Morning Brew Daily - TikTok CEO can't sway congress, CashApp Fraud?, Apple at the movies

Episode Date: March 24, 2023

Episode 24: Neal and Toby take a look at TikTok CEO's Shou Chew's testimony before Congress yesterday and why lawmakers still have major concerns over the app's security. Also, Hindenberg's report on Block and CashApp has sent the company into a tailspin. And why is Apple investing billions in movies? Plus the stock of the week is giving.... 'The Last of Us' vibes. Learn more about our sponsor, TaxAct: https://www.taxact.com Learn more about our sponsor, Fidelity: https://fidelity.com/stocksbytheslice Listen Here: https://www.mbdailyshow.com/ Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI Good morning brew daily show. I am Neil Fryman. And I'm Toby Howell. Happy Friday. Thank you. I used to cringe when I would say that, but you just got to own it.

Yeah, I'm 31 now. I'm just getting into my Gen X stage. Every Friday we do this tradition. Fast week, slow week. So Toby, fast week or slow week? Okay, this was definitely a slow week for me. And I have a lot of feelings about this. One, because I was out on first.

variety of last week. So it was a three-day weekend for me. So anytime you come back after a three-day weekend, it feels slow. And then also, daylight savings still, waking up at 6 a.m. and it being pitch blackout, I hate it. Makes a week feel long. What about you? All right. For me, fast week, I have a feeling I'm just going to be 99% fast week with the job as a newsletter writer and podcast host. You're just following the news. And this week was just so heavy with big news. We had credit suites on Monday, Google release Bard. Fed rate hike, TikTok testimony that we'll talk about today. We did talk about a lot of this week.

Just nonstop. So just to recap, you're one-in-one Fast Week, Slow Week. I'm 2 in favor of Fast Week. We will be doing a Dally. We will give a dally. All right. What are we going to talk about? Today, a shortseller is going after Jack Dorsey, the beard himself.

Apple heard the siren call of Nicole Kidman and the HBO and Netflix effect on travel. We'll talk about what that is. But first, we mentioned it a little earlier. TikTok CEO Shoz-Z Chu testified before Congress yesterday. And narrator voice, it did not go well for him. Politicians from both sides of the aisle flayed him about the apps ties to China, saying that there were not enough safeguards to protect American user data from being swiped by the Chinese government.

So I have a few takeaways, so I'm just going to rattle them off. And then you can, I'd love to hear yours. Rattle away. I'm going to rattle. So the first is that Chu was just not. super definitive with his answers. He was asked yes or no a couple times, and he didn't say yes or no, which kind of rattled lawmakers. One of the questions was he was asked whether Chinese employees of ByteDance, which is TikTok's parent company, could access U.S. user data. And he said,

I haven't seen no evidence of that. And, you know, when maybe a no would have been good. But lawmakers reminded him that he was under oath the entire time, so that kind of maybe made him a little nervous. And then another representative asked whether Bight Dance had spied on American citizens, and he responded, I don't think that spying is the right way to describe it. It's so, it was not, yeah, you're right. He did not, I don't want to cut you off. Do you have one more takeaway? No, no, go ahead. I'm done. Yeah, I have never seen this amount of vitriol from a congressional hearing. Honestly, being at the brew for a couple of years, I've watched a fair amount of congressional hearings at this point. And from both sides of the aisle, he was taking punches. I saw one tweet.

from Mike Solana, who's a GP at Founders Run, that was saying, Republicans think this app referring to TikTok is dangerous because it's controlled by the CCP, while Democrats think this app is dangerous because it's an app, kind of playing on the idea that this huge big tech anti-big tech sentiment. And I also can't believe that we are now going to see this massive divide between what lawmakers are pushing for and what the voters actually may want. because one thing that Chu was trying to play up was the fact that there's 150 Americans on TikTok. 150 million. 150 million.

Yeah. 150 million Americans within our square mile radius. Right. 150 million Americans that are on TikTok and love TikTok. And then you have the constituents that actually are the people who represent them saying, no, we want to ban it. So there's this huge gulf between, yeah, kind of the masses and what the politicians want. Okay.

But that 150 million, I thought, was a really interesting. interesting point, because he touted it as about how many Americans love TikTok and are on TikTok, and they use that point, the lawmakers use that point against them. They're like, you are bragging about, you know, the fact that you have 150 million users on your app. Well, to us, that just shows how big of a problem this is, that 45% of the entire population could have their data swiped by the Chinese government. So I don't know if that was a, you know, he thought he was kind of dunking on everyone, and then they kind of dunked them back. Speaking of double-edged George Swords, one of his big dunks was saying that we're talking about my user data security.

What about Facebooks and what about the Cambridge Analytica scandal? They're not good with data. So we have a little soundbite from the hearing where he brings up Facebook. I don't think ownership is the issue here with a lot of respect. American social companies don't have a good track record with data privacy and user security. I mean, look at Facebook and Cambridge Analytica. Okay. You didn't think this was a good idea to bring up.

I think it was fine, but anytime you're kind of deflecting and bringing up everyone else, it's kind of a sign that you're losing. Yeah, I can see it too. It did get a little bit of a little bit of a laugh or a little bit of a grumble. We cut it off before that, but everyone in the room was kind of like, well, he kind of has a point, right? So I do think that the user data security problem, obviously it's heightened because it's China in this case, it has been a problem in all social media apps. Yeah, and Mark Zuckerberg was in front of the same congressional hearing.

So I guess what's the big picture here? Mine is that, you know, TikTok is probably going to get banned. You think, oh, yeah, I was going to ask. I thought you were going to. From this, I think so. It was just nonstop firing on all cylinders against this dude. Dan Ives, who's this prominent tech analyst, called it a disaster of epic proportions, and essentially told everyone to go buy up meta.

Snapchat stock. That's also my takeaway. I do think it's going to get banned too, which is just crazy to think about that. 150 million Americans. There is an alternative, and that is if bite dance, the Chinese company, sells its 20% stake in TikTok, but seems like China is not going to play ball with that. They were firmly against this and have been kind of firing bullets at the United States over TikTok, so it's turned to this geopolitical fracas.

But I guess next year at this time, I don't think TikTok will be around in the U.S. Good for productivity, baby. I'm all for it. Good for Instagram Reels. That's what I've said. Yeah. All right. Well, we'll keep a close eye on that.

Obviously, that situation is going to keep developing. But let's move on to the next story. We've talked TikTok. Now let's talk Block. I'm very proud of that one. So Block got Hindenberged yesterday. And so that's kind of a wild sentence for most people. So I'm going to break it down for you guys.

So first and foremost, block, formerly known as Square, is the other company that Twitter founder Jack Dorsey started. It's a payments company that owns the popular Venmo alternative cash app, which a lot of people know and love. Hindenberg, on the other hand, is basically the Grim Reaper of Wall Street. It's this small research firm that dives into companies that feels like is engaging in nefarious corporate practices. And then it also takes a short position in those companies, so it profits if the stock

Falls. Previous examples of Hindenberg at work is they took down the EV truck maker, Niccolo, a couple years ago, which I'm sure people remember. Their founder, Trevor Milton, was actually found guilty of fraud. And then more recently, they took down the Adani Group from India, which lost $135 billion in market cap due to one of Hindenberg's reports. So taking us back to yesterday, Hindenberg dropped a report exposing Block, but honestly mostly exposing Cash App. So the key allegations against Cash App were, is that CashUp's inflating user numbers by allowing people to start multiple accounts. So one of the funniest parts is Hindenberg researchers were actually able to apply for a

cash app debit card under the name Donald J. Trump, and they received it. And then they also highlighted how much Cash Apps being used for illegal activities like money laundering. Another funny part was they created this super cut of all the hip-hop. and rap songs that mention catch app, and mention cash app not necessarily in a favorable way, using it for illegal activities. So, yeah, a wild thread that stock was down 14% in reaction to it. People take these things very seriously. Neil, what do you think about Hindenberg going after Block? Yeah, definitely puts Jack Dorsey in the hot seat. I think he lost over $500 million

of his net worth investors. Hindenberg seems like it has a pretty decent reputation of being, And they bill themselves as investigative reporters, essentially, and somehow they just make money. Right. Not somehow. That, you know, they dig up dirt and then they make money off the dirt that they throw. Yeah. They come with the receipts. That's the big thing Hindenberg does, is that they will get really, really deep into the weeds

and come up with a lot of specific things. And so it puts the companies on the – the burden of proof is then back on the companies, where they have to then go through systematically and disprove everything Hindenberg said. And honestly, Block didn't really do that. They issued the classic corporate statement. Like, it was riddled with inaccuracies. Like, we don't think this report is true. But they really didn't refute any of the claims in it.

So Block is on the chopping block right now. I don't know. Teetering on the edge. A lot of people think that shorts, I mean, there's this wider ethical discussion around the ethics of short selling and whether it should be legal or not. And if you go back to the meme stock craze of early 2021, there was, there was. was a revolt against short sellers of GameStop. Yeah. That was Melvin Capital who had shorted GameStop, and all the Redditors wanted to squeeze them

and make them lose a lot of money. And there was this giant, you know, popular anti-shortseller sentiment. So I am a little curious how Hindenberg kind of has distanced itself from the overall bad attitude that, or bad reputation that short sellers have. I just think they have yet to be wrong so far. Everything that they've said, while not maybe 100% true, was directionally correct in these companies that they target, that's another big reason why this is such a big deal, is that Jack Dorsey and Block is probably the, especially Cash App, is probably a company that people recognize, name-recognized the most.

So, Adani Group, maybe you hadn't really heard of it. Nicola was pretty small still, but Cash App is something that millions of people use. So this might be the one that kind of takes Hindenberg and mainstream in a way. So it's a big deal. Yeah, Hindenberg told me. I'm a Venmo guy, personally. I never use Cash App for this particular reason. I knew it was rife with fraud. And when you see Venmo and people are making snowflakes and different leaves, I know what that is. Okay, let's move to the movies. So, according to a Bloomberg report yesterday that had everyone talking, Apple plans to spend $1 billion each year to produce original films that will have wide theatrical releases that will run for at least a month. The move is intended, in my view, to essentially work as top-of-funnel marketing for its streaming service, Apple TV Plus, which is how the company actually makes money, to get people thinking about Apple as, like, a serious player in the movie industry. And it's also meant to help it land bigger projects and better talent.

There are some directors out there, Christopher Nolan, who don't like streaming and kind of want their movies to be seen on the big screen and a bunch of actors as well. Yeah, I'm actually really, really excited for this. I love hearing about the projects they have planned. So they have a thriller starring Duelipa and Henry Cavill, which I'm very pumped for. Ridley Scott is, oh, you're not pumped for that? Sure. That seems like a dynamic duo. Ridley Scott is directing a Napoleon historical drama starring Joaquin Phoenix, which sounds awesome.

And then there's a Scorsese film with Leonardo Caprio. I think Apple is going to crush this. Apple, it sounds weird on the surface. like, why is Apple devoting $1 billion to the movies? But Apple's probably the best storytelling company that we've had in the last generation, just from the way it markets its products. Remember, like, the Apple versus PC ads, the 1984 commercial? Apple is really good at telling stories and has been throughout its history.

So I can totally see how this fits in with its ethos. Okay, but that might be romanticizing it. That's marketing department. They're just hiring Martin Scorsese to tell a story. So I don't know if the Apple marketing department. Department is going to go and be like, Martin, you got to, like, put yourself up against a PC and think different here. Hey, I'm telling you, people associate Apple with storytelling these days, and this just continues

that. Another big winner from this, too, not a huge winner, but theater. I think the biggest winner. Right. Theater companies, their stocks performed well in reaction to the news. AMC was up over 5%. IMAX was up 5%. And Cynemark was up almost 9%.

So it's clearly a reaction to, yeah, when you have one of the bigger players in the space is saying we're going all in on theaters, theaters are going to profit. I mean, the fact that these tech companies, Amazon is also releasing up to 15 projects in theaters next year. The fact that these tech companies are saying we're investing in movie theaters is absolutely insane. Right. Like, in 2020, you would never have expected it. COVID basically was seen as the end of movie theaters, right? because all of these streaming companies were putting movies on their streaming platforms and skipping theaters.

They were like, well, we don't need theaters anymore. And then theaters were like, okay, well, what are we good for? We're valueless. We're all going bankrupt. But apparently that hasn't worked. That hasn't used subscriber numbers like they'd hoped. And now all these companies say, okay, maybe we actually need a theatrical release. Maybe there is some value to putting our movies in theaters and not just on streaming platforms,

which is kind of a crazy U-turn because... It's good for us. I thought they were dead two years ago. No, it is definitely an ironic twist of fate, but good for the consumers. Like, we're going to get better movies now. That's true. All right, Neil, before we jump in the 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.

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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.S. College PC. All right. Time for our Friday segment. Stock of the week, dog of the week. Before we get into it, I got to kick it to Toby. Oh, this is my favorite part of the show. I always forget to do it, but this is not financial advice. We are not registered financial advisors. So everything you hear, take with a grain of salt.

So good at that. So we do a dog of the week, which is a stock that is not performing well this week. And then Toby wants me to explain that. It's because the dog of the Dow is the worst performing. That's just a phrase on Wall Street talking about the worst performing stock of the year in the Dow Industrial, Dow Jones Industrial Index each year. And then we'll do a stock that is performing well. So I drew the short straw and I'll do dog.

But I thought we're going to have one weekend without a banking crisis, Toby. Nope. But I guess I'll have to wait until next Friday because this morning I woke up and saw that Deutsche Bank shares were plummeting as much as 13%. Deutsche Bank is this big, huge, maybe the biggest German lender out there. And its stock plunge dragged a bunch of European bank stocks with it. I'm sure the U.S. markets are going to open in the red because of this. So there is another not banking crisis, but you can tell that the banking jitter.

have not abated at all. Yeah, it's a story. I was saying that we could probably copy and paste, like Credit Suisse for Deutsche Bank. Although I will say one thing that is different about this particular Deutsche Bank kind of getting hammered in the market is that it has, it's coming off 10 straight quarters of profit. It had record profits in 2022. So it actually isn't much like Credit Suisse, which has kind of been limping along for the last few quarters. It was, by all accounts, a pretty healthy bank, but then you see some of the issues about long-term bonds is coming to affect it as well. So it shows that even like some of the premier banks are not immune to this. Yeah, you don't want to show any sign of weakness right now.

Like any little sign that you're not doing okay and investors are going to pull out. And there's been really confusing guidance this week from Janet Yellen over whether the government will backstop depositors like they did at Signature Bank and Silicon Valley Bank. And so people are really confused about how much the government is going to step in if banks are going to keep imploding like they have been. Meanwhile, the Fed raised interest rates, which a lot of people said they shouldn't have because it would cause even more jitters in the banks. So this story will probably develop over the weekend. It's way too early to say whether we have another sort of Credit Suisse situations on our hand with Deutsche Bank. But it definitely is the main thing driving markets today.

That is our dog of the week. Let's go to Stock the Week. Our Stock the Week is Cinexas. It is a small pharmaceutical company that develops antifungal medicines that has jumped over 74% in the last two days. So, Neil, the keyword there is fungal. The rally was sparked by a CDC report on Monday that said clinical cases of Candida Aris, a fungus considered to be an urgent antimicrobacterial resistance threat. rose 209% from 2019 to 2021. Yeah. So, Neil, I'll just go ahead and say it. This is life imitating art.

Feels like Last of Us has come to life. Yes. There's this, yeah, it can evade. Some strains of this can evade medical treatment, which is why they, you know, some investors pile into small biotechs. The one my takeaway is, being an investor in a small biotech, it is. You can't have a faint heart. Like, these things go up and down based on.

news like crazy, up 300%, down 400% based on clinical trials. So I know, some people do day trade like biotech stocks, but they're so small. This has a market capitalization of $65 million. It's smaller than Morning Brew. It's just making headlines because, yeah, the fungus. Can you imagine if we get a little fungus scare going forward? This is a fungus scare. I know, but it's a minor fungus scare, but oh my gosh. Well, people should know that it does not really affect healthy people, but it is dangerous for people in the hospital and the immunocompromised and the CDC, you know, it's not really a joke. CDC is saying this is an urgent problem and it grew a lot over the past three years. Okay. Second to final story. Don't want this to end because Friday shows are the best.

I know, Friday shows are the best. All right. So it seems like there's a massive pop culture effect on the travel decisions of younger people. That's from a new study from American Express, which said that 70% of Gen Z and millennials say they've been inspired to travel to a destination after seeing it on a screen, like a TV or a movie, and that's almost a big as source of inspo as having FOMO of your friends on social media. So this phenomenon, in my opinion, has existed for a while, you know, TV show tourism, but I think it surged really because of White Lotus, which is this HBO show that's set in the most beautiful locations on Earth.

Season 1 was in Maui. Season 2 was in Sicily, and four seasons Maui, where it was shot, web traffic there during season 1 spiked 425 percent. And then in Taramina, the Sicilian town where the season 2 was set, which we're showing on the screen right now. And I don't want to take my eyes away because it's just so beautiful. You can't, like, get a room at this place. Yeah.

No, it totally makes a ton of sense. Like, of course, beautiful shows and beautiful places is going to drive people when to go there. But, yeah, I was just thinking about other instances of. of this, my girlfriend leaves relatively close to Carrie Bradshaw's apartment from Sex and the City. That constantly has people outside of it. There's the Seinfeld diner in New York as well. Yeah, you still live there.

It's terrible. Yeah, it's not great food. But yeah, it makes a ton of sense. Another thing I thought was interesting from this same report from Amex is that millennial Gen Z customers were actually Amex's fastest growing customer cohort with 60%. of new customers coming in. And it is kind of funny. They were kind of taken aback by this because during the pandemic, when travel kind of dropped

off a cliff, they tried to update their cards to have other benefits. And then we come out of the pandemic on the other side a little bit. And now all people want to do is travel. All young people want to do is go to these beautiful places. And so now they're applying for their kind of big travel. Yeah. Yeah. My final piece on this is I wonder if there's a negative effect.

like when TV shows are shot in really crappy places and that people don't go? So I was thinking like mayor of Easttown, do you think were people? I'm never going to Delaware County, Pennsylvania. And then the wire might have had like a negative tourism effect on Baltimore. We should look into that.

That's incredible. All right, you can go to the next story. Okay, our final story, it's another kind of travel theme story. Before we head in the weekend, I want to talk about a controversy that's been gripping the TSA. So it all started with a tweet that I'll read out from someone named Patrick

Nevy. This was two weeks ago. This is the tweet, I tried to take peanut butter through airport security. TSA. Sorry, no liquids, gels, or aerosols. Me. I want you to tell me which of those things you think peanut is. So this set the internet on fires viewed over 10 million times because everyone's like, what is peanut butter? Is it a liquid? Is it a gel? And so the news that, why we're talking about it is the TSA stepped in to help clarify things. They said, TSA tweets like such a boomer account, but you may not be nuts about it, but TSA considers your peanut butter a liquid. So, Neil, what do you think? What form of matter is peanut butter? Well, I did some deep dives on this because I don't trust the TSA with science.

So a liquid is apparently a fluid that conforms. The definition of a liquid is something that conforms to the shapes that it's in. So you pour it into a container and the liquid kind of, and this piece of matter kind of conforms to the shape. It fills it out. So you take it out of a mold, and it also retains its constant volume independent of pressure. And I guess peanut butter, in a sense, is an extremely viscous liquid. Here's my pushback on that. If I take a scoop of peanut butter with a spoon, the peanut butter does not, that indentation, that crater, does not go away. Yeah.

The peanut butter does not fill in the so-called container there. It really depends on the peanut butter, though, because some of these organic peanut butters, those are liquids. And then you have the gifs of the world, which absolutely, that thing has something unnatural in it because it really holds together. It definitely has something unnatural. I think one of the Skippy brands, they can't call it peanut butter. They call it peanut butter spread because it's 51% not peanut butter. Yeah, and sugary, yeah. Well, that's something to debate with your friend.

I want to talk about this for another half hour, but we really have to go. I hope you all have a great weekend, watch some bad. Basketball, C. John Wick 4. Yeah, absolutely. Please email us with all of your peanut butter thoughts, Morning Brew Daily at morningbrewer.com, or tweet at us at MB Daily Show or on Instagram as well at Ambidelli Show. Have to give some amazing shoutouts. What do I say? Amazing Shoutouts to our amazing crew.

Show's producer and editor is Emily Milliron, Montgomery County, Pennsylvania's finest. Show's technical director is Justin Orlando. Our supervising producer is Bryce Belloff. Dan Bousa is our VP of technical and production operations and apparently a one-time top 1,500 Magic Arena player in the world. Our hair and makeup watched Avatar and has traveled to Pandora. Devin Emery is our chief content officer. Our show is a production of Morning Brew. Great show, Daniel.

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