🚀 Degeneracy Is Becoming Dangerously Profitable

The greatest retail trader of all time may get forcibly dethroned June 7, 2024 | Peel #725 In this issue of the Peel: - 💼 The U.S. labor market has similarities with the New England Patriots - 🤖 Cybersecurity is still here, but psychedelic drugs may not be - 💵 The greatest retail trader of all time may get forcibly dethroned Market Snapshot 📸 Banana Bits 🍌 - Steve Jobs is turning in his grave (RIP) as Nvidia passes Apple, Alphabet, Amazon, and Saudi Aramco to become the [2nd most valuable company in the world](), behind only Microsoft - The NBA is on the brink of securing a [$76bn, 11-year bag](=) - After breaking planes for the past few years, Boeing is now [on its way to space]( - A few years late to the party, Citadel and BlackRock are looking to start a [competitor to the NYSE based in Texas](=) Where High Finance Dreams Take Flight = Ready for your finance dreams to soar? WSO Academy is the launchpad for high-flying careers in finance. Our program is a unique blend of rigorous training, real-world application, and unparalleled networking opportunities. Here, dreams are not just dreamt; they're achieved. From mastering the intricacies of financial markets to acing tough interviews, we provide the wings for your ambition. Join us, and watch as your career takes off, turning aspirations into real-world success in the high-stakes world of finance. [Click here to join the WSO Academy Waitlist. Limited slots only.](=) Macro Monkey Says 🐒 Bill Belichick’s Labor Market Much like the greatest dynasty in the history of sport, the New England Patriots from 2000-2019, the U.S. economy has been on fire over the past four years. Although the Patriots have become an abomination since then, it turns out that U.S. economic success and New England’s athletic success (excluding Connecticut, obviously) have a shared philosophy: Do Your Job. Originally a dismissive phrase to get sports reporters to shut the f*ck up, Patriots Head Coach Bill Belichick’s quip to “do your job” can be interpreted as economic advice if you’re enough of a loser. Luckily, I am. He’s talking about specialization. And for the U.S. labor market, specialization is making a comeback. Let’s get into it. The Numbers From 2020-early 2023, the American job market was tighter than Malcolm Butler’s goal-line defense in Super Bowl XLIX (49). Job openings were abundant, labor was scarce, wages were booming, and I think a little thing called “inflation” or something may have been created, too. That’s still largely true but is undeniably changing in the first half of 2024. We’ll get a full update on the employment situation tomorrow morning, but for now, let’s see exactly how the labor market is opening up, like Randy Moss running a fly route. [Source]() According to preliminary reports from one of the U.S’s largest HR and payroll providers, our economy added 152k jobs in May. That’s ~13.1% below economists’ guesstimates and nearly 20% lower than the revised 188k in April. As we can see in the below chart of the monthly percentage change in nonfarm payrolls (a.k.a. jobs that aren’t on a farm), there’s a clear deceleration. [Source](=) The other important factor to note here is that 98% of the job additions cited by ADP came from the services sector, with only a net of 3k newly added jobs in goods production. Trade, transportation, & utilities led the way with 55k new roles while education & health services followed with 46k additions. On the other hand, manufacturing lost another 20k jobs, and—I hate to say it—but professional & business activities shed 6k roles. Don’t worry though because financial activities job additions spiked 26k for the month, meaning there’s still plenty of money made from actual work left for us to move around. The clear distinction in hiring by sector is indicative of where employers anticipate the demand tailwinds will emerge from. And, based on the weak data we’ve seen on manufacturing and consumer spending, especially on goods, it all checks out. Other proxies for labor demand show a similar trend of overall slowing demand for labor and the economy in general. Last month, we saw the lowest number of job openings since February 2021, just as the economy was starting to move into its “firing on all cylinders” phase. Based on the trendlines observed below, job openings have now officially come full circle. So, effectively, the labor market is telling us that the U.S. is both slowing and normalizing. But, given we experienced periods of insane growth that triggered the highest inflation in over 4 decades, slowing growth isn’t necessarily a bad thing. During that period, the imbalance in the labor market was driven by far greater demand for labor than supply. However, the labor market becomes a threat to growth when the opposite occurs—when supply vastly outstrips demand. The chart below measures this balance well, showing the number of unemployed persons per job opening. Total job openings sit at 8.06mn while we have 6.49mn unemployed Americans, meaning we have 1.24 jobs for each unemployed person or 0.81 unemployed person per job opening. [Source]( The Takeaway? The labor market economic tailwind is effectively gone. And that’s not a bad thing. As we alluded to above, it’s more accurate to consider this “slowdown” as a “normalization” that isn’t something to be concerned with… for now. Slower growth is exactly what Fed Chair JPow has sought to induce since he dropped 11 nuclear bombs on the U.S. economy in the form of the fast rate hiking cycle in American history. So, ignore the headlines telling you this is a signal that we’re heading for recession. It’s more like when your dog calms down from the zoomies—yes, he’s got less energy, but that’s exactly when they start to behave and are the most fun to be around. What's Ripe 🤩 Hewlett-Packard Enterprise (HPE) 📈10.7% - Nobody wants their (former) spouse to do better than them following a breakup. Thankfully for HPE, they closed the gap with former lover HPQ on earnings. - HPE, HP’s enterprise division, reported earnings of $0.42/sh on $7.2bn in sales vs expectations of $0.38/sh on $6.8bn. Needless to say, AI has been a big help. - AI tools didn’t only help gross margins expand, but the strength in these offerings led analysts all over Wall Street to increase ratings and bum price targets, too. Crowdstrike (CRWD) 📈12.0% - It’s easy to forget that AI isn’t the only thing going on in tech, but remember, we always need someone making sure only the right people steal our data. - Cybersecurity is booming, and likely even more so alongside the rise of AI and the threats this tech presents. Crowdstrike’s earnings certainly confirm that. - This company’s been combining the two for more than a decade, and it shows, given their 33% annual sales growth and beats across the board. - Crowdstrike also posted a 35% free cash flow margin with a positive outlook, leading to analyst upgrades and one saying that the firm is “separating itself from the pack.” What's Rotten 🤮 Mind Medicine (MNMD) 📉10.1% - Like how serial killers have caused strangers to have a questionable reputation at best, one bad drug can kill the party for everyone else. F*ckin FDA, man. - Yesterday, the narcs at the FDA told Lykos Therapeutics that their MDMA-based PTSD therapy was trash, voting 9-2 against approving the drug as “effective.” - This is just a panel vote, so the FDA can ignore it and grant the approval by Aug 11th. That’s unlikely when the vote is this decisive, sending psychedelic stocks like MindMed, ATAI, and others lower on the panel’s prude-*ss stance. Dollar Tree (DLTR) 📉4.9% - It was a tough day for Dollar-Fifty Tree because despite raising their prices in recent years, they may be cutting the Family Dollar-Fifty brand. - The discount retailer reported EPS of $1.43/sh, right in line with estimates, while sales of $7.26bn came up short of the $7.33bn expected. - Dollar Tree also announced it’s considering “strategic alternatives” with its Family Dollar brand, purchased for >$8bn in 2015, after closing 900 stores last year. Thought Banana 🤔 Dangerously Profitable Heroes get remembered, legends never die, and Roaring Kitty has become one of the Gods. 37-year-old Massachusetts native that’s long overdue a trip to the barbershop rocketed to this god-amongst-degens status in early 2021 by single-handedly inventing the meme stock craze. Starting with 53k in his portfolio, Gill’s GameStop position was worth well over $200mn as of this past weekend. Already, a lot has changed this week, including rumored bans from his broker, E*Trade, and potentially another $100mn in his account. Let’s check in on my fellow Masschussite. What Happened? I’m going to assume that we’re all way too familiar with the meme stock and GameStop story. If not, check it out [here](=)—yes, they literally made a movie about… in fact, they made [several of them](. Five years ago, as far as I can tell (and scroll), according to publicly available data, Keith Gill’s portfolio, as shown by his Reddit username “DeepF*ckingValue,” Gill’s portfolio was worth $53k as his original cost basis. A year later, Gill was down on his self-proclaimed GME YOLO position, as we can see via this post here: [Source](=) But February 2020 had that effect on everyone. As of close on June 3rd, however, Gill’s holdings of 5mn GME shares and 120k options contracts with a strike price of $20/sh and expiration of June 21, 2024, was worth over $289mn. Imagine going from being a normal guy working for MassMutual, holding your broker licenses and your CFA as Gill was until January 29th, 2021… and then, just over 3-years later, you’re one of the wealthiest 0.02% of people in the entire f*cking world. All from day trading. This is literally the dream we all have, and this guy actually made it happen. I just wonder how his wife and their child feel about having $300mn to their family name… and instead of, you know, a vacation house, trust fund for the kid, retiring his parents, or anything, this dude goes balls deep in a f*cking sh*tco meme stock. Most divorces occur over much less, but I guess that’s the definition of a ride-or-die. Every financial advisor in the world would throw the f*ck up at the below portfolio, Gill’s last update as of June 3rd: [Source]() If GameStop is trading above $20/sh on the 21st, he could pull another 17mn shares. At yesterday’s close of $31.57/sh, that’s another $536mn. If the stock is at or above $45.45/sh on the 21st, Gill will become the world’s newest billionaire… all from $GME. But, it may all be moot, and Gill may have to settle for only a quarter to a third of a billion dollars. His broker, E*Trade, is reportedly considering kicking the deep value investor off their platform on concerns over stock price manipulation. Morgan Stanley, E*Trade’s new owner, is concerned that his social media posts amount to market manipulation. The SEC and the Massachusetts Securities regulator are on the same wave, all investigating Gill’s activities. Specifically, the focus is on price moves triggered by Gill’s social media account. While E*Trade doesn’t know if this counts as market manipulation or not, financial services companies generally don’t stick around to find out at risk of legal penalty. Based on the past 5-years worth of price action, a strong case could be made that Gill’s posts on Reddit and X amount to market manipulation. Just look: [Source](=) But, it’s, of course, a technical issue, and I don’t mean with placing his trades because clearly there’s no problem there. Legally, market manipulation is a broadly defined term, so we’ll find out soon how friendly securities regulators are feeling. The Takeaway? Biggie Smalls has been proven right once again—“mo’ money, mo’ problems.” The SEC defines market manipulation as “... when someone artificially affects the supply or demand for a security (for example, causing stock prices to rise or to fall dramatically).” Find the full Investor.gov [definition here](). Clearly, this guy’s affected the demand for a security. But the question is whether or not this counts as artificial inflation of the stock price. That’s likely what any definition would amount to. Most federal securities regulations in the U.S. were created during or before the 1940s, so perhaps an even stronger argument could be made that Gill did nothing wrong or malicious but that securities law is long overdue for a digital age update. But, in order to effect large-scale, legal change in the past, a martyr is needed many’a-time. So, I’d bet a YOLO trade that Gill will either 1) become a billionaire trading GME and then pull out, never to be seen again, or 2) he is our martyr. For his and his family’s sake, let’s hope it’s the former. If you’re reading this, Keith, just gimme a heads-up when you choose your next YOLO. The Big Question: Will E*Trade choose to kick Gill off the platform or be forced to do so? Are “meme stocks” something serious investors will have to care about consistently in the future? What other questions linger around this case? Banana Brain Teaser 💡 Previous 🗓 The total cost for Company X to produce a batch of tools is $10,000 plus $3 per tool. Each tool sells for $8. The gross profit earned from producing and selling these tools is the total income from sales minus the total production cost. If a batch of 20,000 tools is produced and sold, then what is Company X’s gross profit per tool? Answer: $4.5 Today 🕐 A three-digit code for certain locks uses the digits 0, 1, 2, 3, 4, 5, 6, 7, 8, and 9 according to the following constraints. The first digit cannot be 0 or 1, the second digit must be 0 or 1, and the second and third digits cannot be 0 in the same code. How many different codes are possible? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “I like the stock.” — Keith Gill 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