#53 S2N: Starbucks drops a double shot

Author

Michael Berman, Ph.D.
May 02, 2024

S2N Spotlight

When it comes to brands, Starbucks has to be one of the most well-known symbols of modern consumer culture. Yesterday, they reported a 6% decline in traffic to their stores and a 4% drop in same-store sales for the quarter. The stock price dropped at one stage by 20%, ending the day down -15.8%, the second worst trading day in its history. The COVID shutdown saw its worst day in history (-16.20%), which is not that surprising. You can see in the chart below that it has been a few years since Starbucks made its all-time high. I think this is a very good barometer of how the average consumer is doing and perhaps an important canary in the coal mine.

For those into statistics, here are a couple of interesting ones about Starbucks performance.

S2N Observations

I don’t often discuss private equity. A 26% annual internal rate of return (IRR) over 48 years is simply incredible. Another remarkable achievement by Kohlberg Kravis Roberts & Co. (KKR) is that zero of their 25 funds lost money. One of the best business books I have ever read, one I read more than 30 years ago and one that will forever be etched in my memory is “Barbarians at the Gate,” a book about the leveraged buyout of RJR Nabisco financed by KKR. If you haven’t read it, I highly recommend it.

While discussing the private market, I have to mention a company that caught my attention today.

An AI startup by the name of CoreWeave tripled its valuation in 5 months to $19 billion. This company started 7 years ago as an Ethereum miner and is essentially a competitor to AWS, focusing exclusively on providing cloud computing to the AI sector. The company has backing from Nvidia and, more importantly, has privileged access to the Nvidia computer chips that are powering most of the AI computation-hungry algorithms. I am pretty sure that the metrics driving the current valuation are just silly and reflect the insane valuations driving the current AI mania.

A company I featured a few weeks ago that had outperformed Nvidia’s share performance over the last year was Super Micro Computer, a server maker using Nvidia chips. It missed analysts forecasts yesterday and saw its share price drop by 14%. AMD, another chip maker that grew by 80% last year and forecasts 95% growth for the coming year, dropped 9% yesterday as this didn’t meet analysts red-hot growth expectations. Call me a killjoy or old-fashioned, but there is a little too much hype for my taste.

I wanted to share a table of who the main central bank holders of gold reserves are. I am going to just focus on the Gold Reserves in Tonnes and Millions column. The USA is the biggest holder, with $543 billion. I know that China has been a big buyer of physical gold recently.

I want to mention that there is some dislocation happening currently with Bitcoin. ETFs flash signs of stress as discounts reach records. The $16bn iShares Bitcoin Trust on Tuesday closed about 1.7% below its net asset value — the largest dislocation since it began trading in January. The $9bn Fidelity Wise Origin Bitcoin Fund saw a 1.1% discount, while the $2.5bn ARK 21Shares Bitcoin ETF and the $2bn Bitwise Bitcoin ETF both closed with discounts of more than 1.4%, also the biggest on record for each, according to data compiled by Bloomberg.

Another story that caught my eye and hasn’t seen much coverage in the press over the last 10 days: Trump Media and Technology ticker DJT. This is a recent IPO that added a few billion to Donald’s balance sheet. It got smashed down by what seems to be illegal naked short selling and is now doing some smashing to the upside. One thing is for sure: whenever Trump is involved, there is action. I will leave you guessing for now on my views on Trump for president. Hat tip to Kobeissi letter.

Finally, a comment on the Japanese yen. I have been speaking about this regularly, as I see it as a big deal. It seems yesterday the BOJ intervened again, driving the yen price down and strengthening it. causing havoc in the markets. For those who have been following the hedge fund markets for a while, you will have come across the late great Julian Robertson, one of the best. I would also highly recommend you read his biography, which is a brilliant book. Despite this massive loss, he was still a super star.

Performance Review

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