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UBS says this 4-part inflation playbook will help investors profit now and in the market's next phase – and shares how to track the threat of higher prices in real time

Marley Jay — Thu, 10 Jun 2021 12:15:03 +0000

Traders work on the floor of the New York Stock exchange.

Keith Parker at UBS says investors who play a strict “reflation” theme are missing out.
He says inflation is approaching a risky level and recommends focusing on “strong pricing power.”
Parker breaks down the 4 different ways investors can employ a pricing power investment strategy.
See more stories on Insider’s business page.

UBS is warning investors that worrying about inflation or focusing on a basic reflation trade aren’t the best ways to get ahead in today’s stock market.

While some investors go risk-off and others take a risk-on approach, UBS strategist Keith Parker says investors need to find the dividing lines between the firms that can handle inflation pressures and those that will fall short.

“We expect the pace of outperformance for the reflation theme to slow in the coming months, but accelerate for stocks with strong pricing power vs weak,” he wrote in a note to clients. “We believe stocks which have greater ability to pass on higher prices should be better positioned to outperform.”

The combination of snarled supply lines, worker shortages, and a quick economic rebound have created spikes in prices and inflation, and that’s contributing to the broad reflation trade today. But as the pace of month-to-month inflation increases slows down, it will be better to take another approach.

“A number of factors make the strong vs weak pricing power trade attractive now: it’s working across most sectors, it’s relatively cheap, has better pricing trends and much lower margin expectations for Q2,” Parker said.

Pricing power is simply the ability for a company to increase its prices in order to offset higher costs. Parker says the biggest winners going forward combine that power with margin momentum, which evaluates how bullish analysts are about the companies’ profit margins and sales growth.

Meanwhile, less pricing power and higher input cost exposure are signs of trouble for other companies.

“After inflation jumps, companies with strong pricing power should notably outperform weak firms based on history,” he wrote in a note to clients. “Strong pricing power stocks have typically started to outperform with a slight lag following an acceleration in inflation above 2%.”

Parker focused on industries where standard inflation measures – producer price indexes and consumer price indexes – are up 10%, on average, compared to one year ago. He says that the stocks experiencing those big increases have historically left their peers with lower price leverage in the dust.

He argues that that’s an urgent theme right now because the inflation that’s happening today is the result of supply problems, not increased demand. Parker says supply-related inflation is usually a bigger problem than inflation caused by great demand.

“The market is underpricing some of the risks around rising input costs and there are opportunities to move up the quality spectrum,” he said.

Where are the best targets? Parker says the strong pricing power stocks within the healthcare, materials, communication service, and consumer discretionary sectors have outperformed by the widest margins in higher-inflation environments.

Overall, Parker says that investing in large cap stocks and avoiding banking, energy, and utility companies magnifies that advantage.

Parker adds that the price power winners have even more potential right now than their business models would indicate because a lot of investors are misreading the situation. He says that instead of buying companies with pricing power, much of Wall Street is betting that companies with less of that power will expand their margins.

He says that’s the opposite of what’s likely to happen. That leaves these stocks looking cheap relative to their future earnings.

“We believe consensus is underestimating the strength of margins for strong pricing power firms and overestimating the resilience of margins for weak pricing power companies,” he said. “Strong pricing power firms have delivered stronger margin growth historically.”

Parker says supply chains will get healthier and pent-up demand will eventually slacken, and as a result, inflation pressures should ease later in the year. That would help corporate profit margins and stocks. But investors would be well-advised to watch 10-year Treasury breakevens in case they give off a signal that inflation is becoming a problem.

“We believe the tipping point at which rising inflation becomes bad for the equity market is when the 10y breakeven moves above 2.5%,” he said. “It is at this point, where cost pressures are more intense, and rising inflation begins to squeeze consumer spending.”

UK health minister defends Covid-19 record after allegations by former PM aide

libertynow — Thu, 10 Jun 2021 12:05:46 +0000

LONDON (REUTERS) – British health minister Matt Hancock rejected allegations by a former top aide of Prime Minister Boris Johnson, saying there was never a national shortage of protective equipment and the government followed clinical guidance on care homes.

Mr Johnson’s former aide Dominic Cummings last month said Mr Hancock had repeatedly lied in government meetings on Covid-19, and called for him to be sacked.

Mr Hancock denied the allegations made by Mr Cummings and noted he had not provided evidence for his claims.

“What I did and what my team did was what we believed to be the best thing we could on the information that we had to protect lives,” Mr Hancock told a parliamentary select committee hearing on Thursday (June 10), adding he had never told Mr Johnson anything he knew to be untrue.

“Despite my deep regret at the deaths that have occurred, I know that I did that with the right motive of being straight with people throughout.”

Over 127,000 people have died in Britain within 28 days of a positive Covid-19 test, and Cummings said the government’s inept handling of the pandemic led to tens of thousands of unnecessary deaths.

Mr Cummings in particular criticised Mr Hancock’s approach to care homes and personal protective equipment (PPE), saying Mr Hancock had said people would be tested before being discharged into care homes, which then didn’t happen.

Reuters has reported how Britain continued to discharge infected elderly hospital patients into care homes during the first wave of infections.

On Thursday, Mr Hancock said the policy was that people would be tested when tests were available, but said that though he tried to put a protective ring around care homes, it was very hard.

“On care home policy throughout we followed the clinical advice,” he said. “Each and every death in a care home weighs heavily on me.”

He also defended his record on procuring supplies of PPE.

“Despite local challenges, and I don’t deny at all there were challenges in individual areas, there was never a national shortage of PPE,” Mr Hancock said.

Mr Hancock also rebutted Mr Cummings’ claim that he had lied about whether people were receiving the treatment they required.

“I’ve taken the trouble to check with the chief medical officer and the chief scientific adviser, there was no point at which I was advised that people were not getting the treatment they needed,” he said.

Mr Hancock said scientists, including at the World Health Organisation (WHO), had underestimated the extent of asymptomatic transmission. Reuters has reported on the slow response of advisers to the threat of Covid-19.

“I bitterly regret that I didn’t overrule that scientific advice at the start and say we should proceed on the basis that there is asymptomatic transmission, until we know that there isn’t, rather than the other way around,” he said.

Digital payments giant Stripe launches new software to simplify how companies work out sales taxes

Ryan Browne — Thu, 10 Jun 2021 12:00:01 +0000

The Stripe logo pictured on a smartphone with U.S. dollar banknotes in in the background.

Budrul Chukrut | SOPA Images | LightRocket via Getty Images

LONDON — Stripe on Thursday debuted a new product that it says will make it easier for businesses to calculate and collect sales taxes, marking the digital payment giant’s latest push into other areas of finance.

The service, called Stripe Tax, will automate the calculation and collection of sales tax, value-added tax and goods and services tax for transactions made through Stripe’s platform. British newspaper publisher News UK and Dutch start-up Routetitan are among those already using the service.

Matt Henderson, Stripe’s EMEA lead, said working out how much sales tax needs to be paid on certain transactions can be a complex process, with rules varying across different countries. In the U.S., there are over 11,000 different sales tax jurisdictions, “often the size of a small town,” Henderson told CNBC.

“There’s a lot of different variables that go into determining what’s the right rate and when is it due for collection and payment,” he added. “In Germany, for example, a pet rabbit is 19% VAT and a pet guinea pig is 7% VAT, whereas in the U.K. or Ireland you wouldn’t make a distinction on such things.”

Businesses can enable Stripe Tax by adding a single line of code to their website, the company said. Stripe will use data like a customer’s location and the product or service being sold to work out how much tax is due. Stripe makes money by taking a small cut of the transaction from its merchants.

Stripe, which competes with the likes of Square, Adyen and Checkout.com, got a big boost from the coronavirus pandemic last year as many businesses moved online due to lockdown restrictions around the world.

Stripe attracted more than 500,000 new clients in Europe alone since the start of the pandemic, according to Henderson. The company has been increasingly expanding into areas beyond payments, such as lending and bank accounts from partners like Citigroup and Goldman Sachs.

However, Stripe ruled out any intention of becoming a fully-fledged bank, with President John Collison saying last year he doesn’t believe in the Silicon Valley mentality of “doing everything themselves.”

Stripe was last privately valued at $95 billion in a March funding round. The company said it would use the fresh funds to expand its European operations. Stripe’s sales tax software was developed out of Dublin, where it employs about 80 engineers.

“We really need to be in investment mode, partly because there is still unfinished business in payments but also because there’s just so many other things adjacent to payments that are obstacles for businesses to grow online,” Henderson said.

The launch of the company’s new product comes after it acquired U.S. start-up TaxJar, which specializes in sales tax software, in April.

According to Bank of America, the total addressable market for sales tax is estimated to be worth $24 billion. A number of companies compete in the space, including sales tax specialists Avalara and accounting software provider Intuit.

GameStop, Clover Health, FuelCell Energy: What to Watch When the Stock Market Opens Today

Anna Hirtenstein — Thu, 10 Jun 2021 11:40:00 +0000

Ireland Inflation Increases In May

markets.businessinsider.com — Thu, 10 Jun 2021 11:15:07 +0000

(RTTNews) – Ireland’s consumer price inflation rose in May, data from the Central Statistics Office showed on Thursday.

The consumer price index increased 1.7 percent year-on-year in May, following a 1.1 percent rise in April.

Prices for housing, water, electricity, gas and other fuels grew 5.4 percent yearly in May and those of transport increased 3.6 percent.

Prices for restaurants and hotels, and alcoholic beverages and tobacco gained by 2.9 percent and 1.8 percent, respectively.

On a month-on-month basis, consumer prices rose 0.1 percent in May, after a 0.7 percent increase in the prior month.

The EU measure of inflation, the harmonized index of consumer prices, or HICP, rose 1.9 percent annually in May, following a 1.1 percent increase in the preceding month.

On a monthly basis, the HICP increased 0.2 percent in May, after a 0.6 percent rise in the previous month.

New York Rents Appear Close to Bottom

Stefanos Chen — Thu, 10 Jun 2021 11:00:27 +0000

After a year of record price declines, lease signings are up and landlords are pulling back on rent concessions.

After months of record price cuts and concessions, New York City’s rental market appears to be turning the corner, but it could be at least a year before prices return to their pre-Covid peak, according to two new reports.

In May, the median rent in Manhattan, including concessions, was $3,037 a month, up 8.8 percent from the previous month — the biggest monthly increase in nearly a decade, according to the brokerage Douglas Elliman. Even with the sharp increase, the price was still 11.1 percent below the median rent a year earlier, and 14 percent below the recent peak, when median rent reached $3,540 in April 2020.

While the warmer months tend to see increased activity, the rise suggests more than a seasonal upswing, said Jonathan J. Miller, a real estate appraiser and the author of the report. There were 9,491 leases signed in May, breaking the record set just one month prior for the most signings since 2008.

“The market, with all this new leasing activity, is beginning to stabilize,” Mr. Miller said. “It’s finding a bottom.”

The same is true in Brooklyn and Queens, where the median asking rent has begun to rise after several months of decline or stagnation, according to a report by the listing site StreetEasy. In May, the median rent in Brooklyn, not including concessions, was $2,499, up from $2,400 in April; in Queens, it rose to $2,100 from $2,050.

But renters haven’t necessarily missed their opportunity at discounted apartments, said Nancy Wu, an economist with StreetEasy.

“Just because more and more people are getting vaccinated and are coming back doesn’t mean these incentives will disappear with the snap of a finger,” she said. Concessions, including one or more months of free rent, remain higher than pre-Covid levels, as do other sweeteners.

While New York State recently upheld agents’ ability to charge broker fees, many landlords are still covering those fees to entice renters, Ms. Wu said. On StreetEasy, 81 percent of listings from January through May advertised that tenants would not have to pay broker fees, which can add up to 15 percent of an annual lease — the highest share of no-broker-fee listings on the site since 2015.

It’s a sign that the recovery will be slow. In Manhattan, there were 19,025 apartments for rent in May, Mr. Miller said, down 26.5 percent from a peak of 25,883 in January, when many affluent renters had decamped to nearby suburbs and workers in hard-hit industries struggled to pay the rent at all. But the current inventory remains more than 50 percent above long-term norms. The unemployment rate in New York City — which has an outsize effect on renters and curtails new leases — was still 11.4 percent in April, compared to 3.8 percent in March 2020, the last month before the pandemic took its toll

And there are thousands of New Yorkers at risk of losing their homes later this summer, when a statewide eviction moratorium is expected to end. The pandemic drastically deepened debt for low-income renters who were already at risk of eviction. While a roughly $2.4 billion state program for emergency rental assistance opened to applicants on June 1, some tenant groups have questioned whether the funding and outreach will be sufficient.

New York’s price reset is part of a nationwide trend spurred by tenants seeking lower rents and more space, said Brian Carberry, a senior managing editor with Apartment Guide, a listing aggregation site.

In April, among 100 U.S. markets, Las Vegas had the biggest average rent increase for one-bedroom apartments at $1,653, or 44 percent higher than the same month in 2020, according to the site. It was followed by Virginia Beach, Va., where rents for a one-bedroom rose 32 percent to $1,603, and Mesa, Ariz., where they rose 25 percent to $1,268.

Among the cities with the biggest average price declines for one-bedroom apartments from the same month last year were San Francisco, down 19 percent to $3,137, Washington, D.C., down 17 percent to $2,181, and New York, down 15 percent to $3,684.

“If you always wanted to live somewhere expensive, now is the time to go there,” Mr. Carberry said.

But while deals persist, some landlords are starting to draw back on those sweeteners.

“The prices are coming up, and the concessions are coming off,” said Beatriz Moitinho, an agent with Keller Williams NYC, noting that some buildings that once offered four or five months free on a 16-month lease in the winter are now down to one or two months free.

There has been especially strong activity downtown, in neighborhoods like the East Village, Ms. Moitinho said, where inbound college students — or their parents, more likely — are once again bidding on apartments sight unseen. Areas like the Upper East Side have been slower to rebound, but there, too, prices are rising.

“We’re seeing things change daily downtown, and weekly everywhere else,” she said.

Renters are sensing the shift. In an analysis of the last two and a half years of lease terms, tenants signed the shortest leases in January 2021, an average of 13.2 months, an indication that they believed prices could dip further by the time they renewed, Mr. Miller said. In May, the average lease jumped to 15.6 months, the longest during that period, suggesting that renters want to lock in their current prices.

“Renters are seeing the window close on declining rents,” he said. “But that doesn’t mean an immediate rebound to pre-Covid levels.”

For weekly email updates on residential real estate news, sign up here. Follow us on Twitter: @nytrealestate.

Beijing once again warns investors against betting on China’s red-hot residential property market

Daniel Ren — Thu, 10 Jun 2021 11:00:24 +0000

After a dramatic seven-year renovation, an $87 million mansion hits the market in Bel-Air

Ray Parisi — Thu, 10 Jun 2021 11:00:01 +0000

A view of the driveway leading to the residence at 777 Sarbonne Road in Bel-Air, California.

Joe Bryant / Aaron Kirman Group

Seven is a magical number for one of Bel-Air’s priciest spec homes.

The glass and marble palace located at 777 Sarbonne Road in Los Angeles hit the market last month with an asking price of $87,777,777.

The triple sevens in its address and price tag are just the beginning. Many of the home’s architectural details were designed in measurements that are multiples of seven.

A black marble walkway leads to the home’s 14-foot glass front door.

Joe Bryant / Aaron Kirman Group

There’s a giant front door made of glass that stands 14 feet tall and the ceilings in the massive living room are 21 feet high. At the end of the driveway, three oversized sevens measure 7-feet, 7-inches tall.

Giant brass sevens at the end of the driveway are 7 feet, 7 inches tall.

CNBC

The seven-bedroom, 11-bath residence is owned by cosmetic surgeon Dr. Alex Khadavi.

“Seven is a number and theme that has affected me in every important aspect of my life,” Khadavi said in an interview, “from the age I came to America, to the floor level of my condominium.”

Khadavi, who came to the United States in 1979 from Tehran, is 48.

And notably, the home has been seven years in the making, and its dramatic before-and-after photos reveal a startling transformation.

In 2014, the old facade of 777 Sarbonne was covered in yellow stucco and red awnings.

Aaron Kirman Group

CNBC first reported on the property in 2014, when the site was home to an outdated stucco mansion purchased by Khadavi for $16 million. The doctor’s real estate broker, Aaron Kirman, told CNBC that a couple of months after Khadavi bought it, he received a $24 million offer from a developer who was looking to buy the unimproved property to tear down the old home and build a new one in its place.

Instead of accepting the offer, which was an $8 million profit from his purchase price, Khadavi decided to develop it himself. He hired Ali Rad Design and began a seven-year journey to give the old mansion a facelift.

How the living room appeared seven years ago.

Aaron Kirman Group

“Facelift is an understatement, but yeah, seven years and so many millions, I don’t even want to know how many,” said Kirman, who now co-lists 777 Sarbonne with Mauricio Umansky of The Agency RE.

The living room has 21-foot ceilings and a floor-to-ceiling glass wall that opens to the backyard.

Joe Bryant / Aaron Kirman Group

The mansion makeover was nearly a total teardown, its owner said. Only one wall from the old house is still standing. It’s in the modern home’s new living room.

Gone is the red paint and black wrought iron walkway. Now, it’s sleek white walls, polished Carrera marble floors and a 21-foot-tall wall of glass that opens to jaw-dropping views of Los Angeles.

Khadavi also built a secret into the living room that’s designed to dazzle guests. With the touch of a button, a portion of the floor that is hidden beneath a rug can be set into motion. It instantly begins rising toward the ceiling. Mirrored steel supports, powered by an industrial-strength hydraulic lift, push the marble 7 feet into the air. Within a few seconds, a sleek DJ booth and dance platform — previously hidden in a subterranean level of the home — take center stage.

Dr. Alex Khadavi sits above the living room on an elevated DJ booth powered by hydraulics.

Joe Bryant | Aaron Kirman Group

Hidden underground below the rising party platform is a vault, a red wine storage area, and the electronic brains of the house that control everything from sound systems to projectable nonfungible tokens. Khadavi said he plans to project the digital art over the pool and feature NFTs on monitors throughout the house.

Further above the hydraulic DJ booth, and seemingly floating over the living room, is a dramatic glass bridge that leads to the owner’s suite.

A glass-and-marble bridge overlooks the living room and leads to the owner’s wing.

Marc & Tiffany Angeles / Aaron Kirman Group

The owner’s sleeping quarters feature a white marble-clad fireplace and a wall of glass doors that slide open to a marble and glass terrace overlooking LA.

A view of the owner’s suite and terrace.

Joe Bryant / Aaron Kirman Group

The owner’s bath is also covered in white marble. The bookmatched Italian stone meets at its center where an oval-shaped bath and gold-colored designer chandelier are the focal point.

The owner’s suite bath is clad in bookmatched white Carrara marble.

Joe Bryant / Aaron Kirman Group

Along the bath’s glass wall is a double shower that runs the width of the room. And if you’d rather not shower in front of all of Los Angeles, the touch of a button can instantly fog the glass for privacy.

The bedroom includes a massage room and two identical walk-in closets, each with a skylight and another golden chandelier dangling at its center.

The owner’s suite has two identical walk-in closets, each with a skylight and a gold chandelier.

Joe Bryant / Aaron Kirman Group

Two garages on the property look more like luxury car showrooms. One is covered in white marble and the other in black. Above the noir parking area is a separate two-bedroom guest house.

A guest house sits atop a black marble-covered garage.

Juwan Li / Aaron Kirman Group

One side of the main residence’s exterior walls have been lined with faux plants to create an always green courtyard that frames a modern koi pond.

The view from above the home’s outdoor koi pond.

Joe Bryant / Aaron Kirman Group

An infinity-edged pool in the back of the house offers a front-row seat to panoramic skyline views.

Skyline views from 777 Sarbonne’s infinity-edge pool.

Joe Bryant / Aaron Kirman Group

The vista is protected by a view easement that cost the prior owner $500,000, Kirman said. The easement prevents the neighbor below from building a home or even growing a tree that will obstruct the view at 777 Sarbonne.

“It’s a huge important aspect of the sale of this house,” Kirman said. “I think they got away light paying $500,000 because this house is all about the view and the view speaks for itself.”

One of the outdoor seating areas is accented with fire features.

Joe Bryant / Aaron Kirman Group

Khadavi accented those views with fire features and plenty of spots to sit back and take it all in.

An outdoor lounge area features marble flooring and a path to the pool.

Juwan Li / Aaron Kirman Group

Washington Report Podcast: Analysing G-7's global minimum corporate tax rate of 15%

libertynow — Thu, 10 Jun 2021 10:48:06 +0000

Washington Report Ep 1: Analysing G-7’s backing of global minimum corporate tax rate of 15%

10:37 mins

Synopsis: Every Monday, The Straits Times’ US Bureau Chief, Nirmal Ghosh, analyses the latest developments in the country he is based in, with Money FM 89.3’s Timothy Go.

They chat about the following:

1. How the Group of Seven (G-7) rich nations’ proposed global minimum corporate tax rate of 15% works, and which big companies are likely to be affected (1:35)

2. US Department of Justice (DOJ) will no longer seize journalist’s records in leak investigations (4:21)

3. President Joe Biden defends the stand of top Covid-19 adviser – Dr. Anthony Fauci – on the claimed Wuhan lab leak of the coronavirus (7:10)

4. Analysing former US President Donald Trump’s speech in the North Carolina Republican Convention (8:42)

Produced by: The Breakfast Huddle, Money FM 89.3, Ernest Luis & Fa’izah Sani

Edited by: Dan Koh

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A 16-year-old entrepreneur reportedly brought in $1.7 million reselling video games, outdoor heaters, and above-ground swimming pools at sky-high prices during the pandemic

Mary Hanbury — Thu, 10 Jun 2021 10:15:04 +0000

CHARLY TRIBALLEAU/AFP via Getty Images

A New Jersey teen made $1.7 million in revenue reselling low-stock items, per The Wall Street Journal.
Max Hayden, 16, said he sold items such as outdoor heaters for double their retail price during the pandemic.
Entrepreneurial Gen Z are increasingly finding new ways to make money online.
See more stories on Insider’s business page.

Max Hayden, a 16-year-old New Jersey resident, reportedly pulled in $1.7 million in revenue flipping out-of-stock items online during the pandemic, including video games and outdoor heaters.

In an interview with The Wall Street Journal, the teen entrepreneur talked through his booming online resale business, now a taxpaying limited liability company.

Hayden made $110,000 profit in 2020 buying and reselling anything from video games and consoles to outdoor heaters and above-ground swimming pools for about double the retail price, according to sales records and accounts viewed by The Journal.

Hayden was quick to buy items that could go out-of-stock during the pandemic and resell them to willing customers for steep prices. This included dumbbells and hair clippers, which became hot when gyms and salons closed.

Hayden reportedly devotes 40 hours a week to his online business – the rest of his time is reserved for high-school studies, he said. He’s reportedly outgrown the garage in his family home and now co-rents a warehouse space nearby. He also employs two friends for $15-an-hour to help with enquiries and pack-up orders, he told The Journal.

Hayden is one of many consumers from Gen Z – defined by Pew Research as anyone born after 1997 – that are finding new ways to make money online.

Many of these young consumers, including Hayden, are reselling items on sites such as Amazon or Facebook Marketplace or on resale apps such as StockX, Depop, and Goat.

Depop previously told Insider that some of its younger users were making as much as $300,000 a year selling secondhand clothes on its app, enabling them to buy houses and cars before they’ve even reached college age.

Similarly, teens using resale marketplace StockX say they can make thousands of dollars selling secondhand and limited-edition sneakers.