9/29/23 – 10/6/23

Raymond Lin

This Week’s Prominent Events

A Crisis Averted… For Now

• A mere few hours after last week’s Phi Fiscal was published, the House of Representatives managed to pass a 45 day funding bill called a continuing resolution(CR). This means the government did not shutdown at midnight last sunday and that the government has essentially pushed the issue until November.
• The CR only managed to pass thanks to Democrats choosing to vote yes and not because of Republican unity. Instead, members of the Republican party called for a vote to oust Republican Speaker McCarthy because he had worked with Democrats instead of further compromising with and acquiescing to the far right of his party.
• In McCarthy’s stead, Patrick McHenry has been named speaker pro tempore and will serve in that office until a new speaker is chosen. The most prominent speaker candidates are Jim Jordan and Steve Scalise.

SBF’s Trial

• Sam Bankman-Fried, once valued at $22.5 billion and CEO of the up and coming cryptocurrency exchange FTX, appeared in court this week as a part of a criminal case where he is accused of siphoning billions of dollars from FTX customer money into real estate, political contributions, donations, and venture investments.
• SBF’s fall from grace began last November when a run on FTX led to the company declaring bankruptcy and billions of dollars missing. It was revealed shortly after that SBF used FTX as a piggy bank for personal expenses and for his hedge fund Alameda Research. There was an incestuous relationship where FTX fed Alameda customer funds to speculate with, possibly contributing to the billions of customer funds lost.
• The trial is unlikely to go in SBF’s favor as Alameda Research’s CEO and SBF’s former girlfriend Caroline Ellison, as well as two of FTX’s co-founders, are cooperating against SBF.

The US’ Largest Health Care Strike

• Earlier this week, the US’ largest health care strike ever began. 75,000 Kaiser Permanente workers walked off the job, leaving the health care provider of 13 million people in jeopardy.
• However, some have already begun returning to continue to work to help their patients and keep public opinion on their side. The unions, united under a coalition, intended to use this short strike to demonstrate to Kaiser that they were serious while still giving people the medical attention they need.
• Broadly, the coalition wants higher pay and increased staff. They say that workers are overworked and underpaid, leaving workers constantly exhausted and unable to provide optimal care for their patients or themselves.
• Kaiser has offered a one time 5% increase in wages in the first 3 years and then a 4% increase at the end for unionized employees. Kaiser has also said that staff shortages are a problem industry wide and that they have been trying to resolve it.
• The coalition has asked for a 6.5% increase in the first two years and a 5.75% increase in the last two years. They also want Kaiser to raise the minimum wage for union employees from $21 to $23. The coalition argues that these measures will help provide workers with the cash they need and attract new staff.

Spotify Challenges Audible

• Spotify is the leader in the audio market, but it has found itself assailed from all sides in recent years by giants like Apple and Amazon. Ventures launched by those kinds of companies often have immense resources and accessibility to customers due to existing infrastructure and brand awareness.
• In an attempt to counter these competitors and achieve a profit for the first time in several years, Spotify has launched numerous ventures to diversify its appeal and make itself stand out. It heavily invested in podcasting, such as podcasting deals with Joe Rogan, Kim Kardashian, Meghan Markle, and Michelle Obama.
• However, it appears podcasting, although still an important and rapidly growing component of Spotify, is no longer the strategic focus of Spotify. Spotify has not renewed deals with some prominent podcasters and fired 200 employees from its podcasting unit, including the chief content officer.
• Instead, it appears Spotify may be looking to capture the audiobook market. It is offering access to 150,000 titles and 15 hours a month for subscribers. That 15 hours a month for free is important as it means paid subscribers can only listen to about 2 books before paying more. Spotify plans on having people pay on an hourly basis instead of the existing per book basis, which could shake up the audiobook industry.

Oil Consolidation

• After last year’s $55.7 billion profit, ExxonMobil was expected to use this money for future growth and possibly investment into green energy. However, it appears Exxon is doubling down on its existing business strategy by closing in on a deal to buy fellow oil company Pioneer Natural Resources for $60 billion.
• This acquisition will lead to more consolidation in the oil industry as Exxon has now scooped up even more land in the Permian Basin, one of the most fertile oil lands in America. This, in turn, will allow Exxon to increase its reserves and drilling potential without wasting cash on unproven acreage.
• However, the deal is yet to be sealed and could potentially fall through.

Future Events

Robust Job Growth

• The number of jobs added every month has been declining recently, but it has surprisingly shot up this month. The US added 336,000 jobs in September, significantly above predictions of 170,000 and last month’s 227,000. Additionally, that figure for last month is revised up from initial estimates of just 187,000.
• The growth for this month was largely driven by travel and leisure’s 96,000 jobs added, although job growth happened across the board. Despite this job growth, wage growth slowed at just 4.2% year over year. It beat inflation and is still solid growth, but it’s the lowest year over year wage growth in two years.
• This job and wage growth data will factor into the Fed’s decision next month to keep rates steady or hike them, but it is unclear what their decision will be, especially with student loans lowering consumer spending and high borrowing costs limiting businesses.
• September’s inflation data, which will come out on October 12, will likely provide more insight into the Federal Reserve’s potential move next month.

Deepfakes

• Deepfakes, artificial and often AI generated audio, images, or videos, will pose a significant security and social risk in the near future.
• In Slovakia, a deepfaked audio recording of Michal Šimečka, leader of the Progressive Slovakia party, talking about rigging the election was posted to Facebook. Her party would then lose the election to a more right wing party who withdrew military support from Ukraine.
• Although her party may have lost anyways, the fact that deepfaked audio can spread misinformation and distort reality in a way that changes national governments and policies is concerning.
• With the 2024 US Presidential election coming up soon, there may be even more cause for concern. In fact, it has already been used to politically sabotage people. For example, there was a deepfaked video of Senator Elizabeth Warren suggesting restrictions on republicans voting. Another example is the RNC’s ad showing dire images of the US if Biden is reelected.
• While these are still minor and relatively uneventful, they can stoke hysteria and cause extreme distress and turmoil. The economic and financial consequences of this are also not hard to imagine. If a deepfake of a CEO of a company announces something extremely good or bad, what will happen to the stock? The markets have fallen victim to many dumber tricks after all. The deep faking technology will only ever get better, and measures need to be taken against it by governments and companies.

Growth of Cyberattacks

• Attacks on companies’ cyber infrastructure have become quite prominent as of late and they expose the growing concern and need for cybersecurity.
• After unauthorized activity on its IT systems in August, Clorox’s operations were greatly disturbed and now expects a quarterly loss and a hefty decline in year over year sales.
• After a data breach, Caesars Entertainment was forced to pay a $15 million ransom.
• A cyberattack on MGM Resorts led to significant disruptions for MGM, such as hotel keys not working, corporate emails being locked, and slot machines not working. Additionally, hackers accessed some customer information like names, drivers license plates, and social security numbers. MGM reported that the attack cost them around $100 million.

Weekly Question

Who is the richest person among the following?

• A: Michael Bloomberg
• B: Ken Griffin
• C: Ray Dalio
• D: Michael Dell

Answer: A. Michael Bloomberg just edges Michael Dell at number 10 versus number 11 on the Forbes 400, although there is a $20 billion gap between them.