Inflation Rate At Two-Year Low, San Francisco's Retail Exodus & Instant Pot Goes Bankrupt

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0:38Good morning, Brew Daily Show. I am Neil Freiman. And I'm Toby Howell. On today's episode, our long national inflation nightmare might be coming to a close, maybe. And how one of America's favorite kitchen appliances of the 2010s went bankrupt. Then we will check in on a French AI company that just raised over$100 million, dollars, despite being just four weeks old, before finishing up by digging into the recent crime spree in Japan where Pokemon cards are getting stolen left and right. Neil, it's Wednesday, June 14th. Let's ride.

1:17All right, Toby, happy Flag Day. Thank you. I was waiting for you to wish me Happy Flag Day. Huge day. It is the day in 1777 when the U.S. adopted the flag for the first time. I have a little quiz for you because we're big on trivia here. How many iterations of the U.S. flag do you think there have been since 1777? Oh, man. Well, I know a bunch of states have been added over time. Wow. A lot of states. Impressive knowledge there. All right. I'm just going to kind of do a number that's famous in American history and go 13. 13. Actually, it's more than double that. There's 27 different versions of the flag.

1:54The one we've used currently has been since 1960 because Hawaii was the last state added. It is the longest used version of the U.S. flag in history. It's been in use for over 62 years now. I mean, until we get 51, I guess. But yeah, it makes sense. We can't do 51 because there's just no more room. Throw off all the symmetry, you're right. And we learned yesterday that, I know this is a big deal for a lot of people, that Betsy Ross, there is no evidence that she had anything to do with making the first American flag, despite all the legend around her. There is evidence, by the way. She went to the same church as George Washington.

2:30A lot of her descendants... So did a lot of other people. ...corroborate the story. She was a flag maker, and in the absence of someone else stepping forward and claiming that they made the first flag, I am going to stay on Team Betsy, Team Betsy Ross for life. All right, well, there is a Betsy Ross house in Philadelphia, and they are definitely milking that legend. Let's start off the show with some exciting news. inflation is falling pretty quickly now so it looks like we may not have to be like the italians and boycott our favorite things the consumer price index which is the u.s.'s monthly inflation report was released shortly after we recorded the podcast yesterday morning and it showed that inflation rose four percent annually in may which is a big drop from the 4.9 percent number in april and the lowest rate of inflation in more than two years now four percent is still double the fed's two percent target.

3:21And there are still certain areas of the economy where prices are still rising pretty quickly. So it's definitely too early to hang a mission accomplished banner from an aircraft carrier. So we're not going to do that. But in general, as all the green in the stock market is showing, this is definitely a hopeful sign that the Fed's interest rate hikes have been doing their job and bringing inflation back down to levels that don't make you nauseous every time you go shopping. I know. And honestly, digging into the inflation report, we did learn a few things. So most of the kind of fall in inflation was actually came from gas prices, energy prices falling so much.

3:56If we remember back a year ago at this time, like the Ukraine war was breaking out and energy prices were skyrocketing. So we did see that energy prices fall 5.6 % from April to May, and they're down nearly 20 % from a year ago. So yeah, energy put the team on its back a little bit and is really accounting for some of that drop. And that's why economists tend to extract you know energy and food prices from their picture of inflation because they are so volatile like prices shouldn't you know jump up and down 20 percent uh annually um so when economists look at inflation they call they look at something uh called core cpi which strips out food and gas prices and that's kind of seen as a more stable indicator my takeaway one of the things that most interested me about inflation is that it showed that revenge spending is down and revenge spending was we were all coming out of the pandemic everyone was booking all these vacations abroad or to other parts of the united states and it seems like all of that's and we were going out to eat all every single night um and it seems like that type of spending revenge spending has been falling and that's seen in airfare prices which declined 13 last month um so that was just one we're in our austerity right yeah everyone's just getting back to their normal boring lives and not planning a zillion vacations.

5:16It's still going to be a big year for airlines, but it seems like that crazy growth as everyone was coming out of the pandemic and lockdowns has subsided somewhat. Yeah. And if we just want to look ahead a little bit too, economists are forecasting that we could see price growth inflation slide as low as 3.2%, which would be nice. Again, not quite that 2 % number, but that's good times ahead. And then if we just want to look back a little bit, remember, we peaked at 9.1 % inflation. So again, you kind of have to look at where we've come from and where we're going, but it looks like, yeah, our wallets aren't going to get whipped by inflation as much as it has going forward.

5:54Two more little stats that I want to bring up before we move on. The price of eggs dropped 14 % from April to May. So remember how egg prices skyrocketed in the national emergency. That was the biggest one month drop since 1951, what we just had. And if we're looking for why we still have inflation right now. Well, food prices overall still went up in May, but the biggest thing is rent. So shelter costs, which is what economists call rent in the inflation report, they jumped 8.7 % from a year earlier. So people are still paying a lot more for housing. There is an optimistic look at this and saying that, look, if you take, if you look at the private companies like Zillow apartment lists that are doing maybe closer tracking of the dynamics of the rental market right now, it's showing that rent is softening and that this 8.7 figure, 8.7 % figure from the government is kind of like pretty lagging.

6:48And that in the second half of the year, we'll see those start to go down. But if you're looking for one of the main reasons why inflation is still at 4 % and still rising way too quickly for the Fed's liking, it is because of these rental costs. People love hearing that just putting a roof over their head is what's making inflation rough. But yeah, that's the inflation report. That's the high level view of kind of how spending is affecting the economy. And the Fed is going to announce probably an interest rate pause for the first time in 10 meetings later today. So be on the lookout for that.

7:21We're probably not getting an interest rate hike and we'll see what happens after that. That is the big question. That is. All right, Neil, our next story takes us to San Francisco where people who are craving Auntie Anne's pretzel or maybe a trip to Hot Topic are going to be out of luck because the Westfield San Francisco Center, which is San Fran's main mall, is shutting down after its parent company decided to stop making loan payments and turn it over to its lender. Neil, the writing has been on the wall for this particular mall for a little bit. It's kind of a combination of a bunch of trends into one.

7:55First of all, the Bay Area never really quite bounced back from the pandemic. Foot traffic at the mall is down 43 % since 2019, and revenue has stalled out at$298 million last year, down from$455 million in 2019. Ugly numbers right there. And then plus, San Francisco is dealing with crime issues. It experiences 67 % more burglaries than the national average of 21 other major U.S. cities and 41 % more property-related crimes. And that crime rate is something that Westfield actually called out. This is a quote from them. Unsafe conditions and lack of enforcement against rampant criminal activity contributed to them leaving this mall.

8:41So, Neil, this is a tough development for a downtown San Francisco that can't really seem to catch a break these days. The vibes are really bad with San Francisco. It's crazy to think back like four years ago, 2019 or something, during the last tech boom. And San Francisco was popping off. It was seen as this amazing place. And I can't even remember any other place that's undergone such a U-turn vibe shift than San Francisco during the pandemic. But the numbers, I mean, you can't just these numbers don't they tell the story, right? Like, so there's a 30 percent vacancy rate for offices right now.

9:19And that is up 7x since the start of 2020. There's one developer who said if you sell an office today in San Francisco, you'll probably be looking at a 40 to 80 percent price cut than what you would have been just 18 months ago. And the entire population of San Francisco lost dropped 6.3 percent from 2019 to 2021. So you can say like the vibes are bad in San Francisco, but also when you look at the numbers, like they kind of tell the same story. I know. And if we want to look at tourism as well. So just last week, honestly, Park Hotels and Resorts, which owns kind of the two biggest downtown San Francisco hotels, decided to do the same thing where they just gave up the locations.

10:02And that's because you're right. San Francisco is seeing less tourism. The tourism board forecasts 23.9 million visitors this year, down from 26.2 in 2019. So, yeah, they're kind of getting hit on all sides from it. People are saying, like, this could be kind of a doom loop is a buzzy word that we've been tossed around, where basically a lot of people start working from home, which means the downtown area office buildings don't get as much traffic, which means city hall isn't getting as money tax receipts which means public service budgets get cut it makes residents and businesses depart which makes the tax base freaking me out dude yeah shrink even further so you can see how it happened viral quickly right the first thing that happened that went to my mind is detroit which lost 60 of its population over six decades because automakers all moved out i don't think this is going to happen with san francisco it is too nice the The residential real estate market is still super hot.

10:59You can drive an hour and go to Sequoia National Park and see these beautiful redwoods. The weather is nice. I don't think this is Detroit. And I think the AI boom is also bringing a lot of people back out of FOMO. I don't know if they're going to take over these office spaces, these large hulking office towers. But I am not ready to write off San Francisco because the location is too good. And I think it's just going through a little bump. So call me bullish on San Francisco. We should go in on some commercial real estate there. All right. Next story. Toby, to start off, I've got a question for you.

11:30What do the following things have in common? Ice Ice Baby, Achy Breaky Heart, You the First Time You Smoked Weed, and Instant Pot. I legitimately have no idea, Neil. Tell me. They're all one-hit wonders. Oh, my gosh. So Instant Brands, the parent company of the Instant Pot pressure cooker, filed for Chapter 11 bankruptcy on Monday. It'll still exist and, you know, sell you stuff because it secured$133 million to stay afloat, but its finances are in really bad condition. So what happened? I mean, it's pretty simple. No one is buying Instant Pots anymore. Sales fell 22 % in the first quarter for their seventh straight quarterly drop.

12:10And when you have plummeting sales and more than 1 ,900 employees to pay, the buck has to stop somewhere. So this is a pretty stunning boom and bust cycle for a product that was only a few years ago just flying off the shelves. Yeah, I mean, Instant Brand CEO himself said that no product stays at a phenom level forever. So Instant Pot was one of those fast risers. I will say, though, that I used it last night to cook rice. I made a little sushi rice in it. It still is a great product. Yeah, but you just only need one. Like you're not buying them multiple times. So, yeah, you can see how it kind of rides this phenom wave.

12:44everyone gets one in their kitchens and then you're not replacing it every four years or so. Right. So in 2019, a PE firm bought the brand and was like, okay, we need to do something else. It kind of, all of the new product lines kind of flopped. I think there was an air purifier, there was an air fryer. Which is so sad because if they just did the air purifier a little later, they might've gotten a little - Like two weeks ago. Yeah, two weeks ago. And the CEO is like, look, we're still going to be selling stuff. It'll still make money. People will probably need new ones, but it did just kind of reach market saturation.

13:15Right. And they've got to think of these new product lines to come out to, to grow the company. You can't just, you can't just make one instant pot and right. Just right off into the sunset forever. I'm still team instant pot. Put me on team Betsy Ross and team instant pot. I still use mine. So I'm not team, team air fryer. I think they get too dirty. Well, I'll tell you what this is bearish for is air fryers. I, right. It's the same sort of phenom level where everyone puts one in their kitchen. So what's the next thing that's coming? Right before we go to break, Neil, what's our next non-product?

13:44The next kitchen appliance? I have an idea. Go ahead. Sous vide machines, where you can cook steak in a sous vide machine. So I think that's going to be the next hype cycle. Put it down. You're bullish on San Francisco. I'm bullish on sous vide machines. All right, Neil, before we jump into our next story, we're going to take a quick break. This episode is brought to you by State Farm. Listening to this podcast? Smart move. Being financially savvy? Smart move. Another smart move? Having State Farm help you create a competitive price when you choose to bundle home and auto. Bundling. Just another way to save with a personal price plan.

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15:06Neil, what were you doing when you were four weeks old? Don't answer that. I already know the answer to that. You came out of the womb typing a newsletter. But if you're a four-week old AI startup, you probably already have nine figures in the bank. That's exactly what Mistral AI, a French AI startup, has after raising$113 million just 28 days into its existence as a company. That puts it at a$260 million valuation in just four weeks. Unsurprisingly, Mistral has yet to develop its first product, which makes sense because its first few employees literally started work only a few days ago. And to be fair, they do have a pretty impressive pedigree.

15:50The three founders are alums from Google's DeepMind and Meta, so this isn't their first walk in the AI park. But still, Neil, if this isn't indicative of the frenzy deal making going on around AI right now, then I don't know what is. Right. This is like, tell me we're in a bubble without telling me we're in a bubble, because this is a total bet on these people. They have no idea what they're about to produce. I mean, they say that their product is going to be kind of like GPT, which is a large language model that powers chat GPT and other chatbots. But like, you're just taking a flyer here. And And you know that, you know, VCs know that many of the companies they're going to invest in at this point are going to fail.

16:31But they don't want to miss the next Google or Microsoft that is coming out of the AI tech boom. So you're just like, okay, I'll write this check. Like, who knows? These guys are smart. They worked at Meta and Google as AI researchers. And they're very impressive dudes. It's one like the the company that led the round, which is Lightspeed Venture Partners, said there's only 80 to 100 people globally who will have the level of experience that these three founders have. Yeah. So you're just like, I'm going to write 30 checks and hope that one pans out. That's that's venture capital. It's yeah, it's purely a bet on the founding team.

17:07They know that it costs a lot of money to train these models. So they're basically saying, hey, here's your 100 million in cash. Go train your models. See if there's anything there. The one thing that Mistril has kind of been pushing is that they really want to be open source. So they're saying that they plan to build the models using only publicly available data to get around some of those copyright claims that OpenAI is potentially going up against. They're also saying all their models and data sets will be open source as well. And then they also said that they're only targeting enterprise customers, which I do think is something VCs, their ears perk up when they hear that.

17:42B2B SaaS. Right, exactly. So we won't be, you and me won't be using whatever Mistril creates, but maybe Morning Brew as a company will. Morning Brew AI. But yeah, my big takeaway is that even though there's the Googles, the Apples, the Amazons, the Microsofts of the world, they're obviously hammering AI pretty hard. The fact that we're still seeing VCs pour money into these fledgling companies show that it's not game over yet. Like it's not like big tech at one. So we're going to be seeing a couple more different companies popping up along the way. Yeah, I think in the U.S., at least, AI startups have gotten$25 billion in venture funding this year in an era when not a lot of other companies are being funded.

18:25I want to focus on the French aspect of this because, like, when you think of France's biggest companies, and we've talked about this on the show, it is all handbag makers. It's all, like, luxury companies like LVMH. Those are its big tech. And, you know, the U.S. has just dominated tech for the last couple decades. And France doesn't have, France or Europe really, doesn't have its tech champion. And all they're good at is regulating tech and not really making big tech companies. So this is a big moment for France. It's Europe's biggest seed round ever. And today the French president Macron is doing a press conference with the CEO of Mistral.

19:03Kind of shows you it's a big deal. They're like, we need our guy. We need our little competitor in this tech race because all we do is kind of regulate it. All right, Neil. I'm bullish. All right. Moving on. Did you know that the Beatles are about to release a new song? I did not. All right. So an interview with the BBC yesterday, Paul McCartney said the band will release the final Beatles record this year. But wait, you're probably thinking, look, this band broke up more than 50 years ago. George Harrison and John Lennon, two of the four Beatles, are not even alive. So how is this going to work exactly?

19:36All right, well, it just pertains to our last story because the answer is AI, of course. McCartney is using artificial intelligence to extract John Lennon's voice from an old demo that he recorded, separate out from the piano that Lennon was playing, and then add new instrumentation and turn it to an actual song. So McCartney didn't spill the beans on what song this was actually going to be, but fans are speculating that it's called Now and Then, which was an unfinished 1978 love song recorded on a cassette that John Lennon's wife, Yoko Ono, handed to McCartney. So AI may be a bit scary at points, but it's really cool that it can be used to give us a new Beatles track.

20:15Yeah. I was so surprised at how positive the reaction was to this because if we go back to, remember when the Anthony Bourdain documentary came out called Roadrunner and people got really mad when the filmmaker came out and said that they digitally recreated Bourdain's voice after he passed away using AI. And a lot of people are saying that's an invasion of his privacy. You're making him say words that he never actually said. And then here you have a similar thing. It is different because Lennon did record this. So he had actually sung this and you're just basically cleaning it up. But I just thought that those two parallels were interesting to see how this one is university beloved.

20:56and it may have something to do with the Beatles too, but. I think it's because that was a deep fake. So this is not a deep, deep fake is when an AI sort of creates new language based on after being trained on an old, you know, data set of this person talking. This is what's called source separation. And basically it allows you to take old material and turn it into something new. So for instance, a song that someone recorded on the piano, like John Lennon, and you turn it into an actual song. So you're just separating the vocal track from the instrumentation track. So you're not really creating anything new.

21:30And that is what a deepfake is. One of my favorite parts about this is the guy who's behind this technology. And that is Peter Jackson, the director of The Lord of the Rings. And he sort of pioneered this source separation AI technology when he was making Get Back, which was the documentary about the Beatles released on Disney+. It is eight hours long. I did not get through all of it. I watched the first episode. It was amazing. But the whole point is that there was this really grainy footage of the Beatles, really grainy audio. And Peter Jackson used this AI to make it into something that was actually, you know, enjoyable to watch.

22:06Super crisp. The audio came through really well. So he pioneered this, you know, this technology with Get Back. And then now they're using it to recreate a new Beatles song for the first time in decades. I'm super pumped. The one AI to rule them all. Oh, man. Thank you, Peter Jackson. All right, Neil, our last story takes us to Japan, where a Pokemon crime spree is raging. Wait until you hear some of these numbers. $58 ,000 worth of Pokemon cards were stolen from a shop in Tokyo. Shop near Mount Fuji was hit, losing some 600 cards worth around$47 ,000. And another Tokyo theft totaled nearly$200 ,000 in stolen value across 540 cards.

22:48So in total, over$487 ,000 worth of cards have been reported stolen in Japan over just the last few months. And that was just from one Wall Street Journal investigation, so it could be more. And Neil, this isn't necessarily just a Japan thing either. As early as 2020, Pokemon was finding reports of employees at printing factories stealing cards right off the production line. So from a collectible perspective, Pokemon cards are just one of those things that have skyrocketed in value, so much so that you're incentivizing these thefts. Couple that with the fact that there's also a massive shortage of these new valuable expansion packs because Pokemon, the company, just didn't print enough.

23:28And you can kind of piece together why this ring of thefts is kind of exploding right now. Yeah, I mean, have you looked at some of these details? Basically, one dude rappelled down the side of a building. Love that. Smashed into a glass and took off these Pokemon cards. It's like the first scene of the Dark Knight from Batman. Yeah. And then another dude just got arrested and he said that he was basically like trying to steal it for someone on Twitter. Kind of being like a, you know, a hit man for hire in the Pokemon theft realm. But these things are just, you know, like you've said, they've skyrocketed in value.

24:02There have been a bunch of celebs that got into it during the pandemic. You know that Logan Paul bought$2 million worth of Pokemon cards. logic paid 183 000 for a single uh single charizard it's crazy i i do want to quiz you real quick neil so the most valuable pokemon card sold for around six million dollars in the last year do you know which character of pokemon is on that um who do people like uh i will go with i don't know this is completely random um snorlax i mean it's funny because people watching on YouTube it's he's right behind you oh it's Pikachu yeah Pikachu it's a special edition Pikachu illustrator card Logan Paul who you mentioned actually wore it via around his neck at a Wrestlemania event kind of as a flex so people it's crazy Pokemon cards are so valuable now people aren't wearing jewelry anymore you're wearing you're wearing Pokemon cards around your neck so so go look at the in your basement make sure no one's stealing yeah lock them in a safe All right, that is all the time we have for our show.

25:06Toby, you're off out of town, but you'll still be with us, which I'm excited about. Remote pod. Remote pod for the first time. You can always write in to us, Morning Brew Daily at morningbrew.com. We love hearing from you. Huge shout out to our crew today. Emily Milliron is our editor producer. Samantha Vellas and Raymond Liu are the associate producers. Yuchen Awaogu is our technical director. Billy Menino is on audio. Hair and makeup was a one snip wonder. Devon 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.

25:51And Doug, here we have the Lemo Emu in its natural habitat, helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating. It's accompanied by his natural ally, Doug. Uh, Lemu? Is that guy with the binoculars watching us? Cut the camera. They see us. Only pay for what you need at LibertyMutual.com. Liberty, Liberty, Liberty, Liberty. Savings vary. Underwritten by Liberty Mutual Insurance Company and affiliates excludes Massachusetts.