Motley Fool Hidden Gems Investing - China Protests Hit U.S. Stocks, NFL Viewing Hits New Record

Episode Date: November 28, 2022

Apple's manufacturing challenges are just one of the story lines coming out of the recent protests in China. (0:21) Jason Moser discusses: - Black Friday's new record of $9 billion spent - How other retailers are competing with Amazon - NFL viewing on Thanksgiving Day setting new records (9:33) Bill Mann discusses: - Rising unemployment among China's young adults - How municipalities are "drowning in debt" - The challenges of sourcing ingredients and manufacturing in China for U.S. companies like Apple and Procter & Gamble Stocks mentioned: WMT, TGT, KSS, AMZN, ETSY, W, AAPL, SBUX, MCD, PG, YUMC Host: Chris Hill Guest: Jason Moser, Bill Mann, Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. We've got Black Friday, Cyber Monday, and the latest on the protests in China. Motley Fool Money starts now. I'm Chris Hill. Joining me in studio, Motley Fool senior analyst Jason Moser. Good to see you! It's good to see you! I'm glad I'm not still in a turkey coma. It was close there for a minute. You and me both. I think you and I, because we were in our respective comas,

we were not doing any shopping last Friday. That puts us probably in the minority because Black Friday shopping hit a new record of $9 billion. There are a few things we can get into here, but the data that popped out to me was MasterCard saying that sales up 12% year over year. That's what you want to see. Yeah, absolutely. It's very encouraging from the perspective that the forecasts were a bit more tempered. Obviously, ongoing concerns regarding inflation, interest rate environment making it more difficult to borrow, the general feeling was that consumers are going to be a bit more conscious of that type of spending. Maybe that will reflect as we

get closer to the holiday. I'm sure it probably will. But based on the numbers there, it sounded like it was a very successful Black Friday. I'm not sure how to take this. I don't know if you saw the Buy Now, Pay Later data. I did not. Buy Now, Pay Later payments increased by 78% compared with the week before. Ultimately, Buy Now, Pay Later is making up a considerable portion of that total spent on Black Friday. That's encouraging in the sense that you have another avenue for consumers to be able to spend. Buy Now, Pay Later, it's still very much taking shape. There are a lot of questions still to be answered there. You just have to wonder if people aren't biting off a little

bit more than they can chew. It sits in the back of my mind there. We've seen personal savings rate, obviously, is not an all-time low, but as low as it's been in the last decade-plus, if not at an all-time low. Credit card balances are hitting record highs. Now, we have just one more way to spend money that we don't have. That bothers me a little bit, but it does sound like it was a successful weekend, and that's a positive. It is. One more data point there, price is only up 1% year over year, which of course is lower than what we've seen in terms of inflation. I think you're right that the buy now, pay later data is something we're going to be keeping an eye on in 2023.

A lot of times, when we sit here on Cyber Monday and talk about Black Friday and the results, if there's a lot of spending going on, it's a rising tide lifts all boats sort of thing. I think everything we've seen with major retailers, in particular this year, indicates that's not necessarily going to be the case. Along those lines, there was some data put out by a company called Captify. It's an ad tech company that tracks searches online. Amazon was not the leader in people searching for Black Friday bargains. Walmart was. Actually, Amazon was fourth behind Target and Kohl's. This is a point you've made throughout the year that Amazon, for as great a business as it is, for as great a performer as it's

been for decades, they've got more competition than ever. More choices now than ever before, yeah. It's not the only game in town. I was thinking about that data. One thing I would be interested to know is exactly where they are measuring. One thing we talk about with Amazon in particular is, a lot of times, you'll go to Amazon and then initiate your search from there, as opposed to searching something on Google and then having that take you to wherever it takes you. I'd be curious to know if that data is just incorporating Amazon searches external to Amazon's properties, app or website, or if it's something that incorporates searches that are initiated and

conducted within actual Amazon properties. I think that does make a difference. As consumers, I think we become more and more trained, essentially, to search within Amazon. You go to Amazon, you know what you're looking for. Or, you don't know and you want to search from there because it's ultimately more efficient, because you know you're already going to Amazon in the first place. It's its own search engine in that regard. But it does speak to, I think, this is not just an Amazon holiday anymore. There are more choices than ever before. I think Jeff Bezos has said on multiple occasions, he wakes up every morning and he says he's scared of the consumer because the consumer has more options, and they can go anywhere

they want. That speaks to the philosophy of trying to be as customer-centric as possible and trying to be ultimately the most customer-centric company on the face of the Earth. I think that companies like Walmart, Target, Kohl's, Etsy, Wayfair, all of these companies have done such a good job in really getting us to go website or mobile first. Now, some of these businesses, Etsy or Wayfair, for example, those are online businesses. But I think, particularly in the case of something like a Walmart, where they have this massive store footprint, they've done a tremendous job in getting consumers to think online or mobile first, and then in-store would be the next step if needed.

Convenience has become very addictive as consumers. Amazon, I think, probably got that ball rolling for us. But that's a rising tide that is lifting a lot of boats now, Walmart being another one. I think Amazon is really going to have to pay attention to that because, again, not the only game in town. Walmart has a tremendous footprint, physical and online. It doesn't feel like it's just an Amazon landscape anymore. With the exception of Kohl's, and I think this is due to where I was watching television at any given moment, but with the exception of Kohl's, every company you just mentioned, I saw a lot of advertising over the weekend.

Which brings me to the other topic I wanted to hit with you, which is the television ratings for the football on Thanksgiving Day, which set a record both in terms of the aggregate average of the three NFL games on Thanksgiving Day, but also, in particular, with the Giants-Cowboys game, 42 million people watching, the highest ever for a regular season game. It really does seem like, for as expensive as the rights are for live sports and pro football in particular, they're delivering the eyeballs now more than ever. Well, yeah. They are benefiting from that long-term tailwind of tradition. Thanksgiving and the NFL just go together hand-in-hand. I do think that's something

that's going to continue. I think that we're going to continue to see the landscape shift as far as who gets these games. The three games that were on on Thursday, if you watched them or if you didn't, each network got one. NBC had one, CBS had one, Fox had one. I don't think it's going to be too far down the road where we see Amazon having at least one of those games. I'm not saying this will happen, but we're seeing Netflix is starting to dabble in the idea of sports. Now, depending on how far they take that, boy howdy, can you imagine the engagement? That is just guaranteed engagement. It costs a lot. But man, that really brings a lot of people to your platform. And the fact that you incorporate advertising

into the mix, that's just a very lucrative setup. I suspect we'll continue to see that shift in the landscape as far as who's getting these games. I do hope the NFL is very thoughtful as to the scheduling, the teams that they pit against each other. These were all good games. I watched all of them, they were all good games. I think that's really key to it, making sure that you have actually good games on. But, man, oh, man, talk about printing money. Jason Moser, always good talking to you. Thanks for being here! Thank you! Wall Street's enthusiasm for the retail industry today is being outweighed by the continued

unrest in China. Over the weekend, protests broke out in Beijing, Shanghai, and other major cities in China, as groups of people showed their frustration over the central government's zero-COVID policy. Joining me in studio now is Motley Fool senior analyst Bill Mann. Thanks for being here! Bill Mann They've had it, haven't they? Bill Mann They have. And a bit more context, the government had recently indicated that the local controls might start to be eased up, and then COVID infections started rising. and so the response was, we're going to put even more controls on. And now we have protests, and depending on the video you're watching, in some cases, we're seeing evidence of the

government literally cracking down on the protests. Yeah. Not that COVID has been known for its sense of timing from the outset, but it is not for nothing that the spike that's happening in China, and it is a severe spike, as big as they have had since the onset of the pandemic. It's taking place just after the 20th Party Congress, the Communist Party Congress, in which Xi Jinping absolutely locked down and made himself essentially a one-man power center for the country. In that meeting, he was very clear about the fact that their policy was COVID zero. And by their policy, it means his policy. So, if you're in a country where there is one locus of power, it's kind of important

that that locus of power not be shown up. But COVID didn't get the memo on this, so they have several really bad choices at this point. There is a lot of geopolitical commentary for people looking for it. Ours is a business show, so let's focus on the business here. China's economy is one of the more important ones in the world. No surprise that it has slowed down over the last few years. I saw this this morning, unemployment among young people in China is close to 20%. When you think about the ripple effect, not just for China's economy, but also for businesses here in the U.S., what goes through your mind? First of all, I hear that statistic

and say, well, it's probably a lot higher than that. One thing that's really important to note, China has not had an economic downturn since 1976. Whether you trust the statistics or not, what has happened in China has been one of the most incredible growth stories that mankind will ever see. But the governance in China is basically set up on a good news basis. They don't know how to handle this. Obviously, they can crack down. But China has worked really well because it's worked OK for most of the people. And then the people who it hasn't worked out for, who have complained, have been cracked down upon. That's who the violence has been for. So, when you see huge protests across the country like this, you have to wonder what

move they have, right? So, China is absolutely drowning in debt on a municipal basis. Their municipalities basically fund their own balance sheets by selling land, and that has been one of the biggest bubbles in the world. And they're now seeing, really since the beginning of the pandemic, Western companies' realization that they can't depend on China anymore solely for goods. There was a statistic that in 2020, 17,000 products from Procter & Gamble alone had at least one ingredient or input that they only got from China.

Yeah. That's the kind of thing that works when you are absolutely committed to just-in-time inventory and making sure that your expenses are as low as possible. That cannot happen anymore. One of the things that you're starting to see is, for example, one of the companies that's taken it worse so far is Apple, with the iPhone manufacturing facilities being shut down, there being riots at them. So, Apple has to make a choice. Do they transition as much of that manufacturing as they can, for example, to India? But doing so is going to add 3% or 4% of expense for each phone that's made. And it's a lot of phones. So, they can do it, Maybe they should have done it before this, but those are some of the real expenses that

are coming down the line. Apple is far from the only company that is dependent for certain components on China. I was going to say, they can do it. They can also pass that increase on to consumers, who will almost certainly pay it. Maybe. Yes. Some healthy percentage will say, I will pay 3% more for an iPhone and not really think twice about it. However, here's what Apple can't do. They can't do it quickly. Yeah, they can't do it quickly. And those expenses, at some point, I think that you're right. The theory of the case is that Apple can charge what it wants to. But I may

suggest to you in response that Apple already is charging what it wants to, and that at some point, those margins start to matter, and those costs, and how much they're charging the public really starts to matter. We've talked about what it means for manufacturing businesses on the tech side, like Apple. What about more consumer-facing businesses that are based here in the U.S. who are trying to sell to Chinese consumers. When you think about McDonald's, Starbucks, they're dependent on stores being open. Well, yes, they are. Probably the biggest of them is Yum! Brands and Yum! China, which is a massive, massive company in China. It is separately traded, but it is still very

largely owned and controlled by Yum. So, that's Kentucky Fried Chicken, Taco Bell, Pizza Hut. Is there any other? Long John Silver's, maybe? They've got a bunch of them. I was trying to pull something more esoteric. Yeah, I think Arthur Treacher is off on his own. That's right! Exactly. So, yeah, that matters. I'm not sure that it matters quite so much. The zero COVID policy is something that they've been dealing with for a long time. There are huge questions that have come up in China that I don't know that you can answer now. One of the big problems in China is that the elderly, maybe more than any country in the world, have simply not listened and have not

gotten vaccinated against COVID. Why? Why, in a country that has some semblance of a control of personal behaviors, has that been allowed to happen? And what are the costs that come downstream from that? I don't know the answer, and I don't know that anybody else does, but there are no good choices for the Chinese government right now. For companies that are dependent on China for sales, I almost think that you need to mark that down in your mind to zero for the upcoming future. Bill Mann, always good talking to you. Thanks for being here. Thanks, Chris. As always, people on the program may have interest in the stocks they talk about,

and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.