Feb 11, 2021

Axios Capital

Situational awareness: Dating app Bumble soared by 82% in its IPO this morning, and is now valued at $15 billion. The company raised a eye-popping $2.2 billion in the offering.

  • In this week's newsletter: How Larry Summers has set the terms of the stimulus debate; a $4.7 million debit payment; and a deep dive into the meme economy. All in 1,813 words, a 7-minute read.
1 big thing: The inflation bogeyman

Illustration: Annelise Capossela/Axios

Can too much federal spending cause the economy to overheat? And is that a real risk of the Biden administration's $1.9 trillion economic rescue plan? The consensus answers to those questions are yes and no, respectively.

Why it matters: Fear of inflation has emerged as the single biggest reason for Democrats and Republicans to oppose the latest round of stimulus. For the time being, however, most economists expect that inflation will remain subdued, even if the full package is enacted.

Driving the news: Former Treasury Secretary and semi-professional Democratic Party picnic skunk Larry Summers sparked a wonkish firestorm last week with an op-ed declaring that the package is too big. In doing so, he successfully managed to set the macroeconomic terms of the stimulus debate.

  • The risk, as Summers sees it: that more money will be spent domestically than the American economy has capacity to absorb. When that happens, prices can end up rising, in a process known as demand-pull inflation, as consumers compete with their dollars for a finite set of resources.
  • The losers from inflation are savers and anybody living on a fixed (non-inflation-adjusted) income. The winners are generally fixed-rate debtors, which includes most Americans with mortgages.

The big picture: The broad economic consensus, both within and outside the Biden administration, is that the magnitude of the current crisis necessitates a very large response, and that $1.9 trillion is not too big.

  • Most economists, however, agree that in principle there is such a thing as too much government spending, even if we're not yet at risk of reaching that point.

What they're saying: "Could fiscal policy push things too far? Sure," says Stony Brook economist Stephanie Kelton.

  • "Do I think the proposed $1.9 trillion puts us at risk of demand-pull inflation? No. But at least we are centering inflation risk and not talking about running out of money. The terms of the debate have shifted."

Between the lines: Fear of runaway inflation could be overblown, especially in an economy where weak or nonexistent unions have little power to negotiate above-inflation wage deals.

  • The official position from Fed Chair Jay Powell, speaking at an event on Wednesday, is that "there could be upward pressure on prices" as the economy reopens, but that any such pressure is likely to be "neither large nor sustained."
  • Besides, if inflation ticks up, says Treasury Secretary Janet Yellen, "We have the tools to deal with that risk." As a former chair of the Federal Reserve, she is better placed than almost anybody to make that claim — it is the Fed that's charged with raising interest rates when inflation risks going too high.

How it works: Rising inflation is not always a bad thing. In moderation, it's exactly what the Fed wants.

  • If a fast-growing economy caused rising inflation and the Fed raised rates to slow growth to a more sustainable level, that could normalize interest rates and inflation after more than a decade when both of them have been abnormally low.

The bottom line: As Mae West famously said, too much of a good thing can be wonderful. When weighing the potential risks of spending too much, it's important to bear in mind the potential benefits, too — including a wealthier, healthier populace.

2. The what-goes-up stock-market worry
Expand chart
Data: YCharts; Chart: Axios Visuals

A separate stimulus-related worry is that another round of checks to households could push an already-frothy stock market even higher. If the stock market bubble were to burst, that would cause a significant loss of wealth.

  • By the numbers: The S&P 500 closed at a record high of 3,915 on Monday. That's up 5% from the beginning of this year, up 75% from the March low, and up 259% from the absolute peak of the stock-market bubble in August 2000.
  • Most stock market wealth is held by the rich, however. A stock-market crash, combined with unemployment assistance and other help for the poor, would help to reduce inequality — and might not even do much harm to economic growth.
3. A $4.7 million debit charge

Illustration: Aïda Amer/Axios

Thanks to a quirk of the U.S. payments processing infrastructure, some taxpayers are getting thousands of dollars in cash back on their 2020 tax payments.

How it works: If you write a check to the IRS, you're never quite sure when they will cash it. There's a similar uncertainty if you allow the agency to debit your tax payments directly from your account — you don't know when that will happen. There's a little-known third option, however, which is entirely under the taxpayers' control.

  • If you pay your taxes by debit card, the IRS will charge you a flat fee of about $2.55. That fee gives you complete control over exactly when the money leaves your account.

Driving the news: One taxpayer with an account at neobank Jiko used its Debit Cards Cashback Rewards Program to make a $4.7 million tax payment, according to Jiko CEO Stephane Lintner.

  • Jiko allows customers to create a virtual Discover debit card that's valid only for a certain merchant — in this case, the IRS. So there's no risk that some other payee might inadvertently be able to get access to such funds.
  • The bank also offers 1% cash back on all debit card purchases — which means that this transaction resulted in a $47,000 payment back to the customer.
  • "I am quite sure this is the largest consumer debit transaction ever," says Hans Morris, a former president of Visa who now runs Nyca Partners.

The IRS received the full $4.7 million, but under the Byzantine agreements governing debit transactions, the IRS's payment processor had to pay more than 1% of the transaction back to Discover and thence to Jiko. That allows Jiko to pay 1% on to the customer.

The bottom line: "This is probably not going to last," Lintner tells Axios. But the payments industry moves very slowly — so it's almost certainly going to remain at least through April 15.

4. The meme economy

Illustration: Aïda Amer/Axios

Attention is a commodity, which means that memes — a way of focusing and scaling attention — are a way to create value. No one understands this better than Elon Musk.

Why it matters: People expert in propagating memes are finding that their skills can make them millions — or, in the case of Elon Musk, even billions.

Driving the news: Tesla converted $1.5 billion of its cash into bitcoin last month. When the news of the purchase became public on Monday, the value of the world's bitcoin rose by about $90 billion while the value of Tesla rose by about $8 billion.

  • Since Musk owns more than 20% of Tesla, his own net worth went up by well over $1 billion as a result of the announcement.

The price action ratified Musk's power as a memelord — someone who can focus the attention of millions on a single meme.

  • In recent weeks he has also helped to pump up the price of Dogecoin, a joke cryptocurrency with no supply constraints; there are now so many Dogecoins in circulation (almost 130 billion) that their total value exceeds $10 billion.
  • Other Dogecoin pumpers include Snoop Dogg, Gene Simmons, and social-media influencer Amanda Cerny.

The bottom line: The meme economy is where FOMO meets YOLO. Engage only with your irony dial set to 11.

5. Why Tesla went meme
Expand chart
Data: YCharts; Chart: Axios Visuals

When Tesla spends $1.5 billion on bitcoin and announces that it will start accepting the cryptocurrency as payment for its cars, it's natural to ask why it would do such a thing.

What's happening: Musk's move is a show of strength. It displays his leadership in a new domain — cryptocurrencies — and it also cements Tesla's position as a company that can afford to invest $1.5 billion in a risky non-core venture. The company has come a long way from its near-death experience in 2018.

The big picture: Tesla is closely aligned with bitcoin in terms of market value, which makes it seem that as far as the markets are concerned, what's good for bitcoin is good for Tesla, and vice versa.

  • By making such a large bet on bitcoin, Musk becomes something of a hero to the bitcoin faithful. Those people are often affluent, tech-savvy early adopters — exactly the market that Tesla is targeting with its cars.
  • Thanks to Musk, Tesla can do things no other car company is capable of — like, for instance, becoming instantly and indelibly associated with bitcoin in the public's mind.

Our thought bubble, from Coindesk's Zack Seward: The news of the bitcoin buy follows an escalation in crypto memery from the Tesla founder in recent weeks. Crypto was early in seeing “meme strategy” as a legitimate community engagement technique.

The other side: By investing in a technology with an enormous carbon footprint, Musk risks tarnishing Tesla's environmentally responsible credentials.

6. Memes as economic stimulus

Illustration: Sarah Grillo/Axios

The current stratospheric levels of cryptocurrencies in general, and Dogecoin in particular, can make it a lot easier to spend money.

Driving the news: Another part of the thinking behind the Tesla announcement is that for someone sitting on a lot of bitcoin, it's psychologically easier to transfer a single bitcoin to Tesla than it would be to try to write a check for $40,000.

  • An economist would say that transferring the bitcoin is exactly the same as selling the bitcoin and spending the proceeds. Which goes to show the limitations of economics.

For instance: Vitalik Buterin, one of the founders of Ethereum, announced this month that he had transferred exactly $4,280,784.20 of his crypto assets to GiveDirectly, the nonprofit that gives cash payments to the neediest people in the world.

  • "They take crypto," he wrote — a decision on the charity's part that clearly paid off handsomely. Buterin then added cheekily: "They don't yet take DOGE directly but maybe that can change."
  • GiveDirectly didn't need to be asked twice — they immediately set up a wallet for Dogecoin donations.
  • The result: Elon Musk donated 150,000 Dogecoin, worth just over $11,000. His tweet helped precipitate a rash of other Dogecoin donations, too.

The bottom line: Crypto can feel divorced from reality, in an easy-come-easy-go kind of way. Weirdly, that can make them an excellent fundraising vehicle.

7. When the meme economy meets luxury goods

Photo courtesy of MSCHF

If you take the logic of artificial scarcity to its ludicrous logical conclusion, you would end up with something like Birkinstocks, sandals priced at between $34,000 and $76,000 per pair that are made from destroyed Hermès Birkin bags.

  • MSCHF, the company behind the Birkinstocks, specializes in creating viral content that reveals the absurdity of the contemporary economy — while also making a tidy profit. Each pair of Birkinstocks costs almost double the price of the bag that it's made from, and each bag produces at least two and possibly even three pairs of shoes, depending on how big the buyers' feet are.
  • Expect a large chunk of MSCHF's profits to go towards defending the inevitable copyright-infringement lawsuit from Hermès.
8. Softbank's golden eggs

Softbank reported fantastic quarterly results this week, including an $11 billion net profit, which naturally meant a glorious slide deck would accompany them.

9. Coming up: Walmart earnings

Illustration: Aïda Amer/Axios

Walmart is the first major retailer to report earnings next Thursday morning.

Why it matters: The nation's biggest retail chain has emerged as one of the pandemic's few retail winners. It had a record year as its e-commerce platform became essential for things like groceries.

By the numbers: Analysts estimate Walmart's holiday quarter was the company's best ever. 2020 sales are estimated to top $550 billion, according to FactSet.

10. Building of the week: Kamppi Chapel, Helsinki

Photo: Sergi Reboredo/VW PICS/Universal Images Group via Getty Images

The Kamppi Chapel of Silence, built by K2S Architects in 2010, is an oasis of calm in one of the busiest districts of Helsinki.

  • Interior illumination comes by way of a small gap around the ceiling, which allows sunlight to cascade down the rough texture of the (locally sourced) spruce wood plank structure.