Middle East Tensions Scares Stock Market & Nike Loses Its ‘Cool’?

0:26Race the rudders! Good morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, in a blow to Hollywood's Nepo babies, California banned legacy admissions at private colleges. Then Nike reported earnings yesterday and oh boy, does its new CEO have a mountain to climb. It's Wednesday, October 2nd. Let's ride.

0:54So yesterday, some of our co-workers at the brew found something way better than astrology to determine your future or describe your personality. It's this website called bdayweather.com. It prompts you to enter your birth date and birthplace. Then it tells you what the weather was like on the day and place you were born. And Neil, I think this explains so much about people. What was the weather like on your birthday? Okay, for me in Springfield, Massachusetts on August 21st, 1991, it was 74 and rainy, but hopefully my little alien body brought a little sunshine into the area. Okay, here's an idea for a companion website, though.

1:33Knowing the weather on your actual birthday is cool, but what I really want to know is the weather on my 21st birthday because that day I definitely don't remember. Oh, my good Lord. Let's cut that from the record if your parents are listening. What was your birthday weather? My birthday weather on February 4th, 1997 in Braden, Florida. It was drizzling with a high of 81 in February. February. I know. That is really hot and really, yeah. So what does that say about you? I don't know. I think I'm hot and steamy because drizzling an 81 in February. Then an R-rated intro. R-rated intro. But yes, go check out bdayweather.com.

2:08It's just a fun thing to send to your friends, and I think it does explain people's personalities even better than the stars or the sun or the moon or anything like that. Now a quick word from our sponsor, Wise Business, the app for doing things in other currencies. Neil, you know my half-baked idea about launching sports brew? Oh boy, here we go again. You've been talking about this for five years now. Well, now I think I can pull it off. Think about it. What are the biggest sports in the world? Cricket and soccer? Exactly. And what do those two have in common? Bigger in international markets.

2:42Okay, I see where you're going with this. With WISE, we can totally make international sports brew happen. We could get paid by sponsors and listeners in multiple currencies without the hassle. And without inflated exchange rates or hidden fees, no need for overseas bank accounts. Wait, this actually might be feasible? Have you run it by anybody else? Yeah, everyone has said no. But with Wise, anything's possible. Well, I'm on board. And that is all that counts. Visit wise.com slash business. That's wise.com slash business. I'm Christian McCaffrey, pro running back. And Abercrombie is an official fashion partner of the NFL.

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3:39Yesterday, the world's geopolitical temperature ratcheted up in intensity in a big way when Iran fired a barrage of missiles at Israel, escalating the risk of a wider war in the Middle East with global consequences. Iran sent about 180 ballistic missiles in what it said was a retaliatory action after Israel assassinated top leaders of Hezbollah, a militant group in Lebanon that is Iran's most powerful proxy in the region. With a large number of missiles intercepted before they hit their targets and no reported casualties in Israel, the attack was mostly thwarted. But taken together with Israel launching an offensive into southern Lebanon this week and its vow to respond to this Iranian strike, concerns are mounting about a wider conflict.

4:22And that concern was reflected in the markets. Oil spiked as much as 5 % following the attack as investors began to worry over hits to the energy infrastructure in a region that makes up a third of global oil production. Other safe haven assets like gold and bonds rose. Stocks traded lower on the first day of the fourth quarter, while the VIX, Wall Street's fear gauge, popped as much as 24 percent. Toby, for much of the past year, investors have largely shrugged off the simmering conflict between Israel and Iran proxies that ended yesterday. Yeah. Anytime you see a flare up like this, you're going to see crude prices react and gaining as much as five percent is one of its bigger move.

5:04They're still a little lower than their level a week ago because oil has been kind of on the downswing in recent months. But this did cause it to tick back up again. Because you're right, if we see the Strait of Hormuz, which is this key choke point for crude tankers kind of ferrying oil to China and elsewhere, if that region gets threatened, that is why oil begins to start trading higher, because that would be a huge kind of hit to the oil market. And then the other thing, too, that we've just seen is that commodity prices in general are typically like the main channel that you see these geopolitical tensions manifest in as well.

5:42We saw it when Russia invaded Ukraine. Prices of oil, natural gas ticked higher. Prices of wheat also ticked higher. So we are seeing the same thing happen whenever a geopolitical conflict flares up. It's usually reflected in commodity prices like oil. Yeah, there will be a lot of focus on oil in the coming days, depend on where this conflict goes. Israel has vowed to respond to this missile attack. And one of their main targets, it seems that has been reported is Iran's many oil refineries and energy infrastructure. So that is one of the targets that they could go after. And then whenever supply is threatened like this, that's when you see prices spike.

6:18And also, yes, Iran controls the choke point by which Arab nations crude oil, which is one of the biggest producers, Saudi Arabia, Qatar, they go through this particular channel. And before, whenever conflict has flared up in this region, then this choke point becomes much focused, and they can stop tankers from going, getting to their delivery endpoint. So the next few days are critical, depending on how Israel responds. But Moody's S &P, the credit rating agencies, are expecting more of an escalation. S &P downgraded Israel for the second time. their credit rating from A-plus to A, and joining Moody's, which did the same on Friday, and they cited escalating conflict with Hezbollah.

7:03There's also just a lot of conflicting forces in the market right now. Remember, traders are still actually pricing in this big chance of the Federal Reserve will lower interest rates by another 50 basis points come November. We are coming off a 50 basis point cut in September, so that's the good. But then also you have the port strike that just kicked off this week on the East Coast, which is going to halt half the flow of goods into the United States by ocean shipping. So lots of economic uncertainty for federal reserve policymakers to address. And then, of course, you have this conflict in the Middle East kind of teetering on a nice edge.

7:37So from a macro perspective, I guess what you're looking at is, one, how long is this port strike going to last? How much is that pain going to manifest? And then, two, is how big of a conflict that this will eventually balloon into depending on the severity of Israel's response. Yeah, I mean, Harold Daggett, who's the head of the International Longshoremen's Association, was everywhere in the news yesterday. He said, we're going to fight for it, and we're going to win, or this port will never open up again. I'm not playing games here. And that is quite a statement, especially when you consider that JPMorgan estimates that the economy is going to lose$5 billion a day for every single day, these ports on the East Coast and Gulf Coast are closed.

8:26So we'll certainly be watching what happens with the port strike combined with Hurricane Helene, the conflict in the Middle East. There's a lot of uncertainty swirling around markets, which only just a few days ago hit record highs. If you're thinking of applying to Stanford but don't have good grades, sorry to say that having your dad's name on the School of Public Health isn't going to help you get in. That's because California just banned legacy admissions. On Monday, Governor Gavin Newsom signed a bill that blocks private colleges and universities in the state from giving preferential treatment to an applicant whose family attended or donated to the school.

9:01With the move, California becomes the fifth state, joining Illinois, Maryland, Colorado, and Virginia to ban some form of legacy admissions. The policy is a direct response to the Supreme Court ruling last year that made it unconstitutional for a school to consider race in the admissions process. California lawmakers described the legacy admissions ban as a way to ensure diversity among the student body, given that most legacy students are wealthy and white. The California private schools that'll be most impacted are USC and Stanford. According to the most recent data from 2022, about 14 percent of students who were admitted to both schools had some legacy or donor connection.

9:39Toby, the tide has been turning against legacy applicants for a few years now, But California's ban is certainly the most significant because it has the highest number of college students of any state in the country. Although I remain a little unconvinced because if you dig into what this actually says, private colleges will have to submit this report. They will have to disclose their compliance with the new law. But if you're found in violation, you will essentially not incur any penalties. You might feel public shame because these numbers are going to be public, but there's no financial penalty.

10:10So it remains to be seen how effective this will be because right now it appears a little bit toothless. But yeah, there is also debate too amongst some admission offices that legacy consideration and legacy admissions does net benefit the university. The idea is that those families are probably the most likely to donate money to the colleges, which you can then funnel into financial aid or other projects like that. So that's kind of the argument for legacy emissions. And then, of course, the argument against it is that it predominantly benefits wealthy white families and maybe doesn't make an even playing field for people applying to college.

10:46So I guess there's two sides to this. But, yes, we are seeing this growing wave of states and some private institutions themselves ending this practice of kind of giving preference to legacy emissions. Yeah, I think the backlash against it is that basically it's just not it's not emblematic of the meritocracy that you'd think American higher ed would espouse. And in general, if you look at the public polling on this issue, most people are against in a 2022 poll by Pew Research Center. Seventy five percent, three quarters of American adults say that university admissions should not be determined by whether someone's relative attended the school.

11:24And in general, colleges, whether by force, by state government edict or not, have been rolling back their legacy admissions policies. In 2021, there were about one in two, 53 percent of selective four-year colleges considered legacy. But just in the past few years, you've seen Wesleyan in Connecticut, Carleton College in Minnesota. Johns Hopkins has been doing it for years, rolling back those legacy admissions in order to comply with state laws. or just saying this is not a part of who we want to be and we want to find other ways to assess applicants as they apply. Nike is a company in transition right now.

12:05It just made a big change at the top with old CEO John Donahoe being shown the exit by mid-October. It also faces a challenging road ahead to regain its foothold in an increasingly competitive retail and footwear landscape. So there were a lot of eyes on its fiscal first quarter earnings report it dropped yesterday after the bell. And as expected, it was uglier than a pair of Air Jordan 2009s. Sales fell short of Wall Street expectations with first quarter revenue declining 10%. But more alarmingly, Nike withdrew its full year guidance after previously forecasting sales growth. It also postponed its investor day later in November, pretty much because of how much of a bummer it would shape up to be.

12:45Neil, main takeaway from this earnings call is that all of the same problems, the lack of innovation, the over-reliance on the same old shoe models, and the burnt bridges with wholesale partners are still very much an issue and shows the mountain that new CEO Elliot Hill has to climb when he takes the reins. Yeah, it is the sixth straight quarter. Nike has reported single-digit revenue growth or worse. So this is a company in stagnation or even going in reverse right now. I don't know if it's alarming that they pulled their investor day or they pulled their guidance, I think that's just a mechanism for them to say, okay, we're bringing in a new CEO.

13:20We're not going to give him any targets here. We're going to give him this grace period to come in, do his thing, meet people, set his own expectations. So we're not going to put any pressure on him, whether from internally or from Wall Street, and tie him to any particular sales or profit expectations, because we really want to just start scratch here. And luckily for them, this new guy is a company veteran. And by veteran, I mean he started in 1980 as an intern. So he's worked his way up through Nike and he's been part of the culture there and hopefully can bring the culture back because Nike has certainly lost its school.

13:54It's lost a lot of sales. It profits plunged by nearly 30 percent in the in the latest quarter. So they have a turnaround that they need to accomplish, but is not going to happen anytime soon. and they're saying that for this thing to actually work and whatever this plan is, it's not gonna come until 2026. Right, one of the issues is that Nike kind of oversold a lot of their coolest or most classic models, stuff like the Air Jordan 1, the Air Force 1, Nike Dunks. They became these huge multi-billion dollar footwear franchises, but in the process, they just kind of lost their cool factor. So now they're actually aggressively reducing the supply of those franchises to try to save them.

14:34But when you reduce the supply, of course, sales are going to go down as well. So it is kind of something where like they're chopping off their arm to save the whole body here because you do need to reduce the amount of shoes out there in circulation, which again, isn't just never going to be good for sales. People are just clamoring to for the Nike of old. They want them to return to their innovative roots. I mean, go back to 2017. That was like the last time that they set the shoe world on fire when they rolled out the Nike Vaporfly, which was this revolutionary running shoe. But in the years since, they haven't really done anything that's pushed the envelope as much.

15:08So just I could go on and on about Nike kind of seeding market share, seeding innovation to its competitors, burning the bridges with its wholesale partners. It's just not the same Nike that it was a decade ago. We'll see if Elliott Hill kind of has what it takes and has a turnaround magic to make this company. Great again. Yeah, make it make Nike what it used to be. Up next, CNN wants you to start paying to read their news.

15:36Change is always happening. But no matter what changes in five years, there's one thing that will stay the same. The price of your internet. With the Xfinity five-year price guarantee, you get five years of the most reliable Wi-Fi with our best equipment included for a price that stays exactly the same. Restrictions apply. New residential customers only. Taxes and fees extra and subject to change. Most reliable Wi-Fi based on OpenSignal Awards USA. Fixed Broadband Experience Report, August 2024. Tuesday on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hired 10 creatives from all walks of life.

16:16They 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 Tuesday on NBC. CNN.com is by far the most visited news website in the U.S. and it might be getting more expensive for you to browse. Starting yesterday, if you head to CNN to get your fix of news, which why would you when Morning Brew exists, you might be asked to pay$3.99 a month to access their content.

16:56CNN plans to use data gleaned from the types of stories you read and the time you spend on the site to determine if you are eligible target to get hit with the paywall request. So if you're a more casual newsie, you likely won't see the prompt anytime soon. If you do decide to jump over the paywall, you get some extra content like documentaries, exclusive election content, and fewer ads. And this is a trend we've been seeing across the industry. Reuters also announced a paywall yesterday, while the New York Times and other outlets have been paid to read for a while now. CNN is down to sacrifice a few million of its monthly audience in exchange for more reliable revenue that comes with subscriptions.

17:35Neil, CNN has a ton of online readers lapping its closest competitor, The New York Times, by 80 million monthly unique visitors. So does this monetization pivot make sense? We'll see. I mean, the guy who's trying to do it certainly has the resume. It's Mark Thompson. He took over as CNN chairman and CEO last year. Now, where he came from was the New York Times. He was there as the CEO for eight years. And what he did is essentially the envy of the news industry because he turned the New York Times into that digital subscription site where you do have to pay. And now it's the, you know, it's the envy of the entire news world because they have 10 million paying subscribers.

18:15Their revenue is through the roof. They are a very solid business at a time when the news business is really bad in general. So if there's any guy to be able to launch a subscription product on a news website, it's Mark Thompson. The question is whether people will want to pay for CNN when they have been getting CNN news, whether on their TV or on the website, for free for decades. Whenever you think of CNN, you just think of, OK, well, it's like the most mass market thing ever. I can just get my news for free. I know you pay a little bit. It's a part of a cable bundle, so you are paying for it a little bit.

18:51But it has just been flooded to airwaves. So this will be a big question of whether CNN's journalism or reporting or its differentiating features will compel people to fork over. It is not a lot. $3.99 a month. That is much less than its competitors are charging. Right. I think that is the biggest question mark is what does differentiate CNN? Because New York Times, you can say that it is one of those bastions of American journalism. It also has got really nice games and a cooking division as well. So there's a lot of things that differentiate it in particular that makes you want to pay for it.

19:24CNN, you're right, is much more mass market news. And if you see that, oh, man, I have to pay for CNN now, you could go to NBC News. You go to CBS News. You go to Fox News. You go to NMSNBC. There's a lot of kind of competitors within its same sort of competitive set that still offer its news for free. So that's a gamble that it's making. One thing that could make this a success, though, is the fact that it is part of the Warner Bros. Discovery conglomerate that David Zaslav leads. And David Zaslav loves bundling products. We just saw it with Max where he put all of its properties under one streaming service.

20:02If you tossed in a CNN subscription potentially with your Max subscription, that might be a way to make your subscriptions in general more sticky. because in the meantime, when you're waiting for your new show to drop on Max, maybe you say, oh, I get access to this nice journalism. So maybe there's some sort of synergy that can happen between those properties. So he wants to get into the strategy room here. Right. I know. Well, it is interesting because what is the choice? What is the rationale behind making this decision? I do think bundling is part of that. The big picture here is that CNN is just losing a lot of money on its cable TV business, which has been its profit center for so long.

20:41So it's looking at CNN.com as a way to potentially monetize and offset those losses. But it is haunted by the attempts of years past. Remember, it spent$300 million trying to build a direct-to-consumer streaming service, CNN Plus. That was pulled just days after launch, after that new management came in, and it changed ownership. So they spent$300 million on trying to do this in the past. This is a much lower lift way at monetizing other parts of this company because the cable business is sinking. Let's turn now to the aftermath of Hurricane Helene. Yesterday, search crews continued looking for survivors in knee-deep mud in the mountain towns of Western Carolina, while the death toll crossed 150 people, making Helene one of the deadliest storms in U.S.

21:28history. There's been a great deal of disbelief that a hurricane from the ocean could cause so much devastation to the inland hills of North Carolina, far from the coast, and a full 500 miles from where Helene made landfall. Many pointed out that Asheville, the biggest city in the region at the epicenter of the flooding, had frequently been marketed by media outlets and real estate agents as the quintessential climate haven, a place where you could be shielded from the growing impacts of climate change. For that reason and others, Asheville had been booming in the past few decades. The city's population of 53 ,000 in 1980 had ballooned to nearly 100 ,000 by 2020, with more Americans relocating to enjoy Asheville's arts, epic beer scene, and temperate climate.

22:12But after this weekend, as galleries and breweries flooded in Asheville, it became clear that the idea of this mythical place that can fully escape extreme weather, a climate haven is not really a thing at all, perhaps a marketing tactic by the real estate industry to juice interest in certain locations. Toby, I think this was a big wake-up call for people thinking about where they're going to move next. Right. If you had asked people literally a week ago, they probably would have said Asheville, North Carolina, is at the top of the list to avoid the worst of storms, avoid the worst of climate change.

22:42But Helene showed that was just definitely a miscalculation. People were worried that it would become too overcrowded due to this climate change migration due to it appearing on all these lists, naming it as the top 12 U.S. city to escape climate change issues. But now we're seeing that that's just not the case. It illuminates just the new reality that a lot of these, just the world that we live in in general, there is unlikely to be any place that is truly completely safe from these huge climate events like that, even high elevation, even inland areas, even places far away from the oceans. They're still vulnerable to these heavy rains and flooding.

23:20Yeah. I mean, remember what happened in Vermont last year. Vermont also was on this list of places where, you know, you can escape climate change. But clearly this is a false sense of security because last year there was huge flooding across parts of Vermont that led to$2.2 billion in damage. And then there's this other places that have been called climate havens include Duluth, Minnesota, which also had a lot of flooding in 2012. So there's been a campaign by maybe the real estate community to say these are places where you can go escape climate change. They are inland, they are elevated. But often when you look through the details, they are also maybe not as prone as California wildfires or hurricanes in Florida, but they also are prone to major disasters as well.

24:06I mean, Asheville has a history of flooding. There was a huge flood in 1916. So when you actually look through the history, you're like, okay, Asheville is maybe not this, you know, epicenter of temperate, beautiful climate it was marketed to be. And then you mentioned Florida. Florida is also seeing a reaction to Helene as well, because the real estate market in Tampa, in St. Petersburg, the Bay Area, has been one of the hottest in the country for the last few years. But also there has been numerous storms, numerous flooding and just extremely high insurance costs now to deal with. So we are seeing the pendulum swing back a little bit.

24:38The Wall Street Journal did this piece saying that people are just fed up with just dealing with this because it is just absolutely wrecks your life when these storms come through. So the market is softening a little bit. Prices have been flat over the last year and there's been a 10 % decrease in demand according to a real estate and data analytics firm. So about half of the homes listed for sale in Tampa have experienced price reductions as of September. So these are all signs that maybe one of the hottest real estate markets in the country is softening due to the effects of these huge storms and just how much it's driving insurance costs up as well.