Morning Brew Daily - Macy’s Panics Over $154M Expense Cover Up & Space Rocket Wars Heat Up

Episode Date: November 26, 2024

Episode 461: Neal and Toby chat about the damage control Macy’s is having to do after finding out an employee hid $154M in delivery expense from its books, right before its earnings call. Then, California Governor Gavin Newsom offers a tax credit to counteract the possible repeal of a federal tax credit for EVs by the Trump administration. Meanwhile, Toby looks at the trend of basic coding becoming less popular, and now it’s all about AI coding. Lastly, the biggest headlines to know to end your day. Download the Yahoo! Finance App (on the Play and App store) for real-time alerts on news and insights tailored to your portfolio and stock watchlists. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Trump Proposed Tariffs  03:00 - Macy’s Missing $154M 07:55 - California EV Rebate 12:00 - RocketLab vs SpaceX 17:20 - Toby’s Trends 22:20 - Headlines Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brewed Daily Show. I'm Neil Fryman. And I'm Toby Howell. Today, Gavin Newsom takes on Trump and Elon Musk and a Golden State electric vehicle brawl. Then who is Rocket Lab, the scrappy SpaceX rival, who just sent two rockets into orbit in 24 hours? It's Tuesday, November 26th. Let's ride. Good morning. We are officially over halfway through this short week. Keep on going.

Donald Trump dropped some pre- Thanksgiving news yesterday, clarifying some details around the new tariffs he wants to impose. In a post on Truth Social, he said that he will issue executive orders imposing tariffs on all imported goods from the U.S.'s three largest trading partners, China, Mexico, and Canada on his first day in office. Specifically, Trump mentioned a 25% tariff on Mexican and Canadian goods and a 10% tariff on Chinese goods. Neil, all signs are pointing to these things actually happening. Perhaps. He said that, you know, these tariffs would come as punishment for migrants and illegal drugs like fentanyl coming from places like Mexico. and China and said that he would put these tariffs on until those were addressed. So we don't know whether this is the beginning of trade war 3.0 or a start of a negotiation.

And we know that Trump has used tariffs as a point of leverage when starting negotiations. But if these tariffs were to come to pass, it would cause major upheaval in global trade. As you mentioned, these are the three largest trading partners of the United States. We trade $600 billion worth of goods with China, and goods are valued at more than $1.5 trillion that move among the three at North American nations, United States, Canada, and Mexico. Everything would be impacted. We import autos, electronics, veggies, and plastics from Mexico, among other goods. And then Canada, the largest export to the United States from there is gas and energy.

They come from those pipelines to the Midwest. So expect, if these come to pass, economists say expect price hikes. Something to look at on inauguration day. That's when he says he will kind of enact these tariffs. Now a word from our sponsor, Yahoo Finance. I want to get into the weeds a little bit about a feature I really appreciate from Yahoo today. I got my weed whacker out, Toby. Let's get in there.

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only a Yamava resort and casino, celebrating its 40th anniversary. U-N. must be 21 to enter. Macy's kicked off the biggest week for retailers with a real head scratcher. The retailer said that a single employee had hidden up to $154 million in delivery expenses for several years, intentionally in putting false accounting entries to obscure those costs. The employee is no longer with the company and had not pocketed any of the money, Macy's says. said, the book cooking will not affect its cash management or payments to vendors, but it was a big enough mess that Macy's was forced to pull the detailed earnings report it was supposed to drop

and instead delay it to December 11th. What the heck went on here? Expect a lot of scrutiny on KPMG, Macy's longtime auditor, who was apparently out to lunch as $154 million went missing. As retail analyst Neil Saunders said, this was not a good look and, quote, raises the question as to the competence of the company's auditors. Macy's did drop some preliminary financials to give us an update on how its big turnaround plan is going, and so far, so okay. In the third quarter, comparable sales declined 2.4% at company-owned stores, dragged down by its online channels and cold weather categories during an unusually warm fall.

But things are going better at its luxury units, Bloomingdale's and Blue Mercury, which both reported same store sales growth last quarter. Neil, these are not the headlines Macy's wanted to make three days before its biggest event of the year, the Thanksgiving Day parade. Yeah, talk about rain on the parade. And actually, it's supposed to be terrible weather for the parade anyway. So just a slew of bad headlines for Macy's. It doesn't look like this is actually going to impact much of its financials. I mean, it recognized about $4.36 billion in delivery expenses over the same period of which $154 million was hidden. So that is a small percentage, but certainly sheds a bad light on its auditors and its accounting, especially as we gear up towards the biggest day of the year for U.S. shopping, which is Black Friday.

It's so confusing to a lot of people, though, because people were looking into this, and no one knows why an accountant who is just responsible for small package delivery, would do this. Was it a mistake? Were they just doing the wrong journal entry for years? And it just went totally unnoticed. That is what the biggest question is, it is a mystery because you're right. they didn't pocket any of this money.

It just kind of disappeared into the ether. So there is no motive here, which is why it's so strange to people. But you said Neil Saunders was critiquing Macy's because even though there was no nefariousness necessarily going on, we're trying to do pocket, extra cash. How does this slip by for multiple years? It's not just multiple quarters. It's multiple years. So that is why so many people are just scratching their head.

We saw this headlines. And as we read into it, you're like, what is going on over there at Macy's? Maybe we'll find out more in the months going forward. but it does expose how there is a huge accounting shortage in the United States right now. The number of students who earned a bachelor's degree in accounting and master's degree felt 7.4% from 2022 to 2021, which is the largest drop in a single year since at least 1994 to 1995. So people are looking at tech and business and finance and other jobs, and they're avoiding accounting. So this is not the first financial accounting impropriety or mistake.

that we've seen companies happen over the past few years. And it looks like Macy's was just kind of looking, was about to prepare. They were probably preparing the slide decks for their earnings report. And they were like, wait, what's this? And then they probably called up KPMG and they're saying, what is going on over there with you guys? Fun fact, accounting was my worst grade in college. I got a C plus in accounting. And then after that, I switched from a business major to an English major.

So I am part of the problem. I do just want to dig into Macy's overall financial outlook a little bit more because you talked about some of the bright spots. Macy does have this plan. They have these things called 50 designated locations where they think represent the company's future based on just where they're located, based on some renovations they've done for the store, based on some staffing and customer service decisions. And sales did rise at those stores around 2% as well as those luxury lines, Bloomingdale's and Blue Mercury. So it does look like they have a path forward. they are seeing slight growth in some sectors, even though they do still have this plan to shut down about a third of its locations,

150 locations by 2027. So even amidst all this accounting drama, there does look like there is a path forward for Macy's, and it does look like their plan that they have put into place is reaping some rewards so far. Donald Trump wants to kill a signature Biden-EV tax credit. And California Governor Gavin Newsom wants to bring it back to life. the $7,500 EV credit born from Biden's Inflation Reduction Act has been an early rollback target for the Trump campaign.

But yesterday, California Governor Gavin Newsom said that California was willing to play the villain to the incoming administration and resurrect vehicle rebates in the state, even if Trump dismantles the federal credit. If past, Newsom would reintroduce California's clean vehicle program, which was a $7,500 rebate that more than $590,000 vehicles used from 2010 to 2020. One thing the program would not include, though, is some sugar for Tesla. Newsom's office told Bloomberg that the idea behind the subsidy is to promote competition, and since Tesla has the biggest share of the EV market, they don't need any help. A decision that I'm sure Elon Musk will take very well. It's not surprising that Cali is leading the charge here a few days after Trump was elected. Newsom gathered his state legislator to make some plans on how to, quote,

Trump proof some of its progressive policies. So this looks to be the first of many run-ins Newsome and Trump will have over the next four years. Yeah, California wants to position itself as a heavyweight to what might be going on, a counterweight to what might be going on in Washington when Donald Trump takes the White House and has plenty of weight to throw around because most of the EVs, not most, but a large percentage of the EVs that are on the roads are in California. 37% of all electric vehicles in the United States are registered in California. The top five cities in the United States with the highest number of registered EVs are all in California.

In San Francisco, 30% of all cars on the road are EVs. Los Angeles, 25%. So this is EV Haven in California. It wants to keep it that way. And let's dive into the Tesla portion of this too, because Tesla has generally been in favor of rolling back the federal $7,500 EV tax credit because, again, it is better position. It has better scale. It has better margins than legacy automakers.

So it was going to fare okay if that was rolled back. But when you have this unfair playing field in the biggest EV market in the country, obviously you're going to be a little peeved. And again, some people are criticizing Newsom for just being a little petty here because if your goal is to actually advance a green transportation agenda, why would you not subsidize the biggest EV seller in the United States? States. You can say that it promotes competition, but obviously there's definitely some political maneuverings going on underneath the surface of trying to advance this green agenda.

Yeah, and Newsom and Musk, there's no love loss there back. You know, Tesla was headquartered for its entire company lifespan in California until 2021, when Musk said that Tesla would move its headquarters to Texas. And part of that reasoning, he said, was because California's state government forced him to shut down production of his Fremont plan for COVID reasons. And he did not like that. He called it fascist. And then he, like many other companies, like Chevron as well, picked up their headquarters and moved it to Texas.

Right now, we just have to say, too, none of this is set in stone. Both Newsom and Trump do need to get their legislators on board to either roll back the original credit and then for Newsom to instate this, reinstate this old, I guess, new credit at this point. So definitely need the state legislator and the national legislator involved. And experts warn that if this credit goes away, then it would further crush EV sales up to 20% because right now EVs cost $8,000. The average EV costs $8,000 more than a traditional car.

And the EV credit was supposed to bring that more in line and in balance. And if that goes away, then we could see a further dampening of that market. For years, SpaceX has held a near monopoly on the U.S. U.S. market launches, accounting for 80% of all the materials sent into orbit during 2023. But space is infinite, after all. Isn't there room for more companies? Enter Rocket Lab, a startup that just made history and could finally be giving SpaceX a little competition. On Sunday, Rocket Lab launched a pair of its reusable rockets within 24 hours of each other, a first for the company. And coming from launch pads in Virginia and New Zealand, it's

believed to be the first time a single launch operator carried out launches in different hemispheres within 24 hours. This capability of rapid fire back-to-back launches is what's getting investors so excited that Rock and Lab can be a serious player in the booming space economy. Shares have jumped more than 300% since September, which was just a few months ago, to reach a record high yesterday. Also adding to the hype, the company scored a $24 million government award from the Chips Act to increase production of the compound semiconductors. It makes out a plant outside of Albuquerque. Toby, SpaceX pioneered reusable rockets as the future of the space industry.

But Rocket Lab is showing that others can do it too. It's notched 56 launches with its current electron rocket, but is building an even bigger rocket called Neutron that's slated to launch for a paying customer in 2026. Everything is coming up for Rocket Lab, including its stock, including its rockets itself. Yeah, it's in the mid-50s in successful launches. It likes to brag that it reached, electron reached 50 launches faster than any other rocket. Right now in the general space race, SpaceX is kind of leaps and bounds ahead of everyone. It's in triple digits of successful launches this year.

China's space program is in second, but then Rocket Lab is in third. And it is just weird because it's gone under the radar a little bit. This is a little bit of a smaller company. They make smaller rockets than SpaceX does. They can carry payloads that are just around 60 percent, big as Falcon 9 rocket from SpaceX can. And obviously, a fraction of what SpaceX's Starship will eventually be able to carry. But still, they are very scrappy.

They are lapping legacy space companies like Lockheed Martin and Boeing to really be the cemented third place in the rocket races right now. And they also have another line of business, which is what this Chips Act Award had to do with. So they have this plant outside Albuquerque where they make solar cells that they sell to other space companies. This has nothing to do with the rockets that they make or the satellites that they carry into orbit. But they make solar cells that are critical. They're only one of two companies that make these four space companies.

You can find these solar cells in the James Webb Space Telescope, the Mars helicopter, the Mars lander, and all of NASA's Artemis missions that are going to the moon. So that accounts for actually more than more revenue than their rocket launches. So that is a huge business as well. They just got that government funding. So all things coming up, Rocket Lab. I want to just share my favorite fact about this company. I was reading about how it got started.

The company was founded all the way back in 2006, actually, by Peter Beck. He was from New Zealand on a trip to the United States. He realized, like, there was this big possibility for these low-cost, small rocket business. And he started to talk to investors. His first seed investor that he met, his name was Mark Rocket. And if that is not fate right there, then I don't know what is. Mark Rocket as your seed investor in Rocket Lab. All right.

Well, whoever's launching a fried food company. Fryman. Hit me up. Hit me up. Or a wolf company. Toby Howell. Up next, it is Toby's Trends time. Hey, honey, it's mom.

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at thehartford.com slash small business. Golden tickets to a better life don't really exist outside of Charlie in the chocolate factory, but the closest you could come in the modern labor market was learning how to code. A bevy of so-called coding bootcams popped up to educate excited newcomers to the field of software development, promising job opportunities and a path towards a new lucrative career. But recently, thanks to the rise of AI, those boot camps haven't been yielding the job results that attendees were hoping for, and it's upending a once reliable pathway to a new job and a new

life that I want to talk about on today's edition of Toby's trends. One coding boot camp operator the New York Times spoke to decided to pause his courses indefinitely because his job placement rate fell from 90% to 60% in recent months. Part of the issue is there's just not that many jobs available out there. The number of active job postings for software developer roles dropped 56% compared to just five years ago, according to data from Comp TIA, with a drop hitting 64% for developers with no prior experience. Yes, layoffs have hit the tech world. The industry has cut about 135,000 workers from last April till now, but also the rise of AI coding

assistants have made entry lever developers more replaceable than they've ever been. Neil, you've had friends make mid-career pivots to software development roles after taking one of these boot camps. Is their downward trajectory surprising? Well, maybe, yeah, because I, yeah, you said I have some friends. Well, I used to write Morning Brew's newsletter with someone, and they were like, maybe this isn't for me, but I want to learn how to code. They went to a coding boot camp, did that, and then it got an incredible job at a really fast-growing company.

And I was going to be extremely rich when they sell or go public. And so I'm a little jealous. But it used to be a ticket to a fantastic job. The mantra was learn how to code. And there were a ton of software developer jobs out there, especially in the entry level. And up until 2020, at least, this was working really well. There was a survey of 3,000 boot camp graduates by course report. 79% of respondents said the courses had helped them land a job in tech and 56% they got a salary

increase. So this used to be an incredible opportunity and maybe there are some at the margins, but the stats you mentioned are truly shocking at how the fall of the coding boot camp, many are closing down due to this dearth of entry-level positions. Yeah, I think that cliche job advice of learn how to code has been a little bit replaced of learn AI skills. The problem is that no one really knows. what AI skills are right now? Like, is it, you know, using English language prompts to make these large language models do what you want them to do?

Is it something more beyond that? A lot of people that the New York Times spoke to, too, is that right now they're seeing coding as a parallel to perhaps long division because it is very important to still know how coding works. The fundamentals, the basics of it. But it's probably not necessary for this new kind of era that we are entering into. You're not doing long division on a new. normal basis. You probably won't be sitting at your computer and typing out lines of codes like

you once did. Right now, it only gets you so far to know coding. You do need to know that added layer of AI. But I don't think that these will ever go away, but there's definitely this shifting going on in the market of what the market actually wants, which is more demand for AI skills, less demand for just pure coding boot camp graduates. Because AI can write snippets of code. And there's a question as to the quality of that code. Some people say that it is quite good and does it much faster and obviously cheaper than a human can do. Others say that it can't replace humans. They're still riddled with errors and it doesn't quite understand the big picture. But I remember Google's recent earnings report came out. Its CEO Sundarpeche said that a quarter of the company's

new code was generated by AI. And that shocked a ton of people. But it shows how AI generated code is being used at a large scale. And I think that a lot of entry level coders are kind of struggling with that because some of them talking to the New York Times said that they feel like GPT monkeys where all they do is sort of just churned through some small tasks with the help of AI without any real sense of the bigger picture. So definitely some

paradigm shifts happening right now. That Google stat is pretty wild to think about and how it trickles down to affect everyone from entry level software developers to the coding boot camp operator. All right so put yourself a little 18 year old Toby going to college. Are you studying are you learning to code or are you

studying how to prompt AI? to create code? I think it's not an either or. I think you have to learn, again, you have to learn the basics. You have to learn long division before you can go to higher math. Same thing. I think you have to learn the basics of software development before you go to, you know, the big leagues. But I still be sitting in this chair if I didn't know Long Division.

I don't know. I don't really know it. So I didn't take a math class past senior year of high school. So I think you would be, Neil. All right. Let's sprint to the finish with some final headlines. Warren Buffett is feeling extra thankful this Thanksgiving season. The legendary 94-year-old investor announced he was donating about $1.2 billion worth of

his Berkshire Hathaway stock to his family's charitable foundations, including one dedicated to his late wife and others run by his three children, who aren't really children per se because they're in their 60s and 70s. Buffett also said that after his death, those three children overseeing his $150 billion fortune will have to come to a unanimous decision before distributed. any funds to protect them from the insane amount of requests that will be coming their way. Toby Forbes calculates that Buffett is the biggest philanthropist of all time, donating more than $60 billion toward charitable causes over his lifetime. Yeah, he has pledged to give away

99% of the fortune he built, but these wealth dynasties that you build when you are someone as rich as Warren Buffett, there are consequences that, one, he was kind of waxing poetic about the consequences for his children. His children now are in their 60s and 70s at this point, but he wants them to not have these negative consequences of getting passed down so much money to them. He thinks that it can stunt your personal growth. He thinks that it can complicate relationships. So of course, he was trying to figure out in classic Warren Buffett fashion, like define a set of rules basically of how to deal with this enormous amount of wealth being passed down. It's not that he doesn't trust them. He just wants them.

He doesn't actually trust future generations because he knows he trusts his kids. He knows that they'll do right by that amount of money. But he doesn't. know what like the next generation, the generation after that might do. So very interesting to see him kind of give his perspective on this massive wealth transfer that is happening that, again, doesn't affect a lot of people, but does affect him and his legacy. And he also offered some advice for all parents. He said, when your children are mature, have them read your will before you sign it because it's better for your kids to be able to ask questions when you are still around to sort of clarify things with them. Now let's check in on Romania where there is

just a shock result in its presidential elections. Talon Georgescu, a far-right candidate with a judo background and a flair for making viral TikToks, snagged a surprising 23% of the vote, leaving many political analysts scratching at their heads. He beat out the country's current prime minister who garnered about 20%, setting up a stage for a runoff on December 8th. The election has shaken up Romania's political landscape. Drogenskew's unexpected rise as an independent candidate so is a widespread discontent.

with traditional political parties, even as he faces scrutiny over his controversial views, his support of Russian president Vladimir Putin, and his lack of really any campaign finances or strategy beyond posting viral videos on social media. I mean, according to one Romanian analyst and historian, he said, it's a TikTok win. You don't even need a party. He created all of these super viral TikTok posts of him in his house and him horseback riding and him martial arts fighting. and he just came absolutely out of nowhere thanks to TikTok,

and he claims he spent $0 on his campaign. But it just shows how social media is disrupting the political landscape. I know that was a big talking point during the U.S. presidential election of how much Kamala Harris' early TikTok brat-vi-y posts were actually going to translate, at least in Romania. It seems like it absolutely did. If making your Thanksgiving sides involves cracking a bunch of eggs, and it probably does, the bad news is,

prices have only been rising. Even while broader grocery store inflation has remained flat, egg prices skyrocketed 30% in October from a year ago. You know they've been increasing for the past two years, but a steady climb has turned into a big spike this fall as a result of two factors from Econ 101. First, demand is up, as it always is, ahead of the holiday season. People tend to cook a lot this time of year, and eggs are a key ingredient. Meanwhile, another spurt of avian flu has dampened supply. Since January 2022, the virus has killed 75 million egg-laying birds, about 8% of the nationwide supply, and last month, cases started to spike again, killing 2.8 million birds. Toby, the egg aisle is the one section of the grocery store that can't get no inflation relief.

It really can't. I was thinking, though, and I don't know if I just have a limited culinary understanding of Thanksgiving. What do you use eggs for in Thanksgiving meals? Is it just baked goods? Yeah, I guess the desserts. Which is a big point. part of Thanksgiving. Yeah, but I make pies and stuff. Like, isn't it, there's not a lot of eggs involved with it. So I don't know if I'm just not making the right stuff for, but I couldn't think of one meal. I'm like, I'm not having scrambled eggs as a side. I wouldn't eat them on their own. I guess it really is just baked goods. That's one of my only, what did you say? What pies do you make? Just pumpkin pie, you know, with the pre-made pumpkin pie mix, apple pie, I guess. Yeah, those are the

people want to know your recipes. It's mostly just, I mean, I've told this story before, but the 5K that we run. They give out pies for rewards and so usually I just go win the 5K then you get a nice pie for cooking. So yeah, if you have some egg-based recipes, maybe a keesh. Maybe that's what it's doing for breakfast. Finally, let's finish with the headline

about meat to go with those eggs. It might be time to rename the meat packing district in New York City because the last actual meatpackers left have accepted a deal from the city to move out so new tenants can take over its space. Back at its peak, meat packing was a home to over

200 slaughterhouses and packing plants strategically located in the city where shipping and train lines converged. But now anyone who has visited in New York really in the past 20 years knows that those abandoned freight lines have been turned into a park for tourists called the High Line. While those ports that used to accept freight ships are now popular pedestrian peers full of runners and walkers. Neil, there's no exact date for when these last tenets will vacate their home in the district. But a walk around the area

in a sniff around the area will tell you that the only thing left of The meat industry is the name. Yeah, I mean, I'll tell you a day where this started. 2000, Sex and the City's Samantha left her Upper East Side apartment to live in the meatpacking district. And that symbolized the transition of this neighborhood from slaughterhouses to one of the bougiest neighborhoods in all of New York City. You said they would change their name, but I don't think so because a lot of these neighborhoods are, you know, use these old style, what they were at the time as, branding and lay into that nostalgia. And it's an interesting example of neighborhoods change over time.

This was not always a meatpacking district. It was something else before that. Then it became meatpacking. Then it became extremely expensive shopping. So it is the end of an era, but I do not think they're going to change this name because meatpacking district has an incredible brand to it. And I think if you look at other neighborhoods all over the country, they're leaning into their neighborhood history as a means of attracting people.

I know one of the fastest growing neighborhoods in Philadelphia, which has had a similar transition to meatpacking, is Fishtown. And a lot of fishermen used to live there in the 1700s. Obviously, no one's fishing there now, but it is a, you know, is becoming extremely expensive and fast-growing neighborhood in Philadelphia. So I would expect these neighborhoods to lean into their history. Yeah, they definitely will. I was also just thinking about, think about how the smells must have transitioned throughout history, because 200 slaughterhouses in meat packing to now there's just. Gucci perfume. Gucci perfume. There's nice restaurants around, so clearly the smell has maybe made the biggest

transition of all. Okay, let's wrap it up there. Thanks so much for starting your morning with us and have a wonderful Tuesday. For any questions, comments, or feedback, send an email to Morningbrewdaily at morningbrew.com. And if you're wondering how to give back this Thanksgiving season, share Morning Brew Daily with a friend, family, or a co-worker. They'll never stop thanking you for giving them a new pod wreck. For today's sharing inspo, here's Toby. I want you to share the pod with someone who doesn't watch on YouTube. Yes, there's a YouTube version of the show. So send

this episode to a friend, but use the YouTube link and see if their images of Toby and Neil match up to the voices they hear every day. Okay, I'm scared about that. Let's roll the credits. Emily Milliron is our executive producer. Raymond Loo is our producer. Olivia Graham is our associate producer. Yuchinawa Ogu is our

technical director. Billy Minino is on audio. Hair and makeup would never hide expenses from us, right? Devin Emery is our chief content. officer and our show is a production of Morning Brew. Great show today, Neil. Let's run it back tomorrow. You can't reason with the sun. Trust us. We've tried. This summer, it's time to put that angry ball of fire on mute. Columbia's Omnishade technology is engineered to protect you from

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