| |  | TOGETHER WITH |  | | | Good morning.
A long-running, quasi-serious maxim in New York City economics is in jeopardy. First floated in The New York Times in 1980, the “pizza principle” holds that the costs of two NYC essentials — a slice of cheese pizza and a single ride on the subway — rise in lockstep.
That relationship has held true for most of four decades, but the average plain slice in the Big Apple now costs $3.14, while an MTA ticket is frozen at $2.75 until at least 2023. Some are calling it a historic breach of crust. | | | • | | Rising interest rates are undercutting the values of homebuilding companies. | | • | | Howard Schultz takes the reins of Starbucks today for the third time, with 185 unionization campaigns staring him in the face. | | • | | Pro wrestling has a new source of talent. | | | | |  | Housing | With Housing Affordability in Doubt, Homebuilders are Taking a Beating | | By many metrics, the US housing market is as strong as ever. Home prices have notched new record highs month after month. And according to Realtor.com, the national housing shortage stands at 5.2 million units, up from 3.8 million in 2019 (makes you wonder where people lived pre-pandemic).
For those standing on the outside wanting to get in, the current environment is clearly a buzzkill. But even for those on the construction side of the equation — the gatekeepers holding the proverbial keys to the suburban kingdom — times are equally tough. | House of Window Pane | | First, a couple of things you already know. The median listing price in the US hit a record $405,000 in March. At the same time, the cost of borrowing is also on the rise: 30-year mortgage rates have topped 4.6%, up from just 3% late last year. It's a tough environment even for seasoned buyers. The unlucky buyers in search of their first home can...as they say in Jersey...fuhgeddaboudit — 1.9 million would-be homebuying newbies will be locked out of that goal this year.
On the supply-side, one might expect that homebuilders — with tailwinds of strong balance sheets, attractive capital return programs, and limitless demand — would be relishing the environment. As one example, Lennar, the second-largest homebuilder in the US, reported a record $1.2 billion profit during the fourth quarter of 2021.
But investors across the sector are throwing a challenge flag. Lennar’s stock is down 27% so far this year, and many analysts are questioning the sustainability of the sector’s earnings against a dubious macroeconomic backdrop: | • | | Lennar trades at just 5.0x 2022 earnings. Toll Brothers, which caters to luxury clientele, trades at just 4.5x. Relative to the broader S&P 500 which trades at north of 25 times 2022 earnings, the paltry multiples of the homebuilding sector suggest investors believe earnings have peaked and tougher times could be ahead. | | • | | Analysts are pointing to supply chain shortages in garage doors, windows, gutters, and other construction supplies; meanwhile, the rising interest rate environment will likely hamper demand. | | | | “Investors are understandably skittish, given the combination of higher rates and elevated prices makes homes less affordable,” Michael Rehaut, an analyst at JP Morgan, wrote in an investor note.
Bubble Concerns: It may not be smooth sailing forever for owners either. The Federal Reserve Bank of Dallas warned last week of a “brewing US housing bubble,” noting a “growing concern that US house prices are again becoming unhinged from fundamentals.” | | | | | | Labor | Howard Schultz Takes the Helm of Starbucks, Fresh Off Another Union Win | Nothing is certain, Benjamin Franklin said, except death and taxes. Marvin Gaye added “ trouble” to the list — and Howard Schultz can attest. The billionaire begins his third run as the CEO of Starbucks today and should be grateful for his company’s caffeinated product after the weekend delivered more labor tension. The ninth Starbucks location in the US voted to unionize over the weekend, yet another blow to the company’s campaign against organizing. | Bitter Standoff | | While sales dipped during the Covid-19 pandemic, Starbucks rebounded to a record $29.1 billion in sales in 2021, up from $22.4 billion in 2017. With the world’s largest coffee chain doing so well, workers at a growing number of US stores are filing to unionize over subpar pay, excess work, and lax benefits, arguing they deserve a larger share of the company’s success.
The latest Starbucks to unionize: the New York City Reserve Roastery, one of just three huge, high-end tasting rooms launched in the US as Schultz’s pet project. It's more of an upscale coffee theme park than a Wi-Fi hotspot for fledgling novelists. Even as overall union membership declines nationwide, Schultz faces a wave of union campaigns across all his stores — fancy or otherwise: | • | | Workers at more than 185 US Starbucks stores have filed union petitions, according to the Starbucks Workers Union. Out of 10 unionization votes so far, only one has lost. Starbucks employs more than 350,000 people across 9,000 stores. | | • | | US union membership dropped last year to the record low of 10.3% first set in 2019. The share of private-sector unionized employees fell to 6.1%, five times lower than the public sector, according to the Bureau of Labor Statistics. | | | | Get Paid: Compensation in hospitality is often less than in other segments, and labor shortages have given workers, unionized or not, greater bargaining power. Last month, average private-sector hourly earnings rose 5.6% year-over-year, and leisure and hospitality employees saw rates jump 11.8%.
New York State of Mind: Amazon, which has also fought tooth and nail against unionization efforts amid allegations of low pay, lost its first unionizing vote at a Staten Island warehouse on Friday. | | | | | | SPONSORED BY AQUIPOR | A Concrete Investment | Do you know the feeling of riding over an asteroid-sized pothole in a car with less-than-stellar suspension? Us too, and so does Congress, hence the recently passed $550 billion infrastructure bill. Indeed, new challenges like rapid urbanization, extreme weather, and stressed water infrastructure demand an entirely new set of engineering solutions. Investors, meet AquiPor. It’s a startup developing permeable concrete technology that can take the place of traditional pavement to eliminate stormwater runoff and urban flooding. Made from reclaimed and climate-friendly materials, the technology is poised to disrupt the concrete industry — which is collectively responsible for 8% of global CO2 emissions — and it’s well on its way: | • | | AquiPor’s permeable concrete allows stormwater to flow directly through it, returning it to natural soils and aquifers (where it belongs). | | • | | AquiPor’s proprietary concrete technology is made from upcycled materials and a novel, low-carbon cement. | | | | | | | | Entertainment | WWE is Tapping a Pipeline of College Talent |  | For a handful of college athletes, life is about to get a lot more… colorful. Instead of studying urban design, they’ll be headed to “ Suplex City” (courtesy of former University of Minnesota D1 wrestling champ Brock Lesnar). Starved for talent, World Wrestling Entertainment is turning to US college campuses to recruit would-be superstars from the 500,000 NCAA student-athletes, now free to profit off their name and likeness after a rule change last year. | Majored in Economics With a Minor in Elbow Drops | | Professional wrestling matches are fake, but the talent and athleticism required to leap off the top rope of a ring or take a folding chair to the head is very real. While many WWE superstars are former NCAA athletes, until recently college athletes couldn't pursue a pro wrestling career until they stopped playing college sports. But last fall, the National Collegiate Athletic Association lifted its ban on athletes profiting off their names, images, and likenesses.
That changed an important piece of the supply equation for the business of WWE, a publicly-traded company. Last year, the company broke $1 billion in revenue for the first time, but, after a year of Covid-related event cancellations and with competition from rivals like All Elite Wrestling, shares are down 37% from a 2019 peak. In order to compete, the WWE needs a pipeline of stars, and the NCAA is suddenly a very promising option: | • | | This past weekend, the WWE held a tryout for 50 college athletes during WrestleMania 38. In December, the WWE signed 15 NCAA athletes to a program that will train them to one day be pro wrestlers. University of Minnesota wrestler Gable Steveson, who won a freestyle wrestling gold medal at the Tokyo Olympics, and Lexi Gordon, a member of Duke’s women's basketball team, headlined the group. | | • | | The WWE has about 90 athletes in its development program, but wants to boost that number to 130, according to Bloomberg, and pool from NCAA talent to get there. | | | | Now Streaming: The WWE is growing in more ways than one. On Friday, the entertainment company announced a planned expansion into wrestling-centric scripted sitcoms and dramas. That’s right. Real fictional shows about a fictional real sport. | | | | | | Extra Upside | • | | Lithuania became the first EU country to cut itself off completely from Russian gas. | | • | | Google forced Barnes & Noble and Amazon’s Audible to use its payments system on Android. | | • | | Don’t Be Late to the Party. The difference between investing in Facebook around the time it was conceived in a Harvard dorm room and investing when shares finally hit the NASDAQ? Lots and lots of zeroes. These days, disruptive companies are staying private for longer, meaning if you wait until they go public, you can miss the party. Get VIP access to early-stage venture-backed startups, and invest alongside the “who’s who” of VC firms with Alumni Ventures. Learn more here. *Partner | | | | | | |  | Just For Fun | | | | | Written by Sean Craig and Brian Boyle. | | No longer want to receive these emails? Unsubscribe here. Copyright © 2022 The Daily Upside, LLC., All rights reserved. 1230 York Avenue, Box 154, New York, NY 10065 | | | | |
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