Prof G Markets: Meta’s Monster Quarter, Buying Elon’s Twitter Debt, and America’s Deficit
Oct 30, 2023
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Ed Elson, a market expert, joins the conversation to dissect the surprising 4.9% GDP growth in the U.S. amid rising interest rates. They delve into Meta's strong earnings, with a 23% profit increase, and the shifting landscape of tech giants like Snap and Microsoft. The discussion turns to Elon Musk's $13 billion Twitter debt, exploring investment strategies around its acquisition. They also tackle the staggering $1.7 trillion U.S. deficit, suggesting innovative solutions like tax reforms and spending cuts for fiscal sustainability.
Snap and Meta both reported strong earnings due to investments in artificial intelligence.
Addressing the US deficit will require increased tax revenues, decreased spending, and potential implementation of a global wealth tax.
Deep dives
Earnings Reports: Snap and Meta
Snap's third quarter earnings beat estimates with a 5% revenue growth and a 12% increase in daily active users. Meanwhile, Meta reported third quarter revenue of $34 billion, a 23% year-on-year growth, and a doubling of profits. The strong performances of both companies are attributed to investments in artificial intelligence, with Meta using AI to enhance ad recommendations and Snap leveraging AI to increase engagement on its platform.
The US Deficit and Fiscal Outlook
The US Treasury reported a budget deficit of $1.7 trillion for the fiscal year, a 23% increase from the previous year. The growing deficit adds to the national debt, which currently stands at $33 trillion. Concerns over the long-term fiscal outlook are raised, but Treasury Secretary Janet Yellen remains optimistic about the resilience of the economy. Addressing the deficit will require a combination of increased tax revenues and decreased spending, with tough decisions needed to tackle entitlements, raise retirement ages, and potentially implement a global wealth tax.
Implications of Twitter's Debt
Elon Musk's purchase of Twitter for $44 billion a year ago resulted in $13 billion of debt for the company, which banks have been unable to offload due to declining revenues. The debt is now being offered at a discount of at least 15%, potentially leading to an approximately $2 billion hit for the banks. The possibility of Musk buying back the debt at a lower price or a third party acquiring it remains open. The situation highlights the ongoing challenges Twitter faces and the need for meaningful sacrifices in order to address the deficit.
Upcoming Earnings and Federal Reserve Decision
In the week ahead, several notable companies will be reporting their earnings, including Pfizer, CVS, Shopify, Airbnb, and Apple. Additionally, the Federal Reserve will make its next interest rate decision. While specific predictions are not provided, there is anticipation for positive performance from Airbnb, given its effective cost controls, along with interest in the outcome of the Federal Reserve's decision.
Scott breaks down Meta’s and Snap’s earnings and explains why he’d be interested in taking some of Elon’s $13 billion in Twitter debt off the banks’ hands. He also discusses potential solutions to the U.S. deficit with Ed.