The Federal Reserve's Quarterly Loss

Since September of last year, the Federal Reserve has been making a "loss," [The Daily Peel... ]( December 8, 2023 | Peel #602 Silver banana goes to... [M&A Science. ]() In this issue of the Peel: - Since September of last year, the Federal Reserve has been making a "loss," where the spread between the interest rates it received has been less than the interest rate it pays. - GameStop and Advanced Micro Devices had a ripe day, while C3.ai and Sprinklr suffered share price declines. - Barbie grossed over $1.4bn in the global box office, while Oppenheimer raked in over $952mn themselves. Market Snapshot Happy Friday, apes. Is it just me, or was that the most boring Thursday Night Football matchup of all time? Maybe we Patriots fans are still just being punished for being way too good for way too long. Man, I miss Tom. But there wasn’t a whole lot to miss in equity markets yesterday. After a few flat and down days following November’s rally, Thursday brought us a green day across the board for U.S. major indexes. The Nasdaq’s 1.37% gain led the day, while Healthcare, Energy, and Utilities were the only sectors lower on the day. Meanwhile, the team over at WSO Alpha managed to put up a decent showing as well. The apes over there brought us up 0.85% for the day, so stop missing out on the degeneracy and #gainz already and [get in on the fun.]() Let’s get into it. [Complimentary Ebook] How PE Should Support Portfolio Companies Acquisitions [image]() Acquisitions themselves have not changed over time, but there are differences in what matters to family-owned private equity firms and publicly traded companies, and what needs to be reported to the market. There are different levels of strategy that one would assess when looking at an acquisition. Whether it’s a $15mn revenue business or a $100mn revenue business think about the following: - What is being bought? - How does that purchase work with the current business strategy? - How will it work together to grow down the road? Because our resources are focused on growing our core, is this part of our core business? Or is this adjacent to the business so there will be two cores? Our latest Ebook aims to solve these questions and more. Access your complimentary copy today: [Download Now]() Banana Bits - Third try’s the charm? I’ve lost count of Google’s AI models already, but according to experts, this time, they “[got it right.]()” - For the early risers out there, get caught up with what’s gonna be important in [today’s jobs report.]() - We still don’t know what the hell actually happened, but the board director who led to the ousting of Sam Altman is telling [her side of the story.]( Macro Monkey Says Shooting Yourself in the Foot Former NFL receiver Plaxico Buress, all-time top 5 rapper Lil Wayne, and the professional idiot in the movie 8 Mile Cheddar Bob all have something in common: they each shot themselves… by accident. None of those misfires actually hit the gunmen (a.k.a., themselves) in the foot, but that seems to be the Federal Reserve’s strategy to join those distinguished gentlemen on such an elite list. We’ve known for a long time now that Fed Chair JPow actively wants you to make less money and, if he could, would probably take away your job entirely. Don’t worry. We still love Mr. Money Printer, but damn, this guy will do anything to get inflation to chill out. And as part of that battle against inflation, Powell has de-facto given a thumbs up to the current losses being suffered by the Federal Reserve. That’s right, apes. The Fed can post an unprofitable quarter as well… just like all my stocks. Anyway, it’s true—the Federal Reserve is one of the very few governmental bodies that actually funds itself. JPow isn’t taking your tax dollars, in other words. "... Fed Chair JPow actively wants you to make less money ..." Through lending activities and fees paid to the Central Bank, the Fed earns the money it uses to pay its operational costs, such as personnel (a.k.a., salaries), technology, building maintenance, currency distribution, and a whole bunch of other stuff similar to what you’d see rolled up into “OpEx” on an earnings report. Anytime the amount of money the Fed earns exceeds those costs, meaning the Fed turns a profit, it’s legally required to pay those funds back to the U.S. Treasury. So not only is the Fed not taking your tax dollars, but they’re actively making the U.S. money (in addition to making the U.S.’s money). The vast majority of the Fed’s earnings stem from the spread between short-term interest rates that it pays vs the usually longer-term rates that it earns. Remember, they’re just a bank for other banks. They make money through: - The Fed’s balance sheet comprised of U.S. government securities the Bank purchases through Open Market Operations, including treasury bills, notes, and bonds that pay interest to the Federal Reserve. These are owned to control liquidity in financial markets and, therefore, control interest rates, but the $ earned is a nice bonus. - The Fed also owns foreign currency bonds that pay interest to them as well, and these are just issued by other countries. The same is true here. The purpose of buying these is to conduct foreign exchange operations, but the €, ¥, £, C$, CHF, and other money earned is a nice bonus too. - Repos (repurchase agreements), where banks sell assets to the Fed with the agreement to purchase them later, usually at a higher price - Discount window lending, where the Fed makes last-resort loans to banks at above-market rates - Capital gains from the sale of securities - Fees paid to the Fed by banks for supervisory, clearing, currency, and EFT services The vast majority of the Fed’s earnings comes from that first bullet—keep in mind, the Central Bank’s balance sheet is still worth $7.79tn as of [Nov 27th.]() To put it very simply, the longer-term interest rates paid to the Fed through its treasury portfolio have largely fallen below that of the interest rates the Fed pays via things like the Interest on Excess Reserves (IOER) and Interest on Reserve Balances (IORB). The spread has gone negative between what the Central Bank earns and what it pays, in other words. "... this isn’t a huge, glaring, immediate problem or anything, but it sure could be in the long term." In fact, between 2011 and 2021, the Fed paid over $920 billion in total “remittances,” as they’re called, to the U.S. Treasury. But as we can see in the chart below, those monthly payments have been negative since September of last year. [image] [Source](=) Now, this isn’t a huge, glaring, immediate problem or anything, but it sure could be in the long term. When the Fed can’t send funds to the treasury, it’s not like when a company loses money—this creates a deferred liability on the Fed’s balance sheet. In other words, it becomes an obligation the Fed must start to pay off when (or if) it starts to not be broke again. Given that everyone knows rates won’t remain this high for long, the problem likely isn’t anything to worry about. But giant losses at the country’s—and, de facto, the world’s Central Bank—isn’t something we want to sleep on. Plus, just know that JPow is making himself poor, too. What's Ripe GameStop (GME) $16.36 (↑ 10.24% ↑) - The late, great Charlie Munger passed just mere days ago, and we’re already onto this nonsense?? I thought we agreed to let him rest in peace for a little bit before making him permanently turn in his grave (RIP, btw, straight GOAT). - GameStop has officially outdone itself as the single most brain-dead meme stock of all time. Get this—shares surged yesterday on an announcement that the “company” is now allowing “CEO” Ryan Cohen to trade stocks with their cash pile. - The 4 combined brain cells employed by GameStop apparently can’t come up with any possible way for this old shopping mall stalwart to turn a profit besides allowing the “head” of the company to gamble assets ultimately owned by creditors and shareholders. God damn. - This was part of the firm’s earnings report released Thursday, where they essentially broke even and beat sales estimates with revenue falling 9% annually. Where is that asteroid we’ve been waiting for? Advanced Micro Devices (AMD) $128.37 (↑ 9.89% ↑) - It's time for Nvidia to suit up and put the gloves on… or if we’re talking hockey, take them off. Finally, the King of AI has a fight on its hands. - AMD shares boomed yesterday on the announcement of new specialty semiconductors set to rival Nvidia’s uber-popular H100 and H200 with their fresh MI300X and MI300A chips. Love the creativity of these names! - Meta and other big customers have already signed up for some orders, indicating that investors’ biggest fears—if AMD would be able to match Nvidia’s tech capabilities—have largely been absolved. And hey, it’ll take AMD to 5.5x its share price for the firm’s market cap to catch up to Nvidia! - Still, neither firm can sell their top-of-the-line chips to Chinese customers without jumping through bureaucratic hoops and paying some hefty bribes. After all, it is the governments we’re talking about here. What's Rotten C3.ai (AI) $26.02 (↓ 10.77% ↓) - But then again, it turns out AI isn’t always a saving grace. Somehow, this leader in the hottest market on the planet right now managed to f*ck it up. - C3.ai, a provider of turn-key enterprise and other AI solutions, disappointed investors even more than George Santos did to his donors. The tech firm reported widening losses, from $0.11/sh at the same time in 2022 to a $0.13/sh loss this year. Still, estimates are expected to be even more trash at an $0/18/sh loss. - Revenue missed by a hair, clocking in at $73.2mn vs the $74.3mn expected. But last quarter’s sales weren’t even close to the worst part. That title is reserved for next quarter’s numbers. - C3 now expects sales in the range of $74-$78mn next quarter, with a midpoint below the $77.7mn that had been priced in. Worse yet, analysts were expecting losses of $21.1mn, but C3 said, “Double it and don’t give it to the next guy,” updating guidance to reflect their expected loss of $40-$46mn. Sprinklr (CXM) $11.11 (↓ 33.47% ↓) - Shares might’ve closed at $11.11, but yesterday was anything but lucky for Sprinklr. - The customer “experience” platform that’s definitely super jealous of Salesforce claiming the ticker “CRM” reported earnings, and despite an okay quarter, guidance poked the bears far too hard. - Sales surged 18% annually and beat expectations at $186.3mn. On that, the firm was able to rake in $0.12/sh vs expectations for just $0.07. But now that management says the firm has achieved scale, they’re expecting a bit of a slowdown going forward. - For fiscal year 2025, which this company thinks is next year because I guess counting is hard, Sprinklr plans to refocus its go-to-market strategy given its newfound scale. That means lower growth, and there are few things Mr. Market hates more than that. Thought Banana “Show Me the *Movies!!!” Shoutout to acting legend and proud advocate for the Church of Scientology, Tom Cruise, for the above quote. He didn’t actually say it, but it was screamed at him in the 1996 movie Jerry Maguire. You remember 1996, right? Personally, I don’t at all, but sources tell me that was still back in a time when actual good movies were made. Now, it seems like all we get is Fast and Furious 69 or Cringe New Superhero Part II—The Sequel. Still, amid all the tomfoolery (no pun intended), 2023 saw the revival of some (emphasis on some) movies that were so good you might actually be able to call them “films” once again. "... some psycho is actually making a movie combining the two—the two movies, Barbie and Oppenheimer ..." Barbenheimer was the story of the summer, and—sidenote, some psycho is actually making a [movie combining the two]()—the two movies, Barbie and Oppenheimer, may actually set the industry back in the right direction. Let’s look at some stats: - Barbie grossed over $1.4bn at the global box office. - The above film is now officially the highest-grossing movie Warner Bros has ever produced and the highest-grossing film by a female director of all time. - Oppenheimer raked in over $952mn at the global box office. - These movies made this much cash despite being released on the exact same daytime, the glorious day of July 21st, 2023. We’re getting to that point in the year where every media outlet ever (including us!) is now going to start doing pieces on “2023 something In Review.” Given that the only halfway decent-looking movies set to be released before we reach 2024 include Wonka with [Timothee Chamalama-bing-bong](), Rebel Moon by Zack Snyder, Ferrari, and maybe a few others (don’t even get me started on Aquaman), we figured it was time to take a look back, reflect, and most of all, complain. Studios have been trying day in and day out to get cinema fans back in the theater, a particularly tough challenge post-pandemic and with the advent of streaming services. "Studios have been trying day in and day out to get cinema fans back in the theater ..." But Barbie and Oppenheimer offer a rare glimpse into the secret recipe for actually bringing people back in person: making high-quality films. I know it sounds crazy, but given the global box office numbers put up by these movies and others in 2023, the results speak for themselves. Stocks like AMC, Cinemark, IMAX, and others desperately need the revival, too. Then maybe AMC can stop doing whack sh*t like buying stakes in [Nevadan gold miners.]( But, at the end of the day, this really is capitalism at its finest. If we have to resort to sitting at home to catch the best releases on streaming, so be it. The monthly subscriptions are pretty much all cheaper than an AMC ticket… and you can just cancel once the show’s over anyway. The Big Question: Will consumers ever come back to movie theaters, or will they systematically go away, given the rise of online streaming services? Will high-quality movies really bring people back to the theaters? Would you invest in cinema outlets? Banana Brain Teaser Yesterday — Mr. and Mrs. Crazy recently had their concert, and they want to know how much their total income was. After calculating that they earned $95, they figured out that 100 people attended their concert. If each child paid 50 cents, each pensioner paid $2.50, and adults paid $10 each, how many children, pensioners, and adults went to the concert? Answer There were 85 children, 13 pensioners, and 2 adults. Today — If yesterday's tomorrow was Thursday, what day is the day after tomorrow's yesterday? Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “The business schools reward difficult, complex behavior more than simple behavior, but simple behavior is more effective.”—Warren Buffet How would you rate today’s Peel? [All the bananas]() [Decent]() [Rotten AF]() Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](). [ADVERTISE]() // [WSO ALPHA]() // [COURSES](=) // [LEGAL](=) Don't want The Daily Peel? [Unsubscribe here](=). Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. 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