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🍋 Renters Feeling Squeez

🍋 Renters Feeling Squeez

Short Squeez
October 25, 2022

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"In the business world, the rearview mirror is always clearer than the windshield" — Warren Buffet

Good Morning! Investment banking exit opps are getting even better - former Goldman Sachs banker-turned-hedge fund partner Rishi Sunak got a new job as the next Prime Minister of the UK. National test scores fell drastically this year, and experts blame Covid-19 for educational setbacks.

While economists debate whether we’re in a recession, sports fans are turning to baseball for answers. The Philadelphia Phillies have historically only won the World Series during economic recessions (1980 and 2008), and they start playing for the next title on Friday.

As promised, please find our updated list of Excel & PowerPoint shortcuts here. (downloadable)

Netflix stock bounced back after blockbuster Q3 earnings (up 32%), adding more than 2.4 million subscribers. For those looking to model out the streaming service, Daloopa is giving away Netflix's detailed financial model for FREE. Download here.

1. Story of the Day: Renters Feeling Squeez

Renters have been down bad over the past few years. A scorching summer market of record demand caused some to pay over list-price for the limited supply of apartments. But as inflation rages on, tenants are getting fed up.

As housing becomes more unaffordable and recession fears loom, prospective renters are starting to stay put. The rental market mirrors the soaring cost of goods and inflation, but wages aren’t keeping up.

Renters are especially feeling the squeeze of inflation. Soaring rents amidst stagnating wages mean the average minimum wage worker now needs to work 50 hours a week to afford rent on a 1-bedroom apartment. In New York, it would take 111 hours a week.

As young people continue to wait things out, demand has cratered. Rent prices tend to stabilize rather than outright fall, but last month the average rent price decreased.

Most speculated rents would eventually level up (they’re up ~10% nationally year-to-date) but few saw such a rapid end to renting mania. Just a few months ago in NYC, hundreds of people waited in hour-long lines to view an East Village apartment smaller than a one-car garage. The 120-year-old unit costs 30k in annual rent and failed two rat inspections...

Takeaway: The rental market mirrors economic factors such as supply and demand and inflation. Rents soared when swarms of people fought over a handful of apartments. Economists see a complete reversal of that already - inventory is accumulating across the country to the tune of few interested renters.

Experts say that, in order for inflation to subside, rent also needs to fall. Inflation might not come back to Earth for a while, but stabilizing and even falling rent is a promising sign for tenants and the economy as a whole.

2. Markets Rundown

If you want access to Wall Street insider interviews, industry deep-dives, and investment ideas, check out our Insiders newsletter.

Stocks extended their rebound ahead of the earnings rush.

Movers & Shakers

(+) Avis Budget ($CAR) +17% after JPMorgan issued a positive outlook on the rental car industry.
(+) WeWork ($WE) +6% after the company saved almost $3 billion in expenses in Q3.
(–) Alibaba ($BABA) -13% after investors dumped non-state-driven Chinese companies yesterday.

Private Dealmaking

H2 Green Steel, a sustainable steel company, raised $68 million
Banyan, a fintech payment platform, raised $43 million
Generally Intelligence, an AI startup company, raised $20 million
Chip City Cookies, a NYC coffee and cookie chain, raised $10 million
Amazon will buy 15% stake in Hawaiian Airlines, valued at $115 million
America Securities will sell food equipment maker CPM Holdings for $2.5 billion

A Message from Daloopa: Update Models with 1-click

Here's a dirty secret: part of being a finance professional consists of being one of the world's best-paid data-entry professionals.

It's a pain—and a rite of passage—to build a financial model by painstakingly transcribing information from 10-Qs, 10-Ks, presentations, and transcripts. Or, at least, it was: Daloopa uses machine learning and human validation to automatically parse financial statements and other disclosures, creating a continuously-updated, detailed, and accurate model.

Thomas Li (CEO) puts it best: "Daloopa collects literally everything a company discloses."

Netflix's stock has made a comeback after its blockbuster earnings release last week and is up nearly 32% since then.

If you'd like to model out where Netflix's stock goes from here, Daloopa is giving away Netflix's model to Short Squeez readers.

Download NFLX's model for FREE here.

4. Book of the Day: The Pyramid of Lies

Lex Greensill had a simple, billion-dollar idea – democratizing supply chain finance. Suppliers want to get their invoices paid as soon as possible. Companies want to hold off as long as they can. Greensill bridged the two, it’s mundane, boring even, but he saw an opportunity to profit.

However, margins are thin and Lex, ever the risk taker, made lucrative loans with other people’s money: to a Russian cargo plane linked to Vladmir Putin, to former Special Forces who ran a private army, and crucially to companies that were fraudulent or had no revenue.

When the company finally collapsed it exposed the revolving door between Westminster and big business and how David Cameron was allowed to lobby ministers for cash that would save Greensill’s doomed business. Instead, Credit Suisse and Japan’s SoftBank are nursing billions of dollars in losses, a German bank is under criminal investigation, and thousands of jobs are at risk.

What Bad Blood did for Silicon Valley and The Smartest Guys in the Room did for Wall Street, The Pyramid of Lies will do for the world of shadow banking and supply chain finance. It is a world populated with some of the most outlandish characters in business and some of the most outrageous examples of excess.

It is a story of greed and ambition that shines a light on the murky intersection between politics and business, where lavish fortunes can be made and lost.

“True story of Lex Greensill, the Australian farmer who became a hi-flying billionaire banker before crashing back down to earth, exposing a tangled network of flawed financiers, politicians and industrialists.”

5. Short Squeez Picks

LEX allows you to build your own portfolio of single-asset commercial real estate investments. Sign up for free here
Rest isn’t the opposite of work
7 time-management techniques that are slowly stealing your life
6 proven secrets to make personal habits stick
9 life-changing benefits of cold showers
Why New Jersey doesn’t let people pump their own gas
10 psychological ways to fall asleep in 2 minutes
Inflation vs. recession - eight readers choose

6. Daily Visual: Cost of High Yield Bonds Soaring

Source: Axios

7. Daily Acumen: Jeff Bezos on Wandering

"Sometimes (often actually) in business, you do know where you’re going, and when you do, you can be efficient. Put in place a plan and execute. In contrast, wandering in business is not efficient … but it’s also not random.

It’s guided – by hunch, gut, intuition, curiosity, and powered by a deep conviction that the prize for customers is big enough that it’s worth being a little messy and tangential to find our way there. Wandering is an essential counterbalance to efficiency.

You need to employ both. The outsized discoveries – the “non-linear” ones – are highly likely to require wandering."