Wednesday Jun.15, 2022

⬆️ The Fed’s big decision

Jerome gets ready for his closeup (Mark Wilson/Getty Images)
Jerome gets ready for his closeup (Mark Wilson/Getty Images)

Hey Snackers,

The “Her” sequel we didn’t ask for: a Google engineer was put on leave after claiming one of the company’s AI bots had developed feelings — like love, depression, and even a fear of death.

Stocks dipped again yesterday, dragging the S&P 500 deeper into a bear market. Meanwhile, the 10-year Treasury yield hit its highest level in more than 11 years as investors awaited the Fed’s big rate-hike announcement. About that…

Feddy

All eyes are on the Fed’s rate-hike decision, which could be more aggressive than anticipated to tame sticky #flation

Everyone's tuning in at 2 p.m. ET today... but not for the NBA Finals or “The Bachelor” finale — it's for Fed Chair Jerome Powell. All eyes are on the Fed's interest-rate hike decision, which could be #spicy. After May's concerning inflation numbers, many on Wall Street are forecasting that the central bank will raise rates by three-quarters of a percentage point — something it hasn't done since 1994. Based on Monday's stock plunge and surging bond yields, it seems as if investors are also awaiting aggressive price-taming action.

  • A month ago: Powell said his Fed was not "actively considering" raising rates by three-quarters of a percentage point. Fed officials signaled they’d bump rates by a half percentage point this week (same as last month) and again in July.
  • But that was before May's sky-high consumer-price numbers revealed that inflation had not peaked. The Fed has said that its decisions depend on the economy progressing as expected — and #flation rose faster-than-anticipated.
  • Now: Expectations for a 0.75-point hike have soared from 3% a week ago to 40%. But Wall Street's divided: traders are still pricing in a 60% chance of a status-quo half-point hike.

Cloudy with a chance of flation… Consumers’ expectations of long-term inflation have spiked, with a key survey hitting its highest level since ’08. That’s concerning to the Fed, since inflation expectations can make inflation worse (aka: a self-flating prophecy).

No one wants an inflation spiral… If people expect higher prices, they're more likely to demand higher wages and accept inflated costs. Powell has said that this “wage-price spiral” is “a risk we simply can’t run,” since it can be hard to break. The Fed’ll likely respond aggressively to signs that inflation’s spiraling, and investors might even welcome a price-taming power move.

Squeeze

FedEx shares jump the most in decades after a dividend boost and a cost “squeeze”

Delivering dividends… and some packages. FedEx sales soared last year as the online shopping boom stuck post-lockdown. But since then shipping volumes have slipped as you buy that bathing suit IRL. Now FedEx faces a double whammy of rising gas and labor costs — plus stiff competition from UPS and Amazon. Yesterday, some good news landed on investors’ doorsteps:

  • FedEx boosted quarterly dividend payouts to investors by 50% and added two board members. Shares surged 14% yesterday, their biggest one-day jump in 29 years.
  • New direction: The surge is a sign investors believe FedEx’s new CEO (who started this month) can trim spending and prioritize returns.
  • Case in box: FedEx has accelerated plans to buy back $5B of shares, and decelerated plans to upgrade its fleet.

Squeeze-onomics… FedEx started cost-slashing early this year to boost margins. It cut spending on customer perks (think: fewer package-tracking options) and trimmed labor costs (think: slower hiring) — months before companies started doing involuntary layoffs. But cost-cutting wasn’t the end of the profit push: FedEx also boosted earnings by charging customers extra during busy times and bumped its fuel surcharge for all services.

Cost-cutting is a double-edged sword… Done cleverly, it can make investors happy, but done too aggressively, it can frustrate customers and burden workers. FedEx’s slow-and-steady approach could help it satisfy investors during the market downturn while protecting its biz. But if companies cut too much too fast, they could have a hard time switching from “squeeze mode” back to “growth mode” when prices normalize.

What else we’re Snackin’

  • Brake: Ford recalled 48K of its Mustang Mach-Es and halted sales, citing an overheating concern. The auto OG has faced several rollout issues as it ramps up EVs to compete in the non-gassy market.
  • Winter: Coinbase is cutting 18% of employees to slash costs as the crypto market tumbles. America’s largest crypto exchange is worried that a potential recession could lead to a “crypto winter.”
  • Chirp: Elon Musk is expected to take questions tomorrow from Twitter employees — some of whom have raised concerns over his tumultuous takeover bid. A shareholder vote on the Elon-quisition is set for August.
  • Cramped: As the US’s tampon shortage continues, tampon makers like P&G and Playtex parent Edgewell are ramping up production. Tampon prices have jumped 10% this year as supply issues strain manufacturers.
  • Rocky: Despite booming travel demand, US airline bookings slipped for the second month as ticket prices spiked 30% from 2019. Sky-high fuel costs and labor shortages are making that summer vacay break the bank.

Wednesday

  • Latest interest-rate decision from the Fed.
  • Earnings expected from Lennar and John Wiley & Sons

Authors of this Snacks own: shares of Ford, Twitter, Amazon, and Google

ID: 2246463

Correction: In the Snacks newsletter published on June 14, 2022, in the story about Celsius we linked to the wrong company. This is the correct company. We’ve updated the online version of the newsletter, and we regret the error.

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Netflix is going to stop sharing subscriber numbers

After posting subscriber numbers that beat expectations today, Netflix says it’s no longer going to share those numbers starting in the first quarter of 2025. That’s a big deal since subscriber numbers have long been one of the main metrics that investors have looked at.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” its shareholders letter read. “But now we’re generating very substantial profit and free cash flow.” The company said that it will focus on revenue and operating margin as its main financial metrics, while it will look at time spent on the platform to gauge customer satisfaction.

Another way to read this? They’ve hit market saturation and just aren’t going to be growing that much anymore, and they thought they’d end on a good note. Going forward they’re focusing on how to get more money out of the customers they do have.

They’re doing so by cracking down on password sharing and charging for extra members. They’re also pushing people to ad tiers, which are more profitable than non-ad tiers.

“Scaling ads to become a more meaningful contributor to our business in ‘25 and beyond,” Netflix said.

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What is that training data? There the company is less loquacious.

Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

It did mention that it includes AI-generated data, or synthetic data: “we used Llama 2 to generate the training data for the text-quality classifiers that are powering Llama 3.” There are plenty of known issues with synthetic or AI-created data, foremost of which is that it can exacerbate existing issues with AI, because it’s liable to spit out a more concentrated version of any garbage it is ingesting.

AI companies are turning to such data because there’s not enough good, public data on the entire internet to train their increasingly greedy AI models. (Meta had reportedly floated buying a publisher like Simon & Schuster to satisfy its insatiable data needs.)

Meta, of course, isn’t the only company that’s tight-lipped about where its AI data is coming from. In a now infamous interview with WSJ’s Johanna Stern, OpenAI’s chief technology officer Mira Murati was unable to answer questions about what Sora, OpenAI’s video generating app, was trained on. YouTube? Facebook? Instagram — she said she wasn’t sure.

Meta’s battle with ChatGPT begins now

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Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

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Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

Perhaps most strange of all, the company created a fake Japanese streetwear brand called “Not So Ape” (clearly a play on A Bathing Ape) and continues to sell products from the brand on a Shopify store, presumably as an attempt to learn the inner workings of the shopping platform. Of course, copying is old hat for Amazon.

In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."

Exclusive | Inside Amazon’s Secret Operation to Gather Intel on Rivals

Exclusive | Inside Amazon’s Secret Operation to Gather Intel on Rivals

Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

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In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."

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Worldcoin has made waves for its iris-scanning metallic orb that promises a future where people can mathematically prove they’re real humans and not AI bots.

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses. 

Which is what may make World Chain attractive. Crypto exchange Coinbase launched its own L2, Base, last year. Base has since seen rapid user growth — activity that’s generated the exchange millions of dollars in weekly fees. 

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.

Worldcoin, Sam Altman's Crypto Project, Is Building a Layer-2 Chain

Worldcoin, Sam Altman's Crypto Project, Is Building a Layer-2 Chain

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses. 

Which is what may make World Chain attractive. Crypto exchange Coinbase launched its own L2, Base, last year. Base has since seen rapid user growth — activity that’s generated the exchange millions of dollars in weekly fees. 

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.