Morning Brew Daily - Fed Finally Pauses Rate Hikes & AI is Coming for Doctors and Lawyers

Episode Date: June 15, 2023

Episode 82: Toby got up extra early in the Pacific North West coast to join us this morning! We are bi-coastal baby. The guys break down the Federal Reserve finally pausing rate hikes and what it could mean for you. Plus, there's a new top beer in the US and which labor sector will be most impacted by AI in the year 2027? Senators are probing the deal between LIV and the PGA and Neal shares his favorite numbers. Plus, Beyonce why Beyonce is being blamed for high inflation in Sweden. Listen Here: https://link.chtbl.com/MBD Watch Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew Daily Show. I am Neil Fryman. And I'm Toby Howell. On today's show, we're going to recap the Fed meeting and discuss the chances of more interest rate hikes this year. And somebody just broke the world record for doing something in 3.13 seconds. I'm not going to say what it is right now, but you can think about a few guesses before we reveal what happened later in the show.

Then there's officially a new number one beer in America. We'll tell you who is the new king and who it dethroned after this. Before diving into the world of golf where the U.S. Open tees off today, you can bet that Neil and I will be watching, but also the U.S. Senate might be watching to see if there's any antitrust shenanigans going down. Neil, it's Thursday, June 15. Let's ride. Okay, if Toby sounds a bit different in that intro, it's because for the first time in MBD history, Toby and I are doing this podcast without one of us in the studio. It is Toby this time. Toby, it's lonely here without you in New York City. Where are you?

I am in the Great Pacific Northwest. It's the first MBD slash PNW collab. I'm on my way to a bachelor party in Big Sky, but doing this podcast from Seattle, have a little layover. But I set my alarm for 1.45 a.m. this morning, which is just an ungodly hour to wake up to work. But if I had to do it with anyone new,

I'm glad I'm doing it with you. Oh, wow. I think I would have done a, I think I just would have stayed up all night. I don't know. I was thinking about it, but yeah, we're not, we're not doing an all-nighter pod. That would be a little too, pushing it too far. So it's 307 a.m. right now for you. We're about to talk about the Fed.

And if you have anything coherent to say, I will be very impressed talking, talking monetary policy in the middle of the night. So let's get to the Fed. let's so that it did something yesterday that it hasn't done since March 2020, and that is not hike interest rates. After 10 straight rate increases, which were the most dramatic interest rate hikes since the 1980s, Jerome Powell said it's time to take a breather to let those hikes filter through the economy and hopefully slow it down even more. This pause was expected, but everyone wanted to know the Fed's agenda for the remainder of the year. While most officials are penciling in two more rate hikes before 2023 is out, saying inflation and the economy have

not slowed enough yet to say their job is done. Powell stressed that they're going to go off the numbers that come out in the next few weeks. So those two additional rate hikes are not written in stone at all. Yeah, it's kind of crazy, Neil, that even after kind of the most aggressive rate hike cycle in modern history, that the Fed still hasn't really accomplished its goal of lowering inflation. So you have consumer spending, which is still robust. The housing market is actually rebounded. Treasury yields are still below the inflation rate. And of course, the stock market is absolutely ripping still. We just entered a new bull market, 20% off the bear market lows. And so, yeah, it's kind of crazy that the more that people are betting on kind of this elusive

soft landing where the Fed can lower inflation without sending the economy into a recession, the less likely it is to happen. So yeah, definitely still in a rock and a hard place because inflation is just stubbornly higher than that 2% number. Right. We just had the inflation report come out yesterday that said inflation had dropped to less than half of its peak, but it's still 4%. And prices are rising from food and other areas.

You talked about rental prices are growing at a brisk pace. And they even upgraded their economic projections the Fed did. originally they said it would grow 0.4%. The economy would grow 0.4% in 2023. Yesterday, they were like, actually, this thing is doing much better than we thought. It's up. It's probably going to grow 1% this year. So this has happened actually in a few other countries where they've hiked rates really aggressively, have taken the pause like the Fed did, and then they waited to see whether this economic data showed whether that inflation and the economy were slowing down. It didn't and they kept hiking rates again that happened in Australia and Canada and it very well could happen here

But we're just going to have to wait until more economic data comes out because Powell was saying like look we don't we actually have no idea what's going to happen Inflation could go back up again. It could come down You know who knows what's going to happen with consumer spending in the economy so we're just going to wait for you know more numbers to drop The next meeting is in July and yeah everyone is just going to I'm going to have to wait to see what happens. Definitely the prevailing wisdom is that they'll hike again. Yeah. Hopefully, I'm not, come July, I'm not waking up at 145 to discuss what the Fed is doing. But yeah, that's the broad picture of what's going on. Let's jump into, I mentioned at the top of the show, we have a new number one beer in America. And remember a few weeks back when we said that

Bud Light was in danger of losing its spot as a number one beer in America? Well, it no long has to worry about that because Modelo has a race past Bud Light in the last few weeks in a major reshuffle of the beer industry. So Modelo accounted for 8.4% of U.S. retail store beer sales in the last four weeks ending in July 3rd compared to just 7.3% for Bud Light. So, Neil, this is kind of the culmination of the months-long boycott Bud Light has been facing from conservatives and some of its core customers after they rolled out a partnership with transgender influencer Dylan Mulvaney all the way back in April. But it's also kind of a broader precipitous drop for Bud Light in a pretty slow and steady rise for Modelo that's accelerated in the

last few months. If we just want to zoom out a little bit, Modelo has seen double digit growth in 35 of the last 40 years while Bud Light's market share has steadily declined from 19% in 2010 to 10% in the days leading up to this partnership. So Neil, yeah, the writing's been on the wall for for a little bit, but new number one beer in America. It reminded me of those COVID trends where people said this was happening over a long time, over a long period of time. It was inevitable, but, you know, the COVID or whatever, there's something dramatic happened and it accelerated the timeline over a few years.

And that feels like what happened, what happened with Modella and Bud Light. I mean, this thing is really significant for Bud Light. I mean, sales have dropped 24% in early, in early June from the year earlier. So, like, this has been a precipitous drop. But I do want to talk about Modela because this rise has been absolutely incredible. I have a quick timeline here. So in 2013, 10 years ago, Modela wasn't even in the top 10 U.S. beer brands. It didn't even launch any English language ads until 2015.

And then in 2018, it overtook Corona in U.S. sales, which is kind of its beer buddy. They're under the same constellation brands umbrella. and then in 2020, its sales were almost equivalent to the two next best-selling imported beers, Corona Extra and Heineken. And then this May, it became the number one best-selling beer brand. So everyone in the beer industry is looking at Modelo for their playbook on how they sort of like came to dominate out of absolutely nowhere. Their brand awareness is low.

Like, do you ever think about Modello? I, do you, a medallo guy? Yeah, actually a little bit because it was actually, yeah, my girlfriend's parents drink it and so that I started drinking it. It's that perfect beer when you don't know what beer do you want to drink. You're like, oh, I'll do something a little fancier than just like a normal beer and you do a medello. Yeah. I also think that.

Go ahead. Yeah. Anheuser-Busch, though, I just wanted to take a step back because A, B. Inbeb, which is the parent company of basically every beer that you've ever drinking drank, including Bud Light. and Modelo except for in the US. So it was really funny that back in the, and you mentioned almost a decade ago in 2013, Anheuser-Busch bought the rights to the Modello Brewery Group, but they, because of antitrust fears, US regulators made it so they couldn't distribute Modello and Corona in the US. So they have the worldwide distribution rights to Modello everywhere except for where it just became the number one beer in

America. And I bet at the time, they're just like, ah, it doesn't really matter. Madela is a smaller beer. It's never going to be that big in the U.S. But now it's literally overtaken Bud Light. So it's kind of a crazy rise from Madela. And you know that Inhauser Bush is kicking themselves a little bit. It's funny that you mentioned that your girlfriend's parents drink a lot of Modela because they're on the West Coast, right? And apparently, Medello dominates the West Coast. And that's why I think we see it less here on the East Coast. But in, Los Angeles, you know, it is absolutely like the beer of choice. It has been the beer of choice for many Hispanic people for a long time. And they are sort of expanding this market to the

broader population. But Constellation Brand's portfolio of Corona, Modelo, and other Mexican beers are basically the only part of the beer industry in the U.S. that is growing right now. Craft brews are out. Light brews are out. Everyone's drinking, everyone's drinking White Claw or Seltzer or high noons, but this Modelo, which is kind of is in this messy middle of not like not the IPA, you know, craft brewer crew, not the light brew crew. And it's just absolutely dominating that middle space. So hats off to them on executing an amazing marketing plan. And Bud Light is not going to go down without a fight.

It is going to triple its marketing spend in the U.S. this summer and try to recapture some of those core customers. that it lost over this entire fiasco. Yeah, hopefully, or we'll see if they can make inroads again, but right now, new king. I don't see Medell being dethroned anytime soon. All right, let's move on to a new report around AI. So one of the main questions every professional is asking these days

is, will AI replace my job? And, you know, with chat GPT, displaying all these capabilities and processing information and generating, human-like response to it, it's kind of a reasonable question to ask. So McKinsey to the rescue, and I say that kind of ironically, but the consulting firm became one of the first to release a report that aims to quantify, put in numbers just exactly how generative AI revolution will impact the workforce. I've got some takeaways from this report.

The headline is that it expects productivity gains from AI to be massive. When you can have AI do things like reply to customers or write code that would have taken you a lot longer to hammer out, it will generate a lot of economic value. And the firm predicts that generative AI will add $4.4 trillion to the economy, equivalent to 4.4% of the world's total output. But will those productivity gains mean that AI will take our jobs? And that is the big question. And McKinsey says, maybe. It predicts that 60 to 70% of all work hours can be automated between, 20, 30, and 2060. So that means in the future your job could very well be different than what it is now

or it could be replaced altogether. And that brings me to the final point of the report, which I find the most interesting, actually. And that is knowledge workers, the white collar folks with masters and PhDs who we consider the professional class, they are more vulnerable to generative AI automation than other forms of technological progress in the past. The reason this is fascinating, because if you think about past years of automation, it was going after physical workers, people on assembly lines, and not accountants, lawyers, and managers. Like, they thought they were protected. And all of a sudden, chat, GBT, Bard comes along.

And now people who are sitting in offices hammering out emails all day are like, maybe AI is coming for me now. First of all, I just think it's hilarious that McKinsey has kind of cornered to the market at putting, assigning numbers to these broad trends. that a lot of people are talking about. I mean, remember the infamous kind of metaverse report where they said that the metaverse opportunity is too big to ignore and that it's gonna generate, it's a $5 trillion opportunity by 2030.

And so again, you have to always take these big picture, broad stroke reports with a grain of salt a little bit. But yeah, this definitely is creating, it's kind of tarding that angst that a lot of people are feeling around AI that is it coming for my job. And yeah, if you look at some of the occupations that this report called out, just customer relations, marketing and sales, software engineering, it makes a lot of sense that AI could at least augment, maybe not replace these jobs. So this one, I think, does have more merit than the metaverse one because that one was just, it felt like very pure buzzwordy. This one feels a little bit more on the nose.

Right. I think about the term creative destruction, and that is this economic concept that technology kind of obliterates some performance. professions through automation, but on net increases the number of jobs and adds value overall to the economy. Who knows whether this is going to happen with AI, but you're already seeing companies advertise AI roles. So JP Morgan has more than 3,600 AI-related roles advertising, advertised from February through April.

So it's already hiring people saying, hey, can you work with AI? And on the other side of the coin, IBM is slowing hiring and suspending it all together for 26,000 back-off. roles and the CEO said he could easily see 30% of those roles getting replaced by AI over a five-year period. So in those two data points, you can kind of see both sides of the coin. So we'll see if McKinsey's right. There's no way like this number is going to be spot on. So I'm just wondering whether these forecasts have any value whatsoever or it's just McKinsey trying to get into the news cycle. I think there, I think there, you could make a case for it as, you know, sort of generating a conversation.

I think I think this is like the AI, you know, chatGBT, what it's going to take over is not necessarily like so theoretical as the metaverse. So, you know, it generates a conversation that we're having, gets people thinking. So I think no one's direction. As long as it's directionally correct, then they can look back and say we did our jobs, right? And it yeah, it gives CEOs guidance on how to kind of structure their workforce going forward. So yeah, again, great business model, McKinsey. Good on you. All right, Neil.

let's move on to something that won't be replaced by AI anytime soon. That is the game of golf. The U.S. Open kicks off today and I know that you and I are both super excited. I'll do my best from holding back on describing why I think it's a Brooks Kevka week this week to talk about the business storyline swirling around the event. So first and foremost, the thing that is on everyone's mind outside of golf is the impending merger between PGA and live golf, which is, the Saudi-funded breakaway tour that shelled out big bucks to bring over some of the world's big-name players. Cache that a lot of people felt came with the baggage of Saudi Arabia's pretty abysmal human rights record. So the merger that was announced two weeks ago caught a lot of

people off guard, and we still don't have a ton of details about it. But one thing we do know is that the deal is getting a lot of heat from an antitrust perspective in the U.S. So yesterday, Democratic senators Elizabeth Warren and Ron Wyden sent a letter to the DOJ asking them to, and I quote, closely scrutinize the merger saying it appears to have a substantial adverse impact on competition and would result in a monopoly of golf operations in the U.S. So they really just called it out. And also Senator Blumenthal earlier this week on Monday opened a probe into the deal as well. So Neil, as soon as this deal broke, we both kind of turned to you. each other and said, this feels a lot like a monopoly, right? And the word monopoly started getting thrown around a little bit. So do you think this merger or joint operation or whatever you want to

call it has monopoly vibes? Oh, it definitely has monopoly vibes, which is why both sides are saying, this is not a merger. It's just an investment by the Saudis into the PGA tour. It's just a partnership. Don't call this a merger. But expert antitrust experts, professors and academics are saying, like, this is very textbook. Two big players come together. basically the of the establishment of Monopoly which is the PGA tour already has it faces an upstart Challenger which was live and they both talk to each other and they're like well competition isn't good for any of us why don't we get together and then split the profits you know that sounds great but that is also illegal under antitrust law the Sherman Act which was passed in the 19th century

so they're going to build this as not a merger and more of a partnership but that is kind of what just happened with JetBlue and American Airlines, and the government is suing to block that partnership from happening. So the government is like, we don't care whether you call it a merger or a partnership. If you are reducing competition and you are behaving like a monopoly, then we're going to come after you. So no one knows what's going to happen here because the details are so minimal, but it definitely feels like there is, you know, broad support to hate on the PGA tour in any way possible. All right, Neil, before we jump to break, just give me your prediction.

Who's going to win this week? I was going to say Brooks. I mean, I think he's on fire. I'll say, I'll say Scotty Sheple. You can take Brooks. Okay. All right, Neil, before we jump into the next story, we're going to take a quick break. All.

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Bro, Skycoin, way better than points. during a Scorpio full moon. Just tell the manager you'll sue. Instant room upgrade. Stop taking bad travel advice. Start comparing hundreds of sites with kayak and get your trip right. Kayak, got that right. All right, let's head into our Thursday segment, which is Neal's numbers, where I read a bunch of new stories over the course of the week, and I extract the best numbers, the most compelling stats that I want to bring to Toby and our audience.

I've got two today, and they're both pretty meaty, so I want to start with the first one. And for the first one, we are headed to the streets of Chicago, where there's never been a better time to own parking meters. Chicago parking meters LLC brought in a record 140 million in revenue last year from drivers feeding its meters. Its profits are only going to balloon more. Here is why. 15 years ago, this company paid Chicago $1.15 billion for a 75-year lease for the city's parking meters. and that's looking like the deal of the century because 15 years in, it's already recouped its initial $1.15 billion investment and more than $500 million in revenue on top of that.

And it has 60 years left to go on this lease. Meanwhile, on the other side, Chicago officials are fuming because of how bad of a deal this was for the city and they can't do anything about it. So this dates back to the 2000s when the mayor auctioned off a bunch of city assets like parking meters and garages in a desperate effort to raise cash quickly. It's known around City Hall as the Great Chicago Selloff. At this point, it's become clear that Chicago got hosed. These private companies are jacking up prices at garages and parking meters.

They're making hundreds of millions of dollars each year. And taxpayers are seeing none of the revenue for the assets that the city once owned. That's crazy. Neil, we have to go find a small city and buy up their parking meters because it seems like an incredible investment. I mean, not as big as Chicago, but maybe like an Asheville or something, we can find it up and comer. This is a tale as old as time where a company does a fire, where a city or a public, you know, government does a fire sale of assets when it's privatizing things. And if you are kind of like the Soviet Union, you know, if you are in a businessman in a, you know, a good position to scoop up these assets at a very low price, you were going to make a zillions of dollars. And this is the insult to injury part.

The city is required to reimburse the parking meter company for every parking space that's removed when streets are closed for special events, construction projects, restaurants. So it has to pay this fee to the private company that it's sold all of these things to. And over the past 12 years, it's paid out almost 80 million for these particular payments. So honestly, this is just, you know, definitely a warning sign for every government to not sort of take these desperate. measures and sell off these public assets because it can really come to buy you. And it's bad for consumers because, in some cases, because they raise prices. All right, let's move on to my next number. We've got a new world record for the fastest time to solve a three by three by three rubics cube. On Monday, Max Park took a Rubik's cube from a Jackson Pollock to a Michelangelo in

just 3.13 seconds, beating the record of 3.47 seconds that stood for four and a half years. Not sure how many of you are in with the Cuban community, but Max is a bit of a legend. He's the world record holder not only in the 3x 3 by 3 by 3 by 3, but the 4 by 4 and so on, all the way up to 7 by 7, which he solved in 1 minute and 35 seconds. He's become an inspiration to many because he's been diagnosed with autism and at one point couldn't even open a water bottle, his parents said. Cubing served as therapy for Max, and now he's just the biggest deal in the cubing world. He serves as an official ambassador and he started in a Netflix documentary about cubing. This video is amazing.

You watched it. Yeah, great documentary. I highly recommend. So you're a cuber. How impressive is three seconds? So my big deal was solving a Rubes cube under one minute. And it just feels so incredibly inadequate at this point. Because I have to do it.

I have to go through the same algorithms every time and do the same movements. They can look at a cube and know all. the shortcuts to take. I never got to the point where I recognize patterns enough to take shortcuts. But yeah, watching it, it's truly unfathable how quickly it just goes from nothing to solve. And I love this video. If you have a chance, go look at it online because the entire place just erupts and like, yeah, people love Max. He is definitely a legend. And yeah, it's just one of the more electric things. He has a hand towel that he wipes his hands off before he does the cubing. So it's just, It's a sport, I think.

It's truly an incredible display of athleticism and brainpower. Did you also know that Rubik's Cube is perhaps the best-selling toy of all time? It's sold 450 million units since it was first introduced in 1974. I'm ready for the Rubik's Cube movie in addition to the Tetris one. All right, let's close off the show with a trip to Sweden where inflation came in hotter than expected last month. It was supposed to rise by 7.8%, but instead it rose by 8.2%. Economists were a little perplexed. Why did their forecast miss so much?

And then it hit them. Beyonce. Beyonce began her Renaissance tour in May with two shows in Stockholm, and those concerts were single-handedly responsible for driving inflation more than expected last month. Over her two nights of shows, Beyonce drew more than 80,000 people to the Friends Arena in Stockholm, and the sheer demand on hotels and restaurants in the area allowed those owners to jack up prices, causing so much inflation that it showed up in the government's data. So the upshot here is that one person, by the sheer force of her popularity,

boosted inflation for an entire country. That is not normal. Donska Bank's chief economist who kind of recognized that Beyonce was behind this, said it's quite astonishing for a single event. We've not seen this before. I can't believe they called her out like this. They literally said Beyonce is responsible for the extra up. surprise this month, called her out by name. I do want to just shout out our girl Taylor Swift

though because she's having a similar effect on local economies reports showing that she's generating $4.6 billion for local economies through her eras tour. And then also she absolutely crushed it in Chicago specifically where they had their highest hotel occupancy rate ever. 96.8% of hotels were booked. So I do, we're going to look back in 10 years on this era of the heirs tour and Beyonce tour and say two women absolutely powered the global economy and maybe powered inflation to higher levels. So just absolute tour today forces both of them. So pretty funny to hear these stats. You know that Jerome Powell is looking at the Renaissance tour dates and seeing that Beyonce's coming to Philly for her first U.S. day on July 12th. And he's probably like, oh my God.

Shaking his head. We talked earlier that they were penciling in rate hikes for the rest for the of the year and I think we can probably put those in pen at this point. Toby, we did it. We did our first remote pod. I pray that you go back to bed. You're an absolute champ for getting up and doing this with me. You did great. Listeners, if you want to write us in, you can at our email address is Morning Brew Daily at Morningbrew.com. One listener wrote in yesterday and bashed my take on Ed Shearin as a lazy songwriter. I think she actually changed my mind about it. So let me know what else we are wrong about. And obviously, we have to give a huge shout out to our crew who always gets up early with us to help make this show. Incredible people.

Emily Milliron is our editor and producer. Uber Batista. What's up, Uber. And Raymond Liu are the associate producers. Yuchinawa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is in Chicago paying off a parking ticket. 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.