1 00:00:00,120 --> 00:00:02,920 Today on the Joseph Carlson show, Visa is being sued by the 2 00:00:02,920 --> 00:00:05,600 Department of Justice. Merrick Garland is at it again, 3 00:00:05,800 --> 00:00:09,600 targeting the big bad monopolies and Visa is the next one. 4 00:00:09,600 --> 00:00:11,520 Insight. They're being sued over being an 5 00:00:11,520 --> 00:00:15,040 illegal monopoly, specifically with their debit card use. 6 00:00:15,160 --> 00:00:17,720 The Department of Justice laid out their argument of why they 7 00:00:17,720 --> 00:00:19,560 believe Visa is an illegal monopoly. 8 00:00:19,760 --> 00:00:22,080 We're going to take a look at their statement, see if it has 9 00:00:22,080 --> 00:00:25,440 any merit, and see if Visa investors should be concerned. 10 00:00:25,520 --> 00:00:29,520 After all, Visa stock is down 1.36% on the day. 11 00:00:29,520 --> 00:00:32,960 That's after dropping 5% over the past week and year to date, 12 00:00:32,960 --> 00:00:36,320 Visa's only up 4%. This company is struggling to 13 00:00:36,320 --> 00:00:38,720 keep up with the market and we'll be taking a look going 14 00:00:38,720 --> 00:00:41,920 over everything with Visa and MasterCard and seeing of 15 00:00:41,920 --> 00:00:44,200 investors should be concerned about this news. 16 00:00:44,200 --> 00:00:45,760 Now of course we have some other news to get to. 17 00:00:45,800 --> 00:00:49,200 John Donahoe, the former CEO of Nike was fired. 18 00:00:49,200 --> 00:00:53,000 He was canned and replaced with the new CEO Elliott Hill. 19 00:00:53,200 --> 00:00:55,400 He's a long time insider of the company. 20 00:00:55,560 --> 00:00:57,960 We'll be going over why this is good news for Nike. 21 00:00:57,960 --> 00:01:01,040 And then finally, we have here from CNBC's that Gen. 22 00:01:01,040 --> 00:01:03,680 Z and millennials are increasingly doom spending. 23 00:01:03,680 --> 00:01:05,600 That's a direct quote. They're doom spending. 24 00:01:05,720 --> 00:01:08,600 We'll be looking at what doom spending is and apparently why 25 00:01:08,600 --> 00:01:10,080 Gen. Z and millennials are doing it. 26 00:01:10,080 --> 00:01:11,880 So as always, we have a lot to get into. 27 00:01:11,880 --> 00:01:13,840 Let's go ahead and start off with the headline news. 28 00:01:14,160 --> 00:01:17,560 Visas under suit by the Department of Justice for being 29 00:01:17,560 --> 00:01:20,160 an illegal monopoly. The Department of Justice is 30 00:01:20,160 --> 00:01:22,360 headed by the attorney General, Merrick Garland. 31 00:01:22,720 --> 00:01:25,280 And I think it'd be beneficial to first, before even jumping 32 00:01:25,280 --> 00:01:27,600 into this, listening to their case. 33 00:01:27,840 --> 00:01:31,120 Merrick Garland is the one over this, and he basically laid out 34 00:01:31,120 --> 00:01:32,760 the reasons that he's suing Visa. 35 00:01:33,080 --> 00:01:35,240 I'll go through and I'll highlight some of what I think 36 00:01:35,240 --> 00:01:37,360 are the most important points that he brings up. 37 00:01:37,400 --> 00:01:39,120 He starts off with a brief summary here. 38 00:01:39,200 --> 00:01:43,200 We allege Visa is a monopolist in the debit transaction markets 39 00:01:43,520 --> 00:01:46,680 that is violating federal antitrust law and inflicting 40 00:01:46,680 --> 00:01:50,880 often hidden but significant harm on American consumers and 41 00:01:50,880 --> 00:01:54,480 businesses. Visa operates the largest debit 42 00:01:54,480 --> 00:01:58,800 network in the United States. A debit network facilitates the 43 00:01:58,800 --> 00:02:02,720 electronic transfer of funds directly from a consumers bank 44 00:02:02,720 --> 00:02:06,640 account to the merchants bank account in a retail transaction. 45 00:02:07,240 --> 00:02:11,400 Millions of Americans prefer to use debit transactions, which 46 00:02:11,400 --> 00:02:16,200 are often the primary option for lower income consumers without a 47 00:02:16,200 --> 00:02:19,800 credit card. In the United States, over $4 48 00:02:19,800 --> 00:02:23,960 trillion of debit card transactions take place every 49 00:02:23,960 --> 00:02:27,400 year. Over 60% of those transactions 50 00:02:27,560 --> 00:02:32,680 and over 70% of all online debit transactions are routed through 51 00:02:32,680 --> 00:02:34,760 Visa's electronic payment network. 52 00:02:35,040 --> 00:02:39,320 He's laying the groundwork that Visa's a very large company, and 53 00:02:39,320 --> 00:02:42,040 that's part of being a monopoly. It's harder to be a monopoly 54 00:02:42,040 --> 00:02:44,200 when you're a very small company than a big one. 55 00:02:44,440 --> 00:02:47,080 So making the point that Visa's really big is accurate. 56 00:02:47,400 --> 00:02:50,000 And in fact, I think most people realize that Visa's a big 57 00:02:50,000 --> 00:02:54,240 company, but most may not fully understand how big their debit 58 00:02:54,240 --> 00:02:57,000 card business is. A lot of people look at Visa as 59 00:02:57,000 --> 00:03:00,320 a credit card business, but they are massive in debit cards. 60 00:03:00,400 --> 00:03:02,400 If we look at Visa and bring up the fundamentals here on 61 00:03:02,400 --> 00:03:06,160 Qualtrim, I'll point out just one key performance indicator. 62 00:03:06,400 --> 00:03:08,800 These are things that I track on different companies that I hold. 63 00:03:09,080 --> 00:03:11,840 Even though I'm not directly invested in Visa, I do keep 64 00:03:11,840 --> 00:03:15,440 track of this metric and it shows the breakdown of total 65 00:03:15,440 --> 00:03:18,760 Visa cards between the debit cards and the credit card. 66 00:03:19,120 --> 00:03:22,800 What you'll notice is that the orange hair is Visa Debit. 67 00:03:23,360 --> 00:03:25,840 The lighter orange hair is Visa Credit. 68 00:03:26,360 --> 00:03:29,560 Visa Credit is a much smaller portion of the cards issued. 69 00:03:29,840 --> 00:03:32,320 The majority of their business is through debits. 70 00:03:32,560 --> 00:03:36,920 That's around 60 to 70% of their business is through debit cards, 71 00:03:37,480 --> 00:03:39,920 and the amount of debit cards they have is just astounding. 72 00:03:40,280 --> 00:03:44,760 As of the most recent quarter, it's 3.2 billion debit cards 73 00:03:45,000 --> 00:03:46,960 with AB. If we compare that to their 74 00:03:46,960 --> 00:03:50,440 credit cards, the credit cards are only 1.3 billion, still a 75 00:03:50,440 --> 00:03:54,080 lot of them. 1.3 billion is not a little amount, but it's not 76 00:03:54,080 --> 00:03:56,000 anywhere close to the Visa debit card. 77 00:03:56,000 --> 00:03:59,440 So Visa overall right now is more of a debit card business 78 00:03:59,440 --> 00:04:02,200 than a credit card business. So he starts off by laying out 79 00:04:02,200 --> 00:04:05,560 how big Visa is, trying to paint them as monopolist. 80 00:04:05,800 --> 00:04:08,720 The one thing I'd point out that he misses here that he does not 81 00:04:08,720 --> 00:04:11,600 lay out is how big Visa's competitors are. 82 00:04:11,960 --> 00:04:14,760 We have MasterCard here. It is true that MasterCard is 83 00:04:14,760 --> 00:04:18,360 currently smaller than Visa in both market cap and cards 84 00:04:18,360 --> 00:04:22,520 issued, but not by a lot. MasterCard still has billions of 85 00:04:22,520 --> 00:04:24,920 cards issued. Now we just have the total card 86 00:04:24,920 --> 00:04:28,640 number here, but it's 3.05 billion, and I would estimate 87 00:04:28,640 --> 00:04:32,200 that MasterCard has a majority of theirs is debit as well. 88 00:04:32,800 --> 00:04:35,000 So MasterCard is a massive competitor. 89 00:04:35,320 --> 00:04:37,200 They're not something that just be ignored. 90 00:04:37,200 --> 00:04:39,920 But that's what Merrick Garland does, because he's trying to 91 00:04:39,920 --> 00:04:41,800 make the case that Visa's a monopoly. 92 00:04:42,080 --> 00:04:44,880 It's difficult to make the case that something's a monopoly when 93 00:04:44,880 --> 00:04:47,680 you have a massive competitor competing against you. 94 00:04:48,160 --> 00:04:50,880 We, of course, also have many other credit card companies. 95 00:04:51,120 --> 00:04:53,120 Visa and MasterCard aren't the only ones. 96 00:04:53,400 --> 00:04:56,000 But that goes against the point that Merrick Garland's trying to 97 00:04:56,000 --> 00:04:57,320 make. He's trying to make the point 98 00:04:57,320 --> 00:05:00,080 that Visa's dominant, that it's the leader, that it's a 99 00:05:00,080 --> 00:05:03,000 monopoly, that it has a limitless pricing power, and 100 00:05:03,000 --> 00:05:06,640 that it controls consumers. If you highlight how big the 101 00:05:06,640 --> 00:05:10,600 competitors are, how fierce the competition is in this space, it 102 00:05:10,600 --> 00:05:12,960 discredits his point. The truth is, when you look at 103 00:05:12,960 --> 00:05:15,720 this from an impartial standpoint, it looks like Visa 104 00:05:15,720 --> 00:05:17,720 is actually facing tough competition. 105 00:05:18,000 --> 00:05:21,400 In fact, if we look at Visa's revenue growth, a proxy for 106 00:05:21,400 --> 00:05:25,880 their market dominance and their pricing power, it was 9.7% year 107 00:05:25,880 --> 00:05:27,560 over year. Over the last trailing 12 108 00:05:27,560 --> 00:05:30,800 months, we have just under 10% growth from Visa. 109 00:05:31,080 --> 00:05:33,560 If we compare that level of growth to MasterCard, again, 110 00:05:33,840 --> 00:05:37,360 their primary competitor MasterCard is growing faster at 111 00:05:37,360 --> 00:05:41,400 1187%. So MasterCard is growing around 112 00:05:41,400 --> 00:05:44,840 3% faster than Visa. But Visas being sued for being a 113 00:05:44,840 --> 00:05:47,760 monopoly, MasterCard isn't. If we look at different reports 114 00:05:47,760 --> 00:05:51,320 of market share over time, Visas also losing market share to 115 00:05:51,320 --> 00:05:54,400 MasterCard over time. MasterCard has gained market 116 00:05:54,400 --> 00:05:58,960 share and debits over the past decade with 27% share last year, 117 00:05:59,240 --> 00:06:02,960 up from 21% in 2005. S in the past 10 years, 118 00:06:02,960 --> 00:06:06,480 MasterCard has gained 6% market share of Visas debit card 119 00:06:06,480 --> 00:06:08,240 business. So we see the numbers here that 120 00:06:08,240 --> 00:06:11,280 MasterCard, their primary competitor, is growing faster 121 00:06:11,280 --> 00:06:14,560 than Visa by a good margin. MasterCard is gaining market 122 00:06:14,560 --> 00:06:17,640 share in debit cards, which is what they have a problem with. 123 00:06:17,920 --> 00:06:19,600 We also have other data we can look at. 124 00:06:19,600 --> 00:06:21,960 MasterCard is growing faster internationally. 125 00:06:22,160 --> 00:06:24,240 They're issuing cards at a faster pace. 126 00:06:24,560 --> 00:06:26,960 There's a lot of reasons to believe that Visa does have 127 00:06:26,960 --> 00:06:30,640 competition to face, MasterCard being the primary competitor. 128 00:06:30,720 --> 00:06:33,080 But even as we see that data, Merrick Garland paints the 129 00:06:33,120 --> 00:06:35,280 opposite picture. He paints the picture that 130 00:06:35,280 --> 00:06:38,520 Visa's note is impenetrable. According to Visa's own 131 00:06:38,520 --> 00:06:44,760 calculations, it is insulated from competition for 75 to 80% 132 00:06:45,080 --> 00:06:49,400 of debit transactions initiated with a Visa branded debit card. 133 00:06:50,760 --> 00:06:54,840 We allege that to maintain this monopoly power, Visa deploys a 134 00:06:54,840 --> 00:06:59,400 web of unlawful anti competitive agreements to penalize merchants 135 00:06:59,400 --> 00:07:03,040 and banks for using competing payment networks. 136 00:07:03,640 --> 00:07:07,560 At the same time, it coerces would be market entrance into 137 00:07:07,560 --> 00:07:11,680 unlawful agreements not to compete by threatening high fees 138 00:07:11,680 --> 00:07:15,520 if they do not cooperate and promising big payouts if they 139 00:07:15,520 --> 00:07:18,560 do. The result is a debit market 140 00:07:18,800 --> 00:07:22,640 where Visa has unlawfully amassed the power to extract 141 00:07:22,640 --> 00:07:26,360 fees that far exceed what it could charge in a competitive 142 00:07:26,360 --> 00:07:29,720 market. Merchants and banks pass along 143 00:07:29,720 --> 00:07:34,520 those costs to consumers, either by raising prices or reducing 144 00:07:34,520 --> 00:07:37,120 quality or service. And there we get to the crux of 145 00:07:37,120 --> 00:07:39,120 the complaint. They're alleging that Visa used 146 00:07:39,120 --> 00:07:42,440 a carrot and stick strategy to coerce different merchants into 147 00:07:42,440 --> 00:07:45,960 unlawful agreements. They would punish merchants by 148 00:07:45,960 --> 00:07:49,600 levying higher fees if they routed some transactions to 149 00:07:49,600 --> 00:07:52,400 other card networks. The Justice Department said 150 00:07:52,640 --> 00:07:55,120 consumers are losers from that arrangement. 151 00:07:55,680 --> 00:07:57,880 Now, it is true that Visa does this. 152 00:07:57,880 --> 00:08:01,600 They say, hey, if you use just our service, then we'll give you 153 00:08:01,600 --> 00:08:04,320 a better rate than if you use a lot of people's service. 154 00:08:04,720 --> 00:08:06,720 This is called an exclusivity agreement. 155 00:08:07,160 --> 00:08:09,760 It's a normal thing in the terms of business. 156 00:08:09,760 --> 00:08:12,040 Lots of businesses have exclusivity agreements. 157 00:08:12,200 --> 00:08:14,320 You might have the same thing if you're providing ingredients to 158 00:08:14,320 --> 00:08:16,600 a restaurant. If you're the only one providing 159 00:08:16,600 --> 00:08:19,320 and supplying this product, you might have an exclusivity 160 00:08:19,320 --> 00:08:21,360 agreement that you get better rates than if you have many 161 00:08:21,360 --> 00:08:24,320 people supplying it. This type of thing happens all 162 00:08:24,320 --> 00:08:27,480 throughout businesses worldwide. So in and of itself, giving a 163 00:08:27,480 --> 00:08:31,080 business a better rate when they exclusively do business with you 164 00:08:31,360 --> 00:08:33,159 is not something inherently illegal. 165 00:08:33,320 --> 00:08:36,039 Many businesses are doing this right now, and it's the reason 166 00:08:36,039 --> 00:08:38,280 that Visa has been able to do this this for decades now. 167 00:08:38,280 --> 00:08:40,559 The other part of this where they say consumers are the 168 00:08:40,559 --> 00:08:43,559 losers from this arrangement is entirely subjective. 169 00:08:43,640 --> 00:08:46,280 The argument from the Department of Justice is that retailers 170 00:08:46,280 --> 00:08:49,640 like Walmart and Target pass along the cost of the Visa 171 00:08:49,640 --> 00:08:53,600 transaction on to the consumer. So when Visa charges more, the 172 00:08:53,600 --> 00:08:57,360 consumers pay more and therefore the consumers are the loser in 173 00:08:57,360 --> 00:09:00,280 the situation. But that isn't necessarily 174 00:09:00,280 --> 00:09:02,240 accurate. In fact, a lot of people that 175 00:09:02,240 --> 00:09:05,160 study this stuff and do third party research on it, people 176 00:09:05,160 --> 00:09:08,600 that study debit card and credit card transactions, they've 177 00:09:08,600 --> 00:09:11,800 looked over a lot of data and found that even when you remove 178 00:09:11,800 --> 00:09:14,960 the credit card fee, the retailer does not pass along the 179 00:09:14,960 --> 00:09:18,120 savings to the consumer. They pocket them for themselves. 180 00:09:18,440 --> 00:09:21,920 So if Walmart suddenly could get rid of Visa's transaction fees, 181 00:09:22,360 --> 00:09:24,560 it's not necessarily true that they would just pass along those 182 00:09:24,560 --> 00:09:28,240 savings right to the consumer. A lot of, if not all, of those 183 00:09:28,240 --> 00:09:30,600 savings would fall to Walmart's bottom line. 184 00:09:30,920 --> 00:09:34,120 Retailers are upset at Visa not because they have to charge 185 00:09:34,120 --> 00:09:37,640 customers more, but because they have to pay Visa to do business. 186 00:09:37,680 --> 00:09:40,400 The other thing they leave out when alleging that consumers are 187 00:09:40,400 --> 00:09:43,680 the loser from this arrangement is that not all networks are the 188 00:09:43,680 --> 00:09:46,080 same. Visa has built a trustworthy, 189 00:09:46,080 --> 00:09:49,360 reliable, insured network to process transactions. 190 00:09:49,800 --> 00:09:53,000 The third party networks, the cheaper ones that Walmart and 191 00:09:53,000 --> 00:09:55,920 Target would happily send customers to, may not be as 192 00:09:55,920 --> 00:09:58,160 trustworthy. They may not be as reliable. 193 00:09:58,160 --> 00:10:00,400 We had the same type of discussion a year ago when there 194 00:10:00,400 --> 00:10:01,920 was a new Durban amendment proposed. 195 00:10:02,120 --> 00:10:05,120 This would allow retailers like Walmart to choose what network 196 00:10:05,120 --> 00:10:08,200 your transactions are processed on and the results would be the 197 00:10:08,200 --> 00:10:10,080 same. Exactly because I'm the one 198 00:10:10,080 --> 00:10:13,320 paying for that purchase, I should choose where my purchase 199 00:10:13,320 --> 00:10:15,240 gets run. Why should the retailer decide 200 00:10:15,240 --> 00:10:17,480 now? Let's run it on a cheap network 201 00:10:17,480 --> 00:10:19,080 that doesn't have fraud protection. 202 00:10:19,400 --> 00:10:21,280 That's what this bill will allow. 203 00:10:21,440 --> 00:10:23,200 This will absolutely harm consumers. 204 00:10:23,200 --> 00:10:25,320 So it may not necessarily be in the best interest of the 205 00:10:25,320 --> 00:10:28,520 consumer to make Walmart more money by transacting through 206 00:10:28,520 --> 00:10:31,240 lower quality payment processors, but that's what 207 00:10:31,240 --> 00:10:34,240 could happen if this type of thing is successful. 208 00:10:34,240 --> 00:10:37,040 Now, we've addressed this stick part where Visa apparently 209 00:10:37,120 --> 00:10:39,880 punishes companies by using exclusive agreements. 210 00:10:40,120 --> 00:10:42,760 There's also the carrot part. The Justice Department said that 211 00:10:42,760 --> 00:10:46,160 Visa has a practice of offering volume discount to merchants 212 00:10:46,400 --> 00:10:48,440 that is illegal under antitrust law. 213 00:10:48,560 --> 00:10:50,800 Now, again, this is something that every business is doing all 214 00:10:50,800 --> 00:10:53,120 the time. Offering bulk discounts for high 215 00:10:53,120 --> 00:10:56,320 volume customers is standard practice in virtually every 216 00:10:56,320 --> 00:10:59,840 industry, especially in software and payment processing. 217 00:10:59,840 --> 00:11:02,400 They loop this back again to the penalizing factor. 218 00:11:02,520 --> 00:11:04,800 Federal law requires that merchants have the ability to 219 00:11:04,800 --> 00:11:08,160 choose from at least two unaffiliated debit card networks 220 00:11:08,160 --> 00:11:11,000 to process transactions. But Visa would penalize 221 00:11:11,000 --> 00:11:14,200 merchants who pick another payment network by charging 222 00:11:14,200 --> 00:11:16,840 higher fees on all transactions processed. 223 00:11:16,920 --> 00:11:19,440 So even when they're talking about bulk discounting, they're 224 00:11:19,440 --> 00:11:23,000 really talking about once again, penalizing merchants for using 225 00:11:23,000 --> 00:11:25,760 other payment networks. Visa likes to have the 226 00:11:25,760 --> 00:11:29,560 exclusivity agreement where companies like Costco use only 227 00:11:29,560 --> 00:11:33,080 Visa and they give them a much lower rate for being exclusive 228 00:11:33,080 --> 00:11:35,280 with them. And that is the primary concern 229 00:11:35,280 --> 00:11:38,080 that the DOJ has. Now, the DOJ hasn't laid out 230 00:11:38,080 --> 00:11:40,400 specifically what they want in terms of relief. 231 00:11:40,640 --> 00:11:42,960 So we don't know really what they're asking of Visa. 232 00:11:43,040 --> 00:11:45,240 They're just alleging they're a monopoly at this point. 233 00:11:45,520 --> 00:11:48,000 But if I was to guess, it would be that Visa and other credit 234 00:11:48,000 --> 00:11:51,920 card issuers are forced to have multiple options for transaction 235 00:11:51,920 --> 00:11:55,520 processing at merchants. And most likely the merchant 236 00:11:55,520 --> 00:11:58,480 would be able to pick where your transaction is processed. 237 00:11:58,760 --> 00:12:01,280 If it's processed through Visa's network or a third party 238 00:12:01,280 --> 00:12:03,800 alternative. That would be a lack of choice 239 00:12:03,800 --> 00:12:06,560 from the customer and it would benefit the merchants. 240 00:12:07,000 --> 00:12:10,080 Now, in terms of the argument and the strength of these 241 00:12:10,080 --> 00:12:13,040 arguments, I think it's rather weak from the DOJ. 242 00:12:13,280 --> 00:12:15,320 I've looked at different arguments from the Department of 243 00:12:15,320 --> 00:12:18,840 Justice on many lawsuits they've had with other companies, and 244 00:12:18,840 --> 00:12:20,320 this one is one of the weaker ones. 245 00:12:20,320 --> 00:12:23,600 They're basically just alleging that Visa gives group discounts 246 00:12:23,760 --> 00:12:27,640 with exclusive agreements. That has some validity to it, 247 00:12:27,640 --> 00:12:30,400 but that is normal standard business practice. 248 00:12:30,800 --> 00:12:34,560 Offering discounts for bulk and volume customers is also 249 00:12:34,560 --> 00:12:36,040 something that's standard practice. 250 00:12:36,440 --> 00:12:39,400 Outside of that, Visa hasn't been boxing out competition. 251 00:12:39,680 --> 00:12:41,640 They haven't been buying up companies. 252 00:12:41,880 --> 00:12:44,760 Visa's transaction with Plaid was blocked by the DOJ. 253 00:12:45,080 --> 00:12:47,480 They've mostly been growing organically over time. 254 00:12:47,840 --> 00:12:50,160 So I think this is going to be an uphill battle from the 255 00:12:50,160 --> 00:12:52,960 Department of Justice, and Visa thinks so as well. 256 00:12:53,120 --> 00:12:55,800 They said, quote, we are proud of the payment networks we have 257 00:12:55,800 --> 00:12:58,240 built, the innovation we advance, and the economic 258 00:12:58,240 --> 00:13:01,600 opportunity we enable. This lawsuit is meritless and we 259 00:13:01,600 --> 00:13:03,320 will defend ourselves vigorously. 260 00:13:03,320 --> 00:13:06,080 So Visa is ready to fight this and take on the DOJ. 261 00:13:06,560 --> 00:13:09,160 Now looking at this from an investment standpoint, when I 262 00:13:09,160 --> 00:13:11,680 look at My Portfolio, I announced frequently that I 263 00:13:11,680 --> 00:13:14,880 invest in monopoly, monopolistic companies that have a large 264 00:13:14,880 --> 00:13:18,920 dominant concentration in very important, usually global 265 00:13:18,920 --> 00:13:21,600 markets. So we look at S&P Global, it is 266 00:13:21,600 --> 00:13:25,200 a duopoly with Moody's. MasterCard is a somewhat duopoly 267 00:13:25,200 --> 00:13:28,160 or oligopoly with Visa. In this case, I actually think 268 00:13:28,160 --> 00:13:31,040 that MasterCard is growing faster taking market share. 269 00:13:31,200 --> 00:13:34,400 That's why I have a preference of MasterCard over Visa. 270 00:13:34,760 --> 00:13:37,640 Intuit has a very dominant position in so many different 271 00:13:37,640 --> 00:13:40,400 markets, and that leads to lots of advantages. 272 00:13:40,400 --> 00:13:43,920 These companies are more stable, they grow organically, they have 273 00:13:43,960 --> 00:13:47,200 huge network effects of people naturally gravitating to their 274 00:13:47,200 --> 00:13:49,480 products. There's lots of things that go 275 00:13:49,480 --> 00:13:51,720 well with these type of dominant companies. 276 00:13:52,000 --> 00:13:54,400 But one thing you're always going to face when you have a 277 00:13:54,400 --> 00:13:57,840 portfolio like this, when you're investing in lots of dominant 278 00:13:57,960 --> 00:14:01,280 monopolistic companies, is government interference. 279 00:14:01,680 --> 00:14:03,960 Government is constantly going to be targeting these type of 280 00:14:03,960 --> 00:14:06,040 companies. And I've seen this pattern over 281 00:14:06,040 --> 00:14:08,800 the past five years. We see an example of it time and 282 00:14:08,800 --> 00:14:11,240 time again. Just recently, the Justice 283 00:14:11,240 --> 00:14:14,520 Department sees Google for monopolizing digital advertising 284 00:14:14,520 --> 00:14:17,280 technologies. They're suing Google twice for 285 00:14:17,280 --> 00:14:19,240 being a monopoly in two different categories. 286 00:14:19,360 --> 00:14:21,680 The Justice Department sues Apple for monopolizing 287 00:14:21,680 --> 00:14:24,360 smartphone markets. That happened in March of 2021. 288 00:14:24,440 --> 00:14:27,320 The Justice Department already blocked Visa's proposed 289 00:14:27,320 --> 00:14:29,920 acquisition of Plaid. This is going to be a great 290 00:14:29,920 --> 00:14:33,160 acquisition for Visa. This is a a phenomenal digital 291 00:14:33,160 --> 00:14:37,040 property for Visa to buy, but Visa ended up buying a smaller 292 00:14:37,040 --> 00:14:39,880 alternative to Plaid because they couldn't get this deal to 293 00:14:39,880 --> 00:14:42,120 go through. And there's many more examples 294 00:14:42,120 --> 00:14:43,920 than this. There's lots of governments even 295 00:14:43,920 --> 00:14:47,080 outside of the US that are also targeting big tech companies, 296 00:14:47,160 --> 00:14:49,880 namely the EU. So if you have a portfolio full 297 00:14:49,880 --> 00:14:52,880 of companies that are top tier, dominant, world class companies, 298 00:14:53,120 --> 00:14:56,160 they're going to run into regulatory issues over time. 299 00:14:56,440 --> 00:14:59,320 That is the natural consequence of being a dominant winner, 300 00:14:59,560 --> 00:15:02,360 whether justified or not. And I can say the same thing 301 00:15:02,360 --> 00:15:05,280 about the story fund. The companies in this portfolio 302 00:15:05,280 --> 00:15:08,800 are every bit as dominant as in the passive income portfolio so 303 00:15:08,800 --> 00:15:10,920 far. Some of them have avoided a lot 304 00:15:10,920 --> 00:15:12,840 of legal action, but some haven't. 305 00:15:13,120 --> 00:15:16,640 Amazon has been under threat of lawsuit and sued so many times 306 00:15:16,640 --> 00:15:19,120 for being a monopoly and it's never going to end for this 307 00:15:19,120 --> 00:15:21,560 company as long as they're dominant as they are. 308 00:15:21,760 --> 00:15:23,880 But the company will continue winning anyways. 309 00:15:24,240 --> 00:15:27,960 Netflix is one that I think has avoided most lawsuits. 310 00:15:28,560 --> 00:15:31,000 It hasn't been one that's been targeted, but I think with the 311 00:15:31,000 --> 00:15:34,440 continued dominance of Netflix, and when investors, the market, 312 00:15:34,480 --> 00:15:37,560 and government officials from large economies realize that 313 00:15:37,560 --> 00:15:41,240 Netflix is in fact a dominant company that has huge 314 00:15:41,240 --> 00:15:44,520 concentrated market share, they're going to be targeted as 315 00:15:44,520 --> 00:15:46,720 a monopoly as well. I think it's only a matter of 316 00:15:46,720 --> 00:15:48,560 time. I can't perfectly predict the 317 00:15:48,560 --> 00:15:51,080 future with any of these companies, but if we use history 318 00:15:51,080 --> 00:15:54,800 as a guide, in most cases having these companies targeted as a 319 00:15:54,800 --> 00:15:58,240 monopoly ends up with these companies becoming stronger over 320 00:15:58,240 --> 00:16:01,080 time. Visa itself is an example of 321 00:16:01,080 --> 00:16:03,040 this. The first Durban amendment was 322 00:16:03,040 --> 00:16:06,000 passed in 2011. If we look back close to that 323 00:16:06,000 --> 00:16:10,200 time period, Visa was trading for below $50 per share. 324 00:16:10,360 --> 00:16:13,800 The stock price is up 400% while it's paid dividends the entire 325 00:16:13,800 --> 00:16:18,680 time up to 270 dollars, and this was after a groundbreaking 326 00:16:18,680 --> 00:16:21,640 antitrust lawsuit was successfully launched against 327 00:16:21,640 --> 00:16:23,560 Visa. The stock has still crushed the 328 00:16:23,560 --> 00:16:26,440 market over that time period. So I consider events like this 329 00:16:26,440 --> 00:16:29,720 with scary things happening to an otherwise great company as 330 00:16:29,720 --> 00:16:32,920 typically buying opportunities. And I think most Visa investors 331 00:16:32,920 --> 00:16:36,200 will do really well overtime given its current valuation and 332 00:16:36,200 --> 00:16:38,320 price point. I'm not going to be buying into 333 00:16:38,320 --> 00:16:41,320 Visa because I already own a lot of MasterCard, but I'm going to 334 00:16:41,320 --> 00:16:44,160 continue holding my MasterCard. Now moving on, we have some good 335 00:16:44,160 --> 00:16:47,280 news for Nike. Nike fired their old CEO John 336 00:16:47,280 --> 00:16:50,360 Donahue, and they replaced him with someone named Elliott Hill. 337 00:16:50,640 --> 00:16:52,760 Now, Elliott Hill is not a known entity. 338 00:16:52,760 --> 00:16:55,280 He's someone that has worked at Nike for a long period of time. 339 00:16:55,560 --> 00:16:57,080 We'll learn about him in just a minute. 340 00:16:57,360 --> 00:17:00,160 But I want to highlight just again, which I covered this in a 341 00:17:00,160 --> 00:17:02,840 previous episode, but I think it would be good to summarize 342 00:17:02,840 --> 00:17:06,560 really quick the problems that John Donahue caused with Nike. 343 00:17:06,599 --> 00:17:09,640 Basically what he did was he consolidated a lot of Nike's 344 00:17:09,640 --> 00:17:13,319 products off of different retail shelf space and off of different 345 00:17:13,319 --> 00:17:16,920 online outlets like Amazon and Zappos and different third party 346 00:17:16,920 --> 00:17:20,280 sellers of Nike products. He put all of it on the Nike 347 00:17:20,280 --> 00:17:22,839 app. He bet everything on the Nike 348 00:17:22,839 --> 00:17:24,640 app. So you could only get Nike 349 00:17:24,640 --> 00:17:28,160 products on select retailers, only a handful of them and the 350 00:17:28,160 --> 00:17:30,040 Nike app. And of course the consequence of 351 00:17:30,040 --> 00:17:32,920 that was having other top competitors like New Balance and 352 00:17:32,920 --> 00:17:35,360 Adidas quickly fill in that shelf space. 353 00:17:35,680 --> 00:17:37,560 Adidas New Balance found that they had a lot more 354 00:17:37,560 --> 00:17:40,120 distribution, which caused them to gain market share. 355 00:17:40,600 --> 00:17:43,840 Then Nike also decided to make their business more efficient, 356 00:17:43,880 --> 00:17:46,920 higher margins by lowering the amount of investment into new 357 00:17:46,920 --> 00:17:50,640 shoes and new designs. Instead of just creating new 358 00:17:50,640 --> 00:17:53,400 designs for runners, they created a lot of new colors for 359 00:17:53,400 --> 00:17:56,840 existing product lines and this allowed a host of all new 360 00:17:56,840 --> 00:17:59,200 different shoe companies to start spawning. 361 00:17:59,280 --> 00:18:02,720 Ones like Hoka, on brand ones like Brooks. 362 00:18:02,960 --> 00:18:05,120 All these different brands started popping up out of 363 00:18:05,120 --> 00:18:08,200 nowhere and they got popular. People found out about these 364 00:18:08,200 --> 00:18:11,880 shoes, they've fallen in love with these shoes, and now Nike 365 00:18:11,880 --> 00:18:15,640 has a host of competitors that didn't exist just four years 366 00:18:15,640 --> 00:18:17,760 ago. So in many ways, we can directly 367 00:18:17,760 --> 00:18:20,840 attribute the increasing competition to Nike as a 368 00:18:20,840 --> 00:18:23,760 consequence for them concentrating everything on the 369 00:18:23,760 --> 00:18:25,840 app. And that's why it was overall, 370 00:18:25,840 --> 00:18:29,240 looking back in hindsight, not a great decision to put everything 371 00:18:29,240 --> 00:18:31,440 on the app. And here we have Nike. 372 00:18:31,520 --> 00:18:34,720 Now investors realize the mistake they've made, the 373 00:18:34,720 --> 00:18:38,000 executive team has as well, and they need a change of leadership 374 00:18:38,280 --> 00:18:42,920 so they can John Donahue and they get a brand new Nike CEO. 375 00:18:43,360 --> 00:18:45,000 Now. I didn't know anything about 376 00:18:45,000 --> 00:18:48,280 this guy Elliott Hill, and most people didn't as well because 377 00:18:48,280 --> 00:18:51,200 he's not a known name. He's not some hotshot CEO moving 378 00:18:51,200 --> 00:18:53,600 from company to company. He's not someone that came from 379 00:18:53,600 --> 00:18:56,440 a firm like Mackenzie that was plugged into the company. 380 00:18:56,760 --> 00:19:01,040 Elliott Hill started working at the sneaker giant in 1988 as an 381 00:19:01,040 --> 00:19:03,680 intern. Right When I read this first 382 00:19:03,680 --> 00:19:05,760 sentence, I already like him better. 383 00:19:06,120 --> 00:19:09,320 He's already a better CEO in my opinion than the existing or 384 00:19:09,320 --> 00:19:12,760 previous Nike CEO. The fact that he started working 385 00:19:12,760 --> 00:19:19,200 at the company in 1988 as an intern, I was born in 1989, just 386 00:19:19,200 --> 00:19:21,240 to give you an idea of how long ago that was. 387 00:19:21,440 --> 00:19:24,600 He has been working at this company for longer than I've 388 00:19:24,600 --> 00:19:28,120 been alive. So when you talk about CE OS and 389 00:19:28,120 --> 00:19:31,360 their ability to see the company overall, the culture, the 390 00:19:31,360 --> 00:19:34,480 direction they should go, I think it's always a better idea 391 00:19:34,480 --> 00:19:37,680 to have people that have been there a long time period that 392 00:19:37,680 --> 00:19:40,680 really know the company, that they've lived the company, 393 00:19:40,680 --> 00:19:43,840 they've experienced it. It's basically all they know is 394 00:19:43,840 --> 00:19:46,720 that company from what I see, that is most often the best 395 00:19:46,720 --> 00:19:48,280 people to have running the company. 396 00:19:48,560 --> 00:19:50,680 And I see the same thing with Costco. 397 00:19:51,080 --> 00:19:54,280 The Costco CEO, someone that worked as a forklift operator, 398 00:19:54,360 --> 00:19:57,040 he worked as a starting point in the company and rose through the 399 00:19:57,040 --> 00:19:59,600 rings. And this guy, Elliott Hill, did 400 00:19:59,600 --> 00:20:02,240 the same thing. He took on calls from customers. 401 00:20:02,240 --> 00:20:05,480 He moved boxes in warehouses. Over more than three decades, he 402 00:20:05,480 --> 00:20:07,360 climbed to be one of the top executives. 403 00:20:07,520 --> 00:20:10,440 So in 2020, Nike had to decide who to make their CEO. 404 00:20:10,600 --> 00:20:13,080 They had option one, who was Elliott Hill, who had worked 405 00:20:13,080 --> 00:20:15,840 with the company for 35 years, risen through the rings over 406 00:20:15,840 --> 00:20:18,160 time. Then they had option 2, John 407 00:20:18,160 --> 00:20:20,880 Donahow, who was someone that had experience with cloud. 408 00:20:21,080 --> 00:20:24,280 Architecture, but it was more of a consulting type of person 409 00:20:24,280 --> 00:20:27,200 coming from Bain and company, which is similar to a McKenzie 410 00:20:27,200 --> 00:20:29,760 type of personality. They wanted to make the app big 411 00:20:29,760 --> 00:20:31,920 and so they chose someone that had experienced in app 412 00:20:31,920 --> 00:20:33,880 architecture. But of course this was the wrong 413 00:20:33,880 --> 00:20:35,440 decision. They needed someone that had 414 00:20:35,440 --> 00:20:38,520 experience running Nike, not someone that had experience 415 00:20:38,520 --> 00:20:41,760 running cloud architecture. Nike has a lot of engineers that 416 00:20:41,760 --> 00:20:44,000 they can refer to to figure out the technicalities. 417 00:20:44,360 --> 00:20:46,680 Having someone that has the experience of the culture and 418 00:20:46,680 --> 00:20:48,800 the business was far more important. 419 00:20:48,800 --> 00:20:52,000 So once they realized the error in this decision, they fire John 420 00:20:52,000 --> 00:20:53,800 and they brought back Elliot Hill. 421 00:20:54,120 --> 00:20:57,440 So he is now back to try to revive Nike and get it back on 422 00:20:57,440 --> 00:20:59,480 track. Now they know her accurately 423 00:20:59,480 --> 00:21:02,480 that he faces steep challenges. The industry is increasingly 424 00:21:02,480 --> 00:21:04,880 fragmented. Rivals like Hoka and On are 425 00:21:04,880 --> 00:21:08,080 taking market share from Nike score running category and its 426 00:21:08,080 --> 00:21:10,800 lifestyle offering. Another hurdle will be managing 427 00:21:10,800 --> 00:21:14,720 key franchises like Air Jordan's and Dunk, Which Nike were sold 428 00:21:14,720 --> 00:21:16,960 in recent years. Nike is cutting back on new 429 00:21:16,960 --> 00:21:20,400 releases under those models in an effort to engineer scarcity. 430 00:21:20,680 --> 00:21:23,400 Executives warned in June that the move would likely hurt the 431 00:21:23,400 --> 00:21:26,160 company's sales growth. So this is a great thing to have 432 00:21:26,160 --> 00:21:29,280 him as a CEOI think he's going to do a better job and make 433 00:21:29,280 --> 00:21:32,200 decisions that will help Nike in the long term of the company. 434 00:21:32,560 --> 00:21:35,200 But he now does face a far more uphill battle. 435 00:21:35,440 --> 00:21:38,640 These other brands like ON and Hoka already exist. 436 00:21:38,880 --> 00:21:40,600 People have already fallen in love with them. 437 00:21:40,680 --> 00:21:43,320 And it's true that Nike's facing a far more competitive space. 438 00:21:43,480 --> 00:21:45,560 So even though I think this is a great job from the Nike 439 00:21:45,560 --> 00:21:48,840 executive team to bring back Elliott Hill to the company, I 440 00:21:48,840 --> 00:21:51,680 think he'll do a better job. I still think that Nike is going 441 00:21:51,680 --> 00:21:54,560 to face a lot of challenges. For that reason, I'm not buying 442 00:21:54,560 --> 00:21:56,520 the stock right now, but I wish it well. 443 00:21:56,640 --> 00:21:58,400 Now, moving on, we get to this headline here. 444 00:21:58,560 --> 00:21:59,760 Gen. Z and Millennials are 445 00:21:59,760 --> 00:22:02,720 increasingly doom spending. Here's what it is and how to 446 00:22:02,720 --> 00:22:05,120 stop it. When I read headlines like this, 447 00:22:05,120 --> 00:22:07,160 I just wonder where the term comes from. 448 00:22:07,520 --> 00:22:09,880 Who's pioneering terms like doom spending? 449 00:22:09,880 --> 00:22:13,280 I've never heard of this in my life and I have just a hunch, a 450 00:22:13,320 --> 00:22:16,880 hunch that this is from TikTok. I feel like whenever there's a 451 00:22:16,880 --> 00:22:19,680 new term that's it's out there. It's a little crazy. 452 00:22:19,880 --> 00:22:23,320 It comes from TikTok. But apparently some young people 453 00:22:23,320 --> 00:22:26,120 are splashing out on luxuries like travel and designer 454 00:22:26,120 --> 00:22:29,040 clothing instead of saving and a trend that's being characterized 455 00:22:29,040 --> 00:22:31,120 as doom spending on social media. 456 00:22:31,560 --> 00:22:33,800 Social media. I I think it's I think it's 457 00:22:33,800 --> 00:22:36,720 TikTok in this definition. Doom spending is when a person 458 00:22:36,720 --> 00:22:40,000 mindlessly shops to self soothe because they feel pessimistic 459 00:22:40,280 --> 00:22:42,160 about the economy and their future. 460 00:22:42,400 --> 00:22:47,640 According to Ecology Today, so apparently this is when you feel 461 00:22:47,640 --> 00:22:51,440 so pessimistic about the economy and about the future, you're 462 00:22:51,440 --> 00:22:54,240 just, you're just going out and spending money to soothe 463 00:22:54,240 --> 00:22:58,320 yourself, a mechanism for relieving the stress, making so 464 00:22:58,320 --> 00:23:00,520 you feel a little bit happier in the moment. 465 00:23:00,600 --> 00:23:03,640 According to a senior lecturer in finance at King's Business 466 00:23:03,640 --> 00:23:07,400 School, the practice is both, quote, unhealthy and fatalistic. 467 00:23:08,120 --> 00:23:12,440 Now it may be unhealthy, but the ironic thing here is that that 468 00:23:12,440 --> 00:23:15,520 people doom spending and going on vacation and spending their 469 00:23:15,520 --> 00:23:19,040 money is ironically what's causing us not to go in a 470 00:23:19,040 --> 00:23:22,440 recession. So, so people are are mindlessly 471 00:23:22,440 --> 00:23:25,520 spending money, feeling pessimistic about the economy 472 00:23:25,880 --> 00:23:29,600 because they they might fear an upcoming recession, but then 473 00:23:29,600 --> 00:23:32,560 mindlessly spending money is what's causing us to not go in a 474 00:23:32,560 --> 00:23:34,280 recession. They say that this is also 475 00:23:34,280 --> 00:23:36,480 happening because people are chronically online and feel like 476 00:23:36,480 --> 00:23:38,560 they're constantly receiving bad news. 477 00:23:38,560 --> 00:23:40,360 It makes them feel like Armageddon. 478 00:23:40,400 --> 00:23:42,800 To me, after reading this, it seems like doom spending is just 479 00:23:42,800 --> 00:23:44,400 another way for people to complain. 480 00:23:44,560 --> 00:23:46,880 They have a lot of money. They're spending it going on 481 00:23:46,880 --> 00:23:50,120 vacations and shopping and we're still unhappy about it. 482 00:23:50,240 --> 00:23:52,640 But there you have it. Apparently the global economy 483 00:23:52,640 --> 00:23:54,800 right now is being held up by doom spending. 484 00:23:55,240 --> 00:23:57,080 That's all for this episode. See you in the next one.