Morning Brew Daily - RTO Wave Hits Federal Workers & $500B Investment Powers AI Industry

Episode Date: January 22, 2025

Episode 502: Neal and Toby chat about Trump’s order to make all Federal workers to work in the office full-time. Will this ultimately be a winning move in Washington? Then, a multi-billion dollar joint venture by AI leaders and the Trump Administration to power American AI infrastructure. Plus, Netflix reports a record-breaking performance in its last quarter, adding millions of subscribers thanks to its hit shows and live sports. Meanwhile, Olympic athletes are noticing their medals are slowly deteriorating…but weren’t the medals made by LVMH? The company doesn’t see a problem. Lastly, Costco, a rare Winter storm, JetBlue, and Ichiro are in today’s roundup of headlines.  00:00 - Do audiobooks count as reading? 3:20 - Trump wants Fed workers back in the office 8:30 - AI infrastructure gets $100B boost 12:00 - Netflix reports record-breaking Q4 18:00 - LVMH Olympic medals tarnished 21:00 - Sprint finish! 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. 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. 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'm Neil Fryman. And I'm Toby Howell. Today, Netflix just had its best year ever, which means, yeah, prices are going up again. Then it's been just about a hundred days since the Olympics ended, but athletes' medals are already falling apart. It's Wednesday, January 22nd. Let's ride. Good morning. Kind of rocks that it's already Wednesday, right? I got to start thinking of some Neil's numbers for tomorrow. Anywho, the author John Green, who wrote The Fault in Our Stars and other books posted this pretty interesting video on YouTube yesterday where he posed the question, do audiobooks count as reading? Green said a decade ago he probably would have answered, no,

but now he says that audiobooks are not only definitely reading. For many people, they're the best kind of reading. Toby, do you agree with John? I have some thoughts about this, and I'm going to tell a quick story to illustrate them. My mom recently added me to her Audible Premium account. Shout out mom. But then she was snooping on some of the books I downloaded and she was roasting my choice to listen to The Odyssey. First, I had to explain to her that I wanted to brush up on it ahead of Christopher Nolan adapting it into a movie. But also, technically, I am participating in the long oral tradition of the retelling of The Odyssey. The story was originally passed down through generations through listening. So it kind of is the OG audiobooks, if you think about it. So all that to say,

I think that stories are stories, no matter which medium you are consuming them in. So yes, I am team audiobooks count as reading. What about you? And you're listening in the original ancient Greek, right? Oh, of course I am. No, I was going through some of the translation. I can't actually remember the one I'm currently listening to, but it does matter. Whoever does the translating kind of affects how you interact with the story.

So no, not ancient Greek, but yes, I am team audiobook. book. Now a word from our sponsor, Yahoo Finance. Neal, saw you checking your brokerage account this morning. Well, it's just having some FOMO post-N Netflix earnings. Ah, FOMO. You used to get FOMO from seeing your friends go to a party that you skipped out on, but now you get it from looking at a stock chart. Luckily, there is an antidote to financial FOMO, and that is Yahoo Finance. FOMO is downstream of a lack of information, so Yahoo Finance helps you stay up to date on the latest financial news so you don't miss out on any 20 baggers. Just head to their homepage for a wide overview of what is happening in the market or dive deeper by going to their research tab for more advanced screeners. Don't let

FOMO hurt your investing returns. Visit yahoofinance.com. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds. Get the unreal college deal, everything you need to study and play with select Windows 11 PCs. Eligible Students get a year of Microsoft 365 premium and a year of Xbox GamePass Ultimate with a custom color Xbox wireless controller. Learn more at Windows.com slash student offer. While supplies last ends June 30th, terms at aka.m.m.m.m. Today. What do J.P. Morgan, Amazon, and the sprawling federal bureaucracy have in common? Not much, but they've all recently announced that their employees must come into the office five days a week.

Late Monday as part of his whirlwind of day one actions, President Trump signed an executive order mandating that federal department heads, quote, terminate remote work arrangements and get their people back to in-person work Monday through Friday. Considering the federal government has 2.3 million workers more than Walmart, it could be considered the biggest return to office requirement we've seen yet. And as has been the case in the private sector, there's going to be loads of pushback. First, tens of thousands of workers belong to unions that have signed collective bargaining agreements allowing them to work remotely. So it's doubtful whether they could be legally forced to abandon their home desks.

Second, some government labor leaders are going to fight tooth and nail against this because it could make retention and recruiting that much harder. And remember, an agency like the EPA is competing against any number of private companies for top talent. Still, Trump has launched the opening volley, one of several orders he signed on day one, that intends to remake the gigantic federal workforce. The question here is how much of that gigantic federal workforce is actually currently working from home? And depending on who you talk to, you might get different answers.

Senator Joni Ernst from Iowa, she released a report last year that claimed that only 6% of federal workers were actually in person full time. But then you look at the U.S. Office of Personnel Management, and they push back on that. the OPM noted that 54% of the 2.3 million civilians employed by the federal government work entirely in person. So to them, that number is closer to 50%. So it really is about where you kind of lie politically in how you are approaching this problem. Because the one name that we do need to mention here as well is Doge and Elon Musk, who has been very vocally open about wanting to push for RTO mandates in order to shrink the federal workforce. They're hoping that when people have to go into the office full-time, they'll just quit, which is, we've called it sneaky layoffs.

It's not so sneaky. Elon has come out and said that is what he wants to happen. So it really is about where you fall politically when you are considering how to react to this RTO mandate. And, you know, there is a good argument to be made that if you force people to come to the office, then they will just quit. A new survey from Pew found that nearly half of remote workers would consider leaving their jobs if their employers no longer allowed them some remote flexibility. Trump administration is saying, you know, is taking its cue from Elon Musk and being like, okay, well, maybe that's good. We want a smaller federal workforce.

On the other side, you say, you have people saying, look, President Trump, you have all these things you want to do across the government. You have an ambitious agenda. You need a fully staffed workforce to get this done if you. send people away, they go to the private sector, they work for other companies, then the fact is you're going to have less talent on hand and fewer people to carry out what you're trying to do. So this is going to be an absolute fight. The American Federation of Government Employees represents 800,000 federal and D.C. government employees. That's a big chunk of that 2.3

million number. They have collective bargaining agreements, environmental protection agency, social security administration that have locked them into remote work policies. So as we've seen with other Trump executive orders, this is absolutely going to run into some legal moray where there's going to be a fight possibly in the courts to see whether these government workers are going to come to the office or not. Just in general, though, zooming out, it definitely looks like the winds are shifting towards RTO. You mentioned all the big corporate organizations that are asking their workers to return to office. But even if you look around a popular culture right now, the office is kind of a central figure in the biggest TV show. which is severance right now. I don't know if it's the biggest,

but the biggest in our world, at least. That is all about corporate psychological drama. And then also it does look like the labor market has just shifted so that the power is more in employers' hands rather than employees. During the great resignation following COVID, their employees had a ton of leverage. They could ask for remote work arrangements,

but now the labor market is definitely a little tighter, leading to that power balance, shifting back to employers who say, We do want you in the office right now. So if you just look at a macro perspective, the fact that the federal government is now on the RTO bandwagon means that the winds are certainly shifting that way. It'll be interesting to see because over the last few years, we've seen young workers who are just graduating from college really gravitate towards government jobs.

That was one of the fastest growing sectors for recent grads. They were going away from big tech companies and big banks that just weren't hiring as much. The government was hiring. So we'll see whether these changes that Trump is implementing. and I should mention RTO is not the only one. There's a lot of other changes he's making to the federal workforce that could maybe dissuade people from working for Uncle Sam. There's going to be more data centers than Duncan Donuts if Donald Trump gets his way.

Yesterday afternoon, the president flanked by OpenAI's Sam Altman, softbanks Masayoshi-son, and Oracle's Larry Ellison, announced Project Stargate, a joint venture that aims to supercharge the construction of AI infrastructure like data centers in the United States. That's going to take a lot of money, but with these guys involves funding doesn't seem to be an issue. The venture will deploy $100 billion immediately and eventually ramp that up to $500 billion. The first projects, data centers in Texas, are already underway, Ellison said. The announcement offers the first glimpse of Trump's AI policy agenda, whereas his predecessor Biden promoted AI expansion, he also put up guardrail

on the new technology to avoid the robot apocalypse and other harms. To that end, Biden signed a comprehensive executive order on AI safety. Things will probably be much less regulated going forward. Trump already tossed Biden's AI executive order in the trash on his first day. And with Project Stargate, he's signaling to tech companies, prepare your ships for ludicrous speed. AI leaders for a long time have been sounding this alarm that, hey, we need more, more of everything. We need more of the chips that you. you use to train the model, we need more of the electricity, used to power those chips. We need more water to run these data centers. And the flip side of that is that in doing so, we need to

keep our nose in front of China. That was something that Sam Altman called out saying that we need this infrastructure build out in order to keep ourselves ahead and make the U.S. remain ahead of China in the AI arms race. And you can see why Trump is on board with this as well, because if you can ground this AI race in things like the economy and the military, which AI will certainly affect, you can see why you have this massive $500 billion joint venture to try to get the U.S. to the forefront of AI research right now. One thing to look at with the buildout of data centers, you kind of mentioned it, is how much energy they consume.

We're expected to supercharge our dependency on the grid, perhaps break its current form. We need more energy. And under the Biden administration, there was a big focus on using clean energy to power data centers. And under this new administration, it looks like we don't care what kind of energy you use. It's up to you. Just figure out a way you can use fossil fuels. You can use clean energy. Now the responsibility is on Microsoft, Amazon, Google to source clean energy if they want to fill their commitments.

They're already going way past their clean energy thresholds that they expected. So energy ties into data centers, ties into AI. So that will certainly be part of the conversation. It looks like everything has been unleashed and we're not really focusing on clean energy, at least under this new administration. One final thing to note here is that new presidents often come in pledging these giant investments,

these big rebirth of American industry. And one person who has done that is Trump himself. Remember, in 2017, he announced this big $10 billion electronics factory with Foxconn in Wisconsin, it was supposed to create 13,000 jobs. It ended up being much smaller. It created about 1,500 jobs. Just $672 million was invested. So sometimes these big infrastructure or these big, you know,

investment announcements don't necessarily end up being as big as they are. It's a great photo op, though. It is a good photo op. Netflix reported earnings yesterday, and the king of the streamers still has its crown firmly in place. The streaming giant brought in 18.9 million new subscribers in the fourth quarter up 44% from a year earlier, leading to revenue and profit beats in the process. A combination of Squid Games 2, rekindling the intrigue of season 1, as well as its live events catalog bringing in loads of eyeballs, powered Netflix to another strong quarter. It caps off a year where Netflix just dominated.

It added a total of 41 million customers in 2024, more than double what Wall Street had expected. It is now sitting pretty with over 301 million subs. But remember that number because it's the last time we're going to hear it. The company has said that this earnings report will be the final time it discloses quarterly subscriber numbers as it aims to shift investor focus from subscriber growth to more traditional financial metrics. Speaking of financials, Netflix is trying to milk us all for more cash. It raised the price of its ad-supported tier $1 to $7.99 a month and bumped up its premium here $2 to reach $2499. Guess you can do that, Neil, when you are king. You are the king.

Then I'm talking about Netflix night. I mean, you are also Toby. I think you're almost underselling this quarter. It was absolutely insane. Netflix is just on an absolute role right now. shares shot up 14% after hours Tuesday. So they are basically at a record high right now. If things hold towards the close today, stock is up more than 80% over the past 12 months. Its market cap is now over $400 billion. That's more than Disney Comcast, Warner Bros. Discovery and Paramount combined. They are firing on all cylinders, and they've made this extremely graceful pivot from a subscription business model to one that has a lot of ads, and they're making a ton of money

on ads. They're buying these live sports rights like Jake Paul, Mike Tyson, the two NFL Christmas games. They have two World World. World Cups coming up, and those products are way more valuable for advertisers than, say, you're just putting on a random show and there's an ad in the distance. And you're also cooking or, you know, listening to an audiobook at the same time. You can't charge as much for that as you can for when you say, I'm having, I just bought Jake Paul and Mike Tyson.

I'm going to have 60 million people watch that. They're going to watch it live. They're going to be engaged. And you better pay up for that. And so they're going to make a ton of money on these live sports, and they already are. it's taking them from the past era to the new era, and they just haven't missed a beat. And what's crazy, the company has said that advertising isn't yet a meaningful driver of revenue. They expect revenue from ads to double in 2025.

So even though they have attracted all these eyeballs, they haven't quite got their ads selling apparatus up to kind of, you know, price them accordingly with the amount of eyeballs they are getting. But it does just look like everything Netflix turns, touches, turns to gold. Remember, it signed a deal with the WWE to air its raw event. It attracted 5 million viewers. That is double what those events typically receive on linear TV. Even they're bad movies. I'm saying bad because I watch this movie.

They're bad. Carry on, which was this Christmas, you know, TSA thriller. It vaulted in the top 10 all-time fills on the service, which I watched with my girlfriend. I go, really, that's top 10 all-time. But there's just something about Netflix's formula that gets people. people to watch and gets people to subscribe. It's just incredible, like, the, the business that they build.

They can still, they still have some runway to get more subscribers. We thought they plateaued with number of subscribers. Then they go in to add 41 million this year, which is the most they've ever added in a year. They have pricing power so they can raise prices on us and we'll still pay. Now it's going to be like $18 a month for the most, for the most popular plan. That's fine. People will, seems like they'll pay, or they'll just go to the, the cheaper ad plan,

which they instituted, they can get more money from advertising. They get good content constantly. So just on every metric, Netflix is just a behemoth right now and it's only growing. All right, we're going to take a quick break. But this next story goes out to all our Olympian listeners. Today we helped a latte for Sam coffee shop, get an insurance quote simply and easily. And made sure a floral delivery van was able to. to make someone's day. We're the Hartford, with decades of experience ensuring millions of unique

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Last year's Summer Olympics weren't just a display of Raygun's immense breakdancing abilities. They were also one big advertisement for the luxury fashion house LVMH. Yet just about a hundred days later, that successful partnership is being tarnished by, well, tarnish. The gold, silver, and bronze medals designed by LVMH's jewelry subsidiary, Chamet, are falling apart and discoloring. Two French swimmers posted a video last month showing how the outside of their metals had begun to resemble crocodile skin and not the expensive kind, and nearly 100 athletes have

asked for replacement medals after theirs started to crumble as well. But LVMH has tried to distance itself from the faulty metals, claiming that Chameh merely designed them. It was the French mint that actually manufactured them, which attributed their deterioration to a change in its varnish formula. Still, LVMH was everywhere at the Paris Games. Its champagne brands were in the hands of VIPs. French athletes rocked its luxury outfits, and Louis Vuitton luggage was front and center at the opening ceremony, watched by a billion people worldwide. But now it's facing the embarrassment of having its hand-distance.

signed medals very publicly lose their luster. And this is not necessarily a new story either because I know you said you were watching social media during the Olympics themselves. An American skateboarder said, uh, my medal is already crumbling what's going on here. And then it seems in the month since more than a hundred have come forward and said, hey, I worked pretty hard for this medal. Can you maybe send a new one that's not super rusty? This is not the first time that a medals have had to have been replaced. I guess they're hard to make. But in 2016, the Rio Games, number of athletes asked for new medals because they started to break down.

But you're right. This is a bit of an embarrassment for LVMH. They've gone radio silent because they don't want to take the blame. And it seems like the French mint that actually made them is falling on the sword for LVMH. It said the varnish we use, you know, was was tarnished in a way that it doesn't. prevent oxidation like it should. So we're going to make the new ones. Don't worry about it.

We used, you know, our chemical process was wrong. So they're kind of taking the buck from LVMH. Certainly still not a good look for this French luxury giant. And the French mint has another person to blame, and that is actually European regulations because they say they changed their varnish formula to conform to this EU regulation around banning certain chemicals, chromium trioxide, which is this toxic chemical.

I know what it is, don't it? Oh, yeah. Yeah, I explain it to. Just explain it to the people at home. That's a chemical used to prevent metal from rusting. So they tried to, you know, fall in line with these regulations. And it ended up creating a product that started to break down before you wanted to. To make matters even worse, to rub salt into the wound, it's mostly the bronze metals that are rusting.

So not only did you not get first or second, but also your metal is falling apart. Although there are studies that show bronze medal winners are happier than silver medal winners. It is better to be third place rather than the first loser. Okay, let's sprint to the finish with some final headlines. Sledding in Houston, snowball fights in Gulf shores, skiing down Bourbon Street. These all actually happened yesterday after a winter storm dumped ultra-rare snowfall on a large area of the south, making for what forecasters called a once-in-a-lifetime event. Air travel was basically non-existent.

Airports in Houston and New Orleans canceled virtually all their flights, more than 2,300, and more than 1 million kids in the region had off from school. At least nine people have died as a result of the dangerous conditions and cold. Toby, wild scenes in cities that are just way more accustomed to hurricane warnings than winter storms, and it wasn't just a dusting. It was more than they'd experienced in a generation or ever. an area of Louisiana near Lafayette got more than 10.5 inches of snow, or as they spell it down in the bayou, S-N-E-A-U-X.

It was really funny. I saw so many different videos and pictures coming out of places that it just doesn't look right to have snow. I mean, a beach in Destin was completely covered in snow. That is Florida we're talking about here. A lot of crazy weather headlines. I mean, New Orleans received its biggest snowfall on modern. record, Pensacola, Florida, Mobile Alabama. They broke 130-year-old records. I think it is just crazy to see scenes of people sledding in Houston. It also led to huge travel disruptions.

One of the main place that was disrupted was Atlanta, because not only did they receive a lot of snow, but they also are dealing with the end of the national championship game that was hosted there. So shout out to anyone who had to fly through Atlanta airport, because those security lines were literally stretching outdoors, three hours long, just brutal scenes for anyone traveling during this period. All is not well in the land of Kirk. A union representing nearly 20,000 Costco employees voted to authorize a strike, threatening to walk off the job if they don't reach a new contract agreement with the company before

the end of the month. Teamsters boss, Sean O'Brien, said Costco's greedy executives have less than two weeks to do the right thing, which, in his view, would be to increase wages and benefits. such as pensions and job security. If this strike were to happen, it could be disruptive. The union represents 8% of Costco's employees, and 56 of its locations across five states would be affected. This was a little bit of a narrative violation in my mind

because a lot of people associate Costco with great worker benefits, good worker pay. They have this reputation for treating the workers very well right now, but the union is pointing to Costco's record profits and saying, like, hey, you guys clearly can affect. afford it. We want a bump in pay. We want a bump in benefits. And Costco did make $7.4 billion in profits for fiscal 2024, which is why this union is trying to use it as leverage to get a better deal. You might see a new account popping up in your Venmo feeds requesting money from you.

JetBlue. The airline will now accept Venmo payments for flights and a first for the aviation industry. Guess when you are a struggling airline who had a merger with spirit denied by the DOJ, you look for any way to attract new customers. And Neil, I think this might be a good idea. Venmo is very easy to use and ubiquitous amongst our generation. So it feels like a solid plan to be the first mover when it comes to Venmo. Do you think you have to send an extra payment for baggage and everything else? You're a little drink, like you just do the drink emoji.

See, that would not be as fun. But yes, you know, I think this is an interesting idea. Obviously, the more ways you give people to pay, then the likelier they are to send you money. I mean, a bunch of other airlines already accept PayPal. So it's not necessarily a first. PayPal owns Venmo. So, yeah, you can see this is a good idea.

For JetBlue, they're doing a bunch of different initiatives to try to revive their financial fortunes. They also are introducing their first ever airport lounges in JFK and Logan in Boston. I know you're a big lounge guy, so I know you're excited about that. I'm just saying, okay, moving on. Ichiro Suzuki is a name that even non-baseball fans know. The electric lead-off man for the Seattle Mariners made history yesterday as the first Japanese player to be elected into the MLB Hall of Fame.

If that wasn't enough, he was nearly the second unanimous selection following just one vote shy of joining Yankees legend, Mariano Rivera. Need a word with a one voter who didn't think Ichero was Hall of Fame material. Ichiro was just that guy, Neil. He was a 10-time All-Star, Rookie of the Year, an MVP that transcended the game and helped pave the way for other juggernauts like Shohei Otani to come to the MLB via Japan. I didn't really even play baseball growing up, but I remember trying to be Ichero while playing my little backyard wiffleball games. He was electric. I mean, he was so fun to watch, one of the greatest hitters ever.

He has the most hits of any player in professional baseball all time because he played. in Japan and the United States. He had nearly 300 hits in Japan, more than 3,000 in Major League Baseball. So just truly one of the best hitters that we've ever seen. And I encourage everyone to go read different articles on his process and his work ethic and his maniacal focus on being the best he could be

because that really is the Ichiro's story. There's a great anecdote by Peter Gamins that explained that, you know, in 2017, Ichero once got a text from someone who was asking to meet him and study his stretching system. And he scrolled to the bottom of the text message, and he just reads the name out loud who it's from. He goes, Tom, Tom Brady.

And then he looks up and goes, who the F is Tom Brady? So this guy, talk about laser focused on your job. And Ichiro was that guy. He was a very big, it was a very big moment for Japan's cultural export to the world because he did, as you mentioned, lay the foundation. for a ton of Japanese players to come play in the United States, obviously highlighted by Shoay Otani,

who at one point had the world's richest athletic contract ever, and there are a bunch more as well that have followed in his footsteps. So truly a trailblazer. I aspire to be that level of locked in that I don't even know who Tom Brady is. Okay, let's wrap it up there. Thanks for starting your morning with us and have a wonderful Wednesday. For any questions, comments, or feedback, send an email to Morningbrewdaily at morning brew.com. And if you're enjoying the show, consider this a little tush-push to share it with

a friend, family member, or a coworker who would also find it helpful. And we'll make it as easy as possible. Don't think. Just take Toby's recommendation. I want you to share this episode of the podcast with someone who owes you some money on Venmo. Consider this a more polite way of falling up than just reminding them in the app. And if you are the debtor, then consider this a reminder to pay your debts. Let's roll the credits. Emily Milliron is our executive producer, Lute is our producer. Olivia Graham is our associate producer. Yuchinawa Ogu is our technical director. Garrett Peck is on audio. Hair and makeup sent a Venmo reminder just when you get a chance. Devin Emery is our chief content officer and our show is a production of Morning Brew.

Great show day, 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 Lovato on May 17th, and the signature Southern Country Rock of Eric Church on July 19th. Tickets on sale now at yamava Theater.com, only at Yamava Resort and Casino, celebrating its 40th anniversary.

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