Gen Z Dreams

UK oil companies are hit by windfall taxes

May 27, 2022 Read in Browser TOGETHER WITH Good morning. The US economy shrunk by 1.5% in the first quarter of 2022 compared to the same period last year, the Bureau of Economic Analysis said Thursday. Thankfully, it’s Memorial Day weekend, the unofficial beginning of summer, when the first round of seasonal backyard BBQs and cookouts should add some 1.5% to your body weight. Enjoy some ribs or a burger this weekend. The markets are back on Tuesday. Morning Brief • The UK is putting a 25% windfall tax on the surging profits of oil and gas companies. • Gen Z are now 10% of US homebuyers and they are very fond of Louisville. • Ernst & Young may shake up the accounting industry. Energy Windfall Tax But a Breeze for UK Oil Company Profits How do you blunt an affordability crisis? The answer is blowin' in the windfall tax.   On Tuesday, the British government announced it will place a temporary 25% levy on the currently soaring profits of oil and gas producers. The measure, which went into effect immediately, is designed to address an affordability crisis that threatens millions of UK households. Put the Windfall in Their Sails Beset by global inflation and the highest energy prices in years, the UK is dealing with its worst cost-of-living crisis since the 1950s. The annual energy bill for the country’s average household is set to rise to £2,800 in October, which regulator Ofgem estimates will push 12 million households into fuel poverty.   While households suffer, British oil giant Shell has posted a record $9.1 billion profit in the first quarter, as rival BP doubled its profit to $6.2 billion. Seeing windfall taxes as a deterrent to investment, Prime Minister Boris Johnson's government had previously resisted the measure, yet it’s fallen to that government to resolve this fractured dynamic without further spiking living costs or spooking markets. On Thursday, the windfall tax was introduced as part of a multibillion-pound aid package meant to appease all sides: • The 25% levy will apply as an additional tax on top of current rates, and will be phased out as oil and gas prices decline (fingers crossed). Included is a loophole designed to stimulate oil production: companies can get out of up to 90% of the windfall tax by investing in the development of new fossil fuels. • All UK households will get a one-time £400 discount on energy bills, while the 8 million poorest households will get a one-time payment of £650. The measures will cost £15 billion, whereas the windfall tax is expected to net merely £5 billion in the next year; Chancellor of the Exchequer Rishi Sunak says slapping a similar levy on electricity operators is an option. Consumer debt charity Citizens Advice called the package a "life raft for the millions of people struggling to keep their heads above water." Environmental charity Greenpeace UK dismissed it as "sticking plaster" and called for windfall taxes of 70%. They’ll Be Fine: Citigroup estimates the UK's oil majors will be mostly shielded from the impact of the tax. BP makes under 10% of its earnings in the UK, while Shell makes just 4% — and the UK government can’t tax international profits. Shares in Harbour Energy, the UK's largest North Sea oil and gas producer, responsible for some 16% of 2021 oil production, were down 7% Friday afternoon. Putting the fall in windfall tax. Real Estate Gen Z Has Started Buying Homes: They Love Salt Lake City and Louisville Twenty years ago, enterprising young people dreamed of life in The Big Apple or The City of Angels. Now, they’re settling on Salt Lake City and Louisville.   A new report from lending marketplace LendingTree reveals Generation Z accounted for 10% of homebuyers in America’s 50 largest metro areas last year. Their favorite cities to buy in are mid-sized and inland. From Downpay to Z The oldest members of Gen Z — those born between 1997 and 2012 — are in the process of finishing up school, leaving the nest, and starting careers. But they haven’t exactly had a welcome economic introduction to adulthood, beginning work amid the highest rise in costs in forty years.   Then there’s finding a place to live. Rents in major cities have soared — according to Zumper, the median monthly rent for a one-bedroom apartment in New York City is $3,420, up 38% year over year. Buying is even more daunting: the median price of an existing US home was a record $391,200 in April. Gen Zers are finding homes — in non-coastal cities that haven’t been gentrified into outpriced oblivion: • At 16.6%, Salt Lake City has the largest share of mortgage approvals going to Gen Zers. Louisville, at 15.9%, is second and Oklahoma City follows close behind, while coastal hubs New York (4.4%) and San Francisco (3.6%) are second-to-last and dead last among America’s 50 largest metro areas. • The difference between the average down payment for Gen Z homebuyers in New Orleans ($13,060) or Louisville ($14,268) versus San Francisco ($42,000) or New York ($32,000) speaks for itself — as do home prices: in Salt Lake, an average loan requested by a Gen Z homebuyer is $291,952; in San Francisco, it's $408,000. “While the results don’t undercut how difficult it can be to buy a home… they do help dispel the myth that homeownership is impossible for all young Americans,” writes Jacob Channel, LendingTree's senior economist. Credit Where Due: The average Gen Z homebuyer in San Francisco has a 723 credit rating — but head to Louisville, Indianapolis, or Birmingham, Alabama, and it’s 699. SPONSORED BY cambria Investments How to Potentially Find Quality Yield in a Yield-Starved Environment More elusive than an affordable car at the height of the pandemic, high-quality yield is extremely hard to come by these days.   Cambria Investments has a very simple mission — preserve and grow capital by producing above-average absolute returns with low correlation to traditional assets and manageable risk.   A sensible enough goal, certainly. But how do they do it?    The fund managers at Cambria’s Shareholder Yield ETFs scour markets for high-quality companies that are returning capital through dividends, buyback programs, and debt paydown.   The result is a novel and holistic approach to yield that puts Cambria in a league of its own.*    Explore Cambria’s family of ETF products here. Read about the US-focused SYLD here. Read about the foreign-developed focused FYLD and foreign emerging-focused EYLD here. Always read the prospectus before investing: SYLD, FYLD, EYLD. A stock buyback is when a public company uses cash to buy shares of its own stock on the open market. Cambria’s ETFs are distributed by ALPS Distributors Inc. Accounting Ernst & Young Splits into Audit and Advisory Divisions There’s perception, and there’s reality. For the Big Four accounting firms — Ernst & Young (EY), Deloitte, KPMG, and PricewaterhouseCoopers — it seems, at least to their critics, that providing both auditing and consulting services constitutes a clear conflict of interest.   Whether that is true is difficult to say. But EY has apparently had it with the perception. On Thursday The Financial Times reported the accounting titan is working on a split of its audit and advisory operations. Close Accounters of the Two Kinds It’s not the first time one of the Big Four firms has splintered off its consulting arm. In fact, each of the Big Four did just that following the infamous Enron-Arthur Andersen scandal in 2001, which ultimately sank the former fifth plank of the then Big Five. Let’s mark that as one point on reality’s ledger.   Each of the big firms rebuilt their consulting divisions in the following years, pushing back on criticism every step of the way — though all four firms have each paid millions of dollars in fines to the SEC since 2014 to settle claims of conflict of interest. While the details of the voluntary break-up are reportedly still being hashed out, such a dramatic move still represents a remarkable reversal for the industry: • EY’s audit-focused arm would be split off from the rest of the organization, but would still retain some staff in tax and other areas to support company audits, according to sources who spoke to the FT. • The decision would likely spur similar moves from the other Big Three — and could even motivate regulators to codify such divisions into law. “We will all need to review our position, but that will not be quick or knee-jerk,” an anonymous senior partner at another Big Four firm told the FT. Any decision will ultimately be put to a vote by the firm's roughly 3,800 partners, who span 150 countries. We count on these accountants being able to handle a simple vote count. Extra Upside • Paging Dr. Frankenstein: scientists grew cells on a robot skeleton, but don’t know what to do with them. • Chip maker Broadcom is buying cloud computing firm VMWare for $61 billion, in one of the biggest tech deals in history. • Across every cycle, there are several culture trends that define the zeitgeist and shape the environment. More often than not, these emerging phenomena have massive economic implications (think r/WallStreetBets, crypto in 2012). To stay ahead of the curve, we like to stay sharp on what’s happening at the bleeding edge — which is why we read TheFutureParty. Trusted by over 100,000 business professionals, TheFutureParty delivers a newsletter that intersects between media, technology, and business. Plus, it costs absolutely nothing. Check it out here.* *Partner You have 0 referrals. Share The Daily Upside, Earn Rewards Or, simply copy and paste your unique referral link and share it with others: https://sparklp.co/bb4b34b2 Just For Fun Cool data. Too clever. Have a nice weekend! Written by Sean Craig and Brian Boyle. ADVERTISE // CAREERS 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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