AI Warnings Grow & Canada Courts International Investors

0:00This episode is brought to you by Charles Schwab. Timing the market, fighting inflation, managing risk, financial decisions can be tricky. Investing isn't just math, it's psychology. Your neurons are playing favorites, and the market doesn't care. Financial decoder, an original podcast from Charles Schwab, can help. Join host Mark Reepie as he breaks down practical strategies to help overcome the mental traps that may affect your investing decisions. Listen at Schwab.com slash financial decoder. In a messy global economy, Canada is betting investors will pay for stability. An AI leader, Soundi Alarm Bells, and suggests a plan for managing the frontier. From Monday, September 14th, it's Brumarga's Daily. I'm Hannah Horvath. And I'm Dylan Lewis. Let's get moving and grooving. We're kicking off today looking at the AI race and how it has turned from a sprint to an obstacle course. Last week, anthropic researcher Jacob Coxon resigned and dropped a now viral Twitter post saying, quote, the people building AI earnestly believe

1:02that it could kill us all by the end of the decade. This is not a marketing stunt. A fellow researcher from Anthropic chimed in and it not exactly calm the collective anxiety here. He said internally, they believe that there is the possibility of AI killing all humans and personally peg that probability at 10%. Not exactly the reassuring tone that people were hoping for. All these exchanges of kicked off discourse around the risks with AI both in the market and in the realm of public policy over the weekend. Anthropic CEO Dario Amadeh Wadein. Hannah, what did he have to say? Yeah, he wrote a pretty sweeping blog post, but the core argument was that AI capabilities are starting to advance in ways that could make the next phase of development much harder for humans to supervise. And there are two things kind of driving that concern. One is this idea of recursive self improvement, which is basically AI is not just a thing being built. It's also that developers are increasingly using AI to help build better AI. So if that gets good enough, you can essentially get a feedback loop where AI development starts to speed itself up, basically a vicious cycle here.

2:02And Dario's concern is that at some point the technology could improve faster than humans could realistically evaluate every step, aka be able to monitor it. The second concern is what happens as these systems become more autonomous. And we got a glimpse of that in the open AI hugging phase incident where a group of AI agents went off script and carried out cyber attacks that they were not explicitly instructed to perform. And these are two separate issues, but they both point to the same underlying problem, which is these systems are getting better at both building and acting on their own. And Dario's answer to this isn't just to go shut AI down completely, but he did argue that if these capabilities are accelerating this quickly, we may need to give the safety side time to catch up. Yeah, he proposed a pacing the frontier plan for AI companies. What exactly is that? Yeah, think of it like putting speed bumps into the AI race. He wants outside evaluators embedded deeply inside these companies and getting deeper access. He wants common safety standards among the major AI labs in democratic countries. And then eventually some type of global coordination, including with China. And that last part is where things can get very complicated.

3:05It's one thing for a few Silicon Valley CEOs to agree, okay, we need to slow down here. But it's another thing to convince every company and every country that nobody is going to hit the gas while everybody else is hitting the brakes. Several of those Silicon Valley CEOs did agree that things need to be slowed down a little bit. Elon Musk, open AI, Stamm Altman, Demis Hasebus, from Google DeepMind, all have signed off on this AI deceleration. And the market is kind of weighing what to do with this. There are these existential AI risks. There's also the notion of intentionally a slowed down development timeline. And also the possibility of labs in other countries being able to catch up. It is a big meaty thing for the market to process on a Monday morning. All of it has been very good for cybersecurity stocks, CrowdStrike, and Palo Alto Networks, both up 10% today on this news, even as we've seen a little bit of a tech sell-off processing all of this. Yeah, and I want to point out kind of an interesting tension here, because the people that are building these powerful AI systems are now also helping design the rules for how these systems can be governed. So yes, these are the people that understand this technology the best.

4:07But at what point does this safety standard become a competitive mode? You know, if you're open AI or in Throbic or Google, you can probably afford a much higher regulatory bar than a small company that's trying to catch up. So slowing down the AI race doesn't necessarily slow down everybody equally. I think one of the things that's interesting to me about this atmosphere is that we have seen two of the major frontier companies approach the possibility of going public very differently, given these concerns. In the wake of all this news, Sam Altman said, quote, given everything happening with safety right now would be an ill-advised moment to go public, thinking maybe that the public concern around AI safety standards might get in the way the valuation for open AI. So I think you can rule out a 2026 IPO for open AI. Meanwhile, Anthropic continuing their plans to go public. This week, they announced that they chose NASDAQ as their IPO partner. They are planning an IPO at some point this fall. Hannah, maybe the humans will be fighting the AI agents for shares of the company when they do go public. Yeah, and apparently Washington would also really prefer these agents be homegrown,

5:09because this whole debate about slowing down AI is also becoming a geopolitical issue as well. You know, if American companies are pumping the brakes, does that give China an opening, for example? Earlier today, President Trump waited on this exact concern and a social post he wrote, there is a sick conspiracy going on against AI and data centers, and the only one that's happy about it is China. Whoever wins AI wins. All right. Up next, we've got Canada's surprising answer to the ongoing trade war with the United States. But first, this episode is brought to you by Charles Schwab. Time to market, fighting inflation, balancing risk, no one says financial decisions are easy. In fact, it's the exact opposite. Financial decisions can be really tricky, and it's often your own thinking that can lead you astray. Financial decoder and original podcast from Charles Schwab can help. Joanne Hose-Marc-Repe had a Schwab Center for Financial Research as he offers modern strategies to help combat the weight what in your head. Mental traps like overconfidence, loss adversion, and recency bias may cloud your investing decisions. When you understand these patterns, you can take steps to make better informed financial decisions.

6:09Listen at Schwab.com slash financial decoder or wherever you get your podcasts, that's Schwab.com slash financial decoder. For our next story, Canada wants your money. This week, Prime Minister Mark Carney is hosting the country's first big investment summit in Toronto bringing together hundreds of executives and investors who oversee more than 100 trillion in assets. Canada has a pretty ambitious goal here. The government wants to help drive roughly $1 trillion Canadian investment over the next five years. Yeah, and I think one way that might be interesting to look at this is, Canada had about $95 billion Canadian dollars in foreign direct investment in 2025. So, one trillion over five years would dramatically multiply the annual investment they're at. The a 2-3X increase, a massive jump for them. And it comes at this very interesting time because if you think about global trade, generally, Canada is really important when it comes to gas, mining, things like potash and agricultural products. And a lot of those products are an incredibly high demand right now. I have to imagine

7:10that that is part of Mark Carney's investment picture. Yeah, absolutely. I mean, as you just said, a lot of the focus is on the parts of the economy. Canada things is going to matter the most over the next decade. So, again, energy, critical minerals, infrastructure, AI data centers, of course. But I think the more interesting question is, why is Canada making this pitch so aggressively right now? And I think you can see this when you look at the geopolitical headlines over the past couple months. For a long time, one of Canada's biggest economic advantages was pretty obvious, it's sitting right next to the United States. And the US buys most Canadian exports, the two economies are incredibly intertwined. And historically, that relationship has been pretty stable. But now we have tariffs, we have this broader trade fight, and that is making things feel a lot less comfortable. So, Carney is basically saying we need more options over here on Canada. And I think there's definitely going to be some interest from investors here. I mean, the audience that he's bringing in for this investment summit are global investors. So, folks like BlackRock, CEO Larry Fink, but also international pension funds and sovereign wealth funds.

8:11And on the global scale, it's easy to lose sight of it here in the United States. But Canada is a top 10 country for foreign direct investment. They just get about a quarter of what the US currently does. I think part of Carney's pitch here is you can get access to this North American market, but through a much more stable market environment and political landscape, obviously no one's going to stop doing business with the United States. But if you want to be able to broaden out your investments, he's trying to position them as a very attractive underdeveloped market that still has ties to one of the largest economies in the world. Yeah, I mean, this is definitely not Canada replacing the US relationship. That would be extraordinarily difficult, maybe even impossible for them to do so. It's really about giving themselves and investors more options. And on the trade side, that could mean building more ports, pipelines, other infrastructure that makes it easier to get Canadian resources to Europe and Asia instead of sending nearly everything south. And as you said, Dylan, can has a lot of pitch. It has oil and gas, it has uranium and copper and other critical minerals. It has a lot of nuclear power and hydro. And compared with a lot of places investors could put their money right now, it is relatively politically stable. And I think that's something to really

9:14hone in on. And that might sound like a more boring selling point. But if you are spending billions of dollars on a mine or a power plant that could operate for the next 30 plus years, boring stability might be exactly what you want. Boring stability can also be a very attractive investment wrapper. I mean, the projects that we're talking about here, a lot of them are infrastructure projects, utilities, energy projects. A lot of places look for those types of investments to be ballast type investments, in diversified portfolios, especially pensions and sovereign wealth funds. So I could see how a lot of the investors that are attending the summit would be interested as part of their overall investment strategy. I think an important thing for us to keep in mind as we're tracking the story, we are probably looking at 12 months, 18 months before we start seeing serious inflows and real progress here. The work that they are trying to do takes time. But to me, it feels significant that Canada is trying to decouple itself from the United States when it comes to global investment. Yeah, I completely agree. I mean, essentially, Karni is trying to convince investors that Canada can be more than just a giant pile of natural resources next to the United States. It can actually turn

10:17those resources into projects and infrastructure and growth. Now we all have to basically wait and see to see whether Canada can actually build everything it's pitching and speaking of things getting built, John, we have a letter from the listener. Yes, that's right. We've got a letter from Kiel. Kiel wrote, hope you're doing fantastic. Love the show. Can you do a dive into the drone industry and ticker KTOS, including their recent pullback? Thank you for the note, Kiel. John, why don't you give us some some contacts on Kratos? Yes. So the company is Kratos Defense and Security Solutions Inc. ticker KTOS on the NASDAQ. Market cap near $9 billion and shares are down over 35 percent. So far this year we'll get into that in a moment. Kratos makes jet-powered drones for the US military, most notably the Valkyrie and autonomous loyal wingman. These aren't the type of small surveillance drones we might be picturing. These are unmanned aircraft that are designed to fly alongside fighters,

11:17like the F-35. That's how fast they go. These are jet-powered. They can scout. They can launch munitions. They can draw enemy fire. The Valkyrie is built to be expendable. We're talking about a loss of $3 million if one goes down versus a $100 million fighter jet. Just talking about money there, of course. That's the company's principal product. As Kiel mentioned, there's been a significant pullback on that share price. I think a lot of people following the market might be kind of surprised to hear that. We continue to hear about how drones have become a very popular military tool around the globe, especially with the fighting that's happening in Russian Ukraine, also the conflict in Iran. I think part of the reason you gave countries with smaller military budgets are a little bit more interested in drones might be able to sacrifice them a little bit more easily, maybe more approachable for those budgets. Yeah. And similarly, the US was intending to ramp up purchases. The Pentagon's 2027 budget request includes nearly 75 billion for unmanned systems and counter drone technology. And just last month, President Trump announced an 100% tariff on certain

12:19drones and their components. The idea was to protect and boost domestic drone manufacturers by making foreign main drones and parts more expensive. That's right. And at the time, a Jeffries analyst called the tariffs, quote, positive for domestic producers and named six countries and named six companies as likely beneficiaries, air environment, Apex, Teladine, Redwire, Elbit systems, and of course, Kratos. So I feel like you'd see these headlines and analysis. And that would be sending those drone stocks higher. You would imagine that. But the opposite happened since the president's tariff announcement, all six of those stocks I just mentioned are down by an average of 20%. Kratos specifically is down closer to 25% just in the last month. Here are some thoughts on how investors are approaching the sector generally. The tariff headlines are overly simplified. Many Chinese drones were already banned before those newest tariffs. So the impact was minimized. And some of the new levies don't take effect for another six months or have multiple car vows for different countries. And more broadly, defense stocks have been weak since fighting started with Iran. Some analysts have flagged that a potential split Congress after the midterm

13:24could create defense funding gridlock, leaving some investors sitting on the sidelines until all those votes are counted. I will say there has been some movement in the drone sector. Just last week, air environment, which is one of the six companies John just mentioned reported earnings. And they beat on top and bottom line expectations brought in 480 million in sales for the quarter. They also touted their backlog of orders increasing to 1.5 billion up from 1.2 billion shares were up 10% on the report. But like Kratos, stock is down over 35% this year. And I think if you take a step back on the space, Kratos stock is down 40% your date, but up 70% since the beginning of 2025. In this space overall, I think expectations kind of got ahead of where business results were for these companies. Investors thought that some of these conflicts might be really good for business. And they have been just not quite as good as investors had originally hoped. Right. And while these backlogs are positive, they're expensive to work through. To fund acquisitions this year, Kratos raised over 1.3 billion dollars through common stock issuance,

14:28which diluted shares for investors by nearly 11%. And the company is still burning through cash to scale up production of the Valkyrie program. Nonetheless, of the 20 analysts covering the stock, 18 have it as a buy or a strong buy. So we may be waiting for the results of the midterms from more context. Kale, thank you so much for your note. We would love to hear from all of you. If you have a comment or question, leave a note where you listen or send an email to brew market show at MorningBrew.com. Let's take a quick break. But when we come back, we're talking about how the US Open has become one of the hottest tickets in New York. This episode is brought to you by Charles Schwab. Overconfidence, loss of version, recency bias, attribution bias could be messing with your retirement plan, and you may not even know it. Financial decoder, an original podcast from Charles Schwab explains how these pesky biases can affect the decisions you make about your financial life. Financial decoder is hosted by Mark Reepie, head of the Schwab Center for Financial Research. Each episode, he and his guests offer practical advice on how to guard against these decision-making biases. Know how these biases can affect your financial future.

15:31Get expert insights on how to help navigate them. Download the latest episode and follow at Schwab.com slash financial decoder or wherever you listen to your podcasts. That's Schwab.com slash financial decoder. Call us footballers back. So, Hilton called in me the superstition concierge to make your fan rituals a reality. Need a room to match your lucky number? We got you. Want to make sure our team doesn't wash your lucky jersey? Oh, that smells lucky. Hilton's unmatched hospitality can keep up with any superstition. Even a marching man wake up call at 555 and 55 seconds. Hit it! When you need a team that will do whatever it takes on game day, it matters where you stay. Hilton, for this day. Hannah, it was an absolutely massive sports weekend. The NFL season kicked off. I spent Sunday on the couch watching my jets get their first win in the season. Maybe only we'll see. The US Open also wrapped up with the men's and women's singles titles over the weekend. You were on the tennis grounds in Queens for the US Open on Friday. Tell me what was the vibe like? Oh my gosh, it was electric. I was there for the men's semi-final,

16:35Sheldon versus Tiafo. It was not only an historic match. It was an unbelievably great match to watch. Great tennis. I just disclosed everybody. I'm a pretty big tennis fan and it was actually my sixth time going to the US Open. And one thing that really struck me this year and I think I've heard from a lot of other people is just how much more expensive tickets have gotten and how crowded the grounds were. Just for a little bit of comparative context, I went to the Cincinnati Open in August, which is obviously also a major tennis tournament, even though it's not a grand slam. Comparing the two really drove home just how much the US Open has become an event beyond the actual tennis itself. You have people dressed up, you have celebrities everywhere, everybody's carrying like a honeydews. You know, it almost feels like half-sporting event, half-giant end of summer party in New York. And yes, I participated fully in the honeydews economy. You did. I'm curious how many honeydews are you willing to admit on the show that you had? This year I was very responsible. I only had one, but in years past I think I've had up to three, which is a pretty penny everybody.

17:38And the honeydews just for some background that's vodka, lemonade and raspberry la cor. With the signature garnish of three frozen honeydew melon balls meant to look like tennis balls. Frankly, the amount of melon there this weekend was breathtaking. Hannah, my mom goes every year to the US Open. She has shifted her strategy, though. She used to go to some of the regular tournament play, some of the later rounds. Now she goes to fan week. She catches the exhibitions. She catches the mixed doubles. And she goes because it's cheaper to get in then. The crowds are not as crazy then. But even in the years that she's adopted that strategy, she has noticed that it's gotten crazier and crazier. And as you said, because the US Open is the place to be in late August and early September, especially in New York, they had over 1.1 million fans at the tournament this year. They drank a collective 800,000 honeydews. And this is absolutely humongous business for the USTA. About 90% of their revenue for the organization is from the US Open itself. They are currently heavily investing in upgrading the stadium, upgrading the grounds.

18:43A lot of those upgrades, Hannah, are going to the premium seat and luxury box options. What do you think that says about the tournament? Yeah, I think it's very intentional. And I'll just say being in the stadium myself, I could really see how they've eliminated a ton of those 200 level seats, replace them with boxes. You can visibly see that tierification. But I think there's also a reflex to continue growth of the experience economy. You have these wealthy consumers that are buying the suites, the best seats, all those premium hospitality experiences that come with the US Open. But then you also have this much larger group of people who are also willing to buy a little piece of that same premium experience. So maybe you're not sitting quartzite next to Jalen Brunson watching the Men's Semifinals. But you can still buy a grounds pass, get the honeydews, wear the hat, take the photo, participate in that same cultural moment. You get to say I was there. And I think that's a pretty powerful business model. You're making something feel exclusive. And giving millions of people different price points to access that thing. And I think this fits into that other, you know, premiumization trend that we've been kind of

19:46seeing across lots of different aspects of the kind of entertainment industry and economy. You know, consumers overall might be getting more selective, which we've talked about a lot on the show. But there are still pockets where people are really willing to shell out for something that feels special or scarce or like, status-y. And Dylan, from the consumer spending side, you know, how much of what we're seeing at the US Open is really just a reflection of where spending is strongest right now. I think it's like the perfect microcosm. I mean, there's the stat that gets thrown around a lot. It's basically 10% of earners make up about 50% of all consumer spending. And it feels like an event that is engineered to extract that money from those earners. I mean, the sponsors of this event are AMEX, Rolex, Emirates, or like, these are all highly aspirational brands. But I think what the USDA has done this really interesting job of kind of what you were talking about is you can buy a ticket and access that world if just for a day. You can be in the same stadium as Jalen Brunson or Brad Pitt or Courtney Cox or Matthew McConaughey and see the camera panning around to them. It is a remarkable strategy. They have been able to

20:51make kind of the the Oscars of sports accessible to everyone, which is, which is no small feed. All right. It is 4 p.m. on the East Coast. The market's closed for today. John, bring us home with the close. Markets paired losses as the day went on with the NASDAQ finishing down a half a percent after initially following as much as one and a half percent earlier this morning. The S&P 500 also finished down half a percent and the Dow was down about a third of a percent for the day. And one quick headline following up on the experience economy, special and scarce, shares in sphere entertainment roast 3% today after announcing a project from Oprah that will see whim-free appear live on stage alongside a variety of performances in what is being called a brand new visual musically immersive symphony of senses that immersive experience premieres next April and is produced in association with live nation, which is also leaning into experiences, shares of live nation up 20% year to date shares of sphere entertainment up 55% during that time. A few of the numbers that we are going to be keeping an eye on as we head into the fed meeting

21:53tomorrow. Inflation pickback up in August oil is now above $100 a barrel and the 10 year treasure yield is flirting with 5% putting that all together markets are now overwhelmingly expecting the fed to raise rates on Wednesday. So at this point the kind of question we might be asking is it if we're going to get a hike it's what Kevin Borsch is going to tell us is going to be coming next is this one move to get inflation back under control or is this the beginning of another tightening cycle we will be watching that very closely this week and that is all for today's brew markets daily. Brew markets daily is hosted by Hannah Horvath and Dylan Lewis produced by John Grito, Takeda Delatif, Ivan Lurea and Emily Millar. Technical direction by you Chenua Ogu, Daniel Bowser is our audio engineer catering by Craze Toast and Jam and the president and Morning Brew Inc is Devon Emory. Check out the brew markets newsletter and tune in tomorrow morning to Neil and Toby on the Morning Brew Daily podcast. We'll see you back here tomorrow.

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