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Air Canada Union Defies the Government & Americans Are Stuck…Literally
00:28:47
Defy to fly & Nobody is moving anymore
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Good Morning Brew Daily Show I'm Neal Freyman.
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And I'm Toby Howell.
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Today Americans have stopped moving, which spells bad news for the economy.
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Then the government ordered striking Air Canada flight attendants back to work, but the union said Nope. It's Monday, August 18th. Let's ride.
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Good morning and Happy Monday. Have some exciting, exciting news to share. Morning Brew is launching a new podcast this afternoon called Brew Markets. If you're a fan of MBD but want a deeper dive into the market, it is the show for you. Brew Markets comes out in the afternoon after the bell, perfect for your commute home.
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It's hosted by Anne Barry, an investor board member, former CEO and also a guest host on Morning Brew Daily from time to time and is great and will help you separate market moving memes from Buffett, Buffalo Bumps. If you want to know why your portfolio is red or green and will help you make sense of it, the.
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First episode hits feeds this afternoon at 4:30 Eastern Time. You can listen anywhere you get your podcast at the link in the show description.
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And one last thing, I'm going to be out later this week and Anne will be filling in for me. So you're going to get some and Barry in your life one way or another. Morning or afternoon. Choose wisely or choose both. And now a word from our sponsor LinkedIn ads. Neil, what do you know about the C suite?
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Well I know C is for going.
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To stop you right there because no and also that's trademarked. But if you're looking for C Suite execs, LinkedIn ads is the place to reach them.
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The Labor Minister issued a statement just a few hours into this strike saying it has become clear that this dispute won't be resolved at the table. These two sides are so far apart, Canadians are increasingly finding themselves in very difficult situations and the strike is rapidly impacting the Canadian economy. So she invoked something that's called securing the industrial peace, which means that during times where the economy is rapidly deteriorating due to a strike, the government can step in and say, okay, you have to go to work while we move this thing to arbitration. And then the union is saying that is unconstitutional. We defy your order. You can't do that, and basically didn't come back to work. And therefore Air Canada, which wanted to restart flights, is going to be a very long process to get everything back in order. It's going to be a 7 to 10 day process. So they want to start as soon as possible. And now their plane planes are still grounded and hundreds of thousands of passengers are in the lurch.
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One thing that the union is very much not pleased with is the fact that the CIRB chair, her name is Maurice Tremblay, did not recuse herself from handling this case. And why did the union want her to recuse herself is because they think that there's a massive conflict of interest. She served as Air Canada's counsel from 1998 to 2004. So they're saying, like, what are we even doing here? How can this person be an independent arbitrator if they literally worked for the person or the organization that we're negotiating with right now? So it does look like that is another sticking point that not even talking about the fact that the two sides are pretty far apart when it comes to their pay package.
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Let's talk about the pay package and the contract negotiations. So the flight attendants are getting from the airline a 38% increase in total compensation over a four year period, including a 12% to 16% rise in hourly pay for the first year. The union shot back and said that doesn't make up for all the inflation that we've seen over the past few years. And it's underneath all of those consumer price increases that people have to pay to live their lives. And then again, the sticking point that you mentioned is called boarding pay. So right now, for many airlines, flight attendants don't get paid for their hours until the boarding door is closed. And as anyone who's flown a plane knows, flight attendants do work while you are boarding the plane, when you're trying to stuff your overhead luggage in there. They move things around and obviously help people find their seats. It does seem to be, there does seem to be movement on this issue. Delta Airlines in the United States, their flight attendants aren't represented by a union, but they started paying flight attendants at half their hourly rate during boarding. Then you got Alaska and American Airlines have also done the same thing, following the leader with Delta. It doesn't look like Air Canada has done the same. And that's what flight attendants really, really want. Because they say we're working during this period, but you're not really paying us for it.
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Yeah. And Air Canada, this is just another headache in a summer that is supposed to be a big summer for them as more people travel domestically in Canada, less people traveled to the. Yes, but they actually just recorded lower net income in the second quarter compared to a year ago. So the business is getting a little bit dicey right now. And add this strike into the fray and it just went from bad to worse.
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And Canada is big. Canada spans six time zones. There's you know, you can take road trips and drive to other locations, but compared to other countries, it is a big flying country to go from place to place because it is just vast over there. So they air Canada has 48% of all flight, you know, flight seats. And so now you really can't fly anywhere in Canada. There are some other airlines like WestJet that can pick up some capacity, but not enough. So Air Canada wants to get this thing back moving. We'll see what happens later today. Moving on. The American economy is stuck. Literally. People in the United States are moving to new homes and cities at the lowest rate on record, the Wall Street Journal reported, reflecting an economy that is as stagnant as a cat that just found a nice snapspot. Since the country' origin, Americans have been a uniquely mobile people, which contributed to our outsized economic and cultural dynamism. When the French writer Michel chevalier visited in 1835, he observed that, quote, the American is devoured with a passion for locomotion. He cannot stay in one place. In the 1960s, about one in five Americans moved in any given year, according to the Atlantic. Fast forward to the last few years and only 1 in 13Americans moved 7.7%, the lowest rate since U.S. census records began in 1948. Economists have a few theories to explain our dramatic shift into neutral for one, the labor market has slowed down, presenting fewer opportunities to move to a new city for a job. And by the same token, workers who are thinking of quitting are worried about finding a new gig, so they're staying put and toughing it out. Another factor is the availability of housing. Home prices are at all time highs and mortgage rates are double where they were just a few years ago. Many homeowners are attached to their existing homes by so called golden handcuffs. Their interest payments are so low that it'd be financial malpractice to move now. Toby the U hauls are collecting dust.
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Yeah, it's not just golden handcuffs in the housing market is golden handcuffs in the jobs market as well. Because if you have one of those stable jobs that maybe you got during the pandemic, you don't necessarily want to take a big leap and try something new. And that has consequences for everyone because a frozen housing market means that if you are a growing family you can't necessarily upgrade, empty nesters can't necessarily downsize and first time buyers are just screwed because they are completely locked out. And so if you can't move for a job offer to that often means you end up earning less money and if companies aren't looking to other states to bring in talent, that might mean that their productivity and their profits can suffer. So you go down the line and suddenly you see how important economic and geographic mobility is to America as a whole.
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Geographic mobility equals economic mobility. That is something has been documented by economists at the University of Chicago. They looked at three of the most productive US Metro areas. New York, San Francisco and San Jose from 1964 to 2009. And they found that if those three cities could accommodate everyone who stood to gain by moving there because there was available housing, it would have boosted United States GDP by about $2 trillion by 2009, putting an extra $9,000 into the pocket of every American worker each year. So the fact that people are moving means they aren't earning as much, which means that GDP is depressed. So this is a huge economic issue that maybe you don't think about. People aren't moving, everyone's a little bit poor.
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And then one final aspect that are making people move less is that couples where both people work have the lowest levels of interstate mobility. And so as you see more women entering the workforce, as you see more dual income houses necessary to, you know, survive in, in the fact that rising expenses and just everything is so expensive now, you are going to see a lot more stagnant people because it's hard enough to move one job. If you have to move two jobs from one area to another, that just makes it all the more difficult. The 2023 merger between six Flags and the theme park operator Cedar Fair was supposed to bring cost savings, new pricing strategies and create a theme park empire to challenge Disney and Universal. Instead, it's been more like Six Red Flags, with synergies few and far between. In the latest quarter, the combined companies that operate under the Six Flags brand name posted a 9% drop in attendance compared to last year, leading to the company's third consecutive quarterly loss. That translates to 1.4 million fewer park goers than last year. Cedar Fair owns theme parks including Cedar Point in Ohio, Carowinds in North Carolina and Knott's Berry Farm in California. Initially, shareholders were pumped for this merger because Cedar Fair was thought to be more operationally consistent across parks, while Six Flags had better known brand and access to popular IP from Warner Brothers. Initially, shareholders were pumped for this merger because Cedar Fair was thought to be more operationally consistent across parks, while Six Flags had a better known brand and access to popular IP from Warner Bros. But was thought to be a little more operationally inconsistent. What looked good on Paper hasn't materialized, leading to falling attendance and CEO Richard Zimmerman heading for the exit later this year. A perfect microcosm of Six Flags nightmare summer. Its brand new Sirens curse roller coaster in Ohio, open to very popular reviews this June, only to break down five times since its debut. Reliability issues, delayed rides and some plain old bad weather means the company squandered the all important summer period where it hoped to sell season passes to its 42 North American theme parks. Neil Throw in increased competition in the form of Universal's brand new $7 billion park and Disney remaining strongest ever, and you have a summer that's looking worse than the time I decided to eat an elephant ear and a turkey leg before going on Kingda.
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Yeah, that was very disgusting. Cedar Point. This, this place in Ohio is becoming an absolute punchline. So much so that a representative, state representative in Ohio has introduced a law that would require major amusement parks to provide real time updates about ride closures in an app. Because these rides are breaking down so much. One person was quoted who recently went this past weekend saying rides were going down left and right. This is just a horrible look for what was supposed to be a very hyped new ride. Six Flags is looking to its competition. It's getting squeezed on the upper end. It's getting squeezed on the lower end. This merger has been a failure so far.
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Yeah, they blamed a lot of it on severe thunderstorms and excessive heat. But one, you know, author at the Wall Street Journal went to one of the the theme parks that operate under Six Flags on like a beautiful sunny summer day right before school is starting and they're like, the parking lot wasn't full. I barely waited in line. So you can't just blame the weather. But then also you're in kind of this arms race when it comes to new rides because that is one of the reliable ways to get people to turn out to a new park. When you open a new ride, you do see a boost in attendance, but if your rides don't work, I mean, it's ironic that it's called Sirens Curse. People are saying, is this ride actually cursed? Because one, it is fun. It's a tilt roller coaster. Like put your face down and then send you on a drop. Sounds really exciting. But if it doesn't work, then you're not going to see that attendance boobs. So when you are trying to compete with the big boys of Universal and Disney, you need reliability, you need big rides and they're not getting any of that.
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Complaining about bad weather is the amusement park equivalent of the dog ate my homework. You can Six Flags has said this on pretty much every single earnings call every quarter since 2022. But the thing is, it's not the only amusement park company out there has a rival called United Parks and resorts that operates SeaWorld and Busch Gardens. And you know, they are subject to the same exact weather constraints as Six Flags. They posted a 1% year over year increase in attendance. Walt Disney. Disney just had its earnings report two weeks ago. They said that this was the best quarter for Walt Disney World in Orlando that it's ever had. So clearly something operationally is off with Six Flags that they need to fix. And they have a few ideas. One of them is selling off land and closing some parks. They're closing the six flags in Maryland near D.C. so I'm sorry for all of those people who went there and they're hoping to just get smaller and pour more money into improving the existing assets that they have.
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Up next, we have our winners of the weekend.
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You know what's even harder than waking up at 4 in the morning trying to start up a new business?
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Don't I know it. I've been cooking on this pickleball shoe idea for two years now. It ain't for the faint of heart.
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That's why finding the right tools to help you build and simplify every process along the way can be a huge game changer for millions of businesses.
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That tool is Shopify.
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And when it comes to commerce, Shopify's expertise ranges from managing inventory to international shipping to processing returns. If you're ready to sell, you're ready to Shopify.
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Sign up for your $1 per month trial and start selling today at shopify.com/morning brew. That's shopify.com Morning Morning Brew shopify.com/morning brew welcome to Winners of the Weekend, the segment where Toby and I picked two things that treated themselves to a $20 bagel and lox. I won the pre show pole vault, so I get to go first. And my winner is Rush Talk, whose cultural and financial influence only seems to grow year after year. Yesterday, sororities at the University of Alabama handed out bids to incoming freshmen, culminating the week long Rush process that's become, in the Wall Street Journal's words, a kind of reality television for the TikTok masses. Rush Talk which documents the hyper competitive, uniquely American exercise in which sororities at big Southern universities recruit new members first went viral about four years ago when the applicants began posting about their experiences. Now the spectacle of rushing sororities is a full blown cultural phenomenon, thanks in part to an HBO series in 2023 that helped SEC sorority culture find a global audience. These days, it's not rare to find people from Latin America to Australia tuning in each August to check out an outfit of the day or watch sororities post increasingly elaborate dance videos. They can't comprehend why anyone would do this at a place of education, which I suppose is a big part of the appeal. As with anything that gets extremely popular on social media, brands have infiltrated Rush Talk and turned it into big business. Earlier this month, Kim Kardashian shapewear brand Skims launched a new line of Back to school basics with a campaign featuring real life sorority influencers from Alabama, Duke and San Diego State.
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I would argue it's not just a reality TV show, it's a full on sport at this point because there are so many girls who want to get into each one of these houses. It's so competitive. You don't just show up on August and, you know, dress cute and expect to get in. They are preparing a year in advance and oftentimes hiring these rush coaches who help them curate their Instagram to help them, you know, practice speaking with people to come off well. Some get up to 30 letters of recommendation in order to get into these sororities. And then obviously, like once the dance videos come around, you have to rehearse for those as well. So it's gone are the days of just being yourself and just like dress up and have your cute outfits. Now you have to really start planning six months a year in advance now. And that sort of pressure has led to increased global attention at this point because it is just so foreign to a lot of different parts of the world. They don't have American universities, you don't have this culture there, but it's foreign to us.
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It is foreign kind of. And so imagine if you're living abroad and watching this all play out. I mean, it's definitely just ballooned over the past few years and it's created a cottage industry for consultants which are charging up to $10,000 for month months of coaching. And then in each of these posts on social media, you have all of these small businesses in area in these areas like Tuscaloosa, you know, commenting on the videos, hoping so many people are watching them. They're hoping for bigger business. And certain, certain stores in near the University of Alabama and other SEC schools are seeing a huge boost. They're going viral too, because this is where all of these girls are shopping to get all of their outfits. So it's become, you know, very much a cottage, a cottage industry. Not to mention the fact that some of these girls are becoming actual influencer.
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Major brand deals and it's making the entire thing bigger year over year because recruitment registrations have increased 13% nationwide dating back to 2022. So more people are getting interested in sorority life going forward. So this phenomenon is only going to get bigger as the years go on. My winner of the weekend is UnitedHealth Group because it got a little Buffett bump. According to a regulatory filing known as a 13F that gives the snapshot of a firm's investments on the final day of a quarter, Buffett's Berkshire Hathaway has amassed a stake in UnitedHealth Group worth more than $1.5 billion. When investors found out UnitedHealth's stock rallied nearly 11% in extended trading on Thursday. The embattled health care company is currently going through a brutal stretch. Its stock has lost nearly half of its value so far this year as it's faced down negative headline after headline. In April, it missed earnings and slashed its outlook, sending its stock down 22% in a single day. Then May brought CEO Andrew Witty surprise resignation and a scrapped annual forecast. Two days later, it was found that the Justice Department was investigating it for potential Medicare fraud. Shares plunged another 28% in just three days. But for all the bad developments of the past year, UnitedHealth still generated 400 billion in revenue and $15 billion in net profit in 2024. Before the Buffett bump, it was valued at just 13 times earnings. For a value investor like Berkshire Hathaway, UnitedHealth stands out as a prime buy in a frothy market sitting at all time highs despite swirling tariff uncertainty. Now, this was the first good headline UnitedHealth has seen in a long while.
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But its troubles are not going away. Still, it is nice that Warren Buffett threw it a lifeline because as you mentioned, this is the kind of company that he likes to take a stake in that is generating a ton of cash. Its stock has been beaten over the past year for certain reasons, for, for many different reasons. And we'll see what happens going forward. The entire health care industry is, you know, getting bludgeoned right now because there's increased pressure from the White House over regulation cutting out the middlemen, these pharmacy benefit managers. And at the same time, they are just facing higher costs, greater reimbursement costs. So we'll see what Buffett it would be great if Buffett could say, here's what I think UnitedHealth Group is doing well.
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Well, a lot of it's not just Buffett. A lot of billionaire hedge fund managers also increased their stake. UnitedHealth. David Tepper owns the Panthers party. Panthers Fans, he bought 2.3 million shares in the second quarter. Another hedge fund, Lone Pine Capital, bought 1.7 million shares. The Quant hedge funds were loaded up as well. Renaissance Technologies and Two Sigma also bought new stakes. So clearly the smart money, as you like to call it, is pouring into UnitedHealth because it is just such an important part of the United States health care system. They think it's almost too big to fail. And so if it is got such a big haircut, that is why they are piling in. So probably that is similar logic to Warren Buffett, who does love these big boring cash generating businesses that have been around for a long time and probably.
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Will continue to be around another company that Buffett's liked. And I have to just point this out. For the fourth consecutive quarter, he's poured money into Domino's Pizza and now Berkshire Hathaway owns 7.8% of Domino's. That is maybe a boring business that just turns out pizza and, you know, grows year after year. Its stock price has absolutely ballooned since its ipo.
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Those lava cakes are anything but boring. Do not call those boring, Neil.
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Okay, it's Monday. So here are the events you need to know about to stay ahead in the week ahead. Today, President Trump will meet with Ukrainian President Volodymyr Zelensky and an entire 11 man roster of European leaders who are keen to get in Trump's ear following his meeting with Vladimir Putin on Friday. Fears are growing across Europe that Trump will favor an arrangement proposed by Putin that would require Ukraine to cede territory in its eastern regions in exchange for a peace deal. So they are heading to D.C. for an urgent chat. And like I said, this is going to be a huge meeting, including the leaders of France, Germany, Italy, Britain, the eu, NATO and more. One French official said it was the most consequential for peace and security in Europe since the fall of the Soviet Union. And speaking of big meetings, central bankers will be flying into one of the coolest airports in the world, Jackson Hole, Wyoming, for the Federal Reserve's annual policy symposium. If you get a thrill from talking credit spreads and labor markets. This event is for you. Held every year in the shadow of the Grand Tetons, the symposium brings in central bankers from all over the world to discuss the challenges facing the global financial system. It all culminates with a highly anticipated keynote address Friday by none other than Fed Chair Jerome Powell.
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Yeah, remember last year Powell kind of telegraphed a pivot to cutting rates, saying the time has come for policy to adjust and that my confidence has grown that inflation is on a sustainable path back to 2%. That feels like a lifetime ago at this point, but if we don't get similar hints this time around, Wall street might get a little nervous despite there being a lot of confidence that a September rate cut is coming.
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And on the earnings calendar, it is a retail's time to step up to the plate. Walmart, Target, Home Depot and Lowe's will give an update on their businesses, giving us key info into the health of American consumers who drive 2/3 of GDP. Pay attention to whether Target can get off the struggle bus with a back to school shopping boost. It slashed its outlook in the spring and its Stock is down 24% for the year.
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I do have some confidence, maybe not in Target because it's still a bit of a mess, but because June and July's retail sales were solid, they rose 0.9% and 0.5% respectively, which was in line in expectation. Plus other retailers, Amazon, ebay, Shopify, even on running all said that they had yet to see a pullback in spending. So I am relatively bullish.
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And we know that Walmart specifically tends to thrive during times when people are pulling back because they have lower prices. So Walmart is usually the biggest earnings that you're looking for for retail just because they're so massive. And in sports, the college football season kicks off with a slate of games on Saturday, including a Big 12 matchup between Iowa State and Kansas State in Dublin, Ireland of all places. As for the top contenders, Texas is the preseason number one in the AP and Coaches poll, followed by Ohio State, Georgia, Penn State, Clemson and Oregon.
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Dublin, Ireland Great place just went in golf there it is. Giving some Big 12 energy though. I think they'll appreciate the high flying.
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Brand of football that is all the time we have. Thanks so much for starting your morning with us and have a wonderful start to the week. If you have any thoughts or feedback on today's show, send a note to Morning Brew Daily at Morning Broadcom. Now let's play Password, our game where you have to guess a secret word from a series of clues the password for last week was. Drumroll please. Mild milk. Congrats to everyone who got it correctly. There was a winner, but apparently he doesn't check his email over the weekend, so we are still trying to get in touch. While we wait on confirmation, let's move on to this week's game. As a reminder of how this works, each day of the week will give you a clue for a mystery word you have to identify. The earlier in the week you submit the word, the more entries you get into the lottery that determines the winner. Five for Monday, four for Tuesday, and so on. Toby, what is the first clue of this week's password?
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Your first clue for this week is the password is a two word movie title. The password is a two word movie title. If you're a particularly psychic cinephile or you're just feeling lucky, you can submit by heading to the link in the show description or by heading to our Instagram @b Daily show where we'll also post a link to submit. Good luck.
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Now let's roll the credits. Emily Milian is our executive producer. Raymond Lu is our producer. Our associate producers are Olivia Graham and Olivia Lake. Hair and makeup is so relieved rush is over. Devin Emery is our president and our show is a production of Morning Brew.
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C
Great show today, Neil. Let's run it back tomorrow.