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:

What’s a Real-Estate Fund Worth? Depends on Who’s Doing the Math (WSJ)
Nontraded real estate investment trusts (REITs) define net asset value (NAV) differently from mutual funds, leading to comparability and valuation concerns as asset performance may not be accurately represented. These REITs, like Blackstone REIT and Starwood REIT, have flexible NAV calculations not bound by standard accounting rules and are not audited. This practice, diverging from traditional mutual fund NAV definitions, raises questions about the transparency and accuracy of these valuations, potentially confusing investors, especially since higher interest rates have hurt real estate. [Link]

The World’s Most Anonymous CEO Is About to Take Center Stage (WSJ)
Sky Xu, a discreet yet wealthy entrepreneur and the force behind Shein, a globally popular shopping app, is relatively unknown even among his employees. Despite his low profile, Xu’s company has significantly impacted the fashion industry with its ultra-affordable clothing and efficient supply chain. Shein is preparing for a major US IPO, which will likely push Xu into the public eye. Although the company is criticized for environmental and labor issues, Xu and his co-founders have yet to publicly address them, focusing instead on adapting Shein’s designs and services for global markets. [Link]

First Quadruple Leveraged S&P 500 ETN Proposed (Yahoo Finance)
A small ETN issuer, MAX ETNs, is planning to launch the first quadruple leveraged S&P 500 ETN, providing investors with daily compounded four times leveraged exposure to the S&P 500 Total Return Index. While the SEC typically allows only up to three times leveraged products, this ETN could bypass such regulations due to its structure. The launch of such high-risk investment products like this ETN raises questions, especially compared to the ongoing SEC approval process for spot bitcoin ETFs. [Link]

Hundreds of Stocks Have Fallen Below $1. They’re Still Listed on Nasdaq. (WSJ)
The number of US stocks trading below $1 is surging, particularly on the Nasdaq, where 557 stocks are now below this threshold, up from less than 12 in early 2021. The rise is linked to a slump in startup stocks and companies from the 2020-2021 IPO and SPAC boom. Nasdaq rules require a $1 minimum share price, and many companies are employing strategies like reverse stock splits to avoid delisting. The situation raises concerns about market integrity and investor risks as stocks that fall below a buck are often more vulnerable to “catastrophic losses.” [Link]

Economic Trends

Digesting inflation (Briefing Book)
Despite recent disinflation, consumer sentiment remains negative, potentially due to the cumulative effect of significant price increases over the past three years. Even though annual inflation eased to 3.2% this year, the overall increase in prices over the last three years was 18.6%. The University of Michigan’s consumer sentiment index remains low, similar to levels during the Great Recession, despite improvements in inflation and gas prices, as well as a seemingly lower risk of recession. [Link]

The ID.4 Could Be Volkswagen’s First EV Made With U.S. Union Labor (Heatmap News)
UAW president Shawn Fain aims to aims to organize non-union auto workers, starting with Volkswagen’s Chattanooga, Tennessee plant where over 30% of workers have signed union cards. The Chattanooga plant, VW’s only US factory, has been accused of lower pay and poor working conditions. Previous unionization attempts failed in 2014 and 2019. Potential unionization at Tesla’s US factories was also mentioned. This development comes after UAW secured significant raises and benefits with major automakers earlier this year. [Link]

Crime

D.C. restaurants are blowing their budgets on security (Axios)
In Washington DC, rising crime has led many restaurants, including small businesses, to spend significantly on private security. Georgetown Events, for instance, has spent over $450,000 on security this year. While options like hiring off-duty police officers exist, the costs are becoming unsustainable for some businesses, aside from the factor that DC already has an officer shortage. Owners are concerned about this financial burden, especially when they already contribute to public safety through taxes. Some smaller businesses are resorting to less expensive security measures due to these high costs, sometimes at the expense of the safety of their employees and guests. [Link]

US retail lobbyists retract key claim on ‘organized’ retail crime (Reuters)
The National Retail Federation (NRF) retracted its claim that nearly half of all inventory losses in 2021 were due to organized retail crime, after discovering inaccuracies in their data. The original statement had been cited in multiple media reports and used to advocate for stricter crime laws. However, the NRF removed references to this claim from published materials. Some law enforcement officials argue that outside of cities, shoplifting has declined since the beginning of the pandemic. On the other hand, many retailers say that the drops are due to underreporting. The mixed claims highlight the challenges in accurately quantifying inventory losses, which include various factors like shoplifting, shipping errors, and clerical mistakes. [Link]

Screen Time

Boost Mobile founder pushes carriers to back ban on cell phones in schools (New York Post)
CEO of MobileX and founder of Boost Mobile advocates for a ban on cell phone use in schools, citing carriers like Verizon and T-Mobile have a moral responsibility to support this. His call for action in the US is inspired by positive outcomes seen in Australia, where a ban led to improved academic performance and increased social interaction. Several US states and districts have implemented similar bans, addressing issues like distractions, cyberbullying, and declining mental health among young people. The proposal does face opposition though, as some argue that cell phone access is crucial for safety, especially in emergencies. [Link]

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Have a great weekend!

This morning’s release of Jobless claims came right in line with estimates of 220K and is only marginally higher than last week’s upwardly revised number of 219K. On a four-week moving average basis, claims have totaled 220.75K, matching the level from three weeks ago.

As we noted last week, before seasonal adjustment, claims usually increase throughout the final months of the year, but the Thanksgiving holiday likely caused an unusual drop off in claims last week.  Claims were back up this week with an increase to 293.5K which is the highest level since the start of the year.  Versus comparable weeks of the year, that is the highest reading since 2018.

Over the past few months, continuing claims have more consistently been grinding higher with last week marking the highest level in two years.  The latest reading showed a modest pivot lower in continuing claims down to 1.861 million and matches the April high of 1.861 million.

Relative to where they were just over a month ago, Treasury yields are down sharply as bond prices have rallied. Earlier today, we posted on X that the iShares 20+ Year Treasury ETF (TLT) has nearly fully erased what was a 14% YTD decline as of 10/19 on a total return basis.  The Treasury rally can also be seen loud and clear in the chart of the 10-year yield below where yields have gone from just over 5% to just over 4.1%.

Although yields are down sharply, the current decline in yield for the 10-year still doesn’t rank as the largest since the Fed first started hinting at higher rates in late 2021. In both August 2022 and April 2023, the 10-year yield experienced a drawdown of more than 90 bps, although neither of those declines in yield reached triple digits (one full percentage point). For this current rally in Treasuries to translate into the largest decline of the current cycle for the 10-year, it would need to fall to 4.05%, or seven basis points (bps) from current levels.