Why Elizabeth Warren is worried about SpaceX

0:02Good 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.

0:22Elizabeth Warren: 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.

0:46Investors 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.

1:18The 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.

1:41Last 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.

2:13Warren 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 update. 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?

2:37Elizabeth Warren: 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.

3:29Elizabeth Warren: Then secondly, SpaceX pushed 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. 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.

4:28I'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?

4:42Elizabeth Warren: 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 rollercoaster ride along with Elon Musk and SpaceX at a time when it appears those traditional rules are more important than ever.

5:46Senator 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?

6:01Elizabeth Warren: 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, there are rules that say before you do an IPO, you've got to 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?

6:49Elizabeth Warren: I think there would have been a lot more questions asked to start with about valuation. And I think there would have been a lot more show your homework before the IPO comes out. You can listen to the full version of my interview with Senator Elizabeth Warren, which we've made available in our feed. You can hear more about her thoughts on other tech companies and on the Federal Reserve. And just a quick note about something Senator Warren said, not every major index provider allowed SpaceX expedited access into their indices. The S &P has not.

7:27The U.S. and Iran have struck a deal to pause their four-month-long war. And as a result, the price of oil fell below$80 a barrel yesterday for the first time since the beginning of the conflict. It's a sign that traders are more and more confident that this deal will bring back shipping through the critical Strait of Hormuz. But the picture isn't that simple. Here to explain what delays we could see is the FT shipping and industry correspondent Alice Hancock. Hi, Alice. Hey, Mark. So give me a quick refresher. How disrupted has the shipping industry been by this war? If you look at it, the Middle East region has been highly disrupted, obviously.

8:02a fifth of the world's oil and gas transits the Strait of Hormuz normally. So that being sort of effectively closed by Iran, who have exercised leverage over the strait during this whole period, has obviously caused huge disruptions to energy markets, oil prices over$100 and so on. But on the cargo and the container front, it's actually been a much more, no pun intended, contained effect because the ships going into the Gulf were really serving the Middle East region. Now that there is this deal that I mentioned to pause the war and reopen the strait, why can't shipping just, you know, resume immediately?

8:35What are some of the challenges that carriers are facing? So, yeah, good question. If you think about the logistics of it, it's a narrow waterway. It's about 38 kilometers wide at its narrowest point. The Iranians, we think, have mined the strait. Well, that's certainly what the U.S. has said. 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.

9:13So 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? The estimates vary. I mean, it's certainly not going to be days.

9:43I 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 cargoes 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.

10:25I 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 that 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 in higher prices, there is a situation in which the peace deal is good, it sticks, ships are able to get in and out freely, and that would actually bring down shipping rates and hopefully therefore make things a little bit cheaper.

11:01But we've already seen the oil prices come down on the strength of the announcement of the deal, so hopefully at least anyone doing a driving summer holiday will be spared the extra cost. Alice Hancock is the FT's shipping and industry correspondent. Thanks so much, Alice. Thanks, Mark. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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