Talibs Weekly Email - Week 14
🏚️The Rental market is messed up, 🛏️Airbnb dreams are vanishing, 📲Countries are using advanced data to track & monitor COVID-19 patients.
Here’s whats in this newsletter.
Good Morning,
Hope everyone is enjoying and having a relaxing long weekend.
If you know someone who has been unemployed recently, please share this document with them. Its a document that should help one apply for EI and get through these difficult times.
Again as always - would love any feedback (positive/negative) or any articles/podcasts you found interesting to note.
Thanks for being on my accountability journey this year!
🏚️What if no one pays Rent? What actually happens.
🛏️Airbnb wants go public this year but probably the time isn’t right
📉Countries are resorting to advanced data to track COVID-19
Podcasts
💸NPR Planet Money: Episode 989: What If No One Pays Rent
TLDR: Your rental payments have a chain reaction to the other parties. You may get off the hook with not paying rent but your landlord and the mortgage company may just lose big time.
Disclaimer: This is how the United States rental market works. The Canadian market is similar but slightly different.
🏚️Who are the different parties and how are they related
👱Individual —> 🏠Landlord —> 🏦Mortgage Servicer/Bank —> 💹Mortgage Investors
There are various chains to this link and if one link breaks - the others do not get their money and potential disruption could be inevitable.
🏦Mortgage Servicer/Bank: These are either Mortgage companies or banks that essentially act as the middlemen, they take a fee and pass the mortgage to the investors. Banks such as Wells Fargo or Mortgage companies like NewLoanz or QuickLoanz.
The banks are strong in liquidity and have enough capital to pay the mortgage investors but these smaller mortgage companies have been taking a bigger share (60%) of the mortgage servicing business in the US. These non-banks have less cash on hand than banks and are not allowed to borrow from the Fed like a bank.
💹Mortgage Investors: If you have a RRSP account and you’ve invested in some mutual funds, more likely than not you’ve invested in a wide variety of mortgage backed securities. These payments are essentially guaranteed by the Government so when NewLoanz or QuickLoanz can’t pay the investors - the government will step in and make those payments. This is how you get those low % interest rates, its not really free-market economics.
🏘️Whats happening with Rent in the US? The CARES act that was passed last month ($2 trillion stimulus) mandated that if landlords tell their mortgage servicer that they’re having financial trouble - the mortgage servicer has to let the landlord stop paying their mortgage for up to 6 months and potentially another 6 months with no late fees, no foreclosures with no damage on your credit report.
⛔️That sounds good but what about after 6 or 12 months..
The law doesn’t say what happens at the end of this special period. Do people with mortgages have to pay all those missed payments right way? Do they get to extend their mortgages? No one knows and landlords are terrified of going into more debt because more likely - their renter isn’t going to tackle on the missed payments after.
Think about it - if you missed rent in April to June because you got laid off and hypothetically speaking you find a job in July - you won’t have that much cash flow to cover the missed rent.
Issue 1: Landlord doesn’t know if they’re missed payments will be due at the end of the term or they can extend their term.
🚫What about the Mortgage Servicer? Do they get a 6/12 month extension too?
NO.
This is where it gets scary and quite confusing. The law states that mortgage servicers have to continue paying the investors. This seems absurd, if the mortgage servicers aren’t getting any payment for 6 to 12 months, where would they get the money to pay the investors.
👀The banks (Mortgage Servicers) should be okay since they’ve had significant cash in their books however these smaller firms (New Loanz) which account for 60% of mortgages in the United States need a loan right now, more like billions of dollars of loans.
They need this amount to keep the economy functioning. If they go bankrupt, those mortgages are essentially guaranteed by the government - the government could end up paying significant amounts in bailouts.
Issue 2: Mortgage Servicers still have to pay the investors and may not have cash in the bank to do so. They want a loan from the government.
My Thoughts: This was a fascinating episode that looked on the chain reactions that rental payments have on the economy and the related parties. If you have money and are able to pay rent - you should pay it because your payment is dependent on the variety of other parties involved in the process. Lastly - this is also not free market economics as you dig deeper, you learn that government has their hands everywhere to make sure the economy is functioning at an acceptable rate. When a situation like this occurs, the government who have had their hands in virtually most industries now have to carefully play a game of chess to balance the economy.
Articles
🛏️WSJ: Airbnb’s Coronavirus Crisis: Burning Cash, Angry Hosts and an Uncertain Future
TLDR: Airbnb has been hit significantly with COVID-19, their entire business model has been disrupted and puts their idea of going public into the damper this year.
🏩How much are they going to lose? Airbnb is expected to lose $1 billion through the first half of the year and thus affecting their private market valuation. They have not ruled out any layoffs at the moment
When the coronavirus hit China and then Europe, Airbnb’s bookings plummeted. In Beijing, little more than 1,600 bookings were made between March 1 and March 7, down 96% from the Jan. 5 to Jan. 11 period, according to AirDNA, an analytics firm that tracks the short-term rental market
By late March, Airbnb reservations across the country dropped 80% from about 500,000 a week on March 1 to about 100,000 by the end of the month, according to AirDNA.
🤑Raising money? The company has said it was raising $1 billion from private-equity firms however this has come at a steep price at 10% interest rate. Just a comparison - Slack raised $750 million recently at a very different interest rate at 0.5%. The high interest rate just shows the lack of faith the markets have in Airbnb.
🇺🇸Host Relationships? Airbnb manages 7 million properties world wide and the confusion over cancellation policies have been quite prevalent. Airbnb recently approved a plan to refund guest stays booked through mid-may.
📈Rebound? Investors are at odds when Airbnb will be able to rebound from the coronavirus catastrophe - this will depend on how consumers feel about traveling and staying in other peoples homes once the pandemic eases. Some analysts say Airbnb might benefit if more people decides to avoid more crowded hotels - others say hotels might gain an advantage if people they are cleaner.
💸Does Airbnb have enough money to last? They have approximate $4 billion in the bank however investors are concerned on what happens if this lasts months longer.
👇Airbnb Valuation: Airbnb’s valuation, in the private secondary market for shares held by early investors, has dropped from $150 per share a few weeks ago to under $90 a share, valuing the company at less than $30 billion. When the company was considering a 2018 IPO, its bankers projected it would be profitable by now. Instead, as costs climbed, Airbnb lost $674 million last year, according to company documents.
⏬Does Airbnb anticipate any cuts? This is a tough topic to address at this point as Airbnb wants to go public and showing any cuts eliminates that “potential revenue stream” that they’d want to market. The cuts being contemplated at cutting the Airbnb Experiences, which allows guests to book outings according to people familiar with the discussions. While the unit was supposed to be profitable by 2019, it has racked up significant losses.
My Thoughts: I do think Airbnb is going to one of these companies that will come out of this with battle wounds but will thrive after. I believe that many small hotels may not survive this pandemic. They will pack up and go home.
Airbnb will fill in that gap. The end: people will still travel, maybe not this year but travel is an essential part of the global economy for business & pleasure. Airbnb just need stay afloat for another year and they have the cash to do so. They may get value if they invest in their own cleaning company and allow travellers to book accredited cleaners instead relying on the hosts. If I’m Airbnb - I’m definitely looking at partnerships with large cleaning companies in every area. Travellers will seek cleanliness and you need to give them that option.
📡The Economist: Countries are using apps and data networks to keep tabs on the pandemic
TLDR: Modern day technology and tools are effective in controlling the outbreak but at the cost of your privacy.
Hong Kong, Singapore, Taiwan, South Korea and China have all utilized varying degrees of surveillance tools to monitor and control the cases of COVID-19.
The tools in use fall into three categories.
📲1) Documentation: using technology to say where people are, where they have been or what their disease status is.
👇2) Modelling: gathering data which help explain how the disease spreads.
🔍3) Contact tracing: identifying people who have had contact with others known to be infected.
👇Documentation:
Most of the actions in documentation is in quarantine mode and making sure individuals who’ve been asked to quarantine are doing so.
🇭🇰1) Hong Kong: Hong Kong is using Whatsapp to monitor location sharing, they are asking all quarantined individuals to share their numbers and have their location sharing turned to “always on”. This lets government see where the phone is at all times.
🇰🇷2) South Korea has their own app that sounds an alarm and alerts officials if people stray. (42% of the 10,600 people under quarantine were using the app).
🇹🇼3) Taiwan: They tack quarantined people’s phones using data from cell phone towers. If it detects someone out of bonds, it texts them and alerts the authorities. If you violate this - you could incur a fine.
🇨🇳4) China: China’s health check app which is developed by provincial governments, they run through portals in payment apps such as AliPay and WeChat takes self reported data about places visit and symptoms to generate an identifying QR code that is displayed in green, orange and red which corresponds to the level of movement.
Modeling:
📱Data Data Data: There is a wealth of data related to situational awareness, phone companies know roughly where all their mobile customers are from and what their phones are using.
(This is common through the ad industry - we can tailor down to IP address at times - in fact, I I have the ability to target ads for tinder photography based on IP address. Any visitors that interacts on my website leaves a trace (IP address) You can decipher the IP address to physical location and target ads to that area to generate higher value leads - If I in the confines in my bedroom can do this without any technical experience - I’m sure a few developers can do a lot more)
Modellers can use data from both kinds of company to fine-tune predictions of the spread of disease. The problem with current models is that they assume people mix and interact in an uniform manner; that passing a friend and a stranger in the street is exactly the same sort of interaction.
🔎Contact Tracing:
👓The use of data becomes most fraught when it moves beyond modelling and informing policy to the direct tracking of individuals to see where they got the disease from. These type of contact tracing has a resemblance to modern counter terrorism tactics. The technology to track and trace already exists and is being used at governments around the world however the scalability and to what extent they are being used against COVID-19 is unknown.
👀Governments will probably not be forthcoming about the tools or powers they have mainly to keep the secrecy of the tracing to themselves. They would not want to inform enemies nor citizens concerned with civil liberties to create any issues.
South Korea: they ran digital systems to ease the load on its human contact tracers, at the beginning of the outbreak. The KCDC (Korean Centre for Disease Control) ran their requests for location histories through the police who used their channels to retrieve the info however this process took 24 hours. The KCDC has now automated the request process allowing contact tracers to pull data in automatically through a smart city dashboard, this has reduced the time from 24 hours to 10 minutes.
Canada: Currently, the government of Canada is looking for volunteers to help here.
My Thoughts: There are a wide variety of tools being used to track individuals. Only yesterday, I read that Apple and Google were working together to solve contact tracing, developments are happening at an unprecedented rate. Overall - the fact that these governments were able to use some of these tools “hackishly” was outstanding as it limits the number of outbreaks.
Would you be open to sharing your location with the government to help society?
Books
Here are my books to read/finish for the next while
Loonshots by Safia Bahchall
Completed
If you’re looking for books to get, I would suggest checking out bookdepository.com or thriftbooks.com (both are cheaper on there)