Economic Implications of US-China Meeting & Climate Change Costs $150B a Year

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and... Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell.

0:34On today's pod, President Biden and President Xi break sourdough in a historic face-to-face meeting in San Francisco. Then everyone get excited because the inflation reading came in yesterday and it was cooler than the other side of your pillow. It's Wednesday, November 15th. Let's ride.

0:53So just like everyone listening out there, Neil and I have been getting our holiday plans in order. Neil, make sure you bring over the mashed potatoes when you come over for Thanksgiving. but part of our holiday planning is to record some special shows for you all. And one idea we've been mulling over for a while is doing a mailbag episode where Neil and I answer questions from you all. Right, you send us tons of emails, leave thoughtful comments in our YouTube videos, which sounds like an oxymoron, but it's true. So on Black Friday, we are going to devote an entire episode to answering your questions, which means over the next few days, please send us anything you've always wanted to ask to our email, morningbrewdailyatmorningbrew.com, and use the subject line Q &A so it's easier to categorize.

1:38And as far as questions are concerned, anything is fair game. All right, let's check in on our presenting sponsor, Brex. Neil, the most annoying thing as an employee is when you have to do stuff that isn't your job. You mean how we have to do our own hair and makeup because somebody is slacking off? I was thinking more along the lines of dealing with annoying expense busy work. Oh. Brex makes it so easy to expend stuff that you can get back to your actual job quicker than you can say, let's ride. Brex is the best, and I'm not just saying that because they support the pod. If you want to check out all the cool stuff we talk about about Brex, head to brex.com today.

2:16Tonight on NBC, Jimmy Fallon and Bozema St. John host a highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. Let's head to the news. Whatever meeting you've got on your calendar today, it's probably not as important as the one going down in San Francisco this afternoon.

2:53There, on the sidelines of the Asia-Pacific Economic Cooperation Summit, President Biden and Chinese President Xi Jinping will meet face-to-face for the first time in a year. And this is a meeting that could definitely not have been in email. Relations between the U.S. and China have reached their lowest point in decades, with tit-for-tat trade restrictions, growing animosity, and who could forget that Chinese spy balloon that floated onto American skies earlier this year. There is major concern that the U.S. and China, the two world's superpowers, are heading to military confrontation as China gets more aggressive around Taiwan.

3:26Or that could not happen, which is what Biden and Xi aim to do. Ahead of the meeting, both leaders said they wanted to repair the relationship and position it more as an intense economic competition based on mutual respect rather than open hostility. To put it in terms, sports fans would understand more of an Alcaraz versus Djokovic situation rather than Michigan versus Ohio State. Toby, what are you looking forward to this meeting? I'm looking forward to the fact that China's economic performance in the post-COVID era is kind of a main factor here that makes people more optimistic for a more productive summit than normal, because China has not really bounced back in a way that a lot of people expected.

4:06It's got this increasingly aging population, higher than normal levels of youth unemployment, a real estate market that's teetering on the verge of a meltdown, and an exodus in foreign investment as well. So that gives a lot more leverage to the U.S. versus if China had roared back from COVID like many expected. And Xi is actually shouldering a lot of the blame here. His strict COVID lockdown policies hurt the country's ability to bounce back. And he's also been cracking down on industry and the company. So all this to say that China's not coming in to this summit in a position of immense power.

4:36And so it could be more open to compromise like we've discussed. Yeah, it was just a few years ago where a lot of economic commentators said it was just a matter of time before China eclipses the U.S. in terms of its economy. There was no way it wasn't going to beat the U.S. to become the world's number one economic superpower. But in 2021, China's GDP was 75 percent the size of the U.S.'s. And in the third quarter now, that has slipped to 64 percent, which is where it was in 2017. So this is causing a lot of reflection for people looking at China and they're saying, you know what? Maybe this economy is not on a rocket ship after all.

5:12Its economy has slowed in the post-COVID era. Those lockdowns hammered it hard. And we've talked about there's a lot of youth malaise there. There's this concept of lying down. And we've we've talked about this on the show, how a lot of China's youth are moving back in with their parents because they don't see a lot of opportunity. Xi Jinping has cracked down on the private sector like crazy and has cost it$1 trillion. So they're looking at businesses and business formation and entrepreneurship and saying the government is not really fostering this ability to succeed. Yeah, this is certainly a business first conference, first and foremost, rather than all the geopolitical stuff that's going on.

5:50I mean, for instance, Taiwan, which is always in a precarious geopolitical position in that region. They're sending the CEO of the Taiwan Semiconductor Manufacturing Company, so not a diplomatic representative, even though there are diplomatic representatives here. And then there's going to be this very exclusive dinner with a lot of CEOs. $2 ,000 ahead. Neil, that is a hot ticket to get there. Absolutely. And yeah, you said they're breaking sourdough. And I'm sure a lot of the conversation will be around just figuring out what the temperature check is on China in terms of their attitude towards U.S.

6:23businesses right now, because so many have such a big stake over there. Tesla has manufacturing over there. Apple obviously has a massive footprint still. Even as they're trying to wean themselves off, obviously they want a good relationship with China. Yeah, they need Chinese consumers. I mean, China is the second most populous country, but Apple gets a fifth of their sales from China, and they still need to have a working business relationship. It's also a big deal for San Francisco. When was the last time San Francisco hosted a major summit? We've talked a lot about on the show about how San Francisco is trying to repair its image.

6:55And the governor of California, Gavin Newsom, caught a little heat this week for saying, I know folks are saying, oh, they're just cleaning up this place because all these fancy leaders are coming to town. I had a family reunion in San Francisco 10 years ago. So I think that was the last major big diplomatic event that happened in SF. Neil, the people at home can't see it, but I have a smile on my face right now because the act of living isn't as painfully expensive right now. The inflation data for October came out and it was unchanged from the previous month. The last time I was this excited for something to be flat, I was making crepes for the first time.

7:32Now it's not all sunshine and rainbows. Inflation still increased 3.2 % from a year ago despite being unchanged month over month. And the thing about 3.2 % inflation is it isn't the 2 % number the Fed is targeting. Still, the core inflation gauge, which strips away volatile food and gas prices, rose at the slowest pace since September of 2021. And it might just be that softer inflation data that Jerome Powell has been looking for to justify the end of this rate hiking cycle. Neil, there were price slowdowns across the economy and the CPI's basket of good, but some sectors fared better than others.

8:09Yeah, give me shelter, because we need to talk about shelter prices, which account for a third of the overall CPI index. Shelter prices is just a proxy for rent prices. They climbed 0.3%, which was half the prior month's pace. And because they account for such a large share of overall inflation, rent prices, growing rent prices had kept up inflation numbers above the Fed's target for many months. And there was a lot of anticipation about when would rent prices start to go down? When would rent prices start to go down? because leases are much, you know, you can't just go up to a lease and change the price sign like you can at a gas station.

8:46So there had been this long anticipation about when rent prices would finally be cooling, and it seems like they are, and that's dragging the overall inflation picture down with it. Yeah, and then everyone was kind of partying yesterday, but most of all, stocks. The S &P finished Tuesday up about 2%. The Nasdaq was up even more than that. They're all excited about this prospect of maybe cheaper money in the future. Longer-term bond yields also fell yesterday, which would help ease that sting of mortgage costs and other loans. Then also, low-key, it was a fantastic day for the Vanguard Real Estate Investment Trust, which is super sensitive to interest rates.

9:21It was up nearly 6 % yesterday. So, everyone go check your 401 s, see if you have a little Vanguard REIT in there. I will check. That's interesting news to me. I think stocks climbed yesterday because this was the foundation of the soft landing that the Fed had hoped for, the ability to bring down inflation from a 9 % peak last year to 2 % levels without sending the economy into a recession. No one wants to declare victory because that is just bad news when you do that. But it does seem like all the conditions are there. A softer job market without completely sending the job market into a tailspin.

10:02That has happened. So it's pretty good news without declaring victory that the Fed has achieved this so-called soft landing. And the question now becomes, will they cut rates next year? Yeah, it does. I think they will still leave them elevated for the time being because, again, we're not at 2 % yet. It's that last mile that people are talking about. But I do think this was the market finally saying we feel confident that there won't be any more hikes, which has always been the boogeyman. And then finally, you said there's core CPI, which excludes gas prices. But we should talk about gas prices because so many are so many gas stations around the country are below two ninety nine a gallon now.

10:40And so that's pretty good news. And gas putty came out with this report yesterday saying Thanksgiving road trippers, which I don't know if you're road tripping for Thanksgiving. I'm flying to Florida. You're flying. Well, either way, for Thanksgiving, road trippers are going to be saving one point two billion dollars this year on gas compared to last year. That's a lot of mashed potatoes, Neil. OK, climate change is here in the U.S. Nowhere is safe and it's costing the country one hundred and fifty billion dollars each year. That's according to the National Climate Assessment, the premier climate report released once every four years by the government.

11:12For the first time, the report included a section on the economic consequences of climate change, given the growing interest around how businesses, household finances and markets will be impacted by shifting weather patterns. And the conclusions were striking. The U.S. now experiences an extreme weather event that tops$1 billion in damages every three weeks. In the 1980s, when adjusted for inflation, that happened just once every four months. So far this year, there have been$25 billion weather disasters, many of which have been fueled by a hotter climate, already topping the record of$22 billion disasters from 2020.

11:48This report was a wake-up call that the U.S. needs to both address the fact that climate change is already wreaking havoc on our economy and drastically ramp up emissions cuts so things don't get worse. Yeah, one of the big kind of findings of this report is this breakthrough of attribution science. And that is basically a signing that you can definitively show how climate change is affecting extreme weather events. And that has allowed scientists to kind of pinpoint some of these economic figures that we're speaking about. Before, it was a little harder to directly attribute things to climate change, but now we can.

12:22And obviously, it's always going to affect industries that rely on certain climate conditions like ski resorts, farming, fisheries, these industries that really need certain weather conditions in order to perform. But it also just affects everything from crop harvest to how productive workers are in the summer. So this is, again, a widespread issue. Obviously, I don't need to explain to people how big climate change is, but it certainly affects the economy in various ways. And one of the conclusions was the U.S. is not on track to meet our goals. Emissions fell less than 1 % a year on average from 2005 to 2019.

13:00But to meet the Paris Agreement accords of trying to keep temperatures from rising over 2 degrees Celsius over pre-industrial levels by 2050, we would have to ramp up our emissions cuts by 6 % a year. And the Biden administration tried to use this report to say, look at all of the green jobs that we've created. Look at all the private investment in renewable energies that has happened because of our stimulus packages and our subsidies toward these industries. But this report is showing that we're not even close to there. To be fair, though, we are doing better than other major world polluters like China, like India.

13:37Our emissions actually have declined between 2005 and 2019. They've fallen around 12%. But again, if we want to be on pace, we'd have to increase that decline by 6 % a year annually. And just to put that in perspective, current U.S. emissions have been decreasing by less than 1 % per year. So yes, we are doing better than everyone else, relatively speaking, but we still need to speed it up. All right, Neil, before we jump into the next half of our show, we're going to take a quick break.

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14:47From afternoon coffee runs to stocking office supplies and even team dinners, you can earn miles on all your business expenses. Plus, you can earn 125 ,000 bonus miles for a limited time through October 29th. The Delta SkyMiles Reserve Business card. If you travel, you know. Minimum spending requirements and terms apply. Offer ends October 29th, 2025. Neil, it's time to crack out our tiny violins because much like those crepes I made, bonuses across the finance industry are getting thin. Overall, investment banker bonuses are projected to fall by as much as 25 % this year, and that's falling on the heels of last year in which Wall Street bonuses saw their biggest drop since the Great Recession.

15:30The main reason for the drop is that it was just a fairly met year on wall street remember even though we are doing some reserve victory laps at the beginning of the show talking about the end potentially of rate hikes we've still been in a high rate environment all year plus there was a little old banking crisis that we had back in march that led to the implosion of multiple regional banks so yes bonus season is likely going to look a little sparse for any profession that involves wearing a Patagonia jacket, Neil. You said it was a May year, but I'll go even bigger than that. I think it was a pretty bad year.

16:03A bland year? I don't know what's worse than May, but it is going to be possibly one of the worst year in a decade for M &A. There just haven't been any deals. And that's how the worst declines for any bonuses is in investment banking. And investment bankers underwrite deals. They underwrite IPOs. They underwrite mergers. And those things just haven't happened this year. They haven't bounced back in a big way. So all of M &A has basically dried up in our post-COVID world after a huge boom in 2020 and 2021. There was supposed to be an IPO renaissance, but 80 % of all IPOs since 2020 are now underwater.

16:41So it's just kind of a bleak environment out there for banks, and the compensation is reflecting that. The one bright spot in kind of, I mentioned like the finance industry, the Patagonia vest wearing industry, wealth management was a bright spot with bonuses expected to come in 5 % higher. And that's because even though on Wall Street, it's been a man or black year, the market has done very, very well as we've discussed on the show. And so wealth managers have a great gig. As long as the market's going up, their performance goes up as well. So that was one of the bright spots in terms of like this bonus landscape.

17:14Yeah, Goldman Sachs is trying to move, and all of these banks really are trying to move more into wealth management, because that's where the money is being had these days. Speaking of Goldman, Goldman, even though we've talked about how bonuses across the board are falling, Goldman is actually looking at bumping up bonuses, because they are looking for standouts in their trading and investment banking division, because those divisions account for 68 % of their overall revenue. And it's still, even though it hasn't been a great year on Wall Street, it's still hyper-competitive. And so they want to reward the people who are bringing the most money for them.

17:46So I do think it was almost a tactical play because right after this report about the bonuses drops, Goldman released an exclusive report with Reuters that said, oh, actually, we're looking at bumping up bonuses. So I think this might be kind of a power grab to get some of those all-star performers. There is a war for talent. And these big banks are losing a lot of talent to boutique funds and hedge funds that are snagging them away from the Morgan Stanley's, the JP Morgan's, the Goldman Sachs of the world. So you can't lower bonuses account for the majority of employees' compensation. They get very well paid over the course of the year.

18:19But this is a big chunk. And a lot of bankers look forward to this bonus every single year. And you can't just not pay them because they're just going to leave and go to somewhere else because this other hedge fund that's doing fine is going to take them. So it speaks to a larger battle for talent across Wall Street. and the big banks are doing everything they can to not hemorrhage star performers from going to smaller, high-performing hedge funds and other private investment vehicles. Okay, anyone listening to this get kicked out of a group chat because they have green bubbles instead of blue ones?

18:51Only me? Okay, well, a startup wants to help us become a part of society again. The phone startup Nothing is launching a feature called Nothing Chats that lets Android users, those of us with green text bubbles, use iMessage and join our friends in Blue Bubble Paradise. Nothing Chats is expected to launch on Friday and is only available to owners of Nothing's Phone 2. So if you don't have that phone, then you can't use it. And Nothing's CEO is aware that this is not going to forever change the world of text messaging, but instead it's intended to start a conversation. And that conversation is Apple uses its Blue Bubbles associated with iMessage to gain loyalty among users and keep them locked in the iPhone ecosystem.

19:33It sounds kind of dumb, but on survey after survey, you see that people say that the stigma of having a green bubble is enough to prevent them from leaving Apple. It's very powerful. Yeah, absolutely. And you know more than ever, even though we're entering this great era of kind of smartphone parody that's coming to the market, a lot of phones out there perform on the same level as Apple. So one of the main moats Apple still has is its brand. And a huge part of that brand is the exclusive, exclusivity of these freaking blue bubbles so to see a company kind of go after that i do think apple may potentially retaliate because again this is such a big thing for them and nothing ceo kind of hinted at that he said i do think whatever we do is going to be passed along within cupertino but we're so small that it will be a really bad uh it will look really bad if apple takes any action so i do think this is part a good feature for nothing's uh actual users and it also is kind of an Epic Games-esque stand against everything Apple stands for, the exclusivity that it exudes.

20:33So I don't think Apple will pursue legal action, but I can definitely see them removing the store on their side that is nothing. And they may not have a choice eventually because Europe, as it's done with so many other tech features and tech companies, appears to be possibly cracking down on iMessage and wondering whether the Apple iMessage exclusivity violates the Digital Markets Act, which aims to increase competition and level the playing field for tech companies and their software across the EU. Yeah, the EU is a, I've mentioned thorn inside, the EU is a massive thorn in Apple's side right now.

21:12Have you heard of nothing beforehand? Yeah, I have. It was a big deal when this phone came out because it was, it's a cool looking phone. You can see the inside of it. they've also released some earbuds that were really popular as well it's just not often you get a new hardware company so whenever they something like this comes out it causes a bit of a wave they haven't sold that many phones they said they've sold in the six figures so at least over a hundred thousand so it's not again setting the world on fire but you do see why kind of they're trying to break into the apple hedge money if a lot of the tech the tech sites had reviews of this second phone, Nothing Phone 2.

21:51They were like, this is a pretty solid mid-range phone. It costs$599. I just never heard of it. Yeah, I said the playing field is getting more level than ever. So that's why Apple loves its blue bubbles. All right, let's move on to our final story. Lewiston, Maine is a lot of things. It's a small, predominantly white Catholic mill town, home to thousands of Somali refugees. It's the site of a tragic mass shooting just over two weeks ago. And it's also the home of the Lewiston Blue Devils, the new Class A boys soccer state champions. This city has been through enormous pain in the last month. But all that was forgotten for a brief moment as the boys who promised to, quote, do it for the city, got it done in the first period of overtime.

22:33A willing mayor and a cheaper cost of living made Lewiston a popular landing spot for tens of thousands of Somali refugees in the early 2000s fleeing a civil war in their own country. And it was the children of that initial wave of immigrants who helped raise a title that will end up meaning so much to this city. It's not often we come across a story that merges triumph and tragedy so seamlessly. But we just wanted to take a moment at the end of our show today to recognize Lewiston and the incredible story behind this soccer team. Because, Neil, it is an incredible story. Yeah, I mean, first of all, the power of sports to lift up communities after a tragedy is undefeated.

23:09I'm thinking about the Yankees games after 9-11 or that first Saints game back to the Superdome after Hurricane Katrina when they blocked the punt and everyone went wild. So it really is amazing how it gives you goosebumps, how how sports just a victory like this can really raise a community up and make everyone feel good for a brief moment after they've endured a lot of pain. Yeah. And I just want to hit on the I mentioned the Somali immigrants came to this small town. It is a wild story, but it was kind of the mayor back in the 2000s saw this opportunity to provide asylum to a lot of these refugees.

23:45And a lot of the Somali immigrants say that they feel like they saved Lewiston in a way because when they began to arrive, the town's housing vacancy rates stood at 20%. It was this kind of just small main town that wasn't doing very well. And suddenly you have this influx of new people. And now they've integrated into the culture in a way that they're a very important part of the soccer team. They actually won a state title back in 2015. Yeah, they're kind of a juggernaut. They've won four state titles in 10 years. They're doing, they're borderline juggernaut, I would say. But yeah. Four and ten.