Can Cooling Inflation Withstand Tariffs? & Prada Buys Versace for $1.4B

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and... Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell.

0:35Today, the U.S. and China have begun divorce proceedings, and it's getting really gnarly. Ben, inflation actually eased up last month, but there's a major speed bump. Tariffs still looming. It's Friday, April 11th. Let's ride.

0:55Fans of Twilight, I have some cool news for you. This week, a national tour of the first ever Twilight in Concert was announced, where the film will be shown alongside live musicians on stage who will perform the film score synchronized to the original movie. If that's not romantic enough, there will be 1 ,000 candles twinkling on the stage. The tour will hit 60 cities and ticket sales begin today. Toby, I know you are a huge Twilight guy. This feels like your Eros tour. It is my Eros tour. I'm not too proud to admit that I did put in some time to try and learn Bella's Lullaby on the piano growing up.

1:32It ended up being a little above my pay grade. But also this announcement got me thinking about other movies I'd like to go on tour for their soundtracks. Obviously, anything my boy Hans Zimmer touches is a must. But I'm glad The Goat already basically has a worldwide concert tour going. Lord of the Rings solid. Harry Potter solid. I think it's just any character where the soundtrack feels like a character in the movie. So, I mean, Star Wars is another good one. I'm just going through the basics right now. I don't have any very niche movie soundtracks that are worth listening to, but do you have any that you would love to see on tour?

2:08No, but at Tanglewood in Western Massachusetts, near where I grew up, John Williams, who did Star Wars, E.T., Jurassic Park, does every single year. He does a concert of his movie soundtracks, and they play it on the screen. Not the entire movie, but that is just like a core memory from childhood where we would go watch John Williams. It's just kind of a fantastic experience. Now a word from our sponsor, Tax Act. Neil, do you remember that feeling in school when you'd realize a huge paper was due tomorrow? Oh, for sure. There would be a full body panic, an IV line filled with coffee, and a small voice in your head telling you to change your name and flee the country.

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3:20Head to TaxAct.com and file before April 15th. Four days away. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs. Like a good neighbor, State Farm is there. Well, it was fun while it lasted. after Wednesday's history-making market rally sparked by Trump's reversal on tariffs.

3:57Stocks resumed tanking on Thursday. The S &P 500 lost 3.5 percent. The Nasdaq fell even more, 4.3 percent, and the Dow dropped over 1 ,000 points. Some big tech names took a bruising. Tesla lost 7 percent. Meta lost nearly 7 percent, and NVIDIA dropped 6 percent. Plus, the dollar had its worst day since 2022, and those closely-watched long-dated bond yields continued their worrying rise. And that's because after the euphoria of the 90-day delay for most countries wore off, investors realized we still have a monumental trade war on our hands between the world's two largest economies, the United States and China, who are locked in rapidly escalating economic warfare that will have ginormous ripple effects across the globe.

4:40President Trump said yesterday that he had raised tariffs on Chinese goods to 145 % since taking office, which he blamed on China's unfair trade practices and its retaliation for his initial tariffs. China has retaliated in a big way, nearly matching the U.S. with 125 % tariffs on American goods bound for its shores. Neither side is backing down. The rhetoric has only escalated and millions of consumers and businesses will likely confront higher prices and lower growth. Toby, with your permission, I'm going to go ahead and use the U word here, unprecedented. We are watching a nasty divorce unfold between the world's two major powers whose deep trading relationship has defined the global economy in the 21st century.

5:21In this high stakes poker match, both have plenty of cards to play. And if one thing is clear, neither is planning on folding. You do not have my permission, by the way. So bring back that precedent, please. You are right. This affects pretty much everything. I'm just going to go down the list of all the industries, all the bargaining chips that these two countries have on the table. First up is Hollywood. Actually, China is letting fewer U.S. films into their market. Hollywood's share of the Chinese market has dropped from 9 % to 5%. So that is one thing. One of our big exports from America is entertainment.

5:54So China is saying that we're not going to let as many films into our domestic box office. Obviously, Apple is just getting wrecked by this whole thing. We've talked about how these tariffs could tack on$350 to the price of the next iPhone. The bike industry and the e-bike industry is super exposed as well. Tariffs could spike prices on those input costs up to 50 % because a lot of bike parts are made over in China. And then clothes is a pretty obvious one. Tariffs is over 60 % on clothes from China means that back to school spending and just your Zara hauls are going to get more expensive car prices.

6:30Another other one. I mean, I could literally keep going down the list, but the reason why these two countries divorcing, as you put it, is so big. It's just how many specific industries are going to have to reckon with a new price calculus to deal with. Yeah. So let's go over the top line numbers. The U.S. last year imported$438 billion worth of goods from China. We exported$144 billion to China. It's that big trade deficit of more than$200 billion. It's been this way since 2005. It's really irked a lot of U.S. administrations, not just Trump. Biden has also placed tariffs on China, but we haven't seen anything like this.

7:12145 % U.S. on China, 125 % on China back to the U.S. That essentially freezes trade. You are not going to be competitive in the marketplace where you have to more than double your price to compete with competitors. And we're already seeing this freezing in action. Yesterday, it was reported by Bloomberg that Five Below asked its vendors to just stop sending stuff from China, just saying, don't even let it leave the port because we are not going to pay 145 % on it. You might like Five Below is a discount retailer. Probably a large majority of what you go and see in their stores is made in China.

7:50the ripple effects are going to be huge across so many different industries. And some reporters went over to China and started talking to vendors over there. One specific industry that is massively impacted by this is actually the plastic Christmas tree industry and the Christmas ornament industry because 85 % of Christmas decorations that come into the U.S. do come in from China. And it was actually relatively sad to listen to these reporters speaking to these factory owners saying, we have zero orders coming in. No one has ordered anything. So it's not trickling to a stop. It is like basically fully stopping right now because 100 plus tariffs are basically trade embargoes.

8:30Like there's no one who can, you know, no one's business can really survive margins that just get absolutely gobbled up by these trade barriers. So I think you are seeing basically a trade freeze, at least for now. Obviously, things change. We've talked about bargaining chips, this and that. So there is maybe some thawing that will be to come. But right now, it is just totally frozen the relationship between these two countries. And we know that tariffs from the U.S. on China will likely raise prices for consumers across electronics, bikes, artificial Christmas trees, etc. But what about trade from the U.S.

9:02to China, right? It's not as in terms of goods. It's not as big as what we import from China. But we did export one hundred and forty three billion billion dollars worth of goods. and those are American jobs here in the United States. More than 930 ,000 jobs were supported by U.S. exports to China in 2022. That's from the U.S.-China Business Council. They are our third largest export market, so they do buy a ton of stuff from us. Those top exports are mostly soybeans, other agricultural products, aircraft parts and planes, and also crude petroleum. So those are the industries to watch that could be affected from those retaliatory tariffs back on the United States.

9:40Inflation figures are in, and they're looking like the migration patterns of Arctic turns heading south before the summer. Consumer prices eased downwards month over month for the first time in nearly five years. The CPI fell 0.1 % in March. Year-over-year inflation also dropped to 2.4%, below the 2.6 % economists were expecting. If you're looking for the MVP of falling prices, look no further than your local Chevron station. Gas prices dropped steeply last month due to supply cuts from OPEC and pulled the whole index down with them. But even the so-called core inflation measure economists watched that excludes volatile energy prices came in below forecast and not its smallest increase since March 2021.

10:26But also like the migration patterns of the Arctic turns, prices likely aren't going to stay south for long. Economists warn that new tariffs could juice inflation in the coming months, even with the pause Trump announced late on Wednesday. Based on how stocks traded yesterday, with all three major indexes finishing deep in the red, it's a sign investors are still nervy when it comes to how tariffs might weigh on inflation progress. So, Neil, a good report, but maybe a little backwards looking. I will never get bored of you getting hype about inflation. But you're right. I mean, if only investors were as hype as you.

11:02I think absent of tariffs, if we saw this report come through, stocks would be through the roof. But as I mentioned, they were in the dumps yesterday. And that's because this tariff threat, this huge trade war between the U.S. and China is just overshadowing everything else. And it does directly tie into this inflation report, too, because we saw cooling inflation for the first time in five years from this report. But it looks like going forward over the next few months, those price hikes from the trade war with China will be filtering through the economy. And, you know, you have pretty much every economist saying that this is the calm before the inflation storm.

11:39We're going to get higher inflation out of these tariffs and prices will go back up. So this is essentially a baseline from which we can measure how much and how much tariffs do impact inflation. But still, that 0.1 percent drop that I celebrated came from somewhere. and I mentioned gas prices, but a lot of the downward price pressure looked like it came from travel related things. Gas at a 6.3 % month over month drop. There was a 5.3 % decline in airline fares. Hotel prices also fell sharply last month. So the vibes that I were getting from this report is that a lot of people are choosing to do staycations, maybe postponing that travel because of the uncertainty on the horizon.

12:20So one final thing that we should add to this whole inflation cocktail is that government data continues to come in very solid. Employers added 228 ,000 jobs a month. We just saw inflation tick downward. So if you are right, if absent of this trade war, everything looks like it's heading in the correct direction, but obviously there's just that massive question mark, that massive uncertainty that this trade war does introduce into everything. And I can't believe we've talked for five minutes about inflation without mentioning egg prices. So we got to go there. They rose to a fresh record up 5.6 % in March from February.

12:57And that's despite wholesale prices plunging. Actually, they went from$8 a dozen in February to$3 a dozen in March, but that just hasn't shown up in the retail aisle yet. These supermarkets, these grocery stores are just very wary of lowering, like changing the sticker out and putting a lower sticker in because there's just been so much whiplash they've been behind the eight ball for so long so yes wholesale price wholesale egg prices coming way down retail prices not so much there was a big merger yesterday among italian fashion brands you can't afford to buy prada announced it was buying versace for 1.4 billion dollars in the biggest luxury deal of the year it's an agreement cloaked with symbolism because it shows that prada is dead set on building a made-in-Italy luxury house that can compete with the French giants like LVMH and Kering.

13:46In fact, that's exactly what the current owner of Versace, Capri, was trying to do, but in America. The New York-based company bought Versace in 2018 for$2.1 billion in an attempt to create a global luxury fashion group alongside brands Michael Kors and Jimmy Choo. That purchase did not work out as intended. When touting the Versace deal back in 2018, Capri CEO John Idol said his goal was to double the brand's revenue. It's actually gone negative from$843 million in sales in fiscal year 2020 to$813 million last year. So he dumped it for a$700 million loss, and those dreams of rivaling LVMH have been significantly deferred.

14:27Could Prada have a better shot? Potentially, because it's kind of on a hot streak right now. The group grew revenue 17 % last year, even as the luxury sector overall has hit a downturn. Toby, is it Italy's time to finally challenge France's luxury dominance? I mean, if anyone could do it, it is Prada, because Prada has just cracked the code in recent times. Most of their success, and it has been a very good success because they are going in one direction while the rest of the luxury market looks to be going in the other direction. And you can attribute it to some of its sub-brands, like Miu Miu is just massive right now.

15:01Retail sales of that brand grew in 93 % last year, So that is clearly bucking this overall trend of luxury spending slowing down. That being said, though, Prada has tried to do this before. Back in the right around the turn of the century, they were trying to become an Italian fashion house. They bought brands Jill Sanders, Helmut Lang, that they thought they could share their approach to it and just bring kind of their winning alchemy to it. That did not work whatsoever. They sold Lang in 2005. They divested from Sander the following year. So this is not necessarily an easy thing to do. You can't just say, oh, let's just apply the same approach to the Prada brand and the Miu Miu brand to these other brands like Versace.

15:42So good luck, Prada. If anyone can do it, it's you. But you haven't done it very well in the past. There might be a surge of fashion or luxury nationalism in Italy right now after this deal. So Italy accounts for 50 % to 55 % of global personal luxury goods production. They have all of these such iconic brands. But what happens to these brands like Versace is they get gobbled up by U.S., France, Switzerland, these huge luxury companies, and they don't stay in Italy. So Italy does such a good job of having these, like, big family-owned massive brands. But then they just go elsewhere to be scooped up by LVMH.

16:16And now Prada is saying, come back to Milan. We want you back to Milan. I mean, these two companies, Prada and Versace, are literally four kilometers apart in Milan. So maybe this homecoming from Italy will be good for Versace because Capri did not do a good job with it. John Idol absolutely tanked this brand. So, you know, I'll be watching and I won't be wearing. You won't be wearing, but you will be watching. I will be watching, but I am interested in this Miu Miu brand because that seems to be exploding. It's the new thing. All right, let's take a quick break. Stock of the Week, Dog of the Week is up next.

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18:01Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EPCLIS. Before starting EPCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ebglis.lily.com or call 1-800-LILY-RX or 1-800-545-5979. Welcome to Stock of the Week, Dog of the Week, where Neil and I take you through one stock that's the equivalent of Rory McIlroy's front nine on Thursday and one stock that is the equivalent of his back nine. Neil, you won the pre-show game of who can name the most types of salad dressings.

18:33Great pull with chimichurri vinaigrette. So you're up first. And since this has been a rocky week in the market, to say the least, let's start with our dog of the week. My dog of the week is pharma stocks. Eli Lilly, Novartis, Merck, AstraZeneca, basically any company you associate with waiting in line at CVS took a beating this week after President Trump pledged to slap heavy tariffs on imported drugs very shortly. The pharma industry has been a bit of an outsider watching this tariff chaos unfold. Pharmaceutical products were not included in the list of goods that would have been hit with those massive reciprocal tariffs that were later pulled back, which means their stocks weren't crushed alongside everyone.

19:10else, but they also didn't rally on Wednesday like everyone else. Still, Judgment Day could be coming soon. This week, Trump vowed tariffs at a, quote, level that you haven't really seen before in order to compel companies to bring drug manufacturing back to the U.S., where it has been dwindling. That could do major damage to companies like Eli Lilly, who depend on foreign production for the active ingredients in their blockbuster drugs. The pharmaceutical supply chain is a hyper-complex interconnected web that crisscrosses the globe, one that cannot be easily untangled and companies are warning that it won't be so easy to simply flip a switch and start making medicines entirely in the U.S.

19:46so they weren't of higher drug prices for Americans and a hit to R &D budgets should these tariffs go into effect. I mean, this definitely was a roller coaster week for pharma stocks, Neil. First, there was the down. Trump said at a dinner that he would soon levy major tariffs on drug imports. But then there was this brief moment of celebration on Wednesday when the 90-day pause announcement came in. That was quickly dashed, though, because that celebration basically had to be cut short. Scott Pissent clarified that the pause on tariffs only applied to country-specific reciprocal tariffs, while then White House Press Secretary Caroline Leavitt confirmed that the administration is still planning to announce pharmaceutical tariffs in the near term.

20:25And then a lot of analysts said specifically that they're anticipating high tariffs on, quote, pharma tax haven countries like Ireland, where these companies set up headquarters in order to try to, you know, evade some taxes coming out of the United States. So those haven countries are not going to be spared and analysts are saying that they're possibly expecting higher than the april 2nd figures to be applied to these you know industry of pharma my stock of the week is fake proposals because there's a new ring pop factory popping up in musik pennsylvania ring pop is owned by bazooka brands which is owned by a private equity firm which helped fund the new factory that replaces the og ring pop factory in nearby scranton why Why the second factory?

21:07Well, mainly because the old factory in Scranton was unexpectedly shuttered last year after the literal floor shifted due to there being a lot of mine shafts located beneath the building's foundation. But also, an upgrade was probably in order. Bazooka, which also makes baby bottle pops and bazooka gum, is forecasting$100 million in sales this year. And the new factory is roughly four times larger than the old one, capable of producing 1.5 million candies per day. Neil, lots of people suck, but it seems like they're sucking on Ring Pops. Ring Pop is blowing up. I mean, year over year sales are up 7 % at the end of last year.

21:47It's grown consistently over the last decade. This is the most important brand in the entire Bazooka Band's portfolio. It is the closest thing. This factory is the closest thing we have to Willy Wonka in real life. They're leaning into this concept of edible entertainment where there's play value, there's viral value. We know that younger kids are moving away from chocolate and more into sour gummies and chewable candies. So Ring Pop, it's been around for 48 years. It may never be as popular as it is right now. We are definitely seeing candy makers who make kind of traditional or old school candy having their moment right now.

22:24I mean, Blow Pop owner just expanded their factory in Tennessee. they invested$100 million into that. So you're seeing these classic candy makers kind of saying, why are we so popular right now? There is like this kind of backwards looking vibe to it. But you are right. There is edible entertainment. Sounds like a funny thing, but the bazooka CEO says, we're not just a hand to mouth candy. There's stuff that happens in betwixt that moment of just putting it in your mouth, like sliding it on your ring, pretending that you're getting engaged. That whole aspect to it is something that a lot of people are still resonating with.

22:58to this day. This also reminds me of, we talked about this, I think it was last year at this point, the viral TikTok candy of mango peelable candies, which is you took the skin off and you ate the skin and also the fleshy inside of the mango. Those went viral and it's a similar thing. It's like an active approach to eating candy. You're not just popping them in their mouth. You're doing something else along the way before the sugar rush hits you. Now let's sprint to the finish with our final headlines and a move straight out of Seinfeld. President Trump signed an executive order to give showerheads, yes, showerheads, a serious boost in water pressure.

23:32I like to take a nice shower to take care of my beautiful hair, President Trump said earlier this week in the Oval Office, and went on to rail against the current state of showers. I stand under the shower for 15 minutes until it gets wet. It comes out drip, drip, drip. It's ridiculous. Trump's crusade against weak showerheads has been a longstanding battle that dates back to an Obama era definition of a shower head. In his first term, Trump increased the amount of water that showers with multiple nozzles could utilize. Biden later reversed that change, but now Trump has played another uno reverse card.

24:04Neil, if you can't boost tariff rates any further, you might as well boost water pressure. I mean, I am a single issue voter. I'm not going to lie. And my one issue that I vote on is shower pressure. It's that important. But yes, this does seem to have a lot of a lot wrapped up in just the basic definition of what a shower head is. Previously, it had been defined in regulations as any plumbing fitting designed to direct water onto a bather. Trump administration came in and then changed that, defined it as an accessory to a supply fitting for spraying water into a bather. You got the you got the difference there.