🎙️ Follow The Money

Stocks have fallen for three straight weeks, and interest rates on 10-year Treasury bonds are at their highest levels since 2007.

💭 We kicked off the week in the green, but markets face two more big tests this week:

• Nvidia, at the heart of this year’s AI-powered stock rally, will report earnings on Wednesday.

• On Friday, Fed Chairman Powell will give his annual speech at Jackson Hole, setting expectations for investors about the central bank’s ongoing battle with inflation.

— Matthew, Shawn, and Weronika

Here’s the rundown:

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

• Why New York & California each lost $1 trillion

• How the Ukraine war impacts food markets

• IKEA opens a store in downtown San Francisco

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

📉 How New York & California Each Lost $1 Trillion (Bloomberg)

We’ve seen the stories: A mass exodus from New York and California to places like Miami, Nashville, and Dallas. Now, there’s hard data to prove the extent of the moves, particularly in the finance industry.

• Over the past three years, Bloomberg calculated that New York and California lost firms that manage close to $1 trillion in assets. Translated, high-paying jobs in both states have moved elsewhere, hampering city and state finances, plus tax revenue. Commercial property markets have also lost valuable tenants.

• New York City remains the world’s leader in asset management. However, the departure is still noteworthy as Miami home prices soar, new office buildings pop up, and places like Dallas enjoy their fastest financial industry expansion since the 1980s.

Driving the moves: Lower taxes, warmer weather, and (in some cases) less expensive housing. Parts of the country whose only true financial presence was regional banks have transformed themselves into fast-growing economies.

• One researcher commented that “the Sun Belt is continuing to change — no longer just a place of traditional industries like oil and gas, no longer just focused on tourism, or just focusing on the retirement community.
  

• “These pandemic moves sort of reinforce that the major metros in these states are certainly becoming a destination for new industries.”

From the start of 2020 through March of this year, about 370 investment companies, or 2.5% of the country’s total — managing $2.7 trillion in assets — moved headquarters, often out of high-cost-of-living locales.

• For example, even Connecticut wasn’t spared. The state has long appealed to wealthy hedge fund managers who wanted to be close to New York without being in the city, yet Florida now has more assets under management than Connecticut.
  

• Florida is now home to Icahn Capital Management, Cathie Wood’s ARK Investment Management, and Ken Griffin’s Citadel.

Why it matters:

The shift is a fascinating dynamic that seemed much less likely to happen just three or four years ago.

• Other hedge fund managers told Bloomberg that warmer states away from big cities have also allowed them to enjoy hobbies like fishing while hosting bigger pool gatherings.
  

• While nice weather helps, firms leave for Florida and Texas because of lowering living costs and no state income tax. 

Follow the money: It’s also important to note that Baby Boomers, the wealthiest generation in human history, have been retiring in the South and Southwest for years, giving money managers easier access to clients.

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🌾 Ukraine War Weighs on Global Food Markets (FT)

“Our food security is our national security.” No, that quote isn’t from a farmer talking up their business. That’s from U.S. congresswoman Elissa Slotkin.

Fertilizer minerals’ critical role in our food production has been top of mind since Russia invaded Ukraine, and prices for potash and phosphate rock first surged.

• Both are vital crop nutrients supporting crops like corn and soybeans. These compounds, including Nitrogen, form the basis of modern fertilizers.
  

• But Russia and its ally, Belarus, account for around 40% of global potash production, prompting governments globally to push for a more diverse fertilizer supply chain.

Mining companies are stepping up: BHP, the world’s largest mining company, is beginning construction on a $5.7 billion potash mine in Canada — its biggest new project in a decade.

• And the mining company Anglo American is working on a $6.1 billion mine in northern England to produce a new type of fertilizer by 2027: Polyhalite.
  

• One industry analyst suggested, “There’s really good logic to mining companies getting into fertilizer. It’s an industry that’s going to be around forever…That gives some diversification value.”

Diversification: Fertilizers have historically had little price correlation with other mined commodities like iron ore or copper, hence their diversification appeal for mining companies.

• Projections for some 10 billion people on Earth by 2050 (2 billion more than at present) also make a strong case for continued fertilizer demand.

Why it matters:

Just a few companies produce about half of the world’s potash supply, namely Canada’s Nutrien, Mosaic from the U.S., Belaruskali of Belarus, and Russia’s Uralkali.

Nutrien’s president of potash production explained that after relations between Russia and the West split following its invasion, which pushed potash prices to a decade-high, “we were receiving calls from around the world, not just customers, but also governments concerned about stable potash supply…They were really pleading with (North American) producers of potash to increase the supply.”

Elsewhere: For other mined fertilizers like phosphate rock, new sources of demand are consuming its supplies — the rock is a key input in certain electric vehicle batteries.

• And Polyhalite is “the first new (fertilizer) product at scale in somewhere between 50 and 75 years,” according to one industry leader, but for now, it’s more of a niche product.

The big picture: Russia’s invasion of Ukraine put global food markets, specifically for commercial agriculture fertilizers, in flux. More than a year out, the industry is responding with more production outside Russia and Belarus, and new products like polyhalite.

• Still, some argue that new government policies are needed to classify fertilizer minerals as critical minerals, enabling tax breaks and subsidies to help the industry develop and ensure food security as a matter of national security.

MORE HEADLINES

🇸🇬 Singapore workers are the world’s fastest in adopting AI skills, LinkedIn report says

💼 American workers demand nearly $80,000 a year to take a new job

😬 WeWork announces 1-to-40 reverse stock split to maintain NYSE listing

🚀 Pentagon’s space division awards $1.5 billion Lockheed Martin and Northrop Grumman for satellites

🏪 Are shopping malls adapting, not dying?

🛋️ IKEA Is Moving To Downtown San Francisco While Retailers Flee (WSJ)

Talk about being contrarian: IKEA hopes to succeed in an area where several retailers, including Whole Foods, Old Navy, and Nordstrom, have ditched their efforts: San Francisco's struggling downtown district.

After purchasing an abandoned mall in the Mid-Market corridor three years ago, IKEA is preparing to launch on Wednesday in an area severely affected by a departure of workers. It’s faced rising crime and homelessness, driving companies away.

New Business Model: The upcoming launch will serve as a trial for a new global concept from the Swedish furniture giant – an urban store.

The company already runs three urban stores in the U.S., two in Los Angeles and one in Arlington, Va, hoping the situation will change in favor of the retail giant after years of falling profits.

• This stripped-down store is designed for casual shoppers and office workers, much smaller than the sprawling out-of-town locations that IKEA is known for.
  

• IKEA's urban stores offer a narrower product range representing 25% to 50% of the company's 11,000 products. It covers 52,000 square feet, with 27 furnished room displays.

Targeting new customers: San Francisco's store emphasizes "small-space living," prioritizing small household essentials, including lighting, kitchenware, and storage, aiming to draw the attention of urban residents living in smaller dwellings.

Why it matters:

The pandemic has reshaped our lives, making staying at home and remote work the new normal.

Working from home: After the pandemic, increased spending on home renovations has driven IKEA's expansion momentum while the company remains committed to its hallmark affordable prices.

• With 54 U.S. stores already, including the upcoming San Francisco location, IKEA announced in April its plan to add 17 more by 2026 as part of a $2.2 billion initiative.

Will IKEA’s presence inspire other businesses to invest in San Francisco? It remains to be seen, but IKEA is putting its urban-growth strategy into effect in a city other big businesses are fleeing. It’s a risky bet, but maybe zigging when others zag will pay off.

See you next time!

That's it for today on We Study Markets!

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