July 25, 2024 • 35 mins
Chuck Zodda and Mike Armstrong discuss Ford falling its most in four years as warranty costs erode profit. Jeff Ostrowski from Bankrate joins the show to chat about their recent homeownership survey. An increase in uninsured drivers is pushing up costs for everyone else. Airlines are finally cutting ticket prices as flight numbers rise. Massachusetts gave how much money to the movie 'Don't Look Up'?
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Episode Transcript
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Speaker 1 (00:00):
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(01:04):
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Speaker 2 (01:12):
A little bit after eleven here on the Financial Exchange,
and markets are mixed after being down meaningfully again this morning,
trying to stage an intra day rally here. The Dow
is now up two hundred and forty points, are about
point six percent. The S and P, which was down
almost forty points or three quarters of percent, now up
twelve points about a quarter percent, so a full percentage
(01:33):
point intra day reversal happening on the S and P
five hundred thus far. We'll see if it can hold
that or if this is just a little bit of
intra day volatility. And we've got the Nasdaq still down
sixteen points, are about a tenth of a percent at
the moment. The Russell two thousand up one point three percent,
continuing to show a strong recent outperformance against the tech
(01:55):
heavy NASDAK tenure US Treasury down five point eight basis
points to four point two two seven percent. Oil West
Texas Intermedia down another thirty nine cents a barrel to
seventy seven to twenty.
Speaker 3 (02:07):
And we are continuing to see.
Speaker 2 (02:09):
The TRIPAA national average for gas prices moving up a
little bit, largely due to refined products still having a
little bit of trouble shipping in the volumes that you
were seeing before Hurricane Beryl plowed into Texas. You still
are seeing some delayed impacts there that likely to reverse
in the next week or two as you get back
(02:31):
to normal operations and lower oil prices start to weigh
on gas prices, bringing them down a little bit. And
we got gold down forty nine to sixty an ounce
to twenty three sixty six and ten cents, and that
is what we are seeing in markets today. One other
piece of economic day that we have not yet touched
on initial jobbless claims this week. Last week there was
(02:54):
a bit of a jump up to two hundred and
forty five thousand. We noted that that was largely because
of a jump in Texas in the aftermath of Hurricane Beryl.
This week two hundred and thirty five thousand, so a decline,
and that still is with Texas numbers elevated about five
to ten thousand above where they would normally be at
this point. So it's hard to say that there's any
(03:16):
meaningful uptick happening in jobless claims, just because those are
all going to resolve themselves pretty quickly and other states
are not seeing any uptick that would offset that at
that moment, at least in the aggregates.
Speaker 4 (03:29):
So this is definitely the item to keep an eye on,
in my view, if you're looking for those layoff concerns
companies cutting cost wise, this is where it will show
up first. Obviously, we get the monthly jobs report, which
we will get next Friday for the month of July,
but this is very much more of a nearly real
time indicator on the state of the labor market, those
(03:50):
weekly jobless claims, and we will continue to touch on them.
Speaker 3 (03:54):
Let's talk a little bit about Ford earnings.
Speaker 2 (03:57):
They weren't very good, and so you've got I mean,
there's no other way to put it down. When your
stock is down almost seventeen percent, things probably didn't go
very well. The big thing that they indicated here is
that they had an eight hundred million dollar spike in
(04:17):
the second quarter related to warranty costs. And warranty costs
is a fancy way of saying, Hey, a bunch of
stuff broke that was covered under warranty, and so our
quality is not where it needs to be, and as
a result, we had to compensate customers in the form of,
you know, new parts and everything for stuff that broke
when it should have.
Speaker 4 (04:37):
Isn't this the best part of earnings in your view, Chuck,
is that CEOs have no choice but to disclose things
about their company that they certainly wouldn't want to talk
about in say their Super Bowl ad for example. But
the quote from Jim Farley here I don't have a
direct quote, but effectively saying that Ford has struggled. This
(04:58):
is from the Wall Street Journal. Ford has struggled to
fix stubborn quality problems, which is driven up warranty costs
and put the company at a significant disadvantage to rival.
So not only are they saying, hey, our warranty costs
are up here, they are pointing out because they kind
of have to, because it's earnings time, that our cars
have been made so crappily that we have had to
(05:18):
pay more money out to our car owners than all
of our competitors or many of our competitors. That is
a really rough disclosure to have to make about the
state of your vehicle manufacturing.
Speaker 2 (05:31):
Yeah, and again, the way that they try to you know,
talk about it. They say, Look, it's it's kind of
lumpy because you know, it takes a while for new
improvements and process to show up in the quality of
our cars. But yeah, when when you have to take
an almost billion dollar impairment to your earnings because of
unexpectedly high warranty costs in the quarter, it's not it's
(05:55):
not really great.
Speaker 5 (05:56):
Yeah, it's it's just.
Speaker 4 (05:57):
Yeah, it's one thing when we bought a bunch we
made a bunch of evs and demand's not quite there,
and you know that's another problem that all the carmakers
are making. But when you have to tell your investors, like, man,
if we just made these cars slightly better like the
rest of our rivals did, then our earnings would look
a lot better.
Speaker 5 (06:17):
No wonder the stocks down seventeen percent?
Speaker 2 (06:19):
And just the number on this I'm gonna quote here
from Bloomberg. Last year, Ford spent four point eight billion
dollars fixing customers cars, a rate roughly three times higher
than the industry average.
Speaker 4 (06:31):
Never buy an afford, right, I know that's not you know,
I'm not the target audience on all this, but what
a depressing statistic, And to tell your investors and you
know it won't get widely reported to their customers. But
what a depressing, sad number too.
Speaker 2 (06:51):
And it's it's not necessarily happening just on like new
evs and stuff like this, right, I'll quote here again.
Earlier this year, the automaker had to hold some sixty
thousand f one to fifty pickup trucks and lots around
Detroit for extra quality checks before sending them out. I mean,
that's the F one fifty is the best selling vehicle
in America. They sell like eight hundred thousand of them
(07:13):
a year. They had to keep almost ten percent of
those sales in parking lots around Detroit to make sure
they weren't shipping them with problems. So that's not that's
not really ideal in terms of what you wanted to do.
Ford did reiterate its earnings outlook for the year. They said, well,
between ten and twelve billion dollars in profits. But ultimately, yeah,
(07:35):
the market responding to this the way you would expect
when you take an unexpected billion dollar charge down about
seventeen percent on the stock.
Speaker 5 (07:43):
Eight hundred million. Yeah.
Speaker 3 (07:46):
I just that.
Speaker 5 (07:49):
There are worse results and worse outcomes that you can report,
but this one it's pretty bad.
Speaker 4 (07:53):
It's you know, there's demand for our vehicles, but we
just make them so shoddily that we have to pay
a bunch of our customers back for it. Like just
an embarrassing, really embarrassing results from forward here.
Speaker 3 (08:05):
Automakers as a whole are getting beat up this quarter.
Speaker 2 (08:07):
So we talked about Tesla yesterday down about twelve percent
GM the day before had reported and they were down
about seven percent Stilantis, which I finally got over my
case of recently, which is great. They're down eight percent
after reporting yesterday as well. So automakers as a whole
are getting beat up. And I know we got GDP
(08:28):
that came in at you know, two point eight percent
for Q two. When automakers start getting beat up like this,
it does make me a little bit nervous about the
state of the economy because cars are big ticket items,
right They drive a lot of economic activity, and also
they generally I think can represent at least new vehicles
(08:49):
when you talk about new vehicle sales, they represent you know,
a good insight into the state of households in terms
of are they willing and able to make those big
ticket purchases when you're seeing all automakers getting punished like this,
and not just automakers, but also look at what we've
seen with the airlines and how they're losing pricing power
right large discretionary purchases.
Speaker 3 (09:09):
You're starting to see a little bit of slippage. Mic.
Speaker 2 (09:12):
Yeah, there's some slippage there that we and we didn't
see that last year, which is why as much as
there are parallels between this year and last year, last year,
you know, we avoided recession, there are some differences that
are showing up this year. And again I still think
we need a couple more months to kind of see
where things go, but there are some key differences starting
(09:33):
to build now in these areas of consumer spending that
don't really give me the warm and fuzzies. It's not
red alert, but it's hey, these things they gotta start
turning around in a little bit otherwise you kind of
wonder about where things are in Q four Q one
of next year. Let's take a quick break right now.
When we return, we're gonna do some trivia, I know,
(09:57):
and we're also before that, we're gonna be joined by
Jeff A. Strauss from bank Rate talking about their mortgage
rate and home ownership survey right after this.
Speaker 1 (10:06):
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(10:29):
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Speaker 2 (10:34):
Mike, let's talk a little bit about market's just taking
a quick look. I know we're waiting on a guest here.
The Dow Jones industrial average now up three hundred points,
the S and P's up twenty four and even the
NASDAC creeping into positive territory up thirty four points. So
we've got all three major US industries back in the
green in what is a volatile session of intra day
(10:56):
trading right now. Again, most of these industries up about
one percent off their lows from the morning, and we'll
see where they wind up by the end of the day.
Speaker 4 (11:05):
We are joined now by Jeff Ostrowski from Bankert talking
to us about their most recent survey of why homeowners
and potential buyers aren't all that interested in this market
right now? Jeff, thanks for joining us, appreciate it.
Speaker 6 (11:17):
Yeah, thanks for having me.
Speaker 4 (11:18):
So just this week we got a bunch of data
from the National Association of Realtors and for the month
of I think it was June that we got the
data on home sales fell a good five and a
half percent from the previous month, the fourth consecutive month
of declines according to the NAR and still again down
(11:41):
compared to this time last year, and that's in spite
of an uptick in inventories. So tell us about your survey.
Who'd you talk to and what were the general conclusions
that you came to.
Speaker 6 (11:51):
Yeah, so we commissioned you GOOV to do a survey
of a couple thousand Americans and just asked their thoughts,
they're feelings about mortgage rates and the idea is to
get a feel for when this freeze is going to thaw.
So you just describe what's going on. Home sales have
(12:12):
been depressed for the past couple of years as mortgage
rates have shot up, and you know, kind of surprisingly,
home prices are at record levels, but sales volumes are
pretty low, and a lot of that just is that
home buyers, homeowners haven't really gotten used to this idea
that mortgage rates are at seven percent. They really liked
(12:34):
three percent mortgages, and seven percent just doesn't feel like
a comfortable number to buy a home.
Speaker 4 (12:39):
App So when you did talk to buyers, there is
there kind of a magic number interest rate that they said, hey, look,
I'm not going to be entering or I would need
to get to this interest rate in order to feel
comfortable buying in this environment.
Speaker 6 (12:52):
Yeah, yeah, we did ask that, and so you know,
kind of the over under had been five percent. That
was the thought of as the magic number. So in
our survey, forty seven percent of people said they would
need a rate less than five percent to do a transaction.
Of course we're at seven percent now. Fifty two percent
(13:14):
said they need a rate less than six percent, which
even that seems unlikely. And we were saying, you know,
this year, would you be comfortable buying a home this year? Fully,
thirty eight percent said they need a rate less than
four percent. Twenty percent said they'd want to rate less
than three percent. So I mean, right now we're at
(13:35):
seven percent. The consensus among housing economists is that by
the end of the year rates are probably going to
be in the range of six point six to six
point seven percent, So there's no real significant drop in
mortgage rates on the immediate horizon.
Speaker 4 (13:50):
What does this mean on the on the seller side?
I mean, we've talked about the delayed number of sellers
that seem to be finally coming into the market, at
least in some parts of the country. Maybe that's also
new housing construction that's can stript contributing, But we have
seen a pretty significant uptick in overall listings. But as
your article points out too, those sellers really want to
(14:12):
see lower mortgage rates before that happens. And to your point,
it seems consensus is rates aren't moving a whole lot. Further,
I mean, what was the overall attitude of sellers in
this environment?
Speaker 6 (14:22):
Yes, I mean sellers are pretty locked in, I would say,
And we pus this question to both the homeowners and
non homeowners who might be buying, the idea being that
you know that a home seller is going to become
a buyer. So typically that's the way it works. You know,
you sell your home because you're you're moving to another
place for a job, or you're you're moving to a
(14:44):
bigger house or a smaller house, and so the the
real I guess, the sticking point in the housing market
has been that people who normally would have put their
homes on the market it just don't want to do it.
They're they're looking at that three percent rate that they
locked in a few years ago. They're saying rates are
seven percent now, home prices are way up. I just
don't want to do anything, and so I think that's
(15:07):
a big reason for this, these depressed home sales that
you described. But yeah, I get there seems to be
a real disconnect between where homeowners, home sellers, home buyers
want rates to be and where they're likely to be
in the near future.
Speaker 4 (15:26):
Jeff Ostrowski from Bankreat joining us today talk about their
most recent survey of a few thousand potential home buyers
and sellers on their thoughts on attitudes on interest rates.
Really interesting piece, Jeff appreciated. Thanks, and we'll talk to
you again soon.
Speaker 5 (15:37):
Thanks a lot, Chuck.
Speaker 4 (15:39):
Before we move on, I saw some data. This is
actually published I think back in June, but apartment List
put out some data that I just find intriguing. Two,
the vacancy rate that apartment List found on apartments nationwide
in June of this year sat at six point seven percent. Contextually,
(16:00):
wasn't really sure how high or low that is. That's
the highest reading they've had since August of twenty twenty,
when you had you know, obviously all sorts of vacancies
in places like New York City and things like that,
and so logically, to me, I was thinking, you know,
people aren't buying, people aren't selling, they're getting locked out,
they're going to want to go rent an apartment instead.
But we're also being faced at this point in time
(16:21):
with seemingly, at least in some parts of the country,
in over supply of apartments and price cuts in that
space too, which is just fascinating to me that that
can occur at the same time as we're seeing almost
record low home sales at this point in time.
Speaker 2 (16:35):
Yeah, what we've seen is really a normalization in the
renting market nationwide. Obviously, Look, it's still is local and
based on inventories locally.
Speaker 3 (16:46):
So if you know, you're if.
Speaker 2 (16:48):
You're moving to you know, the Boston area for you know,
school in the fall, and you're looking around for a
department like this is this is normal. Yeah, it's a
different kind of normal, you know, in the Boston area.
But as you noted, look, there was a ton of
construction of multifamily in the Southeast over the last few years,
and so you're seeing rents falling in a number of
markets nationally at the moment. And when you look at
(17:12):
the year over year changes in rents, US rents are
actually down point seven percent nationally over the last twelve months,
according to that Apartment List data, and they've been down
year over year really for the last twelve thirteen months
now after what was admittedly just a massive spike in
twenty twenty one and twenty twenty two.
Speaker 1 (17:42):
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Speaker 2 (18:03):
Like there's a piece in the Wall Street Journal today
it's titled an increase in uninsured drivers is pushing up
costs for everyone else, and it's talking about these share
of drivers that do not have auto insurance. Twenty seventeen
through twenty nineteen, it generally sat between eleven and eleven
and a half percent. It's now around fourteen percent. And
as a result, you don't have those premiums coming in
(18:26):
Number one. Number two, you still are having more accidents,
and so you have fewer premiums more accidents. It's another
factor that's leading towards higher costs for insurance of those
who remain in the insurance pool.
Speaker 4 (18:37):
And I would imagine as well that your costs for
this is probably not a sizable change. But everyone that
has car insurance has uninsured motorist insurance as part of
their own policy. Where you get enaction with somebody of
that insurance, then it yeah, covers you. I would imagine
that piece has to get more expensive the larger portion
of people are driving around without car insurance. The only
(18:58):
state in the country that does not require car insurance
is New Hampshire. Everywhere else you can't get a you know,
you can't get a permit or safety inspection or any
of that stuff to operate your vehicle without insurance. I have, Yeah, fundamentally,
I'm not sure what you do about this in the
short term. It is a contributing factor to higher insurance.
(19:21):
And it's also the higher insurance premiums are clearly part
of the reason people are dropping out of the insurance
market itself. I'll tell you, though, I can imagine, not
in the not so distant future, a pretty dystopian world
where quite honestly, this could happen today. Right, state of
Massachusetts identifies a whole bunch of Teslas that aren't insured
(19:42):
and sends a subpoena to Tesla saying shut down these vehicles.
The technology exists to do that tomorrow. It does pretty
kind of freaky, right, but like easily could happen.
Speaker 5 (19:55):
And Tesla.
Speaker 4 (19:56):
I'm just picking on Tesla because they are one of
the more technologically advanced brands of cars. But I wouldn't
be surprised if my twenty twenty two Honda could shut
me out of the car if the state told them
to do so.
Speaker 3 (20:05):
I mean, look, you could do that.
Speaker 2 (20:06):
Even let's say that you don't renew your driver's license
could be the same thing. The problem that you have
there is, okay, who is actually driving said car? You
know you have more cause again, even with you know,
insurance and things like that, it's something where okay, you
know how does it relate to who's driving the vehicle.
(20:27):
And remember, if you have a driver who's not you know, insured,
they're not supposed to be driving that vehicle, even though
you might have insurance. So it starts to get pretty
complicated and complex there.
Speaker 5 (20:39):
Yeah, I'm not suggesting that they go that route.
Speaker 3 (20:41):
You know what?
Speaker 5 (20:42):
Okay, you know what fixed this problem?
Speaker 4 (20:45):
Every state just needs to hire the meter maids that
they have in Somerville, because if I ever didn't have
my car inspected by like two hours, they would find
me and ticket me hundreds of dollars for you know,
an expired inspection stick or an outdated you know, any
of those items. Man, those Somerville meter maids and whatever
(21:07):
the male version of a meter maid were fast and
Johnny on the spot. It was incredible how quick they
were to ticket you for something like that. So that
would that would I think solve the problem for me.
Speaker 3 (21:19):
Chuck. There you go. Folks.
Speaker 4 (21:21):
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Speaker 1 (23:08):
The proceeding was paid for by Armstrong Advisory Group, a
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your own financial tax into state planning advisors before making
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Speaker 2 (23:24):
Mike, one of the things that we are seeing on
a worldwide basis is the cost of airline tickets falling.
It appears that this is likely due to just that
that marginal buyer of you know, vacation or marginal buyer
of you know, airline tickets saying hey, I'm not going
(23:45):
to be traveling, and so with airlines having staffed up
and bulked up their fleets worldwide after a couple of
years of just you know, unprecedented travel again in the
United States for the first time ever. Earlier this year,
we had three million passengers passed through TSA checkpoints in
a single day. It seems like you're starting to see
(24:05):
maybe a plateauing of numbers and airlines caught a little
bit wrong footed here as they are being forced to
cut fares in order to fill the planes that they
have flying over the next six to twelve months.
Speaker 5 (24:19):
Here in the US.
Speaker 4 (24:20):
On CPI last reading, I think we saw airline tickets
down a good five percent year over year, if I'm
not mistake, maybe five point four percent. And that's in
an economy that you know, by almost all accounts, compared
to the rest of developed world, has fared a lot better.
Speaker 5 (24:34):
And so you know, for a global market.
Speaker 4 (24:38):
Like the market for airline tickets, yeah, I would imagine
and not be surprised to hear that airlines are kind
of misjudging where things were going to be and reading
too much into the travel that occurred in twenty twenty three.
In the first half of twenty twenty four, if you're
seeing you know, ticket price cuts here domestically from the
likes of Southwest and others. Then I think you're almost
definitely going to be seeing it across Europe and and
(25:00):
other parts of the world, where again incomes and just
general economic output has not kept pace with what we
have seen a year in the United States.
Speaker 2 (25:10):
What's interesting to me is just poking around and again
I always just kind of look to see what's out there,
just because again you never know when you're gonna find
a deal or something like that. Even though airfares are fallowing,
hotel prices are not budging. I don't know what to
make of that.
Speaker 4 (25:28):
I'm not sure either, I think, and you're looking at
some sort of nationwide average.
Speaker 2 (25:35):
I've just been looking at like a few places just
that I know and everything. But even if we were,
let me see what we had on CPI for hotels,
I'm just I'll see if I can pull here we
go other lodging away from home, including hotels. It says
down two and a half percent in the most recent
month that was the adjustice. Seasonally adjusted percent has changed
from May to June, so down two and a half
(25:57):
percent there year over a year.
Speaker 3 (26:00):
When we look.
Speaker 2 (26:01):
At it, basically, that was the only change in the
last year, So maybe they're starting to be a little
bit of movement there.
Speaker 4 (26:09):
Yeah, I mean I can point to potential reasons, but
I honestly don't think they have a national impact.
Speaker 5 (26:14):
Like you think.
Speaker 4 (26:15):
About the New York City market for a moment here
and there's suddenly no airbnbs, you can see why hotels
would be more expensive, but I don't think there's been
enough of an airbnb backlash to be seeing that type
of impact nationally. I remember the stories of a few
hotels going out of business during COVID, so maybe there's
some sort of supply issue there that's keeping pricing up
on hotels. But nonetheless, yeah, it's I would imagine you're
(26:39):
starting to see something in the way of fall for
travel in general, just because of how robust it's been
over the last year.
Speaker 2 (26:46):
Also in the air travel space, Southwest Airlines the end
of an era. No, they're not going out of business,
but what they are doing is they are going to
be getting rid of their open seating policy. Instead, they
are going to be assigning seats on flights in advance,
and they're going to be selling seats with additional leg
room in what has been you know, two things they've
(27:08):
resisted for a while the whole promise of Southwest was Yep,
book early as early as you can, and YadA YadA,
you'll be in the early boarding groups and every seat
on the plane is the same. Now that is going
to be changing in both respects, and this largely coming
from shareholders who are pressuring the company to change these
policies as they are seeing other airlines making significant revenue
(27:30):
gains because of premium seating and people willing to pay
for better seats.
Speaker 4 (27:35):
I'll be honest, I don't like the Southwest model. I
don't enjoy the stress of trying to get into the
right boarding group and finding a way to sit with
all my family like that.
Speaker 5 (27:43):
I'm not a fan of it.
Speaker 4 (27:45):
But like you said, end of an era, Like there's
no different bag fees are going to be next mark
by words, five years from now, Southwest is going to
look like Jet Blue in every meaningful way out there.
Maybe they don't have first class seating five years from now,
but this is just the first step in many that's
going to make them look like every other major airline
out there, because frankly, that's what's been working in this market. Yeah,
(28:08):
it's it's kind of where I thinks are treating down.
Let's take a quick break. When we come back.
Speaker 1 (28:12):
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Speaker 3 (28:45):
All right, Mike, what do you have for me for
stack Roulette?
Speaker 4 (28:48):
Dumb policy? I want to call out some more good policy. Massachusetts.
Anybody heard of the film don't look up Startludo DiCaprio.
Many big actors did about eight hundred thousand dollars in
the box office, which is a lot of money for
you and me, but is god awful in terms of
(29:08):
performance box office performance. I don't know what they did
on Rotten Tomatoes.
Speaker 5 (29:12):
Well that was a big Netflix movie.
Speaker 3 (29:15):
Was it?
Speaker 5 (29:15):
Yeah?
Speaker 4 (29:16):
Oh yeah, okay, Well in either case, Massachusetts, which has
had a tax credit in place for filming within the state,
gave this movie forty six and a half million dollars
in tax credits to be filmed here in Massachusetts, so
you're eligible for tax credits if you I think it's
filmed seventy five percent of the total place there, or
(29:38):
spend seventy five percent of the total budget in Massachusetts.
Speaker 5 (29:42):
And while I can understand.
Speaker 4 (29:45):
The idea behind this, I'm sure along the edges it
does boost economic activity, with actors spending money, film crews
getting fed, you know, car rentals, dray cleaning, costumes, all
that get your.
Speaker 3 (29:56):
City into you know.
Speaker 4 (29:58):
Furthermore, Oh, I want to go to Boston. What an
unbelievable waste of money. I think this is just a
such a stupid tax credit. And you know, if you're
a business owner in Massachusetts, you should also be a
little bit frustrated by this. Like I employ people in
Massachusetts every day. Am I eligible for a giant tax
credit for being here? No, of course not. I I
(30:21):
look at this similar to the way I looked at
all the businesses bidding on Amazon's next headquarters, Like, just
got the crap. If people want to film in Massachusetts,
they will go ahead and do so. There's plenty of
history here that people want to showcase in their films.
I hate this tax credit to be fair, it's actually
not true that they'll film here in Massachusetts.
Speaker 3 (30:42):
This is again, this is a ridiculous one. Like again,
it doesn't make any sense why it's this much here.
Speaker 2 (30:48):
But if you look at when the tax credit program
went into effect, which was back in two thousand and six,
the number of movies that have been shot in the
state have has gone up significantly as a result of it,
because a lot of the states that have these are
where movie studios decide to shoot. Ultimately, again, there's a
(31:09):
reason why the town was not made in two thousand
and five.
Speaker 3 (31:11):
Yeah, you know it just as an example.
Speaker 2 (31:15):
You know, you go through, you know, a bunch of
movies and a lot of them that have been made
in the Boston area have been in you know, the
last fifteen years or so that otherwise might not have been.
Speaker 4 (31:26):
So I won't debate the fact that the tax credit
does encourage filming here like that, that is true. The
question becomes is the tax credit worth the investment? That's
the important question to answer, And I don't know, I'm
not sure where the evidence stacks up on that one,
but I'm pretty suspicious of it.
Speaker 2 (31:44):
Well let's look at it, because here I just want
to like think through the process here, and I'm doing
this in real time, so I may very well come
to the idea that hey this this might actually be
very dumb, which is possible. So a movie's kind of
a binary thing. It operates for a fixed period of
time time and then it's gone. It's it's not a
normal business, is that correct?
Speaker 5 (32:03):
Sure?
Speaker 3 (32:06):
Yes, when when you.
Speaker 2 (32:07):
Shoot a movie, you filmed for three, six months, whatever
it is, and then you're you're you're gone. If so,
it's it's not something where you say, hey, we've got
you know, this this building and we're gonna earn tax
revenue from it.
Speaker 3 (32:20):
No matter what.
Speaker 2 (32:21):
If no one decides to film a movie in your state,
then there is no replacement economic activity because it's just
like it's it's not a necessity either, like there's it's
nothing that needs to be there, right, agreed. So Ultimately,
as long as the credits that you are giving are
(32:41):
in relation to what you would be what that business,
what that movie would otherwise be paying, what that business
coming in for six months would otherwise be paying. Is
there any net loss to the state as a result of.
Speaker 4 (32:54):
It, Well, there's certainly resources such as public resource versus
police fire all sorts of things that need to be yep, okay,
you know, public resources go into supporting something like that,
if you need to block off streets, if you need
to do whatever you.
Speaker 5 (33:09):
Have to do.
Speaker 4 (33:10):
So there is some burden there, right, additional traffic, other
other items that would contribute to filming film in Boston,
for instance.
Speaker 2 (33:18):
And I'm trying to I'm just trying to think of
other ways that it would like, how would it cost
the state money in other ways? Because it's it's again,
it's a credit on taxes they would have paid. It's
not like you're paying them money to come there. It's no,
this is money that you would have otherwise paid that
you're not paying us.
Speaker 5 (33:36):
Yeah, I think it's just the opportunity cost.
Speaker 2 (33:39):
Really, I have less of a problem with this than
the stuff like, hey, here's a bunch of money for
GE coming to build their you know, headquarters and stuff
like that. I I have less of an issue because
this is also not picking winners. This is just hey,
anyone who comes you can take advantage of this, as
opposed to, hey, we want to attract this specific business
(34:02):
to operate here, and here's a bunch of money for GE.
Speaker 3 (34:06):
I maybe there's something I'm missing.
Speaker 2 (34:10):
If if there is, I hope someone texting and we
can discuss tomorrow, because again, there very well could be
something that I'm looking at here and just overlooking completely.
Speaker 4 (34:21):
I just don't love when states choose industries that they're
going to kind of blanket subsidized and it becomes this
kind of race to zero. Right Like now North Carolina
has a batter tax incentive on filming than Massachusetts. Does
we have to up the ante here or we're not
going to get the next movie? It just seems like
this this circular type of activity that just continues.
Speaker 3 (34:43):
What about the biotech toxic centerves of Massachusetts.
Speaker 4 (34:45):
Yeah, at least then you can talk about like long
term those have been a huge net positive for the state.
Speaker 5 (34:51):
Yeah, I would agree.
Speaker 2 (34:52):
So like again, I think you have to look at
the specifics of the policy. I'm struggling to see, like,
even though this particular amount seems dumb and even like
no one can understand how it happened, I'm just trying
to figure out where the harm is from a temporary
movie coming in and filming, because if it provides more
publicity for the state, the net long term benefit could
(35:15):
be significantly higher, could be.
Speaker 4 (35:17):
I would just like somebody to study it. Okay, well
I can't do it fair, but don't look up right.
I guess that's the motto or the message. Let's take
a quick break for the next twenty two hours. We're
gonna be back tomorrow though.
Speaker 2 (35:34):
To wrap up the week, we also get some PCE
price index data some more inflation talk tomorrow on the
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(01:04):
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Speaker 2 (01:12):
A little bit after eleven here on the Financial Exchange,
and markets are mixed after being down meaningfully again this morning,
trying to stage an intra day rally here. The Dow
is now up two hundred and forty points, are about
point six percent. The S and P, which was down
almost forty points or three quarters of percent, now up
twelve points about a quarter percent, so a full percentage
(01:33):
point intra day reversal happening on the S and P
five hundred thus far. We'll see if it can hold
that or if this is just a little bit of
intra day volatility. And we've got the Nasdaq still down
sixteen points, are about a tenth of a percent at
the moment. The Russell two thousand up one point three percent,
continuing to show a strong recent outperformance against the tech
(01:55):
heavy NASDAK tenure US Treasury down five point eight basis
points to four point two two seven percent. Oil West
Texas Intermedia down another thirty nine cents a barrel to
seventy seven to twenty.
Speaker 3 (02:07):
And we are continuing to see.
Speaker 2 (02:09):
The TRIPAA national average for gas prices moving up a
little bit, largely due to refined products still having a
little bit of trouble shipping in the volumes that you
were seeing before Hurricane Beryl plowed into Texas. You still
are seeing some delayed impacts there that likely to reverse
in the next week or two as you get back
(02:31):
to normal operations and lower oil prices start to weigh
on gas prices, bringing them down a little bit. And
we got gold down forty nine to sixty an ounce
to twenty three sixty six and ten cents, and that
is what we are seeing in markets today. One other
piece of economic day that we have not yet touched
on initial jobbless claims this week. Last week there was
(02:54):
a bit of a jump up to two hundred and
forty five thousand. We noted that that was largely because
of a jump in Texas in the aftermath of Hurricane Beryl.
This week two hundred and thirty five thousand, so a decline,
and that still is with Texas numbers elevated about five
to ten thousand above where they would normally be at
this point. So it's hard to say that there's any
(03:16):
meaningful uptick happening in jobless claims, just because those are
all going to resolve themselves pretty quickly and other states
are not seeing any uptick that would offset that at
that moment, at least in the aggregates.
Speaker 4 (03:29):
So this is definitely the item to keep an eye on,
in my view, if you're looking for those layoff concerns
companies cutting cost wise, this is where it will show
up first. Obviously, we get the monthly jobs report, which
we will get next Friday for the month of July,
but this is very much more of a nearly real
time indicator on the state of the labor market, those
(03:50):
weekly jobless claims, and we will continue to touch on them.
Speaker 3 (03:54):
Let's talk a little bit about Ford earnings.
Speaker 2 (03:57):
They weren't very good, and so you've got I mean,
there's no other way to put it down. When your
stock is down almost seventeen percent, things probably didn't go
very well. The big thing that they indicated here is
that they had an eight hundred million dollar spike in
(04:17):
the second quarter related to warranty costs. And warranty costs
is a fancy way of saying, Hey, a bunch of
stuff broke that was covered under warranty, and so our
quality is not where it needs to be, and as
a result, we had to compensate customers in the form of,
you know, new parts and everything for stuff that broke
when it should have.
Speaker 4 (04:37):
Isn't this the best part of earnings in your view, Chuck,
is that CEOs have no choice but to disclose things
about their company that they certainly wouldn't want to talk
about in say their Super Bowl ad for example. But
the quote from Jim Farley here I don't have a
direct quote, but effectively saying that Ford has struggled. This
(04:58):
is from the Wall Street Journal. Ford has struggled to
fix stubborn quality problems, which is driven up warranty costs
and put the company at a significant disadvantage to rival.
So not only are they saying, hey, our warranty costs
are up here, they are pointing out because they kind
of have to, because it's earnings time, that our cars
have been made so crappily that we have had to
(05:18):
pay more money out to our car owners than all
of our competitors or many of our competitors. That is
a really rough disclosure to have to make about the
state of your vehicle manufacturing.
Speaker 2 (05:31):
Yeah, and again, the way that they try to you know,
talk about it. They say, Look, it's it's kind of
lumpy because you know, it takes a while for new
improvements and process to show up in the quality of
our cars. But yeah, when when you have to take
an almost billion dollar impairment to your earnings because of
unexpectedly high warranty costs in the quarter, it's not it's
(05:55):
not really great.
Speaker 5 (05:56):
Yeah, it's it's just.
Speaker 4 (05:57):
Yeah, it's one thing when we bought a bunch we
made a bunch of evs and demand's not quite there,
and you know that's another problem that all the carmakers
are making. But when you have to tell your investors, like, man,
if we just made these cars slightly better like the
rest of our rivals did, then our earnings would look
a lot better.
Speaker 5 (06:17):
No wonder the stocks down seventeen percent?
Speaker 2 (06:19):
And just the number on this I'm gonna quote here
from Bloomberg. Last year, Ford spent four point eight billion
dollars fixing customers cars, a rate roughly three times higher
than the industry average.
Speaker 4 (06:31):
Never buy an afford, right, I know that's not you know,
I'm not the target audience on all this, but what
a depressing statistic, And to tell your investors and you
know it won't get widely reported to their customers. But
what a depressing, sad number too.
Speaker 2 (06:51):
And it's it's not necessarily happening just on like new
evs and stuff like this, right, I'll quote here again.
Earlier this year, the automaker had to hold some sixty
thousand f one to fifty pickup trucks and lots around
Detroit for extra quality checks before sending them out. I mean,
that's the F one fifty is the best selling vehicle
in America. They sell like eight hundred thousand of them
(07:13):
a year. They had to keep almost ten percent of
those sales in parking lots around Detroit to make sure
they weren't shipping them with problems. So that's not that's
not really ideal in terms of what you wanted to do.
Ford did reiterate its earnings outlook for the year. They said, well,
between ten and twelve billion dollars in profits. But ultimately, yeah,
(07:35):
the market responding to this the way you would expect
when you take an unexpected billion dollar charge down about
seventeen percent on the stock.
Speaker 5 (07:43):
Eight hundred million. Yeah.
Speaker 3 (07:46):
I just that.
Speaker 5 (07:49):
There are worse results and worse outcomes that you can report,
but this one it's pretty bad.
Speaker 4 (07:53):
It's you know, there's demand for our vehicles, but we
just make them so shoddily that we have to pay
a bunch of our customers back for it. Like just
an embarrassing, really embarrassing results from forward here.
Speaker 3 (08:05):
Automakers as a whole are getting beat up this quarter.
Speaker 2 (08:07):
So we talked about Tesla yesterday down about twelve percent
GM the day before had reported and they were down
about seven percent Stilantis, which I finally got over my
case of recently, which is great. They're down eight percent
after reporting yesterday as well. So automakers as a whole
are getting beat up. And I know we got GDP
(08:28):
that came in at you know, two point eight percent
for Q two. When automakers start getting beat up like this,
it does make me a little bit nervous about the
state of the economy because cars are big ticket items,
right They drive a lot of economic activity, and also
they generally I think can represent at least new vehicles
(08:49):
when you talk about new vehicle sales, they represent you know,
a good insight into the state of households in terms
of are they willing and able to make those big
ticket purchases when you're seeing all automakers getting punished like this,
and not just automakers, but also look at what we've
seen with the airlines and how they're losing pricing power
right large discretionary purchases.
Speaker 3 (09:09):
You're starting to see a little bit of slippage. Mic.
Speaker 2 (09:12):
Yeah, there's some slippage there that we and we didn't
see that last year, which is why as much as
there are parallels between this year and last year, last year,
you know, we avoided recession, there are some differences that
are showing up this year. And again I still think
we need a couple more months to kind of see
where things go, but there are some key differences starting
(09:33):
to build now in these areas of consumer spending that
don't really give me the warm and fuzzies. It's not
red alert, but it's hey, these things they gotta start
turning around in a little bit otherwise you kind of
wonder about where things are in Q four Q one
of next year. Let's take a quick break right now.
When we return, we're gonna do some trivia, I know,
(09:57):
and we're also before that, we're gonna be joined by
Jeff A. Strauss from bank Rate talking about their mortgage
rate and home ownership survey right after this.
Speaker 1 (10:06):
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Radio Network. Miss any of the show, catch up in
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(10:29):
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Speaker 2 (10:34):
Mike, let's talk a little bit about market's just taking
a quick look. I know we're waiting on a guest here.
The Dow Jones industrial average now up three hundred points,
the S and P's up twenty four and even the
NASDAC creeping into positive territory up thirty four points. So
we've got all three major US industries back in the
green in what is a volatile session of intra day
(10:56):
trading right now. Again, most of these industries up about
one percent off their lows from the morning, and we'll
see where they wind up by the end of the day.
Speaker 4 (11:05):
We are joined now by Jeff Ostrowski from Bankert talking
to us about their most recent survey of why homeowners
and potential buyers aren't all that interested in this market
right now? Jeff, thanks for joining us, appreciate it.
Speaker 6 (11:17):
Yeah, thanks for having me.
Speaker 4 (11:18):
So just this week we got a bunch of data
from the National Association of Realtors and for the month
of I think it was June that we got the
data on home sales fell a good five and a
half percent from the previous month, the fourth consecutive month
of declines according to the NAR and still again down
(11:41):
compared to this time last year, and that's in spite
of an uptick in inventories. So tell us about your survey.
Who'd you talk to and what were the general conclusions
that you came to.
Speaker 6 (11:51):
Yeah, so we commissioned you GOOV to do a survey
of a couple thousand Americans and just asked their thoughts,
they're feelings about mortgage rates and the idea is to
get a feel for when this freeze is going to thaw.
So you just describe what's going on. Home sales have
(12:12):
been depressed for the past couple of years as mortgage
rates have shot up, and you know, kind of surprisingly,
home prices are at record levels, but sales volumes are
pretty low, and a lot of that just is that
home buyers, homeowners haven't really gotten used to this idea
that mortgage rates are at seven percent. They really liked
(12:34):
three percent mortgages, and seven percent just doesn't feel like
a comfortable number to buy a home.
Speaker 4 (12:39):
App So when you did talk to buyers, there is
there kind of a magic number interest rate that they said, hey, look,
I'm not going to be entering or I would need
to get to this interest rate in order to feel
comfortable buying in this environment.
Speaker 6 (12:52):
Yeah, yeah, we did ask that, and so you know,
kind of the over under had been five percent. That
was the thought of as the magic number. So in
our survey, forty seven percent of people said they would
need a rate less than five percent to do a transaction.
Of course we're at seven percent now. Fifty two percent
(13:14):
said they need a rate less than six percent, which
even that seems unlikely. And we were saying, you know,
this year, would you be comfortable buying a home this year? Fully,
thirty eight percent said they need a rate less than
four percent. Twenty percent said they'd want to rate less
than three percent. So I mean, right now we're at
(13:35):
seven percent. The consensus among housing economists is that by
the end of the year rates are probably going to
be in the range of six point six to six
point seven percent, So there's no real significant drop in
mortgage rates on the immediate horizon.
Speaker 4 (13:50):
What does this mean on the on the seller side?
I mean, we've talked about the delayed number of sellers
that seem to be finally coming into the market, at
least in some parts of the country. Maybe that's also
new housing construction that's can stript contributing, But we have
seen a pretty significant uptick in overall listings. But as
your article points out too, those sellers really want to
(14:12):
see lower mortgage rates before that happens. And to your point,
it seems consensus is rates aren't moving a whole lot. Further,
I mean, what was the overall attitude of sellers in
this environment?
Speaker 6 (14:22):
Yes, I mean sellers are pretty locked in, I would say,
And we pus this question to both the homeowners and
non homeowners who might be buying, the idea being that
you know that a home seller is going to become
a buyer. So typically that's the way it works. You know,
you sell your home because you're you're moving to another
place for a job, or you're you're moving to a
(14:44):
bigger house or a smaller house, and so the the
real I guess, the sticking point in the housing market
has been that people who normally would have put their
homes on the market it just don't want to do it.
They're they're looking at that three percent rate that they
locked in a few years ago. They're saying rates are
seven percent now, home prices are way up. I just
don't want to do anything, and so I think that's
(15:07):
a big reason for this, these depressed home sales that
you described. But yeah, I get there seems to be
a real disconnect between where homeowners, home sellers, home buyers
want rates to be and where they're likely to be
in the near future.
Speaker 4 (15:26):
Jeff Ostrowski from Bankreat joining us today talk about their
most recent survey of a few thousand potential home buyers
and sellers on their thoughts on attitudes on interest rates.
Really interesting piece, Jeff appreciated. Thanks, and we'll talk to
you again soon.
Speaker 5 (15:37):
Thanks a lot, Chuck.
Speaker 4 (15:39):
Before we move on, I saw some data. This is
actually published I think back in June, but apartment List
put out some data that I just find intriguing. Two,
the vacancy rate that apartment List found on apartments nationwide
in June of this year sat at six point seven percent. Contextually,
(16:00):
wasn't really sure how high or low that is. That's
the highest reading they've had since August of twenty twenty,
when you had you know, obviously all sorts of vacancies
in places like New York City and things like that,
and so logically, to me, I was thinking, you know,
people aren't buying, people aren't selling, they're getting locked out,
they're going to want to go rent an apartment instead.
But we're also being faced at this point in time
(16:21):
with seemingly, at least in some parts of the country,
in over supply of apartments and price cuts in that
space too, which is just fascinating to me that that
can occur at the same time as we're seeing almost
record low home sales at this point in time.
Speaker 2 (16:35):
Yeah, what we've seen is really a normalization in the
renting market nationwide. Obviously, Look, it's still is local and
based on inventories locally.
Speaker 3 (16:46):
So if you know, you're if.
Speaker 2 (16:48):
You're moving to you know, the Boston area for you know,
school in the fall, and you're looking around for a
department like this is this is normal. Yeah, it's a
different kind of normal, you know, in the Boston area.
But as you noted, look, there was a ton of
construction of multifamily in the Southeast over the last few years,
and so you're seeing rents falling in a number of
markets nationally at the moment. And when you look at
(17:12):
the year over year changes in rents, US rents are
actually down point seven percent nationally over the last twelve months,
according to that Apartment List data, and they've been down
year over year really for the last twelve thirteen months
now after what was admittedly just a massive spike in
twenty twenty one and twenty twenty two.
Speaker 1 (17:42):
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Speaker 2 (18:03):
Like there's a piece in the Wall Street Journal today
it's titled an increase in uninsured drivers is pushing up
costs for everyone else, and it's talking about these share
of drivers that do not have auto insurance. Twenty seventeen
through twenty nineteen, it generally sat between eleven and eleven
and a half percent. It's now around fourteen percent. And
as a result, you don't have those premiums coming in
(18:26):
Number one. Number two, you still are having more accidents,
and so you have fewer premiums more accidents. It's another
factor that's leading towards higher costs for insurance of those
who remain in the insurance pool.
Speaker 4 (18:37):
And I would imagine as well that your costs for
this is probably not a sizable change. But everyone that
has car insurance has uninsured motorist insurance as part of
their own policy. Where you get enaction with somebody of
that insurance, then it yeah, covers you. I would imagine
that piece has to get more expensive the larger portion
of people are driving around without car insurance. The only
(18:58):
state in the country that does not require car insurance
is New Hampshire. Everywhere else you can't get a you know,
you can't get a permit or safety inspection or any
of that stuff to operate your vehicle without insurance. I have, Yeah, fundamentally,
I'm not sure what you do about this in the
short term. It is a contributing factor to higher insurance.
(19:21):
And it's also the higher insurance premiums are clearly part
of the reason people are dropping out of the insurance
market itself. I'll tell you, though, I can imagine, not
in the not so distant future, a pretty dystopian world
where quite honestly, this could happen today. Right, state of
Massachusetts identifies a whole bunch of Teslas that aren't insured
(19:42):
and sends a subpoena to Tesla saying shut down these vehicles.
The technology exists to do that tomorrow. It does pretty
kind of freaky, right, but like easily could happen.
Speaker 5 (19:55):
And Tesla.
Speaker 4 (19:56):
I'm just picking on Tesla because they are one of
the more technologically advanced brands of cars. But I wouldn't
be surprised if my twenty twenty two Honda could shut
me out of the car if the state told them
to do so.
Speaker 3 (20:05):
I mean, look, you could do that.
Speaker 2 (20:06):
Even let's say that you don't renew your driver's license
could be the same thing. The problem that you have
there is, okay, who is actually driving said car? You
know you have more cause again, even with you know,
insurance and things like that, it's something where okay, you
know how does it relate to who's driving the vehicle.
(20:27):
And remember, if you have a driver who's not you know, insured,
they're not supposed to be driving that vehicle, even though
you might have insurance. So it starts to get pretty
complicated and complex there.
Speaker 5 (20:39):
Yeah, I'm not suggesting that they go that route.
Speaker 3 (20:41):
You know what?
Speaker 5 (20:42):
Okay, you know what fixed this problem?
Speaker 4 (20:45):
Every state just needs to hire the meter maids that
they have in Somerville, because if I ever didn't have
my car inspected by like two hours, they would find
me and ticket me hundreds of dollars for you know,
an expired inspection stick or an outdated you know, any
of those items. Man, those Somerville meter maids and whatever
(21:07):
the male version of a meter maid were fast and
Johnny on the spot. It was incredible how quick they
were to ticket you for something like that. So that
would that would I think solve the problem for me.
Speaker 3 (21:19):
Chuck. There you go. Folks.
Speaker 4 (21:21):
Want to talk to you about the guide from the
Armstrong Advisory Group this month. It is late July here,
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we've talked about this in kind of general terms in
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(21:43):
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(22:05):
but can lead to a significant divergence in how much
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(22:27):
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(22:49):
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Speaker 1 (23:08):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
advisory services.
Speaker 2 (23:24):
Mike, one of the things that we are seeing on
a worldwide basis is the cost of airline tickets falling.
It appears that this is likely due to just that
that marginal buyer of you know, vacation or marginal buyer
of you know, airline tickets saying hey, I'm not going
(23:45):
to be traveling, and so with airlines having staffed up
and bulked up their fleets worldwide after a couple of
years of just you know, unprecedented travel again in the
United States for the first time ever. Earlier this year,
we had three million passengers passed through TSA checkpoints in
a single day. It seems like you're starting to see
(24:05):
maybe a plateauing of numbers and airlines caught a little
bit wrong footed here as they are being forced to
cut fares in order to fill the planes that they
have flying over the next six to twelve months.
Speaker 5 (24:19):
Here in the US.
Speaker 4 (24:20):
On CPI last reading, I think we saw airline tickets
down a good five percent year over year, if I'm
not mistake, maybe five point four percent. And that's in
an economy that you know, by almost all accounts, compared
to the rest of developed world, has fared a lot better.
Speaker 5 (24:34):
And so you know, for a global market.
Speaker 4 (24:38):
Like the market for airline tickets, yeah, I would imagine
and not be surprised to hear that airlines are kind
of misjudging where things were going to be and reading
too much into the travel that occurred in twenty twenty three.
In the first half of twenty twenty four, if you're
seeing you know, ticket price cuts here domestically from the
likes of Southwest and others. Then I think you're almost
definitely going to be seeing it across Europe and and
(25:00):
other parts of the world, where again incomes and just
general economic output has not kept pace with what we
have seen a year in the United States.
Speaker 2 (25:10):
What's interesting to me is just poking around and again
I always just kind of look to see what's out there,
just because again you never know when you're gonna find
a deal or something like that. Even though airfares are fallowing,
hotel prices are not budging. I don't know what to
make of that.
Speaker 4 (25:28):
I'm not sure either, I think, and you're looking at
some sort of nationwide average.
Speaker 2 (25:35):
I've just been looking at like a few places just
that I know and everything. But even if we were,
let me see what we had on CPI for hotels,
I'm just I'll see if I can pull here we
go other lodging away from home, including hotels. It says
down two and a half percent in the most recent
month that was the adjustice. Seasonally adjusted percent has changed
from May to June, so down two and a half
(25:57):
percent there year over a year.
Speaker 3 (26:00):
When we look.
Speaker 2 (26:01):
At it, basically, that was the only change in the
last year, So maybe they're starting to be a little
bit of movement there.
Speaker 4 (26:09):
Yeah, I mean I can point to potential reasons, but
I honestly don't think they have a national impact.
Speaker 5 (26:14):
Like you think.
Speaker 4 (26:15):
About the New York City market for a moment here
and there's suddenly no airbnbs, you can see why hotels
would be more expensive, but I don't think there's been
enough of an airbnb backlash to be seeing that type
of impact nationally. I remember the stories of a few
hotels going out of business during COVID, so maybe there's
some sort of supply issue there that's keeping pricing up
on hotels. But nonetheless, yeah, it's I would imagine you're
(26:39):
starting to see something in the way of fall for
travel in general, just because of how robust it's been
over the last year.
Speaker 2 (26:46):
Also in the air travel space, Southwest Airlines the end
of an era. No, they're not going out of business,
but what they are doing is they are going to
be getting rid of their open seating policy. Instead, they
are going to be assigning seats on flights in advance,
and they're going to be selling seats with additional leg
room in what has been you know, two things they've
(27:08):
resisted for a while the whole promise of Southwest was Yep,
book early as early as you can, and YadA YadA,
you'll be in the early boarding groups and every seat
on the plane is the same. Now that is going
to be changing in both respects, and this largely coming
from shareholders who are pressuring the company to change these
policies as they are seeing other airlines making significant revenue
(27:30):
gains because of premium seating and people willing to pay
for better seats.
Speaker 4 (27:35):
I'll be honest, I don't like the Southwest model. I
don't enjoy the stress of trying to get into the
right boarding group and finding a way to sit with
all my family like that.
Speaker 5 (27:43):
I'm not a fan of it.
Speaker 4 (27:45):
But like you said, end of an era, Like there's
no different bag fees are going to be next mark
by words, five years from now, Southwest is going to
look like Jet Blue in every meaningful way out there.
Maybe they don't have first class seating five years from now,
but this is just the first step in many that's
going to make them look like every other major airline
out there, because frankly, that's what's been working in this market. Yeah,
(28:08):
it's it's kind of where I thinks are treating down.
Let's take a quick break. When we come back.
Speaker 1 (28:12):
Stack Roulett, miss any of the show. The Financial Exchange
Show podcast is available on Apple, Spotify, and iHeartRadio. Hit
the subscribe button and leave us a five star review.
This is the Financial Exchange Radio Network. Text us six one, seven, three, six,
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(28:33):
today's show and let us know what you think about
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Radio Network.
Speaker 3 (28:45):
All right, Mike, what do you have for me for
stack Roulette?
Speaker 4 (28:48):
Dumb policy? I want to call out some more good policy. Massachusetts.
Anybody heard of the film don't look up Startludo DiCaprio.
Many big actors did about eight hundred thousand dollars in
the box office, which is a lot of money for
you and me, but is god awful in terms of
(29:08):
performance box office performance. I don't know what they did
on Rotten Tomatoes.
Speaker 5 (29:12):
Well that was a big Netflix movie.
Speaker 3 (29:15):
Was it?
Speaker 5 (29:15):
Yeah?
Speaker 4 (29:16):
Oh yeah, okay, Well in either case, Massachusetts, which has
had a tax credit in place for filming within the state,
gave this movie forty six and a half million dollars
in tax credits to be filmed here in Massachusetts, so
you're eligible for tax credits if you I think it's
filmed seventy five percent of the total place there, or
(29:38):
spend seventy five percent of the total budget in Massachusetts.
Speaker 5 (29:42):
And while I can understand.
Speaker 4 (29:45):
The idea behind this, I'm sure along the edges it
does boost economic activity, with actors spending money, film crews
getting fed, you know, car rentals, dray cleaning, costumes, all
that get your.
Speaker 3 (29:56):
City into you know.
Speaker 4 (29:58):
Furthermore, Oh, I want to go to Boston. What an
unbelievable waste of money. I think this is just a
such a stupid tax credit. And you know, if you're
a business owner in Massachusetts, you should also be a
little bit frustrated by this. Like I employ people in
Massachusetts every day. Am I eligible for a giant tax
credit for being here? No, of course not. I I
(30:21):
look at this similar to the way I looked at
all the businesses bidding on Amazon's next headquarters, Like, just
got the crap. If people want to film in Massachusetts,
they will go ahead and do so. There's plenty of
history here that people want to showcase in their films.
I hate this tax credit to be fair, it's actually
not true that they'll film here in Massachusetts.
Speaker 3 (30:42):
This is again, this is a ridiculous one. Like again,
it doesn't make any sense why it's this much here.
Speaker 2 (30:48):
But if you look at when the tax credit program
went into effect, which was back in two thousand and six,
the number of movies that have been shot in the
state have has gone up significantly as a result of it,
because a lot of the states that have these are
where movie studios decide to shoot. Ultimately, again, there's a
(31:09):
reason why the town was not made in two thousand
and five.
Speaker 3 (31:11):
Yeah, you know it just as an example.
Speaker 2 (31:15):
You know, you go through, you know, a bunch of
movies and a lot of them that have been made
in the Boston area have been in you know, the
last fifteen years or so that otherwise might not have been.
Speaker 4 (31:26):
So I won't debate the fact that the tax credit
does encourage filming here like that, that is true. The
question becomes is the tax credit worth the investment? That's
the important question to answer, And I don't know, I'm
not sure where the evidence stacks up on that one,
but I'm pretty suspicious of it.
Speaker 2 (31:44):
Well let's look at it, because here I just want
to like think through the process here, and I'm doing
this in real time, so I may very well come
to the idea that hey this this might actually be
very dumb, which is possible. So a movie's kind of
a binary thing. It operates for a fixed period of
time time and then it's gone. It's it's not a
normal business, is that correct?
Speaker 5 (32:03):
Sure?
Speaker 3 (32:06):
Yes, when when you.
Speaker 2 (32:07):
Shoot a movie, you filmed for three, six months, whatever
it is, and then you're you're you're gone. If so,
it's it's not something where you say, hey, we've got
you know, this this building and we're gonna earn tax
revenue from it.
Speaker 3 (32:20):
No matter what.
Speaker 2 (32:21):
If no one decides to film a movie in your state,
then there is no replacement economic activity because it's just
like it's it's not a necessity either, like there's it's
nothing that needs to be there, right, agreed. So Ultimately,
as long as the credits that you are giving are
(32:41):
in relation to what you would be what that business,
what that movie would otherwise be paying, what that business
coming in for six months would otherwise be paying. Is
there any net loss to the state as a result of.
Speaker 4 (32:54):
It, Well, there's certainly resources such as public resource versus
police fire all sorts of things that need to be yep, okay,
you know, public resources go into supporting something like that,
if you need to block off streets, if you need
to do whatever you.
Speaker 5 (33:09):
Have to do.
Speaker 4 (33:10):
So there is some burden there, right, additional traffic, other
other items that would contribute to filming film in Boston,
for instance.
Speaker 2 (33:18):
And I'm trying to I'm just trying to think of
other ways that it would like, how would it cost
the state money in other ways? Because it's it's again,
it's a credit on taxes they would have paid. It's
not like you're paying them money to come there. It's no,
this is money that you would have otherwise paid that
you're not paying us.
Speaker 5 (33:36):
Yeah, I think it's just the opportunity cost.
Speaker 2 (33:39):
Really, I have less of a problem with this than
the stuff like, hey, here's a bunch of money for
GE coming to build their you know, headquarters and stuff
like that. I I have less of an issue because
this is also not picking winners. This is just hey,
anyone who comes you can take advantage of this, as
opposed to, hey, we want to attract this specific business
(34:02):
to operate here, and here's a bunch of money for GE.
Speaker 3 (34:06):
I maybe there's something I'm missing.
Speaker 2 (34:10):
If if there is, I hope someone texting and we
can discuss tomorrow, because again, there very well could be
something that I'm looking at here and just overlooking completely.
Speaker 4 (34:21):
I just don't love when states choose industries that they're
going to kind of blanket subsidized and it becomes this
kind of race to zero. Right Like now North Carolina
has a batter tax incentive on filming than Massachusetts. Does
we have to up the ante here or we're not
going to get the next movie? It just seems like
this this circular type of activity that just continues.
Speaker 3 (34:43):
What about the biotech toxic centerves of Massachusetts.
Speaker 4 (34:45):
Yeah, at least then you can talk about like long
term those have been a huge net positive for the state.
Speaker 5 (34:51):
Yeah, I would agree.
Speaker 2 (34:52):
So like again, I think you have to look at
the specifics of the policy. I'm struggling to see, like,
even though this particular amount seems dumb and even like
no one can understand how it happened, I'm just trying
to figure out where the harm is from a temporary
movie coming in and filming, because if it provides more
publicity for the state, the net long term benefit could
(35:15):
be significantly higher, could be.
Speaker 4 (35:17):
I would just like somebody to study it. Okay, well
I can't do it fair, but don't look up right.
I guess that's the motto or the message. Let's take
a quick break for the next twenty two hours. We're
gonna be back tomorrow though.
Speaker 2 (35:34):
To wrap up the week, we also get some PCE
price index data some more inflation talk tomorrow on the
Financial Exchange
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