Dimon in the House

Plus: Greed is still bad in China ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

November 23, 2022

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TOGETHER WITH

Good morning.

This month’s biggest news stories are beginning to converge like the disparate plotlines of a Seinfeld episode. New reporting from Semafor Tuesday revealed Elon Musk explored a deep partnership with Sam Bankman-Fried that would have seen the crypto pariah kick in up to $10 billion toward the $44 billion purchase of Twitter. Ultimately, the former FTX CEO simply rolled over his $100 million stake in the public company when Musk took Twitter private. It’s too bad, they seemed like such a nice couple.

Quick PSA — we’re off tomorrow for Thanksgiving, and back here on Friday! Have a great holiday!

Morning Brief

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The UK tries squaring up to Big Tech.

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The housing market is getting slightly less crowded.

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China readies itself to clamp down on Covid IPOs.

Tech

UK Opens Antitrust Investigation into Apple and Google

The British are coming — and this time it’s for Big Tech.

The UK’s antitrust regulator, the CMA, announced Tuesday it’s launching an investigation into Apple and Google after concluding the pair have “substantial and entrenched market power” in the mobile browser market with what is effectively a duopoly with their iOS and Android operating systems. The agency said it will investigate the companies’ “stranglehold” on mobile browsers, and presumably it will also look into whether Apple and Google employees committed any other anti-competitive faux pas worse than making their tea by putting the milk in first.

Britain Keeps Step With Europe

This is hardly Apple and Google’s first regulatory rodeo, as members of the ‘Big Four’ they’ve been under the antitrust microscope for the last five years. While US politicians have made lots of noise, it was the EU that landed the first real uppercut in 2018 when commissioner Margrethe Vestager slapped Google with a €4.3 billion fine over how it favored its own search engine on Android phones.

The UK officially parted ways with its EU neighbors two years later, but seems eager to mirror their approach to US tech titans — meaning Big Tech potentially faces double the regulatory headache. So far this year the CMA already forced Meta to unwind its proposed acquisition of Giphy, a deal which was completed in May 2020. The CMA’s investigation into Apple and Google is a slightly more ambitious play:

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The CMA seems to be addressing the issue from the POV of smaller developers. “Many UK businesses and web developers tell us they feel that they are being held back by restrictions set by Apple and Google,” the interim chief executive of the CMA Sarah Cardell said.

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The UK government says it’s gearing up to crack down on Big Tech more broadly, with Chancellor of the Exchequer Jeremy Hunt saying last week he’s gearing up to present a new bill that will tackle “abuses” by tech giants. We wouldn’t advise holding your breath, as the last big chunk of tech legislation the UK government tried to pull together, the Online Safety Bill, turned into a giant legislative ball of yarn.

Sad Timing: The CMA’s announcement comes the same morning the UK’s economic outlook landed squarely in the rubbish. The OECD forecasts the UK will only be beaten next year by Russia in terms of economic shrinkage among the G20 countries, and citizens are facing a historically severe drop in living standards. The tourist board’s new slogan could be “The United Kingdom: At Least We’re Not Russia. Yet.”

Real Estate

Investors Are Slowing Their Home-Buying Spree

Apartment-dwelling millennials rejoice.

At long last, institutional home real estate investors — the type of companies that have been upending house auctions and outbidding traditional home seekers in desirable neighborhoods near you — appear to be slowing their frenetic pandemic-era shopping sprees, according to new data published by brokerage firm Redfin on Tuesday.

Live, Laugh, Love (Low-Interest Rates)

Institutional investors, including major firms like JPMorgan and Blackstone, have poured into the home-buying market since the beginning of the pandemic — particularly in newly-desired suburban markets — snapping up nearly 1 in 5 homes across the country in the first quarter of this year. In the process, they’ve become something of a scourge on local communities, driving up prices across the board.

After a few years of aggressive activity, the biggest players may have gotten out in front of their skis. Tricon Residential, Invitation Homes, and American Homes 4 Rent, three of the largest publicly traded owners, have underperformed the S&P 500 so far this year. Meanwhile, Redfin, Zillow, and Opendoor have each shuttered their algorithm-driven online home-flipping divisions this year.

Now, institutional investors are losing their greatest advantage: low-interest rates. Without access to cheap capital and with the overall housing market cooling, institutional investors are starting to feel less at home:

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Investors purchased 60,000 homes across 40 markets tracked by Redfin during the third quarter, the brokerage firm reports. That’s down from a staggering 94,000 in the same quarter a year ago and, early pandemic aside, marks the largest investor purchase percentage decline since the subprime mortgage crisis.

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The 30% decrease in investor purchases year-over-year slightly outpaces the drop in traditional homeowner sales during the third quarter, which fell 27%. Home prices were up 13% in August, the most recently available time period tracked by the S&P CoreLogic Case-Shiller national home price index.

Bring Down the House: Still, investors accounted for 17.5% of all home sales country-wide in the third quarter. That’s down from the nearly 20% high in recent years but remains higher than the 15% peak seen at any time pre-pandemic. For now, the odds are still pretty good you’ll be buying a housewarming gift for your new neighbor, Jamie Dimon.

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Markets

China Warns It Will Tightly Regulate Covid-Linked IPOs

Zero-Covid hasn’t meant zero-cash for every Chinese company.

Chinese securities regulators have warned they will be keeping a watchful eye on the IPOs of companies that benefited from the country’s stringent “Zero-Covid” policy — just as major cities ratchet back into widespread lockdowns.

Tests And Takeaway

China’s covid cases reached a record high this week as the country remains trapped in a zero-covid lockdown cycle vicious enough to give the rest of the world 2020 PTSD. But while said policy has damaged China’s economy and trapped Disneyland visitors, a handful of companies have turned adversity into advantage, sparking the country’s IPO market to raise record highs of over $58 billion this year. Included in that figure are a clutch of companies that deal with Covid tests, as well as those that deliver food to citizens trapped indoors.

China’s stock exchanges are now seeking to mollify citizens incensed by ever more companies jumping on the IPO train to profit off their prolonged misery:

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The Shenzhen stock exchange said in a social media post: “We pay close attention to the listing applications of companies involved in nucleic acid testing, and insist on strict reviews, especially in the front of business sustainability.”

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To give a sense of just how big the bubble is, lockdown food supplier Pang Pang Xiang’s profit margin went up 74% from January to May 2022, overlapping with Shanghai’s lockdown.

No Picnic for Ant: Ant, meet Raid. Sources told Reuters that China is gearing up to impose a fine of over $1 billion on corporate giant Ant Group whose planned $34 billion IPO was scuppered by the government in 2020, prompting co-founder Jack Ma to vanish from public view for ten months. Just a small reminder of what can happen when Beijing thinks a company needs a good wing-clipping.

Extra Upside

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A rail strike is looking more and more likely.

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Winn-Dixie owner Southeastern Grocers is exploring a possible sale.

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Just For Fun

Liftoff.

Snow plow.

Have a great Thanksgiving!

Written by Isobel Hamilton and Brian Boyle.

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