What the Coming Fed Rate Cut Means for Markets & Logan Paul vs. Lunchables

0:00Tuesday on NBC, Jimmy Fallon and Bozma St John host the 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 Tuesday on NBC. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, Instagram is over being the cool parent and has begun telling teens, you're digitally grounded.

0:41Go to your room. Then happy Fed Decision Day. Are we getting a 25-point cut or are we going big with 50? It's Wednesday, September 18th. Let's ride.

0:56Happy Wednesday. So a few weeks ago, you may have heard us talk about a listeria outbreak that affected millions of pounds of Boar's Head lunch meat, leading to nine deaths and a massive recall? Well, the company finally found the root cause of the outbreak, liverwurst. According to a company's statement, they traced the contamination back to a specific production process at a single Virginia facility that was used only for liverwurst. And as such, Boar's Head made the decision to end its production of liverwurst for good. Neil, pour one out for emulsified sausage made from spiced pork organs.

1:33Well, Toby, maybe you don't remember, but liverwurst used to be a huge deal in the back half of the 20th century when Dwight Eisenhower came back from World War II as the conquering hero. He had this big parade and he had this big dinner with the New York City mayor at the time, LaGuardia. What did they eat? What was on the menu? Liverwurst. And then all the boomers listening to this are probably thinking, oh, liverwurst. I had that for lunch with my sandwiches every single day in the 70s and 80s. It has certainly faded from lunch tables and refrigerators as tastes have changed. But you know what?

2:07I think that, you know, Boar's Head is not making liverwurst anymore, but you might find more artisanal types of liverwurst making their way back to charcuterie boards as a type of renaissance. And I looked it up. Do you know what we should go get for lunch today? I mean, it sounded like liverwurst. I think we're going to go get liverwurst. Katz's Deli just down there serves a$24 liverwurst sandwich. Probably more meat than is on an entire pig. I will stick to Uncrustables. Now let's hear a word from our sponsor, Wise Business, the app for doing things in other currencies. Neil, remember the time we raced each other to Central Park and I lost because you took a shortcut.

2:47Hey, you may have had the foot speed, but you lack the sense of direction. Ah, so you do remember. Just thought it was a perfect metaphor for wise because they are fast, like me, but they don't take shortcuts like you. So you can pay someone overseas as easily as paying someone down the street. I will not be blamed for knowing the streets of New York better than you. It'd be like punishing wise for allowing business to make payments in 70 plus countries. It's called understanding the landscape. Sounds like we need to run it back again tomorrow. I'm getting limber already. If you're ready to speed up your business payments, visit wise.com slash business.

3:22That's wise.com slash business. I'm Christian McCaffrey, pro running back. And Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year. And I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

3:53Today kind of feels like heading to the airport on a vacation you've been planning for months because this afternoon the Federal Reserve is set to begin cutting interest rates, providing a much-needed economic boost for every American consumer and business. It's been a long time coming. Back during the COVID crisis in 2020, the Fed slashed interest rates to near zero to keep the economy from melting down. But then, as inflation soared two years later, the Fed jacked up rates 11 times to levels not seen since 2001 to bring prices back down to earth. We've been sitting at those elevated interest rates for well over a year, which has cooled the economy and slowed hiring.

4:34the unemployment rate rose from 3.5 % last July to 4.2 % last month, showing how those high rates have put the brakes on the labor market. And that has become a greater source of concern to Fed Chair Jerome Powell than inflation. Cutting rates later today would be a sign that Powell has effectively declared victory in his fight against inflation and is now more focused on preventing the economy from falling into a recession. If he manages to pull that off, bringing inflation down from 9 % without sending the economy into reverse. Powell will have completed the mythical soft landing, something that's happened only once in U.S.

5:11history. Experts say he'll be a first ballot Federal Reserve Hall of Famer should that pan out. But there's a long way to go before the induction ceremony. The journey still begins now. Right. And the first step of the journey is deciding between a 50-point cut or a 25-point cut. The standard kind of 25-basis point cut is thought to be more standard. 50 is a lot more aggressive. And people who follow this are pretty split down the middle of what is going to happen today. Investors are actually betting more heavily on a 50-point cut. They're putting about two to one odds that it will be that 50 basis point reduction.

5:47Meanwhile, a lot of analysts are saying, no, we think we're gonna go in with the more standard 25. So regardless of its size, today's rates cuts are very important. And they're either going to make borrowing cheaper for consumers, for businesses, and hopefully ripple through the economy and kind of juice business activity. Right. The whole point of a rate cut is to lower borrowing costs across the economy. The Federal Reserve doesn't set your credit card loan rate or your mortgage, but it is that north star that every bank looks to when they set interest rates. So when the Fed lowers interest rates, it does have massive ripple effects across the economy.

6:24We have mortgage rates that are still over 6%. Your credit card interest rate is probably big. Businesses have been putting off big purchases of machinery and equipment that they have to finance. Anything that you have to finance has been so hard to get done because as soon as you're about to sign the dotted line, you look at the interest rate and you're like, well, I don't think I'm going to do this. I'm going to hold off. So the idea of an interest rate cut is to just lubricate economic growth across the economy, get more people spending because they've had this stuff in their, they've had a lot of money in their savings accounts.

6:56And maybe once the Fed lowers interest rates, you get lower yields on your savings. And you're like, well, I might as well spend. And that's, and that sparks the economy, gets people hiring again. So that's the whole concept of how the mechanics of interest rates works. And whether it's a 25 or 50, it is going to be the start of a series of interest rate cuts. And that'll be one of the key things to watch today, what the Fed says about going forward for the rest of the year. Let's also talk about the housing market too, because that's just been a huge kind of issue throughout this entire rate hiking cycle.

7:28Mortgage rates have already started to come down a little bit in anticipation of rate cuts, but while lower mortgage rates do make buying a house more affordable, you have to remember too that the whole reason that the Fed is cutting rates is because the economy has been slowing. So it has really clogged up the housing market. So hopefully more supply will be freed up because so many homeowners have just been putting off selling their houses because if you sell, you've got to buy a new one, and then you have to go through that whole process of taking out a mortgage at this sky-high rate. But there's also some homebuyers will probably be waiting for rates to get even lower, so maybe it won't put all the supply on the market like people are hoping because if we know the Fed is going to start this rate-cutting cycle, so if you say, like, maybe if I just hold out a few more months, I can get an even lower rate.

8:17So you're not necessarily going to see this massive supply for you, but you will see a little. And in general, the economy's response to an interest rate cut does not take takes a long time to show up. And that's why the Fed usually does 25. It's because let's do the standard one and then see how it plays out and we can adjust from there. That's why a 50 basis point cut is seen as a very aggressive maneuver. So 25 is, you know, standard. Let's see how it plays out. Milton Friedman, the famous economist, called changes in Fed policy a water tap that you turn on now and that then only starts to run 6, 9, 12, 16 months from now.

8:57So this is, like I said, this is the start of a long journey, but it could lead potentially to a soft landing where you bring inflation down and you don't send the economy into a recession, which is so hard to do, given all of the crazy variables and different forces at play in the U.S. economy. Let me hear it now. 25 or 50? I think we're going 50. You're going 50. I think we're going 50 because I think the Fed wants to minimize risk. And I think they are more concerned with the labor market tanking than inflation ticking back up. And that would point to a 50 basis point risk. I know it's like minus 200 now, but I still think it's smart money.

9:35Fine, I'm taking 25 just so I can be the opposite of you. If you were a teenager when Instagram was first becoming popular, the biggest issues you face were whether to use the Valencia filter or XPro2. But Instagram has turned into a more dangerous platform for young people in the years since, a fact that Instagram itself is finally addressing head on. Yesterday, the app announced new changes that will designate all new and existing accounts set up by users under 18 as teen accounts and automatically make them private. The Jurassic moves comes in response to years-long pushback from parents and advocates who said their kids were receiving age-inappropriate content and were exposed to child predators.

10:16Some of the new features included in the update are restricted DMs that limit the people who can message teens and a sleep mode that silences notifications between 10 p.m. and 7 a.m. The app will also restrict who can tag you in photos or mention you in comments if you are under 18. Neil, turning the default account setting to private is a start, as are these other features it's layering on. Do you think Instagram is making good strides towards protecting their youngest users? I think that this is one of the biggest safety moves for children that any social media company has done. And Meta is not necessarily making them voluntarily.

10:54There's immense pressure on Instagram across a lot of social media companies, but Instagram in particular, because these whistleblowers have come out who have worked there saying that Mark Zuckerberg, the CEO and other higher ups at the company knew that Instagram was harming specific populations of teens and they did not do anything about it. There have been multiple lawsuits filed by attorneys general all over the country. Mark Zuckerberg was hauled into Congress and he, in this dramatic episode, he apologized to the parents of teens who were harmed by social media. And I think the fact that they're doing it is really critical because it's not good for their business because they're in a really tight race and competition with TikTok and Snapchat for the next generation of users.

11:43And doing these policies, which may not sit well with teens to make them private by default, probably will make some of these teens look to other platforms. And Adam Mosteri, the head of Instagram, acknowledged that it would be bad for engagement and user retention in that 13 to 17-year-old demographic. But I think it's just emblematic of the pressure they're facing. I also – the question that immediately came to mind for a lot of people is how can you enforce this? Can't you just lie about your age when signing up? And Instagram is kind of boosting up its safeguards around that. people who attempt to change their age from under 18 to over 18 already have to, one, record a selfie, upload their ID, and then also have another user vouch for their age.

12:30They have these safeguards built in already, but then they're also saying, hey, we can take things a step further. They're going to use AI, of course, to scan for maybe signals that you are not the age that you say you are. One example that it cited was that if you say you're over 18, but then someone comes on your picture and says, happy 14th birthday, then the Instagram app will pick up on that. So they're saying that you have to take this multi-layered approach because of course, it is very difficult to enforce if people are the age they say they are in the app. If you have Larry Ellison on your business fantasy team, you are off to a scorching start to the season.

13:07The Oracle co-founder is racking up win after win this month thanks to his tech giant soaring stock price, which is up more than 21 % in September. On Friday, Ellison briefly became the second richest person in the world, topping Jeff Bezos because of how much his$200 billion fortune is tied to the Oracle rocket ship, the company he helped start in 1977. Ellison owns 40 % of Oracle stock, which is a ginormous amount for a$460 billion company, and his net worth has more than doubled over the past two years as Oracle's star has risen. Oracle may not be a company you encounter on a daily basis, but it's proved to be one of the under-the-radar winners of the AI boom.

13:50It builds massive data centers, fills them with acres and acres of NVIDIA GPUs, and rents out the computing infrastructure to companies that want to put their data on the cloud or train AI models. And that has been a recipe for success. Last week, Oracle reported that quarterly revenue grew 7 % from the previous year, and its key cloud infrastructure unit jumped 45%. and that has made Ellison at 80 years old one of the richest people on earth. My favorite Larry Ellison fact is that at the end of 2010, Oracle was valued at just under$90 billion, and he owned right around 27 % of the company, but then you just heard Neil say that he owns over 40 % now, so how the heck does that happen?

14:31Well, since 2011, the company has been spending a lot of money on stock buybacks, which is something a lot of companies do. They spent around$155 billion on buybacks, which reduced the amount of shares outstanding from over$5 billion to around$3 billion. Ellison, however, never kind of participated in that buyback program. He never let his shares be diluted. So his stake actually climbed from 27 % ownership to 43 % ownership, which you are right. It is an insanely high number for a company of that size. Yeah, I mean, and Oracle just seems to be really well positioned for this AI revolution right now.

15:07Now, Ellison and NVIDIA CEO Jensen Huang are very buddy-buddy. They had dinner together last week, and Oracle's just buying an obscene amount of these GPUs that are used to train AI models. But right now, Oracle is going up against Microsoft Azure, Amazon Web Services, Google Cloud, the three cloud providers that are at the top of this space. But Oracle is finding, dare I say, a niche. I said I would never say that word. It's finding a niche for itself as a more flexible, smaller provider of cloud services, and it's building these data centers all over the country. And Larry Ellison can't really talk about anything else on these earnings calls, except how big these data centers are.

15:47They're building a nuclear reactor in one because of all the energy that they consume. He said, he went to Jessen Huang of NVIDIA and said, I'm begging you to take my money. Like, please just give me your GPU so I can make these data centers. Because he says the demand for AI, I know that's been a huge theme over the past couple earnings season is are we seeing that the AI talk is leading to actual profits? And Larry Ellison, from his perch as Oracle CTO right now, is saying, I don't see any demand flagging for AI. It's a good niche to be in right now, for sure. Up next, why Michael Kors is making its case to the FTC that it's just not that cool anymore.

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17:27How many trials have you heard about where lawyers rolled out carts of dozens of handbags to present in the courtroom? Well, you're going to learn about at least one. The trial with the handbags is an antitrust trial over the future of the handbag industry. Coach parent Tapestry and Michael Kors owner Capri want to merge in an$8.5 billion deal, but the FTC is trying to block it over concerns of market concentration, setting up a trial that is wrapping up today. The merger between Tapestry and Capri, if approved, would create the fourth largest luxury goods company in the world and unite six iconic brands under a single umbrella.

18:05Tapestry's coach Kate Spade and Stuart Weitzman with Capri's Michael Kors, Versace and Jimmy Choo. The companies say the deal is necessary to scale up and compete in the fast moving world of fashion where trends are in one day and out the next. The FTC counters that the tie-up would reduce competition, raise prices for consumers, and leave employees in the lurch. It specifically called out the risk of combining Coach and Michael Kors, two brands it says go head-to-head in the accessible luxury handbag market. Toby, we've seen Biden's antitrust enforcers try to block murders in tech, airlines, supermarkets, and now handbags.

18:42But is it birking up the wrong tree? Well played. Yeah, so it's, again, whenever we have these antitrust trials, it usually comes down to how are you defining the market. FTC says that it will give Tapestry a dominant share in this accessible luxury handbag market, which made attorneys for Tapestry and Capri fire back, saying that that is not necessarily the market that we are competing in. We're competing against everyone from the pricey luxury handbags all the way up to, like, the Birkins of the world, all the way down to people who shop online for their clothes and shop on second-handed marketplaces.

19:14They just define it as the entire handbag marketplace. One thing that Capri lawyers can kind of point to and say like, hey, we're not doing that well is their stock price. It's fallen about 24 percent so far this year compared to the S &P's up 18 percent. And then Michael Kors himself went before the court in saying that he and his company have been struggling to try and remain relevant. He spoke about how brands can rise and fall based off just TikTok trends. And then he also called out celebrities like by name Taylor Swift and Beyonce saying that if one of a up and comers bags appear on one of their arms, it can sell out in minutes and crash the site.

19:55So he's saying, how can there be antitrust concerns in this handbag monolith that they speak about if he is struggling to keep his brand cool and hip with the youth? Right. And the government called up an economist named Lauren Smith and testimony last week. this was their big key witness. And he said he ran the numbers and he dispels what you just said. And he said, actually, Michael Kors and Coach do go up against each other in this accessible luxury handbag market where the price point is around one hundred and fifty dollars. And there actually is a particular market here. They're not competing with the very viral TikTok handbags or the Trader Joe's totes or the LVMHs of the world.

20:34And he said if this tie up were to go through, Prices for consumers would rise 15 to 17 percent because those two would have a market share of 58 percent of the handbag market. So it really is. I know you love talking about this when we talk about antitrust. It is about how you define the market. And the market is much bigger, according to these companies. And they are pointing at the big elephant in the room, which is LVMH, which is dominating luxury. It's only taken a stranglehold even more and is pushing other brands like these American brands to the sidelines. Yeah, it would stymie these kind of acquisition strategy that created LVMH in the process if the government wins in this case.

21:15So it does have big implications for the LVMHs, the carings of the world. Me, personally, I'm sticking to my$2.99 Trader Joe's mini tote. MrBeast, Logan Paul, and KSI are names that probably mean more to you the younger you are, but the triumvirate of YouTubers are trying to turn those legions of young followers into legitimate streams of income by teaming up to launch a Lunchables competitor. It makes more sense than you think. Each creator has successfully created a food and Bev company in recent years, Logan Paul and KSI with their rainbow-colored prime hydration drinks, and Mr. Beast with his Feasables line of chocolates.

21:55Now they are putting them together to launch Lunchly, which is essentially a Lunchables dupe. Lunchly comes in a similar shaped package with three versions, the pizza, turkey stackums, and Fiesta nachos, all of which include Feasables chocolates for dessert and Prime to sate your thirst. This product launch elicited some strong reactions online with some criticizing the trio for using their audiences to serve up junk food to kids, but the Lunchly team would be quick to point out that their version is healthier with less sugar and calories than Kraft Heinz's product. Whatever the result is, they've got quite the following to serve it to.

22:30They do. I mean, Mr. Beast is the number one most followed YouTuber in the world. He has over 300 million followers. And then these other guys have tens of millions of Instagram followers. They've all successfully launched consumer brands. And I can't imagine the pitch meeting for this. They go, hey, you make a chocolate bar. Okay, you make a hydration drink. We can probably find some crackers or turkey somewhere. Let's all put them together. Not a poor's head. Let's put them together and create this Lunchables competitor. And they find Lunchables in a very vulnerable position. Kraft Heinz on their recent earnings call said that both the brands of Capri Sun and Lunchables, Capri Sun goes in Lunchables, were facing meaningful headwinds in the second quarter.

23:12So those brands aren't doing so well and they think they can parlay their social media success to this consumer brand that's going to be in some pretty heavy-hitting retailers. Dillon's, Ralph's, Kroger's coming to Albertson's later this month. So they can get, with their firepower, they can get onto store shelves. And they're probably hoping that a kid will be like, hey, I want that Prime instead of Capri Sun because the kid has no sort of attachment to Capri Sun like we do. But they do know about Prime. But Prime and Feasibles a little bit have also been on the struggle bus recently. recently prime came out of the gate very very hot there used to be lines around blocks reselling the different flavors because it was just so popular with kids it was the it's the official drink of ufc also has a sponsorship with the dodgers and arsenal it recorded 250 million dollars in sales in its first year but since then it's faced a class action lawsuit alleging its drinks contain too much caffeine it also has a lawsuit about toxic forever chemicals the sheen has worn off a little bit.

24:13Sales volume fell 11 % in the first six months of this year, according to Beverage Digest. So maybe that prime isn't as hot as it once was. And then on the other side, Mr. Beast has also faced some legal pressure. He has this new series coming out with Amazon called Beast Games. It's his competition game show. And they have recently been sued by contestants with allegations of sexual harassment, chronic mistreatment on set. So if you take the combined kind of legal issues and kind of public perception of these three YouTubers. It's not great right now. So maybe they think putting them all together in this consumer packaged goods brand can help kind of boost all their sales by combining forces.

24:55But not a great time in Mr. B's, Logan Paul, KSI's world. Let's end the show today with a blast from the past. Remember Flappy Bird, the incredibly frustrating mobile game that took the world by storm about 10 years ago. Well, after its creator shockingly shut it down at the height of its popularity a decade ago, it's coming back. But it's not because the game's creator, Dong Nguyen, had a change of heart. In fact, he posted on X for the first time since 2017 to let people know he has nothing to do with the new version of the game, saying, no, I have no relation with their game. I did not sell anything.