Internal | August 22nd, 2024

GOOD MORNING

Here's everything you need to know today: Are you watching that new psychological erotic thriller series? I think it’s on Chick-Fil-A… is something human people might actually be saying one day soon. According to a report from Deadline, the fast-food giant famous for fried chicken, waffle fries, and conservative values is apparently feeling the urge to leverage your love of tangy sauce into subscriptions for their streaming platform. Yes, in what might be the weirdest crossover since KFC’s Colonel started dating Reba McEntire, Chick-Fil-A is teaming up with production companies, including some big-name studios, to cook up a slate of original, family-friendly shows for its own version of Netflix. Maybe Chick-Flix-A?

So far, it seems that the chicken sandwich turned entertainment studio is planning a wholesome game show from the folks behind NBC’s The Wall and 13 Reasons Why. The budget is reportedly around $400k per half-hour, and the show’s already locked in for ten episodes. But don’t worry, it gets weirder—rumors are swirling that Chick-Fil-A is also eyeing scripted content and animation. Because… chicken?

It’s a bold move for a fast-food chain to jump chicken feet first into the entertainment biz, and a steep learning curve might await. Maybe they should just buy Paramount+?

Let’s Dive Into More Details Below…

BREAKING NEWS
Well, it turns out the job market could use a little monetary policy nip and tuck.

The Labor Department revealed Wednesday morning that the U.S. economy created 818,000 fewer jobs than originally reported over the 12-month period ending in March 2024. That’s nearly 30% less job growth than the 2.9 million jobs we thought we had. Wonky egghead economists refer to this as “an oopsie.” This is the largest downward revision since the dark days of 2009, making it clear that the labor market’s muscle wasn’t as strong as the initial reports suggested and that Jay Powell has another thing to chew on out in Wyoming.

WHAT HAPPENED
In its annual benchmark revisions, the Bureau of Labor Statistics (BLS) slashed job growth by 818,000 jobs. For context, these revisions happen every year when the BLS matches up its monthly estimates with the more accurate data from the Quarterly Census of Employment and Wages. But by any metric, taking a nice round 0.5% off the total payrolls level, this year’s adjustment was a doozy.

Wall Street had been bracing for something of a hit, with in-house economists projecting that initial job numbers would experience shrinkage. But a 30% revision is like asking your barber for a trim and walking out with your head shaved. The professional and business services sector took the hardest hit, with 358,000 jobs disappearing from the books. Other sectors weren’t spared either: leisure and hospitality lost 150,000 jobs, manufacturing was down 115,000, and trade, transportation, and utilities were off by 104,000. Within the trade category, retail trade numbers alone were slashed by 129,000, so that might help explain why your new pair of pants doesn’t really fit.

On the flip side, a few sectors saw upward revisions. Private education and health services picked up 87,000 jobs, transportation and warehousing added 56,400, and other services gained 21,000. Government jobs? Practically a rounding error, with just a 1,000-job bump.

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BREAKING NEWS
There is always a bit of hesitation when jumping into something new: learning a new skill like jiu-jitsu or boxing, where you don't even know how to put on the shorts or wrap your hands; going out on a first, real-life date with someone, where the texts were flowing but suddenly, in the flesh, all conversation was lost; eating quinoa.

In Ford's example, transitioning from the days of "Build Ford Tough" and drinking beers in bed with the boys while smelling the sweet burn of gasoline in the air into the competitive world of EVs. There is no judgment here. We can imagine how strange a culture shift is, especially when the literal founder of your company, Henry Ford, was dishing out slogans like "Don't Experiment: Just buy a Ford" in 1905.

So, when Ford announced Wednesday that they were scaling back all-electric ambitions, the news was expected but not surprising, though eating the write-off ($400 million in tooling for the vehicle and $1.5 billion for extra costs in the future, according to The Guardian) was probably not the easiest pill to swallow.

Did they get cold feet? Or was there something else under the hood of EV's future that others aren't seeing yet?

WHAT HAPPENED
When Ford stared down the barrel of the profit margin of their electric SUV and electric pick-up truck, they had two options: pull the trigger or try to slap it away. In this case, they avoided any more harm, saying goodbye (until at least 2027) to their three-row electric sport utility vehicle (SUV), an EV that would have combined the features of an SUV with the capacity to seat seven passengers and money it planned on spending on EV's. Per their announcement, this decision led to a special non-cash charge of about $400 million for the write-down of certain product-specific manufacturing assets associated with this project.

They have also pumped the breaks on cash going into EV's, reducing the proportion of its annual capital expenditures dedicated to pure EV's from about 40% to 30%. Assuming a yearly CapEx of $7 billion, this change likely represents a decrease from $2.8 billion to $2.1 billion dedicated to EVs, reducing around $700 million.

One of the main reasons behind the nix in production plans is the high cost of batteries, which account for 40-50% of total EV production expenses. Despite recent declines in battery metal prices, the overall costs remain substantial enough to affect EV profitability compared to traditional combustion engine vehicles. Consequently, Ford is adjusting its strategy to focus more on hybrid cars in the short term, balancing its commitment to electrification with current market realities and profitability concerns.

Then there are Ford's competitors, specifically Chinese EV automakers, that have proved time and again they are nothing to mess with as they continue to benefit from lower production costs, government subsidies, and weaker labor and environmental regulations, overall making it difficult for American automakers to match their prices. Looking at their projected revenue, analysts at Statista expect it to reach almost $320 billion in 2024, with forecasts indicating a steady annual growth rate of 5.69% from 2024 to 2028.

This growth trajectory is anticipated to result in a market volume of $398 billion by 2028, driven by ever-increasing demand. In terms of unit sales, they are also expected to achieve an estimated 9 million EV's sold by 2028, backed by nothing but continued government subsidies and continued infrastructure, further driving adoption.

On top of China roaring on all cylinders, there is then the burden of the uncertain consumer. As seen above, in an April 2024 Gallup survey, the percentage of Americans considering an EV purchase dropped from 12% to 9%. More within the context of Ford's move, those considering buying an EV in the future have decreased substantially, from 43% to 35%.

Then there was Ford's original plans for BlueOval Battery Park, Michigan, being downsized, reducing the footprint from 950 to about 500 acres and the production building size from 2.3 million square feet to 1.2 million square feet, with an additional 600,000-square-foot packing plant. Overall, Ford has three battery plants under construction: one each in Kentucky, Tennessee, and, of course, Michigan. Yet, compared to China and its evident momentum, its efforts pale in comparison.

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BREAKING NEWS
Sam Altman and the team at OpenAI have been demonstrating a keen ability in opportunity recognition—a critical business skill that involves identifying opportunities with the potential to create significant value. This may include spotting market gaps, emerging trends, or innovative solutions that disrupt entire industries.

For example, the recent ruling by the US DOJ declaring Google an illegal monopolist could open new avenues for competitors in the search engine market. The potential breakup of Alphabet or a mandate for Google to share its search data could significantly reshape the competitive landscape, offering opportunities for other companies to innovate and gain market share.

Like sharks sensing blood in the water, OpenAI appears ready to capitalize on these shifts. Their recent partnership with Condé Nast, a global mass media company, and the launch of their AI-powered search engine, SearchGPT, on July 25 signal where Altman and his team are headed—and which throne they intend to claim.

WHAT HAPPENED
The product in question OpenAI has been working on and gathering partnerships seemingly for is none other than "SearchGPT," or a "temporary prototype of new AI search features that give (the user) fast and timely answers with clear and relevant sources."

They are currently testing SearchGPT with a small group of users and publishers to get feedback. They hope to integrate the features directly into ChatGPT, with a full roll-out into free services likely. They aim to "enhance the conversational capabilities" of said models with "real-time information from the web" focused solely on ease and speed.

The most straightforward upgrade that Google feels behind in this world is something OpenAI calls "context building" or, more concisely, having a real-time conversation with their LLM about what you want then and there.

For example, with Google, we typed in, "What is the best way to cook your soup?" Per Google's system, the top link was something from SimpleBites.net from 2011 (we love you, SimpleBites!), but that information, though most likely helpful and yummy, feels like it is dated and more of a hurdle than an immediate solution. If anything, it's missing a few steps after days of prompting and collaborating with various kinds of AI over the last few years.

And to fill that context window even further, is where the Condé Nast partnership and others like Associated Press, Axel Springer, The Atlantic, Dotdash Meredith, Financial Times, LeMonde, NewsCorp, Prisa Media, TIME, Vox Media and come in to join the fun. Mind you, OpenAI has already seen its fair share of lawsuits from the likes of The New York Times, Alden Global Inc. Newspapers, and Sarah Silverman, to name a few, so they likely see now to play ball and get this product and others out to have any form of legitimacy.

These systems aim is to essentially merge conversational models with direct access to users' desired information, whether from sources like AP, Time, Vox, or others, as more organizations sign on with OpenAI and see positive results. If you've used GPT before, there's a moment when you realize the implications—what once took 30 minutes now takes three seconds. It's an "aha" moment that feels more intuitive, efficient, and comprehensive, almost like the personalization people experience when they first create a Facebook account.

And, unlike Google, who is currently looking at the DOJ to break them up while also being accused of Harris's campaign editing headlines of news articles in Google to make it appear that major news outlets are supporting her, OpenAI's systems appear to be running on schedule.

The question now is whether OpenAI's innovative AI-focused approach to revolutionizing search as the world knows it will effectively meet and surpass users' needs so much so they start to impact Google's massive search user base.

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1. Walmart to Sell $3.74 Billion Stake in JD.com

Walmart plans to sell its stake in Chinese e-commerce giant JD.com, aiming to raise up to $3.74 billion. The decision is part of Walmart's broader strategy to focus on its core operations in China, including Sam's Club and Walmart China, while reallocating capital to other strategic priorities. The move has contributed to a drop in JD.com’s shares.

2. Target Reports Strong Q2 Earnings, Raises Full-Year Forecast

Target posted better-than-expected earnings for the second quarter, driven by increased consumer traffic and strong grocery sales. The retailer's strategy of lowering prices on essential items has helped attract more shoppers, leading to its first quarterly sales increase in a year. Target also raised its full-year profit outlook, signaling confidence in sustained consumer demand.

3. Franklin Resources Under SEC Investigation for Trade Allocation Practices

Franklin Resources is under investigation for potentially improper trade allocations by its Western Asset Management unit. The SEC is probing whether the firm engaged in "cherry-picking," where winning trades were directed to favored clients. This has led to a sharp decline in Franklin Resources' shares and raised concerns about the firm’s internal controls.

4. Australia Approves $13.5 Billion Solar Power Project to Singapore

Australia has approved a $13.5 billion solar project that will export renewable energy to Singapore. The ambitious project, led by Sun Cable, will use a 4,300-kilometer undersea cable to transmit solar-generated electricity. Once completed, the project is expected to supply up to 15% of Singapore’s energy needs, marking a significant step in international renewable energy trade.

5. Macy’s Lowers Sales Forecast Amid Weak Consumer Spending

Macy’s has cut its full-year sales forecast after reporting weaker-than-expected second-quarter results. The department store chain cited increased discounting from competitors and cautious consumer spending as key challenges. Macy’s, like many retailers, has struggled to draw shoppers amid rising inflation and shifting spending patterns.

6. Federal Judge Blocks FTC’s Ban on Noncompete Agreements

A federal judge in Texas has blocked the Federal Trade Commission’s proposed nationwide ban on noncompete agreements. The judge ruled that the FTC had exceeded its authority in proposing the ban, halting its implementation. The decision impacts millions of American workers and companies that rely on noncompete clauses to protect trade secrets and business practices.

7. Paramount Extends Go-Shop Period as Bronfman Raises Bid to $6 Billion

Paramount has extended its go-shop period after Edgar Bronfman Jr. increased his bid to $6 billion. This move gives Paramount more time to evaluate the offer, potentially complicating a previously agreed-upon merger with Skydance Media. The extension could reshape Paramount’s ownership as the media giant assesses its strategic options.

8. Gold Prices Hit Record High Amid Market Uncertainty

Gold prices have surged to a record high, surpassing $2,514 per ounce. Investor demand for the precious metal has grown amid increasing concerns over economic stability, inflation, and potential changes in Federal Reserve policy. Gold, traditionally seen as a safe-haven asset, continues to attract interest during periods of uncertainty.

9. Starbucks Bets on Pumpkin Spice Latte to Reverse Sales Decline

Starbucks is bringing back its popular Pumpkin Spice Latte earlier than ever this year in an effort to reverse a recent sales slump. The coffee chain is hoping that its seasonal offerings, including new non-dairy options, will draw customers back into stores as it looks to boost sales heading into the fall.

10. Western Asset Co-CIO Takes Leave Amid SEC "Cherry-Picking" Investigation

Ken Leech, the co-chief investment officer of Western Asset Management, has taken a leave of absence amid a federal investigation into alleged "cherry-picking" practices. The SEC is investigating whether Western Asset allocated profitable trades to preferred clients. The news has caused shares of parent company Franklin Resources to tumble, raising concerns about potential legal and financial ramifications.

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