Good Morning! TD Bank is set to pay $3 billion in fines for failing to properly monitor money laundering by drug cartels. Meanwhile, U.S. manufacturing jobs have now surpassed pre-pandemic levels. Nvidia is on a rally, up 23% over the past month. A new proposal to revamp college football includes private equity backing. Hurricane Milton has left 2 million without power, worsening the flood insurance crisis across the U.S. Plus, the biggest red flag in an interview.

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_{SQUEEZ OF THE DAY}

LBOs Are So Back

Interest rates are finally easing up… and banks are whipping out checkbooks for leveraged buyouts.

The Fed’s first rate cut in four years is giving markets a confidence boost. Lower borrowing costs mean private equity firms can load up on more debt and compete harder for deals. 

Lenders are telling private equity firms that they can provide more than $15 billion of debt on a single junk-rated deal, 50% more than last year. Aggressive rate hikes had previously left loans stuck on balance sheets, but that's rapidly changing.

“Leverage levels of 7.0x and beyond, something unimaginable 12-18 months ago, are now possible,” said Roxana Mirica, head of capital markets in Europe at Apax Partners.

This surge in activity is real—$2.4 trillion in M&A deals have been announced in 2024, a 22% increase from last year. And more high-profile buyouts like French drugmaker Sanofi’s consumer health division and German generic drugmaker Stada are already on lenders' radar.

But the competition is fierce, and margins on senior loans are shrinking as everyone rushes to close deals. Banks are offering full financing packages that include senior loans, junior debt, and creative solutions. Even private credit firms are jumping in to get a slice of the pie.

Takeaway: LBOs are making a comeback, but it's not all smooth sailing. Some deals are getting a reality check. A few months ago, Jefferies had to sweeten terms on a leveraged loan, losing about $15 million. Bank of America had to go through steep discounts and multiple adjustments for the GSM Outdoors transaction to close. While not every transaction is a home run - a revving Wall Street fee-making machine is definitely great for your bonuses!

_{PRESENTED BY WARP}

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_HEADLINES

Top Reads

• Jamie Dimon still deciding on presidential endorsement for 2024 (Fox)

• TD Bank expected to pay around $3 billion in fines (WSJ)

• Amazon tests adding robot warehouses to Whole Foods (CNBC)

• Manufacturing jobs now exceed pre-pandemic levels (Axios)

• HSBC says there’s a lot of AI “success theater” in finance (CNBC)

• New proposal to remake college football includes private equity backing (CBS)

• No-landing chatter returns as markets question inflation defeat (YF)

• The lazy days of private equity are over (FT)

• The flood insurance crisis facing Americans (Axios)

• Nvidia stock steadies with record high in sight as AI boom continues (YF)

• DOJ considering Google breakup following monopoly ruling (CNBC)

• Hurricane unleashes severe flooding and tornadoes, leaving more than 2M without power (Fox)

• Jamie Dimon questions public funds making private investments (Reuters)

_{CAPITAL PULSE}

Markets Rundown

Market Commentary

Markets maintain momentum ahead of inflation data: U.S. stocks closed higher on Wednesday, with the S&P 500 hitting a new record high as investors await Thursday’s inflation report. This follows Tuesday’s strong gains, driven by positive economic data and expectations for continued supportive policy from the Federal Reserve.

Technology and health care lead way. Commodities, on the other hand, saw declines, with gold and oil prices pulling back. The sell-off in Chinese stocks continued, as investors were underwhelmed by recent stimulus details that had previously fueled China’s October market rally.

Rates on the rise: The bond market remains a key focus, with interest rates climbing sharply in October. 10-year Treasury yields moved above 4% for the first time in over two months, and the 2-year yield also topped 4%, rising from 3.5% just weeks ago. These rising yields reflect economic resilience, especially in light of September’s strong jobs report, but are not signaling a spike in inflation.

While higher rates would typically pressure equities, the market has held up well, suggesting that investors are viewing this as a sign of a strong economy rather than a reason to fear that the Fed will reverse its path toward rate cuts.

Big finish to the week: All eyes are on today’s CPI report, which is expected to show continued moderation in inflation, particularly as core CPI holds steady at 3.2%. Shelter prices, a key inflation driver, will be closely watched. Any signs of cooling in home and rent prices could be encouraging for markets.

On Friday, attention will turn to corporate earnings as major U.S. banks, including JP Morgan and Wells Fargo, kick off the reporting season. With expectations for 15% earnings growth in 2025, these reports will be crucial in maintaining the optimism that has driven the market’s 20% rally so far this year.

Movers & Shakers

• (+) Norwegian Cruise Line ($NCLH) +11% because Citi upgraded the cruise line stock.

• (+) Chewy ($CHWY) +3% after TD Cowen initiated coverage with a buy.

• (–) Boeing ($BA) -3% after union negotiations stalled.

Private Dealmaking

• Rio Tinto bought Arcadium for $6.7 billion

• IQVentures of Ohio acquired The Aaron’s Co. for $504 million

• Asaas, a financial automation solutions provider, raised $148 million

• Orasis Pharmaceuticals, an ophthalmic drugs developer, raised $78 million

• Q-Ctrl, a quantum infrastructure software provider, raised $59 million

• Blue Energy, an underwater nuclear reactor developer, raised $45 million 

For more PE, VC & M&A deals, subscribe to our Buysiders newsletter.

_{BOOK OF THE DAY}

The Making of a Value Investor

The Making of a Value Investor follows Gautam Baid's development as an investor during a brutal bear market, when he recorded his reflections, observations and learnings in his investment journal in the face of an increasingly uncertain future. This book charts the mistakes and successes in the battle for investment survival during one of the most tumultuous market phases in history.

Through time travel-like storytelling, Baid skilfully captures his collective experiences of that period, allowing readers to truly connect with his evolving worldview. The entries from his journal presented in a chronological manner, with added retrospective commentary, are a treasure trove of everlasting investment principles. The result is a book that provides you invaluable lessons on navigating financial markets and building resilience.

“Unlock the secrets of value investing and resilient strategies from an experienced investor's personal journal during a bear market.”

_{DAILY VISUAL}

S&P 500 Up Over 33% in 12 Months

_{PRESENTED BY ROGO}

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_{DAILY ACUMEN}

Supercharge Your Brain

Our brains are constantly evolving, shaped by both internal and external influences. Certain plant compounds have a remarkable effect on how we think, feel, and perceive the world. Here are four plant compounds that can transform your brain function, no prescription required.

1. Caffeine: Found in coffee, tea, and cacao, caffeine keeps us alert by blocking adenosine receptors, which usually signal us to relax. This increased brain activity makes caffeine a favorite choice for enhanced focus and energy. Just beware of overdoing it—too much caffeine can lead to dependency and withdrawal symptoms.

2. L-Theanine: Commonly found in green tea, L-theanine helps us relax while staying alert. It boosts the production of GABA, a neurotransmitter that reduces neural excitability. This is why a cup of tea can provide a calm yet focused state, often ideal for work or meditation.

3. Tryptamines: These powerful compounds, such as DMT from ayahuasca or psilocin from magic mushrooms, interact with serotonin receptors and alter brain connectivity. Known for their profound effects on perception and mood, tryptamines have potential therapeutic benefits, helping people break free from rigid thought patterns and enhancing psychological flexibility.

4. Polyphenols: Found in colorful fruits, vegetables, and spices, polyphenols are more than just antioxidants. Compounds like curcumin in turmeric have been shown to boost brain-derived neurotrophic factor (BDNF), which supports brain growth and resilience. Long-term consumption of polyphenol-rich foods can support overall brain health without the side effects seen in more potent compounds.

Plants have incredible potential to transform our brain health and cognitive function. Whether it’s a morning cup of coffee, an afternoon green tea, or a diet rich in colorful fruits and vegetables, nature offers us ways to support and enhance our mental well-being.

_{ENLIGHTENMENT}

Short Squeez Picks

• The biggest red flag in a job interview

• A CEO’s guide to being human

• 10 tips to live a frugal yet high-quality life

• 3 things people who excel at conversation always do

• 4 signs you’re too emotionally invested in your work

_{MEME-A-PALOOZA}

Memes of the Day