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What is ahead for the 10-year treasury rate? · The Financial Exchange Show

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Speaker 1: heroes by visiting DAV five Doc Boston and making a
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Speaker 1: donation today. This is the Financial Exchange with Chuck Zadath
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Speaker 1: and Mike Armstraw.
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Speaker 2: Chuck, Mike and Ben with you here, and we've got
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Speaker 2: a modest sell off taking place across the S and
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Speaker 2: P and Nasdaq, with those two indices down a third
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Speaker 2: of a percent and half a percent respectively at the moment.
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Speaker 2: The Dow being spared by the fact that United Health,
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Speaker 2: which is one of the thirty components in the Dow,
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Speaker 2: is up twelve percent today, not on any news related
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Speaker 2: to what the company's actually doing, but just based on
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Speaker 2: the fact that Berkshire Hathaway, in their quarterly thirteen F
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Speaker 2: report that they have to file every quarter with the SEC,
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Speaker 2: announced that they had bought about five million shares of
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Speaker 2: the company, works out about a third of a percent
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Speaker 2: of Berkshire's portfolio. But hey, that's good enough for the
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Speaker 2: stock to rally twelve percent today, and so with it
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Speaker 2: being one of thirty components in the Dow, now is
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Speaker 2: flat on the day, up fourteen points, so not too
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Speaker 2: much movement there. In interest rate world, we've got the
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Speaker 2: ten year Treasury up seven tenths of a basis point
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Speaker 2: to four point three percent. Mortgage News Daily currently has
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Speaker 2: the national average for thirty year fixed rate mortgages at
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Speaker 2: six point five to six percent, So we've gotten down,
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Speaker 2: you know, kind of into that mid six range, which
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Speaker 2: may be providing a little bit of additional support to
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Speaker 2: the housing sector right now. But it's unclear exactly where
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Speaker 2: we go from here, and we'll have to see how
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Speaker 2: mortgage rates and interest rates evolve over the coming weeks
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Speaker 2: and months.
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Speaker 3: Good to know that Warren Buffett and good old nearly
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Speaker 3: century old investor can still move markets like that, right.
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Speaker 2: The thing is, it's probably not even him that made
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Speaker 2: the decision, most definitely not. He kind of retired, you know. Well, no,
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Speaker 2: he's effective end of the year, you know, so's he's
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Speaker 2: still Yeah, but I'm sure, yeah he's What do you
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Speaker 2: think Warren Buffett does in his free time? Diet coke? No,
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Speaker 2: he does that during his work time too, Like, what
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Speaker 2: what does he do in his free time that's different
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Speaker 2: from his worktime? Like? Do we do we have any
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Speaker 2: guy's ninety four?
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Speaker 3: It's got to be a lot of naps, right, I mean,
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Speaker 3: let's be honest.
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Speaker 2: Maybe maybe Okay, even so I returned to my point,
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Speaker 2: do you think Warren Buffett has an off switch?
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Speaker 1: Like?
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Speaker 2: I don't really think he does. I think he just
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Speaker 2: enjoys the game so much that that's kind of what
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Speaker 2: he does. You know. It's it's not like some of
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Speaker 2: these other guys where you hear about, you know, oh
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Speaker 2: like Jeff Bezos is you know, off on his yacht
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Speaker 2: in you know this place, and the SAS CEO is
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Speaker 2: DJing exactly, David Salomon DJ's you know at parties in
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Speaker 2: New York that probably are you know, mediocre ish, you know,
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Speaker 2: like you hear these thing You're right.
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Speaker 3: Warren Buffet's probably kind of annoying on that front, where
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Speaker 3: like you want to talk about your recent vacation trip
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Speaker 3: and his you know, his previous travels to Spain, and
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Speaker 3: he's instead talking about the time he visited the Central
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Speaker 3: Bank there and gave them a vice on this that
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Speaker 3: or the other.
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Speaker 2: Right, Or he's like, oh, so you went on a trip,
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Speaker 2: Oh you stayed in to Marriott. What was the service?
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Speaker 2: Like how much did he pay? Yeah, you know, did
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Speaker 2: they clean the room every night or every other night?
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Speaker 2: You just get the sense there's not really an off
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Speaker 2: switch with the guy, and maybe there is, maybe like
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Speaker 2: he secretly is just this bridge player.
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Speaker 4: According to The Washington poste avid bridge player playing a
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Speaker 4: few hours each week. He reads up to five hundred
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Speaker 4: pages a day, and he also enjoys playing the ukulele.
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Speaker 2: I didn't know about the ukulele. That's right, okay, So
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Speaker 2: ukulelean bridge good. I'm I'm I'm glad we actually hashed
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Speaker 2: this out because it makes me feel better about myself.
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Speaker 2: I know that because I'm a bridger ukulele player, but
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Speaker 2: just knowing that Warren Buffett even takes time off.
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Speaker 3: I know that I'm generalizing here, but I mean bridge
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Speaker 3: is pretty fitting of a ninety.
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Speaker 2: Four year old.
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Speaker 3: I don't know about the ukulele. I'm having a tougher
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Speaker 3: time connecting that one to his age. But you know,
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Speaker 3: of the top ten act tivities you would have had
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Speaker 3: me guess for someone in his demographics born in nineteen thirty,
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Speaker 3: the bridge was up there.
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Speaker 2: Yeah. You know, I would have liked to see cribbage
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Speaker 2: on the on the board as well. You know that
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Speaker 2: that feels like it would have been a good one too.
5:13
Speaker 2: Gold is up five dollars in ounce to thirty three
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Speaker 2: eighty eight and twenty cents, and Oil West Text Intermediate
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Speaker 2: down fifty one cents per barrel to sixty three forty
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Speaker 2: five last couple of days, we've gotten the names of
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Speaker 2: some additional potential FED chairs. I'm not really convinced that
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Speaker 2: many of these are actually in the running. I think
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Speaker 2: some of them are just you know, putting names out there,
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Speaker 2: because that's what every administration does. They just put names
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Speaker 2: out there to kind of hide that, hey, they've probably
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Speaker 2: already made a decision, you know, or at least narrowed
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Speaker 2: things down to a short list. This is what you
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Speaker 2: do in all of these, you know, decisions. It's just
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Speaker 2: kind of how it works. One of the people that
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Speaker 2: is reportedly under consideration is David Zervos, who is the
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Speaker 2: chief market strategist at Jeffreys. If if you google him,
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Speaker 2: you'll get at me like, this guy is the chief
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Speaker 2: market strategist. But yeah, he is, and he's generally a
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Speaker 2: pretty sharp guy. He is also now, you know, again
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Speaker 2: in the running for this talking about, yeah, we need
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Speaker 2: to you know, potentially be going forward with some very
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Speaker 2: rapid interest rate cuts in the fields of what we're
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Speaker 2: seeing in the economy. Because hey, if you're campaigning to
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Speaker 2: the president who makes the decision, he is saying I
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Speaker 2: want lower interest rates, and so you've got to say
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Speaker 2: I want lower interest rates too. The piece that's going
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Speaker 2: to be interesting in all of this is whoever does
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Speaker 2: end up getting in, how do they end up actually
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Speaker 2: enacting policy, because we've we've talked about this with Scott Besson.
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Speaker 2: Just as an example, Bessont last year was very very
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Speaker 2: critical of Treasury Secretary Janet Yellen for issuing too much
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Speaker 2: short term debt and not enough long term debt. Besson
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Speaker 2: gets into the job, and what does he do continues
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Speaker 2: the exact same mix that Yellen had been going through,
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Speaker 2: because ultimately, when faced with actually making policy, he realized, Okay,
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Speaker 2: this is you know, kind of where things are, and
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Speaker 2: this is what I need to do. So I'm not
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Speaker 2: really surprised that Zervos is saying this, because if you
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Speaker 2: want the job, you've got to say you want lower
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Speaker 2: interest rates. But ultimately I'm not sure that zerv is
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Speaker 2: really a serious candidate for this. I still think it's
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Speaker 2: one of the Kevins most likely, uh, with Waller or
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Speaker 2: Besent kind of as you know, two A and two
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Speaker 2: B as as the candidates that are out there.
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Speaker 3: Seems that way to me, although you'd keep having sources
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Speaker 3: floating that Waller is the top contender, which I just
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Speaker 3: I kind of doubt. Here's the thing about a lot
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Speaker 3: of reporting over the last week though, saying Waller is
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Speaker 3: the top contender.
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Speaker 2: Here's here's the case for Waller that makes him a
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Speaker 2: slam dunk if you pick him, in my opinion. The
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Speaker 2: first is he's already been appointed by President Trump. Trump
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Speaker 2: appointed him in twenty eighteen or nineteen, I forget the
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Speaker 2: exact year. So the two of them know each other.
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Speaker 2: They've already gone through this process once. Say the same
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Speaker 2: thing about J Powell. You could what even then, even
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Speaker 2: in his first term, President Trump was not a huge J.
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Speaker 2: Powell fan publicly, you know, Like, so you can say
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Speaker 2: that Waller arguably has been the most spot on in
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Speaker 2: this business cycle for the last five years. He has
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Speaker 2: nailed every turn and has gotten every single thing right.
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Speaker 2: And I believe Waller when when he says, like, with
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Speaker 2: with conviction, we need to be cutting rates now, because
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Speaker 2: he's got the track record recently from the from a
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Speaker 2: position on the inside, yep. And so I look at it,
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Speaker 2: and he's the pick where you could say, look, he's
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Speaker 2: already been confirmed once, he has the good track record,
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Speaker 2: and he's been you know, appointed by Trump. They have
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Speaker 2: a relationship, like it makes almost too much sense. The
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Speaker 2: counter to it is, I think the president really likes
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Speaker 2: Kevin Hassett and you know has to.
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Speaker 3: I also don't think Waller is going to bend in
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Speaker 3: the same way others might can, or at least in
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Speaker 3: the same way that Mike. Let's be honest, we have
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Speaker 3: no idea. Like we we think that we know these people,
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Speaker 3: we don't know any of them. You know, we get
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Speaker 3: the stories that come out and this and that, and
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Speaker 3: you know, five years ago, would you have said, Hey,
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Speaker 3: j Powell is gonna you know, lead the charge for
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Speaker 3: FED independence. I have no idea, you know, so like
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Speaker 3: we don't actually know these people and who believes in
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Speaker 3: what and who actually is going to act in this way,
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Speaker 3: and that once you actually get into the position where
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Speaker 3: you're at the helm of anything, oftentimes most people's behavior
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Speaker 3: changes a little bit because you've become a little more
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Speaker 3: risk averse.
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Speaker 2: It's just kind of how all of us are wired. Like, yeah,
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Speaker 2: we all talk a big game when we're you know,
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Speaker 2: on the outside looking in, and then when we're actually
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Speaker 2: in the position, it's kind of like, Okay, I better
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Speaker 2: not screw this up now, you know. It's it's just
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Speaker 2: kind of how most people are. It's it's the nature
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Speaker 2: of the beast. So I I don't, you know, pretend
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Speaker 2: to know how anyone's going to actually act once they're
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Speaker 2: in those positions. We're gonna have to see because oftentimes
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Speaker 2: there is a big disconnect between how people speak and
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Speaker 2: what they actually do. Fair let's take a quick break.
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Speaker 2: When we return, let's talk about the tenure treasury and specifically, Hey,
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Speaker 2: if the Fed does start cutting interest rates next month,
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Speaker 2: what does it mean for long term treasury rates?
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Speaker 2: Piece and barons, What's ahead for the ten year treasury
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Speaker 2: rate after the FED cuts? The answer is no, one knows.
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Speaker 3: It's it's well, but they don't know because it's actually
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Speaker 3: like fifty fifteen.
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Speaker 2: Yeah, we've had much. Interesting when you look at FED
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Speaker 2: cutting cycles, there have been some in which you have
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Speaker 2: seen the tenure treasury slide to lower interest rates during
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Speaker 2: those cutting cycles. There are others where the tenure treasury
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Speaker 2: has moved up during those cutting cycles, and you don't
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Speaker 2: know which environment you are in until after the fact.
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Speaker 2: And it's again all of this is based on the
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Speaker 2: idea of if you think of the tenure treasury as
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Speaker 2: a series of short term interest rate bets that can
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Speaker 2: evolve in different ways. So, as an example, after the
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Speaker 2: Great Recession, during the Great Recession, when the FED was
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Speaker 2: cutting tenyere treasury rate went down significantly. And the reason
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Speaker 2: why was because in the post Great Recession era, the
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Speaker 2: expectation and eventual outcome was that growth and inflation were
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Speaker 2: dramatically lower in that post recession period. And so it's
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Speaker 2: no surprise that the ten year treasury if you look
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Speaker 2: at how the rate evolved during that time, uh, you know,
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Speaker 2: November of two thousand and seven, about a year before
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Speaker 2: the Great Recession ten years at three nine seven. By
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Speaker 2: the time you got to you know, October of twenty ten,
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Speaker 2: it was at two six three and then one five
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Speaker 2: to one by July of twenty twelve. On the other hand,
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Speaker 2: if you look just in recent history just a year ago,
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Speaker 2: in fact, Fed started cutting rates last September, the ten
13:28
Speaker 2: year treasury from September through early January went from three
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Speaker 2: six six to four seven nine. So even as the
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Speaker 2: FED cut rates, the long end of the curve went
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Speaker 2: in the other direction, the reason being it became apparent
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Speaker 2: that the US was not going to go into recession
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Speaker 2: and that growth and or inflation would stay higher for longer,
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Speaker 2: and so the ten year treasury saw its rate rise
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Speaker 2: in that case.
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Speaker 3: So the important lesson here is very simple. Uh, if
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Speaker 3: the Fed does cut rates later this fall, which most
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Speaker 3: investors believe they will, you got about a fifty to fifty.
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Speaker 2: Chance of mortgage rates coming down. Coin flip. It's a
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Speaker 2: coin flip.
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Speaker 3: Now if they end up cutting and we have a
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Speaker 3: written something that looks like a recession at that point
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Speaker 3: in time, which would be somewhat surprising for that to
14:15
Speaker 3: develop between now and September. But in times of you know,
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Speaker 3: FED rate cuts during a recession, yeah, long term rates
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Speaker 3: tend to come down to when they cut in a
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Speaker 3: relatively strong economy, which again you don't know until after,
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Speaker 3: but when they do, it's fifty to fifty as to
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Speaker 3: what's going to happen with those longer term rates.
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Speaker 2: So do not bank on it.
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Speaker 3: Bank on your savings rates coming down, do not bank
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Speaker 3: on those mortgage rates coming down.
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Speaker 2: Yeah. Fair, Yeah, I think that's fair.
14:45
Speaker 3: I want to talk Intel because their stock's moving some
14:47
Speaker 3: twenty odd percent last time I checked.
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Speaker 2: Yeah, let's talk a little bit about Intel here. So
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Speaker 2: was this was this yesterday? Hold on what? Okay?
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Speaker 3: Yeah, sorry, I moved to twenty percent yesterday. Yes, yeah,
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Speaker 3: it moved.
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Speaker 2: Yeah, but like twelve percent during the day in like
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Speaker 2: eight percent after hours, I think it was. So here's
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Speaker 2: the deal the with Intel. It apparently is at a
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Speaker 2: point now where the US government is considering taking a
15:17
Speaker 2: stake in the company. Okay, So let's let's start there.
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Speaker 2: And I mean, do we have.
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Speaker 3: History here on our side of other cases where private
15:32
Speaker 3: company or publicly traded companies have had stakes taken in
15:35
Speaker 3: them by the US government.
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Speaker 2: Generally not unless there's something really wrong, right, you know.
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Speaker 2: I think GM, after the uh Ford, Chrysler, Bank of
15:45
Speaker 2: America Chrysis, like, they didn't have stakes taken they just
15:50
Speaker 2: had money given to them. Yeah, I guess you know,
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Speaker 2: GM was the one that was like placed into federal
15:54
Speaker 2: receivership basically owned by the US government. Yeah. So look,
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Speaker 2: I think that when you look at this, there are
16:03
Speaker 2: two questions that you need to ask on this. The
16:08
Speaker 2: first one is the one that I don't have the
16:09
Speaker 2: answer for, which.
16:10
Speaker 3: Is why I think I can maybe come up with
16:15
Speaker 3: a reason why. The reason why, I guess would be
16:20
Speaker 3: if for some reason you get cut off from Taiwan,
16:27
Speaker 3: you need a successful Intel.
16:29
Speaker 2: Why not to like be you know, a three year old?
16:33
Speaker 2: But why yeah too?
16:37
Speaker 3: If you cannot have Taiwan Semi or somebody else developing
16:40
Speaker 3: chips in your home country, then who else is going
16:44
Speaker 3: to do it? If you cannot get your supply of
16:46
Speaker 3: semis out of Taiwan, then you want a domestic chip
16:51
Speaker 3: manufacturing company here?
16:52
Speaker 2: Why does it have to be Intel? And I guess
16:54
Speaker 2: what I'm asking is Good has facilities in the US? Yep,
16:58
Speaker 2: Samsung semiconductor facilities in the US. LG has facilities in
17:03
Speaker 2: the US.
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Speaker 3: Well, clearly, I think the answer is none of them
17:06
Speaker 3: are American companies. Okay, why does that matter the facilities
17:11
Speaker 3: are in the US. I don't have an answer. Yeah,
17:13
Speaker 3: I don't have an answer. I suppose in theory maybe
17:15
Speaker 3: it's Hey, if I, you know, in wartime, tried to
17:20
Speaker 3: take control of those facilities as an emergency power, would
17:23
Speaker 3: I have the the intellectual capacity to be actually to
17:29
Speaker 3: run them properly?
17:31
Speaker 1: Well?
17:31
Speaker 2: Sure you have the workers that work there.
17:32
Speaker 1: Yeah?
17:33
Speaker 2: Again, you know, I don't know. I guess what I'm
17:35
Speaker 2: getting at is if the US really believes that semiconductors
17:40
Speaker 2: are that important which I can buy, Like, I'm someone
17:43
Speaker 2: who's talked about this quite a bit, and I want
17:46
Speaker 2: to have a certain amount of domestic production of them
17:49
Speaker 2: for purposes of whether it's military or civilian. You like,
17:52
Speaker 2: you can make a national security argument on all of this. Yep.
17:58
Speaker 2: Why is the US owning a steak in Intel the
18:02
Speaker 2: best way to get there?
18:03
Speaker 3: I'm not sure. And you know, clearly the Biden administration
18:06
Speaker 3: had their own ideas about this. They packed passed the
18:09
Speaker 3: Chips Act with bipartisan support in Congress, and it did
18:13
Speaker 3: not involve taking a steak in any publicly traded company.
18:16
Speaker 2: And can we stay right there for a second. Yeah,
18:19
Speaker 2: What would the response have been if the Biden administration
18:22
Speaker 2: said we're going to take a ten percent stake in
18:25
Speaker 2: Intel and the government's gonna help run it.
18:29
Speaker 5: Uh?
18:29
Speaker 2: The answer would have been no, thank you? Right, excuse me, Like,
18:32
Speaker 2: we're not gonna do this Like that would have been
18:34
Speaker 2: the answer. No, that wouldn't have It would have been
18:37
Speaker 2: I think much stronger than that. There are two places
18:40
Speaker 2: that I get to on this. There's a completely justifiable
18:43
Speaker 2: reason why the US government wants to have a guaranteed
18:46
Speaker 2: supply of semiconductors. There's also a reason why you might
18:50
Speaker 2: even want to say, look, maybe the US government should
18:52
Speaker 2: produce some of its own semiconductors in order to take
18:56
Speaker 2: it out of you know, private sector hands for government purpose.
19:00
Speaker 2: Is like, there's a case to be made on that
19:01
Speaker 2: side of things. This you kind of look at and
19:05
Speaker 2: you're like, what are we getting here? Like what are
19:08
Speaker 2: we actually like? What are we trying to do here?
19:11
Speaker 2: And I don't really get to any good answers on it.
19:14
Speaker 3: I don't either hasn't happened yet. It's all rumor at
19:16
Speaker 3: this stage, but yeah, it you do have a tough
19:21
Speaker 3: time connecting all the dots on why this would be
19:24
Speaker 3: good for the American public.
19:25
Speaker 2: Let's take a quick break. When we return, we've got
19:28
Speaker 2: the Trivia Answer and Wall Street Watch.
19:44
Speaker 1: Bringing the latest financial news straight to your radio every day.
19:48
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:54
Speaker 1: Time now for Wall Street Watch, a complete look at
19:57
Speaker 1: what's moving market so far today right here on the
20:00
Speaker 1: Financial Exchange Radio Network.
20:03
Speaker 4: That's eleven thirty four and markets are still mixed at
20:06
Speaker 4: this hour, Dow Jones is up seventy six percent, or
20:10
Speaker 4: just under two tenths of a percent, The SMP five
20:13
Speaker 4: hundred is up thirteen points or two tenths of excuse
20:16
Speaker 4: me down thirteen points, down two tents of percent, and
20:19
Speaker 4: the Nasdaq is down just under eighty points, or three
20:23
Speaker 4: tenths of a percent. Target shairs are down one point
20:26
Speaker 4: five percent after Bank of America downgraded Target to underperform
20:30
Speaker 4: from neutral and trimmed its price target on the stock.
20:33
Speaker 4: Target's long term outlook is deteriorating as the company falls
20:36
Speaker 4: further behind its piers, The bank said. All To Beauty
20:39
Speaker 4: and Target also agreed to end their partnership. United Health
20:43
Speaker 4: shares are soaring up twelve and a half percent. The
20:46
Speaker 4: advance comes after Warren Buffett's Berkshire Hathaway revealed a stake
20:49
Speaker 4: of five million shares worth about one point six billion dollars.
20:54
Speaker 4: The big short investor Michael Burry and APPLELUSA Management's David
20:57
Speaker 4: Tepper also disclosed sizeable stakes in the company. If the
21:01
Speaker 4: UNH gains hold through the end of the session, it
21:04
Speaker 4: will mark the stock's best day in five years. Semiconductor
21:08
Speaker 4: equipment manufacturer Applied Materials is off thirteen percent after the
21:12
Speaker 4: company's current quarter outlook trailed estimates from analysts. Applied Materials
21:16
Speaker 4: fiscal third quarter earnings and revenue topped Wall Street expectation.
21:20
Speaker 4: Intel shares are up four point four percent, adding to
21:23
Speaker 4: Thursday's seven percent gain. The chip maker jumped after Bloomberg
21:27
Speaker 4: reported that the Trump administration is in talks to buy
21:29
Speaker 4: a stake in Intel, which would help fund factories Intel
21:33
Speaker 4: is building in Ohio. And finally, Hymns and Hers shares
21:36
Speaker 4: a down one percent following a Bloomberg report that said
21:39
Speaker 4: the Federal Trade Commission is investigating the company's business practices.
21:43
Speaker 4: The FDC is reportedly reviewing whether Hymns and Hers makes
21:46
Speaker 4: it too hard for customers to cancel their subscription. I
21:50
Speaker 4: am Ben Kitchen and that was Wall Street Watch. And
21:53
Speaker 4: our trivia question today was who portrayed Alan Turing in
21:56
Speaker 4: the twenty fourteen film The Imitation Game. That be none
22:00
Speaker 4: other than Benedict Cumberbatch. Jay and Plimpton is our winner
22:04
Speaker 4: this week or today, and Jay will be receiving a
22:07
Speaker 4: Financial Exchange Show t shirt. We play trivia every day
22:10
Speaker 4: here on the Financial Exchange. See complete contest rules at
22:13
Speaker 4: Financial Exchange show dot com.
22:15
Speaker 3: I think you could pull off some really solid week
22:17
Speaker 3: long trivia just about people that have the name ben
22:20
Speaker 3: in them.
22:23
Speaker 2: I got it. Yeah, done.
22:25
Speaker 4: Yeah, next week we're scrapping more world.
22:29
Speaker 2: Famous Benz. Sorry, what about infamous Benz either? All right,
22:34
Speaker 2: those are my favorite.
22:35
Speaker 4: Trivia question for you. What's my favorite Michael Jackson song?
22:40
Speaker 2: No, it can't be that well played. Uh So, we
22:46
Speaker 2: have a piece from market Watch will Powell use Jackson
22:48
Speaker 2: Hole speech to push back on hopes for a September
22:50
Speaker 2: rate cut. Honestly, I find this piece boring. I want
22:54
Speaker 2: instead talk about this one from the New York Times,
22:57
Speaker 2: specifically talking about the Jackson Hole meeting. M got to
23:00
Speaker 2: skip the first couple paragraphs and then read a bit.
23:03
Speaker 2: But first, lodge staff and conference organizers have had to
23:05
Speaker 2: deal with the bats. A suspected colony of bats recently
23:09
Speaker 2: took up residents in a block of cabins on the property,
23:12
Speaker 2: which is run by the Grand Teton Lodge Company. The
23:14
Speaker 2: bats are thought to have snuck through a small, roughly
23:17
Speaker 2: half inch hole on the roof of one of the
23:19
Speaker 2: rooms and through a connected attic space access seven other cabins.
23:24
Speaker 2: Seven of the eight bats were captured and screened for rabies,
23:27
Speaker 2: all of which tested negative good, but one was set
23:29
Speaker 2: free by a guest.
23:31
Speaker 3: You're right, that is more interesting than the question as
23:33
Speaker 3: to whether or not Hill Grants stand in Jackson Hole.
23:36
Speaker 2: Imagine J Powell shows up and gets bitten by a
23:38
Speaker 2: rabid bat? What does that do to like? How you
23:41
Speaker 2: have to change the timeline of the fed chair? Yeah?
23:44
Speaker 3: Well I would you know, hope they can figure that
23:47
Speaker 3: out a few shots and get that taken care of
23:50
Speaker 3: right quick.
23:51
Speaker 2: This then takes me to this piece that been included
23:54
Speaker 2: in the stack today from the AP radioactive wasp ness
23:58
Speaker 2: found at site where you US once made nuclear bombs.
24:03
Speaker 2: This seems bad. I mean when I think of basically
24:11
Speaker 2: every comic book in history, they all start with radioactive
24:15
Speaker 2: wasp nests.
24:18
Speaker 3: You know, Chuck, I'm supposed to do an advertisement for
24:22
Speaker 3: Armstrong Advisor Group next, and I just I don't know
24:24
Speaker 3: how to work that into radioactive wasps nests.
24:27
Speaker 2: Well, it's about legacy planning, isn't it. Yeah? Yeah, it is.
24:31
Speaker 2: I guess if you're concerned about radioactive wasps, call and
24:36
Speaker 2: get the Armstrong Advisor Group's free guide on leaving a legacy.
24:40
Speaker 2: I think, so, oh God, where have we gone?
24:45
Speaker 4: This ad was brought to you by Armstrong Advice.
24:47
Speaker 3: So we do actually have a guide about leaving a
24:50
Speaker 3: lasting legacy that has nothing to do with bats, wasps
24:53
Speaker 3: or that other story about bunnies that we'll get to later.
24:58
Speaker 2: But you just never know how you're gonna go.
25:00
Speaker 3: So I'm saying the guide, while not about any of
25:03
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25:51
Speaker 2: Mike, do we want to talk about fewer Americans moving
25:55
Speaker 2: expensive salads or smart watches? None?
25:57
Speaker 3: I want to talk about SpaceX. Sure, so the New
26:01
Speaker 3: York Times has a piece SpaceX gets billions from the
26:04
Speaker 3: government and gives little to nothing back in taxes, and
26:08
Speaker 3: they somehow wrote five or six pages about the fact that, yeah,
26:12
Speaker 3: of course they don't.
26:12
Speaker 2: They don't make any money.
26:14
Speaker 3: They lost money for years and years, have giant losses
26:17
Speaker 3: on their books, and so therefore they don't pay any
26:19
Speaker 3: taxes because you pay taxes as a corporation when you
26:21
Speaker 3: make money. Sure, how did that take seven pages?
26:25
Speaker 2: Why is that a thing?
26:26
Speaker 1: Like?
26:26
Speaker 2: They okay, they're not Why is up said about this?
26:28
Speaker 2: They're like they're not profitable? Right now? This is fine?
26:31
Speaker 2: Like you wouldn't expect if if I had no income,
26:34
Speaker 2: you wouldn't be like, Hey, you didn't earn anything, why
26:36
Speaker 2: are you paying no taxes? Well, I didn't make any money,
26:39
Speaker 2: so how could I do that? You know, it's just yeah,
26:43
Speaker 2: it's lunacy. Plenty of eight, plenty of good reasons. You
26:47
Speaker 2: set an elon musk. You did pay any sales taxes
26:49
Speaker 2: this year? Well, I didn't buy anything, like, sorry, Like,
26:53
Speaker 2: what do you want me to do? Well, you didn't
26:55
Speaker 2: pay your car registration fee, I walk to work.
26:58
Speaker 1: What do you want?
26:59
Speaker 2: What do you want for me here? Okay? Sorry, I
27:01
Speaker 2: can move on. Now, what does you want to talk about?
27:05
Speaker 2: H Okay? I want to go with seventeen dollars salads? Okay.
27:11
Speaker 2: So it's talking about how a lot of the expensive
27:14
Speaker 2: kind of fast casual places Chipotle, Sweet Green, Kava have
27:19
Speaker 2: been struggling this year, and why is this the Is
27:23
Speaker 2: this the case if we finally reach the point where
27:25
Speaker 2: it's just like the prices are too high and people
27:27
Speaker 2: don't see the value anymore. Is it as I positive yesterday? Hey,
27:32
Speaker 2: these are places that are typically you know, these restaurants
27:35
Speaker 2: are typically in places that tend to be a little
27:39
Speaker 2: bit more democrat leaning right now, and Democrats are reporting
27:42
Speaker 2: more concerned about the economy, So maybe they're pulling back
27:45
Speaker 2: on spending in these areas. I don't know. Is it just, Hey,
27:50
Speaker 2: people are pulling back from restaurants in general, and this
27:52
Speaker 2: is the first thing that we're seeing here. But ultimately,
27:56
Speaker 2: you know, I do wonder if there's a point where
28:00
Speaker 2: people just say, no, I got it. I'm not paying
28:04
Speaker 2: that for that anymore. It doesn't make sense to me
28:08
Speaker 2: your thoughts.
28:11
Speaker 3: Yeah, I have a tough time blaming it on anything
28:13
Speaker 3: other than what you just came to, which is, I know,
28:17
Speaker 3: Kava makes good food, but at eighteen bucks, I'm just gonna.
28:21
Speaker 2: Go sit down at a restaurant or I'm gonna cook
28:23
Speaker 2: it home. I don't know, I did, you know.
28:26
Speaker 3: We can blame it on all sorts of other things,
28:28
Speaker 3: but yeah, people are getting more price sensitive these days
28:33
Speaker 3: compared to where they were just a few years ago.
28:35
Speaker 3: And so what seems, with some exceptions, what seems to
28:39
Speaker 3: be selling right now is value.
28:42
Speaker 2: It does. It does, And again I don't know how.
28:48
Speaker 2: I don't know what the path is for these companies
28:50
Speaker 2: to change the perception of value. Which it's hard because like,
28:55
Speaker 2: here's the thing. Let's look at Chipotle, which Chipotle's a
28:58
Speaker 2: pretty mature franchise at this one, Like Kava and Sweet
29:02
Speaker 2: Green are still you know, up and coming, they're still
29:04
Speaker 2: trying to do you know, more rapid expansion. Yeah, Chipotle's
29:07
Speaker 2: pretty you know, tried and true. Here here's the thing
29:10
Speaker 2: about Chipotle. They're operating margins right now are seventeen percent
29:15
Speaker 2: which is pretty darn fat for a restaurant like it's
29:18
Speaker 2: it's good, it's It's. One of the reasons why the
29:20
Speaker 2: stock is historically traded, you know, so expensively, is because
29:24
Speaker 2: it's been expanding quickly and maintaining good margins. But it
29:29
Speaker 2: does tell you, look that the reason that their prices
29:32
Speaker 2: are so high is they've got some pretty fat margins there.
29:35
Speaker 2: I mean, you typically talk to most people in the
29:38
Speaker 2: food business, whether it's grocery stores or restaurants, and you're
29:41
Speaker 2: talking somewhere in single digits for margins, right, you know,
29:44
Speaker 2: that's that's kind of where you normally live. And so
29:48
Speaker 2: part of this might have to be, Hey, we can't
29:52
Speaker 2: maintain margins the way that we want to, but then
29:54
Speaker 2: what does that mean for the stock if you know,
29:58
Speaker 2: if we have to do that. These are real questions
30:01
Speaker 2: that are facing these businesses at this particular point in time. Now,
30:06
Speaker 2: if we look at Sweet Green, which I can't remember
30:09
Speaker 2: exactly when they ip old, let me take a quick
30:12
Speaker 2: look here just to refresh myself. Okay, they've been public
30:16
Speaker 2: for almost four years now, was back in the fall
30:19
Speaker 2: of twenty one. Sweet Green does not have the same
30:23
Speaker 2: potential here. Sweet Greens. They're not profitable today. They have
30:27
Speaker 2: negative free cash flow. Sweet Green cannot say, Okay, we'll
30:31
Speaker 2: figure this out and create more value by cutting prices
30:33
Speaker 2: because they would just lose more money then. Yeah, so
30:36
Speaker 2: they don't have the ability to do that. Kava. When
30:39
Speaker 2: we talk about them, they went public I think about
30:41
Speaker 2: a year ago. Their margins are more normal. That seven
30:44
Speaker 2: percent is their operating margin negative free cash flow. So again,
30:47
Speaker 2: there's there's only so much room for them to maneuver.
30:50
Speaker 2: Chipotle might be the best position to get out of
30:52
Speaker 2: the tailspin that they're in right now, simply because they
30:56
Speaker 2: have margin that they can work with. These other ones
31:00
Speaker 2: it's a little bit tougher, and they're gonna have to
31:01
Speaker 2: really figure this out and play around with some different
31:05
Speaker 2: levers that they can pull because they can't really do
31:08
Speaker 2: much on pricing given where their margins are. That's kind
31:12
Speaker 2: of where we are there to take a quick break
31:14
Speaker 2: when we return. Paul A Monica from Baron's joins us
31:17
Speaker 2: after this.
31:19
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32:27
Speaker 2: As promised, We're now joined by the one and only
32:31
Speaker 2: Paulmonica here to talk a little bit about Otis. Paul,
32:35
Speaker 2: what's going on with OTIS today?
32:38
Speaker 1: Yeah?
32:38
Speaker 6: OTIS shares are down this year, but the Elevator and
32:44
Speaker 6: Escalator leader there's some promising signs why the company could
32:50
Speaker 6: have a decently rising stock price going forward. Spoke to
32:55
Speaker 6: the CEO recently about why she is opted Mystic after
33:01
Speaker 6: our recent trip she took to Asia to see customers
33:04
Speaker 6: in China, South Korea, and India. Those are markets where
33:09
Speaker 6: there is you know, pretty strong demand, particularly for refurbishing,
33:14
Speaker 6: you know, the services side of the business, and that's
33:17
Speaker 6: something that in America as well, a lot of elevators
33:21
Speaker 6: need to be modernized and as a result of that,
33:25
Speaker 6: Otis generates a steady you know, income and revenue stream
33:30
Speaker 6: from all those maintenance costs. So that's something that is
33:33
Speaker 6: potentially good news for the company, and the stock is
33:37
Speaker 6: trading at a reasonable valuation and discount to some of
33:41
Speaker 6: its European peers.
33:43
Speaker 2: When we look at Otis, how much of the breakdown
33:46
Speaker 2: and revenue is you know, new construction installations versus that
33:50
Speaker 2: maintenance that you mentioned. Do you have any any sense
33:52
Speaker 2: of what that looks like.
33:54
Speaker 6: Yeah, the maintenance side is you know, continuing to grow
33:59
Speaker 6: pretty rapidly, and I need to look up what the
34:04
Speaker 6: you know, the most recent numbers were, but yeah, it's
34:07
Speaker 6: just split between you know, new orders as well as uh,
34:13
Speaker 6: you know, their services business and maintenance business if you
34:17
Speaker 6: look right now, Yeah, services, their net sales were up
34:21
Speaker 6: about six percent in the most recent order. And you
34:25
Speaker 6: know that is you know three point six billion overall,
34:32
Speaker 6: you know, in revenue, and the services side of that
34:35
Speaker 6: business is the line shared. It's two point three billion
34:38
Speaker 6: of the three point six billion of the overall sales.
34:41
Speaker 6: So definitely it is a lot of the maintenance side
34:45
Speaker 6: of the business. That is, you know, increasing their revenue
34:48
Speaker 6: is supposed to you know, new orders for you know,
34:51
Speaker 6: new buildings that are being constructed. And what happened.
34:55
Speaker 2: Who are the other competitors that even operate in this space,
34:59
Speaker 2: I don't really know.
35:01
Speaker 6: Yeah they are you know, not really you know companies
35:05
Speaker 6: that are household names in the US. Otis is by
35:08
Speaker 6: and large the major company. Otis does compete with Schindler
35:15
Speaker 6: Holding and Cone, which are two of you know, European rivals.
35:20
Speaker 6: But I think Otis, you know, and especially now in
35:23
Speaker 6: the past couple of years, because it's a standalone company.
35:26
Speaker 6: Remember this used to be part of United Technologies UTX,
35:30
Speaker 6: the you know, big conglomerate that has a large defense business.
35:35
Speaker 6: But UTX spun off Otis and also carrier the HVAC
35:39
Speaker 6: Giant into two separate companies, so that otis now is portrayes,
35:43
Speaker 6: you know, on its own, separate from United Technologies.
35:48
Speaker 2: What does this company do to to grow? I guess then,
35:51
Speaker 2: you know, since the spinoff, they had a good first
35:52
Speaker 2: couple of years there. But you know, the stocks at
35:55
Speaker 2: eighty seven bucks to share right now basically the same
35:57
Speaker 2: place that it was at in August of twenty one,
35:59
Speaker 2: So it's had four years where the price hasn't really moved.
36:03
Speaker 2: Is this just kind of a low growth business overall
36:06
Speaker 2: now or is there anything they can do to kind
36:07
Speaker 2: of beef things up here? Yeah?
36:09
Speaker 6: I mean I think, you know, in some respects, there's
36:12
Speaker 6: only so much that the company can do because they
36:14
Speaker 6: are somewhat reliant to you know, a certain extent on
36:19
Speaker 6: construction around the world. You know, the maintenance side of
36:23
Speaker 6: the business is something that as long as they're able
36:25
Speaker 6: to get these steady contracts with customers in office buildings,
36:31
Speaker 6: residential buildings, you know, retailers, you know, for elevators and
36:35
Speaker 6: to a lesser extent, escalators, that's something that can help
36:39
Speaker 6: you know, ju sales. But I think the valuation, it's
36:41
Speaker 6: you know, trading around twenty two times earnings estimates for
36:45
Speaker 6: this year. Earnings growth is steady at about ten percent
36:49
Speaker 6: or so over the next few years, so it's not
36:52
Speaker 6: trading at an absurdly high valuation given that you have
36:56
Speaker 6: slow and steady growth. But yeah, make no mistake. If
36:59
Speaker 6: you want something you know, sexy and exciting, you know,
37:03
Speaker 6: there's Nvidio, there's Meta, there's mag seven companies.
37:05
Speaker 2: Oh, it is not going to be confused with that.
37:07
Speaker 6: But this is a solid industrial name in a business
37:12
Speaker 6: that's you know, not going to be made obsolete by
37:16
Speaker 6: AI anytime soon. There's there's no such thing as a
37:19
Speaker 6: chat chept elevator. Last I checked.
37:23
Speaker 2: Very good, No, there is not. Paul, appreciate you joining us.
37:26
Speaker 2: Thanks so much for the time, and I hope you
37:28
Speaker 2: have a great weekend.
37:29
Speaker 6: Thanks a lot, san you guys.
37:30
Speaker 2: That is Paul Lamonica talking about Otis Mike any last
37:35
Speaker 2: items that we haven't gotten to that you want to
37:37
Speaker 2: touch on today. Yeah.
37:39
Speaker 3: A really expensive and highly important attorney in Australia who
37:43
Speaker 3: charges god knows what and I think refers to himself
37:47
Speaker 3: as the King or other people referred to him as
37:49
Speaker 3: the King, had to apologize to a judge because he
37:53
Speaker 3: or one of his clerks used a bunch of AI
37:55
Speaker 3: to cite case law that didn't exist, and delayed a
37:58
Speaker 3: whole bunch of stuff because of bad uses of artificial intelligence.
38:03
Speaker 3: I'd be really pissed paying for that defense attorney for
38:05
Speaker 3: god knows the hourly rate, and then getting in trouble
38:08
Speaker 3: because he used AI.
38:09
Speaker 2: I gotta be honest, Like, here's the thing, Like, if
38:11
Speaker 2: you lie to a court, generally, like it's looked upon
38:14
Speaker 2: pretty unfavorably. It should be lying. How is this any different?
38:18
Speaker 2: Like you're making stuff up. It's just you didn't like
38:21
Speaker 2: do it yourself. Yeah, it's it's kind of infuriating. Quick
38:25
Speaker 2: break for the entire weekend. We're back on Monday. We
38:29
Speaker 2: will see you then,