US Debt Rating Gets Downgraded & How Uber Is Finally Making Money

0:00Hey Fidelity, how can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them where you left them. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC, member NYSE SIPC. Good morning, Brew Daily Show. I am Neil Freiman. And I'm Toby Howell. On today's pod, Uber just did something it has never done as a company and will tell you about the life and even longer afterlife of a woman named Henrietta Lacks.

0:43Then the U.S. has lost its pristine AAA debt rating and Janet Yellen is none too happy about it. Plus, Mr. Beast has beef with his restaurant partner. And much like the burgers he sold to fans, the lawsuit is getting bloody and raw. It's Wednesday, August 2nd. Let's ride.

1:06Toby was baby's first missed alarm this morning. I know. Neil showed up a little late to the studio. I'm not going to lie. I was plotting through, okay, if I had to do it by myself, how would I do it? And how would you have done it? I would have just had really dramatic pauses like the sports talk show radio host where they just don't say anything for a while and then you come back on. So I could have done it. You could have took phone calls. That'd be, if one of us misses a taping because we didn't wake up, you could just take phone calls from listeners. Hey, what do you think about this? I think that could be interesting.

1:36No, luckily I still can't sleep late. So I woke up at five and I looked at my phone. I was like, it's five o 'clock. Am I dreaming? This is so weird. I don't know what happened. I'm just nervous for tomorrow. No, you got it. You're fine. Look at, I'm still here at six. Yeah. Beautiful. All right. Let's dive in the show. Neil, have you ever had one of those friends who, when you go out to dinner and split the bill, you're always a little nervous you might not see a dollar from them well the u.s is now kind of that friend in the eyes of fitch one of the three major credit rating agencies fitch just downgraded the u.s debt rating from the highest level of triple a to double a plus for the first time ever it didn't point to a specific issue that led to the rating instead citing a steady deterioration in standards of governance over the last 20 years but if we want to read between the lines The 11th hour debt ceiling negotiations earlier this year that nearly led to a default coupled with the January 6th insurrection are two instances that were definitely contributing factors.

2:40Now, this does have precedent. Another rating agency, Standard & Poor's, downgraded the U.S. to AA plus in 2011 after a similar debt ceiling standoff, which led to some nervy times in the stock and bond markets. But this time around, most people, including Treasury Secretary Janet Yellen, are calling the move largely arbitrary and symbolic. But still, Neil, even if it is symbolic, it's grounded in some real and concerning governance trends. You're on Fitch's side here. Well, I'm just saying. I've never seen, you know, econ Twitter or economists agree about something. They always argue whether inflation is transitory, whether inflation is not transitory.

3:20to AT they all posted long threads being like I do not understand what the hell Fitch is thinking right now because if you look at the economy we're at 3.6 percent unemployment you know they're like you're not actually looking at the economy here you've Fitch you've downgraded yourself that was the main meme and so I've never seen anyone from like Mohamed El Elrion who's the chief economist at Allianz to former treasury secretary Larry Summers they were just like this is an inept, a bizarre decision that comes at a very weird time when the U.S. economy is only growing. Yeah. I love that you're so deep in economist Twitter.

3:59I'm really deep in econ Twitter. They were so mad. Yeah. But Yellen was also not happy. She said, I strongly disagree with the decision, saying it's arbitrary and based on outdated data, kind of what you're speaking to. And that, yeah, that the country has shown huge improvements over the last few months. And that I think Fitch just really didn't want to be it's like if you're not first you're your last type of thing so they wanted to like front run in case something happened i don't know they're also like the third largest rating agency so i think they're trying to make a little bit of a name for themselves they have a a little bit of a inferiority middle child complex yeah but if we if we want to go back to 2011 because this was the last time it happened at the s &p downgraded uh the debt rating they said it was between it was because there's a growing gulf between the political parties and honestly like they're like uh 12 years later we're still seeing this this gulf i mean speaking of the widening gulf between political parties donald trump was officially indicted for a third time yesterday this time in connection to trying to overturn the 2020 election so again if we want to look at history and look at the last time we were downgraded it does seem like we're in a similar political climate well that's uh that was the main criticism from democrats they didn't blame Fitch per se.

5:13They blamed Republicans for bringing us to the brink with their debt ceiling negotiations and trying to overturn the election. Because the decision, if you look at Fitch's decision, it was mainly based on politics, not economic data. It was, we don't think that your Congress can work together to do things like raise the debt ceiling, which really shouldn't even be a thing to begin with. But the fact that we have it since 1917 creates these moments where we're on the brink and we could default on our debt. And the whole point of this rating is to assess the, you know, risk worthiness of our treasuries throughout the world.

5:48The thing is, this is not going to really change much. I mean, in 2011, it led to very short lived period of market mayhem, but treasury people piled into treasuries and the U.S. dollar then, which keeps treasuries from yields from spiking. So, I mean, typically when a country gets downgraded, the idea is their borrowing costs go up because they're a more risky lender, a more risky borrower. But the U.S. is, you know, based on all things you can observe, is a very trustworthy borrower and people will still continue to buy our treasuries and our borrowing costs won't raise. I am actually interested to see how the market reacts this morning because, yeah, in 2011, there was like a little bit of a momentary panic, but in the grand scheme of things, it was only like two months that it was depressed.

6:31So I wonder if it will just be like, Maybe we'll see a little dip or, I don't know, maybe they will read into it more than we think. Last night, I mean, it did happen after market close, but still, people still trade after market close, and there really wasn't a blip. And I think traders are really going to brush this off. I think whatever the Fed does with interest rates is going to be far more important than whatever little Fitch says. Little Abercrombie and Fitch. Meanwhile, Moody's, you're all we have. Keep us at AAA. Yeah. Not that it matters. Well, it kind of matters. All right. Moving on.

7:02It's the busiest week on the earnings calendar, and Toby and I have been sifting through all the reports so you don't have to. In true Ryder Cup fashion, we gave ourselves two captain's picks of companies to talk about, and we chose them because their results tell a broader story about where we're at as an economy. So, Toby, you won the coin flip. You get to go first. All right, Neil. The first company I want to highlight is Uber. Uber is finally profitable. It reported net income of$394 million last quarter. That's compared to a net loss of$2.6 billion this same quarter last year. So Uber CEO Dara Krasrasahi, I practiced that, also pointed out that it was that a reported free cash flow of over$1 billion in its first operating profit ever.

7:49And here's the kicker. The days of Uber incinerating cash seem to be over. They expect to be profitable every quarter going forward. Who knows if that will actually be true. But despite this rosy guidance, shares actually fell around 5 % yesterday because it missed on overall revenue. But, Neil, I think that that kind of rounding error will be forgotten in the long run now that Uber is entering its profitable era. Yeah, I mean, it only lost$31.5 billion since 2014. Not a big deal. Crazy. They incinerate cash more than any other company out there. It is funny because I remember, you know, when I first joined Morning Brew in 2017, Uber, Travis Kalanick, the founder, was the main story about how they were in such high growth mode, spending millions or billions, really, to go into various markets and get market share and kind of like eschew regulations and any notion that they would ever be profitable.

8:43They swapped. They got Dara in 2017, who is seen as the adult in the room who's led companies before. And they were like, OK, eventually you got to get this to be profitable. And six years later, here we are. So this is really something that investors and the market watchers have been watching for so long. And it's finally here. I don't know what to do with it. I know, it feels weird to talk about Uber in terms of being a profitable company. But yeah, mobility gross bookings were up. Delivery gross bookings were up. 25%, 12 % respectively. So Uber's just kind of flying now. Uber's doing really well.

9:13All right, moving on. We've talked a lot about the companies that have gotten crushed from COVID going away. But I can't think of any better example of this than the maker of the COVID vaccine itself, Pfizer. Pfizer basically vaccined its way out of billions of dollars in sales, and unfortunately getting jabbed can't be turned into a subscription business. So the pharma company reported quarterly revenue that declined 54 % from last quarter due to a slowdown in its COVID business. Vaccine sales are expected to fall 64 % from 2022, while sales of its treatment, Paxlovid, are expected to drop 58%.

9:45Shares are down about 30 % this year. Its CEO says this was expected and that they've built their plans for the post-COVID crisis era. And that era begins now. Pfizer's got a pipeline of 19 new drugs that it plans to submit for regulatory approval, including one for the hair loss condition alopecia and one for a common respiratory virus. Toby, always got to be thinking one step ahead of the pharma biz. I know. Watching Pfizer's quarterly revenue chart is hilarious because it just absolutely has this massive spike to almost$30 billion, dollars which is just insane and now it's kind of come back to earth in like the 12 billion dollar range yeah that's you i guess you live by the jab died by the jab a little bit well they're trying not to and here's the thing i looked if they have you know what could be their savior i looked if they have an ozempic rival i know yeah it doesn't seem like they're at the level of novo nordisk or eli lily they scrapped a an obesity pill a once a day obesity pill that was in development a few months ago they still have a few others in the pipeline because everyone does yeah and the ceo was like, it could be a$10 billion a year business, but they seem like they're far behind in the obesity pill race, which is really the next kind of COVID vaccine.

10:54And I said COVID vaccine is not a subscription business, but this pill, this Ozempic rival is, because you have to take it every day and you can't stop. It's an interesting state of the farmer market right now, because yeah, for so long, it was just dominated by COVID and now they're entering the Ozempic era, I guess. All right, for our next earnings wrap up, we're checking in on Molson Coors, who just had its single biggest revenue quarter ever. The brewer of beers like Miller and Coors Light has been picking up customers left and right as people continue to shift their allegiance away from Anheuser-Busch in the wake of the Dylan Mulvaney controversy.

11:30The combined sales of Miller's and Coors Light outsold Bud Light by 50 % last quarter and even outsold Modella Special, which is the new number one beer in America, by 30%. Neil, we all knew that other beer brands were going to benefit from the Bud Light exodus. But it is kind of crazy to see just how far reaching this negative sentiment towards the brand is and who is benefiting them. Right. No one expects this to happen in the beer industry because beer drinkers are loyal. And so they'll just go to their brand. So everyone, you know, I think CEOs in the beer industry are like, look, we can maybe improve or decline on the margins here, but we're not going to see wholesale changes.

12:07And in my notes here, I wrote, in the lead-in, I wrote LOL quote. This is from the CEO. He goes, we didn't plan on our largest competitor's largest brand declining volume by nearly 30 % during the quarter. Yeah. So this is like completely unheard of where wholesale, on wholesale, people are like, I'm not drinking this brand anymore that I've been loyal to for decades. And you're seeing it really filter significantly throughout the entire industry. I know. It's crazy. Bud Light sales have been falling by more than 20 % every single week compared to the same week last year since April. It's just a truly absurd drop off.

12:39And I mean, we talked about it, that beer is a relatively replaceable product. And so people just are moving laterally into Miller in Coors Light. I don't like Heineken, so I kind of want to beat up on them while we're on the subject of beer. But they said they had a really bad quarter because they raised prices too much. Neil, don't. Heineken is crap. He's not a good Heineken guy. Amstel is so much better if you're looking for that lager taste. Try Amstel. I want to see if people agree with me in the comments. All right. Last I want to talk about Caterpillar, the heavy duty machinery company whose bulldozers and backhoes you see on construction sites all over the world.

13:14I love looking at Caterpillar earnings because they make the things that make the things. If their sales are strong, it's a good sign for the global economy and vice versa. So how's it looking now? Real good. Shares shot to a record high after a strong earnings report. But I want to focus on three key tidbits that speak to larger themes we've been discussing on this podcast. One is demand for Caterpillar machines in the U.S. is huge thanks to the bipartisan infrastructure bill passed by Congress in 2021. Looks like we're actually repairing roads and bridges, not just in Philly, but across the country.

13:48Number two, demand for its mining machinery is an overdrive as companies race to extract lithium and rare earth minerals that are used in electric cars. This is a key component to the EV supply chain. And bits like literal minerals embedded in rocks, which is kind of wild to think about that. This is what we need for electric vehicles. And then finally is China. This is where the news gets less good. China is in a major economic slump. And Caterpillar said the vibes there are even worse than feared. Also, China did not doing well is not a great sign for other countries because of its major trade linkages with everyone.

14:21But yeah, that's what I that's what I have for cat. I know. I do love Caterpillar earning calls because on the call, the CEO said that we now expect further weakness as the 10 ton and above excavator industry has declined, which is hilarious because you're right. Caterpillar is kind of like the canary in the coal mine for the global economy. If the canary was a 10 ton yellow excavator. I think the reason I like it is because I just want to drive one of those. I know. There's something just so primal about just getting behind like a backhoe or something. I was interested to see how much China accounted for Caterpillar sales, though, because they kind of put that gloomy forecast out.

14:57It's only 5 % to 10 % of Caterpillar's overall sales, which is surprising for just, yeah, the second largest economy in the world. There's really those two yellow building machinery makers. there's the uh there's the japanese brand and i'm blanking on it's like kutaku or i don't know i guess i was deep in the machine yeah i was gonna default to you on that one well yeah there's caterpillar which is the american one then there's the japanese one that starts with a k and i can look it up later in the show but um perfect if anyone wants to send us neil and i one to just take around new york we'd love that all right before we jump into our next story neil we're We're gonna take a quick break.

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16:36Alright, Neil. As loyal listeners of the pod know, this has been the summer of Barbenheimer. But as Barbenheimer box office tallies pile up and the memes flow, another movie has been having an impressive summer a little further off the radar. it's called sound of freedom and it's pulled in 150 million dollars so far at the domestic box office a smashing success for a crowdfunded indie film from the little-known religiously inclined angel studios this movie is a crime thriller based loosely on a true story of a federal agent who saves a boy and a sister from sex traffickers in the colombian jungle it's been the center of a lot of controversy namely because its lead actor has been tied to various q anon conspiracy theories, but the controversy has only led conservative audiences to lean in even further.

17:26Overall, Sound of Freedom has been the surprise of the summer and has pulled in more domestically than Pixar's Elemental, Fast 10, Mission Impossible, and The Flash on just a$14.5 million budget. Neil, what did Sound of Freedom get right to pull in such an outsized box office? Word of mouth, right? Like just word of mouth. It hit a niche. Not niche. I say niche as in small, but it hit a particular demographic that feels like it's not typically served by Hollywood and, you know, the coastal liberal elites. And they're like, wow, this actually speaks to me. You know, I live in the middle of America.

18:02I believe I am more conservative. And when I look at what is showing in the movies, I don't typically see anything that resonates with me. And this really just lit a fire under a lot of people. And they told their friends. And then also, I know you want to talk about this Pay It Forward campaign, which seems to be super successful. There's a creative marketing strategy at getting people to buy tickets. Yeah, it was really interesting because Sound of Freedom didn't have the same advertising budget that a big budget film would have. It's the opposite of what we've been seeing with Barben High. Right.

18:35And so the actor, the lead actor came on screen after the movie ends and goes like, hey, we'd love for you to buy a ticket for someone who maybe can't afford it. And you can leave it at the box office for someone. And so on the website, they say 14 million tickets of pay it forward tickets have been sold. I think that's overstated a little bit. That's total box office sales. But the number is the fact that on opening day, more than 20 percent of the ticket sales were the pay it forward kind. So that's more than a fifth were of this variety. So you can see people are really doing it because they, because it's not just a movie.

19:09It's, it's kind of raising awareness around, uh, you know, sex trafficking. Uh, so people are like, you need to see this and it's spurring action on Congress who's hold screening. So I wonder if big Hollywood studios will steal this idea though. Cause what's to say like mission impossible. You can't have Tom Cruise go like, Hey, we want as many people to see this film as possible. It's not quite as ideologically aligned, but I could see this becoming a thing. I don't think it works for like an action thriller. This is more of like a, you know, a mission based movie. It's like, I'm trying to raise awareness around something.

19:42I don't think if, you know, if Tom Cruise, who's worth billions of dollars, you know, millions of millions of dollars and it's Warner Brothers, it's some huge studio. And they're like, you need to, why don't you pay for someone else to go see this movie? Like, I don't think it resonates with the way of like, we're a small indie flick. We're trying to raise awareness around something. So I don't I don't think it works like that. And I don't think people would respond in the same way. But we should mention this. This movie has been criticized by traffic, human trafficking experts for kind of taking a lot of liberties with the story.

20:11Right. And maybe drawing attention to a singular type of victim, whereas, you know, the victims of human trafficking are of a wider demographic. so and then there's all these conspiracy theories from both sides really about how you know on the right they're saying that amc and other studios or other theaters are suppressing viewings of this by withholding air conditioning i know yeah and amc's like we're showing this in 560 theaters like why would we like shoot ourselves in the foot by doing this but yeah that was like a very popular narrative and then the other side conspiracy theory is that they're all these tickets sold but you look at theaters and they're empty yeah i mean it there's it's a very much a lightning rod of a movie but you can't deny that it has it's done a very great good job marketing itself and it's made more money than mission impossible domestically which is really crazy to think about from a movie with a 15 million dollar budget and mission impossible had over a 250 million dollar budget and that just shows you can't you can't know i know what's gonna happen Yeah, actually you can't know if you just drape everything in pink and just go that route, you're going to do well.

21:17All right, Neil, let's move on. Our next story centers around someone poking in the beast, the Mr. Beast. The world's biggest YouTuber is suing the company he partnered with to create Mr. Beast Burger, his fast food chain. This was not just any old fast food chain, though. Mr. Beast leaned into the rise of ghost kitchens around the pandemic, which are kitchens that support a delivery only concept. so you could order a Mr. Beast burger on Uber Eats or DoorDash, but there was no physical locations. The problem with this method of outsourcing the cooking of the product is it's really tough to maintain quality.

21:52That led to some fans receiving food they described as revolting and inedible. So Mr. Beast is taking Virtual Dining Concept, the company behind the burger, to court arguing they hurt his brand and reputation by serving a bad product. Frankly, I think he has a case here. well i don't know the terms of their contract i well the i say he's got a case because like you are putting his whole thing he was bringing to this agreement was his name and if you're serving a product that i mean it is truly revolting have you had it no i haven't had it but i'm looking at some of these pictures where i mean it's a smash burger and it's completely raw on the inside and so when you get that and you you're maybe like a 13 year old fan of mr beast of course it's going to reflect negatively on your this thing was a huge craze i remember when he opened his first physical location last year at the American Dream Mall in New Jersey.

22:4010 ,000 people waited in line to get to this. And it just shows you that his sort of YouTube power is very strong. And he claimed he sold the most burgers of any restaurant in a single day with 5 ,500. That has not been fact checked by Guinness World Records, but that's what he says. So this thing was a phenomenon, but now it's a huge black eye on his brand. My observation on this is he is so meticulous about what he does, right? We know he tests 20 thumbnails for every YouTube video and he has so much control over his videos and his whole operation. And it just seems like out of left field to partner with another company and let his brand kind of be in their hands.

23:21And for someone who's so OCD controlling about what people think of him and what he presents to the audience to allow something with his name, Mr. Beastberger, to be controlled by another entity seems to be like really out of his domain. And I think he's probably not going to do that again after this experience. He did say he's going to lean into Feastables, which is his snack brand that he actually does control production and lean away from Mr. Beast. Yeah, well, plus he can ask his fans to go clean up the shelves on Feastables, which they'll do. Crazy. He's got a little army. All right, finally, I want to touch on this remarkable story that had a little closure yesterday.

24:01the family of Henrietta Lacks settled with the biotech company Thermo Fisher to resolve a lawsuit that accused Thermo Fisher of profiting off of Henrietta's cells without compensating or seeking the permission of the family. If you haven't heard of Henrietta Lacks or her famous cells, give you a quick rundown. So Henrietta was a black woman from Baltimore and in 1951 she was admitted to Johns Hopkins Hospital for cervical cancer. Without her knowledge or consent, doctors took cells from her tumor sample sent them to a lab for research. Something quite stunning happened. Instead of dying outside the body, as most other cells do, Henrietta's cells stayed alive and kept replicating.

24:40So scientists started growing this cell line, which they called Gila after her name, and they've used them in experiments all over the world to help develop some of the most critical advancements in modern medicine. They've been used for cancer treatment, Parkinson's treatment, and the flu. They've been used for polio vaccines and COVID vaccines. In all, these cells have been cited in more than 110 ,000 scientific publications. And here's the thing. The family didn't know about her immortal cells until decades after she died from cancer. And though the terms of this Thermo Fisher settlement weren't made public, they sounded like they had finally gotten justice from the exploitation of Henrietta's cells.

25:18And it would have been her 103rd birthday yesterday. Yeah, her cells are literally the goat. Like if you run down the list of everything that they contributed to, they truly are amazing because the beautiful thing about having cells that replicate is you can conduct similar experiments without changing a key variable, which is like the cells themselves. And I also was interested, like, was it something specific about her cells in particular? It's actually the fact that they were cancer cells because normal human cells die outside the body, but cancer cells, their whole deal is they continue to replicate.

25:50So it was really just the fact that they were from cervical cancer that allowed them to become immortal, and other cells have become immortal as science has progressed. But yeah, these were kind of like the first human immortal cells. They've been used everywhere. Yeah, like literally put the team on her back. Such an afterlife for this person. And the family really wanted to use this to highlight the fact that black people over the course of American history have had their bodies exploited by the medical community because they were seen as kind of less than. And then medical scientists were like, well, we can experiment on on black Americans as opposed to white Americans.