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...

Eat the Rich

A Brooklyn artist collective called MSCHF is selling popsicles shaped to be the world’s leading billionaires: Elon Musk, Jeff Bezos, Mark Zuckerberg, Bill Gates, and Alibaba co-founder Jack Ma. New Yorkers can now “Munch Musk,” “Bite Bezos,” “Gobble Gates,” “Snack on Jack” and even “Suck Zuck!”

Alas, "eating the rich," isn't cheap. The ice creams retail at its own inflated price of $10 apiece. 

Bezos and Musk Bring Fight Back to Earth

Elon and Jeff are not just vying for supremacy in space (if that weren't enough!), they both want to take over transportation on earth too. Electric vehicles ("EV") are all the rage (at least among investors) and Telsa is the $1 trillion colossal in the space (no pun intended). Musk's company is more than three times bigger than Toyota by market capitalization, even though Telsa sells only about 5% of the cars per year that Toyota does. Yes, yes, it's all about growth...but still...there are limits? There were 56 million cars sold worldwide in 2020, 3 million were EVs, Telsa sold 500K of those, and it is worth more than all those other car manufacturers combined! 

Well, Bezos has certainly taken notice. After all of Musk's snarky tweets and jokes, Bezos has hit back with him own EV-maker Rivian, that went public on Wednesday in the largest share sales since Facebook in 2012. Sort of...Amazon owns 20% of Rivan, and Bezos maintains a 10% ownership of Amazon (Musk owns 17% of Telsa). At one point in the trading day Rivian was worth $100 billion, more than Ford or General Motors, even though the company had delivered just 53 vehicles, so far, in 2021. Why not? It's electric, and it's being funded by Amazon, err Bezos. Rivian is 10% the size of Tesla by market cap even though (based on full-year 2021 projections) it sells about 0.2% of the cars as Telsa. Makes sense.

The only question is which one would you buy? And if you're keeping score Elon is ahead...

Captain Kirk Goes to Space

William Shatner went to space yesterday on Blue Origin's New Shepard rocket. At 90, Shatner became the oldest person to boldly go where only a few have gone. And he was overjoyed...thanking Bezos for giving him the experience of his life.

As always Bezos was the shrewd businessman. He comped Shatner's ticket (sorry, the other non-celebrity passengers) but reaped multiples dollar's worth of free media coverage. And will be able to use footage of "Captain Kirk" for Blue Origin's PR plans. But sometimes a good message gets in the way of great messaging, as when Bezos cut off an emotional Shatner to spray congratulatory champagne. Stick to the script Shatner!

Then and Now

Captain Kirk himself went to space on Jeff Bezo's New Shepard rocket yesterday. How far Bezos and, really, all of us have come in making space travel a reality (for the rich), as these two clips show:

2000: Space travel is really hard, Charlie

 2021: Capitalism baby! Yee haw!

Wally Funk's expression is hilarious...Also, Bezos' voice has become a lot deeper, in correlation with his net worth.

Wealth Porn

Forbes wants you remember how wonderful money is and who has the most of it, all the time. Famous for its annual Forbes 400 list of richest Americans, the business magazine now provides daily updates on the changes to the wealth of the 0.0001%. Yes, the "Real-Time Billionaire's List" is a real thing that is updated every day at 5p based on the prior trading day's action.

So, Jeff Bezos had a pretty, pretty, pretty good Wed up $2.7B, Elon Musk not so much, down $1.2B. Regardless, these numbers are mind-boggling...basically Monopoly money to the rest of us.

Elon will be Elon...

Was seeing space rival and the richest man in the world, Jeff Bezos, rocket into orbit hard on Elon Musk?...Is the Sahara dry?...Is Tom Brady competitive? Musk tried to keep it classy, tweeting "Congrats!" to the Blue Origin Tuesday afternoon after Bezos successfully returned from space. 

But then again, the shape of the New Shepard rocket is "interesting," and an endless source of sophomoric humor. Let's face it, looks like a giant dick; pretty sure when Jeff first saw the model he thought the same. 

So when a adult toy company tried to cash-in on the buzz by introducing a line of rocket-themed accoutrements, Elon was only happy to provide his measured thoughts... 

Yup, this is how corporate rivalry now finds expression, with the world's third richest man trolling the richest over the shape of his rocket. Oh, Elon... 

A $28M Scheduling Conflict

Way back in 2017, Amazon splashily announced plans for a second headquarters setting off a crazy wooing contests from cities around the U.S. Last month Bezos again splashily announced he'd would be launching into space via his Blue Origin company on July 20 in the first manned commercial trip to space AND would be auctioning a seat on his, umm...interestingly shaped rocket for the historic trip. Naturally, someone very rich (if only to underscore the fact space tourism is only for the uber wealthy) paid $28 million for the privilege of being a part of history and getting to pal around with the world richest man. Great! Everyone's happy and feeling good! To add to the party Bezos also picked 82-year old aerospace pioneer Wally Funk to join them. Funk trained for but never made to space 60 years ago, because, you know, it was the Mad Men era at NASA. 

Then of course on July11 another billionaire Richard Branson beat Bezos to the punch by successfully completing the first fully-crewed commercial flight to the edge of space and briefly holding the entire world's attention (before it shifted to the Euro 2020 final later that day). Something, funnily enough, predicted by the Simpsons, among other things. In the process Branson firmly took the shine off Bezos' upcoming "historic" trip. You can tell team Bezos was pissed...even contesting whether the Virgin Galactic flight even made it to space at all, by getting into technical arguments over the boundaries of space. 

So, now the holder of that Blue Origin ticket just remembered he had an important meeting that day and just can't make it. Yeah, sorry, priorities. He will take advantage of Blue Origin's no-fee change policy and reschedule. The super busy person will be replaced by Oliver Daemen, an 18-year old gap year student and son of one of the losing bidders. “At 18 years old and 82 years young, Oliver Daemen and Wally Funk represent the youngest and oldest astronauts to travel to space,” according to a Blue Origin statement. Hmm...I dunno know. Seems very convenient. By pulling in Daemen, of just barely legal age, at least Blue Origin can say they hold the age category records on both ends in the first-to-space race. 

So, I think this was less a scheduling conflict and more of a Blue Origin PR ploy. Which everyone was okay with. Because let's face it is likely that many of the people willing to pay tens of millions of dollars to fly, sorry...rocket, to space with Bezos for 10 minutes were doing so not just for the experience, but also for the opportunity to network with the world's richest man. It's an investment, perhaps even a business expense. And working with Bezos to make it better for Blue Origin was probably an easy choice.

Jeff Bezos Enters His Bond Villain Stage

It's been a big couple of weeks for Jeff Bezos. First Amazon buys MGM for $8.5 billion, giving him rights to 4,000 films, including the Bond series, the Rocky films and The Silence of the Lambs; and also series like Fargo and The Handmaid’s Tale. But perhaps most intriguingly, he "secured access to something much more exclusive: the deleted footage from Donald Trump’s hit show The Apprentice." Democracy dies in darkness?

A big question hanging over that deal was why was Amazon paying more for MGM than Disney paid for Lucas Films and Marvel combined? Yeah, but Amazon's not Disney or Netflix, it's Prime with an entertainment division.

Still, let's put this deal into perspective. Jeff Bezos is estimated to be worth $186 billion, so he could personally (in theory) buy 22 MGMs. At $8.5 billion, MGM is 4.6% of Bezos' net worth. He's 57; according to the Federal Reserve, the average and median net worth of Americans in the 55-64 age bracket in 2019 was $1,176,000 and $213,000, respectively. Hmm...

4.6% of $1.1M is ~$54,000 or the price of a standard Mercedes Benz E-Class. 4.6% of $213K is ~$9,500 or the price of three Peloton bikes. Yup, in a sense buying MGM for Bezos was the financial equivalent of a very expensive trip to the mall for the rest of us.

Intriguing as it might be to see Bezos cameos in future Bond films, the arguably much bigger news is that of Bezos' plans for space travel. Today, Bezos trumped rival Elon Musk when he made the surprise announcement that he will be aboard his rocket company, Blue Origin's, first human flight to space. And he's taking his brother with him. (Also, is it me or does Bezos look a little puffy in his Instagram video?) 

Balls in your court Elon...who was initially quiet about his antagonist's pronouncement, but later found a silver lining in Bezos briefly leaving earth. But as Electra King knows, The World is Not Enough for tycoons. 

Wakanda Forever: The Black Panther and Monetary Policy

Jeffery Preston "Jeff" Bezos is the richest, no wealthiest, person in the world worth $190 billion at last count. And that's an insane amount of money...but a natural question is how does his wealth stack up relative to others in history? And of course, everyone loves lists. So the good people at Money Inc. put a lot of thought into it and ranked the 20 richest people in human history, adjusted for inflation...And the winner is (drum roll): Prince T'Challa aka the Black Panther.

Just kidding, well perhaps not. Money ranks Mansa Musa (1280-1337) who ruled and expanded the Mali Empire in the 14th century as the richest person history with an estimated adjusted net worth of $4.6 trillion. In fact, T'Challa and Black Panther are very likely modelled after Musa. In Marvel's universe T'Challa is the wealthiest man in the world. Check. He rules an advanced African nation. Check. While Europe was in the dark ages, Mali was known at the time for its advance knowledge and technology. In fact, Wakanda is, as Vibe notes, just a "magnified, majestic version of Musa's Mali Empire." 

Here's a short history from TEDed:

During Musa's reign Mali was the largest producer of gold in the world at a time when the global demand for the rare metal was exceptionally high. It was during his 1324 pilgrimage to Mecca, the Hajj, that the wider world learned of his power and wealth. As he and his 60,000-strong entourage travelled from West Africa to Mecca, he reportedly gave away so much money to the poor that he inadvertently caused massive inflation in the economies of North Africa and the Middle East, the preemiment global trading hubs at the time. Think, in today's terms, not ZIRP or QE, but helicoptor money. As Kelsey Williams notes, "in the cities of Cairo, Medina and Mecca, the sudden influx of gold devalued the metal for the next decade. The prices of goods and wares [were] greatly inflated." 

But Musa did see the impact his actions were having. To help rectify the gold market, on his way back from Mecca, "Musa borrowed all gold he could carry from money lenders in Cairo, at high interest rates." He became an inflation hawk. It is the only time in recorded history that one man controlled the price of gold in the world. So, in addition to warrior and ruler, he was also effectively the Fed chairman of his time directing global monetary policy.

Now, I mention Musa because (i) his story and legacy is fascinating and important from both a historical and cultural perspective and (ii) there has been a great deal of bruhaha in the financial markets in recent weeks (once more) about inflation. And since the Aug 4th lows in yield, the price of 10-yrs Treasury note has plunged by ~28%. Now, we've written about a potential inflation head fake and we still believe that we are more likely in a secular stagnation (driven excess private savings over private investments) than an inflationary regime, but Musa's story does show that good intentions can have unexpected consequences. Musa acted quickly and forcefully to help manage the situation. The market right now is signalling that it fears the Fed will not or cannot if, in fact, inflation comes roaring back. Powell and Yellen can look back and learn from Musa. 

Amazon Announces New Boss

Amazon had a blowout quarter, with EPS higher by 118% over last year. But all that was overshadowed by the (somewhat) surprising announcement that Jeff Besoz was stepping down as CEO (he will remain Chairman) and handing over the reigns to AWS boss, Andy Jassy. Besoz will spend more of his time focusing on his space company Blue Origin (and beating Musk's Space X in every way).

AWS is Amazon's cash cow, responsible for 40% of its profits. And Jassy pioneered that business, begining in 2003. He's been with Amazon since 1997, almost as long as the company itself. You can check out his bio here.

Here's Jassy's memo to Amazon employees:

Hey Team. I'm assuming most of you saw the news from Jeffb today that he'll be transitioning to Executive Chairman in Q3, and that I will move into the role of CEO of Amazon at that time.

I'm excited for Jeff and look forward to watching his next chapter unfold. Seems a pretty good bet that it'll be something special. It's hard to overstate how much I've learned from Jeff over the past 24 years  - from how much I obsess over customers, to the importance of inventing and looking around corners, to the criticality of hiring and developing great people, to the value of high standards and consistently speedy, outstanding delivery. I am grateful for the opportunity to lead Amazon, and excited about what the future holds for the Company.

I'm also excited about what the future holds for AWS. Like the rest of Amazon, AWS is in a very good spot. At a $51B revenue run rate, growing 28% YoY [year on year], and with the meat of enterprise and public sector adoption starting to happen now, we have a chance to build a very unusual, long-term business. And more importantly, we continue to help millions of new and existing customers not only transform their own companies, but also entire industries. One of the amazing things about AWS and Amazon is that we're still such a small overall share of the market segments in which we address. It's still very early days.

Nothing is changing in the short term as it relates to AWS. You'll be stuck with me until Q3; and even after that I will always be passionate and connected to AWS. We have plenty of time to determine in the coming weeks who will lead the AWS business when I assume the new role. We will share those details in the future. We have unusual leadership depth in AWS that, along with all of you, are the heart of the business - and that doesn't change. In the meantime, stay giddied up - we have so many customers needing our help to transform and accomplish what they're trying to do. We won't be bored any time soon :-).

Andy