Morning Brew Daily - $2B Cruise Ship to Set Sail & US Economy Growth Explodes

Episode Date: January 26, 2024

Episode 244: Neal and Toby break down the launch of Icon of the Seas, the biggest cruise ship ever built and what it means for the cruise industry and what it says about the hospitality industry. Next up, the US economy is on fire and media layoffs have been rampant this week. The guys share their stock and dog of the week and why are French farmers protesting? And finally the beef between Americans and Brits over... Tea. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Terms and conditions apply. Good morning for your daily show. I'm Neil Freeman. and I'm Toby Howell. Today, we're gonna mix a pinia collata and toast to the world's largest cruise ship that's about to set sail on its maiden voyage. Then US GDP numbers came in and they show an economy firing on all cylinders. It's Friday, January 26th. Let's ride.

All right, imagine you open up your bank account and see a lot more money than you're supposed to. Best feeling in the world, right? Well, Tom Hollander, a British actor who's appeared in Pirates of the Can. Caribbean and White Lotus, just lived that, but his joy was not to last. See, the extra cash came from a check sent to Tom Hollander, that was actually meant for Tom Holland, the actor who portrays your friendly neighborhood Spider-Man in Marvel movies. Hollander and Holland briefly had the same agents which caused the mix-up. Hollander said the check contained, quote, an astonishing amount of money, more money than

I'd ever seen. Neil, what a roller coaster of emotions. Do you have any famous people out there that you might accidentally get mistaken for? I wish this would happen to me, but with a name like Neil Freiman, yeah, it's pretty unique. I don't know anyone else with anyone kind of close to it. The two I can think of that anyone might mistake me for, and they definitely wouldn't. Travis Freiman was a third baseman for the Cleveland Indians a decade ago, and I always found a little bit of kinship with him.

He spells it differently. And then there is the legendary physicist Richard Feynman, which is a third. He does not spell his name exactly like I do. There's an extra N in there. But I would love to be confused with him. That dude was a genius. I don't know if either of those people are going to give you a, quote, astonishing amount of money. Maybe the third baseman, though.

Yeah, I mean, MLB contracts are pretty lucrative. Feynman also sold a zillion books. I don't know if wealth was what he was going after, but I'd love to be confused with him. Yeah, I'm pretty slim picking us, too. I guess Sam Howell, the QB of the commanders, but I don't think I'm getting a, an astonishing amount of money anytime soon. Before we jump into the show today, we have a quick word from our sponsor, Vime.

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The icon is 6% heavier than the previous largest ship and five times as heavy as the Titanic. And whatever might go wrong on the ship, you won't get claustrophobic. It's more than three football fields long, and even spending a week on it, you won't be able to see everything. the ICON's debut is also symbolic of the cruise industry's redemption from the depths of COVID. Remember, just a few years ago, people were predicting the cruise industry was dead in the water, literally, and Royal Caribbean was losing $1 billion a month. But coming out of the pandemic, cruises have proven to be more popular than ever. And when ICON reservations opened in 2022, it was the company's single largest booking day in its 53-year history.

Let's take whoever is working on engineering at Royal Caribbean and send them over. to Boeing because this thing isn't engineering a Marvel, 251,000 tons. It's got seven pools, nine whirlpools, six water slides, a football, multiple football field long boat, 40 restaurants, bars, and entertainment venues. It's got the largest water park at sea. I mean, you go down the list. This thing is a modern marvel. It's also extremely polarizing because some people see it as just kind of this emblem of late-stage capitalism and all the excess, and some people see it as just a way for the middle class to escape and have a good time. So immediately, online discourse broke out around this thing, and it's huge. Of course, it's going to have some discourse.

I did want to talk about, though. It was super interesting. So the renderings of the ship came out in June, and it showed the back of the ship was basically a city, you know, entire playgrounds, amusement parks worth, and there was this debate over cruise ships, and this kind of class war broke out, Like you said, someone said, oh, this is so emblematic of late stage capitalism, whatever that means. There's a lot of excess going on. And then you had people pushing back being like, well, hey, cruises are super affordable. A lot of middle class people take them and their family on vacations on them. Stop yucking are young.

Yeah, no, it is kind of this debate between, is this just a attainable paradise for kind of the working man, the every man, or is it proof of like we've entered this dystopia of just overconsumption? And it's probably a little bit of both, if we're being honest. That said, kind of the messaging around this cruise ship, because when you're launching the biggest cruise ship of all time, you do need to address the environmental concerns that come along with it because the cruise industry is a very polluting industry. But this ship is about as environmentally friendly as a ship that size can be. Take that with a grain of salt, but they're using different sort of fuel, the liquefied natural gas versus the commonly used, like, fuel oil. Liquidified natural gas is 25% less polluting than oil is, but it still releases. methane. They have shore power capabilities, which is a big thing. So when they hook up to a port,

they can get run by power on the land rather than running their diesel generator. So again, there is some, there's a lot of thought put into how can we make this thing more sustainable, as sustainable as a cruise ship can be. Yeah, environmental activists are saying the last thing we need in the world is a 250,000 tonne cruise ship because those emit double the emissions as flying. And we know that flying is really bad for the environment. Finally, I just want to touch on how much the cruise industry has grown. So it started basically back in the 1970s, and during that time, there was about 500,000 annual passengers. Now there are nearly 30 million. And the Port of Miami specifically, just consider this. It processed 61,000 passengers in 1950. Now in 2023, or last year in

2023, it processed 68,000 passengers in a single day. So people love going on cruises, and this was super interesting to me. The people who most want to go on a cruise are young people. So in a recent survey, 69% of kids, or young people ages 18 to 24, said they were interested in taking a cruise, and that was the largest share of any age cohort. Young people are all obsessed with cruises. I'm not in that age cohort, but I'm all aboard. I want to go on the cruises too. We got some GDP numbers to go over, and gosh dang it, America did it again, despite a multitude of head winds, disrupted trade routes, high interest rates, persistent inflation, geopolitical instability. The U.S. economy grew at a robust inflation-adjusted 3.3% pace in Q4.

Economists had mostly expected growth to come in at the 2% range last quarter, but we blew by that as consumer and government spending kept things chugging along quite nicely. We even got some good news on the inflation front, too. Core CPI, which is the Fed's preferred metric to measure inflation, rose 2% month over month, while the overall rate was just 1.7%, which knock on wood is kind of right where the Fed wants it to be. Add the GDP numbers to the inflation numbers, and you have what U.S. Bank's chief economist calls a, quote, supersonic Goldilocks economy. It appears we threaded the needle. We landed the plane. We tamed inflation without sending us into a recession. Whatever metaphor you want to use, Neil, it was a great end of the year and a great year overall for economic growth.

We broke economics. This is not a lot of. the way economics is supposed to work. So last year, the Fed raised interest rates to a 21-year high. This was a very historic and rapid interest rate increase and economists to, you know, what they read in their textbooks and what all of us thought to be true was that when you raise interest rates, the economy tends to slow down. It only sped up. It is weird. I think in a word, people have just been buying stuff, like new cars, lots of recreation spending. They've been taking trips. And so it really does seem like consumer spending.

But also, if we want to look at it, it wasn't just personal spending. Also, government spending helped do the trick. Personal consumption increased 2.8 for the quarter. State and local government spending was up 3.7%. Federal government expenditures grew 2.5%. So it is one of those things where you do need kind of both if the government is investing and also people are spending, that it does help buoy economic activity. And what was also stood out to me is the contrast between,

U.S. economic growth and the rest of the world. I mean, the rest of the world has a very bleak economic outlook. Look at the Europe's largest economy, Germany. It contracted 0.3% last year compared to the United States, 3.1% growth. So while the world is kind of hunkering down and really not doing a great job of coming out of COVID, the U.S. has just sped by everyone else, and we're really the main drivers of global economic growth. And once I read this report, I don't know, I just got super hype about America. That's a good feeling to be feeling on a Thursday evening. One thing I will say, and not to pop your balloon of enthusiasm, conventional kind of economic wisdom is that sometimes policy tightening or these rate hikes

can take two years to kind of filter through the economy. So even though we were in that first year and we are staring down some rate cuts in the future, some people might say, like, let's wait for the next year to play out to see really if anything filtering through the economy is going to bring it down and on. I'm not going to believe anything an economy says. They were so wrong about this year. Okay, moving on. On Monday, we delivered a eulogy for Sports Illustrated after that iconic magazine staff was gutted. But in the four days since then, layoffs in the media industry have only escalated.

The Los Angeles Times is laying off at least 20% of its newsroom. The largest staffing cuts in the newspaper is 143-year history. Business Insider, which shares a corporate parent with Morning Brew, laid off 8% of its staff, four cent workers packing, Paramount Global announced layoffs, Conday Nast, and New York Daily News employees staged a walk out. There's just a pervasive sense that the sky is falling on this industry. Yes, it's been in decline since the internet really got going in the early 2000s, but this week's bloodbath felt like the beginning of the end for some of the country's most iconic news organizations. There's just no question that the mainstream media is struggling to stay afloat. Yeah, absolutely.

And it is, I mean, it's very jarring to go from our GDP numbers just to, this industry that is experiencing a ton of layoffs, but it is just a changed industry at this point. These legacy publications have been grappling with the internet age since the rise of prominence. There's been all these shifts in strategies. Do we use Google to drive traffic? Do we use Facebook to drive traffic? And things switch, like these economic, these technological overlords kind of can switch one thing on you and your whole business models upended.

So this is just a culmination of a lot of things. And we just saw so many of these layoffs happen. all at once, all at the same time, like we had to kind of put it together and cover it. There's a lot of hand-wringing about what happened exactly, and I think you are right that, you know, the internet, the internet number one, that disrupted everything. I think there's also some internal reflection that probably needs to go on. These organizations are not particularly managed well, and maybe, you know, some that have emerged unscathed, like the New York Times, perhaps had better management.

And so I think there's, you know, a bit of external forces, you know, some things you can control, and then some things you do can, you can control as a leader of a news organization. But I think one thing the, you know, journalism and news needs to address is just the trust with American people. American people do not trust journalists or news at all. In a recent Gallup survey, 42% of Americans, which is the highest share of anyone, think journalists have very low or low ethical standards. standards compared to 23% who said they have high ethical standards. More people said journalists had lower ethical standards than car salesmen.

Yeah, and if we just want to zoom out to some more layoffs in other industries, Microsoft, after it completed its merger with Activist and Blizzard, is laying off 1,900 employees in its gaming division. Brutal years so far in gaming. I mean, Riot Games, who makes League Legend laid off people, 530 employees. Unity, which is a game engine, 1,800 people, Discord, 170 people, Twitch, 500 people, another industry that is experiencing some of the same headwinds that media is. All right, before we jump into our next story, we're going to take a quick break.

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Download the Priceline app or visit Priceline.com and book your next trip today. Let's talk Stock of the Week, Dog of the Week, where Neil and I pick one stock for you guys that has really good taste in music and one stock that you'd never hand the ox do. I won the pre-show game of speed crocheting, so I'm up first, and our stock of the week is IBM. IBM is such a crazy. company because at one point, biggest tech company in the world, but if you ask a young person

what it does now, you'll probably get an IDK or something to do with Watson because it was on Jeopardy that one time. But IBM is still a massive company. It had 288,000 employees at the end of 2023 and did 17.4 billion in revenue last quarter, and its stock jumped nearly 10% yesterday. Part of the reason for its great performance was its consulting business grew 5.8% last quarter to $5 billion. I didn't even know IBM had a consultant. building business, let alone a $5 billion one. But it was really AI that got investors excited with demand for their Watson X and generative AI products, roughly doubling in the last quarter. It's all combined to see IBM breakout of a decades-long malaise it's been in, sending its stock

to a 10-year high. This might be the most underappreciated 113-year-old company in the world. It just keeps reinventing itself and putting it in a position for the future. It obviously got in this generative AI train, which has been super successful for it. But I think from like a Wall Street investors' perspective, I think they had their eyes trained on the invidias of the world and the Alphabets and the Microsoft kind of just didn't see what IBM was doing. So I think this earnings report showing just really solid financials, $11 billion in cash flow, just got really, investors really excited to say like, hey, why have we been kind of overlooking IBM this entire time? They've been transforming themselves to put themselves in a position to compete with the big guns in AI in the future.

Yeah, if you look at what the analysts are saying, one analyst that Evercourt wrote, Big Blue is back. Our sense is IBM remains an underappreciated AI beneficiary that should continue to work higher the next few years. It is just a crazy breakout. If you look at their stock chart and you zoom out, they have been oscillating between like $100 a share and $150 shares literally for the last decade. Finally, it's broken out, it's heading towards that $200 dollar mark heading towards all-time high. So it is crazy to see like this really, really old company just kind of reinventing itself. Okay, my dog of the week is the entirety of China's stock market because it is in a deep, deep, deep hole. Over the past three years, Chinese stocks have

collectively lost $6 trillion in value as investors worry about the country's long-term direction. Over that time, U.S. stocks have gained $5.3 trillion. This brutal route has finally caught the eye of Chinese officials who this week took some steps to prop up the market and are planning to unleash an even bigger stimulus package. That gave stocks a little boost, but it may not be enough to overcome the widespread investor gloom around China and its growth prospects. The real estate sector is in shambles with home prices falling the most last month in nine years. Exports have declined. Youth unemployment is rampant and the country's population is shrinking. And that's why a basket of Chinese stocks is the worst performing major index

anywhere in the world this year. Yeah, that's pretty nuts to say, especially for one of the, I mean, it's the second largest economy in the world. It is interesting, though, because equities as a share of household wealth in China is not as big of a part as it is in America, for instance. Real estate makes up a much larger portion of household wealth in China, and so that's why you've kind of seen the stock market a little bit, I don't want to say neglected by, like, government officials, but the real estate sector has always been kind of where they focus their attention. So we see this stimulus package. We see the stats of it being down 40% over the past three years.

And you're just not quite sure what you can do to kind of switch it around. But it is interesting because China is a place that has a lot of censorship. The government loves to control the narrative about things. They always want to paint a rosy picture of the economy. They're very disinclined to say things are not going well. But the one indicator you can look at that, you know, kind of, you know, escapes this censorship regime is the market because you have foreign investors, you have American investors. These are people who are putting their money in China or these days taking their money

out. So this is sort of a judgment on the Chinese economy. And it looks like the people with the money say that China's growth is not going to be sustainable. And there was a time when everyone thought it would be inevitable that the Chinese economy would overtake the American economy. It was just a matter of when. And now that is not so clear that that's going to happen. Moving on, Toby, do you hear that honking? It's coming all the way from France, where roadways have been barricaded and traffic is snarled because of a growing farmers' protest against the government. Farmers in the EU's largest agricultural economy are upset with what they say are tighter regulations on their industry,

even as their incomes get squeezed. In the words of one farmer, we always have more rules to follow. We are always asked for more, and we earn less and less. This frustration isn't confined to France either. In recent weeks, farmers have staged protests in Germany, the Netherlands and Romania against EU regulations that aim to make food production more sustainable and bring down prices for consumers. And this is all causing major headaches for European governments who want these protests to die down ahead of big EU elections later this summer. Leaders are worried that far-right parties that have aligned themselves with the plight of the farmers will make big gains and threaten the EU stability.

This week, France's government has signaled it's going to backpedal on some of its new rules. But it doesn't seem like this farmers have been placated at all. Yeah. First of all, farmers know how to protest. There's something about busting out a tractor at a protest that just has a Geneseecois, if I pronounce that correctly, using bales of hay to block highway, etc. These protests are extremely popular in France, though. 82% of people in France support the movement, according to one poll.

And then 7 out of 10 people said they support the blockades and would oppose police intervention. So it is a very fine line that French leaders have to walk right now because, again, you don't want to upset like what the majority of your population supports, but you also want to obviously not have these protests continue on to the future. So I want to dive into some of the Farmers Grives specifically because they're pretty fascinating. The first one is about Ukrainian import. So during when Russia invaded Ukraine, Europe wanted to kind of support and bolster. the Ukrainian economy, so they waive duties and quotas on Ukrainian grain. That is upsetting domestic farmers because now you have all of this pretty cheap Ukrainian grade coming in and then creating, you know, depressing prices all across the board. Then you have these negotiations.

Remember we talked about Pepsi and Karephor? Pepsi basically revoked its products from Karephor, which is one of France's largest supermarkets. There is a weird negotiation that, goes on that they set prices for the year between retailers and suppliers and farmers think that they're getting the worst end of the bargain between this negotiation. The government also wants to revoke a fuel tax subsidy on diesel. So this is a widespread grievance against EU Brussels, top-down regulation. They feel like the government is kind of doing their thing in Belgium and not really talking to the people.

Yeah. Just to sum it up in a phrase, I think that farmers feel kind of overburdened, overimposed upon by rules, and undervalued by a lot of the people who end up eating their food like Sillydwell or something like that. So that's probably the central tension here. Let's end our Friday show with a rivalry that puts Michigan, Ohio State to shame. And that is Britain versus America when it comes to how to serve tea. Now, obviously America, Britain, T have a long and torrid history. But the latest knockdown, dragout battle between the two Atlantic superpowers has been ignited by a professor

who used science to determine the best way to serve a cuppa for her new book. Now, some of Professor Frankel's recommendations were to be expected. Don't reuse your tea bags. Warm your milk up before you add it to prevent curdling. But one tip has the Brits fully up in arms. Add a pinch of salt.

The idea is that adding sodium makes tea taste a little less bitter. Now, despite what science says, the Brits are peeved to say the least, Good morning, Britain, said that adding salt to teal, quote, feels like a crime. And the Daily Mail's headline covering Frankl's book read Brits at a boiling point. Even the U.S. Embassy in London issued a statement saying, quote, that the unthinkable notion of adding salt to Britain's national drink

is not official United States policy and never will be. Neil, we're in the middle of a tea tempest with two superpowers on either side. I think the American professor wrote this, kind of had no clue what she was about to unleash when she said, add a pinch of salt. I think it is sensible. I mean, we both have read salt-fat acid heat. We know that when you add just a drop of salt to something, it's not inherently makes it salty. It only enhances the existing flavors. Also, I think that a lot of people leave their tea bags in the water way too long, which makes it much more bitter than it's supposed to be.

So the reason, you know, one of the justifications for adding a little salt is that it reduces the bitterness. So I'm on the American side, of course. too, and salt and tea is not unheard of. There's a Tibetan butter tea that uses salt, for example. There's The Book of Tea by Lou You from an 8th century AD author suggesting routinely added salt. So she did her research, and there are historical precedent for this. The Brits, however, were not playing fair. A BBC radio host brought on someone named Jane Pedigrew, who is like this tea expert,

director of studies at the UK Tea Academy, which didn't even know it was a thing. And she said she tried the pinch of salt, and she hated it. So there is kind of an all-out like PR war around the Brits and the Americans right now. The Brits do love their tea, though. They drink an estimated 100 million cups every day. So they might have a little more institutional knowledge. And I will say that Dr. Frankel, in giving interviews around this, she said, like, yeah, Americans suck at making tea. They microwave it.

That's their number one thing you shouldn't do. Don't microwave the water to heat it up. Put that thing in a kettle. Yeah, make it pure. And by the way, the U.S. Embassy statement was in tongue-in-cheek, but it is funny to see. Kind of international embassies get involved in this tea. How do you take your tea? I don't.

I drink coffee, unfortunately. You don't drink any tea? I mean, everyone, I drink like chamomile, so it's just, just camomail. That's it. Am I supposed to do anything else but milking it, I guess? I mean, it's up to you. I got to go practice. We got this V mug sitting on our table.

Maybe I'll fill it up some tea. My favorite combo is lemon and honey. Oh, that is good. It's just like a nice acid, sweet. Yeah. All right, we're going to have to end it there. Happy Friday, everyone. Hope you all cruise into the weekend.

Toby, what is our swing thought for the day? Our swing thought comes from Warren Buffett's annual shareholder letter back in 2016. Quote, for 240 years, it's been a terrible mistake to bet against America. And now is no time to start. Feels appropriate in light of that GDP data we were mentioned to carry some optimism into the weekend. Love it. And obviously, one of the most cherished American traditions will take place on Sunday with championship football. NFL. I forgot about the Super Bowl. Oh, my good Lord.

Super Bowls in two weeks, but... Oh, then what's happening? The championship games. Which ones? The Ravens. Oh, good Lord. Oh, my God. I forgot we have a whole other round to go. Sorry, everybody. Oh, my God. Okay, Toby. I thought we lost you there. All right, if you have any thoughts on the show or just want to say what's up, please write to our email Morningbrewdaily at Morningbrew.com. And before we roll the credits, we just have to give a quick shout out to our associate producer, Sam Vela's, this is her last show. We love you, Sam. She's been with us since the beginning, and just we wouldn't be here without her. Yeah, we'll miss you, Sam.

All right, let's go to the actual credits. Emily Milliron is our editor and producer. Samantha Vela's One Last Time and Raymond Lou are associate producers. Eugenwa Ogu is our technical director. Billy Minino is on audio, Bond Voyage to Hair and Makeup, who is about to set sail on the icon of the Seas. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great, so Daniel.

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