Morning Brew Daily - SVB & the future of Crypto, Biden approves Alaska drilling, Meta out on NFTs

Episode Date: March 14, 2023

Episode 16: Neal and Toby explain how the Silicon Valley Bank disaster is impacting regional banks, and what it could mean for the future of Crypto. Plus, President Biden approves a controversial Alaska oil drilling project. The guys also break down the latest inflation data and why Meta is out on NFTs. Plus, is Samsung taking fake pictures of the moon? And remembering the man who took 7-Eleven global. Learn more about our sponsor, Huel: https://huel.com/dailyshow Listen Here: https://www.mbdailyshow.com/ Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. I'm Neil Fryman. And I'm Toby. I forgot my name for a second. I know. It happens because today is pie day and all rules are off the table. Actually, all rules are on the table. I've been preparing for this day for a while.

Yes, we hinted at this yesterday, but Toby loves pie. The food and the irrational number. And I don't know how you got so good at this. But Toby, how many digits of pie do you know? I know 30 and it's from fifth grade. We did a pie recitation contest and it's just stupe. duck. I think we have to... I'll do it really fast. Do it fast.

3.14-159-265-35-8-9-7-9-3-2-2-7-9-8-3-2-7-9. And that's all I got. Nothing more. Nothing more. I feel like you could go to at least 100 with that pace. I know. It's just enough to impress people and not enough to make people think that I just sit at home. Impress people or weird them out. Yeah. Well, it's a fine line. It's a fun little hobby. But I do have to say you have a long way to go to beat the world record holder. It's this Japanese guy who in... 2006 recited 100,000 digits of pie from memory. It took over 16 hours. Absolutely insane. He's a legend. He's a legend. He does say it's a meditation. He actually says that, you know,

pie for him is this spiritual North Star and he recites 25,000 digits of pie every single day to kind of get in the right mindset. It's truly beautiful. Should this be a new pre-should? Yeah, we just keep adding digits every show. All right. So happy Pye Day. Everyone, Toby. That was pretty impressive. We got a really packed show. We're talking the latest inflation report. There's some controversy over Samsung's moon camera, of all things. And we are going to pay tribute to a convenience store legend. Let's do it. But first is obviously this banking, potential banking crisis. And I want to start off with some good news that the threat of a banking crisis seems like it's in the rearview mirror right now. We can all focus on March Madness in St. Patty's Day, which is all we really wanted this week.

Instead, we got a potential baking crisis, but that seems to have evaporated. Just a quick recap of the past 48 hours. What's happened? Feel free to interrupt me at any point. But the Fed, remember, moved on Sunday to backstop Silicon Valley depositors and offer loans to banks who were facing a cash crunch. There was a lot of jitteriness in the markets yesterday, specifically around these regional banks, whether they would face a bank run like SVB. and they tanked yesterday. Regional bank shares were down 50, 60%.

First Republic Bank was down 60%. But this morning, we all woke up. A new day has dawned. Fears of a crisis have evaporated. Regional banks are way back up. The most closely watched one of those First Republic Bank is up nearly 50% in pre-market trading as we're talking about this right now.

So it certainly feels like a banking implosion has been averted. Yeah, it's weirdly good news after a whole slate of bad news over the past four days or so. One angle that we really haven't talked about yet in this whole banking crisis is kind of how handicapped the crypto industry has been by some of these bank failures. So, I mean, if we go back to actually before this crisis started, Silvergate Bank was this really crypto-friendly bank that failed. And then Signature Bank is also a very crypto-friendly bank that failed on the heels of SVB.

So what does this mean for the crypto industry? What does this banking crisis mean for the crypto industry? And honestly, to me, it means the crypto industry has some squeaky wheels right now. And by that, I mean that losing signature and Silvergate really meant a loss of liquidity for a lot of crypto companies. And basically, these banks, what crypto-friendly means in this context is that, that they could process real-time payment processing platforms, which means seven days a week, 24 hours a day, which is kind of a hallmark of crypto. You could exchange crypto for Fiat.

And so losing those, these two big players in the space, yeah, the wheels are a little squeaker. There's not as much liquidity in the space. Okay, but how do you explain the price of Bitcoin? It's absolutely gone parabolic recently. It's almost at $25,000 right now. The crypto market is back over a trillion. in value, you know, what the heck's happening? You're saying that this shows that the crypto market is imploding. We've been through this crypto winter. And yet, on the heels of this banking crisis and two crypto-focused banks going belly up,

Bitcoin's out of its hair right now. Yeah, Bitcoin's up 21% in the last five days. Yeah, Ethereum's up 17%. I do think technically this is what crypto was built for, is that you don't have this third-party intermediary like a bank that man gives you access to your money. So this is, even though these crypto banks are failing, it is the best use case or kind of checkmark for something like Bitcoin, which is always on, doesn't require Fed to step in and rescue it, doesn't require the Treasury to come back,

stop it. So it is a weird, weird time in crypto, for sure. I'll take a more cynical view in that Bitcoin, as we've seen over the past couple years is basically a risky asset, like a tech stock, and we'll get into it in just a bit, but there's been a lot of talk about the Fed pausing interest rate hikes, and I think that really is behind what may be shooting crypto to the moon. But you don't agree? Hey, agree to disagree. I mean, it's been shown to do this for the past couple years. It behaves like a tech stock, and as other stocks are ripping, so is Bitcoin. One of the most interesting aspects of this crypto angle to SVB and signature, is that Barney Frank, do you remember Barney Frank?

I just know him from Dodd-Frank. Right. So he was the representative who basically wrote Dodd-Frank, which was the huge banking regulations in 2008. He's on the board of Signature Bank, and everyone was talking about how he publicly lobbied against his own regulations for smaller banks in 2018 when they were deregulating some of the smaller regional banks, and that's been a really hot topic. So people were saying that, oh, wow, literal Frank, of Dodd-Frank, you're on this crypto board, and you're lobbying against your own regulations and oversight. And he said that it would just be too much paperwork.

That was the main argument. Too much paperwork for regional banks, too many hoops to jump through. But it's kind of interesting to see Frank back in the spotlight, especially in this weird crypto role. But he had an interesting take on this. He was like, he and the other signature bank execs were saying that they were completely, solvent and they didn't need to be shut down. And he was saying, I think part of what happened, what was that regulators wanted to send a very strong anti-crypto message by shutting down signature. Yeah. I mean, take it with a grain of salt, obviously. Like, he's on the board of signature.

But yeah, there is, do you want to just bookend it with the SVB news? It's still looking for a potential. Yeah. So before we move on, SVB is still looking for a buyer. Remember, they opened up an auction Saturday night in this last ditch attempt to sell the bank to a bigger bank. It seems like there's no biters. We speculate that maybe Bank of America or Goldman Sachs would want to take over SBB, which has a lot of attractive clients with tech firms. But they're starting a second round of auctions yesterday. But I have to mention, we did see this really funny tweet yesterday from Christopher Bakke, who he basically did a fake Mr. B's thumbnail that said, I just bought 2,000 regional banks. We'll kind of repost this on our Twitter if you want to take a look at it. But, yeah, it was only one man can save the economy now, Mr. Bees. I mean, Mr. Bees might be the lonely logical buyer, but also apparently he's going to be a CEO of Twitter.

He's got a lot on his place. And he's, you know, giving limbs back to everyone. So this guy's a busy guy, but I would not, you know, I would not be surprised to he took over SBV. Okay, Neil, let's jump into inflation data. It came out this morning, and it was decently good news. I'll kind of give you a rundown of the actual numbers. CPI headline inflation rose 0.4% month over month and 6% over the prior year.

And if we just want to jump into core inflation, which strips out the more volatile cost of food and energy, that rose 0.5% over the previous month and 5.5% over last year. And that's actually the smallest 12-month increase since December 2021. So it is, it's good and bad news. Like, obviously, inflation is still rising, but the pace at which it's rising is a lot slower, or the slow as it's been in a year. So initial thoughts on those numbers. Initial thoughts is, I do not want to be your own pal right now.

Well, I didn't want to be him ever because it seems like an impossible thing to have every single one of your words scrutinized at the podcast host. If I had to be so careful with my words that if one, you know, one step in the wrong direction, I would send. U.S. economy. I would send markets cratering. But he is such a tough position right now because previously, the only thing he had to worry about was inflation, which was a lot to worry about.

And so there was a lot of talk of even accelerating rate hikes. They're having a meeting next week, so everyone's looking around what they're going to do with interest rate hikes next week. So all the talk previously was, okay, how big are we going to go? And then all of a sudden, this potential banking crisis emerges, and now people are speculating that we might even cut rates at the next. next meeting. The Japanese bank Nomura came out yesterday and said, we expect a rate cut. Goldman Sack says they're going to hold rate steady. And so that's another, you know, that's another

dimension to this whole thing because he's got a balance in combating inflation without spooking more of the banking sector. This is freaking... It's really threading the needle. It is wild to think, yeah, it was how big are the rate high it's going to be? Now we're hearing the Fed made cut rates. All in the span of five days, that is a wild 180. So, yeah, This number, honestly, is not going to be as interesting as next month's number, for sure, just to see how this is all going to play out. Yeah, but if you're, hey, if you're invested in the stock market, I mean, the biggest thing holding the stock market back for the past year has been the Fed's rate hikes.

And the fact that they might think of slowing it is definitely seen as giving a boost to stocks. And, you know, if you take my hypothesis Bitcoin. So we'll see what happens. Yeah, I'm actually really interested to emerge from this podcast. check what the market is doing. So that should be fun. You can check your phone now. It's okay.

No one will care. All right. I want to take us to 200 miles north of the Arctic Circle right now. Chill. A place where it's a lot colder. It's a lot darker than it is here. And it was pretty dark. This is the north slope of Alaska.

Okay. It is the nation's largest swath of undeveloped land. But it won't be completely undeveloped any longer. Because yesterday, the Biden administration approved a major but super controversial oil drilling project in Alaska, known as the Willow Project. with the company Conoco Phillips. And so Willow is a project we think everyone should know about. It's the largest proposed oil project on U.S. public land right now.

And it could produce up to 180,000 barrels of oil a day, which is equivalent to 1.5% of all U.S. oil production. Yeah. Big, big project. One of the biggest fossil fuel projects in modern history. Obviously, it's going to be very controversial. There are a fair amount of people who are for this, though, specifically, obviously, Alaskan congressional delegates want to bring this economic

stimulant to their state. And then also some of the Alaskan native tribal governments and residents are also relatively on board with this because it's expected to create around 2,500 jobs and deliver some revenue to the area. So even though it's controversial, there are some people on the side of this big development. And there is this legal question, which is interesting to dive into basically the company, Conoco Phillips, got approval a couple, you know, decades ago to lease this land. And Biden administration says it would be facing $5 billion in legal fees if it didn't allow this to go through. So they're just staring down a huge check that they have to write and a lot of uncertainty if they didn't approve this. And we'll obviously get into the detractors

right now because there's been a ton of pushback. And the one reason why is, well, we're about to play you a clip from Biden on the campaign trail right now. No more subsidies for fossil fuel industry, no more drilling on federal lands, no more drilling including offshore, no ability for the oil industry to continue to drill, period. Ends. It is so hard to be president. Like, you have to say things in order to get elected, and then you end up staring down a $5 billion legal bill. You're in the biggest rock and a hard place moment. I mean, that was a tough soundbite for Biden, though, because he just unequivocally says, we're not going to drill, and then here he is Yeah. So environmentalists are absolutely hammering this plan because they're saying,

okay, Biden, you said you would get to, you would slash emissions by half by 2030. And now you're literally producing the equivalent of, you know, 1.7 million passenger cars over the same period, over 30 years of this project's shelf life. Right. So, and you passed the Inflation Reduction Act, which was this amazing climate bill that does a lot to, you know, fuel give subsidies to green energy projects, and they're saying that this completely undercuts that. Right. And a lot, to be fair to Biden, he's kind of trying to have his cake and eat it too right now because the other half of the news that this development was going forward is that he declared the Arctic Ocean off limits to oil and gas leasing, and he's also imposing more regulations to protect

13 million acres. So he is trying to hedge his bets here. Obviously, that never really works because his base is still just pissed that he approved this. For sure. And before we move on, we have to talk about the other big oil company news of the week, which is Saudi Aramco. Yeah. I mean, what is there to say? This company is so freaking massive.

They announced that they brought in 161 billion in profits last year, and the CEO said, this is probably the highest net income ever recorded it in the corporate world, which is the least humble brag thing I've ever heard. I mean, what else are you supposed to say? It's actually crazy. Oil's had a huge year. The instability in Russia has kind of pumped the prices up. Yeah, 161 billion.

It's hard to wrap your mind to wrap. It's almost three times what ExxonMobil brought in over the same year. And everyone was saying that ExxonMobil's profits were gargantuan, and we couldn't even believe it. And then Saudi Ramco just goes and says, okay, three X-Doh. Hold my beer, yeah. All right, crazy numbers. But before we jump in the next story, we're going to take a quick break.

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It's kind of like their, I don't know, Hot Girl Summer era. It's over. Yesterday, Meta announced that it's officially ending its test with minting and selling and sharing NFTs on Instagram. The writing was on the wall here, Neil. NFT volumes are down over 90% from their highs. Initial thoughts on meta just kind of abandoning their NFT. I just think, is there a Metaverse company that cares less or is worse at executing

the Metaverse. I know. There's been a, this is just one of many sort of crypto-related projects that meta has, has dropped recently. There was the Libra-Diam crypto and other things that, you know, Zuck has kind of abandoned in this year. I think he called it a year of efficiency. Right. Because they were expanding into too many areas. They were cutting a lot of jobs. They're expected to cut even more jobs. And how they're just kind of focusing on their messaging. They're focusing on themselves, Dale. They're out of their Hot Girl Summer. I need to do that. Yeah. I need the year of efficiency, I think.

It's almost summer. It's starting a podcast. Yeah. The reason why it's so just kind of frustrating for a lot of NFT proponents is that when Instagram announced this, it's so tantalizing for the NFT industry. Instagram has over a billion users, nearly 2 billion users. It is literally a platform that is built on, like, social clout, which is part of what runs the NFT industry.

So these synergies were there on paper. just couldn't get it done in the end for a variety of reasons. I think to me NFTs are retreating back to where they should be, which is not on Jimmy Kimmel or Jimmy Fallon or Paris Hilton. And it's just becoming something like a niche hobby like baseball card collecting. And I think corporations are still getting into it. You see Sesame Street just launched an NFT collaboration. Starbucks recently sold out a collection of NFTs,

but this doesn't seem like it's going to be this world-changing industry that it's going to be, and everyone's kind of focused on generative AI right now and leaving, you know, apes and other NFT JPEGs in the dust. And I think that's fine. I think NFTs can exist for as digital collectibles. It just doesn't have to be, you know, on every freaking Instagram page. For the best, well said, I do agree with you on this one, Neil. So we're on the same page on this.

We'll see what happens with NFTs. They did just have their best month since last May. So there's a little pickup again. But we'll see what happens in this higher interest rate environment when people, Can't shell out millions of dollars for a JPEG of a rock. Another fun story that we had to touch on, and this came to us from Reddit. Yeah? Yeah. So it's about Samsung and it claims to take epic moon photos, and they might have just been taken down by a Redditor. Samsung is being accused by this user

of misleading advertising and of fake moon photos using this 100x space zoom feature. So basically, you read the post, so you can tell me if I'm getting this wrong, but basically this guy, or this user, this Reddit user, claims that Samsung is overlaying existing images of the moon when it's advertising that it's only increasing the resolution of a moon photo you already took. Right. And first of all, I love this guy's person's username. It's I break photos. So it's literally them taking down some of Samsung's photos.

We're watching a clip right now of the test the Reddit user did was he actually had a picture of a fake, blurry moon on their computer, zoomed all the way in, and there was no details to capture. It was intentionally a blurry photo. And yet, the Samsung image that showed up after it was enhanced was a perfectly detailed moon. So it kind of, there has long been speculation that maybe Samsung was fiving its photos a little bit with this.

But this seemed to prove to a lot of people that, yeah, there was a lot more kind of software generation going on than Samsung let on. Apparently, there's a long history of moon photos because it's really hard to take moon photos from the Earth because of just the light and the way. It's pretty far away. So there's been a lot of scandals over the years about companies saying that they can take really high resolution moon photos. It looks like Huawei a couple of years ago.

That Chinese phone company was also accused of kind of fibbing. It's a great marketing technique for sure. Right. Yeah. Moon photo taken from an iPhone, blah, blah, blah. But, no, it does seem like this whole AI-infused photography, which is called computational photography, which include, you know, where software and processors touch up an image in very significant ways is becoming sort of this huge debate in photography going forward. So it's kind of, you know, you can talk about this as like a small Reddit post of bringing down Samsung for misleading marketing. But I think we'll see a lot of these debates in the future.

Right. The most interesting part of this is that probably back in the day, fakeness was a binary. Like a photo was either real or it was fake, like it was either doctored or not. But now it's so blurry, not to make a pun on the moon photos, but it's a blurry spectrum right now where these optically captured, like software-generated photos, technically your phone is, it is software. It is enhancing it in a certain way. So where is the line between like, okay, this is a fake photo and this is a slightly

touched up photo? It's what we're talking about with your trend piece last week about the glamour filter, the beauty filter. Where's the line between real and fake? I know. I'm not looking as glamorous today. Let's bring us back to the real world because my head just exploded a little bit.

That's a fun story though. Okay, just to finish off this show today, I want to talk about Masatoshi Ito. He is the billionaire 7-Eleven magnate who turned 7-Eleven into a global giant. We got news that he actually passed away on Friday. So a couple of news outlets were kind of looking back at his life. So I just want to take you through some of the highlights from this guy's life.

He's just extremely interesting, dude. Yeah. Okay, so he was first a very successful entrepreneur in Japan. He started a chain of one-stop chops in Japan. And then on a visit to the U.S., he saw 7-Eleven and struck a deal with their Texas-based owners to kind of bring it back to Japan. It's almost like a reverse shoe dog thing where Phil Knight brought the Japanese shoe to America. he brought the American brand, 7-Eleven, to Japan. From there, he became their majority shareholder and grew it into it,

absolute global juggernaut. There's more than 83,711 stores worldwide, over a quarter of which are in Japan. And I thought there were a lot of 7-Elevens here. I mean, you can't go down a block to see it. So I can't imagine how many there are there. But I talk to friends who go to Japan and come back and they're like, yeah, 7-Eleven is actually legit there. The hype is real.

It's so cool. Yeah, we own a gear. rice balls. We love onagiri. It's so good. These little, they're little like triangles of rice with some filling in chicken or tuna. They look absolutely delicious. One of my life goals is to go to 7-Eleven in Japan and get some of these onigiri's. So one of my favorite facts before we go about Ido is that he was forced to step down actually a couple decades ago after the company paid off the Yakuza who were threatening to extort him and, you know, disrupt the annual shareholders meeting. And apparently that's a thing. A lot of of distortion as do. This was back in 1992. Yeah, crazy, crazy wrinkled this guy's life is that apparently 711 was potentially paying off these kind of Japanese gangsters in order to ensure

that they won't disrupt their shareholder meeting. So, you know, what a guy. Cheers to a legend. Rest in peace. Thank you for bringing 7-Eleven around the globe. And I have very fond memories of eating takitos from 7-Eleven late at night at University of Maryland. I think that's all we got for the show.

Nice job, Toby. Good show today. Remember, we love seeing your emails. I think we got an email late last night at 1130. That was just a super nice email. So I think it was Caroline. So shout out Caroline. We want to hear from everyone else because we'll respond.

So you can reach us at Morning Brew Daily at Morningbrew.com. And as always, we have to shout out our amazing crew in the back. They're freaking rock stars. The show's producer and editor is Emily Milliron. The show's technical director is Joe Hampton. Our supervising producer is Bryce Belloff. Our music maven is Kelsey Jones. Hair and makeup is taking off for Pye Day.

Better memorize those pieces of hair makeup. Yeah, better memorize it because that is a little sketchy. And then Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly

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