To the "value investors” reading this newsletter, we want to know — are you going to Omaha this year to attend Berkshire Hathaway’s shareholder meeting in May?

If so, fill out this quick survey. We’d love to connect with you.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

This, and more, in just 5 minutes to read.

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😅 Markets Digest Possibility Of No 2024 Rate Cuts

The unthinkable is now thinkable. That’s the prospect of no rate cuts this year. Predicting no cuts just a few months ago would’ve left you all alone on Wall Street, excluded from the cool kids’ table, which was betting on at least three rate reductions this year.

Alas, upticking inflation has thoroughly disrupted that narrative. While cuts were originally expected as soon as June, the first full rate cut now isn’t priced to happen until November, with doubts about any cuts this year becoming increasingly mainstream on Wall Street.

Across the curve: But it’s not just short-term interest rates adjusting to a hotter inflation outlook; Wednesday’s hot CPI report rippled across the yield curve.

Why it matters:

As we’ve mentioned previously, two things fundamentally underpin stock prices: corporate earnings—the driver of companies’ equity value, which is what investors pay to own—and discount rates, which represent investors’ opportunity costs and determine how much they’re willing to pay per share for a dollar of corporate earnings (aka higher or lower P/E multiples).

Discount rates are directly linked to the Fed’s policy interest rate. So, while economic resilience is good for corporate earnings (and therefore stock prices), that same economic strength can push demand out of whack with supply and stoke inflation (keeping interest rates higher—bad for stock valuations).

Opposing forces: There’s an ongoing tug-of-war in markets, with higher-for-longer interest rate expectations acting as a headwind and strong economic data acting as a tailwind.

The rubber will meet the road in the next few weeks as companies’ Q1 earnings comes in.

Read more

💊 Drug shortages hit an all-time high

🇻🇳 Vietnamese tycoon sentenced to death over $12 billion fraud

🦄 Uniswap is the latest crypto platform targeted by SEC

⛳ No inflation at the Masters: Why concession prices remain so cheap

🤑 Who pays the most and least in taxes

🗣️ China says economy ‘stable,’ rejects Fitch ratings downgrade

🏌️ Golf Is Booming. But Can the Good Times Last?

Folks, Happy Masters week.

The hottest trend in sports is pickleball, but the old-fashioned game of golf — “a good walk spoiled,” per Mark Twain — is holding its own. 

According to the National Golf Foundation, the number of rounds played in the U.S. in 2023 (531 million rounds) increased by a record 10%. This surpasses the previous high during the Tiger Woods boom years of 1999-2000, also around the peak of that stock market cycle. Stock market highs may seem like a strange connection to interest in golf, but as people “feel” wealthier, they’re more likely to indulge in expensive hobbies like golf.

Several other factors are at play:

Diverse participation: Golf is still a sport reserved mostly for white people and wealthier Americans. However, the U.S. golf population is more diverse than ever, with gains by women, people of color, and junior golfers.

Increased demand: Despite a 12% reduction in golf courses over the past 15 years, demand for tee times has surged, leading to higher green fees in some markets.

Off-course golf experiences: The popularity of off-course facilities like driving ranges, golf simulators, and entertainment-oriented venues like Topgolf has increased by 41% since 2019. Over 32 million people engaged in such activities last year. Simulators have also gained a lot of popularity. 

Pandemic boost: Golf proved to be one of the safest outdoor recreation activities during the pandemic, and new programming and value-added memberships have made clubs more welcoming.

The industry still needs to appeal to a broader, more diverse audience to sustain this growth. It’s also trying to address environmental concerns: Clubs are investing in infrastructure upgrades, efficient irrigation systems, and more sustainable practices to ensure long-term viability.

Why it matters:

Golf’s resurgence is a good example of a relatively luxury market staying relevant in an age of inflation, higher borrowing costs, higher labor costs, less labor availability, and restricted access to water, especially in the U.S. West and Southwest. There’s also the rapidly escalating cost of maintenance. 

Great game, good biz: Golf is also one of many industries (think tourism, boating, etc.) that has been increasingly impacted by changing weather patterns and climate change (heat waves, floods, hurricanes). That’s forcing course owners and executives to get more creative about memberships and tech advancements. 

Read more

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Yesterday, we asked: Do you think St. Louis, and similar midwest cities struggling with hallowed-out downtowns, can turn things around?

— People had a lot to say about this topic. Many readers believe midwest cities can turn around, but it won’t happen soon. “Poor politics leads to crime, malinvestment, and thus the death spiral. It’s very simple, people and capital will go where they are treated best.”

— Added another, “Here in Houston, a downtown turnaround began when they built and moved the soccer stadium, baseball, and basketball stadiums downtown. This, in turn, added hotels, bars, restaurants, and the ability to attract Final Fours, Super Bowls, etc.”

— Other readers pointed to the flight to the suburbs, plus the flailing city infrastructure, remote work, and the high cost of living in cities, have all contributed to midwest cities’ demise as factors that “have irrevocably undermined the allure of urban living.”

— One believer that these cities will recover said, “We know that neighborhood life cycles follow phases of growth, stability, decline, and renewal. Similar concepts can be used for commercial centers and we see this often.”

That's it for today on We Study Markets!

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