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1. PayPal (PYPL) -- Uber, China & a CFO Interview

a) Uber

What’s the News?

PayPal signed a multi-year agreement to deepen its global relationship with Uber (a long time customer). As part of the agreement, Braintree will assume more of Uber’s unbranded processing volume and add debit network servicing to the credit orchestration it was already providing. Orchestration merely means utilizing PayPal’s vast partner network to route payments as quickly and cheaply as possible for Uber and its stakeholders.

Encouragingly, the new deal will also see Uber utilizing several of PayPal’s value-add services. This is the more important piece of the news. These services include Hyperwallet which is its payouts product that unlocks immediate earnings transferal to PayPal or Venmo. Hyperwallet’s ability to drive broad and flexible payout options has been a key marketplace selling point for unbranded PayPal. The fattened-up agreement will also include Chargehound (for chargeback minimization services) and a partnership on testing and releasing authorization optimizations. Interestingly, the two will create “combined incentives” for UberOne customers to use PayPal or Venmo at checkout. That hints at PayPal Gold (formerly Honey) being part of the contract.

Why does this news matter?

First, Braintree’s  “additional processing” for Uber should lead to some nice private label growth. Uber uses Braintree, Adyen and Stripe with estimates around the internet showing Braintree being the third global option. That could (could) now be changing. This meshes well with what leadership tells us is the general life cycle of a client: Braintree starts as a secondary processor and slowly assumes more volume as it demonstrates its supposed (per leadership) authorization and loss rate edges vs. the competition. The boost to revenue from these added responsibilities will not be sharp, but instead subtle.

Braintree revenue growth is not the concern for PayPal… the margin associated with that growth is the main concern. Braintree’s rapid market share taking and brisk compounding has materially weighed on PayPal’s overall transaction margin. The team has a few levers to address this issue: expanding downstream to smaller merchants, more global and cross-border volume and more value-add services.

This deal fulfills that third objective of cross-selling more value-add services. These services are more differentiated and have higher margins than core private label processing. That means Uber as a client just got more profitable for PayPal. This won’t drive a transaction margin bottom alone but is a small step in the right direction. Value add services are PayPal’s best chance at driving a near-term transaction margin trough. Braintree’s book of business is made up of massive clients like Uber. Service cross-selling means massive chunks of existing revenue pretty much immediately coincide with heftier profits.

Finally, the incentive program will push more Uber customers to use branded PayPal and Venmo as payment options for their rides and deliveries. Branded checkout is much, much higher margin revenue for PayPal.

b) China

Mizuho published some interesting research on Temu’s (large Chinese marketplace) U.S. launch. The site is gaining rapid adoption and PayPal is a key payment option available on the site. Temu’s traffic contribution to PayPal has nearly tripled year to date and this branded growth driver would be welcomed from both a demand and margin perspective. Between China and things in Europe hopefully not getting much worse from here, PayPal’s key international markets should become healthier in the coming quarters.

c) CFO Interview

Branded Checkout Acceleration:

Acting CFO Gabrielle Rabinovitch didn’t offer August branded checkout volume data following the company’s acceleration to 8% Y/Y July growth. She did, however, say the quarter and macro backdrop continue to progress roughly as expected.

Unbranded:

Last week, Dan Schulman told us that Braintree is winning market share via superior authorization and loss rates with no change to its pricing philosophy. This ran contrary to Adyen’s comments last quarter saying increasing pricing pressures were impacting its growth in North America. This week, CFO Gabrielle Rabinovitch echoed Schulman’s same opinion. She told us that Braintree’s market share gains and success are based on “performance and best in class authorization rates.” I’d love to see more specific checkout data and margin/demand disclosures for Braintree under new leadership and expect that will come considering how detailed Intuit’s reporting is (which is where new CEO Alex Chriss comes from).

Transaction Margin:

I’ve mentioned this before but it is truly important and worth repeating. PayPal’s transaction margin needs to bottom for sentiment to turn, for profit to compound, and for this investment to work. I won’t add until this happens. Braintree’s rapid growth has weighed on this margin line along with a few other headwinds.

Those headwinds need to abate, and I’m confident that they will as PayPal delivers the margin trough. Not in Q3, maybe in Q4 and likely in 2024. Why? Several reasons:

• The same note on its whole business being made up of the lowest possible margin clients (giant & U.S. based).

• It’s having success expanding internationally in Latin America and in Europe through relationships with clients like Booking.com.

• It now finally has a modern full stack product (PayPal Commerce Platform) geared towards smaller, higher margin businesses.

• Industry e-commerce growth and discretionary spend are showing signs of recovering per PayPal. This will feed branded transaction revenue which is margin accretive.

  • Braintree customers let PayPal integrate its latest and greatest branded checkout flows into merchant sites. This raises branded checkout market share.

• It’s debuting more value-add services for Braintree clients like FX as a service next year (impact to be in 2025).

• FX translation and currency hedging gains were abnormally strong in 2022. The company will finish lapping that transaction dollar comp headwind in Q4. Similarly, non-recurring merchant cleanup fees added $190 million in one-time transaction margin dollars for 2022. That comp headwind goes away in Q4.

• As it finishes onboarding merchants to the newest Braintree integration and PayPal Commerce Platform, it will be able to sunset antiquated versions of these products to cut redundant costs. It will also finish somewhat hefty custom Braintree integration work for its largest 100 merchants by the end of 2024 to shed those costs (which are considered transaction-related costs) as well.

  • There’s a lot of custom onboarding work needed for gigantic clients such as Uber and these will diminish with the rollout completion.

Final Notes:

• Expect more EBIT margin expansion in 2024.

• No discernible impact on peer-to-peer payment volumes from the FedNow Launch. The use cases are different.

• Will keep aggressively buying back shares while it sees the “intrinsic value of the company as much higher than the valuation.”

• While Net New Active Accounts continue to grow in core markets, they have been declining overall as PayPal eliminates cash burning incentive plans to retain users in less important markets where it doesn’t have its full product suite.

2. Walt Disney (DIS) -- Charter, ABC & Subscriber Targets

Sorry for the delay on the Disney piece. It’s currently in its final round of edits and will be published Monday Morning.

a. Charter

Disney and Charter ended their roughly one week contract dispute. It’s no coincidence that this happened just in time for a marquee Monday Night Football game. The structure of this new deal illustrates the power and draw of ESPN (and streaming too).

So what’s in the new 10 year deal? While complete financial terms were not shared, Charter will supposedly pay Disney $2.2 billion in content access fees. Interestingly, it will drop 8 of Disney’s 27 stations including less popular channels like Freeform, while accepting Disney’s price increases on the remaining 19.

The most notable piece of this newer deal is how it combines linear and streaming. Charter customers will gain access to the ad tiers of Disney+ and ESPN+ as part of a wholesale agreement for Disney to grant access in Spectrum’s overall bundle. The price of these services will be baked into Spectrum’s overall fees.

Furthermore, Spectrum customers will have access to ESPN’s planned streaming service whenever that goes live. Live sports is the remaining healthy part of linear TV and advertising. This ensures Spectrum continues to hold rights to that valuable content as the streaming revolution marches on.

This is also perfect for Disney. Why? Because they have long relied on Charter and Comcast as centralized distribution partners for its linear assets. That outlet potentially vanishes in the World of streaming, but as part of this deal, Spectrum will continue to serve as that distributor to its nearly 15 million customers. That will mean immediate traction for the new service and was the main sticking point for Spectrum granting Disney’s other demands.

This really was all about Spectrum wanting to maintain access to great content as it moves off of linear. Content is king… Disney is (still) the king of content.

Furthermore, this allows Disney to keep linear TV as a cash cow (a deteriorating cash cow but still a cash cow) for the next decade. That gives it far more flexibility and control over the eventual full shift to streaming. Laura Martin, one of my favorite media analysts, calls this a “win, win” and I’d have to agree.

b) ABC’s Multiple Bidders

Rumors are circulating that Disney could sell ABC to Nexstar. I love this news. Turn dying linear assets into cash while you can. Give yourself more flexibility to re-invest into your core intellectual property and to bid on highly valuable live sports rights. ABC’s general entertainment and live news niches are not what make this company stand out. They are expendable.

There was also a rumored $10 billion offer for ABC and other channels (including National Geographic and FX) from Byron Allen. I have the same opinion about this deal as the potential Nexstar deal.

c) Subscriber Targets

Bloomberg reported this week that Disney is preparing to cut its 2024 Disney+ subscriber target. While this is not ideal, it’s entirely expected and not alarming to me as a new shareholder. Why? The targets were born during different times when the backdrop demanded growth at all costs ignored profits and margins. So? Disney grew its subscribers at all costs.

Under Iger, amid changing investor demands and soaring interest rates, the philosophy changed. Disney stopped guiding to quarterly subscribers and set a new goal of streaming reaching EBIT breakeven by the end of 2024. It greatly cut back on content volume, exited some low value licensing agreements and sought to lean into its core brands to focus on quality of its creations… not quantity. Considering this, should investors really be surprised that its growth at all costs model is no longer relevant? No they shouldn’t be. This headline was coming, and anyone surprised by it has not been paying attention.

I heard rumblings that this weakness was the result of ineffective price hikes. That isn’t accurate. Its 2022 price hike was met with less churn and greater retention than expected. In fact, that hike went so well that prices were again aggressively hiked less than a year later. Some subscriber churn from these hikes was actually intended to push more traffic to its higher value ad-supported tier.

Finally, a lot of subscriber growth weakness is related to it losing India Premier League Cricket rights. That’s the main source of losses and those subscribers were in no way contributing meaningfully to profitability (ie, not worth investing in the Cricket rights). Disney no longer feels compelled to invest in unprofitable subscriber growth and that is a good thing.

This is not to say subscriber growth is finished. The company has guided to a growth acceleration through the end of the year and into 2024 as comps get easier and its content slate builds traction. Priorities have simply become more healthy and balanced.

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3. Amazon (AMZN) -- Supply Chain by Amazon

Important Acronyms for this Piece

• Fulfillment by Amazon (FBA) is Amazon’s fulfillment center business where it stores goods for near future fulfillment and handles the pick, pack and ship for merchants.

• Amazon Warehousing and Distribution (AWD) is its longer term storage program utilizing Amazon’s distribution center footprint. Less full service than FBA as merchants more directly handle shipment organization and customer service.

  • Closely related to FBA’s storage service.

• Amazon Global Logistics (AGL) ships products from (usually) China to Amazon’s fulfillment centers across UCAN and Europe.

  • It allows small merchants to reserve pieces of containers rather than needing an entire unit, thus cutting costs, and handles all global compliance.

• SCA (Supply Chain by Amazon) extends its end-to-end supply chain service earlier on in a good’s lifecycle all the way to the manufacturer.

• AGL, FBA and AWD customer overlap is considerable (and will be with SCA too).

a. The King Strikes Again

Amazon is the master of turning its own costs into revenue and shareholder value generators. Its vast compute infrastructure costs were monetized as AWS. FBA in 2006 effectively monetized their fulfillment needs as well. Amazon is simply second to none in its ability to treat every cost line item as an opportunity. That was one of many Bezos strengths and this strength is clearly carrying on following his retirement.

b. What is Supply Chain by Amazon (SCA)?

Supply Chain by Amazon is the latest example of morphing its expensive fulfillment network into an outsourced service for merchants. While the company has been helping its merchants fulfill orders with less headache, less cost burden and fewer resources, now it’s expanding that end-to-end service further. Knowing the supply chain starts with a manufacturer, it will now offer merchants the ability to connect its manufacturers to Amazon’s fulfillment network as goods move from creation to end consumer. This rounds out its end-to-end logistics servicing.

Amazon will actively pick up products from manufacturers globally, ship the product, handle storage and cover cross-border compliance. Interestingly, it will also automate inventory replenishment for ALL MERCHANT CHANNELS (not just Amazon).

With these new capabilities, businesses will “spend less time managing the supply chain and more time growing. Amazon has long utilized and perfected this manufacture-to-fulfillment network connection with its own private label initiatives. Now it’s taking those learnings (and costs), packaging them and selling them to merchants as a value-added service. Yesterday’s expense is tomorrow’s EBIT.

c. Tying Into the Rest of Its World-Class Fulfillment Network

SCA integrates perfectly with other Amazon logistics services to fully remove supply chain pain points… all at lower than market costs. SCA ties into FBA to free merchants from maintaining their own fulfillment capacity at up to 70% lower cost.

It also connects seamlessly to Amazon Global Logistics (AGL) which is its full-service origin port and ocean freight tool. As part of the release, AGL will upgrade the scale of its origin services and add more local pick-up points to “get closer to manufacturer facilities.” This is a similar cost-optimization objective compared to Amazon’s regional fulfillment overhaul already showing signs of boosting domestic marketplace margins.

To sweeten the SCA deal for merchants (and Amazon fulfillment overall), users of AGL get up to 25% discounts on all cross-border transportation to the Amazon Warehousing Distribution (AWD) network in North America while it will partner with the Partnered Carrier Program (PCP) to augment the service. Amazon describes PCP as effectively a domestic-only version of AGL.

As always, AGL pricing is all-inclusive, eliminating any negative merchant cost surprises. How does AGL deliver such meaningful savings? It gives merchants cheap access to bulk storage without bloating their fixed cost bases and also enables them to utilize container level shipping without needing to reserve an entire unit. For most, that’s just not feasible and is prohibitive to demand fulfillment and profits.

d. Omni-Channel?

Amazon’s inventory replenishment for all merchant channels is notable. With SCA and an extension of AWD, Amazon will allows merchants to consolidate all of its reordering decisions (for Amazon, other digital channels and within physical stores) under one, singular network. Amazon pulls from its “most advanced machine learning and supply chain optimization” algorithms to ensure reordering is precise and minimizes waste. AWD will be extended to all merchants and Amazon will drop peak pricing for customers to navigate holiday seasons more affordably. With AWD, SCA customers can expect to save up to 80% on storage costs with more long-term discounted storage tools coming soon. Savings galore.

To execute this upgrade, Amazon is pilot testing Multi-Channel Distribution (MCD) to help consolidate and organize inbound shipping for efficient goods deployment.

This announcement reminds me very much of Shopify’s ambitions under its recently sold Shopify Fulfillment Network. That company (I say as a shareholder) did not have the scale, talents or experience to execute on an end-to-end logistics vision. Amazon certainly does. Yet another reason why I’m elated that Shopify exited fulfillment and integrated with Amazon’s Buy with Prime… but I digress.

e. Why Should you Care about SCA?

SCA represents yet another margin lever Amazon can pull to augment its overall unit economics.

On the marketplace front, it’s ads, 3rd party selling and recovering e-commerce sector growth allowing it to extract more value from its fixed costs.

SCA joins a long list of fulfillment-focused margin levers including Buy with Prime which allows Amazon merchants to offer its world-class fulfillment to Prime members on their own sites (for better data and brand ownership). More margin levers here include its regional fulfillment evolution which brings goods closer to customers, its program to allow business owners to deliver packages in their spare time and also its updated Amazon Shipping product which offer best-in-class shipping to non-prime members. All of these product expansions and debuts offer clear evidence that Amazon’s current fulfillment footprint can handle more capacity than it currently does. Leveraging this excess capacity makes a low margin business more efficient and profitable. Just a basis point of operating leverage at Amazon’s scale can meaningfully impact financial results.

Analysts are not good at modeling estimates amid large changes in operational philosophy. They were far behind on Uber’s FCF re-prioritization journey, far behind on Airbnb’s same journey, are behind (I think) on Shopify’s current profit explosion and equally far behind with Amazon. I expect the next few quarters to feature large beats vs. sell side consensus as its marketplace and fulfillment businesses run more optimally.

4. JFrog interview -- Investor Day & CFO Interview

a. Macro Developments

The positive cloud usage trend reversal it started to see in March has continued into September. Usage growth across all customer cohorts and segments is healthy; CFO Jacob Shulman reiterated what leadership has consistently told us about the bulk of optimization being in the rear view. In terms of budgeting decisions for large migrations from on-premise to the cloud, it’s still seeing the same hesitancy it guided to on its last call. Things aren’t getting worse and it has enjoyed the beginnings of some subtle green shoots… but no meaningful improvement yet.

JFrog’s main growth vector going forward will be upselling rather than new client additions. Just 10% of its base is on its Enterprise+ Complete Platform yet these customers represent nearly half of its total revenue. Up-selling the remaining 90% is a large opportunity. This relative lack of reliance on new logos also makes it less prone to cyclical weakness as sales cycles elongate amid tougher times. It’s a lot easier to sell additional tools to existing clients than to win a new client amid chaotic macro backdrops.

b. Binaries as a Niche

As a review, binaries are machine language in the form of 0s and 1s. There are dozens upon dozens of popular source code languages, but these can’t be read by computers… just leveraged by talented developers. All software packages created from source code must be converted to binaries to be shipped to an end device and utilized. Executing on this objective at scale, storing packages, guarding against exploitable vulnerabilities and distributing releases is just not feasible when you’re using several disparate languages and databases. Binaries must be used.

That’s why JFrog, as the de facto binary repository, calls the vast majority of the Fortune 500 its clients today and why its gross retention sits at a robust 97%. Source code players like GitLab are important pieces of the software supply chain, but they’re complementary pieces… not substitutes. JFrog is the unifying layer of developer code writing for enterprises to leverage and implement their creations.

JFrog is consistently asked how the generative AI wave will impact its established market presence. Simply put, generative AI will make developers more productive and will require more of the incremental source code to be converted into binaries. Gen AI models are quite literally binaries. This is additive to demand and will only augment the need for JFrog Artifactory and the rest of its products. It’s a generative AI plumbing play. Not especially flashy, but dearly needed.

c. Security & JFrog Curation

Last month, JFrog added to its Advanced Security product suite with a new tool called JFrog Curation. Curation is a digital guardian that automates the prevention of bringing in open-source vulnerabilities. With most software packages pulling from open-source code, this service should be met with a warm response.

This is yet another area where the unmatched scalability of binaries provides customers with a more complete, cohesive view of their security hygiene and package introductions. Before Curation, vulnerability detection happened only after open source code had been produced where, for some especially exploitable vulnerabilities, it was too late to remediate with no further damage or interruption. Problem solved.

As part of JFrog’s investor day, it also announced source code scanners. This expands its client software protection to earlier on in the package life cycle at the source code creation stage. The tool used to perform this scanning is called Static Application Security Testing (SAST). JFrog sees this as limiting false positives vs. other point solutions on the market.

d. Competition

Most of JFrog’s new customer wins are still coming from homegrown solution displacement. For larger customers, most wins are coming from Sonatype displacements. It does not see GitLab or GitHub, who are supposedly building binary-related products, in competition for new customers.

e. More Product Announcements

• JFrog Catalog as the “Google Search of Binaries” to make navigating large libraries more seamless and to “become the data supervisor of all binaries.”

• Introduced native support for Generative AI Models via a new integration with Hugging Face which is the top public generative AI model repository.

5. Earnings Round-Up -- Adobe (ADBE) and Oracle (ORCL)

a) Adobe

Results vs. Expectations:

• Beat revenue estimate by 0.4% & beat guide by 0.8%.

  • Its 14.8% 3-yr revenue CAGR compares to 15.5% Q/Q & 14.6% 2 quarters ago.

• Modestly beat digital media & experience revenue guides.

• Beat $2.87 GAAP EPS estimate by $0.18 & beat guide by $0.20.

Next Quarter Guidance:

• Met revenue estimate.

• Beat $2.90 GAAP EPS estimate by $0.13.

• Beat $4.06 EPS estimate by $0.07.

Balance Sheet:

• $7.5B in cash & equivalents.

• $3.6B in long term debt.

• Share count down 2.6% Y/Y.

b) Oracle

Results vs. Expectations:

• Slightly missed revenue estimate but beat revenue guide by 0.7%.

• Beat $1.15 EPS estimate by $0.04 & beat guide by $0.05.

Next Quarter Guidance:

• Next quarter guidance missed revenue estimates by 2.3%.

• Next quarter EPS guidance missed $1.33 estimates by $0.04.

Balance Sheet:

• $12 billion in cash & equivalents.

• $4.5 billion in current debt.

• $84 billion in long term debt.

• Share count up 1.6% Y/Y.

• $9.46 billion in trailing 12 month free cash flow vs. $8.47 billion Q/Q, $7.30 billion 2 quarters ago & $5.37 billion Y/Y.

6. Netflix (NFLX) -- CFO Interview

I don’t usually cover Netflix events outside of earnings season, but this interview was especially market moving and I got a lot of questions on it. I published this exact coverage on Twitter this past week. If you read it there, you should skip this section.

a. Account Sharing

Netflix continues to be “pleased with the ongoing rollout” of its paid sharing program. The cancel reaction and retention has been “better than expected” thus far.

• The company’s roughly 1 quarter delay on implementing this change was related to perfecting the product and creating more intuitive rules.

There’s a healthy mix of accounts electing to add the paid additional profile to an existing account and those creating their own new account. The new account creations from this policy change continue to negatively impact Average Revenue per Member as these newer accounts are, as expected, going with non-premium tiers at a slightly higher clip.

• Paid sharing is a revenue per member headwind due to some premium accounts splitting off into lower tiers. But it’s an account/revenue tailwind as it leads to these new accounts being created.

• Its primary goal is revenue re-acceleration and this is a (likely short term) concession toward that.

Netflix will finish implementing this new membership structure and the new rules by the end of 2023. The financial impact will begin to materialize in 2024 as it benefits from a full year of subscribers trickling back into the ecosystem over time.

b. Up-fronts & Advertising

Netflix’s performance at its first full year of participating in legacy ad selling season (up-fronts) “met expectations.” That’s quite vague, but CFO Spencer Neumann added that CPMs secured from contracts with “all major holding companies” were near the top end of the sector.

Going forward, it has a lot more work to do with enhancing targeting and measurement capabilities as well as maximizing quality reach through things like video enhancements, ad content parity and building out its sales team. A big part of targeting enhancements is simply better segmentation such as Netflix debuting a top ten title only advertising segment. This quickly sold out at up-fronts.

The company released an ad platform in record time with the help of Microsoft/Xandr. Now, its focus will shift to optimizing the tool kit, maximizing CPMs (through unmatched ad-buyer value) and perfecting things like frequency.

c. Multi-Year Operating Leverage

The rapid operating leverage that Netflix has delivered over the last decade will slow going forward. The company doesn’t think it can deliver a few hundred basis points in annual leverage while investing as aggressively as it wants to in its growth runway.

Over time, Neumann all but told us their long, long (long) term goal is to reach peak EBIT margins seen by its linear TV competition. This would mean a couple thousand basis points of leverage left in the model which will likely take several years (if not a couple decades) to deliver. Neumann doesn’t see the company as “anywhere near” its margin ceiling despite the pace of expansion set to slow.

e. Writer Strikes

There’s unfortunately no update here. Just more commentary about needing to get something done and no signs of real progress. Netflix has no live news or live sports content. That makes it slightly more vulnerable to these strikes vs. others due to heavier reliance on scripted content.

7. Revolve Group (RVLV) -- CFO Interview & My Plan

We didn’t learn anything new in this interview. Its young, aspiring luxury customer remains greatly pressured by macro headwinds. That continues to hold back growth as well as inflate its return rates which is hitting margins. Factors like localizing the international experience (to make returns abroad free) are hurting but the team thinks it’s mainly macro-based. The initiatives in place are working but they’re not immediate fixes. The immediate fix would be eliminating the free returns that Revolve offers, but it’s not willing to do so. It was born to let women turn their “home into a dressing room” and that will not change. It will only work on initiatives that do not impact service quality.

Several weeks ago, I published a section on my plans for Revolve. Those plans have not changed. This will not be a good quarter and has the potential to actually be quite ugly. I am not planning on adding to my stake until we get through the report and I’m fine with missing a bottom. Comps get much easier thereafter and macro headwinds will not remain forever. This continues to be a market share taker and a unique cash printer in the world of luxury e-commerce. That will serve it well as it re-accelerates over the coming quarters and as I likely lean back in to share purchases.

8. Market Headlines

• Apple will sell its first assembled-in-India phone this year. Its launch event this past week included a pretty much identical phone vs. the last model with some more powerful chips.

• Shopify is launching its mobile point of sale system across the U.K.

• Salesforce and Google announced a new generative AI productivity app partnership.

• Google’s monopoly trial has now begun.

• Uber is partnering with Save Mart to expand its west coast grocery delivery service. It’s also partnering with Deliverect to provide “order management delivery services for restaurants.”

• Meta is working on a GPT-4-like competitor while WhatsApp toys with enhancing ad load on the app.

9. Macro

a. Inflation Data

• Consumer Price Index (CPI) M/M for August rose 0.6% vs. 0.6% expected and 0.2% last month

• Core CPI M/M for August rose 0.3% vs. 0.2% expected and 0.2% last month.

• Producer Price Index (PPI) M/M for August rose 0.7% vs. 0.4% expected and 0.4% last month.

• Core PPI M/M for August rose 0.2% vs. 0.2% expected and 0.4% last month.

• Michigan 1 year inflation expectations for September are 3.1% vs. 3.5% expected and 3.5% last month.

• Michigan 5 year inflation expectations for September are 2.7% vs. 3% expected and 3% last month.

Hot inflation (especially for producers) is being driven by more volatile food and energy prices rather than stickier items like rent. That’s a good thing.

b. Consumer & Employment Data

• Initial Jobless Claims of 220,000 vs. 225,000 expected and 217,000 last report.

• Core Retail Sales M/M for August rose 0.6% vs. 0.4% expected and 0.7% last month.

• Retail Sales M/M for August rose 0.6% vs. 0.2% expected and 0.5% last month.

• Michigan Consumer Sentiment for September came in at 67.7 vs. 69.1 expected and 69.5 last month.

• Michigan Consumer Expectations for September came in at 66.3 vs. 66.0 expected and 65.5 last month.

c. Output Data

• New York Empire State Manufacturing Index for September was 1.9 vs. -10 expected and -19 last month.

• Industrial Production M/M for August rose 0.4% vs. 0.1% expected and 0.7% last month.

10. My Portfolio

No transactions for me this week.