IPO MARKET ISN'T DEAD (yet)
GRIT
15 Sep
Good Morning!
On today's agenda: ARM's IPO skyrockets by 23%, a landmark strike shakes up the Big Three auto giants, and the Fed gears up for one more rate hike. Buckle up!
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Let’s get into it!
UNITED AUTO WORKERS MAKE HISTORY WITH UNPRECEDENTED STRIKE
Source: ABC News
For the first time in 88 years, the UAW is striking at Ford, GM, and Stellantis (formerly Fiat Chrysler) all at once. Over 13K workers are on strike. Why? They want more money. The union wants a 36% pay raise in four years. GM and Ford offered 20%, Stellantis 17.5%.
Ford claims agreeing to union demands would've led to a $15B loss and bankruptcy over the last decade. UAW's counter? Automakers are rolling in billions and can afford it, arguing labor is just 4-5% of vehicle costs.
How long will the strike last? Not sure. The union has enough money for 11 weeks (if all workers walked out). Stellantis, Ford, and GM have enough cars for 75, 62, and 51 days.
GRIT TAKE: This isn't just a U.S. drama—it's a global spectacle. Unions and automakers worldwide are tuned in. If the strike drags on, dealers could face empty lots and car prices might go up, throwing a wrench in the Fed's anti-inflation plans. Stay glued to this unfolding story.
ARM IPO SURGES +23%
Source: Bloomberg
ARM's Wall Street debut is a smash hit, with shares rocketing to $63—a 23% leap from its $51 IPO price. Add in a 6% pre-market bump, and we're talking a potential 31% gain.
Wall Street must be popping the premium bubbly, relieved that the IPO scene isn't flatlining. With IPOs down 50% this year from the 5-year average, ARM's success is a shot in the arm for upcoming tech IPOs like Instacart and Klaviyo.
The first analyst to weigh in, Charles Shi of Needham & Co., gave ARM a 'HOLD' rating, calling the valuation "full." He sees growth potential in smartphones but thinks it's not enough to justify the stock's lofty IPO valuation.
GRIT TAKE: Hold onto your wallets—ARM's stock is sky-high, trading at 25x its revenue and a jaw-dropping 130x its earnings. The only other tech giant in that league? Nvidia. ARM's valuation is now $68 billion, just a hair below Micron Technology, which rakes in 10 times more revenue. Fun fact: ARM doesn't even make chips; they design them and cash in on royalties. While the stock's inflated price is banking on AI's future, let's not forget most of their current cash flow comes from smartphones. So, is it worth the hype? I'm skeptical.
FED: ONE MORE HIKE
Source: Bloomberg
The economy's doing better than many thought, and experts polled by Bloomberg predict the Federal Reserve will hike interest rates again in 2023. However, don't expect a rate increase at next week's Fed meeting; they're likely to hold steady at a 22-year high of 5.25-5.5%.
Growth forecasts are also on the rise. The Fed's June prediction for 2023 was a mere 1%—now experts think it could hit 2%. Inflation remains a headache, though. The year-end forecast is 3.2%, way above the Fed's 2% target.
On the bright side, fewer economists expect a recession in the next year. The odds have dropped from 67% to 45%.
Keep an eye on the Fed's balance sheet – its getting tighter. They plan to trim it from $8.1 trillion to $7.8 trillion by year-end, and down to $6.8 trillion by 2025.
GRIT TAKE: If I were calling the shots, I'd hike rates next week—no dilly-dallying. With inflation picking up steam again and retail sales looking robust, it's crucial to show the market we mean business about tackling inflation. Pausing now could send the wrong message and backfire. Let's not play with fire.
Coming Up…
Today: Empire Manufacturing data, industrial production and University of Michigan preliminary reading of September consumer sentiment indicator.
All eyes on the FED meeting Wednesday: will they raise? Stay tuned!
Headlines You Need To Know:
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Hunter Biden indicted on gun charges
IRS shuts door on pandemic tax credit
Libya’s flood disaster was decades in the making
Oil rally picks up steam
GM sweetens UAW offer to include 20% pay increase
FTX gets court approval to sell billions in crypto
Kevin McCarthy pulls back pentagon spending
CEO with $110 million in pay is suddenly out
Just for fun…
This Mouthwash Is Making People Millions…
Source: Listerine
Listerine is making people millions through an accidental royalty deal that has lasted for over 100 years. Listerine is the world’s most popular mouth wash brand. They are worth over $500 million dollars and owned by Johnson/Johnson. Listerine was founded in the early 1870s by J.J. Lawrence. However, Listerine never took off. So Lawrence made a royalty deal with a local pharmacy where the Pharmacist would receive $6 per every 144 bottles sold. The local pharmacist died and his son took over. He completely changed the branding of Listerine and the mouthwash sales went completely nuts. The contract that the founder and local pharmacist signed, it turned out, had one massive flaw: The two men never created an end date for the royalty payments. As long as Listerine was sold, they would get their $6 cut. Fast forward to 2023, and Johnson/Johnson pays out $23 million in royalty payments a year to a wide variety of people and groups. Even Governor Chris Christie makes $30,000 a year from royalty payments.
3 Most Important Charts Right Now
US Inflation-Adjusted Incomes
Inflation-adjusted incomes fall for a third year
Source: Bloomberg
Serious Credit Card Delinquency
Serious credit card delinquency is on the rise
Source: Insider
US Labor Force Participation Rate
16 to 24-year-old labor is on the rise
Source: Bloomberg, Tavi Costa
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