Business

Hedge funds are betting against disasters

Hedge funds made record gains by betting against disasters. An unprecedented $16.4 billion of catastrophe bonds were issued in 2023, which helped top hedge funds reach historic profits, per Bloomberg.

What are catastrophe bonds?

Catastrophe bonds (commonly known as cat bonds) are securities affiliated with insurance that pay big returns if a natural disaster doesn’t take place. The investor puts up collateral to be used if the disaster occurs, but gets it back if it doesn’t, plus, they earn interest while it sits there.

The bonds contain meticulous, predefined terms of what qualifies as a catastrophe (how high the water gets in a flood, for example), and if the disaster doesn’t meet those terms, the bondholder doesn’t have to pay the investor.

They don’t just benefit the investors…

Cat bonds also benefit insurers. This is because they balance the burden of paying out to hedge funds and other buyers.

• FEMA issued $275 million in cat bonds earlier this year to bolster the National Flood Insurance Program.

• The World Bank issued $350 million in cat bonds last year to help insure Chile against earthquake and tsunami damage.

Cat bonds are only getting more popular. Experts predict the market will expand with more cat bonds covering wildfires and cyberattacks, which first came on the market last year.

Hedge funds are doing well in general

In 2023, to say hedge funds did well for themselves would be an understatement:

• The top 20 firms made a record $67 billion in profits.

• Citadel came out on top, making $16 billion, which was the largest annual gain in history by a hedge fund, according to LCH Investments.

How did Citadel make history? Well, taking big risks can result in big gains. LCH said Citadel’s performed so well because of its aggressive bets in the stock market that paid off when share prices skyrocketed.

AI probably won’t take your job anytime soon

With all the AI hubbub as of late, many think the increase in automation correlates with their jobs being in turmoil, but that may not be the case. While many jobs could theoretically be done by AI, replacing human workers often doesn’t make economic sense, according to research published last week by MIT.

Why shouldn’t we worry?

The findings suggest that AI integration and application will likely take longer than many AI optimists believe.

The research focused on jobs involving tasks that can be handled by a visual recognition AI system (like an assembly line quality control check). Implementing these AI systems would be impractical for businesses because it’s simply just too expensive. The research shows:

• Due to the technologies high upfront costs, using AI is much more expensive than paying a human to do the work (in most cases).

• Of all the wages that workers receive in vision-focused jobs, only 23% are for tasks that can be automated (with AI) in a monetarily justifiable way.

While it might not necessarily apply to chatbots like ChatGPT, the analysis should bring reassurance to workers who see how much of the job market is (supposedly) susceptible to automation.

But… The International Monetary Fund recently estimated that almost 40% of jobs worldwide have the potential to be at least partially automated.

United has had enough with Boeing

The airline is at its breaking point after Boeing has consistently lowered expectations. United will no longer count on Boeing delivering the delayed Max 10 next-gen planes it ordered, said CEO Scott Kirby on CNBC.

The statement from the airline comes after the harrowing safety incident on an Alaska Airlines flight this month that led to the indefinite grounding of all 737 Max 9 jets.

United is no small customer

United has more Max 9s than any other airline, and having to send all 79 of them to the hangar has led the company to “at least build a plan” for its fleet without the Max 10.

• Kirby said the Max 9 grounding became “the straw that broke the camel’s back for us” and that he wants Boeing to deal with its manufacturing complications faster.

• United projects a bigger loss than expected in the first quarter of 2024 and higher costs due to the plane issues.

Boeing’s latest problems follow years of quality issues and production delays, while its overseas rival Airbus is prospering. The European airline surpassed Boeing as the biggest planemaker in the world in 2019, and fulfilled 2,100 net orders last year, compared to Boeing’s 1,300.

Miscellaneous

Biden is halting exports on natural gas deposits

The US will press pause on exporting natural gas abroad. The Biden Administration announced its plans to stop exporting new liquified natural gas (LNG) temporarily, heeding environmentalists’ concerns.

The pause will not affect existing exports or already approved projects, but it’ll give the Energy Department time to look into how LNG exports affect national security, the environment, and energy prices before taking further steps.

Gas has been busy the past year

The US didn’t export LNG until 2016, but the expansion of fracking and the massive increase in exports during 2023 made the US the world’s top exporter in a hurry:

• Export capacity has tripled since 2018, per the US Energy Information Administration, and it’s projected to almost double again by 2030.

• European countries have used American LNG as a alternative to Russian imports amid the war in Ukraine, while some Asian nations use it as a cleaner alternative to coal.

The gas and oil industry were predictably angry at the decision to pause approvals, as multiple projects that aren’t yet approved along the Gulf Coast are now facing termination.

While this may be a step forward… with election season rearing its head, the Biden Administration is eager to get its voters back in the booth by pushing the climate policies Biden promised he would enact before his presidency. However, the administration hasn’t been too popular with climate activists as of late:

• Many activists were unhappy over the Biden Administration’s approval of the massive Willow oil drilling project in Alaska, drawing criticism of his pledge to combat climate change.

• The President also exported more natural gas in 2023 than any other year in history, making the US the biggest exporter of LNG in the world, according to the US Energy Information Administration.

  • While the exports that were meant to boost the economy are now halted, environmental experts say pausing the “climate bombs” might not be enough to reverse the damage that was done by the record exports.

Although, despite the pause, there shouldn’t be any gas shortages. Analysts predict ongoing projects are enough to satisfy demand. Plus, officials say they can lift it if needed on national security grounds.

Tinder sent out a warning to its users in Colombia

Colombia has seen a string of attacks related to Tinder, the company warned. Following several assaults on people who used dating apps in some of Colombia’s largest cities, Tinder warned singles in the South American country this week to be wary of whom they swipe right on.

At least eight US citizens in Medellín, Colombia, died in the past two months either from suspected involuntary overdoses or homicides, often after meeting up with local women from dating apps, according to the US Embassy.

• Dozens of other male tourists met up with Tinder or Hinge matches and reportedly woke up hours later to find that their bank accounts had been cleared out.

• There were also reports of assaults and missing phones.

Afterwords, Tinder shared this warning with users:

What’s going on?

Authorities have seen a surge in crime regarding dating apps, specifically relating to foreigners. Colombian catfishers and thieves are secretly feeding Americans and other visitors a sedative known as “devil’s breath.”

• The drug is virtually undetectable and makes people extremely suggestible; enough to surrender personal belongings, passwords, and other sensitive info before they pass out.

Drawn in by the enticing nightlife and a digital nomad visa program, remote workers and tourists have flooded Medellín (the country’s second largest city) and local officials say thieves consider robbing them as some sort of “local tax”. Thefts against foreigners in the city have tripled in just over a year, so think twice before booking your next trip.

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Grab Bag

The tallest building in the US is set to be in… Oklahoma?

Why? I don't know. But it’s still pretty cool, I guess. Oklahoma City is starting a project that might make you actually want to visit… maybe. Plans are underway for OKC to become the home of the country’s tallest skyscraper and the fifth-tallest building in the world.

Real estate developer Matteson Capital initially proposed a 1,750-foot tower, but building the second-tallest building in the US behind New York’s Freedom Tower wasn’t enough, apparently. New plans released last week call for the building to stand at 1,907 feet (a nod to the year Oklahoma was admitted to the Union).

A tall order

Here are some of the characteristics of the property:

• There will be 1,776 residential units along with two Hyatt hotels.

• The proposal includes 110,000 square feet of commercial and community-use space.

• The top floors will have a restaurant and bar.

• The building will also include an observation deck, providing the city’s residents with a great view of… whatever is in OKC.

But don’t get too excited just yet: To build a structure this big in OKC (where the current tallest building is 844 feet tall) is no small feat, and Matteson will still need to get city approval.

Since Oklahoma city wants to increase the height of the building, developers must get the city to completely rezone the site, not just approval, according to the Oklahoma City Free Press.

Read this if you have an extra $2 billion to throw around

Looking to become a supervillain? Look no further than this massive submersible super yacht. Austrian company Migaloo is developing the Migaloo M5, the newest oceanic vehicle for bond villains (unofficially).

The Migaloo M5 is a nearly 550 foot submersible that can hold 20 passengers and 40 crew members, dive to a depth of 820 feet, and stay underwater for a whole month, per Air Mail.

The superyacht, which would cost around $2 billion to build, comes with quite a few amenities for whoever dares to purchase it, including (but not limited to):

• Two six-person mini-submarines, a helipad, and a room for jet skis.

• A 36-seat dining room with glass walls for ocean viewing.

• Optional additions like a swimming pool, wine cellar, or cinema.

Who would even buy this?

And Migaloo has created some even crazier products, like its Kokomo Ailand: a floating habitat with palm trees, waterfalls, beach clubs, and a shark feeding station (WTF?).

This thing won’t be easy to sell…

The market isn’t exactly primed for Migaloo’s submersibles:

• The percentage of yacht owners peaked in 2014 at 3.6% and has steadily declined since, reaching 2% in 2021 (despite the growing number of people who can afford them).

• Legal restrictions could prevent large submarines from traveling through waters in certain countries and potentially disrupt the environment.

• And there are, of course, safety concerns, especially after the Titan sub’s implosion last year.

However, if you’re one of the very few with $2 billion to spend on a submarine superyacht, would you really care?

Fast Facts

Flatulent Flight: An American Airlines flight had to turn around because a passenger was farting too much.

Scrumptious Subscription: Applebee’s $200 subscription pass for a weekly date night sold out in minutes. Its applicable for one year or up to 52 visits, and you can spend up to $30 each time. In theory, you could spend $1,560. Not a bad deal.

Wrestling Resignation: Vince McMahon resigned as chair of TKO and left its board after a former employee accused the WWE founder of sex trafficking in a lawsuit filed this week.

Worst Lawn: An Australian woman’s yard won the first-ever title of World’s Ugliest Lawn. Weird flex but you do you.

Rhino Resurgence: Scientists have achieved the first rhino IVF pregnancy, which could help save the species from dying out.

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