Morning Brew Daily - Buffett's Bank Warning, Own a Share of a Derby Horse & Zuck is a Jiu-Jitsu Champ

Episode Date: May 8, 2023

Episode 54: Kyle Hagge is here! Kyle and Neal break down Warren Buffett's comments at the annual Berkshire Hathaway shareholders meeting; including his thoughts on the regional bank crisis and why Apple is the perfect company. Oh to be in Omaha. Plus, the controversy at the Kentucky Derby this past weekend and why a certain app lets you buy shares of racehorses. And Mark Zuckerberg is a Jiu-Jitsu champion and Kyle makes a pitch for the royal family to hire him and Neal and consultants. Finally looking to the week ahead, a pivotal meeting that could impact the debt ceiling crisis. Learn more about our sponsor, Fidelity: https://fidelity.com/stocksbytheslice Learn more about Brex: brex.com/morningbrew Listen Here: https://link.chtbl.com/MBD Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash US slash brew AI. That's pwc.com slash us slash brew a i. Good morning brew daily show. I am Neil Fryman. And I'm not Toby Howell. Okay, on this podcast, we are going to talk about the controversy surrounding the Kentucky Derby this year and whether horse race is dying. And not Toby and I will pick our winners of the weekend. And truly, they could not be more different.

We have a great show lined up. We're also going to discuss what Warren Buffett talked about at the annual Berkshire Hathaway Conference. And Elizabeth Holmes talks to me. for the first time since 2016. Neil, let's ride. Okay, so you're not Toby, but who are you? I'm Kyle Hagee. I'm the director of community here at Morning Brew,

and I've been an avid listener of a podcast, so I figured how hard could it be to be on the other side? We'll find out. Yeah, we will see. Yeah, so thanks for you're filling in for Toby this week, and we know each other. But, Kyle, I have to say, this is a big day for me,

and your silence is a little bit deafening. It's your birthday. It is not my birthday, but it is my height day. It's your high, I saw that in the news that are happy height day to everyone that is 5-8. Yeah. Is that a specific height or anyone with heights? 5-8. Okay.

May 5-8th. May 8th is 5-8. Well, in three days it will be my height day, so don't make the same mistake I did. The people who have height days after me are just inherently going to be more successful. If you have a height day in June, you're probably in the NBA. Absolutely. Yeah. Or definitely in July.

Yeah. In August, there's probably a concern. Yeah. All right. Let's get into it. Yeah. So, all right, our first story for the day is we're going to turn to the Oracle of Omaha. Berkshire Hathaway's annual conference was this weekend.

It's known as the Woodstock of capitalism. This is Warren Buffett's 58th year of running Berkshire Hathaway. And I actually attended this conference with my dad in 10th grade. So I'm a bit of an expert. All right. What was that like? I don't remember much besides getting free dilly bars because Berkshire owns Dairy Queen. And after that, I put all of my money into Berkshire Hathaway stock.

very close to retirement now. That's exceptional. I mean, yeah, one one share price of class A stock. I think we were looking at it is above $400,000. So if you bought one share, I think I don't know why you're here. I think I own the B share. Yeah, it's worth a lot less. All right, so let's talk. So basically at this thing, Warren Buffett and his main man, Charlie Munger kind of hold court and dish about the company's performance and the economic issues of the day. Was there anything that stood out to you that they said? Yeah, actually, they said a lot of interesting things, but I liked their take on Elon. And I think they're almost the opposite entrepreneur. They had a lot of respect for Elon. They said he dreams really big. He goes for extremes. And Charlie and Warren,

they go for boring businesses, low risk of failure, and they just avoid doing dumb things. And I thought that was really interesting. So everyone was also talking about what they would say about the regional banking crisis. Buffett has helped out in past banking crises. So everyone's kind of curious about what he thinks about this one. He really took out his wrath on the leaders of these failed banks like SVB and First Republic. He said they should suffer and they should suffer and face punishment for their mismanagement. But he also blamed what he called totally crazy banking regulations that incentivized risk-taking behavior. And also he kind of blamed the media like us and politicians for very poor messaging. Finally, he said that he thinks the government was

right to intervene to protect SVB depositors. That was kind of a controversial move to shore up deposits above the FDIC cap. And he said it would have been catastrophic otherwise if the government hadn't stepped in. Yeah, I mean, it was something that's so great about Warren Buffett is he's, I think, 99 years old. He's been around the block for a bit. So I actually think he has great perspective on the financial system as a whole. Another thing that stood out to me was his investment in Apple. Now, Berkshire is not known for its tech investments, but somehow Buffett got into Apple and now it accounts for 46% of its entire stock portfolio. It is now, his stake is now worth $151 billion.

So he is a massive shareholder of Apple. And he's just like, look, it just happens to be a better business than any we own. Right. I mean, this is like classic Warren Buffett. He's like, I don't know technology, but let me invest in the best technology company ever and have it be 46% of the portfolio. Also, I was relieved to know that Warren Buffett is Team Blue Bubble. I don't think that got enough press coverage.

He's team Apple. He's got the blue bubbles for text. I'm not surprised, but we'll get into that a little bit later in the week ahead. Finally, you know, they always dish on business and the economy, but they also give some life advice, as you mentioned. Yes. Munger's 99 and Buffett is 92. And so Buffett said, this is how you live your best life. I actually hadn't heard this before, but maybe it's common.

You should write your obituary and then try to figure out how to live up to it. Yes. It's not that complicated. Have you done that? I have not written my own obituary. But now I might have to, but I do love their advice about the obituary and like focusing on like the essential things of life They're like marry the right spouse. Yeah, don't do dumb things like it's not your average tech investment advice and I do wonder if it's connecting with a younger audience, but I was hardened to see that there was some college students actually in attendance Yeah, like well, you were a high school student when you were there. Yeah, I was pretty ahead of the curve I got to go. Let's just before we move on. Let's talk about the how the business did like how did Berkshire Hathaway do because this is where they report that

their earnings. And just for people who aren't so familiar, Berkshire Hathaway is a massive conglomerate. It wholly owns or owns big stakes. And these kind of, you mentioned it, like these unsexy companies like railroads and paint, I think. Yes. And then insurance companies like Geico and Fruit of the Loom, right? I actually broke this down. And I want to introduce the Warren Buffett, Berkshire Hathaway starter pack. Okay, I'm ready. This is how diversified their business is. You could have Apple for all your tech needs. You could dress head to toe and fruit of the loom. Okay.

If you bank with Bank of America and American Express, you fill up your car with Chevron oil insured by Geico. You have a diet consisting of only Dairy Queen, Kraft Macaroni, and seize candies. I can't confirm or deny if that's a healthy diet. And finally, if you need to make a cross-continental escape, hop onto a Burlington Northern freight train. That's a diversified portfolio. Wow. I'm not sure I would live to his age if I, you know, just consumed Berkshire Hathaway products.

I mean he still eats McDonald's every day drinks coke like it's water and he's still living large. It's incredible So that's Berkshire Hathaway. They did actually really well thanks to a surprise profit by Geico And Buffett also warned that the economy was slowing down and that all his wide portfolio of companies would experience Lower earnings for the rest of the year but as he always does he sounded a pretty optimistic note about America And he's like Berkshire needs America you the America does not need Berkshire so that That's his main takeaway. And, yeah, we'll see what happens after Buffett. I mean, he's still going.

But they do have a successor tapped, which his name is Greg Abel, and he's the vice chairman for non-insurance operations. If they made succession about Berkshire Hathaway, it would be a lot less. A lot less intense. I know. It's so clear. They have their ducks in order. There's no, like, huge personalities involved.

Yeah. They just are a boring business. That is some shoes to fill, though, I have to say. Yes. All right. Let's move on. So the Kentucky Derby was on Saturday and a horse named a Mage, which was a 15 to one shot, won the first leg of the Triple Crown in front of 150,000 people at Churchill Downs. There are a few things I want to talk about with this derby, but the first is this huge cloud that hovered over the event this year after seven horses died in the week leading up to the race.

It's got people wondering about the future viability of this sport when your athletes kind of mysteriously die. Many of these deaths seem like freak accidents where a horse would pull up after a training session or, you know, break a limb in while racing. And that is enough for these horses to have to be euthanized for humane reasons. And one trainer, Safi Joseph Jr. was actually suspended by Churchill Downs after two of his horses died in the last week. And there was this interview. He was sobbing and he said he had never had a horse die in 4,000 starts. And so it's all kind of a mystery, but it definitely created this gloom. over the race this year and over the industry in general yeah I think it was a

really sad story to read about and I also think it's quite interesting because I feel like this is two kind of themes that we're seeing coming together which is the democratization of almost everything like the you could co-own a horse yeah we'll talk about the app and then also just like gambling I don't think that this is an issue that's gonna be resolved because it's now a multi-billion dollar industry right so so people are talking about the fact that you know gambling and revenues are actually going down for horse racing and this kind ties into this cloud over the industry.

There's been a lot of doping allegations. Bob Baffert, you know him? He's this trainer, this legendary trainer at the Kentucky Derby. And, boy, and no, well, last year, his, or 2001, Medina Spirit, who won the Kentucky Derby was found to have drugs in its system, illegal drugs, and Bob Baffert was suspended for two years. So that combined with the safety is leading to just an overall downturn in horse racing. So in 2002, more than $15 billion was bet on races in the U.S.

Last year, that went down to $12 billion. I don't think there's another sport where sports gambling went down in the past few years. That's very interesting. And then attendance is down too. I don't know if you've been out to the Belmont in New York, which is the third leg of the Triple Crown. Yeah, you're in Minnesota guy. But I've been there. But not that many other people are because there's 88% fewer fans at the Belmont stakes now than in 1978.

And there's just a lot of fewer horses being registered. 33,000 thoroughbred foals were registered in 2000. Now that's about half of that. So there's just like a lot of competition in sports gambling world. For a lot of times, you know, horse racing was the only game in town where you could bet money. And now you can just sit on your couch and bet on LeBron to go over 20 points. Any single game you want. Maybe this is the perfect use case for the metaverse.

The gambling revenues are going down. People are less interested in the sport. Let's move the horses to the metaverse. we avoid horses dying. And then maybe that's a wide open space for to horse racing take off. I remember in 2021, there are all these articles coming out about digital horse racing. It was booming.

I haven't really checked in on it since, you know, everything else kind of crashed in the metaverse. But, I mean, it does seem like it has quote unquote legs. In sixth grade, I would go to the bowling alley in Indian Prairie, Minnesota, and they had a horse racing game. And let me tell you, if you could get that energy into the metaverse, this would be a giant win for horse racing. I'm bullish on it. Something else I'm bullish on is these apps that give you fractional

shares and things. And the reason I'm talking about that is because typically after the horse of the derby wins, they interviewed the owner and the owner's going crazy. This year they interviewed these random guys and I was like, what the heck is going on here? Turns out that 25% of Mage is owned by people using the Commonwealth app. And this is an app that lets you buy fractional shares in pro athletes like golfers and racehors. And so almost 400 people had a stake in this horse Mage and got to split at least some of the winnings. They get $94 per share before taxes. And not only do they get that, they get the proceeds of future breeding, which is where the real money comes in because all this genetic material from Mage is worth a lot because they won the

Kentucky Derby. Yeah, I think one, I have to comment on the name Commonwealth App. I feel like Every app now has like no vowels and is like five letters. They just went like with the most bougie name Commonwealth app. If I had to guess what that does, it would be to own horses. So well done on the branding for them. Yeah. Second is I just wonder how this will affect sports going forward. I do think that gambling is becoming bigger and bigger across all sports.

And this like owning athletes or future shares, like that will be quite interesting to see how that plays out and affects the actual sport. There are other apps like this and that you can buy fractional shares and alternate investments like are. art and cars that IPO, you know, like old cars, there's an app for that. So that is kind of booming a little bit where you can kind of buy a piece of antique or something. Like, me or you would never be able to afford. Well, I own Berkshire stock. I forgot about that. We could never be able to own a freaking thoroughbred horse that races in the Kentucky Derby,

but through these apps. So we'll definitely pay attention to that. I thought that was a really interesting angle to the Derby. Before we get into our next story, let's take a quick break. Let's do it. 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 3-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard.

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Using the code Fresh Start. Refresh your wireless with Visible. Tap the banner to switch today. Terms apply, limited time offer subject to change C-Visible. Visible.com for plan features and network management details. All right, Kyle, over the weekend, the New York Times published a long profile of a devoted mom of two who recently spent six months traveling around the RV in a country and loves... Wow, this sounds like a heartwarming story. Who is this about? Elizabeth Holmes. I think you actually mean Liz Holmes. Okay. Neil. We'll get into that. The Elizabeth Holmes, she's just Elizabeth to me. Okay.

She's a convicted fraudster might you remember. She spoke to the media for the first time. since 2016 for this article. So anytime you write a article about a convicted fraudster and painter in like not the worst light in the world, you would get some criticism and the New York Times got a lot of criticism for running this article. It did not help that they also gave some not so awful press to Sam Bankman freed right after he was convicted to last year. So this just gave New York Times critics some ammo. There was some pushback in the other direction saying that the writer of the piece. kind of knew what she was doing because you kind of have to get close to your subject and let disarm them a little bit and give them a little bit of flattery so they open up and say some like really wild stuff and you know implicate themselves when they talk and you don't have to it's just like a little more of a nuanced reading but i don't know if i'm convinced by that either way what were your takeaways from this article i think two main ones the first is i think it's hard to have an actual interview that you can feel confident with elizabeth holmes because i mean part of her whole

persona is her ability to fabricate the truth. And so you, you know, you're reading it and you're not sure what to believe or what not to believe. My second takeaway is, I need a full on documentary about the husband. Hmm. Like, I don't think they're the husband. I think it's a, they called the romantic partner. The romantic partner. I mean, no, I do too. They have kids together. They met during all of this stuff was pretty out in the open about who she was in the person. So I need to go deeper on that. Some other things from the article. She talks about Theranos as if it's, her baby. Like she said, I devoted my whole life to it since it was, since I was 18. So she like compares the loss of Theranos to the loss of a child. She went to Burning Man with this romantic partner and

they burned an effigy of Theranos while at Burning Man. Oh, well, I think her prison sentence can be relieved then. And then the final, the final thing was this great anecdote about she attended, she went to a doctor, or a kid went to a doctor. And the doctor said, you look a lot like that horrible woman and then eventually figured out that she was Elizabeth Holmes and and she goes, yes, I am Elizabeth Holmes. And then he goes, I am so sorry. And then she said, don't be all you know is what you've read. Yeah. Also, I need more details on this doctor. I don't think in med school, they tell you find a person that your patient looks like and call them horrible. That's not what they teach. And then say, I'm sorry that you're Elizabeth Holmes. Anyway, Holmes has successfully delayed her

prison sentence so she's still appealing and booked a one-way flight to Mexico that everyone kind of raised their eyebrows about yeah why do you need that you're going to prison but yes she at some point soon will enter prison to serve her sentence of 11 years for defrauding investors of hundreds of millions of dollars and one of the biggest corporate frauds in history yes well let's talk about another tech founder on winners of the weekend yes and I think there's two paths you can take as a tech founder you either end up 11 years in prison for fraud, or you become obsessed with jujitsu. And Mark Zuckerberg has chosen the latter.

Okay. The winner of the weekend is Mark Zuckerberg, the CEO of Facebook, who actually just won two medals at a jujitsu competition. I believe he took up jujitsu during COVID as something to do. You know, I feel like Facebook needed a W. The metaverse is not really going anywhere. Their currency is a joke. And he kind of took matters into his own hands and he secured the W for Facebook.

Neil, what does this do for Facebook stock? Yeah, to the moon. Know your founder and CEO is, you know, a beast at martial arts. Imagine trying to negotiate the next acquisition with Mark Zuckerberg, and you see what he's pinned this guy. That's incredible. I don't even know what to say about Mark Zuckerberg. He knows how to meme himself.

Yes. We've had many generation, many versions of Zuckerberg's memes. We've had BBQ meets. Of course. Zuckerberg, we had surfing Zuckerboard with Zuckerberg with the sunshed on his face. Parasailing with the American flag. No, not parisale. It was some weird.

weird water sport. It's like a rich board. They don't even show it to me on Amazon. They're like, you can't afford it. And now we have jujitsu, Mark. So his ability to get meamed is incredible. You know who else was into jujitsu? I remember seeing the documentary on this. Anthony Bourdain. Oh. Anthony Bourdain was huge into jiu-jitsu. Wow. So, I don't know. Interesting. RIP to Anthony. I just do Peloton. So that was your winner of the week. You picked Mark Zucker. Winner of the weekend. You pick Mark Zuckerberg. I, for my winner of the weekend, I'm going to pick the kids at the coronation. Okay. So the coronation happened this weekend, which I think everyone knows about.

Of course, as it does, as they do with every event, the little kids, if there are little kids, they will steal the show. So Prince William and Kate Middleton's kids, who are George, Charlotte, and Louis were there and just looking bored, sticking out their tongues, looking like little Star Wars nymphs. So George is nine years old, and he's second in the royal line of succession. after his father, Williams, there was a kid who did not steal the show. It was actually more marginalized, and that was Harry, Williams' brother. I've heard of him.

He was sidelined. He did not play a big role in this coronation at all. He dipped quickly, and his wife, Megan, didn't even make the trip from California. Now, hearing me talk about myself, I swore I would not care about this,

but I think I care. Well, I have a different take, and that is, I can't tell you how much I didn't care about this. It felt very 13th century to me. So I've actually come up with three ideas on how to get younger audiences more invested in the coronation. The first is the British Crown releases their own version of chat GPT. Kids love artificial intelligence, but it only has knowledge up until 1776.

That is good. The second is we have Dua Lepa as an opener for the coronation. Okay. I mean, they got like Katie Perry. I think Katie Perry is, I think the kids love Dua Lipa. Yeah. And then the third is Gen Z loves representation in the workforce. I think we should let the nine-year-old boy become king for one year.

And then go revert. And see what happens. Yes. Or Charles? Those are my three ideas. Listen, it could work because viewership is way down. 20 million people tuned in this year, which was 31% lower than the 29 million viewers who watched the funeral of Queen Elizabeth II. Yes.

So the internet was hot with memes and chatter about this coronation, but it didn't seem to register. I think more people watched the Berkshire Hathaway annual shareholders meeting. This happened at the same time. All right. If you're listening press office of Her Majesty, His Majesty's... We will be consultants for you. Listen to Kyle. He has Berkshire Hathaway Stock.

All right, final segment. Let's get into the week ahead. Let's do it. It is a massive week on tap for the economy. Debt ceiling issue is going on. President, GOP House Speaker Kevin McCarthy and other congressional leaders are meeting tomorrow to discuss raising the debt ceiling. This is bad news if this doesn't happen.

And Yellen has warned that the US could default as soon as June 1st, which it's my height day. It's 5-8 right now. It's only a few weeks away. Absolute economic catastrophe if this doesn't happen. The Republicans are trying to use their leverage as the controlling party of the House to stuff in their priorities like budget cuts to a debt ceiling increase. Democrats just want a clean increase and there's a stalemate. There's this game of chicken going on.

The problem is this problem is just so much more important than anything else going on because if we don't get a deal, then you open your Robin Hood and you will just see zeros everywhere. That might be the angle that we get people to really unite on this. Like, if you want to open your Robin Hood and see Green, tell them to pass this, I do think that it's very interesting now. We're always trying to package other policy objectives into bills,

which complicates it. And I think the other thing is just we don't have an ability to have a united front on something that seemingly is important for every American. I loved your analogy of chicken. It does feel like we're playing game of chicken, but we're all in the car, and we just want to go to home and watch Netflix. And then what else is happening is two pandemic era policies are ending on Thursday. You have Title 42, which is the immigration law that allows the U.S. to expel migrants back to Mexico really quickly. That's coming to an end.

And the U.S. is also ending its public health emergency for COVID-19. That won't affect the availability of treatments and vaccines. We also have Legend of Zelda, Tears of the Kingdom coming out on the Nintendo Switch on Friday. It's the first Zelda game in six years after Breath of the Wild. Yeah. Might have to buy Nintendo Switch for this. The last Zelda game I remember is Okerina of Time, and it was a banger. So I might have to get a switch as well.

Last couple of things are the Google event, which I'm a Google Pixel guy, so I'm excited to see there's supposed to be announcing that live. People know. They all know. They're going to release the pixel fold folding. Folding smartphone. There's Eurovision tomorrow that's kicking off. Liverpool. Ukraine won last year, but typically, and typically the winning country will host the next year's competition. You're not really going to host anything in Ukraine right now, so they've

moved it to Liverpool, and so the UK people are hyped, probably more hyped about that than Coronation. The Pulitzer Prize is being handed out today, so I got my fingers crossed. I'm feeling good for you. Yes, my deep dive into the Death Stars collapse and how the galactic economy will have to bail out all the banks, I think is in the run. As a Berkshire stock owner, I actually get a vote and I voted for you. And then finally is Mother's Day on Sunday. Oh, yeah, no, I totally knew that. Dori Hagi, I totally knew that.

You have one week. This is your warning. I have two takes. Now that COVID has officially, like, declared over the pandemic, can we go back to paper menus? Like, I need paper menus. I'm not scanning another QR code. The pandemic's been declared over by the World Health Organization, back to paper menus. I was with my family yesterday.

We were getting food. We were getting food at a restaurant, and they were just, complaining the whole time about the QR code menus. So I agree with that. I don't think it's going to happen, though. Second thing, who wants a foldable phone? I've not spoke to one person that wants this. Why are companies making foldable phones?

Because they think people want them that you don't talk to because you're living in a bubble. All right, I guess I'm in an iPhone bubble. All right, Kyle. That was great. You're going to be with us for a few times over the rest of the week? I think so unless this went so badly that they pull me. We'll find out. Yeah, we'll be brief afterwards.

It's good for tomorrow if I'm back. I have some thoughts. Listeners, if you want to get in touch with us, you can always email Kyle and I and Toby and the rest of the team at Morning Brew Daily at Morningbrew.com. Big thanks to everyone in the control room for making this show possible.

Our producer and editor is Emily Milliron. Our technical director is Dan Bousa. Samantha Velas and Raymond Lou are our associate producers. Billy Minino is on audio. Hair and makeup is still being pinned down by Zuck at Jiu-Jitsu. Kevin Emery is our chief content officer and our show is the production of Morning Brew. Have a great week, everyone.

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