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A
This usually shocks people. I have run 27 marathons plus a few ultramarathons, all while fueling my body with plants. Yes, I get plenty of protein. I'm Robin Arson, VP of Fitness Programming and head instructor at Peloton, and this week on my podcast Project Swagger, the fundamentals of a plant based life with nutritional takeaways for you to apply to your own life no matter what your preferred diet is. Follow Project Swagger wherever you get your podcasts.
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B
Bare walls, Clear surfaces the minimalist aesthetic is having a moment, and for some it's a form of resistance.
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C
I think a lot of people have a sense that like, we live in this very consumerist society and feel kind of a desire, a need to like push back against that.
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How to live with less. That's this week on Explain It To Me New episodes Sundays wherever you get your podcasts.
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Until now, mobile phone companies have worked very hard to ensure their phones do not start fires. But we found one company that dared to go in a different direction to make a phone with fire. Starting as a feature on the Vergecast, we talk about all the greatest and weirdest phone concepts from Mobile World Congress in Barcelona. Plus, after years of legal battles, Google and Epic are now best buddies, contractually obligated to not say mean things about their app stores anymore. That's this week on the Vergecast. Wherever you get your podcasts.
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E
Today's number 2 million. That's how many dollars the Department of Defense spent on Alaskan king crab in the month of September. That's in addition to the 7 million they spent on lobster tails and the 15 million they spent on Ribeye. More evidence that Republicans are the fiscally responsible party. Money market matter.
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If money is evil, then that building is hel.
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Sell,
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sell.
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E
Welcome to Prof. G Markets. I'm Ed elson. It is March 12th. Let's check in on yesterday's market vitals. The S and P and the NASDAQ were flat, and the Dow declined. Oil crept higher even after the International Energy Agency approved its largest ever reserve distribution. And finally, treasury yields rose as hopes for rate cuts this year waned following the CPI report. We'll get into that right now. Okay, what's happening? Inflation was sticky in February, as expected. The Consumer Price Index, including food and energy, rose 0.3% from January and 2.4% from a year earlier. That annual rate is higher than the Fed's 2% target and unchanged from January. Inflation in the coming months, though, is likely to get worse. The war with Iran has already driven up the cost of oil, airfare and fertilizer. And prices at the pump have increased by 20% since the strikes began, which complicates the inflation picture. So here to help us break it down, we're speaking with our friend Mark Zandi, chief economist at Moody's Analytics. Mark, thank you for joining us. I want to get right into it, 2.4%. What do you make of this inflation print?
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G
It's, you know, once you, once you account for all the moving parts here and the measurement issues, it feels like to me inflation is closer to 3% than 2. And 3% is on the high side of anything that you'd feel comfortable with. I mean, as you pointed out, the Fed's target is lower. It's about 2%. So, you know, it's, it's better than 4%, but 3% still too high. And as you pointed out, we are going to see inflation pick up here because of what's going on in the Middle east and the fallout from that. So I don't know it, you know, it's okay, but it's not great. And certainly the trend lines here are disconcerting.
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E
Yeah, my reaction seeing this report was, again, I can't tell how much it even matters because one, there's the point that you've been making, which is when you account for the other factors, the number is actually higher. It's closer to 3%. And then two, we've got a war going on, which is absolutely skyrocketing the price of oil. So does this even matter anymore? I guess that is the real question. Does it matter?
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G
It's in a rearview mirror for sure. So it's certainly not helpful in trying to understand where we're headed and what it means for people's purchasing power, standard of living, what it means for markets, what it means for the Federal Reserve. So the markets really didn't respond to this because it just really doesn't matter because it's history and it doesn't reflect on where we're headed here in the future. We're going to get another read on inflation on Friday. The consumer expenditure deflator. That's the measure the Fed actually uses to gauge inflation and set monetary policy. That's where the 2% target is, and that's going to be on the hot side, and that's going to be 3% on the nose. And I think that's where we are, and I think that's what people are going to be focused on and nervous about, thinking about how all this translates to future inflation. So does it Matter? Yeah, not really. I mean it's more academic at this point than anything else.
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E
Where are we on gas prices? I've seen that gas prices have increased 20%. That's what I've read since the strikes began. But oil is moving so quickly up and down. I can't tell how much of a handle we actually have on the price of gas in America. What is it looking like at this point and what do you think it will look like in the coming weeks?
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G
Well, you know, we got AAA canvases gas prices across the country. They're a little over $3.50 a gallon, where that's up over 50 cents a gallon from where it was a week ago. And if oil prices stay right where they are today, you know, they're somewhere between $85, $90 a barrel depending on WTI or Brent. If it stays there, then we're going to see prices go to 3 bucks 75 here in the next week or so. If, obviously if oil prices go higher than looking at $4 and above. But right now we're at 350, headed to 375. I think pretty likely. The one thing I will say that has struck me is how quickly the events in the Middle east and the ramp in oil prices have translated through in the form of higher gasoline prices. I mean there's this old adage, prices rise like a rocket, fall like a feather. But this time it was a rocket on steroids. I mean, I was very surprised at how quickly it all translated through and maybe that's because of the nature of why prices are up. It goes to the conflict in the war and the energy companies are taking that in and pushing prices through very, very quickly. But yeah, they're up pretty meaningfully. And obviously for the American consumer this is a real hardship, particularly if you're lower and middle income because you have to make a tough choice in many cases. Do I fill my gasoline tank or if I p my hard earned money, my gasoline tank, what else can I spend my money on? Or do I not pay my credit card bill on time? That kind of thing. And so we're going to start to see more of that as we go forward here.
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E
Let's say the price of gas increased to $4, increased above $4, maybe even like $4.50. What happens then? How bad is that for the overall economy? What kind of impact does that have on overall inflation? And what does that mean, say for the Fed who has a mandate to keep prices down or at least keep inflation down as much as they can, yeah.
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G
If we're closing in on $4 for a gallon of regular unleaded, that means that oil prices that are 100 bucks, that's kind of a good benchmark. That would mean that if that were sustained for a year, that would cost just the run up in gasoline prices by itself would cost the American consumer about $200 billion annually. That kind of gives you order of magnitude. That doesn't include the effects on other prices like diesel, which affects food prices. And package you get from Amazon at your doorstep will be higher in cost because of the higher diesel price. It doesn't account for the jet fuel. Higher jet fuel prices and the impact that has on airline tickets. But just gasoline, that kind of gives you order of mag to a couple hundred billion. And if you do the arithmetic per household, this is the back of the envelope calculation, Ed, so I might not have it exactly right, but that would probably add about $1,000 to the typical household spill in a year. Not next week, not next quarter, but over a period of a year, about 1,000 bucks. So that's not a big deal for folks that are doing well kind of in the top part of the income distribution. But if you're in the middle or the lower parts of the distribution, that's real money and you got to make some tough choices if, if that's the situation. So that feels at this point like an outside downside scenario. Wouldn't be my baseline, but that kind of gives you order of magnitude.
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E
Yeah. And considering the fact that the affordability crisis is already top of mind, I mean, add this on top. It seems that there are a ton of implications there, including in politics, which I'm sure everyone is aware of. So what is just as we wrap here, what is your base case at this point? It sounds like you don't think it's going to be hitting those prices over a year. What would you, if you had to predict in terms of probability, what do you think the next year will look like?
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G
Well, in fact, Ed, I do that for a living. So I have to predict.
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E
And obviously talking to the right guy.
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G
Yeah, yeah, yeah, yeah. Given the uncertainty, the way to approach this is through different scenarios. So I think the way you ask the questions make a lot of sense. But my kind of working assumption here is that the President is going to find a way to stand down if, you know, if this continues for very much longer. Because as you point out, the political implications of this are pretty significant. I mean, there's nothing that resonates more with the American people. Than the cost of a gallon of regular unleaded. They're focused on that like a laser beam when they think about their own financial situation and how they're going to vote. So I just don't think the President's going to push this for very long. Now, you know, one scenario is that things are now spiraling out of his control. That's something we need to be worried about. But if I think if he stands down in the next week or two or three, then oil prices will start to come back in. We get back down to 60 bucks, gasoline goes back down to $3 a gallon, and we go on to the next thing that the President decides he wants to do. But that would be my baseline, just because that is kind of the way the President seems to have been operating here in his first year as president. He's very focused on the stock market. He's focused on mortgage rates, he's focused on gasoline prices, he's focused on bond yields. All those things are screaming, bring this thing to an end as fast as possible. And so that would be my baseline scenario. But again, we should consider all the scenarios here because this could take on a life of its own and outside the control of anyone, including the President of the United States.
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E
All right, Mark Zandy, chief economist at Moody's Analytics. Mark, always appreciate it. Thank you very much.
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G
Thanks, Ed.
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E
After the break, a look at Oracle's earnings. And for even more markets insights, you can subscribe to my weekly newsletter, simply put@simply put.profgemedia.com.
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H
Support for the show comes from LinkedIn. It's a shame when the best B2B marketing gets wasted on the wrong audience. Like imagine running an ad for cataract surgery on Saturday morning cartoons. Or running a promo for this show on a video about Roblox or something. No offense to our Gen Alpha listeners, but that would be a waste of anyone's ad budget. So when you want to reach the right professionals, you can use LinkedIn ads. LinkedIn has grown to a network of over 1 billion professionals and 130 million decision makers, according to their data. That's where it stands. Apart from other ad bots, you can target your buyers by job title, industry, company role, seniority, skills, company revenue, all so you can stop wasting budget on the wrong audience. That's why LinkedIn Ads boasts one of the highest B2B return on ad spend of all online ad networks. Seriously, all of them. Spend $250 on your first campaign on LinkedIn ads and get a free $250 credit for the next one, just go to LinkedIn.com Scott that's LinkedIn.com Scott Terms and conditions apply.
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I
Hey, Kara Swisher here. I want to let you know that Vox Media is returning to south by Southwest in Austin for live tapings of your favorite podcasts. Join us from March 13th through the 15th for live tapings of Today, explained Teffy Talks, Prof. G Markets and of course your two favorite podcasts, Pivot and On with Kara Swisher. The stage will also feature sessions from Brene Brown and Adam Grant, Marques Brownlee, Keith Lee, Vivian Tu and Robin Arzon. It's all part of the Vox Media Podcast stage at south by Southwest, presented by Odoo. Visit voxmedia.comsxsw to pre register and get your special discount on your innovation badge. That's voxmedia.comsxsw to register. Really, you should register. We sell out and we hope to see you there.
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Ambassador Rahm Emanuel served as President Obama's chief of staff, an administration that had to deal with its fair share of global conflicts. He dealt directly with Israel's prime minister and thought plenty about the threat from Iran. But Emanuel told me that the pace of action from this president in the Middle east is giving him whiplash.
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In 15 months, this president has taken military action against eight countries. Now we got three more years to go in 15 months, Iran twice, but you have Syria, Iraq, Somalia, Venezuela. I'm losing Nigeria today, explained in your
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feed every weekday and on Saturdays too.
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Foreign.
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E
We're back with property markets. Oracle just proved that the AI spending boom is far from over. The company reported earnings Tuesday night that beat analyst expectations by a large margin. Cloud revenue increased 44% year over year and cloud infrastructure revenue increased 84%. Oracle also revealed a backlog of over $550 billion in remaining performance obligations, an increase of 325% from this time last year. Meanwhile, capex was about $4 billion higher than expected and the company now has more than $100 billion in debt. The stock closed up 9% yesterday. Here to unpack these Oracle earnings with us, we're speaking with Jackson Ada, analyst at Keybank Capital Markets. Jackson, thank you for joining us. Let's dig into these Oracle earnings here. Pretty good. They said it was their best quarter in over 15 years. What do you make of it?
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F
Yeah, thanks for having me. Ad. I think that it was a good quarter. Best quarter in 15 years. Not so sure about that. I think maybe a couple of quarters ago when they first announced that that gigantic OpenAI the 300 billion plus dollar contract that sent, you know, the, the stock up to over $300. In the wake of that, that probably would rank a little higher in my book. But, but no, it was a, it was a solid quarter and I think what was important is that they showed upside to numbers in period in the quarter, actually produced some upside to revenue and also produce some upside to the future numbers. That remaining performance obligation number that you
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E
mentioned, it sounds like the reason that is a big deal for Oracle is that they were saying beforehand we're going to make money later. And you're saying that this quarter they said no, no, we're making money right now. Which perhaps puts to rest some of the AI bubble fears or what does that mean?
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F
Yeah, I think it just, what it really does is show that the company can also execute on delivering some of that capacity in the near term. So if we think about software companies and the business of software, remaining performance obligation and its revenue and its matriculation from backlog into revenue for most software is just the passage of time. You sign a three year deal and after three years you know, the revenue gets recognized. But in this case, remaining performance obligation is dependent on delivering, you know, real estate assets, right? Like hard assets that need to be placed into, you know, plugged in and placed into production. That's just, it's just really different from a traditional software company. And so I think it's, it was really nice and, and kind of showed some investors that it's like, all right, it's one thing to sign these gigantic contracts, it's another thing to deliver. I think, you know, it was 400 megawatts of capacity in a single quarter. We say, okay, that's great, we can start to see the path from remaining performance obligation off the income statement into revenue on the income statement.
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E
The big concern in that incredible quarter that they reported a few quarters ago, I mean, first it was, oh my gosh, we have all of this money in the pipeline. Remaining performance obligations, hooray. But then we start to learn that, I mean most of it is OpenAI and then there start to be concerns about does OpenAI even have the money to pay for this? And look at how many other contracts they're signing up for. And are they going to pay Oracle first or are they going to pay Microsoft first? Who are they going to pay? Those were the questions, the concerns. Did we learn that OpenAI is indeed paying Oracle right now or what did we find out on the OpenAI and Oracle front?
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I don't think we necessarily found anything out on the, on the like. Is OpenAI paying them right now? They're an existing customer, so.
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E
Right.
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You know, the, I guess the factual answer is yes, they are paying them. But in terms of that gigantic, you know, the 300 billion, the four and a half gigawatts that just hasn't kicked in yet, that's more of a 27, 28, 29 and beyond type of, type of contract. I think though that, you know, Oracle's management was explicit about saying, you know, that recent kind of funding and financing activity from very large customers is, you know, also gives them some relief and some line of sight into these contracts kind of being executed as, as planned. You know, it was funny last it was last Friday there was that article that came out on, you know, from Bloomberg that said that the companies were scrapping this expanded footprint at the Abilene data Center site, that one of the, one of the Stargate sites. And that sparked a big worry. It's like, oh my God, you know, what's, should we be worried about kind of this AI demand. But the important thing is, is that, yeah, that was an expansion of that particular site, but it had nothing to do. They're still moving ahead with the four and a half gigawatts that are currently on the books. So I mean that we didn't necessarily learn a ton about OpenAI last night, but we have been just from their financing raises and their IPO plans and a lot of media attention, we've learned that they are, they do have the ability to raise a ton of money and Oracle is a, obviously a strategic vendor, is going to be, if not first in line, very close.
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E
Yeah. Their remaining performance obligations now it's up to $553 billion, up from $523 billion last quarter. How confident are investors in that number at this point? It sounds like they used to be confident, then less confident, but the stock is up 9% after these earnings. Is this a number that investors believe is actually going to materialize?
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F
I think there are two things there. One is, I mean in order for a dollar to be included in remaining performance obligation, it has to be contracted. You can't have any kind of cancellation clauses, you can't have any, you know, outs, let's say now contracts can always be rewritten, right? Every, every marriage, when it starts, has the, has the hope. You know, it's like that it is going to see itself through. Right. We can always rewrite contracts. Timelines can always change in a, in a bilateral way. But you know, again, just to be included in that backlog. It's not like oh this might happen, this might not happen, it is truly contracted. So that's, that's where we have to start. Whether people believe that it is going to happen or not. I think most of the investors that I speak with there is an assumption that sure, maybe the total dollar amount is not necessarily at risk, but maybe the timing, you know, that's what we don't know of that 550/billion dollars, 120 of it is expected to be recognized more than five years from now. Right. So we're talking about long time frames here and time frames that, that easily could shift over a 5, 7, 10 year time frame that, that are on these contracts. But I think what, why investors are willing to reward, let's say the build in the RPO last night or today versus before is that the assumption is that the build in the remaining performance obligation is coming from customers that are not named OpenAI and so that customer concentration risk is lessened by the fact that they keep building RPO and it's not coming on the heels of some major announcement from a singular customer. And then the other thing that was really nice is that they talked about some of the contract structures that they're now signing prepayments from some certain customers or customers bringing their own chips. Which means that Oracle doesn't have to scrounge up the money and go pay for the chips ahead of time. These ease the financing needs and so not all RPO dollars are created equal. And this quarter the RPO build was really well received. I think for a few of those
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E
reasons it does seem like management is taking the investors risks and concerns very seriously. They're trying to show no, this is real. We are sort of shoring the whole operation up. Stocks up 9% yesterday, but it's still down 15% ish on the year. A little more than 15% year to date. Everyone was very concerned about this company or at least has been for the past few months like that. It was a genuine structural risk to the AI story as we wrap up here. Where do you land on that?
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F
I mean just as far as the stock is concerned and the company is concerned, we still really like it. And the nice thing about Oracle is that you, yes, it does have this business. It's Oracle cloud infrastructure. You know, the OCI business is absolutely levered to AI spend and AI infrastructure spend. We can't, we're not gonna, we're not gonna throw that away. But we also need to recognize that Oracle also has A gigantic application software business and a gigantic database business on top of the cloud business. And so if you put those businesses together and in a lot of ways, you know, the company and management is talking about their strategy of selling kind of one oracle, right. You can get, it can be a, a one stop shop. There are things that are valuable within this company that don't have to do with, are we just going to be sprinting as fast as we can toward this AGI race and GPU rentals and capacity constraints and memory prices and energy. Right. That there are things within the company that are not just related to that. And so for a while there, I think, yeah, the stock was trading as basically a proxy for the broader AI infrastructure trade. And I think if they can show some, again, some execution here in the short run from things that are not just signing these huge GPU contracts, I think people will say, okay, this is still a really solid company on a bunch of fronts. And, you know, we think that it's undervalued.
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E
All right, Jackson ada, analyst at KeyBanc Capital Markets. Jackson, thank you very much for joining us.
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Thanks.
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E
Well, there are plenty of angles from which we can dissect what is happening in Iran, and we have explored many of them. But one angle that we haven't really explored is the growing body of evidence that there is a financial incentive to strike Iran, and more importantly, a financial incentive for the Trump family to strike Iran. We could start, for example, with the fact that Eric Trump and Donald Trump Jr. Are the new backers of a tactical drone company called powerus. What does powers do? They, quote, build and scale autonomous drone systems for military use in high risk environments. And their number one customer is indeed the Pentagon. And so this company, which the Trump brothers are planning to help take public, now that they have already invested, this company is going to be a direct beneficiary of the war in Iran. In fact, it already is. And this is also a running theme for Eric and Don Jr. Who are also responsible for the New America Acquisition Corp. An investment vehicle whose goal is to find companies that are, quote, well positioned to benefit from federal or state level incentives such as grants, tax credits, government contracts, or preferential procurement programs. In other words, these guys are monetizing their relationship to the president, or more specifically, their relationship to dad. We've seen other red flags in relation to Iran as well. For example, Trump told us this week that the reason he believed Iran was a threat was because Jared Kushner told him so. Yes, Jared Kushner, who has no formal position in the White House. But he is Trump's son in law, and more importantly, his portfolio is almost entirely dependent on his relationships with and his vision for the Middle East. His investment firm, Affinity Partners, is almost entirely funded by many of the Gulf states. And his number one investment thesis is to connect those nations economically with businesses. In Israel, for example, he is a significant investor in Shlomo Group, which is an Israeli conglomerate with large holdings in, yes, defense. He's also a large investor in Phoenix holdings, one of Israel's largest asset management companies. So Jared Kushner's portfolio, and essentially his financial future is almost entirely dependent on how things play out geopolitically in the Middle East. And at the same time, he is also the guy who, according to Trump, was a significant influence in our decision to go to war with Iran. Which begs a very concerning question. Are we doing what we're doing because it could make Jared Kushner rich? Are we doing what we're doing because it could make Trump's family rich? And then you consider the fact that half a billion dollars were traded on prediction markets on the timing of these strikes and the fact that one account made more than half a million dollars on these strikes, and the fact that that account's first trade was placed one hour before the news broke publicly, meaning whoever this person was, they definitely knew something. And then you have to ask yourself, is this someone within the administration? Is this someone related to Trump? We don't know. But these are increasingly legitimate questions. So perhaps we will dig into this question a little more deeply another time. But for now, we should at least acknowledge what is happening and the questions that it raises. Let's acknowledge the possibility that the reason we are bombing Iran and the reason we are at war isn't to pursue peace or to pursue democracy or even power. Let's acknowledge the possibility that what this is really all about is, once again, money. Okay, that's it for today. This episode was produced by Claire Miller, Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams. Our research team is Dan Shloma, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. And our social producer is Jake McPherson. Thanks for listening to Property Markets from Profit Media. If you liked what you heard, give us a follow. I'm Ed Elson. Tune in tomorrow for our conversation with Torsten Slok.