Business Report: Wall Street Volatile After China Devalues Its Currency
Q: So let's talk about this crazy week. The stock market lost nearly 800 points on Monday, but regained most of it throughout the week. What do people need to know about the ongoing trade tension between the U.S. and China?
A: It's not going to get resolved anytime soon. On Monday the Chinese let their currency break that psychological 7 to 1 ratio and that really freaked out Wall Street. On top of that, they announced that they were no longer going to buy any agricultural imports from the United States. The Chinese last year bought well over $5 billion in soybeans alone. So this is a big blow to U.S. farmers, and so that kind of really roiled markets.
The other thing about the potential currency devaluation is it helps soften the blow to Chinese manufacturers because of the tariffs because it makes their price a little bit less expensive it can offset that, and they can keep the volume in China. On the flip side, the United States is kind of in trouble. They're going to continue the trade negotiations in September, but in response to what the Chinese did, they finally labeled the Chinese a currency manipulator.
What's kept Wall Street really concerned is they're concerned that the administration may increase the tariffs from the 10%, they're going to hit on the first of September, to as high as 25%. What does this mean for consumers? It's bad news all the way around. Right now the tariffs are impacting a regular family of four by over $800 in additional costs. And these new tariffs that even at 10% are going to hit families during the holiday shopping window season and it can increase the cost to a family anywhere from $200-$400.
One of the big challenges for U.S. manufacturers who have manufactured products in China is: how do you diversify? And right now what's happening is that in some categories like toys or baby products, like strollers, 90% or more of that production is in China. To diversify into countries like Vietnam or Indonesia is going to take some time. So those families are going to pay a lot higher costs.
Q: Moving on now, Disney saw its stock actually rise this week after announcing a price and launch date for its new streaming service. Why is this being watched so closely in the entertainment industry?
A: Because it's really the beginning of streaming wars. For $12.99 you get a real bundle of interesting services. Now, if you compete with Netflix or Amazon Video, and then there's CBS All Access, and you start adding this up? A lot of consumers were frustrated with their cable bills are paying $50 to$ 100 a month on cable. Right now, if you just take the four primary premium streaming services you're already paying the same amount if not more than you were for cable.
Cable companies could have averted all of this years ago by going to an a la carte system giving you a minimal number of channels, like a Sling TV which gives you 20 channels, and then you can kind of add things on top of it. This is what the streaming services are really trying to do. One of the challenges that we can kind of leave consumers off with is that all these companies that own content are not going to give it to consumers for free.
Unlike the way consumers think about the Internet, a lot of information for free content is not going to be for free. in About 10 years ago the television industry predicted this. They said if television went to no commercials the average consumer household would pay between $400-$500 incrementally for the cost of the production that they would have to bear versus advertisers. So it's gonna be very interesting as everyone scrambles to kind of own their content.
Disney is going to launch in November, which is awesome for them because it is during the holiday season. It's a great gift opportunity and they're gonna use Marvel and Star Wars to really drive that demand.
Q: Lastly, a big trend in business and food this year has been fake meat. We're seeing more of it in restaurants and grocery stores. What's happening with these two companies Beyond Meat and Impossible Foods?
A: This has been a big week for these guys. Beyond Meat went public back in March. They're part of the hottest IPO of the year compared to technology stocks. Their stock went from $25 to well over $150 dollars a share, over a 500% increase. They announced a deal with Subway, having a meatball sandwich and especially formulated meatball for Subway.
Impossible is interesting because they're looking to go public, they're not public yet. They've been in a lot of restaurants. They were in 5,000 restaurants at the beginning of the year. They can't meet demand with their production facilities in Oakland. They contracted with one of the largest meat packers in the world, OSI foods.
One of the biggest things that we learned is that American consumers are ready for alternative meat substitutes. Some of them for environmental reasons because cows produce methane. It contributes to global warming. So some people have ecological issues around it. Other people want a better lifestyle. And what we found in consumer research is that Americans are, right now, substituting one meat occasion for a non-meat protein every single week. So whether it's Beyond Meat or Impossible Burgers, they can fill that void.