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Apple Becomes the Anti-AI Trade · The Financial Exchange Show

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Speaker 1: Mike Armstrong and fall Lane.
1:09
Speaker 2: Good morning, Welcome back to the Financial Exchange. The rotation
1:13
Speaker 2: out of tech continuing in early trading today ahead of
1:17
Speaker 2: earnings from Meta, Microsoft, Apple, and Amazon. Just making sure
1:24
Speaker 2: I didn't screw that up. We've got the nasdak off
1:27
Speaker 2: three quarters of a percent at the moment, while the
1:29
Speaker 2: Dow is up to thirds of a percent, and the
1:32
Speaker 2: Nasdaq as a whole peaked back on June first. So
1:37
Speaker 2: June first of this year, we had the Nasdaq sitting
1:42
Speaker 2: at about twenty seven thousand, and we're now sitting at
1:46
Speaker 2: twenty four seven point fifty nine, So a decent fall
1:50
Speaker 2: on that overall tech heavy index. Here as we close
1:55
Speaker 2: out the month of July, what does that come to you?
1:58
Speaker 2: Like a ten percent drop? They're eight percent drop on
2:01
Speaker 2: the index so far. And remember this is not all
2:04
Speaker 2: just AI semiconductor stocks. While they have started to make
2:07
Speaker 2: up a larger portion of that index, it is still,
2:11
Speaker 2: you know, heavily comprised with likes of Apple and others.
2:15
Speaker 2: But clearly a bit of a sentiment shift when it
2:17
Speaker 2: comes to semiconductor stocks in particular chip designers, memory makers,
2:22
Speaker 2: everybody down a little bit further down on that supply
2:26
Speaker 2: chain has been getting asked a few harder questions about
2:30
Speaker 2: why investors should be paying what they have been for
2:34
Speaker 2: their stocks. But interestingly, it's not been a wholesale market selloff.
2:40
Speaker 2: It has not been a hey, take risk off the
2:43
Speaker 2: table and go put it in cash, or at least
2:46
Speaker 2: that's not what it seems like, because the SMP last
2:48
Speaker 2: couple of days has been off by you know, right now,
2:51
Speaker 2: we're off by a tenth of percent. Yesterday we were
2:53
Speaker 2: basically flat on the S and P five hundred. So
2:55
Speaker 2: it is much more of a rotation into different areas
2:58
Speaker 2: than a full on risk off panic sale of stocks
3:03
Speaker 2: at the moment, Like I said, we'll have some big
3:06
Speaker 2: earnings this week. We'll have Kevin Warsh at the FED
3:09
Speaker 2: taken the stage at two thirty pm tomorrow to talk
3:12
Speaker 2: about interest rate decisions. Anything else catching your eye this
3:15
Speaker 2: week in terms of big news. Obviously there's some wild
3:18
Speaker 2: stuff happening in Korean stocks that we talked about in
3:21
Speaker 2: the first hour of the program and other stuff. But
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Speaker 2: the big news is going to be these earnings and
3:26
Speaker 2: the interest rate call earnings.
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Speaker 3: Yeah, that's the story of the week for sure.
3:31
Speaker 2: Apple snatching back up the title of the world's most
3:34
Speaker 2: valuable company. Is they crossed that five trillion dollar threshold today? Again,
3:41
Speaker 2: this is part of that rotation story, right, Semiconductor is
3:44
Speaker 2: getting whacked. What are they doing with the money? Well,
3:46
Speaker 2: seemingly some of them buying into Apple stock, which is
3:49
Speaker 2: up about one in a third percent today. Piece from
3:52
Speaker 2: Barons is that, well, don't expect it to last. What
3:56
Speaker 2: do they lay out as the concerns for Apple? I mean,
3:58
Speaker 2: certainly they've already talked about their rising input costs for
4:02
Speaker 2: all of their hardware that they're making.
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Speaker 3: To me, that's the biggest thing that you have to
4:05
Speaker 3: point out here, Mike. Though Apple's up twenty four percent
4:09
Speaker 3: year to date, it has been more reflection of the
4:12
Speaker 3: idea that they are not so deeply entrenched in artificial
4:15
Speaker 3: intelligence and data centers and all the stuff that we've
4:17
Speaker 3: talked a lot about on the program. They're basically, like
4:20
Speaker 3: you've said, the ANTIAI play, where there's still core business
4:25
Speaker 3: of selling iPhones and other hardware devices. That remains really
4:29
Speaker 3: the story. But what investors are ignoring with this twenty
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Speaker 3: four percent rise year to date is that Apple sits
4:35
Speaker 3: at a premium on a price to earnings basis over
4:39
Speaker 3: its five year average. That's really significant. And what's not
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Speaker 3: being accounted for, what this analyst mentions here appropriately is
4:47
Speaker 3: the fact that their input costs are rising significantly for
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Speaker 3: their products. So if you are looking to buy an
4:54
Speaker 3: Apple laptop or it was the iPad to those two
4:58
Speaker 3: product lines, they've had to inc prices anywhere from roughly
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Speaker 3: fifteen to twenty percent, So their margins could be compressed
5:06
Speaker 3: because they're combating an environment where the memory chips that
5:10
Speaker 3: go into your iPad or to your laptop, which are
5:13
Speaker 3: used to store your pictures and all sorts of other
5:15
Speaker 3: types of files, those prices have risen two times three times,
5:19
Speaker 3: a really significant amount over the last year or two.
5:22
Speaker 3: And so from a business perspective, gee rising input costs
5:26
Speaker 3: reflecting in higher prices for the devices that may mean
5:30
Speaker 3: less sales. None of that is really being talked about.
5:33
Speaker 3: It seems like when it comes to Apple or less
5:36
Speaker 3: so with the trading action agreed, I.
5:41
Speaker 2: Gotta be honest, I'm having a tough time determining how
5:43
Speaker 2: much it matters. One. Apple customers seem to be some
5:47
Speaker 2: of the least price sensitive people that I've ever met, right, Like,
5:52
Speaker 2: let's be honest, the air pods and the iPhone itself
5:57
Speaker 2: are not the most cutting edge technology out there. There
6:01
Speaker 2: are plenty of products that are significantly cheaper than them,
6:04
Speaker 2: and people pile in and continue buying them. I'm not
6:08
Speaker 2: sure that a price increase, if Apple has to push
6:10
Speaker 2: it through to maintain margins, is going to dramatically affect sales.
6:14
Speaker 2: Maybe I'm missing the boat on this. The other piece
6:17
Speaker 2: that I'm pretty confident about, and maybe I'm overly confident
6:22
Speaker 2: about this, but what I believe we are seeing in
6:25
Speaker 2: the computer hardware and semiconductor memory chip business is commoditization.
6:34
Speaker 2: You are seeing massive profit margins that are attracting new
6:37
Speaker 2: entrants to try and produce as much of it as possible.
6:40
Speaker 2: And my expectation five years from now is we are
6:43
Speaker 2: left with way more semi conductors than we need. And
6:46
Speaker 2: so Apple is most certainly facing pricing pressure right now,
6:49
Speaker 2: expense pressure from all the hardware that goes into their machines,
6:53
Speaker 2: and they're going to have to raise prices in order
6:55
Speaker 2: to deal with that. But I sure do understand why
6:58
Speaker 2: investors are looking at them and saying, Wow, they're sitting
7:00
Speaker 2: pretty right. This is a company who has not poured
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Speaker 2: billions of dollars, hundreds of billions of dollars into artificial
7:07
Speaker 2: intelligence build out, and instead they are playing this long
7:11
Speaker 2: game that they have played pretty much throughout the history
7:14
Speaker 2: of the company, which is let's see what floats to
7:17
Speaker 2: the top here and we'll just scoop it up first.
7:19
Speaker 3: Isn't always best, right, I mean, if you look at
7:21
Speaker 3: their history, they weren't the first smartphone device. I mean,
7:27
Speaker 3: they created their own category within it, but they weren't
7:30
Speaker 3: the first device that wasn't using Internet wildly on it play.
7:33
Speaker 2: They weren't even the first MP three player exactly like
7:36
Speaker 2: they have never been the first. They have been the
7:38
Speaker 2: one who has made the product usable. And maybe you
7:43
Speaker 2: can make the case that AI is different this time.
7:46
Speaker 2: But you're talking about a company now. I want to
7:50
Speaker 2: pull I want to pull up some balance sheet information
7:55
Speaker 2: where you know, this company is sitting on tremendous dis
8:00
Speaker 2: amounts of cash. And it's tough for me to make
8:04
Speaker 2: the argument that, you know, when we figure out what
8:09
Speaker 2: the most usable software system is for Apple to adapt
8:12
Speaker 2: and make their own products better, you know, is anybody
8:15
Speaker 2: going to tell Apple, well, no, no thanks, we don't
8:17
Speaker 2: want to put this into your phones because we want
8:21
Speaker 2: to build our own hardware ourselves. I just I don't
8:25
Speaker 2: see it. I don't see any of these other companies
8:27
Speaker 2: coming out and saying, yeah, we're going to try and
8:30
Speaker 2: dethroun the iPhone.
8:32
Speaker 3: No, not necessarily, but I think from what the core
8:35
Speaker 3: of this barn's pieces is not necessarily where they sit
8:40
Speaker 3: from a positioning standpoint, it's what investors are paying today
8:44
Speaker 3: for the future earnings growth of Apple, which is which
8:47
Speaker 3: is expensive. They're at about it was thirty eight times
8:52
Speaker 3: the expected earnings for the current fiscal year.
8:55
Speaker 2: As of much as extraordinarily pricing.
8:57
Speaker 3: It is, it is really pricing and so so that's
9:01
Speaker 3: what it comes down to on the valuation front. But
9:04
Speaker 3: I agree with you in terms of positioning, they certainly
9:08
Speaker 3: are not as entrenched in this AI bet. They're taking
9:11
Speaker 3: a wait and see approach, which has has benefited them
9:14
Speaker 3: over their history. And there's been other examples that I
9:17
Speaker 3: can think of, like Toyota on the ev side of things,
9:20
Speaker 3: where businesses being prudent and sort of waiting and seeing
9:24
Speaker 3: how a market develops has benefited them. Of course, you
9:28
Speaker 3: can always argue that there has been a lot of
9:30
Speaker 3: companies that have taken it on the chin for being
9:33
Speaker 3: too slow to move. Think about Microsoft with the mobile
9:36
Speaker 3: phone era. They really missed the boat there.
9:39
Speaker 2: Let's take a quick break. When we come back. MarketWatch
9:42
Speaker 2: has a piece today. Your retirement math may have a
9:45
Speaker 2: surprising flaw. We'll talk about that potential flaw next to
9:48
Speaker 2: the Financial Exchange.
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10:38
Speaker 2: Mark. We've got. Actually what I think. It's a pretty
10:40
Speaker 2: solid piece from MarketWatch this morning on retirement math, and
10:45
Speaker 2: it basically comes down to budgeting for folks retirement. And
10:51
Speaker 2: they point out two areas that I think are most
10:54
Speaker 2: commonly overlooked, and it's healthcare, and its housing. And so
10:59
Speaker 2: let's let's dig into those two items and what we
11:02
Speaker 2: do when preparing our clients for these two items that
11:04
Speaker 2: are awfully unpredictable. But let's start with a housing one
11:09
Speaker 2: because it's usually a lot simpler. Yes, the majority of
11:13
Speaker 2: folks who are hiring an investment or financial planner to
11:18
Speaker 2: manage their retirement also happen to own their home and
11:21
Speaker 2: so have generally pretty stable housing costs in retirement. If
11:25
Speaker 2: they have a mortgage, it's at a fixed rate. If
11:27
Speaker 2: they don't have a mortgage, then they're just really looking
11:30
Speaker 2: at their property taxes and insurance costs. But guess what's
11:35
Speaker 2: been going through the roof over the course of the
11:37
Speaker 2: last several years. Property taxes and insurance costs. And that's
11:41
Speaker 2: only really the start of your housing costs in retirement
11:45
Speaker 2: if you're planning to age in a home, right, I mean,
11:48
Speaker 2: we talk extensively about the overlooked pieces of this. The
11:53
Speaker 2: cost to maintain your home. We generally use a factor
11:56
Speaker 2: of like one to two percent of the home's value
11:59
Speaker 2: on average. As you hire somebody to fix the roof
12:02
Speaker 2: every twenty years, or you need to repave the driveway
12:05
Speaker 2: or do this that or the other. When you're eighty,
12:09
Speaker 2: it's probably closer to two to three percent of the
12:11
Speaker 2: house house's value. Why, well, you're not climbing the ladder
12:15
Speaker 2: to clean the gutters anymore. You may not be mowing
12:17
Speaker 2: the lawn anymore, and you may need to put in
12:20
Speaker 2: a bathroom downstairs, or you may need to move the
12:22
Speaker 2: laundry upstairs that you're not doing as many stairs, and
12:26
Speaker 2: so that piece gets heavily overlooked. I don't think people
12:30
Speaker 2: were prepared for the dramatic increase and insurance costs, which,
12:33
Speaker 2: by the way, I have a really tough time seeing
12:35
Speaker 2: how that goes down. And then two, most people don't
12:39
Speaker 2: accurately account for how much more it's going to cost
12:42
Speaker 2: to stay in their home when they become less mobile
12:45
Speaker 2: and more dependent on other people.
12:46
Speaker 3: Those are you hit on really some of the biggest
12:49
Speaker 3: areas to focus on. There. I'm trying to think of others,
12:52
Speaker 3: but yeah, largely it comes down to property maintenance, homeowners insurance,
12:56
Speaker 3: and real estate taxes. That are the areas that are
12:59
Speaker 3: critical to think about with housing costs, and depending on
13:01
Speaker 3: your area, can be more substantial than others. We've obviously
13:05
Speaker 3: seen on a lot of the coastal areas that the
13:08
Speaker 3: costs associated with being by the water has gotten crazy,
13:12
Speaker 3: and that I think continues whether you're looking at Cape
13:15
Speaker 3: or Florida or other areas that are impacted by that
13:18
Speaker 3: approximity to the water.
13:20
Speaker 2: On the healthcare side of things, I think most people
13:25
Speaker 2: are generally aware of the risks here, but maybe not
13:28
Speaker 2: the scale to which it can actually add up.
13:32
Speaker 3: They may think that, hey, I'm covered by Medicare, and
13:36
Speaker 3: as a result of that, my healthcare costs are relatively constrained.
13:41
Speaker 3: I would agree with you that in conversations that I've
13:44
Speaker 3: done with numerous clients or prospective clients, everybody, we typically
13:50
Speaker 3: build in this idea that hey, healthcare costs are going
13:52
Speaker 3: to outpace general inflation when we're looking at planning scenarios,
13:56
Speaker 3: and there hasn't been one person that I've run into
13:59
Speaker 3: that has just disputed that notion. In fact, I usually
14:02
Speaker 3: get emphatic noddings of heads when that concept comes up.
14:07
Speaker 3: But the scale in which healthcare costs can ramp up
14:11
Speaker 3: quickly through a significant healthcare event that could be above
14:16
Speaker 3: and beyond just what's covered with your normal Medicare Part
14:20
Speaker 3: B and supplemental PEN coverage I think a lot of
14:23
Speaker 3: us know that it can be dramatic the impacts.
14:27
Speaker 2: And forget about the Medicare covered stuff. If you have
14:30
Speaker 2: an event that requires long term care costs none of
14:33
Speaker 2: which are covered by Medicare in New England, you're talking
14:36
Speaker 2: about fifteen thousand dollars a month for you know, the
14:40
Speaker 2: most extreme types of care. And that's an average, not
14:43
Speaker 2: a not nupper limit.
14:44
Speaker 3: Dental costs too, you know, it sounds crazy, I have
14:48
Speaker 3: to say it, but like the biggest withdrawal requests I
14:50
Speaker 3: get from clients outside of home ones, which that's obvious,
14:54
Speaker 3: what amount of money is It's a lot usually when
14:57
Speaker 3: you're touching your home.
14:58
Speaker 2: That it's a new set of teeth.
14:59
Speaker 3: Dentists requests are up there, and then pet dealing with pets.
15:04
Speaker 3: Those are probably the two biggest one off which rollcres
15:07
Speaker 3: I'll get from clients. So that's part of it too.
15:08
Speaker 2: Here's the point. A lot more goes into this than
15:12
Speaker 2: the simple you know, eighty percent math rule of thumb
15:17
Speaker 2: or frankly, something that I say all the time, which is, hey,
15:20
Speaker 2: you're current spending is going to be the best indicator
15:22
Speaker 2: of your retirement spending. And I do firmly believe that,
15:26
Speaker 2: but only initially right, Like, the best indicator of what
15:30
Speaker 2: you're going to spend when you're sixty seven and retired
15:32
Speaker 2: versus sixty six and working is whatever you were spending
15:35
Speaker 2: when you're sixty six, plus a little bit morepifications and
15:38
Speaker 2: dining out. The best indicator for what you're going to
15:41
Speaker 2: spend at eighty seven. Nobody has any idea because it's
15:44
Speaker 2: a total roll of the dice in terms of how
15:47
Speaker 2: the world develops over the course the next twenty years
15:49
Speaker 2: and how your health develops over the course of the
15:52
Speaker 2: next twenty years. But the point would be, if you
15:55
Speaker 2: are not stressed testing these different scenarios, if you are
15:58
Speaker 2: not at least understanding of what could happen if you
16:01
Speaker 2: face one of these bad scenarios, then you're doing yourself
16:04
Speaker 2: and your family a disservice. If you would like help
16:07
Speaker 2: stress testing those scenarios that you could hypothetically be looking
16:11
Speaker 2: at later in life, give the folks at Armstrong Advisory
16:14
Speaker 2: Group a call. We work clearly, pretty thoroughly with our
16:17
Speaker 2: clients to understand their scenarios and help them model out
16:21
Speaker 2: what could change over the course of their retirement, which
16:24
Speaker 2: more and more is lasting three decades. If you have
16:28
Speaker 2: those types of questions, give us a ring eight hundred
16:31
Speaker 2: three nine three for zero zero one. You can go
16:33
Speaker 2: to Armstrong Advisory dot com for more information, but that
16:37
Speaker 2: number once again eight hundred three nine three four zero
16:40
Speaker 2: zero one.
16:41
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
16:43
Speaker 1: registered investment advisor. Nothing in the ad or in any
16:46
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
16:49
Speaker 1: your own financial, tax and a state planning advisors before
16:51
Speaker 1: making any investment decisions. Armstrong may contact you to offer
16:54
Speaker 1: investment advisory services.
16:57
Speaker 2: Got a text to the text line You can text
16:58
Speaker 2: the show at six one seven three six two thirteen
17:01
Speaker 2: eighty five. I've heard you say many times that the
17:04
Speaker 2: price for a builder to build a big home is
17:06
Speaker 2: not much more than a small home. My question is,
17:08
Speaker 2: why does the bigger home cost so much more? Are
17:10
Speaker 2: they just ripping us off? Makes no sense, So to
17:13
Speaker 2: be clear, I think from speaking with builders that it's
17:17
Speaker 2: not so much. The home construction costs are not much more,
17:21
Speaker 2: although that is a part of it. What's really in
17:23
Speaker 2: there is you have this fixed cost of the land
17:25
Speaker 2: that you are building on, and that does not really
17:28
Speaker 2: change whether you're building a five bedroom home or a
17:30
Speaker 2: three bedroom home. And so when you add up the
17:33
Speaker 2: construction costs plus that fixed cost of buying a plot
17:36
Speaker 2: of land and either knocking down a building or building fresh,
17:40
Speaker 2: you just have that big fixed cost that you have
17:43
Speaker 2: to overcome first, and so in many cases it just
17:46
Speaker 2: makes sense to build that bigger home. The point of
17:50
Speaker 2: you know, why are they charging so much more for
17:51
Speaker 2: a big home than a small home? I guess my
17:55
Speaker 2: point would be I almost see no new small homes
17:59
Speaker 2: getting constructed, So I don't feel like we have an
18:01
Speaker 2: adequate base of those small homes to action measure what
18:04
Speaker 2: they go for in this area. Right Like, whenever you
18:07
Speaker 2: are talking about a new home construction anywhere around a
18:11
Speaker 2: city in New England, it's very rare that I see
18:16
Speaker 2: a two or three bedroom home getting newly constructed, unless
18:19
Speaker 2: it is part of a bigger condo building. And so
18:23
Speaker 2: I think there's just such an inadequate supply there that
18:26
Speaker 2: the only homes that you see for sale that are
18:29
Speaker 2: smaller are the ones that were built in the nineteen
18:31
Speaker 2: sixties that go up for sale, and yeah, in those cases,
18:34
Speaker 2: they do sell for a lot less than the newly
18:35
Speaker 2: constructed five bedroom home.
18:37
Speaker 3: Yeah, I mean the margins I just think are better
18:39
Speaker 3: on larger homes. You have more flexibility to pass through
18:42
Speaker 3: the cost to what is a wealthier buyer. You have
18:46
Speaker 3: more ways to spread out the fixed costs of the land,
18:48
Speaker 3: like you just mentioned, but also the permitting and everything
18:51
Speaker 3: else that goes with it.
18:52
Speaker 2: And all those permitting costs and all of those inspection
18:54
Speaker 2: costs are flat no matter. I mean again, some of
18:57
Speaker 2: them scale up for how many bathrooms you're making and such,
19:01
Speaker 2: but generally speaking, there's a lot of fixed costs that
19:04
Speaker 2: go into building a home.
19:05
Speaker 3: Utility hookups, yeah, there's numerous things that are just fixed
19:08
Speaker 3: on a home that doesn't really differ that much, and
19:12
Speaker 3: that's ultimately why the margins are a little bit better
19:15
Speaker 3: on those those your homes, and a little bit of
19:18
Speaker 3: difference in margins makes a huge difference on the bottom
19:21
Speaker 3: line of builders.
19:22
Speaker 2: Let's take a quick break. When we come back, full
19:24
Speaker 2: market update for you with including a.
19:26
Speaker 4: Big update by the way, woo Yeah, stay tuned.
19:37
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19:57
Speaker 4: After're selling off over one percent, the tech heavy NASDA
20:00
Speaker 4: has staged a sudden rally by midday mostly erased those losses.
20:04
Speaker 4: Right now, the Dow is up over one percent or
20:07
Speaker 4: five hundred and sixty seven points, SMP five hundred up
20:10
Speaker 4: a third of a percent or twenty five points higher,
20:13
Speaker 4: and that Nasdaq is down only eighteen points now just
20:16
Speaker 4: below a tenth of percent or else two thousand is
20:19
Speaker 4: down about a quarter percent ten Your treasure reeled is
20:22
Speaker 4: down four basis points at four point five to nine percent,
20:25
Speaker 4: and oil down three percent now trading right around seventy
20:29
Speaker 4: nine dollars a barrel. Chip makers including sk Hihnex, AMD, Micron,
20:33
Speaker 4: and Intel are seeing losses of anywhere between five and
20:36
Speaker 4: eight percent, while memory stock sand Disc is getting hammered
20:40
Speaker 4: by fourteen percent. Meanwhile, Boeing up by three percent, despite
20:43
Speaker 4: the aircraft maker posting a wider than expected loss for
20:47
Speaker 4: the second quarter, where Boeing said it's long delayed Air
20:49
Speaker 4: Force one program weighed down results. Elsewhere, Bloomberg reporting that
20:53
Speaker 4: Visa will eliminate about twenty six hundred jobs. Visa will
20:58
Speaker 4: report results after the belts. Coca Cola beat earnings expectations
21:03
Speaker 4: and raised its full year outlook as the beverage giants
21:05
Speaker 4: saw a strong demand for its drinks while it served
21:07
Speaker 4: as a major sponsor of the fee for World Cup.
21:11
Speaker 4: Coke's shares are up by six percent. In Apple has
21:14
Speaker 4: surpassed a market value of five trillion dollars for the
21:17
Speaker 4: first time. Separately, Apple announced a new leasing program with
21:21
Speaker 4: Klarna that allows customers to pay monthly for devices and
21:25
Speaker 4: then return, upgrade, or buy them. I'm Tucker Silva and
21:30
Speaker 4: that is Wall Street Watch.
21:31
Speaker 2: After the bell this afternoon, Visa will be reporting earnings
21:34
Speaker 2: amongst others, and they're announcing in addition to their earnings,
21:40
Speaker 2: their CEO already announced that they will be cutting some
21:42
Speaker 2: twenty six hundred jobs, about seven percent of their workforce only,
21:47
Speaker 2: mostly in technology and product operations, with the CEO claiming
21:51
Speaker 2: that AI is helping quote shape the way work gets
21:56
Speaker 2: done at Visa. I gotta be honest. Cuts like this
21:58
Speaker 2: do not insinuate me a direct AI impact. When you're
22:02
Speaker 2: cutting these specific roles, It's possible, but you know nothing
22:06
Speaker 2: about these cuts. Insinuate to me that they are. They
22:09
Speaker 2: keep getting phrased as, hey, we can do more with
22:12
Speaker 2: fewer people and more and more often when I'm seeing
22:16
Speaker 2: jobs get cut in these specific types of roles, it's
22:19
Speaker 2: we're cutting these workers because we want other workers who
22:22
Speaker 2: are more qualified to do it. Which thanks if you're
22:25
Speaker 2: the first one that got cut. But I don't know
22:28
Speaker 2: that it's a story of overall job loss. One area
22:30
Speaker 2: where I do think we're seeing a story of overall
22:33
Speaker 2: job loss, though, is in customer service roles. Big organizations
22:37
Speaker 2: such as CBA, Microsoft, Uber all claiming that they are
22:41
Speaker 2: replacing human customer service workers with automated AI chatbots. And
22:49
Speaker 2: while this may be a global story, I'm not sure
22:53
Speaker 2: how much of a US workforce story it actually is,
22:56
Speaker 2: because quite honestly, these companies had already taken the steps
23:01
Speaker 2: over the course of the last thirty years of placing
23:03
Speaker 2: most of these customer service jobs outside the United States
23:06
Speaker 2: in the first place.
23:08
Speaker 3: Yeah, that seems to be the next shift that we're
23:11
Speaker 3: going to see here is first customer service going overseas.
23:15
Speaker 3: The next one being that AI is going to take
23:18
Speaker 3: jobs in the sector. And I've heard sort of mixed
23:22
Speaker 3: reviews on this. Don't get me wrong. Businesses are looking
23:25
Speaker 3: to cut these expenses anywhere that they can in terms
23:29
Speaker 3: of the elimination of customer service reps. But the bank,
23:33
Speaker 3: the Commonwealth Bank of Australia, and I believe a couple
23:36
Speaker 3: other companies had actually gone back and re hired some
23:40
Speaker 3: of the employees that they had laid off within customer
23:43
Speaker 3: service because they basically over anticipated what the efficiencies would
23:49
Speaker 3: be from AI customer service agents. I'd be interested, I'm
23:52
Speaker 3: sure a lot of the feedback would be overwhelming negative.
23:56
Speaker 3: But Texas at six one seven three six two thirteen
23:58
Speaker 3: eighty five on your view on AI customer search agents,
24:01
Speaker 3: but the general sort of response has been for very
24:04
Speaker 3: simple tasks, they are effective password reset. I'd like to,
24:09
Speaker 3: you know, get clarification on where my packages. But I've
24:12
Speaker 3: thought about some situations that I've bumped into recently in
24:15
Speaker 3: my personal life where we've been trying to get an
24:17
Speaker 3: exterminator to come to the house and there's been all
24:19
Speaker 3: sorts of issues with them not showing up or me
24:22
Speaker 3: having to call back to customer service to explain where
24:25
Speaker 3: the heck is this tech that was supposed to be
24:28
Speaker 3: sent out and I think about if I had to
24:29
Speaker 3: do that with an AI representative on the other line.
24:33
Speaker 3: I was upset that the appointment had been built on
24:36
Speaker 3: twice I called yesterday basically saying I'm gonna pull my
24:39
Speaker 3: service unless you get someone out there. A human can
24:42
Speaker 3: pick up on that and send it up the chain
24:44
Speaker 3: to a super and maybe AI can do it too
24:46
Speaker 3: by certain code words, but they lack that empathy that
24:50
Speaker 3: a person would. And also, once it gets complex, when
24:53
Speaker 3: you're talking about multiple appointments that have been sort of butchered,
24:56
Speaker 3: I just wonder how efficient and effect of these how
25:00
Speaker 3: customer service agents can be.
25:01
Speaker 2: I also wonder at the real cost savings here. According
25:06
Speaker 2: to Smart Outsourcing Solution, the estimated cost for a fully
25:11
Speaker 2: compliant customer support agent in the Philippines between eight hundred
25:15
Speaker 2: and fifteen hundred dollars a month. Granted they can only
25:19
Speaker 2: take one call, and I'm sure that the AI agent
25:21
Speaker 2: is cheaper than that, but that is not a lot
25:24
Speaker 2: of money to risk moving to a brand new technology, right.
25:29
Speaker 2: That's just not a lot of costs that you're able
25:31
Speaker 2: to cut by making that move over. And so not
25:34
Speaker 2: only does it have to be pretty substantially cheaper, but
25:37
Speaker 2: you must believe that this is actually better than the
25:40
Speaker 2: human that's able to do the job. On the other end, I.
25:42
Speaker 3: Think you are focusing on like the lowest costs sort
25:46
Speaker 3: of end of things here, But if you looked at
25:50
Speaker 3: maybe a slightly more technical customer service agent, that could
25:54
Speaker 3: be I just know it because I started the world
25:57
Speaker 3: investor relationships at at a bigger shop.
26:00
Speaker 2: Absolutely, those people are in the United States and that
26:05
Speaker 2: that is a different story. But you know, I don't
26:09
Speaker 2: I don't know that they're that Microsoft has a lot
26:11
Speaker 2: of customer service agents in the United States. I don't
26:14
Speaker 2: know that Uber does either. And so when I hear
26:18
Speaker 2: about these companies making the switch, I don't hear about
26:20
Speaker 2: Merrill Lynch saying, hey, yeah, we're cutting fifty percent of
26:22
Speaker 2: our phone rep work service. No, they're not doing that.
26:27
Speaker 2: What you do here is that these you know.
26:29
Speaker 3: More Comcast and the larger ones that are they're focusing on.
26:33
Speaker 2: Yeah. I've only had one real experience with this so far.
26:35
Speaker 2: I mean, I've had plenty of chats over uh, you know,
26:39
Speaker 2: computer customer service with AI agents, but the only one
26:42
Speaker 2: experience I've had with a voice AI agent, I think
26:46
Speaker 2: I've talked about the program before is last year, when
26:48
Speaker 2: I was booking a plumbing service, I called the Plumbing
26:52
Speaker 2: Offers plumber office on a Saturday, expecting to leave a
26:57
Speaker 2: voicemail and just request a call back on Monday, and
27:00
Speaker 2: instead I got a pickup of some guy and there
27:05
Speaker 2: was background noise like he was talking in a call center.
27:08
Speaker 2: And it took me a good minute and a half
27:11
Speaker 2: before I realized I was speaking to not a human being,
27:14
Speaker 2: but he, you know, the agent. I keep saying, Hey,
27:18
Speaker 2: it was completely capable of booking my appointment for the
27:23
Speaker 2: next week with a specific time window, sending me the
27:25
Speaker 2: text confirmation code, like everything I needed to do for
27:29
Speaker 2: that very simple task fruit, Yeah, was doable. And so
27:34
Speaker 2: if they can utilize these tools to knock out that
27:37
Speaker 2: low hanging fruit, it makes their best customer service people
27:41
Speaker 2: more available to deal with important issues, and it probably
27:44
Speaker 2: does eliminate a whole bunch of low hanging jobs.
27:46
Speaker 3: And you know, it's just going to continue to improve
27:48
Speaker 3: because the reason you probably picked up on it, there's
27:51
Speaker 3: some latency sometimes with those in terms of how quick
27:53
Speaker 3: they are to respond to the things that you're saying.
27:56
Speaker 2: What happened is it kept repeating me oh, back to
27:58
Speaker 2: me like an AI agent. The first time I noticed it,
28:02
Speaker 2: it set back to me. Okay, so you're calling to
28:04
Speaker 2: confirm that you would like to book an appointment, right,
28:06
Speaker 2: I was like, okay, this is an agent. Let's take
28:09
Speaker 2: a quick break. When we come back here on the
28:11
Speaker 2: Financial Exchange, we're playing stack roulette.
28:15
Speaker 1: The Financial Exchange streams live on YouTube. Subscribe to our
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28:21
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28:33
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28:48
Speaker 2: Time here for a bit of stack room. Let Paul,
28:51
Speaker 2: let you kick things off for us. What do you have?
28:54
Speaker 3: Growth is off the menu at Starbucks. This is a
28:57
Speaker 3: piece here from the Wall Street Journal to us. Years ago,
29:01
Speaker 3: Starbucks brought in a new CEO, Brian Nickel, who was
29:06
Speaker 3: the CEO behind the turnaround of Chipotle, and within basically overnight,
29:12
Speaker 3: the stock went up twenty five percent because of his
29:16
Speaker 3: reputation as being sort of the mister fix it to
29:19
Speaker 3: turn around companies that were struggling, and Starbucks certainly has
29:23
Speaker 3: been struggling over the course of the last few years.
29:25
Speaker 2: But here we are.
29:26
Speaker 3: Two years later and really haven't seen a lot of
29:29
Speaker 3: evidence from a turnaround perspective. Yes, he has been able
29:33
Speaker 3: to turn around some of the same store sales metrics
29:36
Speaker 3: that were in the toilet when he took over, declining
29:39
Speaker 3: three percent year over year. He's now there now anticipating
29:42
Speaker 3: that that will be around six percent in Q two
29:45
Speaker 3: of this year. But they had to divest their China operations,
29:49
Speaker 3: which accounted for about twenty percent of their store count,
29:53
Speaker 3: just because they were really able unable to make any
29:56
Speaker 3: real inroads in China. Howard Schultz had once projected that
30:00
Speaker 3: that was going to be their next biggest market, and
30:03
Speaker 3: so the how.
30:04
Speaker 2: Many CEOs have I heard that exact same message from man,
30:07
Speaker 2: If we can just sell to one percent of the
30:10
Speaker 2: Chinese population, we will have a huge business the address market.
30:16
Speaker 3: Yeah, it's every like Tessa was. Temporarily that then they
30:21
Speaker 3: ripped off their.
30:21
Speaker 2: Own General Motors, Volkswagon, Mercedes, Benz Go. Take a look
30:26
Speaker 2: at how all of these guys are doing in China
30:28
Speaker 2: and the answer is abysmal. You can't you cannot win
30:32
Speaker 2: in that market. You can use it to manufacture your
30:34
Speaker 2: stuff really cheaply. But if you think that you're as
30:38
Speaker 2: Nike going to you know, have a permanent brand presence there,
30:42
Speaker 2: you are just wrong. You're just you're wrong. It's not
30:45
Speaker 2: gonna work. You're so right.
30:46
Speaker 3: There has been so many companies, Uber, There's just many
30:50
Speaker 3: out there that have tried to grab markets here. But
30:54
Speaker 3: ultimately you're battling geopolitical or battling political forces in that
30:59
Speaker 3: country that are just going to sway any popular industry
31:02
Speaker 3: to a domestic competitor very quickly or subsidized that shift
31:07
Speaker 3: in market share.
31:07
Speaker 2: Like Boeing is the only one I can think of.
31:10
Speaker 3: Apple, I guess still has in roads therey now market share.
31:15
Speaker 2: Do they sell any phones there?
31:17
Speaker 3: Yeah, yeah, absolutely, But it's Huawei I think was taking
31:20
Speaker 3: over the top spot.
31:21
Speaker 2: Yeah, I mean yeah. I hesitate to point to Apple
31:26
Speaker 2: as a raging success story there. I mean, there's success
31:29
Speaker 2: that Apple has had in China has been the manac
31:32
Speaker 2: the crap there not sell products to the masses while
31:36
Speaker 2: not having your IP stolen, right, Like, that's that's the
31:39
Speaker 2: whole story here. Is every one of these companies that
31:41
Speaker 2: we've mentioned, it's not that they've been put to shame
31:44
Speaker 2: because the Chinese population has said I don't want coffee anymore,
31:49
Speaker 2: or I don't want cars anymore. It's all come from
31:53
Speaker 2: the perspective of, Okay, this Chinese company is going to
31:57
Speaker 2: learn how you do what you do and do it cheaper,
32:03
Speaker 2: maybe better depending on the situation, but definitely cheaper, with
32:07
Speaker 2: fewer restrictions on how they do business. And and for
32:13
Speaker 2: a population that seems frankly quite interested in buying homegrown
32:16
Speaker 2: stuff from Chinese company.
32:18
Speaker 3: Interested or influenced to potentially.
32:21
Speaker 2: Yeah, I mean take your pick, right, either dictated to
32:24
Speaker 2: or influenced through social media. That's all controlled by the state,
32:28
Speaker 2: but take your pick on how you select it. There's
32:32
Speaker 2: a number of reasons that pretty much every foreign company
32:35
Speaker 2: that's tried to have success in China has not had
32:38
Speaker 2: much success in China.
32:39
Speaker 3: But however you slicely. Bringing it back to Starbucks, they
32:43
Speaker 3: have struggled to really kind of keep the momentum going
32:47
Speaker 3: from when Nicol was hired about two years ago. The
32:51
Speaker 3: stock has been you know, down over the course of
32:55
Speaker 3: the last five years or so, and it's come back
32:58
Speaker 3: a little over the last year, but continues to struggle
33:01
Speaker 3: and its turnaround efforts.
33:03
Speaker 2: We Starbucks is actually the perfect lead into this next
33:06
Speaker 2: story because Cracker Barrel is replacing their CEO, and it
33:13
Speaker 2: follows the phenomenon we've seen with corporate CEOs. It follows
33:17
Speaker 2: a phenomenon we've seen with Congress, which is that when
33:23
Speaker 2: looking for the safe bet in both politics and seemingly
33:28
Speaker 2: in business, the move is to hire the oldest executive
33:33
Speaker 2: you can find. What is the average member? What is
33:38
Speaker 2: the average age of Congress member today?
33:44
Speaker 1: Sixty two.
33:45
Speaker 2: I'm gonna guess the average age of members in one
33:48
Speaker 2: hundred and nineteenth US Congress is fifty seven point nine
33:51
Speaker 2: years old for representatives and sixty four for senators. So
33:56
Speaker 2: Cracker Barrel, their CEO, had a number of missteps. They
33:59
Speaker 2: tried to do the logo, they tried to remove a
34:02
Speaker 2: bunch of the artwork and face backlash from a number
34:05
Speaker 2: of their customers loud enough that they had to completely
34:08
Speaker 2: pivot on it. That gen X CEO, who is fifty
34:11
Speaker 2: five years old is out there replacing her with sixty
34:15
Speaker 2: nine year old let me get his name, former restaurant
34:19
Speaker 2: executive David Deno. Thank you. And again this follows the
34:25
Speaker 2: trend that we saw from Starbucks. They outed their CEO
34:28
Speaker 2: and brought back in the former CEO, Howard Schultz. We
34:31
Speaker 2: saw it with Disney, who ousted their CEO and brought
34:34
Speaker 2: back Bob Iiger. And it just seems to me that
34:37
Speaker 2: whenever there is a question about the business's trajectory, the
34:43
Speaker 2: safe move on the part of the board is, hey,
34:45
Speaker 2: go find go find somebody that ran a company for
34:48
Speaker 2: thirty years and go bring them in, which I can
34:52
Speaker 2: appreciate from a board perspective, for you know, the board's
34:55
Speaker 2: job is in a large part to hedge against risk
34:59
Speaker 2: and you know, drive the company in the right direction.
35:04
Speaker 2: But I'll also say, like, when was the last time
35:07
Speaker 2: that you saw a seventy five year old CEO heading
35:11
Speaker 2: a high growth company that actually successfully did a big
35:15
Speaker 2: pivot and returned to high growth and high margins. Right
35:18
Speaker 2: Like Brian Nickel brought in as the Starbucks CEO was
35:23
Speaker 2: brought about because he directed a whole bunch of change
35:26
Speaker 2: at another company and was really successful there. And Yeah,
35:29
Speaker 2: I don't know, I don't fully understand the immediate push
35:36
Speaker 2: by the boards to defer back to hey, we need
35:38
Speaker 2: to go find somebody that's run a company for thirty years.
35:41
Speaker 2: And I mean it kind of makes sense, but it
35:44
Speaker 2: is an interesting trend, and those numbers, those averages just
35:47
Speaker 2: keep getting older and older.
35:49
Speaker 3: Yeah, businesses in general are always going to lean on experience,
35:54
Speaker 3: whether you're hiring for a CEO or a more developed
35:58
Speaker 3: role like that does seem to factor in significantly. But
36:03
Speaker 3: you can certainly make the argument that that innovation often
36:06
Speaker 3: comes from those younger executives and founders are often usually
36:12
Speaker 3: behind some of the most successful companies, and that's some
36:15
Speaker 3: of the example of Schultz coming back. In a founder
36:18
Speaker 3: led company, you know, they're more willing to perhaps take
36:22
Speaker 3: some short term pain for long term gain.
36:25
Speaker 2: But the average, by the way, the average Fortune five
36:28
Speaker 2: hundred CEO is fifty seven to fifty eight years old,
36:31
Speaker 2: So similar demo to the average congress person. Yeah. But
36:37
Speaker 2: in terms of other stories.
36:38
Speaker 3: I was looking at a story here from New York
36:41
Speaker 3: where they're trying to convert office space into apartments. Though
36:45
Speaker 3: oh yeah, second instance here in the last month of
36:49
Speaker 3: that project being one of the projects being temporarily shut down.
36:53
Speaker 2: This was to convinced we know how to do this.
36:57
Speaker 2: Did anybody ask an engineer like, hey, do we know
36:59
Speaker 2: how to do this? Convert an office building a bunch
37:01
Speaker 2: of apartments. I know that they just asked chat GPT.
37:04
Speaker 3: I know that for my sister being commercial real estate,
37:07
Speaker 3: that I had asked her when this idea was banted about.
37:12
Speaker 3: I guess in the Boston area that the costs behind
37:15
Speaker 3: doing it are exorbitant and that's usually why these companies
37:18
Speaker 3: are less willing to do it. But it now seems
37:21
Speaker 3: like there are some structural issues as well that they're
37:24
Speaker 3: bumping into on two of these different projects where there's
37:26
Speaker 3: can questions about just the support beams, some support beams
37:30
Speaker 3: within the building to undertake this transformation, and this has
37:34
Speaker 3: been something that have support beams.
37:36
Speaker 2: If you're gonna get that view, baby.
37:37
Speaker 1: Yeah, one or the other.
37:39
Speaker 3: It's it's a tough deal.
37:41
Speaker 2: As we close out the show today, markets have now
37:43
Speaker 2: turned positive. Nasdaq, which was down over one percent trading
37:47
Speaker 2: flat as we head to the noon now ur s
37:49
Speaker 2: and P five hundred, but up four tens percent in
37:51
Speaker 2: the Dow still leading the way upwards up one and
37:54
Speaker 2: a quarter percent. We will be back at it tomorrow
37:57
Speaker 2: for a big earnings day as well as a FED
38:00
Speaker 2: meeting day, so lots of news to cover tomorrow, and
38:02
Speaker 2: the financial exchange stay Tuned, will be back.