US Economy Powers Through Rate Hikes & Did Man City Cheat?

0:28This episode is brought to you by Google Chrome. I'm Toby Howell. Today, AI is misbehaving far more than we knew. Then Manchester City kicked out of the Premier League. It could happen thanks to financial breaches. It's Monday, September 28th. Let's ride.

0:49Good Monday morning, at least here in the stormy Northeast. It was a rough weekend for doing anything outside. So instead, everyone was debating a list of the top 100 TV shows of the 21st century the New York Times just released. Going from five to one is Fleabag, Succession, Mad Men, The Wire, and in the top spot, Breaking Bad. I don't think that'd exactly be my top five. Personally, I think Better Call Saul was better. Fleabag had all of 12 episodes, and Succession may be a case of recency bias. But Toby, as someone who doesn't watch a lot of TV, what's your take? I felt really left out. I'm not going to lie.

1:26The take I most aligned with was where is the Sopranos? Like, how could you leave out the Sopranos? Well, it was made in 1999, so it wasn't part of the 21st century. Here is the list that I have the most respect for, though. An ex-user, Robbie Pierce, ranked the best 100 shows of the century by how many times they've appeared as an answer in the New York Times crossword. Neil, can you tell me what the number one most mentioned crossword answer show is like a show it's a show on the list i'm blank amongst the list give me a give me a hint it's four letters and it starts with l i was gonna say silo because that seems like it's pretty i mean that doesn't start with l but it has very generic crossword letters what is this oh lost lost yeah there it is you just need to talk it out you need to talk it out it goes lost with 231 mentions then house with 106 so lost is by far the most that atlanta actually beef in andor.

2:20You need those A's, you need those vowels. So that was the list that I most, you know, could relate to. And now a word from our sponsor, Roku ads manager. All right, Neil pop quiz. Where do people spend the majority of their screen time? I'd probably say social media. Streaming TV is actually number one ahead of social media with an average of three and a half daily hours spent watching. No wonder 70 % of advertisers are increasing their streaming budgets in 2026. And a lot of that is being pulled straight from social. Yeah. And many of those advertisers are bringing those budgets to Roku at the top smart TV operating system in the U S the scale alone speaks for itself.

3:00Roku is offering a$5 ,000 match to first time spenders on Roku ads manager. Just head to advertising.roku.com slash MBD and use code brew 5k. Despite inflation, tariffs, high interest rates, and ever-rising Treasury yields, the U.S. economy's role simply cannot be slowed, like the American team in singles at the President's Cup. But while a hot economy sounds great on the surface, a hot economy next to two-decade-high Treasury yields has economists nervous because it raises the possibility that the Fed will have to go full Boulder, Colorado, and hike, hike, hike. The Fed's biggest tool for controlling inflation is raising interest rates.

3:40Higher rates are supposed to cool economic activity by making borrowing more expensive, discouraging business investment in big ticket consumer spending. But companies are so gung ho about AI and its eventual returns that they are continuing to build despite higher borrowing costs. Meanwhile, a string of economic reports show that instead of slowing down the economy, it appears to be accelerating. The jobs report showed hiring picked back up in August while layoffs have remained low. Manufacturers also had a very strong quarter. Those signs of strength mean interest rates are likely to stay higher for longer.

4:14So if you're asking investors to lock up their money in a treasury for 10 years, they demand a higher return to do it. Still, danger looms. With that 10-year yield hovering over 5%, it means everything from mortgages to car loans are more expensive, putting consumers' metal to the test. Neil, we've got ourselves a robust economy, but right now, the stronger it gets, the harder it may be for interest rates to come down. Let's look under the economic hood to understand why rising bond yields or bond yields of over 5%, which is that symbolic threshold, are supposed to slow down the economy. One reason is that they raise borrowing costs that is supposed to slow growth because maybe I'm going to do this new addition to my house, but then I have to finance it.

4:58And I look at these rates and I'm saying, OK, no, it's actually not. It's going to be expensive for me to pay back all that interest. And the other way that that higher bond yields are supposed to slow economic growth is that perhaps you are an investor and looking to say whether I'm going to invest in stocks or bonds and you see bonds. Wow. Five percent, six percent. That's pretty good. That makes this stock look less attractive. So I'm going to put my money in bonds and stock prices do fall as a result. But yeah, we're just ripping apart the playbook here because those two breaks on the economy just aren't doing anything to slow it down.

5:34The issue, too, is that when you have borrowing costs that are elevated for an extended period of time, it just increases the chances that something breaks. Because right now, you can support the weight of higher borrowing costs because the AI boom is booming. You know, companies are still investing. They're doing business investment, even though technically they should be pulling back. Consumers, too, just are kind of powering through because the job market is propping them up. But that's a house of cards. It's a very fine line once you stay in a place where rates are elevated for longer. And so you can just go back through history and see how the economy reacted in similar times to this.

6:17John Roque of 22V Research identified 16 similar rapid increases in the 10-year treasury yield over the past 50 years. And every single one was associated with some form of financial disruption. That can range all the way from a massive market crash if you go back to 1987, if you go back to the dot-com bust to the housing crisis. Or it can be something like a string of bank failures like we saw in 2023 with the Silicon Valley Bank imploding. his warning was something always breaks. So again, right now we are telling this story as the economy is hot and it can support these higher borrowing costs, but it just decreases the margin of error.

6:57Yeah, but we may have never seen anything like the AI build-out. In fact, we haven't. People say it's the biggest infrastructure build-out that America has ever seen. And these companies like Meta, Amazon, Anthropic, and OpenAI are not as sensitive to interest rate increases. You had Ajay Rajadhyaksha, who's at Barclays Global Chairman of Research, writing a note saying that it's basically these companies, if there is a 50 basis point increase like we are seeing in the 10-year treasury year, there are other borrowing costs. The returns on AI investment are so great that they'll literally just shrug it off.

7:34What he said is the result is that the most capital intensive construction cycle in the United States is being driven by entities for whom the cost of capital is at a first approximation irrelevant. It's one of the most important reasons why the economy has absorbed a substantial rate hike cycle without cracking. So it looks like these guys are just going to continue to build data centers. That powers construction jobs. That powers consumer spending. And it looks like that may not be breaking. The problem is Kevin Warsh at the Fed, it wants to slow down the economy because a higher, a hotter economy means higher inflation.

8:05He needs to get that back to 2%. So what he might do is pull the emergency brake and crush literally everything that's not AI data centers. because as we've talked about, they'll probably still build on. And that's bad news for the rest of us who aren't building data centers. Yeah, just final note here, for more than a decade, the assumption was that capital was cheap. It was plentiful. Now it is becoming more scarce and more expensive. What does that mean? It's definitely a new reality that everyone is gonna have to adjust to. You know, when your car is making a weird noise, you bring it into the shop, they look into it and go, oh boy, you got some major issues here.

8:40That's what's happening in AI right now. Turns out the OpenAI agent swarm hacking hugging face was just the tip of the iceberg. OpenAI, Anthropic, and outside security researchers are now investigating tens of thousands of incidents where AI agents went rogue and weren't on their best behavior, Axios reported. Those incidents include things like hijacking websites, creating message boards, and escaping sandboxes researchers built to keep them from getting out. A number of those episodes have come to light over the past week. There apparently was an attack on an Australian government website back in June.

9:13We learned that OpenAI agents interacted with U.S. government websites in unexpected ways and leaked 53 images from ChatGPT users online. The revelation that there are literally tens of thousands of these mishaps, likely more, comes amid a furious debate over what to do about AI safety. Leaders of the top two labs, OpenAI's Sam Altman, Anthropics, Dario Amadei, have urged for a slowdown in development on cutting-edge models until they can build sufficient guardrails. On the other side, NVIDIA's Jensen Huang and President Trump say the concerns are overblown and AI progress should keep calm and carry on.

9:48The battle lines could be redrawn as more of these concerning cybersecurity breaches come to light, because it seems the more you look, the more you'll find. So some context is needed when you talk about tens of thousands of incidences because Anthropic, OpenAI, all these AI companies, they're conducting hundreds of thousands of these tests and they are deliberately trying to put them in adversarial experiments. It's not like these agents are you're asking them to, you know, book them, book a restaurant reservation and suddenly they're attacking government websites. a lot of them are deliberate sandbox environments where they are stress testing them to see how do they behave do they want to escape etc also anthropic uh said that their new opus 5.5 system attempted to escape a sandbox and 1.5 percent of test runs which actually on the surface you're like oh pretty low but then that that number needs context too because if you if you extrapolate that to the millions and maybe even billions of agents that will eventually come online as this technology becomes more widely adopted, that gets a little more scary, actually, because one and a half percent that can easily turn into thousands or even tens of thousands of real world incidences.

10:58So both numbers need a slight bit of context. Maybe the 10 ,000 seems worse than it actually is. But then also 1.5 percent error rate, if you will, is probably worse than it sounds. Yeah, let's just look at one example of what happened here. So in the Australia incident, which broke last week, we learned about it actually happened earlier in the summer. But basically, an OpenAI agent gained unauthorized access to Australia's Medicare statistics database, which it pulled public and non-public files from. Then maybe the more concerning part was how OpenAI addressed this. Australia's government said they just sent a letter to or an email to a generic government address.

11:36Australia has called that unacceptable, and they want to haul Amadei and Sam Altman to their Senate to answer questions about this hack. And then they've also looked into or open AI agents have also interacted with U.S. government websites in ways that these companies find unacceptable. And the reason we're seeing a lot of this government website stuff is that when you give these agents a task, they need to find information. Often government websites are the place that has the best information. But the problem is they are so persistent. They are relentless. They work harder than URI has ever, ever worked.

12:11And they won't stop at anything to find out the answers. So whether they want to get whether there's a block, you know, if there's a block or to a website, there's a filter or something and we need a login credential. We'll just say, never mind. Like, I just won't do this particular task. But these agents will find every single way around that. And that's what's concerning to these companies. Just this morning, though, we saw NVIDIA sort of put its foot down and say, how do we address this AI security problem? And they came out with a better cage, essentially, instead of trying to stop AI progress.

12:42like some in the industry are calling for. NVIDIA is like, wait a second, why don't we just have better safety systems? And so they introduced the open agent safety platform, which they say is a two-layer security system that's meant to control autonomous agents. The first line of defense is you basically let developers establish rules governing what an AI agent is or isn't allowed to access. That's kind of table stakes for this. But then they have a second layer that it's calling Sentry, which is essentially you watch the watcher. And if Sentry finds an agent that is doing suspicious things, it can kind of ixnay it in milliseconds.

13:18So they are open sourcing all of this. They are putting their foot down and saying, look, better security is how we solve this issue, not stopping frontier AI development like a lot of the apps have kind of said they're going to do. Now, the kicker is that these systems are built on AI hardware that is from NVIDIA itself. So there's certainly some self-interest involved here, but it is kind of showing what the AI debate is coming to. Either you slow things down or you build better safety systems. NVIDIA is in favor of open sourcing and building better safety systems. Speaking of breaking containment, did you see SNL?

13:57So this AI safety story is completely broken out of its sandbox. It used to be an academic conversation about the death of humanity a few years ago. But now after Dario Amadei wrote that blog post and Jacob Cox and the researcher said, I'm quitting because there's a 10 percent chance of humanity. It's in the public consciousness. And we saw that on SNL. The big guest, quote unquote, guest on Weekend Update was somebody portraying Dario Amadei as this more bumbling figure who's basically asking people to regulate us because we can't stop building tools that may destroy humanity. one quote from the snl was ai is not a weapon it's a tool a tool for building weapons and i urge you to urge me to stop let's move on it's winner of the weekend time the segment where neil and i picked two stories that had a better weekend than the shellacked gourds who made it out of storage for the first time this year i'm switching things up though and picking a loser of the weekend that loser is the english premier league side manchester city who have been found guilty on 114 of 115 charges related to breaches of financial regulations.

15:03Manchester City has been one of the most successful football clubs of the past 20 years, winning eight league titles, seven league cups, four FA cups, and one Champions League. City's rise to footballing royalty came after Sheik Mansour, a royal from Abu Dhabi, took over the club in 2008. The injection of cash from the UAE meant City was suddenly challenging for titles after decades of wallowing in mediocrity. But the same transformation that turned them into a dominant force might have come with a side of manipulating the books. Financial regulations in football limit how much a club can spend, tying it to the amount of revenue a club brings in to ensure things don't spiral into seeing which billionaire owner or oil-backed sovereign wealth fund can withstand the most losses.

15:46The Premier League is accusing Citi of inflating sponsorship income, hiding payments to players and coaches, and breaching the Premier League's profitability and sustainability rules in the process. The punishment has not been decided yet, but lots of options are on the table from fines to points deductions to full-on expulsion from the Premier League. City have maintained their innocence and are expected to appeal, meaning this case still has a long way to go, Neil, but it's got the league in a very difficult position. Either you enforce the findings of the investigation and punish one of your marquee teams, or you don't and risk showing your regulations don't have any bite to them.

16:21I think I'm not the only one who's getting shades of Lance Armstrong doping are the steroid era of baseball, where you have this entire period of time where there's been this one successful team and they're so successful. I mean, I think they won six out of seven Premier League titles during a particular stretch where you just have to maybe slap a big fat asterisk on it. And I think the backdrop is really important because Premier League wasn't always this global league with global capital. It's only happened over the past 20 years where Chelsea was bought by a billionaire Russian oligarch. Newcastle was bought by the Saudi Public Investment Fund.

16:59UAE Royal Family is getting into Man City. And then it's happening across European football as well. But what you're having is Premier League and all these other leagues having to respond to that, where you have literal billionaires buying these teams. You have to put these spending caps and create more financial regulations because you're trying to create, you're trying to maintain the integrity of the sport. And now we find that Man City, I mean, their record is almost as, on this particular issue is almost as good as their actual soccer record, 114 out of 115 counts of financial malfeasance.

17:31And it's become such a big issue that literal diplomatic ties are being called into question right now because the UK and the UAE have actually been cozying up of late. They have roughly 25 billion pounds in bilateral trade last year. So these are two economies that are pretty intertwined and the fact that the iranian war has broken out uh uae has basically been seeing like who our friends in the region are in the uk has come to their aid the fact that this might fracture an important geopolitical relationship just shows how big one of a deal football is in both parts of the the world but two that maybe nothing will happen because they don't want to fracture this relationship with the UK and UAE.

18:15The other aspect to this too is other clubs within the league because a lot of players were joking like, oh, does this mean I actually won a couple more Premier League titles? Manchester United players, especially because they finished runner-up to City a couple of times. That probably won't happen where they'll actually rewrite the record book. And get stripped of their titles. Yeah, if City gets stripped of their titles, then the next man up would win. but other clubs could absolutely sue Manchester City. Then it becomes a much bigger deal than just points deductions because you're talking about lost prize money, you lost broadcast revenue.

18:51It becomes a whole thing. Even if the league doesn't find them guilty or hands down a pretty mild punishment, other clubs can say, uh-uh, we're not dropping this. All right, we're going to take a quick break and come back with Neil's Winner of the Weekend right after this. You may have heard about Built as the loyalty program that lets you earn points on rent wherever you live. Well, they just leveled up even more. As of 2026, homeowners can also earn up to 1.25x points on their mortgage payments. This is thanks to Built's three new credit cards, the Palladium Card, Obsidian Card, and Blue Card.

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20:40It's your shares. It's your voice. It's easy. Vanguard investors own shares of their index funds, and those funds own shares of the companies they invest in. Vanguard Marketing Corporation Distributor. Your brain might not be the best filing cabinet. Please speak for yourself. The best idea of your week might have died in a meeting where you weren't taking notes. Professionals now spend about 21 and a half hours a week in meetings, probably more spoken input than any one person can reliably retain. 21 and a half hours? At that point, your calendar needs its own stenographer. That's why Plod's wearable devices are hands-free.

21:17No app to open, no interrupting the conversation. Just tap once and it acts as a second brain for anything spoken. Go to plod.ai slash brew and use code brew for 20 % off all Plod devices. My winner is Chinese electric vehicles, which you can now charge up during an NFL commercial and barely miss any of the game. Last week, the auto giant Geely, which owns Volvo and other brands, unveiled new technology that charges a battery from 10 % to 70 % in four minutes and 30 seconds. With the sub five minute time, Geely joins other Chinese giants BYD and CATL, which have rolled out similar ultra fast charging capabilities to hook consumers in the world's largest EV market.

21:59Compare that to American charging speeds, and it resembles a race between Usain Bolt and me. The fastest EV charging available in the U.S. takes roughly 20 minutes and only under optimal conditions, which is why with over 100 domestic car brands, China is ground zero for the EV wars, as companies engage in cutthroat technological one-upsmanship to gain ground on rivals. Being able to charge your EV in the same time it takes to fill up a traditional car with gas is one compelling selling point. Toby, 10 to 70 % is the new zero to 60. My big question though is, can you do it sustainably over the life of the battery?

22:35Do you zap it? Like I charged my phone with my computer. Exactly. That was exactly what I'm thinking of is that, yeah, you can juice this thing quickly, but does it cause overheating? Does it cause degradation? Does it cause just things to explode inside the battery? And Dealey says that it has thought about this, obviously, and they have an AI-powered predictive thermal management system that keeps the pack at the correct temperature over time. They also use AI-controlled micro pulses of current designed to reactivate certain lithium. Basically, we don't need to get into the weeds of it, but they've thought about this, and they do think that they can extend the battery life even beyond what their previous batteries were while giving you this amazing charging speed.

23:22so we'll see over time does it play out that these batteries do degrade more quickly or if they actually are just having your cake and eating it too but just imagine if you're an american you're looking far away at china and saying oh my god you know i when i have to charge my ev i have to go to a mall or some restaurant or some place where i can just you know go do something else because it takes 20 to 30 to 40 minutes or bring a book and and really disrupts your flow that's one huge barrier to the EV market in the United States. And the question is, will we ever see any Chinese cars in the U S right now?

23:58There's essentially a blanket band. Geely in fact, is the only Chinese auto company that can legally sell cars in the United States. Right now there's bipartisan legislation that would permanently ban Chinese cars from being sold in the United States. You're seeing some pushback to that. I read this op-ed in the was in the Washington post saying, we're basically doing American consumers a disservice here by barring American Chinese cars from the auto market. Yes, it may protect U.S. auto brands. But the fact is for consumers getting cheaper, faster charging vehicles may be something that they want.

24:32I mean, we did this with Japanese cars. We did this with South Korean cars. And now on Car and Driver's 2026 list of the most affordable cars, the top 12 are all from foreign brands. So there's a little bit of pushback to the ban potential ban of Chinese vehicles. But for now, we can just be jealous that these cars can charge up in less than five minutes. How about this, that too, just zooming out to the wider auto market, China exported under 600 ,000 cars in 2019. This year it exported 1 million cars per month. That is some serious growth right there. And so you're absolutely right. There is a growing chorus of people saying we are doing consumers a disservice here by not allowing you to have the cutting edge technology that is happening over in China.

25:16All right, it's Monday. So here's what you need to know to stay ahead in the week ahead. The calendar changes from September to October, bringing a key jobs report on Friday. Expectations are for a solid month of hiring. The economy is projected to have added 100 ,000 jobs in September with an unemployment rate of just 4.2 % combined with a fresh inflation read on Wednesday. These two data points could solidify another Fed rate hike before the midterms. We're in that weird dynamic again where you don't necessarily want a monster jobs report. We want a good jobs report. We don't want a great one because a great one probably means that the economy is still running too hot.

25:52It goes back to our first story of the day and it strengthens the case for another Fed rate hike. So we're looking for good. We're looking for Goldilocks. We're not looking for great. Next, keep your eyes peeled on the skies because two high-stakes space launches are scheduled As soon as this morning, SpaceX will attempt to send its massive Starship, the biggest and most powerful rocket in the world, into orbit for the first time ever. In its previous 13 test flight, Starship has only gone suborbital. Then on Thursday, Google will try to be the first big tech company to give space data centers a try, sending up an MVP or minimum viable product of four computer chips equivalent to the power of one server in a terrestrial data center.