March 13, 2025 • 38 mins
Chuck Zodda and Marc Fandetti look at the S&P 500 and wonder if the recent sell-off is actually a positive sign for markets. Jim Cramer believes that Fed rate cuts could ward off a serious recession. Trump's FTC moves ahead with broad Microsoft antitrust probe. Tesla's latest decline could be one for the ages. Egg prices are still surging.
Mark as Played
Transcript
Episode Transcript
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Speaker 1 (00:00):
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(00:42):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:11):
Our two here on the financial exchange, and stock's kind
of struggling to get off the mat today. You got
the Dow down one hundred and sixty one points, the
SMPS down twenty six, the NASDAK down one forty five.
But here's the interesting thing. This is actually, and this
is gonna sound weird, with the market. You know, the
S and P down half a percent, it's actually kind
of a constructive day simply because most of that destruction.
(01:37):
Again it's not like it's a horrible day down, but
most of that is concentrated in a few big names.
You got Meta down two and a half percent, Tesla
down four, Costco down three percent, home Depot down three,
Amazon down one and a half, Google down one and
a half, Apple down one. There's actually a decent amount
of green on the board. It's almost a fifty to
fifty split between stocks that are up in stocks that
(02:00):
down today. It's just the ones that are down happen
to be bigger. Thus, the you know, with a market
cap weighted index, the S and P as a whole
down half a percent today. But if you look at
the S and P five hundred on an equal weighted
basis right now, meaning every constituent weighted the same instead
of varying based on market cap. It's down less than
a quarter of a percent, and so again I think
(02:23):
that there's a case to be made that this is
actually a fairly constructive day despite the negative price movement
that we're seeing in the short So if you.
Speaker 3 (02:32):
Own an actively managed product, they're probably smaller and less
tech heavy than a broad market index.
Speaker 2 (02:38):
And a lot of active managers, especially in the large
cap space, have just loaded.
Speaker 3 (02:42):
Up on Like I said, they're probably over exposed.
Speaker 4 (02:46):
So we think.
Speaker 3 (02:47):
You're laughing at kitchen. I'm thinking a good active manager, Chuck,
the type I hope we would pick for the clients
for whom we are fiduciaries. And I think a lot
of advisors probably think.
Speaker 4 (02:57):
The same way.
Speaker 3 (02:57):
My point is, and it's similar to yours. There are
opportunities when dispersion increases.
Speaker 2 (03:04):
This is a piece that's tough, Like if you are
an active manager that plays in that space, it's hey
for the last two years, even if like you were
sticking to your guns. No, I'm not loading up on Nvidio.
I'm not loading up on Tesla B. Yeah too, eventually,
like you have a couple of years where you're under
performing by a ton, and like the money that's with
you is like bye bye, Okay, I gotta go somewhere else.
So I think that it's it's hard, uh to stick
(03:28):
to your guns for that long. It's it sounds great
in principle, but you know, investors are fickle and they're
they're you know.
Speaker 3 (03:34):
Which is why the most successful active managers.
Speaker 4 (03:38):
Buffett is one of them.
Speaker 3 (03:38):
Although he's unusually active, he takes roles in the companies
that he or most just look at a computer screen
and look at financial data that's public, maybe do a
couple of phone calls with management and make a decision
based on that. Is distinguished from Buffett, who we all
think of, who's truly activist in hands on the best
active managers with those with the best I should say
long term track records because they can lag for a
(04:00):
long time. They are contrarian and they're willing to take
the slings and arrows of the financial commentators during the
inevitable long rough patches.
Speaker 2 (04:13):
It's also one where they're contraying. But the second piece
is you also have to be right. I know, I know,
lots of contrarians in markets that lose plenty of money
still because they're contrarian at the wrong time, reflexively contrarian,
like a lot of times the market's actually right, you know,
good qualifier. We've got bonds ten years pretty much flat, Tenure,
(04:35):
Treasury up one basis point to four point three to
two six percent, Oil West Text Intermediate down fifty four
cents a barrel to sixty seven to fourteen. The triple
A national average for gas prices down another tenth to
percent to three oh seven and nine tenths So still
can't get that below three dollars nationally. But in the
New England region, New Hampshire is now at two ninety
three on average, Massachusetts two ninety seven, and Rhode Island
(04:58):
at two ninety So how about that. And we've got
gold today breaking out to a new all time high
twenty nine eighty and seventy cents is it's up thirty
three dollars and ninety cents an ounce. Let's uh, I
want to skip ahead to this piece from CNBC on Kramer.
(05:20):
Cuz quite honestly, so Jim Kramer, who if I'm being
one hundred percent honest about Jim Kramer. He is the
person that got me interested in the stock market.
Speaker 4 (05:31):
I thought you're gonna say beards.
Speaker 2 (05:33):
No, no, sorry, I'm more a fan of Ben Bernanke's
beard than Jim Kramer's beer. It's very luxurious. It's very luxurious,
very supple. You think, you know, like it just seems
like very nice Kramer. When I was like a twelve
thirteen year old kid, I saw his. My seventh grade
history teacher actually was like, oh, like, you guys should
watch this show on like CNBC called Mad Money. And
(05:54):
I was like, okay, Like I didn't even know what
CNBC was. I thought it was just like I don't know,
like color NBC. I didn't know, like whatever. I didn't
know what it was. Cartoon cartoon NBC. Sure, And so
I put it on and look for a thirteen year
old having Jim Kramer with you know, mooing cows and
you know, bears roaring and stuff. I thought it was
the coolest thing ever, first Docuy ever owned at the time.
(06:18):
It wasn't even at the.
Speaker 3 (06:19):
Time seventh grade just for contact everybody.
Speaker 2 (06:22):
No, no, it was way after seventh grade, but the
company was before they even merged. It was just Activision
before they became Activision Blizzard then eventually got bought by Microsoft.
Why he talked about it a lot, and it was
a video game company, So I, like I just I
thought it was cool to own a video game company or.
Speaker 3 (06:37):
A video game company when I was a kid. Were
they Yes, they made There were a bunch of programmers
left Atari Okay started Activision games like Pitfall? Oh sure, yep,
what else, Ben, You're probably too young to anyway, A
bunch of.
Speaker 4 (06:51):
Hits there you go.
Speaker 2 (06:53):
But anyway, So like Jim Kramer, I have an awful
lot of love for because he like got me interested
in an investing just because as a kid, like I
thought his show is like the coolest, and to be honest,
like he still puts on like a great show. It's
gotten to the point though, where a couple of years ago,
because Kramer was kind of a notorious contra signal, there
(07:15):
actually is now an inverse Kramer ETF that exists out
there because someone decided to, you know, put it into
the world. There's also a pro Kramer one. So like
you get all these things that pop up there, but
you look the headline that's here, and it says fed
rate cuts could ward off serious recession, Jim Kramer says,
and immediately you're like, oh no, is that the kiss
(07:36):
of death?
Speaker 3 (07:38):
Yeah, right, for anybody, but maybe especially him.
Speaker 2 (07:41):
So here's the thing. Fed rate cuts, in my opinion,
unless you make them significant and well before any signs
of recession, cannot ward off a recession entirely.
Speaker 1 (07:58):
In my opinion.
Speaker 2 (08:00):
The only examples that we have an evidence of maybe
maybe maybe the FED being able to do so ninety
four and maybe twenty three, twenty.
Speaker 4 (08:13):
Four, Okay.
Speaker 2 (08:16):
Other than that, are there any examples that you can
think of where the FED has gone through a cutting
cycle to pre empty recession.
Speaker 3 (08:24):
You wouldn't know because the FED could be going nuts
responding to GDP forecasts, and if GDP doesn't move, it
would look like they had no effect. So there's a
statistical problem there.
Speaker 2 (08:34):
But we do know how many cutting cycles they've gone through.
Speaker 3 (08:37):
I'll say this is it's a kind of a subtle point,
but you actually can't tell. Is the is the conclusion
of economists you run into something called the identification problem.
When you're trying to estimate it.
Speaker 2 (08:46):
You just something that didn't fall.
Speaker 3 (08:48):
Yeah, basically that's the long and the short of it,
what they could have definitely responded averted recession. You wouldn't
know because you can't do this sort of COUNTERI history.
Speaker 2 (08:57):
I'm more looking at it, and again I'm gonna cut.
Speaker 4 (09:00):
Kind of I'm gonna so soft landings.
Speaker 2 (09:02):
I'm going to not include trying to think of like
the time pier. But let's let's look at this for
the last forty five years since nineteen eighty. I'm gonna
throw the seventies out just because seventies were kind of
a mess from an economic perspective. But let's look at
the last forty five years just as an example here,
(09:24):
and when we look at cutting cycles that the FED
has gone through, and what would you define is like
an actual cutting cycle? Mark like what it's more than
like one? The Fed basically never cuts once. But here
here's where it exists.
Speaker 3 (09:41):
You have to actually good, well, I'll tell you how
researchers have approached it, or we could just sort of
wing it.
Speaker 2 (09:45):
Just I'm gonna literally eyeball this. The Fed in nineteen
eighty started cutting interest rates from whatever the peak was
twenty percent. Recession happened. Concurrently, they did not avoid it.
The Fed in nineteen eighty one started cutting interest rates
from a peak of again it looks like north of
twenty once again, did not avert recession. You still have
(10:07):
that eighty one eighty two recession that happened. Afterwards, they
were basically, you know, held stable. There was a I
guess you could point to a cutting cycle in the
mid eighties. I don't know, you know the specifics there.
But then in eighty nine started cutting, did not avert
the ninety recession, ninety four went through some cutting, did
avert a potential recession there? Tech bubble couldn't avert it.
(10:30):
Financial crisis couldn't avert it. So like, there are very
few instances that you can look at, but I don't
know that there are really there's much. Even if you
look at when the Fed's cutting rates, they've only done
it a few times in the last forty years, and
most of the time they're not able to avert that recession.
Speaker 3 (10:48):
The question that we are asking trying to respond to
here is a tougher one than you think, because the
FED is also responding in real time to the economy.
People are in turn responding to what the FED is doing,
changing the way they react to the larger economic picture.
There's a lot of disagreement among researchers on whether the
FED has helped to shorten recessions. The famous work, and
(11:12):
I'll mention it briefly done by a guy named David Romer.
He and his wife Christy, also a famous economist. They've
looked at meeting minutes going back to the fifties to
try to get a sense for what policy makers were
responding to when they took action, and they've concluded the
FED has helped to shorten recessions, probably can't do much
to prevent them, almost certainly has induced them to squash inflation.
(11:37):
But there are plenty of researchers who disagree with their methods,
so it's still an area of active research and still
plenty of open questions, which makes it interesting. I mean,
of course, we'd like the FED to preempt downturns, but
that would require superhuman, supernaturally even knowledge of the future
that they don't have and we don't have.
Speaker 2 (11:57):
Right, take a quick break here. When we return, we've
got trivia after this.
Speaker 1 (12:04):
There's only one show that follows Wall Street's continued volatility,
Keep it Here All Morning Long on the Financial Exchange
Radio Network. The Financial Exchange streams live on YouTube. Like
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All morning Loan. This is the Financial Exchange Radio Network.
Speaker 5 (12:30):
Time down for trivia on the Financial Exchange. Today's trivia
question on this day. In two thousand, Bill Gates stepped
down from the Micro Excuse me on the day. In
twenty twenty, Bill Gates stepped down from the Microsoft board
to focus on philanthropic activities. Twenty years earlier, in two thousand,
Gates stepped down as CEO of Microsoft and was replaced
(12:52):
by the then company president. Today's question, who took over
as Microsoft's CEO from Bill Gates in two thousand? Who
took over as Microsoft CEO from Bill Gates in two thousand?
Be the third person who text us at six one
seven three six two one three eight five with the
correct answer, and you'll win a Financial Exchange Show t shirt.
(13:13):
The third correct response will be our winner. See the
complete contest rules at Financial Exchange Show dot com.
Speaker 2 (13:19):
Speaking of Microsoft, the FTC yesterday announced a sprawling I'm
going to quote here from Bloomberg, a sprawling anti trustprobe
of Microsoft, signaling that Donald Trump's new FTC is going
to continue to prioritize scrutiny of tech giants. So this
is an interesting signal to me because, look, those of
(13:41):
you who have listened to our program for quite a
while know that I think that the big tech companies
are too big and operate rather monopolistically and do some
things that are pretty anti competitive. Uh, And so I
think it's fantastic that the Trump FTC is looking at
broad anti trust action against companies such as Microsoft. Do
(14:05):
I have any you know, specifics I could pull up
a few things. I don't have as much on Microsoft.
I have more stuff that bothers me, in particular about
Amazon and how they do business this despite being like
an Amazon Prime customer, it's okay, Like they might do
business in a way that I don't like, but honestly,
it makes it so easy for me. Like when you
(14:25):
have two kids and you're you know, having to buy
a lot of expensive stuff, It's like, okay, like Amazon
makes it pretty easy to do so, and their whole
subscribe and save like I get it. Do as I say,
not as I do. I'm a hypocrite, but I do
like the idea that, hey, big tech is going to
be a focus here, and I'll quote again here the
agency said and the information demand that it wants to
(14:46):
determine whether Microsoft's profit of the business gives it an
edge over other AI companies. So specifically here they're looking at,
are you underpricing your AI because you have so much
profit from elsewhere that it prevents competition in the AI space?
Speaker 4 (15:03):
Uh? Isn't that?
Speaker 3 (15:04):
Isn't that the point of going into business. You make
a lot of money in one channel and you use
that to develop new products at a competitive price.
Speaker 2 (15:15):
So on one hand, sorry, I'm not.
Speaker 4 (15:17):
An anti trust lawyer obviously.
Speaker 2 (15:19):
But on the other hand, like, that's basically what all
anti trust law boils down to is the railroads abusing
that power to undercut all of their competitors and then
once their competitors were gone, jacking the prices up.
Speaker 3 (15:29):
Well, that's if you buy everybody else out and then
you jack the price is up.
Speaker 2 (15:33):
Not necessarily buy everyone else up. I mean you have
different combinations of it. And look, part of it is
can you rather than to buy everyone else up, can
you just put everyone else out of business? Is it?
If you have to spend ten billion dollars to buy
up your competition, but you can forego eight billion dollars
in profit in order to put them out of business. Anyways,
it might be cheaper for you to not buy them.
Speaker 3 (15:55):
Right, aren't presumably every company developing their own AI capabilities
doing the same thing.
Speaker 2 (16:01):
No, what do you mean.
Speaker 4 (16:05):
This subsidizing so to speak?
Speaker 2 (16:07):
Well, I think this is getting at Hey, maybe there's
a problem with those also, like maybe there's like a
systemic issue with big tech and the fact that the
only companies that can compete on their scale because of
how they're subsidizing things are the three or four companies
that are at the top. I don't know, Like, I
don't know where they're going to go with this. I
(16:29):
just think it's interesting that they are going after big
tech on this stuff because I kind of don't like
the idea, especially with how integrated tech is into our
lives of not having choice amongst technology and you know,
lock into a certain ecosystem and this and that. So
I welcome additional intervention because I'm a big believer that
(16:51):
you could get rid of a ton of regulation if
you foster an environment that allows for way more competition
than we currently have. I think most of the problems
that we have that we try to solve with regulation
are because it's so hard for customers to find and
move to new alternatives. And I think if we had
more competition in a lot of these markets, you don't
(17:11):
need to do as much of the stuff on the
one come back? Sorry, Yeah, I would break Microsoft out.
Speaker 4 (17:16):
How do you know? I was gonna ask that?
Speaker 2 (17:17):
Yeah?
Speaker 4 (17:19):
Did I telegraphed?
Speaker 2 (17:20):
I didn't even you did? You started to say I
would you bruh? You said, would you Burrow?
Speaker 4 (17:24):
And I yeh, Hey, let's let's do this again.
Speaker 2 (17:26):
Yes, I would break Microsoft?
Speaker 4 (17:27):
What number?
Speaker 2 (17:28):
Am I the other place that I would go an?
Speaker 4 (17:30):
Why would you into?
Speaker 1 (17:31):
What?
Speaker 4 (17:31):
Okay? What?
Speaker 3 (17:31):
What businesses are you going to break Microsoft up into?
Speaker 5 (17:34):
Well?
Speaker 2 (17:35):
So can I give you my Can I give you
my really interesting one? For Amazon and and for Google?
Speaker 3 (17:41):
Am?
Speaker 4 (17:41):
Sure we can come back to micro.
Speaker 2 (17:42):
I would break Amazon and Google up geographically?
Speaker 4 (17:45):
Yeah.
Speaker 2 (17:45):
Amazon people understand because it's like, okay, like you separate
the warehouses. People like, how do you break Google up geographically?
It's fine. You just segment where the search comes from.
You spin all those businesses off, and then you have
like Google Midwest can try to move in to the Google,
you know, New England market, but they have to compete
on quality against a formidable adversary that's starting from the
(18:08):
same point. Not bing.
Speaker 4 (18:11):
You could do that, but.
Speaker 3 (18:12):
If there are scale economies in that business, and I
assume that there are, though they're probably way beyond that
point on their so called cost curve, it would mean
higher prices. It might also mean more innovation and therefore
lower prices.
Speaker 2 (18:27):
Which is what I like.
Speaker 4 (18:28):
I don't know.
Speaker 2 (18:29):
I'm a big believer that competition and scarcity forces innovation,
and so the more that you can force companies to
need to try to innovate, the better it is for consumers.
And the other place that I come back to is
like the airlines, like all this stuff about you know,
how much do you need to compensate people if they
(18:49):
have a six hour delay in this and that. Well,
if you had more airlines and instead of just one
plane flying, you know, one company flying each root or
two companies flying each route that price, there's stuff exactly
the same and of the same level of service. If
you could actually have real competition there, Hey, if I
have a bad experience with someone flying me to Topeka, okay, great,
I got competition that I can switch to and the
(19:13):
other company will have to adapt because they'll lose their
business to the competition instead of not having real competition.
Speaker 4 (19:18):
I think I'm sold, yet I'm gonna think about it. I'm
gonna think about it.
Speaker 2 (19:22):
You don't have to be sold, you know. That's the
nice thing I want to be.
Speaker 4 (19:25):
I don't want to have to think about this for myself.
Speaker 2 (19:27):
The nice thing is that I'm not in office and
I can't actually do any of this, but it's just
a nice exercise for me. Let's take a quick break
and when we come back, we get the trivia answer
after this.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio every day.
It's the Financial Exchange on the Financial Exchange Radio Network.
Text us six one seven, three, six, two thirteen eighty
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let us know what you think about the store we
are covering. This is the Financial Exchange Radio Network.
Speaker 2 (20:09):
All right.
Speaker 5 (20:09):
Trivia question today was who took over as Microsoft CEO
when Bill Gates stepped down in two thousand. Your answer
Steve Balmer. Steve Balmer became the new CEO in two
thousand after Bill Gates stepped down. Today's winner is Bruce
in Wittensville. He's taking home a Financial Exchange Show t shirt.
(20:31):
We played trivia every day here on the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (20:37):
All right, JP Morgan has analysts that work for them,
as most banks do, and a couple of their analysts
follow Tesla, and I'll just read the quotes from them
on Tesla because they are getting pretty bearish.
Speaker 5 (20:54):
Quote.
Speaker 2 (20:54):
We struggle to think of anything analogous in the history
of the automotive industry in which a brand has lost
so much value so quickly. They wrote that the coastest
example was when Japanese and Korean car brands lost sales
amid diplomatic disputes with China in twenty twelve and twenty seventeen.
(21:16):
The JP Morgan analyst wrote in a note on Wednesday
that those historical cases were confined to a single market,
whereas the decline in Tesla sales in twenty twenty five
is not specific to any one nation or geography. If
you've looked at like the monthly data coming out of Europe,
out of China, out of the US, they're all showing
anywhere between like twenty and sixty percent declines in year
(21:39):
over year sales and so it presents a real issue
for Tesla in a fundamental way, just because automakers don't
make a lot of money for each car they sell,
they basically have to make it up in volume. It's
strange to think of it this way, but they're there.
(22:00):
There's a pretty big similarity between automakers and grocery stores
in that respect, and that you often have like load
to mid single digit margins and you just need to
sell as much volume as you can in order to
run your business. The difference is that grocery stores they
don't actually produce any of their inventory. They buy it
(22:21):
like all the like. They don't grocery stores don't build anything.
They just buy stuff and resell it at a higher markup,
whereas Tesla and automakers they build something, which is obviously
a huge difference. So here's where I'm going with this
is Tesla for the trailing twelve months, their revenues ninety
seven billion dollars. They had net income of seven billion,
which means that they effectively spent ninety billion dollars to
(22:43):
make ninety seven That's how the math ends up working out.
So here's the problem with this is if you have
a twenty to thirty percent decline in revenue. You're now
talking about going from almost one hundred billion dollars in
revenue down to seventy and your costs do not simply
decrease life linearly in the same fashion. The reason being,
you still have a ton of overhead, you still have
(23:05):
a ton of staffing, you still have a ton of
you know, like basically the cost of running the factory.
And so what actually ends up happening is a negative
feedback loop where if you produce fewer cars, the cost
per car goes up, and so it makes your margins
even worse, which means you end up taking a bigger
loss on a car, which is generally why automakers try
(23:27):
to avoid forty percent drops in their auto sales. If
you look just as an example at you know, let's
look at the Let's let's look at the Great Financial
Crisis just as an example, and total vehicle sales in
the United States during the Great Financial Crisis dropped from
(23:49):
around sixteen million a year down to nine point seven million.
Like that's the pace that they drop to over a
span of about a year. Mark the big US automakers,
what did we have to do to them at the time.
Speaker 4 (24:03):
Ooh, we bailed them out.
Speaker 2 (24:05):
We had to bail them out because they all were
going to go out of business because they're sales declined
by fifty percent. Where I'm getting to on this is
if Tesla actually has any kind of sustained twenty thirty
forty percent drop in sales, it can't exist as a
car company anymore.
Speaker 3 (24:25):
We don't know, do we know what their variable costs are?
It's sort of a maximum in economics that if you
can't cover your average variable cost little academic, but it
works out, you should shut down, at least temporarily. How
much could they cut in such an America don't know.
Speaker 2 (24:39):
The one advantage that they do have over legacy automakers
there's no unions at Tesla, so from that perspective, they
have a quicker path to cutting those costs. The rest
of it, I'm not sure that there's anything different about
them in terms of how they actually make cars from
other automakers. Like yeah, like some of the specifics of
the process are obviously different, but it is something where
(25:04):
it is it is a scale business and there's only
so much that you can do there. So this is
potentially a huge problem for them. I don't know how
long what they are seeing lasts. It's not clear to
me that you know, this is a permanent shift. And
in the investing world, the entire like business is hey,
is what I'm seeing permanent or temporary? That's the That's
(25:27):
basically how you end up making money in the investment world.
Speaker 3 (25:30):
Could if Elon must did a one eighty today, stopped
being so polarizing, you don't have to quit the government,
just be green eye shade and low key about it. Sure,
is it too late to salvage his and his company?
Speaker 5 (25:42):
I don't know.
Speaker 2 (25:43):
I don't. So there's a couple of different schools of
thought on this. There's the Warren Buffett quote. You know,
it takes a lifetime to build a reputation, only a
minute to sully it. So you know, part of the
question is okay, once once your reputation is you know,
kind of in the in the tank, like, can you
come back from it? The answer that I think we've
seen is is yes, but it takes time. And time
(26:04):
in the car business is not something that's your friend.
Speaker 4 (26:09):
You know, if you can't cover your variable cast.
Speaker 2 (26:12):
You can't just like wait it out. In the auto business, he.
Speaker 3 (26:15):
Hasn't done anything irreparable. He hasn't done irreparable harm. He's
just been I don't polarizing.
Speaker 2 (26:21):
I don't know.
Speaker 3 (26:23):
Yeah, I don't know, but it seems to me if
he just sort of took a lower key approach, people
would forgive and forget because he hasn't done anything. That's
the question, I know.
Speaker 2 (26:33):
This is the question is how quickly do people And
that's the part that's the problem for Tesla potentially is
even if you did say okay, look, I'm gonna just
you know, chill and you know what, I don't know
how quickly people forgive and forget. Is it a week,
a month, a year, a decade, Because if it is
a decade, then that's a problem. And here's the other thing.
(26:55):
Most if you think about like the forgiveness of public figures,
doesn't a lot of it often happen when they're out
of the limelight for a little while and then they
come back.
Speaker 4 (27:03):
I guess saying like have to apologize.
Speaker 2 (27:06):
Right Like it's like it's kind of that okay, like
I've done my time whatever it is.
Speaker 4 (27:11):
It's not just yeah, you might have to pay.
Speaker 2 (27:14):
I'm like I'm okay with it.
Speaker 4 (27:15):
Tons. Yeah, I don't know. I'm sorry, go ahead, So.
Speaker 2 (27:19):
I don't know, you know, kind of what the situation
is there. The other piece, and this is the one
that is not a this is not a like sentiment
type of thing based on any actions that Elon's undertaking.
The China market is one where they've tried to you know,
grow significantly in recent years. They have a factory that
they started there. I think in like twenty nineteen is
(27:41):
when the Shanghai factory opened. And you've got all these
Chinese evy startups that are out at lower prices with
more features and this and that, and it's just something
again like you've got this New York Times piece talking
about how, look, you can buy these Chinese evs in
China for you know, half the cost of a Tesla.
(28:01):
Why would I buy a Tesla if it's twice the
cost and I can buy a domestic brand. That's a
battle that I don't think he can win. And I
think that when you look at this, it's not one
that's again here's the other thing this is, this is
not something that's just a US issue. This is happening
everywhere that you're seeing these sales declines and.
Speaker 4 (28:23):
It's more severe where he's.
Speaker 2 (28:25):
Who do you even apologize to?
Speaker 3 (28:27):
Well, okay, these are somewhat different problems that the problem
he's having in Europe is pretty straightforward. Yes, it's it's
perception there, and he could probably fix that. He's got
to apologize. I don't know if he's inclined to do that.
I don't know if he even recognizes that there's a problem.
I think he thinks he's being a great patriot, but
he's being a bad fiduciary. At what point is he obligated?
Is he compelled by his board? I know the structure
(28:49):
is such that he can't be, but they could try
moral suasion, personal appeals. At what point do they have
an obligation to shareholders to step in and say please
stop the self imlay here this is not constructive.
Speaker 2 (29:01):
I mean, you would think if you have a couple
of quarters that are potentially as bad as JP Morgan
suggesting they could be, you would think within that couple
of quarters.
Speaker 4 (29:12):
Yeah.
Speaker 2 (29:12):
But the problem with Tesla and the paradox of it
not a paradox, but the catch twenty two of it
is you got a situation where how much of that
valuation is driven by Elon Musk. Being an Elon Musk,
you can make the case that probably like the vast
majority of it. Yeah, and so if the board's ever
(29:33):
like Elon, you need to either change or leave, and
he decides to leave, then I'm not sure there is
anything left, Like the people will follow, like the Elon
fans are going to follow Elon, not stay with Tesla, right.
Speaker 3 (29:48):
I don't know that is a perfect catch twenty two.
Speaker 2 (29:50):
So it's kind of like, what do you do? It's
kind of a challenging situation to sort through. Let's take
a quick break when we come back stack.
Speaker 1 (30:00):
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Speaker 5 (30:31):
The Financial Exchange is proud of our partnership with the
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Speaker 2 (31:04):
By the way, I will be going for a I'm
aiming for a top fifteen finish this year for the
DAV five k. I think I was like twenty eighth
or something last year out of twenty no, of like
fifteen hundred people.
Speaker 4 (31:18):
Yeah, it was a college athlete for pizza.
Speaker 2 (31:20):
It was good ish at least, So it's I didn't
put up the time that I wanted to. But I'm
hoping with a better year of training, I can get
there this year. Mark, What do you got for me
for stack roulette?
Speaker 3 (31:28):
Are we tired of talking about eggs? We don't talk
about egg prices a lot, But there isn't more interesting angle.
And it's not a political angle. This is not about
blaming anybody. It's largely outside of most people's control.
Speaker 2 (31:38):
But what were you gonna say eggs are a giffing good.
You think, so, I have giff and good For those
who aren't familiar with the term, it's a term for economics,
and a giff and good is one that people buy
more of when the prices go up. We certainly talk
about eggs more when the prices go up, but also
when else do you get the signs on? You know,
(32:00):
so you walk into any grocery store right now, due
to limited supply, we are, you know, capping people at
two containers of eggs per person. How many times in
either of your lives would you ever buy more than
two containers?
Speaker 4 (32:16):
Shot?
Speaker 2 (32:17):
It is. But this is what I mean by it
being like a gift and good is that, like the
price of eggs go up and we want to buy.
Speaker 3 (32:23):
More of some obscure concept.
Speaker 2 (32:26):
You know. It would be like if the price of
cars went up and we bought two of them, But
eggs we do, even though there's kind of a limit
as to how many eggs you can eat, just because
of you know, the taste of eggs every meal, day
after day, and how quickly they go badly. But anyways,
what do you have to say about eggs? No?
Speaker 3 (32:45):
I was gonna point out that it is kind of
it's a fringy subject because if they factor into food
and energy, the food and energy component of the CPI,
and we know.
Speaker 2 (32:56):
The eggs factor into energy the food.
Speaker 3 (32:58):
I'm sorry, I'm thinking of food and energy collectively.
Speaker 5 (33:02):
You don't power your house on yolk?
Speaker 2 (33:04):
Yeah, we we stripped the yolks out and run purely
on the white. You know it's cleaner. You know they
burn cleaner than the yolks. I don't know, you know what.
You remember the thing where like people wouldn't need the
egg yolks because of cholesterol and stuff.
Speaker 4 (33:19):
Don't Yeah, I'm still on that bandwagon. Is that now
pass out?
Speaker 2 (33:22):
Well, here's my theory because I don't really know anything.
I've seen enough like studies and nutrition cycles at this
point that I kind of subscribe to the Michael Pollen approach,
which is eat food, meaning like not pre produced stuff
like real food, you know, things that aren't overly processed.
Eat food not too much, and different things all the
(33:45):
time because no one really knows like what there's all
the stuff like, well, the people that live long in
Italy eat lots of pasta and you know, red wine,
and the people who live long in Japan eat lots
of fish. So if you just and ultimately, I don't
think that we can actually replicate what makes longevity for
any particular person or even for any particular culture, because
(34:06):
we kind of forget that. Maybe it's like imbued in
the culture and it's like a fundamental.
Speaker 4 (34:10):
Part hard to control for other factors, you know, like.
Speaker 2 (34:12):
All that stuff. And so I basically come back to, Yeah,
I don't know what's inherently like good or bad for you,
aside from like you probably just shouldn't eat chips, but
eat whatever you want, but just don't eat too much
of anything, and you know, portion size appropriately and you'll
generally be fine because the rest is kind of statistical noise.
Speaker 4 (34:31):
Everything in moderation, is that what you're saying?
Speaker 2 (34:33):
Yeah, and mostly like whole foods, real foods, if you
can not too much Kraft mac and cheese, which I
do have every Friday when I get the opportunity.
Speaker 3 (34:42):
Expensive to eat Ali though, so low income people are
at a slight disadvantage, significant disadvantage. Yeah, well, I was
trying not to be hysterical about it, But what was
I going to say about eggs?
Speaker 2 (34:55):
Eggs?
Speaker 3 (34:55):
The spotlight on eggs is probably driving expectations and making
the I'm not blaming the media here, it's a story
we have to, I guess talk about it, and when
something doubles in a year or more, it's newsworthy and
noteworthy for our budgets.
Speaker 4 (35:12):
I guess depending.
Speaker 3 (35:13):
But at the same time, the hysteria and I'm not
downplaying the increase in the price of eggs, but the
excessive attention paid to it, I'm probably not using the
best possible phrase there does drive expectations and makes the inflation.
Speaker 4 (35:29):
Problem overall worse. So I guess only observation.
Speaker 2 (35:34):
Here's the question, though, why eggs and I'll even like
stick with breakfast or even things that are popular. Price
of coffee has also doubled over the last fifteen months.
Why are there not McDonald's sorry, wholesale coffee. Oh well,
I mean, look, not my problem, but I'm sure that
coffee prices have actually gone up at retail. I don't
(35:55):
drink coffee, so I don't see it, but wholesale prices
So if you again, I don't even know what they meant.
You're like, what's what are coffee futures measured? They are
bushels kilometers feet. I don't know what coffee futures are
measured in, but on October second of twenty three, they
were trading it one hundred eighty nine dollars on the
(36:15):
cash settle. Now it's four hundred and ten. So coffee
futures have doubled. So someone's losing money on this if
they're Yeah, it's either margins losing money or the margins
are being squeezed on what's normally a high market.
Speaker 4 (36:27):
I would think they've got some room there.
Speaker 2 (36:29):
So I don't know, like, why are we just hearing
about eggs and not the price of coffee doubling?
Speaker 3 (36:35):
Because because you point out, the producers have absorbed at
least in our anecdotal our inudal observations here have absorbed
some of that, or a lot of it, or all
of it. Starbucks is not doubled. I don't buy stuff there,
but to my knowledge, they haven't doubled their prices.
Speaker 2 (36:52):
No, it looks like okay, for whatever reason. Yeah, so
coffee coffee prices are up one point eight percent year
over year even though the raw material are more than double.
So they're just eating that, I guess through their margins,
is the answer, on this. So yeah, I guess okay,
I just answered my question. I probably should have looked
at the CPI before going down that tangent. What else
you got that was the egg piece?
Speaker 4 (37:14):
Yeah?
Speaker 3 (37:16):
The oh when he's opening a thousand new restaurants.
Speaker 2 (37:20):
Good love a good junior bacon cheeseburger.
Speaker 3 (37:22):
Right, is this bucking a fast food trend? I'm sorry,
I think it is bucking a fast food trend. Good
for them, I'm sorry. I didn't do a lot of
research here. I'll give you my gut reaction. Hey, that's great.
Speaker 2 (37:38):
So there's that. Sorry, No, it's all good. Taking a
look at markets as we head towards the top of
the hour, the Dow is off four hundred and seven points,
down about one percent, s ANDP down sixty three points,
also down one percent, and NASDAG down two hundred and
eighty points. So we've got a broad based selloff continuing
today and kind of accelerating downward into the end of
(37:59):
the morning. We'll have to see where this continues to go. Tomorrow.
A little bit more economic data tomorrow, consumer sentiment at
ten am from the University of Michigan. We will cover
that and a whole lot more on our show tomorrow,
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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(00:20):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:11):
Our two here on the financial exchange, and stock's kind
of struggling to get off the mat today. You got
the Dow down one hundred and sixty one points, the
SMPS down twenty six, the NASDAK down one forty five.
But here's the interesting thing. This is actually, and this
is gonna sound weird, with the market. You know, the
S and P down half a percent, it's actually kind
of a constructive day simply because most of that destruction.
(01:37):
Again it's not like it's a horrible day down, but
most of that is concentrated in a few big names.
You got Meta down two and a half percent, Tesla
down four, Costco down three percent, home Depot down three,
Amazon down one and a half, Google down one and
a half, Apple down one. There's actually a decent amount
of green on the board. It's almost a fifty to
fifty split between stocks that are up in stocks that
(02:00):
down today. It's just the ones that are down happen
to be bigger. Thus, the you know, with a market
cap weighted index, the S and P as a whole
down half a percent today. But if you look at
the S and P five hundred on an equal weighted
basis right now, meaning every constituent weighted the same instead
of varying based on market cap. It's down less than
a quarter of a percent, and so again I think
(02:23):
that there's a case to be made that this is
actually a fairly constructive day despite the negative price movement
that we're seeing in the short So if you.
Speaker 3 (02:32):
Own an actively managed product, they're probably smaller and less
tech heavy than a broad market index.
Speaker 2 (02:38):
And a lot of active managers, especially in the large
cap space, have just loaded.
Speaker 3 (02:42):
Up on Like I said, they're probably over exposed.
Speaker 4 (02:46):
So we think.
Speaker 3 (02:47):
You're laughing at kitchen. I'm thinking a good active manager, Chuck,
the type I hope we would pick for the clients
for whom we are fiduciaries. And I think a lot
of advisors probably think.
Speaker 4 (02:57):
The same way.
Speaker 3 (02:57):
My point is, and it's similar to yours. There are
opportunities when dispersion increases.
Speaker 2 (03:04):
This is a piece that's tough, Like if you are
an active manager that plays in that space, it's hey
for the last two years, even if like you were
sticking to your guns. No, I'm not loading up on Nvidio.
I'm not loading up on Tesla B. Yeah too, eventually,
like you have a couple of years where you're under
performing by a ton, and like the money that's with
you is like bye bye, Okay, I gotta go somewhere else.
So I think that it's it's hard, uh to stick
(03:28):
to your guns for that long. It's it sounds great
in principle, but you know, investors are fickle and they're
they're you know.
Speaker 3 (03:34):
Which is why the most successful active managers.
Speaker 4 (03:38):
Buffett is one of them.
Speaker 3 (03:38):
Although he's unusually active, he takes roles in the companies
that he or most just look at a computer screen
and look at financial data that's public, maybe do a
couple of phone calls with management and make a decision
based on that. Is distinguished from Buffett, who we all
think of, who's truly activist in hands on the best
active managers with those with the best I should say
long term track records because they can lag for a
(04:00):
long time. They are contrarian and they're willing to take
the slings and arrows of the financial commentators during the
inevitable long rough patches.
Speaker 2 (04:13):
It's also one where they're contraying. But the second piece
is you also have to be right. I know, I know,
lots of contrarians in markets that lose plenty of money
still because they're contrarian at the wrong time, reflexively contrarian,
like a lot of times the market's actually right, you know,
good qualifier. We've got bonds ten years pretty much flat, Tenure,
(04:35):
Treasury up one basis point to four point three to
two six percent, Oil West Text Intermediate down fifty four
cents a barrel to sixty seven to fourteen. The triple
A national average for gas prices down another tenth to
percent to three oh seven and nine tenths So still
can't get that below three dollars nationally. But in the
New England region, New Hampshire is now at two ninety
three on average, Massachusetts two ninety seven, and Rhode Island
(04:58):
at two ninety So how about that. And we've got
gold today breaking out to a new all time high
twenty nine eighty and seventy cents is it's up thirty
three dollars and ninety cents an ounce. Let's uh, I
want to skip ahead to this piece from CNBC on Kramer.
(05:20):
Cuz quite honestly, so Jim Kramer, who if I'm being
one hundred percent honest about Jim Kramer. He is the
person that got me interested in the stock market.
Speaker 4 (05:31):
I thought you're gonna say beards.
Speaker 2 (05:33):
No, no, sorry, I'm more a fan of Ben Bernanke's
beard than Jim Kramer's beer. It's very luxurious. It's very luxurious,
very supple. You think, you know, like it just seems
like very nice Kramer. When I was like a twelve
thirteen year old kid, I saw his. My seventh grade
history teacher actually was like, oh, like, you guys should
watch this show on like CNBC called Mad Money. And
(05:54):
I was like, okay, Like I didn't even know what
CNBC was. I thought it was just like I don't know,
like color NBC. I didn't know, like whatever. I didn't
know what it was. Cartoon cartoon NBC. Sure, And so
I put it on and look for a thirteen year
old having Jim Kramer with you know, mooing cows and
you know, bears roaring and stuff. I thought it was
the coolest thing ever, first Docuy ever owned at the time.
(06:18):
It wasn't even at the.
Speaker 3 (06:19):
Time seventh grade just for contact everybody.
Speaker 2 (06:22):
No, no, it was way after seventh grade, but the
company was before they even merged. It was just Activision
before they became Activision Blizzard then eventually got bought by Microsoft.
Why he talked about it a lot, and it was
a video game company, So I, like I just I
thought it was cool to own a video game company or.
Speaker 3 (06:37):
A video game company when I was a kid. Were
they Yes, they made There were a bunch of programmers
left Atari Okay started Activision games like Pitfall? Oh sure, yep,
what else, Ben, You're probably too young to anyway, A
bunch of.
Speaker 4 (06:51):
Hits there you go.
Speaker 2 (06:53):
But anyway, So like Jim Kramer, I have an awful
lot of love for because he like got me interested
in an investing just because as a kid, like I
thought his show is like the coolest, and to be honest,
like he still puts on like a great show. It's
gotten to the point though, where a couple of years ago,
because Kramer was kind of a notorious contra signal, there
(07:15):
actually is now an inverse Kramer ETF that exists out
there because someone decided to, you know, put it into
the world. There's also a pro Kramer one. So like
you get all these things that pop up there, but
you look the headline that's here, and it says fed
rate cuts could ward off serious recession, Jim Kramer says,
and immediately you're like, oh no, is that the kiss
(07:36):
of death?
Speaker 3 (07:38):
Yeah, right, for anybody, but maybe especially him.
Speaker 2 (07:41):
So here's the thing. Fed rate cuts, in my opinion,
unless you make them significant and well before any signs
of recession, cannot ward off a recession entirely.
Speaker 1 (07:58):
In my opinion.
Speaker 2 (08:00):
The only examples that we have an evidence of maybe
maybe maybe the FED being able to do so ninety
four and maybe twenty three, twenty.
Speaker 4 (08:13):
Four, Okay.
Speaker 2 (08:16):
Other than that, are there any examples that you can
think of where the FED has gone through a cutting
cycle to pre empty recession.
Speaker 3 (08:24):
You wouldn't know because the FED could be going nuts
responding to GDP forecasts, and if GDP doesn't move, it
would look like they had no effect. So there's a
statistical problem there.
Speaker 2 (08:34):
But we do know how many cutting cycles they've gone through.
Speaker 3 (08:37):
I'll say this is it's a kind of a subtle point,
but you actually can't tell. Is the is the conclusion
of economists you run into something called the identification problem.
When you're trying to estimate it.
Speaker 2 (08:46):
You just something that didn't fall.
Speaker 3 (08:48):
Yeah, basically that's the long and the short of it,
what they could have definitely responded averted recession. You wouldn't
know because you can't do this sort of COUNTERI history.
Speaker 2 (08:57):
I'm more looking at it, and again I'm gonna cut.
Speaker 4 (09:00):
Kind of I'm gonna so soft landings.
Speaker 2 (09:02):
I'm going to not include trying to think of like
the time pier. But let's let's look at this for
the last forty five years since nineteen eighty. I'm gonna
throw the seventies out just because seventies were kind of
a mess from an economic perspective. But let's look at
the last forty five years just as an example here,
(09:24):
and when we look at cutting cycles that the FED
has gone through, and what would you define is like
an actual cutting cycle? Mark like what it's more than
like one? The Fed basically never cuts once. But here
here's where it exists.
Speaker 3 (09:41):
You have to actually good, well, I'll tell you how
researchers have approached it, or we could just sort of
wing it.
Speaker 2 (09:45):
Just I'm gonna literally eyeball this. The Fed in nineteen
eighty started cutting interest rates from whatever the peak was
twenty percent. Recession happened. Concurrently, they did not avoid it.
The Fed in nineteen eighty one started cutting interest rates
from a peak of again it looks like north of
twenty once again, did not avert recession. You still have
(10:07):
that eighty one eighty two recession that happened. Afterwards, they
were basically, you know, held stable. There was a I
guess you could point to a cutting cycle in the
mid eighties. I don't know, you know the specifics there.
But then in eighty nine started cutting, did not avert
the ninety recession, ninety four went through some cutting, did
avert a potential recession there? Tech bubble couldn't avert it.
(10:30):
Financial crisis couldn't avert it. So like, there are very
few instances that you can look at, but I don't
know that there are really there's much. Even if you
look at when the Fed's cutting rates, they've only done
it a few times in the last forty years, and
most of the time they're not able to avert that recession.
Speaker 3 (10:48):
The question that we are asking trying to respond to
here is a tougher one than you think, because the
FED is also responding in real time to the economy.
People are in turn responding to what the FED is doing,
changing the way they react to the larger economic picture.
There's a lot of disagreement among researchers on whether the
FED has helped to shorten recessions. The famous work, and
(11:12):
I'll mention it briefly done by a guy named David Romer.
He and his wife Christy, also a famous economist. They've
looked at meeting minutes going back to the fifties to
try to get a sense for what policy makers were
responding to when they took action, and they've concluded the
FED has helped to shorten recessions, probably can't do much
to prevent them, almost certainly has induced them to squash inflation.
(11:37):
But there are plenty of researchers who disagree with their methods,
so it's still an area of active research and still
plenty of open questions, which makes it interesting. I mean,
of course, we'd like the FED to preempt downturns, but
that would require superhuman, supernaturally even knowledge of the future
that they don't have and we don't have.
Speaker 2 (11:57):
Right, take a quick break here. When we return, we've
got trivia after this.
Speaker 1 (12:04):
There's only one show that follows Wall Street's continued volatility,
Keep it Here All Morning Long on the Financial Exchange
Radio Network. The Financial Exchange streams live on YouTube. Like
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All morning Loan. This is the Financial Exchange Radio Network.
Speaker 5 (12:30):
Time down for trivia on the Financial Exchange. Today's trivia
question on this day. In two thousand, Bill Gates stepped
down from the Micro Excuse me on the day. In
twenty twenty, Bill Gates stepped down from the Microsoft board
to focus on philanthropic activities. Twenty years earlier, in two thousand,
Gates stepped down as CEO of Microsoft and was replaced
(12:52):
by the then company president. Today's question, who took over
as Microsoft's CEO from Bill Gates in two thousand? Who
took over as Microsoft CEO from Bill Gates in two thousand?
Be the third person who text us at six one
seven three six two one three eight five with the
correct answer, and you'll win a Financial Exchange Show t shirt.
(13:13):
The third correct response will be our winner. See the
complete contest rules at Financial Exchange Show dot com.
Speaker 2 (13:19):
Speaking of Microsoft, the FTC yesterday announced a sprawling I'm
going to quote here from Bloomberg, a sprawling anti trustprobe
of Microsoft, signaling that Donald Trump's new FTC is going
to continue to prioritize scrutiny of tech giants. So this
is an interesting signal to me because, look, those of
(13:41):
you who have listened to our program for quite a
while know that I think that the big tech companies
are too big and operate rather monopolistically and do some
things that are pretty anti competitive. Uh, And so I
think it's fantastic that the Trump FTC is looking at
broad anti trust action against companies such as Microsoft. Do
(14:05):
I have any you know, specifics I could pull up
a few things. I don't have as much on Microsoft.
I have more stuff that bothers me, in particular about
Amazon and how they do business this despite being like
an Amazon Prime customer, it's okay, Like they might do
business in a way that I don't like, but honestly,
it makes it so easy for me. Like when you
(14:25):
have two kids and you're you know, having to buy
a lot of expensive stuff, It's like, okay, like Amazon
makes it pretty easy to do so, and their whole
subscribe and save like I get it. Do as I say,
not as I do. I'm a hypocrite, but I do
like the idea that, hey, big tech is going to
be a focus here, and I'll quote again here the
agency said and the information demand that it wants to
(14:46):
determine whether Microsoft's profit of the business gives it an
edge over other AI companies. So specifically here they're looking at,
are you underpricing your AI because you have so much
profit from elsewhere that it prevents competition in the AI space?
Speaker 4 (15:03):
Uh? Isn't that?
Speaker 3 (15:04):
Isn't that the point of going into business. You make
a lot of money in one channel and you use
that to develop new products at a competitive price.
Speaker 2 (15:15):
So on one hand, sorry, I'm not.
Speaker 4 (15:17):
An anti trust lawyer obviously.
Speaker 2 (15:19):
But on the other hand, like, that's basically what all
anti trust law boils down to is the railroads abusing
that power to undercut all of their competitors and then
once their competitors were gone, jacking the prices up.
Speaker 3 (15:29):
Well, that's if you buy everybody else out and then
you jack the price is up.
Speaker 2 (15:33):
Not necessarily buy everyone else up. I mean you have
different combinations of it. And look, part of it is
can you rather than to buy everyone else up, can
you just put everyone else out of business? Is it?
If you have to spend ten billion dollars to buy
up your competition, but you can forego eight billion dollars
in profit in order to put them out of business. Anyways,
it might be cheaper for you to not buy them.
Speaker 3 (15:55):
Right, aren't presumably every company developing their own AI capabilities
doing the same thing.
Speaker 2 (16:01):
No, what do you mean.
Speaker 4 (16:05):
This subsidizing so to speak?
Speaker 2 (16:07):
Well, I think this is getting at Hey, maybe there's
a problem with those also, like maybe there's like a
systemic issue with big tech and the fact that the
only companies that can compete on their scale because of
how they're subsidizing things are the three or four companies
that are at the top. I don't know, Like, I
don't know where they're going to go with this. I
(16:29):
just think it's interesting that they are going after big
tech on this stuff because I kind of don't like
the idea, especially with how integrated tech is into our
lives of not having choice amongst technology and you know,
lock into a certain ecosystem and this and that. So
I welcome additional intervention because I'm a big believer that
(16:51):
you could get rid of a ton of regulation if
you foster an environment that allows for way more competition
than we currently have. I think most of the problems
that we have that we try to solve with regulation
are because it's so hard for customers to find and
move to new alternatives. And I think if we had
more competition in a lot of these markets, you don't
(17:11):
need to do as much of the stuff on the
one come back? Sorry, Yeah, I would break Microsoft out.
Speaker 4 (17:16):
How do you know? I was gonna ask that?
Speaker 2 (17:17):
Yeah?
Speaker 4 (17:19):
Did I telegraphed?
Speaker 2 (17:20):
I didn't even you did? You started to say I
would you bruh? You said, would you Burrow?
Speaker 4 (17:24):
And I yeh, Hey, let's let's do this again.
Speaker 2 (17:26):
Yes, I would break Microsoft?
Speaker 4 (17:27):
What number?
Speaker 2 (17:28):
Am I the other place that I would go an?
Speaker 4 (17:30):
Why would you into?
Speaker 1 (17:31):
What?
Speaker 4 (17:31):
Okay? What?
Speaker 3 (17:31):
What businesses are you going to break Microsoft up into?
Speaker 5 (17:34):
Well?
Speaker 2 (17:35):
So can I give you my Can I give you
my really interesting one? For Amazon and and for Google?
Speaker 3 (17:41):
Am?
Speaker 4 (17:41):
Sure we can come back to micro.
Speaker 2 (17:42):
I would break Amazon and Google up geographically?
Speaker 4 (17:45):
Yeah.
Speaker 2 (17:45):
Amazon people understand because it's like, okay, like you separate
the warehouses. People like, how do you break Google up geographically?
It's fine. You just segment where the search comes from.
You spin all those businesses off, and then you have
like Google Midwest can try to move in to the Google,
you know, New England market, but they have to compete
on quality against a formidable adversary that's starting from the
(18:08):
same point. Not bing.
Speaker 4 (18:11):
You could do that, but.
Speaker 3 (18:12):
If there are scale economies in that business, and I
assume that there are, though they're probably way beyond that
point on their so called cost curve, it would mean
higher prices. It might also mean more innovation and therefore
lower prices.
Speaker 2 (18:27):
Which is what I like.
Speaker 4 (18:28):
I don't know.
Speaker 2 (18:29):
I'm a big believer that competition and scarcity forces innovation,
and so the more that you can force companies to
need to try to innovate, the better it is for consumers.
And the other place that I come back to is
like the airlines, like all this stuff about you know,
how much do you need to compensate people if they
(18:49):
have a six hour delay in this and that. Well,
if you had more airlines and instead of just one
plane flying, you know, one company flying each root or
two companies flying each route that price, there's stuff exactly
the same and of the same level of service. If
you could actually have real competition there, Hey, if I
have a bad experience with someone flying me to Topeka, okay, great,
I got competition that I can switch to and the
(19:13):
other company will have to adapt because they'll lose their
business to the competition instead of not having real competition.
Speaker 4 (19:18):
I think I'm sold, yet I'm gonna think about it. I'm
gonna think about it.
Speaker 2 (19:22):
You don't have to be sold, you know. That's the
nice thing I want to be.
Speaker 4 (19:25):
I don't want to have to think about this for myself.
Speaker 2 (19:27):
The nice thing is that I'm not in office and
I can't actually do any of this, but it's just
a nice exercise for me. Let's take a quick break
and when we come back, we get the trivia answer
after this.
Speaker 1 (19:41):
Bringing the latest financial news straight to your radio every day.
It's the Financial Exchange on the Financial Exchange Radio Network.
Text us six one seven, three, six, two thirteen eighty
five with your comments and questions about today's show, and
let us know what you think about the store we
are covering. This is the Financial Exchange Radio Network.
Speaker 2 (20:09):
All right.
Speaker 5 (20:09):
Trivia question today was who took over as Microsoft CEO
when Bill Gates stepped down in two thousand. Your answer
Steve Balmer. Steve Balmer became the new CEO in two
thousand after Bill Gates stepped down. Today's winner is Bruce
in Wittensville. He's taking home a Financial Exchange Show t shirt.
(20:31):
We played trivia every day here on the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (20:37):
All right, JP Morgan has analysts that work for them,
as most banks do, and a couple of their analysts
follow Tesla, and I'll just read the quotes from them
on Tesla because they are getting pretty bearish.
Speaker 5 (20:54):
Quote.
Speaker 2 (20:54):
We struggle to think of anything analogous in the history
of the automotive industry in which a brand has lost
so much value so quickly. They wrote that the coastest
example was when Japanese and Korean car brands lost sales
amid diplomatic disputes with China in twenty twelve and twenty seventeen.
(21:16):
The JP Morgan analyst wrote in a note on Wednesday
that those historical cases were confined to a single market,
whereas the decline in Tesla sales in twenty twenty five
is not specific to any one nation or geography. If
you've looked at like the monthly data coming out of Europe,
out of China, out of the US, they're all showing
anywhere between like twenty and sixty percent declines in year
(21:39):
over year sales and so it presents a real issue
for Tesla in a fundamental way, just because automakers don't
make a lot of money for each car they sell,
they basically have to make it up in volume. It's
strange to think of it this way, but they're there.
(22:00):
There's a pretty big similarity between automakers and grocery stores
in that respect, and that you often have like load
to mid single digit margins and you just need to
sell as much volume as you can in order to
run your business. The difference is that grocery stores they
don't actually produce any of their inventory. They buy it
(22:21):
like all the like. They don't grocery stores don't build anything.
They just buy stuff and resell it at a higher markup,
whereas Tesla and automakers they build something, which is obviously
a huge difference. So here's where I'm going with this
is Tesla for the trailing twelve months, their revenues ninety
seven billion dollars. They had net income of seven billion,
which means that they effectively spent ninety billion dollars to
(22:43):
make ninety seven That's how the math ends up working out.
So here's the problem with this is if you have
a twenty to thirty percent decline in revenue. You're now
talking about going from almost one hundred billion dollars in
revenue down to seventy and your costs do not simply
decrease life linearly in the same fashion. The reason being,
you still have a ton of overhead, you still have
(23:05):
a ton of staffing, you still have a ton of
you know, like basically the cost of running the factory.
And so what actually ends up happening is a negative
feedback loop where if you produce fewer cars, the cost
per car goes up, and so it makes your margins
even worse, which means you end up taking a bigger
loss on a car, which is generally why automakers try
(23:27):
to avoid forty percent drops in their auto sales. If
you look just as an example at you know, let's
look at the Let's let's look at the Great Financial
Crisis just as an example, and total vehicle sales in
the United States during the Great Financial Crisis dropped from
(23:49):
around sixteen million a year down to nine point seven million.
Like that's the pace that they drop to over a
span of about a year. Mark the big US automakers,
what did we have to do to them at the time.
Speaker 4 (24:03):
Ooh, we bailed them out.
Speaker 2 (24:05):
We had to bail them out because they all were
going to go out of business because they're sales declined
by fifty percent. Where I'm getting to on this is
if Tesla actually has any kind of sustained twenty thirty
forty percent drop in sales, it can't exist as a
car company anymore.
Speaker 3 (24:25):
We don't know, do we know what their variable costs are?
It's sort of a maximum in economics that if you
can't cover your average variable cost little academic, but it
works out, you should shut down, at least temporarily. How
much could they cut in such an America don't know.
Speaker 2 (24:39):
The one advantage that they do have over legacy automakers
there's no unions at Tesla, so from that perspective, they
have a quicker path to cutting those costs. The rest
of it, I'm not sure that there's anything different about
them in terms of how they actually make cars from
other automakers. Like yeah, like some of the specifics of
the process are obviously different, but it is something where
(25:04):
it is it is a scale business and there's only
so much that you can do there. So this is
potentially a huge problem for them. I don't know how
long what they are seeing lasts. It's not clear to
me that you know, this is a permanent shift. And
in the investing world, the entire like business is hey,
is what I'm seeing permanent or temporary? That's the That's
(25:27):
basically how you end up making money in the investment world.
Speaker 3 (25:30):
Could if Elon must did a one eighty today, stopped
being so polarizing, you don't have to quit the government,
just be green eye shade and low key about it. Sure,
is it too late to salvage his and his company?
Speaker 5 (25:42):
I don't know.
Speaker 2 (25:43):
I don't. So there's a couple of different schools of
thought on this. There's the Warren Buffett quote. You know,
it takes a lifetime to build a reputation, only a
minute to sully it. So you know, part of the
question is okay, once once your reputation is you know,
kind of in the in the tank, like, can you
come back from it? The answer that I think we've
seen is is yes, but it takes time. And time
(26:04):
in the car business is not something that's your friend.
Speaker 4 (26:09):
You know, if you can't cover your variable cast.
Speaker 2 (26:12):
You can't just like wait it out. In the auto business, he.
Speaker 3 (26:15):
Hasn't done anything irreparable. He hasn't done irreparable harm. He's
just been I don't polarizing.
Speaker 2 (26:21):
I don't know.
Speaker 3 (26:23):
Yeah, I don't know, but it seems to me if
he just sort of took a lower key approach, people
would forgive and forget because he hasn't done anything. That's
the question, I know.
Speaker 2 (26:33):
This is the question is how quickly do people And
that's the part that's the problem for Tesla potentially is
even if you did say okay, look, I'm gonna just
you know, chill and you know what, I don't know
how quickly people forgive and forget. Is it a week,
a month, a year, a decade, Because if it is
a decade, then that's a problem. And here's the other thing.
(26:55):
Most if you think about like the forgiveness of public figures,
doesn't a lot of it often happen when they're out
of the limelight for a little while and then they
come back.
Speaker 4 (27:03):
I guess saying like have to apologize.
Speaker 2 (27:06):
Right Like it's like it's kind of that okay, like
I've done my time whatever it is.
Speaker 4 (27:11):
It's not just yeah, you might have to pay.
Speaker 2 (27:14):
I'm like I'm okay with it.
Speaker 4 (27:15):
Tons. Yeah, I don't know. I'm sorry, go ahead, So.
Speaker 2 (27:19):
I don't know, you know, kind of what the situation
is there. The other piece, and this is the one
that is not a this is not a like sentiment
type of thing based on any actions that Elon's undertaking.
The China market is one where they've tried to you know,
grow significantly in recent years. They have a factory that
they started there. I think in like twenty nineteen is
(27:41):
when the Shanghai factory opened. And you've got all these
Chinese evy startups that are out at lower prices with
more features and this and that, and it's just something
again like you've got this New York Times piece talking
about how, look, you can buy these Chinese evs in
China for you know, half the cost of a Tesla.
(28:01):
Why would I buy a Tesla if it's twice the
cost and I can buy a domestic brand. That's a
battle that I don't think he can win. And I
think that when you look at this, it's not one
that's again here's the other thing this is, this is
not something that's just a US issue. This is happening
everywhere that you're seeing these sales declines and.
Speaker 4 (28:23):
It's more severe where he's.
Speaker 2 (28:25):
Who do you even apologize to?
Speaker 3 (28:27):
Well, okay, these are somewhat different problems that the problem
he's having in Europe is pretty straightforward. Yes, it's it's
perception there, and he could probably fix that. He's got
to apologize. I don't know if he's inclined to do that.
I don't know if he even recognizes that there's a problem.
I think he thinks he's being a great patriot, but
he's being a bad fiduciary. At what point is he obligated?
Is he compelled by his board? I know the structure
(28:49):
is such that he can't be, but they could try
moral suasion, personal appeals. At what point do they have
an obligation to shareholders to step in and say please
stop the self imlay here this is not constructive.
Speaker 2 (29:01):
I mean, you would think if you have a couple
of quarters that are potentially as bad as JP Morgan
suggesting they could be, you would think within that couple
of quarters.
Speaker 4 (29:12):
Yeah.
Speaker 2 (29:12):
But the problem with Tesla and the paradox of it
not a paradox, but the catch twenty two of it
is you got a situation where how much of that
valuation is driven by Elon Musk. Being an Elon Musk,
you can make the case that probably like the vast
majority of it. Yeah, and so if the board's ever
(29:33):
like Elon, you need to either change or leave, and
he decides to leave, then I'm not sure there is
anything left, Like the people will follow, like the Elon
fans are going to follow Elon, not stay with Tesla, right.
Speaker 3 (29:48):
I don't know that is a perfect catch twenty two.
Speaker 2 (29:50):
So it's kind of like, what do you do? It's
kind of a challenging situation to sort through. Let's take
a quick break when we come back stack.
Speaker 1 (30:00):
Let's find daily interviews and full shows of the Financial
Exchange on our YouTube page. Like us on YouTube and
get caught up on anything and everything you might have missed.
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Show podcast drops every day on Apple, Spotify, and iHeartRadio.
Hit that subscribe button and leave us a five star review.
(30:23):
You're listening to the Financial Exchange Radio Network.
Speaker 5 (30:31):
The Financial Exchange is proud of our partnership with the
Disabled American Veterans Department of Massachusetts. This year's five K
is Saturday, November eighth, and registration is now open. The
race has sold out each of the past four years,
and slots will phillip quickly, so don't delay. Visit DAV
fivek dot Boston today and reserve your spot, or join
(30:51):
our team here at the Financial Exchange by registering under
Team TFE. That's Saturday, November eighth. For this year's DAV
five k, sign up now at DAV five k top Bustin.
Speaker 2 (31:04):
By the way, I will be going for a I'm
aiming for a top fifteen finish this year for the
DAV five k. I think I was like twenty eighth
or something last year out of twenty no, of like
fifteen hundred people.
Speaker 4 (31:18):
Yeah, it was a college athlete for pizza.
Speaker 2 (31:20):
It was good ish at least, So it's I didn't
put up the time that I wanted to. But I'm
hoping with a better year of training, I can get
there this year. Mark, What do you got for me
for stack roulette?
Speaker 3 (31:28):
Are we tired of talking about eggs? We don't talk
about egg prices a lot, But there isn't more interesting angle.
And it's not a political angle. This is not about
blaming anybody. It's largely outside of most people's control.
Speaker 2 (31:38):
But what were you gonna say eggs are a giffing good.
You think, so, I have giff and good For those
who aren't familiar with the term, it's a term for economics,
and a giff and good is one that people buy
more of when the prices go up. We certainly talk
about eggs more when the prices go up, but also
when else do you get the signs on? You know,
(32:00):
so you walk into any grocery store right now, due
to limited supply, we are, you know, capping people at
two containers of eggs per person. How many times in
either of your lives would you ever buy more than
two containers?
Speaker 4 (32:16):
Shot?
Speaker 2 (32:17):
It is. But this is what I mean by it
being like a gift and good is that, like the
price of eggs go up and we want to buy.
Speaker 3 (32:23):
More of some obscure concept.
Speaker 2 (32:26):
You know. It would be like if the price of
cars went up and we bought two of them, But
eggs we do, even though there's kind of a limit
as to how many eggs you can eat, just because
of you know, the taste of eggs every meal, day
after day, and how quickly they go badly. But anyways,
what do you have to say about eggs? No?
Speaker 3 (32:45):
I was gonna point out that it is kind of
it's a fringy subject because if they factor into food
and energy, the food and energy component of the CPI,
and we know.
Speaker 2 (32:56):
The eggs factor into energy the food.
Speaker 3 (32:58):
I'm sorry, I'm thinking of food and energy collectively.
Speaker 5 (33:02):
You don't power your house on yolk?
Speaker 2 (33:04):
Yeah, we we stripped the yolks out and run purely
on the white. You know it's cleaner. You know they
burn cleaner than the yolks. I don't know, you know what.
You remember the thing where like people wouldn't need the
egg yolks because of cholesterol and stuff.
Speaker 4 (33:19):
Don't Yeah, I'm still on that bandwagon. Is that now
pass out?
Speaker 2 (33:22):
Well, here's my theory because I don't really know anything.
I've seen enough like studies and nutrition cycles at this
point that I kind of subscribe to the Michael Pollen approach,
which is eat food, meaning like not pre produced stuff
like real food, you know, things that aren't overly processed.
Eat food not too much, and different things all the
(33:45):
time because no one really knows like what there's all
the stuff like, well, the people that live long in
Italy eat lots of pasta and you know, red wine,
and the people who live long in Japan eat lots
of fish. So if you just and ultimately, I don't
think that we can actually replicate what makes longevity for
any particular person or even for any particular culture, because
(34:06):
we kind of forget that. Maybe it's like imbued in
the culture and it's like a fundamental.
Speaker 4 (34:10):
Part hard to control for other factors, you know, like.
Speaker 2 (34:12):
All that stuff. And so I basically come back to, Yeah,
I don't know what's inherently like good or bad for you,
aside from like you probably just shouldn't eat chips, but
eat whatever you want, but just don't eat too much
of anything, and you know, portion size appropriately and you'll
generally be fine because the rest is kind of statistical noise.
Speaker 4 (34:31):
Everything in moderation, is that what you're saying?
Speaker 2 (34:33):
Yeah, and mostly like whole foods, real foods, if you
can not too much Kraft mac and cheese, which I
do have every Friday when I get the opportunity.
Speaker 3 (34:42):
Expensive to eat Ali though, so low income people are
at a slight disadvantage, significant disadvantage. Yeah, well, I was
trying not to be hysterical about it, But what was
I going to say about eggs?
Speaker 2 (34:55):
Eggs?
Speaker 3 (34:55):
The spotlight on eggs is probably driving expectations and making
the I'm not blaming the media here, it's a story
we have to, I guess talk about it, and when
something doubles in a year or more, it's newsworthy and
noteworthy for our budgets.
Speaker 4 (35:12):
I guess depending.
Speaker 3 (35:13):
But at the same time, the hysteria and I'm not
downplaying the increase in the price of eggs, but the
excessive attention paid to it, I'm probably not using the
best possible phrase there does drive expectations and makes the inflation.
Speaker 4 (35:29):
Problem overall worse. So I guess only observation.
Speaker 2 (35:34):
Here's the question, though, why eggs and I'll even like
stick with breakfast or even things that are popular. Price
of coffee has also doubled over the last fifteen months.
Why are there not McDonald's sorry, wholesale coffee. Oh well,
I mean, look, not my problem, but I'm sure that
coffee prices have actually gone up at retail. I don't
(35:55):
drink coffee, so I don't see it, but wholesale prices
So if you again, I don't even know what they meant.
You're like, what's what are coffee futures measured? They are
bushels kilometers feet. I don't know what coffee futures are
measured in, but on October second of twenty three, they
were trading it one hundred eighty nine dollars on the
(36:15):
cash settle. Now it's four hundred and ten. So coffee
futures have doubled. So someone's losing money on this if
they're Yeah, it's either margins losing money or the margins
are being squeezed on what's normally a high market.
Speaker 4 (36:27):
I would think they've got some room there.
Speaker 2 (36:29):
So I don't know, like, why are we just hearing
about eggs and not the price of coffee doubling?
Speaker 3 (36:35):
Because because you point out, the producers have absorbed at
least in our anecdotal our inudal observations here have absorbed
some of that, or a lot of it, or all
of it. Starbucks is not doubled. I don't buy stuff there,
but to my knowledge, they haven't doubled their prices.
Speaker 2 (36:52):
No, it looks like okay, for whatever reason. Yeah, so
coffee coffee prices are up one point eight percent year
over year even though the raw material are more than double.
So they're just eating that, I guess through their margins,
is the answer, on this. So yeah, I guess okay,
I just answered my question. I probably should have looked
at the CPI before going down that tangent. What else
you got that was the egg piece?
Speaker 4 (37:14):
Yeah?
Speaker 3 (37:16):
The oh when he's opening a thousand new restaurants.
Speaker 2 (37:20):
Good love a good junior bacon cheeseburger.
Speaker 3 (37:22):
Right, is this bucking a fast food trend? I'm sorry,
I think it is bucking a fast food trend. Good
for them, I'm sorry. I didn't do a lot of
research here. I'll give you my gut reaction. Hey, that's great.
Speaker 2 (37:38):
So there's that. Sorry, No, it's all good. Taking a
look at markets as we head towards the top of
the hour, the Dow is off four hundred and seven points,
down about one percent, s ANDP down sixty three points,
also down one percent, and NASDAG down two hundred and
eighty points. So we've got a broad based selloff continuing
today and kind of accelerating downward into the end of
(37:59):
the morning. We'll have to see where this continues to go. Tomorrow.
A little bit more economic data tomorrow, consumer sentiment at
ten am from the University of Michigan. We will cover
that and a whole lot more on our show tomorrow,
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