Insurance Isn’t Boring

Zillow’s new climate risk feature is making home insurance a nightmare in places like Florida, where your premiums are rising faster than the sea levels.                                                                                                                                                                                                                                                                                                                                                                                                                 October 03, 2024 | [Read Online]( Silver banana goes to… In this issue of the peel: - The labor market is basically doing a Katy Perry impersonation—flip-flopping between hot and cold faster than interest rates. September’s job data looks optimistic, with 143k jobs added, but with the government driving employment demand, that optimism might be short-lived. - In other news, Nikola delivered a whopping 88 vehicles, and somehow, that’s good news compared to Tesla’s recent performance. Meanwhile, Peloton dodges a lawsuit, Humana gets a Medicare slap, and Nike misses the basket on sales despite a CEO switch-up. - Zillow’s new climate risk feature is making home insurance a nightmare in places like Florida, where your premiums are rising faster than the sea levels. Market Snapshot Banana Bits - In case you forgot, Biden is still President, but his administration has [no plans to intervene in the ILA strike](. - OpenAI just raised $6.6bn at a $157bn valuation, meaning the firm is [valued similarly to Comcast, AT&T, or Goldman Sachs](. - Tesla’s Q3 deliveries missed estimates by—and I’m not joking—[420 vehicles](. - Stellantis’ sales were [even worse…]( - Bill Ackman put together a 49-slide deck assessing whether [Harvard is a Buy, Hold, or Sell](. - Levi Strauss is considering selling [its Docker brand](. - I probably won’t vote, but I certainly will [bet on the U.S. election](. - The S&P 500 has the highest P/E ratio ever for the [start of a Fed cutting cycle](. - Inflation in the Eurozone dipped below 2% for [the first time in 3 years](… must be nice. Deal Terms Highlights for a Career Lift Up your M&A game in only a few minutes with key takeaways from 4k+ private-target transactions analyzed by the M&A experts at SRS Acquiom. In the spotlight: rising earnouts, lower returns upon exit, an uptick in distressed dealmaking, a downtick in the use of RWI, bigger escrows with custom structures, and more.  It’s a quick-read companion for high-speed, high-quality negotiations that will help you stand out. [Download it while it’s still fresh.]( Macro Monkey Says The Previews The labor market has been listening to too much 2008 Katy Perry lately. It’s hot, then it’s cold. It’s yes, then it’s no. It’s in, then out, then up, then down. This constant flip-flopping from an optimistic to a down bad outlook has made employment projections look wrong, then right. Without a clear path forward for interest rates, nothing in the macro economy is black or white. But we get the official employment numbers for September tomorrow, so let’s take a look at some of this week’s previews. The Numbers According to the nation’s largest HR and payroll provider, ADP, employment growth came in hot in September, with the U.S. economy adding 143k privately employed jobs. Consensus guesstimates from economists were looking for just 128k additions. September’s growth is also a sizable uptick from the revised 103k additions in August, which was upwardly revised by 4k from the 99k previously reported. Every single sector tracked by ADP registered growth in September too… except one. Employment in the “Information” sector declined by 10k roles, likely in alignment with recent slashings we’ve seen to open [software development jobs](. The usual suspects—Leisure & Hospitality, Construction, and Education & Health Services—saw the most hiring, adding 34k, 26k, and 24k jobs, respectively. Similarly, small companies—those with less than 20 employees—were the only business size classification to shed employment in September, falling by 13k. “Larger” businesses saw an increase across the spectrum, from those with 21 employees to those with over 500. The results from ADP tracked with other surprisingly positive labor market data received on Tuesday.  [Source]( I had to do a triple-take when I saw the August Job Openings and Labor Turnover Survey (JOLTS) report. Allegedly, job openings increased (increased!) for what feels like the first time since JPow started his rate hike nuclear bombing campaign. The total number of job openings grew 4.27% to 8.04mn in August. Most of that growth, again, came from the public sector as private openings increased just 3.32% to 7.066mn. Government job openings grew 11.83% to 871k. However, on an annual basis, openings for total, public, and private jobs all declined from August of last year. While it was constructive to see labor demand increase via rising job vacancies, digging into the data paints a less rosy picture. Relying on Uncle Sam’s nepotism to grow employment isn’t sustainable long-term. Plus, declines in hirings and separations are indicative of a still-tight job market. We also saw a decline in the spread of wage gains earned by job switchers vs job stayers. Usually, there is a hefty premium for those with the balls to tell their old employer to f*ck off, but last month, that spread fell to just 1.9%. The Takeaway? The labor market is just as confused as the rest of us. We’ll find out how confused employment demand truly is with tomorrow’s September jobs report, but as of right now, the continued divergence in labor market data further underscores the higher-than-average degree of opacity in our current macro backdrop. Employers don’t have the confidence to open the floodgates of hiring, but those of us without a profit motive (looking at you, Uncle Sam) have no problem filling up their desks. It will be interesting to see if it takes further rate cuts to increase demand for workers or if simply clarifying rate expectations would get the job done. Unfortunately, the Fed has no idea what it’s doing (literally) at its next meeting. And those damn dockworkers on the East Coast sure aren’t helping either. Career Corner Question How do you recommend staying in contact with people who are willing to help when recruiting for full-time rolls around next year? Is wishing them a Happy July 4th a good way to maintain that connection? Answer Yeah, not bad if it's been a few months since you last touched base and you dont have any specific internship news to update them on. Head Mentor, [WSO Academy]( [Check out WSO Academy]( What's Ripe Nikola (NKLA) 19.57% - 462,890 vehicles delivered last quarter? Trash. 88 vehicles, though? Now that’s golden, at least according to Tesla and Nikola’s share prices on Wednesday. - The power of expectations is on full display. Nikola is ripping as their pathetic 88 deliveries beat analyst estimates, while Tesla’s came up (miraculously) 420 vehicles short. - The news hit Tesla especially hard as total vehicle sales in the U.S. last month were higher than expected, according to a report released yesterday. (TSLA, -3.49%). Peloton (PTON) 6.45% - I don’t know about you apes, but I prefer my stocks not to commit securities fraud. It might be a bold take, but it seems the market agrees as Peloton shares head uphill. - The company is riding the wave of a recent dismissal of a lawsuit alleging the stationary bike and treadmill maker committed securities fraud. - The plaintiffs sued on the basis of overly optimistic demand guidance in 2020 and 2021. However, a federal judge threw out the charges due to “very detailed warnings” that came with the overzealous estimates. What's Rotten Humana (HUM) 11.79% - I bet I could sooner establish peace in the Middle East than ever understand how the hell the U.S. healthcare system works. The one thing I know about it? It’s not working for Humana. - The managed care provider got some harsh news from the Center for Medicare and Medicaid Services. Humana’s largest Medicare Advantage plan just got its rating cut. - That means the healthcare giant is no longer eligible for some quality bonuses the government would pay Humana in 2026, sending investors running. Nike (NKE) 6.77% - For the first time ever, a company’s board is welcoming a CEO change from someone named Elliott. But that didn’t help shares after their latest earnings. - Nike beat earnings estimates but missed on sales. Amid the ongoing CEO change, the company withdrew FY’24 guidance and canceled next month’s Investor Day event. - New CEO Elliott Hill will take the helm on October 14th with one goal in mind: Make Nike Cool Again. Maybe they should buy some bright red hats or something. Thought Banana Home Ain’t-surance Getting the house is the easy part. Keeping the house… now that will make you want to burn that baby down just for the insurance check. I think about this multiple times per day, way more than I think about the Roman Empire. However, given that I’m a good bit west of Boston, Massachusetts, I’m not the guy to complain about home insurance rates. Other parts of the country though… What Happened? Last Thursday, Zillow [announced]( a new feature meant to help homebuyers assess the climate-related risk of homes they’re viewing. Hate to spoil the ending, but in 2024, higher climate risk now comes with massively higher insurance premiums. [Source]( For all Americans, the average home insurance premium has increased 33% since the onset of the pandemic, much faster than inflation. But, like most things in the housing market, the changes are extremely regional. According to the National Bureau of Economic Research (NBER), homes in “Risk Quintile 5,” the most exposed to climate risk, have done nearly all of the heavy lifting. [Source]( Florida, the Gulf and South East Coastlines, Tornado Alley, and wildfire territory in the North and South West make up the vast majority of homes in Risk Quintile 5. But just because your home is considered at the highest climate risk doesn’t mean your premiums are going up by the same amount… [Source]( According to the New York Times, homes in Risk Quintile 5 that are also in states where insurers face little regulation when trying to increase premiums have been hit the hardest. That makes sense intuitively, but seeing the split between southern Florida and southern California highlights the extreme difference in premiums paid by homeowners who are more exposed to anticipated changes in climate. The Takeaway? Zillow alleges that 80% of homebuyers consider climate risk when purchasing a home. Personally, you could’ve told me my house was 25ft below sea level and, as long as it wasn’t flooded when I saw it, I’d be there right now. Replacing the couch with a living room boat does kinda sound sick though… Anyway, with more and more houses falling into the ocean from the Outer Banks, NC, to the southern coasts of California, getting swept away in tornados in Oklahoma, and some even being forced to live in Portland, Oregon, it’s clear the environment is crucial for homebuyers. Personally, I’m hoping Boston goes underwater ASAP so my backyard—which currently overlooks a scenic industrial distribution facility—turns into beachfront property. I’ll even let Jayson Tatum come rent out a room. The Big Question: Do most homebuyers actually consider climate risks when buying a home? How much would this factor into your decision? What impact will this have on national migration trends? Banana Brain Teaser Previous There are 5 cars to be displayed in 5 parking spaces, with all the cars facing the same direction. Of the 5 cars, 3 are red, 1 is blue, and 1 is yellow. If the cars are identical expect for the color, how many different display arrangements of the 5 cars are possible? Answer: 20 Today On a certain transatlantic crossing, 20% of a ship’s passengers held round-trip tickets and also took their cars aboard the ship. If 60% of the passengers with round-trip tickets did not take their cars aboard the ship, what % of the ship’s passengers held round-trip tickets? Send your guesses to vyomesh@wallstreetoasis.com ❝ To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks. Ben Graham How Would You Rate Today's Peel? [All the bananas]( [Meh]( [Rotten AF]( Happy Investing, David, Vyom, Ankit & Patrick [Free Month of Access to WSO Company Database]( Share The Peel You currently have 0 referrals, only 1 away from receiving Free Month of Access to WSO Company Database. [Click to Share]( Upcoming Rewards For each referral you drive, you will unlock rewards when you hit milestones. 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