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The following podcast contains explicit language.
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Hello, and welcome to the fifth birthday edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. And what do I want for my birthday? I want you to go to signup.axios.com and subscribe to my newsletter. It is my birthday. Well, it is the birthday of Slate Money. It is the fifth birthday of Slate Money. We have been doing this for five years, and to celebrate, we're going to have a birthday party with Emily Peck of the Huffington Post.
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Hello.
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Happy birthday.
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C
Thank you.
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And with Anna Shymanski. Happy birthday to you.
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D
Thank you so much.
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B
And most excitingly, with Jordan Weissman as Slate.
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I'm back, people.
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B
He's back. Jordan Weissman as long term, five years. Subscribers to Slate Money might recall used to be on this show.
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A
I was part of the original lineup.
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B
And so we've decided to bring him back for old times sake. And also because my Axios colleague Dion Raboin got a message from his friend Misha saying, what has happened to Jordan Weisman?
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I don't know what this says about my career right now.
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B
And so we needed to bring you back here just so that we could ask you, Jordan. What happened to Jordan Weisman?
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Well, it's a long story. I was sold off to a nomadic warrior tribe in the east for a while, and then I managed to take over as their leader. And I've been kind of. No. Does anyone here watch Game of Thrones? I'm literally rehearsing Dany's storyline.
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B
Yeah, none of us have a clue what you're talking about.
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A
Okay.
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Is this, like, an adventure?
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C
Don't talk about that either.
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They're literally.
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C
All I know is Thanos is bad.
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Yeah. There are two things. People are watching people. Okay.
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Welcome to the world's greatest pop culture. We're, like, totally on top of all references.
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A
Okay, never mind. I've been writing and doing another podcast called Working, which you should all listen to. If you listen to.
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B
Listen to a podcast called Working. So listen to that. But listen to this one first, because this is gonna be a good one. We are gonna talk about the huge hundred billion dollars of tariffs that Trump has just imposed on China. We are going to talk about the biggest, baddest IPO since Facebook, which happened on Friday, just yesterday. And we're going to answer our favorite listener question. We do read the emails that you send us on slatemoneylate.com and we got a very good one this week. So we're going to answer it all about short termism in the stock market and whether it's bad. So we're gonna answer that coming up on Slate Money. Let's start with tariffs. They happened. The market was kind of seemingly a little bit too sanguine and now, whoops. Jordan, what happened?
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A
Yeah, I mean, Trump followed through. On Monday, everyone was talking about how the trade talks were kind of going south. And I was like, nah, this is like, this is just, he's not really good. And Trump's like, yeah, I'm gonna raise tariffs on Friday probably. And I just kind of wasn't paying attention. Then. By Thursday night it was, well, they' previously were tariffs of 10% on about $200 billion of Chinese goods. They were 25% on another $50 billion. Now it's 25% on all $250 billion of Chinese goods that are coming into the country.
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B
And this is like basic mathematics. If you put 25% tariffs on, say every hundred billion dollars that you put 25% tariffs on, you get $25 billion. Now Trump thinks it's the Chinese who's paying that $25 billion. No one else thinks that's the Chinese. Everyone else thinks it.
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A
You know, this was interesting because at first there were a few economists who were out there saying Trump might be right. There was a theory that American companies might be able to basically force the Chinese to swallow the cost of their tariffs in order to keep importing them, saying, you're going to eat it. I'm not going to pay anymore. That didn't happen. It turns out that the American company, like there have been two academic studies so far and they're like, no, American businesses are just taking these there. The prices are going up. It is increasing costs for consumers by like, you know, I guess the full, you know, 25 billion or by the now it's up to, I guess it's 25% on 250 billion. So that's going to be 50 something. 57.
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C
It's near half of what we import from China now has these tariffs, fatty tariffs on it. And he's threatening to do more tariffs so that everything we import from China will have tariffs on it.
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B
Because. Because what's going to happen is that China is going to retaliate with its own tariffs and then Trump is going to retaliate to the retaliation and it's going to be this escalating trade war. And I don't know of this. Am I right?
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D
Most likely not. However, I'm guessing we're probably not going to see some significant market reaction, you'll probably see a bit of a blip because I think A, people are getting used to this and B, I think there's this sense that what we've seen happen with Trump is that he will push things until there is some type of response that actually hurts him. Right now the economy is doing so well that I think he just thinks that he has significant degrees of freedom to do whatever he wants. And I think he feels like he's in a better negotiating position than the Chinese. And so he's going to try to push them to agree to things that they are almost certainly not going to agree to. But I kind of think of this in the same way of like the, like the government shutdown, like he, he pushed it and pushed it until LaGuardia was closed. And I kind of feel like we're going to see the same thing here. Unless you start to see a significant impact on the US Economy, he's just going to keep doing this.
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B
So. Yeah, so tell me about that. First obvious impact might be that finally if all of these prices get passed through to consumers, we might actually see this long forgotten thing called inflation.
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D
Is that going to happen? I think with the previous tariffs it was like 0.1% in terms of a price increase. And this isn't like when you're dealing with tariffs in this aspect. It's not linear, it's kind of like logarithmic in terms of the effect that it can have on prices. But we just don't know exactly how long this is actually going to be in effect. What the, and I guess to say is if everything that Trump said he's going to do actually happened long term, then yes, you could see somewhat significant price increases, you could see significant manufacturing job losses. However, I think there's this sense in the market of a little bit of like a Trump put, like he's almost certainly not going to actually push it that far. Now the question of course is does he actually have control that at a certain point could he complicate things so much that he really can't pull back? The only last thing I'll say though is that in a lot of companies, earnings calls recently, you've been hearing them saying that they basically have kind of been pricing this into their expectations and projections. So that's another reason why I don't think you're going to see this significant market impact.
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B
So my feeling is this, is that the market might be wrong about this, at least in the medium term, by which I mean through the election Just because for all that Mnuchin and Lighthizer and the US Negotiators are relatively sophisticated, know what they're asking for, and they're doing, I think, good faith negotiations. Ultimately, Trump himself really hates all trade deals and really loves tariffs. And that's just like he is. You know, he doesn't go into details on anything. He's just like, tariffs are awesome. And then there's nothing he loves more than getting onto Twitter and talking about how wonderful his tariffs are. And I don't think that, like, in his heart of hearts, he wants to roll back these tariffs. I think in his heart of hearts, he wants to have more tariffs. He thinks tariffs are great.
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C
I was wondering if there was any political blowback coming his way, because the people that so far have been hurt by these tariffs are like farmers in the Midwest.
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A
Well, I think this is actually getting paid off. And that's probably the strategy is like you have. They basically are creating these insurance funds where they're will pay you for.
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C
The great tweet today was like, why sell soybeans to China when we could just borrow from China to pay farmers to not sell soybeans to China?
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B
So Trump, Trump had a whole thread today on Twitter. He's learned to thread, which is kind of amazing, where he was saying, we're gonna get $100 billion in tariffs. We're gonna take $15 billion of that. We're going to use it to buy soy, which is the exports that are no longer going to China. We're going to take all of that soil and we're going to send it to starving children in Africa or something. It was a bit unclear, but, like, he has it all worked out. It's all clear in his mind how this is a win win for everyone except for China who loses. And that's great because if China loses, then America wins.
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D
Yeah. Let's also look at soybeans.
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We're making America great again.
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C
It's like the opposite of everything. It's like he's touting how he's raising taxes on people and doing basically communism.
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Yeah.
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D
Makes no sense.
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I like this basic. It's basically communism slave money on. Yeah, I mean, but I sort of, I look at this and I try not to get too. A long time ago, I learned to try not to get too bogged down in, like, Trump's individual movements on trade just because it's so hard to predict what he's going to do in the long term. And maybe he is going to just keep these tariffs in place. Because he wants tariffs. He loves them in his heart of hearts, or maybe he's not. But what strikes me about this whole thing is just. It kind of speaks to the fundamental failure of his entire strategy, at least if our goal was to actually change the way trade with China works. There was sort of this split in the administration early on. There were, like, two roads that could have gone down. There was like, the Gary Cohn side, the globalists, right, who said, our strategy here should be to isolate China. We should make an alliance with Europe and Japan, and everyone else get together and say, we're going to come down hard on your trade practices and we're going to create a global front. And then there was another group that said, no, the US should go one on one with China and just slap tariffs on them. And that was like the Peter Navarro group. And that's what we've done. We've decided to go down that route where we're going to try to take on China one on one, while we are basically alienating everybody else by also putting tariffs on steel and going after Europe and saying they're actually our bigger foe. And so we're, like, not winning on any front. We're losing on every single front. And these tariffs, in the end, they're not making a huge dent in the economy. Most of the estimates are like, they've probably cost us $8 billion in lost efficiency. Is the estimate. Some jobs, probably. But, like, it just. It's such a wasted opportunity. You had one administration that was like, we're actually gonna try and make a difference in trade with a country that's been a bad actor on it, and they are just, like, swinging a missed.
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Opportunity on human rights. I mean, you wouldn't expect a Trump administration to do any.
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To care about the Uyghurs, to care.
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About the Uyghurs or Muslims in China. But, I mean, to go hard against China is an opportunity to challenge them on human rights.
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B
And the most. The one thing that Trump can do, which basically no other president can do, is credibly threaten to shoot himself in the foot by putting tariffs on a whole bunch of Chinese goods. He's the only person who can do that. No other president would put 25% tariffs on $200 billion of Chinese goods, because that's insane. But Trump is happy to do that. So if you have that credible threat and you're willing to follow through on it, then you actually have a certain amount of negotiating leverage which they seem to have thrown out the window.
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A
Well, this is interesting, though, because on the one hand, Trump does have that leverage, but all it's doing is running up against the fundamental fact of China's entire government, which is that they're an authoritarian regime that does not really have to worry and also has an extremely nationalistic population that's pretty much on board with this, too. They don't want to see their government give in to Trump. So, like, it's sort of Trump has that, like, crazy man thing where he can threaten to shoot himself in the foot, but, like, China's like, we can shoot ourselves so many more times in the foot than you can. It's true.
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D
But I think if we're thinking long term about why this could long term be very damaging is because, you know, what China had initially been trying to do before a lot of this started was actually trying to reduce some of the leverage in their economy. They do understand that their current system, not their government, but in terms of some of their economic policies, were unsustainable. However, now what has happened is they've had to backtrack a bit. They've had to pull back. They've had to have tax cuts and other stimulative measures which have clearly worked. However, if now they need to start engaging significantly more stimulus. You're talking about, you know, increased lending, perhaps significantly more infrastructure spending on projects that are completely useless. You're creating more and more and more instability in a country that is a linchpin of the global economy.
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A
So are you saying that China can't keep this up forever or that it's going to come back to bite us all in the air?
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B
Well, I mean, I guess the point is that the big thing that people have been worried about for some years now has been the amount of debt in China. And China has had begun this process of deleveraging and trying to become less, like, fundamentally leveraged and risky. But now that it's facing these tariffs, it's having to lever back up again to keep its growth rate up. And that is long term, risky for everyone.
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A
What if, like, secretly that actually is, like, Trump kind of pulls out a win accidentally by causing a financial crisis in China?
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D
By a win, you would talk about, like, I mean, every. Like, that could be the kind of, like, next global financial crisis. Like, not necessarily, but that could be a worldwide depression. I'm not saying that that's going to happen. I'm just saying that, like, China is so significant, is so central to the global economy.
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Are there big spillovers from. If it's like, finance sector, yes. Okay, there are. There are Spillovers.
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It depends. If you're talking about their finance sector, I think that sometimes that's not as significant as it is, say in the United States. However, a lot of companies, their shares are pledged as collateral.
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Okay.
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So that's how they're accessing financing loans. So it is significant. It's not insignificant the way that some people will talk about.
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And there are of us who remember 1998 and the last Asian financial crisis and the orders of magnitude smaller than what we would see in China. And yes, there were more direct linkages to the dollar back then, like the Korean won was pegged to the dollar and that was a problem. But I just don't think, given how bad the Asian crisis was in 1998, that you could possibly imagine that a Chinese crisis would be better than that.
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A
Yeah, but the economy is great in 98 for Americans. Sorry, I just wanted to see the look on Felix's face when I said that. I'm just like triggering him right now.
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C
So everybody loses Trump's tax war. There are no winners, possibly.
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I mean, I guess non American soy exporters. I mean, this is also the long term losers here. The farmers in America who had spent years and years and years building up relationships with Chinese buyers. And then the Chinese just turn around and say, actually yeah, because of these tariffs. No, that's what I said.
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C
Now they're just getting paid by the government.
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Right? No, but the point is it's a question of.
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It's a long term question.
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It's a long term question. Even if the farmer gets exactly the same amount of cash this year that they would have gotten selling to China or more even they would rather have a long term relationship with China because there's no way that these farm subsidies last in perpetuity.
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A
Right. There is another winner, which is like Thailand and Bangladesh, like maybe again, this.
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Is this whole idea that like manufacturing especially is going to move out of China and towards places like Vietnam and Thailand. You know, that's a huge amount of anecdotal stuff going on here. But again, the only reason that a company makes that kind of huge decision of just moving their entire manufacturing to a different country is if they think these tariffs are really.
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D
Exactly.
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I mean, I think it's also they were they. That was already happening though, as part of it, like you were starting to see that those movements from kind of low value add manufacturing like Tesla, labor costs are increasing.
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And so labor costs are not that cheap.
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This is expediting it, which is sort.
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C
Of the Felix had. I think it was your Number a few weeks ago, where it was the washing machines, where domestic manufacturers were washing machines facing, they had the cheaper goods now that the tariffs were on the imported ones. So what did they do? They raised prices. So, like, maybe in the end companies do win because they get to finally raise their prices. Then they can make more money.
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D
But their costs.
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A
Yeah, the cost.
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C
So they can raise prices even more.
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A
Yeah. But I think Whirlpool's like profits have taken a hit. I don't think it's been good.
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B
Yeah, no, it's hard to find. It's hard to find winners here. Except if you're, you know, following Trump's Twitter feed, in which case this is for a big win.
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A
We're all winning.
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B
Okay, we got a letter, thank you to Ryan Navel Cook, who wrote in with a great question. And so we're going to answer Ryan's question. Hello, Slate Money team. He says I'm a relatively new listener to Slate Money. I've started working in the private sector and have currently been going through the ups and downs of quarterly reports. Previously I worked in academia where this never mattered. Could you potentially devote a segment to going over things like earnings per share, why the stock shifts so much, why companies react so volatile to these reports and maybe shed some light on how to read one of these reports? I work in an industry that works months to years in advance, so it never makes much sense to look towards the next quarter because you could lose sight of the overall picture. This is an incredibly good question. And this is related to something that Larry Fink, the investor, has been talking about for ages, which is he loves to complain about how the stock market is far too short termist and that what we should do is concentrate on the long term. And CEOs love to complain that they're managing towards their quarterly earnings and the stock gyrates massively on the basis of what happened this quarter. And what we should really be doing is concentrating on the long term. And it's almost impossible to find a politician who doesn't bemoan the short term focus of the stock exchange and talk about how we should all be much more long term. So, Anna, are they right?
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D
No.
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B
Okay, so there's your answer, Ryan.
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D
Let's look at some. Like, if you're looking at companies that have done extremely well in the equity market recently, let's look at, I mean, Amazon now is quite profitable, but it was allowed to go a significant period of time without having profits. You're seeing all of these companies that both the debt and equity Markets are just continuing to treat well despite the fact that they're not there is sometimes not profitable at all.
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B
Hello, Uber.
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D
Yeah, exactly. There this idea that people have, there just isn't a lot of evidence. And also I think it's significant that people have been complaining about this since like the 1960s. I mean like this is a very, very long term complaint and if you look, you're like, well if that was an issue you would be seeing the results of it and we just simply aren't.
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B
Well, okay, so if what was an issue, we would be seeing what.
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D
So if short termism was actually a problem and if you're thinking of why it would be a problem and people say like planning for the short term as opposed to the long term. What people often mean by is that, well, people aren't going to be investing in research and development and capex and they're just going to be focused, only focused on their earnings per share. However, there's just not a lot of evidence for that. There's not a lot of evidence that research and development, that people, in fact it's quite the opposite, that people continue to invest quite a bit in research development. When it comes to capital spending, that's a little bit different. But that's because a lot of companies are less capital intensive and if you look at other countries, you're seeing the exact same thing.
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B
Okay, so let me ask the question in a slightly different way, which is given that equity is permanent capital and the idea is that like these stocks will last forever and the value of a stock is basically the cash flows looking forward decades into the future, why is it that stocks regularly, you know, are incredibly volatile and go up or down 5, 10, 15, 20% on the basis of a single quarter's earnings report?
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D
Well, it depends on if they didn't meet expectations. Because if you're valuing a company and you have an Excel spreadsheet where you're plugged in a certain number and now you're plugging in a different number, it's going to change the valuation of that company.
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B
So what you're saying is that if I have one bad quarter, then that's going to cause all of the analysts to update all of their Excel spreadsheet numbers going forward decades and bring down all of those numbers going forward decades and the discounted cash flows from decades worth of future earnings have now been decimated and the stock price should go down by 15%?
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D
No, no, no, it's not that. It's saying, well a, I would question if we're actually seeing this much volatility around when companies are reporting and they are quite meeting expectations. Sometimes you see a little bit. But I actually think this idea that we're seeing so much volatility, there's not actually much evidence for that.
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A
That's. I was actually going to ask, and I'm for listeners at home. I'm actually staring into my phone trying to find any kind of analysis of what the volatility around investment is. I'm finding a bunch of like job market papers where like financial economists are like, it's sort of like. But like, I don't. Like, when was the last time you heard a stock? Like just totally. Except for when it's like I'm thinking about like when Facebook announces, like, oh, we forgot how to get new users. Or like Twitter's like, oh, we don't know how to like get people to sign up for a service anymore. Then you see big ones.
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D
You see a hit. When you saw a hit, like when their numbers especially like kind of out of sales out of China were down more than expected. And this is what it's about. Yeah, expectations.
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B
Yeah.
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C
It's like you could weigh yourself every day and like you go up five pounds, down five pounds, but if you go week to week or month to month, it's pretty steady.
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D
Well, and this is the thing, like, yeah, and that's. And that's also the point. Like, yes, you'll see some little bit of gyrations as people are making slight changes to their portfolios. But in, if you look over, you know, a month, two months or an entire quarter and see like, well, how have things actually changed? You're not seeing this tremendous.
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B
Okay, so. And I think this is, this is the key thing that you have saliency bias. The vast majority of companies that release quarterly reports do not see their stocks gyrate massively upon their earnings release, but they just get ignored by the news media because like company releases earnings and nothing happens is not news. Whereas every quarter there are thousands of companies out there. Every quarter there's going to be one or two companies who really do surprise the market with their earnings and see their stock go up or down a lot as a result. And so everyone looks at those and people start thinking that that's normal because that's what they keep on reading even though it's not normal. So the other thing is that there are some companies which are being valued on massive growth. So the one which I just wrote about last week was Eventbrite. It went public last year in like September, on the basis of we are this fast growing technology company. And then it came out with earnings and it's still growing, but it turns out that it's growing more slowly than people had hoped. And when all of your share price is basically predicated on really fast growth and it turns out that you're not doing really fast growth, you're just doing like kind of normal growth, then your share price can fall a lot when that happens. But that's again like an outlier. If you're looking at mature companies most of the time when they come out with quarterly reports, the stock market is actually quite good at not overreacting. Look at what's happening in the stock market reaction to all of these Trump tariffs. It's kind of. There isn't one. The stock market is quite good at looking past short term noise most of the time.
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D
Exactly. And I think it's partly going back to this idea of like, you know, how are you valuing a company? And if you're in when you are literally valuing it based on long term projections of cash flow and long term growth rates and the rate of return, like these things aren't going to massively change because of one quarter's number.
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C
So why, why is this movement to like stop publishing quarterly reports? You want to even like Hillary Clinton, if you'll remember, in 2016, was like talking about it.
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B
Trump has gotten to it just like.
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C
A kind of way for companies to like push for less attention paid on them.
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D
Well, I actually think that is a significant part of it. I do think that a lot of companies do. Would love to not have to deal with the hassle of quarterly reporting. And they have a lot of political sway and people listen to them. And I do think that's actually a big part of it.
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A
There's actually about Hillary Clinton. Part of the reason she got onto that is because Larry Fink and her were like buddy, buddy. And so he was.
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B
Why does Larry Fink care about this?
- [24:28]
A
I think Larry Fink dislikes activist investors. Right. That's his thing. He doesn't like the icons of the world for whatever reason. And so it's like, it's an icon, obviously, is about pushing for like kind of quarterly moves so he can maximize his, you know, his exit price on a stock. And even that is actually sort of a caricature of how activists are.
- [24:46]
D
Yeah, exactly.
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A
Like that's not always the case. But, you know, I spent a lot of time reading on the short termism thing and if that had any like actual economic Impacts. And like there's been some work suggesting that it does on the margins maybe, possibly, but it's, it always struck me as like kind of a forest for the trees thing about capitalism. Like if you.
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B
I guess, but that's. I want to come back to Emily's question though, because it's a really good one because you hear this so much from the grandest of the grandees. It doesn't matter whether it's Warren Buffett or Jamie Dimon or Larry Frank or Hillary Clinton. It's almost this article of faith among the Davos set that there's too much short termism in the stock market and what we need is a longer term time horizon. And I'm really interested in where this comes from and why they are also certain of it. Given that there doesn't seem to be any particular evidence for that.
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C
It's like, shouldn't they be looking at, instead of, you know, maximizing value for shareholders, like we always talk about maximizing value for employees and the public and things like that. That's like a real public interest topic where short term versus long term just seems like we want to hide information from the public and stop paying attention to us so we can do whatever we want and not have to worry about this.
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A
I think that's actually a really good point. I think they sometimes kind of try to blur the difference. They act like if you hear the rhetoric and it sounds like if we didn't have to be so short termist we would pay our workers more, which is like, no, you wouldn't.
- [26:16]
B
Yeah, no, I think, I think ultimately you're right and it comes down to accountability that often when very rich CEO types talk about long termism, what they mean is a lack of accountability. Because if you give me $1 million and say I trust you for the long term and I'm going to come back in 20 years and see how doing with that million dollars I can do anything. Like I can just spend it all on hookers and blow and like there's nothing you're going to know about it for another 20 years. And so like you as the owner of the million dollars are going to say, like, listen, can you just report back every quarter and tell me how you're doing with that million dollars? And I'll be like, well, no, because then I can't spend it all on hookers and blow. You know, like, I don't want the managers. No, no one likes accountability.
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C
It's like, it's like another version of we need less regulation so we can be free kind of argument. Right.
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B
That we make less oversight, less people like breathing down our necks and second guessing our decisions. And you can see from the managerial point of view why the people running companies don't love this. I still don't understand why from the investor's point of view why Larry Fink as an investor doesn't love it. But Larry Fink is weird. I think also he runs a public company. He's also a CEO, it has to be said. So he's kind of on both sides.
- [27:32]
A
I think that there's also like getting back to the politics a little bit of it because it's a way of criticizing capitalism without criticizing capitalism. Right. It's like capitalism is good, just not this short term capitalism. We all need to be long term greedy. And it's like. Well, yeah, and so it's like a very Hillary Clinton. You can see why it's very moderate.
- [27:52]
C
It doesn't really change anything. It kind of benefits companies.
- [27:55]
A
Yeah.
- [27:56]
B
And just for listeners who don't pick up on Jordan's obscure references, long term greedy is a phrase which was invented by John Whitehead, who was the chairman of Goldman Sachs when it was a partnership. And that was his big thing. He's like, we are long term greedy. And then what happened was that Goldman Sachs wound. There was this big palace coup and Goldman Sachs wound up going public on the stock exchange. And then suddenly there was this idea that this was the end of an era and it was now Goldman Sachs was all short termist. And then the next thing you do is the Abacus trade and you cause the global financial crisis. This is a caricature which is not entirely true, but it's not entirely falsehood.
- [28:34]
D
And I do think that this is where there are always these like, like instances of people engaging in bad short term thinking and then that is extended to the entire market. Or you. Yeah, you do have some executive compensation packages that do incentivize short termism less I think than you used to. But so it's not that there's absolutely no problem. But not really.
- [28:55]
B
I have, I have one last question for Anna apropos this. Like Goldman Sachs, wasn't it better? It's a partnership thing. Do you think that the whole 1mdb scandal at Goldman Sachs, do you think that whole like Tim Liesner craziness would or could ever have happened back in the partnership?
- [29:13]
D
Unlikely.
- [29:14]
B
So like there is some case that like going public does skew your incentives.
- [29:19]
D
That's more about like liability though.
- [29:21]
A
Yeah, I mean, I think my view of partnerships was sort of poisoned by work by like having any kind of a view into big law. Like that's sort of like they can be extremely dysfunctional organizations where things get.
- [29:32]
C
Well, Mackenzie, don't get me started on the accounting.
- [29:34]
B
Yeah, yeah. At some point going to have Duff McDonald back on this show to talk about McKinsey, because that thing is running and running.
- [29:40]
A
I just, I want to say in my instant research, as I was reading papers and your comment about how it is literally just pushing a button on a spreadsheet and that totally instantly changes the valuations and makes the trades apparently seems to be confirmed by empirical research that all the, all the reaction in stock prices when there's an earnings surprise happens, like the first 20 minutes or something at all. It's literally just some Excel jockeys. So that is an accurate description.
- [30:05]
C
Which is also always right.
- [30:07]
B
Except when she's wrong, which is also. I mean, there's a lot of debate in the academy, a little bit debate anyway, about whether stock prices really are calculated as the present value of future cash flows or whether it's more just a kind of sentiment machine. And I think on some level, I don't think there are that many stock buyers who really do all of their DCF math that way. And I think on a sort of minute to minute basis, there's a lot of sentiment going on. But also ultimately, I think unless you can make your stock price line up with some vaguely probable concept of future cash flows, that stock price isn't going to stay where it is forever.
- [30:46]
D
Yeah. Because obviously you also value through market multiples. So that's going to be more impacted by market sentiment than if you're doing an intrinsic value calculation.
- [30:55]
A
That's an interesting point, what you're saying. There is an individual stock is going to be valued as is future cash flow, but people get very emotional about the whole damn economy and market. And that is actually.
- [31:04]
D
Well, just. There are also literal different ways to. Of different forms of valuation.
- [31:07]
A
Okay, I see.
- [31:08]
B
And it's really hard to like value Tesla on a DCF model.
- [31:15]
D
I've seen dcf.
- [31:16]
A
Do you like his tweets or not?
- [31:17]
B
Yeah, and we'll see. Yeah, and we'll see with Uber, which we're about to talk about, like whether DCF makes any sense at all. Okay. It's the biggest IPO in.
- [31:27]
D
Since Alibaba.
- [31:28]
B
Since Alibaba. And Alibaba wasn't even an American company. This is, this is an all American world. Beating money, losing much hated. I mean, it's got everything. It's Got Travis Kalanick. It's got Arianna Huffington. It's got drivers going on strike. It's pricing at a significant discount to what a lot of the sort of whisper numbers were. People thought it might be worth $100 billion or even $120 billion. Now it looks like it's probably going to be worth more like 80. In any case, it's kind of miraculous that it's worth even that much, given that that it lost billions of dollars last year and has no real path to profitability that anyone can see. Jordan?
- [32:10]
A
Yeah.
- [32:11]
B
What's the big picture with Uber here? Is this the stock market putting $80 billion worth of valuation on something which is just really difficult to justify on any level?
- [32:23]
A
I don't understand. My favorite tweet I've seen about Uber was from a behavioral economist named Jody Beggs. And it seems like she said that it seems like the entire bet on Uber is that it's going to figure out how to do driverless cars before drivers figure out what depreciation is. Right? Like, because right now it has an entire model where it is squeezing its drivers who are really making even less money than they think they are, because they are driving vehicles that eventually they have to replace and they're not really getting a good deal. And yet the company is still losing money while it's squeezing its labor force and it's resulting in strikes. There was this big settlement the night before. They were trying to quiet down all the labor unrest going into the ipo. But I assume that's not a permanent. I. Maybe it is a permanent resolution, but I doubt it. And so it just, like, maybe I'm not enough of a visionary, but I just don't see weird. I don't see a happy ending here. It's certainly not like food delivery. Like, that's the thing. Like, their. Their prospectus is about, like, Uber eats getting bigger, and it's like they can't even deliver food that's warm. So, like, how is. I don't. I don't get it.
- [33:22]
B
Well, I also don't think that driverless cars are in any way a savior of Uber. Even if driverless cars arrive tomorrow, it's not clear that the economics of that would wind up going to Uber as opposed to the driverless car manufacturers or the people who own the cars or someone else.
- [33:40]
C
The one thing I kept thinking and coming back to with Uber is just like, anyone who buys into this stock is just supporting exploitation. Someone else said that, but I'm just copying.
- [33:48]
B
So let's talk About.
- [33:49]
C
About these strikes, because these drivers, they're really underpaid. These aren't sustainable jobs. There's how many million drivers now? 3.9 million drivers. There's going to be this big IPO. A lot of people are going to get rich. George Soros gets rich. Jeff Bezos is going to make $400 million. These drivers.
- [34:06]
A
Wait, how did that happen?
- [34:07]
B
He's a value investor in the Uber.
- [34:09]
A
It's just like. It's like anytime something happens, it's like in the economy, it's like, oh, yeah, Jeff Bezos makes some money, he could.
- [34:13]
C
Pick up an extra 400 million, like, with his. But, like, these drivers, you know, some of them have the opportunity to get some stock. It's like the saddest thing I've ever heard. And, like, at the end of the day, and maybe this is, like, I don't know, really idealistic of me, but this is just wrong. It's an immoral company. I'm just gonna say it. There's no evidence that Uber is really a net positive, so.
- [34:35]
B
But all of those arguments apply equally to Lyft as well, right?
- [34:38]
C
Yeah, sure, yeah.
- [34:39]
B
Just to be clear, because there was this. For a few years, there was this idea that, like, Lyft is the better one. Uber was the bad one and Lyft was the good one. And now they seem converged into both being bad.
- [34:50]
C
Well, I guess for a while, Uber was worse in terms of the way Travis sort of ran the business and the stories coming out, like the Susan Fowler story of sexual harassment and then myriad other sort of like, really bad acting executives. And so Lyft looked better by comparison. But now when you have this, like, alleged grownup running Uber, that stuff kind of has melted away. So now you can just look at them and say these people, they have. They have a labor force that they kind of ignore, and that's just wrong.
- [35:15]
D
Well, I think that. I mean, yes, of course, like, when you hear from a lot of the drivers, it's hard not to be extraordinarily sympathetic, because it is true that even though Uber will sometimes say, well, you know, this is something people do on the side, the data doesn't really bear that out. And what else I will say is.
- [35:29]
C
Like, this is just a piece. It's just an app. Like, I think Jordan tweeted, like, they should have just licensed the app to, like, New York City's Taxi and Licensing Commission and, like, had it more integrated into the system that was already out there. Like, at the end of the day, they're not doing the work.
- [35:45]
D
These drivers, just to be clear. Work. There's a reason that this company is so profitable. Not profitable. Yeah, sorry. There's a reason.
- [35:51]
C
$1.8 billion.
- [35:53]
D
There's a reason this company is so popular, and it's because people love to use it. So to say that there's just like no benefit to this, that's they have.
- [36:02]
B
They have achieved product market fit for the users. But one of the weird things I want to just, like, jump in because it is part of the Uber doublespeak. Even to this day, even in the kind of gentler Uber, they do talk a lot in public about how this is a great way to make a bit of extra money. If you need some extra money, you can jump in your car and drive people around and you get like, extra money. And then if you look at the incentives they provide to drivers, if you look at the only way to make actual decent hourly rates driving for Uber is if you pick up like 5, 6, 7, 8, 8 fares in a row without stopping, any one of which could be like an hour long, you don't know before you pick them up.
- [36:48]
D
And just to be clear also, what, what are the alternatives for a lot of the people who are driving for Uber?
- [36:53]
A
Well, I think we're about to find out as the economy gets, and this is exactly it. That's actually going to be one of their problems is Uber came up, is a company that has existed entirely in this depressed labor market, and we have been living in a depressed labor market for 10 years. Like, that is something that, that finally the economics world is beginning to grapple with, and that has shaped this company's ability to find drivers. That's not, you know, thanks to the Trump stimulus, like, that's not quite the same thing at this point.
- [37:20]
D
No.
- [37:20]
C
And one of the reasons people really like Uber, and I'll count myself among those people, just confession. I've used it. It's easy to use. One of the main reasons it's so great is so cheap. I mean, it's incredible.
- [37:33]
A
Like, I get it.
- [37:33]
B
Well, Neil, clearly it isn't, but yeah.
- [37:35]
C
In most places, it's incredibly inexpensive. Like, like from my house in Westchester to the airport, it's like half the price of a car service. It's really cheap. If Uber actually had to pay its drivers what they should be earning and treat them like employees, they would have to raise prices like a ton.
- [37:52]
A
Right.
- [37:53]
B
One of the things that has been abundantly clear in the wars that Uber has fought for market share and for just increasing the size of the market is the. That consumers are amazingly price sensitive when it comes to these things. And if you call an Uber to get to X and it says $20, you'll be like, no. If it says $8, you'll say yes. And the price sensitivity on car journeys is extreme. And so it's not at all clear that Uber really has much scope to raise prices without losing a lot of business.
- [38:27]
D
I've heard a number of people say that if you're comparing it to the alternatives, as you're comparing it to other taxi services, as long as they can keep. Keep their prices competitive with the amount of flexibility that they offer, then it suggests that they actually have a little bit more pricing power than people think. Because it all depends on what are your alternatives.
- [38:45]
A
Literally, if there's no other transport home.
- [38:47]
D
Right. I mean, like, if you're. If you're looking at where people are using this, if your alternative is a taxi that still costs more and that you're going to have to wait.
- [38:54]
B
Well, no, the alternate. The thing which they want to do is not replace taxis. And they were very, very clear about this from day one, that everyone was like, how could you be worth this much when they like, the entire taxi business in the entire universe is not worth that much. And they're like, we are not going after taxis. We are going after public transport and we are going after private cars.
- [39:12]
C
Oh, and that's the other thing I was thinking. They shouldn't be going after public transport. Public transport should be public.
- [39:18]
D
Well, but, yeah, but like, let's. When you're living in a city like New York that has, despite how much we all complain, really pretty great public transportation, it's very easy to say, yeah, like, and I am a big supporter of public transportation. When you go to places where you have people who live far out, the idea that you're going to have buses that are going to go to where two people live, it doesn't make any sense.
- [39:38]
B
No, but that's. No, but that's where they compete against private cars.
- [39:41]
D
Yeah, but I'm also saying, like you had in Ottawa, Uber was actually. There was a town they were dealing with where Uber was their form of public transportation. The government was actually subsidizing.
- [39:50]
A
Didn't that go poorly? Well, it actually didn't they like, that raise prices, like everyone.
- [39:55]
D
Yeah. The problem is it was too successful in the sense that. That people used it so much that then they were like, okay, we're gonna have to put a cap on how much you can use it. And so I'M not saying that this is an overall solution. I'm just saying that I think when people talk about public transportation, they're also, I think, have a tendency to think about dense areas and aren't necessarily thinking about, like, what are the alternatives in other parts of the country.
- [40:14]
C
But Uber needs to replace alternative. You know, I wish there were more creative alternatives. As, you know, we're facing climate crisis, and they are.
- [40:21]
B
And to, you know, both Uber and Lyft moving quite aggressively into micro mobility or whatever you want to call it, the bikes and the scooters and that kind of stuff. So they consider themselves to be mobility companies rather than rideshare companies. But the fact is that if you look at these strikes, the purpose of the strike was quite clearly not to hurt Uber, the corporation, in the way that many strikes are designed to hurt management. The purpose of the strikes was to bring this issue to the attention of regulators in every city and to basically try and achieve, you know, what would be an existential threat for Uber, which would be them having to put drivers on payroll. And if they have to do that, then there's no way they can make money.
- [41:08]
A
Yeah, I mean, like. And that seems like a lot of that could come down to whether or not Donald Trump wins another term in office. Right. Or a bad one. Bad court decision also, if the federal courts end up deciding it. But, like, a Department of labor run by Bernie Sanders might just looking like.
- [41:26]
D
Come on, there are no independent contractors. Everyone's an employee.
- [41:30]
A
No, I mean, that's like an ex. Like, Bernie Sanders is an existential threat to Uber. I would.
- [41:33]
D
Bernie Sanders is an existential threat to many things.
- [41:36]
C
If you can't run your company and treat your employees modestly well and actually call them employees, then maybe you shouldn't have your company.
- [41:45]
A
Well, so the thing about the taxi business is it has always been an absolute. This is the thing I'm not totally clear on, and maybe someone's done, like, the research on it. I just don't know about it. But the taxi business has always been just like red and tooth and claw and awful and horrible and exploitative.
- [41:57]
B
Michael Cohen was really big in there.
- [41:59]
A
Yeah, right. Like that guy. I guess the one thing I've never been totally clear on is how much worse off Uber drivers are today than taxi drivers were before. My guess is because of the depreciation issue, the fact that you have to own your own car, which you're eventually going to wear out and have to replace and repair, they probably are worse off. And I just don't know how to much.
- [42:20]
B
The big picture is that Jordan is right, that you have this labor versus capital distinction not just in Uber, but also in the taxi industry. The overwhelming majority of taxi drivers do not own their medallions. The overwhelming majority of medallions are owned by people like Gene Friedman and Michael Cohen and like millionaires who are trying to finance this stuff. And they've all gone bust now. You know, they haven't done well out of Uber either. Uber has basically killed them off. But now all of that capital has made its way over to Uber shares. And, you know, if the pricing of the IPO is any indication, they priced at the bottom end of the range and there didn't seem to be a huge amount of appetite for this stock. It looks like there's. Or for that matter, if you look at how Lyft shares have done. You know, Lyft shares are down a lot from where they went public. Like, I think the jury is still out on whether there's any hope for this model to actually make money.
- [43:14]
A
Money.
- [43:15]
B
Okay, numbers round. I think I'm going to go first because I like this one. My number is $510 million, which is the amount that Disney has written down its investment in Vice, which is impressive because Disney only invested $400 million in Vice. They invested $400 million in Vice back when they thought it was like the future of media. And then Vice turned out to be not quite as futurist media as everyone thought. And so they've written off their entire investment. But what they didn't entirely realize is that they also had a joint venture with Hearst with this cable television channel called A and E, which had also bought a stake in Vice. And then they wound up buying 21st Century Fox, which also had a stake in Vice. Vice sold stakes to everyone. So by the time you add up all of their stakes, it wasn't 400 million, it was 510 million. And they've wound up having. Having to write off more than half a billion dollars because there's no hope that they will get any money out of it, which is kind of amazing.
- [44:18]
A
My favorite thing about Vice is that, like, there are a lot of people who did think it was the future of media, and anybody who grew up reading it knew that was not the case. Like anybody who, like, remembered, like the do's and don'ts of their fashion stuff, I was like, there's not. This isn't gonna work. This can't end well.
- [44:34]
B
Jordan, what's your number?
- [44:35]
A
My number is $4,000. It's a little bit of a complicated one. But I've been reading and thinking a lot about student debt forgiveness recently. Elizabeth Warren's name.
- [44:44]
B
I love this paper. This is the NBER paper.
- [44:46]
A
Yeah, the NBER paper that came out. And they, you know, a lot of people, there's a level of like speculation, but what would happen if you just forgave a lot of people student debts? How would it change people's lives? How would it change the economy? And these researchers found a really clever way to kind of look at a natural experiment where essentially they looked at these people who had their private student debts forgiven. The largest private student debt, like private loans have been made by like Sallie Mae back in the day. The largest holder of those debts got sued by a bunch of people for forgiveness because they couldn't prove chain of title. And the courts just said, sorry, you, you can't keep collecting these loans. And so these researchers looked at what happened to the people who just kind of, by the magic of a bureaucratic fuck up, had their loans forgiven. And it turns out that a lot of them in the years afterwards were more likely to move, more likely to change jobs. And a lot of them as a result, it seems, ended up making about $4,000 more per year in salary. Salary.
- [45:37]
B
So it's not just that you save your student loan payments, it's that your income goes up if you don't have a student loan.
- [45:45]
A
And this is, this is the interesting thing about the paper. And I haven't like. And there's been some other research about the effect of loan forgiveness and discharges on people's lives. But it seems like there's a serious psychological component to it that, and maybe it's not just psycholog, maybe it is just about like how you arrange your finances to deal with the debt or the pressure. Maybe it's the pressure of the legal situation. But when you unburden people from a debt that is slowly suffocating them and their lives and their loved ones and whatever else, they actually are more likely to go out and build fantastic careers for themselves and live, live more fruitful lives.
- [46:15]
C
It's like why rich kids kind of do better even if they don't actually have extra money from their parents or family. You just have a mental security blanket that people who are struggling don't have. And that's why everyone's be entrepreneurs or blah blah, blah, take more risk.
- [46:30]
A
I think that's right.
- [46:31]
C
That's so interesting.
- [46:31]
B
Emily, what's your number?
- [46:33]
C
$130. Okay, which is how much? Lori from Washington was charged by TurboTax to do her taxes on income of $376. Now, this comes from ProPublica, which has been doing really interesting and great reporting into Free file, which is if you make less than like $60,000, $60,000 a year, you can file your taxes for free. And TurboTax and other people who make tax software are supposed to help you do that, but instead, what TurboTax does is everything in its power to prevent you from filing your taxes for free, including.
- [47:08]
B
They have the official IRS Free file site and they put little robots txt file on there saying to Google, do not index this site and do not show it up in Google searches. So that if anyone searches for IRS Free file, you know, TurboTax, they get the TurboTax page, which says free in capital letters all over it. But then it turns out once you start filling out the forms, they're like, ah, yeah, you don't actually qualify. You have to pay us 100 and how many dollars?
- [47:34]
C
She paid $130.
- [47:36]
B
$130 on an adjusted gross income of $300 and change. And you're like, wow.
- [47:41]
C
And then ProPublica this week, readers started sending in, they recorded, they called up TurboTax to try and get their money back, and they recorded the conversations with TurboTax customer service. And ProPublica has all these conversations and they annotate them. So when the customer service agent speaks, that flashes up on the video screen like, this is not true. This is actually what's going on. And it's just really, it's incredibly engaging reporting and important reporting on a boring subject, which is taxes.
- [48:10]
D
I know My number is $50. 50 Australian dollars, so.
- [48:18]
B
Oh, oh, is this the typo number? The typo.
- [48:21]
A
Wait, what is this?
- [48:22]
D
So Australia recently, it was like they issued like 46 million banknotes and it turns out there is a quote on it that has the word responsibility written and they forgot one of the eyes.
- [48:36]
B
Responsibility over and over. And it happens more than once per banknote.
- [48:40]
D
Yes. And it took a few months for someone to look and be like, wait.
- [48:44]
C
A second, when is the Trump government going to do stuff like that?
- [48:47]
B
Yeah, yeah, I'm sure it's going to become a collector's item. The typo Australia and $50 bill, which is plastic, by the way, so that you can go surfing with it in your swimming trunks and you can still spend it.
- [49:01]
A
That's awesome. The thing about the Trump government is it's actually a wonderful testament to the power of the American civil servant. Like, or the Deep state, you mean? Yeah, the deep state. Yeah, exactly. Like, it's that, like, they are just. They are the true heroes who have just managed to muddle forth and keep the basic gears of government running while there is a madman at the head of things. And like. Like, God bless whoever it is at the fucking mint.
- [49:23]
C
Making sure there's no typos.
- [49:25]
A
There are no typos on the.
- [49:26]
B
But they do get awesome photo opportunities with Steve Mnuchin and his wife Louise. That was the iconic photo of the first year of the Trump presidency, for sure. Okay, I think we are going to swiftly move on to our Slate plus segment about Trump's taxes. But for those of you who are not Slate plus listeners, thank you for listening to this edition of Slate Money. Many thanks to Jordan Weissman for coming in and reminding us that he's still.
- [49:54]
A
I'm alive. Yes, I'm alive. And yeah. If you're in the mood for another podcast, check out.
- [50:01]
B
Working has many podcasts.
- [50:03]
A
The show about what people do with themselves all day.
- [50:06]
C
Have you had a new one recently?
- [50:08]
A
So I'm actually off this. So now it's alternating between me and Laura Bennett because we increased the number of episodes. We used to take a break between seasons and now we're not. My last season was about life at medieval times. Like, just the people who make that dinner theater happen. If you want to know what it's like to be a Falconer or a knight, listen, it's amazing. But then she's doing one about what it's like to work at the Comedy Cellar in New York and all the people sort of involved in that world.
- [50:31]
B
Of the Comedy Cellar.
- [50:32]
A
Yeah, it's the whole world of stand up. Like, what's it like being in and around that environment?
- [50:38]
B
And then you're gonna come back with.
- [50:40]
A
Actually, I think you might like the next season. I'm not gonna tell you what it is.
- [50:43]
B
You're not gonna tell me? Why are you not gonna tell me?
- [50:45]
A
Well. Cause we haven't pinned it down yet. We have. I did a few episodes about Bon Appetit where I interviewed, like, Adam Rapaport, their editor in chief, and also one of the Test Kitchen chefs. And if you enjoyed those, you will probably enjoy the thing that we're looking at for next season.
- [50:58]
C
One of my favorites that you did was the Russ and Daughters guy. I was really into that.
- [51:01]
A
Oh, no, that was Katz's. Katz's. Katz's favorite. Next to each other. No, they go together. Yeah. The Katz's one where I learned that there are just, like, late night brawls at Katz's Deli? Sometimes. Yeah.
- [51:11]
B
Yeah. Okay. So that. That's it for Slate Money, though. Thanks for listening. Thanks to Jessame Molly for producing. And we will talk to you next week on Slate Money.