Boockvar on Chinese Innovation, Tech Credit, Housing
The following is from Peter Boockvar:
Wow, that is some move/Tech credit/Housing
I keep talking about the intensifying tech competition from China and how fast they are climbing up the tech sophistication ladder. They want to play on the global tech stage too. Today Unitree Robotics priced its IPO on the Shanghai STAR market. The stock response was literally off the charts as it priced at 150.80 yuan and closed the day at 845 yuan.
Unitree Robotics
The credit market still has some growing worry with the broad capital financing reach taking place at Nvidia to help the ecosystem grow so more of their chips can be sold. The newest story yesterday being their partial backstop of an OpenAI 10 gigawatt Ohio data center, along with Softbank’s SB Energy. Their 5 yr CDS yesterday closed at a fresh high at 82 bps. This is still a cash flowing machine of a business but just wanted to highlight.
With OpenAI now releasing some of their financial info reflecting sequential revenue growth of 18% but even greater losses, I’ll argue again that it’s too big to fail in terms of its far reach. And with the competition from the Chinese models at the same time their financial obligations continue to grow massively, I just don’t see how they’ll ever make money.
Take note too that the Aussie bond offering that Alphabet just priced has them paying a 6.98% interest rate on. The global rise in interest rates, along with the deteriorating cash flows has even Alphabet paying about 7% for its borrowing costs.
Nvidia 5 yr CDS
Before I get to some housing related earnings stuff, I’ll point out that mortgage applications to purchase a home fell 2% w/o/w after rising by 2.5% last week. They are down by 3.2% y/o/y with the average 30 yr mortgage rate at 6.77%. Refi’s rose 1.5% w/o/w but remained down by 18% y/o/y.
This was from Home Depot’s earnings call yesterday:
“Our customers continued to engage in home improvement projects, and throughout the quarter, we saw broad based demand across the business…However, larger discretionary projects remain under pressure.”
“During the second quarter, Pro posted positive comps and outperformed DIY. We saw strength in DIY across many spring related categories, including live goods, mulch, soils, hardscapes, storage, patio, and grills. And for Pro, we saw strength across many Pro heavy categories like portable power, decking, dimensional lumber, pipe and fittings, fastener, hand tools and concrete.”
“Certainly, we’ve seen incremental cost pressure related to fuel, energy, and other product inputs. You can think of commodities with resin and metals. So, we didn’t have that in our plan as we came into the year, so those are incremental.” They are also dealing with Section 301 tariffs now.
Tariff refunds will be “fully offset by the incremental cost pressure” stated above.
“We’ve seen housing turnover at these low levels for four years now. So, I don’t think that we’ve seen much volatility from the recent increase in rates. We do know that when we see step downs, we begin to see a little bit of life come into housing, but there’s just no sign of an inflection point at this moment.”
Lowe’s in their earnings release pretty much said the same thing about their business:
“Sustained growth in Pro, Online and Home Services led to our 5th consecutive quarter of positive comp sales, despite pressure in discretionary DIY spending.”
From Toll Brothers press release (earnings call this morning):
They “delivered solid 3rd quarter results in a challenging market.” Their average price of a home sold was $996,400 so obviously focused on the upper end. “Our performance underscores the strength of our luxury brand, the resilience of our affluent customer base…”
Target beat estimates both top and bottom line as did comps but the stock is down pre-market. They said:
“Topline strength was broad-based across sales channels, demographics, merchandise categories, and across the quarter.”
This too of note, “Over the past year, we’ve reduced prices on more than 10,000 frequently purchased items as part of our commitment to delivering outstanding value every day, while continuing to invest in newness, convenience, and an elevated shopping experience.”
From Klarna, the buy now, pay later company and whose stock plunged by 23% yesterday after a 6% drop on Monday:
“we have adjusted our annual volume outlook to reflect a softer than expected German consumer and changes in FX.”
Positively, “Delinquencies improved again this quarter, and provisions have declined as share of volume every quarter since our first report as a public company.”
US GMV rose 27% y/o/y, “and was our fastest growing large region.”
The one thing of note overseas data wise was the July UK inflation stats which were all in line with expectations. Headline CPI rose 2.9% and the core rate was higher by 2.6% with services inflation in particular higher by 3.4% y/o/y.
On the wholesale side, lower energy prices drove PPI input prices down by 1.7% m/o/m vs the estimate of flat but still up 4.9% y/o/y but we know this is about to reverse higher. As for output charges, they rose by 3.1% y/o/y and a margin squeeze being the difference.
As it was mostly in line, the UK 10 yr inflation breakeven is about unchanged at 3.32% while the 10 yr gilt yield is lower by 2 bps to 5.06%.
I think the BoE is in the same ‘sit and wait’ situation that the Fed is in, particularly with the upward move in energy prices and without a clear visual yet as to what the secondary inflationary impacts are from this.
Positions: None.
