Some days, macroeconomic conditions or developments with major companies provide the juice for the news cycle. On others, we remember that if you're rich enough or close enough to the centers of power, or both, you can change the conversation yourself.
Tuesday was the second kind of day. Mark Zuckerberg announced that Facebook (NASDAQ: FB) will lead a large consortium to create a new digital currency called Libra, and it actually may be both genuinely useful and properly private.
Sen. Marco Rubio (R-Fla.), meanwhile, unveiled a bill that would subject foreign companies listed on U.S. stock exchanges to the same financial standards and regulations as domestic ones -- a move that is a not-even-thinly disguised jab at China.
And Patrick Drahi, who founded the France-based telecom and mass-media giant Altice, is making a bid to take storied British auction house Sotheby's (NYSE: BID) private.
In this MarketFoolery podcast, host Chris Hill and Motley Fool Director of Small Cap Research Bill Mann dig into the background of all these stories and how they might affect investors. And they close out with an amuse-bouche of two food-and-beverage related anecdotes: Bombay Sapphire gin is being recalled for an intriguing reason, and Germany's latest food business craze is ... sausage vending machines?
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
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This video was recorded on June 18, 2019.
Chris Hill: It's Tuesday, June 18. Welcome to MarketFoolery! I'm Chris Hill. With me in studio, Bill Mann. Thanks for being here!
Bill Mann: You know, Chris, for pretty thin news day, we have a pretty exciting slate of things to talk about. I'm pretty excited!
Hill: Yeah, we do have a bunch of things. Yeah, I'm not going to lie, last night I was looking and thinking, I really hope the news fairy shows up. And in some ways, the news fairy did show up. We do have a well-known company that's being taken private. And we do have the latest in international food and beverage news.
We've got to start, though, with Facebook. Facebook announced it is leading a consortium creating a new digital currency called the Libra -- we'll put aside the name for the moment -- that's set to launch early next year. The Libra currency is not going to be run by Facebook. It's going to be run by a nonprofit association. Let's start here. Are you excited about this news? Do you think this is promising for Facebook the stock? What is your reaction to this news? Mine was one of ever-so-mild revulsion.
Mann: Revulsion! I love that! First of all, there's a guy on Twitter named @lonocapital. That's probably not his real name. But he immediately said, "Why aren't we calling these Zuck Bucks?"
Hill: It's a fair question. You know what? They're going to be called Zuck Bucks.
Mann: They're going to be called Zuck Bucks, and I just want to put it out there that that's the origin story. I think, ultimately, what we may be seeing now is that Facebook is about to do for crypto what AOL did for the internet. This is the first time you're seeing something that's put out there where the use case is the thing. With Bitcoin, Ethereum, all the others, it's the production cases, the store of value, it's the anonymity. But in this case, the Libra consortium is talking primarily about usability and bringing the unbanked onto a platform where they have access to funds at the ready. For me, I'm not revolted at all.
The thing I was really interested in was the fact that this is Facebook, which let's just say has had some excitement around their commitment to privacy. They've already said, "We won't have access to who it is. We won't be able to connect the Libra name with a real name or a Facebook profile."
Hill: I think the guy who's going to be running this, I want to say his name is David Marcus. I could have that wrong. He was on CNBC this morning. He was very quick to draw the line between Facebook and this nonprofit association. I say revulsion. You point out, as you said, the use case. The fact of the matter is, there are tens of millions of people, so many people who are, as you said, unbanked. This is one potential solution for those people.
But to the latter point, the fact that it's Facebook, it really seems like the sort of thing where, if it was any other tech giant --
Mann: That would be Cook Bucks. [laughs] Go ahead.
Hill: -- if Apple was helping to set this up, Amazon, Alphabet, Microsoft, it would not be the same thing. The conversation would be much more about the use case, what is the addressable market here, all of those questions, which are all valid questions that need to be asked about this. But right now, question No. 1 out of the gate, and I think rightfully so, is about privacy.
Mann: Yeah. And it absolutely should be. And I think that Facebook, in some ways, is driving this, because if they weren't doing it, you know full well that Google and Apple and a lot of those other companies that you mentioned are interested in doing something like this. Facebook doesn't seem like they're going to make a whole lot of money off it. I mean, they and the other members, the Libra consortium will make money off of the interest of the float, the money that's kept within the currency.
It seems to me, though, that this is ultimately a long game for Facebook to protect its other ad business, which does, in fact, have privacy concerns. If they weren't going to do it, I think it's pretty clear that one of the other one big ones would, and that would be a threat.
Hill: It is going to be interesting to see how this plays out. As I mentioned, this is something that's not going to launch until 2020. They have plenty of time to get this right, both from a technical standpoint and from a communications standpoint. Marcus was doing his best this morning. And again, I think the questions around privacy are logical. [laughs] Facebook has earned those questions, in a way. But, there is absolutely the opportunity for them to get this right.
Mann: I totally agree. This is potentially a global currency. I think that if the white paper is what actually ends up coming to be, there's a lot more privacy that's being built into the Zuck Bucks than people seemed to have anticipated. Certainly, I would have anticipated that Facebook would have, in a slightly more overt way, had its fingers in the information stream. And it just doesn't seem like they are. Now, maybe we're being a little Pollyanna-ish about this, haven't thought about the other ways in which they might backdoor get that information. But from what I have seen so far, they've done a pretty good job. I'm not revolted like you. I'm intrigued, because I think one of the big questions about cryptocurrencies in the blockchain is, what are the actual use cases that are useful to the average person? Those have not been as apparent yet, for all of the excitement about cryptocurrencies.
Hill: Well, for what it's worth, you and I actually didn't talk about this at all before we came in the studio, and as a result of this conversation, I'm now more intrigued than I am put off by this.
Mann: Very good! That's my job! [laughs]
Hill: I like to point out everyone once in a while that Fool global headquarters is in Alexandria, Virginia. We are right across the Potomac River from Washington, D.C. and therefore, Capitol Hill. I would say 99 days out of 100, we ignore what's happening on Capitol Hill. We're about investors and investing in business. Every once in a while, something happens on Capitol Hill that gets our attention because it is squarely in the wheelhouse of investors. I think this qualifies. This is a bill that's been introduced by Sen. Marco Rubio of Florida requiring that all companies listed on American stock exchanges are subject to the same standards and regulations. While on the surface, you may look at that and think --
Mann: "Duh!" [laughs]
Hill: "Aren't they already?" Certainly, U.S.-based companies are. But there are plenty of companies whose stocks are listed on the exchanges, but they are based outside the United States that do not have the same requirements when it comes to financial disclosure. This seems a little bit like a no-brainer. Which in no way means it's going to become law.
Mann: Yeah. We can talk about what's at stake here. And really, as in a lot of things of this nature, they have a target in mind. The target in this case are the 220-some-odd Chinese companies that are listed in the U.S. China requires that business books be kept and records be kept in China, and the access to those books to anybody from outside of China is restricted. That means that U.S. accounting firms have very, very little real access to do full audits of Chinese companies. That's $1.8 trillion in market cap between all the companies that are listed in the U.S. So this matters a huge amount for American investors because frankly, we saw a little more than a decade ago a huge number of Chinese companies who came public here, many of which turned out to be frauds. Shame on us if we don't assume that that possibility exists with the large number of Chinese companies that are listed here again.
Hill: I'm reminded of the great documentary which I believe is still on Netflix called the China Hustle. It really goes to some of those fraudulent companies that you mentioned. Yeah. As you said, when Senator Rubio and his staff were writing up this bill, they weren't taking aim at Spotify.
Mann: No! [laughs]
Hill: They were squarely looking at the companies in China.
Mann: These types of things aren't cost-free for the U.S. or for American companies. For example, Alibaba just announced that it was going to do a secondary listing. You would think that the U.S. would be a logical place for it. It's going to be a $20 billion listing. They're doing it in Hong Kong. It's often forgotten that, though they seem like utilities, the exchanges are companies. And many of them, including Nasdaq, are publicly traded companies. They attract investors by being trustworthy. You trust the U.S. exchanges because they're here, they've got regulatory oversight, you think that they are doing some sort of standard checking for the companies that they list. But, they actually attract listing companies by making things easier for them to list. So, there's this incredible tension. So, the fact that the U.S. government feels like it should come in and say, "We're not able to see the books. We think this is a potential risk for American investors," this is really something. We stand on principle and say, "Yes, this should be done," but it's not free.
Hill: I'm going to ask you to be a political prognosticator. I apologize for this. Do you see this having real prospects in terms of becoming law?
Mann: I do, yeah, absolutely! It is perhaps an open secret that very powerful members of both parties are pretty quietly supportive of President Trump and the tariffs and all the pressure that he's putting on China. This is another one. President Trump has come out and said, "We should cut off Chinese companies from the U.S. capital markets." And I don't think that this is part and parcel of that. The PCAOB, which is the main accounting authority in the U.S., along with the SEC, has long warned about this. They put out a big white paper a year ago. But it sure is a convenient place to add a little bit of additional pressure. So I think this actually has a pretty good chance of passing.
Hill: Sotheby's run as a public company after 31 years is coming to an end. The auction house is being bought by one person. [laughs]
Mann: By a guy.
Hill: By one guy. It's not being bought by a private equity firm or by a larger auction house, it's being bought by a man named Patrick Drahi, who made his billions of dollars in telecommunications. He is clearly a fan of art or auctions or both because he is buying Sotheby's for $2.7 billion. That is a hell of a premium.
Mann: Fifty-six percent above the closing price on Friday.
Hill: That is a massive premium. He must really want this thing.
Mann: I tell you what. If Sotheby's had actually sold itself through auction, in this process -- I don't know why they didn't. This would have been their all-time biggest win. They had someone who wants the company, and offered an enormous premium. I would say there is almost a certitude that Sotheby's is going to go private because investors will absolutely accept this.
Hill: By the way, we have to say goodbye to one of the great ticker symbols as a result of this, which is BID. Fantastic ticker symbol. This was a company that was on The Motley Fool's collective radar for a number of years. Is it just too niche a business?
Mann: I don't think that's it. Actually, I was the first one to recommend Sotheby's -- this was in Hidden Gems back in 2005 -- to members. Honestly, one of the reasons that I recommended it is, I looked at its position, having basically a duopoly between it and Christie's in the art world, and understanding that it was a fairly lumpy business, but any business where you are getting paid to sell other people's stuff ought to be a good business.
But, I'm actually happy to see Sotheby's taken out. It's been kind of a disappointment from an investing perspective. They have not been very good about controlling their own costs, which is something that they probably don't have to answer to as a private company. It's just not as great of a business as it seems like it ought to be.
Hill: Authorities in Canada have issued a recall of Bombay Sapphire gin. Is the gin tainted, you may ask? Is it poisoned? No.
Mann: Even better! [laughs]
Hill: It has not been properly diluted. Normally, Bombay Sapphire gin is 80 proof. For those who are not imbibers of the liquor, that simply means 40% alcohol. Normally, 80 proof. This is being recalled because it's 154 proof.
Mann: Which is more. If anything, they ought to be congratulated.
Hill: It's 77% alcohol.
Mann: Yeah. Bombay Sapphire, owned by the Bacardi company. Apparently, during one of their runs, they were making a switch-over and failed to dilute some gin. And it made its way into the Canadian market. Eventually the authorities figured it out. I don't know, maybe people were just lying in the streets after a single gin and tonic, like drinking a hammer, I guess -- [laughs] 154 proof gin! [laughs]
Hill: I'm not accusing the authorities in Canada of anything untoward, but --
Mann: It's the anti-fun patrol!
Hill: I would bet a decent amount of money that one of the following two things occurred in the run-up to this story breaking. One is that not all of the bottles got recalled. A couple got stowed away for testing purposes. The other is that some enterprising member of the regulatory authority in Canada said, "But shouldn't we also consider using this as a tourism opportunity?" Look, you saw plenty of marijuana tourism taking place --
Mann: [laughs] Sure! What goes better with marijuana than really, really strong gin? It's a great story. The thing I love about this is that it's actually the second time this has happened. With Georgian Bay, the same thing happened earlier this year. It was like 1,000 cases that went out at double the proof. Something is going on among Canadian producers of gin who are selling into Canada, and I am saying, maybe you should try that here. [laughs]
Hill: Forget Uber Eats, Grubhub, or any other kind of delivery service. The latest food business craze in Germany is sausage vending machines.
Mann: My favorite!
Hill: The Independent is reporting these machines are booming outside German cities where shops are less likely to stay open for long hours. They typically stock three to four types of sausages, along with potato salad, so you can have your typical German feast right there. We were talking before we started taping, obviously, the humor of this headline catches our attention. But then you actually read the story, and there's a pretty good business case for these machines. [laughs]
Mann: When I first saw this -- I don't know the German word for "hipster," but I assumed it was it was [in a German accent] die hipsters were putting these up in Berlin and in the big cities, because it just seems like a move that... but, this is actually happening in small towns where grocery stores are either unavailable or just aren't open that much. It's a way to extend the flexibility and extend the choices for people who live in these small towns. If you spend any time in Germany, you know that much of the country is dotted with these tiny towns. This is just an added convenience. Along with the overpowering gin, I really, really am excited for this to be tried in the United States of America.
Hill: [laughs] Yeah, how is this not already a thing in Wisconsin, by the way? Get on this, Wisconsin!
Mann: The Autobrat! Come on!
Hill: Also, shout out to Germany. For the longest time -- and deservedly so -- Japan got all the props for, shall we say, interesting vending machines, where you can get sake in a vending machine, you can get underwear in a vending machine.
Mann: Sometimes in the same machine!
Hill: Sometimes in the same machine. But, good for Germany for getting on Japan's corner a little bit.
Mann: It's definitely the kind of innovation that we here at The Motley Fool can completely get behind.
Hill: Bill Mann, thanks for being here!
Mann: Thanks, Chris!
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Bill Mann has no position in any of the stocks mentioned. Chris Hill owns shares of Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Microsoft, Netflix, and Twitter. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Grubhub, Nasdaq, and Uber Technologies. The Motley Fool has a disclosure policy.