McDonald's Stock Tumbles After E. coli Outbreak & Retailers Finally Slash Prices

0:03When did making plans get this complicated? It's time to streamline with WhatsApp, the secure messaging app that brings the whole group together. Use polls to settle dinner plans. Send event invites and pin messages so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, let me hear your loudest woo pig suey because a game-changing discovery was just announced in Arkansas. Ben, McDonald's is in a quarter pound of trouble after an E.

0:45coli outbreak sent its stock tumbling yesterday. It's Wednesday, October 23rd. Let's ride.

0:55The NBA kicked off its season last night, filling the basketball void left by the WNBA wrapping up. But if you wanted to catch a game in person and maybe snag a beer, it is going to hurt your wallet. The average price for a 16-ounce beer at an NBA game is$12.57. But there are some massive differences between the highest and lowest priced brews. At the top end of the spectrum is your NBA champions, the Boston Celtics, where a beer will set you back$20.32. But if you're looking to ball on a budget, Cleveland is the spot for you. The Cavs will only charge you$5.91. Neil, a huge spread between these two.

1:36That is a big spread. I suppose you could just go to a Cavs game, buy four beers for the price that you would get one at the Celtics game, and just pretend you're watching the world champion Celtics. I just hope that prices in Boston are cheaper for Patriots games because those are tough to watch. It's a little colder out there as well. I guess you could just go to Cleveland and watch them play the Celtics and get the same experience. Now a word from our sponsor, Bonobos. Neil, I was thinking the other day, finding a pair of pants that actually fits you has to be a top three feeling in the world.

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3:23Contiguous U.S. only. The International Monetary Fund released its latest global economic scorecard and America, yours is refrigerator worthy. The rest of you, we'll see you after class. The report concluded that the United States is katyladeckying the field when it comes to economic growth, putting it even further ahead than its wealthy peer countries. Here are the numbers. The IMF upgraded its previous forecast for the US economy, projecting it to grow at an annual rate of 2.8 % this year and 2.2 % next year. Compare that to the Euro area economy, which is expected to grow less than 1 % and Japan, which is not projected to grow at all.

4:02Among the group of seven major economies, the United States is expected to grow the fastest this year and next. What's behind the gap between America and its peer countries? According to the IMF, it's a potent combo of productivity, investment, and wages. Real wages, or wages when factoring in inflation, are rising in the U.S., leading to strong consumer spending. Meanwhile, the U.S. is receiving tons of investment, boosting productivity. In the United States, a key measure of investment will rise 4.5 % this year from 2023, more than triple the rate for all advanced economies. Neil, I'm about ready to bust out the Star Spangled Banner.

4:40The U.S. economy is truly on a run for the ages, which was highlighted in this IMF report. It's only accelerated since the pandemic, but really this gap has been widening since the early 1990s. Here's some really insane stats that The Economist dug up. In 1990, the U.S. accounted for 40 percent of the GDP of the G7. Today, it makes up about half. U.S. economic output per person is 40 percent higher than in Western Europe and Canada and 60 percent higher than in Japan. And then average wages in Mississippi, the poorest state in the United States, are higher than the average in Germany, Canada and Britain.

5:17So the United States has this potent mix of productivity, rising wages, R &D investment, tech supremacy that is just leading to an absolute booming economy, even when compared to wealthy peer countries. And I think economists really say it boils down to Americans are more efficient workers. I mean, you mentioned some of those stats. The average American worker will generate about$171 ,000 worth of economic output. But if you compare that to the euro area, it's just$120 ,000, just$96 ,000 in Japan. It's also risen a lot. Their hourly productivity has risen 70 % since 1990. So I think it is just the fact that Americans do.

5:57Some people do point to the fact that we have less holidays than other countries. So maybe those inflation or those productivity stats are juiced a little bit. But even when you normalize it for days worked, we still are more productive. One thing that America has done really well is keep their economy evolving. If you go back to the biggest patent issuers back in 2005, in America, it was Procter & Gamble, 3M, General Electric, DuPont, and Qualcomm. Now, it is Microsoft, Apple, Google, IBM, as well as Qualcomm. So you can see how we invested in the right sectors. We rode the tech wave and didn't get caught up in maybe a more static economy like you see over in Europe.

6:36we involved in the right places. Right. In 2005, those five top patent issuers in Europe are largely the same. Four out of the five are the same. While in the United States, four out of the five are new. Besides South Korea and Israel, the U.S. spends most of any country on R &D of its GDP. The IMF had a lot to say besides the United States, though. It had an overall assessment of the global economy. One thing that the economy has going for it, the IMF said, It looks like the global battle against inflation has largely been won, and the IMF projects inflation by the end of next year to go to a lower rate than what was seen in the 20 years preceding COVID-19.

7:18What are the potential threats that could face the global economy? The IMF cited escalating violence in the Middle East, as well as the prospect of a new round of trade wars stemming from potentially the election of former President Trump back to the White House, who has pledged to raise tariffs all over the world on a base rate of perhaps 20%, which would lead to retaliatory tariffs. They say that could lop off economic growth going forward, especially in the United States, which could see its GDP grow by 1 % less than the baseline because of blanket tariffs. And then I know we spent the whole first half of this segment talking about how worker productivity is powering American growth, but the IMF did warn that there is declining worldwide productivity, including in the United States, which is not good news for global economic growth.

8:05One thing that could reverse that trend, though, is artificial intelligence. Some people are pretty optimistic that that will boost productivity, will turbocharge economies in the way that we need it to. So they're saying that the IMF does want governments to do more to promote this competitive business environment, do more to support small businesses, and hopefully get that extra juice from AI to reverse this declining trend of productivity. I mean, you've saved an hour on prep just from using AI tools. I brought it down from like seven hours to six hours, but I guess that is a boost right there.

8:37This story about McDonald's will surely make you grimace. Yesterday afternoon, the CDC revealed that there had been an E. coli outbreak linked to the fast food chain's quarter pounder burgers, leading to 49 cases, 10 hospitalizations, and one death. The outbreak had been reported in 10 states from September 27th to October 11th, with most of the illnesses occurring in Colorado and Nebraska. The CDC said that most sick people reported eating a McDonald's quarter pounder. The hit to McDonald's business could be significant. Quarter pounders are one of the most popular items on its menu, bringing in billions of dollars in sales each year, according to CNBC.

9:18When the news dropped, so did McDonald's stock, a chunky 6 % in after-hours trading. As a response to the outbreak, McDonald's has removed the quarter pounder off of menus in four states, Colorado, Kansas, Utah, and Wyoming. And investigators are looking into which ingredients could be the source of the contamination. Early info from the FDA linked a subset of the illnesses to the slivered onion source from a single supplier, which McDonald's has withdrawn from the affected states. Toby, it's likely that this issue is more widespread than reported. The CDC said the numbers are probably much higher than just the 49 cases, since it typically takes three to four weeks to determine if a patient is sick from eating the contaminated food.

9:58The first thing that we both thought of when this news dropped is a previous big E. coli outbreak affecting a fast casual food chain, and that was Chipotle back in 2015-2016 era. That was a nightmare. both its profits and stock plummeted immediately in the aftermath of this big E. coli outbreak. The company reported a 44 % drop in profits in the Q4 of the year that that happened. So when you're looking at this story like, oh, it's just an E. coli outbreak, but sometimes it balloons into a much wider thing. It looks like McDonald's's supply chain is a little bit more under control. They know who the supplier of these slivered onions are.

10:37But like you said, we don't really know the full scope of it until we know the full scope of it. So who knows if it will be a full Chipotle situation, but we have seen E. coli outbreaks wreak havoc in the fast casual industry before. Yeah, the McDonald's PR crisis team just absolutely went into a full court press. The president of McDonald's USA issued a video statement saying at McDonald's you can count on us to do the right thing. And outside experts did point to McDonald's is pretty airtight supply chain as a reason to say that they could probably contain this. Luckily, it was probably sourced from a single supplier, these contaminated onions.

11:12So the fact that McDonald's just has this very buttoned up supply chain, they know exactly where ingredients came from and which stores they're going to is a big deal. And they're hopefully going to rely on that to contain it. Another question is whether this onion supplier has supplied any other restaurants. So they will make sure to track that. But, yeah, definitely not a good look. Obviously, a 6 % stock price decline for a company as big as McDonald's is a big hit and is a sign that investors are worried because as we saw with Chipotle, as we saw with Wendy's two years ago, which removed romaine lettuce that could be contaminated, this is a big problem because you lose trust with customers.

11:50And customers are saying, I know you're saying it's safe, but I still won't go there. I need my time to get back there and trust your food again. And McDonald's has had a string of tough headlines recently, too. I mean, for the first time in nearly four years, it reported a 1 % decline in same-source sales across the globe. That was the first time it happened in a while. They are just facing down these rising prices, weaker demand, lower foot traffic. They actually ended up competing with Chipotle because their prices started to rise so high, ironically. And then, of course, there was the visit from former President Donald Trump that happened.

12:22A lot of narratives swirling around that right now. Now, McDonald's response actually was praised there as well, where they say, we are neither red nor blue. We are just golden. So people actually loved that corporate comm. So if you are McDonald's right now, there are a laundry list of things that you wish weren't swirling around you right now. But it looks like they're trying to handle each crisis as it comes. A fundamental law of gravity is that what goes up must come down. Despite defying gravity for a long time, it looks like prices might be heading down at 9.8 meters per second now. After months and years of rising prices, companies ranging from restaurants to car dealers are giving consumers a break via discounts in a bid to win back some goodwill and business.

13:06Target announced this week that it is cutting prices on more than 2 ,000 items in the hopes to win over inflation-weary shoppers ahead of the holidays. IKEA also cut its global prices by 10 % over the last fiscal year, the biggest annual drop in company history, according to its CEO. Nike, McDonald's, Darden Restaurant Group, and even car brands are shaving decimals off as well. Through September of this year, car sales are up roughly 7%. Nearly half that growth, 43%, came from the lower$20 ,000 to$30 ,000 price range. Neil, companies push consumers right up to the edge of what they're willing to pay over these last inflation-filled years.

13:45But now it looks like they are finally pulling back. I just want to make a note because all of the physics people are going to come out for you. 9.8 meters per second squared. Yes, I just want to get ahead of all of those science nerds who are about to post on our YouTube page. But yeah, we are absolutely in a price war across many different industries. Target is cutting prices on 10 ,000 items this year. One of the biggest reasons we're seeing retailers do this right now is that there's a very rushed holiday shopping cycle because Thanksgiving is so late. It's at the very tail end of November.

14:17So there's just 27 days in between Thanksgiving and Christmas. So you're going to start to see deals pop up earlier than ever because all of this shopping that accounts for a majority of the retailer sales in the year is happening in such a squished timeline, 27 days. So you're going to start to see, and we have already seen Walmart, Aldi, Target start rolling out discounts way ahead of time. So people start shopping, get their holiday shopping done earlier with lower prices than we're used to, which is great. I do think, though, that you can't just say all these companies are lowering prices for the same reasons, because Target actually did it and it drove a lot of business.

14:55Same-store sales increased 2 % last quarter. Its profit jumped 36%. But then you look at a company like Nike, for instance, who is cutting prices. They are doing it for a much different reason. That is to unload inventory that isn't selling as fast as they hoped that they did. Same thing for IKEA. IKEA did these price drops. They drew more customers to its store, but the company said on Thursday that annual sales fell 5.3%. So there is some nuance here. It isn't just that everyone got together and said, hey, let's give people a break. They are doing it for different reasons and are seeing different results because of that.

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16:12EPCLIS can be used with or without topical corticosteroids. Don't use if you're allergic to EPCLIS. 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 EPCLIS. Before starting EPCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ebclus.lily.com or call 1-800-LILY-RX or 1-800-545-5979. I'm Christian McCaffrey, pro running back, and Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year.

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17:06Little riddle for you all. what is hot, humid, and has enough lithium reserves to satisfy the world's entire demand for EV batteries? If you said Southwest Arkansas, then congrats. You probably root for the Razorbacks or you worked on the most recent U.S. Geological Survey. Researchers estimate that the smackover formation, an extensive limestone geological unit spanning from Arkansas to Florida, may contain up to 19 million tons of lithium. That would be enough to satisfy the hungry needs of the smartphone and electric car industries who rely on the weight-saving but powerful punch of lithium-ion batteries.

17:44The finding is so monumental that the USGS estimates that it would be enough to supply nine times the expected amount of lithium needed globally for car batteries in 2030. Neil, there is this meme that goes around every once in a while where there is a cycle in four parts. First, there is a global resource shortage. A US geopolitical opponent has a lot of it, therefore US dominance is finished. But the final stage is a random farmer in the middle of nowhere in America stumbles across the largest supply of said resource known to man. And that meme more or less just happened in real life. It's kind of true.

18:17I mean, most lithium production and processing definitely doesn't happen in the United States. Most of it is produced in Australia and South America. Then it is shipped over to China where it's processed. And if you're looking for one reason why Chinese electric vehicles are so much cheaper than they are in the United States, It is because they can produce batteries cheaper because they process all the lithium, which is needed for batteries. So finding a domestic source as big as this is huge for our green transition and to wean off Chinese supply of lithium, which is a major strategic goal of the United States.

18:53But the problem is, yes, there's a lot of lithium. The question is, can we get it out at economically feasible way? That is the big question. So the smack over formation, which by the way, great name for a geological formation, it's been a site for oil and gas production. And so until recently, this brine, this lithium rich brine has been thought of as wastewater from these oil and gas companies. They weren't really doing much with it because they didn't know how to extract it in an economically viable way. But now they are trying this new techniques called direct lithium extraction. It separates lithium from water using chemical solvents, various filters.

19:33I won't go too far deep into it, but it is, they think, a big leap in terms of the effectiveness of extracting lithium to make it more economically viable and also more green. The previous way of extracting lithium requires a ton of water, and you sort of evaporate that water. So if they can nail down this direct lithium extraction, it does unlock this huge, huge lithium supply between 5 million and 19 million tons of it across this big formation. So you're right. It is a big geopolitical win as well for Southwest Arkansas. Yeah, but it is just big. The question is, can we extract this and can this new technique work?

20:11Because previously, what you do is you bring all this brine, this saltwater that contains lithium, you bring into above ground pools, and then you just let it evaporate for 18 months. It's a very energy and resource intensive process that requires a lot of fresh wire and fresh water and can degrade the local environment. So a lot of this relies on this new experimental technique that ExxonMobil and others are trying. So all eyes on Southwest Arkansas. Northwest Arkansas has been so much in the headlines and is booming, but I think Southwest Arkansas's time has come. As of yesterday, the Federal Aviation Administration no longer requires U.S.

20:49airlines to equip their no smoking signs with an off switch. Yes, I mean yesterday as in October 22nd, 2024, not 1994. It seems bizarre, but until Tuesday, aviation regulators had a rule on the books that no smoking signs had to have the ability to be turned off and on. Keep in mind that no U.S. airline has allowed smoking on flights in 24 years. And yet this rule has persisted for more than two decades, despite being totally obsolete, since apparently there were other more important things for the FAA to focus on. But thanks to an embarrassing incident in February of this year, they couldn't ignore this antique law any longer.

21:29United was forced to cancel flights and ground its brand new Airbus planes because they didn't come with an off switch for the no smoking signs, because why would they? Now, though, common sense has been restored, and it's likely that no one will even notice the FAA expedited its typical process of making a rule change, saying this regulation, quote, will have little to no practical effect on the American flying public. I mean, nothing quite encapsulates regulatory overreach and bureaucratic bloat more so than this rule not being changed before it was. I mean, it was grounding planes, brand new planes, in some cases, delaying fights.

22:04It was just absurd. One thing that this did give us a chance to do, though is look at how tied the rise of smoking was to the rise of commercial flights when smoking started to become more popular in the early 20th century cigarette companies actually glommed on to the blossoming airline industry to help sell their products they would a lot of their ads featured flight attendants or pilots smoking Amelia Earhart actually was endorsed by Lucky Strike cigarettes so it really was one of those things where they did rise up together and it was just so common for so long. Eventually, the Surgeon General kind of elucidated the public on the dangers of smoking.

22:41In 1988, the FAA did ban smoking on domestic flights. And then finally, there's this federal smoking ban on international flights in 2000. But it really wasn't until 2000 that it was fully banned on flights. My thought here was, why would there ever be a no smoking sign that was turned off? Why would you even need it if you could smoke on flights? And the reason is there are still points, there were points where it would be unsafe to light a cigarette in a plane, even though it probably is the entire time. But that's when they were refueling on the ground. That's what they would put the no smoking sign on.

23:15But apparently none of the new planes have come equipped with an off and on switch. They had just been granted an exception by the FAA for the last 30 years. They would just say, yeah, we're not even dealing with you. We're just going to apply for an exemption. And the FAA would be like, sure. United forgot to do that when it took these new planes in, and that's why they were grounded. But it looks like, you know, they won't have to worry about asking for those exemptions anymore. My thought, too, was why would there ever be no smoking signs in general? Everyone knows at this point that you're not allowed to smoke on planes, but flight attendants have pushed back and say, people still try it.

23:47Like, if you didn't have those no smoking signs there, people would absolutely try it. So I don't think they're going anywhere, and they're certainly not turning off anytime soon. Okay, let's close things out with our rapid fire headline segment, which we're still working on a name for. Keep sending us your suggestions, but I will say it's unlikely we go with a coffee pun. Just keep that in mind. Kicking things off with Abercrombie and Fitch. The brand may be experiencing a revival, but its former CEO will be watching it all in handcuffs. Yesterday, longtime Abercrombie boss Michael Jeffries was arrested and indicted on charges of running an international sex trafficking scheme while leading the company.