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The timeline of tariffs impacts on the economy with Ernie Tedeschi · The Financial Exchange Show

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Speaker 3: Chuck, Paul and Tucker with you today and at ten
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Speaker 3: am this morning, Jay Powell kicked off his Jackson Hole
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Speaker 3: speech and big thing. Big takeaways the quote there and
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Speaker 3: a couple more that really suggests that the Fed is
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Speaker 3: pretty convinced to begin a rate cutting a series in September.
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Speaker 3: And so the questions obviously still are out there about
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Speaker 3: the data in the interim, but otherwise, markets basically pricing
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Speaker 3: in all systems go for rate cuts on the fixed
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Speaker 3: income side of things and on equities stocks basically responding
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Speaker 3: hey rate cuts mean that the economy will be able
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Speaker 3: to continue to grow, and as such, equities responding with
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Speaker 3: a monster move upward. Today, the Dow Jones industrially average
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Speaker 3: up eight hundred and fifty two points one point nine percent,
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Speaker 3: the S and P five hundred up one hundred and
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Speaker 3: three points about one point six percent, the NASDAK composite
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Speaker 3: four hundred and thirty three points two point zero five percent,
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Speaker 3: and even the Russell two thousand, which has basically just
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Speaker 3: been a dumpster fire for you know, quite a while,
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Speaker 3: just trailing the other major US indicies, that is up
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Speaker 3: three and three quarters percent today as small caps obviously
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Speaker 3: assumed to be beneficiaries of a rate cutting cycle. Here
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Speaker 3: when we look at fixed income markets, tenure Treasury down
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Speaker 3: eight basis points, not quite as much as you would
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Speaker 3: think given the magnitude of move the move in equities,
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Speaker 3: suggesting that yeah, the fixed income markets are buying this,
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Speaker 3: but maybe a bunch of people on the equity side
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Speaker 3: we're just positioned, you know, a little bit more bearishly
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Speaker 3: heading into today. That could explain some of the sell
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Speaker 3: off that we saw over the previous four to five
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Speaker 3: days was people just cleaning up positioning heading into this
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Speaker 3: Jackson Hole symposium. Also oil, we've got West Texts, Inner
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Speaker 3: Media up eighteen cents a barrel today, and then gold
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Speaker 3: is up thirty seven to ninety, up one point two
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Speaker 3: to thirty four to nineteen. This on the back of
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Speaker 3: a big downward move in the dollar, which is off
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Speaker 3: zero point nine to six percent right now. That's a
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Speaker 3: huge single day move. Uh, and so the dollar getting
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Speaker 3: hit pretty hard on this uh with the Fed again
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Speaker 3: kind of moving forward with the idea that they'll be
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Speaker 3: cutting rates. They haven't guaranteed anything, they haven't put it
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Speaker 3: in writing. We're definitely going to cut rates. Jay Powell
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Speaker 3: wouldn't do that, but suggesting pretty strongly. Yeah, I think
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Speaker 3: we're going to start a rate cut cycle in September.
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Speaker 3: Anything else to add Paul on that item.
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Speaker 4: No, I think he had all the major points there.
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Speaker 3: Chuck, make sure that you stick with us, because in
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Speaker 3: a little bit we're going to be joined by Ernie Tedeski,
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Speaker 3: who is the director of economics at the Budget Lab
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Speaker 3: at Yale University is also a former Chief economist for
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Speaker 3: the Council of Economic Advisors. He's going to be talking
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Speaker 3: to us about tariffs in just a little bit. But
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Speaker 3: we are going to kick things off this hour with
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Speaker 3: a piece from Bloomberg. It's titled boomers are the next
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Speaker 3: big consumer culture Frontier and I gotta be honest, don't agree. Paul?
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Speaker 4: Oh okay, why not?
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Speaker 3: Well, first not to you know, get all you know. No, actually, look,
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Speaker 3: let's let's put all the generations against each other, because
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Speaker 3: that's just kind of what happens. Right. Here's the thing,
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Speaker 3: the boomers had their day as the center of consumer attention.
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Speaker 3: Do you know what it was, Paul, No, you don't. No,
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Speaker 3: I'll tell you. It was the late nineties and early
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Speaker 3: two thousands. Do you know how and why? I know this?
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Speaker 4: Based on average age of most consumption are the biggest
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Speaker 4: target demographic for businesses out there?
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Speaker 3: No, it was based on the products that were being sold,
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Speaker 3: the cultural trends that were out there, and the music
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Speaker 3: that was being played on advertisements. And what I mean
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Speaker 3: by this is if you look at you know, kind
5:26
Speaker 3: of the big you know, products that made their way
5:29
Speaker 3: mainstream in the late nineties and early two thousands, look
5:32
Speaker 3: no forward than the automotive industry, where two of the
5:35
Speaker 3: most popular entrants during that time that subsequently faded out
5:39
Speaker 3: were Remember the Volkswagen New Beetle, Sure boomers reliving their
5:44
Speaker 3: glory days of the late sixties early seventies. The Fourth Thunderbird.
5:47
Speaker 3: Remember they came out with the retro styled version of
5:50
Speaker 3: that as well. Sure big seller during that time. Clear
5:54
Speaker 3: targeting of boomer nostalgia. Other things that you saw during
5:57
Speaker 3: that time, You remember bell bottoms came back.
6:00
Speaker 4: I do not remember that.
6:01
Speaker 3: You don't remember late nineties Bell Bottoms made a comeback.
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Speaker 4: I barely remember the cars, but I just went along.
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Speaker 3: They made a comeback again. Another cultural thing other things
6:10
Speaker 3: that you saw. Do you guys remember when Paul McCartney
6:12
Speaker 3: played the Super Bowl?
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Speaker 4: That I do remember Paul.
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Speaker 3: McCartney was not relevant to you know, eighteen year old Chuck,
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Speaker 3: but sure was relevant to fifteen to fifty year old
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Speaker 3: Chuck's parents. Okay, you know, like you saw multiple instances
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Speaker 3: of this in different areas where culturally that was the
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Speaker 3: demo that was being sold to then. And I also
6:33
Speaker 3: have been like, I've picked this up also just in
6:36
Speaker 3: terms of what we're seeing now where as a proud millennial. Remember,
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Speaker 3: millennials are no longer twenty years old, they're generally anywhere
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Speaker 3: from like thirty two to forty seven at this point,
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Speaker 3: as a proud millennial, I see my generation being marketed
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Speaker 3: to because we're now the biggest generation out there with
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Speaker 3: an increasing share of the wealth. Pie. And you see
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Speaker 3: this again in terms of, hey, what are you seeing
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Speaker 3: in turn? You know, as far as you know, product
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Speaker 3: development and things like that. You know, we talked yesterday
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Speaker 3: Paul about Hey that you know, granted I know that
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Speaker 3: it's from a tech perspective, But hey, that that kid's
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Speaker 3: landline phone. How many of us remember talking to our
7:14
Speaker 3: friends on the landline phone as kids. Of course you're
7:17
Speaker 3: going to try to sell that because you want your
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Speaker 3: kids to have the same experience that you did. You
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Speaker 3: see it in terms of music and advertisements. Do you
7:27
Speaker 3: ever wonder why, like the Backstreet Boys are showing up
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Speaker 3: in Super Bowl commercials? Now, it's not because fifteen year
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Speaker 3: olds think the Backstreet Boys are cool. It's because forty
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Speaker 3: year olds remember. Oh yeah, the Backstreet Boys. I remember them. Everybody.
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Speaker 4: Well, they're also on tour too.
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Speaker 3: Right, Okay, but our fifteen year old's obsessed with them?
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Speaker 4: No, no, but it's a good way that they're doing. You're
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Speaker 4: going after someone with a big wallet, shit correct to
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Speaker 4: do the nostalgia tours. Those are really popular. And then
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Speaker 4: the super Bowl with out in La you had all
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Speaker 4: the all the nine, these two thousands popular musicians.
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Speaker 3: You know who you don't see playing the super Bowl
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Speaker 3: right now? Mick Jagger. And it's not because he's dead.
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Speaker 3: He's still alive. It's just because that's not who is
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Speaker 3: making the big buying decisions at this point. So yes,
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Speaker 3: I do agree with this piece here that Okay, I
8:19
Speaker 3: understand that boomers do have an awful lot of wealth
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Speaker 3: and they've got, you know, a bunch of money to spend.
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Speaker 3: But the fact is they're not making buying decisions for
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Speaker 3: families now at this point, and that's going to prevent
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Speaker 3: them from being the target of most advertising and being
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Speaker 3: the next big consumer culture frontier because again like not
8:41
Speaker 3: to be actually no, I will be age just here
8:43
Speaker 3: because it's a just against myself. Once you get above thirty,
8:47
Speaker 3: you're not cool anymore.
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Speaker 4: In the eyes of advertisers.
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Speaker 3: Correct. Yeah, like advertisers want to sell not even to
8:55
Speaker 3: eighteen that quite honest, advertisers want to sell to like
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Speaker 3: fifteen twenty four. That's the sweet spot because for that
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Speaker 3: high school demo, their parents are gonna buy the stuff
9:06
Speaker 3: for them. For that college and early adult Hey, it's
9:09
Speaker 3: your first chance at freedom. Here's the stuff that you
9:12
Speaker 3: can buy and make your choices on. That's the demo
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Speaker 3: they want to sell into. Because once you're making those
9:17
Speaker 3: choices at those ages, they're locking you into those choices
9:20
Speaker 3: for the next fifty years. See the Backstreet Boys on tour. Now,
9:24
Speaker 3: if you sell to a fifteen year old, they will
9:27
Speaker 3: still like the stuff when they are forty.
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Speaker 4: It is worth noting, though, just from a numbers perspective,
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Speaker 4: the demographic shift in the country that this Bloomberg piece
9:36
Speaker 4: outlines were. Back in twenty twenty, Americans who were over
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Speaker 4: the age of sixty five there was about fifty four
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Speaker 4: and a half million, and there was seventy four million
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Speaker 4: Americans under the age eighteen. You look at that figure
9:48
Speaker 4: in twenty twenty four, the Americans over sixty five jump
9:51
Speaker 4: from fifty four million to sixty one million, and the
9:55
Speaker 4: Americans under the age of eighteen went from seventy four
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Speaker 4: million to seventy three million. And you now have eleven
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Speaker 4: states out there where older adults outnumber children. So there
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Speaker 4: definitely is the shift there in terms of just the
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Speaker 4: numbers of people that we're talking about in those demographics.
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Speaker 3: Yes, I make the case though that numbers aren't what matter.
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Speaker 3: Dollars ultimately dollars in spending choices, and quite honestly, like
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Speaker 3: coolness matters when it comes to advertising. I know that
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Speaker 3: we don't want to believe that. I know we want
10:29
Speaker 3: to believe that. It's like no, I buy things based
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Speaker 3: on the product, not on of course, we buy things
10:34
Speaker 3: based on the coolness. How do you think Apple made
10:37
Speaker 3: its entire business because they sold cool It's what they did.
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Speaker 3: Take a quick break here. When we return, we are
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Speaker 3: going to be joined by Ernie Tdeski, the director of
10:48
Speaker 3: Economics at the Budget Lab at Yale University. He joins
10:52
Speaker 3: us right after this.
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11:31
Speaker 3: As promised, we are now joined by Ernie Tedesky. He
11:34
Speaker 3: is the director of Economics at the Budget Lab at
11:37
Speaker 3: Yale University, also a former Chief Economist for the Council
11:42
Speaker 3: of Economic Advisors. Ernie, thank you so much for joining
11:45
Speaker 3: us today.
11:46
Speaker 5: Thanks so much for having me.
11:48
Speaker 3: Absolutely, Ernie, when we kind of try to price out
11:51
Speaker 3: the cost of tariffs to the average American family, I
11:54
Speaker 3: know you and your group have done a bunch of
11:55
Speaker 3: work on this this year. As it stands with current
11:58
Speaker 3: tariff rates, what are we looking at as far as
12:01
Speaker 3: the potential additional cost of families on an annual basis.
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Speaker 5: Yeah, So if you look at all the tariffs that
12:08
Speaker 5: have been announced in twenty twenty five to date, beginning
12:12
Speaker 5: with the initial announcement in February on Canada, Mexico, and China,
12:16
Speaker 5: and then everything that's been done since then, the total
12:20
Speaker 5: would on average come to twenty four hundred dollars per
12:25
Speaker 5: family per year. Now, a couple of things. It will take,
12:30
Speaker 5: you know, about two or three years for tariffs to
12:32
Speaker 5: fully phase in and pinch families by that full amount.
12:37
Speaker 5: Right now, families and businesses are timing a lot of
12:40
Speaker 5: their purchases, so we're not seeing the full effect of
12:42
Speaker 5: tariffs yet, but eventually it'll we think it'll get to
12:46
Speaker 5: that full twenty four hundred dollars. The other thing is
12:48
Speaker 5: that when you open up the hood and you look
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Speaker 5: beneath that number, it's not going to be the same
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Speaker 5: for every family, which I think makes sense to most people. Actually,
12:56
Speaker 5: for lower income people, they are going to get hit
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Speaker 5: harder as a share of their income than higher income
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Speaker 5: people will. That's because lower income families spend a greater
13:07
Speaker 5: share of their income in general, and they spend the
13:10
Speaker 5: larger share of their budget on imports in particular. You know,
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Speaker 5: So whereas a top income family might get hit by
13:19
Speaker 5: roughly one percent of their income as a result of
13:21
Speaker 5: twenty twenty five tariffs to date, a lower income family
13:24
Speaker 5: is going to get hit three times that. So there's
13:27
Speaker 5: really a lot of you know, difference among American families.
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Speaker 3: Is there any sense I know that you mentioned it
13:33
Speaker 3: might take two to three years for the full phase
13:36
Speaker 3: and to take effect here, any sense as to kind
13:39
Speaker 3: of how far along we are in that process just
13:42
Speaker 3: from a dollar perspective, a percentage perspective right now? I
13:45
Speaker 3: know that you know, in the recent CPI data, we've
13:48
Speaker 3: started to see a few categories that are showing some
13:50
Speaker 3: price increases there. But are we really seeing it showing
13:53
Speaker 3: up on store shelves yet or not yet?
13:56
Speaker 5: Yeah, So if it's showing up in CPI, then that's
13:59
Speaker 5: a sign that's showing up in store shelves somewhere on average, right,
14:04
Speaker 5: And so look CPI is a national average, so that's
14:08
Speaker 5: not necessarily the lived experience of everyone at any given time.
14:12
Speaker 5: But you're absolutely right, you know, in particular, when you
14:15
Speaker 5: look at durable goods, so things like household appliances, electronics, furniture,
14:23
Speaker 5: those prices, believe it or not, as measured by CPI
14:27
Speaker 5: usually fall a little bit year to year. That behavior
14:31
Speaker 5: has completely gone to different the opposite direction so far
14:36
Speaker 5: this year, and those prices are up so far. So
14:39
Speaker 5: it's a it's a it's good circumstantial evidence that something
14:45
Speaker 5: new is weighing on durable goods prices this year, and
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Speaker 5: it's almost certainly tariffs. Based on what we've seen, we
14:52
Speaker 5: think that consumers as of June or July are paying roughly,
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Speaker 5: you know, half to three quarters of the tariffs so far.
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Speaker 5: We think that eventually that'll stabilize it around eighty percent
15:06
Speaker 5: of the tariffs. That is that American businesses will eat
15:09
Speaker 5: maybe a quarter to a fifth of the tariffs and
15:14
Speaker 5: American consumers will will shoulder the rest. They'll they'll pay
15:18
Speaker 5: seventy five to eighty percent of them, with foreign producers
15:22
Speaker 5: paying virtually none of them. So you know, that process
15:25
Speaker 5: has probably you know, to go back to your original question,
15:29
Speaker 5: we're we're actually fairly far along in that process now,
15:33
Speaker 5: but we have a little bit further to go before
15:36
Speaker 5: families are paying, you know, what we expect to be
15:39
Speaker 5: the full amount that they're paying.
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Speaker 3: Ernie, Do you think there are convincing cases for the
15:45
Speaker 3: tariff related price increases generating either a one time increase
15:50
Speaker 3: in inflation or becoming a perpetual problem. Is there a
15:53
Speaker 3: reasonable case that both of those could be considered?
15:56
Speaker 5: I think both of them are reasonable. And look, you
15:59
Speaker 5: know what I tell people all the time is the
16:01
Speaker 5: last time that we had tariff increases of this magnitude
16:05
Speaker 5: was the Smooth Holly tariff in nineteen thirty. Yeah, exactly.
16:10
Speaker 5: None of us were alive, and our economic data back
16:13
Speaker 5: then was not nearly as good as as it is now.
16:15
Speaker 5: So a lot of this is terra incognita for us.
16:19
Speaker 5: We are all, you know, we all just need to
16:21
Speaker 5: sort of, you know, have wide uncertainty bands and pay
16:25
Speaker 5: attention to the data and be humble about what we
16:28
Speaker 5: think we know or what we don't know. All of that.
16:31
Speaker 5: So the case that tariffs are a one time price
16:34
Speaker 5: increase is what you're going to find in virtually any
16:37
Speaker 5: economics textbook. Right, A tariff is a tax. You put
16:40
Speaker 5: that tax on and as long as you don't change it,
16:44
Speaker 5: you know that should manifest itself as a one time
16:47
Speaker 5: price increase. And that's the that's the rational, for example,
16:51
Speaker 5: in the Federal Reserve among officials who think that they
16:54
Speaker 5: should ignore the price effects on tariff right because their
16:58
Speaker 5: mandate is inflation, the growth or the change in prices.
17:02
Speaker 5: And their argument is, all right, once we get through this,
17:04
Speaker 5: like there's not going to be any more change on
17:06
Speaker 5: the other side. But there is convincing research elsewhere that
17:10
Speaker 5: it's not just the one time price level shift from tariffs.
17:14
Speaker 5: Tariff's weigh on supply chains, things that will persistently affect
17:19
Speaker 5: not just the level of prices but inflation over time.
17:22
Speaker 5: And I think that that is what Chair Powell and
17:25
Speaker 5: some other Fed officials are worried about. They haven't decided
17:29
Speaker 5: whether that's happening yet or not, but they're keeping they're
17:33
Speaker 5: keeping a keen eye out for whether they see evidence
17:35
Speaker 5: of that happening.
17:37
Speaker 3: Are a couple minutes left here. I have a non
17:39
Speaker 3: tariff question for you, specifically focusing on labor supply, because
17:44
Speaker 3: we're seeing signs now that labor supply is stagnating, maybe
17:48
Speaker 3: even shrinking, depending on how you look at it. So
17:50
Speaker 3: two questions, and I know this is a lot to
17:52
Speaker 3: get through. Here are there signs that this may create
17:55
Speaker 3: conditions for higher wages that could lead to inflation spiraling,
18:00
Speaker 3: But also if you have lower labor supply, could it
18:02
Speaker 3: also lead to lower demand for products that then prevents
18:06
Speaker 3: inflation from spiraling.
18:08
Speaker 5: You're right, no, great question.
18:10
Speaker 3: So the.
18:14
Speaker 5: Slow down or possibly even the decline and labor supply
18:18
Speaker 5: is in great heart being driven by changes in immigration,
18:23
Speaker 5: because immigration was a big driver of the increase in
18:26
Speaker 5: labor supply that we had seen over the last several years.
18:31
Speaker 5: And you really put your thumb on it. Immigration increases
18:36
Speaker 5: both demand and supply. So when people say, ah, well,
18:39
Speaker 5: if we reduce immigration, then wages will go up, right,
18:43
Speaker 5: because there's less labor supply. What you're forgetting is that
18:47
Speaker 5: when an immigrant comes here, right, they bring both their
18:50
Speaker 5: labor supply but also their consumer demand at the same time.
18:54
Speaker 5: And so if they leave, or if you're talking about
18:56
Speaker 5: slowing immigration down, right, putting aside the merits of those policies,
19:02
Speaker 5: just from an economic perspective, it's actually ambiguous, right what
19:06
Speaker 5: happens with wages or with growth over time, because of
19:09
Speaker 5: those two things happening at the same time. Research in
19:12
Speaker 5: the past has basically said, yeah, you know, when you
19:16
Speaker 5: when you when you have a surgeon immigration, when you know,
19:20
Speaker 5: economic papers have studied specific regions that have had surges immigration.
19:24
Speaker 5: It is a little bit.
19:25
Speaker 3: Of I apologize, we've got to get out. We got
19:27
Speaker 3: a heartbreak here. But I do appreciate you joining us. Yeah,
19:30
Speaker 3: I appreciate all the information. Thanks so much for the
19:32
Speaker 3: time today.
19:33
Speaker 5: Thanks so much. I have a great day.
19:34
Speaker 3: Ernie Titsky from the Budget Lab at Yale.
19:40
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19:59
Speaker 6: Markets a roaring following fitchairman Jerome Palace speech from Jackson
20:03
Speaker 6: Hole earlier this morning, where Powell left the door open
20:06
Speaker 6: for a rate cut next month, citing the rising risks
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Speaker 6: for the labor market. Right now, the Dow is up
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Speaker 6: over two percent, or nine hundred and thirty three points higher.
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Speaker 6: S and P five hundred is up nearly one point
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Speaker 6: seven percent. NASDAC up over two percent or four hundred
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Speaker 6: four percent. Ten year Treasreeld is down eight basis points
20:30
Speaker 6: at two point excuse me, four point two four to
20:33
Speaker 6: six percent, and crude oil is mostly flat today edging higher.
20:39
Speaker 6: According to a report from the Information and Video told
20:42
Speaker 6: suppliers to halt some production of its H twenty chips
20:46
Speaker 6: after Chinese authorities pushed companies to avoid the product. Furthermore,
20:50
Speaker 6: Video is also reportedly having conversations with the US government
20:54
Speaker 6: about shipping a more advanced chip to China, and Video
20:57
Speaker 6: shares are up nearly two percent, with their earning on
21:00
Speaker 6: deck next week. Meanwhile, tax preparation software company in two
21:04
Speaker 6: It said it expects sales growth between fourteen and fifteen
21:08
Speaker 6: percent in its current quarter, below Street forecast into its
21:12
Speaker 6: stock is tumbling over four percent. Elsewhere, ra Store is
21:15
Speaker 6: up one percent after the discount department store chain reported
21:19
Speaker 6: a rebound in sales in July. Ross also said terror
21:22
Speaker 6: related costs hadn't pinched profits as much as expected, and
21:26
Speaker 6: Zoom Communications raised its full year outlook, sending that stock
21:31
Speaker 6: up by ten percent. I'm Tucker Silva and that is
21:34
Speaker 6: Wall Street Watch and we haven't done trivia yet, so
21:37
Speaker 6: let's do that. Continue our World War two trivia theme.
21:41
Speaker 6: Question today, which was the first axis power to surrender?
21:45
Speaker 6: Once again? Which was the first axis power to surrender?
21:50
Speaker 6: Be the second person today to text us at six
21:53
Speaker 6: one seven three six two thirteen eighty five with the
21:55
Speaker 6: correct answer, and you win a Financial Exchange Show T
21:58
Speaker 6: shirt once again. The second can correct response to textas
22:01
Speaker 6: to the number six one seven three six two thirteen
22:04
Speaker 6: eighty five will win that T shirt. See complete contest
22:07
Speaker 6: rules at Financial Exchange Show dot com.
22:10
Speaker 3: Paul, we got a piece of here from the Financial
22:11
Speaker 3: Times is titled the US tourism Slump that Never happened,
22:15
Speaker 3: And I'll make the case it wasn't one that never happened,
22:18
Speaker 3: but one that just has been more moderate than I
22:20
Speaker 3: think people thought it could be. And basically what we
22:23
Speaker 3: saw is that when we look at air travel and
22:26
Speaker 3: hotel bookings year over year for the full year, they
22:29
Speaker 3: are both still down, but showing some signs of stability
22:33
Speaker 3: and even improvement in a few places. And most of
22:36
Speaker 3: the decline appears to have been driven by a decline
22:38
Speaker 3: in international travelers coming to the US rather than domestic travelers.
22:44
Speaker 3: Altering their plans in any dramatic fashion. The other thing
22:47
Speaker 3: that I will say, and this is even from data
22:49
Speaker 3: from Marriott that we covered a few weeks back, most
22:53
Speaker 3: of the strength that we are seeing is in high
22:56
Speaker 3: end luxury segments. As you go down market, trends tend
23:00
Speaker 3: to worsen, and that messages with what we're hearing just
23:04
Speaker 3: about the overall state of the US economy as well.
23:07
Speaker 4: Yeah, we had quoted that statistic from the Marriott data
23:10
Speaker 4: of a revenue per available room on the luxury side
23:13
Speaker 4: that's up three percent this year through the end of July,
23:17
Speaker 4: versus the economy and mid size of combinations think like
23:20
Speaker 4: a fair filled in or something like that. They had
23:22
Speaker 4: seen a one and a half percent decline there. On
23:24
Speaker 4: the foreign traveler front, like you mentioned, we've seen about
23:28
Speaker 4: a four percent drop through the first seven months of
23:30
Speaker 4: twenty twenty five according to the US National Travel and
23:34
Speaker 4: Tourism Office. A lot of those are people not coming
23:37
Speaker 4: across the border from Canada, but other parts of the
23:40
Speaker 4: globe as well. It really has been just ringing a
23:44
Speaker 4: head check that almost the stock market feels like it
23:48
Speaker 4: is very critical for this leisure and hospitality side of things.
23:51
Speaker 4: You know, we've talked about that statistic before the top
23:54
Speaker 4: percent of income earners accounting for half the spending, and
23:56
Speaker 4: when you look at the tourism data here, it's it
24:00
Speaker 4: seems like because the market has fared so well this
24:03
Speaker 4: year and you have wealthier consumers making up a bigger
24:05
Speaker 4: share of the profitability of these hotel companies, that is
24:09
Speaker 4: becoming a very critical ingredient to tourism spend. Again, that's
24:15
Speaker 4: just kind of an anecdotal take from me, but it
24:18
Speaker 4: just does seem like that luxury traveler is really critical
24:21
Speaker 4: for the leisure in hospitality space.
24:24
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25:22
Speaker 3: Paul, let's talk about I don't want to talk about AI, Like,
25:25
Speaker 3: I just is there anything left to talk about with
25:28
Speaker 3: AI at this point? Like some people think it's gonna work,
25:30
Speaker 3: some people don't, like what what? What are we really
25:35
Speaker 3: gonna talk about whether like there's a Wall Street firm
25:39
Speaker 3: that's arguing, Hey, we came up with a really complex
25:43
Speaker 3: model that we think will outperform really simple ones. Is
25:45
Speaker 3: there anything other to say on that other than who knows,
25:48
Speaker 3: We'll have to see how it's gonna play out.
25:50
Speaker 4: That that's totally but appropriate for for that one. I mean,
25:54
Speaker 4: everyone and their brothers trying to come up with some
25:56
Speaker 4: right model. And outside of restlance technology, which goes back decades,
26:01
Speaker 4: there really hasn't been a case of that over history.
26:04
Speaker 3: Okay, here's what else we have for AI. Google is
26:06
Speaker 3: trying everything to sell AI to skeptics. Great, hope it
26:09
Speaker 3: works for you. Meta poaches Apple AI executive even as
26:14
Speaker 3: it plans hiring slowdown. So I guess you didn't really
26:16
Speaker 3: slow down that much.
26:17
Speaker 4: Apple has an AI executive.
26:19
Speaker 3: One you know, he's not human.
26:22
Speaker 4: They're just taking everybody. They're taking everybody in their brother
26:25
Speaker 4: We should just retitle ourselves as AI experts and hope
26:28
Speaker 4: to get a bag from Meta.
26:29
Speaker 3: Well, Texas robot I'm sorry, Will Tesla robotaxis kill auto insurers? Hardly? Okay? Again,
26:37
Speaker 3: like I have no clue. Probably not is the answer,
26:40
Speaker 3: but I don't know, Like, maybe we get to a
26:43
Speaker 3: point where self driving is actually, you know, a thing
26:46
Speaker 3: that is broadly available to this point, it's in a
26:49
Speaker 3: few niche areas and we'll see how it goes, but
26:53
Speaker 3: it does seem to be making more progress. I don't
26:54
Speaker 3: know why it has to be exclusive to Tesla.
26:56
Speaker 4: What does Tesla have to get this headline? This is
26:58
Speaker 4: Waimo's ballpark.
27:00
Speaker 3: Like Waimo's, they're the dudes who actually are operating this
27:03
Speaker 3: thing in more places, and yet you know Tesla gets
27:06
Speaker 3: it just because they have a few operating in like.
27:09
Speaker 4: One and a half eleven taxis or something like that. Yeah,
27:12
Speaker 4: that just doesn't seem fair to Wei Mo. That business
27:15
Speaker 4: is so much more under the radar than all of
27:17
Speaker 4: the publicity that the robotaxis get for Tesla.
27:20
Speaker 3: Anything else that we want to add when it comes
27:22
Speaker 3: to AI or did we just speed run the whole thing?
27:24
Speaker 4: We did that pretty fast and efficient for a friday.
27:27
Speaker 4: I don't think that we've we've missed anything.
27:30
Speaker 3: Okay, I'm glad that we did that. Let's take a
27:33
Speaker 3: quick break then, and when we return, we're gonna be
27:36
Speaker 3: joined by paul A Monica from Barons on the back end. Here.
27:40
Speaker 1: The Financial Exchange streams live on YouTube. Like our page
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28:11
Speaker 7: Ladies and gentlemen, the weekend, now's a great time to
28:18
Speaker 7: register for the DAV five k, taking place Saturday November
28:22
Speaker 7: eighth at.
28:22
Speaker 6: Fort Independence on Castle Island. The race has sold out
28:26
Speaker 6: each of the past four years and slots are continuing
28:29
Speaker 6: to fill up, so don't delay. Visit DAV five k
28:32
Speaker 6: dot Boston and reserve your spot, or join our team
28:35
Speaker 6: here at the Financial Exchange by registering under Team TFE.
28:40
Speaker 6: That's Saturday November eighth for this year's DAV five k.
28:44
Speaker 6: Sign up now at DAV five k dot Boston.
28:48
Speaker 4: As promised, we are joined by Paul Lamonica from Barons
28:52
Speaker 4: here to talk to us about a little known company,
28:55
Speaker 4: but an entrepreneurial titan that who probably should be a
28:59
Speaker 4: little bit more well well known than he is. Paul,
29:02
Speaker 4: thanks so much for joining us today. Really appreciate it.
29:04
Speaker 8: Yeah, thanks a lot for having me come on talk
29:06
Speaker 8: about qx So.
29:07
Speaker 4: I'm excited to talk about this, Paul, because Brad Jacobs,
29:11
Speaker 4: who is the CEO of QXO, had wrote a book
29:15
Speaker 4: How to Make a Few Billion Dollars, which I've read,
29:16
Speaker 4: which is fantastic. Maybe give our listeners a little bit
29:19
Speaker 4: of summary of who is Brad Jacobs, because he really
29:21
Speaker 4: should be talked about sort of similarly to Warren Buffett
29:24
Speaker 4: in terms of the success he's had over his entrepreneuri career.
29:28
Speaker 8: Yeah, this is another mega billionaire. I think at last check,
29:31
Speaker 8: worth just under seventeen billion dollars. And he has a
29:37
Speaker 8: history of kind of using a roll up strategy to
29:42
Speaker 8: buy companies in fragmented businesses and turn them into powerhouses.
29:48
Speaker 8: So this is something that he did with United Rentals,
29:52
Speaker 8: you know, the big company. Also logistics firm XPO. He
29:59
Speaker 8: did this with company called United Waste Systems, which became
30:03
Speaker 8: eventually a part of waste management. So now he's trying
30:07
Speaker 8: to do this with QXO. In the building products industry,
30:12
Speaker 8: which is incredibly fragmented. There are a fair number of
30:16
Speaker 8: public companies but also some private mom and pop firms
30:20
Speaker 8: as well, and QXO is starting the process. Earlier this year,
30:24
Speaker 8: it bought Beacon roofing supply and is hoping to use
30:28
Speaker 8: that as the springboard to do more deals in the
30:31
Speaker 8: building and construction related businesses you've mentioned.
30:36
Speaker 4: Yeah, his strategy is all about M and A and
30:38
Speaker 4: trying to take efficiencies through the use of technology to
30:42
Speaker 4: kind of build his businesses. But it seems like the
30:46
Speaker 4: trade secrets out a little bit in the sense that
30:48
Speaker 4: he has this tremendous track record, and from where the
30:51
Speaker 4: stock is trading right now, how would you view it
30:53
Speaker 4: in terms of its pricing, because it does seem like
30:56
Speaker 4: he has a lot of fanfare behind him and a
30:58
Speaker 4: lot of analysts and investors that are jumping on his
31:01
Speaker 4: historical track record.
31:03
Speaker 8: Yeah, definitely. I mean, many of the Wall Street firms
31:05
Speaker 8: that cover QXO are incredibly bullish, but it may not
31:11
Speaker 8: be too late to get in. There's another analyst that
31:15
Speaker 8: just launched coverage today at Benchmark, putting a fifty dollars
31:20
Speaker 8: price target and a buy rating on QXO, in part
31:24
Speaker 8: because of the Brad Jacobs playbook. He thinks that there
31:28
Speaker 8: will be more deals ahead and that the company will
31:32
Speaker 8: use Beacon as a means to grow. So that's one thing.
31:36
Speaker 8: But what I was really struck by is that there
31:39
Speaker 8: is this one money manager, Orbis Investment Management, that is
31:45
Speaker 8: the largest shareholder. They have almost a fifteen percent steak
31:49
Speaker 8: excuse me, fifteen percent stake in QXO, and they wrote
31:53
Speaker 8: in a post last year that they were buying QXO
31:58
Speaker 8: before they did even any deal. So this was before Beacon.
32:02
Speaker 8: It was a bet on the notion that eventually Jacobs
32:05
Speaker 8: would find a series of companies to acquire, and that's
32:10
Speaker 8: turned out to be a pretty good bet. And when
32:13
Speaker 8: you look at what they were saying in their report,
32:16
Speaker 8: it also still suggests more upside ahead because they were saying,
32:21
Speaker 8: you know, the company should probably trade in a range
32:25
Speaker 8: maybe of two to five times book value. It's currently
32:29
Speaker 8: at about one point six, so if you take the
32:31
Speaker 8: median there, you know, three and a half times book value,
32:35
Speaker 8: that still gives you upside of you know, forty six
32:38
Speaker 8: dollars a share, you know, more than double where it's
32:40
Speaker 8: trading at now. Though it's having a great day today
32:44
Speaker 8: along with the rest of the market. It's about six
32:46
Speaker 8: and a half percent today.
32:48
Speaker 4: That's Paul A Monica from Baron's talking to us about
32:51
Speaker 4: QXO and they're sort of little known named CEO, but
32:54
Speaker 4: who should be probably a bigger name out there. Paul,
32:56
Speaker 4: thanks so much for the time. Really appreciate it, have
32:58
Speaker 4: a great weekend.
32:59
Speaker 8: Thanks you to appreciate it.
33:00
Speaker 3: Guys.
33:01
Speaker 6: All right, in the previous segment, we asked you the
33:03
Speaker 6: trivia question related to World War Two, which was, uh,
33:07
Speaker 6: who was the first access power to surrender that would
33:10
Speaker 6: be Italy. Gil from Sandwich is our winner today, taking
33:13
Speaker 6: home a Financial Looks Change Show T shirt. Congrats to Gel.
33:16
Speaker 3: We played trivia every day.
33:18
Speaker 6: Here in the Financial Looks Change See complete contest rules
33:21
Speaker 6: at Financial Looks Chain Show dot com.
33:24
Speaker 3: Paul, do you want to talk about the FTC suing
33:28
Speaker 3: gyms to make it easier to cancel? Or battery flavored chips?
33:33
Speaker 4: I want the gyms because I had this circled myself, Chuck,
33:36
Speaker 4: Let's let's talk about it.
33:38
Speaker 3: So, first thing, I think it was either last year
33:40
Speaker 3: or the year before, the FTC put out what they
33:43
Speaker 3: called a was their click to Cancel rule, which basically said, look,
33:47
Speaker 3: if you can sign up for a product online or
33:50
Speaker 3: in any medium, you have to be able to use
33:53
Speaker 3: that same medium to cancel the subscription, basically saying you
33:57
Speaker 3: can't make it harder for someone to cancel signing up
33:59
Speaker 3: for some thing than it was for them originally to
34:02
Speaker 3: sign up for it. That rule was then put It
34:04
Speaker 3: was supposed to go into effect in July of this year.
34:07
Speaker 3: There was a court I forget who that struck it
34:10
Speaker 3: down earlier this year, and so it has not gone
34:13
Speaker 3: into effect. So now the FTC coming out, and they
34:17
Speaker 3: filed a lawsuit against a few gym operators, pretty much saying, look,
34:23
Speaker 3: you've made it really hard to cancel, because I'll just
34:27
Speaker 3: quote here like how ridiculous it is for Starters, members
34:29
Speaker 3: are required to log into their website and print off
34:32
Speaker 3: a cancelation form. Then you had, But the thing is
34:37
Speaker 3: you had to sign up at you know, using the
34:40
Speaker 3: La Fitness app or a QR code, so you might
34:43
Speaker 3: not actually have your log in information for the website
34:45
Speaker 3: because you can't just get the form through the app.
34:49
Speaker 3: And then if you don't know how to log in,
34:52
Speaker 3: you have to go and provide the original email address
34:55
Speaker 3: that you used, get what's called a key tag number
34:58
Speaker 3: that gets handed out when you sign the first five
35:01
Speaker 3: digit of the bank account credit card listed, and then
35:04
Speaker 3: you can finally figure out how to cancel, oh, by
35:07
Speaker 3: bringing the form in to a physical location where you
35:10
Speaker 3: have to go through a whole bunch of other things.
35:13
Speaker 4: The reason I wanted to cover this story is because
35:15
Speaker 4: we had a similar experience in my household with this
35:17
Speaker 4: type of thing, where my wife was a member at
35:20
Speaker 4: Gold's gym and the pandemic hit and obviously a lot
35:23
Speaker 4: of people canceled their gym memberships. I was able to
35:26
Speaker 4: get out with a phone call. But since then, in
35:29
Speaker 4: that remaining weeks, the gym changes policy where my wife
35:32
Speaker 4: would have to print out a form, hand a physical signature,
35:36
Speaker 4: bring it in to the gym in order to cancel it,
35:40
Speaker 4: and I do that. It was a handwritten letter. Actually, yeah,
35:45
Speaker 4: so this process is not unique. It seems like a
35:49
Speaker 4: bunch of gyms we're doing this. Granted we're years removed
35:53
Speaker 4: from the pandemic, which even in that instance not that
35:56
Speaker 4: I agreed with that. You could understand why gyms were
35:58
Speaker 4: kind of hanging on by a thread, so they were
36:00
Speaker 4: trying anything they could to delay membership cancelation. But in
36:03
Speaker 4: twenty twenty five, here it should not be this difficult.
36:06
Speaker 4: So that's the reason why I wanted to cover this,
36:08
Speaker 4: because if it's easy to sign up, it should be
36:11
Speaker 4: easy to cancel too, and they they've got to change this.
36:13
Speaker 3: I mean, look, I know that like this could a
36:16
Speaker 3: lot of things could be reduced to this, but I
36:18
Speaker 3: also believe that a lot of things should be reduced
36:20
Speaker 3: to this. We put a man on the freaking moon,
36:25
Speaker 3: we can figure out how to cancel gym memberships with
36:29
Speaker 3: one click of a button at this point. The only
36:31
Speaker 3: reason that we don't is because the companies know that
36:35
Speaker 3: a certain percentage of people just won't come in and
36:36
Speaker 3: they can keep getting the revenue from them. Yeah, planning,
36:39
Speaker 3: which in honestly, this model like honestly sucks, like it's
36:44
Speaker 3: it's just kind of it's it's just parasitic more than
36:47
Speaker 3: anything else. And so look, if you really want to
36:52
Speaker 3: make this, you know, like fool proof, find Congress, get
36:55
Speaker 3: together and pass this stuff. Like how big is the
36:58
Speaker 3: gym lobby? You know, is there that money being thrown
37:02
Speaker 3: at Congress by Planet Fitness in La Fitness In order
37:06
Speaker 3: to you know, prevent that from happening, probably not get
37:10
Speaker 3: together and just actually legislate the thing then, because otherwise
37:14
Speaker 3: it's like you're playing whack a mole on all this stuff.
37:17
Speaker 3: And hey, I'm a big believer. Look, you know what
37:20
Speaker 3: would increase Congress's popularity an awful lot. Write legislation on
37:24
Speaker 3: this and figure out some kind of legislation that bans
37:28
Speaker 3: spam phone calls and spam text getting because because you
37:32
Speaker 3: can do it if you actually decide to work at it,
37:36
Speaker 3: And it's just there's no incentive for anyone to do
37:39
Speaker 3: it right now. So you know, it's no different from, Hey,
37:42
Speaker 3: you want to be a good mayor of a city.
37:43
Speaker 3: Fill the potholes, keep you know, the police fire and
37:47
Speaker 3: schools funded and people will love you. Hey, you want
37:50
Speaker 3: to be you know good in terms of you know, Congress,
37:53
Speaker 3: make things less annoying that businesses are doing that. We
37:57
Speaker 3: can't stop them from doing ourselves. But that's just me. Uh.
38:02
Speaker 3: Taking a look at markets as we wrap up, Downs
38:04
Speaker 3: up two percent, Smps up one and a half, Nasdaq
38:07
Speaker 3: up two percent, Russell two thousand and four percent. A
38:09
Speaker 3: lot of green on the board heading into the weekend.
38:12
Speaker 3: Not bad, we'll we'll take it. It's a good, good start.
38:15
Speaker 3: At least we're done for the day, done for the week.
38:17
Speaker 3: Have a wonderful weekend, and we'll see you on Monday.