Morning Brew Daily - Why War in Middle East Could Lead To A Global Recession & Rite Aid Goes Bankrupt

Episode Date: October 16, 2023

Episode 170: Neal and Toby discuss how global markets are bracing for impact as tensions rise in the Middle East. Plus, Rite Aid files for bankruptcy in the latest chapter of the drug store crisis and Netflix is pursuing retail. The guys share their winners of the weekend and why are influencers and YouTube stars really into boxing? Finally, a preview of the week ahead. 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 Hell. On today's pod, nothing is going right for right aid. Then Netflix is diving into IRL entertainment spaces because who wouldn't want to participate in Squid Games on a Friday night? It's Monday, October 16th. Let's ride. Neil, you are at a wedding this weekend and we're tasked with giving a best man speech.

I feel like you are an elite wedding speech giver and I think our audience could benefit from some insight from you. what are Neil's top tips for a speech that will bring the house down? Okay, here are my tips. This goes without saying, but you have to keep it short. Leave the people wanting more. Definitely some light to moderate roasting is warranted. Play with the format to make it unique, too. This couple that had the wedding yesterday loves to listen to audiobooks together,

so we wrote the speech in the style of an audiobook. If you can add lib and call back to a moment that happened in the ceremony or a previous speech, that can also be funny. And then finally, I am team no phone. If you wrote out your speech, then show the couple some respect and print it out. Do not read it off your phone. I know that's a bit of a spicy take. I feel like I just got a masterclass in speechgiving.

See, I knew Neil's tips would be good on that. Thank you for those. Before we jump into the news, we have a quick word from our sponsor, Yahoo Finance. Neil, my sister is in town this week and she listens to the show. And the question she keeps asking me is, how the heck do you and Neil stay on top of everything going on in the business? this world. Neil, what is our answer? You just don't sleep. No, just kidding. It is Yahoo Finance. Yahoo Finance is a one-stop solution with trusted news, market data, and an unparalleled suite of

resources that helps everyone from beginners to experts stay on top of things. So if you too want to impress Toby's sister, head to finance.ycom to learn more 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 three-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. To begin our show, let's talk about the threat of the Israel-Hamas war spilling over into a larger regional conflict, which has sparked fears of global economic instability. Of course, the economic impacts of war are secondary to the human cost, but the potential fallout is considerable given the major players involved here. So on Friday, J.P. Morgan's CEO, Jamie Diamond, potentially the most influential CEO in the world, said on an earnings call that this, This may be the most dangerous time the world has seen in decades. Diamond said that the Israel-Hamas war, compounded by the ongoing war in Ukraine, could have far-reaching impacts on energy and food markets,

global trade, and geopolitical relationships. What everyone is watching is the role of Iran, which has funded Hamas. Over the weekend, Axios reported that Iran sent a message to Israel, saying that it does not want further escalation in the war, but if Israel's operation in Gaza continues, it would have to intervene. We don't know what that would look like, but it could be through militant groups that backs in Syria or Lebanon. Any involvement by Iran, a major oil producer and its proxies in Lebanon and Syria could have profound impacts on the economy. Bloomberg analysts calculated

that a wider Middle East conflict could jack up oil prices to $150 a barrel and wipe out $1 trillion from global economic output, sending the global economy into a recession. In this conflict, some are seeing echoes of the Arab-Israeli war of 1973 when Arab members of OPEC imposed an oil embargo on the U.S. and other countries that supported Israel, resulting in an oil crisis around the world. Of course, we'll have to see how this all plays out, but you can definitely get a sense that economic leaders like Diamond

are worried about this war expanding to a new front. Everyone is kind of on edge. Yeah, today's world economy definitely just looks extremely vulnerable because you just have so many scenarios that do influence a widespread amount of things. Then you also have the pre-existing concerns already in the U.S. because we're still working on finding that perfect interest rate, still working on fighting inflation, and then you have a pretty rudderless U.S. Congress right now

because there's no speaker of the house. So you just add all these things together, and you can see how a lot of these world leaders and these economic leaders are so, so antsy about what's going on. Yeah, there was a IMF World Bank meeting in Morocco that occurred over the past week, you can imagine what was on their minds. But to a T, they all were saying that geopolitical tensions have just completely risen to the fore of all of their minds, whereas before is maybe just interest rates and inflation.

Bruno the mayor, the Francis Finance Minister, said if we are facing any escalation or extension of the conflict to the whole region, we will face big consequences. So the goal for the West here is to make sure this conflict does not spill over. and you had Anthony Blinken, the U.S. Secretary of State, doing this major tour of Arab countries to talk to them about preventing escalation. Yeah, although I will say the general outlook from kind of global investors is the fact that, even though the situation in the Middle East is extremely sensitive, there are, until there are legitimate concerns about the oil supply,

you're kind of, the market's kind of in this weight in C mode, because until maybe Iran changes the straight of Hormuz, which is where five, or, one-fifth of the world's daily oil supply flows through until something like that has impacted and it truly has an impact on global oil prices, then we might not see anything major happening in the markets for the time being. You might see some money move into safe haven assets like gold. Gold just had its biggest price jump since March. But it'll be interesting to listen to all these companies' earnings calls, which are happening over the course of the week and gauge whether they talk about geopolitical tensions

a little bit more than they have been because that happened right after the Russia-Ukraine war. They said geopolitical tensions were in the forefront. That was last summer and that could be coming back. We'll have to pay attention to that. Switching gears, a drugstore giant has fallen. Right Aid, the country's

third largest standalone pharmacy chain, filed for Chapter 11 bankruptcy protection Sunday after its miserable financial position hit a breaking point. Right Aid has racked up almost $3 billion in losses over the past few years, and at the beginning of June, it had just $135 million in cash on hand, compared to $3.3 billion in long-term debt. Toby, I am not a financial analyst, but that does not seem good. So what happened to Rite Aid? It is a perfect storm. At a high

level, all drug stores are feeling the squeeze right now as behemists like Amazon, Costco, and Target encroach on their territory. You're probably not going to buy toothpaste from Rite Aid when Amazon will send it to your doorstep the next day and at a cheaper price. Right Aid is also facing a slew of lawsuits regarding its role in the opioid crisis. In one of them, the DOJ sued it earlier this year for missing clear red flags when it filed prescriptions for addictive painkillers. Walmart, CVS, and Walgreens have collectively paid more than $13 billion over the past several years to settle similar lawsuits.

To help it restructure during bankruptcy, Wright Aid secured $3.5 billion in financing and debt reduction agreements from lenders. But this is a major fixing up job. Yeah. So even though Rite Age has always been a distant third to the CVS and Walgreens, it's not small by any means. It employs 47,000 people. It just celebrated 61st anniversary. So this is not a company that was just started last year or something like that. It is a kind of staple of the pharmacy business. But it just goes to show you that all of these companies are kind of riding the struggle bus. And what was interesting to me was, seeing throughout the history, how the three chains kind of reacted to other moves that the chains

made. So if Walgreens is expanding deeper into healthcare than CVS felt like it needed to do the same, and then right aid was always kind of chasing those two and made some ill-advised kind of expanse and decisions, maybe expanded too quickly, took on way too much debt. And then finally, as you said, everything just kind of piled up into this perfect storm. And now it's filing for bankruptcy. Walgreens tried to buy Wright Aid in 2015. Antitrust regulator said, no, you know, this, you're the big three here. It can't just become the big two. But right aid did sell just under 2,000 stores to Walgreens. But that analyst, looking back on that, said it only kind of cemented Walgreens's position because the fewer stores right aid has, the fewer times are going to write aid. So while it did help it get cash to pay off some of its. debt. Overall, it did not seem like it enhanced his position, only further cemented this spiral into third place. Yeah, it was kind of the worst of all world. It wasn't fully acquired. It just got smaller. It made Walgreens bigger. And then, yeah, the funny part, too, is then after the Walgreens

deal kind of fell through, trying to sell itself to Albertsons as well, which is like another failing grocery store chain. Well, at the time, it was not on stable footing. So it was just funny that they went, they were just shopping itself around. So it's not, it's been a bumpy road. And I mean, you've got CVS and Walgreens who are going all in on health care these days as well. That seems to be the next topic de jour for these chains because retail's struggling a little bit. So you got Walgreens is trying to open up doctors offices near many of its drugstores. But that's just the problem with this industry is like it's always looking for the next thing in order to kind of offset some of losses it's incurred. I mean, CVS bought Etna, like a health insured, a drugstore chain.

So this is a complete push into health care. by Walgreens and CVS. Right-Aid is just trying to catch up. And you love this term, but I think it applies here. It's sitting in this messy middle of being a, you know, a drugstore chain that sells whatever you want to buy there. And, you know, this deeper push into health care, and it doesn't do either well.

It seems like CVS and Walgreens are having much more success diving into healthcare than Rite Aid. For our next story, I want to tell you about a new era Netflix is experimenting with. We've seen a transition from physical DVDs to streaming, but now it's moving into the experiential realm. The streamer plans to open two permanent retail locations by 2025, where fans can eat, shop, drink, vibe, whatever, to some of their favorite Netflix shows. Now, Netflix has been experimenting with these pop-ups for the last few years. They've thrown multiple Bridgerton-themed balls in cities around the country. They've opened

temporary stranger-themed merch stores as well. But now they are committing to brick-and-mortar venues that will be called Netflix houses that will feature rotating installations, live shows, and food based on its original IP. Neil, this has always felt like a logical direction for Netflix to experiment with, and after years of dipping its toes into these live experiences, it looks like they're finally committing.

Yeah, Netflix and Grill. Anyway, anyway, no, this has definitely been a trend of online-first companies giving an endorsement to in-real-life experiences Amazon bought Whole Foods in an extension of its brick and mortar retail business. All these direct-to-consumer companies that started online now have stores. If you walk around Williamsburg or Soho, it looks like your Instagram feed because all these companies have brick-and-mortar spaces too as a way of deepening engagement with customers.

Looks like this is a logical extension for Netflix. But for me, it's a little unclear whether people have affinity with the – it's trying to build Disney, right? Like these mini, Disney worlds, Disney obviously has such large affinity with its characters, with its stories, and it's unclear whether Netflix

has built up that type of affinity to get people going into a Bridgerton-themed whatever. I do think the top 1% of Netflix shows, like the Stranger Things of the World, like the Squid Games of the world, do have that cult following. So I do think that they can leverage the top bits, but it depends on if they can continually crank out

those things like Disney has over the last hundred years. One of the specific shows that was mentioned was Squid Games because there's already been some Squid Games experiences opening in Los Angeles. But I'm not sure if people realize how boring the actual challenges were in Squid Games. They played Red Light, Greenlight, they did Tug-A-War, and when you take away kind of a life-or-death stakes of it, it's not that fun. So even though everyone, when you hear the idea of Squid Games in real life,

I'm not very bullish on that because it's just the stakes are gone. This may be a move not out of offense, but of defense, because streaming is really struggling to make money. Disney has piled up losses for years, and it's investing $60 billion in the next decade into its theme park division. Because this is the only profit center right now. So Netflix is stopping its DVD business, so it's pulled in millions of dollars a year. And it's streaming business, who knows how it's going to have to keep jacking up prices. And at some point, the consumers will reach a breaking point. So maybe this is like, we don't really have that many other revenue sources.

We need to tap into merch. We need to tap into physical spaces because that's where the money is made in entertainment now. That's where the expansion opportunities lie. All right, Neil, before our producer, Emily, goes, all squid games on us. We do have to take a quick break. But we'll be back with our winners of the weekend right after this. We're the Hartford, with decades of experience ensuring millions of unique small businesses. When it comes to your small business insurance.

Thank you. One size, absolutely, does not fit all. Get a quote or find an agent today at thehartford.com slash small business. This episode is brought to you by Ultima Replenisher. Health is all about balance, like a salad with fries. So why not have balance in your hydration? With six essential electrolytes and no junk, Ultima provides balanced hydration you can enjoy every day. That means no sugar, calories, or carbs, and it's not loaded with sodium.

Just delicious plant-based flavors you'll actually look forward to drinking. Shop Ultima on Amazon or in store at Target and Whole Foods Market. Neil, it's time for our winners of the weekend segment where we pick stories featuring people or things that had an especially good Saturday or Sunday. Neil, you won the pre-show state capital recitation competition. Of course. So you're up first. Who is your winner of the weekend? My winner is Disney because today the company turns 100 years old.

And you know what? that is pretty impressive. There aren't many companies that make it a few decades, let alone 10. A recent study by McKinsey found that the average lifespan of companies listed on the S&P 500 was 18 years, down from 61 years in 1958, and it expects that 75% of the S&P 500 companies will have disappeared by 2027. And Disney isn't the only company that's made it to 100 in some form or another. I was looking up some other names that may be familiar with people. You've got Harley Davidson, Coca-Cola, UPS, Boeing, LL Bean, Kraft, Kellogg's, and Target. And we know Birkenstock, which just IPO is, you know, 250 years old or something like that.

These companies have managed to pivot with every new technological change that the 20th century through them. And the same is true with Disney. And not to reign on its 100th birthday parade, but right now Disney does appear to be facing existential challenges that we kind of just talked about. It's Cash Cow cable networks of ESPN and ABC are in crisis, thanks to cord cutting. Its box office dominance has come crashing down in the past few years, and its hype streaming service continues to be a money pit. So I'm not sure this birthday is so celebratory. I know.

I was thinking about when I was preparing for this show, is it going to make it the next 100 years? And things don't look great right now. And I think the big issue is that it's kind of been relying on its old IP a little too heavily in the last few years. And if you don't have those new stories, that new magic to capture the next generation, I do think Disney might lose its fastball a little bit. And it's just had, I mean, just look at its box office. It's had too many Marvel movies that have just become a little lower quality. And then too many Pixar movies that have mixed the mark. And I just think if they're

going to last the next hundred years, they need to get their groove back a little bit. I would say they might have a chance at getting the next generation because I was hanging with my friend and his two-year-old kid. He was wearing Mickey Mouse pajamas. And was obsessed with Mickey Mouse. And I'm like, this character is 100, literally 100 years old. And this kid in 2023 is wearing Mickey Mouse pajamas. And it just shows the staying power. So I would not count out Disney.

All right. This is like turning into a bullish or various conversation. Neil thinks they're going to be around for another 100 years. I do. All right. My winner of the weekend is once again Taylor Swift for once again generating an absurd amount of economic activity, this time with her movie debut. Now, Neil, there's a small but vocal group of listeners that think we talk about Taylor Swift

a little too frequently on this show, so I apologize in advance to those listeners, but come on, money is money, and she generates a lot of it. The Ares Tour concert film brought in roughly $95 to $97 million during its opening weekend, according to its distributor AMC. That makes it the highest grossing domestic concert film ever. It also may have Top Joker for the highest grossing October release ever, but we have to wait for the official count to come in today to be sure. Puck News also reported that the T-Swift AMC deal gives Taylor's 57% of the profits while AMC profits 43%. It's a solid rev split for both parties

and could offer a blueprint for other movie chains looking to work around the normal studio distribution system and release content directly. For instance, Beyonce struck a similar deal with AMC earlier this month to distribute the concert film for her Renaissance world tour. Neil, it feels like Taylor Swift is running out of entertainment venues to conquer. Yeah, this movie generated a lot of controversy over the weekend because of theater etiquette, which I didn't know we would be talking about ever on this show. But apparently videos were going viral of Taylor Swift fans going to the concert and blocking everyone's view and dancing.

And everyone got annoyed, but to me, that's exactly what I expected. If you go to a Taylor Swift movie concert, like you're going to be dancing. So I don't know why everyone would. was upset, but you seemed upset and other Taylor Swiftans here do. There is movie etiquette to be had, and unless the entire theater is participating in this dancing, I can't believe we're debating

movie etiquette right now. It's very important. But it is very important. And I saw one where just the front row was dancing and the rest were just trying to watch the movie. And so it does seem like some people were getting a little upset with it, but, you know, I'm not going to rain on their parade too much. All right, moving on over the weekend,

another boxing match went down between a couple of celebrities. Now, This is a podcast, but no, I'm doing air quotes around celebrities because the fight card pitted Logan Paul versus Dylan Danis and KSI versus Tommy Fury. If you don't know who any of those people are, that's okay. Two of them, Paul and KSI are famous YouTubers and also co-owned the Prime Energy drink brand we've talked about on the show, while Dylan Danis and Tommy Fury are semi-success professional fighters at best.

Doesn't sound like appointment TV, but all four of them boxed over the weekend and are no doubt going to receive a massive payday for their efforts. You know, this is part of a bigger trend of so-called YouTube fighting, becoming a legitimate money-making machine. Logan Paul has fought Floyd Mayweather in the past, and a lot of these fights bring in more money and attention than actual professional matchups. We don't have the exact PPV numbers for the fights yet, but it's safe to assume they'll lead to seven-figure paydays for both sets of fighters.

A lot of purists say this is terrible for boxing, and it's turned it into more of an exhibition than an actual sport. Where do you lie on this YouTuber boxing debate? I think they are genius marketers. What you said at the top that you probably have never heard of him. That is absolutely true except for, I guess, Logan Paul and KSI because didn't KSI cause like Bedlam and Union Square? That was a different streamer actually, Kais and that. Yeah. Again, it's just so many streamers. I get them all wrong. But I think we should start paying attention to them because they are super popular. They are drawing. an immense amount of popularity to their fights.

This took place at Manchester's A.O. Arena, they sold it out. 20,000 people were at this arena attending it. Meanwhile, there was a boxing match, an actual boxing match last week, between two very good fighters, and that drew half of the attendance of this particular match. So there is, people love them. Prime Energy, like what you were saying, is a massive beverage company. So us olds, you know, might be looking at these creators. and these YouTubers saying,

oh, we don't have to pay attention to them, but they're an absolute force and the youths love them and they are selling out whole arenas to participate in a sport that they have no business participating. Yeah, well, there's this perfect dichotomy, if you look at Tommy Fury, because he's the younger brother of Tyson Fury, who is one of the greatest boxers,

if not the greatest boxer of this generation. And Tommy is probably making 10 times as much as Tyson was in his first few fight. This was Tommy's 10th fight. He's fought no one difficult so far, and he's bringing in massive, massive paydays, fighting easier opponents too. So who is actually really winning it?

And also, I do think it's hilarious that Tommy's background, he was on Love Island in 2019. He coupled up with an influencer. So again, it just goes to show you the type of people who are being drawn into this boxing space. And again, yeah, you can hate at it. You can be the old man shaking its fists at the clouds. Or you can just say,

boxing is a spectacle sport. All boxing is spectacle. And this is just the latest iteration of it. So even though you can hate on it, but I think that they're getting their bag for sure. Is this the WWE of boxing? Yeah, that's the line that you have to kind of draw on the sand, because when does it cross into just fake scripted and when does it still become a real sport? And I think that if you go too far into WWE, you will start losing people.

They are trying, even though they kind of stink at boxing. They are at least trying to hit each other. And as soon as it starts to become too scripted, I do think the losing. the luster. Oh, well, we'll pay attention to that. I mean, maybe I won't, but Toby will keep tabs on it for all of us, okay? Or Toby Neal boxing match in the future. Yikes. Okay, let's move on to our final segment on Mondays, which is our week ahead, a quick preview of what to expect over the course of this week. The big question is, will we have a speaker of the House? And the answer is, who knows? The House of Representatives

returns to session today, but it is still without a leader after Republicans booted Kevin McCarthy from the role two weeks ago. And while it was kind of funny at the beginning, this has now become a huge problem because when the House doesn't have a speaker, it can't pass any legislation. There are a lot of big issues that need addressing right now, like a looming government shutdown and proposals to send military aid to Ukraine and Israel. So this leadership vacuum has major consequences. And Republicans are so split that it seems like no one they can nominate can get the 217 votes needed to become the new speaker. And the government is paralyzed. Yeah, I use the word rudderless at the top of the show.

This is a rudderless government right now until we get someone who can become speaking. Kind of crazy when you think about it. We don't have an operating government right now. Okay, anyway, more earnings are coming this week. Netflix and Tesla highlight the earnings week with their reports on Wednesday. Netflix will reveal how it's cracked down on password sharing is going, while Tesla aims to boost confidence after it sold fewer vehicles than expected last quarter. Other big names reporting this week include Goldman Sachs,

American Express, and AT&T. Never thought I said this, but I'm kind of excited for earning season to roll in, because I want to discuss these things that you just mentioned. And we will. And we will. The much-anticipated film, Killers of the Flower Moon opens on Friday with plenty of Oscar buzz. Based on the 2017 best-selling novel of the same name,

the movie stars Leonardo DiCaprio and Robert De Niro, and is directed by Martin Scorsese. So not a shabby lineup. The plot centers around the murders of members of the Osage Tribe in Oklahoma, after oil was discovered on tribal land and explores the investigation of the murders by the newly formed FBI. And this is my kind of movie. Yeah, I missed that on Oppenheimer, but this one, I'm not going to miss that on. You can't see Oppenheimer anymore.

I know. It's outside of the years. It's not possible to see Oppenheimer if you don't want to see it. I'm being sarcastic. Okay, what else do we got going on? The World Series is drawing closer with the ALCS and NLCS kicking off. If you're just beginning to pay attention to baseball like most of the country, there's a Battle of Texas with the Rangers against the Astros. In the National League, it's the Diamondbacks versus MBD favorite, the Phillies.

Also, today is National Bosses Day, which feels like a holiday. No one is excited to celebrate. So I say use it as an excuse to play Bruce Springsteen. We love our bosses. Come on. They played a lot of Bruce at the wedding. It was kind of great. New Jersey weddings, like you can expect that 40% of all the playlist will be Bruce Springsteen. Okay, that is all the time we have for today.

I hope you have a great start to the week. If you want to reach us for any reason, our email is more, Morning Brew Daily at MorningBrew.com. Let's roll the credits and shout out our crew who had a hell of a morning. Emily Milliron is our editor and producer. Samantha Velaus and Raymond Loo are associate producers. Yuchenoa Ogu is our technical director. Billy Minino is on audio.

Hair and makeup wants to parlay their fame into a boxing career. 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. Own it all. Pay off your home. Travel for life. Drive a Ferrari. celebration of the world premiere of the Monopoly

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