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Will Jerome Powell push back on Trump at the upcoming Fed meeting? · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange. After markets
1:14
Speaker 2: had a bit of a route yesterday, especially on the Nasdaq,
1:16
Speaker 2: they're making a broad based recovery today. NASDAK yesterday finished
1:20
Speaker 2: off more than three percent today up about one point
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Speaker 2: two SMP up about two thirds percent after being off
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Speaker 2: by about one four one five one point four to
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Speaker 2: one point point five percent yesterday, and the Dow up
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Speaker 2: another half a percent in early trading so far. The
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Speaker 2: yield on the ten year Treasury, which sank yesterday, is
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Speaker 2: moving back up. We're sitting at four point five seven
1:42
Speaker 2: five on the ten year, and the price of oil
1:45
Speaker 2: sitting at seventy three dollars and twenty seven cents. Not
1:48
Speaker 2: much movement there. A couple companies that were making big
1:51
Speaker 2: splashes yesterday and Video down yesterday. Do you know what
1:56
Speaker 2: the finish was? Seventeen percent, biggest wipeout out for a
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Speaker 2: single day market cap in US DOC market history. Learned
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Speaker 2: that yesterday up about two point four percent this morning.
2:09
Speaker 2: Constellation Energy, on the other hand, which also had a
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Speaker 2: significant down day, down additional four and a third percent
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Speaker 2: this morning. Other items catching my eye. National average for
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Speaker 2: gas right now sitting at three dollars and twelve cents,
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Speaker 2: and that's all the market news I've set away is amazing.
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Speaker 3: This is really trivial, not a deep insight. But when
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Speaker 3: six or seven hundred billion dollars in market capitalization goes
2:35
Speaker 3: up in thin air, it's like it never existed. It's
2:39
Speaker 3: like you take a van go and somebody just set
2:42
Speaker 3: a match to it and there's nothing left, not even
2:44
Speaker 3: the ashes. It never It's like it never existed. This
2:48
Speaker 3: is not a profound insight. I'm just always blown away
2:51
Speaker 3: when that happens. And it happens every day, yep. Sometimes
2:54
Speaker 3: it's spread out among many companies. Sometimes it's dramatic like yesterday,
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Speaker 3: but you just can't count on paperWe.
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Speaker 2: In video yesterday. I think I described it as they
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Speaker 2: lost three at and t's of market cap.
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Speaker 3: Yeah, basically yeah, but nobody's okay. Somebody's less wealthy, But
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Speaker 3: the economy as a whole is not worse.
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Speaker 2: It's always not less productive. It's not no.
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Speaker 3: Nothing fundamental said differently has changed. They were winners and
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Speaker 3: losers yesterday. Some people bet ever sellers, we're betting against
3:26
Speaker 3: an video. They made a lot of money.
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Speaker 2: Yesterday among all of the other wild stuff that we
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Speaker 2: have going on this week. We do have a Federal
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Speaker 2: Reserve meeting that's occurring right now. The press conference will
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Speaker 2: be tomorrow at two thirty pm, and nothing's going to
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Speaker 2: happen in terms of action. According to the Chicago Mercantle Exchange,
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Speaker 2: there's currently a ninety nine point five percent chance that
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Speaker 2: rates stay exactly where they are, and when we look
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Speaker 2: out at the meeting for March, there is currently a
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Speaker 2: seventy percent chance that they stay right where they are.
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Speaker 2: So in terms of the FED meeting tomorrow, Mark, I guess, what,
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Speaker 2: if anything, are you looking for from Jerome Powell. I mean,
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Speaker 2: to me, the only thing that he can silence fully
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Speaker 2: do here is not make himself an easy target for
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Speaker 2: Donald Trump, like.
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Speaker 3: A yeah, good luck Trump has already made. Trump preempted
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Speaker 3: him last week by this is I'm just gonna be
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Speaker 3: laughing for the next four years about this subject. Trump
4:26
Speaker 3: preempted him last week by saying he would soon demand
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Speaker 3: or insist that Central that the Central Bank, that the
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Speaker 3: FED would lower interest rates.
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Speaker 2: He said he knows how to do it better than
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Speaker 2: Jerome Powell does.
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Speaker 3: He did, and the fact that he kept saying interest
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Speaker 3: rates tells you how much he knows about monetary policy.
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Speaker 2: Yeah, so unlikely to have any movement on interest rates tomorrow,
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Speaker 2: which is, in I believe, both of our opinions, the
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Speaker 2: absolutely proper move to make in the face of what
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Speaker 2: we're seeing right now. And what we are seeing right
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Speaker 2: now is again a labor market that has well, you know,
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Speaker 2: showed some signs of weakness late last year, has not
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Speaker 2: shown any signs of weakness lately. You have an inflation
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Speaker 2: pro you know, prediction here that's showing, yeah, that it's
5:15
Speaker 2: not fully dead, and it actually accelerated over the last
5:18
Speaker 2: few months. And then you also have economic policy from
5:23
Speaker 2: a Trump administration that is really really unclear at this point,
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Speaker 2: just again not clear what they overall want to do.
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Speaker 2: They want to lower taxes, they want to increase tariffs,
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Speaker 2: but for whom at this stage and by how much
5:38
Speaker 2: is a black box and nobody actually knows. And so
5:41
Speaker 2: for j. Powell to do anything other than say, we
5:45
Speaker 2: don't know, we'll wait to see what the policy looks
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Speaker 2: like would be pretty irrational and irresponsible.
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Speaker 3: Yeah, doing nothing implies that inflate, that the forces that
5:56
Speaker 3: tend to push inflation up and unemployment down, and they're
5:58
Speaker 3: the same forces these two things, inflation and unemployment. In
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Speaker 3: the short term their intention, there's a tradeoff. You can
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Speaker 3: have higher employment, higher growth, but beyond some point that
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Speaker 3: comes at the expense of inflation, which is a bad thing. Obviously,
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Speaker 3: the FED is always trying to balance in the short
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Speaker 3: term the forces that push one up and the other down.
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Speaker 3: When the FED does nothing, it says it thinks it
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Speaker 3: struck the right balance, and that's presumably the point they're
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Speaker 3: at now. Inflation is still a little bit elevated, particularly
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Speaker 3: underlying measures of inflation, measures that get at inflation's trend
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Speaker 3: probably somewhere closer to three than two percent, with the
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Speaker 3: latter being the Fed's goal.
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Speaker 2: Now here's a part that's confusing, though, because I believe
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Speaker 2: the Federal Reserve's own published projections around where our star is,
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Speaker 2: which we should talk about. What the heck our star is,
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Speaker 2: are lower than where we are right now on rates,
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Speaker 2: isn't it.
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Speaker 3: So there is this theoretical I was going to say magical,
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Speaker 3: but that sounds like I'm making fun of it.
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Speaker 2: I'm reading they call it our star.
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Speaker 3: It's kind of a ton of anything in economics that
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Speaker 3: solves the model is a star you could have why
7:06
Speaker 3: star geest it right if you say, if you remember
7:08
Speaker 3: this from high school, when you have a solution for something,
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Speaker 3: you put a little star superscript next.
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Speaker 2: But that's all it is. I got it. But it
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Speaker 2: sounds magical.
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Speaker 3: I know it does, but I just want you to
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Speaker 3: know where it comes from. It's not some Disney concept.
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Speaker 3: It's it means you've found the right balance point now,
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Speaker 3: a so called our star. The natural rate is another
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Speaker 3: synonym for that. The neutral rates yet another synonym. Technically
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Speaker 3: they mean different things, but for our purposes they're equivalent.
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Speaker 3: Those things are always changing because the structure of the
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Speaker 3: economy is constantly in flux. But the FED, if it
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Speaker 3: does nothing tomorrow, and presumably it will, is the odds
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Speaker 3: overwhelmingly suggest thinks it's at the right short term neutral rate.
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Speaker 3: Longer term, it thinks the right after inflation FED funds
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Speaker 3: rate is lower than where it is today because longer
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Speaker 3: term forces are different than shorter term forces act on
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Speaker 3: the economy.
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Speaker 2: You're right, Mike, Yeah, So I mean, if you're paying
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Speaker 2: attention tomorrow to the FED meeting, if you happen to
8:07
Speaker 2: tune into these regularly, Like I said, I don't think
8:09
Speaker 2: there's going to be much that is said that is
8:11
Speaker 2: terribly interesting. I guess I am interested just to see
8:15
Speaker 2: how many questions that he gets that frankly are about
8:19
Speaker 2: the new Trump administration and what that means for their policy,
8:23
Speaker 2: and how he answers those, how they're thinking about Terris,
8:26
Speaker 2: how they're thinking about tax rates. I suspect, and I
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Speaker 2: think his answer should be that, Look, we're just not
8:32
Speaker 2: going to start guessing because we don't know if it's
8:36
Speaker 2: anything other than that that I think.
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Speaker 3: Either way, what we all know about Donald Trump after
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Speaker 3: one hundred years of him being in the public eye
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Speaker 3: is that he can't see the spotlight. He is going
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Speaker 3: to be responding to Powells press conference in real time,
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Speaker 3: probably unless he's indisposed somehow on his on his social
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Speaker 3: media of feeds. So yeah, they'll probably be fireworks either way.
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Speaker 2: Let's take a quick break. When we come back, we
9:01
Speaker 2: have a little bit more talk about the state of
9:03
Speaker 2: this economy broadly speaking, as well as Jerme Powell the
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Speaker 2: FEDS meeting tomorrow. Dan Griggs from Ocean First Bank is
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Speaker 2: going to be joining us next talking a little bit
9:13
Speaker 2: about the regional economy here in New England. Quick break
9:15
Speaker 2: we'll be back with that.
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Speaker 2: Joining us now is Dan Griggs. He's the regional president
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Speaker 2: of Ocean First Bank Boston and joining us now to
10:22
Speaker 2: talk a bit about the FED and inflation. Dan, thanks
10:25
Speaker 2: for joining us. Appreciate it.
10:26
Speaker 5: I'm Mike glad to be back.
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Speaker 2: So we've got a meeting tomorrow, And as I overview
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Speaker 2: during the last segment, it's unlikely we're going to see
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Speaker 2: much in the way of action from Jerome Powell. But
10:36
Speaker 2: what are you expecting to hear from him other than
10:40
Speaker 2: litany of questions about Donald Trump's incoming policy.
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Speaker 5: Yeah, So if you take that out of the equation,
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Speaker 5: I think three things the Fed's gonna focus on. They're
10:50
Speaker 5: going to continue to be hockey shout inflation. It's remained
10:54
Speaker 5: persistent number one. Number two, the probability of a recession
10:58
Speaker 5: over the next twelve months dropped twenty three percent. And thirdly,
11:02
Speaker 5: the administration policies. They're going to take a weight and
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Speaker 5: see attitude and see is it good, is it bad?
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Speaker 5: Does it cause inflation?
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Speaker 6: Does it not? All that leads us to believe higher
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Speaker 6: rates for longer. We think they'll hold at least through
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Speaker 6: the first half of this year.
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Speaker 5: And the consensus is there's you know, it's dropped from
11:19
Speaker 5: seventy eight to sixty five for two rate cuts for
11:21
Speaker 5: this year, with sixty one percent believing one rate cut. Uh.
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Speaker 2: You mentioned that recession probability. Where do you derive that?
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Speaker 2: Is that an average economist polled questions is that okay,
11:31
Speaker 2: got it? Yeah, so recession probability declining according to economists.
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Speaker 2: You know, the one thing that I would say was
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Speaker 2: persistent about this Federal Reserve has been in drome. Powell
11:40
Speaker 2: himself has been a seeming desire to have interest rates lower,
11:44
Speaker 2: and I think that's for obviously economic reasons, is that
11:47
Speaker 2: you run the risk of recession. Do you see that one?
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Speaker 2: Do you agree that that has been kind of the
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Speaker 2: trend here is you know, willingness to put temporary bad
11:56
Speaker 2: inflation data to the sideline and focus on bringing those
11:59
Speaker 2: rates lower. And if so, do you see that you
12:02
Speaker 2: really stopping in twenty twenty five?
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Speaker 5: Well, I think you wouldn't mind if rates went lower,
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Speaker 5: but they're more concerned about inflation than lower rates.
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Speaker 2: Yeah, fair enough. When you speak to that possibility of recession,
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Speaker 2: I mean, it's always interesting to pull economists, but ultimately,
12:20
Speaker 2: frequently they're just not correct about the timing of a recession.
12:23
Speaker 2: I think it's important to acknowledge that when you talk
12:26
Speaker 2: about your own customers that you are speaking to, you
12:30
Speaker 2: serve a number of different industries, through your bank. But
12:33
Speaker 2: what are your customers saying about the state of the
12:34
Speaker 2: economy in twenty twenty five.
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Speaker 6: They're remaining optimistic.
12:38
Speaker 5: I tell you our equipment finance group franchise wide as
12:42
Speaker 5: well as here in Boston more than doubled in twenty
12:44
Speaker 5: twenty four, which means our companies are spending on capex.
12:49
Speaker 5: I added one new commercial banker in twenty twenty four
12:52
Speaker 5: and one more this year so far in twenty twenty.
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Speaker 6: Five, because the activity is there. So it's active.
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Speaker 5: And even companies who kind of worried about the tariffs
13:03
Speaker 5: had made contingent plans shifted manufacturing and will adjust.
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Speaker 2: And are you seeing that's an important question. So when
13:10
Speaker 2: you say shifting manufacturing, is that going from Mexico, Canada
13:15
Speaker 2: to the United States. Is it coming to the United
13:17
Speaker 2: States or are you really seeing a shift around Hey,
13:19
Speaker 2: we're worried about China, so let's look at alternatives in
13:22
Speaker 2: Vietnam and elsewhere around the globe.
13:24
Speaker 6: It's the ladder.
13:25
Speaker 2: It's the ladder. Yeah, absolutely anything else that you're seeing
13:29
Speaker 2: from people preparing for really from businesses preparing for tariffs.
13:33
Speaker 2: I know we heard a little bit in the fourth
13:35
Speaker 2: quarter about executives saying, hey, we really want to bring
13:38
Speaker 2: some of our orders forward and we're just going to
13:40
Speaker 2: look for places to store additional capacity as we wait
13:44
Speaker 2: for the looming thread of tariffs. And for you personally,
13:47
Speaker 2: at what point we had, you know, Candidate Donald Trump
13:52
Speaker 2: talked about day one tariffs. Those have obviously haven't occurred.
13:55
Speaker 2: We now seemingly have a February first deadline. How long
14:00
Speaker 2: do you expect that this actually, you know, goes on
14:02
Speaker 2: and how you know how much are CEO is actually
14:05
Speaker 2: buying that it's going to happen and affect them in
14:07
Speaker 2: a meaningful way.
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Speaker 5: To answer the first part of the question, there has
14:11
Speaker 5: been some pull forward of inventories, but not as much
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Speaker 5: as you might think because it's kind of a wait
14:17
Speaker 5: and see with their business customers as well.
14:19
Speaker 2: Fair enough, it's Dan Griggs, he's the regional president of
14:23
Speaker 2: Ocean First Bank Boston joint us today to talk about
14:26
Speaker 2: what they're seeing from their customers in terms of demand
14:28
Speaker 2: heading into twenty twenty five, as well as expected commentary
14:32
Speaker 2: from Jerome and Powell and the Fed. Dan, thanks so
14:33
Speaker 2: much for joining us. Appreciate it, and we'll talk to
14:35
Speaker 2: you again soon. Thanks Mike, all.
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15:30
Speaker 2: We're seeing some potential early indications that Donald Trump's immigration
15:35
Speaker 2: crackdown has already begun. I saw numbers reported on Saturday
15:39
Speaker 2: and Sunday that ice arrests were around three to four
15:42
Speaker 2: times the Biden administration norm. I think it was something
15:46
Speaker 2: like eleven to twelve hundred arrests over the weekend, whereas
15:50
Speaker 2: prior to the Trump administration had been around three hundred
15:52
Speaker 2: arrests a day on behalf of ice. But there's a
15:56
Speaker 2: looming question about is this going to be large to
16:00
Speaker 2: actually be impactful for the economy, and what is there
16:03
Speaker 2: a certain threshold where it becomes impactful to the economy
16:06
Speaker 2: In I haven't seen a whole lot written about how,
16:10
Speaker 2: you know, how removing three million people from the US
16:15
Speaker 2: economy would be a benefit to the economy. So it's
16:17
Speaker 2: a more question of, hey, how much would it hurt
16:20
Speaker 2: the economy and at what threshold would it actually matter.
16:23
Speaker 3: Well, if they're criminals and they're in hiding, the net
16:26
Speaker 3: effect presumably would be positive. Yeah, I don't think they're
16:29
Speaker 3: contributing anything. It's that's a little bit careless for me
16:32
Speaker 3: to just say, but I think we And.
16:34
Speaker 2: That's the majority of their arrest that have occurred at
16:36
Speaker 2: this point.
16:37
Speaker 3: The high profile, the low hanging fruit people are the
16:39
Speaker 3: ones that are the ones you know, they're they're simulcasting
16:41
Speaker 3: this on Fox like some Running Man movie from the
16:45
Speaker 3: nineteen eighties, and so far, the Bread and Circus Theater
16:49
Speaker 3: approach is keeping the eyeballs engaged. We'll see, And of
16:53
Speaker 3: course it needed to be done. These people have criminal
16:55
Speaker 3: records or they're wanted for something. When you start cutting
16:59
Speaker 3: into the meal and into the bone, though, people who
17:03
Speaker 3: are undocumented look illegals if you prefer whatever, however you
17:08
Speaker 3: think about it, let's just be calm. Undocumented workers, they
17:11
Speaker 3: are workers by definition, so you are reducing the labor supply.
17:15
Speaker 2: They're all suspenders, and we've talked about again, probably the
17:18
Speaker 2: worst justification I can think of for allowing illegal immigration.
17:22
Speaker 2: But they do pay into the Social Security system by
17:24
Speaker 2: and large without ever being able to draw on benefits.
17:27
Speaker 2: So there are other effects here. We've talked about it
17:30
Speaker 2: quite a bit. It's estimated that, up to some estimates
17:35
Speaker 2: I've seen, are up to twenty three percent of the
17:36
Speaker 2: construction industry in the United States being comprised of documented No,
17:43
Speaker 2: you're fine. When you include those who have family members
17:46
Speaker 2: who are in the United States illegally, it gets up
17:49
Speaker 2: to yeah, like you said, forty or fifty percent of
17:51
Speaker 2: the construction industry. And so you can see how that
17:54
Speaker 2: would cut to the bone. But to the point that
17:57
Speaker 2: we've already made. I don't think we've seen any evidence
17:59
Speaker 2: of that to this point. You see, but.
18:01
Speaker 3: Will you promised to deport anyone who's not here legally?
18:05
Speaker 3: And in migrant farm workers as a percentage of the
18:09
Speaker 3: farm workforce in states like California, I think it's like
18:11
Speaker 3: forty percent people who are not here legally. So it
18:16
Speaker 3: almost has to affect the labor supply, which will push
18:20
Speaker 3: up all else equal, all else equal, and important caveat
18:23
Speaker 3: will push up wages.
18:24
Speaker 2: Yeah, hypothetically would push up wages. And you know, but
18:28
Speaker 2: Lead's questions is like, hey, can you actually economically support
18:33
Speaker 2: a robust farming industry in parts of the country.
18:35
Speaker 3: Look, Mike, Trump supporters are listening to this and saying,
18:39
Speaker 3: I don't care, get them out of here. It's politically,
18:41
Speaker 3: it's not economic. Sure, I don't care. What the what
18:44
Speaker 3: the adverse effects of tariffs are you egghead? It's it's political,
18:48
Speaker 3: bring the jobs back. They don't want to hear it,
18:50
Speaker 3: and I get that. It's not they're not making an
18:52
Speaker 3: economic argument, to their credit, they're making a political argument
18:56
Speaker 3: and on its political merits, honest people can disagree. It's
18:59
Speaker 3: economic consequences are unambiguous. All lseq will higher wages, will follow.
19:06
Speaker 3: Higher costs will follow. It won't necessarily make the average
19:09
Speaker 3: worker better off, but higher costs will follow, deporting a
19:12
Speaker 3: meaningful fraction.
19:13
Speaker 2: Of the labor force air by companies that would have
19:16
Speaker 2: a tougher time computing with the same labor from Mexico
19:19
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19:25
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20:06
Speaker 4: Trivir question today was what was Alan all this character's
20:10
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20:30
Speaker 2: Boeing stock is up a good four and a quarter
20:34
Speaker 2: percent in early trading this morning after they released earnings,
20:39
Speaker 2: or in Boeing's case, we should just call them losses.
20:42
Speaker 2: Before the bell, they reported an eleven point eight billion
20:45
Speaker 2: dollar annual loss. That's the largest one they've reported since
20:49
Speaker 2: twenty twenty. New CEO Kelly Orberg is at the Helm
20:52
Speaker 2: now saying that it will likely take years to turn
20:55
Speaker 2: this company around and change what needs to be a
20:59
Speaker 2: ben did there. But what seems pretty clear at this
21:03
Speaker 2: stage without any concrete plans, is that one of their
21:06
Speaker 2: goals is to quote cleave off fringe assets. What we
21:11
Speaker 2: don't know is what those fringe assets are. But they
21:13
Speaker 2: are losing a lot of money on some of their
21:15
Speaker 2: defense business, and that seems to be mentioned frequently as
21:19
Speaker 2: a potential area that they would cut. My question is,
21:23
Speaker 2: let's assume that you do, you know, you Boeing, go
21:26
Speaker 2: and sell off some of your defense in aerospace parts
21:29
Speaker 2: of your business. I just wonder what exactly this company
21:33
Speaker 2: looks like if they are purely a commercial airline manufacturer
21:38
Speaker 2: and in some ways, you know, cash flow and profit
21:41
Speaker 2: wise for the company. It could be a good thing
21:43
Speaker 2: for investors, but it also suddenly makes a company that
21:46
Speaker 2: is no longer so strategically important to the US defense industry,
21:51
Speaker 2: meaning next time they have a giant problem will they get.
21:56
Speaker 2: I can't say that they were bailed out in any
21:58
Speaker 2: meaningful way here, but when you looked at Boeing, it
22:01
Speaker 2: was kind of a story of, well, it's too big
22:04
Speaker 2: to fail. You cannot allow Boeing to fail because they
22:08
Speaker 2: literally manufacture Air Force one. They are involved in every
22:11
Speaker 2: step of NASA and many different important government programs, so
22:15
Speaker 2: it's never going to go anywhere. I do wonder what
22:17
Speaker 2: it would look like if they started to shave off
22:19
Speaker 2: some of these strategically important US government businesses.
22:24
Speaker 3: So like, would it get a lower excuse me, wou
22:27
Speaker 3: would it warrant a lower valuation? Wybe a fundamentally different
22:31
Speaker 3: because Yeah, I look markets, like, what's happening here? He's
22:34
Speaker 3: doing exactly what every NBA program in America teaches someone
22:38
Speaker 3: to do when a company needs restructuring. You fix the
22:43
Speaker 3: cultural problem, which is he knows and has pointed out
22:46
Speaker 3: in this article, will take years. You pair non core businesses.
22:50
Speaker 3: Markets love to hear that they've got these lot of
22:53
Speaker 3: valuable little side shows going on at Boeing. He really
22:56
Speaker 3: has no choice but to pair them.
22:58
Speaker 2: Yeah, when you lose eleven billion dollar a year, it's
23:01
Speaker 2: not much of a choice. As you mentioned it. GE
23:06
Speaker 2: is kind of the example that comes to mind here
23:08
Speaker 2: of a company that had their tentacles in everything and
23:12
Speaker 2: now is a far different structural company today. Right They
23:15
Speaker 2: have now split up into those three different companies after
23:18
Speaker 2: selling off massive business units like their Applient's division years ago.
23:22
Speaker 2: And I think it's entirely possible that a similar playbook
23:26
Speaker 2: is used here a GE. I don't think. I don't
23:30
Speaker 2: remember GE suffering from the same cultural problems that Boeing
23:34
Speaker 2: seems to be, But it was the same type of
23:36
Speaker 2: idea of hey, we got way over extended into business
23:39
Speaker 2: models that we didn't truly understand, and now we are
23:42
Speaker 2: getting back to our core competencies. And that seems to
23:44
Speaker 2: be the path that Boeing wants to take here as well.
23:48
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24:57
Speaker 2: Another company in the midst of a bit of a
24:59
Speaker 2: turnaround and will be reporting earnings after the bell today.
25:02
Speaker 2: That would be Starbucks under new Ish CEO Brian Nicoley
25:06
Speaker 2: took over in September twenty twenty four, so this is
25:08
Speaker 2: probably his second quarter of earnings to report since first
25:12
Speaker 2: it's his first. Yeah, okay. In terms of the turnaround story, here.
25:16
Speaker 2: It's a little bit less clear to me in terms
25:18
Speaker 2: of what they want or can do. I mean, certainly
25:22
Speaker 2: they want to cut down on the number of different
25:25
Speaker 2: drink combinations and complexities of their menu, but they haven't
25:28
Speaker 2: really been clear about what they're trying to do there.
25:30
Speaker 2: They're always trying to improve relations with their employees because
25:33
Speaker 2: they've got the threat of unionization across some of them.
25:36
Speaker 2: But I haven't seen with Boeing it's pretty clear, like,
25:39
Speaker 2: let's stop building planes that fall apart in the sky
25:42
Speaker 2: and create huge problems for our customers. I don't really
25:47
Speaker 2: see the clear path for Starbucks that I do for
25:50
Speaker 2: other companies that are trying to face a turnaround right now,
25:52
Speaker 2: because I don't think it's an easily identifiable problem. You've
25:55
Speaker 2: expanded humongously, you are expensive, you are not able to
26:00
Speaker 2: compete in China the ways that you thought you were.
26:02
Speaker 2: So what exactly do you do about that?
26:05
Speaker 3: Yeah? I was gonna ask you that question is what
26:07
Speaker 3: if you had to distill it, what is their problem?
26:09
Speaker 4: Well, the big change yesterday went into effect. Where big
26:13
Speaker 4: change the barista will now ask you is this for
26:16
Speaker 4: here or to go? And if it is for here,
26:20
Speaker 4: they give you reusable tableware, so you're getting a ceramic mug,
26:24
Speaker 4: you're getting a plate if you're going to stay and linger.
26:27
Speaker 4: And their goal with that is to see if they
26:30
Speaker 4: stick around a linger, maybe they're going to buy something
26:32
Speaker 4: else while they're in there. If they're going back to
26:34
Speaker 4: their roots and making it a coffeehouse. Yeah, they got
26:37
Speaker 4: away from that. Yeah, so that went into effect yesterday.
26:41
Speaker 2: To me, here's the biggest problem for me is this
26:45
Speaker 2: company saw tremendous growth because they were at the very
26:48
Speaker 2: forefront of mobile ordering on your phone, and they did
26:54
Speaker 2: honestly a really really good job in the twenty tens
26:58
Speaker 2: of identifying their customers, figuring out their habits, pinging them
27:03
Speaker 2: and getting them to go to Starbucks whenever, you know,
27:07
Speaker 2: during off hours, and really increasing sales in part because
27:10
Speaker 2: of that, as well as growth flash promotions and yeah,
27:12
Speaker 2: flash promotions. It's your birthday, it's two pm on a Tuesday,
27:16
Speaker 2: get a discounted cold brew. Their problem now is not
27:20
Speaker 2: that their technology sucks. It's that every other company out
27:23
Speaker 2: there is doing the same thing. So if I have
27:24
Speaker 2: the McDonald's app, the Chipotle app, the Starbucks app, and
27:28
Speaker 2: you know three the don Condnuts app, they all look
27:30
Speaker 2: exactly the same. They're all doing the same exact promotions,
27:32
Speaker 2: and so you cannot stand out in that world. And
27:34
Speaker 2: so I don't I don't know what the next big
27:37
Speaker 2: innovation is that they're going to to be able to
27:39
Speaker 2: pull off. I'm not sure that it's a company that's
27:40
Speaker 2: capable of growing like it once dim not pessimistic promotions
27:45
Speaker 2: from Starbucks.
27:47
Speaker 4: If they have dialed back all those goofy promotions you
27:51
Speaker 4: get in an email once a week, it seemed like
27:53
Speaker 4: I haven't seen a ton. I don't actually get them
27:57
Speaker 4: daily now I think of it.
27:58
Speaker 2: I don't get really any push note of care from apps,
28:00
Speaker 2: so I wasn't actually subject to these.
28:02
Speaker 4: But yeah, yeah, I'm not even talking about push notifications.
28:05
Speaker 4: I would get pretty much emails on a daily basis. Yeah,
28:09
Speaker 4: I haven't seen those under Brian Nichol as much.
28:12
Speaker 2: I'm interested to see how they're going to innovate, what
28:14
Speaker 2: they're going to do to be able to turn this around.
28:16
Speaker 2: But I again, I don't think that they have a
28:19
Speaker 2: real fundamental, single issue that you can go in there
28:22
Speaker 2: and tackle. And so how are you going to innovate
28:26
Speaker 2: your way back to growth? Is an intriguing question to me.
28:29
Speaker 2: Let's take a quick break when we come back. I
28:32
Speaker 2: have a bit of stack Roulette here on the Financial Exchange.
28:35
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28:38
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28:44
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29:07
Speaker 2: Mark. I'll kick things off here for stack Roulette with
29:10
Speaker 2: a piece from the Wall Street Journal that, Yeah, watch
29:14
Speaker 2: out big retailers because the Americans pledging to buy less
29:17
Speaker 2: or even nothing are on the rise. Sub headline people
29:20
Speaker 2: are tiring of over consumption and want to pay off debts.
29:23
Speaker 2: So it's speaking of a movement that is not exactly
29:27
Speaker 2: sweeping social media called Buy Nothing twenty twenty five and
29:32
Speaker 2: and how people are taking a harder look on their
29:34
Speaker 2: consumption practices. And while interesting and they interview a few people,
29:40
Speaker 2: they're kind of making it seem like this is a
29:42
Speaker 2: new idea, which it's not. Like in twenty twenty two,
29:45
Speaker 2: the Buy Nothing Project tried to get people to, you know,
29:50
Speaker 2: reduce the amount of consumption they have. Heck, do you
29:52
Speaker 2: remember the three rs growing up in grade school? Reduce, reuse, recycle.
29:58
Speaker 4: Oh yeah, that's right.
29:59
Speaker 6: Yeah.
30:00
Speaker 2: Eighteen seventy six, that whole pledge came out. Mark, I
30:03
Speaker 2: have data on retail sales. I have data on retail
30:08
Speaker 2: sales going back to nineteen ninety two from the Saint
30:11
Speaker 2: Louis fed Would you like to guess in that? So,
30:14
Speaker 2: how many years is that between nineteen ninety two and
30:17
Speaker 2: twenty twenty five, thirty three years of data, sorry, twenty
30:20
Speaker 2: twenty four. How many of those years did you see
30:23
Speaker 2: an annual total decline in the value of retail sales?
30:26
Speaker 3: Well, I know, consumption's pretty stable. I'd say zero or one.
30:30
Speaker 2: Ye had two years that it happened. Eight and nine
30:33
Speaker 2: the value of total retail sales goods fell on an
30:36
Speaker 2: annual basis compared to seven, and then in nine it
30:39
Speaker 2: fell compared to eight. Those are the only two in
30:42
Speaker 2: the history of the data series. So I would love
30:45
Speaker 2: to see Americans buying less stuff. I think they might
30:48
Speaker 2: put a lot of people in a much better financial
30:50
Speaker 2: position and not be running up the credit card bill
30:52
Speaker 2: so high. But I would just argue that I've never
30:55
Speaker 2: seen any evidence that it happens other than when they
30:58
Speaker 2: go bankrupt and their homes and are forced to buy
31:01
Speaker 2: less stuff, which is sad. I'm not trying to make
31:03
Speaker 2: light of any of this stuff. I just don't think
31:05
Speaker 2: there's any real big trend of consumers buying less stuff.
31:10
Speaker 2: I don't see any evidence to it.
31:11
Speaker 3: Well, the people that are cited in the article generally
31:14
Speaker 3: have debt problems.
31:15
Speaker 2: Yeah, so they should buy less. I don't disagree.
31:18
Speaker 3: They're not changing their capitalist ideology or anything like that.
31:22
Speaker 2: No, they're just personally in bad financial shape and shouldn't
31:25
Speaker 2: be buying so much stuff on their credit cards, which
31:27
Speaker 2: is good. I'm not debating any of this. What I
31:30
Speaker 2: think some people will take this as oh, look at
31:32
Speaker 2: this massive trend, watch out target Like, No, I don't think.
31:37
Speaker 2: So what do you have for us, Mark?
31:39
Speaker 3: There's a story in Bloomberg and we'll be seeing lots
31:43
Speaker 3: of these, I guess. But as we all know, TikTok
31:46
Speaker 3: was granted a reprieve a little arbitrarily. But the president
31:49
Speaker 3: decided when he was inaugurated that he had the power
31:51
Speaker 3: to suspend operation of a law that had been duly enacted,
31:55
Speaker 3: so TikTok continues to operate despite Congress's findings that it
31:58
Speaker 3: was a national security.
32:00
Speaker 2: Although importantly, you can't download the app, so if you
32:03
Speaker 2: try and do so in the App Store, it's not
32:04
Speaker 2: available because Apple and Google are saying, we don't want
32:07
Speaker 2: to be prosecuted by this on this by somebody else.
32:10
Speaker 2: So the Justice Departman doesn't want to go off to TikTok.
32:13
Speaker 2: That's fine, but we're going to preemptively take this, so.
32:14
Speaker 3: We're capping out the spying at one hundred and seventy
32:16
Speaker 3: million people.
32:17
Speaker 2: Correct, yes, okay, yeah.
32:18
Speaker 3: Yeah, so TikTok still but the law in the president's defense,
32:24
Speaker 3: I guess the law did give the president some aught.
32:28
Speaker 3: It's questionable whether or not he met the requirement thinks,
32:31
Speaker 3: but yeah.
32:31
Speaker 6: Gave him the wiggle room.
32:32
Speaker 2: The exact language was they'll have wiggle room for up
32:35
Speaker 2: to I think ninety days should there be a I
32:39
Speaker 2: think it was like an active negotiation for the sale
32:41
Speaker 2: of the of the of the platform. So you know,
32:45
Speaker 2: but that comes into negotiations.
32:47
Speaker 3: To active negotiation, I think is the key. And only
32:50
Speaker 3: now are we getting wind of a serious suitor is
32:53
Speaker 3: reported by Bloomberg. This is actually from yesterday, so you
32:56
Speaker 3: may have heard about this already. But Microsoft is a
32:58
Speaker 3: company with no competing directly competing software that I'm aware.
33:04
Speaker 2: Of ELSs that I can think of would be LinkedIn?
33:06
Speaker 6: Right?
33:06
Speaker 2: Microsoft owns LinkedIn, don't they correct? Yeah, so that's that's
33:09
Speaker 2: the closest thing they have to this.
33:11
Speaker 3: So this fills arguably avoid in their portfolio. You could
33:16
Speaker 3: argue that they don't need to be in this space.
33:18
Speaker 2: Yeah, I would argue they have no business being but
33:20
Speaker 2: in the in the TikTok space they are I don't know.
33:24
Speaker 2: I mean Microsoft, it's a company known for I guess
33:27
Speaker 2: they own Xbox, and so maybe it fits a little
33:29
Speaker 2: bit better into their gaming segment than it does into
33:32
Speaker 2: their traditional business software. But like LinkedIn, I don't think
33:35
Speaker 2: it's been a huge win for them, but at least
33:37
Speaker 2: it kind of made sense to me. It's not like
33:40
Speaker 2: Microsoft has a ton of experience selling advertising, so I
33:43
Speaker 2: question whether or not they will be terribly successful with
33:45
Speaker 2: something like this. They've got the cash, and it certainly
33:48
Speaker 2: the cash.
33:49
Speaker 3: Yeah, so, and they are only a handful of companies
33:52
Speaker 3: that do that don't have competing services that might raise
33:56
Speaker 3: a antitrust concerns.
33:58
Speaker 2: Right, So Donald Trump granted seventy five day reprieve for
34:02
Speaker 2: Byte Dance from the law. It would be difficult, but
34:06
Speaker 2: not impossible for something to come to fruition within seventy
34:09
Speaker 2: five days. The big question goes into the nitty gritty
34:12
Speaker 2: details here, what exactly does Microsoft get and what will
34:17
Speaker 2: Bye Dance the Chinese owner of TikTok continue to receive
34:22
Speaker 2: in terms of both compensation as well as data. The
34:26
Speaker 2: data piece is hugely important. I never really understood why,
34:30
Speaker 2: you know, there's discussion of the US government owning part
34:33
Speaker 2: of TikTok. That seems absolutely silly to me. The only
34:38
Speaker 2: thing that I think we should all care about is, hey,
34:40
Speaker 2: does data on Americans social media habits, geolocation and everything
34:44
Speaker 2: else continue to go to a Chinese owned company And
34:47
Speaker 2: if in any way, shape or form it still would
34:49
Speaker 2: under this deal, that's not acceptable.
34:51
Speaker 3: So what happens after the seventy five days if they
34:53
Speaker 3: can't come to terms.
34:56
Speaker 2: In that case, TikTok is in violation of the law,
34:59
Speaker 2: and the Justice Department can go after them with fines
35:01
Speaker 2: of some I think it's a few hundred bucks per
35:05
Speaker 2: user per day.
35:07
Speaker 3: So went back to where we were a couple of weeks.
35:08
Speaker 6: Now.
35:09
Speaker 2: That's that's my understanding, unless Donald Trump finds a way
35:11
Speaker 2: to suspend it further. So that's the latest on the
35:15
Speaker 2: potential TikTok deal. Investors who shunned the US office market
35:19
Speaker 2: seem to be coming back. Landlords are noting a pickup
35:22
Speaker 2: and leasing activity. We've talked at length about how more
35:26
Speaker 2: businesses seem to be requiring workers to return to the office.
35:29
Speaker 2: And I have to say I was very suspect of
35:33
Speaker 2: the strategy that commercial office landlords employed at the beginning
35:37
Speaker 2: of COVID, because you remember, the main strategy that I
35:41
Speaker 2: can recall was, Hey, the lesson we learned in O
35:44
Speaker 2: eight was very simple. If you just hold on, do
35:48
Speaker 2: what you can, you know, make deals with your lenders,
35:51
Speaker 2: and just hold onto your properties, then they will rebound
35:55
Speaker 2: and come back. And I was looking at the Times
35:58
Speaker 2: in twenty twenty and saying, well, will those commercial tenants
36:01
Speaker 2: actually come back to the degree that you are expecting
36:04
Speaker 2: or is this hybrid work schedule going to be much
36:08
Speaker 2: more permanent that you're thinking. And while you know, office
36:12
Speaker 2: vacancy is still pretty high, the answer seems to be
36:15
Speaker 2: the latter that. You know, these office companies and these
36:17
Speaker 2: office building owners who held out and said, no, we're
36:20
Speaker 2: not going to take a wash on our building. We're
36:23
Speaker 2: going to do what we can to just hold off, wait,
36:26
Speaker 2: deal with no tenants in the building, and deal with
36:28
Speaker 2: our lenders seem to be seeing more liquidity come back
36:32
Speaker 2: to the market. They might not be getting the prices
36:34
Speaker 2: they were getting on their buildings back in twenty nineteen,
36:36
Speaker 2: but certainly not taking the washes that they would have
36:39
Speaker 2: in twenty twenty one or twenty twenty two.
36:42
Speaker 6: Uh.
36:42
Speaker 3: Yeah, the pendulum probably won't swing all the.
36:44
Speaker 2: Way back, but I have a tough time believing the
36:46
Speaker 2: way back. Maybe I have a tough time believing it
36:48
Speaker 2: swings all the way back. Yeah, I'm there with you.
36:51
Speaker 2: I guess the counter to that would be, if these
36:54
Speaker 2: companies all adopt hybrid work styles, are you really going
36:59
Speaker 2: to require a lot less real estate? My wife's a
37:02
Speaker 2: good example here. She needs to be in the office
37:04
Speaker 2: every other week. How does that company reduce their square footage?
37:10
Speaker 2: Not easily. I mean, you might be able to around
37:12
Speaker 2: the edges, but you know, it's not terribly easy if
37:15
Speaker 2: you've got all of your staff coming in every other
37:17
Speaker 2: week to say, yeah, we're going to cut back on
37:19
Speaker 2: thirty percent of our real estate. I'm just not sure
37:22
Speaker 2: I see it. And so there are a few companies
37:24
Speaker 2: who have remained fully remote, in which case they need
37:27
Speaker 2: substantially less office space. But under the hybrid work schedule,
37:31
Speaker 2: I'm just not sure I see a huge opportunity for
37:35
Speaker 2: these companies to shed massive office space. That said, we
37:39
Speaker 2: are going to need your cube back mark. We're going
37:43
Speaker 2: to have more of a floating office option for you
37:46
Speaker 2: and storage b if you don't mind taking a look
37:50
Speaker 2: at markets here, We've got the DOW in positive territory
37:53
Speaker 2: up fifty eight points, a little bit more than a
37:54
Speaker 2: tenth of a percent, the S and P closing in
37:57
Speaker 2: on up thirty points, about a half of a percent,
37:59
Speaker 2: in the NASA leading the way right now, up two
38:01
Speaker 2: hundred and thirty seven points, or one and a quarter percent.
38:05
Speaker 2: It's gonna be a busy day tomorrow, as we mentioned,
38:07
Speaker 2: huge earnings reports from big tech companies, as well as
38:09
Speaker 2: a FED meeting. Tune in tomorrow. We'll be back