Good morning! Today’s word count is 2,293 words, or an 11-minute read. Let’s get to it:
“The Dow industrials and S&P 500 fell, pointing to a steepening rout in share benchmarks as investors became unsettled by the Federal Reserve’s dour outlook as well as conflicting signals about when vaccines may become available,” WSJ writes.
- S&P 500: $3,361.90
- Nasdaq: $10,919.12
- Bitcoin: $10,840.24
- U.S. 10-Year: 0.667%
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Justin Oh’s Quick Read
There’s a ton in today’s newsletter, so make sure to read my analysis further down! In summary, I am still nervous about our weak labor market and potential a stock market correction if Congress does not pass enough stimulus, which is why I am keeping such a large cash position in our Target Allocations. I am uncomfortable with office REIT stocks because office tenants will be shifting their office space strategies post-Covid-19. I actually love the Amazon-backed Tonal product ($AMZN) and dislike Lululemon’s Mirror product ($LULU). And Snowflake ($SNOW) has reached insane valuations, and I am not considering touching it unless it drops back to maybe around $150 per share.
A Broad Look At The U.S.’s Covid-19 Economic Recovery
New Covid-19 cases in the U.S. stayed under 40,000, and health officials suggested conditions in the country could return to normality sometime next year. But economic recovery has stalled in recent weeks as varying Covid-19 restrictions still hamper many sectors’ ability to rebound.
Unemployment claims held steady.
- Weekly claims for jobless benefits dropped by 33,000 to a seasonally adjusted 860,000 for the week ending Sept. 12. The number of people collecting unemployment benefits through regular state programs fell by 916,000 to 12.6 million for the week prior.
- Covid-19 and related shutdowns caused both unemployment applications and payments to skyrocket to record-highs dating back to the 1960s this spring. While those numbers are trending down and the labor market has partially recovered, those figures remain higher than any other before Covid-19.
- Employers have replaced 11 million of the 22 million jobs lost in March and April, but the pace of hiring has significantly slowed, and layoffs are still persistent. Maison Kayser, Under Armour and Marriott International have all warned of job cuts in recent weeks. Amazon went the opposite direction, announcing plans to hire 100,000 additional employees in the U.S. and Canada.
- Congress has yet to reach an agreement on a follow-up pandemic stimulus package after federal funding to provide $600 per week in enhanced unemployment benefits expired in July. President Trump signed an executive order in early August, allowing states to “tap $44 billion disaster-relief funds for $300 a week in enhanced aid.” Since then, FEMA has distributed more than $35 billion in funds.
American offices are still mostly unused.
- “Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51 percent from the end of February.” Manufacturing jobs, which has fewer jobs that can be done remotely, was down by a third.
- It varies by location.
- New York and San Francisco: Well below 50 percent of pre-pandemic activity.
- Miami: Employee visits to retail stores were at 92 percent.
- Chicago and Washington, D.C.: Manufacturing and warehouses were around 75 percent, but offices still half empty.
- The drop in workplace visits during March and April was nearly universal. Recovery, however, has been stratified.
- New York manufacturing and warehouses rebounded in June, but offices haven’t since hitting a low of 21 percent occupancy at the end of April.
- Miami never saw employee visits to retail stores dip below 84 percent, even as Covid-19 cases spiked in July.
- “While more offices are reopening this fall, many businesses expect workers will work remotely at least part-time for the foreseeable future, suggesting that it could be years before offices return to pre-Covid-19 occupancy levels.”
More than a million mortgage borrowers have slipped through the “Covid-19” safety net.
- Roughly 1.06 million borrowers are at least 30 days past due on their mortgages and not in a forbearance program, according to data firm Black Knight Inc. Many could be at risk of losing their homes once federal and local restrictions on evictions and foreclosures expire early next year.
- Lenders and consumer groups said the numbers could spike, and the number of past-due mortgages that aren’t in forbearance could grow to several million people by October. Lenders are reaching out to borrowers to offer an extension on existing forbearance plans. Data from Black Knight shows around 250,000 of the six million borrowers who were in forbearance at one point since the pandemic began are again delinquent on their homes.
- Those falling through the “forbearance safety net” are a small portion of the roughly 53 million active mortgages in the U.S. However, they tend to be more financially vulnerable, with weaker credit scores and lower incomes.
- A National Housing Resource Center survey found 56.6 percent of respondents didn’t know about the forbearance program, and 69.9 percent said they feared being required to make a large lump sum payment at the end of the forbearance period.
Justin Oh’s Two Cents
Let’s not get confused – the U.S. job market is still very weak, and massive amounts of government unemployment support have supported the resiliency we’ve seen in consumer spending. If Congress doesn’t pass additional unemployment benefits, consumer spending and corporate profits will weaken, and we could see a material correction in the stock market. I am very wary of this, which is why I’ve been holding a large cash position versus stocks.
Even though office real estate looks to be a “bargain” right now, I don’t feel comfortable with office REIT stocks. Although my company is still paying rent for our unused office and plans on returning as soon as safely possible, I believe we will see a substantial number of employers shift their office space strategy that potentially involves hybrid work-from-home or office plans, or swapping suburban space for central business district space. I would rather sleep tight with Verizon ($VZ) or Oracle’s ($ORCL) over 6.5 percent cash flows than take the risk with Boston Property Group’s ($BXP) 7.5 percent cash flows.
Read More: (WALL STREET JOURNAL)
Amazon-backed Fitness Startup Tonal Raises More Cash
If there’s one thing to take away from connected fitness company Tonal’s latest $110 million capital raise, it’s that investors are betting Americans will continue working out from home after the pandemic. The San Francisco-based venture received investments from several high-profile backers, including Amazon’s Alexa Fund, Golden State Warriors guard Steph Curry, professional golfer Michelle Wie, Los Angeles Clippers forward Paul George and Seattle Seahawks linebacker Bobby Wagner.
Why It Matters
The at-home fitness space has exploded in the last few months.
- Online fitness platform Zwift announced $450 million in funding Wednesday, led by private equity giant KKR.
- Lululemon announced its $500 million acquisition of Mirror earlier this year.
- Peloton stock has rallied more than 200 percent in 2020 as U.S. gyms remain closed.
It’s a high-tech approach to working out.
- Tonal’s workout machines use an electromagnetic resistance engine instead of classic weights.
- It’s look is similar to that of a flat-screen TV, with a fold-out bench and resistance bands, and can generate up to 200 pounds of resistance.
An Amazon partnership could be a path to the forefront of the industry.
- Tonal CEO Aly Orady called Amazon’s involvement a “big win” for the startup and could “eventually lead to Tonal’s inclusion in a suite of connected devices through Alexa.”
- Apple announced its own fitness platform earlier this week, offering a wide-ranging catalog of content across its devices and the capability to sync with an Apple Watch.
Tonal has already started to catch on among professional athletes.
- The company said more than half of the NBA teams inside the Orlando bubble used Tonal during the playoffs.
- Two-time NBA MVP Steph Curry initially bought a Tonal machine at full price under a fake name but approached the company months later, asking to invest.
- Curry: “I’ve had a Tonal for almost two years. While in quarantine during COVID, I have relied heavily on it to maintain my strength training and believe it is revolutionizing how people will work out now and in the future.”
- Tonal has 20 pro-athletes among its roster of investors, such as Serena Williams, Klay Thompson (NBA/Golden State Warriors), Tony Gonzalez (NFL/Retired), Rudy Gay (NBA/San Antonio Spurs) and Kyle Rudolph (NFL/Minnesota Vikings).
Numbers To Consider
- The new investments bring Tonal’s total funding up to $200 million.
- Tonal’s workout machines sell for $3,000.
Justin Oh’s Two Cents
Tonal seems like a great product that the Peloton target audience would consider buying, while Mirror (owned by Lululemon $LULU) does not. Tonal provides machinery and resistance training, whereas Mirror is just a fancy TV. I see Tonal as a great addition to the Peloton in a high-earning household. The takeaway is something you hear me say over and over again — Amazon investing in and purchasing great products is precisely why we hold $AMZN stock for the long-term, while Bezos conquers the world for us.
Read More: (CNBC)
Number Crunch: Snowflake’s Stock Price Soars in IPO
“Snowflake Inc.’s shares skyrocketed on their first day of trading, giving the biggest tech IPO of the year a market value of $70.4 billion and feeding the recent bout of enthusiasm around initial public offerings,” WSJ writes.
- After opening at their IPO price of $120, shares of the data-warehousing company closed at $253.93 Wednesday. It reached as high as $319.
- After a private funding round in February, Snowflake was valued at $12.4 billion. Wednesday’s action means the company has exceeded that more than five times over.
- Snowflake is just another example of the “broader tech sector’s run-up in 2020.” Even after a recent pullback, the Nasdaq Composite Index is up 23 percent year-to-date and has outperformed the S&P 500.
- And while Snowflake isn’t profitable, it has snowballed. “For the six-month period ended July 31, the company lost $171.3 million and had revenue of $242 million, which more than doubled from the year-ago period. Its loss for the fiscal year ended Jan. 31 nearly doubled to $348.5 million from the previous year, though revenue almost tripled to $264.7 million.”
- The offering of 28 million shares raised around $3.4 billion for Snowflake and generated enormous profits for notable anchor investors Berkshire Hathaway and Salesforce, which both got in at the $120 IPO price.
Justin Oh’s Two Cents
I was wary of Snowflake’s valuation at around $110 per share, so $SNOW trading at over $200 per share is ridiculous. I did not buy the stock, and I hope none of you did either. I love the business and investor-backing, but I’ll be waiting until the stock is under $150 to consider buying in the near term.
Read More: (WALL STREET JOURNAL)
Worth Your Time
We’re All Ears: Though it has some catching up to do to close the gap with Apple Podcasts and Spotify, Amazon’s music service is becoming the latest entrant into the rapidly expanding podcast medium. While it’s a competitive field, Amazon executives said the service could “tack differently from rivals—as it has with music streaming—and bring in new podcast listeners, particularly through its voice-activated home speakers.” Amazon Music is the third-largest music service by subscriptions, behind Spotify and Apple Music. (WALL STREET JOURNAL)
Deal or No Deal: “Trump administration officials are looking to give American investors a majority share of the company that will take over the Chinese-owned video-sharing app TikTok, according to people familiar with the matter. That is leading to uncertainty and friction over the contours of the emerging deal to transfer the popular app to a U.S.-based entity, as President Trump has demanded.” (WALL STREET JOURNAL)
Spectacular Spectacles: “Some Facebook staffers will start wearing high-tech glasses that record video and audio in public ahead of the launch of a pair of smart glasses for consumers next year. The glasses, which Facebook is calling Project Aria, will be given to roughly 100 Facebook employees and contractors this month to wear throughout the day…During a virtual event Wednesday, Zuckerberg said Facebook has signed a multi-year deal with the eyewear giant Luxottica, the maker of Ray-Ban, and will release a pair of smart glasses for consumers next year.” (THE INFORMATION)
Unity Software, which designs game developers’ tools, increased its IPO target price range between $44 and 48 per share, a jump from its initial pricing of $34 to $42 per share.
Sumo Logic priced its IPO offering at $22 per share, valuing the company at $2.2 billion.
In a move to provide transparency, Moderna released details of its plan for analyzing data from its Covid-19 vaccine trial, “offering an unusual under-the-hood look at the study of a top vaccine candidate.”
“MetLife Inc. said it agreed to purchase Versant Health for about $1.68 billion in cash, a deal the company said would turn it into one of the largest vision insurers in the U.S. and further a diversification push.”
Because of escalating political tensions and the global economic fallout of the Covid-19 pandemic, investments between the U.S. and China in the first half of 2020 dropped to a nine-year low.
Slack is shuffling its HR department, hiring Live Nation’s former head of human resources strategy Nadia Rawlinson as its chief people officer.
“Companies like Perfect Day, Impossible Foods, and a host of other startups that are developing replacements for animal farmed goods used in food, clothes, cosmetics, and chemicals have raised a whopping $1.5 billion through the first half of the year.”
Sony unveiled its launch pricing for the PlayStation 5, mirroring Microsoft’s strategy to offer two pricing tiers and “woo more consumers.”
Faced with Covid-19 constraints, Uber offloaded its European digital marketplace, matching semi-trailer truck drivers with customers needing to ship goods.