CPI Inflation kills US market, like Birkenstock?
On Wed, 11 Oct 2023 — US market continued its “green” march as investors:
Follow up on US 10 years Treasury Yields
Digest the Producer Price index (PPI) report.
Poured over the central banks’ Sep 19-20, 2023 — minutes of meeting.
Prepares to continue to assess the hotter-than-expected inflation data on Thu, 12 Oct 2023 when it is out.
By the time market called it a day:
DJIA: +0.19% (+65.57 to 33,804.81).
S&P 500: +0.42% (+18.71 to 4,376.95).
Nasdaq: +0.71% (+96.83 to 13,659.68). Best of the 3 indexes, still way off the 15,000 mark.
Treasury yields continued to retreat (yesterday) from 16-year highs hit during the bond sell-off after Israel stepped up its bombardment of Gaza.
On Wed, 11 Oct 2023, the benchmark 10-year yield traded below 4.6% (see above), compared with last week's peak above 4.88%.
Analysts predicted that bonds may not be out of the woods yet, [a] given the lack of weak economic data or [b] a solid reason for yields to keep falling.
US wholesale prices rose in September 2023.
And it is at the fastest pace since April.
September producer price index (PPI) climbed to +2.2% YoY.
This was +37.5% higher than analysts’ expectations of 1.6%.
PPI reading suggests that inflationary pressures remain despite the Fed's aggressive interest-rate hikes.
On Wed, 11 Oct 2023, FOMC’s minutes of meeting for Sep 19-20 was released.
Very important, the minutes revealed a “cautious stance” among policy makers thanks to uncertainty around the economic outlook.
Market (again!) has chosen to interpret Fed members’ uncertainties as “supporting the case for proceeding carefully in determining the extent of additional policy firming that may be appropriate".
And just like that, US market enjoyed another day of modest gains.
Accordingly to Bloomberg, September 2023 inflation is as such:
Consumer price index (CPI) will rise +3.60% YoY, dipping slightly from August’s CPI of 3.7%, factoring oil prices’ surged in August 2023 as well.
Similarly, Core CPI (less food & gas) will continue to dip marginally to +4.1% YoY. It will also be “lower” than August Core CPI of “4.3%”.
Why would a profitable “private” company choose to be publicly listed at a time when global economy is its worst enemy is beyond me.
And so it was the debut of $Birkenstock Holding plc(BIRK)$ — a 250 years “young” company, founded by German cobbler Johann Adam Birkenstock — on US stock market on Wed, 11 Oct 2023.
Ok, Birkenstock was a family control enterprise until 2021 when private equity powerhouse L Catterton acquired a majority stake in a deal that valued the business at $4.85 Billion.
Just so you know, the “reasons” why the Birkenstock IPO attracted media attention:
Under L Catterton, its majority stakeholder, sales achieved phenonmenen growth and valuation almost doubled.
Between fiscal 2020 & 2022, sales jumped from EUR$728 Million (US$771 Million) to EUR$1.24 Billion (+60.83%).
L Catterton is actually a $LVMH-Moet Hennessy Louis Vuitton(LVMUY)$ affiliated private equity investor. i
Supposed it is “safe” to assume that the casual footwear belongs to the luxury conglomerate.
However, as LVMH has associated itself to be all things luxurious — it will not risk diluting its brand equity and be “seen” with something for the masses {heavens forbid}.
In its offering, Birkenstock planned to list 10.75 Million shares.
Originally it sought a valuation of up to $9.2 Billion; eventually settling for $8.64 Billion.
On Tue, 10 Oct 2023 evening, it confirmed its IPO price @ $46 per share.
On Wed, 11 Oct 2023 debut, it opened at $41 (-10% off its IPO price).
It intends to make good use of the $495 Million raised to pay off loans, reducing its liabilities.
By 4:00pm, Birkenstock ended the first day at $40.20 or -12.61% off its $46 IPO price.
How I See It:
There must be reason/s why L Catterton wanted to list Birkenstock so “badly”.
With its army of researchers, they would have easily discovered recent IPO of companies have not exactly fared well on their debuts.
For example — L Catterton’s $ODDITY Tech Ltd.(ODD)$ listed in July 2023 with IPO price $35. Fell to a low of $25.92 before staging a recovery. At $32.61, its YTD performance is still -31.39%.
For example - J&J’s $Kenvue Inc(KVUE)$ listed in May 2023 at $22 per share. 11 Oct 2023 closing price of $19.57 is its lowest; with a YTD performance at -27.25%.
Who knows a Tom, Dick or Harry company listed at the “right” time, with the “right” market sentiments, could have soared and remained buoyant.
This begs the question - is there ever a “right” time?
Do you think US market will continue its upwards streak, if Core CPI dips a little?
Do you think US market will continue its ascend if CPI rises marginally?
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$Birkenstock Holding plc(BIRK)$ Fair value is probably closer to $20. Just wait until earnings collapse in the next year as the EU is hit with inflation and recession. Overpriced sandals are not going to be high in priority when you can barely pay the heating and food bills.
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Cpi 3.7% over last year. Cool story bruh. Wonder why it costs about 20% more per month for basic living expenses? Lol
Bad news for banks
Treasury’s Debt Deluge Is Finally Straining US Funding Markets
Yup. Bond yields going in the right direction. Straight up. Yup
Is it a real killing? I don’t think it affect too much