🍋 Goodbye Spirit Airlines

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Short Squeez
February 08, 2022

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"A diploma is a dunce hat in disguise." ― Peter Thiel

Good morning! The era of expensive coffee is not ending any time soon. Coffee reserves have fallen to the lowest level in 2 decades cause of... supply chain issues. At the moment, it's more attractive for Brazilian producers to sell into the domestic market rather than pay high shipping costs to deliver coffee. *make coffee at home gang has entered the chat* Amazon is taking on investment banks with its salary changes. It is increasing maximum base pay for US based tech and corporate workers from $160,000 to $350,000. Peter Thiel, early investor in Facebook and longtime board member, is stepping down from his position. Thiel's decision is apparently driven by his plan to focus on helping Republican candidates in the 2022 midterm elections and not have any distractions. 

If you are a pizza lover and looking for exposure to the pizza market (expected to grow to $54B by 2023), check out today's sponsor, 800Âş GO, a fully automated robotic pizzeria that crafts fresh artisanal pizza within 3 minutes. Invest in 800Âş GO today.

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1. Story of the Day: Goodbye Spirit Airlines

The country's two largest discount airlines, Frontier and Spirit, agreed to merge in a deal valued at $6.6 billion to create America's fifth largest airline. The companies didn’t announce the new name of the combined carrier but as long as it's not Spirit, it will be a huge win for everyone involved, including Spirit.

This merger has Frontier controlling 51.5% and Spirit taking the other 48.5%. Strategic rationale here is to create "most competitive ultra-low fare airline for the benefit of consumers," according to Frontier Chairman Bill Franke. 

The transaction makes a lot of sense on paper. Spirit is very strong in the East. Frontier is very strong in the West. The two airlines overlap on about 520 of more than 2,800 routes.

There could be some turbulence for the deal from the Biden administration, as they are extreme enforcers of antitrust laws. The airlines' argument would be that they are "democratizing air travel" and providing cheaper fares across more routes, which is a net positive for consumers. The administration might say that fewer airlines would actually mean less choices, and give customers no options if the fares actually end up higher.

Aside from price, a positive outcome of this deal would be the combined resources helping the budget airlines' reliability. As with any business, higher costs for the companies, such as fuel and labor, eventually trickle down to customers. If they're able to efficiently allocate their efforts and resources, then they may just be able to make good on their promise of keeping fares low. Don't hold your breath though, save that for when you have to fly on one of their gnarly planes.

Short Squeez Takeaway: While the deal will face antitrust scrutiny, we think it will go through given the promise of an ultra-low fare airline. We'd like the justice dept to put a clause to not charge for in-flight water in the agreement tho. We are also not bullish on the conditions of the plane improving. Before every Spirit flight, I call my friends and family to tell them I love them. Don't think I'm going to stop doing that if there's a name change. 

What do y'all think the new name will be? Send us your guesses.

Source: CNBC

2. Markets Rundown

S&P was down after its best few days of the year, and Nasdaq continues to struggle as tech stocks face pressures. Cryptos gain on improved sentiment.

Movers & Shakers

  • (+) Peloton ($PTON) +21% on news of potential acquisition from Amazon, Nike.

  • (+) Spirit ($SAVE)  +17% after announcing potential merger with Frontier Airlines.

  • (–) Robinhood ($HOOD) -8% continuing the downward spiral since its IPO last year.

3. Top Reads

  • Don't let your Tesla drive itself since a steering component was left out (CNBC)

  • Guess faces calls to remove Marciano Brothers from board (WSJ)

  • The people fighting price rises by trying to buy nothing (BBC)

  • Skepticism around Wealthfront under UBS (RIABiz)

  • How NFL players manage their money (TA)

  • Trump SPAC DWAC falls after news of delayed launch (CNBC)

  • Porn sites will be legally required to verify users' age (BBC)

  • A few more pullbacks in stocks.... and then a big one (MW)

  • Top investing myths (AWOCS)

  • Goldman, Citigroup see winning bets against super-sized fed hike (BB)

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4. Book of the Day: Flywheels: How Cities Are Creating Their Own Futures

Once a blue-collar outpost, Seattle, home to Microsoft, Amazon, and hundreds of startups, transformed into one of the world’s major innovation hubs in less than twenty years. As other cities try to solve the riddle of creating vibrant economies, many have looked to Seattle as a model for tech-driven urban renaissance. However, that success comes with skyrocketing housing costs, increasing homelessness, public safety concerns, persistent racial inequality, and a widening gap between the haves and have-nots. Against that backdrop, big tech has become a popular target.

Tom Alberg, a venture capitalist who was one of the first investors in Amazon, draws on his experience in Seattle’s tech boom to offer a vision for how cities and businesses can build a brighter future together. He explores ways that cities can soar to prosperity by creating the conditions that encourage innovation. Like flywheels, livable cities generate momentum by drawing creative citizens who launch businesses. Success attracts more talent, energizing local economies and accelerating further innovation. 

Alberg emphasizes the importance of city governments and tech companies partnering to address civic challenges. He reflects on why the benefits of the tech boom have not been distributed equally and what business and government leaders must do differently to ensure inclusive growth. The book also examines success stories from smaller cities and their lessons for other up-and-coming tech hubs. Demonstrating the need for innovative thinking that encourages livability alongside economic growth, Flywheels is timely reading for everyone from mayors to business leaders to engaged citizens.

“What truly set the big winners apart was their ability to turn initial success into a sustained flywheel, even if they started out behind the pioneers.”

5. Short Squeez Picks

  • Brave Wallet is a secure crypto wallet built natively in a web3 browser. No extensions required. Store, manage & grow your portfolio, get NFT & multi-chain support, and more

  • Podcasters are being offered professional sport sized contracts

  • Travel continues to reopen, and you can head to where it's nice and warm in February, down under

6. Daily Visual: Everybody's yields go UP..... Can they stay there?

Yield spike on US 10- year Treasury

Source: Axios

7. Daily Acumen: When facts change, change your mind

English economist John Maynard Keynes asked –

“When the facts change, I change my mind. What do you do, sir?”

It’s easy to fall in love with your ideas so much and that’s what keeps you stuck in a losing cause. The stock doesn’t know that you own it. Sometimes investors take the idea of long-term investing to an extreme. They forget that they need to constantly re-evaluate their positions and change them as situations require and new data becomes available.

Charlie Munger’s insights on this are invaluable –

“The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You have to work hard on it. Ask yourself what are the arguments on the other side. It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.”

8. Crypto Corner

9. Memes of the Day

 

 

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