🍋 NYC Beating SF

Author

Short Squeez
January 21, 2022

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"Hire character. Train skill." — Peter Schutz

Good morning and Happy Friday! RIP Peloton whose stock has been in free fall and was down another 24% yesterday after a report that the company planned to halt production of its bikes and treadmills as demand wanes. Elsewhere, Netflix had a day to forget too. It added 8.3 million new subscribers in Q4 vs expected 8.5 million and the stock was down more than 20% in after-hours. Let's hope the crypto winter doesn't last too long for newly-minted NYC mayor Eric Adams, who will be receiving his first paycheck in Bitcoin and Ethereum today.

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1. Story of the Day: NYC Beating SF

The New York or Nowhere gang will be excited to read what comes next. New York City has come roaring back in 2021 while San Francisco is down bad (kind of).

Since the 2008 financial crisis, SF had been booming, coinciding with the tech boom and the finance-heavy NYC was suffering the effects of the recession. Then came the pandemic.

Office rents have typically been the best gauge of where the talent was going. If downtown SF rents outpaced Midtown Manhattan rents that meant SF was in pole position. Office rents are no longer a useful proxy given work-from-home, so we have to rely on residential rent growth. Rent changes indicate where high-income households have moved since March ’20.

Despite Phoenix and Austin having blockbuster years, New York City took the #1 prize with a 33% year-over-year growth in 2021. SF had a rent growth of 15%, comparable to cities such as Memphis and Oklahoma City.

Rents in NYC have increased by 5% since March 2020, while they are still down 15% in San Francisco.

So, what is going on? Banks are sick of losing talent and paid up in 2021 e.g., JPMorgan raised pay twice in the last six months. Bonus numbers have been coming in hot too. On Wednesday, Goldman Sachs gave out bonuses and positively surprised even those who were expecting big bonuses. We’ll distribute the results of our bonus survey soon but preliminary analysis shows bonuses have broken all past records.

Short Squeez Takeaway: Tech is not doing that bad though, but many tech employees no longer need to live in Silicon Valley. The web 3 / crypto movement also means that people can work from anywhere in the world. In addition, the tech stance to bringing back employees to the office has been much different compared to Wall Street. Many tech CEOs are preferring to work from home indefinitely. On the other hand, finance firms are encouraging employees to get vaccinated and return to the office asap.

Source: Bloomberg

2. Markets Rundown

Stocks were down again as Nasdaq had an intraday reversal from +2.1% to (1.3%), which was the largest reversal for a loss since April 7.

Movers & Shakers

  • (+) Casper ($CSPR) +10% after announcing that its board had approved a takeover offer from private equity firm Durational Capital Management

  • (–) Signet Jewelers ($SIG) -10% after the jewelry retailer said holiday sales rose 30.4% from year prior

  • (–) Peloton ($PTON) -19% after a report announcing it will temporarily halt production of its bikes and treadmills

3. Top Reads

  • Everyone is quitting. Here’s the right way to do it (NYT)

  • US jobless claims rise to 3-month high (Yahoo)

  • KKR SPAC is said to weigh deal for PetSmart at $14 billion value (BB)

  • Here are 3 things to know about unemployment claims (CNBC)

  • Genting still selling cruise tickets after appointing liquidator (BB)

  • Wall Street titans support one of their own, David McCormick, in senate bid (WSJ)

  • US dismisses criminal charges against MIT professor accused of hiding China ties (Fox)

  • Netflix to eliminate supermajority requirement for board changes following investor demand (CNBC)

  • How delivery apps created 'the Netflix of food ordering' (BBC)

A Message from Daloopa: Let AI Do Your Financial Modeling

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4. Book of the Day: Post Corona: From Crisis to Opportunity

The COVID-19 outbreak has turned bedrooms into offices, pitted young against old, and widened the gaps between rich and poor, red and blue, the mask wearers and the mask haters. Some businesses--like home exercise company Peloton, video conference software maker Zoom, and Amazon--woke up to find themselves crushed under an avalanche of consumer demand. Others--like the restaurant, travel, hospitality, and live entertainment industries--scrambled to escape obliteration.

But as New York Times bestselling author Scott Galloway argues, the pandemic has not been a change agent so much as an accelerant of trends already well underway. In Post Corona, he outlines the contours of the crisis and the opportunities that lie ahead. Some businesses, like the powerful tech monopolies, will thrive as a result of the disruption. Other industries, like higher education, will struggle to maintain a value proposition that no longer makes sense when we can't stand shoulder to shoulder. And the pandemic has accelerated deeper trends in government and society, exposing a widening gap between our vision of America as a land of opportunity, and the troubling realities of our declining wellbeing.

Combining his signature humor and brash style with sharp business insights and the occasional dose of righteous anger, Galloway offers both warning and hope in equal measure. As he writes, "Our commonwealth didn't just happen, it was shaped. We chose this path--no trend is permanent and can't be made worse or corrected."

“We like to position education as the great leveler. But in fact it has become a caste system, a means of passing privilege on to the next generation.”

5. Short Squeez Picks

  • Why 2022 is the year you get your dream job 

  • The world's largest cast iron skillet

  • Sam Englebardt and Richard Kim - investing in immersive worlds Podcast 

6. Daily Visual: Presidents Ranked by Stock Market

Source: Axios

7. Daily Acumen: Value Investing

The legendary Seth Klarman wrote this in his must-read book Margin of Safety why value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mindset to succeed.

“Like most eighth-grade algebra students, some investors memorize a few formulas or rules and superficially appear competent but do not really understand what they are doing. To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough.

Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale behind the rules in order to appreciate why they work when they do and don’t when they don’t. Value investing is not a concept that can be learned and applied gradually over time. It is either absorbed and adopted at once, or it is never truly learned.

Value investing is simple to understand but difficult to implement. Value investors are not super-sophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value.

The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing.”

8. Crypto Corner

9. Memes of the Day

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