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Top stories today: 1) First Citizens buys SVB, FDIC loses $20B, 2) Apple showcases VR headset to execs, 3) Twitter valued at $20B, 4) money markets funds gain $286B, and 5) CBO says 35-100% cuts are required to balance the budget.

0. Data and calendar

1. First Citizens buys Silicon Valley Bank for $0.5B; FDIC expected to lose $20B

• Read more: Bloomberg, FDIC

Even assuming a similar problem in all U.S. banks, the total loss would "only" be $2.8T

• The math: SVB's assets lost 20B/167B = 12%. If we assume 12% losses across all $23.2T bank assets, we get $2.8T. And that's a very pessimistic scenario, where all U.S. banks face similar losses as SVB, which invested in long-term Treasury bonds using short-term deposits from tech companies.

  • $2.8T is around the value of the banks' equity capital, estimated at $2.2T.

  • So even in this horrible scenario, a government bailout would be in the $1-3T range, much below doomer estimates of $18T, like Balaji Srinivasan has said on Twitter.

  • We don't expect this to occur, and even if it did, it shouldn't lead to hyperinflation, given the U.S. already has $32T in national debt. Does $32T or $35T really make a difference?

2. Apple showcases VR headset to Top 100 executives; expected announcement in June

• What we know so far:

  • Mixed-reality capabilities, using an external battery that needs to be replaced every few hours, and lacking a killer app (the same is true of Meta's Quest).

  • Likely named Reality Pro or Reality One.

  • Company expects 1 million in units sold in the first year. At an estimated $3K price point, that's $3B in sales (less than 1% of total revenue, so a moderate success for Apple). - Bloomberg

• AR is the real game-changer, but not yet available. Meta reportedly expects to have their first AR glasses in 2027, and Apple will probably be right behind. Light AR glasses are something we see the whole world using, as potentially an iPhone replacer/augmenter -- but that might take decades, as AR technology is still incipient and very heavy.

In related news, Tim Cook visit Beijing, and praises "symbiotic" relationship between Apple and China

• In 1st visit since Covid, Cook went to China's Davos: "We could not be more excited," Cook said at the China Development Forum in Beijing, the country’s version of Davos, which Beijing is holding offline for the first time since the pandemic began. "Apple and China . . . grew together and so this has been a symbiotic kind of relationship." - FT

3. Musk to give out Twitter stock valued at $20B

• $33B in enterprise value when adding the $13B in debt, vs $44B purchase price, a 25% drop. - The Information, NYT

  • 11x Price-to-Sales, given an estimated revenue of $3B/year, much above Meta (6 P/S), Snap (4), and Pinterest (5).

  • Employees can sell stock every 6 months, similar to what happens at SpaceX. It gives employees the chance to have "liquid stock, but without the stock price chaos and lawsuit burdens of a public company," Elon wrote in an email.

  • $250B projection: Musk said the company has "a clear, but difficult path" to that valuation.

• In related news, Twitter is blocking 122 accounts in India at the government's request. India's government has recently been very authoritarian, with the opposition leader being arrested for criticizing the Prime Minister. - Rest of World

• Part of Twitter's source code was also leaked on GitHub. The company requested Github to take it down and hunt down the source. Elon has said that he plans to open source part of Twitter's code base, although we don't expect them to release any secret sauce. - Bloomberg, GitHub

And here's Elon explaining why charging for social media is good

4. U.S. money market funds gained $286B in March, highest since 2020

• Still not a lot vs. the $19T in total deposits. Assuming this is all money coming from worried depositors, this represents just a 1.5% move.

5. CBO: to balance the budget, we need to cut between 35-100% of spending

Depending on what programs are excluded:

• Current politicians are not serious about spending cuts. It is explicit consensus in Washington that Social Security and Medicare are off the table. According to this table, this means that at least 67% of the federal government budget would need to be cut. Meanwhile, they can't even identify 1% of cuts. - Reason

• We expect the solution to be inflation. In a world of fixed nominal interest rates, one way to stabilize debt-to-(nominal) GDP is to grow nominal GDP. The easiest way to do that is to allow inflation to remain high, or at least, higher than the average interest rate on the federal debt.

6. Only 28% of U.S. businesses have hybrid or remote workers

Down from 40% in 2021, but up from 23% from pre-Covid:

White-collar knowledge workers have the highest share of remote workers

• Is remote or in-person more effective? We have seen early studies pointing to different results, so it's hard to say from a scientific point-of-view. Anecdotally, some of the world's best managers, like Elon Musk, favor fully in-person, and most large innovative companies like Apple and Alphabet are moving towards in-person or hybrid.

7. Must watch: Sam Altman interviewed by Lex Fridman

• Altman: GPT-4 is not artificial general intelligence (AGI), GPT-10 might be. AGI might require more than just transformers that predict the next word.

• AI safety: Altman has some concerns, but he thinks the best way to move forward is to build in public and test things while the stakes are low. He empathizes but disagrees with doomers like Eliezer Yudkowsky.

In related news, more details on fall out between Altman and Musk

• In 2015, Musk initially pledged $1B to OpenAI when it was a non-profit, and contributed $100M.

• In 2018, Musk wanted to become CEO, but Altman and others disagreed. Altman stepped in, and Musk stepped down.

• Without Musk's money, Altman created a for-profit subsidiary of OpenAI to raise money.

• Amazingly, Altman got zero equity in the for-profit (Altman is already a $100M+ millionaire from YC and other investments.) - Semafor

8. Other headlines

Tech

• Chinese app: 4 of the top 5 apps in the U.S. are from China.

• Meta Quest Pro: 34% of parts are from the U.S.

• Replika AI restores erotic roleplay after removal angered "married" users.

• AI bots can listen in on videogame voice chats and mute, ban offending players.

• Midjourney v5 can now properly draw hands, and the WaPost is worried.

Business

• U.S. exploring giving more support for banks while giving First Republic time.

• China tries to persuade Jack Ma to return home after persecuting him.

• Saudi National Bank Chair resigns after Credit Suisse remarks coincided with crash.

• IMF chair: risks to financial stability have increased, predicts global growth of 3.0%.

Crypto

• NVIDIA CTO: cryptos do not "bring anything useful for society."

• Euler hacker returns $102M; in total, 64% has been returned.

• Alex Grebnev: profile on the founder of MAPS, OXY.

• Do Kwon appeals his 30-day detention extension in Montenegro.

• Custodia Bank's Fed membership denied for ties to crypto.

• Canada's Crypto King (tied to alleged Ponzi) claims he was kidnapped and tortured.

• Hong Kong arms of China state-owned banks are interested in crypto.

Washington and more

• DeSantis beating Trump (45-37%) in Iowa in latest poll.

• Trump talks about "retribution", Biden's "thugs and criminals" in Waco rally.

• Trump didn't make up arrest prediction (for last Tue), lawyer says.

• Israel: massive protests emerge after Netanyahu fires Defense Minister.

• NATO: "Russia's nuclear rhetoric is dangerous and irresponsible."

• Ukraine prepares for military offense in the coming weeks.

9. Interesting tweets, memes, and images

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