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Where are interest rates heading? · The Financial Exchange Show

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Speaker 2: Chuck, Paul and Tucker with you today. The Dow is
1:15
up forty two points, the SMPS up thirty one, the
1:18
Nasdaq up one hundred and twenty two, so all three
1:20
major indices in positive territory, though a bit off their highs.
1:24
The Nasdaq was up almost two hundred and thirty points
1:27
at one point this morning, the SMP was up around
1:29
forty five, and the Dow was up around one hundred
1:32
and twenty, so in positive territory, but off the highs.
1:35
Oil today pulling back just a touch down a dollar
1:38
fifteen a barrel to seventy four forty one that after
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OPEC cut its demand forecast again triple a national average
1:47
gas prices. Man, we've just been hovering right around three
1:51
twenty a gallon for the last month or so. Now
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I think we've gotten down to like three seventeen and
1:56
maybe up to three twenty five. We're at three twenty
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and three tenths of a cent today. If you take
2:02
a look at gold, the yellow metal is down thirteen
2:06
dollars now, it's to twenty six sixty three and thirty
2:10
cents off about half a percent, Paul, Anything catching your
2:14
eye in early trading today in a day where, by
2:17
the way, weird day in markets today. Stocks they're open
2:23
all day, the bond market closed, shut down. Why do
2:30
the bond guys get an extra day off?
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Speaker 3: They've been working hard, have they? I don't know what
2:36
have they been doing lately?
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Speaker 4: You know, big earnings week, you know. So we'll keep
2:40
an eye out for those reports coming out tomorrow. That's
2:41
the other thing that we're focusing on.
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Speaker 2: I think actually the reason why the bond market is
2:46
closed is banks are closed, and so you it would
2:51
really screw banks if they're closed and the bond market
2:54
is trading, because then you have cases where the value
2:57
of their assets would be changing introd, but they can't
3:00
do anything about the assets or liabilities they actually have
3:04
on their books. So that's probably why the bond market
3:07
is closed and the stock market is open. I guess
3:09
the bigger question is why have the stock market open then?
3:12
Speaker 5: Right, That's what I was just about to ask the
3:14
stock market.
3:14
Speaker 4: Holidays never seem to make any sense, Like they're still
3:17
Black Friday. Not Black Friday is another one good Friday
3:21
that they close on which I never have understood that day.
3:24
Good Friday is half a day, No, it's it's closed.
3:27
Speaker 1: No.
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Speaker 2: Thanksgiving Fridays a half day. Yeah, It's like, well, if
3:30
you're gonna be open, just be open, man the.
3:32
Speaker 3: July they do that around July fourth to they'll do
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a half day.
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Speaker 2: It's like, you're I don't understand this. You're you're a
3:39
freaking stock trader around the New York Stock Exchange. Don't
3:42
you have people that can do your Black Friday shopping
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for you? If you're like at that level, what what
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do you need the half day for either open or close?
3:52
Not a half day? The half day is the wishy
3:55
water like it's just make your choice open or closed
4:00
half day in the bottom. No, it's not an option.
4:03
Let's talk a little bit about interest rates. There's a
4:06
great piece here, Tucker. Was this the Financial Times? He
4:09
got this from, Yes, so this is from Richard Clarita,
4:14
who has spent you know, I think probably a couple
4:17
dozen years at the Federal Reserve. At this point, he
4:20
was the former vice chair at the Fed. So again, Richard,
4:24
really smart dude, and I think this piece actually nails
4:28
what's going on right now. Which is there's this idea
4:33
of the neutral rate. When it comes to interest rates
4:37
and the neutral rate, it is purely theoretical. It's not
4:40
something that you can actually know while you're going through it,
4:44
but it is the rate at which the Fed is
4:48
not either restrictive and slowing the economy or accommodative and
4:53
allowing the economy to grow more quickly. And what matters
4:57
is what's called our star, which is a fancy way
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of saying, Hey, when you look at the the interest
5:06
rate situation, how high does do real rates need to be,
5:12
meaning above inflation in order to reach neutral? And our
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star is that difference? So if inflation's running at two
5:19
and the Fed says they think interest rate should be
5:21
a two and a half, our star is that half
5:24
a percent difference? And what the Fed is trying to
5:27
figure out right now is how big does that gap
5:30
need to be in order to be neither restrictive which
5:34
they think they are now, nor accommodative. How do you
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get to neutral? Because that's what the Fed thinks they
5:39
need to be right now, is neutral or close to it?
5:42
Speaker 3: Correct?
5:43
Speaker 2: And this is just a great piece talking about, Hey,
5:46
we're kind of gonna have to pingpong around to try
5:48
to find it. And that's why at this point it's
5:53
reasonable to start, you know, kind of moving in in
5:55
smaller increments. But remember back in the spring of twenty
5:59
twenty two two where I jokingly said, look, the FETs
6:02
just raise interest rates five percent and call to day.
6:05
And like the reason that I said that was because
6:08
there was no question as to whether or not they
6:10
were near neutral. Inflation was running seven and a half
6:14
percent on its way to nine and the Fed was
6:17
sitting at a quarter percent on Fed funds rate. So like,
6:20
you're you're not neutral there. I'm pretty sure you were
6:23
probably way too accommodative. But if you look at where
6:27
we stand today, where you know, the the inflation metrics
6:30
that we have, they've they've improved in the last few years,
6:32
but there still are we know, there's still hotter than
6:35
you'd like to see in a couple areas, mostly on
6:39
core CPI. Core CPI is really the one that stands out.
6:43
Headline CPI is at two to four for the last year.
6:45
Headline pc is at two two, Headline core pc is
6:48
at two seven, Like those were all fine, three and
6:52
a quarter on core CPI is a little bit hotter,
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and so you say, okay, where is neutral in relation
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to let's let's say inflation's at three percent. Now it's
7:03
in the middle of that that whole range where is neutral?
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There Is it three and a half, is it four?
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Is it four and a quarter? They don't really know.
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And so this is why it probably is appropriate to
7:16
step down in quarter percent increments from here, because hey,
7:19
you get that nice big fifty basis point chunk off
7:22
the you know at the start. But you also don't
7:25
want to overshoot too far. If the economy proves to
7:27
be more resilient than people think, and great, we cut
7:31
interest rates to three and a quarter, but now we
7:33
got to go back up to four. That's not what
7:35
the Fed wants to do. Ideal.
7:37
Speaker 3: This is obviously a moving target.
7:38
Speaker 4: As Chuck mentioned, the feds dot plot, which is basically
7:41
a visual for what they're thinking from a policy perspective,
7:45
indicates that we'd be looking at about three percent once
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inflation stabilizes at two percent for the Fed Funds rates,
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So meaning that difference that our star between where they
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think interest rates will be three percent on the Fed
7:59
funds two two percent on inflation, a one percent differential
8:03
for that our start, But like Chuck was mentioning, that
8:06
is not an exact number, that's just where they have
8:09
it today, and that could shift quite easily in the
8:12
next couple months here.
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Speaker 2: But I think this is this is really the crux
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of what the Fed is going to be figuring out
8:18
over the next six to nine months, which is, hey,
8:22
are we doing too much? Are we doing too little?
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Do we need to go further? They don't know, to
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be honest, and it's it's not like it's not like
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it's embarrassing that they don't know. If any of us
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were in the same position they're in, we'd be kind
8:37
of saying the same thing, like we're not quite sure
8:39
how far we need to go on this in order
8:42
to get to where things are okay. The range on
8:46
like this this our star that we talk about. It's
8:50
been as low as half percent, but you go back
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and you look at you know, projections in the nineties
8:55
and early two thousands, and it was widely thought to
8:57
be like two two and a half percent. So it
8:59
could be a case where, look of inflation's running at
9:02
three percent, maybe having interest rates at five is the
9:06
right place to be. Like that could very well be
9:09
the case, and the twenty tens was the outlier, just
9:11
because the economy was so bad for so long that
9:13
rates had to get way lower. Yeah, we don't know.
9:18
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9:56
Speaker 2: Probably got a piece today. It's titled homeowners haven't drained
9:59
cash out of their houses? This fast sins two thousand
10:02
and eight. Oh no, Does that mean we're heading back
10:04
for another financial crisis?
10:06
Speaker 3: Are they listen? This based on dollars? It seems yes.
10:11
Speaker 2: I believe this is based on the dollars. So we'll
10:13
be nervous. How nervous?
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Speaker 3: We should not be nervous.
10:16
Speaker 4: It's sixteen years ago, so with all the inflation that
10:19
we've seen, the value of a dollar a little bit
10:21
different now than it was then. What we've seen is
10:25
that lenders have originated three hundred and thirty three thousand
10:29
new home equity loans. So this is not helocks home
10:32
equy lines of credit. This is home equi loans are
10:34
a second mortgage totally about twenty three point six billion,
10:39
And to me it was a little surprising because on
10:42
the whole equi a lot of credit front, we've actually
10:44
seen a diminished amount of activity over the first half
10:48
of twenty twenty four, but the first half of twenty
10:51
twenty four on the home equi loan side of things,
10:54
as alluded to by this grabby headline, has paired to
10:57
the highest level since two thousand and eight. This is
11:00
according to data alenics firm core Logic in a report
11:03
that they released on.
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Speaker 2: Way and by the way, this makes total sense for
11:06
one main reason. Home equity lines of credit they are
11:09
typically floating rate, meaning that hey, once you borrow money
11:13
against them, the rate on it floats and you pay
11:16
whatever the prevailing market rate is. Home equity loans typically
11:19
have a fixed rate, usually over a ten year period,
11:22
but I've seen ones they go out to twenty years
11:24
in some cases as well. And so look, if interest
11:28
rates have dropped and you now think you're in a
11:30
position where you're getting a better rate than before, then
11:34
you would take out a home equity loan versus a
11:36
home equity line of credit. Ultimately, it's twenty three billion dollars.
11:42
The people pulled out twenty three billion dollars. The entire
11:47
US mortgage market back in two thousand and eight was
11:50
like ten trillion dollars. So to be like, hey, like
11:55
this is you know, a problem, A isn't really you know,
11:59
doing just to the scale that we're talking about, be
12:01
the inflation adjustment that Paul mentioned is not factored in here.
12:05
And see the overall state of defaults in the housing market,
12:10
they're basically non existent right now. People are like, well,
12:14
they're up thirty percent in the last year. I forget
12:17
the exact number. Yeah, from the lowest numbers we've seen
12:21
in recorded history. Like, if there's one thing I'm not
12:26
concerned with at this very moment in time, it's households
12:30
borrowing too much money on their house. Am I like
12:36
our auto loans showing signs of default. Yes, are credit
12:39
call cards, yes, But the housing market, at least as
12:45
far as mortgages go, is showing no meaningful shift to
12:51
where you would need to be concerned about it. Right,
12:54
It's just not so. I see these pieces that get
12:58
put out and look, I get, I get it, a little
13:02
bit nervous when I shootish.
13:04
Speaker 1: I get.
13:05
Speaker 2: I understand. But this is why the context is important.
13:09
Is there are plenty of things to worry about right now.
13:13
Too many home equity loans being made. Does it make
13:17
your top hundred, Paul, because it doesn't make mine.
13:20
Speaker 3: I would say it does not. It does not.
13:22
Speaker 2: No, it just it just doesn't. Things that do make
13:28
my top hundred. As far as hey, things I'm concerned about.
13:30
In the economy, healthcare costs continuing to move up and
13:34
raises are projected to be lower across the board this year,
13:38
and so paychecks that are already being squeezed likely to
13:42
fall into that situation again. According to a survey from Mercer,
13:47
Who's a big benefits firm, wages are expected to jump
13:52
by about three point three percent when it comes time
13:55
for annual raises this year. Meanwhile, when you at health
14:01
insurance provided by employers. Those costs rose seven percent for
14:05
the second straight year this year, and those costs are
14:09
expected to rise an additional five point eight percent next year.
14:13
So you've got, you know, this this situation where, yeah,
14:19
a lot of households are stressed in terms of their
14:21
budgets right now, and if you are, you know, hoping
14:25
for another big raise or something along those lines, most
14:29
companies indicating, hey, this is probably not the year that
14:32
it's coming, just because the labor market isn't better balance
14:35
for companies now and they don't have as much competition
14:39
for workers and so they don't need to give raises
14:41
that are as big. Yeah.
14:43
Speaker 4: Interesting point that they make in this piece regarding this
14:45
idea that usually when you're looking for a new job,
14:47
you want a ten percent bump in terms of your
14:50
increase from one job to the next, but a lot
14:53
of that now can be eroded with the fact that
14:55
your health insurance premiums are going to increase to eat
14:59
up a lot of that raise that you may feel
15:02
that you're receiving as a result to these increases that
15:05
Chuck just alluded to for the caring costs for health insurance.
15:08
So It's something that, certainly for someone who's in the
15:12
market looking for a job, really important to work with
15:14
a recruiter or whomever you're dealing with, just to understand
15:18
what type of health care benefits that you're entitled to
15:22
out there.
15:23
Speaker 2: And look, the other thing on this is it's health
15:29
benefits are always hard for hard to analyze in kind
15:33
of the macro perspective, because it's not just the premiums
15:36
that you're paying, it's well, how are my deductibles changing,
15:39
how are my coverage services changing. There are a lot
15:42
of different levers that can be pulled in terms of,
15:45
you know, what happens there, and so you might be
15:47
sitting there saying, well, my company, you know, they said
15:51
that our health insurance premiums were only going up three percent,
15:55
But maybe you're deductible when up five hundred dollars a person.
15:57
Maybe certain services are being covered anymore, you know, maybe
16:02
there's a you know, a larger out of pocket maximum
16:05
that you end up getting hit with. So it's it's
16:08
tough to determine exactly what's going on in every situation.
16:12
And just because the average bump is gonna be five
16:15
point eight percent for health care costs. Look, I've seen
16:18
some that are as high as eleven or twelve for
16:20
next year. I've seen some that are in the low
16:22
single digits. It really varies depending on the specific company, uh,
16:26
and how that plan is set up and how it
16:29
might be evolving over time, and whether the same things
16:32
are being chosen in subsequent years. So you got that
16:36
going on. Let's see, I wanted to cover this story briefly, Paul.
16:42
If you had half a billion dollars on a hard
16:44
drive and you threw it at the dump, or not
16:48
out the dump, but in the dump, what.
16:54
Speaker 3: Would you do? Is this the crypto story?
16:58
Speaker 2: It is? So guy had eight thousand bitcoins on a
17:02
hard drive and he threw it in the dump, and
17:08
now he is suing the city that he lives. And
17:11
this is in the UK and it's actually in Wales,
17:14
which I believe. Yeah, Wales is in the UK but
17:17
has a separate soccer team, which is great. Like you
17:20
have a country within a country. It's kind of wild.
17:25
You guys are looking at me like I have eight heads?
17:27
Speaker 5: No, keep going?
17:27
Speaker 2: Do you know that Whales had its own soccer team?
17:29
Speaker 3: I knew that.
17:29
Speaker 5: I don't follow soccer.
17:31
Speaker 2: Again, Bail fan that, but there you go. Anyways, So
17:35
twenty thirteen, he accidentally threw this hard drive in the
17:39
trash while he's cleaning his office. He is now basically saying, Hey,
17:43
the city didn't do enough to help excavate the dump
17:46
in order to help me find my money, to which
17:48
I say, no, if you really want to find it,
17:51
pay the money to excavate it, and then the city
17:54
can pay you back if you find it, or something
17:56
like that, or you'll just have half a billion dollars
17:59
and you won't worry about how much you paid to
18:00
excavate it, well said.
18:06
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Speaker 2: Piece in the Wall Street Journal. Here it's titled Worldwide
18:33
Efforts to Reverse the Baby Shortage or Falling Flat, which
18:37
begs the question, not raises it. In this case, is
18:41
there actually a baby shortage? I feel like I have
18:46
enough babies got too well, they're not babies anymore. But
18:52
here's the thing. A lot of different countries have said, Okay,
18:56
our birth rates are getting low. We need to figure
18:58
out ways to improve our demographics. The major reason for
19:03
this is that basically every developed country out there has
19:10
some form of old age social security type system that
19:15
requires improved demographics unless you want to either cut benefits
19:19
or increase taxes. So instead countries have been saying, well,
19:23
we don't want to do either of those, so let's
19:25
try to give people a bunch of money to have kids.
19:26
Since the number one thing people tell us is, hey,
19:29
it's too expensive to have kids today. So countries start
19:32
giving people a bunch of money and it hasn't made
19:35
any difference in their demographics. They're still not having as
19:38
many kids. Right.
19:39
Speaker 4: The other piece to mention there, besides the social security concerns,
19:43
is just how do you continue to grow GDP when
19:45
two thirds of it is tethered to consumption. If you
19:48
have more people, that's a positive, that's an accreative measure
19:51
to growing your economy over time. So that's another reason
19:54
why these countries are benefited by spending a percentage of
19:58
GDP to try and future growth. And this is a
20:02
story that we've covered before on the show. But basically,
20:06
whether you look at Hungry and Norway, which these are
20:09
two European countries that spend between three to five percent
20:12
of their GDP to promote the growth of families, they
20:15
still sit at a fertility rate of one point five
20:18
or one point four lower than that of the US's.
20:21
The US's stands currently at one point six. The bottom
20:25
line to check your point is that whether you look
20:27
at Hungary, Norway, South Korea has been doing this for
20:30
a while. To Singapore also, whatever financial incentives that they've
20:35
been able to offer have not shown any statistical evidence none,
20:39
to boost the fertility rate at all. It's an uphill
20:43
losing battle that they're all fighting. And you and I
20:46
have spoken about this on the show before. The three
20:48
of us are the most well qualified at the moment
20:50
to speak to this point because we all have younger kids.
20:53
That financial incentives are not the reason that you would
20:57
make this decision. It is true, life changing and fantastic,
21:01
we would all agree, and it has certainly it's pitfalls
21:03
and challenges that come with it too. But ultimately, I'm
21:07
having another kid shortly here, so I'm doing my part.
21:11
But the tax credit that i'll get from adding. From
21:14
adding my third child is not I can tell you
21:17
for absolutely certain from the US is not going to
21:20
help offset future expenses down their own.
21:23
Speaker 3: And that's not why I'm doing it.
21:24
Speaker 4: It comes back to the point every family is different,
21:26
Every individual is different as to what they want, and
21:28
whether you're in Hungary or the US or South Korea,
21:32
everyone has their own preferences on starting family. It's bigger
21:35
ideological decisions that go into that.
21:38
Speaker 2: Here's the big thing trying to it's not forcing, but again,
21:46
when you have a kid, it's kind of you know,
21:50
it's like you're stuck with them forever, for better or
21:54
for worse. Like they're there. And I find the idea
21:59
of trying to financially incentivize people to have kids a
22:05
little gross quite honestly. You know, it's look, once you
22:11
have a kid, sure, like I understand, yes, you want,
22:14
you know, to be able to provide for that kid,
22:16
and so if there are things that you need to
22:18
do like child tax credits and things along, I understand that.
22:22
But some of the stuff that like they're doing is like, hey,
22:24
like well literally like pay you to have kids. In
22:27
some cases, I find that kind of bothers them because
22:31
I can't imagine anything worse for a kid than the
22:34
mindset of, well, I wouldn't have had a kid, but
22:37
I needed the money, so I decided to. Like that,
22:39
that's just so disturbing to me in terms of like
22:43
thinking like that. I mean, this is a human being.
22:45
This is someone who's you know, autonomous to themselves and
22:48
can can make their own choices. And the fact that
22:53
we're basically saying, hey, we need this for the economy, Like,
22:57
is there anything more dehumanizing than being told, well, you
23:00
need to have a kid so the economy can grow.
23:03
I mean, like that just sucks the soul right out
23:06
of you.
23:06
Speaker 4: To your point, there is a woman that they quoted
23:08
in this piece from Hungary who mentioned that if we
23:11
were to say we'll have two kids, we could basically
23:13
buy a new house tomorrow. But morally, I would not
23:16
feel right having brought a life into this world just
23:18
to buy a bigger house. I mean, imagine that from
23:21
a US perspective, you could receive a twenty five hundred
23:25
square foot house if you were to add two kids.
23:27
Speaker 3: You know how.
23:29
Speaker 4: Morally inaccurate that is to proceed with that way, I
23:34
do understand, you know, childcare costs, subsidizing those or offering
23:37
some of those mestions, that is something that would go
23:40
into a lot of our calculus, but ultimately it wouldn't
23:43
be the sole determining factor. There also is just a
23:47
lifestyle switch across the globe, where in the nineteen sixties
23:52
there was a much more traditional view of when to
23:55
build a family, and that has deviated for many different
23:59
countries out there. In that that's playing into the numbers that.
24:02
Speaker 1: We see here.
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25:12
Speaker 2: Paul piece in the Wall Street Journal today. Before I
25:16
get there, want to preface it with have you do
25:19
you know anyone who has the Apple Vision Pro No?
25:25
Speaker 3: No, nope, nope, nope.
25:26
Speaker 2: I don't either.
25:27
Speaker 5: I've seen like social media videos on Instagram, whatever of
25:30
people having it, but that's the extent of it.
25:32
Speaker 2: Let me ask you this, Have you seen any of
25:34
those since January or February the videos?
25:38
Speaker 5: Yes, yes, you've seen people using him since then on
25:42
like videos, yes, but not in person.
25:44
Speaker 3: No, I don't.
25:46
Speaker 2: Aside from the first week or two when you had
25:48
all the dumb videos of like the guy driving a
25:50
Tesla while he was, you know, on his headset. I
25:53
feel like this thing has just faded out very quickly,
25:56
which is kind of expected. It's thirty five hundred dollars.
25:59
It's it's basically the antithesis of how Apple usually launches products,
26:05
and that it's almost like a public beta test where
26:09
you know, it's got this big battery pack that you
26:11
attached to it in this wire. It's it didn't seem
26:15
like it was a fully finished product, and what we're
26:19
seeing now again from this piece, it's not really surprising. Hey,
26:23
there's no real killer apps for it. There's nothing that
26:26
is a must have, you know, like when the iPhone
26:29
first came out and people you know, said, oh, like
26:31
you need to get this and this and this for it.
26:34
And it's just kind of in this nether world where
26:38
it's there and Apple supporting it, but it's unclear where
26:42
it goes from here and how they're going to iterate
26:44
and grow, just because the first generation has been kind
26:47
of underwhelming in terms of sales and the growth of
26:50
the app ecosystem exactly.
26:52
Speaker 4: I mean, if you're an app developer, you want to
26:54
develop an app for a platform that has a lot
26:57
of end users to reach as many people as possible.
27:00
And if you're not selling a lot of the hardware,
27:04
the goggles or the vision pros, then why spend any
27:07
time or resources creating a sophisticated app if no one
27:11
is going to be there to ultimately receive it. And
27:14
it just seems like this wearable headspace they haven't really
27:20
had a tremendous amount of success. Multiple companies out there
27:22
there are, Apple's not alone in this. Meta also has
27:25
their Quest three S headset that is starting at three
27:28
hundred bucks that hopefully their view is perhaps this lower
27:32
price point could get people involved, but it really hasn't
27:35
seen the type of takeoff that these companies may have anticipated.
27:39
Speaker 2: The other thing that I'd come back to on this
27:41
that I've been thinking a lot about is we're kind
27:46
of maxed out in terms of our screen time. Like
27:51
who's really sitting there right now going, hey, you know what,
27:55
I could use a little bit more connection through devices.
28:00
Speaker 5: There are times where I'm sitting at home and I'm like,
28:02
I have to say to myself, I'm like, what the
28:04
hell am I doing?
28:04
Speaker 2: Just throw my phone at Like on the other side of.
28:06
Speaker 5: The right, I have my laptop open, I'm looking at
28:09
my phone and the TV's on, and I'm like, all right.
28:12
Speaker 2: Let me just close one thing, please. You can melt
28:15
your brain, man, Isaac just Red.
28:18
Speaker 3: That's a really good point.
28:19
Speaker 4: I just think about even when I watched the TV
28:21
at night, it's phone in hand looking through stuff there
28:24
and also kind of watching a program at the same time.
28:27
Speaker 2: Yeah, it's it's just it's there's no one in the
28:30
world right now who's saying, yes, I need more more
28:33
phone time and screen time. All this really is it's
28:36
a battle over the next form factor to see who
28:38
controls the hardware in terms of who makes the rules
28:42
about ads, and you know, controls the data and this
28:44
and that. So I I think where I've kind of
28:48
landed is I don't think any of this development is
28:51
good for us, and I don't think we really needed it.
28:54
Really feels like it's being pushed on us by the
28:57
manufacturers just to get to that next form factor so
29:00
they can control it. Whereas the phone is just fine for.
29:04
Speaker 3: Us, right there isn't a need.
29:08
Speaker 2: I don't need my eyes covered with the screen. I
29:14
just I'm good, I'm okay. I wres no multiti. I
29:19
want to live the life in front of me.
29:20
Speaker 4: Man, the multitasking with that, Unless I'm unclear, it's damn near.
29:25
Speaker 2: Impossible, right right. Imagine, Tucker, here's where you could go.
29:29
You could have your laptop out, be doing something there,
29:31
watching the TV, while you have something else on the
29:33
headset in front of you and your phone phone.
29:35
Speaker 5: Well yeah, in the headset with at least with the
29:37
Apple thing, you can actually like drag your whatever you
29:40
were working on your laptop onto the Vision Pro.
29:43
Speaker 2: Meanwhile, your pets are dying because you forgot to feed
29:45
them because you're connected to eight devices forty six hours
29:48
a day.
29:48
Speaker 1: What.
29:49
Speaker 2: Yeah, because now we're on a different planet where the
29:52
days are longer.
29:53
Speaker 5: Look, I gets still a feeding your pets.
29:55
Speaker 1: What are you talking.
29:56
Speaker 2: I'm saying that you're so distracted by all your screens
29:58
that you forgot that your pet like is actually there
30:01
in the real world, like begging you for food.
30:03
Speaker 3: Kick, got it?
30:04
Speaker 2: That's what I was getting at. Yeah, Sorry, I got
30:08
a little dystopian there for a minute. Let's take a
30:10
quick break and when we come back, we'll finish up
30:12
with some really uplifting stuff. I think during stack Roulette.
30:16
Speaker 1: When we return, the financial Exchange streams live on YouTube
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30:23
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30:38
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30:43
Speaker 5: The Ultimate Boston sports auction to benefit the Disabled American
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Keep it here on the Financial Exchange and help support
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our great American heroes.
31:23
Speaker 2: Paul, what do you have for me for stak Rula?
31:26
Speaker 4: Starbucks is scaling back their discounts under their new CEO,
31:30
Brian Nickel, has been hired by Starbucks over the course
31:33
of the last six months or so to turn around
31:36
the chain, which has been really belieguer. They had lowered
31:39
their sales expectations twice over the course of this year,
31:42
struggling in both the US and Chinese markets. And Brian
31:45
Nicol comes from Chipotle, where he just did an absolute
31:49
bang up tremendous job with that company over the course
31:51
of the last five or six years, leading to significant
31:55
gains in their stock, and now it seems he's applying
31:58
a similar business model with Starbucks, where Starbucks has never
32:02
been a company to really offer much in the way
32:05
of promotions or discounts at all. They had unveiled them
32:07
after sales had slowed down a little bit. They were
32:10
trying to pick up during periods of slow traffic by
32:13
offering these discounts and promotions. But Chipotle ran a business
32:17
model of we offer you know, quality food. They've increased
32:21
their prices over the last couple of years and they
32:24
sort of lean back on we offer a good product,
32:27
people are willing to spend for it. And it seems
32:29
like Starbucks will be sticking with a similar strategy of
32:32
strong coffee, we have you know, good drinks that are available,
32:35
We're not going to give any discounts on them.
32:38
Speaker 2: You got to know the niche that you're competing in
32:41
and know your customer. And when I think of Starbucks
32:44
for better or for worst, I think of affluent customers
32:47
who are willing to pay more for the product. Right,
32:50
And it's not exactly the same. But do you do
32:53
you guys remember quiz Noos?
32:54
Speaker 1: Yes?
32:55
Speaker 2: Oh, I was Elizabeth Fan So Quiznos, in my opinion,
33:00
best subshop chain in the history of subshop chains. And
33:04
what put them out of business was two things. First,
33:06
private equity took them over, and as part of that,
33:10
the private equity firm that took them over decided to
33:13
compete on price with Subway, and they just couldn't do it.
33:16
They had too much debt and the thing blew up
33:18
because it just wasn't good anymore. They ran the thing
33:21
into the ground. And like ever since I saw that,
33:25
First of all, I've really missed quiz Nose, But more importantly, yep,
33:30
that's that. I fill it up again. Sorry, fill it
33:33
up again. In any case, I think a really important
33:37
lesson that I took from that is, hey, know the
33:40
value of your product and don't be afraid to sell
33:43
it at the price it costs to be profitable. Imagine
33:48
if like Capital Grill, like Darden restaurants. Imagine if they
33:50
were like, you know what, we're gonna try to cut
33:52
you know, prices at Capitol Grill to compete with steaks
33:55
at Applebee's. It's not the same customer at the same
33:59
price point. Like, you're not just selling steaks there, you're
34:02
selling upscale ones with Starbucks. Hey, you're spelling, you're selling
34:06
upscale coffees. Don't be afraid to do that, you know,
34:12
like freaking Versace doesn't say, well, we need to make
34:16
twenty dollars t shirts and compete with whoever we We
34:19
don't need to make five dollars underwear and compete with
34:21
Gap Like, no, it's it's Versace. Likewise it's it's Starbucks.
34:25
Like it's supposed to be upscale, right, and don't be
34:29
afraid to price it that way.
34:31
Speaker 4: And hey, spend more resources in time on making a
34:36
better product for paying customer space that will pay for it,
34:39
rather than trying to compete with the likes of Common
34:43
farmsized coffee or Dunkin Donuts ized coffee whatever. You know,
34:46
the competitor is that they're up against.
34:48
Speaker 2: Right, the other one. And this when I first read this.
34:51
It gave me vibes of a bad situation in retail,
34:55
which was you remember J C. Penny. Yes, So they
34:58
got run into the ground by Ron Johnson, who had
34:59
come from Apple and had done all of the rollout
35:02
of Apple stores. When they did that, and Johnson came
35:05
in to J C. Penny was like, I'm getting rid
35:07
of all the discounts, and there it was the wrong
35:10
move because the customer looked at the discounts and saw
35:13
that as the value. And so you have to know
35:16
your customer. In this case with Starbucks, it's not a
35:19
discount chain. It's high end. Price it high end, sell
35:22
it high end, and make it high end, like that's
35:24
where you want to be. I don't know. That's what
35:27
I think. At least we'll see if it works well. No,
35:30
soon enough, let's see how the next year or two goes.
35:32
Quick break. For the rest of the day, stocks remained
35:34
in positive territory, with the DOWSMP and NASDAC all up.
35:37
We'll see you tomorrow on the Financial Exchange