Stock Market Could Crash Another 20% If U.S. Plunges Into Recession

As a growing number of investment banks and company chiefs warn that the likelihood of a recession is increasing, analysts at Morgan Stanley are telling clients that the stock market—despite reeling from a steep selloff in recent weeks—has plenty of room to fall before hitting levels consistent with recession-era lows, which would be especially bad for cyclical industries like travel and hospitality.

Despite major stock indexes plunging more than 20% below recent highs, markets are still only down by about 60% of the average drawdown compared with previous recessions (which denote two consecutive quarters of negative GDP growth), Morgan Stanley analysts told clients in a Tuesday note.

As the Federal Reserve works to combat decades-high inflation with interest rate hikes that will likely stunt economic growth, a recession “is no longer just a tail risk,” analysts led by Michael Wilson wrote, putting the odds of one over the next year at 35%, up from 20% in March.

They estimate the S&P 500 could plunge as much as 20% to 3,000 points, from current levels of 3,770, if the U.S. falls into recession, citing earnings that tend to fall an average of 14% during recessions—a marked turnaround from record profits and 25% growth last year.

“The bear market will not be over until recession arrives—or the risk of one is extinguished,” the analysts said, adding that market weakness will likely continue over the next three to six months in the face of “very stubborn” inflation readings.

With high prices deterring some consumer spending, Morgan Stanley says stocks tied to discretionary spending, like those in retail, hotels, restaurants and clothing, are at higher risk of a downturn, while those tied to the internet, payments and durable household goods (like appliances and computers) are less at risk.

The note comes the same day Tesla CEO Elon Musk said the U.S. economy will “more likely than not” face a recession in the near term, echoing concerns raised by several other top business leaders and financial institutions following last week’s steeper-than-expected hike in key interest rates, which tend to deter spending by making borrowing more expensive.

Morgan Stanley’s not alone in raising recession odds this week. In a note to clients Monday, Goldman Sachs’ chief economist, Jan Hatzius, said the firm now sees “recession risk as higher and more front-loaded,” given the Fed’s more aggressive rate hike, putting the odds of a recession over the next two years at 48%, up from 35% previously. The investment bank estimates tighter financial conditions could drag down GDP as much as 2 percentage points over the next year.

Restaurants are most at risk of a pullback in spending, according to a Morgan Stanley survey of some 2,000 consumers. Roughly 75% of respondents said they’ll cut back on dining out over the next six months, while 60% said they’d do so on deliveries and takeout from restaurants. Though driving much of the inflationary gains, essential items like gas and groceries should see more resilient spending, with roughly 40% of consumers saying they’d cut back on either.

Major stock indexes plunged into bear market territory last week ahead of the Fed’s largest interest rate hike in 28 years, and the gloomy sentiment has ushered in waves of layoffs among recently booming technology and real estate companies. “We don’t believe the Fed can stop the issues that are causing inflation on the supply side without absolutely wrecking the economy, but at this point, it looks like they are resigned to the fact that it must be done,” says Brett Ewing, chief market strategist of First Franklin Financial Services. Goldman Sachs has warned clients it expects another 75-basis-point hike in July.

I’m a senior reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill

Source: Stock Market Could Crash Another 20% If U.S. Plunges Into Recession—These Industries Are Most At Risk

The best hope for stocks right now is a recession that crushes inflation and allows the Fed to slow, stop or even reverse rate hikes.

Why it matters: Down 20.5% so far in 2022, it’s the ugliest year for the S&P since 1962. The drop vaporized $9 trillion in paper wealth, delivering a psychological shock to millions whose retirement is mostly in stocks.

Driving the news: Facing persistent inflation, the Fed delivered its largest rate hike since 1994 on Wednesday.

  • The increase is the monetary-policy equivalent of stomping on the country’s economic brakes — sharply increasing the risk that growth contracts.
  • Despite the recent beating shares have taken, the Fed’s announcement was greeted with open arms by investors. The S&P 500 rose 1.5%. The Nasdaq rose 2.5%. Interestingly, the Russell 2000 — which is more closely tied to short-term ups and downs of the economy — rose less, at just 1.4%.

The big picture: A huge rate hike that raises the risk of recession may sound like a bad thing for stocks — but with inflation still rising, it isn’t.

  • Essentially, investors are saying they prefer a big, sharp Fed-induced economic shock now if it quickly gets inflation under control. In theory, that could allow lower rates to return after inflation is vanquished.
  • Low interest rates have been crucial to the performance of stocks over the last decade.

Context: While Americans have a habit of looking at the stock market as an economic indicator, the linkage between economic growth and stock market performance is surprisingly weak, and, some academics say, nonexistent. The most extreme example of this reality arose during the bleakest moments of the COVID-related recession.

  • In April 2020, the U.S. economy was essentially on life support. Unemployment that month was 14.7%. There were, quite literally, bread lines miles long.
  • That month the S&P 500 posted its best month in 33 years, rising nearly 13%.

What gives? Well, in late March 2020, the Federal Reserve had to cut interest rates to zero and restart money-printing programs do deal with the COVID crisis. (The Federal government also began dumping what would ultimately be trillions of dollars into the economy to keep people afloat.)

The intrigue: But don’t recessions hurt corporate earnings? Wouldn’t that make stocks fall?

  • Earnings are one ingredient in stock prices, and they can definitely fall during recessions. But recently, interest rates — essentially the yield on the 10-year Treasury note — have played a more important role in establishing stock prices than earnings.
  • That’s because those interest rates largely determine the valuation multiple — otherwise known as a price-to-earnings ratio — investors use to determine the price they’re willing to pay for those future earnings (effectively, the price of a stock).
  • TL;DR: Higher rates = lower valuations, and vice versa.
  • So, even if earnings are expected to fall, stock prices can still rise, if valuations rise enough. Those valuations are largely determined by interest rates — and those rates are largely determined by Fed decisions.

The Federal Reserve made an aggressive new move in its campaign to bring down inflation Wednesday, raising its target interest rate by three-quarters of a percentage point, the steepest rate hike since 1994 — and indicated another similar move could be coming next month.

Driving the news: In addition to increasing their target for short-term interest rates to a range of between 1.5% and 1.75% Fed officials projected that their target rate will reach 3.4% late this year, far higher than the 1.9% they envisioned in March. Mortgages, car loans and credit card debt are all about to get more expensive.

Yields on U.S. government bonds — known as Treasuries — rocketed in recent days, as Friday’s inflation report convinced many that a combination of persistently high inflation and aggressive Federal Reserve interest hikes, is on the way. The yield on the 10-year Treasury note surged to nearly 3.50% in recent days, a level not seen since 2011……

  Matt Phillips

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Celtic provide stock exchange update with revenue ‘significantly higher than market Glasgow Live

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How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes

While it can seem easy to get into real estate investing with single-family homes, many investors choose to skip the single-family route altogether for an investment in syndication. Multifamily syndications pool funds from passive investors to purchase large apartment complexes while providing greater asset protection than single-family homes.

Apartment Buildings Offer Safer Debt Than Single-Family Rentals

Most single-family real estate “gurus” preach that it’s fine to personally guarantee mortgages in your own name to qualify for lower interest rates and down payments. However, there is a downside to securing a mortgage in your own name.

If the investment fails or there’s a market downturn and the lender forecloses, you are personally on the hook for that debt. Often, lenders come after your other assets to make up for their losses. Even if you are successful in negotiating debt forgiveness with your lender, the IRS considers the forgiven debt taxable income, which you will end up paying taxes on. For some, this leaves bankruptcy as the only way out.

This type of cross-collateralization is the reason many real estate empires, mom and pop landlords, as well as young investors like myself lost it all in the 2008 housing bust.

While many single-family landlords still turn a blind eye to these risks, it is not a worry for investors in apartment syndications. Since occupied apartments are income-producing businesses, lenders provide loans without a personal guarantee, collateralizing the debt with the asset itself. Furthermore, the loans are only signed by the fund managers, reducing investors‘ risk to the amount they have invested only.

Syndications Protect You From Your Investment

Imagine that you own a single-family rental. Your tenant’s guest gets drunk, falls off the deck, and dies. The family of the deceased wants to sue you personally. If the property is owned in your own name instead of an LLC, then the rental is cross-collateralized with your other personal assets. The family’s attorney can quickly do a search of the public county tax records, identify you and any properties in your name, add up your estimated net worth, and gladly come after everything you own.

There are two ways single-family investors try to protect themselves from this liability, but in my opinion, neither are good options.

1. The first is to transfer ownership of the property to an LLC, which would limit the lawsuit to equity in that one rental. However, if your lender finds out about the transfer, they can exercise a “due on sale” clause and immediately call the balance of the loan due. This can leave you scrambling to refinance the property and, if you can’t secure a new loan in time, perhaps because it happened during a market downturn, the bank can take the property through foreclosure.

2. The second option is to carry a $1 million liability insurance policy. While they believe insurance will protect them from lawsuits, some attorneys see these as big paydays. In the case of litigation, the landlord will find themselves paying out of pocket for a long and expensive lawsuit in hopes of a settlement, all the while crossing their fingers in hopes their insurance will pony up for the settlement without a fight.

Syndications offer a couple of layers of protection against this. With multifamily syndications, each investment is purchased in dedicated LLCs. Furthermore, investors are limited partners in a securities offering, protected with liability limited to their investment.

Syndications Protect Your Investments From Each Other

Once single-family investors build a large portfolio of rentals, they can package them into one LLC and get a portfolio loan that doesn’t require a personal guarantee. While this protects them personally from lawsuits, it exposes the equity in all the properties within the LLC to each other. If one of the rentals is sued or fails to perform, it can’t be foreclosed on individually, which drains the cash flow and equity of the entire portfolio.

Syndications are all held in their own LLCs without the requirement of a personal guarantee. If one undergoes a lawsuit, underperforms or forecloses, there is no personal effect on the investor, their credit or their other properties.

Syndications Protect Your Investments From You

Many investors buy real estate to build an inheritance for their children and grandchildren. It’s a sad day when a legal judgment removes wealth from generations of a family. When held in the right type of entity, multifamily syndications can help protect the inheritance you’re building from personal judgments against you.

Imagine that you caused a fatal car wreck, are sued and lose. If you are unable to pay the resulting judgment, the court may require you to list all your assets and exercise charging orders in which it can force the sale of your investments. To protect against this, investors choose to form holding companies in states that do not enforce charging orders, such as an LLC headquartered in Wyoming, making them far less attractive for lawsuits.

Both single-family homes and multifamily syndication investments can also be placed into trusts, which can help your heirs avoid probate court, minimize estate taxes and help keep your financial affairs private.

Syndications Are Not Right For Everyone

Though multifamily syndications offer a number of asset protection advantages, they are not right for everyone. For example, if you want the freedom to liquidate your investments as needed, syndication is not right for you. Investments in syndication are held until the sponsor sells or refinances the investment, which you, as an investor, have no control over. For greater liquidity, you may want to consider other income-producing real estate investments such as REITs. Talk to your CPA to see which investments work best with your goals.

Invest With Peace Of Mind

Planning for your financial future in a shaky economy can be stressful. When you choose investments with asset protection built-in, you are making a step toward a more secure future.

Patrick Grimes is the founder of Invest on Main Street, a private equity firm managing passive multifamily investments in emerging markets. Read

Source: How Multifamily Syndications Can Protect Your Assets Better Than Single-Family Homes

Critics by HighPicksCapital

There are two types of syndication investors, accredited and non-accredited (sophisticated). Many current property syndications allow both types of investors to participate as limited partners in multifamily investing deals. In most instances, there are no requirements for previous experience as a property syndication investor.

In addition, there is often no limit to the number of participating investors in a multifamily syndication. This is actually an ideal type of property deal for an inexperienced property investor. It is true that the larger the number of investors funding a property investment, the smaller the amount of financial return will be for each investor. Yet the larger the number of participating investors in an investment project, the lower the risk factor will be for each investor.

If a multifamily syndication has the status of 506(C), investing will only be open to accredited property investors. The requirements for becoming an accredited investor are set by the SEC. Accredited investors are required to have a specific net worth or annual income, either as an individual or jointly with a spouse.

The current SEC requirements for qualifying as an accredited investor for syndication property deals are as follows:

  • For the past two years, your income as an individual was more than $200,000 (or you and your spouse had a combined income of $300,000). You are also required to have the reasonable assurance of having the same amount of income or more during the current year.
  • You as an individual or jointly with your spouse have a net worth of more than one million dollars. The one million dollar amount does not include the market value of your primary residence.

Multifamily syndications with 506(B) status are open to both accredited and sophisticated investors. Although sophisticated investors do not have the high net worth that is required to qualify as accredited investors, those who are suitable for these types of investments have significant investing experience and a preexisting good relationship with the general partner (sponsor).

Some syndication investment deals may place limits on the number of participating limited partners who are sophisticated (unaccredited) investors. Often in large property investments like multifamily complexes, major syndicators will not offer as many investing opportunities to sophisticated investors as the number that are open to accredited investors. These property syndicators tend to place more value on the accredited investors due to their qualifications.

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JP Morgan Warns of An Economic ‘Hurricane’ Coming: ‘Brace yourself’

JPMorgan Chase CEO Jamie Dimon warned of a looming economic “hurricane” caused by an increasingly hawkish Federal Reserve, rising inflationary pressures and the Russian invasion of Ukraine. Dimon – who said at the beginning of May there were storm clouds forming on the economic horizon – ratcheted up his warning on Wednesday, citing fresh challenges facing the Fed as it seeks to tame the hottest inflation in a generation.

“I said there were storm clouds. But I’m going to change it. It’s a hurricane,” he said during a conference hosted by AllianceBernstein Holdings. “Right now it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle it. That hurricane is right out there down the road coming our way. We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”

There are two main issues that Dimon said are worrying him: The Federal Reserve moving to unwind its $8.9 trillion balance sheet, deploying a less-known tool known as quantitative tightening that will further tighten credit for U.S. households as officials try to tame red-hot inflation.

The rundown of the Fed’s portfolio is poised to begin on Wednesday at an initial combined monthly pace of $47.5 billion. The Fed will increase the runoff rate to $95 billion by September, putting the central bank on track to reduce its balance sheet by about $3 trillion over the next three years. We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years,” Dimon said.

The second matter weighing on Dimon is the Russian-Ukraine war and its effect on the price of commodities like food and oil. The bank CEO said that oil could hit $150 or $175 a barrel as a result of the conflict, which began in late February. Brent crude, the benchmark, is currently selling for $116 a barrel. “Wars go bad. They go south. They have unintended consequences,” he said.

Dimon’s comment comes amid growing fears on Wall Street that the Fed may drag the economy into a recession as it seeks to tame inflation, which climbed by 8.3% in April, near a 40-year high. Bank of America, as well as Fannie Mae and Deutsche Bank, are among the Wall Street firms forecasting a downturn in the next two years, along with former Fed Chairman Ben Bernanke.

Policymakers raised the benchmark interest rate by 50 basis points earlier this month for the first time in two decades and have signaled that more, similarly sized rate hikes are on the table at coming meetings as they rush to catch up with inflation.  Fed Chairman Jerome Powell has acknowledged there could be some “pain associated” with reducing inflation and curbing demand but pushed back against the notion of an impending recession, identifying the labor market and strong consumer spending as bright spots in the economy. Still, he has warned that a soft landing is not assured.

Source: Jamie Dimon warns of an economic ‘hurricane’ coming: ‘Brace yourself’ | Fox Business

Critics by : J.P. Morgan

October data showed that consumer prices in the United States rose at a 6.2% pace relative to last year, the fastest pace in 30 years. Food prices are 5% higher than they were last year. Used car prices are up 26%. Energy prices are up 30%. Shelter, one of the most critical sub-categories, has rapidly recovered to its pre-COVID 3.5% pace. The gains are broad based, and seem to be accelerating. Compared to last month, the median component is up almost 60 basis points, the highest reading back to 1983.

Rising prices pressure all spenders, especially those with low disposable incomes. However, only focusing on rising prices ignores important context. Over the last year, the economy has added almost 5.5 million private sector jobs. Aggregate earnings are up 4% annualized over the last two years versus prices up 3.7%. Retail sales are 15% higher than they were a year ago.

Yes, gasoline prices have soared to $3.40 per gallon relative to just $2.10 one year ago. But gas was also $3.40 per gallon in 2014, when incomes were 25% lower than they are now. The only sector that is seeing any demand destruction because of soaring prices and shortages is automobiles.

Economy wide corporate profits (before tax) are 16% higher. S&P 500 profit margins actually expanded in the third quarter despite expectations for a decline. Input and labor costs are surging, but so are sales. For now, inflation just comes with the territory of a booming economy, and a lower inflation environment would likely also be characterized by a weaker labor market and a more tepid jobs recovery.

There are compelling reasons why stock markets are still close to all-time highs. Third quarter earnings surprised to the upside, global supply chain pressures seem to be getting better, not worse (Vietnamese factory operations are normalizing and shipping costs are falling), and onerous corporate tax hikes seem increasingly unlikely.

Bond markets are a little more stressed, but given the circumstances, they have been relatively tame. Two-year bond yields have moved up by about 30 basis points since the start of October because investors are starting to think that the Federal Reserve will start raising rates soon in an effort to deal with inflation. Meanwhile, 10-year Treasury bonds are yielding just over 1.5%. Why so low? Simply, because bond markets think that this surge in inflation will be temporary. Longer run inflation expectations are still well below where they were from 2000-2014.

Inflation has been strong all year and risk assets have hardly blinked. The mega cap tech sector was often cited as the one that was most at risk during an inflationary environment. The Nasdaq 100 is up over 25% this year.

What could change the picture is if the Federal Reserve makes an abrupt turn toward hawkish policy. And we don’t mean something like accelerating the pace of tapering asset purchases. We mean something like what happened in 1994, when the Fed raised rates by 300 basis points cumulatively because they thought they needed to act quickly to snuff out inflation. Even though corporate earnings grew around 20% that year, equity markets ended flat because cash got more and more attractive.

Another longer term risk is that the discourse around inflation is inherently political. Surging inflation now could make it less likely that policymakers opt for powerful fiscal stimulus during future downturns, which could delay economic recovery and be harmful for stocks.

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Affordable Housing Crisis Demands ADUs And DADUs, PDQ

Rising mortgage rates mean fewer would-be buyers can afford first homes. That takes them out of the land of the American Dream, and places them squarely, and possibly interminably, back in renting country. These folks, who otherwise would have left the renting population, are instead adding to the cohort.

Their increased demand is helping propel monthly rents northward. Everywhere, it seems, the affordable housing crisis is growing, and there exists no indication it will be reversed or even slowed anytime soon.

If there are solutions to the crisis, one may be found in the concept of the Detached Accessory Dwelling Unit, or DADU. Known in some places as granny flats or coach houses, these compact dwellings are legally permitted on parcels of existing homes,

They provide additional housing options to those who otherwise likely wouldn’t have hope of finding one. And for that reason, many municipalities are making way for them. Seattle’s ADUniverse website is one example of how accepting they’ve become.

Johnston Architects

Pacific Northwest-based Johnston Architects has addressed the concept with its Twisp Cabin, which was originally designed as a vacation cabin located in the Methow Valley of Washington State. The home design has since proven remarkably adaptable.

It can be customized to almost any kind of home site or individual’s needs and has even turned up as a family home on Orcas Island, Washington. It can also be built from multiple materials, among them Cross-Laminated Timber (CLT). What’s more, it was designed to meet Seattle’s ultra-tough energy codes, the nation’s most rigorous.

The 1,300-square-foot Twisp Cabin, whose plans can be bought for $7,000, is one of a number of Johnston Architects’ customizable home designs available for purchase.

“We’ve seen housing prices increase year over year since the recession, to the point where a lot of residents couldn’t even qualify for their homes today if they had to buy them all over again,” says Jack Chaffin, a partner at Johnston Architects.

“With a chunk of their net worth tied up in the value of their houses, some homeowners, especially on fixed incomes, are vulnerable to economic downturns or unexpected expenses, like a health care crisis or increased property taxes. One way to increase affordable housing in urban areas and keep existing homeowners more secure is by building ADUs or DADUs . . .

[They] could be a solution to ‘aging in place.’ Build yourself a smaller house to live in and rent out your larger home to someone else.” Johnston Architects isn’t the only architectural firm getting in on the growing interest in ADUs nationwide. Read on for insights into two others, as well as their ADU plans.

Artisans Group

This award-winning, women-owned design studio has teamed with three municipalities in the Puget Sound area to deliver four distinctive designs featuring pre-approved construction sets eligible residents can obtain at no cost. Each of the designs might be appropriate as a backyard cottage, vacation home or adorable small dwelling.

In a prepared statement, the firm acknowledged that as many cities experience unprecedented growth, available housing stock is depleted and what housing does remain available grows ever more unaffordable. “Looking at current municipal codes, ADUs can provide an opportunity to increase the density of established neighborhoods without demolishing the neighborhood character,” the statement noted.

“However, designing a quality ADU that maximizes space and use within a minimal footprint is a challenge, takes careful consideration and is expensive for most people.”

In recognition, Artisans Group reported it got to work developing functional, beautiful and malleable predesigned ADUs, each offering savings from $25,000 to $40,000 in design fees. A number of these designs offer varying roof lines and pitch alternatives, as well as an array of entryway and view considerations.

“On a practical level,” the firm reports, “five people can purchase the same exact ADU plan and come away with five very different-looking ADUs.”

Shape Architecture

Denver, Colo.-based contemporary architecture firm Shape Architecture takes pride in designing homes that offer reduced square footage, smaller carbon footprints and lowered cost, yet meet clients’ needs for space. Homes include features highly familiar to Japanese designers, including sliding walls able to convert living rooms into guest bedrooms or family rooms into playrooms.

Shape Architecture crafted one of Seattle’s 10 pre-approved DADU designs and has built a number of DADUs across the country, some overcoming incredibly limited space parameters. In a prepared statement, the firm noted its ADU design experience has evolved into helping clients interested in multi-generational “family compounds” featuring attached or detached accessories.

Bottom line? If this admittedly limited sample is any indication, it appears very small dwellings may hold a key to helping address a very large national problem.

I launched my freelance writing career in 1989 and have since produced more than 5,000 bylined articles for a wide array of traditional and web-based

Source: Affordable Housing Crisis Demands ADUs And DADUs, PDQ

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Two Friends Who Met On Twitter In High School Are Latest Under-30 Billionaires

Brex’s two twenty-something founders are now billionaires, thanks to a lofty new funding round announced this week that nearly doubled the valuation of their five-year-old fintech firm.

The San Francisco-based startup—which is aiming to overhaul the corporate credit card—confirmed on Tuesday that it has raised $300 million in a funding round led by investment firms Greenoaks Capital and Technology Crossover Ventures (TCV), giving it a $12.3 billion valuation—a sizable jump from the $7.4 billion valuation it fetched just nine months ago.

Cofounders (and co-CEOs) Henrique Dubugras, 26, and Pedro Franceschi, 25, each hold a 14% stake in Brex, Forbes estimates, worth about $1.5 billion apiece. (Forbes discounts the value of privately held companies.) The pair declined to comment on Forbes’ estimates but Dubugras did speak with Forbes about his startup’s path to success.

The young fintech has made a name for itself with a corporate credit card tailored to the needs of startups. It remains Brex’s marquee product, and the interchange fees merchants pay when employees swipe Brex’s cards constitute nearly all of the company’s revenue.

In recent years, Brex has also launched new software offerings like an expense management product and a business bill pay feature: “If you get an invoice in your email, you can just forward it to us and boom, it gets paid,” Dubugras tells Forbes on a Zoom call from his home office in Los Angeles. In May, the company rolled out one of the first crypto rewards programs for corporations.

Brex is not the only business attempting to disrupt the stodgy, spreadsheet-centric world of B2B payments. Today, its rivals include startup Ramp (founded in 2019 and valued at almost $4 billion after an August funding round) and publicly traded Bill.com (valued at some $21 billion), which bought expense reporting software fintech Divvy for $2.5 billion last spring.

But Brex has been able to attract a deluge of venture capital by offering a suite of products that extend beyond the corporate credit card. Dubugras maintains that he’s not too worried about competition.  “The market is pretty big, and I think that there’s space for a lot of people,” he says. “Most B2B payments are still paper- and check-based.”

The 1,000-person startup can credit its existence to a lively Twitter exchange in December 2012 between Dubugras and Franceschi about the nuances of coding tools. At the time, they were high school seniors living in Sao Paulo and Rio de Janeiro, Brazil, respectively. The 140-character tweet cap hindered the debate, so the two teens hopped on Skype to discuss further.

“On Skype, we couldn’t fight that much and became best friends,” says Dubugras.

In 2013, the pals launched a startup called Pagar.me that allowed Brazilian merchants to accept online payments. It was a 150-person outfit by the time they sold it three years later to a larger Brazil-based payments fintech called Stone. Dubugras won’t share the pair’s take, but says it was enough to pay for college—he and Franceschi are both Stanford computer science dropouts—and stow away some savings.

For their next act, the pair initially wanted to build bank accounts for U.S.-based startups, but settled on corporate credit cards as a more attainable route. (“What business would trust their money to these random 22-year-old Brazilians?” chuckles Dubugras. “With corporate cards…

We were giving them money instead of asking for their own money.”) Dubugras and Franceschi founded Brex in 2017 after quitting Stanford in the spring of their freshman year and, two years later, both earned spots on Forbes’ 30 Under 30 Finance list. By then, Brex had raised $213 million and was valued at $1.1 billion. In 2019, Brex also rolled out its take on the business bank accounts that had enthralled its founders from the start.

(Brex is not a chartered bank itself, so it partners with LendingClub or JPMorgan Chase for the accounts.) All told, the duo has secured more than $1.1 billion in venture money from the likes of Tiger Global Management, Peter Thiel and Affirm founder Max Levchin.

The company says its revenue more than doubled over the past 12 months, though it won’t share specifics or comment on profitability; private markets data provider PitchBook estimates Brex generated about $320 million in revenue for 2021. Dubugras says that Brex counts “tens of thousands” of corporate customers today, including the likes of Carta and Classpass.

The startup wants to keep the ball rolling in the new year. With $300 million in fresh funding, Brex aims to increase its headcount by at least 50% while also keeping cash in the coffers in case there’s a market downturn. Brex originally set out to serve startups, but Dubugras says mid-market firms account for more than 60% of its customer base today. In 2022, he hopes to reel in large corporations as well.

“I think it’s easy for people to think that we’re already successful,” he says. “We are, and we aren’t. We’re obviously happy about what we’ve achieved, but there’s so much more to come.”

I’m a reporter on Forbes’ wealth team covering the world’s richest people and tracking their fortunes. I was previously an assistant editor for Forbes’ Money & Markets section…

Source: Two Friends Who Met On Twitter In High School Are Latest Under-30 Billionaires

.

Critics on BREX:

Brex is a financial technology company that primarily offers a corporate credit card to early-stage companies. Furthermore, business owners can also create a bank account (called Brex Cash) and utilize the company’s various expense management tools for their business.

Brex makes money through a monthly account subscription, interchange fees, referral fees from cashback rewards, interest on loans, as well as interest on cash held in its customer accounts.

When you think of the most rewarding small-business credit cards, you might assume that you’ll need to shell out a sizable fee each year for the ability to rack up bonus points. The Brex Card, however, proves that assumption incorrect.

The Brex Card doesn’t charge an annual fee, and no personal guarantees or credit checks are required to be approved. Plus, new cardholders can earn 50,000 signup bonus points after spending $9,000+ in the first 30 days.

The Brex Card still packs a generous reward structure, which can be tailored to pay out more based on the type of business you run. Here’s a look at a standard rundown of earning potential:

  • 8x on ride-sharing spending
  • 5x on travel booked through the Brex portal
  • 4x at restaurants
  • 3x on eligible Apple purchases made through the Brex portal
  • 1.5x on advertising
  • 1x on all other purchases

There are a few key caveats to the rewards structure. Let’s start with the most important piece of the puzzle: You have to use the Brex Card exclusively to get in on all those bonus opportunities. After two months, you have to “ensure card exclusivity,” which I assume you do by linking your other bank accounts.

If you’re using other small-business credit cards, your rewards dip to a measly 1 point per dollar, plus 3x for eligible Apple purchases — a rewards structure not worth celebrating. So, this credit card is only for business owners who aren’t afraid of a serious commitment and who are willing to break up with their other cards.

Read more: The best small-business crypto cards in 2021

Now, if you can make it your exclusive card, Brex offers some additional options to make the card more rewarding based on your spending routine. For example, if your company calls itself a tech company, you’ll earn 3x on recurring software purchases. If your company works in the life sciences, your highest payout — 8x — comes on conference tickets. So, if five of your employees are registering for that big annual meeting on biomedicine with a fee of $2,000 per ticket, that payout can come in handy. You’ll also learn 2x on lab supplies.

Another big differentiator is that Brex rewards you more if you pay your bill on a daily basis, similar to a debit card. To do that, you deposit money into a Brex cash account, and each day, your bill is automatically paid from those funds. If you pay your bill on a monthly basis, your rewards are a bit less: The highest payout is 7x.

And finally, Brex can claim a first in the business credit card space: You can redeem your rewards in cryptocurrency. The company recently announced that cardholders can enjoy redemption conversions in Bitcoin and Ethereum, which sets it apart from every other business credit card offer you’ll find right now. If you’re looking to dabble in crypto (and you aren’t afraid of Elon Musk’s Twitter account impacting the value of your points), this is a low-risk way to do it. 

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