July 16, 2023

📰 News Organizations

• Big-Bank Earnings Show Signs of Soft Landing. The biggest U.S. banks presented a picture of a resilient economy on Friday. JPMorgan Chase's profit surged by 67%, Wells Fargo's by 57%, and Citigroup reported positive net interest income. These banks exceeded profit and revenue expectations, benefiting from higher interest rates and an increase in loan portfolios, including credit-card balances.
  

• Threads App Experiences User Exodus Despite Initial Interest. Data from SimilarWeb reveals a significant decline of over 25% in daily active users of the Threads app between its peak on July 7 and Monday, July 10. While there was initial interest in the app, not all users have developed a habit of frequenting Threads as they do with other social media platforms.

• Eli Lilly to Acquire Versanis, Obesity Drug Maker, for $1.9 Billion. Eli Lilly has announced its acquisition of Versanis, a promising obesity drug maker, for a total consideration of up to $1.925 billion in cash, including upfront and milestone payments. This deal provides Lilly with access to an experimental drug that shows potential for treating obesity and related diseases.

• Chinese Government Takes Steps to Boost Private Sector. As China's post-pandemic recovery faces the risk of a confidence trap, officials have undertaken high-profile actions to signal the government's support for private enterprises. Chinese leader Xi Jinping has expressed a commitment to improving treatment of foreign investors and advocating for greater openness in recent weeks.

• Microsoft and Activision Consider UK Rights Sale to Facilitate Merger. In order to address regulatory concerns, Microsoft and Activision Blizzard are exploring the possibility of relinquishing some control over their cloud-gaming business in the UK. This could involve selling the cloud-based market rights for games to a telecommunications, gaming, or internet-based computing company.

• FTC Loses Appeal Bid to Block Microsoft-Activision Deal. An appeals court on Friday denied a last-ditch bid by the FTC to halt Microsoft’s planned $75 billion acquisition of videogame publisher Activision Blizzard. Friday’s order helps clear the way for Microsoft and Activision to close the merger. The companies set a deadline to finish the merger by July 18.

🐦 Twitter

• Interest expenses at big US banks are rising much more quickly than interest income. Across the six largest US banks, interest expenses are set to climb to roughly $78.7 billion from $15.5 billion in the same period last year. Source.
  
  

• Active managers had less than 20% exposure to equities last October when the S&P 500 was at 3,500. Today their equity exposure has jumped above 90% with the S&P 500 at 4,500. This is the highest exposure since November 2021. Source.
  
  

• Now falling into deflation territory for PPI finished goods. In year/year terms, metric slipped to -3.1% in June, which is back to where it was in May 2020. Source.
  
  

• Zillow upgrades its housing outlook—again. Economists at Zillow expect U.S. home prices, as measured by the Zillow Home Value Index, to rise 6.3% between June 2023 and June 2024. Source.
  
  

• Huge move in the end June EBIT/EV value spread to 3.84. The spread significantly narrowed from last month, helping EBIT/EV value to a good month. When it widens, value underperforms. When it narrows, value outperforms. Source.

📓 Online Publications

• Mortgage Rates Surge to an 8-Month High. Freddie Mac reports that mortgage rates have climbed to an 8-month high, with an average of 6.96%. This increase translates to a monthly payment of $2,126 for the typical single-family home, bringing the 30-year fixed-rate mortgage close to a 7% average.

• FDA Approves Over-the-Counter Birth Control Pill. Perrigo celebrates a significant regulatory milestone as the FDA approves Opill as the first oral contraceptive available for over-the-counter (OTC) purchases. Analysts anticipate substantial demand for this OTC oral contraceptive option when it becomes available.

• Nikola Enters Hydrogen Agreement with BayoTech. Nikola announces a deal with BayoTech, selling up to 50 of its Nikola Class 8 hydrogen fuel-cell electric vehicles and purchasing low-emission hydrogen from BayoTech. This will allow the company to trade vehicles for necessary resources during a financially challenging period.

• Quarterly Earnings Return to Normal Pattern, Beating Expectations. Q2 2023 reflects a return to the typical pattern of gradual earnings downgrades before earnings reports, as illustrated in the graph and report. The previous three quarters experienced sharper downgrades. On average, earnings exceed expectations by approximately 4.9%, aligning closely with predictions for Q2.

🎧 Podcasts

• Consumer Spending Shows Early Signals. Interest rates on cars have doubled, affecting consumer demand for both new and used cars. We may be starting to get to a point where credit is so expensive and the consumers' ability to flex credit is decreasing. That will eventually translate to a recessionary or declining effect on the revenue of businesses in the goods and services sector. Source(28:14)

• EV Supply/Demand Mismatch. The legacy auto industry is facing a mismatch between the supply and demand for EVs. Despite increasing interest in EVs, concerns about price, charging infrastructure, and range anxiety have limited consumer adoption. This has resulted in an oversupply of EVs while Tesla remains a preferred choice due to its established presence as a pioneer in the industry as legacy automakers play catch up. Source(51:45)
  
  

• The Magnificent Seven Are Dominating. According to Michael Cembalest, tech stocks like Nvidia, Meta, Amazon, Google, Microsoft, Apple, and Tesla are driving market value with multiple expansions, despite varying earnings expectations. The absence of significant antitrust actions and the focus on securing domestic supply chains have contributed to their market dominance and growth. Source(36:52)
  
  

• Bob Iger Questions the Future of Television. Disney CEO Bob Iger is considering selling off Disney's TV assets, including ABC and Cable networks, as he believes traditional TV is declining. However, he clarified that ESPN is not currently up for sale but expressed openness to a strategic partnership. Additionally, Iger announced a reduction in content spending and creation for the Star Wars and Marvel franchises. Source(10:29)
  
  

• FTC's Antitrust Losing Streak Continues. The FTC has experienced a series of high-profile losses in antitrust cases, including the recent Microsoft Activision case, adding to a growing string of defeats that also involved Meta and Apple earlier this year. Scott Galloway suggests that these losses may encourage more companies to pursue acquisitions, as the FTC's track record of losses accumulates. Source(47:29)