Morning Brew Daily - Americans LOVE to Spend & Why Broker's Fees Are Going On Trial

Episode Date: October 18, 2023

Episode 172: Neal and Toby explain the significance of President Biden visiting Israel today and what the implications are of the House attempting to elect a speaker. Plus retail rates are up as Americans love to spend and why real estate brokers may be heading to trial for broker's fees. The guys also take a look at Marc Andreessen's "Techno Optimist Manifesto" and what is United's new boarding protocol? And finally, why one Citi banker was fired for expensing two sandwiches. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

Consider this comparison. PWC data found the percentage of CEOs who report revenue gains or cost reductions from AI is almost equal to the percentage who say they're still stuck. What separates these two groups? PWC points to a clarity issue. Even for CEOs, it's hard to tell what's AI hype, what's reality, and where this tuck can make a tangible difference. Learn where AI can actually make an impact and what successful adoption looks like at

pwc.com slash US slash brew AI. That's pwc.com slash us slash brewAI. Good morning, brew daily show. I'm Neil Fryman. And I'm Toby Howl. On today's pod, the 6% commission you have to pay residential real estate brokers is under anti-trust scrutiny, and it could threaten to upend the powerful industry. Then, Neil, say it with me, never bet against the American consumer,

because retail sales from last month just dropped, and they were way stronger than expected. It's Wednesday, October 18th. Let's ride. Neil, the Phillies won last night, which is a good thing for you and a lot of Philadelphia natives, but it could end up being a bad thing for the American economy. Over the past 100 years, the surest sign of an oncoming financial crisis has been a Philadelphia baseball team winning the World Series. So in 1929, the athletics won, Great Depression hit.

1980, Phillies won, recession hit. 2008, great recession hit. that 2020, the Phillies are currently two games away from the World Series. Recession? Question mark? Question mark? Neil, I know you're a Philly fan, but for the greater good of the economy, I'm pulling for their opponents. No, no, no, no. A Philadelphia parade will in itself stave off a recession. So I'm 100% behind this team.

They're having so much fun. The crowd is going wild. Philadelphia is just loving this right now. And I know that even if a recession comes, it will be short-lived because Philadelphia is just going to spend so much on merch and other things celebrating that we'll jump right back. It's going to be a V-shaped recovery. You heard it here first. Before we jump into the show, today's episode is brought to you by Yahoo Finance. Neil, so many finance platforms out there are confusing and give you information overload,

but Yahoo Finance strikes a great balance of giving real-time market data without going overboard. There is a reason 150 million people visit that site every month. But honestly, the mobile app is a game-changed. as well. Oh, you're a mobile guy. Totally. It's convenient. I got to tailor my push notifications however I like. Plus it runs really well on my pixel. Oh my gosh. You just had to slide that in there. I mean, enjoy your green text, I guess. You know, I will. Head to finance.com to learn more or download the Yahoo Finance Mobile at my favorite to get it directly on your phone. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on

propane grills starting at $179, like the next grill three burner gas grill, or get $50 off to select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th, Exclusion supplies to homedipo.com slash price match for details. We'll get to the business news in a bit, but first, these are tense times in the world, and we want to update you on what's going on. in the Middle East. President Biden landed in Tel Aviv this morning for an unusual and

dramatic wartime visit to Israel. His goals were to reiterate support for Israel, discuss how to free the nearly 200 hostages that were kidnapped by Hamas, including Americans, solidify a plan to get humanitarian aid to desperate civilians in Gaza and prevent the Israel-Hamas war from spiraling into a wider conflict. If that weren't high stakes enough, the region was thrown into further chaos after a blast at a hospital in Gaza killed hundreds of people. according to the Hamas-run health ministry. The question quickly turned to what caused the blast. Palestinian health officials claimed an Israeli air strike was responsible,

but Israel's military categorically denied they were behind it and published several pieces of evidence that attempted to show it was a failed rocket launch from the Palestinian Islamic Jihad group. Investigations by multiple governments and media outlets are ongoing to figure out what exactly happened here. But this morning, Biden said based on what he's seen, it was done by, quote, the other team. In terms of Biden's visit, the fallout of the blast immediately squandered his push to avoid

escalation. Anti-Israel and anti-U.S. protests erupted across the Arab world, and Biden's planned trip to Jordan to meet with Arab leaders was canceled. So the scope of this trip was significantly narrowed. Yeah, I just want to emphasize the historic nature of Biden's visit. With his trip to Israel, he became just the second president to travel internationally to an active war zone that wasn't controlled by the U.S. military, the other president, also Joe Biden when he went to Ukraine last February. Despite the risk, Biden hates Zoom calls and feels like he can make more of a diplomatic

impact by speaking face-to-face with Israeli Prime Minister Netanyahu. The visit also comes, as Biden reportedly plans to ask Congress for a mammoth $100 billion funding package that includes support to Ukraine, Israel, and Taiwan to beef up its security interests around the world. And speaking of Congress, the House remained without a leader for. for another day after Jim Jordan failed to get enough votes to win the speakership yesterday. Another vote is planned for today. Lots going on. We'll make sure to keep tabs on it for you.

But Neil, let's move on, and I have a question for you. What do the 2016 Cavaliers, our audio quality, and the American consumer all have in common? They are resilient. They may get beaten down, but boy, do they keep fighting. I want to talk specifically about American consumers, though. The retail sales report dropped yesterday and showed that spending online at stores and at restaurants rose a stronger than expected 0.7% in September. Sounds good, right? Well, in another sign that we are in the weirdest economy ever, this was a kind of good news is bad news moment.

Treasury yields jumped towards yearly highs again yesterday as the spending report showed evidence of a still hot economy that could result in higher interest rates for longer. And remember, those elevated rates affect everything from mortgage rates to car loans to credit card borrowing rates. So those ripple effects do be rippling. Neil, I thought it was especially interesting to see where that spending is coming from. Consumers are still splashing out on big ticket items like cars, as well as at places like restaurant and bars, which has been part of a larger post-pandemic shift towards spending on experiences. Neil, bottom line here, I said at the top of the show, don't bet against the American consumer. You sound like Warren Buffett. I know.

But I just want to take us back to October 22. Bloomberg comes out with this article saying its economists predict a 100% chance of a recession within the next year, which was understandable because the Phillies were in, you know, they were about to go to the World Series and everyone was worried about a recession. But one year later, we couldn't be further from a recession. After this report, you had banks like J.P. Morgan and Goldman Sachs raising their GDP forecast for Q3 to above 4%. That's not even close to recession. That is a booming economy, and this retail sales report only bolstered the idea that the U.S. economy has been chugging along. The recession that had been worn for so long that had been predicted with a 100% chance of happening is not even close to here. It feels like we've been having these two contrasting narratives constantly, though, because on the one hand, you have economists forecasting a hundred percent chance for recession, but on the other hand, you have these really strong spending reports.

But then also you kind of have the consumer feeling pretty glum. The consumer confidence index of expectations fell below 80 in September, a level that is historically signaled a recession within the next year. So even though people are literally spending money, they still don't feel confident in the economy. Even though the labor market is still incredibly strong and is powering this spending, people just have this disconnect. And a lot of it could be because more higher income spenders are driving most of the spending while lower income are pulling back. and companies like Dollar General have called this out. Companies that serve a more lower income bracket are saying, listen, we're in a diverging economy right now.

So that could be part of the reason why we're seeing these great spending numbers, but people are feeling gloat. And another reason why is, you know, Americans had built up such intense pandemic savings during COVID, and everyone thought, economists had thought that these savings had been depleted. Recent reports found that there were actually hundreds of billions more dollars in saving accounts, then we realized that could also be driving the increased spending levels that we're seeing. I think my bottom line is these GDP numbers that are going to about to come out are going to blow by expectations, and it's going to show in the U.S. economy that is booming. Okay, moving on, anyone who sold a home in the U.S. is all too familiar with the roughly

6% commission. You have to split between your broker and the buyer's broker. But that system could be dismantled, and the brokerage industry thrown into chaos. as multiple serious legal challenges take aim at what opponents call a blatant violation of antitrust laws that artificially inflate home prices. To understand what their criticisms are, you need to know about the National Association of Realtors, which is one of, if not the, most powerful lobby on Capitol Hill. The National Association of Realtors requires its 1.5 million members to offer compensation to a potential buyer's broker. If they want to be listed on a database of homes for sale known as multiple listing services,

many of which are controlled by, you guessed it, the National Association of Realtors. So you've got this situation where a 6% commission split by two different brokers has persisted for decades, allegedly thanks to the Realtor lobby's monopolistic grip. Even while in peer countries like the UK and Australia, the total commission for a home sale amounts to just 2%. Two class action lawsuits are targeting this buyer broker commission model and a trial in Missouri kicked off on Monday. But perhaps the biggest threat comes from the DOJ, which is, which is, which is

deciding on whether to pursue its own case. If it does and destroys the system, half of the nation's real estate agents would go unemployed, Redfin CEO said. Did I set the stakes high enough here? The stakes are high. And again, I just want to call it how powerful the NAR is. Last year, it surpassed the U.S. Chamber of Congress to be the biggest spender on lobbying in the U.S. It laid out more than $80 million in 2022.

So this is a very powerful group that has a interest in maintaining the status quo of these super high commission fees. and then just to kind of give a sense of how much these eat into when you're trying to buy a home, a $407,000 house, which is the median existing home sales price right now, a 5.5 commission, which splits the difference between 5 and 6 percent, comes out to $22,390. So that's just another added fee for sometimes your broker doesn't even really do that much for you. So you can see why this is such an annoying part of the home buying process for a lot of people. Yeah, and their opponents of this model point out a blatant conflict of interest where a buyer, you know, a buyer is supposed to get the best, a buyer broker is

supposed to get the best deal for you, but you know that they're also incentivized to get a higher price because, you know, their commission kind of depends on it. So there have been studies that show that recently just last week that a home, that price, home listings that have less lower commissions are actually less visited and sell and stay on the market for longer than than ones with higher commissions, and that kind of exemplifies this conflict of interest, that buyers, buyer brokers steer their clients away from those particular listings. Yeah, it is just a completely backwards system when you really dig into thinking about it. And yeah, it is kind of, you know, the worst case scenario for the industry is that the government

steps in and just bans all of these sharing of commissions, which prohibits both the seller side and the buyer side. So this is a rabbit hole that the NAR does not want the Department of Justice to, or the Justice Department to go further down, and I could see it just kind of upending the entire, as a Redfin CEO said, it literally would get rid of half of existing realtors out there. We should mention that the NAR obviously has a response to this, and they say that demolishing the system would send the brokerage industry and the whole home buying and selling process back to the Wild West. You'd have outdated and inaccurate listing information. A buyer would have to go

to every single broker in town to see all of the listings because they would be, decentralized from these multiple listing services. So they push back that, you know, this system works to the buyer's advantage. It actually helps consumers. The critics of it say that it inflates home prices. I feel like just make the commission 2%. Just bring it in line with the rest of the world. Why are we in the 5% to 6% range?

Just bring it down to the 1% to 2% range. That's what I would do. All right, Neil, before we go on talking realtors forever, we're going to take a quick break. Study and play. Come together on a Windows 111. 11 PC. And for a limited time, college students get the best of both worlds.

Get the Unreal College deal, everything you need, to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 premium and a year of Xbox GamePass Ultimate with a custom color Xbox wireless controller. Learn more at Windows.com slash student offer. While supplies last,

ends June 30th, terms at AKA.m.m.S.C. Hey, Mama. Thanks for making all my favorite recipes. Hi, Ma. Thanks for your unfiltered advice. Hi, Mom. Thanks for always being by the phone. Hey, Mom. Happy Mother's Day. When you ship UPS Air at the UPS Store, your items arrive on time or your money back. Guaranteed at no extra cost, exclusively at the UPS Store U.S. retail locations. Visit the UPS Store.com slash air shipping for full details.

Terms and conditions apply. Send your Mother's Day gifts at the UPS store and we'll get your gratitude there on time. Neil, one of the coolest and weirdest parts of this job is that we can, get to consume a ton of news. So then when we decided to talk about Mark Andreessen's latest manifesto, I was a little nervous because I wasn't sure I had room for 5,000 words from the most famous VC of the modern area to stuff into my brain. But stuff I did, I read every word, and now I want to tell you all about it.

To set the stage, Mark Andreessen is the founding partner of Andresen Horowitz, aka A16Z, the venture capital firm best known for investments in Airbnb, Slack, Instacart, Robin Hood, Stripe, Open AI, SpaceX, I could go on. And Mark himself is famous for his broad, sweeping essays. He wrote about how software would eat the world back in 2011. That proved to be pretty dang correct. He wrote a now famous essay called It's Time to Build at the outset of the pandemic as well. And on Monday, he published the Techno Optimist Manifesto, a 5,000 word piece on why tech is,

in his words, the engine of perpetual material creation, growth, and abundance. Neil, this thing reads like a fever dream. The big themes were anti-regulation and the case for accelerationism in its place to mark everything can and will be solved by technology, as long as the enemies, which he lists as everything from ESG and tech ethics to stagnation in authoritarianism, don't get in the way and ruin everything. I could go on and on about Andreessen's various points, but I'll pause there. Neil, what stood out to you?

Well, I think the boldest claim here was he was, he was, was trying to prevent the slowdown of AI development, which has been called for by numerous tech critics and also people in the tech industry, he said that if we slow down AI development, it would lead to excess deaths, then would be because AI could save lives. And he said that deaths that were preventable by the AI that was prevented from existing is a form of murder. Again, I think saying slow down in tech progress or putting regulations on tech is a form of murder. That stood out to me. Yeah, I definitely stood out. And I mean, I think that gives you a sense for just the way he writes. It's very easy to get caught up in his vision. He writes in broad strokes.

He writes as if he's giving a speech to a crowd of thousands. But he's kind of very short on specifics and does not give much thought to an alternative vision at all. But I'll admit, I was getting a little caught up with it by the end of it because he does make a good case for the enemy being stagnation. And as soon as we stop innovating, it does feel like, kind of like the end of human progress as we know it. So we do have a ton of problems to deal with from climate change to wealth inequality. And it feels really hard to solve those problems if we don't strive and if we don't innovate. The perfect example that came to me was the Vesuvius challenge that we just talked about.

Remember, that was when people were trying to dig into an old Roman scroll to see the words within. And so many different people from so many walks of life were combining their collective intellect to to accomplish a really incredible thing. So if stagnation were to hit, they would say, oh, these scrolls are too bitter or too brittle. We don't even want to open them at all versus let's use tech to solve the problem. So that's what came to mind reading this. Yeah, I think Andresen suffers from a little bit of lack of nuance.

You know, he bashed government. But if you just back up two years, you had Operation Warp Speed, which was from the government. And that accelerated the development of vaccines, which ended up saving tens of millions of lives for COVID. There's also other really important R&D projects that are spurred by the government. So him hammering the government, you know, you could argue whether the, you know, government should have its hands off of industry a little bit more or more hands on. But, you know, I think he would present a little more of a convincing argument and win over more people if he acknowledged a little bit of nuance. But that's not the point of this. I realize. The point is to make waves and

generate conversation, which he absolutely has. It's so ironic, too, because Mark, he created one of the first web browsers out there, and he did it while researching at a government-funded research institution. So, again, yeah, he's kind of speaking out of both sides of his mouth sometimes, but the end result was this rallying cry for tech and this rallying cry for innovation to kind of power humanity forward for the next decades. I would say that a bunch of other tech leaders are kind of at odds with Mark Andreessen. Just last month, we talked about that AI summit at the White House, where 2A.T. from Sundar Pichai to

Elon Musk to Sam Altman, Open AI CEO, said that they welcomed regulation of AI because they viewed it as more of a threat than Mark Andreessen thinks. Then again, Mark Andreessen, through his A16Z fund, has invested billions of dollars into a bunch of AI companies. So we should also mention he has a financial incentive to stave off regulation. Moving on to our second to last story, tell me if you've been in this situation. You board the plane. Settle into your ILC. and two minutes later, someone lets you know that they have the window seat. So you stand up in the aisle, blocking everyone else from going through the plane so that the person can settle into the window.

Finally, someone is trying to fix this. Starting October 26th, United Airlines will implement a boarding process that prioritizes economy class passengers that have a window seat, followed by passengers with middle and aisle seats. The window seaters won't be the first aboard the plane. That'll be your typical active duty military, unaccompanied minors, and people with disabilities, and then first class and business class will follow. But when the rest of us plebs are allowed to board, it'll be window seat first in an attempt to speed up the boarding process. It won't be a major change.

It's expected to shave off two minutes of boarding time, but an airline at the gate, or an aircraft at the gate, is an aircraft not making money. So United thinks this is a tangible way to reduce delays, improve service, and get its airplanes back in the air at a time when demand for air travel is soaring. Are you on board with this, Toby? Oh my gosh. I'm so sorry. I'm still recovering from getting called a plea right now, but I do think that this is a win-win for a lot of people. It's great for airlines, gets the planes in the airs.

It's great for people boarding the planes because it goes a little quicker. Although I was a little disappointed. They said that this would save the airline up to two minutes of boarding time. That didn't feel like a ton of time for me. Two minutes. That's just one person with oversized carry-on kind of doing the thing. But think about how many flights, United Flies a day. It adds up for that.

It definitely adds up. I'm thinking about it from my perspective. I was like two minutes. Like, that's nothing. But yes, it is good for United. I do think this is a pandemic effect as well because more people than ever are traveling, but business travel has taken a sharp decline. So airlines have kind of been prioritizing economy passengers for the first time.

So this, to me, is United saying, how can we make the experience a little bit better for the less higher paying customers because we're having more of them and we're having less of these business customers? The best thing you can do with your time is going down the rabbit hole of science, scientific solutions to the fastest boarding thing possible because there have been numerous scientific studies done about it. What seems to me to be the best way from what I can gather was devised by astrophysicist Jason Stephan. And what happens is it's an alternating pattern back to front window to aisle, if that makes sense. You get everyone on the right side of the plane, all of the window seaters from back to front, You send them in, and they go alternate row.

So that allows people to sit down at the same time. That is the key. You need multiple people sitting down at the same time. So once those people, all the alternating window seats are in, you go to the left side of the plane and do the alternating window seats over there. And then you do the aisle seats. You do the middle seats on the right side, middle seats on the left side, and then aisle seats, right, aisle seats left.

And that is the optimized way to board a plane. That will be the fastest. That's the optimized way in a fantasy land, though, because that is not everyone boards at the same speed. So I did a little research, and I found that through studies from researchers in Norway, Israel, and Lafia, they used a four-dimensional model of space-time to run thousands of simulations. Yeah, Neil, I went deep. And basically, they divided passengers into slow borders and fast borders, and they ran four simulations, which was having the slow passengers board first, the fast passengers board first, a randomized boarding in the back-to-front, which was having the slow passengers board first, a randomized boarding in the back-to-front, which, do you think one? I read the study too.

It was the slow. You got to put the slow passengers first. Slow passengers go first. Even though if you have fast passengers go first, that was ahead for 98% of the simulation. But in the last 2%, that's when the slow passengers really kind of start to clog things up.

So what you could take away from this is maybe send the elderly passengers or people with some families. Families to start boarding first because the fast passengers will come in and fill the space more efficiently. So space time continue. Think about it.

like sand filling a jar with sand and rocks. You have to put the rocks in first so the sand can fill in the gaps later. I think that's exactly what you were trying to do. Yeah, this is a great rabbit hole. I love reason to do this. The bottom line is anything is better than what we're doing now. Even Southwest, which does a random, doesn't even assign seats, is faster than the way that airlines currently do it.

Southwest, the goat. All right. Our final story today is one that I'm sure everyone can relate to as well. An employee at Citibank, Sablek's Fecti, I apologize if I pronounce that wrong, went on a work trip and expensed his lunch as one does. He claimed to have consumed two sandwiches, two coffees, and two pasta dishes. Notice I say claims. When the company asked about his expenses, he said he had eaten everything himself. He had saved one of the sandwiches for dinner and drank both coffees as they were very small.

But later the truth came out. He had, as you might have guests, shared the meal with his partner, then lied about it to his company, who then promptly fired him. He sued for wrongful termination, but on Monday this week, a British judge ruled that the bank was entitled to sack him for gross misconduct because he had lied. So Citibank ended up winning this case. Neil, this set off a bit of an internet firestorm. Should Fecate have been fired, or is this or is Citibank in the right here? First of all, good use of sack. Thank you.

It's British. Come on. This may be unpopular, but I think they were completely in the right. You know, this wasn't about the money. It was less than 100 pounds. This is not, you know, this is not them recouping any lost money. This is about trust and having your employee break trust with you. And he completely lied to them in an email.

So I think they're fully in the right. I don't think it matters, you know, the dollars and cents. It's just an employee who was not truthful to them. And that trust had been broken and they were completely in the right to do it. Yeah. I mean, again, that is what the judge said. It wasn't about the sums of money involved, but his failure to make a full and frank disclosure.

And this is a relatively common problem. A 2018 report by the Association of Certified Fraud Examiners found that expense reimbursement cases account for 21% of fraud in small businesses and 11% in large organizations. And again, it's not the dollars and cents amount, even though it does have a material impact. It's more just, it's a slippery slope. If an employee is willing to commit theft. in this small expense report, what else are they kind of inclined to do?

Could they commit fraud on a larger level? So you can see how employers are not happy about this. I've been around some people that have expensed a lot, that have been a lot, expensed a lot shadier things than this, I have to say. Name names. I'm not naming names, but the funniest part of this story to me was that this guy was a financial crime expert. I know.

It is ironic. All right. So I'm sure that will spark a lot of discussion about expenses. But that is a wrap on the show that's all the time we have. Please have a great Wednesday, everyone. And you can feel free to email us at Morningbrewdaily at Morningbrew.com, but you can only say nice things. Them's the Rules.

Let's roll the credits. Emily Mayeron is our editor and producer. Samantha Velas and Raymond Lue are associate producers. Euchenawa Ogu is our technical director. Billy Menino is on audio. Hair and makeup is being investigated for bogus expense reports. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil.

Let's run it back tomorrow. Yamava Resort and Casino at San Manuel is California's number one entertainment destination for today's superstars. Catch the Jonas Brothers return to the Yamava Theater stage on April 30th, the powerful vocals of Demi Lovato on May 17th, and the signature Southern Country Rock of Eric Church on July 19th. Tickets on sale now at Yamavat Theater.com, only at Yamava Resort and Casino, celebrating its 40th anniversary. You win? Must be 21 to enter.