July 20, 2023

Goldman Sachs Profit Drops 58% on Real Estate and GreenSky Hits

📰 News Organizations

  • Goldman Sachs Misses Profit Expectations on GreenSky and Real Estate Hits. Goldman Sachs reported lower-than-expected profits, earning $3.08 per share vs. the anticipated $3.18, amid a slump in investment banking and trading activity. The bank also faces write-downs on commercial real estate and impairments related to the planned sale of fintech unit GreenSky.

  • Apple Tests ‘Apple GPT’. The iPhone maker has built its own framework to create large language models, according to people with knowledge of the efforts. With that foundation, known as “Ajax,” Apple also has created a chatbot service that some engineers call “Apple GPT.” Executives haven’t decided on how to release the tools to consumers yet.

  • Microsoft's New AI Subscription Boosts Share Prices. Microsoft's 'Copilot' subscription service, adding AI to popular Office products, including Word, Excel, and Teams, is priced at an additional $30 per month and may increase enterprise customer costs by up to 83%, leading to enhanced recurring revenue through subscriptions.

  • Microsoft And Activision Agree To Extend $69 Billion Deal Deadline. The two companies had originally agreed to complete the transaction by July 18, but regulatory pushback from the U.S. and the U.K. delayed the takeover. The new deadline is until Oct. 18. If Microsoft had not extended the deal deadline, the company could have been on the hook for a $3 billion breakup fee to Activision Blizzard.

  • Carvana Soars After Reaching Debt Restructuring Deal. Carvana Co. reached a deal with bondholders to reduce debt and extend some maturities. The agreement will eliminate about 83% of its 2025 and 2027 unsecured note maturities and lower required cash interest expense by $430 million a year for the next two years. Carvana expects to reduce its total debt outstanding by more than $1.2 billion.

🐦 Twitter

  • 5.5% is still well below market mortgage rates, but noticing slow creep higher on advertised builder rate buydowns last few months. As recent as July 12th, the advertised buydown here was 5.25%/5.39% APR. Back in mid-April it was 4.99%/5.17% APR. Source.

  • First-half US corporate bankruptcies surged to the highest level since 2010, data from S&P Global Market Intelligence shows. Almost 3,000 firms folded up in the last six months, a 68% jump from a year earlier. Source.

  • Multifamily (rental) housing permits tumble 13.5% to 467K SAAR, the lowest since Oct 2020. Rents aren't going down. Source.

  • June housing starts -8% m/m vs. -9.3% est. & +15.7% prior (rev down from +21.7%); building permits -3.7% vs. +0.2% est. & +5.6% prior (rev down from +5.2%). Source.

  • The biggest US banks are consolidating their dominance, with outsized gains in net interest income, sticky deposits & loan growth. That contrasts with the likes of PNC and other regionals. Not a crisis, but it's clearly better to big in banking right now. Source.

Where stock valuation goes from here depends largely on earnings: At a 2024 consensus EPS estimate of $240, a 21x multiple would be 5000 for the S&P 500, and a 22x multiple would be 5300. (We are at 20.0x now.)

Jurrien Timmer

📓 Online Publications

  • Visa Falls on Weaker-than-Expected Retail Sales Report. Visa's stock declined due to the U.S. Commerce Department's retail sales report for June, showing a slight 0.2% increase, falling short of economists' 0.5% expectation. As Visa heavily relies on consumer spending for revenue, the market reacted negatively to the disappointing report.

  • MongoDB and Microsoft Deepen Partnership for Enhanced Accessibility. MongoDB announces an expansion of its partnership with Microsoft, allowing easier access to Atlas, its cloud-based database-as-a-service offering, through Azure. This move is expected to increase MongoDB's presence within the Azure and GitHub developer communities.

  • Florida Dominates WalletHub's List of Top Markets for First-Time Homebuyers. Palm Bay, Cape Coral, and Tampa top the list of the best markets for first-time homebuyers, according to WalletHub's rankings. Palm Bay secured the top spot among 300 cities, making it an ideal location for those starting their real estate journeys.

  • Fewer Than 2% Of Homes Changed Hands In 2023. Less than 2% of homes changed hands in 2023, reaching a 10-year low due to low inventory and high mortgage rates. The quick increase in mortgage rates has made buying a home more challenging, leading to a decline in home sales.

  • Apartment Market Continues to Loosen. The National Multifamily Housing Council's Quarterly survey reveals continued weakening in the apartment market conditions. The Market Tightness Index is at 26, indicating looser market conditions for the fourth consecutive quarter, with more than half of respondents reporting looser markets than three months ago.

🎧 Podcasts

  • Meta Introducers AI Model Llama 2. CEO Mark Zuckerberg said his company will open-source the code underpinning its latest large language model, LLaMA 2, meaning developers can use it for research or commercial purposes for free. Meta believes open-sourcing will allow developers to discover problems with the software—ultimately leading to a better product and more influence for Meta. Source(11:30)

  • Western Company Assets Are Being Seized. Western companies have been trying to leave Russia since Moscow’s full-scale invasion of Ukraine last year, and Russia has been making that very difficult. It recently started seizing the assets of Western companies as a way to get back at the US and European countries for their sanctions. Source(0:37)

  • Wall Street Banks Ditch Bullish Dollar Bets Over ‘Soft Landing’ Hopes. The value of the US dollar has decreased this year and fell sharply last week, which caught many currency analysts by surprise. They are now trying to determine whether this new lower value for the dollar will continue or if it will rebound. A lower dollar is not good for people who need to purchase goods from other countries. Source(3:53)

  • Microsoft's AI Value and Earnings Potential Remains Challenging. Microsoft's AI component's value and near-term earnings potential are difficult to quantify. Despite expectations of an earnings boost from AI, the recent surge in market cap, driven by AI inclusion in their office suite, appears overhyped and unlikely to impact earnings valuation for decades, according to Tom Thornton. Source(19:56)

  • Charles Schwab's Second-Quarter Results Beat Expectations. Schwab generated 75 cents in adjusted earnings per share on $4.66 billion in revenue. Analysts surveyed by Refinitiv estimated 71 cents per share on $4.61 billion of revenue. The bank observed a continued and substantial deceleration in the daily pace of cash outflows in June and the company expected client cash to start growing again by the end of the year. Source(1:04)