Big Win For Inflation

Inflation fell almost as much as confidence in the U.S. government July 1, 2024 | Peel #741 In this issue of the Peel: - ☺️ Inflation fell almost as much as confidence in the U.S. government - 📱 Nokia is alive and thriving, while Nike had one of its worst days ever - 💨 The EU wants the smoke from the biggest companies in the world Market Snapshot 📸 Banana Bits 🍌 - Airports are soon to be as [mobbed as a Travis Scott concert](=) - “Inside Out 2” is (somehow) the first movie since Barbie to [gross >$1bn at the box office](=) - Thursday’s debate is threatening fundraising [going forward (for obvious reasons)](=) - Personal savings in checking & savings accounts [are far lower than pre-pandemic](=), likely due to higher rates Fast-Track to Finance: Your Journey Starts Here Embark on your fast-track journey to a thriving finance career with WSO Academy. This is where ambition meets opportunity – a place for future finance leaders to grow. Dive into our intensive courses, get hands-on with real-world scenarios, and connect with a network of finance gurus. Our blend of rigorous training, mentorship, and insider insights is your ticket to the top. Your finance career doesn't have to wait. Start here, start now – the fast track awaits!" [Click here to join the WSO Academy Waitlist. Limited slots only.]() Macro Monkey Says 🐒 Normalize Normalization Inflation just hit its lowest level in more than 3-years, much like confidence among Americans in our political leaders. Not that our confidence was high, but Thursday’s debate was the political equivalent of Black Monday in 1987—the single worst trading day ever in American history. They talked about inflation a lot, bringing much more entertainment value than Friday’s PCE report. But unfortunately, the sources cited by both of our young-buck candidates were as reliable as a police report from Jussie Smollett. We love using “I made it up” as a source as much as the next guy, but instead of relying on the voices in our Presidential candidate’s heads, it’s time to check the actual data. Let’s get into it. The Numbers On Friday, the Personal Consumption Expenditure (PCE) report showed inflation clocking in at 0.0% for the month and 2.6% for the year. Both figures represent the lowest inflation rate since March 2021. Love to see it. May’s Core inflation, excluding food and energy prices, was 0.1% from April and 2.6% from May 2023, also hitting their lowest in over 3-years. Because CPI inflation reads things like shelter costs worse than my dog reads War & Peace, PCE is the only inflation reading JPow and the FOMC really care about. So, this must’ve put a smile on that ol’ silver fox face. But that wasn’t the only reason for the macro nerds to smile. Consumer spending grew 0.2% monthly, an uptick from April’s 0.1%. This came on the back of a 0.5% increase in personal income, disposable (after-tax) personal income, and real disposable (inflation-adjusted, after-tax) personal income. Annually, consumer spending grew 5.1% nominally and, after adjusting for inflation, 2.5%. These income and spending data are continuing to trend lower from post-pandemic highs, but looking longer term, it’s really just a process of normalization: [Source]() All of these figures were either right in line with economist guesstimates or missed by 0.1%. But, getting concerned over 10bps is a good sign we’ve already won the battle. As goods prices fell 0.4% and energy costs plunged 2.1% for the month, the only line item giving any whiff of trouble is the persistently high cost of shelter. Shelter costs grew 0.4% in May. PCE assigns only ~16% weighting to housing costs, while that figure sits at ~33% within the CPI. As discussed last week, Americans spend an average of 18.3% of their income on housing, meaning PCE is much more accurate. Breaking it down, rentals account for ~34% of U.S. housing. The remainder, 66% of Americans, are either “Homeowners” or live under the roof of a homeowner. Among those homeowners, 40% carry no mortgage. Even still, the vast majority of homeowners with a mortgage are locked in at their rate for 30 years. So, when we talk about changes in shelter costs, it’s relevant to ~1/3rd of Americans. Taking it a step further, it’s not like your rent increases each month, like the cost of groceries, or hatred for your job. So, shelter costs may deserve less attention in these reports, especially considering none of them counted the declines in rental prices registered in previous months by the Redfin rental tracker. [Source]() The Takeaway? Markets barely reacted to this onslaught of data as most of it came right in line with expectations. Market implied odds of a rate cut in September and by the end of the year ticked slightly higher on the continued trend towards 2% inflation while Treasury yields briefly declined before climbing right back. Inflation, income, and spending data are all normalizing. Monetary policy appears to be getting the job done in the same way that the brains of our Presidential candidates work—very, very slowly. What's Ripe 🤩 Infinera (INFN) 📈15.8% - I thought this Swedish phone maker went out of business when Steve Jobs released the iPhone, but like their own cell phones, Nokia is indestructible. - On Friday, the OG of cell phones announced plans to acquire Infinera, a provider of tech that allows cell companies to send large amounts of data. - Paying a 28% premium to Thursday’s close, the merger will expand Nokia’s Optical Networks segment by 75%. Synchrony Financial (SYF) 📈6.7% - As excess savings dwindle away, consumer credit providers will still let you play—and one big name in the industry just got a major upgrade. - Analysts at Baird just dapped up Synchrony shareholders, calling the stock “one of the cheapest direct bank investment opportunities in the market.” What's Rotten 🤮 Nike (NKE) 📉20.0% - Although up over 318% since Mac Miller dropped “Nikes On My Feet” in 2010, shares are down 6.2% since the rapper’s untimely death in September 2018. - It’s been tough without their top spokesperson, especially last quarter, as the shoemaker missed on sales and lowered guidance. - Nike’s signature shoe market has come under fire with the recent entry of players like On, Allbirds, Hoka, and more, and it doesn’t appear to be getting better. Trump Media & Technology Group (DJT) 📉10.8% - TMTG shares fell faster than the President’s cognitive abilities after Thursday’s debate, mostly focused on each other’s golf game but clearly debating the wrong handicap. - Shares in the former President’s media firm plunged in a combination of profit-taking and what can only be described as a “this guy doesn’t need our money, he’s gonna win” mentality. Thought Banana 🤔 The EU Wants All The Smoke According to my notes, the last innovative technology to come from an EU country was the printing press. And while that was a damn good one, it occurred 584 years ago. But that’s not stopping their antitrust regulator from challenging the two largest companies in the world. Last week, we talked about the EU vs Apple, but today, let’s discuss the EU vs Microsoft. What Happened? Last week, the European Commission gave Microsoft a heads-up that the agency may pursue legal action against the practice of bundling its Teams collaboration platform. Quick Explainer: In both of the firm’s productivity suite subscription offerings, Office 365 (personal) and Microsoft 365 (enterprise), Teams comes pre-installed and does not have the option to opt-out. Users can ignore Teams if they want to (and if they’re lucky) and use a better alternative like Slack or Glu. But, since Teams comes with the bundle, users are already paying for it, presenting an implicit “lock-in.” [Source](=) The EU argues that Microsoft is leveraging its monopoly power in personal and enterprise productivity to prop up teams and limit competition. I don’t understand how this is any different from something like Apple offering Apple Music within its Apple One subscription. In both cases, purchasing the suite of products comes at a discount compared to purchasing each product individually. This could disincentivize users to consider competitors like Spotify in the same way 365 subscriptions disincentivize Slack. The only difference is that Microsoft’s monopoly over productivity is more explicit than Apple’s over consumer media. Still, if I’m someone who wants everything included in Apple One except Apple Music, I have no option to exclude it. So, if I still want Spotify, I’m paying for both, just like users of 365 that also use Slack [Source]() Maybe a legal scholar ape out there can explain the difference. However, it seems like EU and U.S. antitrust regulators are wrong about one of these. The Big Question: If the issue comes down to the degree of monopolistic power in a given market, where’s the line drawn? What metric can we use to repeatedly determine that a company is using monopoly power to force bundled products onto users in future cases? Banana Brain Teaser 💡 Previous 🗓 In order to complete a reading assignment on time, Terry planned to read 90 pages per day. However, she read only 75 pages per day at first, leaving 690 pages to be read during the last 6 days before the assignment was to be completed. How many days in all did Terry have to complete the assignment on time? Answer: 16 days Today 🕐 A researcher plans to identify each participant in a certain medical experiment with a code consisting of either a single letter or a pair of distinct letters written in alphabetical order. What is the least number of letters that can be used if there are 12 participants, and each participant is to receive a different code? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “Everything in life is luck” — Donald Trump 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. 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