursing home…” said former U.S. Treasury Secretary Larry Summers at a Morningstar Investor Conference a little more than a year ago. I don’t know if any of you have had the misfortune of entering an old folks home, but the blasting TV volumes, the smell of what I can only describe as “old,” and general confusion among the residents don’t make it a very welcoming place. We love our elders here at the Peel, but the economy sure doesn’t love them back. So, when your entire country smells like “old,” engineering economic growth becomes harder than convincing a vet with PTSD that they’re not in Vietnam. Population pyramids have been a hot topic here at the Peel in recent months, and rarely do they look worse for macroeconomic growth than Japan’s: [Source]( With a life expectancy of 84.5 years and a birth rate of 1.3 children per woman, the above chart likely won’t be getting battery anytime soon. In fact, Japan’s population is projected to decline from 125mn now to less than 75mn by 2100, a 40% drop. We all know intuitively that a declining, aging population harms economic growth due to the added strain on public resources combined with a lower per-capita tax base. Japan is and has been Exhibit A of this slowdown for quite some time already, with its population declining since 2009. A distinct, drawn-out lack of economic growth like this creates the opposite problem that most of the world is facing now—a lack of inflation. Some inflation is good because it encourages spending now rather than later and avoids the far worse fate of deflation. In Japan, a balance of inflation and deflation from 1998-2022 caused the BoJ to try some funky financial footwork to facilitate growth. [Source](=) One of those steps the BoJ took included purchasing equities, beginning right around the time their population started to decline in December 2010. Most of the equity purchases are done just like the Federal Reserve’s back in 2020 and involve “safe” assets like index funds and ETFs. Also, like JPow and the FOMC gang, the goal is to encourage investment and spending to avoid deflation (and emigration). The thing is—the only “safety” those assets provided was safety from getting rich, as the Japanese version of the S&P 500 declined for essentially 20 straight years. Then, in 2010, conveniently right around when the BoJ began purchasing equities, markets finally turned around. The Nikkei 225 officially replaced its historic all-time set in 1989 with a fresh high only 3 months ago in February of this year. So, it shouldn’t be much of a surprise then to hear that the BoJ’s bag of unrealized gains set its own fresh high alongside equity markets, reporting $237bn in unrealized gains for the year ended March 2024, more than doubling the prior year. [Source]( The Takeaway? Honestly, there isn’t much of a takeaway here since the U.S. has a superpower in high immigration rates. Americans are (believe it or not) having way more sex than our cross-Pacific compatriots. But it’s an interesting case study of what happens to an economy when people stop having sex and stop dying. Recent growth in the Japanese economy, equity markets, and (probably) national pride signals that it’s worked out so far, so maybe other countries like China, South Korea, literally all of Western Europe, and probably even the U.S., eventually, might have a playbook for how to invigorate an elderly economy. The Big Question: Will equity purchases and other QE measures be enough to maintain long-term growth in Japan? What other lessons can countries facing similar demographic collapse learn from Japan? How can I get the BoJ to pump my stocks? Banana Brain Teaser 💡 Previous 🗓 What is the median of 10, 4, 26, 16? Answer: 13 Today 🕐 Ron is 4 inches taller than Amy, and Barbara is 1 inch taller than Ron. If Barbara’s height is 65 inches, what is the median height, in inches, of these three people? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “There is no end in the money game.” — Wahei Takeda How Would You Rate Today's Peel? 😁[All the bananas]( 😐[Meh]() 😩[Rotten AF]() Happy Investing, David, Vyom, Jasper & Patrick [ADVERTISE]( // [WSO ALPHA](=) // [ACADEMY]( // [COURSES]( // [LEGAL](=) [Unsubscribe]( IB Oasis Corp. (aka "Wall Street Oasis") 14435 Big Basin Way PBN 444 Saratoga, California 95070 United States