Dec 10, 2020

Axios Capital

Situational awareness: The ECB beefed up its stimulus by $600 billion this morning, while also releasing its no-deal Brexit contingency plans. Here in the U.S., stimulus talks keep on dragging on. Maybe a dreadful jobless claims number will create a bit more of a sense of urgency.

  • In this week's 1,931 words (a 7-minute read): The economics of vaccine priority, the case against Facebook, why people hate Slack, the money that charities aren't receiving, the boom in stock issuance, how Airbnb is doing, another dubious corporate rebrand, and much more.
1 big thing: An economic tradeoff everyone agrees on

Illustration: Annelise Capossela/Axios

All lives are equally valuable. That's the strong consensus emerging from the many different countries and organizations that have struggled with the question of who should get first access to the COVID-19 vaccine.

Why it matters: The current scarcity of the vaccine looks like an economics problem — too much demand, and not enough supply. But no one is seriously proposing a market-based solution, where the vaccine goes first to those willing and able to pay to jump to the front of the line.

The big picture: The National Academies of Sciences, Engineering and Medicine have constructed an ethical framework based on three considerations.

  • Maximum Benefit means that the vaccine rollout should be designed to save the most lives, care first for those most in need, and prevent new infections. It does not include any economic considerations.
  • Equal Concern is the principle that "every person has equal dignity, worth, and value." This principle makes it impossible to look at economic concepts like "life-years," which, as the American College of Physicians points out, are "inherently biased against the elderly and the disabled."
  • Mitigation of Health Inequities means that populations experiencing the greatest burden from the disease should receive priority.

Details: No vaccination program will manage to abide perfectly by these ethical standards. If individual states receive vaccine allocations according to their overall population, for instance, that would violate the third principle. Maine's population is much older than Utah's, and Montana's population is much whiter than Mississippi's. But age and race are highly correlated with vulnerability to COVID-19.

  • There is universal agreement, however, that health workers and people in nursing homes should get the vaccine first, and that there should be no formal mechanism whereby individuals can buy early access to the vaccine.

What to watch: Rich people will get early access to the vaccine, just as they are currently getting access to antibody therapies. By the time the World Economic Forum holds its annual meeting in Singapore in May, it's a safe bet that many delegates will have managed to get themselves vaccinated somehow. (Which will surely come as a relief to Singapore's public-health agencies.)

  • Such vaccinations will probably be accompanied by sheepishness, however, since they will clearly be unfair.

Between the lines: Ethical considerations seemingly stop at national borders. Vaccine allocation according to ability to pay is shameful within countries — but has already largely determined vaccine distribution between countries.

  • Of note: The opportunity cost — measured in dollars — of taking the ethical path is impossible to calculate with specificity, but is certainly enormous. A GDP-maximizing algorithm would give large early allocations to healthy high-earners and would place little comparative value on the lives of the elderly.

The bottom line: We've finally reached a point at which there is an unambiguous tradeoff between economic activity and public health. To our credit, we've chosen the latter.

2. Facebook in the crosshairs

Illustration: Sarah Grillo/Axios

"For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users... Almost every state in this nation has joined this bipartisan lawsuit because Facebook’s efforts to dominate the market were as illegal as they were harmful."
— New York Attorney General Letitia James

The government officially now wants to break up Facebook, as well as Google.

  • That's going to be one of the biggest differences between the Biden administration and the Obama administration, write Axios' Kyle Daly and Ashley Gold.

The intrigue: Facebook, along with Twitter and Google, has been a favorite punching bag for President Trump, who claims Big Tech is biased against him and other conservatives. But the case is apolitical. It won backing from the agency's two Democratic commissioners, as well as Democratic prosecutors around the country.

Between the lines: The cases are in some sense a rebuke of the Obama administration's regulatory policy, which broadly looked on tech combinations as part of Silicon Valley's virtuous cycle of growth and innovation.

3. Slack and its discontents

An actual message that appeared in the Axios Slack yesterday.

Thank you! The replies I got to my question of why Zoom has done so much better than Slack were incredibly smart and insightful.

  • The biggest surprise, to me, was how many people really hate Slack.
  • I probably shouldn't have been so surprised, given that Axios editor in chief Nick Johnston Slacked me at 8:31am on Dec. 9 of last year to say "I hate Slack." (Slack stands for "searchable log of all conversation and knowledge," which is another reason people hate it.)

The big picture: People hate Slack because it's intrusive — it's a bit like open office plans, but arguably even more annoying. Here's how writer Cassie Marketos put it to me:

I cannot emphasize enough how much I hate Slack in the workplace. Complete resource drain and assault-on-focus. The endless pings, encouragement of gif usage (I hate gifs), and the endless pings. Have I mentioned the endless pings?
Good work happens with structured collaboration, balanced with deep processing and thinking time. And work Slack makes it too easy to not be alone. It's also designed, overwhelmingly, for quickness. It's too polished, too constant, too FUN. Frankly, I sometimes need my tech to be boring, so it can serve as a utility and not a theme park.

Between the lines: If your pre-Slack workflow worked for you, then Slack can feel like a toddler constantly demanding attention.

  • Email makes it easy for non-urgent conversations to happen over days or weeks. Slack makes that kind of communication very difficult.
  • Early adopters loved Slack's plugins and coolness (you type in Markdown!), but the bells and whistles can present a steep learning curve for other folks — with no real reward at the end.

Between the lines: Slack is weirdly hermetic. It's hard to open up a Slack to people outside the organization, which in turn helps to hinder broad adoption. Almost everybody has used Zoom at this point. The same is far from true of Slack.

The bottom line: As reader Elie Jacobs put it to me, "Slack is just something else to worry about."

4. The billions that charities aren't receiving

Illustration: Aïda Amer/Axios

I led a deep dive into philanthropy last week, where my colleague Jennifer Kingson noted a large increase in money going into and out of donor-advised funds, or DAFs.

Why it matters: Now is exactly the kind of rainy day that should prompt philanthropists to finally give away the money they've been saving up.

  • In reality, although disbursements from foundations and DAFs are up, most of them are still going to end the year with more money than they started it with.

Between the lines: DAFs are all very secretive about the actual amount of money they have — a clear indication that they're hiding something. But professors Ray Madoff, of Boston College, and Jim Andreoni, of UC San Diego, have calculated the true payout rate for DAFs, as well as what they call the stockpiling rate — the rate at which unspent funds in these vehicles are increasing.

By the numbers: The most recent data for most DAFs comes from 2017. In that year, the average commercial DAF had a payout rate of 15% and a stockpiling rate of 22%.

  • Fidelity Charitable, the biggest of them all, had a payout rate of 15.1%, while its competitor Vanguard Charitable paid out just 9.5% of its assets that year. The true numbers are almost certainly lower still, once you take into account "donations" that are in reality just transfers of funds from one DAF to another.
  • The total amount of money in DAFs now exceeds $120 billion, while foundations — which often pay out the bare minimum of 5% each year — control about $1 trillion in unspent funds.

The big picture: Rich individuals and institutions have proven by their actions that they hate to see the amount of money they control decline, even after it has been earmarked for charity. That's why huge funds like the Ford and Rockefeller Foundations have borrowed the extra money they're giving away this year.

The bottom line: Pledging to give away your billions is the easy bit. Actually doing it — giving away so much money that your wealth goes down rather than up — is much rarer.

5. It's a great time to sell stock
Data: Dealogic; Chart: Naema Ahmed/Axios 

The stock market's record highs mean that now's a great time to sell astonishing quantities of new equity.

Driving the news: Door Dash raised $3.4 billion in its IPO this week, Airbnb raised $3.5 billion, and Tesla announced that it was going to raise $5 billion in new secondary sales — on top of $7 billion in stock it sold earlier this year. All of these deals are at or near record-high sizes for 2020.

  • What they're saying: "For less than 1% dilution, it probably makes sense" to raise $5 billion, said Tesla CEO Elon Musk on Tuesday. In a very Elon Musk afterthought, he then added: “What is money? It’s an entry in a database.”
  • The timing is perfect, given that index investors will be forced to buy the Tesla stock when it joins the S&P 500 on Dec. 21.

Context: The DoorDash, Airbnb, and Tesla offerings, giant as they are, between them account for less than 4% of the IPO and follow-on issuance this year. If you include special-purpose acquisition companies (SPACs) and convertibles, these deals are less than 2.5% of the total.

The bottom line: While the biggest deals get the biggest headlines, the real story is the sheer number of other deals being done. As Axios' Courtenay Brown noted on Wednesday, the 797 follow-on deals so far this year, the 342 SPAC deals, and the 175 convertible bond deals, all represent highs dating back to at least 2010.

  • Even the airlines are getting in on the action. JetBlue, United and American all said they would raise capital by issuing new stock in the past month.
6. The limits of Airbnb's rebound
Data: Edison Trends; Note: Indexed to 100 = highest weekly spend at Marriott; Chart: Axios Visuals

While Airbnb is surging on the stock market, its fundamental business might not be quite as healthy as I thought back in September, when an Edison Trends report showed consumers spending 86% more money with the company than they did during the same week of 2019.

Why it matters: Edison Trends strips out any transactions over $30,000, but there are still outliers near that amount — very expensive rentals for multiple months, perhaps — that can skew the aggregates. When the company went back to re-run its data with a different cohort of users, the difference between 2019 and 2020 largely disappeared.

By the numbers: Airbnb is still at or above its 2019 sales, per Edison Trends, and is roughly even with Marriott. But Marriott has a lot of upside since it's still 45% below its 2019 levels.

The bottom line: Airbnb has executed an astonishing bounce back from existential crisis to a $106 billion valuation. But a backlash might be brewing.

7. A rebrand only the stock market could love

Petco's old and new logos.

Another company jumping onto the IPO bandwagon is Petco. Maybe that helps explain the retailer's dull new logo.

  • What they're saying: "It’s a technically better logo," writes Armin Vit of the indispensable Brand New website, "but it’s far too devoid of any personality. For now, it’s as dry as kibble."
8. Coming up: The Fed meeting

Photo illustration: Aïda Amer/Axios. Photo: Drew Angerer/Getty Images

The Federal Reserve's last policy decision of the year comes on Wednesday, writes Axios' Courtenay Brown.

What to watch: The Fed will update projections for economic growth, unemployment, inflation and interest rates for the first time since the coronavirus got worse and there's been significant vaccine progress.

No changes are expected on the interest rate front (rates are already near zero). The big question is what the Fed says about its asset purchase program.

  • Some economists expect a shift in an effort to stimulate the economy, either by upping the current pace of $120 billion bonds per month or buying longer-dated bonds. But Fed officials have signaled otherwise.
9. Building of the week: The Nathan G Moore house

Photo: Raymond Boyd/Michael Ochs Archives/Getty Images

It's very pointy and definitely not flat-roofed, but, yes, this is Frank Lloyd Wright: A house he designed in 1895, back when he was green enough to feel that he had to say yes to his client's requests.

  • The house sits in Oak Park, Illinois, just one block away from Wright's studio.
  • A 1922 redesign after a major fire allowed Wright to add some whimsy and modern touches.

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