June 24, 2021
Situational awareness: Peter Thiel has somehow contrived to amass $5 billion in his Roth IRA, all from a single initial investment of less than $2,000.
- In this week's newsletter: Lina Khan vs. big tech; a new future for Fannie and Freddie; the small-business boom; the failure of COVAX; and much more. It's 1,755 words, a 6.5-minute read.
1 big thing: Lina Khan's mission
All of the world's trillion-dollar companies (with the exception of Saudi Aramco) are reportedly having what Protocol's Issie Lapowsky characterizes as "heart palpitations" over the appointment of Lina Khan as FTC chair. But don't expect anything drastic to happen soon.
Why it matters: Khan is the most fearsome foe that Big Tech could have imagined in America's top antitrust role — and her fans in Congress are making waves as well. But you'd never guess that from the giants' share prices, which have been hitting new all-time highs since the announcement.
How it works: There are two main reasons Khan doesn't seem to be worrying the markets.
- The first is financial: The markets don't necessarily see a lot of value in the giant companies being as big as they are. As the NYT's Shira Ovide points out, with size comes flabbiness and a lack of strategic focus.
- The possibility of break ups — spinning out the likes of Instagram and YouTube and AWS — could create value rather than destroy it.
The bigger reason for the market's sanguine reaction is that no one knows whether or how Khan will be able to permanently change the U.S. regulatory system's approach to antitrust.
The big picture: Khan is a lawyer who's acutely aware that even if she can reconfigure the FTC staff to align with her vision, those rulings would still need to be upheld by appointed judges in highly contentious and drawn-out court proceedings.
- Khan is also a journalist — and her most lasting legacy could be the degree to which she is able to use her FTC perch to shape the broader narrative about anti-competitive behavior.
Between the lines: Storytelling ability — which Khan has in spades — has had outsized financial rewards of late. But it could turn out to be even more influential with regard to changes in the way that regulators, jurists, and lawmakers think about foundational issues.
- Where it stands: For the time being, Robert Bork's vision of antitrust dominates the jurisprudential arena. That vision came not from any particular judicial ruling but rather from a book he wrote in 1978.
- Khan's compelling rebuttal of that vision put her on the map. Her job now is to use her bully pulpit — and her ability to hire and fire at the FTC — to start expanding the circle of people who embrace her approach.
The bottom line: What Khan wants is an almost total reimagining of the way in which antitrust is conceptualized. That's not going to come from, say, her agency's investigation into Amazon's acquisition of MGM Studios. It's going to take many years, and it's not something that financial analysts can even begin to start quantifying.
- Axios' Scott Rosenberg on how "the Goliaths are fully in command" of the transition to a new form of computer hardware — something that might normally provide opportunities for upstart competitors.
- Axios' Margaret Harding McGill and Ashley Gold on the divisions within Congress when it comes to bills attempting to rein in Big Tech.
Bonus: The huge get bigger
Apple, Microsoft, Amazon, and Alphabet are all at or near a $2 trillion valuation. Facebook is the most likely next member of the trillion-dollar club. All of them are in Lina Khan's crosshairs.
2. SCOTUS hits Fannie and Freddie shareholders
For an idea of how much influence jurists can have on a company's share price, look no further than Fannie Mae and Freddie Mac, whose prognosis has changed radically in the wake of a Supreme Court ruling this week.
The big picture: The Trump administration said that it was committed to removing the housing agencies from their current conservatorship, under which they need to remit all their profits to the government.
- The Biden administration, by contrast, is likely to embrace its de facto control of the agencies in an attempt to address structural problems with America's housing market, including racial disparities and the broad imbalance between supply and demand.
Driving the news: The Supreme Court ruled that the president can fire the current, Trump-appointed regulator, Mark Calabria. He'll probably be replaced by someone much less sympathetic to investors.
The bottom line: Stock in Fannie and Freddie has always been a high-risk bet on certain judicial outcomes. Those outcomes, today, are more remote than ever.
3. The small-business boom
One of the most unexpected pandemic winners might just turn out to be new small businesses.
Why it matters: The number of entrepreneurs starting a business easily hit a record high in 2020, according to a new analysis by University of Maryland economist John Haltiwanger. That's a surprising result, given the severity of the crisis.
The big picture: It's now much easier than it was in 2008 to start a small business selling goods or services online.
- By far the largest single sector of new business formation is "nonstore retailers," who account for one of every three new businesses formed over the pandemic.
- Be smart: Renting space on Instagram is a lot easier, and can scale a lot more quickly, than renting a storefront.
Physical businesses have been booming too — but largely in states where rents are relatively low, like Texas, Florida, and Georgia. Those states have seen much more new business formation than high-rent California, New York, and New Jersey.
- When the Wall Street Journal told the story of how businesses on one Chicago street are coping with the pandemic, it found that out of nearly 50 businesses on the strip, five had closed permanently — while 10 new businesses had arrived.
- Sectors seeing a lot of new openings include laundromats, trucking, and, possibly surprisingly, restaurants.
Of note: "The surge in applications for likely employer businesses is arguably not because of, but despite, the PPP program," writes Haltiwanger. After all, PPP money went only to old businesses, thereby giving them a competitive advantage with respect to anybody who wanted to start a new business after February 2020.
- Government help was also frequently slow to arrive, which implies that the real driver of new business formation was not the government but just the underlying wealth and hopefulness of individual Americans.
Between the lines: There's no solid data on how many small businesses closed during the recession. A recent Fed paper, however, suggests that about 130,ooo companies went out of business in the first year of the pandemic. That's up between a quarter and a third from normal levels, and much lower than many economists originally feared.
The bottom line: If the Fed's number is accurate, the total number of small businesses might well have gone up, not down, over the course of the pandemic. Either way, what's certain is that Americans have been starting small businesses at an unprecedented pace.
Bonus: 2020 vs. 2018
Another way of looking at the rise in new business applications is just to compare them, week-by-week, to the same period two years earlier.
- Applications from likely employers did fall quite sharply when the pandemic hit, but not by as much as you might think — they bottomed out at about 20,000 per week. They then bounced back rapidly in June, and have been significantly higher than their historical levels ever since.
4. The global vaccine failure
It's probably the biggest failure of international cooperation in decades — the way in which billions of people have been suffering through a pandemic with no access to vaccines, even as there are significant surpluses elsewhere in the world.
The big picture: Getting the vaccine out as quickly as possible to the people who need it most was "possibly the highest-return public investment ever," in the words of IMF chief economist Gita Gopinath.
- A $50 billion investment, by her calculation, would net $9 trillion in benefits. Yet it didn't happen.
- That's despite the fact that the World Bank alone "entered the pandemic with both the money and the mandate to quickly finance a global vaccination drive. It had roughly $50 billion available in grants, and a further $100 billion in lending capacity," per Justin Sandefur of the Center for Global Development.
What we're reading: Ann Danaiya Usher of The Lancet has a fantastic dive into the failures of COVAX, the doomed attempt to coordinate vaccine distribution internationally.
- How it works: Vaccine can't be produced everywhere — so the idea of COVAX was to produce in a small number of countries, and then distribute globally. That didn't work.
- Countries don't like to share. The U.S. kept all of its vaccine supply to itself until it had far more vaccine than it needed; India, similarly, stopped vaccine exports when its own emergency flared up. Poor countries have borne the brunt, but even rich countries like Japan and New Zealand are struggling to obtain the vaccine they're more than happy to pay full price for.
By the numbers: "Of the 2.1 billion COVID-19 vaccine doses administered worldwide so far," writes Usher, "COVAX has been responsible for less than 4%."
- Three bilateral deals — from the U.S., the EU, and the UK — managed to front-run COVAX by getting their orders in first. Those orders amounted to 1.6 billion doses, all of which had to be filled before COVAX could get anything. "Because COVAX did not have the means to compete, it was pushed to the back," writes Usher.
The bottom line: COVAX could have worked. But it was killed by the vaccine nationalism of the world's richest countries, none more so than the United States.
5. Coming up: An important inflation figure
The Fed’s preferred measurement for inflation, personal consumption expenditures, comes out tomorrow morning for the month of May, writes Axios' Hope King.
What to watch: May's annual reading will likely mark the peak of the base-effect jump from the depth of the pandemic, so the monthly figure — rather than the year-on-year figure — will be the one to watch.
- Excluding food and energy prices, month-over-month inflation is expected to slow to 0.6% in May from 0.7% in April.
6. Building of the week: Inhotim, Brazil
The Inhotim museum in Minas Gerais, outside the Brazilian city of Belo Horizonte, houses one of the largest contemporary art parks in the world.
- Designed by landscape architect Roberto Burle Marx and funded by mining magnate Bernardo Paz, the park sprawls over some 250 acres and places art on an equal footing with architecture, botanical gardens, and native forests.
- The park, always a work in progress, includes 18 single-artist pavilions, four multi-artist galleries, and various site-specific installations, including Beam Drop, a Chris Burden piece formed by dropping steel joists into a a 10-foot-deep pool of wet concrete.
- The 6,000-square-foot Adriana Varejão Pavilion, designed by Tacoa Arquitetos, was opened in 2008. A massive concrete cube seemingly levitates above a reflecting pool cut out of the forest.