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Biden-McCarthy deal reportedly gets $1T in spending cuts, vs. $5T initially proposed

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Bay Area Times
May 30, 2023

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Top stories today:
1. Biden-McCarthy deal gets $1T in spending cuts, vs. $5T initially proposed
2. Russian residential buildings hit with drones for 1st time, no deaths so far
3. NVIDIA CEO announces new chips, demos game where users talk to AI
4. AI chatbots are being intensely covered by online media and cable TV
5. Elizabeth Holmes to start 11-year sentence today

0. Data and calendar

All values as of 6 AM ET / 3 AM PT, other than S&P500 close (4 PM ET / 1 PM PT).

All times are ET.

1. Biden-McCarthy deal reportedly gets $1T in spending cuts, vs. $5T initially proposed

  • Biden and McCarthy managed to strike a deal on Saturday, hooray.

  • But debt-to-GDP still balloons to 116% in 10 years, according to our internal analysis based on numbers from the NYT:

McCarthy claims $2T in spending cuts, but this number assumes 6 years of spending caps

But the law only mandates 2 years of spending caps for non-defense discretionary spending, and the next 4 years are optional. The cap is of 1% nominal growth — with inflation at 5%, that would translate into a 4% real cut, tiny for business standards but considered good for government:

Our view: in the short term, the deal is worse than expected, but it won't affect the economy much

  • We expected the GOP to get 50% of what they requested, not 20%.

  • In the short term, the effect on the economy is tiny. This year's spending is only being cut by $55B, 0.2% of GDP. - Bloomberg

The House should vote on the bill tomorrow, and the Senate before June 6, the new Yellen x-date

  • The passing is expected to be bipartisan, but not without hiccups. - WSJ

    • Many Republicans criticized the deal, including Ron DeSantis. - Youtube

Our view: in the long term, the U.S. still has a debt problem, but it can be solved with growth

  • The U.S. has high debt, but it can take decades for it to become unsustainable. For example, Japan's debt-to-GDP is 2.3x higher than the U.S.'s, at 226% debt-to-GDP. Even then, it suffers from a low inflation “problem,” not a high inflation one.

  • The debt problems would be solved if the U.S. grew at 4% rather than 2%. At that growth rate, debt-to-GDP would be stable, even without spending cuts.

    • What matters most for U.S. economic growth is innovation, i.e., new technologies. What can accelerate that is not macro but microeconomics, e.g., how long it takes for the FDA to approve a drug.

    • Micro/regulatory reform, in all sectors of the economy, would be the greatest unleasher of economic growth.

2. Russian residential buildings hit with drones for 1st time, no deaths so far

  • Kyiv's mayor recognized the strike: “If the Russians can make Kyiv a nightmare, why do the people of Moscow rest?”

  • This comes after a series of drone attacks in Kyiv, the capital of Ukraine. - Meduza, NYT

Our view: attacking Russian territory was barred by the U.S. for good reason, as it can lead to WW3

  • Russia's “national security” nuclear weapon use: Russia's nuclear weapon use policy allows for its use “in situations critical for the national security of the Russian Federation.” - Columbia.edu

    • Practically, Putin-regime use: As a practical matter, we expect Putin to think about nuclear weapons if he believes his regime is threatened.

    • China could play a role: Beijing has already signaled publicly to Putin that they don't want Putin to use nuclear.

  • The U.S. should push for a peace deal here: if the U.S. is the one supplying the weapons to Ukraine, why shouldn't it be able to suggest a peace deal that would stop the war's deaths and destruction?

3. NVIDIA CEO announces new chips, demos game where users can talk to characters

Read more: Techcrunch, The Verge.

NVIDIA is set to become a $1T company today

It is trading at $999B in the pre-market:

NVIDIA has the highest forward P/E among semiconductor companies in the U.S.

4. AI chatbots are being intensely covered by online media and cable TV

Online news coverage peaked in February and is still going strong:

Cable TV, especially business channels, has intensely covered AI

AI coverage has been more intensive than crypto, except for when FTX imploded and SBF was arrested

5. Elizabeth Holmes to start 11-year, 3-month sentence today

  • Only found guilty of investor fraud, and was acquitted of the patient fraud charges.

She will stay at a minimum-security prison in Texas, likely with shared bedrooms and weekend visits

6. Turkish lira hits new low after Erdogan's victory

  • Erdogan won the run-offs by 52% x 48%, aided by media censorship, including from Twitter.

  • Putin congratulated “dear friend” Erdogan, as increasingly a bipolar world is forming, with the U.S./Western Europe/Free Asia on one side and China/Russia/Iran/North Korea/others on the other. - CNBC

Erdogan won the election even as unemployment and inflation are at sky-high levels

Turkish CDS credit insurance is now priced at around 7% per year

Our view: it is unclear whether Erdogan will moderate or become more extreme

  • He has promised a team with “international credibility” to improve financial conditions.

    • Expect a cabinet announcement by the end of the week. - Bloomberg

  • As a reminder, Turkey was in line to join the EU starting in 2005, when it started negotiations for full membership, but since 2016, negotiations have been halted.

    • Meaning: Turkey and Erdogan are very volatile, so predicting what will happen next is hard.

7. Other headlines

Tech

Biotech

  • Cancer treatment has 90% success rate in multiple myeloma.

  • Rapamycin: self-reported data from 333 patients suggest safety.

  • Alzheimer's: new potential drug target in ApoE-HS interaction.

Business

Crypto

  • Binance promotes Richard Teng to non-U.S. head, could be next CEO.

  • FTX: Singapore's Temasek cut pay of execs who led $275M investment.

  • 30% mining tax not happening: Congressman.

  • Winklevoss twins: a look at how they seek to pivot Gemini.

  • Zerohash COO interview: Stripe for crypto.

  • Russia drops plan for state-run crypto exchange.

U.S. politics

  • DeSantis's strong favorability drops to 33% in GOP, Trump at 50%.

  • Supreme Court likely to ban admissions plans based on skin color.

  • Liz Cheney: GOP wanted me to lie about false election fraud claims.

World

  • China dismisses defense minister meeting with U.S.

  • China announces plan to place astronauts on the moon before 2030.

  • Lukashenko: “nuclear weapons for everyone” who joins Belarus, Russia.

  • Sen. Graham after Russian arrest warrant: will submit to ICC if you do.

  • Uganda: Biden threatens sanctions due to anti-LGBT law.

  • Senior Taliban leader: we can conquer Iran soon.

8. Interesting tweets, memes, and images

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