🏗️ Rents Cool, Building Surges 39%

Good Morning Kings & Queens! "Most people don’t want to be part of the process, they just want tobe part of the outcome. But the process is where you figure out who’s worth being part of the outcome.”

— Scottie Pippen

MARKET UPDATE

Shares of british fashion company Burberry (BRBY) traded down 5.6% after operating profits fall 34%.

TODAY’S BIG HEADLINES

• Rents are Cooling Thanks to a Surge in Building

• The NU Kid on the Block Dominating South America

• What the Meme Stock Surge Tells Us About The Economy

• Google’s New AI Innovations Unveiled

REAL ESTATE

Rents are Cooling Thanks to a 39% Surge in Building🏗️

Building Solves Everything: In a twist that’s sure to have Americans breathing a sigh of relief, the construction industry has been busier than a beaver in a lumber yard. New rentals are popping up faster than popcorn, and it’s having a delightful side effect - the rate of increase for rental prices for single-family homes has slowed from a galloping 13.4% in 2022, to a more leisurely 5% in March of this year. It’s still a bit high, but hey, we’re moving in the right direction!

Build More: According to a WSJ report, a whopping 93,000 new rental homes sprouted up last year, and another 99,000 are set to follow suit this year. It’s like a game of SimCity out there! This construction craze is already making waves in the multi-family sector, where rent growth has slowed to a 2.7% increase in March.

Location, Location, Location: Of Now, this trend isn’t spreading evenly like butter on toast. States like Texas and Phoenix are reaping the benefits, thanks to a surge of new residents, largely due to the pandemic-driven exodus from high-cost metropolitan areas such as New York or California. Texas, in particular, saw a construction boom during the pandemic, leaving it with an embarrassment of riches - or in this case, apartments.

Wall Street Whispers: As the ever-quotable Jim Cramer likes to say, “There’s always a bull market somewhere.” And right now, it seems to be hanging out with home builders like Lennar (LEN), PulteGroup (PHM), and DR Horton (DHI), who’ve seen their stocks rise by 55%, 60%, and 44% since October, respectively.

BANKING & FINTECH

The NU Kid on the Block Dominating South America🏜️

Nu Kid on the Block: On a fine Wednesday morning, shares of South American fintech company Nu Holdings (NU) decided to have a little party, rallying by almost 5% in pre-market trading. The reason? They smashed both the top and bottom line like a pinata at a birthday party.

The Numbers Game: Despite already being one of the world’s largest digital banking platforms, Nu continues to grow like a well-watered weed. Here’s the rundown:

• Revenue came in at $2.74 billion, exceeding expectations of $2.49 billion. Up a sizable 64% year-over-year on an FX neutral basis.

• Net income came in at $378.8 million, a dramatic increase over the prior year’s $141.8 million.

• EPS came in at 9.1 cents, beating expectations of 8 cents.

• Gross profit also saw a 76% increase year-over-year, reaching $1.18 billion. The company now boasts a gross profit margin of 43.2%, up from the prior year’s 40.2%.

• And just for kicks, they revealed a return on equity (ROE) in the Latin America region of 40%!

Liquid Gold: Nu’s liquidity also saw a massive rise, with an interest-earning portfolio of $9.7 billion. This increase is largely thanks to the ramp-up of personal loans and credit card receivables in the past 12 months. Additionally, total deposits increased to $24.3 billion. Loans to deposits as a ratio has now also increased from 34% to 40%.

Latin American Mix: As of the first quarter, Nu’s customer base comprises of 91.8 million in Brazil (up 22%), in Mexico the fintech platform surpassed 7 million customers, while In Colombia, Nu’s customer base surpassed 900,000 customers. Additionally, in the same time frame, the Mexican market appears to be growing almost 3 times as fast as the Brazilian market did in its early days. Talk about a fiesta of growth!

MACROECONOMICS

What the Meme Stock Surge Tells Us About The Economy🐂

Speculation Returns: Despite the Fed raising interest rates at one of the fastest rates in living memory, the economy appears to be holding up better than many expected, with the widely anticipated recession being as elusive as a chameleon in a bag of Skittles. It has been widely accepted that the near-zero interest rate enviroment of the past combined with stimulus checks was what led to the meme stock frenzy and speculation in meme coins and risk assets such as SPACs. Yet despite monetary policy being vastly different today with interest rates now above 5%, somehow the unhinged rallies in asset prices have returned like a boomerang.

Inflation Takes a Chill Pill: Yesterday’s CPI Inflation print showed that the Fed’s monetary policy is working its magic, with inflation increasing slower than a snail on a treadmill. As a result, investors are now expecting only two 25 basis point cuts this year, down from the six cuts they were betting on at the start of the year. And of course, the market rallied in response to this data like fans at a rock concert.

The Balloon Effect: Given the return of ultra-speculative assets, this raises eyebrows and questions about whether the Fed’s policies are really cooling down financial conditions and inflationary pressures. Of course, it would be as silly as a clown at a funeral for the Fed to make policy decisions for the entire $28 trillion US economy based off of a couple mid cap stocks and crypto tokens with pictures of dogs on them. But let’s face it, these assets are the mood ring of the market’s sentiment and buoyancy.

Net Worths Rollercoaster: Despite a $9 trillion dip in the cumulative net worth of U.S. households when the Fed began its tightening monetary policy, net worths have bounced back like a kangaroo on a trampoline, now up $12.4 trillion in the six quarters since then. This rise in net worths could be one of the main drivers behind this dynamic, as well as the resilience of the economy at large. Given the elevated valuations of the market, with the S&P 500 now trading at 20.8 times forward earnings, above its historical average of 18 times, are the Fed’s restrictive measures really that restrictive? Or is it just a mirage in the financial desert? Either way, it’s a good time to be an investor, better than being a snowman in the Sahara!

ARTIFICIAL INTELLIGENCE

Google’s New AI Innovations Unveiled🦾

AI Wars: Google Strikes Back: At a Google I/O event that was buzzing with more “AI” mentions than a sci-fi convention, Google (GOOG) unveiled a slew of new features and integrations that have tech geeks buzzing like bees in a field of flowers.

AI’s Red Carpet Moment: Much like Paris fashion week, this event was strutting out new models left and right, including Google’s Gemini 1.5 flash and Pro models. Additional announcements include the introduction of LearnLM for educational support, and advancements in Google Play and Google Maps. These new AI integration across their ecosystem of apps will touch as many as 2 billion users. Another new model, called Veo, can generate video from a text prompt. It’s like having a Hollywood director in your pocket! Gemini Nano, the model designed to be used locally on devices like your phone, and is supposedly faster than a cheetah on roller skates.

Project Astra: The Star of the Show: Perhaps the most impressive use case demonstrated at the event was Google’s new AI assistant dubbed Project Astra. Much like OpenAI’s recent announcement of GPT-4o, Astra is multimodal by design — you can talk, type, draw, photograph, and video to chat with it. The demonstration videos were really quite impressive.

Learning from the Bot: LearnLM, a new family of generative AI models designed to tutor students conversationally. It’s like having a personal tutor who doesn’t need coffee breaks. This model is being piloted in Google Classroom and aims to assist teachers with lesson planning and discovering new content.

Announcements Galore: Google also previewed a scam detection feature for Android, utilizing the Gemini Nano AI to identify potential scams during calls, almost like a guard dog for your phone. Google Photos will receive an AI upgrade with the new Ask Photos feature, allowing users to search their photo collections using natural language queries. Gmail is set to integrate Gemini AI for improved email management, and Gemini 1.5 Pro will support more considerable document analysis.

MORE NEWS

Additional market-moving events🌎

Taiwanese Monopoly: Uber acquires foodpanda’s taiwan business from Delivery Hero in a $950 million deal which could grant Uber an effective monopoly in the region. (TechCrunch)

One Size Fits All: Novo Nordisk to test Wegovy on alcohol-related liver disease. (FinancialTimes)

OpenAI co-founder leaves: Ilya Sutskever, a co-founder of OpenAI and current Chief Scientist, has announced his departure from the company. (Time)

AWS CEO steps down: Effective June 3rd, Adam Selipsky the current CEO of Amazon’s cloud division AWS, will be stepping down from his role. (The Register)

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Our selections performance👾

On Monday the 11th of March, we released our “two superperformers” stock picks which we believe will provide significant outperformance compared to the S&P 500.

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• Evolution AB: 1,197.50 SEK (📉-8.75%)

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