🎙️ Titaniacs

It’s official: Elon Musk and Mark Zuckerberg are ready for a cage match 🥊

After Musk recently tweeted that he’d be up for a “cage fight” with Zuckerberg, the Meta CEO replied by posting a picture of Musk’s tweet with the caption, “send me location.”

Musk, 51, has the size advantage and, apparently, experience: He’s said he was in “real hard-core street fights” while growing up in South Africa. But “Zuck” is just 39 years old, has won Jiu-Jitsu tournaments, and says he recently completed the grueling “Murph challenge” workout in just under 40 minutes.

Which billionaire are you betting on?

— Shawn & Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• The booming undersea (and space) tourism industry

• Why the yield curve could be wrong

• The $69 billion Microsoft deal in jeopardy

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

🌊 The Booming Undersea Tourism Industry (BBC)

It's all over the news: Five people aboard a minivan-size, experimental submersible went missing Sunday during a dive to the Titanic site more than 2 miles deep in the North Atlantic Ocean. All five onboard are believed dead after a “catastrophic explosion” on Sunday morning.

• The submersible's leader, Stockton Rush, had a passion for deep-sea exploration that he turned into a business model, selling spaces for $250,000 per person to visit the Titanic wreck.
  

• His OceanGate Expeditions company seeks to do for the ocean-deep what tech titans Jeff Bezos and Elon Musk are doing for space. More than 70% of our planet is covered by water, and a recent wave of underwater tourism is allowing (mostly) wealthy individuals to explore unchartered depths.

In 2021, Rush completed his company’s first mission to the Titanic. “Just as space tourism has taken off, we saw this opportunity for affluent folks to be able to come to the shipwreck,” he said that year. He told CBS News that the people booking the trips are typically Titanic enthusiasts or “Titaniacs.”

• “We’ve had people who have mortgaged their home to come and do the trip,” Rush said. “And we have people who don't think twice about a trip of this cost. We had one gentleman who had won the lottery."

In 2021, Virgin Galactic, Richard Branson’s company, and Jeff Bezos’s Blue Origin took voyages to Earth’s periphery and beyond, beginning a new era of space travel. Virgin Galactic will launch commercial flights with tickets costing about $450,000 per person.

Why it matters:

The missing submersible raises questions about the safety of marine tourism. Participants must sign lengthy waivers, recognizing that they’re risking their lives.

• Broadly, the new global submersible tourist sector, if we want to call it that, sees roughly one million passengers per year, though almost none of them are doing anything nearly as risky as visiting the Titanic wreck. Some excursions include fairly relaxed 1,000-foot submarine rides off cruise ships to see fish and coral reefs.

In Hawaii, submarine adventures allow guests to “explore the spectacular seafloor without getting wet.” There are also places such as the Great Barrier Reef in Australia, which allows people to submerge while wearing a large glass helmet.

• Various submersibles cost $1,000 and up, while a luxury submarine hotel glides through reefs around St. Lucia – complete with its private chef and butler – for at least $150,000 per night.

Still early innings? Noted one entrepreneur in the growing space: “As demand increases over time, the costs associated will also come down, making it more and more accessible for all. This is what happened with the first airplanes, cruises, and hotels.”

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🤨 Is the Yield Curve Wrong? (FT)

The yield curve. Before your eyes glaze over, consider that this flashback-to-finance-101 jargon sits firmly in the middle of the biggest debates about markets right now.

To quickly recap, when most people reference the “yield curve,” they’re talking about a graphic that depicts the interest rates on U.S. government Treasury bonds (though there are many different yield curves), illustrating interest costs for different borrowing periods — ranging from a few months to thirty years.

• Normally, a healthy economy’s yield curve would be “upward sloping,” meaning it intuitively costs more incrementally the further out you go on the curve.
  

• Bonds borrowing money for thirty years should have higher interest costs than ten years, which should be higher than two years, and so on, as a premium for locking money up for longer.

But there’s nothing normal about the yield curve today. For over a year, the curve has been “inverted,” pushing short-term borrowing rates above longer-term ones.

• Translation: Interest rates are higher to borrow money for three months than for ten years — seems contradictory.

Historically, this economic abnormality indicates the Fed has pushed interest rates too high, spawning an eventual recession that causes Fed officials to lower interest rates. In a nutshell, that’s how you get an inverted yield curve — the Fed pushes short-term rates up, thus lowering rates further out the yield curve as investors anticipate a recession, particularly if they think the Fed has gone too far.

Shown below, these negative inversions (when the blue line drops below 0) are 5/5 in predicting recessions (the shaded areas after the blue line goes negative).

• As you’ll notice, the yield curve is the most inverted it has ever been, lasting longer than previous inversions.
  

• Yet, economic data and stock markets have defied this indicator for months.

Why it matters:

Recessions calls have been popular since the yield curve first inverted in March 2022. Some 15ish months later, unemployment remains near all-time lows, consumer spending is robust, and the S&P 500 is approaching record highs, prompting many to wonder if this go-to recession predictor may be wrong.

• As the Financial Times’ Robert Armstrong puts it, “One has to ask whether this eminently sensible and super-reliable indicator could be wrong this time around.”

Arguing this, you could say the pandemic created an unusual economic cycle, allowing the Fed to raise interest rates enough to cool the economy without causing a recession (aka a “soft landing.”)

Armstrong doesn’t buy it, though. Finding a balance between cooling inflation without badly damaging the economy is easier said than done. He thinks “a recession is coming within the next year.”

• One thing is for sure: If we dodge a recession, doing so would reject conventional economic logic and financial markets’ ability to anticipate downturns.

MORE HEADLINES

🐓 U.S. regulators approve the sale of lab-grown chicken

🏡 Home sales barely budge from April to May in a sluggish spring market

😅 Bank of England raises rates more than expected as inflation persists

🍺 Bud Light’s new advertising campaign

🎮 Microsoft’s $69 Billion Activision Deal in Jeopardy (Reuters)

The U.S. Federal Trade Commission (FTC) presented its case in federal court on Thursday, advocating to temporarily halt Microsoft's largest-ever acquisition of Activision Blizzard, a prominent video game producer known for games such as World of Warcraft, Diablo, and Call of Duty.

• This legal action is intended to delay the deal's conclusion until the government's case against it has been assessed. The agency has the power to obstruct transactions it believes would "significantly diminish competition."

Microsoft stated a temporary halt might jeopardize the transaction since the tech giant is up against an 18-month deadline, set to expire on July 18, to finalize the acquisition.

• If the court suspends the $69 billion deal, Microsoft and Activision would need to agree to push the termination date past July 18, as set in their initial agreement.

• This puts extra pressure to complete the deal before the launch of the FTC’s administrative law case. Microsoft would be liable to pay a hefty break-up fee of $3 billion if it fails to seal the deal.

Why it matters:

If the transaction closes, Microsoft could become the world’s second-largest gaming company by revenue.

By adding big titles like Call of Duty and World of Warcraft to its content, Microsoft could draw many of Activision's 400 million active users to its Game Pass platform, a service offering various games and premium features like Xbox Live Gold and EA Play for a monthly fee.

According to the FTC, without intervention from the federal court, the newly merged entity may modify Activision's operations and business strategies, which could provide Microsoft with access to confidential business information and sensitive data.

• After completing the acquisition, the agency argues that Microsoft would make Activision’s most popular games, including Call of Duty, exclusively available on its platforms.
  

• The merger could negatively impact the competitive dynamics in distinct sectors such as console gaming, subscription-based game libraries, and cloud gaming.
  

• The deal also could harm the gaming industry by allowing Microsoft to withhold Activision titles from rival platforms, including Sony.

See you next time!

That's it for today on We Study Markets!

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