Morning Brew Daily - Banks losing billions, Biden's budget and Czech Baseball Team side hustles

Episode Date: March 10, 2023

Episode 14: Neal and Toby explain why banks are losing billions after the stumble of SVB financial group. They also take a look at President Biden's budget proposal and what it could mean for the wealthy and corporations. And the Czech baseball team shares how they are preparing for the World Baseball Classic while also holding full day-time jobs. Learn more about our sponsor, TaxAct: https://www.taxact.com Listen Here: https://www.mbdailyshow.com/ Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

Consider this comparison. PWC data found the percentage of CEOs who report revenue gains or cost reductions from AI is almost equal to the percentage who say they're still stuck. What separates these two groups? PWC points to a clarity issue. Even for CEOs, it's hard to tell what's AI hype, what's reality, and where this tech can make a tangible difference. Learn where AI can actually make an impact and what successful adoption looks like at

pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI Good morning brew daily show. I am Neil Fryman. And I'm Toby Howell. Toby, it's Friday. And we're going to open every Friday show with a round of fast week, slow week.

So Toby, fast week, slow week. Yeah, we were talking before the show today. Last week was definitely a slow week. And it's because it was a full week coming off of a shortened week the week prior. But so this week, in comparison to last week, has definitely. It's definitely been a fast week. It's really flown by for me. All right. I'm fast week, too. You're fast week?

Next time, I just need a shorter answer from you. Okay. Well, I had to set up. I had to set up the segment. It's got to be a gut. It's got to be a gut reaction. Fast week. Fast week for me. All right, so put us down two fast weeks.

And then also, just a quick moment to note that if you've been enjoying this podcast, we'd love for you to make sure you subscribe. So whether you listen on Spotify or Apple, just hit that little subscribe button and helps us out a lot. And if you've really been enjoying the podcast, maybe send it to one of your pals, send it to one of your buds that you think would enjoy a quick news rundown every morning. Great job, Toby. That was my plug. That was my plug. Speaking of a news rundown, give a little preview of what we're about to talk about.

And it is, man, it was a newsy day. And as well as yesterday, as well as today. So the Jobs Report was just released this morning. We'll get into those numbers. We'll do our Friday segment of Stock of the Week, Dog of the Week, and then an Oscars preview, because that is, happening on Sunday. It's a great show today. But first, I want to start with this massive wipeout in the banking sector.

If you have a lot of bank stocks in your Robin Hood account, I would just say, maybe don't open it, because the bank index just had its biggest one-day drop since the pandemic began, nearly three years ago. So it's not just the US either, this banking route spread across the world. So what sparked it? There's a crisis-engolving Silicon Valley Bank. Have you heard of it? A lot of people hadn't heard of this.

It lost 60% yesterday and opened trading down another 66% today. So what is it? Don't think too hard. It's literally the de facto bank of Silicon Valley. It works with a bunch of startups out there. In fact, I think more than half of tech and life sciences, U.S. startups work with Silicon Valley Bank. So, Toby, I know you were glued to this story yesterday as it was unfolding on the Internet. So I would love to help you break it down.

So for anyone on Twitter in kind of like the TechPro Twitter circle, You couldn't scroll two treats without seeing something breaking down the SVB situation. So I'm going to do my best to kind of give some context of why SVB kind of imploded. So if we go back to 2019, 2020, it is a boom time for startups, especially those raising venture capital, which means that deposits at SVB jumps from $61 billion at the end of 2019 to $190.90 by the end of 2021. So all of a sudden, SBB is sitting on all this excess cash on their books. So this is startups doing really well, throwing their cash into SBB. Right.

Okay. The, yeah, venture capitalists were funding these startups. Startups are like, oh, we have all this cash. Crazy boom. Put it in the bank. And so SBB is sitting with all this excess deposits, and they're like, what should we do with it? So they did what they thought was the rational thing and locked it up into these long-term 10-plus-year, actually mortgage-backed security bonds. and that yielded 1.5%. And that's a key number, because at the time, that is a decent return,

like 1.5% on $80 billion is a lot. Interest rates were really low. Really low at the time. But in the years since, interest rates have slowly begin to rise, actually quickly begin to rise. And so now that money's sitting, yielding 1.5% doesn't look so good anymore. And so the other thing that happened, too, is deposits started falling. Like, we're in this crazy boom time anymore. And so SVB actually started selling off some of their book, available for sale bonds, and taking a little bit of a loss on those sales as well. So not only is their big chunk of money sitting there not yielding as much, but they're also having to sell some of them to cover some of this lack of deposits. All of that is combined

to make people really, really nervous. Right. And I think what sparked the big stock sale, or the stock wipeout yesterday was they needed to raise money. Right. They launched the share sale to raise $2 billion, and it spook the crap out of everyone. And then you had some of these VCs like Peter Teal's Founders Fund and a bunch of other of the mega VCs out there telling their founders that maybe you want to get out your money from SVB. And now the discourse today is all about whether we're about to see a bank run. Right.

And the problem with situations like this is something called asymmetric upside, where even even if the chance that SVB might go under and you lose the money you have in there is like 1%, there's no real reason to keep your money in there because there are alternatives that are safer. And so that's kind of how a bank run starts, where a lot of people start thinking in the same lines of thinking of, hey, even if this thing might go under, let's just get out while we can. So we'll see whether a bank run does happen today. It's a very fluid situation and everything could change in hours.

But what was interesting is whether this is going to spread to the broader banking sector. And from what we read earlier, it seems like this is kind of an SVB situation, and it's not necessarily this contagion that will spread across. It's not this canary in a coal mine for the global banking sector. They're just a little spooked yesterday. So I don't think there's any sort of crazy shenanigans going on across. I'm going to be on Twitter all day, kind of monitoring the situation. Hopefully we don't have to talk about it on Monday because things will have calmed down, but who knows?

I want to go to the labor market. The jobs report was out this morning. And for the 10th time in 11 months, the jobs report topped expectations. So the labor market just keeps rolling. This is pretty crazy. The U.S. added 311,000 jobs in February compared to expectations of 215,000. And we're in this world where a hot labor market would kind of tank stocks because it would mean the Fed would have to raise interest rates higher. But that's not happening this morning. Because there's a few hints that there is some softening. The biggest one is wage gains only increased just a little bit, so that is really good news for inflation. Right. It is, again, we've said this multiple times. Such a weird economy in Marko-Ren

right now where we were all nervously away the jobs report to make sure it wasn't too good, because that would mean, yeah, rates would probably have to be hiked even quicker. But yeah, some of the other indicators or some of the key things that we picked up is that Hospitality sector is also still in a labor crunch. They still need people. Restaurants need workers. Hospitality needs workers. And this is another fun little tidbit that came out actually before the jobs report,

which shows how tight the labor market might be. A Montana-based construction firm told the Minneapolis Fed that it's actually hiring a private jet to fly construction workers to where they're needed rather than hire new employees. What a crazy, crazy indicator of where we're at in the labor market. It is interesting to see the sector-by-sector breakdown where tech is in this really bare market. And then leisure and hospitality, they've been leading the jobs gains for, I think, years now. They got gutted during the pandemic, and now they just can't hire fast enough. 60% of all restaurants can't find enough workers.

And we know that ahead of burrito season, Chipotle is hiring 15,000 workers. It is crazy. Remember we saw the headlines. lines of Amazon hiring 100,000 workers. Now it's totally flipped. Amazon's laying off all the workers. DePoltli is the one leading the charge now. So, yeah.

So if I had to sum up big picture for this jobs report, it seems that it was good. It was good for workers because more people got jobs, $311,000. And it was also good for the Fed because the unemployment rate ticked up a little bit. There were signs of some softening. So that's why you probably see. It's what they called maybe like a Goldie level. scenario, that's kind of a big stock market term. So that's why you'll probably see stock market in the green today. That's another great look at the macro environment we're in. I also want to take

a look kind of at a macro environment story. Biden released his budget proposal yesterday, and it's always a fun day to kind of peer through and see what nuggets are in the proposed budget. So I'm going to just take us through some of the nuggets and then toss over to you, Neil, to kind of hear your thoughts on it. So Nugget, number one, is that Biden wants to expand the $35 cap on insulin prices. That's a story that we've been talking about over the last few weeks. So that's actually within the budget. Nugget number two is the budget would boost military spending to $835 billion, which is one of the largest peacetime expenditures in history. It's weird to say peacetime because it doesn't feel like we are kind of at war, not really. So that's,

an interesting nugget within the budget. And then the overall goal of this is to reduce $3 trillion in spending to try to cut into that federal deficit. So that's like the high-level picture. But yeah, Neil, what do you make of this? My takeaway is that this is higher, like, this is his wish list for higher taxes. Right. So we wrote in the brew this morning that, and if you have a couch that's not pushed up against

the wall. I love that line. You're probably not going to have, oh, you're probably going to see. your taxes increase. So he wants to raise the corporate tax rate from 21% currently to 28%. Increase capital gains taxes, which is your profits on asset sales, quadruple the tax on stock buybacks, and he talked about that in the State of the Union, and then tax hike on income more than $400,000 to pour back into Medicare. So that's how he said he would pay for this and reduce the deficit. But we should be clear about when talking about this budget. It is

a proposal. This is like the start of negotiation. So when you go to your boss and they're like, you know, let, you know, what are you thinking for your raise? What are you thinking for your salary? And you just throw a number out there to anchor the conversation. I didn't take a negotiation class. So I don't know that's how you're supposed to do. I think you're supposed to anchor. Okay.

I've heard that term. So you're supposed to anchor. And this is what Biden is doing because the GOP controls the House. And honestly, very few of this, if any, will be passed. But it basically just stakes out your position to begin negotiations. and also he's going to run for president again. So he'll just campaign on all of these priorities that he just laid out. Right, yeah.

It's more, by the time that this budget, if it gets past at all, it's going to look a lot different. But it is fun to see kind of where the administration's priorities are at right now. And then, yeah, you hit on all the tax stuff as well. That's also, yeah, you use the budget in order to justify like your, your tax. tax agenda as well. So it's always fun. It's an interesting business story every time it comes out. All right. Before we jump in the next story, let's take a quick break. 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 Webber

Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay's 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 homebopo.com slash price match for details. All right, back with another edition of our favorite Friday segment, stock of the week, dog of the week. First, we're going to tell you about a stock of the week that's been crushing it over the

last week and then take you into dog the week. We've actually gotten some comments that people are disappointed that dog of the week wasn't an actual dog. So maybe we should put in a dog in there, too. We might loop in some actual dog content, but just to be clear, the reason why we call it Dog of the Week is there's a thing on Wall Street called the Dog of the Dow, which is just a stock that's not. The worst performing stock of the Dow every year. Doing well, and so that's why we call it Dog of the Week. We'll just switch it to Dogs of the Week, and then we'll get in a stock and a little bit.

Yeah, a little corgi or two. So, Neil, what is the stock of the week? All right. I get to do Stock of the Week this week, and I picked Weight Watchers, or WWW. The company formerly known as Weight Watchers. They did a little rebrand. They're up 26% this week because they're hopping on the health trend of the moment, which is these obesity, diabetes, drugs, OZMPIC, Weigobi.

Earlier this week, WW, why am I saying that? Weight Watchers, I hate saying WW. Weight Watchers said it was buying the Digital Health Company Sequence, which is a subscription service that pairs patients with doctors that prescribe these drugs that are absolutely blowing up. CEO Sima Sastani of Weight Watchers said, this is the biggest innovation in our industry today. So she is not going to let this pass her by. Yeah.

We've seen quotes, too, that this kind of category of drugs could become the best-selling drug in history. So honestly, very bullish on Weight Watchers, for sure, WW. Because, yeah, if they can capture some of that market, some of the market of the best-selling drug of all time, obviously you're not. Yeah, but maybe because it really significantly drops your weight. And there's been detrimental effects because people who don't have diabetes are buying all this up and leading to shortages. Right. Yeah, we hit on that story. I think it was last week at this point.

But, yeah, I assume someone's going to come out with a branded drug just for cutting weight specifically. So Weight Watchers, stock of the week to watch. All right, let's go to Dog of the Week. Doggle Week is actually another bird, or it's another animal. It's all birds, the environmentally sustainable, casual footwear brand that first roast to prominence in the tech bro culture. A lot of Silicon Valley people were wearing it into the office. But it's down over 20% in the last week.

And honestly, there's a laundry list of why it happened. Just from a pure reaction to earning standpoint, it had a really bad holiday season. The CEO actually called it a promotiony holiday season where they laid out too many deals so sales didn't come in as high as they expected. But there's also a bunch of strategy missteps. One of them is, like many of these DTC brands, they expanded their retail footprint a little too aggressively. They opened too many brick and mortar stores. Hold on. Before you say this, I got to tell people that when we first saw that Alperds was doing bad, you out of the blue said I know exactly why they're doing poorly.

And then you read the article later and the CEO said the exact same thing. So I just want, I just want to give you some credit. Thank you for giving me my laurels. But yeah, leading into that, when I heard Albridge was doing badly, I was like, oh, well, they release this running shoe for elite runners that did really poorly. And the running community kind of hated. It's not a good running shoe. It is like, I'll tell you one of the things that the running community hates, the laces. The laces come untied.

And that is the quickest way to alienate a runner. You can't even get the laces right, which it just shows that Albert's was in over their head kind of moving into this new sector. And the CEO is like, yeah, we definitely had a misstep. It didn't have the reaction we wanted. So my advice to Albrecht, stay in your lane. You were a comfy, casual shoe that you could wear in the office. Don't try to pick up these Elite Runner segment, yeah. Wow.

Why are you doing a podcast? You should freaking go work at Albers. I know. Seriously. if you're listening, Allbirds. Also, disclaimer, none of that was financial advice. This is just us talking stocks. That's my favorite part every week.

All right, let's look ahead to the weekend. The Oscars are coming up. There's a few directions that we can go in. First of all, we were just remarking, crazy. It's been one year since the slap. It feels like a lifetime ago, but also feels like it just happened. I'll never forget. I got a slack from our copy editor, Holly, being like,

oh, my bleeping God, Will Smith. just slapped Chris Rock. Like, that's forever burned in my memory, because I wasn't watching it at the time. Yeah, that crazy time. But so there's a few different directions we can go when talking about the Oscars. I actually want to go into, the Oscars are constantly trying to reinvent themselves. They're constantly trying to recapture the intention that they want had. So I want to talk about the TikTokification of the Oscars this year.

One quick note, the Academy Ward is actually going to post their acceptance speeches in the six biggest categories, almost in real time on TikTok and Facebook. So they're trying to get that content out there, ASAP. And Neil, I know you have some thoughts on, and you're relatively bullish on this kind of move for the Oscars. I mean, it's smart. I'm not on TikTok a lot, but every time I've been on TikTok in the last few months,

I feel like I see an acceptance award speech. There was a bunch at the Golden Globes. And, you know, there are like very bite-sized, snackable, emotional moments that people give in these speeches. And you don't have to watch the whole. thing and TikTok will allow you to just break it up and see the most interesting moments. Then there's the behind-the-scenes stuff that is also captured on TikTok, like Ben Affleck, you know, looking all pissed when someone's interviewing Jennifer Lopez at the Golden Globes.

And I just saw like Nathan Fielder giving an acceptance speech at some random award show. So from that, I don't know, it does seem like that award shows while people aren't watching them on cable or whatever anymore have a really long shelf life and a second. life on social media, and I think it's really smart of the Oscars to tap it. So, you know, maybe TikTok can breathe new life into the Oscars that were kind of left for dead. Okay, but obviously we're going to have to put in some Oscars picks to hold us accountable. Neil, do you want to take us through the category?

I saw a couple. Yes, let's go Best Picture. But first, some actual news around Best Picture. For the first time, they're including, not for the first time, but there is an unusual amount of blockbusters for Best Picture. Right. There's Avatar, there's Elvis, there's Top Gun Maverick. And so it's not these little art house films that nobody's seen, which are, they're very good.

But maybe this is a better strategy as well to leaning to the blockbusters. So my best picture pick is the banshees of Inashirin, which I saw and I liked it. That's a good pick. You're very cultured. Mine's less cultured. Top Gun Maverick, baby. Let's go. It was actually.

It's also the only one you saw. It's the only one I saw. I actually saw Avatar, too. I will say that. I like TAR better than Banshees, but I think Banshees will be. That's why I picked it. Okay. Good. Okay, ready?

Best actress. This is really tough for me. I haven't seen any of the moods that are in. So I'm going with Tar because you liked it, Kate Blanchett. So I think that's probably going to be your pick as well, right? Okay, this is getting like two levels deep of reverse psychology. I know. I'll go Michelle Yo from everything everywhere all at once.

She's been everywhere. I also haven't seen it, but it seems like she's going to win. I'm just picking up on vibes. Yes, good. Okay, best actor. Okay, again, haven't seen much. I'm going to go with it. with the controversial one and do Austin Butler from Elvis,

because I hate that he still has the Elvis voice. He changed his voice to play Elvis, and I'm just gonna pick it, because I respect the commitment to the craft. I'm gonna go with Brennan Frazier for the whale, because I remember he, everyone just started, he just started crying at the standing ovation at Sundance, and our social media guy, Liam loves making Brendan Fraser memes.

These are good picks, very well-informed. He is, I feel like he's the favorite. All right, final one, best original song. I want to do the, I actually forgot the name of it, but the song from RRRR. RRR was actually the greatest, it's called Yatu Yatu. My favorite movie that I've seen this year, it's a three-hour epic about two friends. It's an international film out of India. And it is so good.

I cannot explain to you how good it is, so please go watch it. One of my favorite movies is a Bollywood movie, Three Idiots. That's also like three and a half. hours long, and it goes from comedy to tragedy, and then back to comedy, and then they start singing, and it's like this all-encompassing event, and it's so good. So I can't believe I haven't watched more, but now I'll have to watch RR.R. Check it out. My original song is, I'm going Lady Gaga. Hold my hand. Never heard of it, but it sounds good. We are, that's your informed but uninformed Oscars takes from Toby and Neil. All right, so we'll check on those on Sunday night and Monday for

the pod. Our final story, I know there's a lot. lot going on this weekend. But one thing you could do is also check out the World Baseball Classic. For the first time in six years, this tournament is back, and it pits 20 different countries against each other in a sort of World Cup style baseball event, and a lot of the best players in the world are playing. But a lot of the best players are not on the Czech team, which is one of the main storylines, because the Czech team is pretty good, but none of them, or very few of them actually play professional baseball. They all have day jobs. So there's a firefighter, there's a financial analyst, there's an auditor, there's a high school teacher, the manager is a neurologist.

So, tomorrow, a firefighter is going to pitch, a firefighter from Czech Republic is going to pitch to Shohei Otani, who's this Babe Ruth character who's getting paid $30 million a year. So I'm kind of looking forward to that. People love these stories. Whenever you hear about a professional athlete with a day job, some of the other times I've heard this is like the backup backup goalies in NHL games are sometimes people who were sitting in the crowd like the day before. And then there was also in the tennis world, a Croatian Monday qualifier who has a day job, has an MBA from Harvard as a real estate professional, actually beat a former top 10 player in the world coming in.

I remember that. So it is just the best feel-good stories when these everyday guys kind of step in and dominate on the world stage. So we'll see, Japan is nasty and they're probably going to be Czech. While we're on the subject of Czech people, I just want to say the word Yarmir Yager. The hockey player. player. Great. Just such a good name.

Yarmir Yager. Good guy. All right. I think that's a wrap from us for the week. Was this our third week? Third week. Wow. Wow.

I would give a reminder to everyone to change their clocks on Sunday morning, but we don't really do that anymore. Apple's got on your microwave. Taken care of it. Remember, we want to hear from you. So make sure you email us at Morningbrewdaily at Morningbrew.com and definitely share this with all your friends. Want to give out to our shout out to our awesome crew.

Our producer and editor is Emily Milliron. Our technical director is Elias Alba, supervising, producer is Bryce Belloff. Show's guitar slayer is Dan Bousa. Hair and makeup is playing shortstop for the Czech national team. Devin Emery is our chief content officer. Our show is a production of Morning Brew. Great show.

Great week. We'll see you on Monday. All. Pay off your home. Travel for life. Drive a Ferrari. In celebration of the world premiere of the Monopoly big board buck slot machine by aristocrat gaming,

Yamava Resort and Casino at San Manuel is giving one person a $1.6 million dream package. The biggest prize in Yamava's history. Club Serrano members can earn daily instant prizes and secure a spot in the finale May 29. Don't pass go and own it all only at Yamava, celebrating its 40th anniversary. You win? Details at yamava.com must be 21-20. Please gamble responsibly.

Monopoly is a trademark of Hasbro. Hasbro is not a sponsor of this promotion.