The Liquidity Event Podcast: Episode 80

 

Episode 80: Bleeding Hearts Sink All Ships

It's the big 8-0, dear listeners, and Shane and AJ are back with that sweet, sweet finance content you love! Middle managers have emerged as a top target in recent tech company downsizing, Dell has laid off 5 percent of its employee base internationally, and 517,000 new jobs were created in the U.S. in January. Next on deck is the growing antitrust lawsuit against Google, converting NYC office buildings into residential spaces, and our favorite seasonal topic: TAXES! Bonus round: The IPO market is looking very promising for 2023 with a successful $100 million IPO from alternative insurance startup Skyward Specialty. Stay tuned!

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 Presenter:

This podcast is for informational purposes only and should not be considered tax or investment advice.

Welcome to the Liquidity Event, a show about all things personal finance with a laser focus on equity compensation. Hosted by AJ and Shane of Brooklyn FI, each episode will take you through the week's news on Fintech, IPOs, SPACs, founder wins and fails, crypto, and whatever else these nerds think is interesting. Learn more and subscribe today at brooklynfi.com.

AJ:

Hello, and welcome to the Liquidity Event, we're your hosts, AJ.

Shane:

And Boris Yeltsin. Get it?

AJ:

AKA. Yeah, I get it.

Shane:

Get it?

AJ:

Boris like you're a... Anyway, this is episode 80 being recorded on February 8th, airing on Friday, February 10th. Happy Friday to our listeners. How are you doing, Shane?

Shane:

I'm good.

AJ:

Or Boris Yeltsin, as I should call you now.

Shane:

Oh, yeah, please call me by my formal name.

AJ:

I was going to go with Barish Yeltsin, but to each their own.

Shane:

Oh, all right. Making it a stock joke now.

AJ:

This is the Liquidity Events, so....

Shane:

Markets. That's true.

AJ:

We got to talk about the markets. We never ask each other what we're drinking anymore, because we used to record this podcast at 5:00 PM. But now we've recorded it... it's 11:05 AM here in Southern California. Looks like you're drinking Moscow, but I bet it's water out of a fancy bottle.

Shane:

That's correct. I am water insecure down here in Mexico, so I hoard water in the fridge, including putting it into recycled bottles. Yeah.

AJ:

That's what I do. That's what I do too. But the fridge is littered with olive oil bottles and Gatorade bottles. I've been reusing this for like six months.

Shane:

Is that how you justify single-use plastic purchases?

AJ:

Yes, that's correct.

Shane:

Yeah.

AJ:

Yes. But I do reuse... I reuse them over and over again.

Shane:

Right, like every good millennial.

AJ:

I've experimented with the NOW jeans and the things, and I love my Avion bottle recycled a hundred times. Nabil, my husband, actually made me... He makes me throw them out every six months. He's like, "This is disgusting. You can't do this anymore."

Shane:

Right. Because Nabil is the clean one and you're the messy one in y'all's relationship.

AJ:

Creative one.

Shane:

Creative. He works in music. You work in finance.

AJ:

I work in creative finance. I used to work in music. What's going on in your life these days, Shane?

Shane:

I love that repositioning the narrative. It's Art Week in Mexico City, so I was at some galleries yesterday. I'll be at a bunch of galleries over the next three, four days, so seen a lot of cool art.

AJ:

Aren't you the creative one these days?

Shane:

I just go for the free cocktails. I have some friends in town for Maco, AKA Art Week. I've been running into... oh, I love this. I ran into one of our former clients live in a galleries. They fired us seven years ago and my friend was introducing-

AJ:

I will guess offline.

Shane:

It doesn't matter, but it was a creative client, thus the gallery.

AJ:

Fine. Wow.

Shane:

So that was a funny one. He was like, "I don't recognize you." Like, "Yeah, I used to wear glasses. My hair used to be short when I lived in my former-

AJ:

You used to be a nerd.

Shane:

Yeah. Back when you met me.

AJ:

And now you're an entrepreneur.

Shane:

Ew. Once an accountant, always an accountant.

AJ:

Oh, man.

Shane:

Stained by the legacy.

AJ:

Speaking of accountants, we have 517,000 jobs added to the US in January, so accountants are excited about their new employment numbers.

Shane:

Gotcha.

AJ:

How about that segue?

Shane:

Gotcha. I guess we're done with personal check-ins.

AJ:

Oh, I have one more personal, which is that I met Sir Paul McCartney over the weekend and I saw that was honestly the coolest moment ever, and he's wonderful and nice in person, and I almost chickened out and thank you to my husband who said, "Don't chicken out. Go talk to him. I will take a photo of you."

Shane:

Amazing. Well, you went to the Grammy's over the weekend. We're going to skim over that.

AJ:

I did go to the Grammys. Yes, I went to the Grammys. My husband works in music, we got to go to the Grammys. As a jaded millennial, I was like, "Eh, Grammy's, cool." It was really cool. I love music and it was just really amazing to see everyone perform. Lizzo's speech was the highlight for me for sure, after meeting Paul McCartney.

Shane:

You met a Beatle.

AJ:

I met a Beatle. It was awesome. Anyway...

Shane:

That's a bucket list item for sure for a lot of people, meeting a Beatle.

AJ:

Definitely.

Shane:

Sir Paul McCartney. Incredible.

AJ:

Sir Paul. Sir Paul. He made a dad joke. It was great. Ugh, so good.

Shane:

Wait, wait. You got to share Sir Paul McCartney's dad joke.

AJ:

It was like, "Hi-

Shane:

Do not tell me you forgot.

AJ:

No, it was late, anyway. It was something along the lines of like, "Oh, hi, I'm your Uncle Joe." He's like, "I always make this joke." And he's like, "I should charge you $20 for this photo." And he's like, "But I'm not going to do that." I don't know, it was a very weird, funny interaction, and it was very cool.

Shane:

He's had a lot of at bats for the, "Can I get a photo with you?"

AJ:

I imagine so. He was very well-trained and rehearsed, in a good way. In a good way.

Shane:

Did you see the videos of Ben Affleck at the Grammys with J Lo?

AJ:

Yes. Yes.

Shane:

Incredible. Incredible.

AJ:

Ben Affleck was not psyched to be there. J Lo was great.

Shane:

Did not want to be there. Well, J Lo is pretty intense person.

AJ:

Oh yeah. The best was Beyonce was literally stuck in traffic. That was the funniest part, which is like you're Beyonce, it doesn't matter, LA traffic will still get you, and she missed accepting her award. That was the second to last one she needed to break the Grammys for most... or sorry, break the record for the most Grammys ever won by one person, which she did.

Shane:

Speaking of breaking records...

AJ:

Yes, thank you. Important life update.

Shane:

The US did add 517,000 jobs in January alone. That exceeds December and November combined. What does that mean to our listeners? Well, we've been talking about layoffs a lot lately on this podcast, almost nonstop ad nauseum. We're going to talk about it again today, but this is some bright news. Most of these jobs, unfortunately, were not within the tech sector. We do see a lot of bouncing back within the leisure sector, the travel and leisure sector, which still isn't back to where it was pre-pandemic back in 2020. Finance and tech, we do have some images here. Who posted this, by the way? Is this a Bloomberg article? This is the Journal is discussing this. Why else is this relevant? Well, unemployment is at the lowest rate it has been at since 1969. Nice.

AJ:

I think... Nice. Halfway through the US involvement in the Vietnam War, like summer of love.

Shane:

Right. Well, yes. There was a lot of maybe weapons manufacturing happening back then.

AJ:

Yeah, literally wartime is the last time that unemployment was this slow.

Shane:

What does this mean for our listeners? Well, the Federal Reserve, for those of you trying to get a mortgage, you are keeping close track of the Federal Reserves interest rate targets, and with high job numbers come a tamping of the... or an increase in the interest rates by the Federal Reserve typically in order to cool down a rapidly inflating economy. More jobs equal essentially inflation, unfortunately, because more people are getting paid more, which drives up the demand... or the supply of money to purchase goods. So this could mean that we're going to get another interest rate hike from the Feds. Any other takeaways we should think about with this article?

AJ:

Yeah, I think it's positive news. Lots of jobs were added, however, unemployment being this low is not necessarily a good thing for the economy. So unfortunately there was projections that we should see interest rates start to come down in the second half of the year, but now a lot of economists are saying, "Well, actually, they'll probably just keep raising them, the 25 basis points each quarter." Yeah, it's interesting that there's a lot of growth in the leisure and hospitality sectors, as you mentioned, Shane, but in the tech sector, the information sector as it's called, there's actually a net loss of 5,000 jobs, which we've seen basically reflected in layoffs, which we're going to talk about in a minute here.

Shane:

No, I didn't see that.

AJ:

I mean, yeah, life is back to "normal." The executive order saying that there's an emergency state for COVID has been lifted, I believe federally it was... there's definitely news in California, governor here, life is back to normal. The economy is recalibrating after this massive once in a lifetime event that caused most industries to halt production or halt service for a six month or more period. So my takeaway here is this is generally good news, but we're still feeling the shockwaves of COVID. And yeah, tech is not the best space to be in right now. There was a lot of job growth in 2020, 2021, 2022, and now we're seeing that contract now because of some over-hiring to meet demand.

Shane:

Yes.

AJ:

Which leaves us into our next article.

Shane:

Yeah. We have a couple articles here from TechCrunch and Bloomberg about the labor market in the tech space. Specifically Dell has laid off 5% of its workforce is one of the most recent announcements. As of February 6th, they're going to lay off 5% of their worldwide workforce. Dell does have over a hundred thousand employees, so it looks like about 6,500 tech workers at Dell will be laid off. There's also an article from Bloomberg around the target of layoffs within most of these tech companies. Turns out to be the middle management. Any thoughts on these? I've got some, but I want to get your thoughts first before we dive in.

AJ:

I'll give you my thoughts in a second. Quick question. Have you read Michael Dell's autobiography?

Shane:

No, but I should.

AJ:

Neither have I. I know, it's been on my list to read for decades. That's the number one need to read. Anyway...

Shane:

I do know about his life. I know he started Dell at UT Austin in a dorm room there, and I used to live in Austin. So Dell... I used to work on floor Dell.

AJ:

That's like the mythology.

Shane:

Yeah. I worked at PWC and we used to do a lot of Dell's work, and my best friend was in PR at Dell, so I saw behind the curtain. It's a cool company. Michael Dell, yeah, interesting entrepreneur, has not been in the news a ton for negative billionaire stuff. Yeah, he's kind of dodged all that.

AJ:

Yeah. That's why I would want to read the book and get to know him a little bit more from his perspective.

Shane:

I do know that he is one of the people when people say billionaires that pulled themselves up from their bootstraps, he's one of the poster childs for like, "Well, yeah, sure, but his dad was probably a lawyer and his mom was an electrical engineer or something like that." It's always the billionaire story. They always leave out the fact that they come from upper middle class families to begin with before they pull themselves out.

AJ:

Right, like maybe not vast wealth. Not vast wealth, but enough to get you to college without great hardship and student debt.

Shane:

Yes, exactly.

AJ:

Should we have a Liquidity Event book club where we read a book together and talk about it?

Shane:

I started reading the Three World Problem... Three Body Problem. The sci-fi book that you're reading.

AJ:

Three body Problem, yeah, yeah. Oh, so we are having a book club. Oh, great. Okay, great.

Shane:

We're already having a book club. You didn't know it though.

AJ:

Great. I'm so excited. Well, I'm struggling to get through it. I like it. It's a little slow. I'm working on it. Anyways, what was the question? What do I think about targeting middle managers in layoffs? Yeah, the article from Bloomberg just basically saying that middle management has been a lot of these layoffs we've been seeing. Oh, hey, Jesse. That's my friend Jesse who just walked by.

Shane:

Oh. I was like, "Who the hell is that in the background?" What's up Jesse.

AJ:

There was a staggering statistic here that Google employs more than 30,000 managers. I guess that makes sense. They have about 200,000 employees, or shy of 200,000, less now after layoffs. But I think it was just a commentary on in the '80s we had this bloat of corporate bureaucracy. Famously, GE's CEO, Jack Welsh, said, "We want to have these lean and mean organizations," which was in response to these fat and mean organizations. So there's like this mythology of Google in the early days would hire basically entrepreneurs, people had great ideas and had that entrepreneurial spirit, which got Google to where it was in terms of innovation.

But can you scale a company that's got 190,000 employees without management? I think the answer is no. And so when we're talking about layoffs, when we're talking about trimming the fat to make the bottom line work, management is going to be one of those first layers to go. Typically, tech companies are not laying off the engineers, typically because they probably don't understand the tech. So someone's afraid of laying off a sector of the engineering force because they're afraid that part of the website might go down, or if it does, it can't be fixed. So that that's my take here, is that it makes sense that management is one of those easy departments, easier departments, to cut because it's easy to say in the news and to your investors, "We're going to trim the "fat."

Shane:

Yeah. Yeah, for sure. I've got two takes on this.

AJ:

Take me away.

Shane:

Yeah, I'm going to reiterate some of what you're talking about. One thing I do want to highlight is how much attention layoffs get, and then the snark here. Media loves a run. What is it bleed? Blood... What is the old saying about...

AJ:

Bleeding heart?

Shane:

No.

AJ:

What?

Shane:

I'm asking the wrong person about idioms.

AJ:

You're asking AJ about an idiom, what's wrong with you?

Shane:

Anyway...

AJ:

Bleeding hearts sink all ships.

Shane:

No. Oh god, nevermind. A lot of ink-

AJ:

That's the title, by the way.

Shane:

A lot of ink spilled around layoffs. And then the snarkier of the publications like TechCrunch for example, they talk about the layoffs and they add some color to try to provide some context, and they try to say that in 2015, Dell bought a company for $60 billion, and what they're trying to say here is that these companies, and they do it with Salesforce, they talked about the Slack acquisition as another example of like, "Well, these companies are buying all these giant assets for billions of dollars, but they can't take care of their employees."

And it's like, "Okay, let's put some things into context here." I would wager that 95% of Americans don't know how a P and L or a balance sheet works, so how much do these people really cost? Like they're saying these 6,600 people that are laid off, if they're buying companies for $60 billion, surely they could have kept these 6,000 people. It's only 5% of your workforce. How much could it cost compared to a $60 billion acquisition? Let's assume that these 6,600 people maybe cost 100K on average salary at Dell. You add in the benefits, you add 150K per person, how much do you think that would cost, 6,600 people, 150K?

AJ:

I don't know, a billion.

Shane:

It's a billion dollars a year in salaries. Now Dell has revenue of $25 billion a year. So you got to keep that in mind when you're thinking about these acquisitions. Also, with an acquisition of that size, you are literally purchasing something that's already created, all the value of that thing, and it stays valuable. It doesn't have to generate anything new, and you don't have to deal with managing that acquisition. I mean, obviously you do and you probably have people there to manage that, but it's not apples to apples comparing an acquisition to your ongoing P and L expenses.

AJ:

I mean, that's what we're talking about here, right? We're talking about something that you can see on the balance sheet that's producing revenue versus a person or a department or a class of managers. You can't see that. You think there's this nebulous idea that they're contributing to revenue somehow, but this acquisition that you're talking about, yeah, they bought this conglomerate EMC for 67 billion, and last year they were already able to spin out just one of the companies from that and put it up for sale for 61 billion. That sale hasn't quite gone through, but that's a pretty good store of value.

Sure, just a small part you're able to turn around and sell for a profit a couple years later. But yeah, I mean, look, talking about layoffs, obviously we're focused on the media and us, dealing with our clients are focused on the individuals, and it's very difficult to go through a layoff both emotionally and financially, but bigger picture... but you do have to zoom out big picture and think about what does this actually mean for these companies, for the economy in the long run? Generally, these are highly employable tech workers who are going to get another job at a company that's in that innovation and growth stage. They're just at a company that happens to be in contraction phase right now, is my take.

Shane:

Yeah. I mean, some other interesting stuff going on here is that the long term versus short term results of these layoffs. I mean, Wall Street loves to see layoffs because it means that you're trimming the fat. Meta shares jumped 24% in one day when they announced layoffs and when Mark Zuckerberg said that 2023 is going to be the year of efficiency, very important keyword there, probably got run through 500 different PR firms think tanks or whatever.

AJ:

I'm surprised it made it through, honestly.

Shane:

Yeah. So big jump for Facebook... or I'm sorry, Meta. And at the same time, I was interested to read this study from Wayne Cascio of University of Colorado that says that the companies that actually resisted layoffs the longest during periods of belt tightening, had the highest stock returns two years after the economy bounced back. So it's actually a nice short-term bump, but in the long term it hurts you.

AJ:

Counterpoint, though...

Shane:

I found that interesting.

AJ:

Counterpoint to that, just based on this guy's a professor, and I'm a nobody, but counterpoint to that, if you're-

Shane:

Give me your anecdotal evidence.

AJ:

If you're on the vanguard, you're leading the layoffs, your organization is in DEFCON five. You need to make a layoff to make something work. So if you're the first person to announce like, "Hey, downturn, we over-hired, we need to do layoffs." There's probably something else going on, rather than... I mean a couple of these different articles talked about basically companies will literally just have to announce layoffs to appease investors, which is like, "Well, everyone else is doing it," on their earnings call. A reporter might ask, "Hey, everyone else is doing layoffs. Your profits aren't what you said they were going to be. Why aren't you doing layoffs?" So it's almost like you have to have that... There's my couch, by the way, everyone. I look forward to showing it to you in my next episode.

Shane:

Lot of activity at the Ayers household today.

AJ:

Anyways. Yeah, lost my train of thought because my couch is here and I'm so excited. Speaking of supply chain issues, been waiting for that couch for eight months.

Shane:

You're going to have to wait 20 more minutes, sweetheart.

AJ:

Anyways, totally lost my train of thought there. But yeah. Anyway, let's move on from layoffs. But we do have another Google story that I would like to talk about, which is this antitrust lawsuit against Mr. Google.

Shane:

Yes. Before I forget, the middle manager thing, one last takeaway, which I didn't really think about, middle managers are getting laid off. Google was famous for not wanting any managers between the coders and the executives. And it turns out if you don't have middle managers, I always wonder what the true value is. Apparently people at the company will develop the same product in parallel next to each other. People were bringing products to completion to upper management at Google, and someone else had already done that. So I guess managers are useful for stuff like that, making sure that-

AJ:

Literally just to avoid duplication, that's a pretty good use of time. But do the math though, does one plus one equal two in that situation? Did you actually... who cares if you developed the same thing twice? Maybe one was better. Maybe that's innovation. I don't know. I've got double horns today advocating for the other side.

Shane:

I hear ya. So anyway, Google is also under the crosshairs of eight states attorneys general as well as Merrick Garland for monopoly abuse powers.

AJ:

Congrats on getting the punctuation right there.

Shane:

Thank you. There's no couch delivery happening at my house, I'm fully focused.

AJ:

Oh boy. Yeah. So Google antitrust. I don't know, Google built search, they built this thing, they innovated that we all... many of us rely on every day in our lives. They created this product. Should they get to own that because they thought of it? Should they get to own all the revenue from the ads that result from that thing that we all use almost exclusively? We have Bing and ChatGPT coming together to try to eat Google's lunch, but for now, Google is the, some would say monopoly on search.

Shane:

Anyone that believes that more than 85% market share is a monopoly, yes.

AJ:

Of course. Totally. Yes. They have 80%.

Shane:

For decades.

AJ:

Yes, I'm on board with them being the monopoly holder in this space. But the more I read about this case, the more I just have these conflicting Catch 22 ideas, which is like they created it, they should own it. Who cares? But at what point does healthy competition need... at what point, and should the government ever step in and say, "Hey, you have price controls over this industry."

Shane:

Yeah. Yeah. I think they lost... I'm sorry, the government, state attorney general of Texas lost a similar case, antitrust case against Google, a few years ago. It's looking like they're making similar arguments and the attorneys at Google are stating that they're making similar arguments and they expect to win this case as well. There's a 153-page document detailing how the "scam" works, in quotes because I don't understand how it works.

AJ:

You read all 153 pages, I'm assuming.

Shane:

I did not. There is a fun quote from a Google executive.-

AJ:

That's the book club for next week.

Shane:

Yeah, sure. That describes it himself, a Google executive said, that the analogy would be if Goldman or Citibank owned the New York Stock Exchange that's coming from inside the house. So I find that-

AJ:

It's coming from inside the computer.

Shane:

I find that funny. Whichever way this case goes, I am curious what the result would be. What would the spinoff. I guess YouTube would probably be spun off, would be one of the divisions.

AJ:

Another really great acquisition, right?

Shane:

Of course, yes.

AJ:

That was an acquisition decision made a decade ago.

Shane:

DoubleClick being the acquisition that supposedly started the beginning of the end for competition in the space back in 2008. I forget who founded DoubleClick, but they were I think 24 years old and they're a multi-billionaire at this point, probably still in the market.

AJ:

And probably single once again. Anyway...

Shane:

Speaking of high income earners, we have a fun New York Post article about the Wall Streeters' bonuses being slashed. It's all over Instagram. All the memes are coming from the Wall Street accounts about how small their bonuses are. You're playing a tiny violin for the Wall Streeters.

AJ:

I was playing a tiny violin. Yes, I was. Yeah. I mean, I get it. Bonuses are slashed, expectations were not met. This is classic, "I based my life around getting this bonus," which for some folks could be seven or eight figures in some cases, "and it didn't show up. Now I can't afford my lifestyle." Yes, we can laugh at them and say, "Well, your lifestyle includes a mega yacht," but the salary and the bonuses for the past 10 years included that lifestyle, so who cares?

Shane:

I have a music tie in here for you. The CEO of Goldman Sachs is a DJ. I'm sure you know this. David Solomon. He plays it like Burning Man and shit. He got exclusive rights to Whitney Houston's "I want to dance with Somebody" to remix it because, supposedly, one of Goldman's clients-

AJ:

Cause of his bonus?

Shane:

No, one of Goldman's clients is the owner of those rights. So they had inside track to granting those rights to him.

AJ:

I love that song.

Shane:

Find that very funny.

AJ:

And I bet the remix is going to be trash, but I would like to be convinced otherwise.

Shane:

He only makes 25 million a year, so tiny violin. Speaking of Wall Streeters and high income earners in the New York area, they're leaving. According to the Realtors Association of America, there has been a constant exodus out of New York, Illinois, and California to low income tax jurisdiction such as Florida and Texas, where 0%, as well as Tennessee, 0%. It looks like California lost 0.3% of its population, New York lost 1% of its population, Illinois lost 1%, Jersey and Massachusetts also have decreasing populations, home to where our clients work, typically, AJ.

AJ:

Indeed.

Shane:

Yeah. Moving to Florida, Texas, North Carolina, South Carolina, Tennessee.

AJ:

I would say across our clients, and I don't have the exact data, but anecdotally, I would say our percentages are much higher. I would say it's 10 to 15% of our high earning folks in California and New York are leaving to Carolinas, Florida, Texas, et cetera. Not necessarily for lower taxes, but certainly for quality of life.

Shane:

Sunshine.

AJ:

Sunshine.

Shane:

Lower cost of living.

AJ:

Pay. I can't... one and a half million dollars doesn't get me shit in New York City. It can get you some pretty nice places in other parts of the country.

Shane:

It is really embarrassing when it gets you in New York City, yeah.

AJ:

Yeah. And I think San Francisco is actually worse in terms of real estate, what you can actually get for your money if you want to live in the metropolitan area.

Shane:

We've talked about this a lot on the podcast. This is our segue to our next article here, "He turned Wall Street offices into homes, now he vows to remake New York." We have a...

AJ:

What is Sven Gali?

Shane:

Yeah. Yeah. We have a Ukrainian Jew that moved to New York in the...

AJ:

Same.

Shane:

Queens. I know. I wanted to bring this up. Typically, I don't get into this, but his father was a Holocaust survivor. Now he's in his mid-'60s. He's converting office buildings. I've talked about this so much. Why is rent in New York so expensive? Everyone left. Why the hell is it now... Okay, I see the couch. It seems to be not causing any dents.

AJ:

The couch is being delivered, folks.

Shane:

What an episode we have here. Anyway, I finally got an answer to why it's so-

AJ:

By the way, folks, I was literally crying before this episode started because I got some bad personal news. I was literally in tears.

Shane:

Yes, AJ was crying when we came on to the episode. Now we have couches delivered. She's losing her segue edge.

AJ:

A lot going on today.

Shane:

Jesus Christ. Can I get a conversion segment?

AJ:

All in all, an eight and a half episode.

Shane:

Okay. All right. She's rating it already. Anyway, I finally got an answer on why it's so hard to convert office buildings to... this isn't just a New York story. This is also a San Francisco, Calgary, really all over the world, where people have shed the use of offices due to remote work. How do we convert those buildings into residential? Apparently in New York, if it wasn't built before 1961, it's really hard to get the city to bless that. Also, because office buildings are just built in a different way, they don't have the plumbing for 60 units per floor. There's generally just room for one bathroom on the whole floor. So it's not really designed for a bunch of other bath... like individual use bathrooms. Also, they're designed to be open floor plans. So if you were going to build an apartment, it would have to be like a railroad, otherwise there would not be any... the interior units would have no windows.

AJ:

Oh, yeah. That's not ideal.

Shane:

New York has a law that all apartments require a window that opens to the exterior as opposed to the old tenement laws where you could just have... and I've been in New York apartments where you don't have an open window.

AJ:

Same.

Shane:

But yeah, you and I have spent a lot of time in deep Brooklyn.

AJ:

I've lived in one, actually.

Shane:

Yeah. So apparently that's a big part of the problem. But we have MetroLoft Developers has a 25 person firm that has already converted about three and a half million square feet of Lower Manhattan. Apparently over 20% of office buildings in Manhattan are vacant. I don't see that stuff coming back.

AJ:

Wow. Yeah.

Shane:

Yeah. Ever since... it was only 7% in Q1 of 2020, and now it's at 20%. So it's like tripling the amount of open spaces, and I don't see that stuff coming back. Do you have thoughts on this?

AJ:

I think this is good. I think we need more competition in this space. I would love to see... I mean, look, the people that are going to have the money to put this up are going to be these massive developers, but would love to see housing actually become slightly affordable. So I think we're going to need some legislation here to make sure that these developers are incentivized to build. Yes, you can build your luxury high rises and charge $10 million per giant floor with one bathroom, but we're going to need some housing for people that make a median wage, not on the top 1%. And I think New York City does some of that, and a lot of these high rises have to have a certain amount of affordable housing built into them, but I think we need to increase that, especially if we're going to be redeveloping this office space that is so close to where so many people work. That's my leftist take on that.

Shane:

Yeah. Continuing the leftist take, I'm sure a hundred percent of these conversions are going to be luxury condos that will be irrelevant to you and I, but super useful to a Russian owned LLC. Moving on, how much money do you need to earn to be in the top 1% in every US state? CNBC lets us know. This is clickbait in my opinion. What do you have here?

AJ:

Yeah, I literally wrote... I'm trying to come up with a point this article is trying to make and I have nothing.

Shane:

Yeah. Can we move on?

AJ:

Basically a way to make yourself feel bad that you're not in the top 1% in your state. I am not in the top 1% in any state, is what I learned here. So that was cool.

Shane:

Can I speed through some tax stuff? Cause we only have 90 seconds left.

AJ:

Sure. Hit me. Go.

Shane:

All right, sorry. So Tesla stocks soar as IRS expands in EV credit. Apparently the credit that the Congress was passing on to electric vehicle owners did not qualify a lot of SUVs. Tesla is up 40% in January based on them expanding that credit to include Tesla model Ys and a higher $80,000 price cap for those vehicles. It also includes the Ford, Mustang Mach E, Volkswagen, some other stuff. So for those of you in the market, look forward to y'all claiming a credit.

Hold off on filing your tax return, according to the Wall Street Journal. The IRS tells millions of taxpayers due to some checks that the state of California wrote to the tune of $9 billion to its millions and millions of residents that could be taxable, the IRS says, "Please do not file your return until we figure out if those checks that we wrote to middle class taxpayers." It's not just California, I believe it's Virginia. There's a couple states that wrote checks. If you got a check and you're not sure if it's taxable, either file early and just expect a letter in the mail from the IRS or just wait. Thoughts on that?

AJ:

Thoughts on that, wait, and further reason to file an extension. Wealthy people go on extensions, it gives us more time to get your tax return accurate. If you're filing your own return, also a great idea to go on extension. Make sure you pay your tax, but you don't necessarily need to file your return. Yeah.

Shane:

AJ, you want to go long and talk IPOs?

AJ:

Sure, yeah. Let's go a little long. Why not?

Shane:

All right. Let's take the pace back down.

AJ:

We finally have some good news. Well, thank you for that tax update, Shane. Now we can sit back and have a little more time. Anything else to add there?

Shane:

No, not really. I think Tesla model Ys are probably going to be one of the highest selling of the electric vehicles. I was really surprised that Tesla's up 40% year to date. I guess it got walloped when Elon went through the whole Twitter thing.

AJ:

The Twitter catastrophe.

Shane:

So it being up 40% is largely a function of it being down 40% in December. So that's when the deal closed, or around that time was when the deal closed.

AJ:

Oh, by the way, the Cadillac LYRIQ is sick. I've seen them around town. They're beautiful.

Shane:

They named it the LYRIQ, the Cadillac LYRIQ? That's a great name for a car.

AJ:

L-Y-R-I-Q.

Shane:

Cadillac does seem to have-

AJ:

Which is funny because the Hyundai... yeah, the Hyundai EV is the ICONIQ with a Q also. So they're very confusing. Look very similar. It's funny, every time I go out to the West Coast, I always forget how into cars I am. Living here... cause I don't drive a car. I'm like very into... I grew up being into cars. It's just part of driving culture in Southern California. But I was walking down the street together day, I was like, "Can I name every car just by looking at it?" And I did. And I was very proud of myself. So anyways, this is now Car Talk brought to you by the Liquidity Event.

Shane:

Thank you, AJ. Thank you. Super useful information.

AJ:

For someone who doesn't own a... Anyway. Yeah, super useful. Moving on to useful information. We finally have some great news in the IPO space. We had our first a hundred million dollar IPO of 2023, and really our first a hundred million dollar IPO in a long time. We actually had two of them. We had Skyward Specialty Insurance, a property and casualty insurance provider. They do things like insure truck fleets and big factories. And they had a very successful IPO. Price remains stable a few weeks after their debut. We'll see how that goes. But this is a very welcome breath of fresh air, a very welcome success story in our drought of IPOs, which has been in place since really March of 2022. We'll see how that performs. Interesting space to be in, property and casualty insurance.

They really make their... I think the reason this was successful is because they're so well diversified. From their investor investor deck, they say, "We are nimble and adaptable and leverage technology to enable superior risk selection and claims delivery." So basically they have a technology platform. I imagine there's some kind of algorithm to assess risk that's made them successful and profitable where other insurance companies have struggled. Curious to see how they deal with natural disasters such as fires in California and really rain in California, and a lot of the things that have... sort of acts of God and how those play into their payouts. So I'll be watching them over the next couple years to see how that IPO does after its debut. In not so great news, Lionel Messi soccer player, right?

Shane:

Yes. Arguably the most famous athlete of all time, ever.

AJ:

Right. Cool. So his lifestyle brand, MGO Global, debuted on the NASDAQ last month. Unfortunately, they're ending the month with a 52% loss over their IPO price. So that was the bottom of the IPO market. But generally-

Shane:

Highs and lows.

AJ:

Highs and lows here at the Liquidity Event. So yeah, the second a hundred million dollar IPO was a... completely forgot who they were. So we'll talk about that next week. But what's really exciting to me is that we have 18 new S-1 filings. So we have 18 new companies putting their flag in the sand and saying, "We are planning to go public soon, as long as we get through this regulatory interrogation period. Here are all of our financials, and we would like to take our shares to the open market." So hopefully we should see IPOs tick off in 2023. Signs are pointing in the right direction. And the IPO index that we track provided by Renaissance Capital, they're actually up 16% this year, which is even higher than the S&P 500. I'm feeling pausy right now. How about you?

Shane:

Yeah, kind of a left turn, but just speaking of property and casualty insurance has just made me think about the earthquakes and Turkey and Syria, which are obviously, horrible, horrible disasters, but I'm super proud of the Mexican and Japanese disaster relief teams that both hit the ground running immediately after they found out and flew straight to Turkey and Syria to assist with the recovery efforts. And I just wanted to say that I'm proud of them for doing that, and that is one of the bright spots of a super terrible accident that's happened over there, and thoughts and prayers, et cetera, all go out to those experiencing that.

AJ:

Yeah, great point. Yeah, worst earthquake in a hundred years, so catastrophic destruction across Syria and Turkey. So yeah, just devastating, heartbreaking. And on that note, thank you folks for listening to the Liquidity Event. You have been a great audience. Sorry for the disruptions today, but you can always email us at liquidityevent@brooklynfi.com. You can leave us a voicemail at memo.fm/liquidityevent, we will play that on the air, and show notes can always be found at brooklynfi.com/episode80. We'll see you next week.

Shane:

Adios.

Presenter:

Thanks for listening to the Liquidity Event, hosted by AJ and Shane of Brooklyn Fi. Head on over to brooklynfi.com where you can subscribe to the podcast or YouTube channel, or if you want to learn about their full service financial planning, tax, and investment firm specializing in tech professionals and creatives on the path to financial independence. We'll see you next time on the Liquidity Event.