Morning Brew Daily
Historic Wildfires Engulf LA & The Biggest Problem with Cars is... Software?
Thu, 09 Jan 2025
Episode 493: Neal and Kyle recap the wildfires devastating the Los Angeles area and its neighborhoods and dig into some of the causes and effects from one of the worst wildfires in history. Then, Bill Ackman makes a strong case to privatize Freddie Mac and Fannie Mae. Also, cars becoming too high-tech have a downside: annoying software fixes. Plus, Neal shares his numbers from the week on Chick-fil-A’s lemon squeezing robots, declining red wine drinking, and teddy bears. Lastly, a round up of the biggest headlines of the day. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Checkout public.com/morningbrew for more Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Jimmy Carter 02:00 - LA Wildfires 07:45 - Bill Ackman Bets Big on Fannie Mae 12:10 - Car Software Issues 16:50 - Neal’s Numbers 23:15 - Headlines Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the latest updates on the LA wildfires?
And the under-the-radar stock that Bill Ackman hopes will net him a 1,200% return. It's Thursday, January 9th. Let's ride.
While the country's focus remains on the fires in California, today the U.S. is also observing a national day of mourning and the funeral for Jimmy Carter, the first former president to live to 100. That means things won't totally operate as normal. U.S. flags will be flown at half staff starting today for the next 30 days. Post offices will be closed and most mail won't be delivered.
And Kyle, you don't need to check your brokerage account because the New York Stock Exchange and the NASDAQ are shutting down to honor the former president, a tradition that dates back to Abraham Lincoln's assassination in 1865.
Very interesting. I feel like Jimmy Carter would want us trading stocks on today. So we got to look into that. But RIP to President Carter. And I'm not a presidential scholar, but I will say his dedication to Habitat for Humanity and like building homes all throughout his life in post-presidency is amazing. So thank you, President Carter, for your great service to this country.
We start the show in Los Angeles, where the wildfires that started earlier this week continue to run rampant. The Palisades Fire that is ablaze on the seaside area between Malibu and Santa Monica has grown to more than 17,000 acres with very little to zero containment. It has destroyed at least 1,000 structures, making it the most destructive ever in LA County.
In addition to the Palisades Fire, there's at least three other subsequent wildfires happening Eden, Hearst, and Brown that are all affecting the L.A. metro area. Over 100,000 people have already been evacuated. All schools in the L.A. Unified School District, which is the nation's second largest, are closed today.
Governor Newsom has declared a state of emergency, and as of now, at least five people have been killed. Now, pictures are worth a thousand words, and this story is no exception. Scenes of the devastation played out on X and traditional media outlets, and the images are just devastating.
Neil, I was texting with friends who live down there, who have family that have had to evacuate, people even who thought they would be clear, maybe aren't anymore. Very scary, and I'm hoping we can get this under control ASAP.
Very scary. I mean, apocalyptic, hellscape, out of a horror movie, the big one. That's what they're all, you know, those are the words that have been used to describe these fires. And you mentioned a couple of the fires. Well, a new one even broke out overnight in Hollywood Hills, causing even more evacuations. They're saying Sunset Boulevard, that iconic street, is just lies in ruins.
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Chapter 2: What is Bill Ackman's strategy with Fannie Mae?
Chapter 3: How is software becoming a major issue for cars?
And that's combined with the Santa Ana winds, which have which are 100 mile per hour gusting. So basically, Hurricane Katrina. level winds combined with bone dry conditions have led to the outbreak of fires in these areas. Meanwhile, climate change has its fingerprints all over this, what they're calling hydroclimate whiplash.
Over the past two winters, Los Angeles has actually had a lot of rain before this one, which allowed a lot of this, you know, brush and grasses to grow. But that's basically fuel for the fire. So the fact that you go from Extremely wet conditions in one winter to extremely bone-dried conditions in another combined with the winds have led to this absolute devastation.
Right, and UCLA climate scientist Daniel Swain, who's been all over the news, he called this, quote, an atmospheric blow-dryer. about the point of these wins. It is not a good situation. You have all of these different variables now happening at once, and we're seeing the devastation that's happening.
The business angle, not that you want to go there right away, but the insurance angle of this is really interesting because The latest estimates by J.P. Morgan said 13000 homes are at risk. The losses from the fire to those homes could be upwards of 10 billion dollars. But there's been a lot of changes in the insurance market in California because unfortunately, these wildfires aren't, you know.
They're pretty common in L.A. And a lot of the insurance companies have had to pull back in terms of offering people coverage. And the state and Allstate and other big insurance and State Farm, other big insurance players in the state have kind of gone back and forth of how to navigate this.
Many homeowners actually that live in the area had their insurance kind of clawed back a few years back because it just wasn't affordable for insurance companies to insure these areas. So that's going to be kind of the angle that happens after we get these fires under control is how do we recover from this incident?
Right. So I want to put some numbers to that. State Farm canceled. Let's talk. Let's focus on the 90272 zip code, which is at the central part of Pacific Palisades, which has been essentially burned to the ground. It's that wealthy enclave between Malibu and Santa Monica that has, you know, been suffered from the one of the biggest fires around Los Angeles.
State Farm last year canceled 69 percent of its policies in that particular neighborhood, saying The business model just wasn't there. The wildfires were too frequent. We've seen insurers pull away from these, you know, at-risk areas all over. Meanwhile, so as State Farm pulls out, who do homeowners turn to for insurance?
There's something called the Fair Plan, which is California's insurer of last resort. It's doubled its size over the past— five years. In that particular zip code, coverage grew 85% between 2023 and 2024. So it is a massive test for the fair plan. There's a lot of questions about whether it has the resources and the know-how to handle these claims or has the money to service them.
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Chapter 4: What are the implications of privatizing Fannie Mae and Freddie Mac?
Neil, you were talking about your love of BMW yesterday.
That's their naming convention. I can't afford a car.
Do you have faith in the ability for traditional automakers to get ahead of this curve on software?
We're going to see. We saw the future of the car industry this week at CES in Las Vegas. It's turned into basically a car show at this point. You had Hyundai, Honda. These other automakers, BMW, go before this audience and show off the latest tech in their cars because that's the differentiating factor. We saw some absolutely crazy things. Interior lighting aimed at reducing motion sickness.
Holographic dashboards. displayed on windshield. AI-powered voice assistants with these infotainment systems are coming to your car. These are absolutely coming. I know you think your car is pretty high-tech at this point. It's a long way from just turning a knob to turn down or up the AC. So that comes with a host of opportunities.
It also comes with a host of challenges, like you were talking about, servicing and upgrading these cars. It's completely different than when you need to change a part, than when you need to debug a system or send an over-the-air signal software update like Apple does. Now cars need to have that capability. But the fact is the opportunity is massive.
There are estimates that, you know, in a couple of decades, software upgrades will account for 40 percent of total automotive revenues up from 3 percent currently.
And not just these updates. Accenture said that digital services could generate as much as $3.5 trillion annually for carmakers by the 2040s. So we're going to see this whole ecosystem, I think, of apps and updates and software that people can purchase from their car, which I think I love that we were like, do not distracted, don't drive distracted.
And now we're like, but what if we put a hologram in the passenger seat while you drive? But I think being a car manufacturer went from just a hardware product now to you have to be excellent in hardware and you have to be excellent in software. I think Tesla was a pioneer here in the over-the-air updates, really leaning in on the software and other car companies have a lot of catching up to do.
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