An Expensive Speech

Fed Chair Jay Powell's Jackson Hole speech yesterday was just 8-minutes long, but it packed quite a punch. After hiking Fed Funds rate by 75 bps in June and July, Powell tried to mollify investors with some unscripted soothing comments when he said, "the central bank had already reached a “neutral” setting -- where it’s neither stoking nor restraining consumer prices." Mind you the Fed Funds rate was only up to 2.25% while inflation was running at 8.5%. Larry Summers for one, called the comments "indefensible." But the markets loved Powell's words and interpreted it as a "pivot" to more dovish rate moves (i.e., reinstatement of the Fed put), extending a ferocious rally. Between June 16th and August 15th, the S&P 500 and NASDAQ gained 17.2% and 23.3%, respectively. 

However, Powell seemed to put an end to that nonsense this afternoon, when he reiterated that restoring price stability was Fed' #1 priority and that "will likely require maintaining a restrictive policy stance for some time.” And just for good measure, if there was any doubt, he pointedly reminded investors that “the historical record cautions strongly against prematurely loosening policy.” Summers approved.

Okay, so how did the markets react? As you might expect, with the S&P and NASDAQ down 3.4% and 3.9%, respectively. It also meant that it was an expensive day for America's richest, especially tech billionaires. Bloomberg helpfully calculated that Powell's short speech cost America's billionaires $78 billion. Elon Musk lost $5.5bn, while pal(?) Sergey Brin lost $4.7bn. But at least rival Jeff Bezos lost even more $6.8bn, right?

These numbers are absurd. According to the U.S. Bureau of Labor Statistics, the median annual personal income in the U.S. was around $51,500. Roughly speaking, it would take the median American over 106,000 years to make what Musk lost in just one day!

Yet, these numbers are still essentially a drop in the bucket to the fortunes of America's richest. According to wealth porn site Forbes, which runs the Real-Time Billionaire List, Musk was worth $257 bn at close of business yesterday and Bezos $155 bn. Wealth tax anyone?

The New Mad Men: Page, Brin, Zuck, and Bezos

If Matthew Weiner were to ever do an updated version of Mad Men, it would need to be set in the West Coast. Advertising today is the purview of tech giants, whose algorithms direct you to things you didn't even know you wanted. Online advertising dwarf other mediums with Amazon's ad revenue alone more than that of the entire global newspaper industry in 2021! (H/T Scott Galloway)

The chart below (click to enlarge) from Raconteur shows how the internet has changed the advertising game over the past two decades and also decimated the newspaper industry. Before 2004, newspapers and television were responsible for over 70% of the ad business. Today, search, social media, and online video drives ~66% of the ad business. They've particularly cut into the newspaper business, which has gone from collecting ~33% of global ad spend in 2002 to ~5% in 2020.

And if the internet will soon absorb all the world's ad spend, just three companies are likely to take most of the share: Google, Meta/Facebook, and Amazon. Already these three tech giants account for 74% of global digital ad spend and 47% of total global ad spend.

Google/Alphabet is king of digital ad spend, accounting for 44% of all online ad revenues (via search and YouTube) and 16% of all ad spend period. But there's a new kid that's got everyone's attention: Amazon. The ecommerce giant generated more ad revenue than YouTube or Facebook in 4Q21. What's more Amazon's advertising arm represents just 7% of company's $470 billion of net sales.

There are several factors that have impacted Amazon’s inevitable transformation into a colossal advertising entity. These include industry trends, consumer habits, and its continued dominance in the ecommerce industry. About 3 in 4 persons say that when they look for a product online, they search on Amazon. Most importantly for sponsors, ads on Amazon have a higher conversion rate than on Google. When you want to learn about a product you might do a Google search, but if you have made a decision to purchase that product, you go on Amazon to find the best brand/price.

Imagine what Don Draper could do with that...

Girls Just Wanna Have Fun

Finnish Prime Minister, Sanna Marin, who became the country's youngest PM at 34 in 2019, is under fire after a leaked video shows her partying hard with friends.  

Opposition party members have called for Marin to take a drug test...suggesting that her actions are inappropriate for a prime minister. Marin denied any drug use and countered “I have danced, sung, celebrated, done legal things,” she said. Too much vodka? Possibly. But cocaine? No! So there! Stop hating her dance moves.