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ResearchThree Things (5/10)

Three Things (5/10)

May 10, 2023

Debt drama

As is an annual tradition, the debt ceiling is in the news again and may be cause for concern. The U.S. hit the debt limit—$31.4 trillion—on January 19, 2023, but the Department of the Treasury has been undertaking a set of “extraordinary measures” so that the debt limit does not yet bind. Members of Congress and the President have been conducting a series of meetings in an effort to come to an agreement but efforts have yet to yield results. (Brookings)

If Washington can’t come to an agreement, the impacts could vary – it would largely depend on how long the situation lasts, how it is managed, and the extent to which investors alter their views about the safety of U.S. Treasuries. As investors, the final point could be the most intriguing – perception of safety provides confidence in the system. If that understanding is continuously challenged, could it hurt this safe haven asset and more importantly, the demand for U.S. Treasuries?

Is it different this time?

While most of Silicon Valley’s venture-capital ecosystem remains inactive, investors this year have been pouring funds into companies specializing in generative AI systems. Venture capitalists and entrepreneurs are hoping generative AI will change activities from coding software to fast food drive-thrus. According to data from Pitchbook, “roughly $1.7 billion was [invested] across 46 deals in Q1 2023…an additional $10.68 billion worth of deals were announced in the quarter but have not completed.” (Pitchbook)

The momentum is undeniable but as in prior hype cycles, a lot of stories might not end well. Half-baked ideas will be out hustled and millions (maybe billions?) of dollars will inevitably be lost. The gold rush doesn’t seem to be deterring capital investment though and rightfully so. The prize is huge.

Petroleum profits

The world’s second largest company by market cap, Saudi Aramco, reported a 19% drop in quarterly profit due to lower energy prices. The company reported net profits of roughly $31.88 billion for the first three months of the year. Despite a decline in Brent crude oil prices, the company increased its dividend payout to investors. (WSJ)

For some context, this quarter’s profit is more than Walmart, Meta Platforms, Chevron, Bank of America, and Amazon…COMBINED. Conversely, there’s only one company that had bigger profits than Aramco last quarter. You guessed it: Warren Buffet and Berkshire Hathaway.

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