Could some relief be on the way for home buyers?

Chuck Zodda and Mike Armstrong discuss why the Fed can take time taming inflation. Why are big bond rally is promising help for home buyers. Why condos are seeing a big spike in insurance costs. What did Wells Fargo do to cost itself over $10M per month? Pixar strikes big at the box office with 'Inside Out 2.'

Episode Transcript

(00:00):
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five K Boston is presented by VeteransDevelopment Corporation This is the Financial Exchange with
Chuck Zada and Mike Armstrong. Chuck, Mike and Tucker here with you,
and we kick things off with alittle bit of inflation talk this week.
Mark, it's not really doing muchtoday in what is going to be a

(01:27):
it's not I guess it is ashortened week of trading. It is a
shortened week of trading. There's someimportant data coming out. There's more Federal
Reserve presidents than I would care tomention who will be speaking about their views
on the economy. Yeah. Ilove Federal Reserve presidence speaking. If nobody

(01:47):
does, I hope that not.I hope what I'd like is, well,
I guess I would hope this whenwhen I finally pass away, when
I die, I would like tohave seventeen Federal Reserve members speak at my
funeral. Not even about you,not about the economy. I just want

(02:08):
them to give their thoughts on interestrates, inflation, and the economy,
because look, they show up toeverything else. You know, they show
up at a Burger king and they'relike, oh, well, here's why
the prices of what do you wantfor lunch? Sir? Just all of
you. I'm inviting you all tomy funeral at a time to be determined,

(02:31):
and when it happens, don't makeit about me. You just cold
and calculated. That's what I wantthere on my tombstone, you know,
just how was here or whoever itwas at that point. I hope that
I'm gonna outlast Jay. Yeah,in terms of his time. I hope

(02:54):
he lives a long life. ButI just hope that I don't die during
his FED tenure, because that wouldbe kind sad, quite honest. Let's
talk a little bit about inflation.There's a piece here from Jason Furman in
the Wall Street Journal. Firman,by the way, was on the Council
of Economic Advisors at the White Houseduring Barack Obama's second term. He actually,

(03:17):
I think has a fairly balanced viewcompared to many people who serveant in
any White House. I don't necessarilyview him as being, you know,
staunchly pro Democrat or anything along thoselines. I think he is more of
a trained economist who just says,guys, this is what the numbers are
saying, and here's what I believe. And he writes this piece that it's

(03:39):
a little wonky, but I thinkwe can break down kind of what he's
saying, which is, look,we've gotten through, you know, the
first piece of the fight against inflation. It came down from nine into the
threes. Core inflation is gone fromsix down into the three range. But
the issue that we're seeing that hepoints out is, Hey, for much

(04:00):
of the last couple years, theissue that we were facing was that core
inflation was below headline inflation, whichindicated, hey, once those headline inflation
pressures passed, you'd have some downwardmovement happening. He now says, Look,
right now, we're in the oppositesituation where core inflation is running hotter
than headline inflation for the last twelvemonths, and as a result, you

(04:26):
still got a little bit of workto do. You can't take the foot
off the gas there completely. Andyes, we've been able to avoid a
recession to this point, but it'snot entirely clear that we're going to be
able to avoid one completely if wewant to get it down to where we
want to get it down to.Yeah, to put it pretty clearly,
if you look at the year ofa year numbers, core and headline CPI,

(04:48):
they're pretty close to each other.But take a look at the last
six months and just annualize those figureson headline CPI, which has been helped
out a fair bit by gas pricesover the last six months, you've got
inflation if you annualize the last sixmonths at three point two percent. If
you strip out the food and energyprices, which again food has also been

(05:10):
compared to where we were a fewyears ago, relatively muted over the last
six months, you've got core CPIrunning four If you annualize that six month
data stripping out you know, theJanuary February timeframe, you still have the
three month average running at eight pointeight percent hotter on core. And Okay,

(05:31):
what does that all mean. Well, it may mean that it takes
a little bit more work to gofrom three to two than it did from
six to three. And is I'venoted and I'm not trying to be a
FED apologist here, because any ofyou who have listened know that I don't
really apologize about the FED. Again, I just invited them to my funeral,

(05:51):
so you know, not exactly acompliment. It's not really a compliment
saying I want you to I don'twhat I mean these people until I'm six
feet on there. Yes, pleasecome talk to me when I'm dead.
I think that the idea that youknow we have to return inflation to two
percent. The point that I've pointedout repeatedly, inflation has never been two

(06:14):
percent. The nineteen nineties is averagethree percent. The two thousands averaged two
to one. The twenty tens itaveraged two to two. Close. Yes,
And look, I'm not saying declarevictory now and call it a day.
But what I am saying is theidea that there's this two percent target,
is this this new thing? Youwant to get it down so that
that first digit is a two.Whether it's two one, two two,

(06:35):
or two five, it doesn't matter, whether it's two eight or two nine,
it doesn't matter. The nineteen nineties, Let's be honest, a lot
of you that are listening right now, we partied like it was nineteen ninety
nine. The nineties were a gooddecade economically. And so the issue that
Feman is pointing out here is,look that core number, if it continues

(06:56):
to hang out in the mid tohigh threes, that that's where the problem
is. Because you don't get inflationdown to two five, two six and
have it hangout there. It suggestsmore that inflation's going to hang out,
you know, somewhere in that threeand a half to four range, which
is a meaningful difference from even threepercent when you will get the way it
compounds over time. The Federal Reserve, some members themselves have brought up this

(07:17):
point, which is inflation. Youknow that inflation is under control when it's
not really on people, when peoplearen't paying attention to what Jerome Powell says,
when nobody really cares what the nextCPI report says, or nobody's really
tuning into the number of speeches thatwe're covering, or we're barely covering the
Federal Reserve meeting on this program.That's kind of when you know that inflation

(07:42):
has been vanquished to end in agood spot, and that might not mean
two percent, but so long asit's consistent and predictable and at a reasonable
pace and with everything else going on, that's kind of how you benchmark it
as being successful. Now the Fedcan take its time taming inflation. I
think the point here is, Hey, they were given what has been a
fairly resilient economy, and so don'tdramatically lower rates too early. I think

(08:05):
the counterpoint would just be, andI'm sure Jason Furman would acknowledge this too,
is the longer that rates stay wherethey are right now, the higher
the possibility, in my view atleast of a recession, of more failures
to come in different areas that we'renot thinking about. I think that's my
outlook on it is. I don'twant them to lower rates and cause a

(08:26):
resurgence in inflation. But you alsohave to acknowledge that the longer rates are
here, the more damage you doto the property market, to other areas
of this economy that any number ofthem could eventually lead to a recession.
I want to talk a little bitabout the property market as it relates to
all of this here, because whatwe are seeing right now, according to

(08:46):
Mortgage News Daily, and this isagain they go and they aggregate a bunch
of this stuff just so that wedon't have to they do all of the
hard work to actually figure out whererates are. According to Mortgage News Daily,
right now, the thirty year fixedrate is nationally averaging about six point
nine to nine percent. To putthat in perspective, if you go back

(09:09):
a couple months ago and we weregetting those you know, hot inflation prints
on the regular, as the kidsused to say, thirty years ago,
April sixteenth, thirty year fixed ratemortgage was averaging seven point five percent.
So mortgage rates have come down halfa percent in the last month, Mike,
Is the Federal Reserve done anything meaningfulover that time to reduce interest rates?

(09:35):
They really haven't. And so thishas happened as a result of the
market sniffing out, Hey, theeconomy's slowan a little bit. The last
couple of inflation prints have been better. The last one we can actually definitively
say very good after a you know, fine, but mech one for the
month of April. And so themarket is sniffing this out, and you've

(09:58):
got long term rates coming lower,in mortgage rates moving with them. So
part of me looks at this andsays, look, the single most dominant
force in the US economy that driveseconomic activity is still housing. You know,
as much as you know two thousandand eight happened and we said,
oh, like, we don't wantto be that dependent on housing anymore.
We're still kind of that depend dependenton housing. We're not doing the dumb

(10:22):
stuff that we did in two thousandand three through two thousand and seven,
you know, making one hundred andten percent loans on second homes with eight
mortgages and YadA yah, we're notdoing that dumb stuff. But we're still
very dependent on housing. And sowhen mortgage rates drop by half a percent
in the span of a month,really two months, it provides a nice
little counterbalance in terms of, hey, now some of those people who might

(10:46):
have been priced out of different markets, okay, you can you can go
in and buy and start generating thateconomic activity again. And so part of
me wonders, hey, does theFED need to do much If the long
end is being this sensitive to changesin economic activity, maybe the Fed doesn't
need to be reacting, you know, to every data point, and maybe
it's fine for them to just hangout where they are. The other piece,

(11:09):
when we talk about mortgage rates andbeing where they are, so the
thirty year fixed rate mortgage has anice tie historically to the ten year treasury
rate. It's been since the datathat I have going back to April of
seventy one, just fifty three yearsof dat. It's a nice little data
set. The thirty year fixed ratemortgage has averaged one point seven percent above
the tenure treasury. Today it's twopoint seven percent. It's not because j.

(11:33):
Powell said, hey, banks hikeyour interest rates. It's because banks
have a fear that they're gonna getcaught wrong footed on inflation, and so
they're demanding more of a premium overtreasuries than they normally would. They say,
look, if we're gonna lend toMike in his sorry credit or to
Chuck in his sorry credit, no, we want two point seven percent above
the ten year treasury, not justone point seven. If inflation begins to

(11:56):
get more under control and you seea more consistent track record, banks will
say, yeah, we now feelmore comfortable that we're not going to get
screwed by inflation, you know,rebounding here, and so that spread probably
compresses further, and that helps todo some work absent the FED doing anything
as well. So there are alot of levers that there are a lot

(12:16):
of things that can move here withoutthe Fed needing to do much at this
point in terms of cutting. Inmy opinion, let's take a quick break.
When we come back, let's talkabout this a little bit more on
the housing side of things, becausethere's a piece in the Wall Street Journal
talking about how this is impacting homebuyers today with lower rates. We'll diget
a little bit more when we comeback. The Financial Exchange is now available

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For more information to make a donation, visit DAV fivek dot Boston.
The DAV five k Boston is presentedby Veterans Development Corporation Mike. If we
take a look at the data onTreasury, specifically on long term treasuries.
The tenure US Treasury was at fourpoint sixty three percent on April fifteenth.

(13:52):
It sits there today at four pointtwo four percent, almost a half percent
low, where mortgage rates have comedown about half percent stance then as well,
And there's a piece in the WallStreet Journal talking about, Hey,
if you see this continue, it'sgoing to end up being very quite nice
for potential home buyers who are ableto then unlock lower costs of borrowing and

(14:15):
buy homes that previously were not findinga connection in price between buyer and seller.
Yeah, and I think that's possible. I mean, all things are
contextualized right here, like really helpinghomeowners. Well, yeah, compared to
a few months ago. Yeah,but it is definitely true that inventory has
been ticking up. Maybe not aroundhere, but just let me give you

(14:37):
a sense for this. So Mayof last year, I'm going to compare
everything to May of twenty nineteen,just to keep things consistent here, because
I don't think that was a normalhousing market, but it was more normalized
than right now. In May oflast year, across the United States,
inventory was just shy of half ofthose twenty nineteen levels. So I'm not
going to talk about number of houses. It was just it was run in

(14:58):
half. Today, you know,we've got data on May now it's about
two thirds, so better clear improvement. And if you take a look at
the four most populated states in thecountry Florida, Texas, New York,
and California, you're seeing again marketimprovement there. So take a look at
those four states. Florida, you'vegot levels that are ninety five point five
percent of twenty nineteen. Great ifyou're a buyer. Tech problem is that

(15:22):
insurance rates in hoa feet. We'lltalk about other problems. Yes, there
are issues. Texas one hundred andone percent of twenty nineteen levels actually more
inventory than where we were before.California not perfect, but sixty percent sixty
one percent of those twenty nineteen levels, and New York still pretty low,
about fifty three percent of those twentynineteen levels. Very much a regional story

(15:43):
depending on where you're looking. Definitely, because you go across New England,
Connecticut twenty three percent of twenty nineteenlevels. Wait, I don't know what's
going on in Connecticut, and there'sno homes for sale there. Maybe that's
where everyone's moving. I mean alot of people moved out of New York
to Connecticut. I there's no homesfor sale there. Don't know what to
tell you. New Hampshire forty percent, Maine forty percent, Massachusetts forty five

(16:03):
percent. So across New England avery different story, and I know that
it's being reflected in prices and storieswhen you talk to people. Yeah,
this is why if you're looking forplaces, if you're a potential buyer,
maybe you've got a son or adaughter, someone who's related who's trying to
buy right now, they're still sayingthere's nothing out there. Yep. It's
because in New England there's nothing outthat's true. But the lower that rates

(16:25):
get it. It's kind of aninteresting story here where it certainly will attract
more buyers. Right. Lower rates, I think by definition will allow more
buyers into this market. It mightalso attract more sellers. Yeah, there's
a lot of people who are feelingrate locked right now and saying I cannot
give up that four percent mortgage thatI have for a seven and a half,

(16:47):
but I might be willing to doit for a six and three quarters.
Yeah, So that's the interesting divergencehere and should rates continue this trajectory,
I think it could actually be agood news story for everyone in the
housing market, or at least abetter news story, because it has been
just tremendously difficult to get into ahome over the last few years. And

(17:08):
the other thing that you have toremember, for every seller that's out there
that is mortgage locked, if they'rein a conventional thirty year fixed rate mortgage,
every year two to three percent oftheir principles being paid off. Yeah,
And so each year that they goforward, they say, yeah,
there is less of a concern thatwe are mortgage locked because we don't have
as much of an outstanding mortgage aswe used to and even if we have

(17:32):
to take a new one out,it's not going to be as big as
we thought it would be previously.And so that difference in monthly payment,
which is ultimately the number that matters, becomes smaller over time, even if
mortgage rates stay the same, becausethey won't need to borrow as much.
I was speaking with Matt Ganyon thismorning, the host of WGA n UP
in Portland, and he was askingabout it, and he used the term

(17:53):
bubble, but wasn't really sure ifyou would describe this market as bull always
like, you know, I don'tknow how to explain why my house is
basically doubled in value over the lastfive years. And my answer is,
look, I usually define a bubbleas being accompanied by some massive increase in
borrowing. And the only place youcan point to that is, you know,
on the US government's balance sheet.You don't see it in households.

(18:14):
But we both you know, cameto the same conclusion that we've been driving
home for a while now, whichis I genuinely believe the answer as to
why we have home price high homeprices is because people don't want lower home
prices. Well, here's the otherthing. It's a lack of inventory because
the only prices that we're actually seeingare the ones that are clearing the market.
And when you have thirty to fortypercent of the transaction volume did previously,

(18:40):
well you don't need as many buyersto clear that market. So a
smaller subset of people who do haveyou know, more wealth, can afford
to buy those places. But mypoint here is like but one more thing
on that. In places like Floridaand Texas that are now back to pre
pandemic levels are close to pre pandemiclevels of inventory. You are starting to
see home prices falling there now,Yeah, you are. My point about

(19:02):
not wanting lower prices is that requiresbuilding and consistently, whether it's in Maine
or in Texas. Texas less sowe are just so adamantly opposed to building
new houses. So it's not amystery to me. You know, states
that have proved a lot more buildinghave much more reasonable home prices, and
that's just not the case here inthe Northeast. We're going to take a

(19:23):
quick break here. When we comeback, we'll talk about the counterpoint to
all this in terms of the optimismfor homeowners and home buyers, and that
is what's going on with insurance costs, specifically in the condo market. We'll
talk about that when we return.Like us on Facebook and follow us on

(19:45):
Twitter. Act TFE show Breaking businessnews is always first right here on the
Financial Exchange Radio Network. Time nowfor Wall Street watch a complete book and
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Markets are kicking off the shortened tradingweek really on a quiet note.

(20:07):
In our in mixed territories investors readyfor fresh economic data points this week,
including retail sales and housing starts,among others. Right now, the Dow
is off by seventy points, SMPfive hundred is really flat, and the
NASDAC up by only one point.Russell two thousand is off by third of

(20:29):
a percent. Ten year Treasureel upby seven basis points now four point two
eight percent, and crude oil isup by one percent, trading at seventy
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(20:49):
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changes. Meanwhile, Broadcom shares areup another three percent today and are currently
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(21:11):
buy from neutral, saying that sayingnew products in an impliance upgrade cycle could
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near term upside from customization and upgrades, as well as continued outperformance of new

(21:33):
home sales that stock up by abouta quarter percent. And after today's closing
bell, we'll see first quarter resultsfrom Lenar, and later this week we'll
see earnings from the likes of KBHome, Darden restaurants, Kroger and Smith
and Wesson. I'm Tucker Silvan.That's Wall Street Watch. Always love seeing
the Darden information. Yeah, it'swhere else can you get, you know,

(21:57):
a steakhouse in the bar reporting earningsall in one Yeah, one place.
Yeah, it's it's like you cansee all of America from fast casual
all the way up to like ultrahigh end. I need them to own
like Wendy's or something else we canget you know, the full the full
view. Yeah, it would benice if they had a true fast food

(22:17):
place, which is it's kind ofthe one place that's like the lowest end
restaurant that they own. Olive Garden. Uh. Probably, let's see.
Hang on, so we got OliveGarden, Sakehouse, Bahama Breeze. I
don't know anything about a Bahama Breeze. They don't have many of them,
there's only forty three, and ironicallyit looks like most of them are in

(22:37):
Florida. So I don't know whyyou would need proximate to Bahamas. But
you're already like kind of beachy.You don't need to like be Oh,
we're in the Bahamas. And theyused to don't Red Lobster remember until they
got sold Yeah, they got spunout and sold off. But then Season
fifty two Yardhouse and Cheddar Scratch Kitchenare the the other names that they own.
The interesting thing about Darden, bythe way, do you know who

(23:00):
used to own them now? GeneralMills? Interesting? And General Mills spun
them out back in the nineties,which, in hindsight probably not looking great
unless it was, Hey, thisis how we can unlock value for our
investors because cereals kind of on thedemise. I say that as a big
fan of Cheerio. Sorry, GeneralMills. It's just how it is.

(23:22):
Speaking of just how it is,the homeowner's insurance market is wreaking havoc,
not just with single family residences inparts of the country, but also and
in particular with condos. So piecein the Wall Street Journal today, and
it talks about a two hundred andeight unit town home and condominium complex that

(23:42):
is in Mission Viejo, California.And they previously had insurance that they had,
you know, paid forty thousand dollarsfor back in twenty twenty two,
and they got a quote from thereinsure in twenty three so last year,
which was for over one hundred andseven twenty thousand dollars, so more than
four times what they paid the yearprior. Not only was it four times

(24:06):
what they paid the year prior,it provides up to seventy point nine million
dollars in property coverage for the community, which you know, is basically in
line with what they had previously.But in the case of wildfire damage,
which do you think aga in Californiait's kind of the main threat right now,
it only pays that two million.So what do we do here?

(24:26):
But let's like, let's actually dothis this math here and figure out what
this this means, because I thinkthis is kind of interesting. I always
do this whenever I apply for lifeinsurance. I'm like, what's the probability
of me dying over the course ofthe policy? Now with homeowner's insurance or
condo insurance, it's it's one year. You know that, that's all you're
doing at a time. You're notlooking at you know, how could this

(24:48):
be over twenty years. It's it'sone year. So let's put these into
two different things. Just general propertydamage seventy point nine million, you're paying
one hundred and seventy thousand for that. You figure, okay, there's a
two percent chance that we end up, you know, paying that out.
Basically, like if you do themath out, Okay, if you look
at it in terms of the firecoverage, it's saying there's a almost a

(25:12):
ten percent chance you're going to havethat level of wildfire damage that year in
California. Now, ten percent doesn'tmean it's guaranteed to happen, but it's
like, man, in the nextten years, this probably will. So
let's think about this practically for amoment. Here. If I'm a bank,
I'm not underwriting a mortgage in thisbuilding. No, well we think

(25:34):
about that for a minute. SoI'm gonna let you buy this condo with
my money, and if it burnsto the ground, you're gonna get a
fraction of what you paid for thisplace. And here's the twelve other insurers
declined to offer quotes on the building. Twelve, not one, not two,
not three, twelve, And Ithere is no solution to this,

(25:56):
quite honestly, other than figure outhow to not have natural disasters continuing to
increase at the rate they're increasing,which is not really something that's in our
disposal at this point. Well,it's the same story that we talk about
with flooding and other things, whichis I don't think it's that insurers right

(26:17):
now. It's saying that insurance justdon't really know how to or care to
price the risk. Yeah, theyeventually will. I think. I know
that this stuff is unpredictable, butI think that we will eventually get to
a point where three or four insurersgo back to this condo and say,
yeah, we're willing to write policies, but they're going to be very,
very difficult to get. And quitehonestly, it's about appropriately pricing these risky

(26:42):
areas that you want to live in. Yeah, if you want to live
in an area that is constantly proneto wildfires, then it's going to be
very costly for you to do so. If you want to live in an
area that floods every five or sixyears. It's going to be extremely costly
to do so, because you haveto put your home on stilts and do
a whole bunch of remediation or toprevent your home from flooding every few years.

(27:03):
And by the way, it shouldbe I've long maintained and I know
this is not necessarily popular amongst thosewith you know, ocean front property or
you know, places that are builton cliffs in California. If your home
is destroyed by a natural disaster,I fully believe you should get like the
payouts of your insurance payment. Idon't think we should allow people to rebuild

(27:26):
in the same spot. Well,and the problem, like you know,
my guess is the solution to thisis going to be one sort of government
intervention or another. Go look atFlorida. Their intervention there is, Hey,
we've created this state run insurer oflast resort and we're going to pick
up a bunch of insurance policies.But nationally, like you know, I
can talk and think about how I'dlike to see flood insurance priced appropriately,

(27:52):
we don't. I mean, insureris basically walked out of the flood insurance
market decades ago. And what didwe do we set up the National Flood
Insurance Program upsidize everybody that wants tolive on the coast and be close to
the water right now, which Ithink and by we, I mean like
all of us the taxpayer, Yes, subsidize this program. It loses money
every year. And I'll be honest, and I'm sure this is not popular.

(28:12):
Like those of you who have youknow, properties that have you know
been for You're probably like Chuck,you're an idiot, and that's that's fine,
you can say that, But whatare we really doing here? Like
nature decided there should not be ahouse there, and I get that it's
sad and that it's been in yourfamily for a long Like I don't I
understand all that, but especially insome of these areas, like you see

(28:37):
places destroyed two, three, fourtimes, and we keep rebuilding them and
keep ensuring them, and it's like, what are we doing? Yeah,
And I'm just not sure that weshould be doing that. Yeah, I
will be really interested to hear I'venever heard of. This would be an
interesting one. Chuck back to thiscondo board in California. I'm wondering if

(29:00):
if a mortgage lender, we'll goback to an owner and say we're calling
this thing, well, I don'teven know if you can do that.
Most of the time you can't.And there are also a few other things
that you have to keep in mindon this. The first is the insurance
policy that's being taken out here.It's a master insurance policy for the association
as a whole. It's not wallsin. It's basically, hey, we're

(29:23):
ensuring like whatever the association has herein terms of the structures that it owns,
which could be roofs, yes,lots of things, that kind of
stuff. The stuff that is wallsin is typically covered through a separate policy
because, like the again, theKando association doesn't handle that. They're not

(29:44):
supposed to and you wouldn't want themto. So the other piece that's interesting
is, Okay, what happens ifthe like there's two situations. One is
the association gets a policy, butno one will ensure the actual property itself.
Well, how does that end upworking? What about the other one?

(30:04):
Yeah, we'll cover everything, we'llcover the dwelling, but the condo
association can't get a master insurance.What do you do? Like, I
don't even know how that does work? From a mortgage perspective, and we're
seeing a different but similar type ofstory play out in Florida right now for
a different set of reasons actually,but you know, similar in Florida.

(30:26):
What you're seeing happening right now hasnot much to do with insurance, but
rather the new state law in Floridarequiring all buildings, all condo buildings over
a certain age to undergo these thoroughinspections and so kind of related to insurance,
because again, these buildings are needingto do massive improvements. But there's
you know, there's these condo buildingsbuilt in the sixties in you know,

(30:48):
parts of very nice Miami that arefacing you know, three hundred thousand dollars
assessments per unit owner to say,hey, we're gonna have to go and
you know, put twenty million dollarsinto this building, ndred million dollars into
this building. And I think thatthis type of thing is just going to
continue. And we are in thisbit of flux period right now for homeowners,

(31:11):
especially of somewhat older buildings, thatthe insurance market and the maintenance market
are going to be slightly out oftheir control for a while. Let's take
a quick break here. When wecome back, we're going to cover a
story about you know, most ofthe time in finance, it's kind of
like casinos where the house always wins. Occasionally the betters beat the house,

(31:33):
and this is an example of that, not at a casino, but with
a major financial company. We'll talkabout that when we return. Miss any
of the show. The Financial ExchangeShow podcast is available on Apple, Spotify,
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(31:56):
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Normally, banks are really good atdoing one thing. They lend money

(32:22):
to one group of people, theyborrow from another group of people, and
they make a fat spread in doingso. That's the whole business of banking,
is lend out at a higher ratethan your borrowing. You can say
plenty of other bad things. They'renot always the perfect at assessing risk,
although that's their job. They aren'tgreat about sometimes disclosing material things. Occasionally

(32:45):
they open up accounts in your namewithout telling you or asking you. Actually,
that's only one bank that did that, and that was Wells Fargo,
and they happen to be in thenews here again because there is a credit
card by the name of built Bilt, and the whole premise of it is
that most landlords won't let you payrent with a credit card for a very

(33:08):
obvious reason. If your rent isone thousand dollars a month, then the
landlord's getting hit with a three percentfee usually in order to process that payment,
which means they're paying thirty bucks foreach you know, rental that they
have to process. And let's behonest, they don't need to compete for
your business right now, No,they don't. Like you'd love to be
in a world where they do.But it's not a SABA. We say

(33:30):
no, we're not going to dothis. So the whole premise of built
was it was a credit card thatworked with would work with a bank,
and effectively the landlord would not getcharged the normal interchange fee of that you
know, three percent or two tothree percent, whatever it is. Instead,
the bank would end up picking upsome of that cost, and then

(33:52):
the bank would have the cost structureworked out such that it would make enough
on interest in other fees in orderto make money, because that's their experience,
right, They look at their populationof credit card users and say,
well, you know, across thepopulation, this portion ended up paying us
fees. I'm sure they specifically gotsome data on, Hey, among our
renting customers compared to our owning customers, this is the average balance, the

(34:15):
average interest rate we can charge inYadA YadA, yad. Built out some
model to say, oh, yeah, we can cover these fees and still
make money. So in twenty twentytwo, Wells Fargo partnered with Built and
became the financial backer for the lending, and thus far they are now losing
ten million dollars every month. WellsFargo is because they completely like misunderstood how

(34:37):
this market was going to end upworking, to the point where they've now
told Built, hey, when ourcontract with you is up in twenty twenty
nine. Who knows why they signedan eight year deal with a startup like
I have no idea what they werethinking. They said, look, we're
not going to renew this in twentytwenty nine unless you you know, change
the terms dramatically, and the premisecomes down to Hey, not as much

(35:00):
many of our customers are carrying balancesas we thought were it's about fifteen to
twenty five percent of customers instead ofyou know, we thought it would be
closer to half or two thirds.And we also thought that about two thirds
of the transactions would be non rentrevenue, which we're still getting the interchange
fees on and it's actually reversed.It's only about one third that's non rent,

(35:20):
and so we're just losing money handover fist on this to two un
to ten million dollars a month,which again I applaud smart consumers on this.
Rarely do we have a credit cardstory where I get to applaud smart
consumers. But what a deal,right, Hey, I can basically lower
my I don't know what the rewardswere on this credit card. I'm sure
there is some some kind of pointsfor reward. That's the whole premise of
it. Yeah, and so hey, I can go lower my single biggest

(35:44):
monthly expense by a good one tothree percent, would be my guest by
using this brand new credit card.Good deal. Wells Fargo, on the
other hand, you know, takento the cleaner on this one, and
their pressure is going to be onto cross all these folks on some other
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(36:52):
Inside Out two hit theaters over theweekend, and it is a monster
hit for Disney In a reversal ofwhat had been kind of a multi year
down trend for Disney films at thebox office, domestically printing one hundred and
fifty five million dollars in its openingweekend, blowing away estimates of ninety million
internationally doing another one hundred and fortymillion, so it's two hundred and ninety

(37:15):
five million dollars worldwide. Second thefirst few days it's open, second best
opening ever for Pixar. This isa Pixar film owned by Disney, only
second to Incredibles two. And onthe downside, it's going to play right
into Disney's own belief, which is, don't create new stuff, just keep
recycling the old stuff and it'll work. But this, you know, this

(37:36):
has a ninety one percent on theTomato meter and ninety six percent on the
audience score. And as Chuck knows, I am heading out for vacation in
beautiful this time of year, Arizonatomorrow night, and this might be a
great way to get out of thatdry heat for a few hours because hundred
and twenty is still really well,it's going to be a wet heat around
here, so yeah, yeah,you know, maybe we'll get push checking

(37:59):
it. But look, it's notlike Disney's sequels have been knocking the cover
off the ball either. Light Year, which was a toy story story story
spin off, absolutely flopped. SoI don't know what made this hit so
well, but it is. Theoriginal is fantastic, but this is a
much needed win for Disney, whohas just been kind of searching for a

(38:22):
hit for a little while. Now, quick break here when we come back
hour two of The Financial Exchange