The FTC Slimes Prime

Plus: Masa can see clearly now and the future is AI. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 22, 2023

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TOGETHER WITH

Good morning.

In this corner, a polarizing tech nerd. And in this corner, a possibly even more polarizing tech nerd.

After Instagram, which is owned by Meta, announced it was building a text-based social media platform to compete with Twitter, Elon Musk tweeted that he’s ready to throw down with Mark Zuckerberg in a cage fight. Zuckerberg, an avid MMA fan who recently medaled in a jiu-jitsu tournament, said he accepted the challenge. The whole exchange feels like a spot of high-profile dad-banter, but who knows, perhaps this could spark a whole new billionaires-only martial arts league. Next up: Bill Gates takes on Warren Buffett at capoeira.

Morning Brief

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Inflation is sticky in the US and superglue in the UK.

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SoftBank is back with a vengeance.

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Amazon gets some more FTC heat.

Macroeconomics

Inflation Stings the UK, Stalks the US

(Photo credit: Nick Fewings/Unsplash)

Britons are gazing longingly at grocery aisles across the Atlantic, and not just because you can’t get Twinkies in UK supermarkets.

The UK woke up on Wednesday to the news that inflation has come down less than economists were hoping. While America has slowed inflation a tad more successfully, some economists warned The New York Times that higher prices are still exerting an undertow on the US economy.

The Inflation Seesaw

Last week, the White House rejoiced as the consumer price index for May rose just 4% year over year, less than half of its peak of 9% one year ago. Some of the key factors in that cooling were the big, obvious, daily expenditures where consumers notice a hit most readily, like groceries and gas.

In more discretionary parts of the economy, however, inflation remains deceptively sticky. Consumers are forking over more cash for dental care, sports tickets, and hairstyling, according to the NYT, and these indicators are tied to wage inflation, which has stabilized at unusually high levels according to the Wall Street Journal.

Still, at least the US has the luxury of just being wary of prices; in the UK the picture is more bleak. UK inflation for May weighed in at 8.7%, higher than the balmy 8.4% that had been forecast. What’s more, UK wages haven’t kept up with inflation in the same way Americans’ pay has, and Professor Morten Ravn, head of the economics department at University College London, told The Daily Upside that US workers changing jobs more often could be the reason why:

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“It seems to me in the US there’s a lot of reallocation of labor […] people changing jobs and so on, and that probably is why real wages have been able to keep up, because in that process you ask for some compensation for inflation,” Ravn said. “That has happened to a much smaller extent in the UK and in Europe,” he added.

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UK food inflation is also continuing to weigh heavily on the cost of living. Annual inflation for food and non-alcoholic beverages sat at 18.4% for the month of May, and the price of ingredients for a traditional English breakfast spiked 22% to a record high of £36 ($44 at the time).

Waging War: One EU nation is taking drastic measures to try to drag up real wages in pace with inflation. Poland’s core inflation sits at around 11.5%, and the government wants to raise the minimum wage by 23% starting from July next year. While some economists bemoaned the announcement, Ravn says there is a case for it. “If you have inflation running at 12% for a year that’s more than doubling of the price level, so that’s a halving of the real wage if you’re working at the constant nominal wage,” he said, so from that perspective a correction for the minimum wage could be warranted, but he conceded it’s a “risky” gambit.

– Isobel Asher Hamilton

Finance

Masayoshi Son Says SoftBank is Ready for Business Again

Masa didn’t hear no bell.

After years of unloading billions of dollars worth of assets in its sinking portfolio, SoftBank CEO Masayoshi Son told shareholders on Wednesday that the group is preparing a “counteroffensive,” specifically with bullish investments in artificial intelligence.

A Morale Booster

In the past three years, SoftBank has hit major headwinds: its Vision Fund — a $100 billion venture capital program launched in 2017 with nearly half of it backed by Saudi Arabia — yielded dismal results and many assets were either unloaded or saw their values dramatically written down. SoftBank recently waved the white flag on many of its holdings, selling off partial or full stakes in companies like Uber, Alibaba, and DoorDash to conserve cash for a better investing environment, which Son seems to believe is approaching.

To rally the troops, Son shared — arguably overshared – how tortured he was by the failures. He described a recent emotional breakdown that had him questioning his success as an entrepreneur, somewhat unusual for a guy worth more than $25 billion. His passion, reignited by having spent months working on 630 new ChatGPT-aided ideas for inventions, is now fueling him to be “an architect for the future of humanity.”

Okay, it’s not surprising that a billionaire investor whose recent ideas have flopped is turning to AI. But Masa already has a few AI heavy hitters in his portfolio:

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Despite the Vision Fund’s less-than-stellar track record, Son still has hope for it and alluded to a handful of investments that excited him. He didn’t identify those specific ventures, but he did tout AI, calling OpenAI CEO Sam Altman “one of the key people on Earth,” and said generative AI will be an integral part of society but should be regulated as it risks “scarier consequences than the atomic bomb.”

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AI tech stocks have experienced a massive surge recently led by Nvidia, the current king of the industry. Last month, the chip maker’s stock surged 24% in a single day, sending ripples throughout the rest of the sector. Arm — SoftBank’s AI division that it once tried selling to Nvidia — gained some momentum as well on the back of the news of its IPO, which is set to hit US exchanges sometime this year.

So Sue Me: Shifting from its economic ambitions, it looks like SoftBank could also be in a good spot concerning its legal troubles. Here’s the gist of it — Credit Suisse lent $440 million in client funds to finance firm Greensill Capital, which then lent it to construction company Katerra, which is backed by SoftBank. Both Katerra and Greensill collapsed, and now Credit Suisse wants its money back from SoftBank. The only problem is Credit Suisse also collapsed and has since been acquired by UBS, and SoftBank is a client of UBS. So at this point, it’s kind of like Russian dolls suing each other.

– Griffin Kelly

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E-Commerce

Amazon Faces FTC Lawsuit Over Prime Cancellation Policies

To hear Federal Trade Commission Chairperson Lina Khan tell it, Amazon is like that maze outside The Shining’s Overlook Hotel: you can enter, but try getting out.

On Wednesday, the FTC sued Amazon for the ways the tech giant has allegedly “tricked and trapped people into recurring subscriptions without their consent.”

Prime of the Century

Cracking down on the online “cancellation time” tax — in which signing up is a lot less arduous than canceling — has been a hobby horse of the FTC for a while now. This spring, the agency proposed new rules that would require companies to make cancellations just as simple as sign-ups, with the threat of a $50,000 fine per violation. To put that in perspective, Amazon Prime had around 200 million subscribers last we checked.

The FTC’s latest lawsuit, filed in Amazon-headquartered Washington State, highlights the “Iliad”-esque odyssey required to cancel Prime memberships. But it’s also equally concerned with Amazon’s practices luring customers into the Prime pipeline:

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The FTC alleges Amazon “knowingly duped millions of consumers” into Prime subscriptions using “manipulative, coercive, or deceptive user-interface designs known as ‘dark patterns’.”

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Furthermore, these “nonconsensual enrollment” practices were well-known within the company, and it deliberately “slowed, avoided, and even undid user experience changes” designed to avoid them.

In sum, the agency argues, Amazon’s gauntlet amounts to a violation of a 2010 consumer protection law known as the Restore Online Shoppers’ Confidence Act. The FTC is now seeking monetary penalties.

Fool Me Once: This counts as the third time Khan has come at the company in the past couple of months. In May, Amazon agreed to a $30 million settlement to resolve two cases: one alleging Ring doorbell devices illegally spied on users, and the other alleging Alexa smart speakers illegally collected data about children. Fortunately for Jeff Bezos and Andy Jassy, their new nemesis has an eminently curse-able name.

– Brian Boyle

Extra Upside

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Penny pincher: Auto shop owner ordered to pay $40k in back wages after dumping 500 pounds of oily pennies on employee’s driveway as payment.

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Winner, winner: US regulators grants first-ever green light to “cell-cultivated” chicken meat.

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A haunting ghost story: Somewhere out there is a person who could’ve invested in Amazon back in 1996…but missed the opportunity. The Motley Fool has a stock recommendation that ARK Investments CEO Cathie Wood said could be worth $17 trillion in market cap – or about 13 Amazons. This company is poised to be at the forefront of an AI revolution whose impact Bezos himself called “hard to overstate.” Don’t miss the boat: Get The Motley Fool’s recommendation here.*

*Partner.

Just For Fun

Puppy procession line.

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