Attempts to Explain: WTF Even Is Money Anymore?

Nov 15, 2021

As with everything in our business, our sub-series on Substack continues to evolve. And in line with our ideas of what makes evolution possible, we’re looking at what stays the same (Essence) and what needs to change to adapt to a changing Environment (Expression). So for this outing of ATE, we’re going to apply our Feynman Technique to a broad-ish, subject and go from there. That methodology, per Dick P:

Identify a subject you want to learn about
Attempt to explain it to someone who has no prior knowledge
Identify the gaps in your knowledge — the bits you struggle to explain
Research further, refine your explanation

For things that we’re constantly referencing and rate our explanations of, here’s the <$ Anti-Library. For literally everything else, subscribe with the button.

Why Money? Because What’s Money?

We believe a brand’s fundamental role is telling people (both colleagues inside and customers outside a given org) what to value. Money can kinda be thought of as the universal language of what we value. And ever since COVID struck (arguably before) we’ve seen some wild-ass stuff happen to things and ways in which we experience value.

Including, but definitely not limited to: the most dramatic stock market crashes in history, followed by definitely the most dramatic stock market rebounds in history 🙄; Apple taking 30 years to reach a one trillion dollar value, and then in less than 18 months, reach a two-trillion dollar value; Elon Musk adding the entire GDP of Hungary to his personal wealth because meme stonks; #wallstreetbets threatening to expose just how strange and fragile big-money hedging is; and Jeff Bezos flying to almost-space in a cock rocket for like an afternoon and then coming back in time to deliver a tone-deaf speech thanking amazon’s 15-dollar-per-hour-and-doing-toilet-in-a-bottle-on-the-job employees for making it all possible.

Begs the question, what the actual fuck is going on, and perhaps even: what the fuck is money anymore? Let’s see if we can figure it out.

NB. for these hot takes we’ve leaned heavily on Bloomberg and The Economist, Titan, and Motley Fool, and, in particular, the writings of Matt Levine, Scott Galloway, and Tyler Cowen. Sometimes they’ve written things better than we could, and so we’ve copied and pasted. Don’t get mad: the internet is a copying machine.

Little Thought/Big Idea

“It’s dishonourable to stay stupider than you have to be.”
— Charlie Monger, Cantankerous Money Guy

Biggest Tax Bill in History, as Decided on Twitter

The last couple of weeks has seen professional internet troll and occasional SNL star Elon Musk wreak havoc on Twitter and the stock market in equal measure. Recently he asked the Twitterverse whether or not he should sell 10% of his TSLA stock, currently worth a casual $21bn. They said yes (of course they did). This would have triggered the biggest personal tax bill in history ($6.7bn in capital gains tax) and should have had a massive impact on Tesla’s stock price (spoiler alert: it did). Saying should because while it would usually be seen as a massive vote of no confidence to have the CEO of a company offload that much stock, this is Elon, and this is Twitter, and probably nobody cares but who the fuck knows at this point? Also, two weeks ago he said (again on Twitter) he’d sell $6 billion worth of stock and donate it to the UN’s World Food Programme (WFP), provided they open their books and prove that that amount would end world hunger. So there’s that. And this.

It also continues an ongoing collective head-scratch the US is having re: how to properly tax hyper-rich people, including some recent scoops on how billionaires avoid income tax by essentially leveraging against their assets (and effectively paying the interest off with inflation) and how Bernie Bros and The Squad and probably Elizabeth Warren want to tax 700 of America’s wealthiest individuals with a “billionaire’s tax”. If that sounds disproportionate, it’s because it is: we’re now at a point where the US Congress is seriously looking to vote on bills that will have a material impact on funding the largest economy in the world (with a population of ~350,000,000 people) by raising taxes on a cohort of 700 individuals (not companies; individuals.) It says something about the late-stage capitalist moment we’re in, right?

Speaking of which, how about how Elon’s now worth 338 billion dollarydoos? That’s heaps, and weird.

It ultimately did not go all that well for TSLA. After some other tweeting by famous Christian Bale lookielikey Michael Burry, Musk ultimately succeeded in wiping $199bn off their stock price in a matter of hours. But then when you add the net value of Berkshire Hathaway (a fortune that took Buffett and Monger a lifetime to create) to your company in a matter of months without any correlation to actual output or fundamental change to your business, I guess who gives a shit about a few hundred billion bucks. Right? Maybe? What even is money to this guy anymore? What’s a Twittermob to a king?

Basically Layaway, but for Gen Z

In a troubling echo of the halcyon times just before the financial crisis, apps and banks are piling into the whole “buy now, pay later” craze. Australia’s own Afterpay was just bought by Jack Dorsey’s Square (SQ) for $29 Billion, launching them to 15 on the ASX, above Coles and Qantas. Investors are shovelling a lot of money to lenders, but like, it wasn’t a good idea before, is it a good idea now? Humans suck at discounting their future selves, which the financial industry knows all too well — cards and other unsecured consumer debt cause the biggest losses for banks during major downturn. So, of course, there is a risk that all of these debts go bad at once, stinging banks, apps, investors and well-heeled schoolchildren alike. There are safeguards. But credit ratings aren’t among them. And while America’s “debt ceiling” crisis is almost certainly a crisis of confidence, it certainly looks like a lot of people are about to learn a lesson we’ve already learned.

Woke Paradoxes du Jour: Green Power

One thing we’ve noticed in our travels is the Woke Paradox: the delta between what consumers profess to care about (the talk) and what consumers actually do/watch/buy (the walk). This has been dubbed The Woke Paradox and we kinda like that. Of all of the in-vogue virtue signals being broadcast about the internet right now, it seems that sustainability has the widest margin between affirmation and action.

This is showing up on Wall Street, where Matt Levine reckons there are two main ways for companies to raise money:

You can ask investors to bankroll a particular project, which can be green (sunny solar power!), dirty (evil fossil fuel extraction!), random (meh stock buybacks!), you name it.
You just rattle the can for general company purposes and use the proceeds to fund whichever projects you want.

For a while, Wall Street was really into the first strategy when it came to eco-friendly projects. But that changed when they started realising what the pricetag was.

This reaffirms what we’re seeing in consumers: we all expect companies to be greener, we just don’t expect to have to pay for it in any way. Consumers expect brands to do the right thing, brands expect governments to step in and regulate (except of course they send lobbyists in to not), and governments are just doing whatever voters tell them to. Right?

We can see another side of this coin in Allbird’s recent IPO.

The company – best known for its sustainable sneakers – was obviously not getting quite the valuation based on typical fundamentals. So, in its IPO filings to the SEC, Allbirds referred to its IPO not as an “Initial Public Offering”, but were…

…excited to complete the first ever Sustainable Public Equity Offering, or SPO.

Hang on. Wut?

That’s where we are. One of the world’s most recognisable consumer brands of the last decade has such underwhelming fundamentals (remarkably unimpressive growth for a direct-to-consumer company during the pandemic, while its losses were growing) that it’s trying a PR stunt with the SEC itself. Obviously, their argument is that they’re able to drive a higher valuation/multiple because they’re thinking about the planet more and that costs more and so it’s not fair to hold them to the same standards of other, less environmentally friendly businesses. Or something. Here, see what you get out of this:

A Sustainable Public Equity Offering, or SPO, is a new and untested framework which was not developed solely by disinterested third parties but rather was developed with input from Allbirds and other partners. An SPO is not defined in any federal or state statute or regulation and is not a specific equity offering type under federal or state securities laws. The SPO framework has not been approved by regulators.
Our initial public offering will be the first ever SPO. Accordingly, there is no basis for investors to, or track record by which investors can, assess the impact of the SPO on our operations, financial condition, and the market price of our Class A common stock. The SPO may entail additional costs as compared to non-SPO transactions.

It obviously didn’t fly (zing) as a couple of weeks later in an amended filing all mention of a Sustainable Public Equity Offering disappeared. But in an apparent effort not to lose the SPO acronym, it was replaced by something the company was calling the Sustainability Principles and Objectives Framework. From the filing (emphasis added)...

We hope to help pioneer a framework for companies going public where they share with the market their performance against a set of environmental, social, and governance, or ESG, criteria, which we call the Sustainability Principles and Objectives Framework, or the SPO Framework.
We believe that investors, equity transaction partners, and other stakeholders will benefit from knowing that companies have been assessed by one or more independent third parties as having satisfied objective, clearly defined ESG criteria.
We believe that companies sharing these ESG criteria will help investors to identify, as they enter the public equity markets, companies that prioritize ESG initiatives and are committed to meeting high ESG standards across their business.

By the time it went public, Allbirds was just another IPO. Shocker. What is shocking, though, is that none of this stuff really mattered at all; hype (likely driven by daytrader brand recognition) seems to have been the wind beneath its wings: it was trading up 91% on its initial offering of USD$15/share and is now worth over USD$4bn.

So, again, 🤷🏻‍♂️.

Covid Hasn’t Made Big Cities Cheaper

Paris, New York and other high-priced cities may still be recovering from Covid, but their housing costs never stopped being too exorbitant for young workers. These cities must figure out how to address inequality or watch more talent go elsewhere. Tyler Cowen suggests that elsewhere could be Mexico, which he claims could be “the next Denmark” and the “technology capital of Latin America.” At least the rent and cheese are definitely cheaper. Malta is now welcoming digital nomads, whomever they are.

Softbank Goes Soft

Masa’s notorious Unicorn farm reported a net loss of 398bn yen ($3.5bn) for the three months to the end of September. The dip followed a net profit of 627bn yen over the same period the previous year. The firm blamed China’s recent crackdown on tech companies, which has triggered a sell-off in Chinese stocks. But let’s be honest: it’s probably just a small amount of balance being restored in the universe. Wonder what that’ll look like in the next Keynote?

NYC GOVT ON BTC

Eric Adams, New York City’s mayor-elect, said Thursday in a tweet that he will take his first three paychecks in Bitcoin. Adams declared NYC will be the “center” of the crypto industry. Which we guess means his paycheck will be worth $10,000 when he gets it on a Friday, $19,023 when he goes to buy a beer on a Saturday, and $8,982 when he goes to pay rent on a Monday.

Clear Thinking on Crypto

One of our favourite podcasts recently put Crypto (and probably more importantly, the tech it was built on) into perspective for us. If we conceive of the internet as a copying machine (it can make copies of an artefact at near-zero marginal cost) then it’s not a big jump to understand where value is leaked: we’re a species that tends to value things based on their scarcity (evolutionary habits die hard) and this idea of being able to infinitely scale things kinda devalues that.

The Blockchain (and the technology built on top of it, like Smart Contracts, NFTs and cryptocurrencies) are a way of using digital technology that keeps the idea of scarcity in tact. NFTs might seem weird, but that’s only because of the water they’re swimming in: we don’t think it’s strange to value an original art piece when we can just as easily buy a print — or a postcard — that delivers effectively the same content. It’s just the digital context that blurs the lines.

This HBR article goes into further detail about how the purpose of NFTs can expand further over time: because they’re not only non-fungible (fungible, by the way, means you can replace it with an item of equal value essentially without noticing; a dollar is fungible because one is dollar is worth exactly what another is; a horse is non-fungible because even though you might be able to swap out one horse for another, it’s still going to be a different horse) but they’re also programmable.

In this sense, NFTs can function like membership cards or tickets, providing access to events, exclusive merchandise, and special discounts — as well as serving as digital keys to online spaces where holders can engage with each other. Moreover, because the blockchain is public, it’s even possible to send additional products directly to anyone who owns a given token. All of this gives NFT holders value over and above simple ownership — and provides creators with a vector to build a highly engaged community around their brands.
Thus owning an NFT effectively makes you an investor, a member of a club, a brand shareholder, and a participant in a loyalty program all at once. At the same time, NFTs’ programmability supports new business and profit models — for example, NFTs have enabled a new type of royalty contract, whereby each time a work is resold, a share of the transaction goes back to the original creator.

This dual value proposition — that the NFT is both the thing of value you’re buying and a means to create further value through novel contracts and instruments — suggests that, hype aside, NFT-based markets have the potential to gain traction quickly, particularly relative to other crypto markets which are both not particularly useful in their current format (when did you last buy something with your BTC?) and require a wide adoption to drive up value (which, in fairness, they’re not exactly struggling with rn).

What does this mean for us? We’re considering creating brands as NFTs: a smart contract of a non-fungible piece of content/art that accretes value for us and our clients over time, and, though it can be copied and viewed infinitely across the internet, has a very distinct owner/s. Watch this space.

Parting Thought

I think there are five top responsibilities of a CEO: being the steward of and final arbiter of the senior management; being the chief strategist; being the primary external face for the company, at least in the early days; almost certainly being the chief product officer, although that can change when you’re bigger; and then taking responsibility and accountability for culture.
Patrick Collison, Enthusiastic and Charming AF Money Guy

So, that’s that. What do you reckon? Disagree? Got something to challenge? Got something to read? We’re all ears, eyes and nose.