News of the Week (April 1 - 5)
Nu; SoFi; Disney; Amazon; Lululemon; Match; Alphabet; Tesla; Uber; Meta; Cloudflare; Market Headlines; Macro; My Updated Portfolio
1. Nu Holdings (NU) – New Piece of the Portfolio
Over the last month or so, I’ve spent a large chunk of time researching Nu Holdings and Latin America. I’ll have a detailed investment case sent to you all this month, but I’ve started a new position in the firm and wanted to briefly explain why right now. I didn’t want to make you wait. This will serve as a very brief, 30,000 ft. view summary of the investment case… much more to come.
Banking is a commodity. Within commodities, the best way to differentiate is with an input, capital or operating cost edge.
That’s what Nu delivers with its branch-less business model and a cost-to-serve that is lower than any incumbent. Its customer acquisition cost is lower, its cost of risk is lower as its underwriting is better (across cycles) and it generates more revenue per user than alternatives too. This leaves us with a firm that is naturally more profitable than the competition, with a higher margin ceiling and greater cross-selling potential than anyone else in the Latin American space. These advantages are passed on as savings to clients via better account yields and lower loan interest rates.
That’s how you stand out in banking, and that’s what Nu provides in Brazil. It’s now quickly following that same playbook in Mexico with a 15% savings yield. That’s a steep price to pay for deposits, but leadership still thinks the 15% can coincide with a convincingly positive NIM. While it has 50%+ market share in Brazil today, I see no reason why it won’t own a large chunk of the Mexican TAM as well. Its value proposition is perhaps even clearer there as its 15% savings yield compares to incumbents that charge clients for permission to park their funds. Customer growth in Mexico is already explosive and has accelerated since this yield was implemented. And? It already is the market share leader for new credit card issuance in Mexico (and now Colombia too). It is dominating Brazil, it is beginning to dominate in Mexico and should dominate in Colombia.
The Nu balance sheet is pristine, with capital ratios at double the regulatory minimum for Nu Bank. This doesn’t include a larger cash buffer from the holding company that would make its ratios triple the regulatory minimum. It has successfully expanded into new credit demographics as well as secured and unsecured lending products while expanding its risk-adjusted net interest margin. That recipe shows proper risk underwriting, which will only improve with time. All of these items yield the following trends seen below:
From a macro perspective, Brazil and Mexico are both highly appealing (Colombia too). The populations are young and growing, with both governments driving Nu-friendly financial reform. Both countries combine very high interest rates with very low inflation. This leaves significant room to cut and accelerate Nu’s lending and interchange businesses. Brazil’s Financial Minister just told us that more cuts are coming.
That will weigh on currency a bit and should be a net interest income headwind. But? The tailwind to origination volume and velocity of money should more than offset that pain, while easier policy diminishes risk of economic turmoil. Expected U.S. rate cuts should diminish the relative currency devaluation risk too. It’s a decent part of the cycle to be adding Latin American exposure, in my view.
That’s as detailed as we need to get for now. It’s currently at 2% of my portfolio. Again, the investment case article coming this month will intricately expand on all of these ideas, more deeply cover Latin American economics, foreign exchange, and geopolitics, while introducing several new ideas as well. I can’t wait to share. Long Nu… hopefully for a long time.
2. SoFi (SOFI) & Robinhood (HOOD) – Credit Card & Bullish SoFi Analyst Notes
a. Credit Card Commentary
Please note that I own SoFi and do not own Robinhood. That’s important context as we work through this section.
SoFi raised its cash back rewards card from 2.0% to 2.2% this week, for all categories. Many assume the timing is no coincidence, with this move being a direct response to Robinhood’s 3.0% cash back card for paying Gold members.
That could be the case, but I don’t really care. SoFi and Robinhood don’t compete like Twitter pundits seem to think. SoFi’s customer is a young, ultra-prime credit professional who isn’t passionate about single stock investing. Robinhood’s customer is the young, passionate retail investor. Different customers.
The Robinhood card will likely do well, and its success will have zero material impact on SoFi’s success. While these two firms do compete, they only compete in two of the smallest products that SoFi offers – credit cards and investing. Neither of those products are large lead generators for SoFi. And Robinhood even uses SoFi’s tech stack to power its own checking business.
The concern for both of these cards is how profitable they’ll actually be. The cash-back credit card has been a large, yet shrinking margin drag for SoFi to date. SoFi is basically giving users its entire interchange fee cut while Robinhood is giving them more than that cut (it would have already had to share some of the 3% interchange fee with ecosystem partners). So how are they going to make money? Via the anticipated direct deposit halo effect that coincides with lower churn and higher engagement from these high-value offerings. That, and the Robinhood Gold subscriptions, which the card requires.
Candidly, I think SoFi has a better chance of making that work than Robinhood; that opinion isn’t solely powered by the lower rewards vs. Hood’s. SoFi’s primary banking and lending cores (you need to directly deposit your paycheck weekly to get the 4.6%) make its deposit base stickier and less cyclical. Still cyclical, but less so than Robinhood’s absurdly cyclical retail brokerage niche.
The deposit halo effect will likely work well for Robinhood when times are fun. The added net interest income from these deposits should be able to cover the hefty rewards. But don’t be surprised if we see material cuts to these rewards or Robinhood Gold price hikes when crypto isn’t rocking and retail volumes aren’t immensely strong.
This is a fragile game to play for both of them, but especially for Robinhood. Deposit churn amid potential tougher times in the future, paired with brand new credit risk, could turn sour. That will not happen now, but the next tough part of the cycle will be a real test. This is also a newer world for Robinhood than for SoFi, and credit card underwriting is not easy. Just ask Apple or Capital One or Discover… or yes… SoFi. SoFi doesn’t need to share fees from interchange take rates with as many 3rd parties as Robinhood does, thanks to its charter. Needham called that out explicitly in a SoFi note from this week. That also makes this more durably feasible for SoFi.
This seems like I’m picking on Robinhood, but I’m not. Their user interface is best in class by a large margin, and they’ve done very well with driving subtle brokerage innovation. I just see all of this excitement surrounding card rewards and think a bit of cold water should be poured on it. And regardless, congratulations to Hood shareholders on their excellent recent returns. My opinion here does not change the fact that you’ve made a lot of money. Take a bow.
In other SoFi news, Galileo offered post-purchase buy now, pay later financing options for its customers.
b. 2 Bullish Notes
Needham initiated SoFi coverage this week with a buy rating and a $10 price target. The initiation covered the business model, which I discuss frequently. Rather than repeating that, I wanted to highlight what’s new in this note as well as how estimates compare to consensus and SoFi’s own guidance.
Needham values SoFi’s lending business at $8 per share based on a 2.5x tangible book value (TBV) multiple. It talked up the same cost of funding edges with the charter vs. disruptors that we always do. It talked up the same diminished reliance on volatile capital markets too. It sees net interest margin (NIM) contracting slightly for the next two years due to the student loan mix shift and expected rate cuts. It still sees net interest income growth being quite positive as its asset base grows to offset subtle NIM deterioration. It sees NIM bottoming over 5%, with it around 6% currently.
It also dove into SoFi’s fair value accounting practices. To that, I say thank you. It mentioned SoFi’s good standing with all regulators, clean audits from a Big 4 Firm, and skepticism that it would be possible for SoFi to use overly aggressive marks without expedient regulator objection. I agree. It also spoke on SoFi’s default rate assumptions in 2024 providing a nice credit buffer to leave room for more deterioration than it expects.
Needham values the other two segments (tech platform & financial services) at $2 per share combined and sees them as “crown jewels.” It sees the tech platform compounding at a 22%+ clip for the next two years via new clients ramping and new products like post-purchase BNPL. It’s encouraged by these two segments continuing to grow as a piece of the pie, considering the more asset-light nature of the offerings vs. lending.
Despite the optimism, Needham still sees revenue growing at a 16% compounded clip for the next two years. 16% is essentially in line with SoFi’s guide for this year, but not at a two year compounded clip. SoFi sees 22.5% revenue compounding for the next 3 years, which would require material acceleration in 2025 and 2026. Needham doesn’t seem to expect that at this stage, yet the analyst is still optimistic. SoFi management has consistently shown you that its targets are always realistic or overly conservative. Noto’s interview 90% of the way through calendar Q1 made it seem like SoFi was gearing up to do more of the same.
I will say that sell side earnings estimates have been materially falling for SoFi since February. Sell siders now see $0.04 in EPS for 2024 vs. $0.14 just two months ago. Revenue estimates have fallen by more than 6% since November 2023. EBITDA estimates are basically flat, which shows the EPS reduction is related to expected dilution from the convertible note offering this year. The team explicitly told you the offerings will be NEUTRAL for EPS, yet analysts don’t think they’re close to right. This will set up a pretty fascinating Q1 earnings report. If SoFi’s team is right, I truly think the stock will be handsomely rewarded. If not, it will likely continue to be punished. I remain optimistic. We shall see what happens later this month. It will be yet another highly important report for this company.
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3. Disney (DIS) – Proxy Fight, Password Sharing & 2026
a. Proxy Fight
Disney won its proxy fight against Nelson Peltz and Trian. Trian will not get its desired board members. For now, this is pretty irrelevant to me. As I’ve said many times before, Iger is steering this turnaround in a surgical manner. This was a stamp of approval for the job he’s doing, while Trian’s pressure also surely placed a larger shareholder microscope over all of Disney’s actions. Works for me. Iger knows he has shareholder support; Iger knows he is being closely watched. Some say this spells concern for succession considering the board boggled the last leadership change. I’m speculating, but I truly don’t think Iger would have come back if he wasn't guaranteed more control over the process this time. And I also think recent board additions like James Gorman were quite positive. STILL, it’s very likely that I will exit Disney before his retirement if the company and stock perform well enough to avoid the risk of another botched succession. Disney is not a 20% compound grower for the next 10 years, it is a recovery play.
Separately, Iger was asked about Musk’s harsh words towards him in an interview this week. His response could not have been more perfect:
“People have been coming at me for years. I ignore them. Next subject.” – Iger
b. Password Sharing
In other Disney news, the firm’s planned crackdown on password sharing will begin this summer. That was a large boost for Netflix’s paying account and revenue results while it conducted its own crackdown. I don’t think Disney+ has the retention or pricing power of Netflix, but I do think this will still be a material boost to streaming financials in Disney’s push for positive EBIT this year.
c. 2026 Film Slate
Disney announced that Toy Story 5, its latest Star Wars film and a live-action remake of Moana will all be released to theaters in 2026. This is Disney leaning into its very best IP, as it should. The first two should do very well. We’ll see how the Moana remake does.
4. Amazon (AMZN) – AWS’s Subtle & Savvy Move & Mizuho
a. AWS
Amazon’s AWS is extending its cloud credits to more AI startups to utilize the mega-cap’s deep bench of GenAI model integrations. I know this sounds irrelevant, but it isn’t.
Meta established itself as an open source king of GenAI models. Its LLAMA model series is world-renowned and its open-source aim is understandably popular among 3rd party developers. Model building and many pieces of GenAI will become commodities over time. That process is already beginning to unfold.
Meta open sourcing its GenAI models with deep 3rd party integrations is the perfect way to be that low cost provider. It gives developers free access to models for maintaining, perfecting and building on top of. It allows Meta to enjoy developer work on its models and apps without paying for it on its own. That, in turn, drives cheaper, faster innovation. For Meta specifically, that drives more app engagement and, in turn, more desire for developers to keep building on its platform. That cycle merely churns and churns.
While Amazon’s news here isn’t identical, it does rhyme. Opening up its foundational model, 3rd party model integrations and GenAI companions like CodeWhisperer to more AI-startups will make Amazon a more desirable place to build. That building, like with Meta’s foundational models, will make model and app-level innovation faster and cheaper for Amazon. And that will place it in a better position to carve out a large niche within this current boom. If you want to be the low cost provider… you give world-class developers complete access to your tools with whatever model they want to use and whatever source code language they want to write in. You let them monetize their creations (while taking a cut) and you let them improve your own. This news indicates that Amazon is doing that. Thumbs up from me.
In other AWS news, it will cut a few hundred sales & marketing jobs as well as some physical store tech talent. I wish the affected employees the best.
b. Mizuho
We may as well make this a weekly segment at this point. Mizuho became the latest firm this week to talk up its increasing bullishness on Amazon as a 2024 top pick. Its AWS customer survey with a “leading channel partner” was robust. It sees cloud optimization headwinds fading away and consumption growth normalizing.
5. Lululemon (LULU) & Match (MTCH) — Portfolio Management & a Jefferies Note
a. Portfolio Management
I’m quickly losing conviction in my Match Group position. Top-of-funnel weakness at Tinder and across its other apps cannot be offset by strength at Hinge. They have not shown any ability to repair that top-of-funnel and my skepticism over them ever doing so is growing. Candidly, I just recently became single a few weeks ago. I downloaded the app to explore and the ecosystem is pretty shady. It’s full of bots and people trying to promote other “social media” (AKA Only Fans) accounts. It’s a ghost town, and I’m in the Miami area. Tinder seems to be dying, and new leadership seems to be incapable of preventing that death.
So? I see Lululemon at 18x forward EBIT. I see its 17% Y/Y GAAP EBIT growth expectations. And I see it being punished for missing annual profit and revenue guidance by 1.0% and 1.7%, respectively. I visit its stores and see them consistently packed with its new men’s shoes performing extremely well across all 3 locations that I visit. Anecdotal, but still. I juxtapose that with Match Group trading at 14x forward EBIT, flat Y/Y operating profit growth, and its largest asset showing real signs of decay. And? I’m left with a desire to trim Match Group as Lulu falls so I can buy more shares of that higher quality company at similar multiples. I did that later last week as Lulu fell toward $360. I will do it again if Lulu falls to somewhere around $340. It’s a bit of a race right now between when my next cash infusion comes and if Lulu reaches that next buy target. If the former comes first, I’ll use cash to accumulate. If the latter comes first, I’ll trim another 12% of my Match stake to add more Lulu. That’s the plan. Ideally, I want to own Match for one more quarter to see if they can show real signs of progress. Match has been very disappointing to me and I’m not willing to endure that disappointment for much longer.
b. Jefferies Note
Along the same high conviction in Lulu lines, I wanted to discuss a bearish note from Jefferies this week. In it, the headline was “losing market share to Vuori and Alo.” I found that to be a bit irresponsible. Why? It was based on a survey of 500 random people saying they’re spending more money at the other two than they used to. That’s not only wildly anecdotal and only based on U.S. data, but it is also not a causal relationship. It doesn’t mean Lulu is losing apparel wallet share. These outcomes are far from mutually exclusive. LuLu has explicitly talked up more market share gains throughout all of 2023 and into 2024. Athliesure simply continues to gain share of the apparel market, and Lulu was never going to have a monopoly of a $350 billion industry compounding at a 9% Y/Y clip. That’s just not realistic. Are Vuori and Alo doing well? They’re private, so who knows… but let’s assume they are. The apparel pie here is massive and, again, Lulu’s piece keeps growing.
Jefferies has been bearish on Lulu for two years now (maybe the pants just don’t fit the analyst well?). Generally speaking, Lulu has been and remains a sell-side darling. Jefferies however, calls it the “next Under Armour,” which I just could not disagree with more. The brand is pristine (see its margin profile vs. peers), awareness is still very low (especially ex-North America), fabric innovation is unmatched and so is its pace of evolving with fashion trends. But most importantly, the leadership team here is miles better than Under Armour’s ever has been. These items are all subjective; Lulu’s consistent financial results are the concrete evidence.
This is not a fad. A fad does not profitability compound for nearly a quarter-century. A fad does not grow through the Great Financial Crisis. This, in my view, is a juggernaut of a brand in the making that had a slightly underwhelming quarter. Investors are stressed about slightly underwhelming guidance misses, which came with hints from the team that the outlook is conservative. They’re concerned over slowing growth when that growth will accelerate later in the year as comps get far easier. The first half of the year will comp over growth that is several percent higher than its long term targets, so of course those rates will be slower. Regardless, it’s well on its way to meeting or exceeding 2026 targets.
I would need to see more disappointment this year for me to even begin to change my bullish view. There are very few dips that I feel more confident in buying than Lulu’s, and that will remain the case until the facts change materially. My stance is always wide open to evolving. This last quarter didn’t come close to fostering any mindset change here.
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6. Alphabet (GOOGL) – M&A?
Rumors are swirling that Google will look to acquire HubSpot. With HubSpot carrying a roughly $35 billion valuation, this will surely get ample attention from the Federal Trade Commission (FTC). We’ll see if Google leadership has the same charm and clout that mega-cap Microsoft has in its ability to get large M&A done. Amazon and Meta can’t even make small purchases right now.
If this happens, it will give Google significantly more assets and firepower within Customer Resource Management (CRM). This will allow it to offer better marketing, customer segmentation and analytic data within Google Cloud for CRM use cases. That’s pretty perfect as Google pushes further into commerce and considering YouTube’s thriving ad business. These growth vectors make maintaining personal customer relationships all the more important for this giant.
If the deal closes, it would pin Google more closely against companies such as Salesforce.
7. Tesla (TSLA) – Deliveries & Mass Market Cars
a. Deliveries
Tesla missed Q1 delivery estimates by 14%, despite these estimates sharply dropping in the weeks leading up to the report. Some argue that Musk’s polarizing presence is the cause of the weakness. He’s certainly polarizing, but I really don’t think that’s a relevant source for this. Tesla’s pain is most likely being driven by a historic rate hike cycle that is weighing on car affordability and demand. Some current Electric Vehicle (EV) market saturation may or may not also be contributing. That potential saturation certainly wouldn’t be permanent as it’s quite clear that EVs will continue to take more market share. The budding sector likely just needs a lot more charging stations (we’ve all seen the videos of long charging lines), actual participation from more competitors and continued battery/range upgrades. Finally, some temporary factory closures and maintenance are adding to temporary Tesla headwinds, while material pressure on its 2024 growth and margins is hurting sentiment.
This is a cyclical business. Tesla is a structural market share taker in electric vehicles, which will buffer some of the pain from the cyclicality. Still, auto sales have always been cyclical. Tesla’s results will likely sharply improve when we enter a more fun part of this current cycle for the sector. That will not happen in Q1, but the idea that the fundamental cause here is Musk making headlines (like he always does) is something that I find erroneous.
b. Mass Market Cars & Robotaxi
On Friday, Reuters reported that Tesla was scrapping its affordable car plans to focus on Robotaxis. Considering the affordable car was baked into multi-year earnings growth estimates for analysts, this led to some concern. Elon called the news inaccurate, which should have shareholders breathing a sigh of relief. This project is an important one for the company, in my opinion.
Tesla will unveil its latest Robotaxi innovation later this year. It’s still likely several years away from commercial viability.
8. Uber (UBER) – Misc.
Uber will partner with Acadia Healthcare to offer transportation to its patients as it continues its push into business-to-business (B2B) use cases. Acadia does more than $3 billion in annual revenue, making this a material get for the Transportation Giant.
In other news, as expected, Waymo and Uber have begun their autonomous delivery experiment in Phoenix. Many are concerned about Uber’s role in ride-sharing as the autonomous wave hits in the coming years. That’s not a near-term risk, but continuing to lead amid all of that change is a risk. The upside would be that it maintains dominance while utilizing fewer drivers and enjoying a more profitable book of business. The downside would be Google or Tesla trying to build an Uber on their own to replace it. To me, this is why it’s so important for Uber to continue growing its consumer market share lead. Autonomous Vehicle (AV) programs will need sky-high occupancy rates to be optimally profitable to fund hefty costs. How do these AV programs realize that needed objective? By partnering with companies like Uber to plug into massive customer demand. The Waymo relationship is promising, though I’d absolutely love to see a Tesla partnership too. And I do think that will come as Tesla sees the value in Uber’s global scale and guaranteed traffic.
This partner-first approach is one that I support vs. Uber’s old aim of building internally under its founder. Uber’s consumer differentiation (aside from lower surcharge rates and wait times due to having more drivers) lies in its network, brand awareness and product breadth. Not in its ability to beat Google and Tesla to autonomous cars. Merging these strengths is highly preferred by me personally. Doing this alone is too costly and too risky.
Finally, Jefferies modestly raised its Uber price target to a street-high $100 per share. That’s nice. What’s nicer? That the optimism is based on new product traction and anticipated profit beats.
9. Meta Platforms (META) – Bullish Note & Some Commentary
Jefferies released a note this week on Meta. In it, the firm discussed advertising revenue outgrowing Amazon for the first time in a decade. Amazon’s ad business has been consistently growing at a 20%+ clip for a while. Consensus growth for 2024 is 22.4% Y/Y growth. Advertising is 97% of Meta’s total business. Analysts expect only 17.5% Y/Y total growth for 2024. So? If Jefferies is right (we shall see if they are), there should be some very explosive revenue beats coming for Meta. Those revenue beats will almost surely coincide with profit beats as well.
Meta has now 5Xed from its lows, and I’m still not trimming. While the stock has moved explosively higher, estimates have exploded from the trough as well. At $530 per share today, Meta trades for 26x forward earnings with 35% Y/Y EPS growth expected. These EPS estimates also continue to rise (another 15% year-to-date), which I expect to continue.
It’s difficult to model things like Reels revenue neutrality as that ad form factor revenue headwind vanishes. It’s also hard to model the impact and timing of WhatsApp monetization and its GenAI endeavors. Modeling advertising demand from a macro perspective and cost cutting via layoffs are both more straightforward, but these other items are quite material too. That reality, paired with soaring estimates and Meta’s pristine track record, all leave me confident that it will do even better than $20 in 2024 earnings. I’m confident that analysts are still behind in modeling earnings power for this business. Even if I’m wrong, Meta is expected to compound earnings at a 2-year clip of 25% looking forward. A 1X PEG ratio, without any upside assumed, works just fine for me. I have no intention to trim, even as I sit on hefty profits and even as Meta makes up 13% of my overall holdings.
10. Cloudflare (NET) – M&A
Cloudflare announced its intention to acquire an observability platform called Baselime. Observability simply refers to the practice of monitoring an entire software ecosystem to track issues, vulnerabilities and performance. This category can be more neatly split into 3 smaller buckets: infrastructure monitoring, log management and Application Performance Monitoring (APM). Other players within this niche include the hyper-scalers, Splunk, Elastic, CrowdStrike (through its Humio acquisition) and many more.
Baselime’s observability offers precise data matching and surfacing thanks to userID-tagged querying and related context. It also offers granular data categorization to better understand your data, apps and ecosystem. That’s table stakes at this point within observability. Baselime will also “embed its native OpenTelemetry'' software into Cloudflare’s runtime software environment as part of this combination. What the heck does that mean? OpenTelemetry, in Baselime’s view, as definitions differ a bit among companies, “provides a common set of tools, APIs and software development kits” for developers creating apps. The common tools more naturally integrate and work with each other to create a more open and larger base of relevant signals to flag issues and improve interfaces. Extending this to runtime formats (so post-software package deployment), means developers will gain more flexibility and diminished disruption with app performance and hygiene perfection even after shipping a product.
Observability is a very natural use case extension for Cloudflare. If it’s handling your network’s performance and security, it makes sense to also let them handle log management and data observability. That will remove potential siloes and should improve cohesion/performance. Think about it… these new assets essentially give Cloudflare the ability to ingest, store and organize data in a more scalable manner. That scale means better algorithm seasoning to sharpen its security functions and to better contextualize network performance. Baselime unlocks usage of more training data and brings it closer to security and connectivity use cases. That’s valuable and something I think will make Cloudflare’s entire product suite more effective. And in a truly win-win fashion, Baselime’s observability prowess will get a large injection of data from Net’s large data and developer bases.
But that’s not the only perk. The theme of software earnings in 2023 was vendor consolidation. This gives Cloudflare another arrow in its quiver for driving that consolidation and threading that rare needle of cutting cost while also augmenting efficacy. The terms of the purchase were not shared, but Baselime is very small. The price tag should be low in gross dollar terms and the added use cases for Cloudflare are compelling.
10. Market Headlines
Apple (AAPL) is pursuing a home robotics assistant following the scrapping of its Apple Car plans. It also debuted a new AI model (called ReALM) that supposedly outperforms GPT-4 in certain use cases.
Shopify (SHOP) added Serena Williams and her brands as a new client this week. As leadership consistently tells you, businesses (even Fortune 500 brands) like to follow the “cool kids.” Celebrities don’t lead to a direct revenue explosion, but they do augment brand consideration for companies pursuing commerce evolutions. Serena is just another cool kid on Shopify’s roster. Not monumental; not irrelevant.
PayPal’s (PYPL) stablecoin is now live on Xoom with no fees, as expected. PayPal Ventures took part in a small funding round for a Southeast Asian marketing commerce firm called SingleInterface.
11. Macro
Output Data:
The Manufacturing Purchasing Managers Index (PMI) for March was 51.9. This compares to 52.5 expected and 52.2 last month.
The Institute for Supply Management (ISM) Manufacturing PMI for March was 50.3. This compares to 48.5 expected and 47.8 last month.
The S&P Global Composite PMI for March was 52.1 as expected. This compares to 52.5 last month.
The Services PMI was 51.7 as expected. This compares to 52.3 last month.
The ISM Non-Manufacturing PMI for March was 51.4. This compares to 52.8 expected and 52.6 last month.
Consumption & Employment Data:
The ISM Non-Manufacturing Employment Index for March was 48.5. This compares to 49 expected and 48 last month.
The ADP Nonfarm Employment Change for March was 184,000. This handsomely beat 148,000 estimates and compares to 155,000 last month.
Initial Jobless Claims were 221,000 vs. 213,000 expected. This compares to 212,000 last month.
JOLTs Job Openings for February were 8.756 million, which roughly met expectations.
Nonfarm Payroll for March came in at 303,000 vs. 212,000 expected. This compares to 270,000 last month.
The Labor Force Participation Rate for March was 62.7%. This compares to 62.6% expected and 62.5% last month.
Private Nonfarm Payroll for March was 232,000. This compares to 160,000 expected and 207,000 last month.
Unemployment was 3.8% vs. 3.9% expected. This fell from 3.9% last month.
Inflation Data:
The ISM Manufacturing Price Index for March was 55.8. This compares to 53.3 expected and 52.5 last month.
Average Hourly Earnings rose 0.3% M/M for March as expected. This compares to 0.2% growth last month.
I continue to see a first rate cut coming in June or September, and I continue to not care all that much if that happens. With my multi-year horizon, the first cut being delayed by a few months is exactly the kind of market volatility I want to take advantage of. As long as we do not get resurgent inflation, cuts are likely coming in 2024. I don’t see inflation sharply re-accelerating as a realistic scenario. Pundits will react to every little data point, there will be fits and starts in terms of macro progress and disinflation will remain non-linear. But? The ingredients for realizing a soft landing or a mild recession (mild enough for structural growers to keep growing while discount rates and cost of capital fall) are still there.
Job gains are being masked by government and part-time hiring. The GDP sugar-high will fade away in the back half of the year as we lap the benefit of recovering supply chains. Housing disinflation remains crystal clear from any real-time indicator that you want to look at. The Fed’s lagging housing metrics in its inflation readings are the items propping up inflation well above its target. Those lagging indicators will eventually reflect today’s current data. Powell explicitly said just that in his latest presser. These are the ingredients needed for easier monetary policy; these are the ingredients that I still view as firmly in place.
12. My Portfolio
I made a small deposit worth about 1% of the portfolio this week to cover part of the Nu purchase. Aside from that, the rest of the funds came from small PayPal and Lemonade trims. This was not a matter of me wanting to lighten up on either. It was a matter of me wanting to add Nu exposure and not really wanting to add a lot more portfolio fintech exposure at this time. This was my internal compromise. Fintech exposure did rise by just a bit.
I also trimmed about 20% of my Match stake to boost my Lulu stake by a little over 10%. I’ll trim another 20% if Lulu reaches $340 before I make my next deposit. Otherwise, I don’t plan to trim Match again before its next earnings report. But again, if that report is disappointing, I’m out.
Very interested to see the deeper NU note. Interested to understand how they are NOT ING Direct -US/Can - e.g. only, pick your historical comp. Over the business cycle direct banks often trade as a high beta banking play - great in good times, terrible if/when the cycle threatens/turns. Prone to funding trouble when the tide goes out. Not at all certain this is the case here as I don't know enough about NU, but certainly interested to hear more in depth funding analysis of this finance company.
You wrote that LULU is better way then HOOD, do you saw CROX? Better numbers than Lulu, yes its only footwear, but with Highest net margins in sector and solid growth