# 703 – 😬 Buy Now, Regulate Later – The Average Joe

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    # 703 – 😬 Buy Now, Regulate Later

    victorlei

    May 28, 2024

    Good morning. Bark Air is exactly what it sounds like: an airline that puts “dogs first,” offering canine spa services on a private jet. Owning a furry best friend doesn’t come cheap, from pricey subscription pet toy boxes to “scammy” pet insurance — and purchasing a $6K Bark Air ticket takes pampering your pooch (prepares our best Eugene Struthers imitation) to a whole — ‘notha — level.


    RETAIL

    Buy Now, Pay Later Firms Will Be Treated Like Credit Card Companies Under New CFPB Rules

    Yes, let’s give shoppers a way to take out “0%” interest loans on almost anything with little regulation or oversight… What could possibly go wrong? Buy now, pay later (BNPL) services like Affirm ($AFRM), AfterPay ($SQ), and PayPal ($PYPL) don’t seem to see the harm, offering a tempting way for spenders to split up payments into smaller chunks.

    Play by the rules: Until now, BNPL firms have left consumers with fewer protections than their credit card counterparts. But after a months-long investigation, the Consumer Financial Protection Bureau (CFPB) announced new regulations last week, which will now treat BNPL providers like credit card companies, ensuring they offer timely refunds, allow customers to dispute charges, and provide regular disclosures and statements.

    • Expected to kick in later this year after the agency accepts public feedback, these regulations mark a significant step toward tighter federal oversight of the fast-growing BNPL industry.

    • While Swedish BNPL giant Klarna, eying an IPO this year, claims the rule changes will “not require any major changes” to its operations, there’s an underside side to BNPL shopping.

    Shopping in the Dark

    Today, one in five households uses a BNPL plan, a testament to the industry’s rapid adoption by retailers. But despite the CFPB’s efforts to regulate BNPL firms more like credit card companies, there’s a significant issue that hasn’t been addressed in the new rules.

    • Most BNPL providers still don’t report all payments to major credit bureaus, leaving creditors without a full picture of borrowers’ spending habits or lenders, making it harder to assess risk.

    • According to Bloomberg, BNPL firms have “resisted calls for greater disclosure” into their loans, arguing that credit agencies aren’t equipped to handle their data.

    The real risk: Delinquencies on loans are increasing across the economy, but because BNPL transactions aren’t fully visible, they’re creating a “shadow debt” problem on Wall Street. Analysts warn that this lack of transparency enables overspending, especially for folks who have maxed out other borrowing methods. With the BNPL market expected to double in size by 2028, there’s a risk that trouble in the $687B industry could creep up on the economy — despite the absence of upfront interest on these loans, as they often lead customers into a cycle of reborrowing with sky-high rates.


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    LARGECAP RECAP

    👚 The S&P 500's Worst Performing Stock Is Also The Company That Sells The Most Expensive Leggings

    Is Americans’ passion for trendy workout gear stronger than its financial sense? Lululemon ($LULU) is facing this question head-on as it grapples with the fate of its pricey $98 leggings and $68 shorts.

    In its latest quarterly report, Lululemon saw only a 9% increase in US revenue compared to last year. This marks a sharp decline from the 29% growth it experienced during the same period in 2023.

    • Investors are growing concerned as the company predicts a further slowdown in North American growth, scaring investors who helped the company afford a premium market valuation.

    • $LULU stock has plunged 40% this year, earning it the unfortunate title of the worst-performing stock in the S&P 500 — surpassing even Boeing ($BA) and Tesla ($TSLA).

    Exporting expensive comfort: Lululemon’s acquisition of connected fitness company Mirror was initially seen as a strategy to expand into the exercise equipment market. However, following this setback, Lululemon has found a bright spot — international markets, where sales surged by 54% year-over-year (YoY). In response, the company is reorganizing its product and marketing teams to target regional and global audiences, hoping to attract customers with its premium activewear abroad… even if low-cost competitors like Shein, Athleta, and Fabletics are closing in, and in some cases, at a tenth of the price.

    🏢 As Investors Flee, Starwood REIT Gets Desperate

    The commercial real estate market is tanking, and Starwood Capital Group’s $10B Real Estate Investment Trust (REIT) is feeling the pressure. Investors are pulling their money out in droves, leaving one of the real estate industry’s largest funds with two options: sell assets or slow withdrawals. No surprise, they chose the latter — lowering the REIT’s redemption limits from 5% of the value of the fund’s assets every quarter to 1%. This move aims to help the REIT hold steady as the market hits “near-bottom.”

    • Office occupancy has never recovered since the pandemic, with 25% of the total supply still vacant — and a full recovery to pre-pandemic levels could take at least five years.

    • While Starwood expects conditions to improve, some analysts are pessimistic — warning of cascading regional bank failures as offices face refinancing at much higher mortgage rates.

    House of cards? Starwood’s publicly-traded REIT, Starwood Property Trust ($STWD), is also having a tough year, down 10% year-to-date. However, it’s not alone. Blackstone’s ($BX) BREIT has seen a similar cash crunch. Critics claim BREIT’s values are inflated anyway, though Blackstone has been working to counter these concerns. Both REITs are betting on imminent rate cuts to stabilize the market — but banks are now moving back their rate cut forecasts.


    JOE’S MARKET PULSE

    🔗 Deckers Outdoor / Workday

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    Markets & Economy

    Boeing doesn’t expect positive cash flow this year: The embattled plane maker lost $4B in Q1 — and anticipates a similar or worse hit in Q2 due to slowed production and delayed deliveries amid new safety oversight. [Read]

    TurboTax lost 1M free users this tax season: Despite Intuit ($INTU) posting impressive revenue as more users opt for premium features, free users declined, with many trying out the IRS’s new free filing service. [Read]

    The US stock market moves to T+1 today: Now your trades will settle in one day instead of two, reducing risks for exchanges and brokerages but potentially causing confusion with foreign markets still on a T+2 system. [Read]

    Business & Wealth

    College athletes can now be paid — with private equity investing millions: The NCAA’s new deal, effective fall 2025, will pay students, and PE firms are helping colleges monetize intellectual property and boost sports program revenue. [Read]

    Spotify’s ($SPOT) Car Thing will stop working: The music streamer’s failed foray into hardware has come to an end. The company ceased production of the dashboard accessory in 2022, and the devices will be inoperable by year’s end, with no refunds for customers. [Read]

    Student loan interest rates hit 6.53%, the highest in over a decade: This marks a sizable rise from the current rate of 5.5% — double the rate students and their families saw in 2020-2021 before the Fed’s inflation fight. [Read]

    *Thanks to our sponsors for keeping the newsletter free.


    CHART


    DIGIT OF THE DAY

    75% of Americans Say College Degrees Aren’t a Must for High-Paying Jobs

    Four years and tens of thousands of dollars for a piece of paper. Is it worth it? While higher education often correlates with higher compensation, more Americans are saying no. According to the Pew Research Center, only one in four Americans now believes a college degree is necessary for a well-paying job. Rising tuition fees and the impact of student debt have driven this shift.

    • Over the past decade, earnings for US workers without bachelor's degrees have increased — about 49% believe a degree is less essential for a well-paying job than 20 years ago.

    • As a result, less than half of young workers (ages 25 to 34) have a four-year college degree, with 29% saying the cost isn’t worth the debt.

    The Great Unlearning: In 2022, ~60% of graduates started “sellout jobs” (a.k.a. finance, consulting, and tech), but that number dropped to 54% in 2023 due to decreased hiring in these sectors. This trend may continue as companies plan to hire 5.8% fewer graduates this year due to the economy. Employers are rethinking “entry-level” roles, valuing sophisticated internships, soft skills, and AI abilities over traditional experience.

    But it's not all bad news. According to the latest Labor Department report, new graduates can find part-time roles in retail, transportation, or healthcare, which are currently the most in-demand industries.

    Read: MBAs Don’t Shine Like They Used To: Why Students Are Skipping B-School


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