Money Rehab with Nicole Lapin - Elon Musk's Amazon Strategy Backfires

Episode Date: March 8, 2023

Nicole breaks down the biggest headlines (so far) this week on Wall Street, including: the breaking updates on interest rates, the latest crypto company to crack, Stripe's unusual fundraising round and how Elon Musk's unlikely strategy with Amazon is backfiring.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. The biggest story in the financial world this week has been Jay Powell's comments to the Senate Banking Committee. The economy has stayed strong despite the interest rate hikes. So now the Fed chair is publicly committing to continuing the rate increases and taking them higher than the earlier target. the rate increases and taking them higher than the earlier target. The markets always hate it when he does this, and stocks reacted accordingly, which means they went down. Also, during the

pandemic, cooking at home became a big business. One of the winners of this land grab was the air fryer. Currently, about 60% of homes have air fryers, which is pretty impressive for a technology that launched in 2005. During the pandemic, big companies like Nestle, Tyson Foods, and Kraft Heinz all enjoyed record profits as people were stuck at home cooking. When the lockdown mandates eased, these brands were able to keep up those numbers thanks to inflation. But as consumers are tightening their budgets, suddenly these major food companies are looking for new strategies to stay on people's shopping lists. One of the ways is by launching air fryer products, including air fryer instructions on their packaging. Nestle's Hot Pockets, for example, now includes air fryer cooking instructions along with the college dorm favorite microwave instructions.

Also, the U.S. government is considering vaccinating American chickens for H1N1 as avian flu continues to spread on American chicken farms. Avian flu has been the partial cause of rising egg prices over the last year, and this could be one way of reducing those prices. Another industry that can't seem to stay out of the headlines is crypto. For crypto, and any industry really, a bank run precedes a big problem. Binance is out there trying to be an exception, but for crypto bank Silvergate, it has certainly proven true.

Now, we've talked about Binance and Silvergate on the show before. Binance used Silvergate to transfer $400 million to its trading firm in a move that is now attracting some regulatory attention. But that's also a great example of how big crypto companies were using Silvergate. Because of U.S. regulations, or lack thereof, regarding crypto, it can be difficult for crypto companies to find banks that will hold their money or give them loans. As a result, a limited number of banks have a large footprint in the industry, and Silvergate is one of the few. Silvergate was a banking partner for big names like Coinbase and MicroStrategy as well as Binance. However, things took a turn when Silvergate reported last quarter's earnings were non-existent. In fact, they reported a billion dollar loss.

This caused concern that the bank would go under, and then it got worse. On March 1st, Silvergate submitted a surprise regulatory filing, disclosing that their quarterly results were even worse than they reported in their earnings filing. As a result, Coinbase, Crypto.com, and some other big players in the space said they would stop using Silvergate. Cue bank run. Since Silvergate was mostly used as a pass-through system, many companies have already pulled their money out. The impacts here are going to be subtle to many individual crypto owners. However, Silvergate has closed its Silvergate exchange network, meaning it will be harder for everyone

to exchange cryptocurrency for American currency. And it's not only crypto banks that are going through it. Stripe, the company that probably handled the payment processing the last time you brought anything online, is undertaking an unusual funding round. The company still hasn't announced if it's going public or not, but it's been handing out stock options to employees for years now. Now, its earliest employees' options are about to vest, triggering a higher personal tax for those employees. But because the company hasn't gone public, the employees can't sell their stock to help offset the tax burden. So Stripe is now raising $2.3 billion to cover some

of its employees' $3.5 billion tax bill, as well as help some of their employees exercise their options. And banking problems continue globally with Mark Mobius, the founder of Mobius Investing, raising the alarm that he can't get his money out of HSBC in Shanghai. Mobius, a longtime believer in China, is now cautioning against investing there. This could be the start of a bigger shift away from economic engagement with China, especially if American investors no longer feel it's safe. But we don't need to look all the way to China for questionable business practices. As part of his cost-cutting practices, Elon Musk has been refusing to pay Twitter's bills, forcing companies to take him to court over the debts.

But that game doesn't work with everyone. As Aaron Wu over at The Information uncovered, Musk's attempts to refuse to pay Amazon for cloud services resulted in Amazon refusing to pay for advertising on Twitter. For context here, Twitter has a five and a half year, $510 million contract with Amazon Web Service, AWS for short. Twitter signed that contract before Musk bought the company, and Twitter pays for way more space than they currently use. Because of the long contracts AWS favors, usually, when a buyer isn't using all the cloud services they're paying for,

AWS will allow them to renegotiate their contract. But they have been unwilling to do that for Twitter, and even Musk's strategy of refusing to pay has failed as Twitter desperately needs Amazon's ad dollars. For today's tip, you can take straight to the bank. Not every company will be as proactive as Stripe. If you're employed by a company, you should try and set time with your HR department to talk about your stock options and when they actually best. Nine times out of ten, your company will not raise money to help cover your tax bill. So understand when your stock

options actually vest and do some strategic planning to try and minimize your bill with some common deductions like charitable contributions and qualified contributions to an IRA retirement account. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do.

So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make. Thank you.