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When 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.
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One forgets mom 60th and never miss a meme or milestone.
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All protected with end to end encryption. It's time for WhatsApp message privately with everyone. Learn more@WhatsApp.com.
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Younger shoppers want to buy luxury goods secondhand. So which companies stand to gain over $1 trillion? That's margin loans at record highs. We bust through the jargon for a listener's question. What are these and why do they matter? And Cooper Companies why? This medical devices player has caught our eye for Monday, October 20th. It's Brew Markets Daily and I'm Ann Ber. More market details to come. But first, all eyes on eye care today with news. Activist investor Jana Partners has built a stake in Cooper companies, the nearly 15 billion dollar market cap company that in one division makes contact lenses and vision care products and in the other makes women's health and fertility products. Well, if that sounds like an unlikely combination of items for one medical device manufacturer to be making, Jana Partners would agree. The Wall Street Journal today reported that the activist believes the two businesses are just too different for there to be any synergies. Now, the women's health division has been on an acquisition spree over the past five years, the biggest being its $1.2 billion purchase of Generate Life Sciences, which provides services such as donor eggs and sperm for fertility treatments and newborn stem cell storage. A far cry for from contact lenses and vision care is 2/3 of Cooper's total revenue. Now, without a clear strategy for profit growth, Cooper's share price has dropped 30% over the past year. So where next? Well, the reason this caught our eye, yes, pun intended, is this is a classic case of where activists really can shake up an industry. Jana Partners is rumored to be angling for Baoshan lom, the over 5 billion dollar market cap global supplier of eye care, to buy Cooper's vision care division. And Bausch and Lom CEO Brent Saunders is reportedly open to doing a deal. Now this is just one person's view, but this is a combination that if a deal gets done, would make sense to me as the pura Play I company, Bausch and Lum trades at over 20 times EBITDA, which is a measure of profit. Coopers trades at about 15 times EBITDA, which means there's room for arbitrage, I.e. bausch is motivated to find a sensible deal with lots of synergies and at a price Cooper would still find attractive. Now, I nerded out and I dug into Bausch's financials and as of the latest available data, that's for the end of June, Bausch and lom had only $266 million of cash and a ton of debt, $5 billion on its balance sheet, which means it would likely need to take on even more loans to pay for a deal. Now the pressure is already on for Bausch and Lom's own business to perform well to service its existing debt. And when I looked at the analyst research on Bausch and Lom, most rate the stock hold as the company works through the pressures of tariffs and competition. Well now, thanks to Jana's activity, Bausch & Lom's upcoming earnings that's on October 29, and its investor day on November 13 will be hotly anticipated, closely watched by the market for signs that it's fit to do an acquisition. Its shares were up over 5% today and Cooper's shares hit over 4% of an increase. We're going to have to wait until December for its next set of results. We'll keep watching. Coming up, we dig into the luxury markets and why Gen Z prefers to buy their handbags secondhand. But first, a word from our sponsor, Capital Group. John, why don't you tell us about their new podcast, the Power of Advice.
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That's right. The show tells the stories of success and what informed the journey, often a single piece of advice. Because some of the best lessons don't come from a classroom, they come from experience.
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The Power of Advice is a new limited series from Capital Ideas and Capital Group. You'll hear candid conversations with leaders and innovators who've built brands, reimagined careers, and learned a lot along the way.
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I always want to discover just who gave them advice that changed everything. So tune in and hear what they've learned and what they're passing on. Check out the Power of Advice, published by Capital Client Group Inc. Well, the.
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Market for luxury goods has been going through a significant shift over the past few years, with the usual suspects of a shakier job market and softer economic outlook cited as reasons that younger shoppers are turning to the secondhand resale market for their luxury purchases. Now, this has led to major gains recently by some online resale markets and a shake up in the traditional European fashion houses. So, John, give us the numbers behind those changes and then tell us where you buy your luxury?
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Well, I don't know anything about fashion houses. I shop at fashion stores. But yes, the Wall Street Journal reported that the global secondhand luxury market was valued at $56 billion last year. And for some context, that's triple what it was worth three years ago or a decade ago. And it's equivalent to what was sold in the department stores of first sale luxury items. So the secondhand market has gone neck and neck with the resale market as of last year. And it's part of this. Millennials, it's generational, okay? Millennials are spending 2% less on new luxury last year, and before that, gen X spent 7% less. So things are shifting. There was a time when the resale markets were thought about this way. Yeah, someone looked in their closet, had a few items they weren't wearing anymore, they'd sell it and then use that money to buy a new handbag. But now they're finding that tastes have shifted and instead of buying a new handbag, they're selling items and then buying a second handbag.
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Well, it's interesting that you say that because it's become, I think, fashionable, right, to go into sort of recycling and going for secondhand. And one of the trends that we've talked about on the show before is how the younger generation has adopted renting clothing, not necessarily at the luxury end where it's maybe been less available. But we've talked on this show about Rent the Runway. We've talked about how it sort of created the rental market, but has actually been usurped by Urban Outfitters. So this idea that the younger generation are willing to get their sort of higher end or premium goods in a very different way than generations before them have, this is sort of an extension, I think, of a very similar theme. Well, let's talk about some of the winners in this trend. So along with the explosion in the size of the market that John just described, there are over 50 platforms that cater to millions of customers of secondhand apparel and fashion. Now, some of the popular private ones are Vinted Poshmark and Fashionphile. But there are actually some public companies that are in this space too that have been reporting huge gains. And I find this fascinating because if you look back about 18 to 24 months ago, these companies look like they were going to die.
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Yeah.
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Right. So we've got thredup, that's ticker TDUP market cap $1.2 ish billion. So it's not massive, but it's out there. Share prices up over 500% year to date. Then you've got the RealReal, which is the world's biggest online luxury reseller market cap, $1.4ish billion. Average sales growth of 10% over the last 18 months. Shares are up 16% just today, 285% over the past year. And I remember tracking this, John, actually in April. And I wondered whether tariffs would be one of the reasons that shoppers would actually start looking at the secondhand market rather than actually paying, you know, that tariff on top of prices for new products.
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Yeah, once you add that markup in on the top, it's not worth it. And so what are they doing in the European fashion houses? Like how are they keeping up? Well, one positive for them is that they're using these resale markets to see which items are popular. So if, for example, Louis Vuitton is relaunching an old handbag that it saw strong demand for in the secondary market, but otherwise they're having to rethink what they're putting out there. French conglomerate lvmh, you know, Louis Vuitton Muy Hennessey is the world's largest valuable luxury company and they recently hired a new chief creative officer for their Fendi brand. And then here's another interesting stat that there was a lot of widespread turnover last year in fashion houses. More than a dozen labels hired new designers.
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So what's old is new again, even if it's with new designers. And I just love the idea that these luxury houses are looking to see what's happening, let's call it the vintage market, to try to inform what to do with new releases. It's like if you can't beat them, right, join them. And if these resellers are going to cannibalize our new sales, let's just bring out the fresh, the fresh version of it. Which makes a ton of sense, which.
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I think is funny too because they're saying, oh well, if this vintage thing is doing well, let's make a non vintage version of it.
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Well, yeah, you can sort of see that the retro, the sort of bringing it back. You know, you and I talked on the show before about how the 90s were back, right. Not just the music, but also we saw, you know, the return of skinny jeans. That's just one example in the sort of fashion, the apparel space. So this kind of makes sense that as folks are looking to bring back the old, but to do it in a new, new fashion. The other part of this too, which all of these luxury houses have been struggling with the Chinese market was supposed to be the engine of growth for all of these and it just hasn't quite worked out that way over the last two years. So they're all again, really trying to think about ways to become relevant again in the Western markets like the United States and also in their own backyards in Europe. Just to talk a little bit more around what this has actually meant. So we talked about how thread up in the real real have seen astronomy astronomical increases in their share price, just as one example, you know, we talked about which could be emblematic of pure luxury. And we landed on Hermes stock is only up 6% over the last 12 months, actually down nearly 5% year to date. So again, an example of luxury lagging those consignment players. We're going to watch this one for a couple of reasons. First of all, we're all looking for pieces of the jigsaw puzzle to help us understand consumer sentiment. Luxury versus resale versus rental versus you know, trading down. That's one big area. And the second, of course is if tariffs change, if supply chains change again, are we going to see a reversion to appetite for firsthand luxury goods again? So we'll keep watching this one. It's always fun to look at luxury. And also we're going to come back to luxury tomorrow when we talk about a big new deal that got just announced today. So come back tomorrow and we'll break that one down down for you. Well, let's take a moment and when we come back, we jargon bust margin debt with a question from the audience. Brew Markets Daily is sponsored by Public, the platform for those who take investing seriously. John, who do you go to if you have questions about your investments?
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Well, I have in the past called my mother.
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Well, instead of calling your mother, you can just ask Alpha. It's Public's AI powered research assistant that can help you find the answers you're looking for. In fact, AI is woven into the entire experience of Public, from portfolio insights to earnings call recaps. Public gives you smarter context at every touch point.
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Public also combines a wide range of asset classes from the tools you need to build and manage your wealth. Whether it's with stocks, options, bonds or crypto.
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Earn an uncapped 1% match when you transfer your old investment portfolio over to Public. Get started at public.com brewmarkets that's public.com brewmarkets full disclosures on public.com BrewMarkets this episode is brought to you by State Farm. Listening to this podcast Smart move being financially savv Smart move. Another smart move, having State Farm help you create a competitive price when you choose to bundle home and auto bundling. Just another way to save with a personal price plan like a good neighbor, State Farm is there. Prices are based on rating plans that vary by state. Coverage options are selected by the customer. Availability, amount of discounts and savings and eligibility vary by state. John, we have a question from the audience today.
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That's right, Chelsea in Orlando wrote, Ann, I keep hearing that levels of margin debt are at record highs. What does that mean and why does it matter?
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Yes. So I'm very glad to have a chance to talk about this because by record highs, this means margin debt now at over $1 trillion. So, Chelsea, thank you for the timely question. Now, first of all, to give a sense of what's going on, we'll have to go through some definitions. But stay with me. It is worth it to get through this breakdown to the other end. Now, when you buy stocks in a regular brokerage account, you use your own cash for those purposes. But with a margin account, you can borrow money from your broker to buy more stock. That borrowed money is called a margin loan. And here's how it works. Let's say you have $10,000 in cash and want to buy $20,000 worth of stock. So your lender, sorry, your broker, lends you the other $10,000. You can now control twice as many shares as you otherwise could, but you also owe interest on the borrowed half. Now, that interest rate depends on how much you borrow and who you borrow from. Big investors borrowing large sums may pay just a few points above the Fed rate. Smaller retail accounts tend to pay more, sometimes 9 to 12% annually in interest at major brokers. So to our example, now you've got $20,000 worth of a stock bought with $10,000 of your own cash. This, by the way, is the margin. And $10,000 with a margin loan, if the stock rises 10%, your $20,000 position becomes 22,000 bucks. And after repaying the loan, you've made a 20% return on your original cash. That's the upside. But the downside comes just as fast in the opposite direction. If the stock falls 10%, your position now drops to $18,000. And so after repaying that loan, your loss is 20%. Now, if losses deepen further, your broker may issue what's called a margin call, which is a demand that you deposit more cash or sell shares to bring your account back in line. And if you can't, your broker can liquidate your holdings sometimes at a steep loss. Now one more thing. When a stock falls, the interest on the margin loan compounds daily and that loan doesn't disappear when your investments fall. If your stocks drop while you're paying a high rate, the losses plus the loan costs can stack up. Now, regulators like FINRA and the SEC require a minimum margin. Again, that's the amount of your own cash and usually about 50% to open a position, around 25% equity to maintain it. But brokers can impose stricter rules. By the way, when tariffs were announced on Liberation Day, do you remember this? And we were watching stocks drop in price, we kept hearing about investors worried they needed to quote post more margin, particularly hedge funds. Now, as stock prices fell and losses were incurred, investors needed to deposit more cash with their brokers to maintain the right ratios, often by, yes, selling shares to get that cash fueling that stock sell off. Now taking a look at levels of margin loans in the US Market wide. This is according to data from finra. The amounts outstanding hit over a trillion dollars in June. It was then a new record. Today it stands at about $1.1 trillion. Now that's been good news for the profits of brokers like Charles Schwab and Interactive Brokers and Robinhood, who make not only fees coming from trading volume, but which, by the way, margin loans drive more of but interest income from those loans because they are the issuers. Now one question that has come up is are margin debt levels too high? Interestingly, in absolute dollar terms, these are very high. Like I said, new records. But when you scale this dollar amount, that trillion dollar plus to the size of the overall stock market, they're not by historic standards, margin debt as a proportion of the market cap of The S&P 500 was around 1.9% in the second quarter this year, less than the historical average of 2.3%. But it is starting to nudge on up and it's a metric that we'll keep on watching.
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And if you have a question for Ann, send an email or Voice memo to BrewMarketShoworning Bukom.
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Well, it's 4:00pm on the east Coast. The market's now wrapping up. There's the bell. And we don't have a ticker tape, but we're going to throw it over to our human ticker producer. John that's right.
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All the indices were up today. The S&P 500 finished up 1%. The Dow was up one and a tenth percent and the Nasdaq was up one and a third percent today, some market headlines. Shares in Apple hit an all time intraday high over $263 a share. Sales of the new iPhone 17 are outperforming its predecessor by 14% in China and in the US with the base model being particularly popular. Shares in Apple were up over 4% today and we've been covering the changes in consumer taste for alcohol, including the slowing consumption of beer. In the United States. Today, Molson Coors Ticker Tap and announced it will eliminate around 400 salaried positions across its Americas business. That represents about 9% of that unit's workforce. The maker of Miller Lite and Blue Moon is looking to focus on new product categories expanding into, yes, mixers, non alcoholic beverages and energy drinks. Shares in Molson were down nearly a percent after the announcement and are down 18% year to date. Finally, shares in Weight Watchers were up over 10% today after the company announced a partnership with Amazon to deliver medications, including injectable GLP1s. The expectation is that Amazon will be able to deliver the refrigerated drugs efficiently. And as a reminder, Weight Watchers emerged from bankruptcy in July with a plan to compete for online weight loss customers.
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Really curious to see this Weight Watchers turnaround. Let's see if it can really spring back to life. One other one just to throw out there, Coca Cola is announcing its earnings this week, so we'll be keeping a closer eye on those beverage trends as people shift again away from alcoholic and towards things like energy drinks. They're looking out for commentary there. Now one final thought. There are a couple of folks I follow on X, the social media platform formerly known as Twitter, and there are two in particular who I think have been able to speak both to institutional investors and to retail investors. The first of these two is Torsten Slok. Now he's the chief economist at Apollo Global, which is a massive private equity firm. And he publishes a chart every single day that's usually got an interesting message. Now he recently posted one which shows, quote, something remarkable is going on in the equity market. Stock prices of companies with negative earnings have in recent months outperformed those of companies with positive earnings. So you look at a chart like that and you think what is possibly going on? Which prompted me to look at someone else I follow on X. Mohammed El Arian, who used to run Pimco, which is a massive money manager, he's now gone into the world of academia. He reposted it and said this can be seen as part of a broader phenomenon in which investors are just looking so hard to find returns because share prices are so high that they're having to look just anywhere at this point to find somewhere to park their, their cash. And that's why this money has been going into stocks with these negative earnings, more so at this point than the already, you know, highly priced positive earnings ones. So lots of interesting nuggets are starting to emerge in trying to find areas for value to invest behind. And it's getting really difficult in this market and lots of voices now saying it. We're definitely going to keep watching the debate. Bubble. No bubble. Will the market crack? It's going to keep going for a while. We'll be here going through it all with you. That's it for today's Blue Markets Daily.
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Blue Markets Daily is hosted by Ambery and produced by John Crateau, Tarka Delatief and Emily. Our technical director is Uchena Waugh. Audio assistance by Brittany De Taco the president of Morning Brew, Inc. Is Devin Emery.
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Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.
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And Doug, here we have the Limu Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating.
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It's accompanied by his natural ally, Doug. Limu is that guy with the binoculars watching us.
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Cut the camera.
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They see us.
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Only pay for what you need@libertymutual.com Liberty Liberty, Liberty. Liberty Savings. Very underwritten by Liberty Mutual Insurance Company Affiliates.
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Excludes Massachusetts.