The simple solution to reduce the cost of housing

Chuck Zodda and Mike Armstrong explain why weak currency and deflation are the rocket fuel behind China's shock 2.0. Reclassifying marijuana could unlock billions in tax savings for cannabis companies. Want to reduce the cost of housing? Build more of it. Capital-gains tax hits more home sellers. Consumers fed up with food costs are ditching big brands.

Episode Transcript

(00:00):
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(00:20):
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(00:42):
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(01:03):
Boston is presented by Veterans Development Corporation. This is the Financial Exchange with Chuck
Zada and Mike Armstrong. It isChuck, Mike and Tucker with you a
little bit after eleven. And theDOAO is not really doing much today.
It's up sixty four points. That'sfine, about two tenths of a percent.

(01:23):
A s A P five hundred uphalf percent or twenty seven points.
Nasdaq up ninety points, are abouthalf a percent as well. So it's
just that pesky doo that's not reallyplaying along quite as well as you'd hope.
Do you think there's math teachers outthere who want us to reduce our
fractions like further, Yeah, likeyou know, one fifth of a percent
instead of two tenths I don't care. I'm just curious. I believe in

(01:47):
a thing called love, and I'mgonna keep it how it is. The
DAO up eighteen one hundred percent.The DAO is up two hundred and ten
thousands right now, and that's howit is. The US ten year Treasury
is up one basis point to fourpoint five one percent or four point five
one zero percent. Oil West TextIntermediate up fifty four cents to seventy eight

(02:10):
sixty five. Gas prices starting tomove down a little bit as oil prices
have come down, not a ton, but remember we were about three sixty
eight at the peak last week.We're now down to three sixty five,
so down about one percent in thelast week. That is always fun to
see, makes uh, makes itmore enjoyable for me. And we've got

(02:30):
gold today up twenty one dollars andtwenty cents nouns to twenty three, twenty
nine and eighty cents. Like there'sa piece in the Wall Street Journal today
the rocket fuel behind China shock twopoint zero week Currency and deflation. What
do you make of this? Whatit's talking about here, just to just
so you know, is that China, because the economy has been so bad,

(02:54):
has a deflation problem domestically, whichis kind of the oppostion the rest
of the world. Not disinflation,inflation slowing down, deflation where stuff is
becoming cheaper because China because people arebuying so little stuff, so this is
kind of a problem. And whatwe're seeing also is that China, which

(03:15):
controls their currencies exchange rate that yuWan with the US dollar, has let
the yuan depreciate about six percent sinceMarch twenty twenty two. The parallels of
China right now to the United Statesin two thousand and ten through thirteen are

(03:36):
just becoming more and more parallel.I guess to the extent that they even
have a cash for clunkers program goingright now. And here's where where China
stands, because things are quite dodgythere at the moment. Is if you
think about this from an exchange rateperspective, So let's say that China is,
you know, seeing pressure on theircurrency, and think about why this

(03:59):
happens because there isn't as much demandfor it. If you don't have people
spending money in China as much,well, you don't need as much of
the Chinese currency, and so itputs pressure on it because you don't have
as much buying of it. Sowhat you see countries do in order to
manage their exchange rate, they typicallydo one of two things. Let's look

(04:19):
at, you know, the yuanversus the dollar, just as an example.
In that case, if China says, hey, our currency is weakening
and we don't want it to,they can do one of two things.
In general, they can buy moreof their own currency. So the Chinese
government can say, yes, we'regonna buy our currency in order to support
it. But the question is,okay, where does the money come from?

(04:40):
Because if all you're doing is printingyour own currency in order to buy
more of it, you're literally treadingwater. Well not literally, you're figuratively
treading water. It doesn't do anythingright. So what you have to do
is you have to sell something thatis not your currency in order to buy
it. That it could be abunch of the different foreign exchange reserves that

(05:02):
China holds, because one of thethings that China does they export a ton,
and so they get all these othercurrencies that come in, and that's
how they've basically built their economy.It's through a bunch of foreign capital coming
in and that's kind of been thedeal with them. So they've got all
these reserves of dollars of euros.I'm sure back in the day they had

(05:23):
deutsch marks and this and that andyen and everything. The question is what
do they sell in order to dothat? Now, if you're trying to
get the most bang for your buck, you say, look, if i'm
trying to support my currency against thedollar, I'm gonna sell dollars and buy
you on. So that's when whoeverthey can pull, but you don't have
to. You could sell yen tobuy you on you could you do all
these different things. But here's theother thing that you got to remember is

(05:46):
that if you want people to investin your country foreign money coming in,
one of the worst things that youcan do is a huge currency devaluation,
because then it's like, great,I invested all this money and it's worthless.
It's not gonna come back to mewith you know, now my payback
periods longer. I'm not gonna dothis again. So this is how they
have to try to balance these things. And it's also something where if you

(06:09):
think about the mechanics of this.I'm trying not to get too in depth,
but it's it's cool stuff when youtalk about foreign exchange, even though
I'm scratching the surface on it,like barely. Let's say that China says,
hey, we are going to devalueour currency, which they last did
a major one of back in twentyfifteen. It was August to twenty fifteen.
I remember it was a really badweek for me at the time because

(06:30):
Chinese currency devaluation hitting all markets basicallyfell like eight percent and the NBTA announced
that they were delaying the green lineextension in Somerville near where I was living,
and so I was like, youcan't trust anything anymore, Like it
really was that kind of weak forme, eye opening stuff. And the
big thing that that does. Let'ssay that you'd go through a huge devaluation,

(06:51):
all of the deflation and disinflation thatyou're feeling internally in your country,
you basically end up exporting out elsewherebecause what you're doing is, hey,
you got a bunch of cheaper goodsthat are going to be going elsewhere than
and everyone else then as to competewith that. It slows other economies,
and that's why world markets when thishappened basically fell ten percent back in twenty

(07:14):
fifteen. And part of the questionthat global leaders are asking themselves right now
and expressing to China is whether ornot they will allow that same free flow
of I guess in this example deflationthat China may attempt to export over the

(07:34):
next few years. It comes inthe way of goods and cars, solar
panels, faux fur jackets, itcomes in all sorts of different products,
but effectively it's exporting that deflation andforcing domestic companies in those countries, such
as vehicle manufacturers across Europe, tocompete, in some opinions unfairly with Chinese

(08:03):
manufactured goods. So I have aninteresting theory that I read. It's it's
not my own theory, but Ihave an interesting theory on this. Jennet
Jeon went over into the whole Asiantour in the last what was it about
a month ago? I think,so that maybe be a couple of months,
yeah, month, month and ahalf, something like that. Mike.

(08:26):
What's been the big problem with Chineseand Hong Kong markets over the last
year, year and a half.They've been going down, That's been the
big problem. They've they've been goingdown. Looking for something more creative?
No, they've been going down.Chinese and Hong Kong stock markets have been
going down. No one wants tobuy this stuff, Mike. What's been

(08:48):
the big problem with US markets inthe last two years? They've been hot
and inflationary. And I'll save youthe whole bond market in the US.
Bad bond's been going down. Sure, Jenny Ellen's sitting there saying, I

(09:09):
gotta get someone to buy my bonds. As Treasury Secretary President Jijingping, and
China is sitting there saying, Igot to get someone to buy my stocks.
What have we seen happen in thelast few weeks. US bond market,
what directions are gone? Rallied yep. Chinese stock market, what directions
are gone? It's rallied about fifteenpercent off off its bottom. Japanese yen

(09:35):
touched one sixty to the dollar backdown to one fifty three. I'm not
saying these three things are all related, but it would be a really strange
coincidence if all of them just startedmoving in the exact direction that all of
their central banks and treasuries wanted themto move at the exact right time.
And so what I really wonder isif part of jeny Ellen's trip overseas was

(09:58):
to provide some kind of coordinated mechanismand for hey, look, we don't
have to really get along, butyou need some help domestically in China.
Here is the very narrow area whereour interests are aligned. I need you
to buy some bonds, send ussome money and buy our bonds. In
return, I will go and makesure that you get a little bit of

(10:18):
support for your domestic equities. Marketso that your people feel like they actually
matter. What is the mechanism bywhich Janet Yellen would accomplish such a thing.
It's not so much that Janet Yellendoes, It's just that the nature
of capital flows make it such thatit basically does. Think of it this
way, you end up with asituation. Let's say China can direct this
stuff top down. Chinese government goesout to state owned enterprises and says,

(10:43):
hey, go buy up some UStreasuries. As an example, it's not
going to appear in the Chinese governmentbalance sheet because it can be on a
provincial war or wherever the heck itis. Go out and buy some treasuries.
Great, whoever is holding those treasuriesgot a bunch of stuff to buy.
Gee, what looks cheap? Now, hey, you know what,
we get a call. Okay,great, We're gonna go and pick up,

(11:05):
you know, some Chinese equities becausethose look cheap. Like again,
I'm not saying that this is exactlywhat is happening, but the fact that
all of this is resolving in thisfashion makes me think like Jenny Jellen does
just travel to China for no reason. True, she doesn't just go for
the food. It's good, butit's not that good. You know,
Like you're the Treasury Secretary of theUnited States. You don't just travel that

(11:31):
far for nothing. So I'm wonderingif there's something else a foot here.
And I'm not saying that this isinherently bad or good or anything. I'm
just saying that there are some placeswhere the interest could be aligned on this
stuff, and I'm just wondering ifthere's something there, because China has a

(11:52):
real problem with not attracting capital flows. And one way that China can potentially
make itself more attractive for capital flowsis if it gets on the US Treasury's
good side, and it does thatby buying US bonds. Maybe that's kind
of where I'm at. The FinancialExchange is now available on your Alexis smart
speaker has to play the Financial Exchangeand catch up on anything you might have

(12:16):
missed. This is the Financial ExchangeRadio Network. This is your home for
the most comprehensive coverage of the economyand the trends on Wall Street. This
is the Financial Exchange Radio Network rightnow. The current state of legalized US
cannabis is that, well, it'snot really legalized. It is legalized in

(12:39):
some places on the state level,and the federal government has taken a position
that they are by and large notgoing to prosecute those selling it within states
so long as it doesn't cross statelines and some of the cats shots.
But as part of this, thereis a section of the tax Code,
section two eighty e that currently barscannabis businesses from claiming deductions on business expenses,

(13:03):
on most business expenses that they have. So practical stuff here. If
you are a sandwich shop and youemploy people, and you ca rent,
and you maybe market via some guystanding out there flipping one of those signs
all over the place, which youprobably can't do in the cannabis industry.

(13:24):
But let's say you did all ofthose things, all of those would be
deductible expenses off of your sales.In the case of cannabis, the only
deductible expense is their costs of goods, which is kind of wild. So,
like you walk into that cannabis store, which are you know, oftentimes
in prime location, centrally located witha you know, expensive advertising, maybe

(13:46):
some billboards that you've seen off inninety five in certain areas in New England.
The only part that is deductible tothem, to those businesses as a
deductible expense, is the actual productthat they are selling to you? Probably,
now that I think about it,I even wonder if like the plastic
containers that contain the cannabis would bedeductible in this circumstance. I don't know.

(14:09):
Probably not, Yeah, I thinkprobably not. So if you do
end up seeing the Department of Justicemove forward with or is Department of just
the DEA or is it both?I don't know. I don't know,
I don't know who regulate is thefatal substance. If the executive branch moves
forward with rescheduling cannabis from Schedule oneto two Schedule three, then this has

(14:33):
the ability to make that whole Sectiontwo eighty e characterization go away. Yes,
which would be important and an importantdistinction, and probably make a lot
more of these retailers profitable, becauseI think only about a quarter of them
are profitable nationwide. The things thatit would not change, it would not
suddenly open up the banking system tothe cannabis industry. I was going to

(14:56):
ask you about this, why not. I don't really understand why not,
other than it has to must haveto do with federal banking laws around any
sort of controlled substances, regardless ofthe ranking or the tiering or whatever it
is. What scheduled do you haveto get on for that? Where do
you have to go for that?It has to probably be federally legal,

(15:16):
would be my guess. Okay,I was under the impression I thought that
this would get it to that touh, you know, more access to
banking when we in I'm relying.I'm relying entirely on the Lostter Journal for
their assessment of this, which Itrust more than my own because I don't
read the banking codes. But that'swhat they're saying. They also say it
would not suddenly allow cannabis to betransported across state lines, which again,

(15:39):
if you think about maybe not asmuch an issue in California, but you
think about a tiny state like RhodeIsland, where you have to have your
entire business effectively fully vertically integrated.You must grow the cannabis in the state
and then sell it at retail,package it and sell it at retail locations
only in that state of rea andprobably get it, you know, tested,
and everything like. It's all gotto be done. And I even

(16:00):
wonder if you can employ people fromout of state in order to work at
these stories. I'm not entirely sure, but it makes perfect sense to me
now that I have educated myself onthis. Why seventy five percent of these
retail locations don't make any money?And it still is something where this still
has a long way to go toeven happen. This might happen this year,
it might not happen for a coupleof years, depending on how long

(16:22):
different challenges to this rescheduling ends uptaking. So this is something that I
don't think it's necessarily a certainty thatit makes it and stays on schedule three
here right. The only thing thatI could say is, given the branding
opportunity associated with doing this a coupleweeks earlier, it's shocking to me that

(16:45):
the Biden administration did not do it. No, I disagree. Really,
Yeah, you want this as closeas possible to November, then why wouldn't
you do it in like October becauseyou need to get the ball rolling up.
Oh you're saying the finalization of finalization. You get this again end of
October if you are, if you'rerunning that campaign, would be my guest

(17:07):
taking a quick look at markets aswe head towards the bottom of the hour.
The Dow Jones Industrial Average now upthirty five points, about a tenth
of a percent, SMP still ahalf percent, NASDAK now two thirds of
a percent, So, mommy,if you've heard that story before, the
NASDAK now strengthening more than other indices, even though I don't know if you

(17:27):
noticed anyone listening, but the Nasdaqthis year up just about the same as
the S and P five hundred,no meaningful difference between the two of them
thus far. Bringing the latest financialnews straight to your radio every day,

(17:48):
It's the Financial Exchange on the FinancialExchange Radio Network. Miss any of the
show, Catch up and you're convenienceby visiting Financial Exchange show dot com and
clicking the on demand icon, whereyou'll find all of our interviews in full
shows. This is your home forthe latest business and financial news in New
England and around the country. Thisis the Financial Exchange Radio Network. Want

(18:12):
to reduce the cost of housing,build more of it? This apiece from
where is this from? Boomberg?Looks like Bloomberg to me? Yeah,
from Bloomberg Opinion and look We've talkedabout this an awful lot where the example
that I give is back in twentytwenty two, Mike, what happened to
the price of used cars? Sorry, twenty twenty two used cars went through

(18:33):
the roof because there were none ofthem in the country and there weren't any
new cars. Yeah, you companieswere not producing enough new vehicles. So
I use that as kind of myproof of concept that even for expensive things,
supply and demand of new filters intothe used market. Well, this
is the same thing in housing,because as much as we talk about existing
home sales, here's a hint yourbody used house. So what most of

(18:55):
us do. I've never owned ahome. I've never been in one of
my life. I've i've been inone. I've just never lived in one.
But this gets at the crux ofthe problem, which is we have
not been building enough homes for thelast fifteen years now, after we spent
about ten years building way too many. Correct, but we still have a
net deficit relative to our populations,and specifically a net deficit in the areas

(19:18):
where people want to live. Itdoesn't do us any good if we were
going to go and build a millionhomes in West Virginia, because West Virginia
has had a shrinking population for thelast couple decades. It does do us
some good if we go down toMiami, Florida, Austin, Texas.
Not so much this year, butmaybe in the past. But again,
even talk about the Boston area,Talk about Worcester, which has now gotten

(19:41):
expensive. Talk to anyone in Manchester, New Hampshire about the influx of people
that they've seen from the Boston areaand how that's pushed prices up there.
We're not building enough new homes.I'm going to challenge a premise real quickly.
Yeah, I'm not entirely sure.So the subject of the article is
want to reduce the cost of housing? Question mark build more of it.

(20:04):
I'm going to challenge the premise thatAmericans actually want to reduce the cost of
housing. I know that we sayit, they do, they don't.
But you know, sixty six percentof Americans owned homes in twenty twenty two,
and so what you're talking about,and this is where people just get
lost in basic words, but andmath. If you want to reduce the

(20:30):
cost of housing and you own ahome, that means that what you want
is the value of your home togo down? Yes, that's what I
want. I do too, butI don't think people frequently like talk about
that. And likewise, you thinkyour property taxes are too high, er
maintenance costs are too high. Again, what you are rooting there for is

(20:52):
for the value of your property togo down. The property tax one.
Maybe that's not quite a one forone relationship, but that's where it is.
And we continue to read stories,as the author points out, like
just the kind of lack of understandingand just theories out there of options that
would work to control housing costs,and those popular options consistently rent control,

(21:17):
government subsidies for down payments, propertytax cuts, regulations to prevent Wall Street
firms from buying housing. The onlyone in there of those four that are
mentioned as popular tools to combat housingprices that I could even conceive as being
true to the core ideas of economicswould be the regulations to prevent Wall Street

(21:38):
firms from buying housing. At least, then you are impacting the demand side
of the curve in a way thatI disagree with, but you're at least
doing so. Every other one ofthese is dumb. Net result is higher
housing prices. Yes, it's exactlywhere you end up. So if if
it were up to me, Iwould make it easier to build. I

(21:59):
would make it easier to build multifamilyhousing. I know that. I know
everyone listening, just god scared Onot multifamily. You can have two families
living in the same place. Nuts, how you can't have that multifamily.
But I like, it doesn't haveto be freaking eight hundred units. It
could be a duplex. It couldbe a triplex, it could be a

(22:22):
quadplex. If that exists. Let'slet's not go there with the crazy talking.
You're notlex that's scary. It doesn'thave to be anything insane, but
it can be something that still fitsthe overall feel of the location. I
think that's what it comes down to. Like, I don't think we should
be surprised when consistently that people keepvoting down these zoning rules, for instance

(22:45):
in Massachusetts, that they have rolledout that that voters do not approve multifamily,
And I don't think it fundamentally comesdown to a thorough misunderstanding. I
think it oftentimes does come down tothe fact that I already own my home.
Why would I want to build morehousing and deflate housing prices, and
we might just be selfish, andit's the other practical stuff. Well,
no, this is going to bringin all this traffic, and this is

(23:07):
going to bring in you know,people from out of town, and this
yep I. It's just the confusionabout the problem today is that we seem
to want it both ways. Wewant we want no development, cheaper no
do development, but cheaper housing andmy property taxes to not go up right,
And those three things just can't existat the same time. They just

(23:30):
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(24:21):
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visit USVII dot com. Peace inthe Wall Street Journal talking about how the
capital gains tax is now hitting morehome sellers. Why do you may know
that if you are a single personselling a primary residence, you're entitled to

(24:44):
a two hundred and fifty thousand dollarsexemption to the capital gains on that property.
If you are a couple selling aprimary residence, you're entitled to a
five hundred thousand dollars exemption when yousell that property. Those numbers do not
get inflation adjusted, by the way, and they have not been updated since
nineteen ninety seven. So this pieceis arguing that, hey, because housing's

(25:06):
gotten more expensive, maybe we shouldadjust this and so on. I don't
know that they ever do actually makeI read through it carefully because I wanted
to see if they actually made theargument that, hey, you should update
these things. I think they reallylay out the facts, but don't.
That was one piece that I actuallyliked about this journal piece was that they
laid out the facts that, hey, eight percent of home sales in twenty
twenty three ended up bringing windfalls ofhalf a million dollars in more. Those

(25:26):
were concentrated in California, Hawaii,DC, Massachusetts, Florida, a number
of these other states, but neverwent so far as saying, hey,
Congress should go change this, whichis quite honestly, where I land to
like, I think of few areaswhere one you would so narrowly target a

(25:51):
group of taxpayers to say, hey, you know, we're gonna bump this
up to inflation adjusted to three quartersof a million. Now you would specifically
just be benefiting mainly homeowners and coastalcities, right, Which is why I've
talked about this a lot, andit's not my original proposal, but I
think it's great. Hey, withcapital gains, capital gains tax rate should

(26:12):
be the exact same as the ordinaryincome tax rate. If we think there's
a problem where labor is not beingappropriately compensated, for all of the work
that it does. Okay, let'slet's equalize the tax rates. But here's
my big thing. Every single taxpayershould get a one million dollar lifetime exemption
from capital gains taxes. Because Iam a big believer that capital formation is

(26:36):
a hugely important thing for a productivecapitalist society. I think you need to
have it. And so if youmake that first million dollars selling a home,
selling a business, or selling anything, sure, I think you should
be able to keep that entire thingbecause I want you to have that money.
After you make that million dollars.Okay, you pay ordinary income tax

(26:59):
rates on it. Everything else,whether it's a home, business, collectible,
whatever the heck it might be.It might be enough to solve the
social security problem we have. Ifyou want to say, hey, we'll
do an annual index for inflation aswell. So hey, if inflation runs
three percent this year, great,your million dollar exemption is now a million
thirty for you know, the restof your lifetime. And that's where you
know, everyone new starts going.Fine, I'm fine with that. You

(27:21):
want to do something like that sothat you're not paying taxes just on inflation.
I'm even okay with that, butwhen you pay, the taxes should
be at the tax rate youo.You know, you get the break because
you started your first business. Youdon't get the break because you're selling your
Amazon shares, mister Bezos for youknow, one hundred and sixty billion dollars,

(27:41):
and gee, you should pay alower rate in tax just because you
invested in it thirty years ago.I'm sure he would disagree. I know
he wouldn't. He's got better lawyersthan I do too, which is fine,
fine, you know, it iswhat it is. I say this
because what I'm proposing will never actuallyhappen. But hey, everyone pays the
same rate, the ordinary income taxrate, and your first million dollars you

(28:04):
pay nothing on something I can getbehind. I want more millionaires and fewer
billionaires. That's fair enough. Thatwould be That would be my post,
something to round on. More millionaires, fewer billionaires. I don't know.
I think it would be nice.It be a fun world. Let's take
a quick break when we come back. We got stacked with a lot.
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(28:26):
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(28:51):
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(29:11):
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Boston. The DAV five K Bostonis presented by Veterans Development Corporation. Mike,
what do you have for me forstack Roulette? Today? Consumers are
getting fed up with food costs andare ditching their big brands. I thought

(29:33):
this would be a practical example forme to bring up Starbucks and see see
some of their more popular items inwhat they're going for. So you may
have seen advertise this spring. Theyhave a lot of lavender stuff. I
guess, oh do that there?Yeah, and their drink that's a new
thing now. So the iced lavendercream oat milk macha, which looks just
very pretty. It's purple. Ontopic, Can I guess bottom? Can

(29:55):
I guess? Yes? You're amedium? What do you think? Six
seventy five twelve dollars? Take alook, it's in my cart. Now
you are looking at five dollars andninety five cents for a medium iced lavendar
tax milk. No, it doesnot including tash, you're looking at six
dollars and thirty seven cents before tippingas well. Some of these things now

(30:17):
you can. Can you still goto Starbucks and get it, you know,
a two dollars fifty cent black coffee? I think you probably can.
It's going to be pretty small,but it's like, you know, you
are getting I think, to someplaces the point of breaking. We were
talking about this with Chipotle the otherday, where you know, bare minimum
to get a you know, burritowith actual meat in it and standard stuff.

(30:40):
You're looking at like fifteen dollars towalk out of there. But I
would push back on the idea theconsumers are fed up with food costs and
are ditching big brands. Because thisis not across the board. Starbucks did
disappoint in most recent earnings, McDonald'sand others as well. Chipotle sure didn't,
and so there are still companies thatare having success even with these higher

(31:02):
menu prices. California. I keephearing kind of horror stories about the prices
that fast food restaurants there, Butgenerally speaking, I don't know that this
is an entirely universal problem, Iguess would be my takeaway. I also
find it funny that Howard Schultz istaking to LinkedIn to criticize the company after

(31:22):
being out for like eighteen months.Yeah, you just left there for your
big turnaround, and already you're throwing, you know, throwing bombs over the
wall and lobbing stuff with the newCEO for their failure to execute after one
quarter of bad earnings. So Ifound that pretty entertaining as well. Yeah,
I'm just not convinced that this iswhat's happening here. I mean,

(31:44):
we also talked about Wingstop, whois a big brand now, I mean,
they're not a tiny company at thispoint. They have let me see
how many locations they've got they have, I hope that's four thousand employees fourteen
hundre locations. It isn't that theyfranchise, because they probably don't have two
and a half employees at each location. Yeah, fourteen hundred locations, and

(32:07):
actually those is of twenty twenty,they probably get like eighteen or nineteen hundred.
Now their same store sales, we'reup twenty one percent, which is
video game numbers. Yeah, like, you basically can't do that in fast
food. So some fast food restaurantsare facing some challenges. I'm not sure
that it's all about cost, No, because some of the most costly fast

(32:29):
food places out there are crushing itright. Chipotle is absolutely cranking. So
Starbucks, tell me what your valueproposition is. McDonald's, Like, honestly,
with McDonald's, I'm so confused becauseif everyone is complaining about their budgets
and saying that things are too expensive, and McDonald's that's what you're hanging your
hat on, and you are notdoing well in this environment, then you've

(32:52):
got a whole new problem that Ihaven't can you should be the people,
the one that people are coming to. If people are worried about their budgets,
Like you are saying, then theyshouldn't be going to Chipotle and you
know, knocking the cover off theball there, they should be going to
McDonald's. So that's a whole otherstory that I don't know what's going on.
I want to cover this piece fromthe Wall Street Journal about Wayfair.
It says that their new strategy looksbuilt to last. They reported that their

(33:13):
revenue declined one point six percent inthe first quarter, their active customer account
was up two point eight percent yearover year, and they did narrow their
loss somewhat from three hundred and fiftyfive million dollars to two hundred and forty
eight million dollars. I don't knowhow you can say that that means that
they are built to last. WhenI take all sorts of issues with financial

(33:37):
journalism that looks at one quarter's earningsand like, especially when you're talking about
a proposed turnaround story, to justgo through how the earnings turned out and
not speak to but what did theydo? Because in Wayfairst case, I
think they just fired a bunch ofpeople and so made their earnings look a
little better. And you can't fireyour way to growth. I know that

(34:00):
much. So again I don't thinkthat wayfair. Is like, they're not
a bad company, but they justthey can't make money because when you're shipping
really expensive stuff, really heavy stuffthat cost a bunch to ship, it's
it's really hard. Now, theydid finally get back to cash flow positive
slightly this quarter, thirty nine milliondollars cash flow positive. That is,

(34:24):
I'm gonna exclude that whole like twentytwenty one to twenty two era, because
that's not real time, like that'sfake time. Other than that, they
have not been cash flow positive sincethe second quarter of twenty sixteen, So
you gotta kind of prove to methat this is not a one quarter aberration,

(34:44):
and you got to do it overand over and the other pieces.
Look, they might be able tofigure this thing out, but ultimately it's
a company now that is worth eightbillion dollars in market cap and they are
trading fifty nine times forward earnings rightnow. Well, if you're not really

(35:07):
growing, why should you trade fiftynine times forward earnings through a tech company?
You probably shouldn't. So maybe theycan continue to exist, but as
a billion dollar company, not asan eight billion dollar company. I don't
know, but I don't know thatthis quarter really says much of anything about,

(35:28):
you know, justifying their long termprospects. Let's take a quick break
here, when we actually quick breakfor the rest of the day. Dow's
up forty two points, s andP up thirty, NASDAK up one twenty.
We'll see tomorrow on the Financial exchange.