NFTs: The Final Chapter?

Back in the surreal days of 2021 a restless population, flush with pandemic stimulus and speculative fervor, discovered...non-fungible tokens or NFTs. They were unique cryptographic tokens that exist on a blockchain and cannot be replicated--whatever that meant. But who cares? Have money, will play, right? NTFs were irreverent and fun, as exemplified by the sale of a set of Bored Apes NFTs for more than $24 million in Sotheby's "Ape In!" online auction. The NFT craze generated over $40 billion in trading volume in 2021, peaking with artist Beeple's digital work--The First 5000 Days--selling for $69 million! 

Good investments? Umm, you probably know where this is going. As per the Guardian, "a new report by dappGambl that reviewed data from NFT Scan and CoinMarketCap, 69,795 out of 73,257 NFT collections have a market cap of 0 Ether, leaving 95% of those holding NFT collections – or 23 million people – with worthless investments." 

Not surprising then that people are having regrets and looking for someone to blame. In addition to a long list of celebrity NFT promoters like Paris Hilton, Gwyneth Paltrow, Kevin Hart, Snoop Dogg, Serena Williams, Madonna, Jimmy Fallon, Steph Curry, and Justin Bieber, Sotheby's is also apparently at fault. The famous auction house "has been named as a defendant in a lawsuit filed by investors who regret buying Bored Ape Yacht Club NFTs that sold for highly inflated prices during the NFT craze in 2021. A Sotheby's auction duped investors by giving the Bored Ape NFTs "an air of legitimacy"...the class-action lawsuit claims." Sure, no one was trusting Hilton or Curry to be NFT experts, but Sotheby's was supposed to do some vetting? We dunno know...Sotheby's does have an authenticity guarantee but that was not an issue here. If people want to bid something up, it's almost by definition not an auction house's job to interject. But there's a twist...one of the buyers in the auction, it now turns out, was FTX. Does that make a difference, even though no one knew at the time? Seems like a stretch.

That's What She Said

The second Republican debate happened on Wednesday, if anyone even cared. With Trump, who has a nearly unassailable 40-point lead in the polls, absent again, it was a largely uneventful affair. Expect for maybe former South Carolina governor Nikki Haley's zinger about famously annoying candidate Vivek Ramaswamy, who shined in the first debate. On the topic of TikTok, Nikki snapped at Vivek with sincere disdain: “Honestly, every time I hear you, I feel a little bit dumber for what you say”. Burn.

But wait...here's what Nikki said about Vivek in a blurb for his 2021 book, Woke Inc. that helped put him on the political map in the first place: "His combination of honesty, intellect, and foresight are exactly what we need..."

Nikki apparently changes her mind a lot, but that's politics!

Instacart: The Early Bird Gets the Worm?

The IPO market has largely been dormant for the past 18 months. However, hopes of a revival were kindled recently as several high-profile companies went public in the last two weeks, including pandemic darling Instacart.

 

                                         Source: stockanalysis.com. *Includes REITs, SPACs, closed-end funds, ADRs, 
                                         banks, limited partnerships and trusts, **Thru 9/22/2023.

The grocery delivery service's IPO on Sep 19 was priced at $30, valuing the company at ~$10 billion. That was far below its (infamous) March 2021 funding round which valued the company at astonishing $38.5 billion!! Oh, 2021. Now, $30/share seems to be a fair price according to valuation guru Aswath Damodaran in a detailed analysis of Instacart's business model. And the market agrees? After a strong debut (gaining 43% on its first trading day), Instacart fell back to its IPO price within a week.

Regardless, Instacart was estimated to have raised $660 million from its IPO, with all three of the company's co-founders cashing in: "Brandon and Maxwell Leonardo sold 1.5 million of their 7.8 million shares, pocketing about $43 million each, while former CEO Apoorva Mehta sold 700,000 of his 28.9 million shares, netting $21 million. Mehta, a great example of entrepreneurial grit and perseverance, is now worth an estimated $1.3 billion. Prettay, prettaay, good. So, who were the other winners from Instacart's IPO, if any?

The chart above (click to enlarge) shows Instacart had a lot funding rounds (up to Series I) and many investors. But if you didn't get in early, you didn't do too well. Series F and later investors lost money outright, but it gets even worse if you consider relative performance. As this table (click to enlarge) from Damodaran's analysis demonstrates: 

Source: Aswath Damodaran (aswathdamodaran.substack.com)

As per Damodaran, the seed capital providers Khosla, Canaan and Y Combinator will have earned a 55% compounded annual return on their original investment...well in excess of the S&P 500's annual return of 13% over the same period. Or put it another way that's an 80x (gross) return vs 3.4x for the S&P 500. Nice! If the typical VC seed investment in 2012 was about $600-$700K, then that's a potential gain of around $50 million! Silicon Valley's pre-eminent VC firm, Sequoia, will have done even better, earning 62% on its 2013 Series A investment of $8 million as per the WSJ; that's a potential gain of over $600 million--cha ching!! Andreesen Horowitz ("a16z") will have earned a 29% annual on its 2014 Series B investment (on a $15-$20 million investment, that would be a potential gain of $100-$150 million). 

After that things start to unravel...all investments in Instacart made after 2015 have underperformed the S&P 500 significantly, and the NASDAQ by even more. In fact, any investment made after 2018 generated an (unrealized) dollar loss! Hedge fund crossovers, Tiger, Coatue, and D1 underperformed but so did established VCs like DST Global and General Catalyst, who invested $75 million and $50 million, respectively. The worst off possibly was T. Rowe Price, whose growth fund invested $86 million in 2021. That investment has lost more than half of its value. 

To be sure, firms like Sequoia have invested in multiple rounds, taking some of the shine off their early perspicacity. But the success of those early rounds more than makes up for the losses of the later rounds. Sequoia, in fact, invested $300 million across all funding rounds prior to Instacart's IPO and currently owns more than 15% of the company; its stake is estimated to be worth over $1.5 billion. Interestingly, perhaps aware that a successful Instacart IPO was needed to help thaw a frozen IPO market for their other portfolio companies, Sequoia and other VCs agreed to buy up to $400 million worth of shares sold in Instacart's IPO, accounting for ~66% of the total proceeds. Unless they immediately sold, they are essentially holding those shares at cost less than a week later. 

Ultimately, Instacart's IPO was an expensive lesson in market timing and herd mentality. Yes, the early bird does get the worm...but habit rules the unreflecting herd. Invest carefully.

Why Bidenomics Gets So Little Love? Blame David Brooks!

Bidenomics is the President's signature economic plan, meant to grow the economy from the middle out and bottom up. It is a rejection of the Republican party's core policies of "trick-down economics" and is expected to be financed in part by greater taxes on the wealthy and corporations. And it seems to be working: (i) 13 million jobs added since Biden's inauguration (January 2021)--including 800K of those elusive manufacturing jobs, (ii) unemployment at less than 4%, and (iii) the strongest growth since the pandemic of any major economy. Yes, inflation reached a 40-year high in June of last year with a yoy increase of 9.1% but thanks to the Fed's aggressive rate hikes and supply chain normalization, CPI has steadily declined (though still elevated at 3.7%). If the conventional wisdom about elections is true, that "it's the economy, stupid", then Biden should be sitting pretty. 

Yet, despite robust job growth, rising wages, and falling inequality the electorate is anxious about the state of affairs, very anxious; an NBC poll at the end of June found 74% of Americans feel the country is heading in the wrong direction. Huh? Why is Biden not getting credit for the economy?

Inflation is certainly a part of it. A September Harris poll for the Guardian newspaper found that "two-thirds of respondents (68%) reported it’s difficult to be happy about positive economic news when they feel financially squeezed each month (Republicans: 69%, Democrats: 68%)." And there is hard data to support such disquiet. While most measures show real wages are up since prior to the pandemic, Jason Furman (Harvard economist and chair of the Council of Economic Advisers under President Obama) calculates that [they] are still 3-5% below their immediate pre-pandemic trajectory. In other words, things were already improving under Trump then the pandemic hit, followed by nearly double-digit not transitory inflation causing real wages to plummet. Workers' real incomes are now back up to Q1 2020 levels, but still below the trajectory they were on in the waning years of the Trump administration. Simply put, Americans feel real wages should be higher.   

But the Harris/Guardian survey finds another, more dire, reason for voters' dissatisfaction: mistrust in media and government. Two-thirds of Americans (65%) believe that the economy is worse than the media makes it out to be. For example, while the unemployment rate was close to a 50-year low in August at 3.8%, the poll found that "51% [surveyed] wrongly believe that unemployment is nearing a 50-year high rather than those who believe it’s actually low (49%)". And it wasn't just Republicans, a sizable number Independents and Democrats also felt the same.

Taken together, it's not much of a surprise that more than half of Americans (53%) believe the economy is getting worse instead of better or staying the same. Republicans and independents were more likely to think it’s getting worse (72% and 58%, respectively, v Democrats: 32%).

That brings us to David Brooks, the New York Times' conservative columnist and recovering neocon/Republican.  In a June op-ed, he also explored why Biden was struggling to make his economic case. Sure, inflation was a part of it, but Brooks believed the media and (crucially) a bruised national psyche were mainly to blame. What's that again, David? National psychology. Brook argues that during the Trump era Americans suffered "a collective moral injury, a collective loss of confidence, a loss of faith in ourselves as a nation". It is reflected in a recent Gallup poll showing Americans' "satisfaction with their personal lives is nearly four times as high as their satisfaction with the state of the nation". And the media isn't helping, over the past couple of decades headlines have grown starkly more negative, particularly from right-leaning outlets, stoking anger and distrust. Hmm...like if a nationally syndicated columnist were to tweet on his NYT X account about the outrageous price ($78) of an airport hamburger and fries meal as an example of why Americans are so gloomy about the economy, while conveniently omitting that 80% of the tab ($62) was for his bar bill.

Maybe he was speaking an "emotional truth". Regardless, intentional or not, he validated his own media thesis about trust. Does this mean Biden is toast...no, not really. Because, at this point Trump is almost a lock for the Republican nomination leading by 50 points over his nearest rival, Ron DeSantis in recent polls...but Biden wins against Trump in a rematch! Politics!!

Is the Patriarchy Romantic?

It's the 2020s, women today make up 60% of college undergraduate enrollments; among married couples almost half of women make as much or more than their husbands. Even Barbie is a feminist now? Still, there is one tradition that's going strong, despite its deep patriarchal roots: American women taking their husbands' last names. As the NY Times reports, a 2023 study from the Pew Research Center reveals nearly 80% of U.S. women changed their names after marriage.

Looking a little deeper into the data, views on marital naming diverged somewhat by politics (naturally) and education: "Among conservative Republican women, 90 percent took their husbands’ name, compared with 66 percent of liberal Democrats, Pew found. Eighty-three percent of women without a college degree changed their names, while 68 percent of those with a postgraduate degree did." Also, younger women (<50) are twice as likely to keep their names than older women (50+). 

These findings are consistent with a scholarly paper examining the same behavior. A 2004 paper by Harvard economist Claudia Goldin and Maria Shim in the prestigious Journal of Economic Perspectives found largely the same set of correlates to changing one's surname: higher education (less likely to), delayed marriage (less likely to), highly educated spouse (less likely to), children (more likely to), etc. Still these factors seem to be overwhelmed by larger cultural factors. Regardless of age, education, or status, women's desire to "make a name" for themselves appear to be subsumed by their longing to conform to tradition and customs. 

That tradition, at least among Anglo-Saxons, is rooted in Western society's patriarchal history. Until the middle-ages, women were simply referred to as "wife of [insert husband's name]"--like in the Handmaid's Tale (Offred or Ofjoseph). Then coverture arrived in England around the 15th century and a husband and wife became a unified entity. But not in the way the Spice Girls cooed about. Rather coverture held that "no female person had a legal identity...[she was] covered by [first] her father's identity, and then, when she was married, by her husband's". As coverture caught on, the practice of wives adopting their husband's surname became firmly entrenched in English society. So much so, in 1765, it was codified into law. 

   

The custom was carried over into the U.S. and other British colonies. In the spirit of the revolution Abigail Adams (wife of John) pleaded with her husband to change the practice, in her famous "Remember the Ladies" letter of 1776, but he apparently thought she was joking (oh Ofjohn, you're so funny). So, it would take a couple of centuries before women were recognized as separate from their husbands. Until the 1970s women in the U.S. could not get a driver's license, passport, or register to vote unless they took their husband's surname.

And yet, today despite a great deal more financial, political, and social freedom, women continue to be drawn to patriarchal gender norms. In fact, many even find changing names compelling because as JLo explained when she became Mrs. Affleck: it's romantic! Since it is commonly viewed as a sign of love or commitment to their husbands and their new life together, many women happily take their spouse's surname. Now to be fair, for the less famous, there are also practical considerations. As the Times article referenced earlier notes, many women "find it easier to have the same name as their future children, and to simplify dinner reservations or utility bills."

It's also important to note, the custom of marital name changes is by no means universal. In China, Korea, and other East Asian countries women traditionally retain their surname after marriage. The same in many Muslim countries. Even in Western countries things have changed; in Italy, France, the Netherlands, and Greece, women by law are required to keep their maiden names. So maybe it's just another case of Americans being WEIRD. We simply assume that's how the world works, because we do it that way.  

Under Less Pressure: BREIT Redemptions Update

Back in June, we wrote about challenges BRIET was facing with investor redemptions. Three months on, things appear to be improving for Blackstone's crown jewel. In August, the non-traded REIT ("NTR") received approximately $3 billion of redemption requests and paid out $1.3 billion, or 43%--the highest percentage in nine months. Moreover, new requests for redemptions are trending down, while payouts are holding steady, as shown below. After months of treading water, BREIT's is finally able to chip away at the substantial redemption queue. 

Source: Mantabye calculations based on data from Reuters.

At the end of August, BREIT had an estimated queue of $2.4 billion, down from a peak of $4 billion in February. Since November of 2022, when the fund's 5% NAV limits on withdrawal were triggered, BREIT has returned nearly $10.7 billion of capital to investors.

Source: Mantabye calculations based on data from Reuters.

What could be the catalyst for the improving fund flow dynamics? Well, performance certainly helps: BREIT is up 3.5% YTD. That's by far the best performance among the major NTRs; Starwood (SREIT) Ares (AREIT), the second and third biggest NTRs, have returned -2.9% and -1.1% YTD, respectively. Second, the arbitrage opportunity that existed between public traded and non-traded REITs (and which we previously discussed) is mostly done. As reminder, while publicly traded REITs and NTRs invest in similar types of stabilized, income-generating properties, NTRs are (i) relatively illiquid, and (ii) utilize mainly appraisal-based valuations that work on a lag (to public REITs). In 2022, the public benchmark FTSE NAREIT All Equity REIT Index was down 25%; while the NCREIF-ODCE Index, the core private real estate benchmark was up 7.5%! Providing investors the opportunity to take gains from NTRs, like BREIT, and invest in beat-down public REITs. By mid-2023 that dynamic has reversed, with the ODCE down -5.8% (through Q2) and the FTSE NAREIT up 3.0% (through Q2).

We think the outlook for BREIT is constructive. The NTR portfolio is overwhelming allocated to more resilient sectors such as single-family rentals (55%), industrial (23%), datacenters (5%) and just 5% in the more economically sensitive retail (3%) and office (2%) sectors. Blackstone, as firm, is also pretty savvy at hedging interest rate risks, so is likely to navigate the current macro environment better than other real estate firms. That said, Blackstone partners are still on the hook for hundreds of millions under the terms of its bailout $4 billion deal with the University of California, which guarantees UC a 11.25% return per year with the difference to made up by Blackstone. That's potentially $320 million less bonuses for the firm's partners this year. But something tells us they can afford it.  

Is Behavioral Science Too WEIRD?

What is normal behavior? Understanding and contextualizing human actions has important implications for a wide range of disciplines, including biology, medicine, economics, political science, psychology, sociology, etc. Yet, as the paper "The Weirdest People in the World?" points out, behavioral scientists "routinely publish broad claims about human psychology and behavior in the world’s top journals based on samples drawn entirely from Western, Educated, Industrialized, Rich, and Democratic (WEIRD) societies." As example, analyses of the top journals in psychology, including the prestigious Journal of Personality and Social Psychology, revealed that 68% of subjects came from the U.S., and a full 96% of subjects were from Western industrialized countries. Subject pools in experimental economics and decision science are similarly dominated by Westerners, particularly college undergraduates. Worse, despite sampling from a very narrow pool of subjects, researchers basically assume that "either there is little variation across human populations, or that these “standard subjects” are as representative of the species as any other population." Huh? Well, you know that what they say about people who assume.

The paper's authors, Messrs. Henrich, Heine, and Norenzayan, reviewed studies on visual perception, fairness, cooperation, spatial reasoning, categorization and inferential induction, moral reasoning, reasoning styles, self-concepts and related motivations, and the heritability of IQ. They find that not only are WEIRD subjects not drawn from near the center of human distribution but they are frequently outliers with respect to the rest of the species! Which means that they are probably the least representative populations "one could find for generalizing about humans." Comedian Ronny Chieng understands, as he pointedly skewers Western ethnocentrism and sample bias.   

(We recommend the whole set)

It's also worth noting that the U.S.-based behavioral scientists conducting the majority of research are themselves (not surprisingly) drawn from a similarly thin slice of humanity. (Interestingly enough, there seems to be significant gender and pay equity in behavioral sciences...but that's neither here nor there). So, if behavioral science really is that biased it could undercut many findings that are associated with fundamental aspects of psychology, motivation, and behavior. You'd think Henrich et al's findings (published in 2010) would have spurred much needed change...umm, not so much. Despite researchers being more aware of sampling biases, significant challenges remain. Kudos at least to the BBC which has a dedicated website, Weird West, tackling what really is "normal" from hygiene habits to child rearing practices. 

The Physics of Peeing

A 2020 survey of 2,000 British couples found that nearly 20% of the respondents admitted to ending a relationship because of their ex’s bathroom habits. Arguably, the biggest issue? Women were turned off by the mess and smells a boyfriend left behind in the toilet. Aah, yes...men apparently have no aim, leaving urine splatter everywhere.

Men might argue that accuracy is indeed difficult, with so many variables at play: volume, speed, pressure...err, size? Well, turn outs, none of that really matter, what really drives urine spray, according to fluid dynamic scientists at the Splash Lab at Bringham Young University, is distance and angle. Physicists Tadd Truscott and Randy Hurd conclude that one of the most effective way to reduce splatter is to alter the angle of your pee stream so that it hits the wall of the toilet/urinal at a gradual angle; the closer to 90 degrees, the worse the splashback will be. They even have a nifty video simulating a typical urine stream entering water and the considerable splash it generates:

And the difference a low angle makes, all else equal. 

However, the researchers note there is an even easier solution to saving your relationship: sitting to pee, which reduces distance. For a guy who stands to relieve himself, "his urine must travel five times farther to the water or porcelain surface than if he were sitting." The lengthier travel distance allows the stream to gain velocity and break up into separate droplets. Knowledge women instinctively know but can't always seem to pass on to the men in their lives. 

It's also worth noting that sitting to pee makes the "go" better. Doctors say that when people sit, pelvic and hip muscles are relaxed, making urination easier. Win-win?

To be fair, many men do sit to pee. Standing to pee is more common in the West than the East, where is it associated with "manliness". German men, at least, are coming around (or maybe being pressured to by their spouses?). A recent survey shows 40% of them routinely sit to pee compared to 10% of American men (naturally, the Germans have a word for it: sitzprinkler). The US, it seems, needs to work a bit to be #1 in #1. And why not? Sitting to pee leads to:

1. Better hygiene

2. Better health

3. Perhaps most importantly happy wife, happy life?

So, sit, relax, and enjoy the flow!

What's in a Logo?

Toyota is the world's second biggest company by revenue ($267bn) and market capitalization ($203bn). Models such as the Corolla, Land Cruiser, Hilux, Prius, and Celica have been some of the best-selling cars ever manufactured. The company's name and brand are almost universally recognized. And for much of Toyota's history, its logo was simply the company name in different font types. Simple and effective, no?

Then in 1989/1990, Toyota debuted a very different logo--three overlapping ellipses logo symbolizing (officially) "the unification of the hearts of our customers and the heart of Toyota products. The background space represents Toyota's technological advancement and the boundless opportunities ahead." Hmm, okay, if you say so. A more practical explanation is that the interlocking ellipses represent a thread coming through the needle’s eye as tribute to the company’s start as a sewing machine manufacturer. But the following interpretation, while requiring perhaps a bit of imagination, is the most satisfying: it's just a really concise spelling of the company name!

Messi Mania in LA

In a city full of stars no one was bigger than Messi on last week, as Inter Miami took on LAFC. The BMO Stadium in Los Angeles was sold out on with a record 22, 921 fans cheerfully watching their home team lose to Messi and Miami, 3-1 on Sep 3. The average ticket price for the match was a whopping $717--515% more than the $110 before Messi joined the MLS. Messi's impact on the game in the US is also evident in the number of subscriptions to Apple TV+'s MLS season pass, which recorded 288,000 new subscribers in Messi's first month in the league! No wonder the star power was on full display in the BMO stadium--with movie stars, pop star, sports legends, and even a prince (yes, he's still one) fanning Messi Mania. 

And Messi has been delivering for his US fans with an astonishing start to his MLS career. Since he joined Inter Miami in July, the club has gone undefeated in it last 11 matches across all competitions, with Messi scoring 11 goals in ten appearances!