The Dow Hits 40k For First Time Ever & Walmart Is the King of Retail

0:00Tonight on NBC, Jimmy Fallon and Bozma 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 I do win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the Dow hits 40 ,000 points, and we're going to talk about it because round numbers are sweet.

0:41Then what is this mystery stock that Warren Buffett has been buying up in secret over the past three quarters? It's Friday, May 17th. Let's ride.

0:54Shout out to you all, MBD listeners, for showing your support for our interview yesterday with the CEO of Uber, Dara Khosrowshahi. We published the episode and from the YouTube comments to LinkedIn messages to just overall downloads, you all showed it and us a ton of love and we appreciate that. If you haven't gotten to it yet, it makes for some perfect weekend listening. Yeah, pop those headphones in. Maybe if you're taking an Uber to the bar or the airport, toss it on because, well, it's pretty cool to listen to the CEO talk about something as you're using the product. So definitely check it out and let us know what you think.

1:29We'd love to hear your feedback. Now let's hear a word from our sponsor Sage. Not the herb, but a tool that saves finance professionals a lot of time and headaches. It recently rolled out an AI that goes beyond just automating routine tasks like invoice management. It also gives you a real-time view of your business. So if suddenly I stopped podcasting tomorrow and opened my own little coffee shop, Sage could help paint a real-time picture of my business and the numbers behind it. It would crush, obviously. What would you call it? Morning Brew Daily, obviously. Should have seen that one coming.

2:01But yeah, Sage lets medium or small businesses like Toby's Coffee Shop or Mocha Joe's save time and close their books confidently. If you want to check out Sage to help your business flow, visit sage.com slash morningbrew for more. Eczema isn't always obvious, but it's real. And so is the relief from EBCLIS. After an initial dosing phase, about 4 in 10 people taking EBCLIS achieved its relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing.

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3:34The agency draws its budget from the Federal Reserve System instead of from Congress, which supporters say keeps it politically independent, but opponents say allows it to escape accountability. A group of payday lenders challenged the CFPB's funding source after it slapped those companies with new restrictions, and the case made its way up to the high court. There, the justices ruled 7-2 that the CFPB's funding stream was legal, protecting the Bureau from its biggest threat since it was created 13 years ago. This was a closely watched case across Wall Street, not only because the CFPB is a very active, very powerful agency, but also because a loss could have led to challenges on other independently funded regulators across the government, like the Fed or even Social Security.

4:20Toby, you know who's hype about this? Elizabeth Warren. Yeah, let's go back in time a little bit. The CFPB was created in the wake of the 2008 financial crisis. It took a bunch of different kind of disparate consumer protections at the federal level, put them under one unified agency. But it was Senator Elizabeth Warren, or she wasn't a senator at the time, who is widely credited as the driving force behind its creation, considered the agency's founder and architect. President Obama called it Elizabeth's idea. So you can see the roots of why Republicans in particular have been typically against this particular agency.

4:56They do. And it does have to do with this funding stream because Congress does all these appropriations to dole out money to the various government agencies. But the CFPB is funded by the Fed and critics of the CFPB. They don't like what it's doing in general because they think it's a rogue agency that's way too powerful and goes after businesses for things that maybe it shouldn't go after. And they say that because it doesn't have to be funded by Congress and it's funded by the Federal Reserve System, which gets fees and on its interest, that it's outside the system of accountability or anything like that.

5:29So this has been a long waging war against the CFPB ever since it was founded 13 years ago. And it's not like it's spending willy nilly either because, right, it's funded by profits from the Federal Reserve. The budget may not exceed 12 percent of the Fed's annual operating expenses or seven hundred and thirty four million dollars. So far, the agency has never asked for all of its authorized budget. So it's not the amount of money spending issue. And if you do the math, the return on that investment is very good because the Consumer Financial Protection Bureau has returned over$20 billion to consumers, ripped off by bad actors or whatever you want to call them.

6:06So on a budget that they never seem to exceed, they're returning a lot of money to consumers. Just from a math perspective, it seems like the agency is doing its job. Yeah, let's see how the CFPB has actually affected your life. Here are some of the actions it's taken recently. It ordered Bank of America to return more than$100 million to customers who were charged fees multiple times. Wells Fargo, Wells Fargo, huge. It asked, it ordered Wells Fargo to pay$3.7 billion for wrongfully foreclosing homes, illegally representing repossessing vehicles, and charging surprise overdraft fees. And currently, it's looking into deceptive designs that lock consumers into subscription services.

6:45You know how it's so hard to cancel a subscription. They're looking into ways that might compel companies that charge subscriptions to open that up to increase cancellation. Again, opponents of this bureau say that it's way too aggressive in policing the business world. The Chamber of Commerce was for the challenge of the CFPB and challenged its funding source. So this is a battle that will continue to rage, but it looks like because of this SCOTUS decision, its long-term viability will continue. It's not facing an existential threat anymore. The Dow is an imperfect index. It's filled with companies that used to be great, is weirdly weighted, and has dreadfully underperformed the S &P 500 recently.

7:27But yesterday, it hit a big round number you mentioned at the top of the show, Neil, 40 ,000. Before we get into that number, though, I want to beat up on the Dow a little bit more. The Dow Jones Industrial Average is just weird. Stocks in the Dow are weighted by their nominal share price, not their market value. So that means the literal share price a company is trading at is more important than what the company is actually worth. It also contains 30 companies, so it's widely ignored on Wall Street because it's just too limited in scope for anybody to really pay attention to it. But the index is 128 years old, contains blue chip American companies like McDonald's and Disney that people care about.

8:05So when it hits an all-time high alongside all the other indexes and breaks through a number it's never touched before, like 40K, we talk about it. So, Neil, here we are. We are. Let's go. So the Dow is a very old index. It dates back to the 19th century. I just want to go back to 1929. Remember the crash of – I mean, you don't remember. I remember it well. So we hit 40 ,000 points. So during that crash of October 28th and 31st, that year of 1929, the Dow fell 38 points and 31 more points the next day. That accounted for declines of 13 percent and 12 percent. Now, a 100-point swing for the Dow implies a move of less than 0.3 percent.

8:47So I just want to show how much the stock market has grown. And the last time the Dow hit 30 ,000 was in November 2020. So it's been just a couple years ago from 30 ,000 to 40 ,000. I think this is emblematic of the rise of the stock market. Coming out of COVID, there was a huge boom, and then we went down in 2022 as the Fed jacked up interest rates. But for multiple reasons, the fact that interest rate cuts are coming into view, the economy has held strong, and AI has taken the stock market to the moon, the market is doing really, really well. All indexes are hitting all-time highs, and the Dow has passed 40 ,000.

9:24Yeah, for a lot of people, the Dow in their minds just is the stock market. You hear it on CNBC. You hear it on these news programs. Google searches for Dow Jones are always higher than searches for the S &P 500, according to this market research firm Datatrek. So, despite its flaws, it's just very much embedded in the human psyche of Americans who pay attention to the stock market. And you're right. The Dow is just very, very old. Dates back to the 1890s. S &P didn't come into the picture until after World War II in 1957. So it just serves as almost this litmus test and running history of the U.S.

9:59economy. So you can do things like go back to that crash that we remember so well and compare it to also how the market has evolved because companies come in and out of the Dow. So it does have its place, even though it's not a very effective index. One of the original members of the Dow was a company called Standard Rope and Twine. I don't know if they're still around. But you said that the Dow doesn't really change with the times, or it's at least a laggard to do so, and that's why it falls behind the S &P 500. I mean, right now, the Dow does not contain Alphabet, Meta, or NVIDIA, and NVIDIA has surged more than 200 % in the last 12 months.

10:39So to say that the Dow represents what's going on in the stock market right now is just false. because it doesn't have NVIDIA, which represents the AI boom. Right. Part of what they do is they're very loathe to put a company in until it's very much established. And what often happens is they end up almost timing the market to the absolute top. Like, they didn't put Microsoft in until late 1999, which subsequently the market completely fell out from underneath them. It took Microsoft another 15 years to return to its valuation when it was put in the Dow. Now, you might say that Microsoft did eventually come good, and it is one of the most valuable companies on Earth.

11:16But that is another kind of – that tends to happen for the Dow is that it's almost like if you see a company added, that means we're usually at the peak of some cycle and that the floor is about to get wiped out from underneath us because it just happened throughout the history of the Dow. All right. Well, in true Bell Belichick fashion, we're on to 50 ,000. Last month, the United Auto Workers Union scored a historic victory when employees at a Volkswagen plant voted to join the union, becoming the first foreign-owned auto factory in the South to link up with the UAW. The next battle in the union's southern conquest comes today when votes will be counted in a union election at a Mercedes plant in Alabama.

11:57This vote is seen as a more difficult and more significant test than the VW one because there are more workers at this plant, over 5 ,000, and Mercedes has played more defense. A win would lend a major tailwind for the UAW's push to unionize 13 automakers across the South. Remember, last fall, the union scored large pay raises for workers at Detroit's big three automakers, and it's using that victory as its pitch to the Bible Belt, which has historically been hostile toward unions. Speaking of pushback, Republican governors in six southern states released a statement last month criticizing unions as special interests looking to come into our state and threaten our jobs and the values we live by.

12:37Foreign automakers building factories across the South have juiced the regional economy, and these politicians don't want those gains threatened by the UAW. Toby, a big, big test for UAW President Sean Fein's southern takeover. Right. The Southern takeover is something that's been on his priority list because the South has the lowest union density density in the United States. Only 6 % of workers in the region are union members, but they got the ball rolling a little bit in that Tennessee decision. If the UAW loses, though, it would really cramp Sean Fain's style, though, because he has definitely been trying to keep this momentum going.

13:12And these votes typically do lead one to the other to the other. And he wants to keep these dominoes falling. So you're right. This is probably this is a much bigger domino just in terms of the fact that there's more workers. Yeah, there's more workers. Mercedes has definitely played a lot more defense than VW did. Of course, some workers at this plant are like, look, Mercedes treats us well. We get thirty four dollars an hour after three years. Like, that's pretty good. Crazy stat that I found the average weekly pay in South Carolina for manufacturing workers. last year was 3 % more than in Michigan.

13:44Meanwhile, in 2022, Michigan workers were paid 42 % more than in South Carolina. So there's been a lot of pressure on these automakers in the South to raise wages despite not having unions just because of the overall strong labor market and the heavy competition that's going on ever since Nissan came in in the 1980s to Tennessee. There's been a huge wave of foreign automakers setting up shop in the South because of these right-to-work laws that they've passed, which discourage unions. We've also seen Mercedes running kind of the playbook that other southern factories have when they're faced with union pressure.

14:19They have raised pay in recent months. They've made an effort to be more flexible and give more notice to workers about changes in their schedule. But then workers see through this a little bit and say, all right, you're already raising our wages because you're afraid of us unionizing. Imagine the power we'll have once we join the union. Also, talk about opposition to this union vote. Mercedes has been accused a little bit of union busting. And one thing that I found was that they actually brought in Nick Saban, the Alabama football coach, to talk to workers in that manufacturing plant. One worker said that the line never stops or anything, but everything shut down to hear Nick Saban talk about teamwork.

14:55Nick Saban does own multiple Mercedes dealerships, and he has reportedly said he does not endorse the UAW campaign. So that is and Mercedes has said we've had a long relationship with Nick Saban. He's come before, but that smells a little bit like union busting if you bring in Nick Saban in Alabama to talk to those workers. Up next, it's Stock of the Week, Dog of the Week time, but with a little twist. 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, and I think this season's lineup is even cooler.

15:33And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

15:52When 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. So all the major indexes are trading near or at all-time highs right now, which means when it came time for Neil and I to pick our stock of the week and dog of the week, it was hard to find any underperformers.

16:30But luckily, we remembered, this is our podcast. We can do whatever we want. So if it's okay with you all, we're picking two stocks of the week. Don't worry, we still had our pre-show competition, and I ended up wiping the floor with Neil and Wii Tennis. So I'm up first, and my stock of the week is Walmart. For a decade, Walmart has reigned over all others as the biggest company in the country by revenue. Last year, it brought in$648 billion, which means it makes more than$1.2 million a minute. Recently, though, its rain has looked a little shakier as Amazon is breathing down its neck. Amazon reported$575 billion in total revenue last year, but it grew at a 12 % rate compared to 6 % for Walmart.

17:13But Walmart is not going gently into that good night. It reported earnings this week, and it showed Wall Street why all roads still lead through northwest Arkansas. saw. It beat revenue expectations, jumping 6 % from last year, bringing in$161 billion in Q1, while U.S. same-store sales increased 3.9 % year-over-year. Its stock hit an all-time high in response. It's still dominating grocery. It has a nice ad business cooking now. E-commerce sales were up 22%. Neil, Walmart is not giving up that throne quite yet. No, Walmart's just such in a great position for inflation because you have higher-income consumers, people making over$100 ,000 a year going to Walmart for trading down a little bit.

17:54And then they really, Walmart also specializes in these staple goods that people need to get. A lot of retailers that sell discretionary items like Home Depot and Target are getting crushed right now as people tend to not do that kitchen upgrade and instead are just like, let me make a good meal for my family. Walmart benefits from that 100%. And I do want to zero in on this e-commerce business, which is booming right now. In the past 12 months, Walmart shipped about 4.4 billion units for same-day or next-day delivery. That was more than Amazon, which said it shipped more than 4 billion items in 2023 for same-or-next-day delivery.

18:33So it's built out a huge e-commerce business with logistic plants all over the place that are getting people their boxes of stuff within a day or two days. Every time Walmart comes to the news, I'm always just shocked about the sheer scale of it because it's got a sales target of around 4 % growth. That means it needs to find an additional$26 billion in sale this year. That is not easy because around 90 % of Americans already shop at Walmart. So there's not a lot of juice left to squeeze in terms of just overall market penetration. Rising inflation technically does help it meet its sales goals because as things get more expensive, if they need a 4 % sales target of growth each year, then when inflation is going up as well, It actually helps Walmart meet that sales target.

19:21So it's just an insanely sprawling company that affects, I mean, 90 % of Americans shop at it. So they're not giving up that throne anytime soon. No, but Amazon's growing at 12 % a year. Walmart's growing at 6 % a year. So in some podcast in the future, we will be talking about Amazon eclipsing Walmart in revenue. My stock of the week is Chubb, one of the world's biggest insurance companies, which shot up more than 4 % yesterday. Why? It's because a mystery was solved. Since last year, Warren Buffett's Berkshire Hathaway has been buying up lots of stock in a company, but no one knew which one it was because it was held secret.

19:59Speculation ran rampant, and not even Woj could get his hands on the details. But in a regulatory filing Wednesday, Buffett spilled the beans. It was Chubb all along, and it's a huge stake in Chubb, too. Buffett bought$6.7 billion worth of Chubb stock, accounting for 6.4 % of its outstanding shares. And Buffett is the original Roaring Kitty. When he seems bullish on a company, those company's shares typically pop. The big picture here is that Buffett is doubling down on financial services and insurance, which he calls the most important business at Berkshire. This time period is always fun because a lot of the major fund and money managers are disclosing which moves they made.

20:37They file these 13 F forms that allow you to kind of pick through their portfolio and how they've changed. There's other nuggets that were revealed in these SEC filings, though. Renaissance Technology, the fund that we recently spoke about on the show, founded by the late Jim Simmons, loaded up on shares of AMC and GameStop before they went nuts. I don't know how they keep doing this, how they keep getting away with this. And we also found out what Michael Burry of Big Short fame has been up to. He's loaded up on JD.com and Alibaba, two big Chinese econ plays. But yeah, no one moves markets quite like just good old Warren Buffett.

21:10No, and Chubb's actually been in the news recently because it owes the state of Maryland$350 million for that collapse of the Francis Scott Key Bridge. And then it also put up an appeal bond for former President Trump,$92 million for that defamation case against writer E. Jean Carroll. And then also, they initially were going to put up that half a billion dollar bond for the civil fraud case. And there was a lot of pushback. And the CEO, Evan Greenberg, who's the son of the former AIG CEO. So these guys run the insurance business, basically. This one family kind of dropped that appeal bond for Trump after a lot of pushback.

21:50OK, try to guess how I'm going to finish this next headline. Two math genius brothers who graduated from MIT were arrested and charged with stealing$25 million worth of crypto within approximately 12 seconds. Yup, the DOJ charged these two brothers, Anton and James Pereir Bueno, with using their special computer science and math skills to engineer a never-before-seen cryptocurrency fraud to compromise the Ethereum blockchain and make off with millions in April 2023. I'll spare you the gory details because they are extremely technical, but the TLDR is that these two brothers allegedly infiltrated the process by which transactions are validated on the blockchain and then set up shell companies, private crypto addresses, and foreign crypto exchanges to launder the money they stole.

22:36The charges come with a maximum penalty of 20 years in prison for each count. Turby, that's certainly one way to use your MIT degree. 12 seconds. MIT is slipping a little bit. I was thinking some six seconds for carrying out a fraud of this scale. But no, what's very funny to me is that these two brothers are obviously portrayed as these computer geniuses. They're very smart. And yet it's their browser history that's going to come back and bite them in the butt because their search history shows that they looked up things like setting up shell companies and getting around to know your customer procedures.

23:05They literally search for how to wash crypto. And then to cover the legal side of things. They also search for top crypto lawyers and money laundering statute of limitations. So it's always that browser history that ends up getting you. Got to go incognito mode. But yeah, this is a weird story, wacky story, but it also has major implications for crypto because we know that these spot Bitcoin ETFs were just approved, and that's been a huge tailwind for Bitcoin prices. Everyone's looking at whether the possibility of the weather the SEC will approve Ethereum ETFs. Ether is the second largest crypto by market cap.

23:41And this could throw a wrench into that because the Fed say that the Ethereum blockchain was completely compromised by these two guys, allegedly. So Gary Gensler, the SEC chair, could say, man, I'm already nervous about crypto being unsafe for investors. So now I have a patent example of$25 million getting stolen off the Ethereum blockchain. Why would I ever approve an Ethereum ETF? So this has definitely raised doubts that those Ethereum ETFs will get approved. Right. Gary Gensler wasn't a huge blockchain guy to begin with. And this is just another piece of evidence that goes to support his claims that maybe the blockchain isn't something that a lot of consumers should have widespread exposure to.

24:24It's Friday, but I want to finish this week of shows by channeling the vibes of Taco Tuesday. A small taco stand in Mexico that serves just four items has just been awarded a Michelin star. Michelin stars are the restaurant version of your parents telling you they're proud of you. It's a huge stamp of approval for anyone in the food business. And now Taqueria El Khalifa de Leon in the San Rafael neighborhood of Mexico City is the first Mexican taco stand to receive this honor. Neil, this is literally a taco stand. The entire place is only about 10 feet wide, but it's been around for more than 50 years and just serves bomb tacos.