The Best One Yet - Why stocks just plummeted, Tyson’s (real) meat collussion, and Compass is our “Unicorn of the Day”

Episode Date: August 6, 2019

Worst. Day. Of. The. Year. The trade war just opened up a fresh new front: the currency battles. Meat giant Tyson shares surged, but then it announced it’s being investigated for collusion on your chicken prices. And Compass has almost doubled its valuation in less than a year to $6.4B — its dream is to bring tech to real estate.  Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. It is Tuesday, August 6th. And this is the best one yet? T-B-O-1. Best one yet? I'm pumped for this one.

Now, markets actually had the worst one yet. It was actually the worst day of the year. Look, markets fell by 3% last week, and they fell by 3% again yesterday. This is a bad stretch. Jack and I got together. We reflected a bit, and we decided we could find three wonderfully diverse stories today. Jack, what did we got first? The first one is a new front.

in the trade war. It's called a currency war, and it handed stocks by far their worst day of 2019. This was the trade war kicked up like four or five, maybe nine or ten notches. Second story is all about big meat. We're talking Tyson Foods. Big meat is accused of big collusion. We guarantee the next time you're at a barbecue, probably this weekend, bring this up over a couple of like chicken breasts. This is going to be a conversation starting. Third and final story, the unicorn of the day is a company called Compass. It's worth six point billion dollars bringing tech to real estate. Here's the secret of techifying yourself.

Open an engineering hub somewhere and tell everyone about it. Now, before we get to all that, we've got kind of like that weird feeling that you only get at a certain point. And we actually experienced this a couple weeks ago, but decided to wait to tell everyone. Sharpen your pencils, everybody. It's apparently back to school season. We saw the ads in late July. It kind of hits at your core and your soul.

We didn't want to talk about it. And we're seeing so many ads now. We just got to embrace it. It's back to school. It's funny. I'm trying to save a little bit of lunch money right now. Turns out my brothers, age 26 and 35, they get the back-to-school specialist, too, on their groomsmen suits for my wedding. Jack, you're getting some pretty big portions here for cutting back on the lunch stuff. I'm still trying to get that like 10% discounted J. Crew with my like sophomore year brown ID card where I look 15.

I'm just trying to milk my wedding for more intro content because this stuff is gold. Now, the actual amount student spend on average is 519 per. a student, that's a lot of money coming from parents. Snackers, go out there, get a new lunchbox, call it a snack box, snap a snack sticker on there and send us a pig. Let us know what it looks like. In the meantime, listen to these keywords. You're tuned in to snacks daily. We spoke to the lawyers and we got to get something legal out the way. The snacks are about to hear rain food. It's air candy. They don't reflect the views of the robberhood family. It's all informational just so. We're not recommending any securities. Nope. It's not a research report or investment.

advice. Not an offer or sale of a security. Right. Snacks is digestible. Business news for you. Robberhood Financial, LLC, member FINRA slash SIPC. For our first story, this is the one everyone wants to know about. China just watered down its currency to offset the pain of tariffs, and it was a huge smack to U.S. markets. The Soco and lime was too stiff. It's adding some seltzer water and ice cubes to this thing. Mixing a little LeCroy with a bit of pompal moose, Jack. We got to talk about rule number 52 of international finance. Rule number 52, governments can't mess with the value of their currency.

Stick that on a temporary tattoo. Financial markets decide how much a currency is worth buying peso, selling dollars, buying rent, selling rail, it's all out in the market. Right. Investors are the ones who decide how much the U.S. dollar is supposed to be worth versus the euro, for example. Except in China. Yes, China has totally broken that norm of international markets. It's been like an overbearing parent who just intervenes in like every aspect of their kid's life, takes over their homework and make sure they get nay. Go to your room, study. Meanwhile, the People's Bank of China is dictating how many yuan a U.S. dollar equals. Yeah, China's government decides what their foreign exchange rate is. It's unlike the United States, unlike Germany, unlike the United

Kingdom, unlike any other country with a central bank. Okay, so we got to talk about it. What happened on Monday? It was the weakening of China's currency to the point of seven yuan. to one dollar. Yes. China weakened its currency compared to the U.S. dollar. This is the first time in over ten years that the Chinese Yuan has been this week, and it has a very strategic political reason. Right. A lower number is stronger. A higher number is weaker. Oh, and by the way, China also kind of casually mentioned they're going to stop buying U.S. farm goods with the U.S. trade negotiators wish they wouldn't stop doing. All of this is just a huge escalation of the trade war on a whole new front. that's on the currency front. So Jack, what is the reason this is all happening? China is weakening its

currency in order to neutralize the tariffs that President Trump just announced. This is tariff kryptonite. Yes, tariffs make everything made in China more expensive for Americans. That's why President Trump announces them. So this currency devaluation, it does just the opposite of the tariffs. Let's say the tariffs are melatonin trying to help you go to sleep. This is like a Red Bull and vodka at times six. Yeah, so Chinese companies that export to the U.S., they're struggling right now because their stuff has been slapped with tariffs, so it's more expensive in the United States. But now with the weaker currency, it'll be easier to sell abroad. So let's take like the iPhone X. It was supposed to be 10% more expensive because of these new U.S. tariffs. The tariffs that were announced last week.

And now the U.S. it's only 2% weaker. That's the news on Monday. But if it keeps devaluating itself, if the people's central bank devalues it to say 10%, then suddenly it's as if the tariffs didn't even happen. Okay, so you're wondering who the losers are here? If the winners are Chinese exporters, then the losers are the Chinese who need to actually buy foreign things with their currency. In other words, the Chinese importers, because now with their weaker currency, buying things that are priced in U.S. dollar or priced in any other currency is going to be more

expensive. But China has the biggest piggy bank in the world and can like pay for them. It's so thick. Very thick. So Jack, what's the takeaway for our buddies who are banking over in China? This is a new and ugly new front in the trade war, and it could cause a race to the bottom. U.S. companies that compete with China, they're at a big disadvantage right now because of this currency manipulation. Right. And President Trump's not going to be happy about it. So he might increase tariffs again to offset the devaluation that just happened with China's currency.

Now, that's going to force China to make its next move. And there's no end in sight. I mean, this could just keep happening and happening. and markets are freaking out that this trade war is going to affect everything. It's going to be a race to the bottom because, like we always say, nobody wins with tariffs. For our second story, Tyson has been accused of a giant conspiracy on meat prices. We're talking about the meat giant here. This is Tyson meats. This is chicken. This is cornish hens. It's poultry, whatever you call, the original white meat. Yeah, not the second white meat. We're talking Tyson foods based in the lovely Springdale, Arkansas. Yes, they had good earnings, despite all.

the fake meat trend that's happening next, sales at Tyson Foods rose by 8% last quarter. I hear it's a dry heat down in Arkansas, by the way. Profits were even better at 25% up. Apparently meat is still a thing. If it had parents, it can happen. Yeah, add all that up, the good sales growth, the good profits growth. Investors were impressed. The stock rose by 5% yesterday. Jack, before we go on, this sounds wonderful, delightful, delicious. There was one more thing. A subpoena from the Department of Justice. That is a disappointing dessert for the end of that delicious earnings meal. Now, just as Ugg Boots made like Tom Brady famous and everyone recognize them, because that's the only way anyone actually knows who he is.

Supinas were made famous by Mr. Robert Mueller, and that's how you know. Let me tell you something about subpoenas. This is when the government basically says, hey, could you please come over and testify or give us the information we're requesting? If you don't, we might send you to jail because subpoenas are pretty serious. Yeah, first thing you do when you get a subpoena is you send that suit out to the dry cleaner. Second thing you do is you see what the hell happened here, which turns out Walmart and Olive Garden, they're really big meat buyers. And they notice that chicken prices happen to be rising 11%

from 2012 to 2018. Yes, Walmart, Olive Garden, and a few other big buyers of Tyson meat. They believe that Tyson and its friends have been limiting the amount of chicken breeding, which limits the supply of chickens, which keeps the prices super high. So that's a couple things. The first thing is it's a little creepy. The second thing is it's collusion, and that's totally not cool in economics, let alone legal. Yeah, this is called a capitalist economy, and we kind of all buy into this because we believe competition among chicken breeders, not collusion. Competition will keep prices low for consumers. That's why we buy into this contract. So, Jack, what's the takeaway for our buddies over at Tyson just maybe you're not breeding chickens as effectively as they should? The allegation here is that Tyson is leading a

cartel. And cartels are pretty hard to pull off. Okay, I got another one two punch for you, Jack. One, cartels are illegal. So you have to do them in a sneaky way. That's why they're so hard. The second thing is that they need everyone involved in the cartel to like keep it a secret, hush-ush, a couple winks. We're going to keep the prices up where they are. Snackers, the most successful and famous cartel we've ever heard of is OPEC. The organization of petroleum exporting companies. It's like 13 or 14 or 15. Typically non-democratic. countries that pump oil and they all get together like every six months and they agree on how much prices are going to be. Now, a chicken cartel would be highly less sexy, but it would require

a ridiculous amount of coordination among a bunch of companies and farmers to make this whole thing happen. Yeah, the allegation here is that Tyson Foods is basically the Lance Armstrong of the chicken industry. And if it is, it's going to be in a lot of trouble. Let's just end on that beautiful image. Our third and final story is Compass. The real estate company that's like thrown a little tech into itself and it's behaving aggressively like a unicorn. If you like creepily driving around neighborhoods and checking out properties you wished you owned, you probably recognize the Compass logo. It's black and white and it vaguely looks like a Compass.

Jack, I went biking last weekend, not Mountain Biking because that was traumatic. And I'm pretty sure I saw more of these Compass black signs than I saw of humans up in Marin. Compass is becoming a big deal. And here's what happened. It just raised $370 million from venture capital investors and reached, a $6.4 billion dollar valuation. Nick, that's about one-third of a lift. I love what you're putting this context into, Jack. Also is context. That's 45% higher than its valuation was less than a year ago, which is significant. Now, the reason investors are so impressed and have boosted

the valuation so much, last quarter revenues at Compass rose by 250% from the year before. That's crazy growth. Also a little shocking. It's planning to IPO within like less than two years. so it's on the way. Now, Jack, before we get any further, can you, like, put on your best sales hat? Can you get, like, a candle going with, like, a little bit of a cookie smell? Make this feel like home for me and describe the pitch from Compass? Yeah, it's basically, hey, real estate agent, or, hey, home seller, do you want to be with, like, the blockbuster video of real estate, or do you want to be with the Netflix? We are bringing tech to real estate. Now, technically, that's what the pitch is. In reality, it looks a lot more like a traditional real estate brokerage.

It's got 13,000 real estate agents nationwide, and they're acting like other real estate agents. Yeah, if you're too lazy to creepily drive around a neighborhood, you can just do that on Zillow. But Nick, this is different than Zillow because Zillow, the real estate's listed on Zillow, they don't work for Zillow. But Compass actually has 13 real estate who work for the company, like a traditional real estate broker. So you're probably wondering, where is the tech sprinkled in? The tech is in Seattle. The company's headquartered in New York City, but it has 100 engineers. There's a lot of former Microsoft people out in Seattle techifying this company.

This is kind of the equivalent of like when your mom buys an iPhone and makes her first like Uber request or like order something on seamless. It's kind of techy but like not something you'd write home. Well, let's give them credit for the tech that they have. If you're selling a home and you're not sure how much it's worth, you can lick your finger, hold it up in the wind and guess how much it's doing it. Or you can use compass's data and compass's algorithm. to predict exactly how much your place was sold for, and that could save you a lot of time. Now, I'm being a little hard on it, but they actually had a pretty interesting new feature that Jack and I jumped into snack style because it's called Compass concierge, and we were just very curious. You know the open house is important, Nick.

I've been. It's all about the sandwiches. It's all about the reserves. Finger food. It's also about the furniture that's in the apartment. It's also about the lighting and the painting. And Compass actually has a deal with homeowners. They say, look,

your place is currently listed for 500,000. If you just let us come in there and repaint the walls and add some West Elm furniture, we can probably sell this thing for 600,000. Jack, they throw that West Elm rug in there, a CB2 floor lamp and a couple anthropology throws. Boom. They're going to up the price how much they'll sell it for, and all they're asking for is letting them pay to do it and sell the house. It sounds like a win-win because the homeowner is going to sell it for more.

Compass is going to make more money, and the real estate agent will too because it sells for more. And Compass claims that they know the exact proprietary ways this will work. So, Jack, what's the takeaway for our buddies unicorning over at Compass? Compass wants to be a three-sided marketplace for real estate. It's only two-sided right now. True. Now, you hear two-sided marketplace. That's your classic bringing together buyers and sellers like an Uber, bringing together the drivers and the riders.

Now, the third side of the real estate market here is brokers. They're the agents in between who want to make a commission. And it's important that all three of these be happy if Compass is going to really. really disrupt the market. So right now when it comes to Compass's value, it's helping home sellers get potentially a higher price on their homes, which helps the home seller agents actually get a higher commission. But when it comes to the home buyers, there's not clarity on what the actual value proposition is. I considered buying a home last year, didn't end up doing it, but I looked at Compass, and it felt kind of the same as any other real estate agent to me. Right. So what they're trying to do

is create a service that helps the home buyer with like every part of the process. But it's not totally built out, and I guess that's why they just raised a few million dollars. They got 370 million of fresh cash to make it a better experience for the buyer too. Jack, can you whip up the takeaways for me for a good Tuesday? Investors were bumming because of the trade war. Now they're really bumming because of a trade war and a currency war between the world's two biggest economies. If someone's talking about why markets dropped yesterday, just say a whole new trade war front opened up currency. One of the few bright spots yesterday was Tyson's stock. It rose 5% because of good earnings. but it just got subpoenaed.

Right, cartels, they're kind of hard to pull off. Oh, and by the way, we should remind everyone they're completely illegal. Third and final story is Compass. It's worth $6.4 billion and trying to bring tech to the three sides of the real estate market. Compass, you can put that cash to work, and you know exactly how three-sided markets. Now, time for our snack fact of the day. We're going to keep it simple. We're going to keep it light.

We're going to keep it delicious, a little doughy jack, deep dish me. We mentioned a couple times over the past two weeks that these new delivery apps have made it possible to get pretty much any food delivered, right, Nick? Right. So you're wondering probably what kind of food's delivered, where it's delivered to. Get this stat about pizza. Pizza is still king. 60% of all delivery in this country is the pizza.

Before we go, quick shout out to Cameron Blackwell, who coined out a minor F-Up in yesterday's pop. Very true. We mentioned the top four delivery apps. I think it was Uber Eats, DoorDash, Postmates, and Grubbubbub. Very true. Nick, we labeled them all as unprofitable. But there's one of those that's actually man to pull off a profit. I feel like we could do like a whole poll here in survey to see if anyone can guess.

The answer, though, will let you know it's Grubhub, which is the only publicly traded one that's dedicated to delivery. Chicago's finest delivery app is profitable. Thank you, Cameron. Oh, and Snackers, before you go, I absolutely love that pod. Thanks for making this a T-Block. It was a blast. See you guys tomorrow. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Finance.

LLC and does not reflect the views of Robin Hood Markets, Inc. or any of its subsidiaries or affiliates. The podcast is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC.