Ted Audio Collective Hello everyone You're listening to After Hours I'm Felix and I'm Ihir It's great to be back Felix We're back We're back I feel like a long time It does, happy new year Great to be back I think my optimism, my happiness comes from this moment which is deja vu on the one hand but I
really do think the pandemic is over It's deja vu all over again It's almost been a lost year There's this huge amount of optimism and it feels like it's coming back But you're right Felix This time it's real But we are missing our dear friend, young me So she is gonna be taking a little bit of a break
but we are going to soldier on the two of us for a little bit and then we're gonna invite some friends and it should be great fun Yeah, I'm looking forward to it Does this mean Felix we have to stop making fun of her?
I don't think so Okay good, good I think she would appreciate our making fun of her which is, you know, such a big part of the show Alright great, so what do we got today Felix?
So I would like to talk about the labor market Yeah Almost half a million jobs in January Let's talk about it And inflation and all the other pieces of the pie Yeah What did you bring?
I thought we could also talk a little bit about earning season Oh yes It's been like a fun, crazy month of companies reporting And these amazing swings in valuations, right?
It's been crazy And it's connected to the first topic because of the inflation concerns and everything else So yeah, this should be fun Alright Felix, you want to talk about the labor market Yeah, to me it's very interesting There are these views of the job market that we've gotten used to So for instance
this term, the big resignation is everywhere Right There's a storyline that says we were stuck at home for so long people worked under really difficult circumstances and now there's mental health issues People are tired People are rethinking what they want out of life Right And as a result, we see people
quit like never before And when you then look more closely at the data it's actually two very different stories that get mixed One is the story of mostly professional white -collar workers who were at home output was amazingly stable People worked from home and they did as good a job as they did when they
were in the office with the really important twist that it took them between 20 and 25 % longer to create the same kind of work And so that's just unsustainable But if you look at quit rates, who quits?
In particular in say in financial services or in professional services more generally quit rates are absolutely unremarkable Right Absolute numbers tend to be high but that's just because the economy is in fluctuation all the time So if I tell you, oh, last month three million people quit You think,
oh my God, three million people quit But actually, every month on average for a long period of time, three million people quit Right And more important than their quitting is what do they do next?
Do they leave the labor force?
Do they take new jobs?
People quit mostly restaurants, hotels And the story there is people are going to better pay jobs So think of two segments of the labor market One relatively stable, but people are exhausted And one traditionally not very well paid Lots of opportunities to find better paying jobs Is the segment as a whole
healthy? Yes, absolutely The number of jobs in restaurants and hotels and hospitality grew by about two million last year So it's one in three jobs created in 2021 Isn't that predict our sector?
Yes, people are quitting, but the sector is doing well Right In a way, there's so much to be excited about That's right We have a remarkably robust labor market and it's working and it's churning And it's resulting in higher wages Yes It's a sign of tremendous economic growth Yeah And something to be
really excited about So much of the action in the labor market is actually happening in this lower skilled segment And it's really great news And it's actually some really significant wage gains as well Leading out of the Great Recession towards the pandemic You saw many of these positive elements And
frankly, I was a little nervous Would it come back with the people who don't make so much money?
Would they again benefit from wage growth?
And you see on average it's about 5 % wage growth And then you ask, where is it particularly strong?
Right And it's exactly in the right places It's people who switch jobs People who are lower skilled People who are non -white and women It's a very sunny picture And then you look at the polls of consumer confidence Or you look at the polls about how the president is doing handling the economy Yeah And
the answer is not so sunny So why is that?
We should be celebrating the economy and we don't That's right And one big reason for that, I think, has got to be this underlying thing that's happening at the same time Which is just remarkable spikes in inflation Yeah That people are looking at and fearing and maybe obsessing over But the numbers
are staggering They're 40 -year highs And then people pay a lot of attention to that And maybe not as much to the underlying question of the relative growth of wages and prices Yeah What you really care about is are wages in real terms growing And as you point out, Felix, for a bunch of folks Particularly
at the lower end of the skilled distribution It is pretty good news Yeah On net, not just wages going up, but wages are going up more than prices But then there's going to be folks who are not going to be that happy with really, really high prices And, of course, this is, again, a manifestation of a very
strong economy And so the question is really twofold One is, and I know people really don't like this word, is it still kind of transitory Yeah Are we still dealing with this really big shock to demand from lots of fiscal stimulus That's been unevenly distributed across goods and services Plus supply
chain problems I'm going to label that transitory Or is there something longer -lasting going on?
And this is, of course, where the connection to wages comes in So now if you have workers asking for better pay because they anticipate greater inflation Then we get into this wage price spiral that everybody fears that is really hard to deal with What's your sense about Fed policy so far?
Well, I mean, it hasn't been much so far It's just been a lot of talk, right?
But just to be clear, what's on tap is really two types of things One is they can raise the short rate, the rate for borrowing over short periods of time And they have been hinting at raising it several times this year In March Potentially in March, and I think that will happen And then the larger issue
is this so -called balance sheet effect Which is they will start to sell securities and, in that process, try to influence the long interest rates Which, of course, matters for mortgages and for everything else And expectations are pretty clear that there are going to be some big changes In one sense,
I think it's kind of good news because we've been living with this Abberational, really low interest rate environment for so long The bad news is, just to go back to our previous discussion If the economy is buzzing and doing great But primarily for some of these transitory reasons Then if you pile
on a bunch of rate hikes You can get into a recession That's like a Federal Reserve -caused recession So, to me, it feels like I do want to see rates rise gradually over time But I do wonder if they do something dramatic in March Like some people are talking about like a big increase in March Then I
think we're going to run the risk of actually taking this really strong economy That may only be reflecting somewhat transitory things And actually kind of killing it So that's the real pressure point for the next couple months Yeah, and it could be an interesting break -and -fit policy If you look over
the long run, it used to be that the Fed would respond very slowly To changes in the business environment Basically reading the tea leaves, waiting to see some of the effect After the successful fight of inflation in the 1970s and 1980s What you see is that the Fed responds much more quickly and much
more aggressively The intuition is that you put out the fire before it becomes a big problem for the economy And for the current situation, of course, you don't quite know Exactly Do you hold the line that we've gotten used to That short and quick responses are more promising Or is the older policy
up to the 1970s the right one Where there's just so much uncertainty around what's going to happen And what inflation levels will be That really you've got to tap the brakes and then wait and see a little bit How do expectations move?
How do expectations influence price levels?
And I think we don't know I find it fascinating professional observers of the Fed If you look at their predictions, how many rate hikes we will see in 2022 There's everything from two to maybe eight, nine, ten or so Which in essence says, probably we just don't have any idea what's going to happen Right
I think the other angle on this, Felix, that I find totally fascinating is Because we've lived in a non -inflationary world for so long The politics of this also get crazy And we start to go into boogeyman territory Which is, this is either the result of big greedy companies who are raising prices We
need to think about price controls We need to think about antitrust We need to take away the gas tax Because they're legitimately worried for their political future Or really worried about the midterm elections in the U .S.
That's the next piece to watch Which is, will we start doing some stupid things politically Because we are so obsessed with this kind of specter of inflation I think you're exactly right The change from zero inflation to now all of a sudden after 20, 30 years We have inflation, it's really big And it
comes at a moment when we worry about any trust anyway And so it all sort of gets mixed into one big policy cake That is going to be baked at some point in time How well it will taste, I'm not exactly sure I'm not exactly optimistic Definitely a topic to keep in mind So, Mihir, the joys of earnings
season Yeah, no kidding and what an earnings season it's been, right So when we last talked, it was mid -December And life was fairly calm And then, in part, as a reflection of the segment that we just did About concerns about interest rates The market really fell out of bed and was really quite dramatic
And the NASDAQ was down as much as 10 or 12 percent And you see these remarkable drops that are just kind of inexplicable Like, you know, when you think about a 20 percent drop You think to yourself, okay, 20 percent drop Must have really been bad news But then when you say 20 percent drop And that was $220
billion of market cap It's just kind of mind -boggling that that could happen in a day One of the ones that really struck me was a contrast And it was the contrast between Disney and Netflix Okay Two companies that are really fun to watch Yeah So the first thing that happened is Netflix came out With
seemingly an okay report that didn't miss by that much But their forecast for user growth was really light in the first quarter of 2022 Something like 2 or 3 percent And the stock effectively lost a third of its value Yeah, yeah, really amazing Really amazing In part, it's a reminder The companies that benefited
from the pandemic Even though you know, it's the pandemic, it's unusual But these growth expectations that get built into market caps In ways that are really hard to justify over the long term That's exactly right And that was one of the pieces of the story that I loved Which is exactly your story Which
is so -called pandemic stocks That had just been priced to maybe beyond perfection And massive growth expectations And just a slight lowering of that causes this remarkable cratering But then the other piece that really struck me was the contrast with Disney Where they did extremely well with their results
on the streaming side But also on the theme park side And the really interesting contrast to me is that Netflix Now is roughly worth what it was three and a half years ago It hasn't moved very much at all And Disney is going strong And the neat thing about it is people starting now to talk about content
Durability So people saying, okay, look, Netflix You did Bridgerton You did Squid Games Like amazing things they did If you think about just those two properties But what are you left with at the end of the year?
In contrast to somebody like Disney who hits it out of the park within Kanto This is massive, massive hit That went way beyond people's expectations But it's durable So people are really emphasizing in the streaming setting I think something that has been under emphasized Which is what is the durability
of the content spent Are you getting a long -lived asset or not?
And within Kanto you can imagine the music and the toys And the theme park and the everything that you could imagine, right?
And with Squid Games, the question is, well, what are we going to do with that property?
So that was the story that really captured my attention The other part that's so interesting We now have pretty reliable data How subscriber growth is really sensitive to the different services having a hit You see these big additions if you have something like Squid Game Or if you have a Disney show that does
really well But it also means that people are not super loyal It's really easy to get in and get out And guess what?
People really do This idea that people pick their winner And then they stick with their winner That seems to be less true than we had anticipated Yeah What was catching your attention, Felix?
I was pretty surprised when Amazon, for the first time, released its ad numbers Yeah There was a sense that it had built an advertising operation that was quite formidable But I was really surprised when I saw the numbers Last year it was the $30 billion business It's bigger now than YouTube I mean,
imagine, it's like a bigger ad business than YouTube And it grows 30 % a year or so It's roughly the size of Prime It speaks to this bigger issue, the importance of first -party data Think about Meta or Facebook getting hammered As a result of the changes in privacy rules at Apple If you're Amazon, you
have two almost unbeatable advantages You have consumers who are intent on purchasing products As we know from the Google app model, that's valuable And then guess what?
The moment you put in the search box what you're looking for I have a pretty good idea of what you're going to buy Or what you're interested in buying We've become so super sophisticated on the ad side And at the same time, you just wonder, is the old trick to look at the search box Maybe that's more
powerful than anything else we have at this moment Yeah, I think that's exactly right And the distinction between advertising models like Facebook And somebody's like Amazon, I think, is really coming out And we saw that with Google results as well The two other things that really struck me about this,
Felix, is one It's interesting when companies begin reporting something in a new way That decision, yes Right, that decision itself is super interesting So even, for example, with Meta, they really broke out advertising versus virtual reality this time And they were like, we're losing a lot of money
in virtual reality in the Meta piece of this business And we expect to continue to So you're really sending signals in that way The second piece that really struck me was AWS is still just rocking It is just this remarkable beast inside Amazon that's growing at 40 % a year And shows no sign of stopping
And you see now other companies emulating, right?
It's basically what Walmart is doing now, building an advertising business Thinking of the stores as really the engines of profitability And online grocery as a loss leader, as a slim margin kind of business Just like the marketplace at Amazon is, in the end, a slim margin kind of business And so you
wonder, say, like 10 years, looking back at how we thought about e -commerce as a real opportunity Maybe it's not It's amazing in the sense that it changes consumer behavior It changes how we choose, how we shop But as a business opportunity, maybe it's just miserable Maybe it's not really a business
you want to be in I think that's really fascinating, Felix And maybe if you're in it, you better have something alongside it that allows you to really monetize all of its benefits So this is your story, I think, about like in -store versus online I think you're absolutely right Do you see a day when there's
significant pressure on Amazon to spin off AWS?
That is a fascinating question I don't think people are raising it today Those kinds of concerns happen typically when people start to stumble Because then people start to ask all kinds of questions People ask questions, why do these businesses belong together?
And so you could imagine a world where that e -commerce business starts to stumble And in fact, there are pieces of the e -commerce piece that didn't look great this year as well And maybe in the future people will ask that question I don't know, Felix, what is the justification for keeping it together?
Now, the only justification that I can really think of is that somewhere in the background there's some virtue in having this large cloud business that really came out of some of your e -commerce efforts initially That's a historic reason That's a historical justification That's a historical justification,
right? That's not a rationale on an ongoing basis And I find your observation that companies are pressed to think about these spinoffs when they're not doing well When one business is really in trouble Even that is not obvious why that should be Because the opportunity to unlock No, for sure, you're
absolutely right But that actually is interesting because if you think about Andy Jassy or Bezos as the decision makers And as being decision makers who no one will question Then he can be forward -looking and just say I want to split it and do it And I think that could be really, really wise So my other
story that really caught my attention bears a little bit of relationship to this, Felix Which is I was struck by two companies, and again like a tale of two companies, kind of like Disney and Netflix But my two companies are two weird companies, which is UPS and Twitter You might never put UPS and Twitter
together That's not exactly an obvious pair, but Yeah, so here's what struck me about their reports this quarter And they kind of went unnoticed, but UPS just hit it out of the park in a lot of different ways On e -commerce, on really cutting back the kinds of businesses they do that are not profitable
Really focusing on profitability, delivered a bang -out quarter Twitter, not so much, tough quarter, didn't quite meet expectations But the fascinating thing to me is, they both did something very dramatic alongside these moves Which is UPS increased their dividend by 50 % So now you might say well, we'll
increase the dividend, who cares First off, UPS is like a steady Eddie, like 3 % a year blah blah blah And they just said we're upping our dividend by 50 % And at the same time, what did Twitter do amidst this kind of disappointing results They announced a really massive increase to buybacks Like up to
4 billion dollars, and they did a 2 billion dollar one right away I was just so struck by that contrast And the interesting market reaction, which is the reaction to the dividends, was wow They just are telling us they believe they can sustain the kind of profitability they have For a long time, and the market
really appreciating that And then the buyback, not so much I just thought this feels like a turning point with rates rising In the way we think about dividends and buybacks And maybe this long infatuation we've had with buybacks Because I confess when I saw the Twitter announcement, I thought to myself
It's like IBM all over again Falling business underneath it, but we're going to just do this kind of buyback craziness all the way down It's also the intuition that you have about the two businesses Matches these moves almost perfectly Social media, of course, is such a quickly evolving, dramatic space
And Twitter just feels old and dated and out of ideas The most amazing change is now that it's a little more integrated with Instagram Who cares?
I think maybe Facebook was like that for the first time Five, six years ago, where you feel like nothing is happening anymore They're all of these changes, but they're insider changes Power users of these services went this or that or the other thing But in a bigger sense, it just doesn't matter anymore And
then contrast that with this idea that you are a powerhouse in local delivery And oh my god, you're right in the sweet spot That's exactly right You actually have the economies of density that make that kind of a business At least in aspiration, a very steady and a very profitable business What else
did you bring, Felix?
I had a family of businesses when PayPal did its earnings release It dragged the entire payment sector down in a really dramatic fashion So a firm I think is down 60 % over the last three months SoFi, Block, everyone In the case of PayPal, I don't really remember, at least in the recent past Having seen
such a correction to growth expectations It's really quite remarkable So they wanted to have 750 million users by 2025 And so yeah, 2025 is a stretch out, but it's not like decades out And now they're telling us it's only going to be a little over 400 million I mean, oh my god, what?
You were off by how much?
So what I find particularly interesting, what's the story now?
You think, oh, I'm buying the dip And it's all about the penetration of payment services built on digital wallets And I have to confess, it's a little bit of a mixed story On the one hand, PayPal is the leader in this space We have pretty good data from travel where PayPal is larger than Apple, Google
and Samsung combined So they have a really firm position But then when you look at, okay, so what can I do if I use the PayPal super app Like what they call a super app You know, some e -commerce and I get some discounts Really?
Like that's your best idea Yeah I get credit offers That seems like a pretty crowded space that is changing in ways that are not super attractive Of course you offer crypto like everyone else offers crypto Right So it's hard for me to have much enthusiasm for any of these ideas And in the loan products
in particular you see this change in a firm now One of the reasons why their stock price has fallen so much is that they now move to loans that have low interest Exactly, right And so maybe you're getting paid sometime in the future Maybe you're not getting paid Which is very different from the original
model Yeah And especially on a firm, as you pointed out, first off, they're charging now interest So they're not all zero rate loans They had this remarkable exposure to Peloton Which I don't think people understood Yeah, yes Like there was all these big purchases that were coming through Peloton We
know what has happened to them But the larger story you're telling, Felix, I think is super interesting Because FinTech had really become this space where no one could do any wrong And where expectations were out of this world And by the way, this has ripple effects through the venture world and everything
else, right So the whole buy now, pay later world is shaken because of what happened to a firm And there's hundreds of millions of dollars pouring into VCs on that market alone And I think it's a reflection that that world is a lot harder to make headway into than people have imagined That's just one
example You compare it to folks like MasterCard and Visa who are just chugging along Like a quite remarkable clip Remarkably, yes And doing fine and innovating in interesting ways And it's not entirely clear what this entire promise of FinTech is yielding in aggregate As you put it, these product ideas
are good But are they earth shattering in the way that the valuations would suggest It's now very much an open question with PayPal coming back down to earth But the entire sector, as you point out, is now 60, 70 % below This is remarkable You have to draw from that a real question mark about the promise
of FinTech Well, that will be another interesting one to watch Okay, good, so this was a good earnings season Yeah, this was fun And we didn't even talk about like Peloton and Meta Which were also amazing Well, we'll come back and talk about it We'll have lots of companies still reporting, right?
So I can't wait to hear from Ford Oh, yeah Can't wait to hear from Rivian So there's many stories that we'll absolutely have to talk about Excellent Alright, recommendations Felix, what do you got?
Yes, of course Even in the New Year, that's a big part of the show So my recommendation is a podcast It's the Economist podcast, Checks and Balance And they have a recent episode comparing attitudes of Republican voters With attitudes of Democrat voters And the question is why is it that liberals and progressives
Are so much more pessimistic about America than conservatives And the interesting twist that I really love about what they did is They compare attitudes with what's really true So the questions are all in the form of When it comes to, say, gay rights in America Compared to other countries, are we ahead?
Are we behind? Are we in the top group?
And people give answers how they see America And where they think America stands And by and large It's not true across all categories But by and large, liberals are way too tough on America Interesting And I love the dynamic on the podcast also So it's two people with British accents And the New York
bureau chief an American And the inner play between seeing America from afar and from the outside And then having someone who really sort of has the domestic perspective It's super interesting I love the podcast as a whole But this episode, which is called Left Side Story, is particularly fascinating
Oh, that's great Having optimism in any political agenda is so important Because it just resonates with people It's just so hard to win in a pessimistic vein Well, so it's been a couple of weeks, so I'm going to go a little crazy Well, what else is new?
I know, I'm sorry Crazy means it's more than your usual two When the rules say you have to bring one And I'm going for three Oh So I have three, but they're all different Oh, okay So I read a lovely book over break That I thought was really fun It's by this author, Gary Steingart And it's called Our
Country Friends Okay And he is hilarious And this is the first kind of pandemic novel So it actually takes place during the pandemic Five friends are locked in a house in the country And craziness ensues The great part about it is it's so warm and touching But also hilarious And it's a real story about immigrants
Oh, it takes place in the United States It takes place in the United States In upstate New York In mid -2020, like in the middle of the pandemic Really fun and just touching in its own way My second is also very touching I've previously talked about this writer named Jennifer Signor When she wrote this 9
-11 piece I remember About Bobby McElvene She's got a new one in the Atlantic And she is two for two I mean, these pieces are amazing And this is about friendship And about how as you get older Friendships matter so much And are yet quite hard And so it's all about the nature of friendship I think we're
contemporary ages And so she's like channeling Your thoughts My thoughts It's just great And then the last one is on your UK theme There's a UK podcast with an American co -host And it's called the Trojan Horse Affair So the guy who did S -town, which was this fairly famous podcast Yeah Went to Birmingham
and collaborated with Abritt To do this remarkable eight -part podcast And I drank up the whole thing And I just loved it But the neat part about it is It's about the scandal in Birmingham But it's also like a buddy movie These two guys who are making the podcast And it's about the meaning of journalism,
ultimately Okay, I went crazy That sounds fascinating Those are my three for you So this is it for today Thank you for listening This was After Hours from the TED Audio Collective So I'll best you next time I'll bring in four recommenders There you go It's going to be a war The podcast will be like
two and a half hours Mostly recommendations That is the overall thrust of things You know, why are we even having these first two seconds?
Yeah, why? We just go to recommendations That would be great
