Hedge Funds Cash-In on Disasters & Exxon Mobil Bites Back

0:00This 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.

0:27Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the surprising strategy that had hedge funds scoring record returns this year. Then we hit a huge milestone for global health yesterday as some kids in Cameroon became the first humans ever to get a shot to prevent malaria. It's Tuesday, January 23rd. Let's ride.

0:53Nothing says romantic date night like two for 25 apps at Applebee's, apparently. Yesterday, Applebee's began offering a subscription date night pass for$200 that covers up to$30 of food and non-alcoholic beverages once a week for 52 weeks, ending in January 2025. When it went live yesterday morning, it sold out within a minute and crashed the website. Applebee's didn't say how many date night passes were bought, but tons of people were apparently unable to purchase one because they complained very loudly on social media about the limited availability. I feel like this is one of those ideas the marketing team cooks up after four margaritas at Applebee's.

1:33But it clearly clicked. Four dollaritas at Applebee's. So back in my day, the Applebee's two for 20 meal was the hottest deal around in the spot of a few date nights for me in high school. But now they've rolled out this movie pass for meals. I feel like this is kind of the marketing team or some MBA's gone wild. We're like, we should make eating a subscription process. So I don't know. I feel like maybe this is the over optimization of everything. but I would, it worked. It absolutely worked. But if you're a high school student, would you, would you bust out the Applebee's$200, uh, date night card?

2:08Certainly. I mean, there's so many good memories from Applebee's. Oh, you don't get to it a lot in New York city, but you know, when you lived in the suburbs, I remember at college park, Maryland, where I went to college, um, we would go to Applebee's a lot. And there was one major reason why, and that was because they had dollar long Island iced teas, which is like, you know, that that's like a light to a bunch of moss of college absolutely before we jump into the show today we have a quick word from our sponsor veem veem is great because it is such a flexible solution whether you're an enterprise size operation or run a small business they're there to help with data security and recovery you've heard us preach the power of radical resilience this year and that's what sets veem apart from the rest don't just bounce back bounce forward with Veeam.

2:53Bounce forward, Neil, like a Djokovic baseline forehand. You know I'm more of a sinner guy, but yes, head to Veeam.com today to discover more. That's V-E-E-A-M.com today. Does 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.

3:31Get started at linkedin.com slash campaign. Terms and conditions apply. So hedge funds had a monster year in 2023 with a new report showing that the top 20 hedge funds brought in$67 billion for their investors, a record high and triple their returns from 2022. While the top line numbers are impressive, it's this one specific area of the financial world where hedge funds particularly killed it, wagering on natural disasters. Hedge funds that expose themselves to risk against natural disasters delivered results that were more than double an industry benchmark. Simply put, it was the best strategy of any alternative investment last year.

4:10Here's how it works. Basically, the cost of natural disasters has become so huge in the past few decades that insurers and other organizations like Amtrak, Google, the New York City Transportation Authority just can't afford to take on all of that risk. So they've increasingly turned to Wall Street to share the financial burden of potential disasters. They issue what are known as cat bonds, short for catastrophic bonds, that investors like hedge funds can buy. It's a high-risk, high-reward strategy, of course. The risk being, you could be on the hook for hundreds of millions of dollars when a hurricane smacks into Florida.

4:43But if we have a relatively chill hurricane season like last year, your bet could pay off in a big way. And it paid off in a massive way. Cat bonds are actually good for the insurance industry as a whole because it shifts some of that burden, some of that risk away from the insurers and over to people who theoretically can afford to pay it a little better, like hedge funds, like pensions, like very rich people. So I didn't know that this was an asset class, but this asset class kind of dominated the hedge fund industry this last year. I will say, though, that it's not just cap bonds that propelled hedge funds to this awesome year.

5:20I mean, equities had a fantastic year. The S &P, as we've mentioned before, reached an all-time high. Dow reached an all-time high. So it was just kind of a perfect storm for a lot of these hedge funds. Literally. Yeah, perfect. Oh, man. I didn't even mean to do that. No, but I do want to talk about CAFONs because I know maybe our listeners didn't know about it. We didn't know a ton about this sliver of the financial world, you know, really until yesterday. And we started looking into it when these hedge funds were posting crazy returns. The market has doubled since 2013. It's now exceeding$41 billion.

5:52So this is, you know, another way for hedge funds to say, wow, we have a ton of money. Basically, it is so high risk, but it's high reward because you're taking on, you could be on the hook for hundreds of millions of dollars in losses. There were investors who bought a cap bond from PG &E, the California utility. It's worth$200 million. Then there was that campfire in paradise that year. They lost everything. You're on the hook for everything. But in exchange for absorbing all that risk, The returns they require are very meaty, very profitable. So this is one way for insurers to spread the risk.

6:28They typically had done that through the reinsurance market. There are a bunch of reinsurers that basically insure the insurers. This is just another way for the insurers to say, hey, Wall Street, you're pretty wealthy. Why don't you help us out here? I do just want to run through who did the best in the hedge fund industry this past year. So it was TCI, which made$12.9 billion for investors, ended up 33 % last year compared to 24 % for the S &P. Citadel also ripped. They made$8.1 billion in profits. And here's a fun hedge fund fact for you. Citadel is the best performing hedge fund ever of all time.

7:09It recently took over from Bridgewater, which is Ray Dalio's hedge fund, which has actually been falling in recent years. Bridgewater lost money last year, lost$2.6 billion. So it is interesting to see kind of this reshuffling at the very, very top, at the apex of the hedge fund industry. And it's Citadel from Ken Griffin. But going back to TCI, so you're saying equities did well. And we've been talking about all these very mysterious investment strategies, very sophisticated like cat bonds. But really, the reason they did so well is because they bought stocks. They bet on particular stocks. They're just like you in your Robinhood account.

7:45Their biggest holdings were Alphabet, Canadian National Railway, Visa, and General Electric. Sometimes it's best to just buy stocks. Stocks go up. All right, let's move on. The world's first malaria vaccine is here and is rolling out in Cameroon as we speak. This vaccine has been a long time coming and has the chance to rewrite public health in Africa for decades to come. The WHO, which approved the vaccine, will play a huge role in fighting an infection that kills more than 600 ,000 people a year, most of whom are children who live in sub-Sahara Africa. The rollout is starting in Cameroon, but if all goes to plan, we'll expand to 19 more African countries this year.

8:24One of the challenges facing public health officials, though, is that the vaccine requires four doses for maximum effect. So establishing trust to stave off any potential hesitancy will be a crucial part of the rollout. Neil, this has been a really tricky vaccine to nail down because the parasites that cause malaria can mutate quickly to resist other treatments. But after years, GlaxoSmithKline, which produced the vaccine, says Mosquerix is ready to go. Mosquerix. OK. Yeah, no, this is a devastating disease. It kills 600 ,000 people every year. Ninety percent, 95 percent of those deaths happen in Africa, and most of those are among children.

8:59So this is, you know, public health experts are saying this could save tens of thousands of lives. The vaccine is not as effective as the COVID ones, which were at like 60 to 70 percent effectiveness. This one is 30 percent effectiveness. So it has to be coupled with other treatments like bed nets and malaria tablets. And together, they say this could prevent 90 percent of malaria. But this one vaccine is not going to be the silver bullet. Right. It's not a silver bullet. It starts to wear off in month. It also doesn't stop transmission of the disease. So again, it's not, as you said, you just take the vaccine and suddenly you're protected forever.

9:38So it's definitely something that should be used, augmented by other preventative measures. But yeah, there's stories of people in Cameroon already waiting multiple hours to get the vaccine. And it's not just the human toll that's motivating people. There's also this economic burden that comes along with fighting the disease. If you live in a neighborhood with lots of mosquitoes, you do have to invest a decent part of your income in things like mosquito nets. So there is kind of this financial as well as like, obviously you want your children to be as safe as possible. So they kind of go hand in hand with this vaccine rollout.

10:08And as we've learned a lot about vaccine rollouts over the past few years, I would say. And one of the main things that I think we all realize is important is communication, public health messaging, getting out into the community and communicating like what's going on with, you know, what is the safety? What are the risks? Blah, blah, blah. So that's what they're doing all across Africa. This is expected to roll out to 20 countries. But you can see that public health experts are making a very concerted push to just talk with families, especially when you're vaccinating your kids. People are people are worried.

10:38There's a little hesitancy out there. So it's very important to just like communicate. And that's really half the battle. Developing the vaccine is 50 percent. And then making sure that people use it and understand it is the other half. Drama is going down in the Exxon boardroom. The oil giant is suing two of its own shareholders to block them from putting forward a proposal to push the company to set more aggressive emissions targets, saying it amounts to self-sabotage. This is a very unusual move and represents the first time a U.S. oil company has sued its own investors to block a proposal.

11:13Typically, if you don't want a motion to come up at your annual meeting, you can submit a petition with the SEC to have it removed. But under the Biden administration, the SEC has been less inclined to allow companies to block shareholder proposals. So Exxon is sidestepping the SEC and taking this fight to the courts. And let's talk a bit about these two shareholders, Arjuna Capital and Follow This. For more than a decade, they've been taking stakes in companies and pushing them to adopt more socially conscious policies. This is kind of their shtick. Arjuna's founders say their principles were influenced by their study of yoga.

11:45And their name is a reference to a figure in the Hindu scripture, Bhagavad Gita. So we've got a battle between ExxonMobil and a couple of yogis that has implications far beyond this particular case. Thank you for the background of Arjuna there. Follow this. The Amsterdam-based firm says that Exxon is potentially running scared. Their quote was, apparently the board fears shareholders will vote in favor of emissions reductions targets, which is technically true. You can say that it's an extremist agenda that will harm shareholders, but let the shareholders decide. That being said, shareholders of the company did overwhelmingly vote to reject calls for stronger measures to mitigate climate change in previous votes.

12:26So, again, it is probably one of those things where you probably want the shareholders at the end of the day to make the decision. But you see how both sides here are saying this is an unwanted nuisance if you're Exxon. And then for Arjunus, follow this saying, let the people vote. Well, yeah. They're such a thorn in the side of Exxon. But Exxon's contention and the reason they want this to be thrown out is not they're saying it's not necessarily the content of it. I'm sure they don't want to cut emissions as drastically as possible because they make a lot of money on oil. But what they're asking the judge to rule on is like we they put forward a very similar proposal for the for in 2022 and 2023.

13:04And both of those earn 10 percent of the vote. And apparently there's a provision that says you can't just keep like rehashing the same exact proposal year after year. It's a waste of everyone's time. So that's kind of the thing they're hanging their hat on in saying this is just a repetition. This is just more of the same. And shareholders have shown that the path we're on is the right one. Yeah, it would have a big impact on future shareholder petitions, if you will. If the court rules in favor of Exxon, it could kind of generate stricter scrutiny around these shareholder votes, like you said.

13:35So this does have far-reaching impacts just beyond the oil industry. And it speaks to the larger play of ESG, which is environmental social governance. That has been huge in recent years. That's what Arjuna and Follow This are kind of pushing for. There's been this swell over the past decade. But ESG has kind of receded a little bit, kind of like what we're seeing with DEI, the other diversity, equity, and inclusion term that a bunch of corporations are using. And there's been$14 billion in outflows from sustainable funds this past year. All right, before we jump into the next part of our show, we're going to take a quick break.

14:38Treat adults and children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema. Also called atopic dermatitis that is not well controlled with prescription therapies used on the skin or topicals or who cannot use topical therapies. EBCLIS can be used with or without topical corticosteroids. Don't use if you're allergic to EBCLIS. Allergic reactions can occur that can be severe. Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EBCLIS. Before starting EBCLIS, tell your doctor if you have a parasitic infection.

15:05Searching for real relief? Ask your doctor about EPCLIS and visit ePCLIS.Lily.com or call 1-800-LILY-RX or 1-800-545-5979. Tonight on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere tonight on NBC.

15:45If your social media feeds have been filled with fur coats, leopard print, and lots of gold recently, you're not caught in a Sopranos fever dream. You're just experiencing the new mob wife aesthetic that has taken over the internet. I'll break it down for you on today's edition of Tovey's Trends, I, a Gen Zer with no attention span, educate my millennial co-host Neil about a new trend I have my eye on. The days of quiet luxury or the clean girl aesthetic are long gone. Now people are dressing with a whole lot more bada bing. The quote mob wife aesthetic is a look that involves wearing big fur coats, lots of leather, animal prints that don't really match, big hair, and of course stacks of gold jewelry.

16:27Just think Sopranos because that's pretty much exactly what it is inspired by the 25th anniversary of the show and the 25 second clips HBO has been posting on TikTok has caused this specific way of dressing to come back into style. According to the secondhand shopping platform Depop, searches for leopard print are up 213 % and gold hoop earrings are up 70%. And it all adds up to a much louder, much more performative, ostentatious closing trend than other trends we've seen come out of TikTok. Someone is gonna write their PhD thesis on this, mob wife trend and study how these things kind of originate and disseminate through various networks because everywhere from low culture to high culture you're seeing it happen obviously the Sopranos 25th anniversary played a large part celebrities like Dua Lipa Jennifer Lawrence were rocking the look fur coats were all over the runway at Paris Fashion Week then you just have regular TikTokers talking about it so like from your I mean I'm gonna put you in the PhD hot seat here you're doing your phd on this like how do these things where do they start and how do they kind of get distributed through our culture i think it just shows this circular nature of fashion this is not the only trend to originate and then go out of style and come back into style this happens with fashion all the time i mean like indie sleaze is coming back into style so these are not new trends by any sense and it can take just a small little uh trigger to send it back into mainstream culture again.

17:54And I think that trigger was kind of the culmination of the Sopranos discourse we've seen this year. But I also just want to nail down the fact that this trend is not just what you're wearing. It's also just kind of a way of carrying yourself. The word chutzpah or, I mean, I said bada bing at the beginning of this segment, but it's more about the confidence that you carry yourself with, not necessarily exactly the clothes that you're wearing. So I think people are kind of, they're stepping back out into the world. They're going out again. And so that is also a through line that you can see that has propelled this trend into the mainstream.

18:25Very maximalist vibe. But does this actually, when this kind of thing kind of happens on TikTok, does this actually drive shopping trends? Like are people going out and buying these things? And say I'm a clothing brand. Do I change my offering? Am I just like getting on the phone with my supplier and be like, give me all of the animal prints that you have because I think these are going to sell really quickly? Do you think like if you were a clothing brand, like would you would you change your offerings? Would you do something to attract the mob wife aesthetic? I mean, as long as it's on brand, because if you are, I don't know, Target and you start rolling out big fur coats, it's just not on brand.

19:03So I do think a lot of this is a trend that it's looking backwards. So a lot of these stuff is like thrifted stuff. And that's why we're seeing on Depop those increase in surges. So I don't necessarily think that this one is something you can just hop on really quickly. it has to be part of like your brand DNA. So I don't know, go to thrift stores. Just word on the street is a lot more of my, my girlfriends, my girlfriend's friends are saying that fur coats are definitely back in style. So I think this trend is going to stick around at least for the winter when, when fur coats, you can wear them.

19:33Okay. Researchers at MIT are out here doing the Lord's work, publishing a study that finds AI taking our jobs will happen much slower and less dramatically than other reports have suggested. Why? Because for now, human workers are just cheaper than setting up pricey AI systems. So a business owner that's measuring every dollar in and every dollar out probably couldn't justify replacing workers with robots even if they wanted to. It just doesn't make financial sense. And to reach this conclusion, the researchers investigated the cost attractiveness of automating various tasks at workplaces with a special focus on places where computer vision was implemented.

20:10So this would be like having a computer inspect the final product coming off an assembly line for quality control instead of a human. And after running their experiment, the scientists found that for just 23 % of workers measured in terms of dollar wages, it would make economic sense to be supplanted by a computer vision model. So a significant limitation in this experiment by only looking at the impacts of visual analysis and not text-based language models like chat, JBT. But for now, I guess humans can take comfort in knowing that we're too cheap to replace. Yeah. If you believe this report, it means that AI adoption will move a little bit slower than a lot of AI bulls have expected.

20:47One of the example side of the study was a baker doing quality control checks at a bakery, something that does require eyesight, requires vision. Technically, AI can do that. But the upfront cost of training an AI system just makes it way pricier than paying a human to do it. Plus, that exact quality control aspect of their job comprises only 6 % of a baker's duty. So again, why would you train a highly specialized, highly expensive AI system to do something that only takes up 6 % of a human being's time? So it was a little bit more of a holistic look at like, all right, let's drill down into what exactly these AI systems would be doing.

21:25And is it actually cost effective? And it turns out it's not that cost effective. They said to set up a from scratch AI system to do the task of what this baker does, it would cost$165 ,000 to deploy and then$123 ,000 a year in maintenance on top of that. So you can just kind of see the costs are ballooning. They say they're telling at the end of their paper, they're like, hey, AI people, if you want your stuff to be implemented, you got to get your costs down. But what was interesting to me also is this is AI, and I think this further hammers home the point that AI is not going to impact every industry equally.

22:00They said where computer vision might be favorable, where it could replace workers, is in sectors like retail, transportation, warehousing, health care, looking at diagnostic images. But if you're working in, say, real estate, construction, mining, doing things where you're using your eyes, using your hand, you're probably a little more protected against AI. So this is something that we've seen over a bunch of different AI studies is that it's going to impact certain sectors a lot more, a lot more quickly than it is others. Speaking of one of those sectors you just mentioned, let's move on to our final story of the day.

22:33Real estate agents have come up with a new way to convince you you found your dream home, selling in, quote, certified blue zones. If that term sounds familiar, you may have heard it on this show last year when we covered a Netflix documentary that came out all about blue zones. The term was coined by an explorer for National Geographic, Dan Buettner, to describe places around the world where people regularly live to 100 years old and beyond. The common traits found in these communities are usually staying active, eating plant-based meals, and forming strong social ties with your neighbors and friends.

23:06If that sounds pretty idyllic as a place to live, the real estate industry thinks so as well. Blue Zones, the company born from Buechner's two decades of research, goes around and certifies places that meet healthy lifestyle criteria. So far, 80 places in the U.S. has been certified, and other developers are trying to mimic them as well. Is the real estate industry trying to co-opt a genuine health concept or are blue zones and the certification and all that just a bit of a money grab deal? The first one. Yeah. I mean, you look at what types of projects are trying to be designated as quote unquote blue zones.

23:42There's one luxury tower in Miami that costs$600 million to build. They're trying to make a blue zone designation out of it. But when you look at what was the concept of a blue zone to begin with, it's this very humble living off the land, you know, very, you know, nothing that would resemble a luxury tower in Miami. So I think, you know, real estate people in the industry, credit to them. They're some of the best marketers in the world. They've invented entire neighborhoods all over the world. Fight. I Tribeca, Soho, Nolita, Dumbo. And now they're just hopping on the blue zone trend. Yeah. I don't know if it's like benign or not because maybe it's fine.

24:20But the thing is, blue zones is a company and you have to pay Blue Zones, localities have paid up to$40 million to get this Blue Zone designation. I guess that's just part of your marketing budget. It is part of your marketing budget, but also there are some incentives that are aligned here because some of these initiatives are not just funded by municipalities, they're funded by healthcare, insurance companies who have a vested interest in keeping a population more healthy, more hearty. And so stuff like not smoke or smoking bans, adding biking pass, other group activities, it is kind of a win-win for everyone involved.