🎙️ The Apple Car Is Dead

Sometimes, the good old-fashioned 401(k) saves the day. As any 401(k) millionaire will tell you, contributing just a fraction of each paycheck can work wonders over time.

💰 And there are a lot of 401(k) millionaires out there. The number of seven-figure 401(k) accounts at Fidelity jumped 20% last quarter to 422,000, near an all-time high. The average age of a 401(k) millionaire? 59 years old.

Rest assured if you’re not a 401(k) millionaire, though: Fidelity’s average retirement balance among all investors is $118,600.

— Matthew & Shawn

Here’s today’s rundown:

 💭 Bitcoin’s price was all over the place today, surging to nearly $64k before losing $100 billion of market value in fifteen minutes following a Coinbase outage.

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

• Private credit’s takeover of Wall Street

• Apple ends EV quest, focuses on AI and headset bets

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

Chart of the Day

In The News

😅 Private Credit Takes Over Wall Street

While the Magnificent 7, the Fed, and AI have dominated probably 90% of financial market news over the past two years, another major force in financial markets is easily overlooked: private credit.

For the uninitiated, private credit is similar to private equity but for debt investors. Unlike buying bonds issued in the “public markets,” private credit firms lend directly to companies, cutting out investment banks (who facilitate bond sales.)

• It’s similar to how private equity firms look for investment opportunities in companies not traded publicly on stock exchanges.
  

• Private credit and private equity are actually even more closely tied, though — private credit funds often lend money to private equity firms to fund their buyouts of small and medium companies.

Bubble? Formerly a quiet, niche area of finance, private credit has boomed, becoming the “hot new thing” on Wall Street and taking business from banks who used to primarily make such loans.

• As with any boom, fears of a bust are mounting. In fact, a UBS chairman warned last year of a private credit “asset bubble,” with the market tripling since 2015.
  

• According to Preqin, private credit funds raised over $123 billion last year.

Private appeal: Pension funds and other big institutional investors love private credit funds, where they’re shielded from the price gyrations of more public investments. While a corporate bond from Apple may get traded frequently, with its price going up and down daily, private credit loans don’t endure that volatility.

• Private market investments allow money managers to ignore the short-term volatility of traditional stocks and bonds.
  

• As Bloomberg puts it, “The loans will trade so rarely — in many cases, never — that their value will stay steady, letting backers enjoy bountiful and stress-free returns.”
  

• This “irresistible proposal has transformed a Wall Street backwater into a $1.7 trillion market.”

Why it matters:

Private credit loans are also usually made with variable interest rates, helping pension funds hedge interest rate risks and inflation. Thus, variable rates have shielded these investors as rates have risen but added to the financial burdens for borrowers.

Brewing trouble: Consequently, private credit’s appeal may be causing problems beneath the surface. For example, just because you don’t see your home’s price flashing on a screen daily doesn’t mean its value isn’t fluctuating.

It’s the same with private credit loans. As interest rates have increased over the last two years, the value of many private credit loans has certainly fallen, yet it isn’t reflected on investors’ balance sheets, who have some discretion over how they “mark” the value of these illiquid assets.

• Bloomberg reports that many private credit fund managers haven’t adjusted estimates for their portfolio values at all, with huge discrepancies in the value investors place on the same private loans.

Regulators initially welcomed private credit’s expansion as it took risky loans off major banks’ balance sheets, but now they worry this is concealing investors’ losses and troubled loans.

• When loans finally come due, though, losses can’t be further delayed.

Read more

Together With Simon & Schuster

The Holy Grail of Investing

Tony Robbins returns with the final book in his financial freedom trilogy by unveiling the power of alternative investments.

Robbins, and renowned investor Christopher Zook, take you on a journey to interview a dozen of the world’s most successful investors in private equity, private credit, private real estate, and venture capital.

They share their favorite strategies and insights in this practical guidebook. 

💭 The Holy Grail of Investing is available wherever books are sold.

🚗 Apple Cancels Car Project, Focuses on AI and Headset

One of Steve Jobs’ most famous business strategies: focus. It meant “saying no to hundreds of good ideas.” In this case for Apple, that means the electric car, which it once believed would drive billions in revenue and become the “ultimate mobile device.”

Instead, Apple is sticking to its iPhone and two big bets: generative AI and mix-reality headsets. 

On Tuesday, Apple told employees it was winding down the car project and resigning staff to AI efforts. As it goes, Apple’s future won’t depend on selling $100,000 cars with self-driving capabilities. Now, Apple will try to maintain its dominant smartphone market share and turn the Vision Pro headset into a big money maker. 

Long-term profitability: The move lets Apple avoid the EV market, hampered by slower-than-expected demand and relatively low margins. 

• Going “all-in” on the iPhone and AI is a positive for the company “given the long-term profitability potential of AI revenue streams versus cars,” Bloomberg Intelligence analysts noted.
  

• Apple can now concentrate on applying AI to the iPhone, iPad, and Mac, its breadwinners that have helped the stock soar 317% over the past five years. 

Why it matters:

Apple is a $2.8 trillion company, second only to Microsoft, and one of the most important companies in the S&P 500. 

• But Apple’s growth has slowed in recent years after a pandemic run, and while it finally squeaked out of a lengthy sales slump last quarter, it warned of another sluggish period ahead.
  

• The Vision Pro launched this month, but it’s not expected to be a major revenue driver for several years — if ever. 

Big things: The Apple car would have had slim profit margins but enormous nominal profit potential — Tesla, for instance, led the EV revolution and generated nearly $100 billion in revenue last year. 

• Thus, Apple’s car was long touted as one of Apple’s “next big things” and further locked consumers into its ecosystem that spans phones, computers, watches, headphones, and other devices, plus fitness, gaming, and healthcare.
  

• Apple tried to build a car so advanced that it would be fully autonomous. But its failed attempt illustrates how challenging hardware can be — even if you’re Apple. 

Read more

More Headlines

💬 Bond traders no longer expect the Fed to cut rates by 75 basis points or more this year

🤬 Google’s CEO tells employees that Gemini AI blunder is unacceptable

📉 Bumbles lays off 37% of its workforce, Expedia trims 9% 

💰 MicroStrategy shares keep soaring as bitcoin stake hits $11 billion

✌️ Warner Bros. walks away from merger talks with Paramount 

💊 Goldman: Weight-loss drugs could boost U.S. economy by $1 trillion

🥗 Cava stock pops after revenue soars 36% to $177.1 million

Quick Poll

Yesterday, we asked: What is your preferred hotel option?

— A reader for team Hilton said, “Specifically enjoy Hampton by Hilton.” For team Marriott? “It’s the brand!!”

— Another reader said they opt for the most inexpensive option: hostels. “I just pay for a small bed and a shared bathroom.”

See you next time!

That's it for today on We Study Markets!

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