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CA Home Insurance in Full Crisis & TikTok’s Last Pitch to Supreme Court
00:30:35
California has an insurance problem & TikTok makes its case to SCOUTS
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- [00:00]
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Neal Freyman
Good Morning Brew Daily Show. I'm Neal Freyman.
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Toby Howell
And I'm Toby Howell.
- [00:32]
Neal Freyman
Today is this the beginning of the end for fire insurance in California.
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Toby Howell
Then TikTok is making its final plea in front of the Supreme Court today to try and stave off its U.S. ban. It's Friday, January 10th. Let's ride.
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Neal Freyman
Toby is so back. We are very glad you are feeling better. And in mostly full voice, this return is conspicuous. Conspicuously well timed for a Friday to tell me what did you even do? You said you didn't leave your apartment for 54 straight hours.
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Toby Howell
Well first of all, you and Kyle held it down as always. So shout out to you guys. But yes, I did what anyone who was just sitting around and wallowing saving their vocal cords would do. And that is I took up the game of bridge, you know the age old card game way harder than I ever imagined. I always thought it was similar to spade, similar to these other trick taking games. But who I went down the rabbit hole and I have a lot to learn.
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Neal Freyman
You know that its reputation that is the most complicated card game on earth. So I don't know what you were thinking. What are you doing to to get into this game?
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Toby Howell
Well, there's this app called Tricky Bridge that I've gone down. I know you've downloaded it as well. So I think what I'm trying to say is that Neil and I are looking for some bridge partners to kind of work on our CR with. But yeah, that was mostly what took up my time and also of course saving the vocal cords. Now a word from our sponsor, public.com an underrated part of public's platform is its AI powered research assistant.
- [02:07]
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You hit the nail on the head, Neal. It's literally called Alpha and can answer questions about any stock.
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Neal Freyman
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Toby Howell
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Neal Freyman
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Toby Howell
To get some Alpha from Alpha, head to public.com/morning brew paid for by Public Investing Full disclosures in Podcast Description Wildfires.
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Neal Freyman
Continue to rage across Los Angeles for a third day yesterday and what the fire department chief called one of the most destructive natural disasters in the history of the city. Neighborhoods obliterated, at least 10 people have died, more than 35,000 acres burned, an area twice the size of Manhattan. The two biggest blazes, the Eaton fire near Altadena and the Palisades fire that devastated Pacific Palisades, have barely been contained as of this morning. More than 360,000 people are under mandatory evacuation orders even with the fire still burning. Attention yesterday turned to the cost of the damage, which is expected to be astronomical and nearly unprecedented given the value of the homes and structures that went up in flames. JP Morgan pegged total economic losses at $50 billion, doubling their estimate from the day earlier, making it the costliest blaze the US has ever seen. That poses what some call an existential risk for the insurance industry in California, which was in a state of crisis even before these fires struck. Companies like Allstate and State Farm had recently pulled out of the state, especially in fire prone areas like the ones devastated this week, leaving more homeowners reliant on a last resort government insurer whose solvency is now in question. Toby, this insurance mess just went from already really bad to worse, right?
- [04:06]
Toby Howell
If you look at the specific areas affected, like Pacific Palisades, State Farm didn't renew policies for over 72,000 homes or apartments in that region. 70% of the insurer homes are are that have been flattened by the fires were on part of those homes that were not renewed by State Farm. So you mentioned that the state plan that has kind of stepped in here in place of these private insurers that is called the Fair Plan. It's a limited fire insurance plan offered by the State of California. Coverage under that Fair Plan for Palisades residents spiked 85% from September of 2023 to September of 2024. So it is putting a ton of pressure on what was supposed to be this last resort plan paid for by the state. They could be on the hook for almost $6 billion in payouts just based off this fire alone right now. So if it doesn't have enough money to if the Fair Plan doesn't have enough money to cover the claims that it faces, guess where it gets the money from? It collects funds from insurance companies operating in California, which puts even more pressure on these already stretched private insurers as well.
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Neal Freyman
So why did State Farm, Allstate, etc. Pull out of California? Well, they just said that the prices that they could offer did not reflect the risk that they were taking on. They were saying we're not a charity. You know, we can't offer below market prices, especially when these things happen and we have to pay out because our business just won't support that. California premiums for fire insurance are actually quite low in that, and that is because they've had regulations on the books for decades that cap premium price hikes to 7%. So they saw this wave of defections from insurers after the 2017, 2018 Camp Fire and other a series of fires that began in Northern California. And then seeing that all of these defections, California decided actually two weeks ago to implement new regulations that allowed these insurers to charge higher premiums. Allstate said it would stop its mass defections, its mass, you know, cancellations because of these new regulations. Now Allstate said it was going to stay in the state, it's going to increase premiums by 34%. So California was trying to implement new laws, new regulations to stem the exodus of insurers, but it seems like this new fire just reversed all of that progress.
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Toby Howell
Yeah, and this fire poses a threat to the entire housing market as well, because the bigger these fires are, it makes risk more unpredictable. The risk makes insurance less affordable or less available because it makes these insurers pull out of the state. Less insurance makes mortgages harder to come by, and fewer mortgages being issued means property values could start to go down as well. And you, you start to see how this whole thing has the possibility to cascade down and affect the broader economy too. Because if property values start to go down, potentially the tax base gets smaller, it shrinks as well to support other critical functions within the county, within the region. So you can see how even though we're talking about specifically fire insurance right now, it could cascade and have much wider effects on the broader economy.
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Neal Freyman
Meanwhile, more people are just living in fire prone areas. They call this the wildland urban areas interface. And we talked about this a lot with the campfire in 2018, where people are just moving into areas that are wooded, that have, are easily known to catch on fire, especially in these, in these times of climate change. Between 1990 and 2010, 25 million people moved into that wildland urban interface. The WUI 12.7 million homes were built. So this is proving to be a big predicament Meanwhile, what's going on with, with the, the weather and with the fires today? National Weather Service said it's going to be another bad day today. Critical red flag fire weather conditions. The Palisades fire 6% contained. The Eaton fire is 0% contained. So I guess when we come back on this pot on Monday, we're hoping for better news in a high stakes.
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Toby Howell
Supreme Court case that your teenage cousin is following quite closely. Tik Tok will fight for its life today in front of the US's highest court, trying to wiggle its way out of a de facto ban that is set to go into effect later this month. Both the US government and TikTok will make their arguments to sway the court, which will be under pressure to issue a decision quickly before the ban's deadline of January 19th. Expect this to be a battle between national security concerns and free speech. The US government is nervous about China's control of the app and the prospect that Beijing could exploit American users data both to conduct espionage or to use its algorithm to manipulate what US users see to spread disinformation that goes against American interests. TikTok's lawyers, on the other hand, will be gearing up to frame the ban in a different light. It is trying to turn this case into a fight over free speech, arguing that its aggregation of cat videos and sports edits is an expressive activity and therefore covered by the First Amendment. So, Neil, those are generally the arguments you might expect to hear today. The government hammering the national security angle while TikTok hangs its survival on free speech.
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Neal Freyman
It's not the first time that free speech has collided with national security at the Supreme Court. It's the first one in 15 years, but definitely not the first in U.S. history. The justices will be looking at three, three precedents here. Two that came during the Cold War and the Vietnam era and one that was More recent in 2010 around the, you know, combating terrorism out in the Middle East. So let's look at just one of those cases. The Pentagon Papers. The Nixon administration tried to stop the press, New York Times, and the Washington Post from releasing the Pentagon Papers, which was this secret history of the Vietnam War. They said this could scuttle peace talks. This would be bad for national security and compromise our intelligence agencies. The Supreme Court came down on the side of free speech there. Most recently in 2010, they came down on the side of the government. So there has been some split decisions here in the past. We'll see what they go with on this Tik Tok issue.
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Toby Howell
Yeah, the Supreme Court case back during the Cold War was actually the first opinion to feature the phrase the marketplace of ideas, which has become a lot more common when discussing free speech in modern times as well. Also, just to look at where the prediction markets are kind of showing when it comes to will this ban happen or not, it does look like they've spiked in recent days and even in recent hours, both Polymarket and Kalshi are indicating an over 50% chance that TikTok does in fact get banned, which makes sense as we are encroaching upon this deadline. The options become fewer and fewer unless the Supreme Court does actually rule in their favor. So you are seeing just a little bit of a boost right now because it is not clear which way the Supreme Court will go in this decision based off of prior precedent.
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Neal Freyman
We've talked about this for so many years and it is finally possibly happening. One of those potential avenues for TikTok to be saved is President Elect Trump because he said he wants more time to work out a deal. So he's filed a legal notice with the Supreme Court saying please delay this ban so I can work on a deal once I come into office on January 20th. So we'll see whether the Supreme Court allows him to do that come January 19th. It's not just like TikTok is going to go away, but Apple and Google will have to stop offering it on their app stores and other tech providers in the US Will have to stop hosting it and it won't be able to send updates to users. So it will die a slow death, essentially. Welcome to Stock of the Week. Dog of the Week, the segment where Toby and I pick one stock that has kept dry January so far and another that was less disciplined. Except this week has not really been one to brag about for markets. So I'm sorry to say that we have selected two dogs for you today. Hey, you got to take what you're given, Toby, you won the pre show bridge contest, so you get to go first.
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Toby Howell
Let's go on my training. With the market close yesterday as part of a national day of mourning for former President Jimmy Carter, it was a chance for bonds to have their time in the sun and I hoped they packed their sunscreen because they are flying high. In the US the 10 year treasury yield hit its highest level since April, while UK 10 year yields reached their highest levels dating all the way back to 2008. Everywhere you look, government borrowing costs are escalating with major economies like Japan, Germany and France all experiencing close to record high yields. Remember, bond yields rise when a bond prices fall. So when there is a sell off, yields ratchet up. And when bond yields go up, it affects other parts of the economy, most notably mortgage rates. Mortgage rates have been rising for months in tandem with yields threatening to further freeze an already stagnant housing market. Neil. As the US continues to piece together strong economic data. But inflation overstays its welcome. It looks like bonds aren't coming back down to earth anytime soon.
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Neal Freyman
No. And we called this a dog of the week because rising bond yields such as this is not a good sign. It's a sign that investors think that there's going to be a lot of inflation coming up and that is, you know, not great for the overall economy. It's, you know, it's going to mean that the Federal Reserve will have to keep rates high. You know, they penciled in two rate cuts this year which was lower than the four that they penciled in even a few months before that. So this is a signal that, that inflation might be here to say, or at least investors are expecting that and that's why they're sending the 10 year yield higher. It's also not great for stocks, we should add, because when these yields get so high, you look at something like 4 or 5% yield that becomes more attractive than the stock market. So traders pile into bonds once this happens and stocks take a downturn. This happened in October 2023. There was a really big market sell off as 10 year bond yields approached approach 5%, which they're doing right now. So we'll see what happens in the stock market. But is overall a little spooky what's going on in the bond market?
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Toby Howell
Yeah, there's definitely jitters about inflation. There's jitters about interest rates remaining higher for longer now, there's jitters about potentially the government borrowing maintaining its unsustainable path going forward. So all these things contribute to pushing up those 10 year treasury yields. President elect Donald Trump, his reasserting and reaffirming his plans for tariffs, that's another thing that is causing the bond market to be a little skittish as well. And again, mortgage rates is probably the biggest thing that might apply to the everyday listener when we're talking about bonds here. And mortgage rates have been climbing even as the Fed has been cutting interest rates. So that is a very annoying thing if you are shopping for a house right now because you expect when the Fed to cut rates, you expect the 10 year yield to kind of follow in tandem. But right now there's a little bit of a delta between that, especially looking ahead with those fewer than expected rate cuts on the on the books for 2025. We have to take a quick break. But don't go anywhere. We have another dog coming your way.
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Neal Freyman
It's 2025 and that means if your B2B marketing strategy doesn't include improving your ad targeting, your ads could get lost in the noise.
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Toby Howell
Thankfully, LinkedIn ads can make sure your message reaches the right audience. It gives you direct access to a billion members, 130 million decision makers and 10 million C level executives.
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Neal Freyman
Plus, with LinkedIn's targeting capabilities, you can precisely reach your target audience by job title, industry, company and more.
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Toby Howell
Yep, and all those capabilities drive big time results. In B2B tech alone, LinkedIn generated two to five times higher return on ad spend than other social media platforms.
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Neal Freyman
Start converting your B2B audience into high quality leads today. They'll even give you a $100 credit on your next campaign. Go to LinkedIn.com MBD to claim your credit. That's LinkedIn.com/MBD. Terms and conditions apply. Pop quiz Toby what do brands like Aloe, Allbirds and Skims have in common?
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Toby Howell
For one thing, they're all top notch brands that sell directly to consumers.
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Neal Freyman
Bingo. But achieving big name success comes down to more than having a cool brand and brilliant marketing. Who's behind the scenes powering each and every one of their sales? Shopify.
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Toby Howell
Of course, nobody does selling better than Shopify. They're home to the number one checkout on the planet.
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Neal Freyman
And we've got to mention their not so secret secret Shop shop pay boost conversions up to 50%. That means fewer abandoned carts and higher rev numbers.
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Toby Howell
Shopify should be every business's one stop.
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Neal Freyman
Shop to growth level up your biz and sign up for your $1 per month trial period at shopify.com/morning brew all lowercase that's shopify.com morning brew all lowercase My dog of the week is Quantum computing stocks, whose breathtaking rally hit the skids and all it took was a few dozen words by Nvidia CEO Jensen Huang. Huang, speaking with Wall street analysts on Tuesday, said quantum computers that could do anything useful were still 15 to 30 years out. And given his prominence at the heart of bleeding edge technology, investors took his words as the law. They dumped quantum stocks like a toxic boyfriend, sending companies like Rigetti Computing, Ionq and Quantum Computing Inc. Down more than 45% on Wednesday. The vicious sell off feels like an Icarus mom because these stocks have been the hottest thing on Wall street since Industry Season 1. Rigetti gained 1500% last year alone. And another quantum computing company, D wave, shot up 854%. The whole sector got a lift in December when Google unveiled a quantum prototype that could perform computations in five minutes that would take today's supercomputers ten septillion years. Huang, as the face of the industry, is saying, not so fast. This is just a science experiment. And he single handedly popped the bubble.
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Toby Howell
I mean, I'm just so glad you're not making me explain quantum computing again, Neil. I think this showed two things. One, Jensen Huang is a king maker. Right now, what he speaks into existence becomes existence. He can literally move markets, influence entire industries with just a few offhand remarks in a keynote address. But also it shows that maybe people got a little ahead of their skis when it came to quantum computing. Following that Willow Chip announcement, Jensen Huang, who is a little closer to the industry than maybe the normal retail investor, is pretty confident it's going to be 20 years before anything really meaningful happens in this space. But also, these stocks have been probably riding a little bit more on hype than solid fundamentals for a while now. I mean, IonQ, one of the companies you mentioned, it had $41 million in annual revenue for 2024, which is again, not bad, like they are making some money. But it was valued at roughly $10 billion. So there was a little bit of a disconnect between valuations and actual fundamentals.
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Neal Freyman
Well, the quantum computing industry did push back on Jensen's comments. D Waves CEO Alan Barrett said Jensen was dead wrong about quantum computing and said that, look, we already have customers like MasterCard and a Japanese company using our quantum computers today. We're commercializing it right now. So he pushed back. I don't know if that was convincing because if you open up his, his financial statements, they made $1.9 million in revenue last quarter. So there is a war going on in the quantum computing space. I know you don't want to explain it again, but just as a refresher, these computers can hold what ones and zeros at the same time and can do and can process information at a much faster rate than the world's existing computer supercomputers right now. So there, some people think that they have the, the potential to unlock like a whole new type of computing that could solve the world's toughest challenges.
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Toby Howell
Let's move on from quantum computing to the world of high tech Japanese toilets who are overflowing in America right now. One manufacturer out of Japan. Toto is tripling its showroom presence in the US to 300 stores to capitalize on the momentum of people choosing price. Your foreign options to go number two. Heated seats, automatic flushes and music players are hallmarks of Japanese manufacturers meant to take your bathroom experience to the next level. An elevated experience means an elevated price tag, though. Toto's Neorest line of smart toilets can reach up to $22,000. But thanks to some serious bidet action, you'll make some of that cash back in the money you save on toilet paper. Neal Toto's US President said that their products first started catching on through word of mouth during the pandemic that have been growing ever since, despite a clogged housing market. And that's probably the only thing that can stop the Japanese toilet takeover. It's a business that is still pretty dependent on how many people are remodeling their houses, Right?
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Neal Freyman
And the housing market is a little stuck right now. This actually dates back to 1980 with a technological innovation up there with Newton's third law. And that's when Toto introduced its first generation of washlet bidet seats. They figured out the golden angle, which will go down in mathematics history. The golden angle for a water spout to shoot up and clean everything there. That golden angle is 43 degrees. Keep that in your mind, it's going to be in your history textbook one day. So once they figured that out, they started growing. And right now, two thirds of their revenue is in Japan, but 10% is in the United States. And as you mentioned, there was a lot of word of mouth during COVID A lot of people were remodeling then. I think there is a. Toilets just have not had any innovation throughout the 20th or 21st century outside of Japan, where more people have smart toilets than they do microwaves. I think more people visiting Japan, they come back home and they say, wow, Japanese toilets are incredible. They are nothing like we have. I want one of those. I want to showpiece in my bathroom. I want to walk in at night and not have to turn the lights on because there is a beautiful lit throne for me. So I do see these catching on, I think as more people remodel their houses, if the housing market gets going again, you know, why would someone opt for a 20th century old toilet when they could have this new. This new snazzy gadget?
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Toby Howell
Well, so would you. How much would you pay for a toilet? Hypothetically, would you go into that two, $3,000 range?
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Neal Freyman
I just rented apartments for the past forever so you know, they've all come with toilets so I've never had to buy my own toilet so I don't even know where I would price that as I guess I would need to go for a test drive and if I like the feel then I would probably pay up for that something you use a lot.
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Toby Howell
I hope you don't have to test drive any toilet anytime soon. As someone recently recovering from norovirus as well, I hope you don't have to take one for a serious test drive.
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Neal Freyman
Okay, let's sprint to the finish with some final non toilet related headlines. All you ski bums listening to this, rejoice. The patrollers at Park City Mountain Resort have ended their nearly two week disruptive strike against Vail Resorts, claiming victory over their employer. They said Vail, which owns Park City Mountain and 32 other ski resorts, gave in to their demands for a $2 an hour wage increase and pay hikes for senior ski patrollers. For Vail, it mercifully closes the chapter on an embarrassing PR episode that resulted in large swaths of the mountain being closed during the peak holiday season and viral videos of people waiting in hours long lines to get on the lift.
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Toby Howell
I mean, I think what this really did too was show how necessary these patrollers are. I mean, you don't really think about patrollers until maybe you need them. But this strike put them into the forefront and there was this outpouring of support for them because they have very hard jobs. I mean, they are usually trained to receive or trained in medical emergency work. They undergo avalanche mitigation training, search and rescue training. They also are constantly required to ski this very difficult terrain. They open new runs. So I think it was as bad of a PR debacle it was for Vail resorts. It was a great priority, you know, not even just pr, but just shows how necessary these safety personnel are and show how necessary these ski patrollers really are. Florida is known for a lot of things. Sunshine, Oranges, the birthplace of Toby Howell. And now you can add hockey to the list. Following the success of its two franchises in recent years, the NHL is playing into the state's emerging hockey culture by planning to host two outdoor games in Florida during the 2026 season. The first game will see the Florida Panthers host the New York Rangers, followed by a game between the Tampa Bay Lightning and the Boston Bruins in the same same stadium where the Buccaneers play. To pull it off, the league said it will use a roof in Miami to shield the ice from the sun till the Panthers game starts. Raymond James Stadium doesn't have a roof, so they'll build a roof structure to do the same before the Lightning game. It's risky, Neal, but it will certainly get people talking.
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Neal Freyman
This feels like the NHL playing God a little bit. I don't quite understand how this is going to work because it could be 70 degrees and a hockey game takes two and a half hours to play. So won't the ice melt in the sun over two and a half hours? I don't quite understand. I've skated on outdoor hockey rinks in my life, and when it gets warm, the. The ice melts and it's really hard to play. So I don't quite understand the technology behind this. But they're looking at the numbers in Florida and they're saying, wow, Florida is hockey country. We want to make a statement. So they're going there. Here's something fun to end the week with. At the beginning of each year, the English nerds at Lake Superior State University release a list of banished words to highlight vocab that has become, quote, overused, misused, or simply unnecessary. In other words, cringe. But I'm not supposed to say that because cringe is on this year's list of banished words. If you want to humor the folks at Lake Superior State, then you'll also refrain from describing standard events as an era. Avoid saying sorry, not sorry, when you're just not sorry. And stop verbalizing the punctuation mark after you've made an emphatic point. Period.
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Toby Howell
Sorry, not sorry. This is a game changer, Neil. But I'm in my cringe era. You. You drop this skibidi king. I refuse to utilize 100% of my brain. But if you know, you know. And that's on. Period.
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Neal Freyman
That made a lot of sense. Toby. I got did there it was. Include all of the banished words in one sentence. I'll just go down the line in case people miss that. In that eloquent bars you just spit if you know, you know. I Y k Y k Is that texting shorthand that people use? Game changer. 100% utilize instead of use skibidi, which I still don't know what it means. And dropped as in 2025. List of Banished words just dropped. Any of those stand out as ones that maybe we should still use and aren't totally cringe?
- [27:24]
Toby Howell
Well, I'm actually on board with this because if we are. If brainrot was the word of the year in 2024, this is how you combat brainrot. A lot of these do originate from TikTok or some Internet viral trend and a lot of them are just things that come out of kids mouths without even thinking about what they're saying. So I'm on board. Like I love a banned list but what is it? The Streisand effect? Whenever you try to intentionally obscure something, it just brings more attention to it. I think we're doing exactly that right now. Bringing more attention to this so called banned word list.
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Neal Freyman
100%. Okay, let's wrap it up there. Thanks for starting your morning with us. Have a great Friday and an even better weekend. For any questions, comments or feedback, send an email to Morning Brew Daily at Morning Broadcom. There's been absolutely no sharing of the podcast over the past two days when you were out. Toby. The people need your spark. Who should our listeners tell Morning Brew Daily about this weekend?
- [28:18]
Toby Howell
I want you to share the podcast with someone you haven't talked to in a while. That's how it felt for me being back in the studio after taking two sick days. And man was it good to chat with Neil again. So I want you to experience that feeling of connection once again too.
- [28:32]
Neal Freyman
Let's roll the credits. Emily Milian is our ex executive producer. Raymond Liu is our producer. Olivia Graham is our associate producer. Eugen Ogu is our technical director. Billy Menino is on audio hair and makeup. If you know, you know. Devin Emery is our Chief Content officer and our show is a production of Morning Brew.
- [28:49]
Toby Howell
Great show today, Neil. I wish you all well.