TheBRRR’s GM

Amidst denied ceasefires, civilian casualties and broad confusion, the fog of war in the Middle East continues to cast a shadow over global markets.

It doesn’t help that the US is ramping up trade tensions with China, as the Biden admin announces new rules limiting US-manufactured chips being exported to China, as we cover in today’s lead article.

Earnings season for tech ramps up this week with Tesla and Netflix due after the bell today. AI-linked chipmakers Taiwan Semiconductor and ASML also report this week.

There’s activity in crypto once again. After fake news about Blackrock’s Bitcoin ETF approval caused bitcoin to surge 7% to over $30k on Monday, Blackrock CEO Larry Fink made the rounds across the financial media.

Fink, to his credit, was unabashedly bullish on bitcoin and crypto saying the pump represents “pent up demand”, and a “flight to quality”. Strong words from the CEO of the largest asset manager on the planet.

The macro backdrop continues to instill fear across the banking sector. Rising mortgage rates, hitting their highest point since November 2000, are signaling tightening economic conditions, leading to the most significant drop in demand for home loans since 1995.

Things are bad on the commercial real estate side as well, with WeWork desperately trying to walk away from or renegotiate the terms of many of its leases. We cover in today’s second article.

No changes to the portfolio, but it's holding up quite well overall, still up 23% since inception in late March.

Market News

U.S. Halts AI Chip Flow to Beijing

The Biden administration has announced a series of measures to limit the export of advanced AI chips to China and other countries, in an effort to prevent the further strengthening of their military capabilities.

The intention is to restrict access to advanced semiconductors that could accelerate AI developments significant for military applications, while still allowing China to import a vast amount of U.S. semiconductors. The move has been met with opposition from the Chinese embassy and has implications for major U.S. chipmakers, i.e. Nvidia.

• Workaround Limitations: The updated rules focus on curtailing loopholes by targeting the computing power a chip can possess relative to its size. This aims to counteract innovations like the "chiplet" technology, which China identifies as essential for its semiconductor industry's future.

• Chinese Firms Respond: Biren and Moore Threads, both founded by ex-Nvidia employees and now blacklisted, have expressed strong opposition and intend to challenge the U.S. decision.

• Global Implications: In addition to China-focused regulations, the U.S. has expanded licensing requirements for exporting advanced chips to over 40 countries at risk of diverting them to China. The measures also emphasize potential diversions, restricting shipments even to subsidiaries of firms if their headquarters are in embargoed regions.

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$100 Reader Giveaway

The AI Tool Report highlights fantastic AI tools. We’re giving away $100 to a reader that subscribes to the AI Tool Report and tells us about their favorite AI Tool they learn about as a subscriber.

To participate, subscribe below and email us about the best thing you’ve learned from them by November 15th. 👇

WeWork's Woes: NY Landlords' Nightmare

After WeWork announced considerable losses leading it to reconsider almost all of its leases, New York landlords are now facing severe challenges. The departure of WeWork from many buildings threatens to amplify landlords' existing issues of rising vacancies and plummeting property valuations.

This issue is particularly acute for landlords who have substantial loans due in the near future. If WeWork exits, several buildings with currently performing debt could suffer, especially if WeWork capitalizes on potential bankruptcy protection.

Additionally, WeWork's cost-cutting measures do not only revolve around lease exits, as they're also pushing for reduced rent prices.

• Massive Debt on the Horizon: Landlords with WeWork as a primary tenant have an outstanding CMBS debt of around $2.6 billion. Half of these loans mature within a year, with almost 80% being watchlisted, late, or already in default.

• WeWork’s Strategic Threat: WeWork is leveraging its precarious financial position, hinting at potential bankruptcy to negotiate and secure reduced rents with building owners.

• Landlords’ Domino Effect: The challenges of some landlords, such as Winter Properties and Walter & Samuels, underscore the ramifications of WeWork’s potential exits. Some properties have seen their revenue fail to cover debt service, and in certain cases, building valuations have been slashed significantly.

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Macro News

AI in Finance: Guiding Light or Leading Astray?

Gary Gensler, the chair of the US Securities and Exchange Commission (SEC), expressed concern over the risks posed by the increasing concentration of power in artificial intelligence platforms on financial stability. He suggests that without prompt regulatory action, these AI platforms could spark a financial crisis within the coming decade.

Gensler notes the challenges in AI regulation as many tech models lie outside of traditional financial market oversight. As AI's role in finance grows, regulators globally are trying to determine how to effectively oversee its use.

• AI's "Horizontal Issue": Current regulations target individual entities like banks or brokers. However, AI introduces a challenge as multiple institutions might rely on the same model or data source, especially when these reside with tech giants, not the financial entities.

• AI on Wall Street: AI has become intrinsic to Wall Street, from robo-advisors to brokerage apps. Gensler warns of the risks when multiple parties base decisions on identical AI models, potentially leading to herd behavior and risking financial stability.

• Debate Over Climate Reporting: The SEC's proposal for companies to disclose emissions has garnered mixed reactions. By 2021, over half of Russell 1000 companies disclosed scope one and two emissions. However, the proposal has faced legal threats and criticism from Republican figures.

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Today’s Reader Poll

For today’s poll, we want to hear your thoughts on Tesla’s stock movement possibilities:

Here are the results from Monday’s poll, when we asked about your inflation concern level. We’ve gone from a split to now a slight majority expressing moderate to high worries.

Have to acknowledge a truthful comment on this most recent poll from user fmenzer:
“Inflation is much higher across the board than actually reported by the government statistics.”

AI Art of The Day

Joe getting rambunctious on trade with China.

Got feedback? Follow the writer on Twitter @frank_locascio and send a message.

The BRRR is meant for informational purposes only. It is not investment advice. Please consult with your investment, tax, or legal advisor before making any investment decisions.