Morning Brew Daily - Americans Are All-In on Owning Stocks & China Concerns Ground Canada Goose

Episode Date: October 20, 2023

Episode 174: Neal and Toby discuss how CEOs and companies are responding to the Israel-Hamas War. Plus, why over half of American households own stock now and how net neutrality may soon be revived. The guys share their stock and dog of the week and also Costco's long-time CEO is stepping down. And finally, what's the deal with GeoGuessr? 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

Many employees can't afford a hefty medical bill that pops up out of the blue, but it happens. And employees who are financially stressed are, understandably, more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, AFLAC plans help with out-of-pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more at aflac.com slash morningbruedaily. That's aflack.com slash morning brewdaily. Good morning brew daily show. I'm Neil Freiman.

And I'm Toby Howl. On today's pod, CEOs are facing pressure for what they're saying or not saying about the Israel-Hamas war. Then more American households own stock as of last year than ever before. We'll tell you why portfolios are beefing up in just a minute. It's Friday, October 20th. Let's ride. Toby, I only heard about this yesterday, but the longest certified road race in the world wraps up tonight. And by long, I mean 3,100 miles.

It's called the Sri Chinmoy 3,100 miles self-transcendence race. And since August 30th, superhuman runners have been logging 59.6 miles per day from 6 a.m. to midnight so that they can complete 3,100 miles in 52 days. For some context, that is more than two marathons a day for almost two months. And if that doesn't sound bananas enough, the route is just one city block around Queens that you have to circle thousands of times. so it is more of a mental test than a physical one. I am signing you up for this next year. Please do not. Please do not.

I can't think I'm totally fine with long distance running. Like it's one of my passions and I love doing it. But repetitive long distance running sounds like my own personal hell on earth. It is so, so such a mental toll to just see the same block. I've seen one race that takes place beneath a track in Norway. And all you have is a narrow two-lane corridor and you run 100 miles around a track indoors. That to me is also just a mental test. So, Neil, if you sign me up, I am not coming back to this pod. You'll never see me again. Before we jump into the news, we have a quick word from today's

sponsor, Yahoo Finance. Today is Friday, which means we're heading into the weekend for some much-needed R&R, but you know who doesn't need any R&R? Tell them, Neil. Yahoo Finance. Even though the stock market is closed on Saturday and Sunday, Yahoo Finance keeps the market data and the trusted news flowing. Which is huge for us as we start to prepare for Monday's pod over the weekend. So even though the weekend is coming up, head to finance. Yahoo.com to keep tabs on everything or download the Yahoo Finance mobile app to get it directly on your phone. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179 like the next grill three-burner

gas grill or get $50 off a select Weber Spirit grill and bring. bring big flavor to your backyard, then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th, Exclusion supplies to homedipo.com slash price match for details. For our first story, earnings calls are in full swing, and in addition to being asked about margins, capital expenditure, and subscriber churn, the typical earnings fair, CEOs are also facing pressure to make statements on the Israel-Hamas war. A pining about a geopolitical issue, especially one as tragic and fraught as this one, is an

uncomfortable position for corporate execs to be in. And the varying approaches we've seen so far show that they're kind of winging it at the moment. Before announcing her company's financial results on Wednesday, NASDAQ CEO, Adina Friedman, said the company was horrified by the acts of terrorist violence in Israel and condemned the subsequent loss of innocent lives in Israel, Gaza, and the wider region. Exxate, other companies that have reported recently, like Goldman Sachs, BlackRock, and United have issued similar statements to that one, according to Bloomberg.

And other major corporations have so far stayed silent on the war, but their tight lips might not fly much longer as the conflict escalates in the bulk of earning season gets underway when they'll be pressed for their thoughts. Of course, I'm just talking about the external communications aspect of this. Companies must also navigate how they communicate their stance internally to employees to make them feel supported. Toby, crisis communications experts told Bloomberg that their phones are ringing off the hook right now for help on how to address this crisis with investors and their own staff. Yeah, in the past decade, companies have definitely been more vocal than they had been

in the past, speaking up about social and political issues. seemingly every company put out a statement in 2020 in support of Black Lives Matter. And also, when the Russia invaded Ukraine last year, major global corporations, pretty much universally issued public statements on that war. But so far, only a fifth of the largest 100 companies in the S&P have made a public statement on the Israel-Hamas war as of Tuesday. But they're facing pressure from their staff and the public to weigh in on the conflict because, as one corporate communication professor said, once you get into this game, you cannot get out.

That's the expectation now post-George Floyd. Yeah, that seemed to be like the big marker in the sand. This is also causing bizarre situations for major corporations with operations all over the globe. Like McDonald's, you have franchisees in Saudi Arabia, Malaysia, and Pakistan condemning the McDonald's operator in Israel after it handed out free meals to soldiers last week. McDonald's corporate itself has kept its communications pretty vague. Its CEO wrote a message saying that the company was deeply disturbed by acts of anti-Semitism and Islamophobia and firmly condemns violence and hate speech. I also want to talk about what crisis communications experts are advising at a very high level. In interviews with Axios, they said, don't put out a public statement unless the conflict impacts your business or you have something meaningful to say.

Focus way more on getting your internal communication ducts in a row so that employees know you're thinking about them because the way they feel will have a direct impact on your business performance and external reputation. Yeah, that is actually backed up by data because fewer Americans want companies talking. about heated socio-political issues. There was this Gallup poll that was released last week. It found that 41% of Americans say businesses should take stances on current events, which is down from 48% last year. The topics that American least wanted companies to talk about fewer than 30% of respondents said they wanted companies to put out statements concerning religion, abortion, political

candidates, and international conflict, notably. We'll certainly keep tabs on what CEOs say this earnings season about the world. So far, donors have pulled millions in funding to campuses, especially Pan, Harvard, and Stanford, for failing to condemn Hamas and rising anti-Semitism on campus. Very curious to see whether that backlash will spill over into the corporate world. All right, Neil, let's move on to our next story. Remember the stock trading frenzy during the lockdown years of 2020? Other than some fire memes, it left a legacy that is still being felt today.

The share of American households that owned stock hit in all-time, high in 2022, according to a Federal Reserve survey. About 58% of American household owned stocks as of last year in either mutual funds, retirement accounts, or individual shares, which is well above the previous high of 53% seen in the wake of the dot-com boom. But the big driver was individual stock buyers. Direct ownership of stocks increased markedly in the Fed's words between 2019 and 2022, jumping from 15% to 21%, which is the largest change on record. The rise in stock ownership also corresponded with a surge in the median net worth of U.S. families. That jumped 37% to 192,000, which when you adjust for inflation,

is also the largest rise in the history of the Fed survey. Neil, we just continue to see more and more data points speaking to how well most Americans have bounced back from the pandemic. And these stock ownership stats are no exception. No, so I just want to talk about this. survey because it's kind of a big deal. It's the survey of consumer finances by the Fed. It does not happen a lot. It comes out once every three years, so economists and analysts and people like us jump on this survey because it really gives a very important snapshot into household

finances. This stock market thing, it's very interesting because this poll was taken in 2022. I think there was a lot of conversation about whether the interest in the stock market, which definitely was a COVID phenomenon, a lot of people have linked it to the lack of ability to gamble on sports in 2020. I know, I was one of them where, you know, you were betting on Belarusian ping pong, and I was not that interested in that. So I was like, hey, what's going on in Robin Hood? And so I think that sort of interest in the stock market and owning stocks does seem like

it has had lasting power through 2022. And it's remarkable that we're at the same levels now as the dot-com boom, which I didn't know, obviously, we didn't live through it, or we were too young to kind of be aware. of it. But it seems like that was also an individual stock boom as well, where a lot of Americans were piling into stocks directly, and I guess they got burned. Yeah. I mean, they don't call it a boom for nothing, I guess. But yeah, I don't know if it's necessarily a good thing that all these historical figures that were being compared to you is during the dot-com bubble. One stat that stood out to me, too, was median stock holdings fell to 15,000 from 29,000.

But that's because so many new people joined the party and new stock owners. And out of end up having smaller portfolios than long-standing stockholders. So that drop just shows how many people actually purchase stock more than anything. That's set out to me for sure. Yeah, my takeaway from this survey overall is that increase in net worth, 37%. We've been wondering why the economy has stayed so strong, even in the face of historic interest rate increases, and the buildup in wealth over the pandemic. People saving and not spending seems to be one of the reasons we can point to as to why the economy is held up and consumers are still continuing to spend despite surging borrowing costs.

Okay, for our next story, here are two words you probably haven't heard in a while. Net neutrality. Well, get used to it because the hotly debated subject is so back. The FCC took its first step yesterday to restoring net neutrality rules that were implemented by Obama's FCC, but scrapped under Trump's FCC in 2017. What is net neutrality? I'm glad you asked. It's the concept of an open internet

that broadband customers should have access to any site without any meddling by internet service providers like Comcast, Verizon, or AT&T. Without net neutrality rules, proponents say, internet providers could throttle speeds to websites like Google and Netflix in order to get them to pay more. The way the FCC wants to ensure an open internet is to classify internet providers as utilities.

a sign that it thinks internet access is as essential as water, electricity, or telephone infrastructure. And if internet access is indeed a utility, then the FCC says it should be under tight regulations like all the other utilities. So what I'll say is, gear in for a fight. Democrats on the FCC are intent on restoring net neutrality, while Republicans and the internet service providers will fight tooth and nail to stop this from happening, calling it an intrusive and overreaching regulation, a solution in search of a problem.

Yeah, there is definitely a lot of lobbying dollars that are going to be spent on this as well, because internet service providers are not for this at all. They do not want the government coming in and telling them how to set their rates and whatnot. But then you have, on the other side, you have these massive, massive tech companies like the Googles of the world who actually do want that protection. They don't want some internet provider to start saying, wait a second, Microsoft wants us to start only giving access to Bing, and we're going to charge extra if you access Google. that's obviously an extreme scenario, but that's kind of the thing that some of these tech companies worry about. And they worry about it because we actually have seen the internet broken down into these different packages in other countries. And New Zealand, Vodafone offers a service that you can pay a weekly or monthly fee and get exempt. You can pay less for bundles of apps versus if you don't buy the bundle or something like that.

So suddenly accessing WhatsApp costs more or less depending on which internet package you buy. And that's something that a lot of Democrats don't want to see happen in America. Yeah. So what has happened over the past few years? We haven't had net neutrality. So it's been this natural experiment. And Republicans' Internet service providers say, we haven't had net neutrality. And look, has the Internet broken?

Like, no, it's been completely fine. There's been, you know, nothing terrible that has happened, even though you blasted warning signs all over. There have been certain instances of throttling a fire department in California in 2018. accused Verizon of throttling it to get it to pay more. So there have been a few instances of this, which is why Democrats and the FCC want to say, we don't want any of that happening. We need net neutrality back. And now they're moving forward with it with the first step yesterday.

I do remember when the discourse around it was first happening back in 2017. And everyone's saying, like, this is the end of the internet, the end of the open internet, as we know it. And then we got rid of net neutrality. And truly nothing has really changed. And so I do think there will be strong arguments on both sides because, I mean, we've gone through the last five years without it and we've been just fine. All right, Neil, before we jump into the next half of our show, we're going to take a quick

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Neil, it's time for our Friday segment, Stock of the Week, dog of the week, where we look at one stock that makes its bed every morning and one stock that has a basket of laundry that's been piling up for weeks. As always, we are just humble podcasters. so please do not take any of this as financial advice. Neil, you won the pre-show blueberry muffin bakeoff. So you're up first. What's our stock of the week?

First of all, I don't think I should be stock of the week this week because I don't make my bed. My laundry's been filing up for decades. So whatever, I'll just do the stock of the week. My stock of the week is ChatGBTMaker OpenAI. I know it's technically not a stock because it's a private company, but we're bending the rules since we found out this week that OpenAI is in talks with investors to sell share.

at an $86 billion valuation, which is about triple its $29 billion valuation just six months ago. If this happens, it would make OpenAI one of the largest private startups in the world, only behind TikTok owner BiteDance in SpaceX and ahead of Stripe and Sheen. OpenAI has been on a exponential trajectory since its launch of ChatGPT one year ago, and the goal of this share sale would be to allow early employees to cash out and buy the Palo Alto Mansion they've been eyeing. employees are holding $1 billion in shares that could be sold, but word is they're not eager to offload all of that because they want to hold on to their equity as OpenAI potentially grows into this tech giant. And one person who definitely won't get rich up this is OpenAI CEO Sam Altman. He's revealed he does not hold a direct stake in OpenAI at all saying he's plenty rich enough.

I remember the days, even on this podcast where I was saying, I don't know if Open AI will ever be able to make money. Like they released Chatty BT, and I said, why would anyone pay for this? But that was back in the days. It lost around $540 million in 2022 developing the software that it's kind of known for now. But now the company's on track to generate $1 billion of annual revenue as it's kind of rolled out these more enterprise business focus plans. So I'm going to look back on that episode where I said, I don't think people are going to pay for this. They're already at a billion dollars a year. They're already pushing a $90 billion valuation.

Like this company's only going to get bigger and bigger. Probably. I was talking to an old friend and his job at his company. was to look into how they could infuse Chachabiti into their operations. And he was like, I'm so bullish on this. Like, I can't wait to put AI into what we're doing. And I was like, okay, so how much are you paying Open AI? And he was like, a lot, and it's only going to grow.

And that, you know, when I see this $1 billion figure in revenue, it does seem like the start of something big. Yeah, we might see. But we're not financial advisors. You can't even invest in Open AI anyway. True. All right, Neil, our dog of the week is Canada Goose. Shares of the Uber-expensive coat-making company plummeted to a record low for the second time in two days

with Chile analyst outlooks coming in that even its downy insulation can't propel. The stock fell as much as 9.8% yesterday as investors are growing wary of warmer than usual fall weather pushing consumer preference away from high-performance outerware. It doesn't bode well for the holiday shopping period either because who is thinking about buying winter coats when the weather is still balmy out? Also, China is a big market for Canada Goose making up around a quarter of their sales. And China is on shaky economic footing right now to say the least with its fragile real estate market, high savings rate and elevated youth unemployment. So yes, Neil, a goose is my dog of the week.

And it's because of the weather. It is because of the weather. It's really remarkable how much the weather plays into consumer psychology. Even when you're thinking about buying a winter jacket, maybe it will be cold in the next few months. But if it's warm out or more mild than usual out now, then you're, You can't bring yourself to buy this massive parka, which is kind of funny looking to our human brains. I know.

I feel like it's kind of going to be one of those umbrella scenarios where no one buys an umbrella until it's actually raining. Yes, it's been warm in the fall, but as soon as that first winter chill hits, you might start saying, well, maybe a $400 coat doesn't sound too bad. We talk about how the holiday season is very important for retailers and apparel makers. Well, Canada Goose is up there. 50% of its total sales occur between October and December. So if it's just a little bit warmer than usual during the fall months going into the winter, then that can impact its full year business. I've never worn one.

Have you ever had one? Yeah. No. I'm sweating just thinking about it. I am sweating too. Okay, moving on, it is the end of an era for Costco. Everyone just got nervous that I'm about to say the hot dog soda combo is about to get a price hike. No, nothing of the sort.

But the company's CEO, Craig Jolinick, announced this week that he's stepping down from the position that he's held since 2012. Jelenix legacy at the retailer is, in a word, hypergrowth. When he became CEO, Costco did $99 billion in annual sales. Last fiscal year, it did $242 billion. When he became CEO, Costco had 592 warehouses in operation. Today, it has 861 with new locations in China, Spain, France, Iceland, New Zealand, and Sweden. And at a time when most retailers are taking a licking on a stock market, Costco has boomed.

It's up 25% so far this year, outperforming its peers on the S&P 500. And it has surged from $80 per share when Jalinnick started to around $550 today. I think if you're a Costco shareholder, you have to send this guy a very nice retirement present, maybe a bottle of Kirkland's finest vodka. I knew he's going to be Kirklanded. He also contributed to one of the greatest quotes ever. So Jalanic, who's on his way out, told the Costco co-founder Jim Sinigal that they couldn't sell a hot dog for $1.50 because they were hemorrhaging money, obviously.

And Senegal responded, if you raise the effing hot dog, I will kill you, which is one of just the all-time great quotes from any founder of any company ever. So thank you, Craig, for being 50% of that quote. But also, something that's been interesting is the man who's taking over from him is an insider company. He started as a forklift operator, which has kind of started this debate on whether an insider or an outsider CEO does better. And while Vakaris, which is the company, which is the the guy's name, is a very safe bet. The data on who does better, insider outsider is not really conclusive. What is clear, though, is that this is a safer bet because outsider CEOs tend to make bigger swings, and that swings the company's fate in bigger directions, while

insiders kind of don't want to mess up the status quo as much, mainly because they've just been there for so long. So I am curious to see Costco has only had insider CEOs if this is still the best path forward for a company that's already experienced hypergrowth, or if it might stagnate a little bit. Either way, we've seen a lot of messy successions recently. I'm thinking about Disney, and this one seems like it was very carefully plotted out over two years, and the handoff was very seamless. Before we move off of Costco, we have to talk about these random facts that are in a new book about Costco. Everyone's kind of raising their eyebrows about them because they're so absurd. So I'm just going to say two of them, and I want you to say

whether you think they're real or not. Okay, the first one is that Costco accounts for half all cashews sold globally. Do you think that's real? I just don't. The thing that stands out to me and why it must be real is it's such a specific nut. Like Costco sells all types of nuts. So the fact that they're saying it sells half of cashews leads me to believe it must be true. But again, that is just a mind-blowing thing to wrap your head right. Okay, here's the other one. And this is, I should say this is from the new book, The Joy of Costco by David and Susan Schwartz. So you can ask them to fact check. But it also says this book that Costco sells 700% more hot dogs annually than all major league baseball stadiums combined.

See, that's when it's tough to believe again for me, because the Costco hot dogs, even though everyone loves them, are not very good. Like, they don't taste that good. And there's attendance levels have been on the rise in MLB. So who is going to Costco and buying these hot dogs? People who aren't watching YouTube, can't see, but my nose is out to here. Yeah, he's looking very Pinocchio-esque. All right, Neil, for our final story of the week, I want to tell you about the newest

e-sport that is sweeping the country, Geogessor. Now the small subset of our listeners who have played Geogessor before are no doubt pumped we're talking about it. But for the rest of you, Geogessor is a game that drops you at a random location on Google Maps, then tasks you with determining where you are by clicking on a world map. Believe me, it's way more fun than it sounds, using context clues like the type of trees or the location of the sun, or even highway-specific numbering systems to try to approximate your location. The game has exploded in recent years from 10 million users in 2019 to 65 million in 2023. And that explosion culminated this past week in the Geo-Gessor World

Cup hosted in Stockholm and live streamed on Twitch. Neil, I don't know how to describe this event other than electric. At a crucial moment in the finals, a picture of what to me looked like the middle of nowhere popped up on screen, and the live crowd actually gasped. To the untrained eye, it was just a road, but to the competitors, the announcers, and even the fans in attendance, it was obviously a specific point in Sir Gute, Russia. In total, the event peaked at 58,000 concurrent viewers on Twitch and was a smashing success. Neil, how familiar are you with the world of professional geogessor?

I'm not familiar with the world of professional geogessor because it is so new, but this is my kind of ease for it. You know that. During the pandemic, some people had Tiger King, some people had breadmaking. I was all over Geogesser, a bunch of different. different experts in this game went viral, especially this guy named Rainbolt, who I'm sure many of our listeners have seen on social media. He was the commentator for this event, and he went full Tony Romo.

He knew where this place was in Russia before they all did the best competitors. He's too good to even play in this tournament. He's God-Level, and he just has to commentate it because he's just like the Magnus Carlson of Geo-Gessor. But in general, I'm pretty bullish on this. One reason why is the use of education and in schools. The developers of Geogessor said that when they look at a map of its use globally, they see huge pockets of interest and gameplay during the middle of the day and in the morning in the U.S.

in various pockets. And they found out that it was teachers using it with students to learn more about the world. And I just think that's amazing. So I see, you know, I'm pretty bullish on this. It's so fun to play. I love it. It's also doing really well as a business. its revenue has risen from just under $500,000 in 2019

to more than $18 million by 2022. I mean, for us... That's through subscriptions. Yeah, you pay a little monthly subscription and you get access to premium maps or you can customize your avatar. And even though there's been a little bit of tension because any game like this has a very, very strong grassroots user base.

And so any price changes kind of sometimes get some pushback from people. But just in terms of growing it as a business, they've capitalized very well on the surge of interest that came during the pandemic when a lot of people were going to Geogesser for some form of escapism and also just because it's really fun to play with your friends. So Neil, I know the first thing we're going to do after we finish the show today. And that's hop on and go against each other in geogethers. Do you know what the soil color is in Western Chile? I've been studying up on it. It's a deep amber.

All right. That is a wrap on our shows for the week. Have a great Friday. Don't do too much work today and have a relaxing weekend. Apparently it's going to rain here in New York for the seventh straight Saturday. We are absolutely cursed. Want to send a note to us? You can do that at our email Morning Brew Daily at MorningBrew.com. Let's roll these credits. Emily Milliron is our editor and producer.

Samantha Velaes and Raymond Loo are associate producers. Yucenoa Ogu is our technical director. Billy Minino is on audio. We're hiring Rainbow to find out where hair and makeup is hiding out. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. you all well. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th,

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