May 30, 2024 • 38 mins
Chuck Zodda and Mike Armstrong discuss treasuries holding steady during the recent stock sell off. Are markets banking too much on AI assumptions? Why is home insurance barely counted in inflation data? Why did movie studios experience the worst Memorial Day Weekend since 1989? Salesforce shares weak outlook and shares plunge.
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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's Chuck, Mike and Tucker with you today.
Some more economic data released, noneas big as what we're going to get
tomorrow with the April data for personalconsumption expenditure inflation the PCE price Index,
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or the Fed's preferred measure of inflation, that'll be released tomorrow at eight thirty.
But a whole bunch of economic datareleased this morning, and some of
it I think probably helping to stemthe tide a little bit as far as
the modest selloff that had happened inUS treasuries over the last couple of days.
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Mike, your thoughts on what we'veseen in the treasury market and how
the data this morning may be impactingit. Yeah, So, first off,
we had revisions to GDP which camein pretty hot. What were the
initial ones? One point six percentwas the initial reading on first quarter GDP
that came out back in April.A lot of talking, you know,
that's that's a pretty quick pace.That got revised back down right in line
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with where new expectations were. Sothat got revised down from one to six
down to one to three. Initialjobless claims also came out this morning.
We had been looking at that afew weeks ago as a potential item of
concern because it was showing a slightuptick once again. At least in my
view, that's been a non storyfor the last two weeks on that front.
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And so, yeah, you haveyields stabilizing a little bit, and
I don't know, nothing too crazyin terms of you know, bond yields
right back at four point five tosix now on the tenure. So we
had that economic data this morning,and look, when you look at all
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of the data that's out there andyou try to figure out, hey,
where is all this going at thisparticular point in time. And this might
not be a popular opinion, becauselook, it just might not be.
But at this point in time,I don't think anyone needs to really freak
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out in any direction. And Iknow that's what everyone loves to do.
It's the economy always. There alwayshas to be something wrong, you know,
there always has to be something thatis bothersome to people. That sells
Chuckie. I know it does.I know it does. But right now,
if you look at the economic datathat we're getting, it's pretty consistent
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with inflation running somewhere in the threeto three and a half percent range and
GDP growth probably running somewhere in theone eight to two two range. Like
that's kind of where it is.What that looks like is inflation that is
hotter than it was back in thetwenty tens, but consistent with what we
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saw in the nineteen nineties, andthe P growth that is consistent with the
twenty tens as well. Remember,GDP growth is a combination of two things,
hours worked and how much stuff youmake during those hours. The reason
why the US is not going togrow GDP at three or four percent consistently,
in my opinion, is that ourpopulation is growing at less than one
percent. And that's the major waythat you grow hours worked. Like,
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you don't want everyone just working eightyhours a week, that's kind of it's
kind of a not great life,you know, in general. And the
second piece is, well, okay, if you're growing you know, hours
worked at you know, zero pointeight to one percent, hey, productivity
growth, what are you gonna getfrom that? The long run average is
right around one percent as well onan annual basis, And so that gets
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you to somewhere in the ballpark oftwo percent when you're looking at the overall
GDP growth and you got a fewpercentage points of inflation, and that gets
to you know, five five anda half percent nominal GDP growth. So
I think at this point I amnot freaked out about the possibility of recession.
I don't think the data is consistentwith that at the moment. I
think there's a slowdown that might behappening here, but a slowdown does not
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inherently mean recession. And likewise,if you're having an economic slowdown, it's
really hard to end up with inflationincreasing in a meaningful fashion there because you
don't have that demand that is drivingthe inflation, and instead you'd have to
have supply shortages and inflation expectations goingup, and neither of those two things
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are happening right now. So Ithink, quite honestly, this is a
time where you can kind of sitand look at the economy and say,
yeah, things aren't perfect, butthere's nothing to really freak out about at
the moment. I'm starting to becomemore attuned to the potential downside risks to
the economy that may materialize in thenext six to nine months. But look,
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I'm not going to be the boywho cried recession all the time,
and you know, not really haveany signal to a bunch of noise.
Right now. Things are kind ofokay. They're not great, they're not
horrible, and it's okay to saythat things are just perfectly average. And
I think that's fine. Well,don't worry, Chuck, because there'll be
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plenty of folks out there that arehappy to cry the recession warning for you.
I know they probably get more listenersthan we do. But that's okay,
because I life's too short to freakout when you don't have to freak
out. Man. So let's talkabout that story from the Wall Street Journal.
Then that caught my eye. Thisrecord stock market is writing unquestionable AI
assumptions. They point out that justfour giant tex stocks have added more market
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value than the rest of the Sand P five hundred put together. Those
four textocks are Nvidia, Microsoft,Apple, and Alphabet. They are specifically
just talking about this month, thoughwe're not talking about this year, this
quarter, the last twelve months.Talking about the month of May. Those
four textoks have added more market capthan the rest of it come bind and
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in video was a major contributor tothat. Half of it in video was
half of that game. By theway, that is seven hundred billion dollars
in market cap this month. It'salso just a reminder that the Dow Jones
Industrial Average is a stupid index,and it's basically flat for the year,
and it's being brought down almost afull percentage point today. You might be
looking at your screen or looking atthe news and saying, why is the
Dow off a percentage point when therest of the market's off barely, And
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it's because one single company, Salesforce, is off by twenty percent this morning.
We'll talk about that later, butthis is a nothing storied I mean,
look, I imagine we can wejust back up just one second on
Salesforce. Yeah, imagine being theDow. Was it two years ago when
Salesforce got added to the Dow andreplaced dex On Mobile. I don't recall
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it was either two or three yearsago, sometime in you know, twenty
one twenty two. Imagine looking atall the tech companies that you have out
there to pick from, and yousay, Salesforce that's the one. Now
I'm not saying Salesforce is a badcompany. They're not. I think they
actually make a really good product,and I think that they are a company
that has grown a ton in thelast couple decades. Like they're a really
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good company, quite honestly. Butyou have your choice. Now, Microsoft's
already in the Dow, Apple's alreadyin there, But you got Google sitting
out there, and video wasn't whatit is today, So like that would
be you know, some real youknow, Monday morning quarterback and to be
like, oh, they should haveadded in video. Well I'm sure that
wasn't the case like in twenty twentyone or twenty two. But you're you're
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sitting there and you're like, wecould add Salesforce or Google or Amazon.
Amazon's in there, Amazon's in amazonsin. Well. The other piece would
be, could you have remember thatthe Dow has all these stupid limitations on
it where if the nominal stock priceis too high, then you can't just
a why they did not Google?Yeah exactly, so this is why,
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like they didn't add Google. Butanyways, I digress. Let's let's get
back to the topic at hand.So it is fair for the Wall Street
Journal to point out that yes,this month's upward ride on the S and
P five hundred of the Nasdaq isalmost entirely comprised on AI excitement and hype.
And look, that should be atleast something that you look at and
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consider and wonder if this is arepeat of the dot com bubble like we
have many times before. But againwe're sitting here and pooh poohing markets reaching
an all time high because once againit's being led by a small group of
companies, and nobody goes on tosay anything in these articles as to whether
or not that will result in aproblem, right, Like this was the
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story of most of the twenty tendecade, is that the market got led
by a narrow group of tech stocks. And I don't know about U,
Chuck, but I don't exactly lookat the twenty ten decade is a really
terrible time to be an investor inAmerican stocks? Do you no? I
think if if you want to say, yeah, there are some things that
could be concerning in here that youneed to pay attention to and that you
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know could be potential risks, that'sfair. I mean, look, in
Vidia is not going to grow revenue. We've talked about the slowdown that they're
seeing in their sequential revenue growth,and at some point the bloom is going
to come off that rose, andthat's going to be a problem. But
the counterpoint to this is, Okay, if that happens, Hey, these
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other you know, four hundred andninety six companies that have you know,
been growing a little bit more slowlyin the last year or so, what
if the economy picks up for youknow, what they're selling. I mean,
it's these things are not binary.It's not like how in video goes,
so goes the US economy. Invideo, for all of its massive
size in terms of market capitalization,in Video's revenue when you look at the
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last twelve months, there's eighty billiondollars. I mean, to put it
in perspective, Amazon the revenue sixhundred billion dollars. It's almost ten times
in Vidia's revenue. So in Videocould go through a slowdown where the stock
price falls fifty percent, just likeit did, by the way, in
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twenty twenty two. You know whenVidio stock went from like one hundred and
eighty bucks to share to eighty fivea share in twenty twenty two, And
that could happen again. But theother piece that I come back to on
this is Okay, so it didthat, and here we are today and
the S and P five hundred isback at new all time highs, not
today, but like five days ago. And so I think it's important to
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contextualize this because I I was talkingto a couple of people in the last
couple of days and they're like,oh, I really don't like how the
stock market's doing right now. AndI had to pause and be like,
which part of it? Like,what do you mean you don't like how
the stock market's doing right now?They're like, well, it's been really
tough recently. I go, well, yeah, there's been a bad day
or two. But the S andP five hundred is less than two percent
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off its all time highs. TheDow at the moment is, you know,
even though it's taking it on thechin a little bit harder, the
Dow is about five percent off itsall time highs, and the Nasdaq right
now is also less than three percentoff its all time highs. So maybe
they were just doubling down on gamestop stock and that's what that's what surprised
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them. Maybe maybe let's take aquick break, and when we come back,
we are going to take a quickbreak from this relentless positivity and talk
about home insurance, which is justa whirlpool of suck right now, so
we'll talk about that. If youwant to feel upset the next segments.
For you miss any of the show, catch up at your convenience by visiting
(12:31):
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presented by Veterans Development Corporation. Mike, there's a piece of the New York
Times today. It's titled home insuranceis clobbering consumers, Yet it's barely counted
in inflation. What gives man?Okay, Well, let's break this down
into two things. One, homeownersinsurance is going crazy right now across they
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Premium rates for owner occupied housing isup eleven point three percent on average nationally,
according to sp Global Market Intelligence.So property tax excuse me, home
insurance rates are up over ten percentof year over year, and in many
areas of the country significantly more so. Texas, Arizona, Utah were among
twenty five states in total that posteddouble digit surges and insurance rates last year.
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And so if you moved to Floridaand bought a home with cash five
years ago, you have probably seena massive increase in the cost of your
housing over the last few years.Between property taxes and insurance and there's really
no way to sugarcoat that. Andto make matters worse, it's not only
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the price increase, but the stressof oftentimes having your policy outright canceled on
you, or not canceled but notrenewed on you, and then needing to
kind of desperately scour the market forhomeowners insurance at the last minute. So
I don't want to minimize this.But the point that The New York Times
is making that hey, this isbarely counted in inflation is one. It's
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true, but I would also arguethat it probably should be true. And
let me just kind of do someradio math for you, which I know
is always fun. But let's sayyou're buying a home right now at the
median home price and putting down twentypercent, so you are then getting a
mortgage for three hundred and thirty sixthousand dollars at the current average mortgage rate,
that comes to a monthly payment oftwenty three hundred bucks twenty seven twenty
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eight grand a year. In twentytwenty one, the average property tax bill
was twenty eight hundred. Let's doublethat, say that you've got to pay
proper taxes of five or six thousanddollars, and then you've got your homeowner's
insurance, which you know, accordingto this article, went from one thousand
on average to fifteen hundred, andso that is a massive increase. But
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let's be clear about something. Asa percentage of your overall housing expenses,
and I'm not even including like basicmaintenance on your own home, the homeowner's
insurance piece is still a drop inthe bucket compared to everything else. So
is this incredibly painful one? Shouldit have a massive waiting in our overall
inflation picture? Absolutely not. Theother piece in terms of you know,
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people will rightly ask, hey,why is that not included in the CPI
data, Like why would you notinclude that? And here's the answer that
the Bureau of Labor Statistics gives.It's it's not because they want them.
The answer they give is they viewbuying a home as a capital investment,
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not as a living expense. Andagain it's because quite honestly, like if
you will think about it, youdon't have to buy a home, like
that's not the only choice available toyou in terms of you know, how
you acquire shelter, you can rentlike that, there's other options for you,
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And so with this being viewed asa financial investment, what they try
to do is isolate the shelter componentfrom the purchase price component, because those
are two different things. And thereason that they do this is think of
it this way. If you aresomeone who's listening right now, and let's
say you bought a place in nineteenninety for two hundred thousand dollars and you're
going to sell it today for amillion dollars. Did your cost of living
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go down today because you're able torealize an eight hundred thousand dollars gain on
that property. The answer is no, because that's what that would be representing.
Otherwise, it's that, hey,you bought a place, you paid
the mortgage off over thirty years,and now you get a big windfall at
the end. In theory that like, your cost of living is going down
because you have this huge windfall andrelative to what you used to have,
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you now have more money to spendon things, and so ultimately that's better
for you. It would be absolutelyinsane for that to be captured in the
CPI. So that's why when welook at how they try to capture it,
they're not looking at how much youpay for a place and then how
much you sell it for, becauseultimately, if they did that, it
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would actually make inflation look lower becauseyou're coming out ahead from a financial perspective
in many cases over the long term. There. Instead, what they're doing
is saying, look, strip outyou know, what you pay for the
place at the beginning, and whatyou're you know, realizing at the end,
what is the actual cost of shelteron a monthly basis, And that's
what they're trying to factor in.Where this dovetails with the insurance piece,
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that is simply a carrying cost oran expense associated with that investment. And
so that's why it is stripped out. That's the logic behind it. Is
it reasonable? Yeah? Is thereyou know, are there people who could
disagree with it? Yeah? Butthe reason it's done that way is because
otherwise you're stuck with this problem ofHey, I made a bunch of money
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on my home at the end.Does that mean that my expenses along the
way were not as high? Well? No, they were, And so
that's why they try to strip outthat purchase and sale price and all the
stuff that goes along with it,because they're viewed as expenses that fund that
investment rather than the pure expense ofshelter. Does that make sense? It
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does, But you're telling me thatthis is not a conspiracy to artificially make
inflation lower. Probably not, Okay, there's other ways that you could do
that if you really wanted to.We're not going to talk about that anymore,
Thoughle's instead take a quick break.We've got Wall Street. Watch when
we come back, and then we'retalking Salesforce why their shares are down eighteen
(19:36):
percent today. Like us on Facebookand follow us on Twitter at TFE show.
Breaking business news is always first righthere on the Financial Exchange Radio Network.
Time now for Wall Street Watch acomplete look at what's moving market so
(19:57):
far today right here on the FinancialExchange Radio Network. All markets are modestly
pulling back again today as traders reactto new economic data points, including a
second estimate of first quarter GDP andjobless claims. Wall Street's also readying for
(20:19):
another inflation reading dueout tomorrow morning whenthe Core PCE index is released. Right
now, the Dow is down byone percent, or three hundred and ninety
two points. SMP five hundred isdown over a thirty four percent or twenty
two points, and the Nasdaq downover half a percent or ninety four points.
(20:40):
Russe two thousand is up, however, by three quarters of a percent,
Tenure Treasure Reel down by six basispoints, now at four point five
six percent, and crude oil offabout a quarter percent, trading just above
seventy nine dollars a barrel. Salesforcedown by nineteen percent after the cloud software
(21:00):
company posted weaker than expected revenue andguidance. This marks the first time since
two thousand and six that Salesforce fellshort on revenue forecast. More on that
with Mike and Chuck coming up herein a moment. Meanwhile, best Buy
missed first quarter sales expectations due topersistent software demand for consumer electronics. However,
(21:21):
the retailer did be earnings per shareforecast and also reiterated its full year
forecast. Best Buy up by ninepercent. Another retailer, and Coles,
also posted earnings this morning, unveilinga surprise loss per share, well below
street expectations of a slight profit.Revenue for the quarter also missed forecasts,
as net sales decreased five point threepercent compared to a year ago, with
(21:45):
comparable sales down four point four percent. Coles also lowered its forecast for the
full year that stocked tanking by twentyfive percent. Elsewhere, Full Locker posted
a quarterly profit that surpassed expectations,sending that stock up by twenty five percent.
And after today's closing bell, we'llsee quarterly results from Costco, Dell,
(22:07):
and Dollar Tree. I'm Tucker Silvan. That's Wall Street. Watch Chuck
before we go on. Did youguys already talk about movies over Memorial Day
weekend? No? What about movies? They had one of their worst Memorial
Day No, the worst overall MemorialDay debut since nineteen eighty nine in terms
of ticket sales. And I justwant to mention that this is the second
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time Hollywood has attempted to make aGarfield movie in two decades, and in
both cases it has apparently just beenabysmal Garfield movie. The first one in
two thousand and four, voiced byBill Murray, has been like a famously
joking ridicule of Bill Murray's He mentionsthe movie in what's the zombie movie that
(22:51):
Bill Murray is in? Does anybodyknow zombie Land? Zombie Land? He
ridicules his role in Garfield in thatmovie, and now the new one with
Chris Pratt has a thirty seven percenton Rotten Tomatoes. So I just love
that they keep attempting to make thismove into a movie and keep seemingly utterly
failing to do so. Well,Well, let's let's talk about this a
little bit. Can we just havea longer discussion about what's going on with
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movies right now? Because I thinkit's kind of interesting. Actually, Yeah,
so the first thing, I don'tthink this Garfield movie is a huge
failure, or at least I don'tthink it's gonna be viewed that way by
Sony Pictures. And the reason whythe budget for it was sixty million dollars.
It's pretty cheap. It just didone hundred million worldwide in the first
weekend. Yeah, so, likeagain, they're not going to take that
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home if you will, get outof the economics of the box office works.
Obviously, the distributor, like thetheaters rather is going to take some
of it. You've got other feesthat you have to pay out. Maybe
there's you know, some cuts thatyou pay to actors or actresses that are
getting you know, percentage points onit. But ultimately this thing might end
up doing you know, a quarterbillion dollars on a sixty billion dollars a
(23:59):
sixty million dollar budget. Okay,Sony Pictures is gonna take that all day,
every day, regardless of how badthe reviews are. You know,
it's fine. The other thing is, this is not a classic Memorial Day
tenth pole film. Again, thoseare the ones where it's like, hey,
Independence Day with one hundred million dollarbudget in nineteen ninety four or ninety
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six or whatever it was. Okay, Like, yeah, they're like,
that's one where you're swinging for thefences. This is kind of like,
all right, throw it out theresomewhere, maybe on Memorial Day so that
someone you know goes and sees it. But ultimately it's not something where I
think they're really, you know,gonna view that as a failure from a
business perspective. How about on theother yes, this is one where when
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you put out a nearly two hundredmillion dollar movie that does twenty six million
domestically and sixty eight million worldwide,it's kind of a problem. And here's
why it's a problem today. Theeconomics of movies have changed dramatically with the
advent of streaming for two major reasons. The first one is that the theatrical
window, meaning the period in whichmovies are in theaters and that's the only
(25:10):
way you can see it, hascompletely collapsed. Used to be. If
you go back to the nineteen nineties, even the early two thousands, movies
are typically in theaters anywhere from youknow, ninety two, one hundred and
twenty days, and the only waythat you could see it after that was
either on like pay per view,or you had to go and rent it
black buy it exactly Now you usuallycouldn't even buy it for a period of
(25:33):
time afterwards. I think you couldrent it only for a mayble while afterwards
too, Maybe I can't remember.So the economics of that are twofold.
First, you typically had longer runsin theaters. Now it's if you have
you know, kind of a bombhere, Okay, it might be in
theaters for like four weeks at most, maybe five, and then there's like
no move on. We don't wantto pay the distribution costs and have it
(25:53):
in theaters chewing up space. Theother piece is, as I mentioned,
a major source of revenue for moviestudios back before streaming was the rental and
purchase market. And so this ishow there are two different ways of this
made money. The first is withthe immediate rentals, where I still remember
(26:15):
you walk into Blockbuster in nineteen ninetyseven and literally there is a whole wall
of Titanic. Yeah, because likeeveryone wanted to rent it. And so
there's five hundred and thirty six copiesof Titanic in a single Blockbuster, and
there might be like three other moviesscattered around, and then all the ones
in the middle that are you know, just one copy of the Invasion of
(26:36):
the Body Snatchers and that's it.So you get this huge rental you know,
boom that comes out of there,and then people buying them initially as
well. But the other piece that'sunderappreciated in this is how cult movies become
cult movies. Mike, when whenyou were back in high school, name
a movie that everyone watched like fortytimes in a year that someone had a
(26:56):
copy of the DVD of, uhwhat it was a little bit late,
but Super Troopers was one of them. And then what was the other one
with the super weird cult movie withthe guy in the bunny outfit. Yeah,
Jake Jollenhall, What the heck wasit? Oh? What is it?
Hang on? It was like oneof his first movies. He was
(27:19):
like going Donnie Darko, Donnie Darko, so like that one. The other
one that I was thinking of wasBoondock Saints. Yeah. You know,
these are movies that made nothing intheaters. Donnie Darko, as an example,
had a budget of four and ahalf million dollars and did seven at
the theaters, but it sold aton of DVDs to high school and college
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kids who you know, got hookedon and said, oh, I got
to buy my own copy. Thatmoney does not exist for movie studios anymore.
They they don't get that, andso the economics of making a movie
have completely changed because you have tomake that money in a short period of
time at the theater or you're reallynot going to make it anymore because the
(28:03):
content that people want to stream issimply not going to have the same kind
of royalties coming out to it basedon the fact that people were paying fifteen
bucks a month to watch every movieever made. This is why these streaming
services are not profitable. They're notwilling to pay more for content now,
and so they're cutting back on thosecontent costs. So if you're a movie
studio today and you're saying, look, i've got a four to six week
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window to generally make my money,and that's kind of gonna be it.
I'm gonna put that trap that everybody'salready familiar with, like mad Mass,
and that's why you're seeing that,like the whole franchised stuff become you know,
the big draw. Now, there'sdefinitely some audience fatigue with it where
it's just kind of like, okay, like we want some originality. We've
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seen this. There's a great socialmedia thread over the weekend about nineteen ninety
nine and how it was basically thebest year for movies ever, like it's
it's it's kind of the case thatwas being made here and it was hard
for me to go against this becauseyou look at the numbers and these are
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just the top fifty movies of theyear. And this is by audience rating.
Actually I don't know what it's by. It's by it says by list
order, but I don't know whatthat means. But this is from IMDb.
These are the top forty seven.I won't do the all of them,
but let me just do like theTop fifteen from nineteen ninety nine,
Fight Club, The Matrix, AmericanBeauty, Green Mile Eyes, Wide Shut,
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the Sixth Sense Election Being John Malkovich, Talented, Mister Ripley, Man
on the Moon, Magnolia Office,Space Girl Interrupted, Arlington Road, Three
Kings, Boondock, Saints, SouthPark, and The Insider in the Iron
Giant. And those aren't even thehighest grossing ones. Remember that Star Wars
Episode one came out in ninety nine, right, and I didn't even get
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to by the way, Cruel Intentions, the Where Witch Project, American Pie,
Any Given, Sunday, Galaxy Quest, Austin Powers. I mean,
like again, you talk about thatand you go through there, and you're
like, man, there's four orfive of those that are movies that are
based off books. You know,where the book was optioned into a movie,
(30:18):
Fight Club being you know the numberone example. There, there's no
you know, Top Gun seven,there's no There is actually Toy Story too,
but even that, it's kind oflike, okay, Toy Story was
the movie that kicked off the youknow, three D animation thing, right
again, like the Best Year.I didn't even go through like half the
(30:38):
other stuff that you're like, ohmy goodness, it was just fantastic,
Like, analyze this. I'm prettysure now I'm not seeing any that was
a bad one. Deep lucy,sharks don't don't make them smarter than humans.
But you look at the box officetoday and they can't take these risks
because there is no theatrical win andthere's no DVD market to make the money
(31:03):
on the back end. And that'swhy you get regurgitated corporate crap more than
anything else. Now, the interestingpiece is that last year, you know,
everyone says, oh, but youknow, well, the Barbenheimer things
shows that people want different stuff.Oppenheimer does, Barbie doesn't. Barbie was
established intellectual property, and as we'veseen, that can be kind of hit
or miss. Anyone, remember theBattleship movie, No, very bad,
(31:26):
very very bad Oppenheimer. Even there, you say, okay, it's still
coming from a reputable director, ChristopherNolan, who cut his teeth and built
his brand on three Batman movies.Like how many people had really seen Memento
before Batman? Not that many,you know. It's just this is the
(31:47):
kind of thing where you look athow the economics are today, and as
much as I want to return toyou know, original movies. I get
why they're not going that way isbecause the economics just are not there in
a lot of cases to support it. You've clearly given this a lot more
thought than I was prepared for Chuck. But what I would argue from the
consumer standpoint is I'm okay with thatbecause the creativity and streaming options has replaced
(32:13):
that in a lot of cases,it has, but it raises so here
here are the two interesting questions.Then. The first is can you name
anyone who became a star just fromstreaming or a TV show, not off
the top of my head, likethey have to have that movie that transforms
them into like that star that everyoneknows. The second piece then is okay,
(32:37):
what happens to that movie format oftwo to three hours? Does that
continue to exist as a thing?Right? And I think it's a valid
question as to where that's gonna goif we don't if not we if studios
and theaters don't figure out a wayto make this better. The other part,
the theater experience is brutal. Nowit's all people talk, running up
(33:00):
and down like someone's got to cleanup the theater experience because it's bad also,
and I got a big screen atmy house. I don't need to
go to the theater to do that. I mean I do because it's not
that big. It's not sixty feet, it's like sixty inches, but it
is what it is. Quick breakhere, then we're talking Salesforce. Finally,
when we come back, breaking businessand financial news first throughout the day,
(33:22):
only here on the Financial Exchange RadioNetwork. The Financial Exchange Show podcast
drops every day on Apple, Spotify, and iHeartRadio. Hit that subscribe button,
then leave us a five star review. You're listening to the Financial Exchange
Radio Network. Mike, Why isSalesforce stock down eighteen percent today? Sorry?
(33:50):
Because they had one of the worstmisses on revenue in their company's history.
How bad was it? What happened? So Salesforce, like you mentioned,
shares falling about seventeen percent or no, initially they were following seventeen percent.
Where are they now? Twenty twenty? That's that's great. So they
went not twenty dollars a share,Yeah, so their revenue expectations changed.
(34:13):
That not only did they miss onon revenue and earnings, but they also
revised their estimate for the rest ofthe year. Down to nine and a
quarter billion. That was from averageanalyst estimates of nine point three five billion
profits coming in at two thirty fiveestimates, So really missing on all fronts
here. I don't have any insidertrack on why they're missing here, but
(34:37):
this is a now fairly mature techcompany who is not seeing sales growing at
the same pace that investors have becomeaccustomed to. The US Virgin Islands is
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your trip today. That's visit USVIIdot com, Chuck. When it comes
(35:43):
to Salesforce, like armstore Advisor,where customers have then we're pretty familiar with
the sophomore. It's the software.I look at some of the competition in
that space now and look, Salesforceis pretty much the leader in customer relationship
management software. You're out of theworkforce, you might not be familiar with
them, but they are pretty muchthe dominant player in that space. But
(36:05):
they are facing increased competition. Google'stalking about buying HubSpot, one of the
key competitors to their marketing ARM.They made that Slack acquisition that I don't
really know how successful that has beenin adding to the bottom line, and
I don't know it just it looksto me like a company who is facing
increased competition and quite honestly does havea product. Then in some cases you
(36:29):
practically need a full developer team justto implement at your company. And so
they got their leadership space by beingthe company that could do anything, And
I wonder if they have gone toofar down that path. What's your take
on where Salesforce really stands now?So I think that the signals that I'm
(36:50):
getting here. They talked about howit's taking longer for customers to make deals
with them, and their clients arefar more price sensitive when making those deals,
And part of me wonders two things. First, is there just a
capex cycle that is kind of endinghere? You know, as companies are
(37:12):
managing and in some cases downsizing thesize of their workforce, are they is
that filtering through to Salesforce because Salesforceis typically pay on a per user basis.
The other piece that's kind of relatedis AI spending sucking up all the
capex in the room, and isthat where the marginal dollar is going instead
(37:35):
of other software and other services.Yeah, there's a million add ons that
you could be putting onto a Salesforcesoftware and instead you if you're opting for
Microsoft's new AI assistant tool, thatmight suck up some of the spending dollars.
So I wonder about that. That'sa good point. I wonder about
that I don't know what to makeof it, but those are my two
possibilities that I kind of see.We are going to take a break here,
(38:00):
but we still have hour two ofthe Financial Exchange coming up with a
whole bunch to get to. Imean, we didn't get to like five
or six stories that we wanted tocover in our one and we still have
you know, another eight to tenin hour two. So, uh,
we got a lot to get tohere today. And the only way that
you can, you know, seewhat we're gonna talk about, is to
(38:20):
tune in for Hour two, whichis coming up in just a little bit
on the Financial Exchange.
The Financial Exchanges produced by Money MattersRadio and is hosted by employees of the
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(00:21):
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(00:43):
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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's Chuck, Mike and Tucker with you today.
Some more economic data released, noneas big as what we're going to get
tomorrow with the April data for personalconsumption expenditure inflation the PCE price Index,
(01:26):
or the Fed's preferred measure of inflation, that'll be released tomorrow at eight thirty.
But a whole bunch of economic datareleased this morning, and some of
it I think probably helping to stemthe tide a little bit as far as
the modest selloff that had happened inUS treasuries over the last couple of days.
(01:48):
Mike, your thoughts on what we'veseen in the treasury market and how
the data this morning may be impactingit. Yeah, So, first off,
we had revisions to GDP which camein pretty hot. What were the
initial ones? One point six percentwas the initial reading on first quarter GDP
that came out back in April.A lot of talking, you know,
that's that's a pretty quick pace.That got revised back down right in line
(02:09):
with where new expectations were. Sothat got revised down from one to six
down to one to three. Initialjobless claims also came out this morning.
We had been looking at that afew weeks ago as a potential item of
concern because it was showing a slightuptick once again. At least in my
view, that's been a non storyfor the last two weeks on that front.
(02:32):
And so, yeah, you haveyields stabilizing a little bit, and
I don't know, nothing too crazyin terms of you know, bond yields
right back at four point five tosix now on the tenure. So we
had that economic data this morning,and look, when you look at all
(02:53):
of the data that's out there andyou try to figure out, hey,
where is all this going at thisparticular point in time. And this might
not be a popular opinion, becauselook, it just might not be.
But at this point in time,I don't think anyone needs to really freak
(03:15):
out in any direction. And Iknow that's what everyone loves to do.
It's the economy always. There alwayshas to be something wrong, you know,
there always has to be something thatis bothersome to people. That sells
Chuckie. I know it does.I know it does. But right now,
if you look at the economic datathat we're getting, it's pretty consistent
(03:36):
with inflation running somewhere in the threeto three and a half percent range and
GDP growth probably running somewhere in theone eight to two two range. Like
that's kind of where it is.What that looks like is inflation that is
hotter than it was back in thetwenty tens, but consistent with what we
(03:58):
saw in the nineteen nineties, andthe P growth that is consistent with the
twenty tens as well. Remember,GDP growth is a combination of two things,
hours worked and how much stuff youmake during those hours. The reason
why the US is not going togrow GDP at three or four percent consistently,
in my opinion, is that ourpopulation is growing at less than one
percent. And that's the major waythat you grow hours worked. Like,
(04:20):
you don't want everyone just working eightyhours a week, that's kind of it's
kind of a not great life,you know, in general. And the
second piece is, well, okay, if you're growing you know, hours
worked at you know, zero pointeight to one percent, hey, productivity
growth, what are you gonna getfrom that? The long run average is
right around one percent as well onan annual basis, And so that gets
(04:42):
you to somewhere in the ballpark oftwo percent when you're looking at the overall
GDP growth and you got a fewpercentage points of inflation, and that gets
to you know, five five anda half percent nominal GDP growth. So
I think at this point I amnot freaked out about the possibility of recession.
I don't think the data is consistentwith that at the moment. I
think there's a slowdown that might behappening here, but a slowdown does not
(05:06):
inherently mean recession. And likewise,if you're having an economic slowdown, it's
really hard to end up with inflationincreasing in a meaningful fashion there because you
don't have that demand that is drivingthe inflation, and instead you'd have to
have supply shortages and inflation expectations goingup, and neither of those two things
(05:28):
are happening right now. So Ithink, quite honestly, this is a
time where you can kind of sitand look at the economy and say,
yeah, things aren't perfect, butthere's nothing to really freak out about at
the moment. I'm starting to becomemore attuned to the potential downside risks to
the economy that may materialize in thenext six to nine months. But look,
(05:49):
I'm not going to be the boywho cried recession all the time,
and you know, not really haveany signal to a bunch of noise.
Right now. Things are kind ofokay. They're not great, they're not
horrible, and it's okay to saythat things are just perfectly average. And
I think that's fine. Well,don't worry, Chuck, because there'll be
(06:11):
plenty of folks out there that arehappy to cry the recession warning for you.
I know they probably get more listenersthan we do. But that's okay,
because I life's too short to freakout when you don't have to freak
out. Man. So let's talkabout that story from the Wall Street Journal.
Then that caught my eye. Thisrecord stock market is writing unquestionable AI
assumptions. They point out that justfour giant tex stocks have added more market
(06:36):
value than the rest of the Sand P five hundred put together. Those
four textocks are Nvidia, Microsoft,Apple, and Alphabet. They are specifically
just talking about this month, thoughwe're not talking about this year, this
quarter, the last twelve months.Talking about the month of May. Those
four textoks have added more market capthan the rest of it come bind and
(07:00):
in video was a major contributor tothat. Half of it in video was
half of that game. By theway, that is seven hundred billion dollars
in market cap this month. It'salso just a reminder that the Dow Jones
Industrial Average is a stupid index,and it's basically flat for the year,
and it's being brought down almost afull percentage point today. You might be
looking at your screen or looking atthe news and saying, why is the
Dow off a percentage point when therest of the market's off barely, And
(07:23):
it's because one single company, Salesforce, is off by twenty percent this morning.
We'll talk about that later, butthis is a nothing storied I mean,
look, I imagine we can wejust back up just one second on
Salesforce. Yeah, imagine being theDow. Was it two years ago when
Salesforce got added to the Dow andreplaced dex On Mobile. I don't recall
(07:44):
it was either two or three yearsago, sometime in you know, twenty
one twenty two. Imagine looking atall the tech companies that you have out
there to pick from, and yousay, Salesforce that's the one. Now
I'm not saying Salesforce is a badcompany. They're not. I think they
actually make a really good product,and I think that they are a company
that has grown a ton in thelast couple decades. Like they're a really
(08:07):
good company, quite honestly. Butyou have your choice. Now, Microsoft's
already in the Dow, Apple's alreadyin there, But you got Google sitting
out there, and video wasn't whatit is today, So like that would
be you know, some real youknow, Monday morning quarterback and to be
like, oh, they should haveadded in video. Well I'm sure that
wasn't the case like in twenty twentyone or twenty two. But you're you're
(08:28):
sitting there and you're like, wecould add Salesforce or Google or Amazon.
Amazon's in there, Amazon's in amazonsin. Well. The other piece would
be, could you have remember thatthe Dow has all these stupid limitations on
it where if the nominal stock priceis too high, then you can't just
a why they did not Google?Yeah exactly, so this is why,
(08:50):
like they didn't add Google. Butanyways, I digress. Let's let's get
back to the topic at hand.So it is fair for the Wall Street
Journal to point out that yes,this month's upward ride on the S and
P five hundred of the Nasdaq isalmost entirely comprised on AI excitement and hype.
And look, that should be atleast something that you look at and
(09:13):
consider and wonder if this is arepeat of the dot com bubble like we
have many times before. But againwe're sitting here and pooh poohing markets reaching
an all time high because once againit's being led by a small group of
companies, and nobody goes on tosay anything in these articles as to whether
or not that will result in aproblem, right, Like this was the
(09:35):
story of most of the twenty tendecade, is that the market got led
by a narrow group of tech stocks. And I don't know about U,
Chuck, but I don't exactly lookat the twenty ten decade is a really
terrible time to be an investor inAmerican stocks? Do you no? I
think if if you want to say, yeah, there are some things that
could be concerning in here that youneed to pay attention to and that you
(09:58):
know could be potential risks, that'sfair. I mean, look, in
Vidia is not going to grow revenue. We've talked about the slowdown that they're
seeing in their sequential revenue growth,and at some point the bloom is going
to come off that rose, andthat's going to be a problem. But
the counterpoint to this is, Okay, if that happens, Hey, these
(10:20):
other you know, four hundred andninety six companies that have you know,
been growing a little bit more slowlyin the last year or so, what
if the economy picks up for youknow, what they're selling. I mean,
it's these things are not binary.It's not like how in video goes,
so goes the US economy. Invideo, for all of its massive
size in terms of market capitalization,in Video's revenue when you look at the
(10:41):
last twelve months, there's eighty billiondollars. I mean, to put it
in perspective, Amazon the revenue sixhundred billion dollars. It's almost ten times
in Vidia's revenue. So in Videocould go through a slowdown where the stock
price falls fifty percent, just likeit did, by the way, in
(11:03):
twenty twenty two. You know whenVidio stock went from like one hundred and
eighty bucks to share to eighty fivea share in twenty twenty two, And
that could happen again. But theother piece that I come back to on
this is Okay, so it didthat, and here we are today and
the S and P five hundred isback at new all time highs, not
today, but like five days ago. And so I think it's important to
(11:24):
contextualize this because I I was talkingto a couple of people in the last
couple of days and they're like,oh, I really don't like how the
stock market's doing right now. AndI had to pause and be like,
which part of it? Like,what do you mean you don't like how
the stock market's doing right now?They're like, well, it's been really
tough recently. I go, well, yeah, there's been a bad day
or two. But the S andP five hundred is less than two percent
(11:46):
off its all time highs. TheDow at the moment is, you know,
even though it's taking it on thechin a little bit harder, the
Dow is about five percent off itsall time highs, and the Nasdaq right
now is also less than three percentoff its all time highs. So maybe
they were just doubling down on gamestop stock and that's what that's what surprised
(12:09):
them. Maybe maybe let's take aquick break, and when we come back,
we are going to take a quickbreak from this relentless positivity and talk
about home insurance, which is justa whirlpool of suck right now, so
we'll talk about that. If youwant to feel upset the next segments.
For you miss any of the show, catch up at your convenience by visiting
(12:31):
Financial Exchange Show dot com and clickingthe on demand icon, where you'll find
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(12:54):
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the Disabled American Veterans Department of Massachusetts. This year's race is Saturday, November
ninth at Fort Independence on Castle Islandand registrations now open. Help us support
these great American heroes by visiting DAVfivek dot Boston and registering for this year's
(13:18):
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(13:39):
presented by Veterans Development Corporation. Mike, there's a piece of the New York
Times today. It's titled home insuranceis clobbering consumers, Yet it's barely counted
in inflation. What gives man?Okay, Well, let's break this down
into two things. One, homeownersinsurance is going crazy right now across they
(14:00):
Premium rates for owner occupied housing isup eleven point three percent on average nationally,
according to sp Global Market Intelligence.So property tax excuse me, home
insurance rates are up over ten percentof year over year, and in many
areas of the country significantly more so. Texas, Arizona, Utah were among
twenty five states in total that posteddouble digit surges and insurance rates last year.
(14:24):
And so if you moved to Floridaand bought a home with cash five
years ago, you have probably seena massive increase in the cost of your
housing over the last few years.Between property taxes and insurance and there's really
no way to sugarcoat that. Andto make matters worse, it's not only
(14:45):
the price increase, but the stressof oftentimes having your policy outright canceled on
you, or not canceled but notrenewed on you, and then needing to
kind of desperately scour the market forhomeowners insurance at the last minute. So
I don't want to minimize this.But the point that The New York Times
is making that hey, this isbarely counted in inflation is one. It's
(15:09):
true, but I would also arguethat it probably should be true. And
let me just kind of do someradio math for you, which I know
is always fun. But let's sayyou're buying a home right now at the
median home price and putting down twentypercent, so you are then getting a
mortgage for three hundred and thirty sixthousand dollars at the current average mortgage rate,
that comes to a monthly payment oftwenty three hundred bucks twenty seven twenty
(15:31):
eight grand a year. In twentytwenty one, the average property tax bill
was twenty eight hundred. Let's doublethat, say that you've got to pay
proper taxes of five or six thousanddollars, and then you've got your homeowner's
insurance, which you know, accordingto this article, went from one thousand
on average to fifteen hundred, andso that is a massive increase. But
(15:52):
let's be clear about something. Asa percentage of your overall housing expenses,
and I'm not even including like basicmaintenance on your own home, the homeowner's
insurance piece is still a drop inthe bucket compared to everything else. So
is this incredibly painful one? Shouldit have a massive waiting in our overall
inflation picture? Absolutely not. Theother piece in terms of you know,
(16:15):
people will rightly ask, hey,why is that not included in the CPI
data, Like why would you notinclude that? And here's the answer that
the Bureau of Labor Statistics gives.It's it's not because they want them.
The answer they give is they viewbuying a home as a capital investment,
(16:38):
not as a living expense. Andagain it's because quite honestly, like if
you will think about it, youdon't have to buy a home, like
that's not the only choice available toyou in terms of you know, how
you acquire shelter, you can rentlike that, there's other options for you,
(17:00):
And so with this being viewed asa financial investment, what they try
to do is isolate the shelter componentfrom the purchase price component, because those
are two different things. And thereason that they do this is think of
it this way. If you aresomeone who's listening right now, and let's
say you bought a place in nineteenninety for two hundred thousand dollars and you're
going to sell it today for amillion dollars. Did your cost of living
(17:23):
go down today because you're able torealize an eight hundred thousand dollars gain on
that property. The answer is no, because that's what that would be representing.
Otherwise, it's that, hey,you bought a place, you paid
the mortgage off over thirty years,and now you get a big windfall at
the end. In theory that like, your cost of living is going down
because you have this huge windfall andrelative to what you used to have,
(17:45):
you now have more money to spendon things, and so ultimately that's better
for you. It would be absolutelyinsane for that to be captured in the
CPI. So that's why when welook at how they try to capture it,
they're not looking at how much youpay for a place and then how
much you sell it for, becauseultimately, if they did that, it
(18:06):
would actually make inflation look lower becauseyou're coming out ahead from a financial perspective
in many cases over the long term. There. Instead, what they're doing
is saying, look, strip outyou know, what you pay for the
place at the beginning, and whatyou're you know, realizing at the end,
what is the actual cost of shelteron a monthly basis, And that's
what they're trying to factor in.Where this dovetails with the insurance piece,
(18:30):
that is simply a carrying cost oran expense associated with that investment. And
so that's why it is stripped out. That's the logic behind it. Is
it reasonable? Yeah? Is thereyou know, are there people who could
disagree with it? Yeah? Butthe reason it's done that way is because
otherwise you're stuck with this problem ofHey, I made a bunch of money
(18:53):
on my home at the end.Does that mean that my expenses along the
way were not as high? Well? No, they were, And so
that's why they try to strip outthat purchase and sale price and all the
stuff that goes along with it,because they're viewed as expenses that fund that
investment rather than the pure expense ofshelter. Does that make sense? It
(19:15):
does, But you're telling me thatthis is not a conspiracy to artificially make
inflation lower. Probably not, Okay, there's other ways that you could do
that if you really wanted to.We're not going to talk about that anymore,
Thoughle's instead take a quick break.We've got Wall Street. Watch when
we come back, and then we'retalking Salesforce why their shares are down eighteen
(19:36):
percent today. Like us on Facebookand follow us on Twitter at TFE show.
Breaking business news is always first righthere on the Financial Exchange Radio Network.
Time now for Wall Street Watch acomplete look at what's moving market so
(19:57):
far today right here on the FinancialExchange Radio Network. All markets are modestly
pulling back again today as traders reactto new economic data points, including a
second estimate of first quarter GDP andjobless claims. Wall Street's also readying for
(20:19):
another inflation reading dueout tomorrow morning whenthe Core PCE index is released. Right
now, the Dow is down byone percent, or three hundred and ninety
two points. SMP five hundred isdown over a thirty four percent or twenty
two points, and the Nasdaq downover half a percent or ninety four points.
(20:40):
Russe two thousand is up, however, by three quarters of a percent,
Tenure Treasure Reel down by six basispoints, now at four point five
six percent, and crude oil offabout a quarter percent, trading just above
seventy nine dollars a barrel. Salesforcedown by nineteen percent after the cloud software
(21:00):
company posted weaker than expected revenue andguidance. This marks the first time since
two thousand and six that Salesforce fellshort on revenue forecast. More on that
with Mike and Chuck coming up herein a moment. Meanwhile, best Buy
missed first quarter sales expectations due topersistent software demand for consumer electronics. However,
(21:21):
the retailer did be earnings per shareforecast and also reiterated its full year
forecast. Best Buy up by ninepercent. Another retailer, and Coles,
also posted earnings this morning, unveilinga surprise loss per share, well below
street expectations of a slight profit.Revenue for the quarter also missed forecasts,
as net sales decreased five point threepercent compared to a year ago, with
(21:45):
comparable sales down four point four percent. Coles also lowered its forecast for the
full year that stocked tanking by twentyfive percent. Elsewhere, Full Locker posted
a quarterly profit that surpassed expectations,sending that stock up by twenty five percent.
And after today's closing bell, we'llsee quarterly results from Costco, Dell,
(22:07):
and Dollar Tree. I'm Tucker Silvan. That's Wall Street. Watch Chuck
before we go on. Did youguys already talk about movies over Memorial Day
weekend? No? What about movies? They had one of their worst Memorial
Day No, the worst overall MemorialDay debut since nineteen eighty nine in terms
of ticket sales. And I justwant to mention that this is the second
(22:29):
time Hollywood has attempted to make aGarfield movie in two decades, and in
both cases it has apparently just beenabysmal Garfield movie. The first one in
two thousand and four, voiced byBill Murray, has been like a famously
joking ridicule of Bill Murray's He mentionsthe movie in what's the zombie movie that
(22:51):
Bill Murray is in? Does anybodyknow zombie Land? Zombie Land? He
ridicules his role in Garfield in thatmovie, and now the new one with
Chris Pratt has a thirty seven percenton Rotten Tomatoes. So I just love
that they keep attempting to make thismove into a movie and keep seemingly utterly
failing to do so. Well,Well, let's let's talk about this a
little bit. Can we just havea longer discussion about what's going on with
(23:15):
movies right now? Because I thinkit's kind of interesting. Actually, Yeah,
so the first thing, I don'tthink this Garfield movie is a huge
failure, or at least I don'tthink it's gonna be viewed that way by
Sony Pictures. And the reason whythe budget for it was sixty million dollars.
It's pretty cheap. It just didone hundred million worldwide in the first
weekend. Yeah, so, likeagain, they're not going to take that
(23:38):
home if you will, get outof the economics of the box office works.
Obviously, the distributor, like thetheaters rather is going to take some
of it. You've got other feesthat you have to pay out. Maybe
there's you know, some cuts thatyou pay to actors or actresses that are
getting you know, percentage points onit. But ultimately this thing might end
up doing you know, a quarterbillion dollars on a sixty billion dollars a
(23:59):
sixty million dollar budget. Okay,Sony Pictures is gonna take that all day,
every day, regardless of how badthe reviews are. You know,
it's fine. The other thing is, this is not a classic Memorial Day
tenth pole film. Again, thoseare the ones where it's like, hey,
Independence Day with one hundred million dollarbudget in nineteen ninety four or ninety
(24:21):
six or whatever it was. Okay, Like, yeah, they're like,
that's one where you're swinging for thefences. This is kind of like,
all right, throw it out theresomewhere, maybe on Memorial Day so that
someone you know goes and sees it. But ultimately it's not something where I
think they're really, you know,gonna view that as a failure from a
business perspective. How about on theother yes, this is one where when
(24:45):
you put out a nearly two hundredmillion dollar movie that does twenty six million
domestically and sixty eight million worldwide,it's kind of a problem. And here's
why it's a problem today. Theeconomics of movies have changed dramatically with the
advent of streaming for two major reasons. The first one is that the theatrical
window, meaning the period in whichmovies are in theaters and that's the only
(25:10):
way you can see it, hascompletely collapsed. Used to be. If
you go back to the nineteen nineties, even the early two thousands, movies
are typically in theaters anywhere from youknow, ninety two, one hundred and
twenty days, and the only waythat you could see it after that was
either on like pay per view,or you had to go and rent it
black buy it exactly Now you usuallycouldn't even buy it for a period of
(25:33):
time afterwards. I think you couldrent it only for a mayble while afterwards
too, Maybe I can't remember.So the economics of that are twofold.
First, you typically had longer runsin theaters. Now it's if you have
you know, kind of a bombhere, Okay, it might be in
theaters for like four weeks at most, maybe five, and then there's like
no move on. We don't wantto pay the distribution costs and have it
(25:53):
in theaters chewing up space. Theother piece is, as I mentioned,
a major source of revenue for moviestudios back before streaming was the rental and
purchase market. And so this ishow there are two different ways of this
made money. The first is withthe immediate rentals, where I still remember
(26:15):
you walk into Blockbuster in nineteen ninetyseven and literally there is a whole wall
of Titanic. Yeah, because likeeveryone wanted to rent it. And so
there's five hundred and thirty six copiesof Titanic in a single Blockbuster, and
there might be like three other moviesscattered around, and then all the ones
in the middle that are you know, just one copy of the Invasion of
(26:36):
the Body Snatchers and that's it.So you get this huge rental you know,
boom that comes out of there,and then people buying them initially as
well. But the other piece that'sunderappreciated in this is how cult movies become
cult movies. Mike, when whenyou were back in high school, name
a movie that everyone watched like fortytimes in a year that someone had a
(26:56):
copy of the DVD of, uhwhat it was a little bit late,
but Super Troopers was one of them. And then what was the other one
with the super weird cult movie withthe guy in the bunny outfit. Yeah,
Jake Jollenhall, What the heck wasit? Oh? What is it?
Hang on? It was like oneof his first movies. He was
(27:19):
like going Donnie Darko, Donnie Darko, so like that one. The other
one that I was thinking of wasBoondock Saints. Yeah. You know,
these are movies that made nothing intheaters. Donnie Darko, as an example,
had a budget of four and ahalf million dollars and did seven at
the theaters, but it sold aton of DVDs to high school and college
(27:41):
kids who you know, got hookedon and said, oh, I got
to buy my own copy. Thatmoney does not exist for movie studios anymore.
They they don't get that, andso the economics of making a movie
have completely changed because you have tomake that money in a short period of
time at the theater or you're reallynot going to make it anymore because the
(28:03):
content that people want to stream issimply not going to have the same kind
of royalties coming out to it basedon the fact that people were paying fifteen
bucks a month to watch every movieever made. This is why these streaming
services are not profitable. They're notwilling to pay more for content now,
and so they're cutting back on thosecontent costs. So if you're a movie
studio today and you're saying, look, i've got a four to six week
(28:25):
window to generally make my money,and that's kind of gonna be it.
I'm gonna put that trap that everybody'salready familiar with, like mad Mass,
and that's why you're seeing that,like the whole franchised stuff become you know,
the big draw. Now, there'sdefinitely some audience fatigue with it where
it's just kind of like, okay, like we want some originality. We've
(28:48):
seen this. There's a great socialmedia thread over the weekend about nineteen ninety
nine and how it was basically thebest year for movies ever, like it's
it's it's kind of the case thatwas being made here and it was hard
for me to go against this becauseyou look at the numbers and these are
(29:11):
just the top fifty movies of theyear. And this is by audience rating.
Actually I don't know what it's by. It's by it says by list
order, but I don't know whatthat means. But this is from IMDb.
These are the top forty seven.I won't do the all of them,
but let me just do like theTop fifteen from nineteen ninety nine,
Fight Club, The Matrix, AmericanBeauty, Green Mile Eyes, Wide Shut,
(29:36):
the Sixth Sense Election Being John Malkovich, Talented, Mister Ripley, Man
on the Moon, Magnolia Office,Space Girl Interrupted, Arlington Road, Three
Kings, Boondock, Saints, SouthPark, and The Insider in the Iron
Giant. And those aren't even thehighest grossing ones. Remember that Star Wars
Episode one came out in ninety nine, right, and I didn't even get
(29:56):
to by the way, Cruel Intentions, the Where Witch Project, American Pie,
Any Given, Sunday, Galaxy Quest, Austin Powers. I mean,
like again, you talk about thatand you go through there, and you're
like, man, there's four orfive of those that are movies that are
based off books. You know,where the book was optioned into a movie,
(30:18):
Fight Club being you know the numberone example. There, there's no
you know, Top Gun seven,there's no There is actually Toy Story too,
but even that, it's kind oflike, okay, Toy Story was
the movie that kicked off the youknow, three D animation thing, right
again, like the Best Year.I didn't even go through like half the
(30:38):
other stuff that you're like, ohmy goodness, it was just fantastic,
Like, analyze this. I'm prettysure now I'm not seeing any that was
a bad one. Deep lucy,sharks don't don't make them smarter than humans.
But you look at the box officetoday and they can't take these risks
because there is no theatrical win andthere's no DVD market to make the money
(31:03):
on the back end. And that'swhy you get regurgitated corporate crap more than
anything else. Now, the interestingpiece is that last year, you know,
everyone says, oh, but youknow, well, the Barbenheimer things
shows that people want different stuff.Oppenheimer does, Barbie doesn't. Barbie was
established intellectual property, and as we'veseen, that can be kind of hit
or miss. Anyone, remember theBattleship movie, No, very bad,
(31:26):
very very bad Oppenheimer. Even there, you say, okay, it's still
coming from a reputable director, ChristopherNolan, who cut his teeth and built
his brand on three Batman movies.Like how many people had really seen Memento
before Batman? Not that many,you know. It's just this is the
(31:47):
kind of thing where you look athow the economics are today, and as
much as I want to return toyou know, original movies. I get
why they're not going that way isbecause the economics just are not there in
a lot of cases to support it. You've clearly given this a lot more
thought than I was prepared for Chuck. But what I would argue from the
consumer standpoint is I'm okay with thatbecause the creativity and streaming options has replaced
(32:13):
that in a lot of cases,it has, but it raises so here
here are the two interesting questions.Then. The first is can you name
anyone who became a star just fromstreaming or a TV show, not off
the top of my head, likethey have to have that movie that transforms
them into like that star that everyoneknows. The second piece then is okay,
(32:37):
what happens to that movie format oftwo to three hours? Does that
continue to exist as a thing?Right? And I think it's a valid
question as to where that's gonna goif we don't if not we if studios
and theaters don't figure out a wayto make this better. The other part,
the theater experience is brutal. Nowit's all people talk, running up
(33:00):
and down like someone's got to cleanup the theater experience because it's bad also,
and I got a big screen atmy house. I don't need to
go to the theater to do that. I mean I do because it's not
that big. It's not sixty feet, it's like sixty inches, but it
is what it is. Quick breakhere, then we're talking Salesforce. Finally,
when we come back, breaking businessand financial news first throughout the day,
(33:22):
only here on the Financial Exchange RadioNetwork. The Financial Exchange Show podcast
drops every day on Apple, Spotify, and iHeartRadio. Hit that subscribe button,
then leave us a five star review. You're listening to the Financial Exchange
Radio Network. Mike, Why isSalesforce stock down eighteen percent today? Sorry?
(33:50):
Because they had one of the worstmisses on revenue in their company's history.
How bad was it? What happened? So Salesforce, like you mentioned,
shares falling about seventeen percent or no, initially they were following seventeen percent.
Where are they now? Twenty twenty? That's that's great. So they
went not twenty dollars a share,Yeah, so their revenue expectations changed.
(34:13):
That not only did they miss onon revenue and earnings, but they also
revised their estimate for the rest ofthe year. Down to nine and a
quarter billion. That was from averageanalyst estimates of nine point three five billion
profits coming in at two thirty fiveestimates, So really missing on all fronts
here. I don't have any insidertrack on why they're missing here, but
(34:37):
this is a now fairly mature techcompany who is not seeing sales growing at
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(35:43):
to Salesforce, like armstore Advisor,where customers have then we're pretty familiar with
the sophomore. It's the software.I look at some of the competition in
that space now and look, Salesforceis pretty much the leader in customer relationship
management software. You're out of theworkforce, you might not be familiar with
them, but they are pretty muchthe dominant player in that space. But
(36:05):
they are facing increased competition. Google'stalking about buying HubSpot, one of the
key competitors to their marketing ARM.They made that Slack acquisition that I don't
really know how successful that has beenin adding to the bottom line, and
I don't know it just it looksto me like a company who is facing
increased competition and quite honestly does havea product. Then in some cases you
(36:29):
practically need a full developer team justto implement at your company. And so
they got their leadership space by beingthe company that could do anything, And
I wonder if they have gone toofar down that path. What's your take
on where Salesforce really stands now?So I think that the signals that I'm
(36:50):
getting here. They talked about howit's taking longer for customers to make deals
with them, and their clients arefar more price sensitive when making those deals,
And part of me wonders two things. First, is there just a
capex cycle that is kind of endinghere? You know, as companies are
(37:12):
managing and in some cases downsizing thesize of their workforce, are they is
that filtering through to Salesforce because Salesforceis typically pay on a per user basis.
The other piece that's kind of relatedis AI spending sucking up all the
capex in the room, and isthat where the marginal dollar is going instead
(37:35):
of other software and other services.Yeah, there's a million add ons that
you could be putting onto a Salesforcesoftware and instead you if you're opting for
Microsoft's new AI assistant tool, thatmight suck up some of the spending dollars.
So I wonder about that. That'sa good point. I wonder about
that I don't know what to makeof it, but those are my two
possibilities that I kind of see.We are going to take a break here,
(38:00):
but we still have hour two ofthe Financial Exchange coming up with a
whole bunch to get to. Imean, we didn't get to like five
or six stories that we wanted tocover in our one and we still have
you know, another eight to tenin hour two. So, uh,
we got a lot to get tohere today. And the only way that
you can, you know, seewhat we're gonna talk about, is to
(38:20):
tune in for Hour two, whichis coming up in just a little bit
on the Financial Exchange.
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