#123 - Taylor Swift Made How Much on Red Re-Release? Will $LULU Sell Any Mirrors? Why Dealerships are Dying and $BRK Hitting All-Time Highs.
In this week's episode of Reformed Millennials, Broc and Joel talk at length about markets, Elons tweet supremicy, the all-in podcast, inflation and why debt is bad.
They also chat about the future of auto dealerships and how the GDP of the internet is still in its infancy.
If you want to know why Berkshire and Buffet are killing it these last few weeks, you need to tune in to this weeks episode.
Listen on Apple, Spotify, or Google Podcasts.
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
Over the last month, we’ve seen significant dispersion between the winners & losers in the stock market. And this year's broadly strong index performance probably means the last month's sell-off is a combination of tax-loss selling/degrossing into low liquidity YE before FED decision is why you're seeing all this churn.
Some of this stuff deserves to be down, but this seems to be a baby with bathwater scenrio.
There are great opportunities to be had out there.
For Investors I think its really important to watch the bond market, especially in times of high volatility.
SO! Whats the bond market telling us right now?
I think that the Fed could hike rates so much in 2022 that they "break something." And they really don't have a choice.
First, what are the markets signaling?
Three rate hikes in 2022 are priced in (>50%, green). A March hike (35%) and a potential 4th hike in February 2023 (38%) are not out of the question, still below 50% but "in the conversation."
The next chart shows, the terminal funds’ rate, or the rate at which the Fed will stop hiking, is somewhere between 1.75% to 2.00%. If the Fed follows the market and hikes 4 times over the next 15-ish months, they will only be 2 hikes away from the terminal rate.
So, what does this all mean?
The Fed is often criticized for hiking rates until something breaks.
The low terminal funds rate means it will not take much to break the economy. Relentlessly rising short rates are a signal that the Fed is behind the curve on inflation and needs to hike aggressively.
Sideways long rates and a flattening yield curve could reflect the market’s fear that the Fed will "break something" with these hikes.
Why might the Fed have no choice but to hike until they break something?
CNBC poll yesterday was bad for Biden. Why?
"Inflation has now firmly eclipsed the coronavirus as the No. 1 concern for the country"
So, here are the Fed's choices, both are bad.
Respond to inflation and hike aggressively. The flattening yield curve says this is what the Fed will do, hike too much and break the economy.
Don't respond to inflation and destroy their reputation and the democrat party.
There are few things that matter more to the market than Berkshire Hathaway.
You can argue that Financials are the most important sector in America. Berkshire is the largest component of the S&P Financials Sector Index (13% weighting). You can argue Industrials are the most important sector in America, considering it has the highest positive correlation with the S&P500 among all S&P Sectors. And Berkshire has a ton of exposure there as well (think Railroads and UPS for example).
So when it comes down to it, as Berkshire goes, so goes the market. if you had to tell the story about the market this year, I think the above chart really does a good job of that.
ELON Dunks On Liz Warren - What does it mean?
💸Reformed Millennials - Post of The Week
LULU Earnings Last Week: from MBI
Here's a little peak into the business as it sits today. In this little post, we'll discuss their foray into footwear, the mirror, and more.
THE COMPANY OPERATED STORES:
In 3Q'22, revenue from stores increased +38% YoY. This is impressive that store productivity already exceeded the 3Q'20 (pre-pandemic) level.
The Direct To Consummer/e-commerce increased +21% which was incredible given +93% growth same quarter last yr. Amazing performance against very difficult comps.
Women's segment +24%
2-yr CAGR China +70%,
The international segment is profitable, Europe is not.
On track to open 40-45 international stores (50-55 overall) this year.
Overall topline +30% YoY; 2-yr CAGR +26%
~40% of inventory is comprised of core seasonless products.
A couple quotes from the call:
"While we're comfortable with both the quality and quantity of our inventory, demand for our brand is outpacing supply, and our business could have been even stronger without the supply chain challenges"
"we're seeing more of our store only shift into omni. We are seeing our omni-guest spend more"
Whats omnichannel? - a type of retail that integrates the different methods of shopping available to consumers (e.g., online, in a physical store, or by phone).
Inventory +22%, ahead of +15-20% expectation primarily because of supply chain issues as they are making decisions ~6 weeks out. Q4 likely peak for supply chain issues, but expect it to linger till first half of next year.
FOOTWEAR & MIRROR:
"we're still on track for a spring '22 launch. And just as a reminder, and consistent with how we've shared it, it's a test and learn for us"
A few days ago, @Post_Market said acquiring Mirror was perhaps a mistake for Lulu.
Maybe early, but gotta say Post is perhaps more likely to be right here.
Lulu acquired Mirror in Jun'20 and initially guided $100 mn topline. Mirror ended up posting $175 mn last year.
Lulu guided $250-275 mn topline for Mirror this year. Now it's $125-130 mn. Such an incredible turn of events.
This puts things in perspective for connected fitness.
Thankfully, Mirror is just ~3% of Lulu's topline and management hasn't chased growth at any cost as they expect earnings dilution (~3-5%) to remain same. Dilution is also expected to go down further next year.
Lulu repurchased 582k shares at an avg cost $406. Buyback really picked up this year with YTD of $491 Mn (SBC ~52 Mn).
Buybacks in the last two full years was 173 Mn and 64 Mn respectively.
Despite the severe guide down of Mirror, the companies topline increased. For the full year the top line is expected to be from $6.19-6.26 Bn to $6.25-6.29 Bn
Gross margin is expected to expand 100-150 bps despite supply chain issues.
🌊Companies To Peruse🌊
HeyAuto is Autotrader 2.0 out of Calgary, Alberta - Raised $1.9m CAD Dec 10th
🔮Best Links of The Week🔮
This year's presentation: Three Steps to the Future - Benedict Evans
Music Ownership (Taylor's Version) - From Tenay Jaipuria
The world is filled with successful people who are unhappy. All the wealth and power in their hands but it never seem to be enough.
Lawrence from More to That put forth really good points on why humans have a tendency to keep shifting our goalposts and how do we find that sweet spot between ambition and green. - Many Worlds of Enough
Bill Gurley, Philip Rosedale and Back to the Future - Invest Like The Best
Bored Apes Shoot for The Moon - Techcrunch