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Top stories today:
1. PacWest falls 37%; is this the next bank to go?
2. Fed hikes by 0.25% and leaves door open
3. TikTok launches 50/50 ad split with select “premium publishers”
4. FTC Chair Khan wants to regulate AI, but overlooks the elephant in the room
5. TSMC planning $11B factory in Germany
6. Ukraine denies involvement in Kremlin drone strike

0. Data and calendar

1. PacWest falls 37%; is this the next bank to go?

• Share collapse caused by news about strategic options: “PacWest Bancorp., a regional bank teetering following the collapse of three rival California-based lenders, has been weighing a range of strategic options, including a sale, according to people familiar with the matter.” - Bloomberg

  • Being advised by Piper Sandler. - FT

• They claim no deposit outflows recently: “The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news. Core customer deposits have increased since March 31, 2023, with total deposits totaling $28 billion as of May 2, 2023 with insured deposits totaling 75% vs. 71% at quarter end and 73% as of April 24, 2023.

  • In addition, the company recently paid down $1 billion of borrowings with our excess liquidity. Our cash and available liquidity remains solid and exceeded our uninsured deposits, representing 188% as of May 2, 2023.” - PacWest

• Only $29B in deposits, significantly less than SVB, Signature, or First Republic.

• A few hours before, Powell had minimized banking concerns: “There were three large banks, really, from the very beginning that were at the heart of the stress that we saw. Those have now all been resolved and all the depositors have been protected.”

Ackman correctly points out that smaller banks are at risk without a full deposit guarantee

Our view: to avoid future runs, the FDIC should simply guarantee all deposits

• The estimated cost is minimal at $117B.

  • The math is: 1.27% reserve ratio x $9,200B in estimated uninsured deposits = $117B.

  • The Fed or federal government would likely foot the bill initially. Gradually, banks could be mandated to pay higher fees to the FDIC (currently, between 2.5 and 42 basis points of deposits, depending on bank size and risk).

• It would halt all these internet-fueled hyper-speed bank runs, so the benefits far outweigh the costs.

• Important caveat: the ideal system is free markets, not the above. Of course, it would be better if we had free markets in banking, currency competitions, and all the rest. But our short-term situation is having the federal government issuing a monopolistic fiat currency, heavily regulating the banks, etc.

  • Our main point is that insuring some deposits is the worst of both worlds. If the government is to insure deposits, insuring just half of them makes no sense.

2. Fed hikes by 0.25% and leaves door open

• Tightening bias, but open doors: “It also omitted a line from its previous statement in March that said the committee “anticipates that some additional policy firming may be appropriate.” Instead, the FOMC will take into account various factors “in determining the extent to which additional policy firming may be appropriate.” Bloomberg

Markets are pricing in 225 bps in rate cuts over the next 18 months

Our view: markets are almost always wrong in long rate predictions, so take them with a grain of salt

3. TikTok launches Pulse Premiere, 50/50 ad split with select “premium publishers”

• “Inaugural Pulse Premiere partners [include] Buzzfeed, Conde Nast, DotDash Meredith, Hearst Magazines, MLS, NBCUniversal, UFC, Vox Media and WWE.” - WSJ, TikTok

• Previously, TikTok Pulse only shared ad revenue of the top 4% of trending videos.

• TikTok has 2.5% of the U.S. digital ad market: “Its U.S. ad revenue is expected to surge 36% to $6.83 billion, according to a recent forecast from market research firm Insider Intelligence.”

Our view: this could be a defense against a U.S. ban

• TikTok is gaining more U.S. allies against a potential ban, this time in the form of U.S. media and news companies.

  • Can these companies be trusted to report fairly on TikTok? Probably not.

• If Facebook is a good benchmark, publishers should be very scared about getting rug-pulled by TikTok, which likely view the news media as a very small part of their business.

  • Ben Smith's new book, Traffic, is highly recommended on this matter.

4. FTC Chair Khan wants to regulate AI, but she overlooks the elephant in the room

• Lisa Khan writes an editorial saying that she wants the FTC to regulate AI against: 1) monopoly power, 2) AI-generated fraud, and privacy concerns. - NYT

  • 1 is completely absurd, as the internet is one of the industries with the most intense competition, and 2 and 3 are potential legal matters, but they can be solved with a minarchist government and courts of law.

• She completely forgets to mention AI doomer risk, which is what the government should most be concerned about, as it pertains to national security (literally killing us all).

  • It is amazing how bad most public officials are at analyzing risk-return and choosing what to focus on, and what should be left to the free market.

5. TSMC planning $11B factory in Germany

• “The planned venture between TSMC, NXP Semiconductors NV, Robert Bosch GmbH and Infineon Technologies AG will include state subsidies and would have a budget of at least €7 billion, with the total investment likely closer to €10 billion, the people said.”

  • “TSMC is still assessing the possibility of building a plant in Europe,” TSMC spokeswoman Nina Kao said. - Bloomberg

This is in line with TSMC's plan of diversifying away from Taiwan and China

• TSMC is also building new facilities in the U.S. and in Japan.

• In other news, China is little affected by U.S. microchip export controls, as chips made for the country are only 10-30% slower than their Western equivalents. - Reuters

6. Ukraine denies involvement in Kremlin drone strike

• Zelensky: “We don’t attack Putin or Moscow. We fight on our territory. We’re defending our villages and cities. We don’t have enough weapons for these.” - NYT

Russia immediately calls it “terrorism” and retaliates — could stronger responses come?

• “We regard these actions as a planned terrorist act and an attempt on the President, carried out on the eve of Victory Day, the May 9th Parade, at which the presence of foreign guests is also planned.” - Kremlin.ru, WSJ

• Russia shelled Kherson, killing 18 and injuring 46. - Meduza

  • Our view: Putin could use this event to increase mobilization, as it is increasingly clear that Russia can't win the war with its current army, without using nuclear weapons and with the U.S. helping Ukraine with arms and intelligence.

• Medvedev called for the “physical elimination” of Zelesnky, comparing him to Hitler. - Meduza

• White House doesn't speculate: “The United States is certainly not encouraging or enabling Ukraine to strike beyond its borders. Obviously Russia has a history of doing things like this,” she said. “But again, I don’t want to speculate. I don’t want to get into hypotheticals from here.” - WH press secretary Jean-Pierre.

7. Salaries drop at some Big Tech companies

• A bit anecdotal, as this study only highlights a few companies.

  • Salaries went down at 18 companies analyzed, and up at 3 (Meta, Microsoft, and Salesforce. - The Information

8. Real estate “tech” startups see their valuations collapse

Our view: these companies have low moats and should not be valued as software ones

• Software can have a gross margin of 90%; for real estate it's closer to 10%-30%. Software requires no leverage and no long-term leases. Overall, it's just a much better business model, margin-wise.

  • Say bye to a 10x multiple on revenue. Say hi to a 10x multiple on operating income.

9. Blue checkmarks coming to Gmail

• Free of charge.

• Rollout started May 3 and will take 1-3 days for full visibility. - Techcrunch, Google

10. Passkeys coming to Android

• Passkeys are like FaceID for everything. “Passkeys are a safer, more convenient alternative to passwords being pushed by Google, Apple, Microsoft, and other tech companies aligned with the FIDO Alliance. They can replace traditional passwords and other sign-in systems like 2FA or SMS verification with a local PIN or a device’s own biometric authentication — such as a fingerprint or Face ID. This biometric data isn’t shared with Google (or any other third party), and passkeys only exist on your devices, which provides greater security and protection since there’s no password that could be stolen in a phishing attack.” - The Verge, Google

• Available on the iPhone since September, and on the Mac since October.

11. Airbnb revamps website as CEO responds to past criticism

Read more: Bloomberg.

12. Other headlines

Tech

• FTC proposes barring Meta from monetizing kids’ data.

• Canada: Google, Meta execs push back against online news bill.

• Apple is way too reliant on China: analysis.

• Qualcomm's revenue falls 42% YoY to $1.70B.

• Chrome to remove HTTPS tag, arguing most phising websites have HTTPS.

• Google I/O next Wed: what to watch.

Biotech

• Alzheimer's: Lilly's donanemab slows disease by 35% in Phase 3. study.

• Aubrey de Grey on the longevity tech that shows “insane promise.”

Business

• Ben Smith: now it's time for The Verge to interview the author of Traffic.

• Golden visa programs: EU countries are shutting theirs down.

Crypto

• FTX seeks to claw back $4B from Genesis, also in bankruptcy.

• Sui goes live at $13B /m/arket cap; FTX sold out at ~$3B.

• Coinbase insider trading convicted by jury, faces a max of 40 years.

• Coinbase shutting down ability to borrow fiat with crypto collateral.

• RFK Jr. criticizes Biden's 30% crypto tax proposal.

• White House releases report defending the 30% crypto tax.

• Lisbon voted crypto capital; we think it's Silicon Valley.

U.S. politics

• Florida GOP passes bill targeting transgender bathroom use.

• Carroll rape case: Trump won't present defense witnesses.

• U.S. to provide $9M for defense of journalists against global threats.

World

• Russian vessels photographed at Nord Stream site days before blast; Seymour Hersh's reporting on the U.S. doing it is still the most likely.

• Navalny tortured with max-volume Putin speeches in prison.

13. Interesting tweets, memes, and images

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