June 20, 2023

📰 News Organizations

• Warren Buffett Expands Investments in Japanese Trading Firms for Long-Term Gain. Berkshire Hathaway, led by CEO Warren Buffett, plans to increase its stakes in Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo, aiming for long-term investment prospects. The company is committed to holding up to 9.9% of any of these five firms.

• Airbus Secures Record Aircraft Deal as Indigo Purchases 500 Jets. Indigo, an Indian airline, has agreed to buy 500 A320 family narrow-body aircraft from Airbus in a deal worth approximately $50 billion.* The agreement came Monday on the first day of the Paris Air Show, an annual aviation-industry trade show.

• AI Poised to Revolutionize Supply Chains by Eliminating Human Touchpoints. Industry executives predict that artificial intelligence (AI) will revolutionize supply chains by introducing sidewalk robots, self-driving trucks, customer service bots, and generative AI capable of predicting disruptions.* The potential for AI to eliminate human touchpoints, including "back office" tasks, is becoming increasingly feasible.

• PayPal Expects $5 Billion in Buybacks After BNPL Deal. PayPal plans to repurchase significant stock following a deal in which KKR-managed funds will purchase up to €40 billion* of buy now, pay later loan receivables originated in Europe, bolstering the payments company's buyback program.

• Energy Companies Race for Subsurface Land Grab Amid Carbon Storage Subsidies. Following substantial U.S. subsidies for carbon capture and storage, leading energy companies and startups are quietly engaged in acquiring subsurface land. Attention has primarily focused on the Gulf Coast region* between Corpus Christi and New Orleans, where a land grab is underway.

• Ancient Amazon Charcoal Emerges as a Promising Solution in Carbon Markets. Biochar, a black substance produced by heating biomass and agricultural waste, has caught the attention of Microsoft, BlackRock, and JPMorgan as a scalable carbon removal solution.* Besides storing carbon for extended periods, biochar enhances soil quality, making it a desirable investment.

• Hong Kong Introduces Yuan Trading Program to Boost Flagging Stock Market. Hong Kong aims to revitalize its struggling stock market and increase trading volume by implementing a program that allows investors to trade equities in both the yuan and local currency. The HKD-RMB Dual Counter Model offers traders the opportunity to buy and sell major Hong Kong-listed stocks using the yuan.*

• Goldman Sachs Joins Other Banks in Downgrading China's Growth Outlook. Goldman Sachs has revised China's full-year gross domestic product (GDP) forecast from 6% to 5.4%, following similar downgrades by UBS, Bank of America, and JPMorgan. The nation faces various macroeconomic challenges, according to economists at Goldman Sachs.

🐦 Twitter

• The 3 pillars of this economic expansion, none of which seem likely to be particularly impacted by an extra 50bps of rate hikes, are single-family housing, AI, and the IRA. At this point I’d expect the expansion to continue at least until 2025-27 given dynamics in those three. Source.

• For the first time ever yield on cash, bonds, & equities is the same. The yield on 3mth US Treasury bills was 5.3% this week after Fed held interest rates at between 5-5.25%. That is the same level as the expected 12mth forward earnings yield across the S&P 500, which has risen by >15% since Jan. Source.

• US office buildings are only about 50% as full as before Covid: Kastle Systems. Columbia & NYU professors estimate that the value of office property across US cities is 38% lower than pre-pandemic, equaling a loss of about $500 billion. Source.

• 27% Rally Brings Out the Bulls. The S&P 500 has rallied 27% from its October low and optimism is back in the air. Bulls outnumbered Bears by 22% in the latest AAII sentiment poll, the largest spread since November 2021. Source.

• Long term owners generally aren't keeping rents lower bc we're dumb: Except when we're gearing up to sell or refinance, that extra $100 in rent is swamped by the effect of an additional 2-3 weeks of vacancy. Source.

📓 Online Publications

• US Homebuilder Sentiment Reaches Nearly One-Year High Amid Limited Supply. In June, US homebuilder sentiment reached an 11-month high due to high demand for new construction caused by limited existing home supply. The NAHB/Wells Fargo index rose five points to 55, surpassing economists' expectations.

• Investors Identify Promising Contender to Chipotle with Impressive Profit Margins. Chipotle and Cava, two restaurant chains, reported strong restaurant-level profit margins for Q1 2023, with Chipotle at 26% and Cava at 25%. While Cava's faster growth can be attributed to having fewer locations than Chipotle did at its IPO, the pace of expansion is starting to converge.

• Collapse of Commercial Real Estate Market Signals Broader Economic Impact. A combination of factors, including rising interest rates, inflation, and reduced demand for office space, is driving the commercial real estate market towards a collapse. The consequences will extend beyond the market itself, potentially resulting in job losses, decreased tax revenue, and a potential recession.

• Peloton Stock Surges 20% Following Rebranding Announcement. Peloton's stock experienced a 20% increase after CEO Barry McCarthy and the management team analyzed usage data, revealing that over half of all platform workouts were unrelated to cycling. With a new direction in mind, Peloton now offers a wide range of workout options through its apps, independent of its equipment products.

🎧 Podcasts

• AstraZeneca drafts plan to spin off China business amid tensions. The company thinks it’s quite wise somewhat as a just-in-case measure as tensions rise between the US and China. There’s a lot of potential conflict there. The US is the world’s largest pharmaceutical market, it’s really important to every pharmaceutical company. Source(0:51)

• Cuts to investment in diversity threaten gains. A lot of companies do see diversity as a need, but don’t see the amount of investments that we’ve seen over the past three years as imperative. A lot of companies think they can get away with it. Around 25-30 percent of what they did in 2020 and maintain the levels of representation that they have within the company. Source(4:09)

• The "Due O Sale" Clause- addressing the housing shortage. If somehow by an act of Congress and the supreme court, the due o sale clause gets repealed, people could sell their properties and allow the new buyer to assume the mortgage. That can increase the housing inventory in the market. Another possible scenario is to have low rates again to address the housing problem. Source(6:09)

• Hunt tells ministers to quicken adoption of AI to boost economy. The UK thinks artificial intelligence could help lift its economy. AI and government productivity are expected to be a big focus of the Autumn Statement. Chancellor Jeremy Hunt has told ministers to figure out how to use AI to save money and boost the country’s sluggish growth rate. For example, health secretary Steve Barclay said the tech could make the NHS more efficient without putting more burden on staff. Source(7:29)