BlackRock Goes Mining

BlackRock gears up for one of its most disruptive acquisitions yet. July 8, 2024 | Peel #745 Silver Banana goes to... [Brilliant. ]() In this issue of the Peel: - Economic rules are starting to fall apart…along with the labor market - Macy’s suitors get antsy while the EU gives the finger to Chinese EVs - BlackRock gears up for one of its most disruptive acquisitions yet Market Snapshot 📸 = Banana Bits 🍌 - Big Dawg President Joey B tried (and mostly failed) to convince Americans [he isn’t totally senile]() - …and as a result, it might soon become VP Kamala Harris’ [time to shine]() - Tesla shares have regained all losses for the year, [now up 1.25% in 2024]( - A lot of change has been promised in European elections, but [does anyone have the money to do it?]() Become an AnalystGPT = Warren Buffet says the best investment to make is in yourself. That seems to have worked out for him and his $130bn, so how can we hop on our own boat to billions? 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[Sign up now!]() Macro Monkey Says 🐒 Too Cool For Rules Much like the Geneva Convention, economic rules of thumb are starting to get completely ignored in the post-C-19 environment. Friday’s Employment Situation Summary from the Bureau of Labor Statistics (BLS) adds to this point. Let’s get into it. The Numbers On Friday, we learned that the U.S. economy added 206k jobs in June, slightly higher than the 200k expected. [Source]() However, based on revision trends in recent months, both the reported and guesstimated figures are likely higher than the actual additions. For example, the BLS originally reported 272k additions in May. As of the June report, that figure has been revised down to 218k, still strong but spotlighting the extremely weak counting skill of the BLS, off by an enormous 19.8%. April was even worse, with the latest revisions cutting total additions by 34.8%. If the BLS was given a grade for counting, the agency earned a D in April. Ds get degrees, as my transcript proves, but this also may provide further evidence as to why the unemployment rate has been increasing despite “strong” job growth. [Source]() There are three buckets of employment any citizen can fall into: Employed, Unemployed, and Not In the Labor Force. Unemployment is simply the number of unemployed people divided by the total labor force. So, in order for unemployment to rise, the number of people in the “Unemployed” bucket must be growing faster than the total labor force. So, while job additions appear strong by the headline number, revisions and a rising unemployment rate imply a weakening labor market. As a result, economists are now waiting for the so-called Sahm rule to get triggered. The Sahm rule is an alleged recession indicator that predicts the start of a slowdown when the rolling 3-month average unemployment rate rises 0.5% above the lowest rolling 3-month average unemployment rate that’s occurred in the last 12 months. It looks a little something like this: [Source]( Currently, the average unemployment rate for April, May, and June sits at 4.0%, 0.43% higher than the lowest 3-month average in the last 12 months. According to the Sahm rule, this would imply the odds of a recession are getting close to “certain.” Now, nothing in macro, least of all indicators, is ever certain. But, throughout the post-C19 environment, rules-based economic prognostications have been as futile as Joe Biden’s efforts to prove he’s not in cognitive decline. Just consider: - Yield Curve Inversion: It suggests that when the 10-year Treasury yield falls below that of the 2-year (or 3-month) yield, a recession should occur typically within the next 18 months. The inversion has existed since July 2022, the longest on record. - Taylor Rule: A derivative of the Taylor Rule implies that when inflation falls, unemployment should rise, and vice versa. This has been partially true in recent months but was unequivocally false from 2021-2023. It looks like the Sahm rule will be the next indicator to get tested. And again, while none of these are exact, they sure have been far less reliable since that little thing called C-19 showed up. With that said, the U.S. economy is no doubt weakening. 3-month average additions of 177k are the lowest in over 2 years, the unemployment rate has increased for 3 months in a row for the first time in 8 years, and wage growth continues to slow. But that is explicitly what rate hikes and balance sheet runoffs were meant to induce. We got exactly what we were asking for when Fed Chair JPow started raising rates in March 2022. The Takeaway? So, while economic rules are getting harder to trust, the U.S. economy is undoubtedly experiencing a slowdown…exactly like we were hoping for by tightening monetary policy. The odds of a rate cut occurring in September actually decreased slightly in the face of this report despite the rising unemployment rate. But at the same time, recession probabilities have been nonstop on the rise: [Source]() Now, the raging debate is whether or not the Fed has gone too far by raising rates too high for too long. The direction of the Fed Funds rate is becoming clearer, but unfortunately, we can’t say the same for its timeline. As the saying goes, if you’re not a little confused, you’re not paying attention. What's Ripe 🤩 Macy’s (M) 📈9.5% - Hardly anybody buys anything at Macy’s. But that’s not stopping Arkhouse Management and Brigade Capital from trying to buy the company itself. - At least then the department store will get at least one sale. Anyway, Arkhouse and Brigade already had an offer in, but now, they’re raising their offer. - The original bid was $21/sh, then $24/sh. The new offer is a whopping $24.80/sh, clearly done to get the offer price to a very nice $6.9bn. Meta Platforms (META) 📈5.9% - Good earnings are a decent way to raise your stock price. But, apparently, posting [goofy, patriotic videos]( surfing barefoot in a tuxedo is even better. - It’s sure working for Zuck and Meta. However, Meta is also reportedly considering a stock split this year, a move equally meaningless to the company’s value. - Splits typically cause a pump from retail investors becoming able to purchase a whole share. But, like Zuck’s video, they’re only good for hype. What's Rotten 🤮 Chinese EVs (ZK, NIO, XPEV) 📉-8.7%, -5.3%, -4.8% - It’s been a good week for U.S. EV makers like Tesla and Rivian, but the EU killed the good vibes for Chinese makers. - The international economic museum/union announced increased tariffs on Chinese EVs to protect its domestic makers, sending shares lower. Nvidia (NVDA) 📉-1.9% - Haters gonna hate, and as of Friday, Nvidia has at least one new hater. New Street Research just cut its rating on the AI kingpin. - It’s not a Sell rating or anything, but New Street has claimed the title of second analyst team to grow a pair and say what we’re all thinking. - Citing limited upside—because shares are up a lot in the last ~2 years or something, I guess—New Street is now calling the company a “Hold.” Thought Banana 🤔 BlackRock Goes Mining $10tn in AUM might sound like a lot of money. But with that, you could only buy the International Space Station, the most expensive object ever created, 67 times. That’s close to abject poverty, by my standards, and finally, BlackRock is catching on. The asset manager announced plans to acquire alternative investment market data provider Preqin, a shouldn’t-be-surprising buyout set to shake up the private markets landscape. What Happened? At a price tag of $3.22bn, BlackRock’s acquisition of this London-based data provider further solidifies the asset manager’s dominance in more ways than one. At that acquisition price, Preqin founder Mark O’Hare’s 80% stake in the firm will translate to a $2.6bn payday. At that net worth, he will become more than 2x wealthier than Larry Fink, the CEO of the company he’s getting acquired by. Since 2003, Preqin has become the industry standard data provider for alternative investment data, focusing on markets like venture capital, private equity and credit, hedge funds, real estate, resources, infrastructure, and more. Think of them as the Bloomberg in the space. BlackRock’s purchase only adds jewels to the King of Private Market’s crown, but importantly, this gets Preqin even more in the face of one of the most important markets within the privates space: investment managers. RIAs, advisory offices, and other versions of professional money management have been a particularly attractive space for private equity funds in recent years. The attraction comes from the market-linked recurring revenue business model of most RIAs and other advisors. Most advisors charge a percentage of assets to earn revenue, so as the stock market rises, so do their fees with no additional effort. Many RIAs already use Preqin for alternative data. So now that this data provider will come as part of the BlackRock wrapper, the asset manager’s ownership of the space is only growing. Everyone freaks out about BlackRock buying houses despite them owning less than 1% of U.S. single-family homes. But maybe it’s RIAs that we should be concerned about… The Big Question: How will this acquisition translate to AUM growth at BlackRock? Banana Brain Teaser 💡 Previous 🗓 At his regular hourly rate, Don had estimated the labor cost of a repair job as $336 and he was paid that amount. However, the job took 4 hours longer than he had estimated and, consequently, he earned $2 per hour less than his regular hourly rate. What was the time Don had estimated for the job, in hours? Answer: 24 hours. Today 🕐 If money is invested at r percent interest, compounded annually, the amount of the investment will double in approximately 70/r years. If Pat's parents invested $5,000 in a long-term bond that pays 8 percent interest, compounded annually, what will be the approximate total amount of the investment 18 years later, when Pat is ready for college? Send your guesses to vyomesh@wallstreetoasis.com Wise Investor Says 🤓 “To finance longer life spans, we must convince individuals to start investing now for the long term. But longevity should be an asset that can be levered, not a curse. They must understand that there’s a cost to sitting in cash. No one talks about that cost.” — Larry Fink 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