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Where do interest rates need to be to get housing market moving again? · The Financial Exchange Show

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Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul Lane.
1:13
Speaker 2: More than happy Friday, and welcome back to the Financial Exchange.
1:16
Speaker 2: We've got an exciting next hour for you. The chief
1:18
Speaker 2: economist of Compass real Estate, Mike Simonson, is gonna be
1:21
Speaker 2: joining us at the next segment, and then Paul Amonica
1:24
Speaker 2: from Baron's gonna be joining us later on in the program.
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Speaker 2: This morning at eight thirty am, we got our release
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Speaker 2: from the Bureau of Economic Analysis, Yes BA, on the
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Speaker 2: state of inflation and did not surprise. This is our
1:38
Speaker 2: second reading on inflation. CPI usually comes or always comes
1:42
Speaker 2: earlier in the month, and this reading showed a similar story,
1:46
Speaker 2: which is inflation, while it has been heating up a
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Speaker 2: bit in the last three months, remains in a I
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Speaker 2: would say, relatively uncomfortable level, but not worrisome enough to
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Speaker 2: drive the Fed to change their path, which is towards
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Speaker 2: cutting interest rates. The reading on inflation that you did
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Speaker 2: get this morning, the headline inflation number up two point
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Speaker 2: seven percent year over year, when you strip out food
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Speaker 2: and energy up two point nine percent, and those same
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Speaker 2: figures up point three and point two for the month,
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Speaker 2: and that's about where they've been since June. We've seen
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Speaker 2: these upticks since June whereas the months beforehand we're pretty
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Speaker 2: muted on the inflation front of things. We have a
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Speaker 2: new teriff announcement from the White House when it comes
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Speaker 2: to branded and pharmaceuticals that are manufactured outside the United States.
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Speaker 2: This headline, I think is going to be probably misinterpreted
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Speaker 2: by a lot of folks. So important to keep in
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Speaker 2: mind that this is just branded pharmaceuticals. It does not
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Speaker 2: apply to generics. But some of those branded pharmaceuticals are
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Speaker 2: looking at one hundred percent teriffreriate if the parent companies
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Speaker 2: are not investing in manufacturing inside the United States. And
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Speaker 2: I think might be a shot across the bow in
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Speaker 2: terms of what could be to come for generics, but
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Speaker 2: probably not a whole lot of willingness to do that
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Speaker 2: at this point. Near Caasser from Bloomberg writes, millions of
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Speaker 2: Americans becoming economically invisible. Paul, this is a story that
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Speaker 2: we have highlighted many times in kind of a different
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Speaker 2: light over the course of the last few months and years,
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Speaker 2: which is increasingly the spending in this nation is coming
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Speaker 2: from the top ten percent of income earners, and I'm
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Speaker 2: certain that when you look at the top half, it's
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Speaker 2: got to account for a whole lot of the spending,
3:30
Speaker 2: but half of the total spending in this country is
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Speaker 2: coming from the top ten percent of income earners. And
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Speaker 2: so when we hear stories about this, I think this
3:38
Speaker 2: fits right into that same narrative, which is quite literally
3:42
Speaker 2: when you look at broad statistics about the economy, when
3:45
Speaker 2: you look at consumer spending, when you look at inflation,
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Speaker 2: when you look at wages, there is a wide swath
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Speaker 2: of the American public, probably that bottom third or so,
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Speaker 2: that really do not move the needle at this point
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Speaker 2: for the state of the overall economy, and likewise probably
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Speaker 2: helps explain why the data on the numbers who's spending
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Speaker 2: what where does not seemingly match up with the data
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Speaker 2: on sentiment that we get on a regular basis.
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Speaker 3: The bottom sixty percent of wage earners account for less
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Speaker 3: than a fifth of consumption in this country. That's down
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Speaker 3: from more than twenty six percent three decades ago. So
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Speaker 3: we were at twenty six percent for the bottom sixty
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Speaker 3: percent of wage earners three decades ago. That number is
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Speaker 3: now lower than twenty percent today. So you have sixty
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Speaker 3: percent numerically of the workforce, you know, eighty million plus
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Speaker 3: workers that are contributing less than twenty percent of overall
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Speaker 3: consumer spend. It's this weird phenomenon where numerically there are
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Speaker 3: more people statistically numbers wise, that are in a rougher
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Speaker 3: economic place, but you're in this uncomfortable economists spot where
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Speaker 3: you say it doesn't really matter as much for the
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Speaker 3: dollars and cents that are being spent around this.
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Speaker 2: I hesitate to say it doesn't matter because I said
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Speaker 2: that too, and you just said it, and it's an
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Speaker 2: accurate description. Here's what it doesn't matter for. It does
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Speaker 2: not matter for the corporate profits of major US companies, right.
5:12
Speaker 2: And those major US companies drive things like the stock market,
5:15
Speaker 2: they drive major spending in the AI trade. And so
5:17
Speaker 2: when we say it doesn't matter, I think that can
5:20
Speaker 2: sound a little bit cold, and I don't think we're
5:22
Speaker 2: intending for it to be cold. It is just the
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Speaker 2: literal reality of what moves the needle for this big
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Speaker 2: picture of the economy, for inflation, for GDP, for major companies,
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Speaker 2: and the answer is decreasingly sixty percent of Americans are
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Speaker 2: what moves the needle, right, And that's a pretty terrifying number.
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Speaker 2: And it's on top of I think a theme that
5:45
Speaker 2: I keep hearing from folks, which is, what does the
5:48
Speaker 2: job market look like ten years from now?
5:50
Speaker 4: With aim?
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Speaker 2: Are my skills going to be valued in the same
5:53
Speaker 2: way because unlike well, I guess, similar to other technologies
5:58
Speaker 2: in the past, but this technology especially is designed with
6:01
Speaker 2: one real thing in mind, which is to emulate human beings.
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Speaker 2: And look, there's other automation systems that have done the
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Speaker 2: same in the past. That you know, every technology in
6:14
Speaker 2: some way is made to make people more efficient, but
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Speaker 2: this one does seem a little bit different on that front.
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Speaker 2: I think people are rightly afraid of it for that circumstance.
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Speaker 2: And what a lot of the writing has been around
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Speaker 2: is how are we going to ensure that this technology
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Speaker 2: does not make the wealth and income situation that we're
6:30
Speaker 2: dealing with more diversions now even worse down the road. Sure,
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Speaker 2: and so we're seeing that there, and I think it
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Speaker 2: is a little bit tough to evaluate. We've got to
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Speaker 2: take quick break when we come back. Mike Simonson, chief
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Speaker 2: economist at Compass, joining us next on the show to
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Speaker 2: talk a bit about the state of the housing market,
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Speaker 2: what he's expecting for the end of the year here
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Speaker 2: and then obviously all eyes will be on that spring
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Speaker 2: market as well. Mike's with us next.
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7:48
Speaker 2: Join us now. Is the chief economist at Compass real Estate,
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Speaker 2: Mike Simonson. Mike, thanks as always for joining us, and
7:54
Speaker 2: congratulations are an order. I don't think we've spoken since
7:56
Speaker 2: the new role, so congratulations on the new role at
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Speaker 2: one of from my perspective, one of the fastest growing
8:02
Speaker 2: real estate firms out there.
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Speaker 1: Thank you very much. It's all great to be here.
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Speaker 2: So in your new role as chief economists there. I'm
8:09
Speaker 2: sure you spend a lot of time addressing the staff
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Speaker 2: of realtors at Compass and what are you telling them
8:17
Speaker 2: here as we head into what I would assume is
8:21
Speaker 2: usually a pretty slow period of time for real estate transactions.
8:25
Speaker 2: The closer we get to Thanksgiving, I've got to imagine
8:27
Speaker 2: that's when things really dry up. But what are you
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Speaker 2: seeing out there and what are you telling the realtors
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Speaker 2: a Compass?
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Speaker 5: Yeah, so yeah, my job is really to help everyone
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Speaker 5: understand the US housing market, and that's buyers and sellers
8:40
Speaker 5: as well as the professionals in the organization. So yeah,
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Speaker 5: so it is, it's a fall, it's in September. We
8:46
Speaker 5: actually have a little bit of a last gasp of
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Speaker 5: the housing market in the US. Is actually there's really
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Speaker 5: two markets happening right now. There's a Midwest and Northeast
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Speaker 5: and then there's the sun Is there are two different
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Speaker 5: things going on, and so in the Midwest and Northeast
9:05
Speaker 5: inventory is still actually very tight. There's not a lot
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Speaker 5: of people selling homes moving you know, like the over
9:14
Speaker 5: the years, we've been moving north to south, and as
9:17
Speaker 5: it got expensive to move, we're moving a lot less
9:20
Speaker 5: right now. And then that's not just mortgage rates, it's
9:21
Speaker 5: also insurance and all the other things. So we're moving
9:26
Speaker 5: a lot less commonly right now. It's also the job
9:29
Speaker 5: market because because companies aren't hiring very quickly, we're not
9:34
Speaker 5: quitting our job in Boston to buying one in Orlando,
9:38
Speaker 5: and so we're not selling our house in Boston to
9:40
Speaker 5: buy in Orlando. Or Inventories at very high levels in
9:44
Speaker 5: Orlando and still very tight in the Northeast. So that's
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Speaker 5: a really a really notable split in the US right now.
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Speaker 2: I hate to get overly specific here, but I have
9:56
Speaker 2: been just just amazed by what's been going Onnnecticut has
10:00
Speaker 2: been reliably the worst inventory situation in the country. I
10:04
Speaker 2: know this applies to most of the Northeast, but you know,
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Speaker 2: if there's something unique about Connecticut and its proximity to
10:09
Speaker 2: New York, perhaps that's making it such a difficult market
10:12
Speaker 2: to buy a home right now.
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Speaker 5: You know, you're right that Connecticut has been like just
10:19
Speaker 5: barely maybe one or two percent more homes unsold on
10:22
Speaker 5: the market than a year ago. For much of the year,
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Speaker 5: it was fewer homes, and so, you know, I think
10:30
Speaker 5: that it is the in this phenomenon. It's more commonly
10:36
Speaker 5: the suburban areas than the urban areas. So for example,
10:40
Speaker 5: I was in Chicago this week, and the same thing's
10:42
Speaker 5: happening in Chicago. There's inventory in downtown condos in Chicago,
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Speaker 5: but in suburban Chicago it's very tight. And it's like,
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Speaker 5: those are the folks who were you know, selling and
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Speaker 5: move and south, and those are the folks who are
10:57
Speaker 5: holding on still. And there may be you know, the
11:00
Speaker 5: city of New York has actually had you know, like
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Speaker 5: a reasonable demand for home so like and growth in
11:09
Speaker 5: the economy, so that could spill over into Connecticut and
11:13
Speaker 5: be part of the factor that like there's less supply
11:17
Speaker 5: and demand isn't as lighted as it is in much
11:21
Speaker 5: of the country.
11:22
Speaker 2: Mike, I'm aware of this story that you've told of
11:25
Speaker 2: two housing markets in this nation, the sun Belt versus
11:27
Speaker 2: Midwest and Northeast, and just how different those markets look.
11:31
Speaker 2: And the question that comes to mind for me is why.
11:34
Speaker 2: And I've been you know, putting together some answers. You know,
11:37
Speaker 2: it's a reversal of COVID trends. That's where a lot
11:39
Speaker 2: of the homes were built over the last several years.
11:42
Speaker 2: Insurance costs go up. Is there a but honestly, like,
11:46
Speaker 2: none of those to me explain all of it. Is
11:48
Speaker 2: there a really concise story as to why the Sun
11:52
Speaker 2: Belt is seeing such an uptick in inventory right now?
11:55
Speaker 2: And is there something that reverses that trend or at
11:58
Speaker 2: least equalizes that market, because it does not seem as
12:00
Speaker 2: though that that increased volume is leading to way more
12:03
Speaker 2: transactions and way more price cuts.
12:06
Speaker 5: Yeah, so it is in fact all those things. I
12:09
Speaker 5: called it the great stay where we are staying in
12:12
Speaker 5: our towns, We're staying our homes longer, we're staying in
12:15
Speaker 5: our jobs longer. So you know, because companies aren't aren't
12:21
Speaker 5: hiring very quickly, we're not quitting our jobs were and
12:24
Speaker 5: so we're doing so all of these things were like
12:27
Speaker 5: it's related to COVID and the you know, I have
12:30
Speaker 5: a great mortgage from the pandemic, and you know, the
12:33
Speaker 5: companies have the right staff size from the pandemic, so
12:36
Speaker 5: all of those things, and they don't need to hire more.
12:38
Speaker 5: So all of those things are conspiring to keep us
12:42
Speaker 5: in place longer. The and and so you're right, like
12:47
Speaker 5: in the places where we've been building a lot of
12:49
Speaker 5: houses because we've been moving.
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Speaker 1: Very quickly there.
12:53
Speaker 5: Now we when we slow When we slow down that move,
12:56
Speaker 5: we those that inventory builds up in a place like
13:00
Speaker 5: western Florida, like Tampa, we have right now we have
13:03
Speaker 5: outbound migration, so Tampa is actually shrinking. We have also
13:10
Speaker 5: things like dramatically higher insurance costs. So you know, if
13:14
Speaker 5: you had a house in Tampa that you used for
13:16
Speaker 5: a couple of weeks a year, it used to be
13:18
Speaker 5: very cheap to hold that. Now it's suddenly got more
13:21
Speaker 5: expensive to hold that. So even if we're not moving,
13:23
Speaker 5: those also come back on the market. So you have
13:26
Speaker 5: all of these factors that are going together right now.
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Speaker 5: My guess is when does this change? When does it end?
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Speaker 5: And when we get into a business cycle where companies
13:36
Speaker 5: are hiring again and we are more confident about our
13:39
Speaker 5: ability to quit our jobs, you know, those kinds of
13:42
Speaker 5: elements in this in the business cycle, when those kick
13:45
Speaker 5: in again, then we can move. Then we will say,
13:48
Speaker 5: you know what, Okay, I put off my move to
13:51
Speaker 5: Florida or to Arizona or.
13:54
Speaker 1: For three years.
13:55
Speaker 5: Now now it's time to move. So we're in a
13:58
Speaker 5: in a you know, a restricted to now and at
14:00
Speaker 5: some point those like that, the governors get lifted and
14:08
Speaker 5: allow us to start moving again.
14:10
Speaker 2: So, Mike, I won't try and nail you down on
14:12
Speaker 2: where you think interest rates are going, because I don't
14:15
Speaker 2: know about you. I find that to be a loser's
14:17
Speaker 2: game of trying to predict where that's going to be.
14:19
Speaker 2: But can you instead try and give me a sense
14:22
Speaker 2: of where you think interest rates might need to be
14:24
Speaker 2: for people to stop feeling so locked into their current situation.
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Speaker 5: Yeah, there have been in the last three years, there
14:33
Speaker 5: have been two moments when interest rates mortgage the thirty
14:36
Speaker 5: year mortgage rate got close to six percent, and in
14:40
Speaker 5: both of those types, so it was the beginning of
14:42
Speaker 5: twenty three and it was September last year, and both
14:47
Speaker 5: of those moments turned into an uptick in buyer demand,
14:53
Speaker 5: more transactions, and actually pushed home crisis higher surprisingly quickly.
15:00
Speaker 5: Surprisingly to me, I was surprised by the reaction both
15:02
Speaker 5: of those times. So I look at six percent as
15:06
Speaker 5: a as a sort of threshold where we start to
15:09
Speaker 5: move the needle. We start to see, oh, there's more
15:11
Speaker 5: transactions happening, there's you know, people are are you know,
15:15
Speaker 5: feeling like a move is affordable, and so there's been
15:20
Speaker 5: only two moments in the last three years. When when
15:24
Speaker 5: that happened? The six and a half percent is not enough,
15:28
Speaker 5: and so when the when when when rates are roughly
15:32
Speaker 5: around six that means some people are getting rates in
15:35
Speaker 5: the fives and those people are starting to feel affordable.
15:39
Speaker 5: So that's that's really a level I am interested in.
15:43
Speaker 5: What's interesting right now is that the jobs market is
15:50
Speaker 5: arguably deteriorating. The the unemployment rate is ticking up, the
15:55
Speaker 5: hiring rates are very low, that job creation rates are
15:59
Speaker 5: very low. And so does that mean in twenty twenty six,
16:06
Speaker 5: if the job market is worse, the economy is slower,
16:10
Speaker 5: does that mean that number needs to be even lower
16:13
Speaker 5: before we move the needle. Maybe that threshold moves lower
16:16
Speaker 5: in the coming year. But as of right now, the
16:19
Speaker 5: two times that we've gotten close to six percent, we
16:22
Speaker 5: could see the neil move on housing demand.
16:24
Speaker 2: Yeah, that all else equal statement is all threatened right now.
16:28
Speaker 2: Mike Simonson, chief economist at Compass, joining us today talk
16:31
Speaker 2: about the state of the national housing market. I really
16:34
Speaker 2: appreciate you coming on, Mike, and we'll talk to you
16:36
Speaker 2: again soon.
16:37
Speaker 5: You right, we'll touch on all right.
16:39
Speaker 6: Time for trivia here on the Financial Exchange and it's
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16:47
Speaker 6: Loves Raymond ran from ninety six to two thousand and
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Speaker 6: the show. Of the main five actors on the show,
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Speaker 6: only one failed to win an Emmy Award. So our
17:09
Speaker 6: triview question today, who is the only actor on Everybody
17:12
Speaker 6: Loves Raymond to not win an Emmy Award during their
17:16
Speaker 6: time on the show? Once again, who is the only
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17:35
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17:42
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17:46
Speaker 2: I'm gonna give this one to Tucker. Tucker, you want
17:48
Speaker 2: us to talk about costco or Zillo Zillo Zillo. All right, uh,
17:52
Speaker 2: Zillo just hit their first profitable year in the last
17:56
Speaker 2: thirteen Uh. The last time they did this was twenty
17:59
Speaker 2: two twelve, and they have gone through a few rough
18:04
Speaker 2: tracks here. They tried buying houses unsuccessfully. They tried a
18:07
Speaker 2: few different things that didn't work well. But they seem
18:09
Speaker 2: to be getting the point that, hey, we are one
18:12
Speaker 2: of the most popular forget about real estate websites, like
18:15
Speaker 2: we are one of the most popular websites out there
18:17
Speaker 2: that Americans like to browse, and let's maximize the utility
18:21
Speaker 2: of that. And finally finding a way to make a
18:23
Speaker 2: profit here.
18:23
Speaker 3: Well, it's funny the context of the article in the
18:25
Speaker 3: Wilsted Journal here largely a lot of the improvements on
18:28
Speaker 3: the profitability have been from cutting expenses. It's like, uh aha,
18:32
Speaker 3: suddenly we realize that if we cut overhead and trim
18:35
Speaker 3: down some of the stock based compensation, that we would
18:38
Speaker 3: generate a profit. Who knew by cutting our expenses that
18:42
Speaker 3: we would go to profitability. They all are also diversifying
18:45
Speaker 3: their services a little bit, trying to make money from
18:47
Speaker 3: mortgage origination, rental listings, and software for real estate professionals.
18:51
Speaker 4: So those have been helpful.
18:53
Speaker 2: Here's what I think they need to go further, Like
18:54
Speaker 2: this company has so many eyeballs on their listings every
18:58
Speaker 2: single day, they need to be adveraged to us, like, hey,
19:02
Speaker 2: you really like the look of that house. I keep
19:04
Speaker 2: seeing you look at it, because that's how people are
19:05
Speaker 2: using this site now. It's not to actually buy real estate.
19:08
Speaker 2: It's just as a hobby. You like the look of
19:10
Speaker 2: that kitchen, here's the same one from Ikia. You know,
19:15
Speaker 2: advertise that type of thing. I think that they have
19:18
Speaker 2: so many eyeballs, it's becoming more of a social media
19:20
Speaker 2: platform than it is a true real estate platform, and
19:23
Speaker 2: I think they underappreciate how much more they could advertise.
19:25
Speaker 2: Quick break, we'll have the trivia winner and then talk
19:27
Speaker 2: some costco Next.
19:39
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Speaker 6: Markets and Knicks Territory. After yesterday's pullback, where investors are
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Speaker 6: reacting to the core PCE index posted earlier this morning,
20:06
Speaker 6: which climbs zero point two percent last month, in line
20:10
Speaker 6: with estimates. Right now, the Dow is up by about
20:13
Speaker 6: a half a percent or.
20:14
Speaker 4: Two hundred and thirty six points.
20:16
Speaker 6: SMP five hundred is up nearly three tenths of one
20:19
Speaker 6: percent or eighteen points. NASDAC dipping by seven points at
20:23
Speaker 6: the moment. Rust two thousand is up two tenths of
20:26
Speaker 6: one percent, Tenure treasreel currently at four point one point
20:30
Speaker 6: eight three percent, and crude oil is up over two
20:35
Speaker 6: percent higher today training at sixty six dollars and thirty
20:38
Speaker 6: three cents a barrel. Furniture and home good stocks are
20:42
Speaker 6: seeing attention today after President Trump announced tariffs on imported
20:47
Speaker 6: items such as kitchen cabinets, an upholstered furniture, Williams Snowman
20:52
Speaker 6: down by nearly one percent, while our h is falling
20:55
Speaker 6: over three percent. Wayfair, on the other hand, is actually
20:58
Speaker 6: up almost one percent. President Trump also announced that he
21:02
Speaker 6: will impose a twenty five percent tariff on imported heavy trucks.
21:06
Speaker 6: Sending shares Impewter Built and Kenworth Owner Packcar up by
21:10
Speaker 6: over five percent. Pharmaceutical stocks are also in the spotlight
21:14
Speaker 6: after Trump announced a one hundred percent tariff on branded
21:18
Speaker 6: patented imported drugs, exempting companies building plants in the US, Eli, Lilly,
21:24
Speaker 6: Murk are all edging higher, while Nova Nordisk is down
21:28
Speaker 6: over one percent. Meanwhile, Intel stock climbing another three percent
21:32
Speaker 6: at the moment, now on pace four fourth straight day
21:35
Speaker 6: of gains. Following a report from The Wall Street Journal
21:38
Speaker 6: that CEO Lip Bhutan has approached Apple, Taiwan Semiconductor and
21:42
Speaker 6: other companies about investments or partnerships, and Costco shares falling
21:47
Speaker 6: nearly two percent after the warehouse retailer posted higher sales
21:51
Speaker 6: and profit in the previous quarter. However, same store sales
21:54
Speaker 6: growth missed street expectations. The company also noted that newly
21:59
Speaker 6: extended store hours were paying off. I'm Tucker Silva and
22:04
Speaker 6: that is Wall Street Watch And in the previous segment,
22:06
Speaker 6: well you asked you the trivia question. Who was the
22:09
Speaker 6: only actor on Everybody Loves Raymond to not win an
22:12
Speaker 6: Emmy Award during their time on the show. For some reason,
22:15
Speaker 6: it was Peter Boyle, who played Frank Baron and was
22:18
Speaker 6: probably the best character on the show. Dottie from Saugust,
22:21
Speaker 6: Mass is our winner today, taking home the Financial Exchange
22:24
Speaker 6: showed t shirt. Congrats to Dottie, and we played trivia
22:27
Speaker 6: every day here in the Financial Exchange See complete contest
22:30
Speaker 6: rules at Financial Exchange Show dot com.
22:32
Speaker 2: Costco stock actually moving down today after what was described
22:36
Speaker 2: as a pretty good earnings report. Stock hasn't really moved
22:39
Speaker 2: a whole lot over the course of the last year.
22:41
Speaker 2: They're up about two and a half percent for the
22:43
Speaker 2: past twelve months today down a little bit over two
22:47
Speaker 2: percent in early trading. I I don't know the details
22:51
Speaker 2: of what investors were looking for out of this earnings report.
22:54
Speaker 2: Their e commerce sales did bump up by thirteen and
22:56
Speaker 2: a half percent. I just have to say, like, I'm
22:59
Speaker 2: amazingly impressed by this company's performance and kind of where
23:04
Speaker 2: they stand in the retail space right now. Again, stock
23:07
Speaker 2: price not reflecting any big changes on this front in
23:09
Speaker 2: the last twelve months, but last five years, this company's
23:11
Speaker 2: up a hundred and seventy percent. Having so, I hadn't
23:17
Speaker 2: shopped really at Costco much at all until this year
23:20
Speaker 2: when we changed from Bja's because a new one opened
23:23
Speaker 2: in our area. I think there's something that sets them apart, like, yes,
23:28
Speaker 2: they are a big box discount retailer, where you can
23:31
Speaker 2: go get all your stuff, presumably at a slightly lower
23:33
Speaker 2: price point, although I don't know that that's really what
23:36
Speaker 2: draws people in now. Costco has done an amazing job
23:41
Speaker 2: at setting themselves apart with specific products that people will
23:45
Speaker 2: go to the store. For sure, their tequila, for example,
23:49
Speaker 2: my uncle will only drink tequila Costco Kirkland brand tequila,
23:52
Speaker 2: and when covid struck, the dude went out and bought
23:55
Speaker 2: like fifteen bottles of tequila because he wasn't sure when
23:58
Speaker 2: he'd be able to go back to Costco. They have
24:02
Speaker 2: clothing that people will actually go to Costco just to
24:05
Speaker 2: buy the special brand of clothing that is apparently, you know,
24:08
Speaker 2: maybe a knockoff of Lululemon, but now here nor.
24:10
Speaker 4: What they are right.
24:12
Speaker 2: They are becoming, in my mind, a bit of a tjxplay,
24:16
Speaker 2: how like you're going to Costco sometimes because you've heard
24:21
Speaker 2: that this slightly rare product that they don't usually keep
24:24
Speaker 2: in stock might be at that TJX, sorry, at that
24:27
Speaker 2: Costco store. They're creating this kind of treasure hunt type vibe.
24:31
Speaker 2: I mean, heck treader hunt. They literally were selling gold
24:33
Speaker 2: bars over the last few years and selling out of them.
24:36
Speaker 2: I think that Costco really from that perspective, occupies a
24:40
Speaker 2: different space than BJ's and Sam's Club do.
24:42
Speaker 4: Oh definitely.
24:43
Speaker 3: I mean really, they spend no money on marketing at all,
24:47
Speaker 3: so all of their marketing is word of mouth from customers.
24:49
Speaker 3: So it points to what you're talking about there, is
24:52
Speaker 3: that specific customers have this loyalty to brands, whether it's
24:56
Speaker 3: the Kirklum brand or specific items from Costco. They talk
24:59
Speaker 3: about it and probably the reason you got a membership
25:02
Speaker 3: is because you had probably heard of all these people
25:04
Speaker 3: who really enjoy the experience. The reason I got onto
25:07
Speaker 3: it is my wife and my father in law were
25:10
Speaker 3: huge proponents of it, and all of a sudden it
25:12
Speaker 3: got me into that world too, where I love about
25:15
Speaker 3: their business. It's so simple and straightforward. It's thirteen to
25:17
Speaker 3: fourteen percent margins on pretty much everything that they sell,
25:20
Speaker 3: so you know you're getting a fair price. And then
25:23
Speaker 3: also the quality of stuff that they present is really
25:27
Speaker 3: strong and that's what keeps people coming back to generate
25:31
Speaker 3: the free casful from that membership fee that they drive
25:35
Speaker 3: from every year.
25:35
Speaker 2: Do you have the membership that gets you in a
25:37
Speaker 2: half hour early?
25:38
Speaker 4: My father in law does we mooch you off that
25:40
Speaker 4: a little bit.
25:40
Speaker 2: Yeah, yeah, that's critical.
25:42
Speaker 4: On the weekends. It's crazy.
25:43
Speaker 3: Why because if you go on a Saturday it is
25:47
Speaker 3: an absolute zoo. If you're taking your young children, you
25:49
Speaker 3: have to worry about them getting mowed down by Do not.
25:52
Speaker 2: Take young children to grocery shopping. That's like come on,
25:55
Speaker 2: parenting one on one.
25:56
Speaker 3: No, we'll do it for kill time in the winter
25:58
Speaker 3: if it's slow.
25:59
Speaker 4: Yeah, hell on Earth.
26:02
Speaker 2: My wife and I have this debate all the time, like,
26:04
Speaker 2: I'm going shopp I'm gonna take the kids.
26:05
Speaker 4: Like, what a terrible idea.
26:06
Speaker 2: They're gonna grab everything off the shelves, they're gonna try
26:08
Speaker 2: and put it in the car. They're gonna ride in
26:10
Speaker 2: the cart and then climb on the cart. Terrible idea.
26:12
Speaker 3: Leave you kid, you don't know how desperate winter gets.
26:15
Speaker 4: Well send it to a playplace in the winter. Good
26:17
Speaker 4: luck with that.
26:17
Speaker 2: Yeah, I don't know. I don't have a good alternative.
26:20
Speaker 2: That's what Uncle Walt's there for.
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27:19
Speaker 1: The proceeding was paid for and the views expressed are
27:21
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27:30
Speaker 2: Starbucks still working on that turnaround story and not seemingly
27:34
Speaker 2: getting there, and stock prices reflecting it as such. The
27:37
Speaker 2: year to date, this company has lost about ten percent
27:40
Speaker 2: of their value over the last five years, they have
27:41
Speaker 2: gained nothing, their stocks basically flat over five years. New
27:45
Speaker 2: CEOs in there trying to work a turnaround story, closing stores,
27:48
Speaker 2: trying to simplify things. But the more I thought about this,
27:52
Speaker 2: so the real problem that you know, the CEO has identified,
27:55
Speaker 2: at least one of the big problems he's identified, is
27:58
Speaker 2: the crazy number of customizations you can make when you
28:02
Speaker 2: go to a Starbucks. And I was comparing this too, Like,
28:05
Speaker 2: imagine you walk into even a fancy bar, Paul, you
28:09
Speaker 2: walk into a high end bar where they're all about cocktails.
28:13
Speaker 4: Yep.
28:14
Speaker 2: You don't go up to the bartender and say, hey,
28:17
Speaker 2: I'd like you to mix the rum with the uh
28:21
Speaker 2: with this specific you know, sweetener, and then add a
28:25
Speaker 2: little bit of that flavor in there for me and
28:29
Speaker 2: make this specific cocktail that I just dreamed up for me.
28:31
Speaker 4: You just pick what's on the list.
28:33
Speaker 2: You either pick a very well known cocktail like a
28:35
Speaker 2: Manhattan that they're definitely going to know how to make,
28:39
Speaker 2: or you go look at their list of you know,
28:40
Speaker 2: inventive cocktails and go with that. That's not the Starbucks model.
28:43
Speaker 2: The Starbucks model is you have it exactly the way
28:45
Speaker 2: that you want, and if we screw it up, we're
28:47
Speaker 2: going to remake it for you. And because of the
28:50
Speaker 2: number of ingredients that we carried, there's something like hundreds
28:53
Speaker 2: of thousands of different possible combinations, and we're going to
28:57
Speaker 2: do it all for less than a cocktail costs, right,
29:00
Speaker 2: and the like even the largest one. If you make
29:02
Speaker 2: one of those what was the let's see a Venti
29:06
Speaker 2: white mocha quad shot, two shots on two on top,
29:09
Speaker 2: all the milk, extra hot caramel drizzle inside the cup,
29:13
Speaker 2: and extra whipped cream. Like you think about that, that
29:17
Speaker 2: type of specification and customization should cost something outrageous over
29:23
Speaker 2: ten dollars, and probably doesn't. And so I don't know
29:28
Speaker 2: how they get themselves out of this conundrum because.
29:30
Speaker 6: They just stop assessing the orders like this is the menu.
29:34
Speaker 2: I think they lose customers.
29:35
Speaker 4: No, they don't.
29:36
Speaker 2: I think I don't know they do.
29:38
Speaker 6: I think if you have enough variety of like the uh,
29:42
Speaker 6: the sweet coffee drinks and with the regular coffee drinks
29:45
Speaker 6: like variety agreed.
29:47
Speaker 2: I think that's what they need to do it. I
29:49
Speaker 2: think they need to do it because that's how I
29:51
Speaker 2: would assume bartenders and bars make money is they you know,
29:54
Speaker 2: pre mix a whole bunch of stuff for the items
29:56
Speaker 2: that are on their menu, and so even if they're
29:57
Speaker 2: really complex, they can just make it hap been pretty quickly,
30:01
Speaker 2: and Starbucks can't. And so I think that's the only
30:03
Speaker 2: choice they have is to simplify the menu further. Yeah,
30:06
Speaker 2: and I think they're terrified to do so well.
30:08
Speaker 3: Also, the other piece of this is that they have
30:10
Speaker 3: to commit one way or another, and it sounds like
30:13
Speaker 3: they're committing back to the older way of Previously Starbucks.
30:16
Speaker 3: You went to for the experience to sit down there
30:18
Speaker 3: and enjoy your latte and you know, utilize the Wi Fi,
30:21
Speaker 3: and it was more experiential.
30:23
Speaker 2: Bring your typewriter.
30:25
Speaker 3: But now with the prevalence of the mobile online ordering system,
30:30
Speaker 3: it's become much more transactional, and so you sort of
30:32
Speaker 3: have to pick one way or another. Are you the
30:34
Speaker 3: neighborhood coffee shop or are you trying to be like
30:37
Speaker 3: the Duncan of the world where it's really focused on
30:40
Speaker 3: just hammering out more mobile orders as.
30:42
Speaker 6: Fast as you guys see the new store concepts for Starbucks. Yeah, no, no,
30:49
Speaker 6: for something else, Well, I thought there was lucking in here.
30:53
Speaker 4: Just make it some way.
30:54
Speaker 6: I mean the images are out there. They're definitely going
30:56
Speaker 6: back to the coffee shop vibe.
30:58
Speaker 4: Now is it? Does it look nice? Loser? Internet right there?
31:01
Speaker 4: You look at it. You'll do it. You do it? No,
31:04
Speaker 4: you do it.
31:05
Speaker 2: Let's take a quick break and Paula Monica's joining us next.
31:08
Speaker 4: He'll do it.
31:10
Speaker 1: Here The Financial Exchange every day from eleven to noon
31:13
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31:48
Speaker 6: This year's DAV five k is sold out, but you
31:51
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31:58
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32:18
Speaker 3: We are now joined by Paul Lamonica from Barons to
32:22
Speaker 3: talk a little bit about a specific stock that we'll
32:25
Speaker 3: get to.
32:26
Speaker 4: In just a moment. But Paul, thanks so much for
32:27
Speaker 4: joining us. Thanks a lot, So Paul.
32:30
Speaker 3: We got oh O'Reilly Auto Parts on the dock. We're
32:37
Speaker 3: gonna be talking about o'relly and in particular, this company
32:41
Speaker 3: has done quite well this year. It's up thirty percent
32:44
Speaker 3: year to date, and the company's sales forecasts are growing
32:49
Speaker 3: while it's peers it appear to be declining. What are
32:52
Speaker 3: some of the reasons behind just how well this company
32:55
Speaker 3: has performed and just the execution and underlying o'rally' success
32:59
Speaker 3: here to date.
33:00
Speaker 7: Yeah, it's a great question, I think you know. In particular,
33:03
Speaker 7: they've been looks like taking market share probably from advanced
33:06
Speaker 7: autoparts and genuine parts. AutoZone, which reported earnings earlier this week,
33:11
Speaker 7: is another very solid competitor, and I think a lot
33:14
Speaker 7: of people look at O'Reilly and AutoZone as the leaders
33:18
Speaker 7: in this industry, but O'Reilly in particular, I think has
33:22
Speaker 7: done a great job of opening up a lot of
33:26
Speaker 7: these regional distribution centers across the country, and that enables
33:31
Speaker 7: them to get parts to stores and mechanics at lightning speed.
33:37
Speaker 7: One analyst that I quoted in the piece talked about
33:40
Speaker 7: how he was at a store doing a channel check
33:43
Speaker 7: and employees there were telling him that they can get
33:46
Speaker 7: parts in as quick quickly as twenty minutes from one
33:50
Speaker 7: of their regional distribution hubs. So that's great for customers
33:54
Speaker 7: if you're walking in and need a break bad or
33:58
Speaker 7: you know oil or obviously the oils usually in the store,
34:02
Speaker 7: but if you need something that's not there, odds are
34:05
Speaker 7: you're going to get it pretty quickly. And with consumers
34:08
Speaker 7: now driving clunkers for longer instead of buying new cars,
34:13
Speaker 7: there's a lot of need for those repairs every now
34:17
Speaker 7: and then, and I think a lot of people like
34:18
Speaker 7: to do it themselves for cost effective reasons.
34:21
Speaker 3: That's blown me away is that the average aid of
34:23
Speaker 3: a US vehicle on US roads is in over twelve years,
34:27
Speaker 3: I believe, right, and that has I imagine been a
34:30
Speaker 3: huge catalyst for the company in terms of its success.
34:34
Speaker 3: Is that something that the CEO and executives have noted,
34:37
Speaker 3: that the amount of used cars out there is helping
34:39
Speaker 3: their business.
34:41
Speaker 7: Yeah, without question, either you used cars or people just
34:44
Speaker 7: holding on to cars for longer. I mean, it does
34:48
Speaker 7: seem a little counterintuitive. You might think that, oh no,
34:52
Speaker 7: if GM and Ford are having slower sales and if
34:57
Speaker 7: people are driving electric more, that would be a problem.
35:01
Speaker 7: But it doesn't seem to be the case. It's counterintuitive,
35:04
Speaker 7: but I think that the older the vehicle fleet is
35:09
Speaker 7: for cars and trucks across the country, that's probably better
35:13
Speaker 7: for O'Reilly, especially for those DIY customers that want to
35:17
Speaker 7: do the repairs themselves.
35:18
Speaker 3: Are they seeing any impact from tariffs in terms of
35:21
Speaker 3: their products.
35:23
Speaker 7: Yeah, I mean tariffs have been a concern, but so far,
35:29
Speaker 7: it seems like consumers are willing to pay the higher prices,
35:34
Speaker 7: or at least they're paying the higher prices. No one's
35:37
Speaker 7: obviously going in and saying Yay, I'm paying more money,
35:40
Speaker 7: but they aren't going to stop making the necessary purchases
35:45
Speaker 7: for maintenance and repairs. And I think O'Reilly and autos
35:49
Speaker 7: don't have also done a decent job of keeping some
35:52
Speaker 7: of those costs down so that they don't have to
35:54
Speaker 7: pass all of the tariff related expenses to consumers. So
35:58
Speaker 7: this seems to be a little bit more of a
36:00
Speaker 7: tariff resistant consumer company than others. And it's why one
36:05
Speaker 7: analyst you know, came up we all talk about the
36:08
Speaker 7: Magnificent seven and the former fang stocks. An analyst and
36:13
Speaker 7: UBS said that o'reiley is the O in the cow
36:17
Speaker 7: stocks of three fantastic retailers, Costco which reported earning last night,
36:22
Speaker 7: o'reiley and Walmart being the w.
36:24
Speaker 4: We'll see if that takes hold.
36:26
Speaker 3: Paul A Monica from Baron's Paul, thanks so much for
36:29
Speaker 3: the time this week.
36:30
Speaker 4: Really appreciate it.
36:31
Speaker 3: Have ay great weekend you too, Thanks guys, Paul.
36:35
Speaker 2: Experts are saying that by now, pay later vacations are
36:38
Speaker 2: a bad idea. If you need an expert to tell
36:43
Speaker 2: you that booking a vacation that you can't afford and
36:47
Speaker 2: using buy now, pay later for an asset that immediately
36:50
Speaker 2: depreciates once you purchase it, I don't know who needs
36:55
Speaker 2: that advice, But like you know, we talk about Carlans
36:58
Speaker 2: being irresponsible because those are quickly depreciating asset using buy now,
37:03
Speaker 2: pay later to buy groceries or pizza from what was
37:09
Speaker 2: the one that we covered a few years ago. Papa
37:11
Speaker 2: John's allows you to buy pizza buy now, pay later one.
37:17
Speaker 2: If you are one of these buy now, pay later
37:19
Speaker 2: firms and that company, then that person doesn't pay you back.
37:22
Speaker 2: What exactly are you collecting on because the piece is gone,
37:27
Speaker 2: And even if you could collect on it, even if
37:28
Speaker 2: they any the whole thing, I don't think you're gonna
37:30
Speaker 2: be able to resell it. Same goes for a vacation,
37:33
Speaker 2: and I just imagine somebody now some of these companies,
37:36
Speaker 2: they do require you to make the payment in full
37:37
Speaker 2: before you depart on your vacation. So it's like, Okay,
37:39
Speaker 2: I've booked it in January, I'm leaving August. I have
37:41
Speaker 2: to be have it fully paid.
37:42
Speaker 4: Could he use this for college spring break?
37:44
Speaker 2: Imagine for a moment that you can't make the payments,
37:48
Speaker 2: then you still have to go on the vacation because
37:50
Speaker 2: it's not cancelable, And the entire time you're just dressing
37:52
Speaker 2: about the fact that you lost your job and have
37:54
Speaker 2: to go on this wonderful safari through Africa. And like,
37:59
Speaker 2: what a my terrible way.
38:01
Speaker 4: You can't pay, you can't pay enough to have a
38:02
Speaker 4: great vacation. It's worth it, got it, It's just kidding.
38:06
Speaker 2: Uh uh. Markets are mixed, The Nasdaq is off about
38:09
Speaker 2: a bit more than a tenth of a percent, s
38:11
Speaker 2: m P and Dower positive. As we end the show today,
38:14
Speaker 2: we'll be backed at it on Monday. Have a great weekend, everybody,