The Liquidity Event Podcast: Episode 93

 

Episode 93: The Debt Ceiling vs. The Glass Ceiling

Join us on the Liquidity Event Podcast for the latest business news that will make you laugh and cry and want to smack a banker. From TSMC's €10 billion chip fab plans in Germany to better IRS service and earlier debt deadlines, we cover it all. Find out why Shopify is cutting its workforce but its shares are surging, and how some TurboTax users might get some cash back. We'll also discuss why your job is (probably) safe from AI and what the banking crisis means for startups and fintech. And of course, we'll cover the latest in AI chatbots and tools from Wendy's and Palantir. It's a wild ride, so come join us!

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Airdate: 05/12/2023

Read the Full Transcript:

Shane:

Hello and welcome to episode 93 of the Liquidity Event. It is May 10th, 2023, airing on May 12th, 2023. We're your hosts, Shane Mason.

Kody:

And I'm Kody Sherlund.

Shane:

That's right. We have a guest podcaster this week. AJ and John are both at the bottom of the Marianna's trench looking for new types of squids. So we have a guest senior financial planner here at Brooklyn FI specializing in equity compensation. Our resident econ nerd, say hello to the audience, Mr. Kody Sherlund.

Kody:

Hey guys. What's going on? Happy to be here. I'm pinch running for the pinch hitter. I think that's how that works.

Shane:

Double pinching.

Kody:

That's legal.

Shane:

In Mexico, pinche means, damn gringo. So tell us a fun fact about yourself, Cody.

Kody:

Fun fact about me. Let's see. I live in Minnesota. I don't know if anybody listening to this knows anybody in Minnesota, but now you do. Another fun fact, I grew up an econ nerd because my dad was getting his PhD in economics at that time. So when other kids were swinging whiffle ball bats, I was learning about scarcity. So that was fun.

Shane:

Scarcity. But your dad has a doctorate in econ, in economics?

Kody:

He does. From Wisconsin. Yeah.

Shane:

Madison, Wisconsin University?

Kody:

That's right.

Shane:

Oh, that's a great school. Very underrated school, that Madison, Wisconsin School. I've always wanted to go up there and check it out. So very chill. So we're going to have some econ takes for the audience this week. On the spot, Cody, what are you reading, watching, playing? Give us some flavor, give us some Sherlin flavor for the audience.

Kody:

Sure, sure. What am I watching right now? NHL playoffs.

Shane:

Okay. Yeah, you are on the Canadian border. That makes a lot of sense.

Kody:

Yeah, more or less. The Minnesota Wilds are out. Don't really care about that. Just want to see some good hockey. What are we reading right now? I actually picked up Monetary and Fiscal History of the United States from 1963 to Present last time I was at an airport. That's where people buy books. Right?

Shane:

Jesus. Okay. All right. Sounds like a page turner, buddy. You're not having any trouble falling asleep, it sounds like. All right, good to know. All right, on this week's episode, we have the debt ceiling is falling apart, the talks are falling through, and we don't have a resolution on the X Day. We have some manufacturing, some chips manufacturing updates from the Taiwanese chips manufacturing company in Europe. We got some more AI of course, and then we got some fraud happening in Congress, believe it or not. All right, so first off, we're going to hop into a new section we're doing this week, we're getting into breaking news. So as I said, the debt ceiling conversations have fallen through, Speaker McCarthy and the Biden administration are in an impasse in terms of the X date. Looks like June 1st is the X date. For the listeners that don't know what the X date is, Cody fill us in.

Kody:

Yeah. Yeah. That's when the emergency measures that the Treasury Department is taking are kind of going to come to a head. Janet Yellen said, we can't do this anymore after this date and we can't pay our bills.

Shane:

So it looks like credit default swaps, which is another word for saying how expensive it is to insure somebody. Essentially the US has cancer right now, can't get life insurance because our prices are higher than Mexico, Brazil, and Greece, which are all countries that have actually already defaulted on their debts in the past. So in the meantime, we are seeing gamblers are looking at a 2400% ROI if we do default. So shout out to any Americans that are shorting the government and are taking that bet.

Other breaking news, we did get a US inflation report is out and looks like the Fed's attempts to stamp out inflation are working. We have consumer prices rose by 4.9% and an annual basis, YoY, year over year as opposed to a 5.5% expectation. So that's not a whole 1% lower, but looks like in inflation is being tamped down. So we don't know what part of that is transitory and which part of that is actually, what do we call it, structural. So looking like all that pain that we're experiencing from the Fed is starting to work out. Hopefully we won't get another rate hike in the near future. Heading into the political atmosphere, our favorite spot here at Brooklyn FI, somewhere that we tried to, on the Liquidity Event, try to avoid actually. I just can't help it. George Santos, my favorite congressman from the state of New York, 34 year old Republican congressman arrested on 13 counts, including money laundering and wire fraud. Why is it always wire fraud, Cody?

Kody:

It always is. I'm shocked.

Shane:

But yeah, this is George Santos, I don't want to get political, but he's just so much fun to read about. Apparently he lied about working at Goldman Sachs or Citigroup, he claimed. And at one point he claimed that he was also Jewish, which can go a long way in New York. But when asked for clarification, he just referred, he's Jew-ish, which is an incredible pivot. He also claimed on one year to have $55,000 of income and no net worth, and the next year when running again claimed to have $11.2 million net worth and an income of $750,000. My guy is looking at 13 counts for embezzling funds from his campaign. Looking like a classic Ponzi scheme from our boys. So I don't know if things are going to work out for George. He's also kind of a red pillar and just middle fingering anyone that has asked him to step down and back away from these charges or back away from all the false claims that he is been making over the past 10 years. There's also a photo of him in drag in Brazil four years ago. Have you seen this photo, Cody, where he's dressed as a-

Kody:

I have indeed.

Shane:

Oh yeah.

Kody:

Yes.

Shane:

Spicy one. Also, our ex-president was just ordered to pay $5 million on rape charges. All right, that takes us into our articles. This week, we want to start off the list with Taiwan semiconductors planning its first German chip fab, fabrication plant with a cost of up to $10 billion. I didn't know this, Cody, but apparently Europe has also implemented or enacted a Chips Act similar to the ones that we implemented. They went for about 40 billion, but we went for 55 billion. I mean, who's counting here, right? But yeah, let's like-

Kody:

Yeah, Euros, dollars. It's actually pretty close in size.

Shane:

Yeah, yeah, yeah. So for those that want to see chip manufacturing, which is a very strategically important, both in defense as well as supply chain, as we saw during the used car and new car shortage during COVID, very important to get these chips out and get more supply chain diversification. This is big news in that Europe, specifically Germany, is going to see a $10 billion investment and a huge new chip manufacturing plant. I was looking at the type of chips that they're implementing here, or they're going to be building in they're 32 nanometer chips, which are old school chips. This is the two by fours of chips. So this is what you're going to see in gaming consoles, you're going to see in vehicles and all that. This is not the two nanometer chips or the four nanometer chips that we're seeing in like quantum computing and AI. Any thoughts on this, Cody?

Kody:

Yeah, I mean, it's good to see some global diversification for those supply chains. So we can't control what happens in other countries, and some of these companies are realizing that too. And Taiwan, they're in a vulnerable place, so it makes sense for them to get something in Europe.

Shane:

Yeah. Yeah, love to see it. I also saw Japan was trying to make a move at joining NATO, which is interesting because they're not part of the Northern Atlantic rather than Northern Pacific. But an attempt to stabilize supply chains and with Russia invading Ukraine and all that, makes sense to have more passive democracies enforcing international trade and near shoring and all that fun. So I'd love to see a chip manufacturing plant here in Mexico similar to the Tesla plant in Monterey, but not yet. Not yet. All right. Moving on to the next article. We have better IRS servicing is forcing an earlier death deadline. From Politico, we see here that apparently the IRS did such a good job we actually know that we're not going to have money in time for this, it's June 1st X date. What are your thoughts, Cody?

Kody:

Yeah, yeah. I mean, it's funny, isn't it? The IRS is more efficient. It's better funded. It's doing its job, and now it's stabbing us in the back telling us we don't have enough cash.

Shane:

Yeah, we spent $80 billion to find out that we don't have money to pay for that. Yeah. Well, apparently as a CPA firm, our tax managers have noticed that it's a lot easier to get in touch with the IRS now. I'm sure consumers are also experiencing that when they call in. IRS had a abysmal 2% answer rate for phone calls in 2022 and 2021. I actually just made that number up. I'm pretty sure that's right. But the numbers are way up now. The hold times are way down. We have half as many returns are not processed this year as compared to last year. So they're getting through those returns quickly, which means those refunds have gone out, which means the treasury is depleted, which means we need to get some funding to finance our debts. So that's fun. Speaking of running short on cash, Shopify has cut 20% of its workforce, according to CNBC, and shares are surging on that earnings beat. Laying off over 11,000 people, the Canadian giant is saying that they did not understand how the pandemic surge in demand for their services, what the long tail looks like there. So it looks like they're making an adjustment to their cost of goods sold here and cutting 11,000 jobs. Sorry to hear that, but I would wager that they're still way up in terms of employment as compared to 2019 numbers. What are your thoughts, Cody?

Kody:

Yeah, for sure. I mean, we've heard this story before, extrapolating demand that maybe isn't supposed to go beyond 2020, 2021. But I'm curious how many of those people actually live and work in Canada? How many US employees do they have?

Shane:

Yeah, yeah, yeah. This is the part where I say that the vaccines have caused these layoffs because we didn't expect the vaccines, the miracle of the vaccines to come in and erase all this demand for online shopping. One of my favorite quotes from this article from the CNBC is that they did, as a part of their efforts to short up the P&L, they sold one of their units called Six River Systems, and the CEO, I guess they were working on building out their own logistics company, and the UK retail tech company was sold. And the CEO said, "Yeah, it didn't work out, but this was a worthwhile side quest." So tell me you're a gamer without telling me you're a gamer. Shout out to the CEO of Shopify. So moving on back to taxes, we have TurboTax users can get a settlement money. We have a class action lawsuit. According to CBS, there's a 2023... How much money are we talking about here, Cody? There's a class action lawsuit.

Kody:

Let's see. Four and a half million people.

Shane:

Circle back to this. I don't know if the amounts per person have been disclosed, but yeah, TurboTax, which is owned by Intuit had a class action lawsuit levied against it. For those of you that don't know, the government asked companies to build them a free file system. So instead of building it ourselves with government funding, we asked TurboTax and other companies to build a free file system. So if you earned a low enough money, you could file for free. TurboTax apparently funneled people into their paid program for years, four and a half million taxpayers instead of allowing them to file for free. So that's what happens when you privatize something with an evil company like Intuit. So yeah, what's going to happen is if you were using TurboTax, I think the years are '16, '17, '18, and '19 for those years, you'll get an email and then you will get some settlement money.

I'm sure it's like whatever you ended up paying for TurboTax. So a few hundred dollars. Yet had another good reason to-

Kody:

Maybe lower.

Shane:

Yeah, yeah, maybe lower.

Kody:

Yeah.

Shane:

Another good reason to have a direct checking account with the Fed, they could just take that money and put it run into your bank account based on your social. But no, now you have to watch for an email. I would wager there's at least five to 10% of the people that just tuck that email away and don't even realize that they're entitled to the class action money. All right. Looking at IPOs. Coming up, we have an information article about Instacart, one of our treasured or expected IPOs, biggest IPOs for 2023, hopefully one that will... Big tech IPO. We have our Johnson and Johnson IPO that we covered last week, but we're looking for a tech IPO from Instacart, looking for a unicorn exit. According to covert informants from via the information, they're not growing as quickly as they expected in '20 and Q1 of 2023. Now, they don't have to issue their numbers. They're not a public company yet, but based on analytics from third parties and inside information, it looks like they're not growing as quickly as we would like to see if there were going to actually trend towards an IPO. So this might pushback their S1 filing, et cetera, a bit. Hate to see it. What are your thoughts, Cody?

Kody:

Oh, I wanted to ask you on your thoughts. You're the resident grocery home delivery evangelist?

Shane:

That's true. I haven't been to a grocery store since October. Yeah, I don't use Instacart.

Kody:

Okay.

Shane:

I don't know. Apparently they have 75% of the market. I am an Amazon guy. I'm a Bezos box guy. Here in Mexico, they have a special company called Rappi that delivers, and it's not owned by any of these people. I don't know. Sure. I do think going to the grocery store is going to be a thing of the past pretty soon. It's just nice to hop from aisle two to aisle 16 in a microsecond and just pick up the bananas instead of having to literally physically go over there. Anyway, I hope Instacart bounces back. There was an article from the DoorDash CEO, which is already public, and he's saying that they're eating up their market share, which is shots fired. Another interesting thing is that DoorDash is a proxy for what Instacart would go public at. DoorDash was trading at 20 times revenue in early 2021 at a time of inflated evaluations. They're now trading at two and a half times next 12 months expected revenue. So that has definitely impacted Instacart's C-suite's thoughts on when to go public.

Kody:

Absolutely.

Shane:

Yeah, 2023 is going to be a drastic difference from 2021, really mountaintop and valley here compared to these two. So maybe, 2023, late 2023 or 2024, we'll get back to normal and then they'll IPO, we shall see. Veremos a ver. Okay. Now we have an article here on AI, of course, from The Economist. Oh, resident econ nerd, what's your take on this Economist article that says, your job is probably safe from artificial intelligence.

Kody:

Your job is probably safe from being taken by AI. Classically, The Economist is taking the take that an economist would. I mean, basically the idea is that this isn't the first technological revolution in human history. The wheel was invented, we had the industrial revolution, agricultural revolution, the internet. None of these things make the economy shrink in the long run. We're not going to see millions and millions of people out of jobs for decades and decades. So Goldman was actually projecting a potentially 7% increase in annual global GDP. That sounds like a good thing to me. The line goes up, everybody's richer in the long run, but that's going to come with some speed bumps in the short run. So we don't know who could potentially lose their jobs. Maybe people in customer service, we might touch on that later, but most people probably don't have to worry about it too much. Now, there was one nice little shot fired in this article too. The Economist took a shot at NIMBY's saying the actual speed bump to productivity growth in wealthier nations like the US and Western Europe is actually not being able to build enough housing. So we're looking at California, New York, places where it's super expensive to live. If we can just make it legal to build, that would be fantastic and people could actually live where they want to work, or for companies that pay them a lot of money.

Shane:

Yeah, I have a lot of thoughts on the Ponzi scheme that is the US housing sector, but I'll save that for another time. Suffice to say that if you want your house to go up in value, you have to make sure that no one else can build houses. So imagine the pressure on legislative bodies when the people that have the money to own houses tell them not to build anymore. So surprise, surprise, those without are up against those that have. Jobs in heavily regulated sectors like legal services and travel agencies are going to be disrupted according to this. And teachers and law enforcement officials are less likely to be replaced. Anything that's requires face-to-face, requires moving around outside, requires interacting with humans in group settings. Yeah, I can see it. Actually, I thought teaching would be. Anything that involves learning, as somebody that's been using ChatGPT to learn Spanish, learn to code, researching for this podcast, like anything research or analysis or educational related, I personally am of the opinion that is going to be disrupted a bit. But I guess classrooms, I don't know.

Anyway, moving along, we have the Brex co-CEO on what the banking crisis means for startups and FinTech. I didn't read this one. Cody, what is the semi four article, the Brex co-founder, for those of you who don't know what Brex is, it's a corporate credit card company that services a lot of startups. So if you need credit cards for all of your employees, we're a Ramp company here at Brooklyn FI. So Cody's got a Ramp card as well as all of our other employees. They're in the FinTech space and he's got thoughts on all this banking failures impact in FinTech. What are your thoughts, Cody?

Kody:

Yeah, yeah. Co-CEO, Henrique Dubugras. Long story short, banking crisis is not good. It's not good for FinTech companies, it's actually bad for the banking sector and just people across the entire economy too. I mean, basically it's not a good idea if everything consolidates and we only have a handful of banks. He's actually from Brazil, so he's seen firsthand what a weak monetary system looks like. So I mean, I think that his opinion is actually pretty important here. So Brex actually does something that we've seen pop up quite a bit lately, maybe more in the news than was already happening. But they have an effective $6 million FBIC limit, and they do that by sweeping across like 24 different banks at 250 grand a piece. So that's an interesting strategy and people ask, why don't you go higher than 6 million? They're like, well, we don't have enough banking relationships. Well, what happens if the banks consolidate and they can't actually have more than 24 banks that they go to drop 250 grand into each one of? So strong regional banking is a really important part of the US economy. I mean, this is a huge country. I don't know if anybody knew that. Over 300 million people spread across 3000 miles, it probably makes sense to have more than four banks.

Shane:

Yeah, I'm not a huge fan of our two class banking system, the globally systematically important banks and everyone else just having to niche into specific things like tech to try to survive until tech goes under and then that bank goes under. Yeah, I hear ya. Well, speaking of banks, the big banks are experiencing buyback bonanza. So the globally systematically important banks apparently are buying back their stock. According to Bloomberg and Bank of America, we're seeing all types of CFOs pushing their companies to buy back their stocks in an effort to shore up. Well, there's really seven different things, seven different reasons why you would do a stock buyback. It's kind of a good thing on a macroeconomic scale. If you think about what this signals for the economy in the United States. The banks think that they're undervalued currently. So if you're sitting on a pile of cash, you're the CFO and you think your personal stock or the value of your company is undervalued, you would go and buy that up for a lot of different reasons.

One, you think it's undervalued, you can reduce the share count, which improves your earnings per share. And if you're paid based on the earnings per share, then yeah, not surprising as a CFO that you would increase earnings per share of the company. You can also return capital to shareholders, improve the financial ratios. If you issue stock to your employees, like a lot of tech companies do, then you could offset dilution. Since you're issuing so much stock you could buy back from the market. If you got a bunch of cash lying around as I already said, then yeah, you could use that. You have to think about it. Do we pay for research and development, which would probably increase long-term cash flows of the company? And this is why political administration's always...

The Biden administration wants to increase attacks on buybacks because they want to incentivize companies to spend the money on employees and R&D, which is great for the long-term of the economy rather than just buying up your shares and having golden parachutes developed for the C-suite of those companies. And the final reason that we would see buybacks is to signal confidence like, Hey, our company, we have high faith in our company. If buy we're buying back our shares, retail investors and institutions should also buy our shares, which could buy itself, create momentum in the share price. So any thoughts on the buybacks we're seeing in corporate America, Cody?

Kody:

Yeah, I mean I took it as a sign of optimism across the board. But on the other hand, it makes you wonder, why don't they use through that cash for something else? Actually throw it into R&D and see what they can actually pump up over the next few years. But.

Shane:

Yeah. Yeah. Well speaking of pumped up, apparently Goldman Sachs says that we're going to have pumped up volatility as the quant traders pile back into the market. I guess during 2022s slow year and the first half of 2023, the quants or the flash boys were not really involved too much in the market. And look, I don't really have a lot to say about increased volatility that we're going to see as like flash traders generate items. But as I was looking into this Goldman article, you and I both noticed that Goldman just recently filed or put away or tucked away, settled on a lawsuit, a class action lawsuit from its female employees. About 2,400 women apparently won a class action to the tune of $215 million against Goldman for underpaying these women over the past, and it says here you have 13 years ago is when this was started-

Kody:

Yeah, it was filed in 2010. That's when it started up.

Shane:

Oof. Yikes. Pay your women, Goldman. All right, so moving into the AI space, we got a couple AI articles. Of course, to wrap us up today. We got I think six here. Looks like Open AI has suffered a $540 million loss in 2022, according to Financials, and it needs about a hundred billion more a call according to Artisana AI. So yeah, look, they took $10 billion from Microsoft. So if they lost $540 million in just 2022, they're sitting on about 20 years of runway there. But that's probably not the only cash they're going to take. It looks like they need about a hundred billion dollars more to continue to expand the very expensive development of a large language model. If they want to stay in the lead here, it looks like they're going to need a lot of money. So what are your thoughts on that, Cody?

Kody:

Yeah, I mean we need 20 times more cash than what we just spent this year. That's a big number.

Shane:

Yeah, I don't know how they're going to monetize this bad boy. I have spent some time looking at the monetization strategies, apparently access to the API, like just allowing other tools to plug into Open AI is where they're making their money, whether that's chatbots that want to use the LLM and study your internal documents to make sure that you can hire or fire customer service people and replace them with chatbots. As we already discussed. I don't know if they're going to be able to hire enough chatbots, or get enough chatbots to fund the company, but we shall see. Microsoft's making a bet. Speaking of bets, did you think that ChatGPT could pass the CPA exam?

Kody:

I don't think I could.

Shane:

Me either, buddy. One and done. I'm not going back. According to The Economist, ChatGPT is going to replace accountants. According to Accounting Today, it can't pass the CPA exam. So who knows who's going to get replaced, but it's just not good at math. It's built to handle natural language, but it's not really good at combining natural language prompts with solving complex math and generally accepted accounting principles, vagaries around how to do accounting. So yeah, it failed all four sections of the CPA exam. So I guess CPAs have a little bit less to worry about as compared to lawyers and doctors, et cetera.

Kody:

Yeah, I think our tax managers are safe.

Shane:

We'll see. All right, moving on. Sam Altman at a conference, according to Axios, said that Sam Altman's just traveling the world trying to protect his baby it seems, and talk about the road ahead, talking about whether or not we're going to get artificial general intelligence, which is the nightmare of humanity. But separate from that, talking about the business model, he said that OpenAI plans a pro copyright model for ChatGPT. So for listeners that don't know, ChatGPT crawls the internet, collects data, a lot of that data is copyrighted already. In a similar fashion, Google crawls the internet and collects information from New York Times, Fox, all of the top outlets and pays them nothing to crawl their data, take it and put it into their Google search results. So according to Sam, they're going to try to pay people for the copyrighted material that will show up after you prompt ChatGPT. Hey, tell me about the GDP of Brazil in 2017. If that comes from a copyrighted article, they're going to try to pay them. I respect that. But considering that it's going to take a hundred billion dollars to conquer AI, adding that expense to the bottom line is not going to be super helpful for the business model. What are your thoughts, Cody?

Kody:

Yeah, it's funny. Altman also said in that interview, we were building a tool, not a creature.

Shane:

Oh yeah.

Kody:

That made me wonder, what do other people actually think about this? Not Sam Altman himself. There was a YouGov poll. It surveyed 20,000 US adults. How concerned, if at all, are you about the possibility that AI will cause the end of the human race on earth? 19% of US adults said they were very concerned and another 27% said they were somewhat concerned. So that's a fun one to throw out there.

Shane:

Yeah, I think something like 40% of AI professionals think that AGI, artificial general intelligence, will cause the end of humanity.

Kody:

Yeah, it was very disproportionate.

Shane:

Love to see it. All right, moving on. The first sign of the end times, Wendy's is turning to AI powered chatbots to power drive-through orders. So finally, those overpowered restaurant workers are going to get their comeuppance. Cody, your thoughts.

Kody:

Yeah. What happens if this goes to Starbucks and they try to unionize?

Shane:

Yeah, I don't know. I feel bad for, I mean, they're already making $7 an hour across the United States, now they're going to get replaced by chatbots. So we see Palantir is our next article, according to Bloomberg, sees a record demand for its new AI tool. Apparently Palantir, which is a huge data company that tries to stop crime via data analytics as released their own AI. And according to Palantir executives, very important thing to highlight there. They're seeing huge demand and their stock is up 21% after releasing this earnings report. Kind of reminds me of Living Plus from the most recent succession episode. Living Plus. Got some big numbers coming from the executives at Palantir, so they're up 21%. So that's fun. And then our final article for today is, according to Bloomberg, smarter AI assistants are coming for Siri and Alexa's jobs. Finally, some displacement that makes sense. Siri and Alexa, the dream that never came to fruition. All it does is set alarms for me.

All right. Well, I'm going to wrap us up. Cody, thank you so much for guest starring on this week's episode of the Liquidity Event. Thank you for listening, dear listeners. Email us your financial problems at liquidityevent@BrooklynFI.com. We'll solve them on the air. Leave us a voicemail memo.fm/theliquidityevent, and we'll play it on the air. Show notes at BrooklynFI.com/episode 93. All you Brooklyn FI stans, please leave us a review and we will highlight it. Have a great week, everybody.