Latest / The Financial Exchange Show / Mortgage rates were supposed to come down. Why are they rising?

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Mortgage rates were supposed to come down. Why are they rising? · The Financial Exchange Show

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  This is the Financial Exchange with Chuck Zada and Mike Armstrong.
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  Speaker 2: Finishing up the week here on the Financial Exchange. Chuck, Mike,
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  and Tucker with you, and we'll get right into it.
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  We've continued to get better economic data over the last
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  six weeks. Remember, heading into September, a lot of chatter
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  including look on this program, we said, hey, the next
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  couple months of data is going to be really important
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  in terms of determining whether or not the United States
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  heads into recession before the end of the year or not.
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  And thus far, well, I don't think we can fully,
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  you know, write that off. The data has been cooking. Man,
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  it's been hot.
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  Speaker 3: The deck is stacked in favor of not it would appear.
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  Speaker 2: Here's what we're seeing right now. The Atlanta Fed they
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  run a now cast called GDP. Now, I know it's
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  really original. They're basically saying, hey, if the quarter ended
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  right now, here's what GDP would be. And they're now
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  cast for GDP now for Q three. As of you know,
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  late August was sitting at two percent, and that was
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  down from earlier in the quarter, again very early, but
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  it had dropped from two point nine down to two percent,
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  and so the concerns that we're out there because the
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  data was worsening was, hey, if this continues over the
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  next couple months, we're in a place that looks an
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  awful lot like recession by late October, early November, you know, December,
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  so somewhere in Q four.
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  Speaker 3: Sure.
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  Speaker 2: And here's what we've gotten in the last six weeks.
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  Now as of the latest update, which is this morning.
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  Speaker 3: It's great when it matches up like that, isn't it.
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  Speaker 1: It's nice.
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  Speaker 2: GDP now is currently projecting third quarter GDP at three
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  point four percent, which you do the math and that
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  is one point four percent better than the now cast
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  was in late August.
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  Speaker 3: You do the math, and it's not a recession up,
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  not down.
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  Speaker 2: And look, how accurate is this. It's not guaranteeing that
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  this is gonna be where GDP is. It's generally at
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  this time in the cycle anywhere within about a half
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  a percent. So you're saying, okay, like the low end,
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  even if you had in some additional you know, error
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  bars there like two seven, two six is probably the low.
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  The high four one four to two, it's probably not there.
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  But again, you you never know what you're gonna get,
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  this is all you know, kind of answering the question of, hey,
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  the Feds started cutting interest rates in mid September, why
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  have long term interest rates gone up? And the answer
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  has been there's been more growth than people expected at
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  the beginning of September, and so when you have more growth,
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  long term rates get bit up. And in fact, even
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  short term rates are now pricing out some of the
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  cuts in interest rates that were being priced in previously.
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  If you look back a month ago on September eighteenth,
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  for the November FED meeting, there's a thirty seven percent
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  chance that we were going to see another fifty basis
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  point cut. Correct, today there is a zero percent chance
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  being priced in, and in fact, a seven and a
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  half percent chance of no cut at that next meeting.
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  You go out to the December meeting as an example,
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  and at the December meeting there was a sixty five
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  percent chance that we were going to have seen between
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  seventy five and one hundred basis points and cuts by
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  then today zero percent. This is the evolution of the
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  bond market saying, hey, as the data comes in, we
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  are going to adapt to what we are seeing, and
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  right Now for the last six weeks, the data has
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  been better than expected and pretty resoundingly quite honestly. I mean, remember,
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  heading into early September, the unemployment rate had been ticked
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  up zero point one percent point one percent, and then August,
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  remember it went up point two percent. And the question
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  that we were all asking is, gee, is this like
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  the acceleration that we start to see heading into a
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  recession where you know, it's it becomes you know, not
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  a linear move up, but it starts to become, you know,
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  more of an exponential curve, one that accelerates up. August
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  job support comes out in early September.
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  Speaker 3: What do we get.
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  Speaker 2: Unemployment rate decreased to four point two. Well, okay, it's
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  kind of fluky, you know, we'll see what happens. Let's
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  get the September one. Two weeks ago, September one comes out.
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  Unemployment rate drops again from four point two to four
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  point one. Now two data points. Not quite a trend.
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  It's a line, not a trend, okay, but it's a
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  better line than you could have drawn in many situations
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  like that. There's somewhere you look at it and look,
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  there were very clear possibilities where we would be sitting
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  here saying, Gee, unemployment's now gone up to four point
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  six or four point seven, does the fit need to
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  you know, cut half a percent at all the next meetings?
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  Three quarters of a percent?
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  Speaker 3: Frankly, it's a line on unemployment that, like with many
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  other data points we've seen, we've never really seen it
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  happen this way before.
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  Speaker 2: No, this whole business cycle has been bonkers.
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  Speaker 3: What I mean by that is you had I think
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  the low and unemployment that we reached was May of
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  twenty twenty three at three point four percent, climbed all
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  the way up to that four point three percent level.
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  My point there is that you've never in modern history
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  seen unemployment climb by nearly what was that nine tenths
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  of a percent and then just hang out there. It's
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  never happened.
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  Speaker 2: Unemployment doesn't usually just stop going up. Yeah, well it does,
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  but not in a middle of our session. Yes, it's
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  usually once all of the firing has happened in everything,
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  and we haven't seen enough tick in firings.
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  Speaker 3: We haven't.
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  Speaker 2: It's just been this whole cycle has broken. Not every
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  economic indication, a lot of them, chunk of them.
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  Speaker 3: You usually don't see consumer sentiment in such a negative
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  status for such an extended period of time without a recession.
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  You don't see manufacturing data look as poor as it
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  has for the last few years without a recession. You
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  don't see temporary workers losing their jobs to the extent
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  that we have without a recession. And it's just broken.
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  A lot of those previously assumed to be true indicator, Yeah,
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  previously assumed to be true indicators of what will lead
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  to a recession or what coincides with a recession, and
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  they've broken here. I wonder what this does to a
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  quote data dependent Federal Reserve as we have and it
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  has been criticized for being two data dependents, not putting
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  together enough of a forecast of where they think things
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  are going to me. We covered this yesterday a piece
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  from I think Bloomberg of you know, the FED not
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  doing enough to put together projections and let people know
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  they think things are going to me. The Fed has
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  done exactly that. They have indicated quite strongly that they
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  see a path towards lower interest rates and very little
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  can disrupt them from that. I don't feel that anything
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  that we've seen over the last few weeks, in spite
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  of you know, good GDP numbers, good retail sales numbers.
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  We'll see the jobs report before their next meeting, before
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  the election. I don't know that I'm likely to see
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  much of anything that will disrupt them from another twenty
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  five basis point cut at the next two meetings.
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  Speaker 2: And I'll invite anyone's who's listening. We got our text
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  lines open at six one seven three six two thirteen
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  eighty five. What should Jay Powell be doing differently right
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  now not in the past.
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  Speaker 3: Well, look, he.
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  Speaker 2: Screwed up twenty twenty two borderline the end of twenty
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  twenty one, and you can even make a case for
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  the first half of twenty twenty three. I'll give you
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  he had a really bad two year run in there.
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  At this point in time? What's Jay Powell doing wrong?
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  Six one seven three six two thirteen eighty five. Text
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  don't call because it's a text line, it's not a
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  phone line.
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  Speaker 3: Is there a difference? How does that work? Tucker?
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  Speaker 4: One is for texts and one's for calls out.
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  Speaker 3: That's it.
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  Speaker 2: Six one seven three six eighty five. If if you're
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  upset at Jay Powell, tell me why you're upset today,
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  because honestly, and I say, this is so other.
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  Speaker 3: Than just existing.
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  Speaker 2: You listen, he's here. Okay, we can't nothing's changing. But
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  I'm someone who, like again in early twenty twenty two,
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  I'm sitting there pulling out what little hair I have left, going, Jay,
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  you got a hike? Man, You're completely like missing the
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  boat on this. But right now, man, like it's it's
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  kind of tough to find fault with what has gone
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  on this year and specifically what Powell and his team
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  have done this year. You got to give credit where
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  credit is due. Otherwise you're just like in angry person
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  yelling at someone who has more power than all of us. Yeah,
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  which feels good but isn't always factually accurate.
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  Speaker 3: I can come up with some reasons why I think
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  his future actions could be wrong, but I don't know
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  what his future actions are going to be.
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  Speaker 2: I'm not going to judge them on something he hasn't
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  done yet. Yeah, you know, like, what are we doing that?
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  Speaker 3: Then we're just being angry. It's something that's like fiction,
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  hasn't even happened yet. You know my political cynicism when
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  it really comes out, my cynicism is that under either
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  presidential candidate, should they sweep Congress and Senate. Then you
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  could have a bunch more inflation based on what they've
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  been talking about on the campaign trails, because they're economic policies.
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  From Frankly, both sides sound rather stupid if you're worried
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  about inflation, and I don't think the Fed should be
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  cutting into that type of scenario. But we don't know
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  who won the election.
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  Speaker 2: I thought you were going to say that Jay Powell
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  is going to declare himself king, and King Powell does
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  have a nice ring to it.
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  Speaker 3: It does sounds very fourteenth century British.
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  Speaker 2: You know, my favorite college football name is there's an
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  offensive i'man for SMU. His name is King Large.
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  Speaker 3: What a name?
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  Speaker 1: What a name.
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  Speaker 3: Indeed, let's take a quick break here.
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  Speaker 2: When we come back, let's talk a little bit about
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  the building permits and housing starts data that we got
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  this morning and what it means about the housing markets
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  we head into the winter.
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  Speaker 1: If you missed any of today's show, catch up whenever
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  you want on our YouTube page. Find daily show segments
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  Speaker 2: Mike, we got some housing data this morning. Building permits
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  and housing starts came out at eight thirty am. Permits
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  declined two point nine percent month over months from one
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  point four to seven million to one point four two
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  eight on an annualized basis. Housing starts to coined half
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  percent month over months from one point three to six
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  one million to one point three five four million.
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  Speaker 3: Overall a little bit.
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  Speaker 2: Of a downshift there. Things that we are seeing, though,
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  again numbers that aren't commonly you know, referenced in here.
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  Housing Units under construction is ultimately what matters, like, we
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  don't care about a permittent start just because it makes
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  us feel good. We care about it because units under
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  construction is the driver of residential construction jobs, and residential
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  construction jobs and the economic impact that comes from them,
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  sure is a huge driver of marginal economic activity. So
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  where we stand right now is at the beginning of
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  this year, we had about one point sixty five million
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  units under construction. Today it's one point four nine seven,
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  about a ten percent decline. That's probably going to bottom
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  out somewhere around one point four million, just because again
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  there's a big backlog of all the stuff that was
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  started or permitted back in like twenty twenty two that
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  you know, had some problems with you remember supply chain,
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  I do, Yeah, I do too. Everyone became a logistics expert.
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  Speaker 3: For just you know a little bit. It was really cool,
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  it was fun.
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  Speaker 2: But you're getting to the point where, look, you've had
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  this declining number of units under construction really since Q
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  three of last year. And there's no huge impulse to
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  be able to elevate it. You know, once it bottoms
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  out in that one point three five to one point
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  four million unit per year range.
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  Speaker 3: A lot of it looked like it was coming from
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  multifamily rather than sing single family. A lot of construction
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  of that leading up to COVID through COVID GET, especially
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  in the Sunbelt done, and now there's been I don't know,
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  I don't think big questions, but some questions raised about
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  demand for those multi family units. You've seen some apartments
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  under pressure in some parts of the Sun Belt where
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  again most of this construction happened. In terms of single families,
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  you saw starts rise in two of the four regions,
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  including up here in the Northeast with a ten point
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  six percent gain on starts for single family homes, as
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  well as a six point six percent gain in the
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  south meeting West. And what are the other regions the
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  four regions that they do here, so Southwest and Northwest, probably, Midwest,
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  probably Midway and West, Middle East probably not No, no,
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  not that one. So in any case, not devastating news,
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  I think is the point here. Small decline, not fantastic
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  news on housing.
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  Speaker 2: I'll be curious to see what the October data looks like,
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  because this rise in interest rates has really picked up
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  steam in the last two weeks, and so I'll be
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  curious to see if you have a larger drop in
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  permits that might happen in October. Don't know exactly where
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  it goes, but again, these are the things that we
• 15:31
  follow as it relates to, you know, the overall health
• 15:35
  of the US economy.
• 15:36
  Speaker 3: And stuff like that. Speaking of which, oh yeah, what
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  do you got? What the heck man? Rates are supposed
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  to come down on mortgages and they've gone in the
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  exact opposite direction. Is the question that NPRS as well
• 15:49
  as a few other publications that I've seen, seem to
• 15:51
  be asking right now about mortgage rates. And the honest
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  answer is that mortgage rates did come down. Yeah, you
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  had rates come down.
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  Speaker 2: Remember this time last year, the national fixed rate thirty
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  or fixed rate mortgage touched north of eight percent. By
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  mid September, it was down to about six point one
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  six point two percent today, like six ' seven right
• 16:17
  somewhere in that ballpark.
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  Speaker 3: Six point six eight percent according to Mortgage News Daily
• 16:22
  in that thirty year.
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  Speaker 2: So just shy of six ' seven. And the reason
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  why it's the same thing we were talking about in
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  our first segment, which is, look, as the economic data
• 16:29
  has improved and more growth has gotten priced in, long
• 16:32
  term treasury rates have moved up. Now, if you are
• 16:36
  a lender of any kind, you always have a choice
• 16:38
  in terms of who you lend to. You can lendo
• 16:40
  the US government for ten years at four point one
• 16:43
  percent right now, or you can lend to Mike Armstrong
• 16:46
  for thirty years. And so the question that you're asking is, look,
• 16:49
  if I can get the US government to give me
• 16:51
  four point one percent for ten years, how much more
• 16:54
  do I need to charge? You know, this guy over here,
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  because I don't know if he's going to pay me back,
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  I don't know what inflation's going to be over a
• 17:03
  little longer period, you know, thirty years verse ten, and
• 17:06
  so there's always a spread that typically has been about
• 17:09
  one point seven percent, you know, the spread on the
• 17:12
  thirty year fix compared to the ten year treasury today
• 17:16
  that spreads about two and a half. And that's because
• 17:19
  there are different risks that are present now. Most namely,
• 17:22
  banks are still concerned about a rebound inflation, and they
• 17:24
  don't want to get caught off sides if that happens.
• 17:28
  So mortgage rates have basically followed treasury rates, and that's
• 17:33
  what you typically end up seeing. And that's why rates
• 17:36
  even with the FED cutting that short term Fed funds rate,
• 17:39
  that's why mortgage rates have gone up in the last
• 17:41
  six weeks.
• 17:42
  Speaker 3: Yeah, I guess what is the so if we're worried
• 17:46
  about this rebound inflation, or rather banks seem to be,
• 17:50
  and man, really mortgage lenders of all kind seem to be,
• 17:53
  because you know, this is just the average thirty year
• 17:56
  fixed I'm sure there's some below there. But what is
• 17:59
  the catalyst me four banks? I guess removing that worry
• 18:04
  of higher rates higher inflation in the future time. Same thing, Like,
• 18:11
  think about it this way.
• 18:13
  Speaker 2: If I'm just pulling one piece of data on this,
• 18:16
  just because I think that this is a valuable one.
• 18:19
  If you look at the early nineteen eighties, just as
• 18:22
  an example, inflation was coming down. I'm just gonna get
• 18:27
  my CPI number here just so that I have it
• 18:30
  all in one place. So if you take a look
• 18:32
  at where inflation was in the nineteen eighties, Okay, it
• 18:40
  peaked in March of eighty and was on a steady
• 18:45
  move down through July of eighty three, like it peaked.
• 18:48
  The final wave of inflation in the seventies peaked in
• 18:51
  you know again, early nineteen eighty at like fourteen percent
• 18:55
  the spread on the thirty year fixed rate mortgage relative
• 18:59
  to the ten treasury that peaked two years later in
• 19:04
  nineteen eighty two. Well, actually, there's there's a yeah, there
• 19:07
  are a couple peaks there, both of them north of
• 19:10
  three percent, one of them north of a four percent
• 19:12
  spread there. And the reason why was, even as inflation
• 19:15
  was coming down, banks were kind of holding their mortgage
• 19:19
  rates where they were because they were saying, yeah, I'm
• 19:22
  not sure that we want to move on this yet.
• 19:26
  And eventually by the late eighties early nineties, you got
• 19:30
  down to a normal place. Quick break here Wall Street
• 19:33
  watches Next.
• 19:42
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  on the Financial Exchange Radio Network. Time now for Wall Street.
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  Watch a complete look at what's moving market so far
• 19:58
  today right here on the financi Shall Exchange Radio Network.
• 20:02
  Speaker 4: Markets are mixed territories. Investors react to housing starts and
• 20:05
  building permits data this morning.
• 20:07
  Speaker 3: In addition, to.
• 20:08
  Speaker 4: Impressive third quarter earnings from Netflix. Right now, the Dow
• 20:12
  is off by nearly a third of a percent, or
• 20:14
  one hundred and twenty seven points. S and P five
• 20:16
  hundred is up by twelve points, and the Nasdaq is
• 20:20
  up by nearly two thirds of a percent. Russell two
• 20:22
  thousand is flat edging higher ten You're Treasury reeled, pulling
• 20:26
  back by two basis points at four point zero seven percent,
• 20:30
  and crude oil is off two and a half percent,
• 20:34
  trading below seventy dollars a barrel, now at sixty eight
• 20:36
  dollars in ninety cents a barrel. Netflix is helping drive
• 20:40
  sentiment higher after the streaming giant reported its most profitable
• 20:43
  quarter ever despite slowing subscriber growth, as it surpassed street
• 20:47
  forecasts on both lines in the previous quarter. Netflix also
• 20:52
  posted a thirty five percent jump and add tier memberships
• 20:55
  from the prior three month period. Netflix shares are jumping
• 20:59
  by ten percent today. Meanwhile, big news out of CBS
• 21:03
  Health this morning after the struggling drug store chain announced
• 21:06
  longtime executive David Joyner will replace Caaron Lynch as CEO.
• 21:11
  CBS also guided for third quarter results below expectations CBS
• 21:16
  shares are down by eight percent. Elsewhere, consumer products company
• 21:21
  Proctor and Gamble that stock is flat after its third
• 21:25
  quarter sales slipped, but we're mostly in line with expectations.
• 21:30
  American Express shares down by five percent after the credit
• 21:33
  card company posted mixed third quarter results, beating on earnings
• 21:36
  but narrowly missing on revenue. MX also hiked its earnings
• 21:39
  outlook for twenty twenty four and Apple shares up by
• 21:43
  one percent after Bloomberg reported that iPhone sales in China
• 21:47
  jump twenty percent year over year in the first three
• 21:51
  week of sales. I'm Tucker Silvan. That's Wall Street Watch,
• 21:54
  and just a quick note here. We just got word
• 21:56
  that the DAV five k is officially sold out, So
• 22:01
  thank you to all of those that registered, and we
• 22:04
  look forward to seeing you on November ninth, coming up
• 22:07
  with the DAB five K.
• 22:10
  Speaker 3: I'm looking forward to it. We're gonna have to trip
• 22:12
  you or something to try and win this race. I
• 22:14
  don't know.
• 22:15
  Speaker 2: I finished fifth the last time I ran it. Yeah,
• 22:18
  not as optimistic this year.
• 22:20
  Speaker 3: What's the what's the trick from wedding crashers? Is it
• 22:23
  saline solution in the drink? Some saline solution in your
• 22:26
  water bottle.
• 22:27
  Speaker 2: Oh the eye drops, Yeah, yeah, yeah, yeah, I wouldn't
• 22:29
  appreciate that.
• 22:29
  Speaker 3: Yeah, I would appreciate that. I mean, look, play to
• 22:35
  win here, all right, let's talk a little bit about Netflix.
• 22:39
  They're also playing to win.
• 22:40
  Speaker 2: The Netflix stock, by the way, up north of eight
• 22:43
  percent today on the back of their earnings release yesterday,
• 22:47
  which quite honestly, like I'm trying to figure out why
• 22:50
  it's up eight percent, because isn't that good? It seemed fine,
• 22:55
  Like It's not something where I'm sitting here being like, oh,
• 22:57
  like the stocks are to crash, but like it was fine.
• 23:01
  Speaker 3: Ten and a half percent now ten and a half
• 23:02
  percent for Netflix. So there you go. I needed a
• 23:05
  little refresher on this because the uh, look, this company,
• 23:10
  among many others in twenty twenty one, saw a.
• 23:13
  Speaker 2: Massive boost to their stock price. The difference is they
• 23:16
  have a real business, and a lot of other companies
• 23:18
  then did not.
• 23:19
  Speaker 3: Yeah, like, you know, electric car companies that turned out
• 23:22
  were just pushing their trucks down hills. But is that bad?
• 23:26
  Stock came crashing down so reached six hundred ninety dollars
• 23:29
  back in October of twenty twenty one, before April of
• 23:32
  twenty twenty two, sorry, summer of twenty twenty two, hitting
• 23:36
  below one hundred and eighty dollars per share. It took
• 23:38
  until July of this year to eclipse that previous high
• 23:42
  in twenty twenty one. But honestly, you know, in spite
• 23:46
  of some concerns and challenges about their model and competition,
• 23:51
  there's not much negative to say about Netflix at this point.
• 23:53
  They're not as perhaps as an exciting and revolutionary business
• 23:56
  as they were five years ago. But I can't really
• 24:00
  criticize them for much either.
• 24:02
  Speaker 2: No, I mean, look, the things that I criticize them for,
• 24:05
  like aren't really even their things. Like everyone considers them
• 24:08
  a tech company. They're not a tech company. It's a
• 24:11
  media company. Their media company is just the stuff gets
• 24:13
  delivered over like you know, streaming instead of over a cable.
• 24:18
  That would you ever go and be like wow, like
• 24:21
  cable vision, what a tech company? No, it was just
• 24:23
  a different way of delivering TV than over the air.
• 24:28
  So but that's not something that Netflix did wrong. That's
• 24:30
  just how we refer to them for sure ever reason.
• 24:33
  I mean, like even before they were doing streaming, why
• 24:36
  would you call them a tech company all they were
• 24:37
  doing was mailing DVDs to you. How do we actually
• 24:41
  categorize them communication services? Yeah, they're lumped in with again
• 24:45
  AT and T, Verizon and Charter, Comcast. Yeah, Google, It's like,
• 24:50
  what a what a mess of a category? The S
• 24:52
  and P created that like five or six years ago.
• 24:55
  Speaker 3: Yeah, it's messy, and it's like you got to.
• 24:57
  Speaker 2: Go back to the drawing board because those companies have
• 24:59
  nothing in common write each other.
• 25:01
  Speaker 3: It's just a mess.
• 25:01
  Speaker 2: But yeah, let's here's that what I'll say about Netflix
• 25:04
  the good stuff. They're the only streamer that knows how
• 25:07
  to make money. Let's be clear on this. Yeah, every
• 25:10
  other streaming company is like, what the heck do we do?
• 25:14
  We can't figure out the economics of it. And Netflix
• 25:17
  has positive free cash flow, They are positive in terms
• 25:21
  of you know, revenue growth, profit growth, their margins are expanding.
• 25:26
  Everything looks good for them. So like, I'm not gonna
• 25:28
  poo poo and be like, oh, they're horrible. It's just hey,
• 25:31
  when you you know, beat earnings by a little bit
• 25:34
  and beat revenue buy a little bit and guide a
• 25:38
  little bit better, doesn't really seem like you should be
• 25:41
  seeing a ten percent pop after your stock is already
• 25:43
  up forty six percent for the year.
• 25:44
  Speaker 3: Yeah. Again, I think, and we're gonna talk about this
• 25:47
  is another story that we're gonna cover later. But the
• 25:49
  kind of relentless optimism right now might be a little
• 25:52
  bit concerning in my view. But nonetheless, look, the company
• 25:57
  did grow their user base. They are seeing more success
• 26:01
  in the ADS supported tier. They saw that half of
• 26:03
  their new sign ups, at least in markets that actually
• 26:06
  have an AD supported tier, half of those new sign
• 26:08
  ups are going towards that AD supported version, which they
• 26:12
  need those eyeballs in order to sell those ads. You know,
• 26:14
  it's a very new business for them that Yeah, frankly,
• 26:18
  they've just had to build out. When did they start
• 26:20
  doing ad support? It was that just last year. Yes, So,
• 26:23
  I mean, this is an entirely new business for them.
• 26:25
  They never had a advertising business of this sort and
• 26:30
  suddenly are trying to compete with Google as well as
• 26:33
  you know, major broadcast networks to attract advertisers. It's relatively
• 26:37
  new and they still need to execute on it, but
• 26:39
  they are growing that base. And frankly, any of the
• 26:43
  concerns that investors talked about with oh, you're cracking down
• 26:46
  on passwords while people actually sign up they did. It
• 26:51
  seems to be the only streaming service that people refuse
• 26:54
  to delete.
• 26:55
  Speaker 2: You know, look, at least just from a personal level,
• 26:57
  that's kind of how it is. I go through cycles
• 27:00
  where hey, I subscribe to HBO whatever they're calling it
• 27:04
  these days for is that what it is now?
• 27:07
  Speaker 1: Yes?
• 27:07
  Speaker 3: Max?
• 27:09
  Speaker 2: Okay, So this is the problem with that is that
• 27:12
  they change the name so often. But I subscribe to
• 27:15
  Max for I don't know, a couple months.
• 27:17
  Speaker 3: Of the time.
• 27:17
  Speaker 2: If some shows on YEP, I subscribe to Apple TV
• 27:21
  Plus a couple months of the time. And I say
• 27:23
  this even despite saying I do think Apple TV Plus
• 27:26
  might have the best overall suite of content out of
• 27:29
  any streamer these days.
• 27:30
  Speaker 3: But it's still not something where I need it all
• 27:32
  the time. No, Peacock, my wife downloaded last weekend because
• 27:37
  she wanted to watch the Chicago Marathon. I promise you
• 27:40
  we will not be long term subscribers at Peacock. Can
• 27:42
  you get a one day subscription for that? No? No,
• 27:45
  So we're on for the month. So I'm hoping to
• 27:47
  consume all of the Office Seinfeld thirty rock content I can.
• 27:53
  Speaker 2: Sounds like a good plan. Yeah, but Netflix for whatever reason,
• 27:57
  like I'll just keep it on there just because I'm like, okay,
• 27:59
  they have, you know, all kinds of movies that come
• 28:01
  in and out, and oh look, I just need something
• 28:03
  dumb to fall asleep to this time. I don't know,
• 28:07
  it just it's stickier for some reason for me. I
• 28:10
  don't know why that is. But everything else I kind
• 28:13
  of cancel and come back to.
• 28:14
  Speaker 3: In this one, I don't necessarily it does fall into
• 28:17
  the category of several other companies to discussed, which is
• 28:21
  we've never seen it through a truly down business cycle.
• 28:26
  Speaker 2: No, but it feels like at this price point, you know,
• 28:30
  even like the standard plants fifteen bucks a month. Yeah,
• 28:33
  wouldn't you cancel YouTube TV before you cancel this? Maybe,
• 28:38
  wouldn't you cancel you know, I don't know, like anything
• 28:42
  else that's more expensive to stream, Yeah, you know, cable
• 28:45
  or whatever, Like what again?
• 28:46
  Speaker 3: Yeah, I mean logically, if you're faced with a recession
• 28:50
  and you know you're trying to pull back on the budget,
• 28:52
  you might go after dining out and going to the
• 28:55
  movies before you pull back on something that you can
• 28:57
  consume relatively and expensively at home as a form of entertainment,
• 29:01
  but it hasn't been tested, right, I mean, twenty twenty
• 29:04
  wasn't a test to this, and everybody's anymore anyways, Right,
• 29:07
  Like everybody subscribed to Netflix in twenty twenty because they
• 29:09
  were flushed with cash and had to stay home. Give
• 29:12
  me a real recession where people actually lose their jobs
• 29:15
  and don't have those massive stimmy checks. I don't know.
• 29:18
  I'm just I'm pretty sure people will keep it, but
• 29:21
  it hasn't been tested.
• 29:22
  Speaker 2: The other question is going to be, Look, they've raised
• 29:25
  prices quite a bit over the last couple of years,
• 29:30
  and they haven't gotten a ton of pushback to this point.
• 29:34
  They've had some, sure, but not a crazy amount.
• 29:39
  Speaker 3: I think at this stage you can continue to raise
• 29:42
  prices with some modest rate of inflation every few years,
• 29:46
  but the rest of your income growth is going to
• 29:48
  need to come from these advertisers. I think that that
• 29:51
  ads supported tier you can't touch. Yeah, I mean I
• 29:55
  think over five years maybe you can, but year to
• 29:58
  year you can't.
• 29:59
  Speaker 2: I think your premium plan or whatever to twenty two
• 30:03
  ninety nine a month, raise it by two dollars. I
• 30:05
  don't think anyone who's subscribed to it now cares. Yeah,
• 30:09
  it's kind of what it seems like to me. Yeah,
• 30:12
  let's take a quick break. When we come back, we'll
• 30:15
  talk about whatever the heck.
• 30:18
  Speaker 3: Is going on at CVS.
• 30:20
  Speaker 2: It's not great, Bob, it's really not We'll talk about
• 30:26
  CVS when we come back.
• 30:27
  Speaker 1: Find daily interviews and full shows of the Financial Exchange
• 30:30
  on our YouTube page. Like us on YouTube and get
• 30:34
  caught up on anything and everything you might have missed.
• 30:37
  This is the Financial Exchange Radio Network. Miss any of
• 30:41
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• 30:43
  visiting Financial Exchange show dot com and clicking the on
• 30:46
  demand icon, where you'll find all of our interviews and
• 30:49
  full shows. This is your home for the latest business
• 30:52
  and financial news in New England and around the country.
• 30:55
  This is the Financial Exchange Radio Network.
• 31:03
  Speaker 2: Mike, let's talk a little bit about CBS, one of
• 31:06
  the two major pharmacy chains still remaining in the United
• 31:10
  States at this point.
• 31:11
  Speaker 3: Are we not even mentioning right it anymore? No, they've
• 31:14
  had to close like a million stores. Yeah, wait, did
• 31:18
  they change their ticker symbol?
• 31:20
  Speaker 2: They might not even be in business, Like they declare bankruptcy.
• 31:24
  I don't know exactly, Like they still have stores, but
• 31:26
  I don't like, what are they doing at this point?
• 31:28
  Speaker 3: Yeah? Usually uh yeah, no, they changed the ticker. There's
• 31:33
  still at least to be R A D and now
• 31:35
  it's R A D c Q having gone right, So here's.
• 31:38
  Speaker 2: The thing, Like, if you can't find them where you used.
• 31:42
  Speaker 3: To, yeah, yeah, right, they're not in the conversation.
• 31:43
  Speaker 2: They're not a relevant company in any way, shape or
• 31:47
  form at this point.
• 31:48
  Speaker 3: So here's the deal with CVS.
• 31:50
  Speaker 2: CVS right now is in kind of a pickle in
• 31:55
  that they're doing three hundred and sixty three billion dollars
• 31:59
  in revenue, which there is a lot of revenue. That's
• 32:01
  a billion dollars a day in revenue. Their free cash
• 32:04
  flow is five billion dollars over the last twelve months,
• 32:07
  so it's like, okay, basically like not getting anything there.
• 32:11
  Your profits over the last twelve months are seven billions,
• 32:15
  So if you do that math, it's like a two
• 32:17
  percent profit margin.
• 32:19
  Speaker 3: It's relatively thin.
• 32:20
  Speaker 2: And this is after spending a boatload of money to
• 32:24
  acquire Etna, because hey, like it's impossible to lose money
• 32:27
  buying a health insurer, only to go and lose money
• 32:30
  buying a health insurer. So the question for CVS, by
• 32:34
  the way, I haven't even gotten to like the pharmacists
• 32:37
  are walking out multiple times a year because they're stressed
• 32:40
  about their workload. They've got declining sales in stores of
• 32:45
  basically anything front of store, you know, deodorant, shampoo, and everything,
• 32:49
  because people realized, hey, I can just set up a
• 32:51
  subscription on Amazon or Walmart or Target and get that
• 32:54
  stuff delivered.
• 32:55
  Speaker 3: And not have to go somewhere to buy it.
• 32:57
  Speaker 2: And so the question for CVS is what does one
• 33:02
  do when every aspect of my business is crumbling? And
• 33:09
  the answer is fire the CEO, Yeah, I don't know
• 33:13
  that fixes it.
• 33:14
  Speaker 3: I don't either. I don't know how you fix this company, Mike.
• 33:18
  So part of this, actually a big part of this
• 33:21
  was a fairly large misstep that many insurers made on Medicare.
• 33:27
  There's a lot of alliteration there sorry about that. They
• 33:31
  went out there and really pushed the Medicare business. They
• 33:35
  offered all sorts of incentives to get new Medicare sign
• 33:39
  ups on their platform, and a few reasons why it
• 33:42
  was a big misstep. One they seem to have offered
• 33:46
  way too many incentives, but to the government kind of
• 33:49
  changed the rules midway through here, and I don't suspect
• 33:51
  that that's going to happen again, so they probably won't
• 33:55
  misprice the product so badly again. But what happened here
• 33:59
  was the government change the rules when it came to
• 34:00
  drug when it comes to drug price negotiation and all
• 34:04
  sorts of features with medicare plans, which again I think
• 34:07
  was the right move for the government to do in
• 34:10
  terms of keeping costs down. But for a company that
• 34:14
  offers the insurance and then also handles the prescriptions and
• 34:19
  then fills them at their pharmacies, you can see how
• 34:22
  that might be a problem for a company like CVS.
• 34:25
  Speaker 2: One other thing that I find to be a problem
• 34:28
  is they had also remember all the chatter a few
• 34:31
  years back, you know, twenty like late twenty tens and
• 34:34
  early twenty twenties, Hey, we want to become like a
• 34:36
  place that people go in order to like get you know,
• 34:39
  basic health care services as well. Yeah, having urgent care
• 34:43
  place is pretty much rendered that just an awful business
• 34:47
  for them to get into. Because I'll tell you this,
• 34:49
  I've had to go to urgent care places, you know,
• 34:51
  handful of times the last few years.
• 34:53
  Speaker 3: The experienced fantastic.
• 34:56
  Speaker 1: I go.
• 34:56
  Speaker 2: Just as an example, I go yesterday for a flu
• 34:58
  shot at CVS. I'm waiting there for like fifteen minutes
• 35:02
  for the thing. I go into an urgent care with
• 35:04
  like a hole in my leg from trying to, you know,
• 35:07
  do something on the lawn. Oh great, no problem, We'll
• 35:10
  get you all taken care of.
• 35:11
  Speaker 3: Here you go. See. I actually have had a good
• 35:14
  experience with the CVS health centers oh and have quite
• 35:18
  enjoyed the ability to walk in there, know that I
• 35:22
  need a prescription drug for something, and then walk out
• 35:24
  of it. I walk out of that office with that
• 35:27
  drug in hand, because I'm also at a pharmacy. The
• 35:30
  problem is they haven't. In my view, the problem was
• 35:33
  that they just didn't push it, Like I can't make
• 35:36
  CVS my primary care. They don't have the services that
• 35:39
  my primary care has. So it's really specific use cases
• 35:43
  that I would go in there, And so it seems
• 35:46
  like a half hearted attempt to provide healthcare.
• 35:49
  Speaker 4: Falls in full swaying. The leaves are changing, the days
• 35:52
  are getting shorter, and the cold is inching closer. Don't
• 35:55
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• 36:19
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• 36:22
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• 36:25
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• 36:27
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• 36:30
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• 36:34
  no passport required and no money to exchange. Whether it's
• 36:37
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• 36:47
  your trip of a lifetime today. That's visit USVII dot com.
• 36:53
  Speaker 3: Wednesday.
• 36:53
  Speaker 2: This week, the catering company easy Cat released its third
• 36:57
  annual Lunch Report, and golly was I did to see this?
• 37:00
  As someone who loves lunch. They surveyed five thousand full
• 37:04
  time workers, and here's what they found. In particular, they
• 37:07
  also surveyed people in the Boston area just to see
• 37:09
  how it differed from nationwide. Bostonians take a lunch break
• 37:13
  away from their desk two point nine days a week,
• 37:15
  spending thirty five minutes on lunch. Seventeen percent of Boston
• 37:19
  workers never take a lunch break. That's down three percentage
• 37:22
  points from twenty twenty three, but still higher than the
• 37:25
  fifteen percent of workers nationwide. Thirty one percent of Bostonians
• 37:29
  take a lunch break every day, still lower than the
• 37:32
  thirty six percent nationwide rate. By the way, the highest
• 37:36
  lunch break rate Atlanta, forty three percent of workers take
• 37:39
  a lunch break daily.
• 37:42
  Speaker 3: Why do people typically skip lunch?
• 37:44
  Speaker 2: Twenty nine percent say they have too much work and
• 37:46
  not enough time, Twenty four percent say that meetings eat
• 37:49
  up their lunch hour, and only a quarter of workers
• 37:53
  actually set time on their calendars for a lunch break.
• 37:56
  Easycator also found that Bostonians spend three hundred and twelve
• 38:00
  dollars on work lunches per month. That is fifteen dollars
• 38:04
  a day, which is just freaking insane. It's a lot
• 38:08
  to spend on lunch.
• 38:10
  Speaker 3: It's a lot of money.
• 38:11
  Speaker 2: Packatoona sandwich, it's a.
• 38:13
  Speaker 3: Lot of money.
• 38:15
  Speaker 2: I mean, Gollie g Willakers. Gotta get that down by
• 38:19
  like a factor of ten. Quick break here our two's
• 38:21
  coming up.