The World Needs You

In this issue of the Peel:

• ?? NBER says that 14% of all CRE loans are currently in negative equity...
• ?? Wrestling is coming to Netflix and housing is coming after everyone.
• ???????? We need more people—and so, the world needs your help.

Market Snapshot ??

Banana Bits ??

• Verizon shareholders had their first good day this century on earnings
• Alibaba co-founder Jack Ma apes back into his own company
• Rumble and Barstool Sports team up in the wildest partnership of all time
• Just like Drake, he’s going Back to Back with his second Primary W

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Macro Monkey Says ??

CRE = Crying Real Estate

A Croatian town is selling houses for just 13 euro cents a pop, which sounds like a sweet deal, but…

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It turns out that’s a helluva lot more than the current equity value of office properties in the U.S.

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Everyone’s been talking about the country’s commercial real estate market as the “next shoe to drop” (whatever tf that means) for the economy, and as usual in the post-GFC world, real estate trouble = armageddon in the minds of Wall Street.

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What’s Going On?

A December study published by the National Bureau of Economic Research (NBER) asserts that 14% of all CRE loans and a terrifying 44% of all office loans are currently in “negative equity.”

Source

No, we don’t mean the “negative equity” that internet people would call a board full of old white dudes. This is actually even worse (if you can imagine such a thing).

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Negative equity means the current market value of the CRE property is below the total value of debt outstanding on that property.

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While seeing the real estate “gurus” that plague your Twitter feed say that losing money is not the end of the world, the impact on regional banks is the real problem here.

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How Did We Get Here?

Much like how Fed Chair JPow hates you and wants you to be poor, he also ostensibly hates CRE investors. Rising rates cause a decline in the value of any asset, so with interest rates going up the *ss over the past few years, property values plummeted.

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Working from home has also eviscerated these property values in the eyes of investors as well. Naturally, that’s why office loans are the most—to use the technical term—f*cked.

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As the usual punching bags, regional bank loan books have outsized exposure to CRE loans compared to the larger banks, like J.P. Morgan, BofA, and the others that rob you on deposit rates.

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That means that the banks with smaller amounts of loss-absorbing assets are precisely the ones that are dripping with the most negative equity. Not exactly ideal.

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Who Cares?

Well, you should.

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With WFH and other trends causing an increase in vacancy rates in these buildings, developers are going to have a tougher time making interest payments to these banks.

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And that means if we hit a 10% default rate on CRE loans—which this study suggests is on the lower end of what we saw in the GFC—that would lead to $80bn in losses requiring absorption by the assets held by these banks.

Source

If this went down in the rate environment of early 2022, “not a single bank would fail, even under the most pessimistic scenario.”

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So, the real problem emerges when we realize that $2tn in asset value held by banks has been destroyed by rate hikes. The study estimates that “dozens to over 300” banks would be on the edge of solvency.

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And I don’t need to remind you how much investors freaked out when SVB fell down the sh*tter in March of last year.

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Oh, and by the way…

The Fed’s Bank Term Funding Program will call it quits in March of this year, meaning these banks will have even less liquidity to… survive going forward.

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Best of luck to you, apes. You can join us in the WSO bunker.

What's Ripe ??

TKO Group (TKO) ??15.8%

• Aside from a B.S. decision to give Dricus Du Plessis the middleweight belt last weekend, things are going well for TKO Group.
• The newly combined UFC and WWE scored a major deal with Netflix to stream WWE’s “Monday Night Raw” starting in 2025.
• Plus, business expert and polymath Dwayne “The Rock” Johnson will be joining the board as well, giving TKO access to the Rock’s 395mn IG followers.

United Airlines (UAL) ??5.3%

• Plane doors are crashing to the ground, but plane stocks are still flying high. After a turbulent Q4, United Airlines managed to stick the landing.
• Shares took off yesterday after United reported EPS of $2/sh and revenue of $13.6bn for the quarter—both beating estimates.
• Both beat for FY’23, too, but United is already telling investors to chill. Execs expect Q1 losses thanks to Boeing’s failure to keep planes in one piece.

What's Rotten ??

D.R. Horton (DHI) ??9.2%

• Everybody’s getting screwed in this cash-forsaken housing market—even the guys that build the damn things.
• One of the nation’s largest home builders, D.R. Horton, reported $2.82/sh on $7.73bn in revenue. That’s a beat on the topline but a big swing and miss on earnings.
• Net sales orders increased 35% annually, but the drop in home prices in the past year took a big chunk of the company’s margin away. RIP to everyone.

Coinbase (COIN) ??3.1%

• The digital asset space has made a lot of promises, but the only thing this stuff appears to have actually made so far is bagholders.
• And that only got worse on Tuesday as J.P. Morgan downgraded Coinbase due to the “sell the news moment” the spot BTC ETF launched turned out to be.
• The analysts said the ETF and its impact on Coinbase’s earnings will “disappoint market participants.” Thankfully, BTC participants should be used to that by now

Thought Banana ??

Have More Sex

We need more people—and so, the world needs your help.

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Developing countries are watching their birth rates plummet faster than your level of happiness when you graduate college and have to enter the “real world.”

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Just take a look at this chart, showing the difference in birth rates from year to year across 28 countries:

Source

As we discussed briefly with China’s contracting population just a few days ago, having fewer people is really, really bad for just about everything, especially economic growth.

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While you might wish fewer people were waiting in front of you in that Starbucks line, at a certain point, there’d be no more Starbucks at all if all those oxygen suckers in front of you disappeared.

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Developmental Problems

Since countries started to become “developed” in the early 20th century, birth rates across those developing populations have plummeted, and we can see that here:

Source

Better healthcare to keep infants alive, more prosperous educational opportunities, and a host of other factors have led to a general decline in the amount of, quite frankly, people having sex… at least, in order to create children.

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The problem isn’t limited to just not having enough people around to sell your bullsh*t newsletter, too (lol), but when we consider the broader implications of fewer new humans every year, it only gets worse.

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Social security is one of the most immediate problems. With people living longer as countries develop too, the tax receipts needed to fund programs that allow the elderly to survive decline as well. Less “young”/working people = smaller tax base.

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And it’s only gonna get worse...

As birth rates continue to fall while we live even longer.

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As we can see in the first chart above, Ireland, South Korea, and China were some of the developed countries getting the worst of it. Thailand and the Philippines are still doing just fine, but the decline in birth rates coincidental with economic development comes for all.

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Therefore, there’s only one solution: have more sex.

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I’m gonna have to rely on the rest of you to carry that torch, and this time, the world really does need you, apes. It only gets worse each year, and this time, we certainly can't wait to see the next release in 2025.

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?? The Big Question ??: What countries will face horrific economic issues related to population decline first? How far do birth rates have to fall in order to spark these issues? How can we reverse or contain the negative impacts of this trend?

Banana Brain Teaser ??

Yesterday ??

At a garage sale, all of the prices of the items sold were different. If the price of a radio sold at the garage sale was both the 15th highest price and the 20th lowest price among the prices of the items sold, how many items were sold at the garage sale?

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Answer: 34

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Today ??

Half of a large pizza is cut into 4 equal-sized pieces, and the other half is cut into 6 equal sized pieces. If a person were to eat 1 of the larger pieces and 2 of the smaller pieces, what fraction of the pizza would remain uneaten?

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Send your guesses to [email protected]

Wise Investor Says ??

“Population collapse is a major risk to the future of civilization.” — Elon Musk

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How Would You Rate Today's Peel??

?? All the bananas? ? ? ? ? ? ? ? ? ? ? ? ??? Meh? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? Rotten AF

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Happy Investing,

David, Vyom, Jasper & Patrick