The U.S. vs. AI

In this issue of the Peel:

• ?? The May jobs report came in hot, but for the wrong reasons
• ?? Roaring Kitty went through with Friday’s live, but GME wished he didn’t
• ?? The U.S. Government is poking the bear of the AI Trinity

Market Snapshot ??

Banana Bits ??

• Global economic growth had its fastest growth in a year last month , per S&P Global
• Volatility is booming almost as much as stock prices
• Miners on the hunt for gold looking for more Earth to rip apart in search of these rocks for (probably) less than minimum wage
• Maybe it’s not all C-19 after all , per Datatrek Research

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Sign up for the waitlist here -> Applications opening next week and capped at 300 (so we can review all of them carefully).

Macro Monkey Says ??

Demanding Labor

Much like taking your first sip of hot coffee from Dunkin’ Donuts, May’s jobs report came in way hotter than expected.

And also just like drinking Dunkin’, you start to realize it’s actually kinda trash once you dig further into it.

We added workers like Nvidia adds market cap, but the only thing is that when I say we added them, I really mean we—they’re working for you and me.

Let’s get into it.

The Numbers

The U.S. economy added 272k jobs in May, embarrassing the economists that collectively guesstimated additions would come in at 190k.

Further, May’s headlining number of additions was 64.8% higher than April’s.

Source

Healthcare and government jobs made up 40% of May’s additions, and when we add in the 42k added in leisure and hospitality, we get over 50% of the 272k total.

The less-than-ideal takeaway here is that most government jobs are, of course, funded by the public sector through taxpayer dollars. Further, healthcare employment requires a higher percentage of public funding than most sectors.

Basically, that means that you and I—my fellow American taxpayers/evaders—grew our cost basis quite a bit in May. It’s generally good to see robust hiring, but less optimal when relying on the government to fill that employment.

It’s kind of like if Apple just started buying its own iPhones (instead of stock) to pump revenue.

At the same time, unemployment ticked back up to 4.0% in May, the first time U.S. unemployment has reached that level since January 2022.

Source ?

If you’re not asking yourself how that’s possible, you’re not paying attention. There are a couple of reasons that can cause rising unemployment despite high growth in job additions, and it looks like May fell victim to all of the below.

First, we have to understand the establishment vs. household survey. In the establishment survey, the Department of Labor (DOL) checks in with large employers on their hiring numbers and uses that to abstract to the rest of the economy.

The household survey, on the other hand, talks to people. The DOL calls U.S. workers and checks in on their employment status, and in May, the number of individuals who reported that they hold jobs fell by 408k.

Further, the labor force participation rate fell 0.2% to 62.5% last month, meaning fewer Americans are doing the most American thing possible—working and creating shareholder value.

Lastly, the number of unemployed people jumped by 157k to 6.649mn, a larger jump than seen in the past few months.

Basically, this means that a difference in data sources, a decline in the labor force participation rate, and an increase in unemployed people drove unemployment higher despite allegedly strong hiring data observed in the headline number.

Source

The one halfway decent thing about this report was the continuing and expanding growth in average hourly earnings, rising 0.4% for the month.

0.4% growth in wages is the fastest we’ve seen since January’s 0.5% rise. Further, CPI rose just 0.3% in April, meaning that if we assume similar growth in May, wages outperformed inflation for the first time since February.

The Takeaway?

Although ostensibly strong when judging by the headline figure, May’s jobs report was far weaker when diving into the data.

It’s not a terrible report, but certainly not one that the market, Fed Chair JPow, President Biden, or 157k newly unemployed Americans are particularly happy with.

Labor demand remains robust across sectors, but the large jump in government employment can be a drag to productivity if accompanied by increased taxes at the federal, state, or local level.?

Lastly, it’s important to note that the household survey tends to be a better predictor in times of elevated uncertainty, adding fear to the fire.

What's Ripe ??

Oddity Tech (ODD) ??20.5%

• Beauty has a price. And on Friday, that price tag came in at $150mn as Israeli beauty maker Oddity Tech announced a share repurchase program.
• With a market cap of ~$2.1bn prior to Friday’s rip, that buyback amounts to ~8% of the firm’s market cap, getting investors hyped up.
• Oddity also upped its revenue guidance for Q2, basically confirming they’d come in at the top of their range at $189mn, taking the hype to full-on euphoria.

Planet Labs (PL) ??11.0%

• What a bunch of id**ts we all are—everyone takes pictures of some part of the Earth almost every day, but Planet Labs figured out how to monetize it.
• The satellite imaging firm ripped on Q1 results, including lower losses than expected at just $0.05/sh on better revenue at $60.4mn.
• Guidance was unchanged, but the path to profitability became clearer following these results as a “proof of concept” that the business model could work.

What's Rotten ??

GameStop (GME) ??39.4%

• Shooting yourself in the foot is a subtle art that, historically, only people like Plaxico Buress and CheddarBob had mastered. Add Roaring Kitty to that list.
• The GameStop GOAT held his live stream at around 12 pm, with the call amounting to little more than a circlejerk to the GameStop religion and God Ryan Cohen.
• There was little substance, but Gill did talk sh*t about E*Trade, made clear he’s flying solo and basked in the glory of all the exit liquidity he’s created.
• GameStop tumbled in response amid several trading halts due to volatility and, presumably, future victimization of anyone buying this thing.

Vail Resorts (MTN) ??10.3%

• It’s a bear market for snow this winter in a heavy loss for Greta Thunberg and Vail Resorts, but a big win for those of us who like warmth and comfort.
• The ski resort company tanked on weaker quarterly results than expected, with disappointing guidance as unusually warm weather reduced ski activity.
• Despite raising prices through the roof due to inflation (of what, snow prices?), sales volume fell 5%, leading to anemic revenue growth of 3.6%.

Thought Banana ??

The U.S. Government vs. AI

They say good things come in 3s—like the Three Musketeers, The Three Little Pigs, or a Jayson Tatum three-pointer.?

In this case, the three we’re talking about are, of course, the father, son, and holy spirit of Microsoft, OpenAI, and Nvidia.

The AI Trinity is under attack by the evil trinity of three letter agencies, including the DOJ, FTC, and the USD from your pocket that’s paying for it.

Antitrust investigations are opening up into each company among the AI trinity, so let’s find out exactly what’s going on.

What Happened?

Last week, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) announced a quasi-joint investigation into the AI Trinity.?

The FTC will take charge of investigating business practices between Microsoft, OpenAI, and, to a lesser extent, the former’s investments in other AI companies.

As we can see below, Microsoft is technically considered OpenAI’s daddy. The world’s largest company has invested upwards of $13bn in the AI “startup” and now reportedly owns 40-49% of OpenAI.

So naturally, being the nosy *ss three letter agency they are, the FTC has questions. Microsoft’s dominance, allowance for OpenAI to use Azure’s cloud computing resources, acqui-hires of their firms, etc., are the primary items subject to scrutiny.?

More broadly, the FTC is investigating relationships between OpenAI and the only company close to their tech, Anthropic, for their relationships with “hyperscaler” cloud providers like Microsoft, Amazon, Google, and Oracle.

Nvidia, on the other hand, is under investigation for being literally too f*cking good. They should investigate Jaylen Brown while they’re at it.

There are no allegations, but see again “nosy *ss three-letter agency,” the DOJ has questions about Nvidia’s revenue recognition, funding its own demand via their VC flywheel, and monopolistic practices around Nvidia’s CUDA chip software business unit.

The most serious allegations against Nvidia are lock-in practices, with the fact that CUDA, or Compute Unified Device Architecture, is incompatible with other hardware.

Something tells me these companies have the money to handle it, however:

The Takeaway?

Washington is itching to regulate AI.

On the one hand, the potential danger presented by AI systems lends itself to warranting some regulation. If allowed to run unfettered, AI systems could run rampant to fraud or fall into the wrong hands.

But on the other hand, if a technology like the internet was a victim of such scrutiny, it’s hard to believe we’d have the flourishing ecosystem we have now. We want AI to be a boon to quality of live development globally, and regulations tend to create roadblocks.

Along with the California AI bill discussed last week, this clearly implies that lawmakers are all over this. They can smell looming fines for violations like a great white circling the USS Indianapolis.

The Big Question: How will AI be regulated in the U.S.? How should it be regulated? Is it even possible under our current legal frameworks? Are we asking the right questions?

Banana Brain Teaser ??

Previous ??

Jackie has two solutions that are 2 percent sulfuric acid and 12 percent sulfuric acid by volume, respectively. If these solutions are mixed in appropriate quantities to produce 60 liters of a solution that is 5 percent sulfuric acid, approximately how many liters of the 2 percent solution will be required?

Answer: 42 liters

Today ??

If Jake loses 8 pounds, he will weigh twice as much as his sister. Together they now weigh 278 pounds. What is Jake’s present weight, in pounds?

Send your guesses to [email protected]

Wise Investor Says ??

“If you're not confused, you're not paying attention.” — Tom Peters

How Would You Rate Today's Peel??

??All the bananas ? ? ? ? ? ? ? ? ? ? ? ? ???Meh ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ??Rotten AF

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Happy Investing,

David, Vyom, Jasper & Patrick