Morning Brew Daily - Stock Market Crushed by Inflation & Gig Workers Strike on Valentine’s Day

Episode Date: February 14, 2024

Episode 257: Neal and Toby recap the latest inflation report and why it’s concerning Wall Street. Then, brush up on your cooking skills because gig workers are refusing to take food delivery orders for Valentine’s Day. Next, JetBlue may have found its savior in brash activist investor Carl Icahn. Plus, a legal battle between to plush toy makers that will be nowhere near cute. Also, another shot at landing on the moon just a month after a failure. Lastly, you’re gonna need more than good looks for this new dating app that requires a good credit score to use.  Get your Morning Brew Daily Merch HERE: https://shop.morningbrew.com/products/morning-brew-daily-sweatshirt?utm_medium=multimedia&utm_source=podcast&utm_campaign=mbd&utm_content=shownotes 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 for your daily show. I am Neil Fryman. And I'm Toby Howell. Today, inflation is lasting longer than a Christopher Nolan movie. When will the credits finally roll? Then Warren Buffett has somehow found himself tied up in a lawsuit between two plush toy companies. Talk about a rock and a soft place. It's Wednesday, February 14th.

Let's ride. We have a holiday episode coming up soon with President's Day this Monday. So we have a special episode plan that involves you guys. As you were listening to the show today, think about some questions you want me and Toby to answer. This could be anything related to our daily routines, like what time we wake up. Or something more business-focused, like, is Invidia going to become the most valuable company ever? You can submit them to our email Morning Brew Daily at Morningbrew.com. We're going to pick out our favorites and give you a shout-out if we answer them on Monday.

Please put Q&A in the subject line when you send that email, and yeah, hit us with your best stuff. We are very excited to hear from you guys. With that said, let's hear a quick word from our sponsor, Veem. Neil, first of all, happy V-Day. I was wondering when you'd wish me a happy Valentine's Day, Toby. Oh, no, that's not the V-Day I was talking about. Happy Veem Day to you. Totally.

That's what I was thinking, too. It's Veem Day today and every day, because Vim is always there to protect and pick you up. That's their promise to you. And they don't really care if you buy them chocolate today. That is a plus, too. celebrate V-Day today and head to VIM.com to learn more. That's VEEAM.com today. 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

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Just as everyone was ready to pop the bubbly about inflation coming back down to normal levels, U.S. consumer prices rose more than expected in January. Inflation is still cooling, but with prices growing at 3.1%, they're reading 1%. the reading was much hotter than the 2.9% that was expected. The report dashed any hopes that the Fed would begin cutting interest rates in March and also probably in May. We're going to have to wait until at least the summer, it seems, for rates to start coming down from 22-year highs. And that's because the Fed says it wants to see a sustained downward trend in inflation before it decides to slash interest rates, which juice the economy and could push prices higher again.

Officials have repeatedly said that declaring victory over inflation is, is premature. And with this report, we can see why inflation is just like the last two minutes of an NBA game. It just won't end. Yeah. If I had to describe this inflation report, it would be wamp, womp, or maybe even freaking shelter prices or something like that, because shelter comprises about one third of the CPI's waiting. So whenever it rises, which those prices did, the whole index is going to go up. And so on a 12-month basis, shelter has risen 6%. Just a buzzkill in general. I mean, very good analogies there about the NBA game. Although, what do you have against landslide?

Landslide's such a... You don't play it out of party. You don't play it out of party. But yeah, you're absolutely right that this is the very thing that we did not want to see. And although it wasn't crazy, it didn't come in ultra hot, it still is just a bummer. Right. And you can see how disappointed everyone was by just looking at what happened on Wall Street. The Dow had its worst day since last year.

The S&P also fell 1.4%. And the optimism over rate. cuts and inflation coming back down had really propelled the market, along with the AI hype, to record levels. The S&P 500 started out the week at 5,000 points, which had never before. So, there was this growing optimism that inflation was coming down. So this was definitely, you know, a buzzkill. It remains to be seen whether this is just a bump in the road on the way back down, because we've seen this before. It was at, inflation was at 9% back in 2022. It has come down, obviously a lot to 3.1% now. But there are zig and zags in the road path, in the road back down.

And you can see why the Fed has been holding off on rate hikes because they want to see a sustained downward trend over many, many months because the last thing we want is inflation to pick back up again. One person who is extremely not happy right now is Biden. Remember, we're entering an election year. And so inflation is definitely a hot topic issue for a lot of voters. and the word of the day for Biden is shrinkflation. Food got expensive, more expensive last month. Grocery prices rose more than in previous months while dining out.

It was 5.1% priceier. But what Biden has his eye set on are these companies that are keeping prices the same on their packaging, but the portions contained within a package are smaller. He calls it stringflation. He went after companies for this on Super Bowl Sunday for doing this. So that's definitely he wants to take this aggressive. of action, say, hey, corporations, like you're screwing the normal people with these smaller portions.

Let's beef it up a little bit here. So looking ahead, what does this mean for rate cups? I think it puts them in Yeti territory for me. You mentioned the summer. I'll just believe it when I see it. This report makes it much harder to justify cuts in the near term. I do have one piece of good news. And that is that people's earnings, people's wages are still rising faster than inflation.

So your real average hourly earnings are up 1.4% from January 2024 to January 2023. So inflation is not taking that bite out of your wallet that it was because people are earning more than inflation is growing. But we will see what happens as. We'll see. The most important CPI report is the next one. I love that. Look ahead. Let's move on.

If you're thinking of ordering takeout this evening to enjoy with your date or maybe to forget about this holiday altogether, you might be better off going and picking it up yourself. That's because thousands of couriers across Uber, Lyft and DoorDash and states spanning from Florida to California are planning to refuse to take orders tonight. Delivery people in the UK are also planning to join in as well to take this strike international. Now this is a major thorn in these companies' sides because Valentine's Day is traditionally one of their busiest nights. The motivation behind this strike centers on the years-long fight for better pay, especially as cost of living, skyrockets in the U.S. and UK. And this is the coolest part to me. No one is really centrally organizing this movement. Everything has been spread on social

media or by word of mouth. So I like that this story is showing both the strength of these kind of distributed gig workers as well as the vulnerable position they find themselves in as members of the gig economy. Yeah, Uber is dismissing it saying that we have plenty of slack in our driver-driver-ship community to pick up the fact, you know, they're saying that you're still going to be able to find rides. And that is kind of the problem here. They have so many drivers now that their drivers are saying that is pushing down earnings across the board. Uber had a record 6.5 million drivers and couriers as of November. That was a complete sea change from the middle of the pandemic when there was a driver shortage. So there's, and the other companies are saying, you know, we

understand that people have gripes, but we don't think this is going to disrupt anything. And there are plenty of people who enjoy working for us. So that is their pushback on this. Yeah. Obviously, they're going to push back against this. All of the companies kind of released a statement saying, like, yes, we try to treat and compensate our workers fairly. But this is also interesting just because it comes out of time where all of these companies are kind of shifting from grow at all costs. Let's win the market share, attack, attack, attack to now investors want to see profits. They're sustained heavy losses for years. So, like, let's see if these are actual profitable businesses. Remember, Uber reported its first

annual operating profit last week, the prior week. Lyft is trying to get its act together. All these other companies are struggling to kind of follow in the footsteps of Uber. So that's another undercurrent to this, is that these companies are trying to ratchet up that profit. I remember one reason why this protest or the strike is so. decentralized is because governments have not considered these workers as employees of these companies. They're independent contractors, which deprives them of certain rights. Some workers say, I like having the flexibility, but they can't set minimum wages or things like that.

So that is one reason for this decentralized nature and why this is the first strike for Uber and Lyft since they went public in 2019. While we're on the subject, Lyft had a crazy earnings report yesterday where they added a zero to their margin projections. Their stock shot up 60% after that until the CFO came and said, we had a typo in our press release. It's not 500 basis points.

It's only 50. And so the stock came back down to just 15%. So that is just a wild thing that no one had ever seen on Wall Street, adding an extra zero to your press release and your earnings report. I've genuinely never seen anything like it, and it made me kind of go back through my notes a little bit

and make sure I had all my zeros in the places that they should be. Moving on, JetBlue's acquisition of Spirit got squashed by regulators. Its value has fallen by nearly 50% in the past year, and it hasn't posted a profit since 2019. So why did its shares jump 21% yesterday? It's all because of one man, Carl Icon. The billionaire hedge fund manager revealed a 9.9% stake in JetBlue, and investors are hoping he'll help turn things around at the airline. Icon's what's known as an activist investor.

He takes large stakes in companies and uses that leverage to put. push for changes, typically through executive shakeups and acquiring board seats with the goal of pushing up the share price. His aggressive tactics made him one of the OG corporate raiders back in the 1980s. It's not clear what Icon has in mind for JetBlue, but shareholders clearly think that having him in the mix is a positive sign. Yeah, I think that Icon just couldn't pass up on the deal. I mean, JetBlue's stock is down by nearly two-thirds recently. It's market caps at around $2.5 billion. So I think he just got itchy and said, hey, this is a company that has the turnaround potential. It is a good deal right now.

And as you can see from the shareholder reaction, they're pumped to have kind of ICON on board here. Yeah. And this parallels in many ways what got ICON famous in the beginning, which in the 1980s, he bought a stake in TWA, which was one of the most famous airlines of the time. but he got into a huge mess fighting with the employees. He sold off a bunch of assets, took it private, but he profited $469 million while sending TWA into bankruptcy, eventually sold it off. So people always associate ICON with this TWA deal where he kind of drove the airline into bankruptcy while making half a billion dollars.

So he will forever be associated with the airline industry. So you can't help but drawing parallels between what he's going to do with JetBlue and what he did with TWA. Yeah, absolutely. And remember, Kyle Icon was also targeted by the shortseller Hindenberg Research last year. Basically, they said that Icon Enterprises was this House of Cards and use, quote, Ponzi-like economic structures to kind of prop up its value. Its shares plummeted 43% in the wake of that, and we weren't sure how long-term that was going to stick around. They're still down around 60% from that report was released. So you do have two pretty vulnerable, pretty desperate companies right now. I don't want to say desperate, but Jeff Lewis,

obviously in a bad spot. Icon Enterprises also kind of looking for a spark. So it could make magic. These two could really bring itself back to their former glory, or it could just totally blow up in both their faces. So this is definitely a high-stakes deal with high-stakes outcomes. Okay, don't go anywhere because we have the cutest corporate beef ever coming up after this. You said this place was steps from the water. We just haven't found the steps yet. How much did we save? Enough. Enough to get lost. Or you could book a stay with Hilton.

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and book your next trip today. I'm about to say a lot of words that do not appear anywhere in the English dictionary, but bear with me. Jazz Wares, the maker of Squishmallows, is suing Bill DeBarre the maker of Scooters because it thinks they made a toy too similar to their own. This battle of the plush toys may seem cute and cuddly, but this is big business.

Plush toy sales hit $1.7 billion in just 10 months last year, and Squishmelo is one of the leading names in the category. This lawsuit frames Scooters as knockoffs, pointing out that they are both fanciful renditions of animals with simplified Aisan-style kawai face and velvety fabric exteriors. And I will say, Neil, looking through the pictures, they do look pretty similar.

Adding heft to the suit is the fact that Warren Buffett bought Jazz Ware's parent company, Allegheny, back in 2022. So we have a knockdown, drag-out IP battle over squishy stuff, soft-stuffed animals. That is a heck of a combo. I think I need to do the thing where I read it back off to you so I understand what's going on. Jazzware's own squish mallows, and it's suing Bill the Bear, which is making scooshers. And Scoooshers is too close, in their opinion, to Squish Malo's.

You absolutely nailed it A-plus on that one. I helped out everybody. Yes, you're right. This is big business. Squish Malo's was the top-selling toy of 2022. More than 100 units were sold. They sold more of these things than Pokemon and Barbie. Plus toys are everywhere.

You know what? This reminded me of was Stanley Cup. Because not only do you have to acquire one, it's a collectible. You have to acquire all. of the different types that form your collection. You want the tiger kind. I don't even know what they have, but there's over 3,000 types of these things. So it's this plays into this whole cuddly collectible thing that has absolutely taken off, not among just kids, but among people my age, millennials, and even people older than that. That's why I don't understand what Bill DeBer is doing here, because,

one, it's a departure from what they normally do. Remember, build a bear is famous for you customize your own animal. That is their bread and butter. That is their business. These scoosures, you can't customize at all. You just buy them as is. And then also why I think it's not a winning strategy for Build a Bear is that you're exactly right. Part of what makes Squish Mall is so popular is this collectible nature of it, is the fact that there is kind of all these options and this history. And people want rare ones. Scooosures, you can't just copy and paste that.

You need to build up kind of that brand affinity. So I don't think is as easy as just making a similarly cute stuffed animal and trying to profit off that. Really, Builder Bear knows what they're doing. They have grown revenue for the past three years. They're coming off their most profitable year ever. They had this plush cat that killed it last year called Pumpkin Kitty. Clearly, you don't have Pumpkin Kitty, or else you know that Builder Bear's strategy is working really well in the plush department.

So I don't know if I'm giving Buildabair a little more credit than you are. I think they know what they're doing with their strategy. They've been doing really well these past couple years. Yeah, absolutely. I mean, Jazz Weirs has, this is not their first rodeo by any stretch. They had a legal action against Alibaba for allegedly selling counterfeits. This is big IP. They definitely want to protect this.

So if you are thinking about starting a plush toys company, do not make it anywhere similar to the cuteness factor of Squish Malos. Moving on, the first attempt by an American company to land on the moon this year ended in disaster back in January. But a shot at a redemption is taking place this week. A Houston-based firm called Intuitive Machines is preparing for a moon launch that, if successful, would be the first U.S. spacecraft to make a soft landing on the mood since 1972. And it would be the first time a private company has pulled off a moon landing.

The launch was expected for this morning, but you know how things go in the space industry. They found an issue and it was postponed until Thursday. That classic problem of the temperature of the lander's methane fuel being off nominal. We've all been there. Anywho, NASA is really hoping this lunar landing goes well because it could really use a momentum boost for its moon efforts. As I mentioned, the previous lunar landing failed, and NASA has also delayed its first crude mission around the moon by a year until September 2025. Space is hard, yes, but as Bill's fans know, you need to win the big game sooner or later. I'm really excited for this one, or I was really excited until it got postponed a little bit because of where it was targeting on the moon.

This landing site was around 200 miles south of the pole, on the near side of the moon. It's pretty flat in moon term, so it was thought to be. a relatively easy-ish landing. Obviously, easy comes with an asterisk. But what has space agencies and these companies super excited is that the lunar South Pole might have frozen water. We don't really know yet because we haven't really explored it that much. So if this lander found evidence of frozen water, that's a very big deal.

So definitely looking forward to it. And when it takes off, it's not going to take a long time to get to the moon. It's going to take a week. The CEO said it was a high-energy fastball pitch. I don't think he watches sports that much with that metaphor. But it's going to, it's kind of taking a direct shot. So the previous lunar launch from Astrobotic that failed, this was actually going to get there faster than the launch last month. So this is taking a direct line there, or fastball pitch or whatever you want to call it.

So this is, you know, everyone is watching this. There are high stakes here. And it's all part of NASA's push to privatize the lunar industry. It's stopped taking everything on its own and is now offering contracts. part of this commercial services payload program, which is $2.6 billion. And they're saying, hey, private companies, you can probably innovate and do stuff better than us cheaper. Why don't you ask us for contracts?

We'll give it out to you. And we're going to offload a lot of the stuff we've previously done in the past few decades to commercial enterprises. Yeah. The final thing that I thought was interesting about this is that one of the things that they're carrying on board is just cameras that will record the dust bloom kicked up by the craft, which, again, doesn't sound very exciting. like, why are you looking at the moon dust that's being blown up?

But NASA actually does want to understand how the landing affects the lunar surface, because eventually we anticipate landing multiple spacecraft relatively close to together. So, again, we are ramping up to a much more moon-centric decade, much more moon-centric century, where we do want to eventually establish a presence there. So even little things like how much dust comes up is of the utmost importance. Let's move on. If dating wasn't hard enough already, this app is adding your credit scores into the mix. It's called score, and we're talking about it not just because it's Valentine's Day,

because it's also a limited time thing. This app will only be live for 90 days in applications are now open as long as you have a credit score of at least 675. It's a bit of a marketing stunt from a financial wellness platform called Neon Money Club, and it's more social experiment than full-on hinge replacement. The goal, according to the founder, is to make people more comfortable discussing money and relationships, as well as give people a better understanding of their finances. Neil, I definitely get a little bit of stumpy vibes from this, but still, it's Valentine's Day

and credit scores do actually matter in dating, according to some research from the Fed. So a very, very interesting premise. Yes, I mean, I agree with you that it is a way to filter people back in to their other products. But it's supposed to spark a conversation, even according to the CEO, and look at this. We're having conversation about financial wellness, credit scores, and dating, and it is a big deal. I mean, money issues are the third leading cause of divorce.

And having a question around credit scores has come up last year on actual dating platforms. This one influencer woman from Boston posted, just to stand out in her hinge profile, posted her excellent credit score of 804 on her profile and filmed the recent. reactions and it was a deluge of men being like, you know, I want to marry you, date me, like, let's go out, I've seen enough. And so that really sparked another conversation around, hey, maybe I should put my credit score on my dating profile because it's clearly a turn-on. Yeah. What is crazy, though, is the Federal Reserve did do some research around this. And people with high credit scores are way more likely to form committed relationships than other individuals

compared to high credit scores singles. Those were the high-credit scores. singles. Those with lower credit scores are about 30% less likely to form a relationship in a given year. They also found that when both partners enter relationship with high scores, the odds that they stay together will increase. And even if you do enter with one person with a lower score and one with a higher score, those scores tend to converge over time. So there's a wealth of data out there that shows that this is not just a one-off thing. It is very much a predicator of you can build a strong relationship on the back of financial well-being and financial health. There is a correlation here.

Right, because credit score is not directly proportional to wealth. It's about being responsible with paying your bills. It's about other things. It's not a proxy for how much money you have. So maybe if someone has a good credit score, they'll be more likely to take out the trash or make the bed in the morning and other things that build healthy relationships. So maybe it's just a signal of other behavioral characteristics that might tend to make themselves better for committed relationships.

I can't think of anything less romantic sounding than talking about your credit scores, but it's probably something you should bring up, maybe not on the first day, but maybe on that second or third date when you start splitting the check a little bit, too. All right, we have to wrap things up there. Happy Valentine's Day to all the couples and singles out there. Reminder about our Q&A episode coming up next Monday. Email all of your questions to Morningbrewdaily at morningbrew. with a subject line Q&A. We're really looking forward to reading them. Let's roll the credits.

Bryce Belloff is our editor and producer. Raymond Lou is our associate producer. Euchenua Ogu is our technical director. Billy Minino is on audio. Hair and makeup has an excellent credit score. 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. All. Pay off your home. Travel for life. Drive a Ferrari. In celebration of the world premiere of the Monopoly, big board buck slot 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 Yamava's history. Club Serrano members can earn daily instant prizes and secure a spot in the finale May 29th.

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