# 683 – 🤕 Ouch, that Hertz – The Average Joe

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    # 683 – 🤕 Ouch, that Hertz

    victorlei

    April 29, 2024

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    Good morning. It’s simple: when you buy a stock, it takes two business days for the trade to settle. But things are changing. Starting May 28, we’re moving to a “T+1” cycle, where trades settle in just one business day. It’s just a step toward “T+0” — an instant settlement cycle that will diminish the liquidity risks traders take on between the time of trade and settlement.

    Who will reach T+0 first: Wall Street, traders in India, or the EU? The race is on — and the faster, the better.


    TRAVEL

    The Biometric Goliath Making Billions Streamlining Airport Security — But Now, It’s All At Risk

    How early should you get to the airport? One hour before? Two hours before? What about waiting ‘til the last minute? Thanks to expedited screening services such as TSA PreCheck and CLEAR, millions of Americans can now do just that (though we still recommend getting there early). The two paid services can save you time in the security line — but when used together, they can help avid fliers skip security lines entirely.

    All CLEAR? For over a decade, CLEAR Secure ($YOU) has let travelers bypass security lines for an annual fee of $189. The service has exploded in popularity, boasting over 6.7M active members thanks to its partnership with American Express ($AXP) — representing ~10% of travelers at 56 airports. That success made it ubiquitous, profitable — and controversial. Despite its revenue growth of 40% to $613M last year — allowing it to pay a special dividend and buy back millions in stock — a series of recent security hiccups threaten to undermine the platform’s usefulness.

    • CLEAR faced two serious security incidents last year, drawing criticism from lawmakers and even the TSA itself, calling it “vulnerable to abuse.”

    • As a result, the TSA required the company to conduct more random ID checks — slowing lines, frustrating customers, and leading to declined member retention for five consecutive quarters.

    California’s controversy

    Slate and others have criticized CLEAR for charging to skip lines, exploiting biometric data, and disrupting the function of US airports. Those complaints are being received by more credible policymakers, especially after the company’s recent controversies.

    • The California State Senate is advancing a bill that would force CLEAR users into separate lines.

    • Although the proposed bill is popular with the flight attendants’ and TSA officers’ union, airlines are resistant — warning that it could “further increase air carrier operating costs in the state.”

    Planning for the future: Sen. Josh Newman sponsors the bill, which could impact CLEAR’s main benefit — or be a precursor to more aggressive moves against the company. Some argue that services like CLEAR aren’t safe for aviation, prompting CLEAR to expand into arenas and stadiums and partner with LinkedIn for identity verification. Only time will tell if these ventures will match its core business success.


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    LARGECAP RECAP

    📈 Retail trading surges to pre-pandemic levels

    Look out, suits: After losing billions during the market’s downturn in 2022 and 2023, the apes and degens that brought you GameStop ($GME) are back in a big way. According to WSJ, retail investors are now trading at volumes not seen since the pandemic’s trading heyday — thanks to a strong stock market.

    • According to its latest metrics report, Robinhood ($HOOD) reported its highest trading volume since Nov. 2021 — with over $81B invested in February alone.

    • Charles Schwab ($SCHW) and Morgan Stanley’s E*Trade ($MS) also saw their highest daily trade volumes since early 2022 — while Interactive Brokers ($IBKR) reported the most new account openings since Q1 2021, around the time of meme stock volatility.

    Retail revolution: Robinhood investors made over $23B last year — taking a bite out of some of the $54B they lost in 2022. And with more brokers embracing fractional investing, after-hours trading, and even 24/7 trading, investors have more time to place trades than ever. However, not all brokers have been able to capitalize. Due to industry consolidation, at least 12 domestic brokers have closed since May 2020 — including Goldman Sachs’ Marcus Invest ($GS), which announced its closure last week.

    🚘 After a failed bid to go electric, Hertz is hurting

    “Unacceptable” quarterly results pushed Hertz ($HTZ) shares to their lowest price since the company went bankrupt during the pandemic — with its stock dropping more than 70% over the past 12 months. The decline stems from a failed bet on electric vehicles (EVs), resulting in losses triple the anticipated amount in Q1. To cover its bruises, the company’s CEO is stepping down — and new leadership is closing 125 locations in the US and selling off thousands of EVs.

    • In 2021, Hertz ordered 100K Teslas ($TSLA), mainly banking on prices to hold steady — but they’ve fallen significantly, leading to an average monthly depreciation of $592 per vehicle.

    • Compounding the issue, Hertz’s Teslas experienced 4x as many accidents as other vehicles in the fleet — requiring more time and money for repairs than traditional vehicles.

    Speed bump: Hertz also faced challenges with EVs from Volvo’s Polestar, causing it to halt plans to acquire up to 65K of these vehicles earlier this year. And in both cases, the resale values of cars — especially EVs — have been falling after a banner few years in the used car market. That means rental companies like Hertz, which typically offload vehicles after a year of use, could also be in for a rude awakening.


    JOE’S MARKET PULSE

    🔗 Snap / Microsoft

    Here’s why GM is backing this company in the next gold rush: Demand for lithium (essential for EVs, phones, and energy storage) is projected to grow 20x by 2040. And EnergyX’s latest tech can extract 300% more lithium than traditional methods. Join GM by investing in EnergyX →*

    Markets & Economy

    Oil giants post weaker (but solid) earnings: Exxon’s ($XOM) earnings of $8.2B were 28% lower than Q1 last year — but still its second-best Q1 in a decade. Chevron’s ($CVX) quarterly profits dipped 16% from Q1 2023, reflecting a modest downturn from unprecedented profitability over the past couple of years. [Read]

    More fees for Prime members: In addition to the $139/year Prime members already pay, Amazon ($AMZN) is offering free grocery delivery for an additional $9.99/month, ad-free streaming for another $2.99/month, and additional fees for Amazon’s pharmacy services. But for power users, these fees might be worth it. [Read]

    Key inflation index rose more than expected in March: The personal consumption expenditures (PCE) measure increased by 2.8% from a year ago, slightly above the 2.7% expected. Analysts say rate cuts are still possible, but some moderation of the labor market may be needed first. [Read]

    Business & Wealth

    Airbus ($EADSY) boosts production of A350 plane: The manufacturer will now target production of the A350s to 12 per month by 2028 — but leadership notes that this is just due to building commercial demand for the model and not related to the ongoing struggles of their US rival Boeing ($BA). [Read]

    Working-age population is declining in 29% of countries: Japan, Spain, and China are just a few countries managing economic growth despite a shrinking share of workers. But the US won’t face negative working-age growth until 2054, which bodes well for near-term economic performance. [Read]

    Self-storage demand cools after pandemic boom: Developers have built a bunch of the units in recent years, hoping the pandemic surge would continue — but it’s abruptly slowed, and now many storage unit projects are being abandoned. One reason: people aren’t relocating as much as they were a few years ago. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


    CHART


    DIGIT OF THE DAY

    US Manufacturing Spend Doubles to Over $200B in Two Years: Can This Growth Be Sustained?

    After offshoring and outsourcing their way to cheap goods, America is building like it's 1951 again. Domestic manufacturing investments soared by 63% last year — marking the highest increase in over 70 years. This advancement has been driven by government subsidies, delayed investments due to COVID, and a desire to bring manufacturing back home amid geopolitical disruptions and tariff hikes. While the electric vehicle and semiconductor sectors have seen the most significant growth, other industries are also returning to US soil.

    • Last month, GE Aerospace ($GE) announced a $650M investment in its US plants — and tariff changes are also helping bring solar panel manufacturing back to the US.

    • Global appliance makers are ramping up investments in the US following tariffs of up to 50%, which were in place from 2017 to last year.

    Two sides of the coin: On one hand, the construction of new semiconductor facilities in the US — operated by companies like Micron ($MU), Taiwan Semiconductor ($TSM), and Intel ($INTC) — accounts for a substantial portion of the increased manufacturing spending. Thanks to billions in subsidies from the CHIPS Act, new facility spending has surged by 122% since 2022. But on the other hand, rate-sensitive industries, like auto manufacturing, are suffering — with EV truck maker Rivian ($RIVN) recently pausing construction on a new $5B plant, joining Ford ($F) and General Motors ($GM) in delaying billion-dollar factory expansions. It’s hard to tell if the economy will continue to support robust investment — and capital spending by US manufacturers may slow down this year.

    Read: US manufacturing boom driving up costs for Americans


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