Hunker down, there’s a storm brewing

Hello and welcome to Alts Cafe

It’s been a busy week so let’s get straight into it.

TLDR:

  1. US unemployment reached a 1-1/2-year high last week
  2. More US companies have declared bankruptcy in 2023 than the first four months of any year since 2010
  3. Data suggests up to 34% of office buildings could be changed to residential use
  4. Tech layoffs reduced a bit in April…
  5. …But IBM is still replacing 8k humans with AI robots

Caffeine up and hunker down – it’s getting stormy out there.

Wyatt

Macro View

Equities were up slightly as the markets continue to eyeball the White House and Congress and the country marches toward default.

Pretty good?

Bullish News

  • US unemployment jumped to a 1-1/2-year high last week (I count this as “Bullish” news, since the more unemployment goes up, the quicker the Fed will lower rates).
  • Saudi Arabia’s economy grew 3.9% in Q1, boosted by non-oil activities.
  • US inflation eased slightly in April.

Bearish News

  • The US unemployment rate dipped to 3.4%, matching a 54-year low.
  • More US companies have gone bankrupt so far in 2023 than the first four months of any year since 2010.
  • U.S. small business confidence fell to more than a 10-year low in April.

What are we doing?

ALTS 1 fund news:

No news here.

Real Estate

Bullish News

  • Consumers are more optimistic about mortgage rates than they have been in over two years.
  • Data suggests up to 34% of office buildings could be repurposed to residential use.
  • Both Zillow and Redfin have added ChatGPT plug-ins
  • Framing lumber prices are down 57% YoY.
  • Aiming to spur demand, the UK is reintroducing 100% LTV mortgages. They were scrapped in 2008, probably for a very good reason.
  • NYC rents are up by the most in two years.

Bearish News

  • More than 70% of home buyers have spent 3+ months searching for a home without success. Affordability is the biggest reason they’ve not pulled the trigger.
  • New home listings are down 20% YoY in the US.
  • Berkshire Hathaway’s Charlie Munger saysUS banks are ‘full of’ bad commercial property loans
  • S&P’s ratings agency downgraded WeWork to “selective” default.
  • Institutional investors are sitting on the sidelines of the commercial real estate investment market; office and retail property valuations could fall as much as 40%.
  • Blackstone Inc.’s $70 billion real estate trust for wealthy individuals limited redemptions for a 6th straight month.
  • Short interest in Blackstone Mortgage Trust has nearly trebled since the beginning of 2023. It’s up 300% for Starwood Property Trust.
  • Five of the six largest CRE brokerages posted  a loss in Q1.
  • The number of distressed CRE loans increased in 84% of the largest US metros.
  • The Fed says CRE is the fourth biggest threat to US financial stability.
  • Commercial and multifamily mortgage loan originations were 56% lower in the first quarter YoY.
  • Home prices fell in more parts of the U.S. than they have in over a decade during the first quarter, when nearly a third of metro areas posted annual price declines.

How to invest in real estate right now:

I’m still out of the real estate market [no change].

Crypto & NFTs

Here’s what you need to know:

Crypto investors are getting more worried about (the cost of) regulation, which is pushing prices down.

Significant retraction here, down from 60 to 50 on the week.

Vomit emoji:

Not a pretty sight.

Bullish News

  • PayPal’s crypto holdings increased by 56% in Q1 2023 to nearly $1B.
  • META released a wildly optimistic, but certainly unbiased study, claiming the metaverse will be worth 2.4% of US GDP by 2035 — $760 billion.
  • Liechtenstein’s government is planning to accept Bitcoin as payment for state services.
  • Pudgy Penguins raised a $9 million seed round. I don’t know why.

Bearish News

  • Zimbabwe is moving ahead with its insane gold-backed digital currency scheme.
  • Ripple will have spent $200 million by the time its legal battle with the U.S. Securities and Exchange Commission is over.
  • Bittrex went bankrupt on Monday after its US operations were shut down at the end of April after getting smash-hammered by the SEC.
  • Binance is being investigated for skirting Russian sanctions. The company is not pleased.
  • The American IRS is claiming more than $44 billion from bankrupt FTX.

How to invest in Crypto & NFTs right now:

The Pudgy Penguins news is compelling — there’s still money here.

As I mentioned in the WC last week, my wife and I watched the documentary about coding prodigy Aaron Swartz (“The Internet’s Own Boy” if you haven’t seen it), and one of the things he predicted was that post the Google era, the internet will be about curating stuff, not just finding it.

Enter Otherweb, a startup raising on WeFunder right now, who are aiming to do just that.

They’re led by CEO Alex Fink, a two-time founder, former VP engineering of a VR startup, and a prolific inventor with 25+ patents.

These guys are on a mission to “fix the internet” using AI to carefully filter out all the junk – the superficial, trivial, mis-information. I’ll have some of that, please.

And I’m not the only one:

  • They have 468k active users (this has gone up from 345k just in the past month, when I last wrote about them)
  • That means they’re growing 851x (i.e. doubling more than 9 times) in just 24 weeks
  • Most of their new users come from free acquisition – referrals or social media. Always a good sign.

Be quick – there’s only $24k left of investment for their Early Bird terms.

Startups

Bullish News

  • Investment in weather and climate prediction startups surpassed $266 million in 2022.
  • Tech layoffs cooled in April.
  • AirBnb posted its first profitable Q1.
  • Blockworks, a media company that covers cryptocurrency for professionals, has raised $12 million at a $135 million post-money valuation. Media is dead. Long live media.
  • Estonian ride-hailing and food delivery startup Bolt expects to turn profitable in the next 12 months and IPO in 2025.
  • IBM is replacing 8k jobs with AI. First to go? Human resources. Skynet approves.
  • Binance Labs–its venture arm–has grown its assets to $9 billion from $7.5 billion.
  • Britain’s leading asset managers are in advanced talks to create a multi-billion pound investment fund to back UK start-ups.

Bearish News

  • Of the 10 biggest venture rounds in April, four of the top five were raised by established unicorn companies.
  • SoftBank’s Vision Fund has lost more than $50 billion over the last two years. That’s higher than the GDP of more than 70 different countries.
  • Insurtech companies raised $9.4 billion across 617 deals in 2022, a 42% decline in deal value year-over-year.
  • VC investments in April were down 56% year over year.
  • There were only five new unicorns in April:
    • That’s six straight months of single-digit unicorns.
    • Three were AI companies.
    • Two companies have since lost unicorn status.
  • Down rounds crept higher as startup valuations continued to ebb in Q1.
  • The White House is trying to crack down on AI.
  • Electric vehicle startups are struggling… Meanwhile, Toyota is investing $7 billion in the technology.
  • Private equity is facing a wave of portfolio company bankruptcies.
  • SoftBank’s Vision Fund keeps losing money even in up markets.
  • Elon has managed to find a CEO for Twitter everyone hates.
  • Spotify is having to dedicate significant resource to purging AI songs from its platform.

How to invest in startups right now:

There’s a lot going on, despite the lack of investment dollars. If you’re FOMO’ing into any garbage seed stage AI companies, though, consider skipping this round.

That’s all for this week. I hope you enjoyed your coffee and this edition of Alts Cafe.

Fans of what we do here? Please send this email to five friends. We appreciate it.

Cheers, Wyatt

Disclosures

  • This issue of Alts Cafe was brought to you by our very clever friends at Franshares and Otherweb
  • We are holding BTC and ETC in our ALTS 1 Fund. Apart from those, we don’t own any other assets or vested interests in the companies mentioned in this email.

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Author

Stefan von Imhof

Stefan von Imhof

Stefan von Imhof is the co-founder and CEO of Alts.co.  With a background in alternative asset analysis, valuations, and due diligence, Stefan was born for this world. His alternative investing  newsletter has grown into Alts.co — the world's largest alt investing community, with over 230,000 investors. Originally from Boston and later Santa Barbara, CA, he now lives in Melbourne, Australia with his beautiful wife.

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