🤫 The Secret Duopoly Making a Fortune

MARKET UPDATE

Good Morning Investor! On Wednesday, shares of Dollar Tree ($DLTR) collapsed amidst the broader market sell off, dropping 22% after the firm missed earnings expectations, cut forward guidance and warned of "macro pressures" on the purchasing behaviour of its middle- and higher-income customers.

Meanwhile, shares of electric vehicle titan Tesla ($TSLA) surged over 4% after it was revealed that the company’s China sales had their best month of the year in August.

TODAY’S BIG HEADLINES

Volkswagen’s Aggressive Shutdown Plans

Constellation Expects Drinkers to Skip the Wine Aisle

Citadel and Jane Street are Making Dumb Money

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AUTOMAKERS & MANUFACTURING

Volkswagen’s Aggressive Shutdown Plans🚗

German Engineering Decline: German automaker Volkswagen ($VWAGY), once the people’s car, is now struggling to keep... well, its people. With the stock now down 20% since April, the firm’s initial cost-cutting efforts have fallen short by several billion euros, leaving them in a pickle worse than a Bavarian sauerkraut festival. Now, grappling with an “extremely tense” financial situation that's tighter than lederhosen after Oktoberfest, the German automaker is considering more “comprehensive restructuring.”

• Amid low global demand, especially within the electric vehicle category “the European automotive industry is in a very ... serious situation,” notes Volkswagen’s CEO, while low-cost Chinese competitors like BYD ($BYDDF) and Nio ($NIO) are revving their engines at the border, eager to flood the European market.

Boardroom Blitzkrieg: Volkswagen’s board is fiercely debating measures that would make even the stiffest German scream "Donner und Blitzen!" - with its first-ever German factory closures, job cuts, and an end to a long-standing employment protection agreement all potential measures the company could take to further trim the fat and save the wurst... er, worst from happening.

• These drastic restructuring plans have however, sparked an internal battle between management, labor unions, and the German state of Lower Saxony — a 20% Volkswagen owner. It's a three-way tango that's more complicated than explaining why we can’t just print more money.

• While analysts argue job cuts are necessary to unlock capital for EV investments, powerful unions and government shareholders vow to “fight bitterly” against plant closures promising a showdown more intense than a Rammstein concert. This showdown underscores the tightrope Volkswagen’s management must walk as they navigate a rapidly changing automotive landscape. But even for German engineering, this bumpy ride may be challenging to smooth out.

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CONSUMER DISCRETIONARIES & ALCOHOL

Constellation Expects Drinkers to Skip the Wine Aisle🍷

Grape Expectations Crushed: With hints of oak and cigar, accompanied by... a bitter aftertaste of disappointment, Constellation Brands ($STZ) recently trimmed its annual forward guidance after swallowing a sobering loss of up to $2.5 billion, thanks to its wine business going sour faster than an open bottle left in the sun.

• This financial hangover marks a dramatic shift from the first quarter's results when the Modelo maker was toasting to success after its profit multiplied sixfold from the previous year. However, Constellation's non-beer business, including wine brands like Meiomi and Prisoner Wine, seems to be leaving consumers with a case of palate fatigue.

• Constellation said this week that wine and spirits sales could tumble as much as 6% this year, down from the roughly flat forecast it shared in July.

Hops to the Rescue: Despite the wine woes, Constellation's beer business is proving to be the sturdy designated driver, strong enough to offset the wine weakness and keep annual sales from going flat. However, even the Pacifico parent had to backpedal on its beer guidance, citing rising unemployment and penny-pinching patrons as buzzkills. Constellation isn't alone in its wine-induced headache. Napa wine seller Duckhorn Portfolio also sobered up its outlook this year, blaming a softer wine market. Meanwhile, Pernod Ricard decided to quit wine cold turkey, announcing in July it's selling off most of its vino labels.

Sobering Reality: The booze industry is facing a barrel of challenges beyond just sour grapes. Fewer young adults are raising their glasses compared to their parents' generation, and those who do partake are sipping less overall. While the #sobercurious trend has given zero-proof companies like Athletic Brewing a reason to cheers, traditional craft-beer sellers like Anchor Brewing and Monster-owned Canarchy are finding themselves in a bit of a pickle... or should we say, a hopless situation.

MARKETS & ECONOMICS

Citadel and Jane Street are Making Dumb Money💰

The Secret Duopoly: In a plot twist that would make even Gordon Gekko's hair stand on end, Citadel Securities and Jane Street are busy turning the financial markets into their personal piggy bank. These market-making mavens are raking in billions faster than you can say "payment for order flow," leaving the quaint notion of a level playing field in the dust, all thanks to their not-so-secret weapon: payment for order flow.

• Citadel and Jane Street are raking in so much cash it’s impossible to ignore, Cliff Asness has even began ringing the alarm that this booming PFOF hustle is making markets dumber and less efficient by the day.

Show Me the Money, Honey!: Hold onto your Bloomberg terminals, folks, because these numbers are juicier than a Wall Street expense account. Citadel Securities saw its net trading revenue shoot up faster than a tech startup's valuation, ballooning by a whopping 81% to $4.9 billion in just half a year. Not to be outdone, Jane Street casually pocketed $8.4 billion, a 78% jump that would make even the Wolf of Wall Street howl with envy. Both firms are on track to smash their own revenue records, muscling into territories that big banks used to guard more fiercely than their golden parachutes: corporate bonds, interest-rate swaps, ETFs—you name it, they're trading it. Citadel has even swagger-jacked its way into European interest-rate swaps, while Jane Street is lording over the ETF and credit trading realms like a hedge fund king.

• Citadel has even elbowed its way into European interest-rate swaps, while Jane Street is ruling the ETF and credit trading worlds like a newly conquered fiefdom.

The Cliff Notes on Market Efficiency: Meanwhile, Cliff Asness, the quant wizard of AQR Capital Management, is shouting from the rooftops about the market's declining IQ. He's particularly miffed about how stocks are priced these days, which is basically his bread, butter, and caviar. According to Big Cliff, "Markets have gotten less efficient, making disciplined, value-based stock picking both riskier and likely more rewarding long-term." In other words, the market's getting dumber.

MORE NEWS

Additional market-moving events🌎

Canva Price Increase: Canva, the design software company is massively jacking up subscription prices by as much as 300% for some users, citing its new AI features as being worth the price. (TheVerge)

HP’s Dead Money Chase: Hewlett-Packard confirmed it will continue its $4 billion lawsuit against the estate of Mike Lynch, the British tech entrepreneur who died in a yacht accident. The case stems from the 2011 acquisition of Lynch’s software company, Autonomy, which HP claims was fraudulently overvalued. (BusinessInsider)

xAI & The Largest Supercomputer: Elon Musk's AI startup, xAI, has activated Colossus, the world's largest AI supercomputer, powered by 100,000 Nvidia GPUs. The supercomputer is expected to significantly advance AI training capabilities. (Fortune)

Dr. Copper Slashed by Goldman: Goldman Sachs Group ($GS) exited a long-term bullish position on copper and slashed its price forecast for 2025 by almost $5,000, citing shrinking demand in China. (YF)

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On Monday the 11th of March, we released our “superperformers” stock pick which we believe will provide significant outperformance compared to the S&P 500. Then on the 14th of June we released our next stock selection. Lastly, on August 6th, we initiated a position in Celsius holdings.

Here’s how the stocks have performed since:

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