ECONOMY

Is This Inflation Balloon Gonna Pop?

In the past few days, biz news has been dominated by jitters around your favorite concept from Econ 101. No, not how to flirt with people in the library using only eye contact—inflation. 

When we say jitters, we mean market shifts. The yield on the 10-year US Treasury note is at 1.36%, a big jump from the 0.9% where it started the year (remember, higher yield = lower price = investors are dumping their bonds), while copper and oil have spiked. Translation: Investors think economic growth is about to hit ludicrous speed and they're running for cover in assets that hedge against inflation. 

• Inflation? During a pandemic? Some have sounded the alarm due to the double whammy of 1) Congress's historically huge relief packages and 2) the Fed's efforts to spur liquidity. Both are geared toward helping the economy through the Covid crisis and could theoretically lead to inflation. Plus, inflation is like a midafternoon snack—once it gets going, it can build momentum and spiral out of control. 

Tech shares in the US and Europe have slumped in anticipation of potential interest rate hikes, a move central banks might make to keep inflation at bay.

But many economists say there's no need to worry 

Including the ones who actually oversee the economy. Treasury Secretary Janet Yellen and Fed Chair Jerome Powell both said in recent days they're not worried about inflation, and Powell signaled yesterday he'll keep interest rates low where Lil Jon wants them. These soothing words helped stocks mount their big comeback yesterday. 

• Both officials also called for more spending to ease the economic hardships Americans are facing, noting that millions of people are still unemployed. 

Zoom out: Indicators of inflation usually show up in the job market; when it overheats, inflation can start to snowball. But the current job market is like the frozen burrito you threw in the microwave—hot on the surface (high yearly wage growth), but icy at the core (elevated unemployment claims). 

HOUSING

Houses Are a Lot Like Puppies

People really want to get new ones during a pandemic. US home prices jumped 10.1% in December, their biggest monthly gain since 2014, according to S&P CoreLogic Case-Shiller.

• The hottest real estate markets? Phoenix (14.4% price growth year-over-year), Seattle (13.6%), and San Diego (13%). 

Prices are also jumping in more unexpected places. Homes in Atlantic City, NJ, which has fallen on some tough times since Nucky Thompson roamed the boardwalk, saw a 30% bump in Q4 2020. As the WSJ reports, the pandemic has accelerated the city's shift from gambling resort → liveable seaside community. 

Zoom out: A mix of historically low interest rates, the pandemic pushing people out of small apartments, and an inventory squeeze have juiced prices to unaffordable levels for many potential homebuyers. In the past week, mortgage rates have shot up with bond yields—but they're still well below last year's levels.

AUTO

A SPAC in the Face

On Monday evening, electric automaker Lucid Motors confirmed it's going public via SPAC at a valuation of $24 billion. EVs, record-breaking SPAC...is that sound Wall Street drooling? 

Not this time

Shares of Churchill Capital IV (CCIV), the special purpose acquisition company that is taking Lucid public, fell 39% yesterday. CCIV's shares had previously risen 472% following January reports of the deal—real "GameStop vibes," Axios writes.

CCIV's plunge doesn't necessarily mean this is a bad deal. Lucid's hefty valuation reflects tremendous investor interest in the EV market and high expectations for its upcoming luxury Air sedan. Lucid will raise $4.4 billion through the CCIV deal and use that money to help fund production and expansion into new vehicle lines.

Zoom out: Yesterday's news pushed Lucid's valuation to $62 billion...even though it hasn't delivered a single vehicle yet (GM is worth about $74 billion). Sky-high valuations for other EV startups that have SPAC'd—including Nikola, Lordstown Motors, and Fisker—have sparked concerns about a bubble approaching its pop.

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GRAB BAG

Key Performance Indicators

When you spend most of your time reading the news, you find some interesting stuff. Here's 1 quote, 1 stat, and 1 long read that we discovered yesterday and had to share.

Quote: "The strategic monkey reserve is exactly what we needed to deal with Covid, and we just didn't have it."—Keith Reeves, a principal investigator at the Center for Virology and Vaccine Research at Harvard Medical School, told the NYT that a shortage of lab monkeys hampered Covid-19 vaccine efforts. Now, there's talk of creating a "strategic monkey reserve," similar to what the US has done with oil and grain.

Stat: Oat-based dairy product sales tripled in 2020 to overtake soy milk as the second most popular plant-based milk (almond milk remains king). Yesterday, the Swedish vegan milk company Oatly filed confidentially for an IPO, and it's aiming for a valuation of up to $10 billion.

Read: On creativity and TikTok. (Eugene Wei)

EXPLAINER

Market CAPITALIZATION

Every Wednesday, we answer a reader-submitted question about business and the economy. Got something to ask us? Click here.

Q from Daniel in Atlanta: What really is a market cap?

Brew's answer: Market capitalization, aka "market cap," is a measure of a public company's worth based on the dollar value of outstanding shares. Outstanding shares = stock that's been issued and is available to investors. 

Market cap is a useful tool to see where a company stacks up against competitors and how investors feel about its future growth potential. Companies are typically labeled as small-cap ($300 million–$2 billion), mid-cap ($2–$10 billion), or large-cap ($10+ billion). 

• Market cap can fluctuate as share prices move or if the company issues new shares or buys back stock.
• Worth noting: Market cap =/= how much it costs to buy a company.

Real world example: Last year, Tesla's market cap surpassed that of the nine biggest global automakers combined...even though it sells far fewer vehicles. Remember, share price doesn't just reflect the value of a company today, but where investors see it going. 

• Tesla is the leading EV producer, and legacy automakers and EV startups are largely playing catch up. 
• Even though Tesla only recently became profitable and has had numerous issues meeting production schedules, investors believe that the EV market is going to explode and Tesla along with it. 

Ask us something else here.

SPORTS

$18 Beers Never Tasted So Good

Last night, fans were allowed to watch the NY Knicks lose a basketball game in person for the first time in 352 days. 

Across the East River, the Brooklyn Nets also welcomed back fans for the first time since the pandemic started. Both arenas (Madison Square Garden and the Barclays Center) are capped at 10% capacity for now, which means priority is given to season ticket holders and people who tend to eat shrimp cocktail while watching basketball.

The backstory: NY Gov. Andrew Cuomo has allowed attendance at arenas provided that fans show a negative PCR Covid-19 test 72 hours before the event starts. The Barclays Center is even sending ticket holders an at-home Covid-19 test as part of the price of admission. It’s the first major North American sports venue to do so. 

Zoom out: The Knicks and Nets make it 14 NBA teams (out of 30) that are allowing fans to attend games. No arena is allowing more than 25% attendance. 

WHAT ELSE IS BREWING

• Home Depot sales increased 25% in the fourth quarter of 2020, capping a year in which it raked in a record $132 billion in sales.
• Square, Jack Dorsey’s fintech company, bought $170 million more in bitcoin. It also doubled its revenue last quarter thanks to more trading on its Cash App.
• Snap said it was in a position to do "multiple years" of more than 50% revenue growth. 
• Microsoft, SolarWinds, and other cybersecurity firms defended their actions during the massive breach of government agencies and corporations by suspected Russian hackers.
• Tiger Woods suffered serious leg injuries in a car accident in California, but they're not life-threatening. The golfer underwent surgery in the afternoon.

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GAMES

Chicken Sandwich Wars

Today, McDonald’s is releasing three versions of its new chicken sandwich, joining every other fast food chain that released a new chicken sandwich. But can you tell them apart? Match the chicken sandwiches pictured below with the correct fast food company.

Options: Chick-fil-A, Wendy's, Burger King, McDonald's, KFC, Popeyes 

ANSWER

1. KFC
2. Wendy’s
3. McDonald’s
4. Chick-fil-A
5. Burger King
6. Popeyes