Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the main topic discussed in this episode?
Good morning from the Financial Times. Today is Wednesday, June 17th. This is your FT News briefing. Investors are back in love with the U.S. dollar, and there are concerns that the Strait of Hormuz won't return to its old self anytime soon. Plus, a sneak peek of our interview with U.S. Senator Elizabeth Warren. She's got a lot to say about SpaceX.
This particular IPO has enough red flags on it that it should stop anyone in just thinking about it.
I'm Mark Filippino, and here's the news you need to start your day. Investors are flocking back to the U.S. dollar. They're betting that the AI boom will keep the American economy strong and that the Federal Reserve will keep interest rates high. Wagers on a stronger dollar rose last week by the most since 2018. That took the green back to its highest level in more than a year.
The currency began its rise with the start of the Iran war. Investors believe that the U.S. was able to handle a jump in oil prices better than other countries. And the dollars remained high despite news of a possible end to the conflict. Now, we could be seeing a stronger dollar for a while.
Chapter 2: What concerns does Elizabeth Warren have about SpaceX's IPO?
The Federal Reserve is expected to keep interest rates steady during its first meeting with Kevin Warsh's chair. As far as interest rates go, the FT put out a poll this week. It found that a majority of leading economists say that the Fed will need to raise rates by at least a quarter point by the end of the year to combat inflation.
Last week, SpaceX's initial public offering was the largest in history. And on the morning we're recording this, Tuesday, it briefly passed Microsoft as the fourth largest company by market capitalization. All the while, Elon Musk, the owner of SpaceX, has become the world's first trillionaire, thanks to his shares in the AI to rockets business.
But for some, the SpaceX listing and its blockbuster valuation is a reason to worry, not celebrate. In the run-up to the IPO, U.S. Democratic Senator Elizabeth Warren wrote to the head of the Securities and Exchange Commission asking the regulator to delay the listing. Warren is a ranking member of the Senate Banking Committee.
She joins me now to talk about why she opposed the SpaceX IPO and what it tells us about the American economy. Senator Warren, welcome. Thanks for having me. So let's start with the most recent updates. SpaceX has shot up in value by more than a trillion dollars within just several days of going public. That's from an initial valuation that was already the highest in history.
What are your thoughts as you're watching this?
Look, I want Americans to have opportunities to invest in companies that help our economy grow. But the confidence of investors is a big reason why our markets are the envy of the world. And this particular IPO has enough red flags on it that it should stop anyone in just thinking about it. So look at it this way. First of all, the valuations.
Elon Musk valued his company with numbers that analysts call nonsensical and out of this world. In part, he based it on the merger of SpaceX and XAI, which means, I guess, Elon Musk got in a room with Elon Musk and negotiated on how much the merger should be worth. Then, secondly, SpaceX...
push the major index providers to change their rules to force SpaceX into index funds at record speed, which will artificially boost the stock price in the short run.
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Chapter 3: How is the US dollar being impacted by AI investments?
And then they've set it up so that insiders will have an opportunity to sell their shares into the market. And when they do, they will have this captive audience of the index funds. And then the third is that this IPO really undercuts shareholder protections that have been in place for a long time so that Elon Musk basically keeps all of the control for himself rather than the ordinary way.
And that is, you know, if a CEO is running a company into the ground, shareholders can actually get rid of the CEO.
I'd like to drill down on one of those concerns in particular, and that's indexing. Sure. As you mentioned, this will affect a lot of people, whether they are interested in investing in SpaceX or not. Tell me a little bit more about what exactly has you worried?
Well, when an IPO comes out, and this is true across the board, a lot of froth, right? Not always, but a lot of the time. So the index funds that have said, we are the sober investors, we are the non-fancy, a little piece of everything across the market, say, in effect, we're going to let everything calm down for a while before we start bringing in that new IPO into our mix of index companies.
And here what's happened is that allegedly under pressure from Elon Musk, they changed those rules and said they were going to bring them in much faster. And that means for lots of investors who bought into funds, they find themselves in the roller coaster ride along with Elon Musk and SpaceX at a time when it appears those traditional rules are more important than ever.
Senator Warren, there are some folks out there who would consider the nearly $2 trillion initial valuation of SpaceX justified, saying that Elon Musk has the ability to turn a business around. They point to Tesla. Do people have a case there?
Look, my job here is not to give investment advice. My concern is about the rules and whether the rules are followed. Because these are not rules on the stock market that are put in place just to be cranky. They're rules that say, before you do an IPO... you gotta show us the numbers, show your homework.
And when experts, financial analysts, are calling those numbers nonsensical, then the job of the SEC in general is to say, whoa, whoa, whoa, let us see just a little bit more about how you got that number.
Well, let me ask you, Senator Warren, how do you think this would have gone differently under a different administration?
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Chapter 4: What are the implications of SpaceX's valuation on investors?
So for ship owners, they don't want to run the risk of sending their ships through that when they don't quite know what they're facing. You've also got the estimate now is there's about 500 ships ready to exit. And, of course, getting 500 ships through a narrow waterway doesn't happen overnight.
You've got to have a queue, you've got to make sure they don't all run into each other, and there's not kind of a big rush for the exit. So there's also a sort of tangential issue, which is actually all these ships that have been stuck in the Gulf, they've grown a lot of barnacles and so on on the bottom of their hulls.
And that, in turn, actually affects fuel consumption because it creates a lot more drag. So they need to get those cleaned. And so there's a lot of issues you might not think about. The whole thing is not a sort of flick the switch back on and everything will go back to normal situation.
No, it certainly doesn't sound like it. How long could these disruptions last?
Estimates vary. I mean, it's certainly not going to be days. I would say from what we hear, we interviewed the boss of Mitsui OSK, who's the biggest tanker owner in the world. He was estimating actually nearer to months for the backlog to be cleared.
And of course, you're not only getting ships out of the Gulf, you want ships to go in so that they can pick up more energy cargos to get them out onto the global shipping routes. So the whole thing could last well into the summer, if not the early autumn, I think.
So what could months more of disruption mean for the global supply chains and, you know, consumers like you and me?
I think, as you were saying, the real impact here has been on the energy market, and that has run through into higher inflation, higher fuel costs. I think we've all noticed the difference in our tank of fuel when we're filling up the cars. So the longer the disruption goes on for, the longer that we can't get ships in and out of the Strait of Hormuz. And we've already heard reports
Iran has been warning that it would potentially in future actually want to go back to charging some form of toll. That could really continue to have that knock-on impact and we could see sticky inflation for much longer and higher prices. There is a situation in which the peace deal is good, it sticks, the ship's able to get in and out freely.
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