Morning Brew Daily - What Made Markets Tank on Monday & Google Loses Massive Antitrust Case

Episode Date: August 6, 2024

Episode 381: Neal and Toby dig deep into the markets historic tumble on Monday and explain exactly what happened to send investors and economists into a tailspin. Plus, Google loses a massive antitrust case over their search engine and CrowdStrike fights back against Delta. Next up Mars is in talks for a billion dollar deal to purchase Pringles and why the F-bomb is being dropped more and more in pop culture. Then finally, ChatGPT may have a tool to detect whether it is used in academic papers. Checkout https://beehiiv.link/morning-brew-daily and get a 30 day free trial and also 20% off 3 months with code BREW Get your Morning Brew Daily T-Shirt HERE: https://shop.morningbrew.com/products/morning-brew-radio-t-shirt?_pos=1&_sid=6b0bc409d&_ss=r&variant=45353879044316  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'm Neil Fryman. And I'm Toby Howell. Today, in a major ruling, Google search was declared in a legal monopoly, justice for Ask Jeeps. Then what the heck just happened in the stock market? We'll let you know if you should sell everything and move to a remote ranch in Montana where nobody cares about the Japanese yen. It's Tuesday, August 6th. Let's ride.

Toby, welcome back, sir. Thank you so much. Thanks for holding down the fort with Kyle. guys did awesome. It's so nice just popping on the show as a as a listener and just catching up on the news you guys did awesome. So you probably heard me talk about the I made the claim that the easiest Olympic team to make for a moderately athletic person like me would be skeleton which is essentially extreme headfirst sledding and I have been vindicated by someone who is actually on the US National Skeleton

team and MBD listener wrote in to say that while watching the 2006 Olympics he made a drunken bar bet with his friends that he could compete in skeleton. And then he went on to race internationally for six years, but injuries sidelined him from the Olympics. So I got to get training. Neil, you don't know how much of an eye roll I pulled when you were saying, like, I could totally do this. And then to see that message come in made it very, very tough to swallow.

I think you could do it. So training starts tomorrow? Training starts this morning. Now a word from our sponsor, Beehive. All right, Neil, I want you to put yourself in the shoes of someone who wants to be a creator. I'm already there. I'm rehearsing TikTok dances as we speak. Sorry, should have been more specific.

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Big Tech started to look more like little tech as Nvidia, Apple, and Microsoft led the magnificent 7 index to a 4.3% drop. And brokerages from Fidelity to Schwab experienced interruptions as historically high numbers of shares traded hands. Once the dust had settled, Apple had its worst day since September 2022. the NASDAQ 100 lost $907 billion in market value. And in the span of just three weeks, around $6.4 trillion has been a race from global stock markets. But today is a new day. And looking at Japan's Niki index right now, it's finished trading up 10.2% for the day, good for its largest daily gain since 2008.

So, Neil, is it so over or are we so back? We don't know, but I do think that the panic, as we were recording the show yesterday morning, did subside a little bit because more information came out about what was sparking this crash in the markets. It started in Japan and then made its way over to the U.S. And as we learned more about the particular mechanics of what caused the sell-off, I think a lot of people became a little more sanguine about the prospects of the stock market going forward. Obviously, it was still carnage out there. But when we learn more, it kind of made things a little bit calmer and people kind of step back from the brink. Yeah, in a big part of this unwinding that we saw was this yen trade

that became very popular for a long time because for a long time, Japanese interest rates were at zero or actually negative. So you could borrow yen at close to 0% interest rate and basically do whatever you want with it. You could buy equities over here. You could stash it in a cash account yielding 5%. And it was all hunky dory as long as the yen didn't strengthen. And it was all fun and profits, but then Japan raised its interest rates. for the first time in 17 years last week. Suddenly, the yen wasn't as cheap as it once was. All it did is the central bank hiked interest rates 0.25%,

which is still insanely low, but it spiked the value of the yen by almost 8% compared to the U.S. dollar. So that forced a lot of investors to also cover some of their short positions when it came to the yen, which caused them to sell off their other equities and ever to cover those, which just led to that enormous sell-off that we saw yesterday. But you're right, as we dug into it, it seemed to be spurred in part by this very specific yen trade that ended up rippling

through the entire stock market. And that's not to discount a lot of other concerns investors have right now because of that week. Jobs report that came in, a looming Fed cut, a looming understanding that maybe the Fed is behind the ball. But in an ironic way, this crash yesterday kind of brought out a lot of the don't panic people. A lot of analysts came in and said, guys, everything is okay.

They pointed to this particular carry trade with the yen saying that's why it crashed, not because of market fundamentals. They pointed to very strong earnings that have occurred over this earning season. I mean, companies are beating 78% of the time, which is above the historical average GDP tracker has us at 2.5% growth. This quarter, all the big tech companies, while they're showing slowing growth, are still growing. I mean, meta grew revenue 22% last quarter. So they pointed to all of these data points saying the economy is actually okay. And there have been all these warnings about a recession coming up and they're saying, guys, pull back from the brink.

We're doing just fine. The Fed doesn't need to have this emergency rate cut. They maybe are behind the ball a little bit, but they'll cut in September and things will be okay. A recession is not right around the corner. Yeah, I kicked up that discourse again. Should the Fed have cut last meeting? And maybe hindsight is always 2020.

had they known that unemployment was going to come in hotter or worse than expected, perhaps they would have been a little bit more convinced that the U.S. economy was weakening enough to justify these rate cuts. But yeah, you mentioned those words emergency rate cut. Remember, the Fed's mandate is not to prop up the stock market. So they have whatever's happening in the stock market is actually not of their concern. So it would do more to spark fears if they did convene an emergency meeting in rate cut. So there's a very, very low probability, like almost 0% probability that that happens.

Just by your time, it's more than six weeks until the next Fed meeting. That's probably when we're going to see the next rate cut. It is official. Google Search is an illegal monopoly. So said Judge, a meat meta yesterday in a decision that hands the government its biggest antitrust went against the tech industry in decades. It could also deal a major blow to Google's most prominent product depending on the extent of the penalties. this case dates back to 2020 when the DOJ sued Google over accusations that it maintained an illegal

monopoly in the search and advertising markets. Now, it is not illegal to be big and powerful like Google Search. That doesn't make you a monopoly, but you do violate U.S. antitrust laws if you use that size to block out rivals from competing with you. And that's exactly what Google has done with search through exclusionary contracts, according to meta. During the trial, it was revealed that Google pays 26 billion. dollars per year to smartphone makers like Apple and web browsers like Mozilla's Firefox to be

the default search engine. And that was the smoking gun for the DOJ's argument that Google uses its heft to box out competitors like Bing and Duck Duck Go. And how can you possibly compete with $26 billion? Google can appeal the case, but as it stands now, the biggest blow to big tech since Microsoft's antitrust lost in the early 2000s. Right. And I think that is why this is such a big deal because of what it means for other antitrust rulings. Because remember, the Justice Department, they've sued Apple. They're arguing that they've made it difficult for consumers to ditch the iPhone. The FTC has also sued MEDA, claiming that they have acted out against competitors. They've sued Amazon, accusing it of unfair practices to third-party sellers. And then Google also

has another trial against the DOJ a second time this fall with that separate challenge to its advertising business. So the common threat of all those cases is that the government, is testing the limits of these monopoly laws that, remember, we're originally drafted up to deal with companies like Standard Oil to see if there is this precedent to break up these new big tech behemists that kind of rule the modern markets. So the FTC wants to use these antitrust laws to take down big tech. So this victory against Google provides a lot of credibility to some of those efforts. Absolutely. I mean, what they were saying was that Google is using these exclusionary contracts. I mean, it came out during the trial that they paid Apple $20 billion to be the

default search engine on the iPhone. So essentially, when you open up Safari, I don't have an iPhone, but when you open up Safari and it's Google there, that's not by accident. That's because Google paid Apple $20 billion. It's like they're hogging all of the access point. This is what they're being accused of, just basically hogging all of the access points where you would find search, whether it's opening up a browser or on your phone. It's like, When you're getting off of a highway and the first thing you see, you're hungry, and the first thing you see after every single exit is a McDonald's. And the only reason McDonald's is there is because they paid the local town to be the first stop on the exit.

That's exactly what Google did with its payments to Apple and other smartphone makers to become the default search engine. Another way to think about it too is that Apple technically has the resources to build their own search engine, but they don't because Google is paying them $20 billion a year to use theirs instead. So when you start digging into some of those practices and you think about the downstream effects of those payments, it's not just that consumers encounter Google everywhere, every access point that they try to access a search engine, but it's also that they're disincentivizing other players from making moves like the apples of the world that could technically feasibly build a search engine, but don't because they're getting this nice little payday. So we don't know what's going to happen next because the judge also has to do this separate proceeding where he finds out or well, where he'll determine what penalties to levy on Google.

It could be a breakoff of search from the rest of Google's business. It could be monetary policies. It could be just a ban on these payments. So we'll see what has to happen, what will happen going forward with what penalty Google will have to pay. And there will be huge implications for all those other antitrust trials you talked about. Remember when you were a kid and you and your siblings would make. some huge mess, but when mom and dad got mad, it was always your siblings' fault. Well, CrowdStrike and Delta are playing the blame game right now over who should be liable

for last month's massive IT outage that caused thousands of flight cancellations. First, it was Delta CEO Ed Bashan telling CNBC that the mass cancellations cost the company $500 million and that the airline has no choice but to seek damages. Then it was Crowdstrike's lawyers who wrote to Delta on Sunday that its litigation threats, quote, contributed to a misleading narrative that CrowdStrike is responsible for Delta's IT decision and that CrowdStrike CEO actually reached out to Bashan to offer on-site assistance but received no response. So we have a little business beef on our hands here that seems to be careening towards the courts, Neil. Who do you think is painting a more compelling picture?

Well, Delta is kind of in a tough spot here because every single other airline that was hit with this Crowdstrike debacle, which was basically every single one except South because it was running on way old Microsoft Software. Got its operations up pretty quickly within a day or two after this happened. But for Delta, this extended multiple days. They had to cancel 5,000 flights. They suffered the worst out of any. So CrowdStrike is saying, Delta, if it was our fault-wise, American and United and

everyone else doing okay and you are not. Delta is responding, well, that's because you are deeply embedded in our software more than anybody else. and it hit our crew scheduling thing, which made everything blow up in our face. So it is your fault. But I think CrowdStrike has a little bit of the upper hand here because they can say they're telling Delta

to preserve all of their documentation from the past five years related to their IT and all of the delays that they've experienced in the past. So they have that card to play. And they're saying, Delta, I don't think you want to go here. The other reason why I think CrowdStrike might have a leg up as well is that its contractual liability is capped at single digit millions. So it's not that it's a massive multimillion dollar package that Delta would want in response

to what happened to their IT system. So maybe CrowdStrike shaking in their boots a little bit because they have been kind of preaching this. Delta should work cooperatively with us to find a resolution. They are big partners with each other too. So they're trying to say like, listen, it's in both of our best interests to kind of resolve this. But CrowdStrike's also getting feeling pressure from all.

sides, not just from Delta, because remember, shareholders filed a suit against the company back at the end of July. And there's also a new class action lawsuit from three travelers saying that crowd strikes negligence with the outage resulted in major disruptions to their air travel. So they are, of course, there was going to be a legal fallout from this, but it looks like in this particular instance with Delta, it might be at an advantage. All I want, all I know is that we got to hire the lawyer that drew up the contract that caps their liability in the single digit millions? Also, my final point

I'll add to this is that I returned from Northern Michigan yesterday was in a very big Delta hub in Detroit and I just I took a picture of the flight delays too. The entire suite of flight is still delayed. It might have something to do with the weather in Florida but I was just thinking back

like, is this still crowdstrike related? I just felt for all the people who were in the middle of that massive debacle. Up next, I'm back which means it's time for Toby's trends. 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 3-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard.

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cheese it, or a can of Pringles. Because that's exactly what Mars is trying to do. The candy geniuses behind M&Ms are reportedly considering buying snack maker Kelova, the owner of snack brands you just bought, and a deal that would be one of the biggest so far this year and one of the biggest ever in the packaged food industry. Kelenova is valued at about $25 billion, so a deal with the premium attached could top $30 billion.

Yeah, snacks are a huge business. So you're probably thinking, okay, I've heard of Pringles, but what the heck is Kelanova? It is the artist formerly known as Kellogg, which last year split its business in two. One unit is Kelanova, snacks, and the other is, of course, cereal, home to breakfast staples in the Howell household like Apple Jacks, Frosted Flakes, and Fruit Loops. Toby, this is a play for Mars to expand beyond chocolate into more salty snacks and scale up during a period of slower growth, would you pay $30 billion for Pringles and

Cheez-Itz? I probably would, if I'm being honest. Apple Jacks has never set foot in the Howell House, though the other two certainly have. But it is interesting time, you know, because everything at Kelanova seems to be actually firing on all cylinders, or at least firing better than the broader snack market. Last week, they actually raised their sales forecast and its latest earnings beat expectations. So it's a bit of an odd time for these rumors to spill out, but also, Mars can afford it. Like, Mars is a gigantic... I had no idea Mars was so big. I mean, people love Snickers. People love Snickers. They also are very big in the pet care business as well. Their last major splash was they spent almost over $9 billion to acquire 800 pet care hospitals.

So they do like to grow and expand through acquisitions. One that people probably remember, too, is that they bought the chewing gum snack maker, Riggly, in 2008, for $23 billion. So it's not afraid of making these big, splashy deals. And maybe as you are entering this timing of a lot of maybe growth is slowing, valuations is dipping a little bit. Market leaders tend to look around at big competitors and see if some consolidation is on the table. But I do think Kelenova isn't a strong spot, and, like, they will be valued at a premium

if this deal happens. Yeah, they're saying we might see consolidation in the snack food industry or in the packaged food industry, like the boom times of 1999 in 2001, which I really wish we were podcasting during because General Mills bought Pillsbury and Kraft bought Nabisco. So that would have been very fun to talk about the biggest revelation I got from the story is that there's no cheese it's in Europe yet. Why? It's just an American snack. But Kelenova said that they are very excited to do a big, splashy entrance of. Cheez-It's to European consumers with a big launch supported by social media and advertising. So to anyone listening in Europe, first of all, I'm curious whether you've had a Cheez-It or

if you can have access to Cheez-It's. But get ready because your life will be changed. That would blow my mind if I was just a Belgian who never encountered it before. All right. Apologies to my grandma listening to this right now. You might want to cover your ears because today's Toby's trends dives into the rise of the F-word in movies. Deadpool and Wolverine is not only the most lucrative R-rated movie ever. It also makes very good use of that rating, uttering the F-bomb more than 100 times at 128 minutes of runtime.

That's an expletive once every 86 seconds. But it's not just the murk with the mouth that needs to wash his mouth out with soap. You are probably noticing the rise of the word everywhere. Taylor Swift sings it 18 times in just one song on her Tortured Poets Department album. Going back a little further, uncut jibes. Dems features 560 instances of the F-world, while Wolf of Wall Street uses it 569 times. Neil, the F-word used to be so taboo that politicians would justify banning books that used it like Catchering the Rye from schools.

Now it's being used 100 times in Disney movies that gross over $800 million. What the f*** is going on? Toby, Jesus, my ears, the bleeding. No, but I think you are right in that words change. and language changed over time, and we have different cultural taboos on things, and there may be words that they would never say 200 years ago that we say perfectly fine now,

and it's not offensive to anyone. So I just think it shows how culture and norm changes over time. I'm not saying that people are just going to start spouting out F-bombs and meetings or in class anytime soon, but the fact that Disney, after acquiring Deadpool and Wolverine, said, yes, we are not only going to keep your raunchy bits. We're going to ramp it up to have more curse words than any other movie in this entire franchise, I think speaks to somewhat where we are as a society.

And I don't know exactly what that signifies about where we are, but it is where we are. I do just want to shout out Disney and Marvel Studios for understanding that and not shying away from it because you could easily tone it down, water, Deadpool down a little bit. But clearly it's resonating with audience. I've heard a little bit mixed reviews from my friends about it. but I do think that it's a core part of Deadpool as a character, which is why we see it so much. But you're right. I mean, if you just look at some of these studies of language that have happened recently, I mean,

a British study in 2021 found that the F word was the most use swear word in the entire country. And the usage itself has evolved, too. It doesn't just, it's not an insult. It's not just a term for coitus anymore. It's used in so many different ways. Some negative, but some humorous, some empathetic, some mischievous. It is just a very versatile world these days, and any time you see a word being used more and more, it desensitizes you to it, which is just showing how it's infiltrated popular culture as well.

Finally, what if I told you that OpenAI has developed a tool that could solve chat GPT-related plagiarism in an instant, but it's not releasing it because it would mean a lot of people would stop using chat GPT. Well, I'm telling you now, it's real. According to the Wall Street Journal, OpenAI has a feature. that's been ready to go for a year that would essentially slap a watermark on chat GPT created text so you know it was generated by the chatbot. This would be a godsend for teachers who've had to deal with a surge in students using chat GPT on homework and tests with a limited set of tools for detecting what's AI and what's human.

However, it has kept this watermarking tool from the public as employees debate whether transparency is more important than keeping users from leaving for other chatbots. In a survey of chatGBT users conducted by OpenAI, nearly 30% said they would use chatGBT less if it deployed watermarks and rivals didn't. OpenAI responded to the journal's report in the form of a blog post, confirming that it's worked on this tool but defended its decision to keep it hidden, saying it could easily be manipulated by bad actors and that it could disproportionately impact non-native speakers. Quite the predicament.

It is quite the predicament. So let's dig into how this specifically would work, though. because what is this magic tool that can identify plagiarism? Basically, that chat CBT is the way that it works is that it's a prediction algorithm where it just tries to figure out what word or they call them tokens would appear next in a sentence. And this anti-cheating tool would essentially just slightly change how those tokens are being selected. And it would leave this pattern that is not recognizable to the naked eye, but instead they're just calling it a watermark that this system would be able to identify

already though, the internal reports are saying that if students really wanted to, they could probably get around this too. One way of doing that is just feeding the output into Google translate and then translating it and then bringing it back or another way is like you leave an emoji after every sentence, then delete those emojis. So there are ways around it. But for the most part, according to these internal reports, it is 99.9% effective. So they're truly just sitting on this with those fears that maybe people would stop using their product if they knew there was a way to detect it and using that as justification for not releasing it.

We can understand why there's so much backlash to this is because this is a huge problem and the tools that are out there are just not effective. Open AI did release a tool that didn't cover chat GPT but covered a lot of AI chatbots last year. It was 26% effective. So they pulled it. A lot of other third party tools just aren't working. This is a huge problem for teachers.

So the fact that Open AI is sitting there, we have something that is 99.9% effective at tracing, cheating, and chat GPT, and we're just sitting on it because we care more about our bottom line than maybe helping out societal problems is obviously quite frustrating for people. To be fair, though, Open AI do have a tool that was released to determine whether images or videos created using its image generation software are AI or not. They have released that. They said that it's more pressing concern, especially among an election year. They think that audio and visual watermarking is more important than text watermarking because the harms can be more significant. So they have really some, but they are clearly sitting on this one because

it is a tool that a lot of students and a lot of their core users do use a lot. Meanwhile, some teachers are getting very creative to determine cheating using chat GPT. I love this story. A political science professor at the University of Utah gave students a writing assignment that included with like 0.001 sized font, instruction. to include a reference to Batman. So with the visible eye, you could never find out, you would never know that the teacher wanted a reference to Batman. But if you just copy, pasted that prompt into chat GPT or any other AI chatbot,

it would see it, it would read it. And so it would generate an output that included nonsensical references to Batman. And that's how we found out which students were using chat GPT and which students were actually writing it by hand. I love that. Even in schoolwork, you cannot escape Batman. Batman is always there. All right.

let's wrap it up there. Thanks so much for starting your day with us and have a wonderful Tuesday. For any questions, comments, or welcome back notes for Toby, send an email to Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lou is our producer. Olivia Graham is our associate producer. Ed Lewis is our technical director. Billy Minino is on audio, hair makeup, bought the dip. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great. So today, Neil, let's run it back Tomorrow. Spring is the season

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