Morning Brew Daily - US Economy Is Exploding & X's Turbulent First Year Under Elon

Episode Date: October 27, 2023

Episode 179: Neal and Toby break down the US Economy's explosive growth in the third quarter and what that could mean moving forward. Plus, Sam Bankman-Fried takes the stand and it's been one year since Elon Musk purchased 'X', formerly Twitter. What has the last year looked like at the social media company? The guys share the dogs of the week and explain why scientists misjudged Hurricane Otis. Finally, what does the way you sign off a Zoom call say about you? Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Listen to Our Future Podcast Here: https://link.chtbl.com/ourfuturepodcast 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. On today's pod, today marks one year of Elon Musk buying Twitter. We'll play a little how it started, how it's going. Then Sam Bankman-Fried finally took the stand yesterday at his fraud trial, and it did not go well for the fallen crypto wonder kid. It's Friday, October 27th. Let's ride.

Okay, so Halloween festivities officially kick off tonight. I hope you all have your costumes picked out, because I sure don't. And that's not on you, MBD listeners. Earlier in the week, we asked you for costume racks, and you sent a bunch in. Some of the responses I want to highlight, Lauren said I should go as Britney from the toxic music video, because why the heck not? A bunch of people said Toby and I should go as hair and makeup or each other. Another said we should be funnier, noted. Some ideas that newsletter writers were kicking around yesterday that might give people some last-minute inspiration.

There was Howie Mandel's from Deal or No Deal. could be a good group costume too. All you need is a bunch of briefcases. A couple's costume of New York City's rats are and splinter from Teenage Mutant Ninja Turtles. I like that one. Little Caesars the pizza chain. You dress up in a toga but hand out pizza. It's for all the Shorthings.

And then finally, the ghost of Twitter. I liked all of them. I feel like you glossed over the best one ever, though, is when we put out a poll on Instagram saying, what should we be for Halloween? And someone just wrote funnier, which is by far the greatest diss we've ever had on this show. So unbelievable suggestions. I know. Thank you, everyone.

And we actually do have our Halloween costumes picked out for our show on Tuesday. So we're not going to tell you which ones we picked, but they are good. All right, before we jump into the news, we want to give a quick shout out to our sponsor, Yahoo Finance. Neil, I figured out one additional reason why I think Yahoo Finance is trusted by over 150 million visitors globally each month. Is it because we advertise it at the beginning of literally every show? Well, yes, but also, since it's a one-stop shop for everything from breaking news to real-time market data, you don't have to open as many tabs to check in on the market. I see where you're going with this.

So you're saying if I use Yahoo Finance, it will help with that fan thing that my computer does when it's working too hard. Exactly. Save some of that RAM for more important stuff like writing funnier hair and makeup jokes. Okay, okay, okay. Head to finance.yahu.com to check it out or download the Yahoo Finance Mobile app to get it directly on your phone. 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 3-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard.

Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th. Exclusion supplies to homedipo.com slash price match for details. Okay, for our first story, we've hinted at it several times in the past few weeks, but yesterday we got confirmation. The U.S. economy is ripping, booming, soaring, flying, however you want to describe it. The Commerce Department released numbers for gross domestic product, which is the measure

of all the goods and services produced in the U.S., and it showed the economy grew at a 4.9% annualized rate in the third quarter. That is a massive number. It was more than double expectations and the biggest quarter. GDP gains since the U.S. was coming out of the pandemic recession in late 2021. The reason? Taylor Swift, Beyonce, and Barbenheimer. And I'm only half kidding. Consumer spending drove nearly half of all the growth as Americans shelled out for concert tickets, vacation, merch, and other experiences and goods over the summer. Business inventories

and government spending also helped push that GDP number higher. But the main takeaway here is that spiking interest rates have done little to slow the American consumer's role. And when you take a step back and look at the long-term trend of U.S. economic growth, the COVID dip now looks like someone made a chart mistake because we are 100% back to pre-COVID growth trajectory, if not doing even better. I can't put it better than economist Justin Wolfers who wrote on Twitter, if you had fallen asleep in January 2020 and slept through the pandemic and you woke up this morning, you would ask the first person you saw what good news you had missed because the economy today looks stronger than you had anticipated before nodding off. Yeah, that long-term

trendlines that is absolutely incredible because I don't think anyone expected us. And when I say I don't think anyone, truly every single economist was reporting that there was a 100% chance of recession in the coming months. But here we are. Consumers just put the economy on their back. We've been talking about this for a long time now. So it was nice to see it in the GDP data actually reflected as one of the biggest jumps in GDP that we've seen over the last couple years or so. So I do think the big picture is that even though that there's all this instability going forward, this spending that has propelled the economy forward has just been an incredible lift to everything. And yeah, 68% of GDP and Q3 came from the consumer. Just amazing numbers.

So I want to talk about a little bit of American exceptionalism for all the America people listening to this. We are crushing the rest of the world. This is just numbers. So compared to our peer countries like Japan, Canada, Italy, Germany, France, UK, our GDP change from Q4, 2019 to Q2, 2023, we're literally crushing the rest of the world. I'm not making this up. The GDP change from 2019 till now in the United States is 6.1%. The next closest one is Canada at 3.5%. Japan's at 3%.

The euro area is at 2.5%. Germany's just at 0.2%. So, America, when you look at all the world's COVID response, you have to look at the United States and say, I mean, in terms of economic response, right. The pandemic policies that the government put in place were far more successful than other peer countries. Yeah, the numbers just clearly speak to that.

Although, so you mentioned Barbenheimer and Taylor Swift and everyone, but it was interesting to see the data between goods and services. And so spending for the consumer was actually pretty evenly split between the two services being these experiences that you are talking about. So goods made up 4.8% and then services made up 3.6% of the jump in consumer spending. So remember, we talked about Hermit Mode versus this experiential economy. It looks like people were just doing a bit of both. They were buying stuff and they were buying.

You're the Herman Mode. I'm the good person going to... That would be a good Halloween costume. I go as Hermit Mode. What's funny here is there's been something that's been going around called the Vibe Session, which is the notion that consumers have very little confidence in the economy when you ask the random person on the street what they think about the economy, they'll probably tell you we're in a recession or things are not doing too well,

and then the data doesn't back it up. This is a big problem for President Biden, because while the economy is doing well, people don't seem to think it's doing well. A new NBC News poll released last month found that the GOP advantage on the economy was at the highest recorded in more than three decades. So people are not attributing any of this economic growth to Biden. And with the election coming up next November, it's something he'll have to tout and kind of broadcast the fact that the economy is doing well.

Yeah, it changed the narrative. All right, Neil, let's move on. It finally happened yesterday. Sam Bankman-Fried, the disgrace founder of FTX, testified at his fraud trial, but under some slightly bizarre circumstances. There was no jury president. Judge Lewis Kaplan said he couldn't decide yet whether elements of the Tesla. would be relevant in court without first hearing it himself, so he sent everyone home effectively

turning yesterday's testimony into a bit of a practice run of sorts for SBF. And Neil, he certainly needed it. SBF tried to paint a picture of an FDX where the blame could be spread around the C-suite, calling out chief regulatory officer David Friedberg, FDX President Brett Harrison, and his general counsel at various times. However, not much hard evidence was produced to show that the buck stopped with anyone other than himself. Remember, the core of the prosecutor's case is that SBF took customer deposits and improperly used them to pay off debts and fund investments. And SBF's goal is to show that

he wasn't the only one making those decisions. Neil, he takes the stand again today, but I'm not sure anything he said yesterday helped his cause in any way. It seems like this was a dress rehearsal and it seemed like he needed it. What we saw from SBF and the other end, his defense was this, blame the lawyer defense. We, you and I are very good at. blaming hair and makeup for everything. SBF wants to blame the lawyers for everything. He said that while you talked about, the main prosecution case, which is that he used

Alameda as his personal piggy bank. He said that was under the terms of service that his lawyer wrote, which he said he skimmed. So he had a general familiarity with the terms of service. That is a crazy part of the trial, but also one of the big takeaways too was just how kind of nervous infidity he was. He was extremely,

evasive in answering a lot of questions, and he said he did not recall multiple pieces of information. At one point, the judge basically said, you've got to answer these questions. You're answering them in a very weird way. Like, please provide direct answers. So he was definitely trying to play the blame game, but when you're playing the blame game, you've got to come with receipts. And it looks like the prosecution has more receipts than SBF does at this point. So, yeah, right now it's not looking good for him. So this is a risky play to have SBF testify at his own trial. It is rare for defendants to take the stand themselves, but it's not so uncommon in white-collar criminal fraud cases. Elizabeth Holmes of Theranos Infamy took the stand for her

trial a few years ago. And then also the former heads of Enron, Ken Lay, and Jeff Skilling took the stand. It did not work out for either of them. Meanwhile, more recently, Donald Trump over his civil fraud case also testified this week. So it's a thing when you're kind of in that desperation mode just to hear from the defendant themselves. But we'll see what happens today. I think SBF's going back on the stand today, and we'll see whether there's an actual jury present. Toby, today marks one year since Elon Musk bought Twitter.

Well, I should say forced to buy Twitter. Remember, he fiercely tried to back out of his purchase for $44 billion, but Twitter sued him to make the deal go through. The 365 days since have been tumultuous, as we've talked about many times on this podcast. Musk got rid of most of Twitter's staff, reducing headcount from nearly 8,000 employees to 1,500 currently. It's not even named Twitter anymore after Musk controversially ditch the iconic bird branding in favor of X, his favorite letter, and a sign of his intent to turn this social media site into an everything app. He's gutted safety teams, watched advertisers flee the platform, hired a CEO, Linda Yakarino, launched new features to allow creators to monetize their audiences, turned blue check verification into a pay-for-play model that costs $8.

hosted Ron DeSantis' presidential campaign launch. I could go on, but I'll stop there. Toby, what stands out to you from Musk's first year at the helm of one of the most influential social media platforms? I mean, just some of these stats that we're seeing comparing before he bought it to after, global app downloads fell 38% from October 2022 to September 2020. Monthly active users are down 14.8%.

Censor Tower reported that users spend an average of 2% less time on X, even though Apptobia found that active users, users actually have jumped a little bit in their time spent on the app. US ad revenue has dropped 60%. That's by admission of Musk himself. And then also, web traffic was down 7% globally and 11.6% in the U.S. So, again, if you just look, if you want the broad report card, a lot of things are going down significant percentages.

Right. You know, Elon Musk is a very polarizing figure, and any debate over his moves at X are fraught with controversy. And people just say you're either being an Elon Homer, you're being an. Elon Hater, but say I handed you these data, and I said, this is a social media app one year after new management took over. And I didn't tell you who it was or what the app was. You'd probably look at it and say, well, things are going in the wrong direction.

Yeah, certainly in the wrong direction. The funniest tidbit, though, to me, though, is that there's one thing that's going in the right direction, and that is traffic to Elon Musk's personal profile and posts were up 96% new over a year in September. Remember that time when the algorithm changed and it accidentally was showing every single Elon post to every single X user. It's just funny to me that he paid $44 billion to just become an influencer, essentially. So Musk will contend that this is a marathon and not a sprint. Yakorino, the CEO, said they would be profitable next year. They have rolled out this not a bot

scheme in New Zealand and the Philippines, which is a, it makes Twitter, basically a subscription platform where you have to pay $1 a year to do anything, and that is to weed out bots. To me, the worst decision was this very, this $8 $8 verification thing to be, to be verified. Because now the blue checks, which used to be journalists and people who were prominent people that would prevent. People like you and me.

People like you and me. No. Smarter people than us. Would, you know, their posts would be amplified. Now, the posts that are amplified are just any random person that pays $8 a month. And that just makes your platform so much worse. makes the content worse, and it drives people to leave the platform.

But speaking of the rivals, there were many calls during this one-year period that Twitter is dying. No one's going to be on Twitter anymore. This site is going to implode. We're all going to go to Blue Sky and Mastodon and these other rival apps. That really has not panned out. I think the biggest threat is threads, which Zuckerberg said, this is from meta. Zuckerberg said that they had nearly 100 million users in its quarterly earnings calls.

earlier this week. That seems to be the biggest threat yet. So I think over the next few months, we'll see the Threads X dynamic play out. Oh, absolutely. But X-Man, it's a cockroach. It's tough to kill. The reports of his demise were greatly exaggerated. All right, before we get caught in an X-Lull for the rest of the show, we're going to pause there and take a quick break. Studies 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

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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. You in? Must be 21 to enter. It's Friday, so it's time for our Stock of the Week, dog of the week segment where we look at one stock that is really into pumpkin carving and one stock that thinks it's way too cool for a little Halloween merriment.

Except for this time, the market is so blah. that were foregoing stock the week and giving you two dogs instead. Neil, it is ugly out there. The S&P 500 is down 10% from its July peak and has fallen seven of the past eight trading sessions, despite a relatively strong earnings season. Again, Q3 was awesome for the economy as we talked about at the beginning of the show. But even us not financial advisors know, the stock market is not the economy. And most companies use their earnings calls to provide a word of caution about the coming months

as higher interest rates and global instability are pushing the global economy into uncertain territory. So, Neil, on that note, who is your dog of the week? Well, first of all, you're my stock of the week. That was a great intro. Thank you. Thank you, Neil. All right, let's get into my actual dog of the week, which is Southwest Airlines, because in 2012, they lost my luggage at BWI, and I never got it back.

No, the real reason is Southwest reported earnings that showed that the age of revenge travel is really coming to an end. profits last quarter fell 30% as the company had to lower ticket prices and contend with higher costs. It's also going to dial back growth plans next year. And this is not just a Southwest story. Budget airline's spirit and frontier also posted losses last quarter amid softer demand and discounted ticket prices. The blessing and the curse of these companies is that they serve the U.S. market, not international. So when everyone was zipping around to Jackson Hole, Joshua Tree, and Miami during the past few years, they were killing it. But with business travel, back yet, and more Americans getting sick of America and traveling overseas, these budget airlines

are hurting. The whole sector is under pressure, obviously, said Southwest CEO Robert Jordan. Yeah, I actually was digging into the stats of why it's under so much pressure, and one of the indicators is that load factors down, which is the percentage of seats it was able to sell on a given flight. So that fell to 80% for Southwest in the third quarter, down from 85% the previous year, and then Spirit's load factor also dropped. But yeah, it is definitely indicative of kind of the travel broom coming to a close. And even though it might not, we didn't see it maybe in Q3, it's Q4 and onwards at these companies. But just a messer because Delta said, looked at these other earnings or person was like, I don't know what you guys have problems

with. You know, plenty of people are flying on Delta and that's because they have so many international routes. Yeah. Okay. My dog of the week is Whirlpool. Shares dropped as much as 17% yesterday after it gave a less than seller outlook for the coming months. Whirlpool is an interesting company because it speaks to the psyche of the average American consumer. The economy is doing well, more people are willing to buy. It's essential but pricey products, but if you're feeling a little uncertain, suddenly a new dishwasher isn't at the top of your list anymore. So even though sales rose this past quarter and they gained market share, Whirlpool CEO Mark Bitzer set on the earnings call that discretionary purchases have been

even softer than anticipated, pointing to increase mortgage rates and low consumer confidence as two reasons why. One last positive note, he added, though, was that washers and dryers with special filters for pet hair have been a hit with customers. So, Neil, I think we know the solution to save the economy, help people deal with their pet hair. Yeah. So I would say from both my dog of the week and your dog of the week, they both showed that while the economy is doing well now, there is a lot of uncertainty on the horizon,

which there has been for many years now. But looking at all of what the CEOs were saying, I would say this is great for inflation. Because the airline prices are going down. That was the main theme of Southwest and all the bu. budget carriers, Whirlpool has had to do a bunch of discounts, too. So when you look at the inflation picture, it seems like a lot of these companies that had jacked up prices over the past few years are bringing them down. And that was shown in the GDP report.

And I didn't get to it when we were talking about it. But the Fed's preferred inflation gauge is at 2.5% right now, which is in spitting distance to the 2% target. Don't jinx it, Neil, but you are so right on that front. And it is interesting. The consumers have been kind of the bane of Jerome Powell's existence because he's trying to get it to 2%, but now it looks like their pullback and spending might do his job for him. All right, well, on Wednesday, Hurricane Otis slammed into the resort city of Acapulco, Mexico

as a category five, killing 27 people and unleashing major damage on beach communities. That's bad in of itself, but what made Otis all the more scary is how forecasters completely whiffed. They thought it was going to be a run-of-the-mill tropical storm that would lead to some gusty winds and downpours, but instead it rapidly intensified to become an extremely dangerous category five. Experts say this was the biggest, most high-stakes hurricane forecasting failure in years, with forecasters missing their wind expectations by 100 miles per hour. Their models simulated that Otis's top winds would reach 60 miles per hour, but over the span of 24 hours, Otis grew in strength to 165 miles per hour as it hit the coast. This led to the one

million people in the city being completely unprepared for the storm. Reflecting on their failure on X, meteorologists called it an almost incomprehensible miss, a fail of epic proportions, and a nightmare scenario. So this will lead to a lot of soul searching for the forecasting industry, which clearly does not have the tools right now to predict the trajectory of storms like Otis, thanks in part to climate change and warmer water temperatures, rapidly intensifying storms like Otis are becoming more frequent, and they present a big challenge for meteorologists to figure out new ways to track storms.

Yeah, rapid intensification is pretty much the worst thing possible, especially. if it happens just before landfall, because it just doesn't give anyone any time to react. So this is exactly what we saw here. Imagine expecting a tropical storm and instead getting a literal category 5 hurricane. And so that's why it caused so much destruction. There's also, they are making inroads into how do we fix this problem? Because computer models have their limitations. They don't actually know what's happening on the inside of these hurricanes.

So sail drones is this new thing that scientists have been using, which are these boats that kind of look like sailboats, but they're kind of big, too. 23 feet, 33 feet, or 65 feet long are the various sizes of them. And basically what they do is sail into the hurricane and they can get information from both above and below the water to just see what's actually happening inside these storms and give scientists and forecasters a better chance to predict where these storms are going. There is an increasing number of rapidly intensifying storms, which is the official definition of that is a gain in strength of 35 miles per hour.

and 35 miles per hour in 24 hours, six storms in 2020 rapidly intensified. And so scientists and climate researchers say that with warmer temperatures, we've seen record water temperatures across the Atlantic and the Pacific this year. That is fuel for hurricanes, and so we should expect a lot more rapid intensification. Hurricanes that look like category ones or tropical storms,

all of a sudden you go to sleep and you wake up in their category four and five. And forecasters are just, are not, not prepared right now for that kind of rapid intensification, but that's what we should see. So they're going to employ a bunch of different models now. Forecasters like to say that they just don't rely on computer models. It's a full suite of products from satellite imagery to sail drones to flying planes in there to get a full scope of what's going on 30,000 feet up in the air to a thousand feet down

in the sea to look at this column that a hurricane makes up. Yeah, I'm bullish on the combo of AI in sail drones. I do think forecasting will only get better over time. All right, Neil, to finish off this week of shows, I want to talk about something called the Zoom Wave. It's that little moment right before a virtual meeting ends where it just feels wrong to hang up on your colleagues. So you do this half-hearted wave thing to signal that, yes,

I am still a part of society and adhere to whatever weird social norms govern this interstational space. But why the heck do we actually waive? And why has it persisted past the pandemic? The Atlantic did a deep dive on it and found that since video calls strips away so much of the nuanced body language that humans rely on to communicate with each other, we've substituted these larger, more stylized movements like our curt little waves to convey additional information. You know those little emojis you can put on screen like thumbs up or a heart on a Zoom or Google Meet's call? Well, when we do our waves, we're essentially becoming sentient emojis ourselves, the article says. So these, quote, emblem gestures, like a wave or a thumbs up, is our way of adapting to this new reality where so much of our time is spent in these virtual meetings.

Neil, the Zoom wave. I'm a fan. I'm a fan, and I think a lot of people are because it's persisted. A survey this month by the professional network, Fishbowl, found that 55% of workers wave. That's down from 57% who said they did it last year and three out of four who said it and they did it in 2021. So it's seen as a way of building connection during the height of the pandemic. But more than half of workers say they still do the Zoom wave. So it's persisted and I think we should see it for going many years into the future. I do it.

I think a lot of people do it subconsciously. Am I thinking as the person's wrapping up the meeting? Like, yeah, I think I'm going to wave now. No, it's just a reflexive thing. And one of the most convincing arguments that I saw for the persistence of the Zoom wave is that you have to exaggerate your movements on video calls. because when we're talking right now, I'm making all of these nonverbal gestures

that helps you pick up like when I'm about to end my sentence. I didn't pick up on that. But when you are on a video call, you have to exaggerate your movements. You have to laugh. You have to nod even more vociferously. And especially at the end, it's so weird when you just hit an X out.

So the way to book end a conversation is to just wave. And when someone else waves, you just reflexively wave back. No, it is an actual thing. It's called motor resonance. When a person waves, it's almost automatic to wave back. We have these mirror neurons in our brains that make us do it. So you know what I'm going to start trying to do on Zoom calls?

It's just seeing which gestures I can do that will make people mirror them back to me. So I'm a big piece sign guy. So I actually look. If I do a piece sign, does someone else do a peace sign? If I wave, do they wave. So I'm going to start, I don't know what I'm going to do, like just putting my hand above my head and seeing what people do. We'll wave to our YouTube audience because our show is over. Exactly. I'm Zoom waving right now.

All right, we have to end it there. Another week of shows in the books, Toby. I think we should treat ourselves to breakfast this morning. I'm thinking the greasiest bacon egg and cheese you've ever seen. If you get bored at work today, it is a Friday after all, so don't hesitate to send us a note at Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Miliron did a little bit of everything today.

Raymond Lou is our associate producer. Eugenua Ogu is our technical director. Billy Minino is on audio. Hair and makeup is getting my toxic costume already. I cannot wait to try it on. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil.

I wish you all well.