The US data calendar has been light to start the week. Today, the only release of note was the NFIB’s reading on small business sentiment.  While the index was expected to tick up to 89.9 from 89.4 in February, it instead dropped down to 88.5.  That is the weakest reading since December 2012.

Given the weak headline number, breadth in this month’s report was terrible.  Of the inputs to the Optimism index, only two rose month-over-month.  Of those falling categories, one of the more standout declines was an 8-point drop in expectations for real sales.  While there have been even weaker readings over the past couple of years, that monthly decline ranks in the bottom 5% of all months on record.

The survey also questions small businesses on what they consider to be their largest problems.  These results echoed the deterioration in expectations for higher real sales.  As shown below, the percentage of respondents reporting poor sales as their biggest issue has been on the rise.  While 8% is far from a historically elevated reading, it is up significantly from the past two years.

Poor sales are not the only concern that ticked higher. The first three months of 2024 have seen hotter-than-expected CPI prints (which we discuss market responses in tonight’s Closer), and small firms are increasingly concerned with higher prices. As shown in the first chart below, a quarter of firms noted inflation as their single biggest problem. That erases any improvement in the reading since last May. Additionally, while the increase was much less pronounced, the higher prices index likewise ticked up.  That returns this index to the top decile of its historical range.

In today’s Morning Lineup, we discussed the labor market indicators’ weakness as well as the weakness in capex plans per this report’s data. As shown below, each of these categories deteriorated in March with the exception of compensation (both actual and planned). The most significant decline has been hiring plans which is now down to the lowest levels since the spring of 2020. Prior to 2020, the last time the index was this low occurred in late 2016.  While small businesses have cut back on hiring plans, they are also reporting job openings as hard to fill at similar levels to before the pandemic.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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On This Day in History:

Cold War Dominoes: On April 7th, 1954, President Dwight D. Eisenhower gave his “domino theory” speech during a press conference. The theory suggested that a communist victory in one nation would lead to a chain reaction of communist takeovers in neighboring states. Specifically, Eisenhower’s remarks addressed the situation in Indochina, warning that if Vietnam fell to communism, then other countries in Southeast Asia would follow, like dominoes. This speech would foreshadow the remainder of the Cold War era and the United States’ anxiety towards the potential global spread of communism. It also served as a rationale for US intervention in foreign conflicts like the Korean War and later in Vietnam.

Denver man restricted from sports betting sites after winning too much money (9News)
After winning $50,000 within six weeks, sportsbooks decided they had enough of Cody Sudmeier. Sudmeier, a Denver resident, noticed he was limited to significantly smaller bets, as low as $15.60 in some cases, a practice which he found unfair. The Colorado Department of Revenue confirmed that sportsbooks, tied to brick-and-mortar casinos, have the legal right to adjust betting limits or ask gamblers to leave at any time. Despite the legality, Sudmeier argues that it contradicts the premise of gambling where there’s an assumed possibility of winning and plans to seek legislative investigation into the matter. As a slap in the face to bettors, Colorado sportsbooks just reported a record profit earlier in the year. [Link]

Tiger Woods’ Putter Choice Has Created an Asset Class (Bloomberg)
As the saying goes, drive for show, putt for dough. It’s no surprise that Tiger Woods, one of the greatest golfers of all time, is also regarded as one of the greatest putters ever. Putters hold a unique place in golf blending personal attachment with performance, and if you’ve ever seen Tiger’s Scotty Cameron putter, it’s easy to tell that both of those are true. Scotty Cameron putters aren’t just any old putter though, as the highly coveted Circle T models have turned into both a collector’s dream and a speculative market, with prices ranging from $2,000 to $8,000 and resale values soaring. Tiger’s use of Cameron putters, even while contracted with other brands, has significantly boosted the brand’s profile, turning these clubs into sought-after items that could even qualify as art. [Link]

‘Like riding a bike’: Inside The Rock’s return at WrestleMania 40 (ESPN)
Dwayne “The Rock” Johnson, known for his charismatic persona both in WWE and Hollywood, has returned to WWE with a darker, more menacing character. He’s teaming up with Roman Reigns against Cody Rhodes and Seth Rollins in WrestleMania 40’s main event. This marks Johnson’s first full-length match in 11 years. Since that last match, Johnson has become a member of the board of directors of TKO Group, the parent company of WWE and the UFC, and now owns the full rights to “The Rock” character. His training for the event has been extensive, and his transformation into a formidable villain has revitalized his connection with WWE. [Link]

Little League Scandal Roils Washington, D.C., Elite (WSJ)
Northwest Washington Little League, drawing families from affluent neighborhoods of Washington DC, was dominated by one team. The players weren’t cheating, but parents began to question the coaches when games began ending early, regularly, due to such lopsided scores. Coaches were accused of manipulating the draft process, by way of falsified paperwork to bring in ineligible players and paying coaches unfairly from league funds, all to accumulate top talent on a single team. As the community divided, a prominent law firm got involved and a settlement was eventually reached. Youth sports, indeed, are all but fun and games. [Link]

NFL owners approve massive revamp to kickoff (ESPN)
NFL owners approved an overhaul of the kickoff rules, adopting a format similar to the XFL’s to enhance safety and potentially make it a more entertaining phase of the game as football fans have been watching strong-legged kickers consistently put the ball through the back of the endzone for many years now. The change is designed to reduce high-speed collisions and concussions while increasing the rate of returns and involves altering the positioning of players during the kickoff. The new rules, effective for the 2024 season, include kickers kicking from the 35-yard line but with the rest of the kickoff team lining up at the receiving team’s 40-yard line. Yes, this means no more surprise onside kicks. Other rule changes, like banning the hip-drop tackle, have sparked protests from players and fans on social media. [Link]

Two billionaire mortgage giants have brought their beef to the NBA (ESPN)
In February 2023, Mat Ishbia became the new majority owner of the Phoenix Suns. Ishbia, CEO of United Wholesale Mortgage, immediately made headlines by ending a sponsorship deal with Rocket Mortgage, signaling his ongoing rivalry with Dan Gilbert, owner of Rocket Mortgage and the Cleveland Cavaliers. This rivalry, stemming from their competition in the mortgage industry and shared Michigan roots, spilled into the NBA when Ishbia took ownership of the Suns. Ishbia’s first full season with the Suns has been challenging due to player injuries, but his and Gilbert’s competition remains a notable subplot in the NBA landscape. [Link]

Health & Wellness

They Got a ‘Sleep Divorce’—and Their Marriage Has Never Been Better (WSJ)
The concept of a “sleep divorce,” where couples choose to sleep in separate rooms, is gaining popularity, with a survey indicating that 35% of Americans sleep apart occasionally or consistently. This trend, often enabled by “snore rooms” or dual primary bedrooms, has historical precedents and does not necessarily indicate relationship problems. Some couples pour tens of thousands of dollars into renovating million-dollar homes rather than fighting over “chainsaw” snoring and other sleep irregularities to keep their relationships stable and even stronger. [Link]

How scientists traced a mysterious covid case back to six toilets (MIT Technology Review)
Researchers tracking a unique COVID variant in Wisconsin pinpointed its source to a single company through extensive wastewater analysis, highlighting both the potential of sewer surveillance in virus tracking and the ethical dilemmas around privacy and stigmatization it raises. The investigation eventually narrowed down to six toilets at a company. Faced with the challenge of wanting to find and help the individual likely shedding the virus without breaching privacy or causing alarm, the team opted for voluntary testing among the company’s employees, though this did not identify the carrier. [Link]

AI & Technology

Scientists create AI models that can talk to each other and pass on skills with limited human input (Live Science)
Researchers have developed a groundbreaking AI network that learns tasks from written instructions and communicates its knowledge to another AI using natural language processing (NLP). This method allows the “sister” AI to perform tasks without prior training. Utilizing the S-Bert NLP model, the researchers connected it to a sensorimotor-recurrent neural network (RNN), which understood and executed tasks based on language instructions. Inspired by human cognitive abilities to learn from verbal or written guidance, this opens possibilities for more complex AI networks and their application in robotics and automated industries. [Link]

Internet speeds just got 4.5 million times faster (Interesting Engineering)
Researchers at Aston University have set a new world record for internet data transmission speed, achieving a rate that is 4.5 million times faster than the average home broadband. They managed to transmit data at 301 terabits per second using a standard optical fiber. This breakthrough was made possible by tapping into new wavelength bands not previously utilized in fiber optic systems. This development could significantly enhance future internet infrastructure, offering vastly improved connections for users by increasing the capacity of existing fiber networks in a cost-effective and environmentally friendly way. [Link]

Taco Bell and Pizza Hut Are Going ‘AI-First,’ Yum’s New Tech Chief Says (WSJ)
Yum Brands, the parent company of Taco Bell, Pizza Hut, KFC, and Habit Burger Grill, is adopting an “AI-first mentality” as 45% of its sales are now digital, roughly doubling 2019’s level. The company says that AI will work in kitchen management, customer service, and drive-through orders. This includes experimenting with voice AI and image recognition for enhancing drive-through experiences. The company’s SuperApp, currently used in over 8,700 locations, offers a digital assistant to franchisees for operational management. Yum also discussed the importance of human employees, aiming to use technology to improve their work experiences rather than replace them. [Link]

Walmart, 7-11, and Chick-fil-A launch new project to speed up every shopping trip – you won’t even need to go to a store (The US Sun)
Walmart, Chick-fil-A, and 7-Eleven are introducing a novel drone delivery service in collaboration with the Virginia startup DroneUp, featuring an innovative autonomous drone ecosystem. This system incorporates climate-controlled lockers, or DBXs, for drone package pickups, making it feasible for even smaller retailers to adopt drone technology. These lockers could transform delivery on college campuses and urban areas by ensuring secure, swift deliveries while preventing theft and facilitating returns. The drones, capable of reaching 60 mph over a 30-mile range, are designed for efficiency, navigating autonomously to avoid aircraft and delivering orders within minutes. The service could drastically reduce delivery costs, along with the improved speed. [Link]

Transportation

‘Shortcuts Everywhere’: How Boeing Favored Speed Over Quality (DNyuz)
Recent incidents with Boeing’s 737 Max planes, including malfunctions and a panel blowout, have raised concerns about the aircraft’s production quality. Despite efforts to improve after the fatal crashes in 2018 and 2019, reports and interviews suggest ongoing issues with Boeing’s quality control, including pressure on employees to meet production deadlines, a decline in workforce experience, and a weakened inspection process. The FAA’s ongoing audit and Boeing’s steps toward addressing quality-control issues indicate a critical period for the company as it seeks to regain its reputation and ensure the safety of its aircraft. [Link]
America’s Best Idea, Now Accessible by EV (Heatmap News)
The expansion of EV charging infrastructure is transforming travel to remote national parks across the United States. Previously, accessing these parks with an EV involved navigating sparse and sometimes unreliable charging options, which could turn such trips into logistical challenges. Now, efforts by companies like Tesla to install fast-charging stations near these parks are making it increasingly feasible to explore America’s natural wonders without the carbon footprint associated with traditional vehicles. Not only will this support demand for EV use but it also aligns with conservation goals in the country’s national parks. [Link]

Why Is It So Hard to Build an Airport? (Construction Physics)
The transformation of air travel, particularly with the advent of jet airliners, necessitated the expansion and modernization of airports, a task complicated primarily by the large environmental impact, including noise pollution that affects nearby residents, and the large land requirements that can encroach on valuable ecological areas or necessitate the relocation of existing communities. The historical resistance to airport construction and expansion also reflects broader societal concerns about the pace of technological progress. The solutions for this issue are broad, including quieter turbofan engines, improvements in air traffic control, and more efficient use of existing airport capacities. [Link]

Environmental

Invaders from underground are coming in cicada-geddon. It’s the biggest bug emergence in centuries (AP News)
Trillions of periodical cicadas, unique for their 13 or 17-year emergence cycle, are set to swarm parts of the United States in an event dubbed “cicada-geddon.” This rare occurrence, not seen in such numbers since the early 1800s, will see the insects emerging from the ground to mate and lay eggs before dying. Collectively, their “song” can reach up to 110 decibels, comparable to jet engines. This year’s double emergence of two broods, last seen together in 1803, promises an unparalleled display across multiple states. [Link]

In Texas, ex-oil and gas workers champion geothermal energy as a replacement for fossil-fueled power plants (The Texas Tribune)
In 2021, Sage Geosystems, a startup led by former Shell employees, targeted a deserted well in Texas for a geothermal energy project, aiming to generate power from the Earth’s heat. The technique used mirrors fracking, involving deep drilling and water injection to crack rocks and release pressurized water, spinning turbines to produce electricity. Geothermal energy, unlike solar and wind, offers a continuous power source, independent of weather conditions. These projects embody the transition of oil and gas expertise to renewable energy sources, aiming to expand geothermal capacity with the support of Inflation Reduction Act tax credits and potentially transform energy production on a global scale. [Link]  

Economic Trends

Lula-Milei Clash Embodies the World’s Competing Economic Views (Yahoo News)
In a striking contrast of economic ideologies, Argentina’s President Javier Milei and Brazil’s President Luiz Inacio Lula da Silva are adopting vastly different strategies for their nations’ economies. Milei is pushing for drastic cuts in public spending, privatization, and deregulation, while Lula emphasizes increased government spending, bolstering state companies, and strengthening worker and environmental protections. Despite their nations’ longstanding relationship as major trade partners and competitors, their opposing views have sparked tensions, with Milei branding Lula a “communist” and Lula dismissing Milei as a “primitive” nationalist. The economic outcomes of their policies could influence regional political trends and investment flows, amidst challenges such as Argentina’s soaring inflation and Brazil’s political instability. [Link]

Pawn shops know something about the US economy that Biden doesn’t: Times are still tough (USA Today)
President Biden has been promoting a positive view of the US economy as he has cited lower inflation, job growth, and a booming stock market. However, many Americans, particularly working families affected by two years of steep inflation, feel disconnected from this optimistic outlook. The economic disparity is vivid in downtown El Paso, where a block’s difference illustrates the stark contrast between luxury and affordability. Pawnshops have become a critical financial lifeline for nearly 6 million US households without bank accounts, with pawn balances rising nationwide due to increased living costs and lack of credit access. [Link]

California Restaurants Cut Jobs as Fast-Food Wages Set to Rise (WSJ)
California’s new state law increased fast-food workers’ wages to $20 an hour in April, prompting some restaurants to lay off staff and cut workers’ hours to manage costs. Pizza Hut and Round Table Pizza franchisees are among those reducing their number of delivery drivers, opting instead for app-based delivery services. This wage increase, which represents a 25% rise from the state’s current $16 minimum wage, is aimed at improving the lives of hundreds of thousands of workers, with support from organized labor groups. However, restaurant operators are raising prices and considering automation to offset increased labor costs. The move has sparked debates on the impact of minimum wage increases on employment. [Link]

The wealth of the 1% just hit a record $44 trillion (NBC Los Angeles)
The wealth of the top 1% in the US reached a new high at the end of last year fueled by the stock market’s ongoing rally. This group, owning assets over $11 million, saw their wealth rise by $2 trillion. The spike in wealth underscores the persisting disparity in stock ownership as the top 10% of Americans own 87% of all stocks. Despite these gains, the overall impact on consumer spending among the wealthy may be limited due to their lower propensity to spend extra income. The wealth gap, slightly narrowed in recent years due to wage increases and rising housing prices for middle-class and lower-income Americans, has started to widen again, with the top 1% now holding 30% of the nation’s wealth. [Link]

Housing & Real Estate

Reckoning Arrives for South Florida Multifamily Loans (The Real Deal)
Pressure is mounting on multifamily real estate investors in South Florida due to the Fed’s interest rate hikes, which have led to increased costs and decreased cash flow. Despite high occupancy rates and initial expectations of profit from the region’s booming demand and record rent hikes, increased expenses for property maintenance, insurance, and payroll are taking a toll. The situation is further complicated by inflation and rent delinquencies, leading some investors to sell their properties at a loss. [Link]

Dividends outstrip cash flows at Blackstone’s flagship property fund (Financial Times)
The $60 billion Blackstone Real Estate Income Trust generated $2.7bn in cash flows in 2023, mostly from rents, but paid out more than $2.8bn in distributions, marking its first annual shortfall from operations to cover shareholder payouts. Payout ratios exceeding 100% could lead to unsustainable funding practices, potentially forcing funds to incur more debt, issue new shares, or sell assets to fund dividends. Breit’s cash flows from operating activities covered just 95% of its payout in 2023, indicating a strain amid property sales and investments in data centers not yet generating rent. [Link]

Missing Money

South Carolina mulls mystery $1.8bn in account: ‘We don’t know why it’s there’ (The Guardian)
South Carolina is grappling with an unusual problem: an unexplained $1.8 billion in a state bank account. The discovery raises questions about the funds’ origin, intended use, and whether it really exists. This issue comes after a comptroller’s resignation last year due to a $3.5 billion accounting error. During a public hearing, it was unclear whether the $1.8 billion is real cash, leading to discussions on how to allocate it if proven to exist. Governor Henry McMaster urged caution in spending the potentially phantom funds, emphasizing the need for confidence restoration in the state’s financial management. [Link]

Burglars steal $30 million in cash from a Los Angeles money storage facility – one of the city’s largest cash heists (CNN)
The FBI and Los Angeles Police Department are investigating a heist at a money storage facility in Sylmar, a part of the San Fernando Valley, where up to $30 million was stolen on Easter Sunday night. The facility, operated by GardaWorld, was burglarized by what is believed to be a sophisticated group that managed to evade detection and did not trigger alarms. This incident, possibly involving insiders, is among the largest cash thefts in Los Angeles history, surpassing a $18.9 million heist in 1997. [Link]

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