Flagship Pod: Big Tech Gets Destroyed During Earnings Season

Every single Friday we host a live discussion in our Discord Channel at 12:00pm EST. This gives you the opportunity to ask us questions and hear our thoughts on the things you want answers to!

Here are the 4 key things we went over for this week: 

• Why Facebook fell so hard on their earnings call this week

• How Microsoft will bounce back from lower cloud profits

• The fallout from Elon Musk finally closing his Twitter deal

• Why the market is up when big tech is down so much

If you'd like to listen live and ask us questions throughout the next live session, just join the weekly Friday afternoon session at 12:00pm EST.

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Check out a broader summary & transcript below! 

Peter Starr:
From Moby.co, this is the Flagship Pod, a weekly live podcast about the stock market, the economy, and the various market forces powering the world around you. As always, I'm your host Peter Starr, bringing just pure exhaustion. It has been an absolutely wild week here in the market. We had earnings for all of our top tech stocks who all got hammered except for the safe harbor of Apple stock, even though it's also technically down on revenue. Meanwhile, the Dow is up for the fourth straight week, as we're seeing this divergence between profitable stocks and value and growth stocks.

Joining me as always, folks, to go through that mayhem is Justin Kramer, CEO, co-founder and chief analyst here at Moby.co. Justin, dude, you're right there with me. It has been genuinely way too much to keep up with this week. I have no idea how we're going to cram this into half an hour. What's good, man? How do you feel about the market overall?

Justin Kramer:
Yeah, this more so than the past weeks or even months for that matter, there's a lot to unpack. It's earning season, so it's to be expected. I'm even happy to go over our normal 30 minutes here if we want to try and squeeze in a lot of the questions and things we want to address. But, yeah, to your point, there's a lot to cover today. Markets are responding good, bad, all over the place, depending on which sectors, coverage, economy, news you're following. So, there's a lot to discuss today, and like always, we want to dive into the Russia stuff because it's super important. Talk about earnings, talk about the economy, and just everything in between. So, there's a lot to unpack today, and if you've been paying attention to the news, there's some huge, huge changes going on.

Peter Starr:
Exactly. There's a lot of nuanced stuff to go into. Just one thing I would like to just get out in front, I'm really excited to see it's a great time to be building. Caterpillar stock is up huge, up 15%. That's obviously the biggest news this week, nothing about big tech or anything. No? Okay. Let's get into the actual meat of it. So, all four of the big tech firms reported earnings this week. You had Microsoft, you had Alphabet, you had Meta, you had Amazon. Apple was in there too. We don't want to talk about Apple. They're diverging from the narrative right now, it's annoying.I don't even know how to begin breaking this down, so I'm just going to go in order of who reported.

So, we had Microsoft and Amazon both get just pummeled by reduced expectations for cloud revenue, Justin. Let's break this up first, let's talk Amazon and Microsoft first, and then we can get into the real mayhem news, which is Meta and Alphabet. Can you take me through, is it just, are people not adopting the cloud anymore? What is the deal with the profitability over at Microsoft and Amazon causing these huge, huge swings in their stock price downward this week?

Justin Kramer:
Yeah, there's a lot to unpack to your point. For Amazon specifically and cloud revenue and their overall business, there's a few places that analysts were honestly just wrong, even though us and a lot of other people remain overweight. So, first off, retail and their AWS business, which is pretty much the core of their revenue at this point, are slowing faster than people expected, which ultimately is going to lead to slower efficiencies, and EBITDA growth and all the things that investors care about. Having said that, we still do see some efficiencies coming in next year, and Amazon truly is positioned to take more market share within retail and enterprise, post whatever downturn we're seeing now. But given where Amazon's currently trading, they're actually at a pretty good valuation. They're trading at 10 to 11 times next year's EBITDA, which is at a discount to historical numbers, but the slowdown for them has really arrived, so I don't want to understate that. Revenue was 7% below expectations, which is pretty substantial. They're seeing slowing consumer trends across the US and Europe.

We did talk about, last week, how MasterCard is seeing increasing trends. Amazon's seeing the opposite, which I think is more indicative of what's going on right now in the economy. And AWS is starting to see more of a slow down as well. A lot of their contracts with their consumers, or their customers rather, are looking to renegotiate their pricing and just either transition to lower price models, or just get off it all together. So, overall, this slowdown, it's a little bit slower than most people thought, and that's why we saw the share price fall off a cliff. But it's to be expected going into what will ultimately, potentially be a recessionary period over the next six to 12 months. So, lower profitability, lower efficiency. But in the long run, their strategic positioning is exactly the same. AWS, over the long run, their retail product over the long run, we're still extremely confident in, it's just the foreseeable headwinds that we're seeing right now given the overall slowdown in general.

Peter Starr:
And what you're seeing is just a lot of overreaction to earnings. This is what you have to play in earnings season, folks, especially during a downturn period. If you're a newer investor looking for an always-win trading strategy when you're trying to think about how to add to your portfolio, always try to trade around the volatility of earning season, when you have your big bet stocks. Microsoft has already pushed past a lot of its downturn from this week. It got as low as about 8% down, but now, well, it's up 2% today, and only down 5% for the week, because Microsoft was first to report amongst this big bucket of FAANG stocks, and the market definitely overreacted to them having a little bit less profitability in Azure, and obviously a lot of headwinds from the strong dollar, from a lot of smaller factors are just pushing against, well, inflation in general of course.

So, their Azure profitability, it beat expectations but is technically down from where they also wanted it to be, and will be down further for the year and that's what's causing Microsoft to go down. Is this one of those things where it's just a temporary headwind as people readjust what PE ratios they want out of these big stocks? Or is this something that we can see more? Are we going to be in the penalty box for a while or are we pushing past all the bad headwinds here, Justin? What do you think about that?

Justin Kramer:
Yeah. So, for Microsoft, the Azure product is in a similar situation to AWS, whatever headwinds AWS is going to roll, or run into, rather, the same thing's going to ultimately happen with Microsoft. They're not immune. If anything, their headwinds are probably a little bit more, because they don't have penetration in the market the way that Amazon does. For those of you who are unaware, Amazon is much more entrenched in just overall cloud services than pretty much anyone else is. They're the ones who started it. Not to get too much off into a tangent on a side note, but they built it internally, then realized it was a product they could roll out externally, so they're definitely the market leader there, which is a long-winded way of me saying that ultimately, they have more market share there and they can get around a little bit of any cyclicality in the market right now, and Microsoft is not going to be able to do that as much.

Having said that, Microsoft has a lot of other products that they rely on. They have gaming, they have hardware, they have software. There's a lot going on, just like any other company. So ultimately, yes, Azure is going to slow down, rising costs are going to go there as well, and growth was less than expected this quarter, again, following a very similar trend to Amazon. And then outside of that, the overall strength in the dollar, again, is hurting their business. Right now, the EU, other countries are starting to raise rates, and so that should hopefully negate some of these factors in the long run, but in the short run, when you are getting paid in a foreign currency that is depreciating, when you bring it back over to US dollars, it's worth less.

So, that really hurt for headwinds as well. And then, again, just overall shortages in the market for semis. It's been a lot of the same story there. So, very similar to Amazon. Still love Microsoft over the long run. They're an amazing company, and they've shown to grow, but in recessionary periods, these companies are going to get hit. It's just inevitable, but it's part of the ride unfortunately.

Peter Starr:
And you keep saying the phrase recessionary periods, Justin, and that's causing a little bit of froth in the question zone, because what we also saw this week, we're going to get back to earning season in a second, but this is a good place to diverge real fast on a tangent. GDP went up 2.6%, and was only supposed to go up 2.3% quarter over quarter. Is this even a real recession, or are we just in a headwind zone? What do we actually call this? I know we had two consecutive quarters of negative GDP growth, but now that we're just back, I guess, how can we even keep calling this a recessionary period? This is the most genuinely bonkers, hard-to-label time I've had to deal with in my entire time of thinking about and analyzing the market. What's the deal with the GDP going up with everything else, dude?

Justin Kramer:
Yeah, we've talked about this for a while, how resilient the market's been, or the economy, rather has been. Fed is raising rates like crazy to things that haven't been seen in years. Real estate markets are slowing down, markets have crashed, but the economy has been pretty resilient. Unemployment is still very low, while inflation is obviously high. And then, we saw GDP come out, and it's proving to be very well. So, you can ultimately translate this in two ways. The first way is that the Fed, I would imagine, from the way that they typically react to these things, is it's not necessarily a good thing that GDP increased. They are trying to slow down the economy, not help it continue growing. They don't want to push us into a full-out recession.

But when they see that GDP has grown so much, I know the market reacted positively to it earlier this week because they're happy we're not in a recession, but I think it ultimately gives the Fed more confidence that they can continue raising rate and that we have a very, very resilient economy that can ultimately withstand higher rates because dating back to former Fed presidents before Jerome Powell and dating back to the eighties when Paul Volcker was in office, the Fed funds rate was 20%.

So you think rates are high now sitting around, the 30 year mortgage's around 7%, imagine around 20. I'm not saying we're going to get back to that place, but the upper ceiling for this is not even close to where we are now. So I think while yes, we're not in a recession now, I think those numbers are ultimately going to give the Fed more confidence that they can raise rates. So, yeah, to clarify, we are definitely not in a recession right now, but I think that you're starting to see the slow down in the economy, even though GDP growth is maintained, you're starting to see other cracks slip through. And if the Fed continues to raise rates, I think they're inevitably going to put us in one regardless of whether they're trying to or not. So yeah, definitely good to clarify there. Not in a recession, I think we are moving towards one. And I think while good GDP is a measure of a strong economy obviously, ultimately I think it's going to push the Fed in the wrong direction as they look to get inflation under control.

Peter Starr:
And that's going to be one of those things where you have to watch a lot of different factors to see how the Fed's going to react. You're seeing a lot of the boost in stock prices, especially on the Dow, come from mild confidence that we're going to see some Fed pivot moving forward, even though the Fed has given no indication they're going to do anything but raise by 75 basis points moving forward. So once again, I am telling you to look forward to two weeks from now when A, there's some midterm elections or something. And then B, we're going to get CPI data, which will tell us how aggressive the Fed needs to be moving forward. So it's one of those things where if this doesn't actually turn into a full-blown recession, if the Fed can raise rates and the stock market and economy stay this resilient, it's one of those things that is one of the most genuinely bullish indicators for just neoliberal capitalism ever.

It's one of the greatest successes of this hundred-year experiment we've been having in this capital economy. Not saying it's going to happen, I'm just saying it's one of those things where the downturns have gotten less bad, the bold periods have lasted longer, and if we can avoid a full-blown catastrophic recession with all of the pressure on our economy right now, huge win in terms of a macro scale, but not calling that moving forward. Getting back to earning season though folks, just trying to understand what's happening because one of the primary drivers or a lot of the wealth creation we saw in the last 10 years were these giant social media stocks. And we're watching the leader of the pack collapse in real-time. Justin, Meta is down 25%. It's stock after earnings got sent back to 2015 back when Biden was just a we VP. What is happening, dude? Is this a controlled demolition just to make the metaverse happen? Can Meta come back from this? I want to buy Meta right now, but I feel spooked by it.

Justin Kramer:
Yeah, if there's any story to pay attention to, it's this week, it's Meta or I refuse to call it Meta even though I'm just going to call it Facebook because I can't get around it.

Peter Starr:
It's the Zuckerverse.

Justin Kramer:
Yeah, that works too. But for Facebook, they've lost almost $750 billion in value over the last 12 months, which is insane. There's only, I think, five to six trillion-dollar companies in the world. They were one of them and now they're worth close to 250 billion, which is absolutely insane if you actually think about how much of a drop that is, that is-.

Peter Starr:
That's wiping several small countries out of existence, that is the capital equivalent of a meteor hitting several micronations. It is insane, dude.

Justin Kramer:
Cannot be understated how insane that is. They still make a lot of money. They're making close to a hundred billion dollars a year and they're valued to 263. So two to three X revenue to your point, it's hard not to want to get involved. They have billions of users, they're making hundreds of billions of dollars. Take all the fucking noise out of it. It's hard to say, Oh, this isn't a good stock to buy right now. So if that's how you feel, I get it. And if you want to make a bet that Mark Zuckerberg isn't going to burn his own house down, then that's a bet that I would totally understand and am tempted to make myself. Having said that, they're going to spend over $70 billion on this Metaverse product that they don't even know anyone wants. And they're totally transitioning a hundred billion business from social ed advertising to a metaverse product that is very hardware-driven that ultimately will have advertising in it, but is a fundamental shift from what's going on.

And the reason it's honestly gotten to his point is because Mark Zuckerberg has all of the voting rights, something that people typically don't talk about, but when they went public, he very smartly for his own sake, was able to retain a lot of the voting rights. So the board of directors, investors, when they would typically try to oust a CEO for going off the deep end or doing something terrible, that's how they reel them in and they vote them out, they get them out. But with him, he has all the voting rights. So it's going to be significantly harder to push him out if that's the path they want to be taking. But I would imagine right now in conversations with their board, it would be shocking if ultimately they did not understand or try to understand what was going on right now. They need to ultimately push them or make a change. They can't spend $70 billion, which is basically all of their revenue trying to build a product that no one knows what they want or not.

 
Peter Starr:
Okay, quick spot bet here, Justin Kramer, this time next year, Q4 2023, Mark Zuckerberg, CEO of Meta or not?

Justin Kramer:
Yeah, that's definitely a tough question. I think he will be, I think similar to people who would probably want to make a bet on the stock right now, being down 70% over the last year, I would be very hard pressed to believe that this stock can fall significantly further and he's going to have to, similar to what's going on with Twitter right now, make some core investments in their product, I would think. If I'm wrong, then I think he'll be out by this time next year or at least they'll be having a lot of conversations. But I'm making the bet he built this company from the ground up that he's not going to let it continue to squander for another 12 months. So I think he'll still be there.

Peter Starr:
Understood. And audience, just to give you some more really contrarian things to think about, two opposite ideas in your head, just keep in mind that again, he is shoving all of this money, destroying Meta's profit margins into this metaverse product that you're hearing a lot of negative press about. You may not have even heard about the huge PR push that had happened in the past week and a half where people were showing off the new Meta product, the new Meta Quest, the least watched MTB HD video of all time showcasing the productivity features of the new meta VR headset. Nobody talked about it because people "don't want it." You can hold that idea in your head and be like, Oh God, the Metaverse is going to totally collapse. But then realize that on the video game side of things, the Oculus Quest has outsold literally every single video game console in the past two years.

So we can say nobody wants this for productivity, but at the same time on a device level, it's winning in some capacities. Gaming is negligible before both Microsoft and Sony in terms of profit drivers. It just feels like a branding exercise at this point. But it's just something to keep in mind as well. Nobody wants Meta, but everybody wants the device in terms of certain niche areas. So it's going to be really interesting to see if that niche can keep growing and drive adoption as well. I am not bullish on Meta in any case, but I want to make sure that you have all the information. This is such a weird and complicated moment in the lifetime of this company.

Either Mark Zuckerberg is going to prove to himself in the one that he's this defiant, beat everyone, despite the odds kind of person that he's thought of himself since he started Facebook back in the early 2000s, just go watch the social network. Well, watch the social network too in 15 years. And either it's his collapse or his ultimate vindication as this outsider genius, but it's really-.

Justin Kramer:
I think if you're looking at historically what Facebook has done, and I'm not saying anyone could have built it, but you're referencing the social network. So in theory it was a stolen idea in some capacity, even though he ultimately built and scaled it, which is an idea means absolutely nothing. It's how you build it. But since then they have not proven that they can do anything original. Instagram, they acquired, they did not build that. Instagram shopping has completely failed. Instagram stories was stolen from Snapchat. Facebook crypto absolutely failed. Facebook dating has failed. Facebook marketplace is also a stolen idea from Craigslist, although it has done pretty well. WhatsApp, they did not build, they acquired, and Messenger has not done well. So they haven't really proven from building the original Facebook that they can scale a product from scratch, and even Oculus they acquired. So I am very hard pressed to believe that they're going to build a successful Metaverse. You look at it now, it's effectively the sims, the graphics are awful. Maybe you-.

Peter Starr:
They don't internally utilize it. I will push back on that, Justin, just to point out for literally hundreds of thousands of years, the best way to survive as a human person was by stealing. So it's a really good business strategy at the end of the day. And for about eight years there, Facebook proved themselves to be the best in the business edit, the way they just absolutely shift Snapchat by just making Snapchat a product within Instagram is one of the craziest business stories in the last 10 years. And the thing that's very interesting is the fact that Facebook couldn't do the same thing with Instagram reels to go after TikTok. TikTok's resiliency is a huge part of this as well because TikTok has completely changed the way we consume content right now. And you're seeing that in one, we're not even going to be able to talk about Alphabet. We're not even going to be able to talk about Google right now. There's simply too much to talk about.

But YouTube revenue is down big on both declining, just advertising budgets in general as well as a lot of, it's not that people are leaving YouTube, it's not growing the rate it needs to. And so ad revenue is down for the first time in a while, which is why you saw Alphabet go down as well. So just a lot of seismic shifts right here, right now. And it's really interesting to see if Zuckerberg can just leap over this and actually build something real for once to your point. So we'll have to see.

Justin Kramer:
Totally. No, no, it's very fair. I hope I'm wrong. It would be great if he builds a successful metaverse that people ultimately adopt. A lot of this goes past investing and more as just technology adoption, seeing trends. So a lot of this is speculation, just looking at historical data and trying to make the best projections we can.

 

Peter Starr:
And one other thing too, just getting into that as we think about this as well, it's also just watching since all of these FAANG stocks are in the Nasdaq right now, the craziest thing I've seen this week that nobody's really talking about is this wild divergence between the Dow Jones and the Nasdaq. We're seeing the Dow hit its fourth good week in four, it's rallying at 600 points today. It's doing great. The Nasdaq is up a little bit this today too, but obviously it got just flow mixed in the past week. So when we're thinking about this, Justin, is this just continuation of the shift from growth to value we've been seeing for the past year and a half? Is it just taking this long for that trend to play out, or is there anything else at play here as we look for the actual valuable plays we want to make in this market?

It's one thing to dunk on big tech, but I'm an investor, I need to make sure I am tailoring my portfolio right now. Where should I even be thinking about putting my money, looking at all of this stuff? Am I buying low on the Nasdaq or am I riding the trends on the Dow Jones right now?

Justin Kramer:
Yeah, no, it's a really good question. And we were talking about this before, so audience, this is super important to pay attention to, and we definitely talk about this more on the site in detail. So if you, after this conversation, want to check it out, I would highly recommend doing so-.

Peter Starr:
Moby.co/go ladies and gentlemen, Moby.co/go, get that link in there.

Justin Kramer:
Yeah, there's definitely two things going on right now core to the overall market. The first is that if you think about an index, it's ultimately driven by a lot of the larger names in the portfolio. So when you're looking at Nasdaq, it's very tech driven. And so the Nasdaq is primarily weighted with Amazon, Apple, Microsoft, a lot of the names that we've just discussed. And so when those names are selling off, you're going to see ultimately the Nasdaq sell off too because they're so heavily weighted. Whereas yes, they comprise the S&P and the Dow Jones, but they're more diversified with other parts of the industry. So like industrials, energy, financials, sectors that have done better over the last year are then helping those indices do better than the Nasdaq. And that's why we're seeing this divergence.

So outside of the big stocks, which we just easily explained, there's also another kind of secondary factor. And this has been something we've been talking about actually for the last over 12 months at this point. And it's really just this push towards profitability from an investing perspective for the last decade leading up to the last year, you could seemingly just invest in a company if it was a growth story, it was growing like crazy. Investors were willing to both pay an extremely high multiple and also ignore pretty much all of the signs that companies were burning capital, that they weren't efficient with their capital as long as they were growing investors didn't really care, and everyone knew it was crazy, but no one really cared for a better part of a decade because everything was growing so fast.

Fast forward to today, rates have increased substantially, which has slowed down the growth of some of these companies or a lot of these companies that are funded by debt. And ultimately it then transitions to, okay, we care less about growth now we care about more about profitability. Are your margins high? Is your EBITDA high? Are you doing this in a sustainable way? Because right now, somewhere to 2008, somewhere to the dot-com bubble before that, and all the other bubbles, once the economy really slows down and the access to capital slows down, the ability for these growth companies to keep growing substantially slows down. So that number one sparkling light of these companies that attracted investors in the first place can get shut down almost overnight because capital isn't free flowing the way it once was. And that's something to be really aware of and that's why we've seen just a lot of these value place stocks do really well. So we've seen energy outside of the fact that oil prices are rising, do so well over the last year. A lot of these industrial companies are doing really well. Healthcare names are doing well.

Just historically they've been underperforming tech names, but in the last year they've done really well. And so that's why we've seen this divergence and it's probably going to continue until we have some clear sign from the Fed that rates are going to slow down and the access to capital is going to flow back into the markets. So again, over the long run, these names shouldn't be outperforming a lot of these growth names, but at least over the last 12 months and the next 12 months, these are really good diversifying names to add some, not only liquidity to your portfolio, but also add some safety with some off side. So this is why we see the divergence and why we think it'll persist. And ultimately we can talk about this potentially later, the raising of rates is probably going to end up hurting or taking longer to impact inflation than I think we originally anticipated. So this is all things to be very aware of.

 

Peter Starr:
Yeah. Almost like a 90 day lag time and we think about how badly it's going to impact rates because remember, we're always going to be trading off of fundamentals as well as technicals, right audience? And we can one day explore what [inaudible 00:26:38] just said. But the main thing to realize is that we won't see the fundamental effects of all these rates raises until a couple more quarters of watching this filter through these stocks. This is a big one. This earnings week was a big one to see just how badly inflation's affecting everyone. Now we're going to get the, what's deal with the rates raises by Q2, Q3 2023.

Justin Kramer:
Yeah. And someone said this to one of our favorite fund managers we were speaking with recently, and they brought this point and I thought it was really smart and no one's talking about it, is that if you think about the core goods in our economy, you need to eat food, you need energy to run your life, you need to go to the doctor if you're sick. There are a lot of staples that no matter what's going on, for the most part, you can only delay so long, you need to go to the grocery store and get food. So he was talking about raising rates, while it will definitely slow down discretionary spending. So discretionary spending being buying that new car, taking that vacation, you don't have to do that. Those are wants, not needs, but buying food, buying energy, buying all these things that are needs, raising rates are just going to actually make that more expensive.

And so I was talking to him and we were like, I was like, What do you mean by that? And he's like, Well, think about the food industry. Where do we get our food from? Primarily at the very beginning of the supply chain, it comes from farmers. How do farmers ultimately buy all their equipment, buy all their livestock, buy all of the agriculture? They use a lot of debt to finance their operations. So if the price of debt via interest rates are going up, the ability for them to ultimately manufacture food becomes more expensive. And if it becomes more expensive, they're going to have to pass on those costs to the next part of the supply chain. And if the next part of the supply chain is the Tysons, the Procter & Gambles, the General Mills of the world with higher prices from the farmers means they will pass on higher prices.

And so the point they were making was higher rates are going to make food more expensive, it's going to make energy more expensive, it's going to make a lot of these core essential goods more expensive, which is actually going to have an opposite effect that the Fed is hoping for a lot of these core products. So while yes, discretionary spending will slow down, their argument was that ultimately a lot of our core goods could go up in price if the discretionary goods don't come down fast enough. So it's something to really be aware of. I thought that was a very, very interesting point.
 

Peter Starr:
Which is really hard too considering there's still a lot of liquidity that people are still holding onto from a lot of the stimulus they got, people in the mid tier of the economy, I should say. We got a lot of liquidity from a lot of those 2020 stimuluses to make sure that the economy didn't completely collapse. So that's why you're seeing consumer spending drive that 2.6 rise in GDP. So what you're seeing is this wild situation where supply site inflation was really bad, the [inaudible 00:29:33] defined kill demand, even though it's supply side inflation, and what they'll end up doing is creating another head of the inflation monster maybe to have them combine into some terrible hydra. So that's a really interesting point to keep in mind that I didn't realize that just because we're getting one side of inflation under control doesn't mean that we can't create another side of it. Is that a good way of summarizing it, or is that too much of a dumb guy summary there, Justin?

Justin Kramer:
No, I think that's good. It's like again, getting past the food example, you think about gas. Right now, not only are we boycotting a lot of energy that's coming out of Russia, and Russia produces 10% of the world's oil. Take that out of the equation, which is inflationary, but then also if you're starting to drill more in the US and you need to build more refineries, you need to build more drilling. That's a lot of cash on hand to do that. And most of these companies historically have financed it with debt. So if debt becomes more expensive, their costs become more expensive, who do you think is going to be paying higher energy prices? It's the consumers. So it's like debt. And this is why the raising of rates typically slows things down because as debt becomes more expensive, they pass on. Ultimately companies don't want to spend as much because debt's so expensive. So things slow down. And that is why historically why interest rates do slow down.

But in an economy that is so driven by food, energy, a lot of these staples, more so than they were years ago, if you look at debt as a percentage of GDP, which not to get too into the weeds. If you look in the eighties when they were raising rates to 20%, debt as a percentage of GDP was significantly lower. Now with I think it's over 50%. So back then they were financing their operations with a lot of cash on hand. So when you brought up interest rates, things slowed down. But today, when debt runs half the economy, you can't just slow things down. People need to eat. People need oil and gas. So that's why I think we've seen a lot of this rising rates not actually affect inflation as much as a lot of people thought they would, because debt is such a large portion of the way the world grows. And it wasn't like that the last time they raised rates so substantially in the eighties. It was a completely different atmosphere.
  

Peter Starr:
That's another wild little foible that we never talk about, just how much debt is in charge right now. That's the true runner of this economy. So lots of little moments in there, folks. So we're going to see a lot of these costs get passed somewhere. Are we going to keep the money? We'll turn it, or are we going to get more sawdust in the works? Hard to say. We are massively over time, Justin, and we never got a chance to talk about the other giant side of social media. The sink is in Justin, Elon Musk closes the deal 44 billion and Tesla stock did not care. We are 12 hours into the Musk imperium. How's it feel? What are we going to talk about after this now that this whole nightmare's over?

Justin Kramer:
Let's say he, first off, he massively overpaid for this deal. So, that's more so a problem for him and the investors. But the Twitter was not valued at the way it was. So he definitely took a little bit of an L there, which is interesting because we've basically only see Elon win over the last decade. But that's a-.

Peter Starr:
Huge wins too, gigantic wins off of insane gambles. This is the first L, It's not an L yet, but it's the first really strong chance of an L he'll take in a while.
 

Justin Kramer:
Yeah, exactly. And Twitter is now going to be a private company. So from an investing standpoint, there's really not much that we can do. But from the core product overall, I'm definitely honestly excited outside of his views on just what he wants to do. From a pure engineering perspective, he's going to bring in a ton, a ton of talent to completely gut the code base and ultimately just recreate Twitter, which will create a much better user experience, his censorship or what he wants, whether he wants to or not censor speech is a totally different conversation, but pure technology in product, I don't think anyone's debating that. He's going to bring in some great people to do some great things.

How that then impacts our investable products like Facebook, we can't invest in TikTok right now, but other platforms, I think ultimately Twitter is going to potentially win more user share. Elon going there, who knows how involved he'll be, but Elon going there is going to create more marketing hype, they'll create a better product. I think more people will funnel in and it'll just take more market share away from others. But in the short term there's a lot to do. The CEO and the CFO are gone, so he's definitely shaken up the tree so far.

Peter Starr:
The one thing nobody's talking about that I can personally guarantee every, VC in all of big tech right now, Silicon Valley, Alley, wherever else has been watching Twitter, just get completely bewilderingly mismanaged for I would say the last five years. There's so much they could have monetized with the highest engagement product on planet Earth before TikTok showed up obviously. I personally guarantee you people watched that, now they're watching Musk take over and they're thinking, okay, this is going to fall apart. He's never going to get his value back. I guarantee there's going to be an extraordinarily well-funded Twitter competitor coming out. You're not going to see Mastodon, you're not going to see Parler or Truth Social or any of those things. Somebody is going to come out with a very shiny, heavily VC funded competitor to Twitter and try to go to bat with Elon Musk. And I don't know who's going to win in that situation, but I think it's going to just be really hilarious to watch and I'm extraordinarily here for it.

Justin Kramer:
Yeah, no, it will definitely be entertaining at the very least.

Peter Starr:
Because there's just so much value in microblogging, but it's one of those things where it's really, really hard to monetize. So really interested to see how Elon can pull that off. I'm also really interested to see how competition can flood into the market, feel bad for people who've been sitting on Mastodon for years now, waiting for their moment, them thinking it's fit, but Mastodon's just a little bit too complicated to use. It's a little bit too nerdy to be the product it needs to be in order to "beat Twitter" and obviously every other competitor is in that co chamber. So really excited to see that competition enter the space. Competition is the only good part about, that's where you create the most value. So excited to see that. And I'm here for the ride, man. Twitter's a private company now. I'm out. I'm literally out. I'm going to get my 54.20 at some point and that's the end.

So really interested to see how it all plays out, but just glad that we have something else to talk about now. And also glad that this didn't totally nuke anybody's positions in Tesla, yet, but that did take us so hugely over time for now though, Justin, so really appreciate you sticking with us here. Audience, thank you so much for all your awesome questions. Justin Kramer, CEO, co-founder, chief analyst here at Moby.co. A lot to get through this week. We barely even covered a lot of other interesting earnings like, obviously a lot of construction stocks are just popping off right now. Uranium out of control, love to see it. Any final thoughts for me before we go ahead and read the credits here? Because obviously, we're going to have even more to talk about next week as we get more economic data and we ramp up towards some big moments like the midterm elections in 10 days.

Justin Kramer:
Yeah, there's a lot to unpack. So I think since, to your point, we need to get to everything today. We'll stick around in the Discord channel for another 30, 60 minutes. So for people who are listening live, if you have questions, just feel free to throw them in there and we'll answer them the best we can. To your point there, there's a lot more I'd want to cover, but I think those are the biggest things for now. I think we've been saying for the last few weeks as well, we are not out of this yet by any means. I know the market's gone up, there's talks the Fed's going to peel back the increases of their interest rate policies, which if they do, that's amazing, but they haven't come out and formally said it yet. So again, invest with caution. This is not a rally that is now going to persist forever. There's still a lot of underlying uncertainty. We didn't even talk about the Russia stuff, but obviously that war there is still persisting and there's a lot of implications there for the markets as well.

So long story short, be vigilant. We will try and release as much information as we can. A lot of these talks are helpful, more so on the macro stuff. But yeah, there's a lot going on so if you have questions, we'll stick around for a bit so we can answer them.

Peter Starr:
And that's a great place to put a bow in it. And audience, if you're listening to the recorded version of this, just keep in mind we do, do this live in front of our Discord audience once a week every week that happens at 12:00 PM Eastern on Friday just because that's the easiest time for us to get around to it. So be sure to join us there. If you want to get more of our in-depth analysis, you can hit us up over at Moby.co/go or email us at [email protected]. You can also find us in Instagram and TikTok just for more low-level analysis and maybe we're going to start adding some more video stuff moving forward as well. Either way audience, we really appreciate your time.

Thank you so for sticking with us for the longer episode. Stay safe during earning season folks, but as always, we'd like to leave you with peace, love, and incremental gains. Everyone, be well. Thank you so much.