Morning Brew Daily - PayPal Enters Crypto Game with New Stablecoin & Warren Buffett is Crushing It Right Now

Episode Date: August 8, 2023

Episode 120: Neal and Toby explain why Paypal is entering the Stablecoin game and what that could mean for their crypto business. Plus, Berkshire Hathaway shares have never been higher and LA workers are preparing for a strike that could highly impact the city. Also, Campbell's Soup acquires Rao's for $2.7 billion and Paramount sells Simon & Schuster to a private equity firm. Toby shares his favorite trends and why big oil having trouble attracting young talent. 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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Good morning, Brew Daily Show. I am Neil Fryman. And I'm Toby Howell. On today's pod, at 92 years old, Warren Buffett still has his fastball. And we'll tell you about one college major that is desperate for students. Then PayPal is dipping its toe into the stable coin game, so we'll cannonball in to explain it to you. Plus, car bloat has infected our roadways. But bigger is not always better when it comes to our automobiles.

It's Tuesday, August 8. Let's ride. Neil, I have some sad news to report this morning. It looks like the room temperature, ambient pressure, superconductor dream is dead. No. More research has come in in recent days, and the general consensus is that LK99, the supposedly magic material,

is more likely just a pharaoh magnetic material, which explains its levitating properties. So, Neil, we made a really cool magnet, but probably not a Nobel Prize-winning conductor that will change humanity forever. The fight goes on. The fight goes on. We'll get there one day.

But, you know, the real superconductor was the lab partners we made along the way. Oh, man. I did want to jump in there and start mixing it up a little bit. But yeah, kind of the dream is dead, but it was just a fun time to see humanity. You can still try just like a different formula or different substance, different formulation. And hey, make it a cool magnet? That's not nothing right there. I agree. I've never made a cool magnet. Right, exactly. All right, let's jump into our top story. Yesterday was one small step for PayPal and one giant leap for your cousin who talks nonstop about crypto. The global payments giant yesterday launched a stable coin called PayPal USD

becoming the first major financial technology firm to dip its toes into those waters. So stable coins are cryptocurrencies tied to a more stable asset like the US dollar, which is supposed to make the tokens less volatile, more stable, since there is a real concrete thing behind it. They are less of a speculative investment like this. Bitcoin that you hope will grow over time and more a tool for interacting with the crypto ecosystem. I can move money between wallets or exchanges very easily using a stable coin rather than having to deal with the traditional banking sector. They've been around forever actually, but regulatory

headaches have prevented any traditional payment providers from using them. But PayPal decided now is the time to get into the stable coin game because it hasn't exactly had a banner year right now, down 33% in the past 12 months, which is six worst performer on the NASDAQ 100. So, Neil, do we like this move from PayPal? I think the question is whether this is anything new from PayPal or it's just kind of what it's doing with Venmo in crypto dressing because when you're crypto wrapping, because when you're exchanging payments via Venmo, you're kind of doing something similar to a stable coin where you're just like sending money.

that's a representation of a digital dollar that PayPal has on its reserves. So a lot of the critics of this move are saying PayPal, this is just a money grab by them and not necessarily advancing the crypto cause. Yeah, I mean, it's not breaking any new grounds. Like, it's not a new innovation, but I do think there's kind of like three things that PayPal was looking at that made it them say, okay, let's jump into the stable coin game. One is that I feel like they see regulatory clarity on the horizon because they wouldn't have made this move if there was some big regulatory crackdown coming down. So there's currently

two bills sitting in Congress, one directly dealing with stablecoins. So I think they heard good things about what the result of that will be. And then two, the stable coin market is kind of dominated by just a few names. The biggest name is Tether, which has a 67% market share. And there's really only three or four other names that even have a foothold in it. So they're probably thinking, well, there's kind of some ripe for the taking. We're going to, we're going to jump in here. And then three, they definitely see it as a way to make a lot of money because I mentioned Tether, which is the largest stable coin. They could be on track to bring in $6 billion in revenue this year.

So it's a crazy business. Yes. That stood out to me out of this whole entire thing, how much money Tether is making off this because basically they take customer deposits and then dump it into treasury bills. And treasury bills are yielding 5% right now and they don't have to pay a yield on their stable coin. So they just reaping in billions, putting it in T-bills, getting 5% and printing money. So what are they going to make, a billion dollars last quarter?

And, yeah, $6 billion for the year, which is more than Black Rock's profit. It's a great business. This is a crazy business. Yeah, it really is. And I mean, Tether has been plagued by some issues with a lot of people are always wonder, is their reserves actually one-to-one to their stable coin? and because, yeah, that's what they advertise is that we have 80 billion in Tether. That means we have 80 billion in Tee bills backing it.

And so that's always been like the controversy with Tether. But yeah, what a business? They're really just minted money over there. There are a lot of critics of stable coins. You talked about the regulatory crackdown that's coming. It's definitely operating in this murky financial space and the Fed hates it because they don't have any oversight over it. And you talked about how you can exchange money.

and it's kind of separate from the traditional financial system. The Fed has no regulation of it. So they're like, no, we kind of want to do our digital dollar thing, which is very similar. But it's ours. And we can control it and we can see it. And the dollar will reign supreme. Meanwhile, all these stable coins are operating completely separately. And Jerome Powell has come out in the past few years and said, like, we don't like stable coins.

They need a lot more oversight than they are because there have been some crazy blowups in the past. Terra was last year, Terra was a stable coin that went, that did not was not stable. It came off its peg. This is, it's different than the PayPal one

because this was an algorithmic stable coin, which is even SBF was like, yo, this is bad news. Like, this could blow up at any moment. And it did, and it wiped out $40 billion worth of investors' cash, which was more than the FDX wipeout. This was a total disaster.

It was huge, yeah, big black cloud kind of over the crypto ecosystem. And then remember, meta tried to launch a Facebook tried to launch one called Libra. And basically, regulators said absolutely not just like absolutely killed it before it could even get a foothold. So I mean, PayPal is late to the game, which could be a good thing too, because they've seen these failures in the past. And like they are just a giant payment provider. So we'll see how it pans out for them. Yeah, you might be able to use it in Venmo, you know, in the coming months and years. But it seems like

it's first going to be adopted by sort of Web 3 Metaverse applications like micro payments and games and remittances between countries. Yeah, that's a big. Cross borders is a big use case for it, for sure. Right. All right. We have to move on to more traditional finance. Yesterday, Berkshire Hathaway stock reached a price of nearly $552,000 per share.

And if that sounds like a lot, it is. It is a record high. The stock jump came as a result of Berkshire's earning. on Saturday that showed the company posted a record operating profit of more than $10 billion. Berkshire Hathaway, of course, is led by Warren Buffett, who at 92 years old is still running a steady ship over there. Berkshire owns and has stakes in dozens of companies across unsexy industries. The standout last quarter was the insured Geico, which is performing a lot better thanks to lower advertising spend and fewer people getting in car crashes. With its latest

stock boost, Berkshire's market cap has climbed to nearly $800 billion, making it one of the biggest companies in the U.S. It's larger than Tesla, larger than Visa, J.P. Morgan, and Walmart. Got to say, Buffett's slow and steady strategy is kind of a breath of fresh air in this social media hype-filled days. He's still killing it. It is pretty crazy. And one of my big takeaways was actually Buffett and Tether have more in common than you might believe because Berkshire is sitting on almost $150 billion in cash, which is near its record high, and it's up from $130 billion in the first quarter. And it's loving these high interest rates right now because Berkshire is just plowing money into T bills as well. And so they hold more than $97 billion in

short-term treasury bills. And Buffett previously said he's been buying $10 billion worth of three months or six-month T bills every Monday. So they are just reaping in these cash rewards just like just like tether is they're sitting on a big pile of cash and these t bills are doing really well for them so was berkshire so i just think also doing good for berkshire tell me neil apple apple is crushing it for berkshire they reported 26 billion dollar unrealized gain uh apple had a huge second quarter jumped 18 percent and yeah berkshire's apple stake 177 billion dollars crazy yeah no one you know buffett never invest in tech companies and he randomly took a flyer and Apple because he likes Tim Cook. And all of a sudden, it's now 45% of its entire portfolio.

Crazy. I mean, it's hardly a flyer, though, when you talk about Apple. I know, but he had never invested in tech stocks because he's like, I don't understand the tech world. I'm going to stay in oil and gas, insurance, and Coke, and American Express, and visa, and all these businesses that he understands. And then he just randomly invested, not randomly, but he invested in Apple. And now it, you know, it basically is half of Berkshire Hathaway's stock holdings. And so that's kind of driving the gains for Buffett. And then I just want to quickly call out one of my favorite Berkshire investments, which he has a stake in five Japanese trading houses. And Japanese trading houses do pretty much everything from gas to salmon farming. They're involved

in a bunch of commodities over in Japan and across the world. And a lot of people shy away from Japanese trading houses because they're like, these businesses are so complex. We don't really get what's going on. And that's exactly why I think Warren Buffett loves them because he's like, I'll do the research, I'll figure out why these complex businesses work. And they've done really well for him. He has a 10% stake in almost in every major Japanese trading house in trading on the Japanese exchange, which is just such a Berkshire Warren Buffett moves. He's playing chess. Yeah, 3D chess. And if you're wondering why Berkshire Hathaway stock price is $550,000 per share, which is kind of unheard of, it doesn't exist in any other place. It's because Buffett,

doesn't like to split the stock because he wants people who are only in it for the long term. Such a flight. Except now you can buy fractional shares of Berkshire. I just tried it yesterday to see whether it was possible on Robin Hood and you can buy like $50 worth. So the thesis is kind of gone now with technology, but anyway, he's not splitting that stock. I love that for him. All right, let's move on. Los Angeles has earned itself a new nickname, Strike City.

More than 11,000 city employees, including sanitation workers, LAX employees and traffic officers are walking off the job for a one-day strike today to protest what they call bad faith negotiations by LA officials. The goal, according to the union's president, is to shut down the city of Los Angeles. So if you live there or are flying out of LAX like Ray, you might notice some disruptions today. But back to Strike City, Los Angeles is under the grips of many different strikes right now. The 160,000-person actors strike is the biggest single work stoppage in the country in over 25 years. More than 12,000 Hollywood writers are also on strike, plus thousands of hotel workers have also gone on strike periodically this summer to protest working conditions and pay.

So I just crunch the numbers here. You've got four separate strikes happening in the same city on the same day today. Something's up over there. It is interesting because we have been talking a lot about like the summer of strikes. But then if you actually look historically, this strike isn't, it isn't the biggest strike year we've had even in the last decade. 2018 and 2019 both had more in terms of gross number of workers striking, but a lot of those had to do with like more public sectors like schooling and teachers. So it is still a big summer.

And then if you really want to zoom out though into like the 50s, 60s and 70s, we were striking a whole lot more back then. So yes, this is still a very big year for strikes. But in terms of historical context, unions don't wield quite as much power as they once did. And so it isn't quite as big a striking summer as we might. might believe. That's because, I mean, I think a big part of it is the UPS workers didn't strike. That would have been 340,000 employees. Yeah, I do think it's more of the private sector angle. You know, maybe it doesn't raise the consciousness of America when you see like public sector union

strike because they are known to do that. There's this, you know, traditional contract cycle. But when you see private sector worker strike like Hollywood, Hollywood employees, Starbucks employees at individual locations. Right. It kind of just, it hits a little bit different. And it creates this momentum, this cascading effect where, you know, I think the fact that four different sectors are striking in Hollywood right, or in L.A. right now at the same time, is not like a coincidence.

Yeah, yeah, absolutely. I do think it is crazy, though, too, that yellow, which is the big trucking company, was going to go on strike. Yeah. That had 22,000 workers. That actually went bankrupt, so we didn't see that materialize. And then as we mentioned, UPS was going to go on strike. They didn't, which should be considered a big win for unions.

Labor unions, but it won't be reflected in the data because they didn't actually go on strike. So I guess are we comfortable with still calling it a hot strike summer? Absolutely. Well, the big thing next will be whether the United Auto Workers Union strike, because that's over 100,000 people. They're currently negotiating with the big three automakers up in Detroit, and everyone's watching that to see that could be major disruptions. And then you could definitely call it a hot strike. Yes. Summer slash September.

But I do want to talk about one Taylor. There's always a Taylor Swift. Oh, yeah, of course. Taylor Swift is playing in Los Angeles right now at Sofey Stadium, a six show set. And a bunch of dozens of elected leaders in California and Los Angeles told her not to come because the hotel workers are striking. And they wanted her to stand in solidarity with the hotel workers. And because if she came, then people would stay at a bunch of the hotels and pat the profits. of the hotel, you know, the hotel owners that they say are stipping their workers.

So there's always a Taylor Swift angle. She's influencing GDP. She's influencing inflation. And now she's influencing labor relations. She truly can do it all. All right, Neil, before we jump into our next story, we're going to 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.

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No. Crispy, saucy and $4? Very. Only at 711. Valley 36-2326 participating stores only while supplies last the app for full terms. All right, Neil, you know how we love our segments and our alliterations. So I'm calling this next story merger Monday because you guessed it. We're talking about two big old mergers that went down yesterday.

The first merger that closed yesterday was between Camp, in Sovos brands, which is the parent company of Rouse, pasta sauce, and Nusa yogurt. The deal was for $2.7 billion in promises to add another big name pasta sauce brand to Campbell's existing Prego line, which brings in $1 billion in sales each year. Neil, one interesting part of this murder to me was Campbell's CEO said that the brands are pretty much completely siloed. He said the two businesses really do not interact or compete. It's a different consumer, a different occasion.

And that is, of course, because Prego is more affordable, while Rouse is more upscale. Pretty solid-looking acquisition on paper, if you ask me. It's a little expensive, but so is Rouse. So I think it's $8 for Rouse versus $3 for Prego. Yeah. You know what? I really want to know any of these because I kind of make my own tomato sauce. Oh, my gosh.

What a flex out of you. But, yeah. No, no. Campbell's, this is interesting because this, you know, it's getting into this meals and beverages segment, which is its biggest revenue generating line. You know, it's chugging along with soup, but it bought Snyder's Lance, which is this big potato or pretzel brand

that also comes with kettle and Cape Cod chips. Yeah, so they've definitely done this before where they kind of have the more common or just less expensive entry point, and then they buy a more premium brand, so they did that with their pretzels and potato chip brand, and now they're doing it with pasta sauces.

Rouse is pretty big, though, already. So that's the nervey part about this acquisition is that they already are available in 80% of retail sites nationwide. And so a lot of people are looking at this merger and saying how much room to grow because Campbell's big thing that they can offer is distribution. And if you already have 80% market penetration, like, all right, where's the run? You got to make rouse pizza and pasta and kind of, you kind of dominate the whole Italian internet home market. Exactly. All right, we have to talk about the other deal on Merger Monday. Simon and Schuster, one of the most prestigious and oldest publishing houses in the U.S. is being sold by its owner paramount for $1.6 billion. So

Rouse is worth more than Simon and Schuster. Okay. The buyer is not anyone else in the publishing industry, but KKR, the private equity giant. So book publishing meets high finance. Business world is never boring. Got to give it that. This deal has quite an interesting backstory, too. A couple years ago, Penguin Random House, another big publisher agreed to buy Simon & Schuster, but that deal was blocked by regulators because they were worried about too much concentration in the industry. They're only about five big publishers. So that deal would shrink the number to four, reduce competition and harm authors, the government said. So Paramount was like, all right, well, just find another buyer for Simon Schuster and

KKR stepped up. Yeah, this one is personal to me because Simon Schuster is the publisher behind Stephen King, which Stephen King is one of my, if not my favorite author. So I hope. they treat the property well. And it does look like they will treat it relatively well because the fear is always a big private equity firm comes in. It kind of optimizes for profit over anything else. But in the past, KKR has owned and sold RB Media, which was an audiobook company. And they did really well for RB Media. They grew it, they doubled the size of its audiobook catalog. They sold it for a profit. And then all the employees of RB Media actually came out with a little payment on top. So people from the industry are like, this is, it could be worse. Like KPR

knows how to deal with like these kind of sensitive media properties. Also, they are invested in Axel Springer. Which is the, uh, the parent company of Morning Brew. So have good taste, I would say. So they know media. Yeah, they know media so well. They're, they're just buying up amazing assets in media. Exactly. All right, Neil, let's move on. We're back with another edition of Toby's trends where I, a Spry and Sprite Lee, Gen Zier, educate you a purposeful and poignant millennial. What's the difference between Sprite and... They both start with S and they are both synonyms.

I'm really using the Thesaurus when I come up with these intros, Neil. But let's talk about our trend. There's been a trend over the last decade in America that has seen the size of our car's balloon, something that experts have coined as car bloat, or as the French have named it, autobesity, which I love. So what are the signs that we have in autobesity? epidemic in the U.S. While as David Zipper, a Harvard fellow specializing in mobility, put it in the thread recently,

80% of U.S. cars are now trucks and S-UVs, and those trucks slash SUVs are only getting bigger. The Ford F-150 is now 800 pounds heavier and seven inches taller than in 1991, and EVs are only going to make the problem worse due to bigger batteries being more efficient. And Neil, I know this is my trend, but you're a big mobility. guy, what are some of the second order effects of car bloat that we should be concerned about? Well, safety

is, for one, it's terrible for pedestrians if you get hit by a freaking truck rather than a sedan. You can't see either. Like, cars are so high now that if you're below a certain height, like a children or something like that, like you're below the eye line. So, yeah, definitely dangerous safety-wise. I also want to talk about

how much they cost. Trucks and SUVs are a lot more expensive than sedans, which explains why you see so many of them, because they're far more profitable for automakers to build. And there was this recent stat that came from Edmonds, which kind of blew my mind. And in Texas and Wyoming, known for their love of big trucks and SUVs, more than one in four car shoppers last quarter committed to a payment of more than $1,000 a month. That's a hefty. And overall, the number of people who committed to

a thousand or the share of Americans who committed to a car payment of more than a thousand dollars a month last quarter was 17 percent and just to give you uh some context in 2019 it was four percent yeah it's car cars are getting so expensive and a large share a large reason for that is because these bigger cars cost so much there's so many parts that go into them yeah and they're also you know great for automakers but they are even even automakers are calling out this isn't like some guerrilla warfare by, you know, mobility activists to say cars are getting so expensive. The CTO of Stalantis, he was asked by a reporter, like, what's the biggest thing that keeps you up at night? And he was like, the weight of cars. Yeah. They're so heavy. They are really heavy,

which is bad for roadways, too, because it kind of pulverizes the payment. It's bad for tires because it puts a ton of stress on them. I do love what Paris's approach to this is because Parisian officials are saying the same thing, like cars are getting too big over there, which probably relative to the U.S. They're probably not as big, but they're trying to change the pricing of paid parking to make it progressive according to the weight and size of a vehicle, which makes a lot of sense.

And then also, I just love that they call it autobicity. I'm sure whoever came up with that, we're like, oh, this is perfect. What was the country that was giving you parking tickets based on income? Oh, yeah. Remember that? That's different. No, Sweden was doing speeding tickets based on income.

Yes, and then this is parking tickets based on income. But you can imagine I'm a family and I need a big car and, you know, I want to keep my kids safe in case of Naxon. The other guy has a huge car also. So there's this kind of race to the top here, which I think is getting a little out of control and even auto execs realize it. All right. Finally, there's been a lot of fingernail biting over the demise of humanities majors like history and philosophy. And I would know as a history major, we are a dying breed. But there's another degree that's also seeing dramatically fewer.

students, petroleum engineering. According to an article in the Wall Street Journal, young people just don't want to work in the oil and gas industry anymore. Maybe this should have been your trend. Gen Z doesn't want to work in oil and gas. Here's some of the stats. Across U.S. colleges, the pool of new entrants for petroleum engineering programs has declined to its smallest sizes before the fracking boom began more than a decade ago. At Texas Tech, specifically, the number of undergrads pursuing petroleum engineering has plunged 75% since 2014. There are a lot of empty classrooms, but this does not fit historical patterns. Typically, when oil prices rise, you see more workers in this industry because the gettons good,

but take the period from 2016 to 2021. Oil prices doubled, but petroleum engineering graduates more than halved. Toby, the lack of qualified workers in this pipeline is a serious crisis for the industry. What's crazy, though, is the getting is still very good, because post-graduation, petroleum engineers can earn 40% more than computer. computer science grads. So they get paid a lot. But if I'm a student, I'm entering the workforce and I'm kind of looking ahead, oil and gas is probably not the future in the country or around the world. So renewable energy is definitely a much more appealing industry just to work for from a moral perspective, but also just from a long-term viability of my career perspective. So I do think just like

the writing's on the wall and the break from, because yeah, you're right. Usually crude prices track very neatly with how many petroleum engineers there are. Once that trend broke, like that is a big warning sign for these oil and gas companies because just people are abandoned and ship. Well, the industry has to respond and academic programs have to respond. So they are taking some steps. One of the funny things I saw was University of Texas is removing the word petroleum from its master's degree program to more something like, you know, smart, clean energy. and some of these, you know, these oil and gas companies are investing in renewable energy because they don't want to, they want to have a sustainable business going forward. And if we're at like peak oil soon, you know, they need to have renewable energy and renewable energy workers.

So they just need to do a better job of branding their workforce. Honestly, they just need to be like, look, if you want to work in clean energy and help save the planet, I know it's going to sound really hypocritical coming from Exxon, but like they need to do that. to find workers. This is energy is so important. You need like a lot of really smart people working in there, especially given what we're seeing this summer and in climate change going forward. So it's kind of alarming to see that people won't work for these companies because they need to steer the ship toward the right direction. Direction, yeah. How are we going to save history and English majors though, Neil? What's what's the, what's the branding exercise we need to do for for those two?

I don't know. You can work for, you can be a podcast host. one day? That's a good goal, I think. That's... Well, how about this? In the chat GPT world, learning, like, creative writing and how to ask questions has never been more important. There you have it, folks. Enrollment history. That just created a generation of historians right there. Thank you. All right, we have to wrap it up there. I hope everyone has a great

Tuesday. I wonder what the reggae girls one. They're playing right now. I'm not going to say anything because every prediction I've made on this podcast about that... Nigeria lost right after you said. jinxing them. All right, if you want to write in and let us know your thoughts on big cars and trucks. Our email is Morning Brew Daily at MorningBrew.com. Emily Milarian is our editor and producer. Samantha Veles and Raymond Lue are associate producers. Yucenoa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is enrolling in a petroleum engineering program. About to get paid.

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. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th, the powerful vocals of Demi Levato on May 17th, and the signature Southern Country Rock

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