Morning Brew Daily - Elon Musk Keeps Getting Sued & How Shrek's Music Can Make You $$$

Episode Date: October 6, 2023

Episode 164: Toby and Neal explain the lawsuits that Elon Musk has found himself in this week, including ones about his Twitter acquisition and a self-driving car incident. Plus, why almost 20 million cars are being recalled and nearly every Alaskan is getting a $1300 check for oil. The guys also share their stock and dog of the week and Michelin will now be ranking hotels. And finally why this billion $$$ Powerball prize isn't as much as you think. 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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slash brew AI. That's pwc.com slash us slash brew AI. Good morning brew daily show. I'm Neil Freyman. And I'm Toby Howell. On today's pod, Elon Musk's legal woes are piling up as anyone with a pulse is suing him right now. Then anyone who lives in Alaska

is probably refreshing their bank accounts right now waiting for a payout from the state's oil fund to hit. We'll tell you why the heck Alaska is get a payment at all in just a minute. It's Friday, October 6th. Let's ride. This morning, the Nobel Prizes handed out its prestigious Nobel Peace Prize to Iranian activist Nargis Mohamedi for her fight against women's oppression in Iran, which has been the site of mass protests for women's rights over the past year following the death of a 22-year-old in police custody.

Mohamedi has been imprisoned 13 times, convicted five times, and has been sentenced to 31 years in prison where she is now. The field of possible winners was huge this year, with 351 candidates. was the second highest number ever. There was a lot of speculation about whether Ukrainian President Vladimir Zelensky would win it or Russian dissident Alexei Navalny, but the committee ended up choosing Mohammedi for a leadership role in these historic protests. The Nobel Prize is they're coming to an end. We just went through kind of the gauntlet of them, saw the Peace Prize in Medicine that we talked about on the show, and then also the prizes wrap up on Monday. Economics tops it all off.

Neil, do you think our names made it into the mix this year? Of course. I like your enthusiasm. Before we jump into the news, Neil, we do have a word from our sponsor, Yahoo Finance. Neil, Yahoo Finance came in extremely clutch last night because, as longtime listeners of the pod, no, Friday is when we do our stock of the week, dog of the week segment. I won't spoil which companies we chose this week, but know that I was cruising Yahoo Finance to get my news and my financial data all in one place. Yes, I was also scrolling through Yahoo Finance last night as well, but mostly to see whether the market will ever turn green again.

It's in a bad place. I'll tell you what. Yahoo Finance is a great place to spend a couple of minutes before bed, way better than TikTok, to get up to speed with everything that happened in the market that day. So check out finance.com if you have trouble sleeping. Or if you need to research a segment for a daily podcast. Correct. That's finance.com. 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 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. Let's get into our first story of the day, Neil, where our friendly neighborhood billionaire

Elon Musk is collecting lawsuits like their Infinity Stones. Up first, the SEC applied for a court order to force Elon to testify as part of an ongoing probe around his acquisition of Twitter. The main thing the SEC is concerned with were Elon's public disclosures, aka his tweets, as he was buying up Twitter stock when it was still a public company. But this latest dispute specifically focuses on the fact that Elon doesn't want to testify again after already speaking to the agency twice about his Twitter acquisition. I actually think Elon's lawyers have a bit of a point here, Neil. I'd be mad if the SEC just kept making me testify. Yeah, but you don't know the particulars of this case. I think they sent in a bunch of documents,

and the SEC wanted to talk to Elon Musk about what those documents contained. This is just a rare thing for the SEC to have to go to a judge and ask the judge to get somebody to talk to it. This is not a normal thing. Elon Musk appears to have been dodging all of these requests to testify. I know he testified back in 2022. The issue here, the bigger issue is that the SEC and Elon Musk are not friends. This spat dates back to 2018 when Elon Musk wrote that he had funding secured to take Tesla private,

when in fact it appears he did not have funding secured. And the SEC hit him with some major penalties. And the conflict between these two has been brewing over the past few years to the point where Elon Musk basically wants the SEC disbanded. Also, one interesting wrinkle was Elon Musk's lawyer claimed that the recent release of Walter Isaacson's biography on Musk would interfere because it contains new information. And so he basically wanted to let both sides take time to digest the information that came out in that book. So it was interesting to see how they kind of pointed to this biography as a potential legal wrinkle.

That sounds spurious. But the actual particulars of the case are interesting because they kind of show how finance and hedge funds and big investors work. because if you take more than 5% of a company's stake or buy up more than 5% of its shares, you have to disclose that to the public within 10 days after you do that because, you know, you want to know who's now a serious owner of the particular company. Elon Musk let those 10 days expire without informing everyone that he had bought. I think it was 9% of Twitter initially.

And that whole, that purchase sparked this whole saga last year where Musk was also about to go to trial because he wanted to back out of the deal to buy Twitter. You have to remember, Elon Musk didn't want, he wanted to buy Twitter, but then he tried as hard as he could to back out until the courts forced him to do it. So here we are with more legal battles that Elon Musk is facing. Yeah, speaking of more legal battles,

just a rapid fire rundown of all the legal issues Musk is facing. He's still involved in a lawsuit from a legal marketing company that claims the rebrand of Twitter infringes on its trademark incorporating the letter X. And X has also been fighting a superiors, since July, accusing it of refusing to pay at least $500 million in severance to thousands of former employees that were laid off once Elon acquired the company. Then last week, his former partner Grimes sued him to, quote, establish parental relationships with the three kids the pair have together.

But apparently Elon had also sued her early in September for the essentially the same thing. Elon is also getting sued for liable for accusing a 22-year-old of having neo-Nazi links several different times on Twitter. And then finally on the Tesla front, the automaker is currently on trial defending itself against allegations that its autopilot feature led to a death after a Tesla Model 3 veered off a highway near L.A. Neil, I don't know what the critical mass is for legal disputes, but whatever it is, Elon is facing it. That is a lot. Finally, before we move off of Elon Musk, we have to talk about the biggest change he's made to X in a long time,

which is he's removed headlines from sharing news articles. So when we post a morning brew article on X or any publisher posts any one of their articles on X now, you do not see the headline for the article that it does not automatically populate like it used to. So all you see is the picture that's associated with that article. So this is objective. I know, you know, our listeners probably think I hate on Elon Musk a lot, but objectively, this makes X very, very confusing to use because you just see a picture. you don't know whether it's a picture or a news article or a link to a news article.

So users on Twitter X have been abusing this and making fun of it all day yesterday by putting random headlines in the captions that have nothing to do with the actual news article and turning into a bit of a farce. It also just hurts the company's bottom line because a lot of people use X in Twitter for the relevant and engaging news articles that they can read on there. So now Musk is making it harder to find relevant news. So it's part of its long quest to keep people on Twitter rather than linking off to other places. But yeah, it is a bit of a head scratcher for sure.

I think he's tanking like Sam Hinky-era stickers. Oh my gosh. He's trying to get the first pick and next trap because that's the only reasonable explanation for a lot of these changes that makes no sense. He said it was for aesthetic reason. So Neil doesn't buying it. He's tanking. Okay, this next story is one I've been wanting to talk about for months. and today we're finally going to dive in.

It's about a massive auto recall that's devolved into a spat between federal safety regulators and a Tennessee auto supplier called ARC. As far back as the spring, the National Highway Traffic Safety Administration has been aiming to recall 52 million vehicles that it says have dangerous components in their airbags that can explode during a collision and spew shrapnel. It's gnarly stuff and the NHTSA has said two people have been killed and several others injured due to these defects. With tens of millions of Americans driving cars that contain faulty airbags, the agency asked ARC to issue a recall to get them fixed, but unusually, ARC refused saying that there's no

safety defects, and the agency has no authority to make it do a recall. Now the NHTSA has to play bad cop, jumping through several legal hoops to make this recall happen. Yesterday, it held a public hearing on the issue, which it is required to do, to get a court to sign off on a recall, and even if it is approved, ARC could appeal the ruling. So here we are. Tens of millions of Americans could be driving cars with airbags that potentially spray shrapnel, but this one auto supplier is standing firm. Yeah, it is a bad look for everyone involved because it's a bad look for the NHTSC because they,

I don't know, I forgot that right? Hey, you were so close. S.A. Thank you for that. Because here they are trying to enforce something. And while a supplier saying, like, no, we're not playing ball with you. And then it's obviously a bad look for ARC as well because you never want to be on the hook or be on the other side of someone saying, no, we need to make the roadways safer. So just a bad look for everyone involved.

They do say that only one out of every 370,000 airbag inflators will maybe have this defect, which ARC says is within the bounds of what they think is safe, but the NHTSA doesn't see it that way as well. But I also went back to there's another similar. dispute from another airbag manufacturer called Takata, which had to recall up to 67 million airbags following similar explosions and only six of them. And it shows how difficult it is to kind of fully address these issues because some of the recalls involved older cars and then cars that have changed models several times. So this is not a cut and dry thing of let's just get all those cars back and fix effects. The way this is different than a normal recall is a normal recall happens when an auto manufacturer, it happens on the side of the automaker where

They identify our problem and they say, and they have to notify regulators because they will get fined if they don't. But this is different because it's a component supplier. And so it affects many different models. I think this one affects 15 different models. So it's way more complex. I'm sure a lot of people remember that Takata recall because that was the largest auto safety campaign in U.S. history. It affected so many vehicles. I think more than 70 million vehicles had to be recalled.

It sent Takata into bank. bankruptcy. And Honda had to set aside $5 billion. So you can imagine why ARC is holding firm here, because this could be costly for automakers, especially as they're going through, especially as the big three Detroit ones are also going through this strike right now. Right. And it actually is GM, who probably has the most arc airbags within its cars. Up to 20 million GM vehicles may have these airbags. So again, they're getting hit on all sides from the auto strike as well as the airbag problem as well. All right, Neil, the next story is something that I had never heard of, but I'm so glad I know about now, and it has to do with a weird wrinkle in the Alaskan state economy. Starting this week, nearly every Alaskan will get a $1,312 check from the state government. It's a dividend check that comes out of the state's oil fund. Residents have received this check known as the permanent fund dividend since 1982, which was around the same time they set up the fund to preserve oil. wealth for future generations. A stimulus check for every citizen sounds amazing, right? But the check

is actually deeply divisive in the state because critics say it takes away from other important programs like school funding or child care. And some politicians argue that if Alaska invested more resources on building a robust economy with better job opportunities, you wouldn't need a check in the first place. So Neil, the more I read about this check and how big a role it plays, both in the economy and its politics, the more intrigued I've gained. Absolutely. fascinating. Alaska has certainly has the weirdest state economy that I've read about. I mean, you think Delaware was weird, but Alaska is even weirder because of its reliance on oil ever since they discovered it in 1969. That runs everything. The state revenues are 80%, 85% accounted

for by oil. There are, and because those oil, that oil money has come in so fast and so plentiful. They have no taxes, well, not no taxes, but there's no state income taxes. There's no state sales tax. And then they hand out this check every year to citizens that has become this, well, part of the culture. As soon as late as 2015, they had advertised this on live TV because it is just such a big deal for some people to use it on vacations, but other people just to use on basic needs and necessities. Right. And it's so interesting, too, how it's fit into other pieces of the economic puzzle as well because brands are now running sales that coincide with the check disbursements. So like you have lazy boy Alaska Airlines running sales as soon as those checks hit the bank accounts.

And then it's also such a political tool because just for instance in the 2018 governor campaign, one of the candidates said he promised every resident, I'm going to bump up the check to $6,700. It was one of those campaign promises that never really got any details around it. but he ended up winning in a landslide. So you can see how it's used as during election years that you can flex the check up and down depending on what you want to get out of a political cycle. And last year, the check was $3,284.

That did come because oil prices jumped because of the Ukraine war. That's the problem. Oil prices are so fluctuating, and you can't really depend on them. If there's a period of depressed oil prices, then this check is going to be low. And also the government revenues are going to be lower.

and you can't pay for the basic services like health and school. So that's why a lot of critics say this fund is about to be depleted. We can't just hand out checks anymore. We have to invest in longer-term infrastructure. Right. It is an interesting case to the universal basic income is a word that has been thrown around a few times, which is we talked about it during the pandemic when everyone got the stimulus checks.

Alaska has been basically running a universal basic income experiment for the last couple of decades. So many interesting layers, so many political. microeconomic, microeconomic angles to it all. So it was very interesting to read about this story. But we got to take a quick break, Neil. Don't go anywhere because we have Stock of the Week, Dog of the Week, coming up right after this.

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Hilton, for the stay. As Toby so artfully teased, let's head to our Stock of the Week, dog of the week, the Friday segment, where we share one stock that made their parents proud and another that was sent to their room without dinner. Toby, you won the pre-show staring contest so you can go first.

As always, Neil, we are not financial. advisors. We are just humble podcasters, so please do not take any of this as financial advice. But my stock of the week is the soundtrack to the major motion picture, Shrek. Neil, it's one of your most quotable movies of all time, and now it is also one of the most investable. The trading platform public is offering customers the chance to buy shares in the rights of the soundtrack of Shrek and receive part of the quarterly royalty payments that come along with it. The 768 track catalog earns money any time. the Shrek movies are streamed or aired on TV or even when the music plays on a theme park ride,

even though royalty payments fluctuate depending on how much Shrek content people are consuming from quarter to quarter, according to public, the composition rights have generated an annualized dividend yield above 8% in the 2022 and 2021. Neil, I'd be all in on this say for one key detail. The rights don't include the two most famous Shrek songs, all starred by Smash Mouth, and Hallelujah as well. It's the score. It's the score of Shrek. So I don't remember the score at all. But yeah, these main, these big songs that everyone remembers from Shrek aren't included. And still, I think this is a very interesting investment because music royalties, I'm kind of bullish on as we've talked about so many times with streaming and TikTok, the playing of older music has become so much more popular over the past few years. And new music has kind of gotten sideline as people, like we just talked about mean girls going. on TikTok. That's a movie that came out 20 years ago. And there's just been this move to listen to movies and music that came out a long time ago. So every time this is played, you know,

that it makes money. So that's kind of interesting. I would be with you, except for the fact that right now investors can get a guaranteed 5% return on relatively risk-free cash investments like treasury bonds. So this 8% from the soundtrack that fluctuates up and down may not be as appealing as it would in like a lower interest rate environment. And so there are other investment vehicles that do this. There's one London-based one that has thousands of songs written by Shakira, Red Hot Chili Peppers. That fund is down 11% this year and about 40% below its 22, 2021 record. So maybe it's not the perfect time for this come out, but it is cool to see investors get access to this asset class. It's part of a wave of startups and, you know, FinTech startups offering alternative investment

investment opportunities to regular folks like us. I know there are other platforms where you can invest in sports memorabilia or old cars. The problem is there's not a lot of liquidity here. So you can't really grab your money anytime you want like you would on any normal stock trading platform. I'm going to go watch Shrek though. Dang, that just made me want to do it. All right, my dog of the week is Clorox because in August it got hit with a massive cyber attack. And yesterday, it said that the cyber attack was pretty bad for its business. Clorox stock hit a five-year low after it warned that quarterly revenue would decline as much as 26 percent. And while it was expecting to post a $150 million profit, it would now end up losing money. Chlorox was, of course,

a huge winner during the pandemic when we thought wiping down our groceries was the way to kill the virus. And its stock hit a peak of $237 per share in August 2020. But recently, it's been on a steady decline, closing at $125 per share yesterday, a nearly 50 percent drop from its all-time high. One thing to note, if this cyber attack happened just a few months earlier, we wouldn't have heard a peep from Clorox, but a new SEC rule went into effect on September 5th that requires companies to report the potential impacts of significant cyber attacks. So we're seeing this new law in action. But I've got to be honest, the most interesting thing about this story to me is that I found out that Clorox makes hidden Valley ranch dressing. I had that written down as well because I literally had the line.

I could not believe that I read it. They just slid it into the article. Chlorics has struggled to resock it's good with alongside its namesake bleach brand include Glad Trasbacks and Hidden Valley Rance Dressings. I could not believe that how many decades ago? I

don't know. There's a lot of things we don't know. We're supposed to notice, Neil. Yeah, I was cracking up, though. Yeah, they apparently bought this ranch dressing for $8 million a couple decades ago. It's a deal. It's a deal and a half. Yeah, and then it is interesting. Back to the story. Yeah, back to the real story.

the SEC ruling, they are the first company, but they're certainly not the last. Think about how many times we've talked on the show about the prevalence of cyber attacks, and now that it's going to become part of financial disclosures, we're only going to be talking more about this because it's just such a big problem. Yeah, last night, actually, MGM Resorts in Las Vegas, which had that major cyber attack just reported through this same filing process that it lost $100 million from the attack that has suffered. ranch and casinos.

They're getting hacked right now. For our next story, I want to talk about the Michelin Guide. Yes, the world famous restaurant guide that's been ranking places to eat for 123 years is finally diving into another industry, podcast rankings. Just kidding.

It's hotels. Yesterday, the brand announced that it would start designating the, quote, most exceptional hotels are across the world. But instead of using stars like they do for restaurants, hotels will earn Michelin Keys. This decision didn't just come out of the blue. There's a sneaky financial angle to it as well. Michelin quietly acquired a company called Tablet Hotels five years ago, which is a booking website

for luxury hotels. So you can bet that they're looking to drive traffic to tablet as part of their push into this new rankings. Neil feels like a logical enough expansion. Yeah, it totally feels logical. They're just betting on the travel industry to keep growing. And it does appear that way. by 2033, their estimates that travel will become a $15.5 trillion industry and account for almost 12% of the global economy, which is insane. So Michelin's like, all right, well, we do food. Let's also do hotels. And we can also make money off of commissions there. So it's just expanding its reach. I think this is obviously a logical move. I do want to talk about the history of the Michelin Guide, though. Do you know why Michelin is the company that ranks prior? I have a feeling I do,

but I'm not going to steal your thunder. Oh, thank you for that. A lot of people don't actually make the connection that the Michelin and Michelin Guide actually refers to the tire company, and the company started releasing guides way back in 1900 as a way to encourage drivers to take more road trips.

So one star means it's a very good restaurant. Two stars means it's worth a detour, and three stars are worth an exceptional journey. So the whole idea was to encourage drivers to drive, wear out their tires, and now suddenly it is, the foremost worldwide authority on ranking restaurants and now hotels. Have you been to a Michelin Star Restaurant?

Randomly enough, I went to an Asian restaurant in D.C., and afterwards I walked out, and I saw it had two Michelin Stars, which at the time I was just like, oh, I thought it was just a normal place. So I've been to one, but kind of on accident, honestly. Interesting. What about you? No, I've not been. I know. We've got to make a bucket list item.

I've not been to any, but I do want to point out that Michelin tries to distinguish itself because they don't take any compensation. They don't take any free meals. Their guides kind of go secretly around and just pay for everything, whereas other reviewers kind of accept complimentary meals and gifts and things like that. So they say we have the utmost integrity, but there was this new investigative New York Times report that came out a few weeks ago that said that local tourism boards were paying Michelin to review restaurants in their particular area.

So you get this kind of pay-to-play situation that, has raised a little ethical issues among the Michelin community. So the big distinction is that you can bring the Raiders to your area, but the individual restaurants cannot pay to play. So that's where Michelin is trying to yeah, it is a bit of a gray area because

even though they may get compensated to come review, say like Miami, Florida, for instance, the individual restaurants themselves can't buy stars. And then Fort Lauderdale's left out in the lurch when Miami Tourism Board pays them. Okay, for our final story before the weekend, it's kind of gone

under the radar, but there's a $1.4 billion powerball jackpot that will be drawn on Saturday night. It's the world's seventh largest lottery prize in history. So why has it gone under the radar? Well, a combination of factors has made billion dollar jackpots just not that rare or exciting anymore. This is the eighth billion dollar jackpot this year alone. In 2017, lottery operators added more number combinations to make it harder for people to win the jackpot. Consider that for Monday's drawing, people in the U.S. had chosen about 20% of the possible combinations, meaning nearly 80% of the possible combinations were not selected, so it's not a surprise there was no winner. There are other forces driving jackpots higher, too, like higher ticket prices due to inflation,

and here's the real X factor, interest rate hikes. The total jackpot is calculated by taking the cash value of the prize now and estimating how much it would be worth 30 years from now if it was invested in a portfolio of bonds with bond yields so high right now, as we've talked about, because of those interest rate increases, that's caused jackpots to just, quote, unquote, be unflated. I know. It's the headlines when we were reading are hilarious. It's like a billion dollar jackpot doesn't get you what it used to.

And a lot of people actually don't end up caring because whether it's $700 million or $500 million, at a certain point, it doesn't matter. Like, it is multimillion dollars. But it was so interesting to see how the bond market that we talked to, out this week is affecting the lottery market as well. And I also just, the sneaky rule change that happened back in 20 or whatever year it was. 2017. 2017 was so sneaky because what they did was increase the amount of white balls and decrease the

amount of red balls. So technically the amount of total balls stayed the same. But it's really the white balls that affect the odds much, much more. And it ended up almost doubling the odds to make it worse and help the lottery in its favor and make it worse for the people trying to win the lottery. So it was that sneaky, sneaky thing that has led to, because it's in the best interest of the lottery to have those big headline numbers because then more people buy tickets. So I don't know, just tough to win these days. Tough to win because it's a one in $292 million odds, which means you are more likely to die from a meteorite strike or go to the ER because of a pogo stick injury than win the powerball.

I'm sure still many of you are about to go buy a powerball ticket after listening to this. I'm about to go buy a pogo stick. All right. that is a wrap on our shows for the week. Quick housekeeping note, we are not doing a live show on Monday because it is Indigenous People's Day, but we did tape a show this week where Toby and I debated a variety of hot topics. That's coming out on Monday, and we definitely encourage you all to listen on your day off.

It was a lot of fun. As always, feel free to write us at Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Milliron is our editor and producer, Samantha Vela's, and Raymond Loo, are our associate producers. Yuchinawa Ogu is our technical director. Billy Minino is on audio, hair and makeup is still waiting on that Michelin Star. Devin Emery is our chief content officer and our show is a production of Morning Brew.

Great show today, Neil. I wish you all well. All pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buckslot 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 Yamaba's history. Club Serrano members can earn daily instant prizes and secure a spot in the finale. May 29th. Don't pass go and own it all. Only at Yamava, celebrating its 40th anniversary. UN? Details at yamava.com must be 21-20. Please gamble responsibly. Monopoly is a trademark of Hasbro.

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