Walmart Warns of Tariff Price Hikes & Dick’s Sporting Goods' Risky $2.4B Deal

Summary

Morning Brew Daily – May 16, 2025 Episode: Walmart Warns of Tariff Price Hikes & Dick’s Sporting Goods' Risky $2.4B Deal

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Introduction

In this episode of Morning Brew Daily, hosts Neal Freyman and Toby Howell delve into significant developments impacting the retail sector, including Walmart's impending price hikes due to tariffs and Dick’s Sporting Goods' ambitious acquisition of Foot Locker. They also explore noteworthy stock movements, corporate challenges, and breakthrough innovations shaping the business landscape.

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Walmart's Tariff-Induced Price Hikes

Walmart, traditionally known for its ability to keep prices low, announced price increases on select products by the end of the month. The company attributes these hikes to ongoing tariffs imposed by President Trump's trade policies, particularly the persistent 30% tariffs on Chinese goods.

Key Points:

• CEO Doug McMillan stated, “We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure.” (00:35)
• CFO John Rainey highlighted the unprecedented speed and magnitude of these cost increases, emphasizing their impact on Walmart’s operations. (00:35)
• Walmart sources approximately one-third of its merchandise from abroad, with a significant portion coming from China. Despite recent agreements to lower tariffs, the current rates remain too burdensome for Walmart to fully mitigate.

Impact Analysis: Toby Howell explained that Walmart’s strategic approach involves maintaining low prices on essential groceries, which constitute about 60% of its business, while adjusting prices on other categories like electronics and household goods. This tactic mirrors Walmart's post-2008 strategy, where maintaining staple prices bolstered market share and customer loyalty despite economic challenges. However, the announcement signals potential ripple effects across the retail industry, with other major retailers like Target, Home Depot, Lowe’s, and Best Buy likely to follow suit due to their higher exposure to Chinese imports.

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Dick’s Sporting Goods' $2.4 Billion Acquisition of Foot Locker

Dick’s Sporting Goods made a bold move by acquiring Foot Locker for $2.4 billion, aiming to expand its influence in the sneaker market and enhance its international presence.

Key Points:

• The acquisition is intended to strengthen Dick’s position in the wholesale market, particularly with key partners like Nike, JD Sports, and Foot Locker itself. (05:39)
• Analyst John Kernan from TD Cowan criticized the deal, labeling it a “strategic mistake” and expressing concerns over potential antitrust issues and the vulnerability of Foot Locker’s mall-based store footprint during economic downturns. (08:29)

Host Insights: Neal Freyman noted the immediate negative market reaction, with Dick’s Sporting Goods stock falling by 14% following the announcement. Toby Howell provided a balanced perspective, acknowledging the strategic intent behind targeting Foot Locker’s younger customer base and the potential e-commerce synergies under its new CEO from Ulta Beauty. However, he also recognized the significant risks associated with the acquisition, including the ongoing trade war and Foot Locker’s declining performance.

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Stock of the Week: Coinbase

Coinbase, the leading cryptocurrency exchange in the United States, experienced a volatile week marked by its inclusion in the S&P 500 and subsequent challenges.

Key Points:

• Coinbase was added to the S&P 500 on Tuesday, resulting in a 19% stock surge. Neal Freyman explained, “It's like joining a club where you're paid to be a member,” highlighting the positive impact of index fund inclusions. (10:43)
• However, the company faced setbacks with a significant cyberattack where personal user data was compromised, and the SEC initiated an investigation into potential inflation of user numbers in past disclosures. (11:57)

Host Insights: Toby Howell discussed the dual nature of Coinbase’s performance, suggesting that while the S&P 500 inclusion was a milestone, the cyberattack and SEC probe undermined investor confidence. Neal added historical context, detailing Coinbase’s stock volatility since President Trump's election and the ongoing regulatory uncertainties despite expectations of a more crypto-friendly administration.

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Dog of the Week: UnitedHealth Group

UnitedHealth Group, once a dominant force in the Dow Jones Industrial Average, has faced a drastic decline due to multiple crises.

Key Points:

• The company’s stock plummeted by 53% in the past month, erasing over $300 billion from its market cap. (15:10)
• Issues include the resignation of CEO Andrew Witty, a DOJ criminal probe into possible Medicare fraud, and a lawsuit alleging the underreporting of the impact of the CEO’s murder. (16:32)

Host Insights: Neal Freyman emphasized the unprecedented nature of UnitedHealth’s rapid decline, noting the extensive list of challenges from regulatory investigations to internal management upheavals. Toby Howell highlighted the company's historical stability within the Dow Jones and the severe impact of its current troubles, underscoring the magnitude of the crisis facing one of America’s largest healthcare providers.

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Additional Highlights

Harvard Law’s Rare Magna Carta Discovery

Harvard Law accidentally purchased an original Magna Carta for $27.50, unaware of its true value until medieval historian David Carpenter identified it online. This rare document, dating back to the 1300s, is one of only 24 originals worldwide and is now on public display at Harvard.

Notable Quote: Neal Freyman humorously remarked, “I was going to say got to get David Carpenter to start looking around my apartment because this thing is extremely valuable.” (20:12)

New Jersey Transit Strike

A strike by 450 engineers at New Jersey Transit has halted train services, affecting approximately 350,000 commuters. The strike, the first in over four decades, arises from wage disputes, creating significant disruption, especially with major concerts scheduled at MetLife Stadium.

Host Insights: Toby Howell predicted chaos around major events due to the lack of reliable transit options, anticipating skyrocketing Uber prices and logistical nightmares. Neal Freyman expressed hope for a swift resolution before the weekend’s peak travel period. (22:41)

AI Model Rollout Delays

Meta (formerly Facebook) announced a delay in the rollout of its new AI model, Behemoth, pushing the launch from April to at least fall. Similarly, OpenAI’s GPT-5 release has been postponed beyond mid-2024 due to ongoing performance improvements.

Host Insights: Neal Freyman criticized the premature promotion of AI products, noting that Meta’s inability to deliver the promised advancements highlights underlying challenges in the AI industry. He warned of an emerging bubble, as companies struggle to make significant progress despite substantial investments. (23:06)

Medical Breakthrough in Gene Editing

A groundbreaking personalized gene editing treatment has saved a baby boy, KJ, from a rare genetic disorder with a high mortality rate. This advancement employs CRISPR technology to target and correct specific genetic mutations, offering hope for millions suffering from similar rare diseases.

Notable Quote: Toby Howell detailed the treatment process, explaining how CRISPR acts as a “genetic GPS” to precisely edit the patient’s DNA, marking a significant milestone in medical science. (25:59)

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Conclusion

This episode of Morning Brew Daily provided an insightful overview of critical developments in the retail sector, stock market movements, and technological advancements. Hosts Neal Freyman and Toby Howell expertly navigated through complex topics, offering balanced perspectives and in-depth analysis to keep listeners informed and engaged.

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For more updates and detailed discussions, tune into the next episode of Morning Brew Daily on your preferred podcast platform or YouTube.

Transcript

[Toby Howell]

Hey, Fidelity. How can I remember to invest every month?

[Neal Freyman]

With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs.

[Toby Howell]

Huh, that sounds easier than I thought.

[Neal Freyman]

You got this?

Yeah, I do.

[Toby Howell]

Now, where did I put my keys?

[Neal Freyman]

You will find them where you left them.

[Toby Howell]

Investing involves risk, including risk of loss. Fidelity Brokerage Services, llc.

[Dave Ahern]

Member NYSE SIPC.

[Neal Freyman]

Good morning, Brew Daily Show. I'm Neal Freyman.

[Toby Howell]

And I'm Toby Howell.

[Neal Freyman]

Today, Walmart is raising prices due to tariffs as the trade war finally hits home.

[Toby Howell]

Then Dick's Sporting Goods is trying to become Dick's Sporting Great, snapping up footlocker in a multi billion dollar deal. It's Friday, May 16th. Let's ride.

[Neal Freyman]

Happy Friday. Hope anyone who put a meeting invite on your calendar today realizes their error and cancels it immediately. Okay, here is a question. How much does an Apple Vision Pro cost? The contestants on a recent episode of the Price is Right Primetime Edition were asked this by Drew Carey. And they answered $1,000, $750, $1,001 and $1,270. That is off by thousands of dollars, as you all know, since you listen to this podcast, the Vision Pro virtual reality headset retails for $3,500 and. And when Carrie revealed the true cost, the audience gasped in disbelief. The clip has since gone viral. Toby, what's your takeaway?

[Toby Howell]

My takeaway is I would also stink on the prices. Right, so no shade to these people whatsoever. But the hits just keep coming for the Apple Vision Pro. The Wall Street Journal wrote a deep dive on early adopters of the technology who have now had the device for over a year. And it was tough to read. Here are a smattering of quotes from the piece. It it's just collecting dust. I think I've probably used it four times in the last year. It's still way too heavy. I wouldn't recommend anyone buying it unless you're really rich and you don't know what to do with your money. Despite all of that, though, Apple is still shipping updates to this product. They just announced a new feature that lets you scroll with your eyes. We'll see if people stop rolling them long enough to actually use it. Now, a word from our sponsor, Iterable. Neil, you ever done the New York City airport mix up, Toby?

[Neal Freyman]

No, I actually double check my tickets.

[Toby Howell]

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[Neal Freyman]

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[Toby Howell]

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[Neal Freyman]

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[Toby Howell]

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[Neal Freyman]

Walmart, a retailer known for rolling back prices, is going to start rolling them up. On the company's earnings call yesterday, execs said they'll be raising prices on some products by the end of the month, attributing the hikes to President Trump's tariffs on other countries. CEO Doug McMillan said, We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure. The higher tariffs will result in higher prices, CFO John Rainey chimed in. The magnitude and speed at which these prices are coming to us is somewhat unprecedented in history. Walmart import about one third of the stuff you see in stores from abroad, with most of that chunk coming from China. The US And China agreed to significantly lower tariffs on each other at the beginning of the week, but the current rate of 30% on Chinese goods is apparently still too high for Walmart to eat all those costs. It is an ominous sign for American shoppers when Walmart, the biggest chain of them all, says it'll have to pass on tariff costs. The company is considered a bellwether for the US consumer since 90% of the population lives within 10 miles of a store and people from every walk of life shop there. Even with tariffs, though, Walmart said its business is chugging along just fine and didn't change or scrap its guidance for the year, as other companies have in recent weeks. It's just too big of a ship to be thrown off course by the trade war winds. But still, if the tariffs weren't real yet, they are now.

[Toby Howell]

Yeah, Walmart is just so good at dodging price hikes, which is why it was concerning to hear them saying that they're going to hike some prices or one, it is very good at doing this because it has massive leverage with its vendors. It's just so big. Two, it sources 2/3 of its merchandise in the U.S. groceries making up the majority of that. And three, can keep the cost of everyday items like those groceries low because it can raise prices on other items like electronics and household goods. So groceries account for roughly 60% of its business, which is where consumers would feel the most impact, the most bite from those price hikes. So the fact it can keep those prices in check will probably lead to actually a similar pattern. Post 2008, Walmart emerged from that financial crisis with an even bigger market share, even more brand loyalty, because it was able to keep those staples low. So we're almost seeing a similar pattern emerge here where keep the everyday items where they're at, but then raise prices elsewhere across the business to offset those.

[Neal Freyman]

They did talk about what specific categories would be most impacted by price hikes, and those include some of those goods that only come from China, which are electronics, toys and vacuum cleaners, baby strollers and car seats. That's what John Rainey, the cfo, said would be impacted the most from price hikes. He said those were coming at the end of the month and they would probably continue through the end of the year. Let's talk about retail writ large because this is a bad sign for any other retailer not named Walmart. They don't have the scale or the leverage or that grocery business to back up their what they sell. So if Walmart says it's going to raise prices, it's the biggest one of them all. They then you're looking at a bunch of other retailers who probably do the same because the dam has broken. We haven't heard from many retailers so far this earnings season, but we're about to because we got Target, Home Depot, Lowe's coming up next week, and then Best Buy as well. They're way more exposed to China. Best buy, about 55% of what it sells is sourced through China because all of those electronics Target imports about half its sales compared to just one third of Walmart. So we're, we're a little girding ourselves for what those retailers say in terms of price hikes.

[Toby Howell]

And we did get some government data to parse through US retail sales growth slowed in April to just 0.1%. That is coming off of a revised 1.7% gain in March, which is actually the largest in two years. But what is that actually showing? It's showing that a lot of these retailers kind of Or a lot of consumers front loaded those purchases ahead of these tariffs coming in and then started cutting back in April. So we'll see what government data paints a picture of once we also pair it with, you know, private companies like Target, Best Buy, etc. Dick's Sporting Goods went on a shopping spree yesterday and snapped up foot locker for $2.4 billion. But investors are taking a long, hard look at the acquisition. The idea behind adding Footlocker into the fold is for Dick's to expand its influence on the sneaker world and and also internationally where Foot Locker has stores in 20 countries. It also gives Dick's a big leg up in the wholesale market, particularly with Nike. Nike's big partners are Dick's Footlocker and JD Sports. So bringing two of those brands together gives Dick's significant leverage over Nike at a time when its business is especially reliant on wholesale. However, not everyone is sold on the synergies. Dick stock fell 14% yesterday after as investors digested the big swing. First, there's antitrust concerns from two big sports brands teaming up. And also most of Foot Locker store footprint is located in malls which are more exposed to economic downturns. So Neil, some see the acquisition as buying low. Others see it as a strategic mistake. I see a chance to change the name of the combined company to Foot Dick's Sporting Locker.

[Neal Freyman]

They said investors were digesting this deal, but they spent a lot of time in the bathroom after it because this did not go down well. The shares were down for 14%. TD Cowan, an analyst called John Kernan kind of railed on this acquisition. He called it, quote, a strategic mistake. He said, we've been looking at this particular retail sector for many years. I've never seen a single piece of M and A accrue value to shareholders. I have seen it lose billions of dollars in value for shareholders. So he was totally against this. He thinks it's a distraction. For Dick's Footlocker is in a really bad spot. They're way exposed to moles. And we haven't even talked about tariffs. I mean, we talked about tariffs in the first story, but as it pertains to this story, 99% of footwear is imported. So you're, you're buying a company that is very much exposed to trade, the trade war. So these guys are looking at and saying, I don't know what Dick's is doing here. Like Foot Locker, yes, it's cheap, but it's cheap because there's a reason for it. Its business is not doing great.

[Toby Howell]

Yeah. But you can see where Dick's is coming from here. Foot Lockers client base tends to skew younger. Young kids like going in there shopping for the new cool sneakers. Dick's customer base typically is suburban older people because that's the only place where these giant, you know, sporting palaces can exist. So I think they are being lured by the sirens call of a younger customer base as well. And then also, Foot Locker did just recently hire a new CEO from Ulta Beauty back in 2022. And she's kind of expanded Ulta's revenue retail experience online and is trying to apply the same sort of principles to Footlocker. So there's an E commerce angle there as well. So again, you could take the TV cow inside because this is a business that is exposed to a lot of different pressures from tariffs, from, you know, just the fact that no one really shops at malls anymore, or you could just see it as buying low. So you do see two sides of the of the coin here. All right, it's stock of the week dog of the week time, where Neil and I pick one stock from the week's news who figured out the New York Times Thursday crossword without hints, and one stock who needed a little help to figure out that theme. Neal, I actually lost the pre show game of onion dicing because my eyes were watering too much. So you are up first. What's our stock of the week?

[Neal Freyman]

My stock of the week is Coinbase. The largest crypto exchange in the country has popped 19% this week after it was invited to join the S&P 500 on Tuesday. It's another watershed moment for the crypto industry's move into the traditional financial world as Coinbase becomes the first crypto company to to join the benchmark index. If you're wondering who it's replacing, that would be Discover, which is getting eaten by Capital One in a mega merger that was just approved. Shares of companies typically rise when they're added to the s and P500 because the funds that track the index have to add the new company to their portfolios. So it's like joining a club where you're paid to be a member. But as great as the week started off for Coinbase, it ended the week on a couple of major sour notes. For first, Coinbase revealed that cybercriminals had swiped some personal data of its users and were demanding a $20 million ransom payment in order to not release that information to the public. Then the New York Times reported that the SEC has been investigating Whether Coinbase inflated its user numbers in past disclosures. With the new Trump administration going more lax on crypto, Coinbase thought it didn't have to worry about the Fed's breathing down its neck. Apparently not. So. So it's been a whirlwind one step forward, two steps back kind of week for Coinbase.

[Toby Howell]

Yeah. When they were added to the S&P 500, we're like, oh, lock for stock of the week. Like, it's fine. And then as the week progressed and these news stories kept dropping, like, I don't know, is it still. It still is up for the weeks. We're like, all right, we'll put it in the stock of the week column. Let's talk about this hack, though. On Thursday, they reported that cybercriminals based overseas were using social engineering to steal customer data by attacking support agents located overseas. And they said that the incident could cause up to $400 million to fix. But it's not the worst thing in the world because no passwords and private keys were compromised. And so that's, you know, the bread and butter of a exchange like Coinbase. So definitely not a headline that you want right on the heels of you joining the S&P 500, but unfortunately one that they have to deal with right now.

[Neal Freyman]

And Coinbase stock has been on a true roller coaster over the past few months, right after President Trump was elected, which Coinbase donated $75 million to crypto friendly policy candidates around the country. So they were a huge corporate player in the election. So they shot up 31% the day after the election. But this spring, it's been a different story. With the market overall not doing so well, and the legislation that was supposed to come for crypto just kind of stalling in Congress, they fell 26% in February, 20, 20% in March. And they thought that all of these investigations that the SEC was doing into them during Biden administration were going to go away. But then we found out that they're still being investigated this for perhaps inflating user numbers. They said that they stopped using this particular metric 2 1/2 years ago and that it is a carryover from the previous administration. But clearly they're not, you know, running free wild like they thought they were in this administration. All of this legislation that they thought would get passed to be more lax regulatory policies toward them just haven't come to fruition.

[Toby Howell]

We really should have made Coinbase both the stock of the week and then come out of break and say, hey, never mind, it's also our dog. It could have been both. Up next, let's actually do our dog the week. This message is a paid partnership with Apple Card I'm a person who really appreciates simplicity, and when it comes to credit card rewards, the simpler the better. That's one of the many reasons I have an Apple Card. The rewards are super straightforward. I earn up to 3% daily cash back on my everyday purchases. There are no points to calculate, no limits or deadlines. Plus it's super easy to access my card and make payments from the Wallet app of my iPhone. If that sounds like the kind of simplicity you want in a credit card, apply for Apple Card in the Wallet app on your iPhone. Subject to credit approval. Apple Card issued by Goldman Sachs Bank USA Salt Lake City Brands terms and [e-mail] if you're working on building out your portfolio, check out public.com Public is the investing platform for folks ready to take investing seriously.

[Neal Freyman]

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[Toby Howell]

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[Toby Howell]

Find your account in minutes or less and earn up to $10,000 when you transfer your old investment portfolio. Get started at public.com/morning brew that's public.com/morning brew paid for by Public Investing. Full Disclosures in podcast description UnitedHealth Group has been an absolute lock for dog of the week as things went from worse to worser for the nation's biggest health care company. First, longtime CEO Andrew Witty stepped down for personal readings leading to a double digit drop in the stock. Then the Wall Street Journal reported that the DOJ had opened a criminal probe into the company for possible Medicare fraud. That came on the heels of investors suing UHG this month for allegedly downplaying the business impact of the December killing of UnitedHealthcare CEO Brian Thompson. It's all led to a stock rout almost unfathomable for a company of UnitedHealth size in scope. Over the last month, the Stock is down 53%, shaving off more than $300 billion from its market cap and leading to a growing crisis of confidence over the most influential player in American health care. Neal this company was once the most influential stock in the Dow Jones by waiting but now it has fallen to 16th. Pretty shocking.

[Neal Freyman]

This company is imploding right now. There's a criminal investigation into possible Medicare fraud, a devastating hack last year that it's still feeling the effects from into its payment system. There's antitrust investigations into its past acquisitions. The murder of one of its top executives last December. An actual business model that's hurting from much higher costs. I mean you just go down the line and you talk about the new CEOs coming in, Stephen Hemsley, he's getting paid $60 million is in an equity award to come in and fix it. It almost doesn't seem like enough because those problems are so many. It's lost so much in value. Truly one of the something we just haven't seen before in many, many years for a company this of this size to fall so quickly.

[Toby Howell]

Yeah, it used to be Everyone knew UnitedHealth Group because it just dominated the Dow Jones so much because remember, the Dow Jones is price weighted, which is just an interesting way to form an index at all. And UnitedHealth always had the highest share price. So it always however it went, basically the Dow went. But for most of its history, it just doesn't really go that much of anywhere because it's just this big hulking monolith that, you know, it's just always been what it's been. But now it is just so numerous. The amount of issues that it has faced, like we've talked about it multiple times and we're like we have to do it for dog of the week. It's simply wiped out half of its value, which is just doesn't not something you see at the upper echelons of the Dow Jones at the upper echelons of the health care business at all just pretty wild to watch happen in real time.

[Neal Freyman]

So what is it getting investigated for? Well, we don't know exactly because the investigators haven't comment. But this is typically how fraud works in Medicare Advantage. So UnitedHealth runs this big Medicare Advantage business. And in this business you get companies get paid more for taking care of sicker patients in the programs. And rates are determined by the number of diagnoses that you submit. So there is a perverse financial incentive for companies to say the patients are sicker than they are. And that has led to previous investigations leading to investigating how taxpayers are on the hook for billions of dollars in extra payments because these companies are portraying their patients as sicker than they actually are because of this incentive structure. So we don't know exactly what's going on with this particular probe into UnitedHealth Group, but that's typically how Medicare Advantage fraud has worked.

[Toby Howell]

For this next story. I haven't seen a supposedly fake document make this many waves at Harvard Law. Since Mike from Suits faked his diploma, Harvard Law has been sitting on a supposed copy of the Magna Carta that they bought for just $27.50 decades ago. But it turns out that copy is actually an extremely rare original that dates back to 1300. Even more wild was how someone eventually made the discovery. David Carpenter, a professor of medieval history at King's College London, was just sifting through old Internet archives looking for copies of the important document when he pulled up Harvard Laws and did a double take. First, he was surprised that he had found one of the most rare documents and most significant documents in in world constitutional history. But secondly, he added, he felt astonished that Harvard had been sitting on it for all these years without realizing what it was. For those of you who nodded off during eighth grade history class, the Magna Carta is regarded as one of the earliest declarations of human rights, established the principle that the king is not above the rule of law, and has gone on to form the backbone of constitutions globally. So the fact that just one of seven copies, copies dating back to the 1300 version, somehow went undetected until now is wild to think about, especially when you consider who is in custody of the document. Neil, I'm about to start leafing through my own files to see if I've missed anything.

[Neal Freyman]

I was going to say got to get David Carpenter to start looking around my apartment because this thing is extremely valuable. They bought it for a little over $27. Well, how much does it cost now? What is the market price for an original Magna Carta? There are only 24 originals out there in the world. The last Magna Carta soldier was purchased for $21.3 million in 2007 by the billionaire David Rubenstein, who now owns the Orioles. So they are sitting on a big chunk of change and it might be the biggest bargain buy in history. I'm trying to think of anything else but to buy something for $27. For now it to be worth over $20 million. Like I don't think you would have made that much money if you bet on Leicester City to win the Premier League back when they did.

[Toby Howell]

Maybe just early on Berkshire Hathaway. But I did want to know how did Carpenter Just know immediately that this was the real document. Apparently there's a few telltale signs, but one of the biggest ones was the style of handwriting and the big E at the start of a first line, which apparently is. If you are trained in this sort of thing, it's just like a neon green flashing light that says, hey, this is a real copy, because only this particular period was written or copied in this particular handwriting. So I can't imagine going through and, like, doing the double take, zooming in that moment. It must have just been like pure electricity going through his body, because apparently he was looking at a copy, but he's like, whoa, whoa, whoa. This is the real deal, baby.

[Neal Freyman]

And you know he's doing a victory lap. Is librarians, because they do the dirty work of digitizing all of these archives. So the librarian at Harvard said, behind every scholarly revelation stands the essential work of librarians, who not only collect and preserve materials, but create pathways that otherwise would remain hidden. So kudos to librarians. You do so much work under the surface, and. And you apparently made Harvard a lot of money. Except they did say they're not going to. They're not going to sell it, and they'll just put it on display for the public. Very cool story there. Okay, let's sprint to the finish this Friday with some final headlines. New Jersey transit riders are used to dealing with disruptions and delays. And that was when people were driving the trains. Now they are not. Starting this morning, just after midnight, 450 engineers for the nation's third largest transit network went on strike. The first New Jersey transit strike in more than 40 years over a wage dispute with the agency. With no trains currently running, as many as 350,000 New Jersey commuters are now in the lurch. And a contingency bus plan to bring people where they need to go will only handle 20% of daily ridership. Toby, this is going to be chaos.

[Toby Howell]

Yeah, it's going to be chaos, especially when you look at the concert schedule coming at MetLife Stadium. First, there's a Shakira concert on both Thursday and Friday, and then also Beyonce and the weekend are coming to the venue over the next three weeks. So unless you iron it out, those Uber prices are just going to go nuts because it's. It's reliably the only place, only way you can actually get to the stadium at that point. So we'll see. The pay is the big issue here. We'll see if they can come to.

[Neal Freyman]

A deal, hopefully before Monday. I think that'll be like the deadline when everyone starts going back to work.

[Toby Howell]

AI progress might not be as parabolic of a line as we were all expecting. Metta just announced that it is delaying the rollout of its newest flight flagship model over concerns that Behemoth, as it's called, isn't that much better than prior versions. Originally, April was the planned launch date before shifting the launch to June. Now Met is saying at least fall or even later. And that is not alone in these training stumbles. GPT5, the next iteration of Open Air's everyday model, was supposed to drop around mid 2024, but in February, Altman said that the model was still months behind. So Neil, some nervy times at big AI companies that have plowed billions of dollars into training these things and need to see improvements to justify the cost.

[Neal Freyman]

This is why you shouldn't talk up your product before releasing it because Metta has publicly said, well, it's behemoth model. It's so much better than anything that rivals have put out from OpenAI or Google. And in effect, it is not yet that to that level. So they can't release it because they've talked themselves into into a bit of a ditch. This is a big problem facing AI companies that is kind of bubble below the surface. You may not have heard about it, but basically these companies can't really improve on these models at the highest level that they want to. So when they release something, they want to be better than the previous version. They can't do that right now. So they're working behind the scenes feverishly because they poured so much money into this to improve these models. But progress is just hard to come by. Let's wrap up our shows for the week with some remarkable medical history. A baby boy has become the first patient to undergo personalized gene editing treatment, allowing him to survive a rare genetic disorder that kills half of all babies in the first week of their lives. The baby named KJ is now nine and a half months old and thriving. And he is that way thanks to a medical breakthrough that scientists say could be applied to millions of others with rare genetic diseases. Dr. Howard Marks, who used to oversee gene therapy regulation at the fda, called it a milestone that would reduce the price of treatments by an order of magnitude. At least it is to me, he said, one of the most potentially transformational technologies out there. Very cool. Very awesome, yeah.

[Toby Howell]

To make this treatment work, scientists wrap the treatment in tiny fat molecules that protect it while it travels through the bloodstream to, in this case, target the liver. Inside those fat molecules are Two main things. One, instructions that tell the cells to make special enzymes that actually end up editing the genes. And then two, basically, a genetic gps, which is crispr. CRISPR searches through a person's DNA literally like a bloodhound, looking for the exact spot where one tiny letter often needs to be changed to make the necessary fixes here. And so this treatment is just one thing that it's very particular to KJ in this point, but you can see how it has broad applications beyond that.

[Neal Freyman]

Right. Because so many people suffer from these rare genetic disorders that only apply to them personally or just a few, few other people, these particular mutations. And drug companies are not going to invest billions of dollars into R and D to develop drugs that treat just a handful of people. So that's what the breakthrough is here with personalized gene editing, is we can make a treatment that is based on your personal genome. And you know that it will be a cheaper possible way than developing, than pouring billions into a larger drug in order to. To treat you.

[Toby Howell]

Yeah, because KJ's disease only affects 1 in 1.3 million people. So of course it doesn't seem economically viable. But when you add the cages of the world, Suddenly there are 30 million people in the US alone that suffer from one of these rare 7,000 genetic diseases. So you can see how the problem is much bigger than just this one baby.

[Neal Freyman]

But we're starting to work on a solution which is very exciting. That is all the time we have. Thanks so much for starting your morning with us. Have a wonderful Friday and an even better weekend. If you have any thoughts on the show, send an email with questions, comments, or feedback to Morning Brew daily at Morning Broadcom. Let's roll the credits. Emily Milian is our executive producer. Raymond Liu is our producer. Our associate producers are Olivia Graham and Olivia Lake. Garrett Peck is on audio Hair makeup is bargain hunting at the flea market. Devin Emery is our president and our show is a production of Morning Brew.

[Toby Howell]

Great show today, Neil. I wish you all well.

[Dave Ahern]

Overwhelmed by investing. If you're anything like us, the hardest part is getting started. That's why we create the Investing for Beginners podcast. Our goal is to help simplify money so it can work for you. We invite guests to demystify investing at.

[Toby Howell]

Least like the minimum 10% into the 401k.

[Dave Ahern]

I'm Dave Ahern. And I'm Andrew Sather. And we hope you join us on the Investing for Beginners podcast. On the Investing for Beginners podcast.