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What to look out for now that rates are falling · The Financial Exchange Show

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1:07
Face is the Financial Exchange with Mike Armstrong and Paul Lane.
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Speaker 2: Good morning, Happy Friday here on the Financial Exchange, the
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day after US equities reached new all time highs, the
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day after the day after the Federal Reserve cut interest
1:25
rates by fifty basis points, and we head into the
1:28
weekend here with markets slightly selling off, but again close
1:31
to all time highs on the S and P five
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hundred as well as I believe the Dow, maybe the
1:35
NASDAC as well. It's Mike Armstrong, Paul Lane, and Tucker
1:39
Silva with you on a Friday as we continue to
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just kind of recap it and sort out the implications
1:47
of this fifty basis point cut, which, again, if this
1:52
is your first time tuning in this week Wednesday after noon,
1:55
you couldn't have missed this. This news was like literally
1:58
on Disney almost in terms of how big it was
2:03
breaking news that the Federal Reserve did cut interest rates
2:06
by half a percentage point on Wednesday afternoon, and the
2:09
initial reaction from market's a little bit mixed, with them
2:11
selling off into the afternoon, but then Thursday coming back
2:15
and reaching those new all time highs. So, Paul, I
2:18
haven't had time to get your take on this. I
2:20
didn't do the show Wednesday with you, so give it
2:23
to me. What's your thoughts right now on Hey, what
2:28
does this mean.
2:28
Speaker 3: For the federal reserves direction? And just how aggressive were
2:31
they really?
2:32
Speaker 4: I think what it will come down to, Mike over
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the course of the next six to twelve months is
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a couple key factors to monitor. The most critical one
2:40
that we will spend the most significant amount of time
2:42
on this program likely talking about, is the labor market.
2:45
Any type of data that comes out from the labor
2:48
market is going to be scrutinized heavily because that remains
2:52
the biggest concern and the biggest piece to monitor as
2:55
a result of this action from the Fed. Now you
2:58
can look at the Fed's actions of two ways, this
3:01
idea that they cut fifty fifty basis points. If the
3:04
labor market stabilizes, then the FED will come out looking
3:08
like heroes. Where and stabilizes. To be fair, it isn't
3:12
a very strong position at the moment, but if it
3:14
does not worsen, I guess from here, then the FED
3:16
will look like heroes in a sense because they are
3:19
able to navigate this transition of increasing interest rates, bringing
3:23
them down and not bringing on a tremendous amount of
3:25
job loss. However, if it does revert in the other
3:29
direction and continues to increase unemployment, then they're going to
3:33
be sitting in a spot where they'll be subject to
3:35
scrutiny as to why they didn't embark on this path,
3:39
you know, earlier on in July.
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Speaker 2: Yeah, I made this point yesterday after listening to the
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press conference and reading back through the transcript. My take
3:47
on this meeting was exactly what you described, which was
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not a fifty basis point cut, because look out the
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you know, the ceiling is falling and the sky is falling.
3:59
But rather Jerome Pell was actually asked a specific question
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about this, which was purely hypothetical in nature. But he
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was asked, hey, your Federal Reserve decision in July came
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two days before we got a labor report that triggered
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a some rule recession indicator, and you know, generally spoke
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to a rising concern about unemployment. And he was asked, hey,
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it was two days later. Had you known about that data,
4:27
would you have cut interest rates then? And he said,
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we may have.
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Speaker 3: You didn't.
4:32
Speaker 2: You know, he never gives a five word answer. He
4:34
always gives the you know, one hundred and fifty five
4:36
word answer. And so it was, you know, followed by
4:39
a whole lot of different discussion, but it was, yeah,
4:41
we might have done so. And so my read on
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this was, if this was a true emergency cut, they
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wouldn't have waited until September to do it. They can
4:48
do intermeeting cuts whenever they want. They did so several
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times during the COVID crisis, and I'm sure they'll do
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so again at some point when we're faced with a
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true recession. This was just making up for lack of
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information that they had at the previous meeting, and so
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I think that's eventually how markets ended up taking it.
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Here was Okay, we're not going to get more of
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these fifty bases point cuts with what we have today.
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It's going to be following twenty five's. But that still
5:16
gets you to a full percentage point lower on interest
5:18
rates by year end, and that may eventually be a
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boost to the economy at some point in the future.
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So that's where things stand at the moment. To your point, Paul,
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you know, we did have just one month. But last month,
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the month of August, we see did see the unemployment
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rate decline, albeit slightly, to four point two percent. And
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what we've described as the soft landing internally here has
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been both year over year inflation and unemployment staying under
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four and a half percent. And it's looking possible now.
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I had my doubts that we would get there, but
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it is looking possible, well know by I don't know
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what day the December jobs report comes out in January,
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but it'll be pretty darn close in terms of that possibility.
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Speaker 3: And by the way, that will also drive where the
6:07
interest rates go.
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Speaker 2: Right, right, should that unemployment eclipse four and a half percent,
6:11
then you can be darn sure they're coming down fast.
6:13
But don't hold your breath because it probably doesn't mean
6:15
anything good for you.
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Speaker 5: Sure sure.
6:17
Speaker 2: So that's where things stand here. Markets, like I said,
6:20
selling off slightly this morning, but all all eyes now
6:24
turning to that job market. The message that I think
6:30
was mixed here but it was eventually delivered, is that
6:35
while they're saying that they put equal concern about unemployment
6:38
and inflation, Jrome Powell later completely contradicted himself on that
6:42
and made it pretty clear that they care more about
6:44
the labor market that they do inflation.
6:46
Speaker 4: Yeah, it seemed like under the hood or a subtle
6:49
sentiment of less concern about inflation. Not directly stated, but
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I think you can certainly imply it a little bit
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that inflation is no longer a primary concern and there
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isn't as much fear as there was previously about inflation
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rearing its head again.
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Speaker 5: But you don't want to speak too soon on there,
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yeah front.
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Speaker 3: My take on it is very simple.
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Speaker 2: It's really difficult for me to see a situation where
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inflation rears it's ugly head again by the end of
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this year.
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Speaker 5: It would take any global crisis that we can't foresee.
7:21
Speaker 2: You two hundred dollars barrel oil. That's how you get there,
7:23
right like that, That would do it. Sorry to scare it,
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but but that would do it. And I just don't
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think that that's highly likely. So it's very unlikely that
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you get inflation back over four percent by year end.
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I don't think that that's by and large possible. Anybody
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that's making predictions about inflation in twenty twenty five and
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twenty twenty six, they're making things up. Nobody knows nobody
7:44
knows anything. That's not going to be a useful analysis
7:48
of anything. If you're talking about inflation rearing its ugly
7:51
head again in twenty twenty five, because.
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Speaker 3: It's too far away.
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Speaker 2: Could I see a scenario where that happens. Yeah, if
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we don't get higher unemployment, if genuine league companies just
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continue hiring and stop cutting employees towards the end of
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this year, and interest rates are genuinely a full percentage
8:09
point or more lower, and you've got mortgage rates that
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eventually come down further to that five and a half
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percent range, could I envision a scenario where inflation is
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once again top of the list for the FED in
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twenty twenty five. Absolutely, But for now it's dead. For now,
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it's a dead story. It doesn't it doesn't matter for
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the dynamics of the stock market. I know that that's
8:31
again people have accused me in the past of just not,
8:34
you know, being in touch with what matters to I
8:37
recognize inflation matters for everyone out here listening.
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Speaker 3: It matters for me.
8:40
Speaker 2: I hate going to the grocery store now based on
8:43
how darn expensive it is, So I recognize that inflation
8:47
is still the story that's going to dominate the election.
8:49
Nobody when it comes to how they're going to vote.
8:51
I don't think many people are thinking at all about
8:54
joblessness and unemployment. That's not what's going to drive people's vote.
8:57
But what if you're wondering, what is driving the stock
8:59
market to new all time highs, what's driving the Federal
9:02
Reserve to cut rates? It's all about labor market, not inflation.
9:07
And that's been a really quick turn for investors to
9:12
get used to, because as recently as April and May
9:15
of this year.
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Speaker 3: It was inflation.
9:17
Speaker 2: Yeah, it was inflation that was dominating the cycle and
9:20
what actually mattered to investors. Let's take a quick break
9:24
when we come back. We did a good ninety minutes
9:27
of FED talk yesterday, so I think we will probably
9:30
still sprinkle that in throughout the show, but I want
9:34
to move on directly from all of that, and let's
9:36
come back a little talk about Nike's new CEO and
9:40
the rocky five years that they have had under current CEO,
9:43
John Donahoe.
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Speaker 3: We'll be right back with that next on the financial exchange.
9:47
Speaker 1: The latest news on inflation, the FED, the economy, and
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Speaker 2: Uh, Nike hasn't been a great five years for Nike.
10:59
I mean we can debate that, but at least for
11:01
their stock price, what's it done?
11:03
Speaker 3: Over the last five years.
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Speaker 2: I think it's basically flat with today's moves over a
11:07
five year time horizon, with you some big gains in
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the middle there, but the last few years of a
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pretty significant selloff here. And the CEO it's been announced
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that he is stepping down. He's been at the HELM
11:21
since I think it was early twenty twenty that he
11:23
was brought one and proposed some pretty sweeping changes at
11:27
the time. Why don't you talk a little bit about
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his tenure over at Nike and just kind of what's
11:31
befallen the company.
11:32
Speaker 4: Yeah, So, basically, if you look at Nike's historical returns,
11:36
they had fantastic years in twenty and twenty one, and
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really what happened there was Nike was undergoing a strategy
11:45
shift where rather than selling directly to wholesalers their products,
11:48
foot locker and some of these other ones out there
11:51
were the biggest channels of distribution for Nike shoes, they
11:55
embarked on a strategy to sell more of their products
11:58
online or directly to cons and which otter time, what
12:02
better time to do it than covid right to have
12:05
an e commerce presence, to have the capability to deliver
12:09
directly to your consumer when people weren't going to physical
12:12
stores like a foot locker. However, and it's reflected in
12:15
the stock price that subsided after twenty twenty one, and
12:18
as a result of that in twenty sex.
12:20
Speaker 2: Which part of it subsided people's willingness to do that
12:23
or their reliance on the.
12:24
Speaker 4: The reliance on the on the online sales and the
12:27
foot traffic. They pulled back so dramatically from wholesalers that
12:32
they've admittedly said that they overdid that strategy shift too quickly.
12:36
Speaker 2: Because I remember, you know, they suddenly, you know, other
12:39
than knockoffs, pulled all their product from Amazon.
12:42
Speaker 5: For example, exactly. That's an example of it.
12:44
Speaker 4: You have the physical store locations, the foot lockers or
12:47
other ones out there where they're no longer as present.
12:50
And as a result, what it allowed for is two
12:53
things to occur during this period. First of all, the CEO,
12:55
John Donahoe, had a background he had worked at eBay
12:58
previously and being consulting, he was in charge of the
13:00
digital sales makeover and the e commerce side of things.
13:04
But they lost their way on the innovation front. There
13:08
wasn't because he doesn't come from the Nike background, there
13:10
wasn't as much focus on innovation. Rather it was milking
13:14
their existing brands, like the Jordan brands with these limited
13:18
shoe releases on certain quantities. Those were super profitable, but
13:22
there wasn't as much on innovation. As a result, what
13:24
you see is companies like Hoka. Is that, am I
13:26
pronouncing that right? Hoka the running shoe.
13:29
Speaker 3: I barely exercise, Paul, you're asking the wrong guy. Hoka.
13:32
It's not a hockey skate. Ti'm not gonna be able
13:34
to help you.
13:35
Speaker 4: Hoka and on Running are two startup competitors that I
13:38
mean competitors. Nike is an absolute behemoth, but sure they
13:42
were able to make inroads in the innovation side of
13:45
the running market where if you look at marathon runners,
13:48
they're now utilizing this Hoka. To be clear, Hoga. They're
13:51
really premium running shoes, but they're used now by nurses.
13:54
And now there's because of the technology that is in place,
13:56
and that if you look at the ethos of Nike,
13:58
and I'm going and on and on because I really
14:01
like the company and fall I.
14:02
Speaker 2: Got a giant swish on his heart right now, it's
14:05
literally on his should.
14:06
Speaker 4: It's a brand that I have been, you know, really
14:09
fond of since I was a young kid because of
14:11
their marketing efforts, whether it's Jordan or other athletes after that,
14:15
and now you've had the innovation just elsewhere. And so
14:18
as a result, they have named a new executive CEO,
14:21
Elliott Hill, who was at the company through twenty twenty.
14:24
We've seen a lot of replay in the same CEO
14:28
or executive hits. It seems like across Fortune five hundred
14:32
companies recently, Iiger coming back and others. And the hope
14:36
is that he has worked at Nike since the nineteen
14:39
eighties where he was an intern, made his way through
14:41
the ranks, that he'll sort of reinstill the company's values
14:46
and reshift the brand a little bit.
14:48
Speaker 3: I have to say.
14:49
Speaker 2: I mean, granted, I'm sitting here with you four years
14:51
of hindsight to be able to, you know, tease somebody
14:54
about all this. But we're not talking here about kitchen equipment.
14:59
We're not talking about I don't know, like cleaning products
15:05
or you know, things that I can very easily envision
15:09
buying online. Talking about footwear and clothing. Again, it seems
15:15
easier with hindsight because nobody knew what was going on
15:17
in twenty twenty and where trends were going to shift.
15:20
But if you're a serious athlete, are you ever going
15:23
to just buy a shoe online? Even a semi serious athlete?
15:27
Speaker 3: Right?
15:27
Speaker 2: Like, I think about the times that I've gone and
15:29
bought new running shoes. I go to a running store
15:32
and I ask to try on a few different ones
15:34
and get some advice on like what I'm going to
15:36
use the shoe for before I spend one hundred and
15:38
seventy bucks on something, and I recognize that, Well, maybe
15:42
I'm just the old guy in the room, but I
15:44
don't I don't really understand why that was ever going
15:47
to be a successful strategy. When it comes to clothing,
15:49
wear and footwear and the stuff that Nike sells, Yeah,
15:55
more of it's occurring online today than it did twenty
15:57
years ago. Sure that's going to continue and large I
16:00
still think people want to feel it.
16:02
Speaker 4: And also you need your brand presence at those stores,
16:05
whether it's Dick Sporting Goods or Macy's or you.
16:07
Speaker 2: If you're not, there's no Nike shoes you're talking to,
16:11
wonder you're gonna buy it? Do you still make Nike
16:12
shoes and you're just gonna.
16:13
Speaker 5: Buy Adidas a new balance, Right.
16:15
Speaker 4: If you're gonna if you're going into a physical location
16:18
and Nike is not there, you're not gonna say, well,
16:20
I'll just go to the Nike store. I don't even
16:22
know how many physical brand pH the physical brick and
16:25
mortar locations that they have. It's not something that is,
16:28
you know, top of mind, You're just gonna buy another
16:30
product if they're not there.
16:31
Speaker 3: I would also furthermore say that if your strategy.
16:34
Speaker 2: In the twenty twenties is going to be, hey, we
16:38
are pushing for a full online sales model or much
16:42
heavier online sales model, and then at the same time
16:45
say that we're going to pull our product from the
16:48
online seller that receives fifty cents of every dollar spent online,
16:53
which is Amazon, that's also a pretty stupid strategy, right, Like,
16:57
if you're gonna say, hey, we're pulling our stuff from
16:59
physical stores, then you need to be present on the
17:02
place where all online eyeballs start their shopping experience.
17:05
Speaker 4: I mean, that's it rings home pretty true because my
17:09
son is like just getting into the soccer side of things,
17:11
and I just went to Amazon to grab them a
17:13
quick pair of shoes, and I would be typically looking
17:16
for Nike because of my brand allegiance, but if it's
17:19
not there, I'm pulling the trigger on something else because
17:21
it's buying shoes for a three or four year old
17:23
play soccer, So I don't care really what they are.
17:26
Yeah they're not there, then I'm just gonna pivot to
17:28
another brand. It seems like that has been the sentiment
17:30
in general, and it's been reflected in their sales numbers
17:32
where they had their sales growth of one percent. It
17:35
was their worse since twenty two thousand and eight, two
17:38
thousand and nine in terms of these sales numbers that
17:41
they saw, and really what killed the stock over and
17:44
probably was the final nail in John Donahill's coffin was
17:48
they reported ten percent decline in sales quarter over quarter,
17:52
or rather year over year in their fourth quarter earnings.
17:56
Speaker 3: We've been seeing trends like this.
18:00
Speaker 2: I'm not sure it's the same trend, but backlash against
18:04
the household consumer product names, and I thinking this is
18:09
a weird connection to make, but I wonder if there
18:11
is one between what we're seeing, for instance, in grocery,
18:14
where people are finvatebling that yeah, private label because of
18:18
maybe a perception of it being cheaper or just a
18:21
perception of it being cooler for some reason is playing
18:25
over into other areas. I would suspect that doesn't hold
18:27
true in clothing brands and shoe wear, but maybe it
18:31
does too, right, Like, maybe there is something cool about
18:34
having a Hokah shoe that nobody's ever seen before, or
18:37
an on running shoe that nobody's ever seen before, compared
18:40
to the old Nike swoosh.
18:41
Speaker 4: I think, to make your point on the grocery store
18:43
side of things, that the way that the Procter and
18:45
Gambles have tried to attack it is either they're going
18:47
super premium, which kind of Hoka would fall into that
18:49
category because those shoes are really expensive. But if you're
18:52
going to be on the lower end, you got to
18:53
be super cheap, and Nike is it's a discretionary expense.
18:57
Speaker 5: It is.
18:58
Speaker 4: You can certainly find their T shirts and their foot
19:00
and footwear options cheaper than what Nike offers. So maybe
19:03
that's what's going on as a result of kind of
19:05
the inflation black backlash that we've seen.
19:07
Speaker 2: In grocery Every's just buying their shoes on TIMU maybe
19:11
sixty cents.
19:12
Speaker 3: I think there's actually be careful about that.
19:14
Speaker 2: I think there's an actual story about a woman like
19:16
getting stabbed by her shoe that she bought on Shan
19:18
or TAM because there's just needles sticking out of it.
19:21
Speaker 5: So talk about getting what you pay for.
19:22
Speaker 3: Yeah, yeah, yeah, I don't think most people are doing that.
19:25
Speaker 2: Let's take a quick break. When we come back full
19:27
market update with Wall Street Watch.
19:42
Speaker 1: Like us on Facebook and follow us on Twitter at
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TFE show. Breaking business news is always first right here
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on the Financial Exchange Radio Network. Time now for Wall
19:55
Street Watch a complete look at what's moving market so
19:58
far today right here on the Financial Exchange Radio Network.
20:02
Speaker 6: Well, markets are pulling back slightly after yesterday's rally, driven
20:06
by the Fed's half percentage point rate cut. His traders
20:09
witnessed the Dow and SMP five hundred notch all time
20:13
record highs yesterday. Right now, the Dow is off by
20:16
sixty one points, SMP five hundred is down by about
20:20
a third of a percent, NASDAC down by nearly half
20:24
a percent or seventy three points. RUSS two thousand is
20:27
down nearly two thirds of a percent tenure. Treasure reeled
20:30
is up by one basis point at three point seventy
20:33
five percent, and crude oiled down by two thirds of
20:36
a percent, trading at seventy one dollars and fifty cents
20:39
a barrel. Big news out of Nike yesterday, as discussed
20:43
where CEO John Donaho announced he would have retired next month,
20:46
ending his five year bumpy tenure with the sports where company.
20:50
Former executive Elliott Hill, who previously retired as the company's
20:54
president of Consumer in Marketplace back in twenty twenty, will
20:58
assume the role. Nike sh shares popping by over five
21:02
percent on the news. Meanwhile, FedEx share is plunging by
21:05
fourteen percent after the shipping giant posted a significant decline
21:09
in quarterly profit and revenue and also cut its full
21:13
year guidance. Competitor UPS is also seeing sympathy losses on
21:17
the day. Elsewhere, Lenard beat earnings and revenue expectations for
21:22
its fiscal third quarter or However, that stock is retreating
21:25
by five percent, and Constellation Energy shares jumping by over
21:30
thirteen percent after the company said it will restart its
21:33
Pennsylvania three Mile Island nuclear plant to help power Microsoft's
21:38
AI data centers. I'm Tucker Silvan, that's Wall Street Watch Paul.
21:43
Speaker 2: In October of last year, we've talked a fair bit
21:45
about this. Mortgage rates on the thirty year tipped over
21:48
eight percent. When we kicked off the spring housing season,
21:52
which most people consider to be around Super Bowl Sunday
21:55
late February, we had rates about a full percentage point lower,
21:59
down at seven point one four percent. Uh, and we
22:03
saw what has been a pretty weak spring housing market,
22:07
not a lot of inventory, but also not a ton
22:10
of excited buyers hitting the streets, say, and going to
22:15
buy homes. We as of yesterday, according to this is
22:18
all data according to Mortgage News Daily. By the way,
22:21
if you want to take a look at it yourself,
22:22
you can just google Mortgage News Daily. They have this
22:25
this tool out there that looks at every different interest
22:27
rate across the spectrum. You're sitting with thirty year fixed
22:30
rates at six point one seven percent, fifteen year fixed
22:33
down at five point sixty five percent. And I genuinely
22:38
don't know if that will be enough to excite people
22:41
about the fall housing market, which typically sees some bump
22:44
in inventory levels. But uh, you know, we're now almost
22:48
two percentage points lower than we were in October of
22:51
last year. You have more mortgage holders. I think we're
22:53
approaching fifteen percent of outstanding mortgages with rates over five percent?
22:58
Speaker 1: Uh?
22:59
Speaker 2: Do can we see some excitement from again, maybe it's
23:03
the housing market, or maybe it's just investors, maybe it's
23:07
small businesses about hey, because I'm just talking, you know,
23:11
forget about the facts on the ground of what the
23:13
Fed did. But the excitement that got clearly generated about
23:17
the Federal Reserve cutting interest rates? Do we start to
23:19
see that seep through some areas that we haven't seen
23:22
really any budgeing on over the last year.
23:24
Speaker 4: I would say it goes back to the idea that
23:27
Jerome Powell mentioned yesterday in his Federal Reserve or Wednesday
23:31
and the Server Reserve, meaning it there's a lagged effect
23:33
on these types of cuts. And if you look at
23:36
the mortgage market in the United States, and Mike you
23:38
touched on it a little bit. In Q two of
23:41
twenty twenty two, seven percent of mortgages outstanding were above
23:45
six percent and fifteen percent of them were above five percent,
23:49
So about twenty two percent combined, we're sitting at over
23:52
five or six percent. In terms of the mortgages, as
23:55
of recent data, fourteen percent of mortgages were over six
23:58
percent and twenty four percent we're above five percent, So
24:01
cumulily between those two thirty eight percent, so we're talking
24:04
twenty two percent. In Q two of twenty two, we're
24:06
sitting at above five or six percent. Now that number
24:09
or percentage rather is thirty eight percent over five or
24:12
six percent. So if you look at the refinancing market,
24:15
I think if you continue this trend down to perhaps
24:19
you know, five percent or five and a half, we
24:21
could definitely see some pick up on the refinite side
24:24
of things. On the purchase side, that argument can be
24:28
made too if you're looking to make a move, If
24:30
you can sustain these rates at five and change for
24:33
a longer period of time, you can make the argument.
24:35
But this idea that all of a sudden, you and
24:37
I are going to be sitting here in December or
24:40
January heading into next spring, I just don't know if
24:43
there's enough time for the impact of these lower rates
24:45
to really trigger a tremendous amount of activity.
24:48
Speaker 3: Yeah. I don't know either.
24:50
Speaker 2: You just think about it like I'm trying to put
24:52
myself in the shoes of you know, the average person
24:55
potentially looking to buy a house, and you might have
24:59
headed into this year saying, just forget about this. I'm
25:02
disgruntled with the state of the housing market. There's no
25:04
homes for sale, and mortgage rates are up over seven percent,
25:07
and I would have completely understood that sense. I'm just
25:12
wondering if that same person who just kind of stepped
25:15
out and said, forget about it, I'm not going to
25:17
be able to buy a house now took a look
25:20
because they heard, oh, Jerome and Powell cut interest rates
25:22
even though that has nothing to do with mortgage rates,
25:25
and is suddenly looking at it and saying, oh, six
25:27
one five, I didn't know that, maybe it's time to
25:30
get back in here. I genuinely don't know. I'm not sure.
25:33
We've seen no evidence of it. I mean, refinances are up,
25:37
if you go take a look at you know, the
25:38
number of those, But there's no indication to me that
25:41
we are seeing a whole bunch of buyers re enter
25:43
the market. So I'm genuinely unsure. I doubt that businesses
25:46
are going to suddenly borrow a whole bunch more money
25:49
and hire a bunch of people just because you know,
25:51
the thirty year mortgage rates down and the ten year
25:53
treasury bond yeald is down. But that's the question, just
25:58
like on the way up, is how long invariable is
26:00
that lag of FED policy?
26:03
Speaker 3: And we just we don't know.
26:04
Speaker 2: But my point would be everyone is honed in, as
26:07
myself included, on the possibility for recession. And if I'm
26:12
going to paint another picture here, imagine how strong the
26:15
economy would be if suddenly we had an uptick and
26:17
inventory of homes for sale, plus a bunch of buyers
26:21
coming back into the market.
26:22
Speaker 3: That could lead to.
26:23
Speaker 2: A much stronger economy and quite honestly, some inflation next year.
26:27
But that would be the other side of this coin. Hey,
26:29
if we don't get that recession, what exactly does this
26:33
thing look.
26:34
Speaker 3: Like going into spring of twenty twenty five.
26:35
Speaker 4: Yeah, mortgage rates will be really interesting to fall over
26:38
the course of the next six months or so. I
26:40
feel as if that five percent is kind of a
26:43
nice magic number that could perhaps stoke some demand, but it's.
26:46
Speaker 2: Psychological threshold I genuinely don't know. Amazon saying workers need
26:51
to be in the office, most of Silicon Valley disagrees specifically,
26:56
when we take a look at this, If you look
26:58
at tech employers with more than twenty five thousand employees
27:03
across the country, only three percent of those tech companies
27:07
are requiring employees to be in the office five days
27:10
a week. So Amazon definitely an outlier here. But what
27:13
they're not an outlier in is pushing people back into
27:15
the office to way higher extent. That's a curred at Facebook,
27:19
it's a curred at Zoom, it's colored at Google.
27:21
Speaker 3: Nobody.
27:22
Speaker 2: None of them are really on the five day a
27:24
week track, other than maybe Tesla, who isn't really a
27:28
tech company. We just like to talk about them as
27:29
though they are one because they're CEO. But this is
27:32
a continued trend that we are seeing here, and I'm
27:35
unsure on the Amazon side if it's a genuine feeling
27:39
of we are more productive in the office or merely
27:42
a way of weeding out the people they don't want anymore.
27:45
Speaker 4: It's interesting because it was a really performative way of
27:48
declaring it. If I read the memo that was sent
27:50
out to employees, it takes a while for Andrew Joss
27:53
to get Andy Jesse to get to the point of
27:55
saying it's this, you know, a page long memo I'm reading.
27:58
I'm like, when is he going to say, come get
28:00
your butts back in the office. And finally, like the
28:02
last paragraph, he basically hits on it after, you know,
28:05
classic corporate speak, talking a lot about all the great
28:07
things that have been done. But by the way, we're
28:09
going to need you all to come back in at
28:11
the end of this.
28:12
Speaker 5: And to me, I just don't.
28:15
Speaker 4: Know if they needed to go this abrupt with the
28:18
policy because tech and all the innovation there is focused
28:23
heavily on AI and why limit yourself on certain talented
28:28
engineers or coders out there with such a restrictive policy.
28:32
I understand the push to get more people back in
28:35
the office. And this is again we talk about corporate ethos.
28:38
This is like Amazon to a core is really being
28:40
together and working together self problems. So I'm not surprised
28:43
to hear them declaric. But I just didn't know if
28:45
they needed to be this hard about it this, you.
28:49
Speaker 2: Know, That's why so I would tend to agree with you.
28:53
I tend to think that there are plenty of especially
28:58
more tenured worker. I guess I'm gonna call it you
29:01
know people that have been in the labor force and
29:03
done this type of work for a decade who probably
29:05
don't need to be in the office to be effective.
29:08
Speaker 3: My wife seems to be one of them.
29:10
Speaker 2: She doesn't work in tech, she works in a different industry,
29:12
but you know, quite productive at home. But I think
29:17
what Amazon's really trying to That's why I think that
29:20
Amazon is really trying to do here is reduce headcount.
29:24
I think that this could just be a really easy
29:27
way for them to say, Okay, we'll find out who
29:30
our most dedicated employees are here and the ones that
29:32
don't show up you don't have a job anymore because
29:34
we don't need that many people, or we need different
29:37
people now in order to pivot towards artificial intelligence. And
29:40
so you know, we'll have managers hand pick a few
29:43
of them that are really strategically important to the organization
29:47
and also don't want to work in the office, and
29:50
we'll make exceptions for those ones, but for everybody else, like, sorry,
29:54
it's a tough job market right now, we don't need you,
29:56
and we don't have to fire you this way, or
29:58
we don't we have cause to fire you.
30:00
Speaker 3: In this case, it.
30:02
Speaker 4: Will be interesting to see what the results of this
30:03
are come January, because I think that's the amount of
30:05
time that you have to make.
30:07
Speaker 2: You know, I don't need to pay you a bunch
30:10
of you know, severance and all this sort of stuff.
30:12
If I'm firing you for cause for not showing up
30:14
in the office, you're gone. You can't collect You're You're
30:18
not a liability in the same way that we would
30:20
be if we had to offer some sort of package
30:22
to get rid of you.
30:22
Speaker 4: So have you talked to people who've worked at Amazon.
30:25
The recent feedback I've gotten from a couple of people
30:27
who've worked there, at the corporate structure I'm not talking
30:29
about like a driver or something like that, is that
30:31
they work you. They work you hard because it's so Yeah,
30:34
I mean it's it's a.
30:35
Speaker 5: Very rigorous corporate culture.
30:39
Speaker 4: So I guess this is right in line with that
30:40
that they're gonna get the most that they can out
30:42
of employees.
30:43
Speaker 2: Yeah, there's some of the humorous stuff around the town hall.
30:46
There's a town hall back in August of last year
30:49
where they're pushing off, you know, pushing people to be
30:51
back in the office more.
30:53
Speaker 3: And his quote Andy Jassey's quote, if you can't disagree
30:55
and commit.
30:56
Speaker 2: It's probably not going to work out for you, sage
31:00
that he gave as a bunch of disgruntled employees, you know,
31:04
walked off work in Seattle.
31:06
Speaker 3: So we will see where it goes.
31:07
Speaker 2: But this has been a trend playing out my wife's
31:10
company again not in tech. She's now in the office
31:14
half the time, just fifty percent of the time, but
31:16
it was only a quarter as of a few weeks ago.
31:17
So we are seeing this trend of more to more
31:20
back in the office, which should mean great things for
31:23
all of our commutes. Let's say a quick break when
31:25
we come back, big sales disappointment from a major logistics company.
31:30
Speaker 3: We'll cover that next. On The Financial Exchange.
31:32
Speaker 1: Missed one of our shows. Catch up anytime by asking
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31:39
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31:43
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32:09
Speaker 2: I don't like to read too much into individual company
32:11
earnings in terms of what it means for the larger economy,
32:14
by and large, there can be all sorts of pitfalls
32:17
there when you try and do so. Oftentimes, when companies
32:20
mis earnings, it's just a matter of poor execution.
32:23
Speaker 3: But FedEx this morning reported earnings. Was it this morning?
32:27
Was it after the bell? Yes after the bill? Yesterday
32:30
they reported earnings after the bell.
32:32
Speaker 2: Stock is now off fifteen percent in early trading. Ups Stock,
32:38
their main competitor in the space, down three point six
32:41
percent in sympathy.
32:42
Speaker 3: And it's in terms of FedEx.
32:46
Speaker 2: It's a little bit difficult for me to not let
32:48
those views on the state of the overall economy bleed in.
32:51
When you have a company like FedEx reporting that, hey,
32:54
we had lower profit and revenue for the fiscal first
32:57
quarter after week of an expected demand, particularly in the
33:01
US domestic package market. I mean, I don't know about you, Paul,
33:05
but I'm not showing up at FedEx every week personally
33:08
to go, you know, send postcards to my family members.
33:11
Speaker 3: I use the United States Postal Service for that.
33:13
Speaker 2: And if FedEx is seeing weak demand, I have to
33:16
look at that as weak demand for shipping heading into
33:19
the holiday season, which isn't a great sign.
33:21
Speaker 5: Yeah, it's interesting.
33:22
Speaker 4: I'm not sure how much to glean from this either.
33:24
The CEO did mention in the earnings report that industrial
33:28
demand was softer than anticipated, and really the reason that
33:31
FedEx had such a challenging quarter, they claim, is that
33:34
they were shipping a lot less profitable packages. The most
33:38
profitable ones are business to business transportation delivery of packages
33:43
where you have manufacturing and these other industries that utilize
33:47
FedEx for these really immediate term delivery options. They've claimed
33:51
that more of the packages that they saw were coming
33:54
from China, from your favorite.
33:56
Speaker 5: Company TIMU.
33:59
Speaker 3: Love those places.
34:00
Speaker 4: And so when you step back from a bigger picture
34:02
of perspective, FedEx STUFVES does have a pretty good correlation
34:07
to tracking GDP. They are really heavily involved in the
34:10
economic flow on a day to day basis, so seeing
34:13
some of these weaker numbers is slightly concerning. But I
34:16
do tend to side Mike with what you've said is
34:18
that you can't just take one company extrapolate that out
34:22
to a whole industry. I was looking at ism manufacturing
34:26
and that number from what we had seen in August
34:29
had ticked up a little bit from July, though it's
34:31
still off its peaks of this year where it stood
34:34
in March, April and May. So not sure what I
34:37
really necessarily take from this. If you see that, you've
34:40
seen contradictory you know, industrial data out there that indicates
34:44
stronger than what FedEx report is.
34:45
Speaker 2: No, it's fair, it's fair, But you know it's not
34:49
like you can look at FedEx and say, oh, well,
34:53
maybe they're just not shipping as much stuff and that's
34:56
still okay for their business.
34:57
Speaker 3: Right. It's just tough to.
34:59
Speaker 2: Come up with a and why companies would dramatically spend
35:02
less on shipping costs other than they don't need to
35:05
move stuff around the country. There's really only one conclusion
35:08
that I can come to on it. With today's trading.
35:11
By the way, FedEx is basically flat now for the year,
35:13
stocks up less than one percent year to date. UPS
35:16
on the other hand, had a much tougher year so far,
35:19
stocks off nearly twenty percent for the year on UPSTOC.
35:24
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35:27
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36:30
Speaker 2: Paul, You're not gonna believe this, but I want to
36:31
go off the planned course here and talk football for
36:37
a moment.
36:37
Speaker 3: Hey, all right, it's a little strange for me.
36:39
Speaker 2: But Buffalo Bills, you hear and see anything about their
36:43
new stadium construction, one point four billion dollar new stadium
36:48
that they're putting in.
36:48
Speaker 4: Yeah, they're offering an option out there for fans to
36:52
purchase bonds to help financing of the new stadium.
36:55
Speaker 3: Yeah.
36:55
Speaker 2: So here's how it's all breaking down, as Erie County
36:59
where Buffalo sit is selling the bonds to fund half
37:03
of their two hundred and fifty million dollar commitments. So
37:06
Eerie County as a county is agreeing to put two
37:10
hundred and fifty million dollars towards the.
37:11
Speaker 3: Construction of this stadium.
37:13
Speaker 2: The Buffalo Bills themselves are on the hook for what
37:16
was it like six hundred of I think it was
37:19
like five hundred and fifty million dollars of the one
37:21
point four billion dollar price tag. The rest is going
37:23
to be borne by New York State, Erie County and
37:27
the taxpayers there. This is, as far as I'm aware,
37:31
fairly unique. I mean, not just the one point four
37:34
billion dollar price tag for a stadium, but the way
37:37
that they are doing this today is individual investors, retail investors.
37:42
Prior to institutions being able to bid, are able to
37:46
indicate interest in these bonds, which the interest rate is
37:50
not yet said on so long as they commit at
37:52
least five thousand dollars. And I'm just curious because while
37:57
they're not there's not a ton of people that live
37:59
in Buffalo. It's one of the smaller NFL markets out there.
38:05
As a Patriots fan, I have to just acknowledge that
38:07
they are some of the most passionate fans out there.
38:09
Episode do they end up raising a whole bunch of
38:11
money here and thereby not quite impacting the taxpayer quite
38:15
as much?
38:16
Speaker 5: We'll be interesting to see quick.
38:17
Speaker 2: Break a lot more to cover in the second hour
38:19
of the Financial Exchange.
38:20
Speaker 3: We'll be right back at it after this