Morning Brew Daily - Fed Hikes Interest Rates to 22-Year High & Automakers Unite To Build EV Charging Network

Episode Date: July 27, 2023

Episode 112: Neal and Toby discuss the Federal Reserve's decision to approve a hike in interest rates to combat inflation that brought them to 5.25-5.5%, which is the highest in 22 years. The guys also recap the Congressional UFO hearing and explain why automakers are banning together to build a electric vehicle charging network to compete with Tesla's. Plus, why one British billionaire was charged with insider trading and Neal shares his favorite numbers. Finally the physics discovery that could change the the landscape of energy. 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

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Good morning brew daily show. I am Neil Fryman. And I'm Toby Howell. On today's pod, interest rates are now at their highest level in 22 years. But will they go even higher? We'll tell you what J-POW had to say. And we've got an update on San Francisco's office market that may surprise you. Then Neil and I will break down yesterday's UFO congressional hearing before Tommy Lee Jones comes by and asks us to look at a memory eraser device.

Plus, scientists in Korea may have discovered the holy grail of modern physics, but others aren't so convinced. It's Thursday, July 27th. Let's ride. So we've heard from so many people that they listen to MBD on their morning commute. So we want to give a shout out to everyone driving to work right now. Hope we can keep you company before you pull into the office parking lot. Also, I sympathize. Did you know that I used to drive an hour to work?

It's actually crazy. This was before morning. Before morning crew, yeah. I was working in Princeton and I lived in Jersey City. and I used to get on that turnpike and drive. It was actually, I say an hour, but it was over an hour. And what would you listen to? I would listen to in the morning.

It was news and music. And then on the way back, sports radio. So you weren't a WFAN. You weren't a podcast guy. I was not a podcast guy. I had a really old car where the hookup with your phone was not so modern. But I have fond memories of the commute. It's that nice liminal space between home life and work life that you don't kind of get in

a city. Oh, man. Are you a big office plan? You're telling us commutes are back? I, maybe. He's a little office plan. I'm a little industry plant. Yeah. All right, let's get to our first story. Yesterday, the Fed did what everyone expected and raised interest rates, another 25 basis points, which after 16 months of hikes elevated them to their highest level since 2001. So we knew that was going to happen, but the most important question was, will this be the final rate hike now that inflation seems to be on its last legs. We did not get much of an answer. At his press conference, Fed Chair Jerome Powell was as tight-lift as Bill Belichick following a rare loss to the Jets. He said it was certainly possible that the Fed would raise rates again at its next meeting in September.

Then again, he also said it's possible that it would hold them steady. So he hasn't made up his mind at all. What will help the Fed decide? You know it. You love it. It's economic data. There are a bunch of major data releases between now and that September meeting, including two inflation reports and two jobs reports. So whatever those say will be extremely influential in helping the Fed choose what to do with rate heights down the line. Yeah, I was reading some analysis of the meeting because, yeah, people break down every single word at Trump Powell says. And they basically said that Powell has no choice but to keep the threat of rate hikes there.

Because if he doesn't have that looming potential additional rate hike, then the market might pricing cuts prematurely, and then inflation could spiral out of control. And he's really been saying that we need to take a long-term outlook when it comes to inflation, because like, if we celebrate prematurely and inflation escapes control, everything that we've done, all the rate hikes that we've incurred have almost like been for nothing. And it would just like set us back to square one again. So yeah, he was really saying that even though like the labor market might take a little bit of hit. He's actively rooting for the labor market to soften, which is like a tough thing to do because that's people's livelihoods and that affects millions of Americans. But he's saying,

like, listen, let's zoom out. Let's take the big picture in here and not get too caught up in like the short term impacts of these rate hikes. Right. He said that, you know, reading between the lines here, the analysis was that, look, this is probably the end of our rate hikes, which have been truly historic. I mean, at the beginning of last year, they were interest rates were near zero and now they're climbed to the highest level in 22 years. We haven't seen anything like this since the 80s and the fact that the U.S. is still, the economy is still chugging along. And another big piece of news was that the Fed now does not forecast a recession. Yeah. I mean, in economists were, because economists are polled on like what they, what percentage they think

in a recession is coming. And they're all pulling back too as well and basically saying like, okay, we might have gotten a little overhyped, a little over excited. But yeah, like it's been that soft landing

that we've always talked about. It's pretty awesome. I also want to talk about another kind of indicator of the macro environment, which is Coca-Cola. So Coca-Cola's prices were 10% higher last quarter

compared to Q2. And basically what they've said is we're done marking up the price of our drinks. So it's kind of an interesting thing where you have Jerome Powell saying, we may be done with hiking rates. And Coca-Cola is saying, we may be done with hiking our prices. So it is kind of like this interesting Coca-Cola economic indicator. Same with Unilever, which is another consumer giant said that it's done hiking prices,

which they've done for the last two years. And this is a sign of inflation, right? If these companies stop raising their prices, then this is a sign that inflation is kind of receding. And we've seen that inflation overall in the U.S. economy is down to 3% from a peak of 9.1%. And that's given the Fed a lot of ammo to maybe pause rate hikes. The big underlying pressure here is wages. That's what everyone's looking at. It's if people continue to get raises, they're going to continue spending and put price pressure on a variety. of goods and continue inflation that may cause the Fed to raise rates again.

So look at the labor market. That is the key indicator. Don't look at used prices. Don't look at maybe soft drinks. All of those things are kind of fluff compared to whether people continue get raises because that will determine whether they continue to spend and fuel inflation. But the big picture is Jerome Powell won't say it, but it does seem like this is the final rate hike of the cycle.

So throw all your money into cash right now while the getting's good. I hope that doesn't come back to bite us. We do record this, Neil. You know that we're on record when we're saying these things. I'm just looking at the betting markets, what investors are putting their money into, and most of them think we're going to get a rate cut by the end of next year. Yeah, it is. I mean, there's only one way to find out.

We'll be in the studio breaking down the next Fed meeting for sure. All right, Neil, let's move on to our next story, which brings us to the most exciting congressional hearing of the year. three former military officials went before Congress yesterday to testify that they believe the government knows way more about UFOs than it is telling the public. It was a pretty surreal scene. The lawmakers kept reiterating that these UFO sightings are a bipartisan issue of great national security concern. But the stars of the show were the witnesses, which included David Grush, a former U.S. intelligence officer, who told the panel that he was absolutely certain that the government is in possession of. of unidentified aerial phenomenon, and on his end is covering it up.

He also said that he has talked to people within the government who have found non-human biologics at UAP crash sites. Grush specifically says he prefers the term non-human rather than aliens, but still a lot of people were like, come on, dude, just say aliens if you found aliens. What were your thoughts on this hearing? Do you feel more or less confident that we are not alone in the universe, Neil? I'm just wondering what this guy's motivations are. I'm truly trying to figure out what happened, because this is.

He is a very legitimate former national security officer who a bunch of his colleagues have come to its defense. And while they can't corroborate the fact that we have literally found alien spacecraft and are reverse engineering them, which is his claim, they can't corroborate that. But they say this guy has a lot of integrity. Yeah, he's got his defense. So I'm just wondering how this happened. But the overall picture is that, you know, a bunch of lawmakers feel like they've been left out in the dark. and they have argued that this is a major concern not only for national security

because if these are not UFOs, what are they? They could be enemy aircraft or whatever. They're spying on us. Also, they want more transparency because a lot of commercial pilots have seen UAPs, which is the, you know, the D.C. term for UFOs. And they might get professional backlash by saying something because there's this stigma around, you know,

there's no see-something say something in the UFO world because if you say something, you're kind of sidelines. Yeah. So they're like, you know, there is a threat to commercial aviation here. Yeah, the FAAA has no mechanism for pilots to report UAPs. So not only is there a stigma, but there's literally no avenue for a commercial like, hey, you're on a, I'm on a spirit air flight to Las Vegas and I see a UFO out the winder. There's no, there's no way for a pilot to report that to the governing body of commercial

airlines. So yeah, I think that's the main legacy of this hearing is that it's going to destigmatize the reporting process, both within the military and within the commercial space. So it sounds really weird to say, but more transparency around like these alien or unidentified sightings is probably a good thing. They want this more above board because what also Grush said was that this level, where's this, how's this being funded? And they were like, this is above congressional oversight. There's a misappropriation of funds going on now. Basically that they're siphoning funds that were intended to go to one thing to this alien retrieval program. Right. And lawmakers are like so pissed about this. I think that's the main thing is that they feel so

gyp that they don't aren't, aren't privy to UFO information. Right. So they're calling this and they're calling this hearing and acting all. Yeah, they got these all angry. Grush knew which buttons to push, you talk about national security and you talk about misappropriation of funds, that will get people's ears perked up even more so than aliens. I'm putting you on the spot. What is the probability that there's a massive cover-up

going on that we've been, we have alien biological matter? Wait, are you asking if there's aliens or if there's a cover-up? I guess it's both the same thing. I put it at low still. I mean, I just think there's too many why, I think the argument is always if an alien

has the technology to travel millions of miles through space. Why do they keep crashing or like being caught on Earth? So I always found that argument like, okay, you made it, you made it through space, but then you crash in Las Vegas, or yeah, Las Vegas every time. North of Las Vegas. Yeah. All right, well, we've, we got to move on and we have an EV charger battle on our hands and it's seven against one. The seven is major automakers GM, BMW, Honda, Kia, and a couple more who announced a multi-billion dollar joint venture to build 30,000 additional electric vehicle plugs in the U.S. and Canada. The one is Tesla, the dominant force in EVs in the U.S., and also the clear leader in charging infrastructure. This is a pretty

surprising twist because it seemed like the car industry would just let Tesla run away with being the top dog in charging. In just the past month on this podcast, we've talked about how GM Ford and others said they're going to equip their new EVs with the ability to be charged at Tesla's ports. Now it seems like they also want skin in the charging game because without charging their big push into EVs is toast. The lack of charging infrastructure is the number one reason Americans avoid buying EVs because they don't want to be stuck on a random road in Indiana with the equivalent of an empty gas tank and no gas station within a 50 mile radius. So rivals are teaming up to take on another rival. This is getting a little spicy. I know. I mean, this is what like markets are good at

is when one person looks like it's going to dominate a market, others come forth and present a challenge. I also remember back in 2019 Casey Neistadt, who's this YouTuber, he did this big, long thread about driving his car from New York to L.A., driving his Tesla, and documented, like, the process of finding chargers, like sleeping at charger point, supercharging Tesla stations, and he was like, these are in sketchy places, like they're a little unreliable. And just to see it now, and from where we've come from 2019 to now, it's a game changer because, again, that's the big anxiety. 75% of people said the reason they wouldn't buy an EV is because, yeah,

they don't have consistent access to a charging port. Everyone has a story of a person driving their Tesla cost country and just having the worst experience. And Tesla has the best supercharging network of all. But my friend drove, you know, he bought a Tesla and drove to L.A. for some reason. I thought that was a good idea and went to, like, like an Oklahoma City Thunder game and had to park 45 minutes outside because they could, they didn't have enough charge to get to the city and had taken Uber in and then go back in an Uber 45 minutes in the other direction after the game because there's, there's no charge.

It's the future, baby, yeah. But it, I think the one I, one thing I was thinking about here is that, you know, gas stations, we're going to start seeing the new era of gas stations because all of these companies are going to start building these gas station equivalents and this. you know, this joint venture from seven automakers, they said they're going to equip it with, you know, concessions and places to sit and hang out. Because even, you know, charging these super fast charging ones, take 20 minutes to fill up your, I don't know what is it, quote unquote, electrical tank. Yeah, 80%. So a little longer than it would take to fill up your actual gas.

If there's one thing America's good at is building sick gas stations, like hard, or lovies or whatever they're called. Yeah. So I'm, Buckies, Buckys, Buckys, sorry, excuse me. All right, Neil, before we jump into our next story, we're going to take a quick break. 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,

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at Bose.com. All right, Neil, we have a nice little insider trading case for our next story. No, it's not Martha Stewart, it's British billionaire Joe Lewis, who is the majority owner of the Premier League's Tottenham Hotspurs. Apparently, Joe has been tipping off pretty much everyone close to him about insider info he obtains from sitting on multiple boards of public companies. We're talking girlfriends, assistants, friends, private pilots, you name it, Joe Lewis was dishing out tips. The most egregious example cited by prosecutors was that Lewis loaned his two private pilots $500,000 each to a invest in a therapeutic company just before they announced positive clinical trial results, which is super illegal. But the wild part was the paper trail. One of the pilots wired back 500K with a memo saying loan payback for MRTX, which was the name of the company. This guy was playing super fast and super loose with the law for a while, it looks like, Neil.

Yeah, this is a big deal. He's kind of a big honcho billionaire. He's the highest profile investor that this Southern District. of New York has prosecuted this year. Yeah. And we know what his bond is. He's out on 300 million on bond is his, it's being secured by his private jet and his yacht.

It's a super yacht. Yeah. A $300 million bail or bond is is quite hefty. What was interesting to me about this case was that for to be charged with insider trading, you have to receive some personal benefit. And so you're looking at this and you're like, how is this guy personally benefiting from just tipping off all of his friends about it. But they're saying it's kind of like a doorman situation with his private pilots

where I'm giving you a stock, you know, instead of a Christmas tip for my doorman here in New York City, I'm going to give you maybe, you know, a little stock tip to, and that benefits me. That's basically in lieu of the gift I would give you. Yeah. No. I mean, in 500,000 also, I mean, I mentioned the paper trail and like how they wired the money back with that memo attached, but also there's techs.

So one of the pilots texted a friend, the boss has inside info because otherwise, why would he make us invest? And then he also added, all conversations on app is encrypted, so all good. No one can ever see, which is just a brutal thing to have come up in print in a lawsuit against you. So I guess that's the moral of story that nothing is ever encrypted and do not never say no one can ever see because someone can always see. We should all say these are allegations and that Lewis and his attorney. has denied all these claims in that he pled not guilty yesterday in New York court. So we'll see how this plays out. But whenever you hear an insider trading case, it's always the biotex.

I know. It's because they don't do anything unless they have positive clinical trials. And I guess if you're a board member, you're sitting in the conference room and everyone's like, don't tell anybody, but like we're about to pop because this came back really good. So it seems like always the biotech are the ones in the insider trading cases. Yeah, that's the lesson. All right. It's time for Neal's numbers, the segment where I will share three stats from the week's news that will give you so much knowledge. It will literally start dripping from your ears. The first one is this year in San Francisco has become everyone's favorite punching bag because remote work has really gutted its downtown. But we're a podcast devoted to sharing not just the bad news about SF, but also the good news. And there is some sunshine peeking through the marine layer. Demand for San Francisco offices surged about 10% in the second. quarter from Q1, according to commercial real estate tech from VTS. And it comes at a time when

other U.S. cities, like Seattle, Boston, and D.C., saw a quarterly decline in new office demand. San Francisco mayor London Breed said there are at least 10 companies looking for almost one million square feet of office space there. So what's happening? I got two letters for you. AI. Artificial intelligence companies in growth mode are driving the office renaissance, showing how reports of the Bay Area's death have been greatly exaggerated. Who knows how this will ultimately play out, but right now there's an AI gold rush, and it could turn San Francisco's fortunes around. That's the beauty of San Francisco is that there's always another wave.

So every time that you think that, oh, it's dying, that people are leaving San Francisco en masse, AI comes along, like Web 3 came along. Like, there's always another, like, innovative wave. So I do think that they ride the boom and bus cycle a little bit. and you see offices kind of fill and then empty, fill and then empty. Yeah, Open AI has a big space there at the least in 2020. So you see entrepreneurs coming back from Boise where they were hiding out during the pandemic because there's a lot of fomo around AI.

All right, for my second number, we can all agree that one of the best things about summer is playing sports on the beach, working up a sweat, and then jumping into the ocean to cool off. Well, in South Florida right now, you cannot do that because the water is as hot as a hot tub, literally. On Monday, a buoy and Manatee Bay recorded a temperature of 101.1 degrees Fahrenheit. The second straight day temps were higher than 100 degrees and also a potential record. For some context, the average hot tub temperature is 100 to 102 degrees Fahrenheit. So this reading is shocking scientists who are trying to figure out why the oceans, and not just the land, are getting so hot this summer. There are many consequences from sizzling ocean temps like bleaching sea corals

and fueling storms that could end up costing $1 trillion per year in losses. Yeah, I mean, it's brutal. I am a proponent of warm water. Like, I grew up in Florida, and I do love, like, the water being just perfect temperature for you to walk right in. I don't want to have to warm up, but 101 degrees, like, not only is it just very concerning from a climate perspective, but that's not comfortable after a day, like, sweating on the beach.

You're totally right, yeah. All right. Yeah, I think Dr. Beach is going to have to revise his rankings to go away from Florida this year because that is just not a fun experience to walk into the water and have it be like a hot tub. My old nemesis, beach. All right, my last number concerns Barbenheimer, and it's about the surprising geographic breakdown of which movie, Barbie or Oppenheimer, was trending more across U.S. states. You'd think Barbie, with its feminist message that's been attacked by many conservatives as woke, would be more popular in blue states, while the war epic Oppenheimer would be

more popular in conservative areas. But a map that's gone viral, this week showed that Barbie was trending online much higher than Oppenheimer in deep red states like Mississippi, Arkansas, and Louisiana, while the liberal northeast appeared to be more interested in Oppenheimer. In a Fox News segment, the hosts were shown the map and appeared as shocked as most of us when they learned this. Some of their theories include the South likes to party. The South is blistering hot, so more people are going to the movies, and the North's intellectual guilt about Western civilization developing a weapon of mass destruction. Yeah, I mean, I also saw maps where they superimposed the Barbie Oppenheimer over an electoral college vote.

And it was like a very, very close electoral college tally as well. Yeah, it was very confusing. The one that was not confusing was New Mexico had by far the highest interest in Oppenheimer because obviously it hits pretty close to home for them. Yeah, it's where they tested it. Yeah, I saw this all over TikTok too of people breaking it down and going like, what the heck is going on in the South because they love, they love Barbie. And for a final point on this, anyone who thought Barbie would kill the IPification of movies,

well, capitalism would like a word. There's this new article in Variety. Mattel's CEO is on a quest to build the Mattel Cinematic Universe, and there are 14 properties currently in active development for movies, including Barney, Polly Pocket, Thomas and Friends, an American girl. And you know there's going to be a Barbie sequel. So this is not ushering in this golden age of original content. We're just kicking off another franchise cycle.

It's literally another MCU, Mattel Cinematic Universe, dear Lord, help us all. All right, Neil, let's move on to our final story of the day where scientists in Korea have claimed they've made a breakthrough that might be the holy grail of modern physics. They claim to have created an ambient pressure room temperature superconductor. Now, that's a lot of words, so let me put my B plus in senior year physics to good use and break it down. First, a superconductor is not Hans Zimmer, but a material that can conduct electricity, highly efficiently. Aluminum is actually a superconductor under the right conditions, but those

conditions aren't exactly easy to create. Superconductors, including aluminum, only work at extremely low temperatures and extremely high pressure. So even though they're great at their job of transporting electrical currents, they aren't super practical for everyday use, which is why an ambient pressure, meaning it doesn't have to be at super high pressure, room temperature, which means it doesn't have to be super cold, superconductor would be a game changer. Hypothetically, if this finding is real, it could lead to more efficient electrical grids, better batteries, better chips and stuff like your iPhone, better everything that has to do with electrical production, storage, or transfer.

Neil, as always, there's a butt that comes with any major scientific breakthrough as people wait to see if the paper is peer-reviewed and stands up to scientific scrutiny. But a lot of people, especially on science Twitter, were popping off and getting all excited about this yesterday. Well, this is the most big if true thing that we've seen. But when you really dig into it, it does seem like this. There's a lot of holes. And this entire industry or this entire research domain has been plagued by a lot of issues in the past.

There's this guy from the University of Rochester, Ranga Diaz, who's claimed in the past that he's made an ambient superconductor. And the journal Nature had to retract one of those articles. So this is like the busiest thing in physics. And there's a lot of just doubt and skepticism. around it because of all of the mishaps and the plagiarism and the bad science in the past. Yeah, they've been burned before on this. But I will say there, I mean, there's definitely excitement and optimism around it because, again, this has been called the Holy Grail of modern physics.

And here's the deal, though. People have already started to recreate. And I'm not talking about like research scientists. I'm talking about just hobbyists. Because according to the paper, it's not that hard. you can recreate, recreate this experiment without complicated materials

or like a complicated lab. So I'm literally watching people in real time like live tweet themselves trying to recreate the experiment and people were calling on YouTubers like, Mr. Bees, please just like devote the next video to making it this superconductor and see if it actually holds up to scrutiny.

So I do think like literally in the next few hours or few days, we will see if someone can recreate it or not. And if it's true, people are like, Like, guys, I don't think you understand. We've been trying to do this for 100 years. This changes everything if we can figure out how to get the superconductor. The coolest thing I read about that was the Meisner effect, which is when the superconductor is actually being a superconductor, it expels all magnetic field from the material. So there's literally no magnetic field.

Right. It levitates. It levitates. And that's what they showed in the paper. And people are like, what if they were just like faking that? and they were using other magnets. So that's going to be the thing that if someone can recreate it, they'll recreate the Meisner infect and have levitate some things.

So I love, I don't know. It's cool. It's very cool. All right, we have to wrap it up there. Hope everyone has a wonderful Thursday. If you want to write in and let us know whether you think UFOs are real. Our email is Morning Brew Daily at Morningbrew.com. Emily Milliron is our editor and producer, Samantha Vela's and Raymond Lou, our associate producers.

Isabel Wynn is our technical director. Billy Minino is on audio. Hair and makeup refused to take stock tips instead of a salary. So much integrity. 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.

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