1 00:00:00,040 --> 00:00:02,000 Welcome back, everyone. Today on the Joseph Carlson 2 00:00:02,000 --> 00:00:05,120 Show. Is AI officially in bubble 3 00:00:05,120 --> 00:00:07,160 territory? That's the question we're going 4 00:00:07,160 --> 00:00:10,640 to be examining today. We know that AI has exploded in 5 00:00:10,640 --> 00:00:12,560 popularity over the past couple of years. 6 00:00:12,800 --> 00:00:15,520 We know that companies like NVIDIA have exploded in revenue 7 00:00:15,520 --> 00:00:17,240 over the past couple of years as well. 8 00:00:17,480 --> 00:00:20,200 They've had astronomical exponential growth. 9 00:00:20,480 --> 00:00:24,200 And right now, Jensen Wong, the CEO of NVIDIA, is at a Goldman 10 00:00:24,200 --> 00:00:27,960 Sachs conference explaining that there's so much demand for AI, 11 00:00:27,960 --> 00:00:30,920 so much continued demand, that customers are getting 12 00:00:30,920 --> 00:00:33,680 temperamental. They want their GP, us, and they 13 00:00:33,680 --> 00:00:37,000 want them right now, and they can't even make enough to keep 14 00:00:37,000 --> 00:00:39,240 up. We also know that big tech has 15 00:00:39,240 --> 00:00:42,480 been spending big time on AI. The amount of money that big 16 00:00:42,480 --> 00:00:44,920 tech is spending on AI is breathtaking. 17 00:00:45,240 --> 00:00:47,640 And today we're going to look at the numbers, the actual data. 18 00:00:47,800 --> 00:00:51,480 We'll be looking at how much each company is spending on AI 19 00:00:51,760 --> 00:00:53,200 and whether or not it's in a bubble. 20 00:00:53,720 --> 00:00:55,360 Now, of course, we have some other news. 21 00:00:55,480 --> 00:00:58,160 We have Steve Eisman, the big short investor. 22 00:00:58,320 --> 00:01:01,080 He went on to CNBC to share his opinion on the rate cuts. 23 00:01:01,080 --> 00:01:03,840 We know that rate cuts are coming, talks about the banks's 24 00:01:03,840 --> 00:01:06,040 investments and a bunch of other various topics. 25 00:01:06,120 --> 00:01:08,840 And then we also have our first bit of news from Brian Nickel, a 26 00:01:08,840 --> 00:01:12,040 preview into what he plans on doing with Starbucks. 27 00:01:12,240 --> 00:01:15,240 Brian Nickel, of course, is the CEO that left Chipotle with a 28 00:01:15,240 --> 00:01:18,560 very successful tenure there to take over Starbucks and fix 29 00:01:18,560 --> 00:01:21,000 their problems. And the first thing he did was 30 00:01:21,000 --> 00:01:24,160 release this big letter outlining everything he wants to 31 00:01:24,160 --> 00:01:25,520 do. And we'll be looking at the game 32 00:01:25,520 --> 00:01:29,160 plan of how Brian Nickel plans to fix Starbucks and whether or 33 00:01:29,160 --> 00:01:31,040 not that plan will work. Now, let's go ahead and start 34 00:01:31,040 --> 00:01:33,840 off with the main question of whether or not generative AI has 35 00:01:33,840 --> 00:01:37,080 reached bubble territory. We know that generative AI is a 36 00:01:37,080 --> 00:01:39,240 real thing. We've all seen examples of it in 37 00:01:39,240 --> 00:01:42,160 demonstrations and illustrations of its power. 38 00:01:42,520 --> 00:01:45,960 But in many cases, a real thing can still become a bubble. 39 00:01:46,240 --> 00:01:49,160 Look at the year 1999, leading into 2000. 40 00:01:49,600 --> 00:01:52,560 The greatest companies in the world, Cisco, Microsoft, many of 41 00:01:52,560 --> 00:01:56,000 them were very real things. The Internet, the promise of it, 42 00:01:56,160 --> 00:01:58,960 was a very real thing. But the insatiable demand for 43 00:01:58,960 --> 00:02:02,640 investors to bid up that real thing into unsustainably high 44 00:02:02,640 --> 00:02:07,200 expectations, into unsustainably high prices, caused a bubble. 45 00:02:07,520 --> 00:02:10,840 And it formed the biggest bubble over the past 20 years, the.com 46 00:02:10,840 --> 00:02:13,520 bubble. Now we look at the demand with 47 00:02:13,520 --> 00:02:16,720 artificial intelligence and there is no debating that there 48 00:02:16,720 --> 00:02:19,360 is currently massive demand for AI. 49 00:02:19,480 --> 00:02:23,240 In fact, Jensen Wong just today said, quote, the demand on it is 50 00:02:23,240 --> 00:02:26,960 so great and everyone wants to be first and everyone wants to 51 00:02:26,960 --> 00:02:29,480 be most. What does that sound like where 52 00:02:29,480 --> 00:02:33,080 people are tripping over each other to be first and to be 53 00:02:33,080 --> 00:02:34,760 most? He continues on. 54 00:02:34,760 --> 00:02:37,800 And this is a direct quote. We probably have more emotional 55 00:02:37,800 --> 00:02:40,840 customers today, deservedly so. It's tense. 56 00:02:41,200 --> 00:02:42,920 We're trying to do the best we can. 57 00:02:43,320 --> 00:02:46,640 He refers to his own customers as emotional. 58 00:02:46,920 --> 00:02:51,640 Emotional in their insatiable desire to be the first to buy 59 00:02:51,640 --> 00:02:55,200 Nvidia's GPUs and to buy as many of them as possible. 60 00:02:55,280 --> 00:02:58,320 Jensen Wong isn't lying here. When we look at the overall 61 00:02:58,320 --> 00:03:02,120 demand for AI, it's hard to argue that there's ever been a 62 00:03:02,120 --> 00:03:06,200 product with greater demand than the overall theme of AI and AI 63 00:03:06,200 --> 00:03:08,040 products. When we look at the specific 64 00:03:08,040 --> 00:03:11,640 products we can take, Nvidia's GPUs and chips, they are in 65 00:03:11,640 --> 00:03:14,000 demand unlike any other product we see. 66 00:03:14,360 --> 00:03:17,320 Jensen himself says that we're doing everything we can. 67 00:03:17,320 --> 00:03:19,840 We can't make them fast enough. Customers are becoming 68 00:03:19,840 --> 00:03:22,480 temperamental. They're becoming emotional 69 00:03:22,480 --> 00:03:24,960 because they can't get our products fast enough. 70 00:03:25,320 --> 00:03:28,800 That is insatiable demand. We can zoom out a bit and look 71 00:03:28,800 --> 00:03:31,880 at AI as a theme. Companies that are in the AI 72 00:03:31,880 --> 00:03:34,800 realm trade up multiples much higher than other companies. 73 00:03:35,080 --> 00:03:37,280 NVIDIA trades at a relative PE ratio. 74 00:03:37,520 --> 00:03:39,720 That's around 2 times the stock market. 75 00:03:39,960 --> 00:03:42,680 It's even double what the current QQQ trades at. 76 00:03:43,000 --> 00:03:45,640 It's a very expensive company based on the multiples. 77 00:03:45,640 --> 00:03:47,120 We don't just need to look at NVIDIA. 78 00:03:47,120 --> 00:03:49,600 We can also look at other notable AI companies. 79 00:03:49,800 --> 00:03:54,840 Palantir trades at an 82 Ford PE ratio, a price to sales of 32. 80 00:03:55,120 --> 00:03:57,960 That's around four times the valuation of the average 81 00:03:57,960 --> 00:04:01,480 software company in the US Investors want to own these 82 00:04:01,480 --> 00:04:04,160 companies. Everyone wants to own a part of 83 00:04:04,160 --> 00:04:08,360 this bright future of AI because we're all convinced that AI is 84 00:04:08,360 --> 00:04:11,000 changing the future, and I think for good reason. 85 00:04:11,000 --> 00:04:13,160 So I fully understand that AI is real. 86 00:04:13,160 --> 00:04:15,720 I've seen the demonstrations. I've seen the groundbreaking 87 00:04:15,720 --> 00:04:18,040 technology. It's going to change the world 88 00:04:18,040 --> 00:04:20,800 in significant ways. But that doesn't fully answer 89 00:04:20,800 --> 00:04:22,520 the question of whether or not we're in a bubble. 90 00:04:22,760 --> 00:04:25,600 And I believe there's more evidence to suggest that we may 91 00:04:25,600 --> 00:04:28,720 be entering into bubble territory, specifically the 92 00:04:28,720 --> 00:04:32,600 enormous step change in how much companies are spending money on 93 00:04:32,720 --> 00:04:34,880 AI. We can take a look at the CapEx 94 00:04:34,880 --> 00:04:38,400 budget of big tech companies. We can see that Amazon's CapEx 95 00:04:38,400 --> 00:04:41,280 over time has gone up dramatically, exponentially, 96 00:04:41,520 --> 00:04:43,320 parabolically, whatever you want to call it. 97 00:04:43,520 --> 00:04:46,200 The chart has gone up multiples over just the past couple of 98 00:04:46,200 --> 00:04:48,600 years. Or you may give Amazon a pass 99 00:04:48,600 --> 00:04:52,040 because Amazon after all runs a very CapEx heavy business. 100 00:04:52,360 --> 00:04:55,760 A lot of that CapEx has to do with their fulfillment center, 101 00:04:56,000 --> 00:04:59,320 buying new warehouses, buying new trucks, buying new machinery 102 00:04:59,320 --> 00:05:01,840 and tooling. So Amazon is a little bit more 103 00:05:01,840 --> 00:05:03,760 messy. We don't know exactly how much 104 00:05:03,760 --> 00:05:07,000 of that CapEx is going to artificial intelligence. 105 00:05:07,520 --> 00:05:10,800 If we look at the other big tech companies, we can see this a bit 106 00:05:10,800 --> 00:05:13,440 more clearly. Meta's CapEx has exploded over 107 00:05:13,440 --> 00:05:17,600 the years, reaching $30 billion in a single year spent on CapEx. 108 00:05:17,960 --> 00:05:20,600 Now, Meta does not run a retail business. 109 00:05:20,960 --> 00:05:23,400 They don't have fulfillment centers and logistics. 110 00:05:23,680 --> 00:05:27,000 Meta run social media websites. What do they need that CapEx 111 00:05:27,000 --> 00:05:28,640 for? Well, they needed to buy those 112 00:05:28,640 --> 00:05:30,960 GPUs. They need it for the race to get 113 00:05:30,960 --> 00:05:35,120 as many servers, as many GPUs as possible for the promise of AI. 114 00:05:35,280 --> 00:05:38,160 Google's CapEx has climbed over time as Google has gotten into 115 00:05:38,160 --> 00:05:40,960 the cloud hosting business. Not only do they host their own 116 00:05:40,960 --> 00:05:44,760 websites like YouTube and Gmail and YouTube TV, which are very 117 00:05:44,760 --> 00:05:47,840 demanding with hosting needs, but they're also in the business 118 00:05:47,840 --> 00:05:51,600 of now hosting AI. And AI has caused them to spend 119 00:05:51,600 --> 00:05:53,280 increasing amounts on their CapEx. 120 00:05:53,520 --> 00:05:56,640 If you notice, the most recent year on a trailing basis is a 121 00:05:56,640 --> 00:05:58,640 massive step up from previous years. 122 00:05:58,720 --> 00:06:01,320 We can look at Microsoft's CapEx spend and it's one of the most 123 00:06:01,320 --> 00:06:04,720 jarring out of all of them. Microsoft's CapEx has doubled 124 00:06:04,800 --> 00:06:09,640 since 2022, gone up from 25 billion to 50 billion and it's 125 00:06:09,640 --> 00:06:12,200 going up exponentially. Every single quarter is another 126 00:06:12,200 --> 00:06:16,160 huge step up in CapEx. That money is primarily being 127 00:06:16,160 --> 00:06:19,680 spent on servers, AI and server infrastructure. 128 00:06:19,840 --> 00:06:22,720 To put this in perspective, just these four companies spent a 129 00:06:22,720 --> 00:06:27,600 combined $52.9 billion in CapEx in the most recent quarter. 130 00:06:27,960 --> 00:06:32,280 That is a total one year run rate of over $200 billion in 131 00:06:32,280 --> 00:06:35,480 CapEx from four companies. The sheer amount of money these 132 00:06:35,480 --> 00:06:38,160 companies are spending on CapEx and the rate of growth in their 133 00:06:38,160 --> 00:06:41,880 CapEx is fully unsustainable. This can't go on forever. 134 00:06:42,200 --> 00:06:45,520 In the words of Herb Stein, if something can't go on forever, 135 00:06:45,680 --> 00:06:48,120 it will stop. That's very simple logic, but I 136 00:06:48,120 --> 00:06:50,400 think it applies to this case. Keep in mind that the 137 00:06:50,440 --> 00:06:54,520 incremental CapEx spend in this space is largely attributed to 138 00:06:54,520 --> 00:06:56,680 generative AI. The Wall Street Journal notes 139 00:06:56,680 --> 00:06:59,120 that generative artificial intelligence has sparked one of 140 00:06:59,120 --> 00:07:02,240 the biggest spending booms in modern American history, as 141 00:07:02,240 --> 00:07:04,840 companies and investors bet hundreds of billions of dollars 142 00:07:04,840 --> 00:07:07,880 that the technology will revolutionize the global economy 143 00:07:07,880 --> 00:07:10,320 and one day lead to massive profits. 144 00:07:10,360 --> 00:07:13,280 The question is when, or even whether, those investments will 145 00:07:13,280 --> 00:07:16,480 eventually pay off. Apps like Open AI and ChatGPT 146 00:07:16,480 --> 00:07:19,360 have attracted hundreds of millions of users, but 147 00:07:19,360 --> 00:07:22,680 relatively few people are paying for the premium versions, and 148 00:07:22,680 --> 00:07:24,720 businesses are still experimenting with how 149 00:07:24,720 --> 00:07:27,880 generative AI can lead to their increased productivity. 150 00:07:27,960 --> 00:07:31,280 The spending from big tech alone is spectacular, but it's not the 151 00:07:31,280 --> 00:07:35,360 only place that has AI demand. We also know that startups and 152 00:07:35,360 --> 00:07:38,320 venture capitalists are now investing more and more into AI 153 00:07:38,320 --> 00:07:40,200 companies. You can see the charts here in 154 00:07:40,200 --> 00:07:43,360 the explosive growth of capital that's going into AI firms. 155 00:07:43,680 --> 00:07:47,040 You can also see the trends of more and more companies that are 156 00:07:47,040 --> 00:07:51,120 startups becoming AI companies. At least they say they are now. 157 00:07:51,120 --> 00:07:54,840 It's reached a rate of around 30% of all new companies are AI 158 00:07:54,840 --> 00:07:57,080 companies. Talent is another problem. 159 00:07:57,080 --> 00:08:00,000 Even people with a basic rudimentary understanding of 160 00:08:00,000 --> 00:08:04,240 machine learning can now have a six figure paying job, and AI 161 00:08:04,240 --> 00:08:08,400 jobs have surged plus 50% in new listings over the past year. 162 00:08:08,400 --> 00:08:11,840 Companies are pouring money into AI through both expensive CapEx 163 00:08:11,840 --> 00:08:13,640 investments and expensive employees. 164 00:08:13,880 --> 00:08:17,280 Companies both big and small, startups, venture capitalist, 165 00:08:17,280 --> 00:08:21,760 retail investors, public equity funds are pouring money into AI. 166 00:08:21,840 --> 00:08:24,680 And we get to eventually see who are the real winners and losers 167 00:08:24,960 --> 00:08:27,480 overtime. As is the case with any bubble, 168 00:08:27,680 --> 00:08:29,560 there are companies that do exceptionally well. 169 00:08:29,560 --> 00:08:32,520 They made great investments and they get great returns, and then 170 00:08:32,520 --> 00:08:35,600 there's a whole lot of companies that don't turn out well that 171 00:08:35,600 --> 00:08:38,039 they made significant investments and they follow 172 00:08:38,039 --> 00:08:40,520 along with the pact. Their investments didn't give 173 00:08:40,520 --> 00:08:44,200 them an adequate return and the stock suffers as a consequence. 174 00:08:44,560 --> 00:08:46,800 Over the next couple of years, I think this is going to become 175 00:08:46,960 --> 00:08:50,800 clearer and clearer that many companies in this AI spend 176 00:08:50,800 --> 00:08:54,640 category were in a significant bubble, that many investors are 177 00:08:54,640 --> 00:08:57,880 getting caught up over bidding companies on the promise of AI. 178 00:08:58,440 --> 00:09:01,040 It'll be interesting to see which companies these are, but I 179 00:09:01,040 --> 00:09:03,920 think it's a time for caution when you're looking at AI 180 00:09:03,920 --> 00:09:06,800 stocks, when you're looking at this theme, with this amount of 181 00:09:06,800 --> 00:09:09,760 capital pouring into a single theme, there's not going to be 182 00:09:09,760 --> 00:09:13,240 as many winners as we suspect. So be careful with your AI stock 183 00:09:13,240 --> 00:09:14,920 picking. Now, moving on, we get to this 184 00:09:14,920 --> 00:09:17,440 interview with Steve Iseman. He's the big short investor. 185 00:09:17,680 --> 00:09:20,640 He covers a variety of topics in the current market, but the 186 00:09:20,640 --> 00:09:23,600 first subject he's asked about are financials. 187 00:09:23,720 --> 00:09:25,600 The banks. Steve, we come to you on a lot 188 00:09:25,600 --> 00:09:29,440 of issues because you have been so incredible, probably right on 189 00:09:29,440 --> 00:09:32,520 some of the bets you've made. Where do you think things stand 190 00:09:32,520 --> 00:09:34,440 right now for the financials because it does feel like a 191 00:09:34,440 --> 00:09:35,600 little bit of an inflection point. 192 00:09:35,600 --> 00:09:39,480 We heard from Bank of America yesterday saying that things 193 00:09:39,480 --> 00:09:42,320 look pretty good, but you also heard from Jamie Dimon saying 194 00:09:42,320 --> 00:09:44,280 that there could be some concerns out there on the 195 00:09:44,320 --> 00:09:46,240 broader spectrum. You haven't been worried about 196 00:09:46,240 --> 00:09:47,920 the banks in a while. You still that way. 197 00:09:48,520 --> 00:09:51,120 From a systemic perspective. From a systemic. 198 00:09:51,120 --> 00:09:53,600 Perspective you have. Not been buying banks but you 199 00:09:53,600 --> 00:09:55,520 have not been. From a systemic perspective, I 200 00:09:55,520 --> 00:09:57,520 lose absolutely no sleep about the banks. 201 00:09:57,720 --> 00:10:00,200 They. Extremely well capitalized, 202 00:10:00,520 --> 00:10:03,120 they're far better run, they understand their risk better 203 00:10:03,120 --> 00:10:07,800 than they ever have so and there's nothing to worry about 204 00:10:07,800 --> 00:10:11,160 with respect to the banks to to invest them is another story. 205 00:10:11,400 --> 00:10:12,680 Yeah, you didn't like them a year ago. 206 00:10:12,680 --> 00:10:13,800 How are you feeling about them now? 207 00:10:14,360 --> 00:10:18,720 I don't think there's a story with respect to the banks. 208 00:10:18,800 --> 00:10:22,680 I mean, I I find them to be trading vehicles. 209 00:10:23,520 --> 00:10:28,440 People use them as a, a means to express how they feel about the 210 00:10:28,440 --> 00:10:30,440 economy. You know, right now what's 211 00:10:30,440 --> 00:10:32,960 facing the banks is the feds going to cut rates and that's 212 00:10:32,960 --> 00:10:35,560 going to hurt that interest margins, which is what JP Morgan 213 00:10:35,560 --> 00:10:38,560 said yesterday. Credit quality is getting 214 00:10:39,000 --> 00:10:42,120 slightly worse on the margin, which is what allies said. 215 00:10:42,120 --> 00:10:45,120 And people got hysterical and took the stock down over 20%. 216 00:10:46,520 --> 00:10:51,440 But I I there's no story with respect to the banks right now. 217 00:10:51,600 --> 00:10:53,960 His biggest take away of the banks is that there's currently 218 00:10:53,960 --> 00:10:56,600 just no story there. There's no systemic risk. 219 00:10:56,600 --> 00:11:00,400 We're not going to have another 2007, 2008 type of debacle. 220 00:11:00,400 --> 00:11:03,280 But even as investments, I also agree with him here that I don't 221 00:11:03,280 --> 00:11:05,960 see any compelling story for an investment case. 222 00:11:06,360 --> 00:11:08,680 And I think even Warren Buffett agrees with him because Warren 223 00:11:08,680 --> 00:11:11,280 Buffett continually sells Bank of America. 224 00:11:11,520 --> 00:11:13,280 He just sold more of it this week. 225 00:11:13,800 --> 00:11:16,280 So I think the banks are in a spot right now where they're 226 00:11:16,280 --> 00:11:19,440 fine, they're well capitalized. He says that there's no real 227 00:11:19,440 --> 00:11:21,280 issue. He doesn't lose sleep over them, 228 00:11:21,640 --> 00:11:23,520 but he doesn't see them as worthy investments. 229 00:11:23,680 --> 00:11:26,440 Now, moving on, we get to some post debate analysis here 230 00:11:26,440 --> 00:11:29,880 between Trump and Kamala. He mentions that he was 231 00:11:29,920 --> 00:11:32,720 convinced that Biden wasn't going to be the next president. 232 00:11:32,720 --> 00:11:35,600 Steve Eisman so far has believed that Trump would become the next 233 00:11:35,600 --> 00:11:37,440 president. But that was at a time where 234 00:11:37,440 --> 00:11:39,160 Trump was facing off against Biden. 235 00:11:39,440 --> 00:11:41,960 Now the calculation has changed. Came out with that prediction a 236 00:11:41,960 --> 00:11:44,680 while. Ago I said that 100%. 100% 237 00:11:44,680 --> 00:11:46,520 certainty it was days. I was. 238 00:11:46,680 --> 00:11:48,560 I was. Joe Biden stepped out of the 239 00:11:48,560 --> 00:11:50,760 race so. In my own defence, I will say 240 00:11:50,760 --> 00:11:53,720 that I made that prediction before the 1st debate between 241 00:11:53,720 --> 00:11:57,120 Trump and Biden. I felt very strongly about it. 242 00:11:57,120 --> 00:11:59,880 I, I, that prediction was looking really good after the 243 00:11:59,880 --> 00:12:05,040 debate and I withdraw it. You know, I did not anticipate 244 00:12:05,040 --> 00:12:07,600 that a sitting president of the United States was going to drop 245 00:12:07,600 --> 00:12:09,840 out of out of the race as ever happened before. 246 00:12:10,240 --> 00:12:12,640 I think the election is a toss up. 247 00:12:13,200 --> 00:12:15,920 I mean, if I had to stake my life on it, I would say still 248 00:12:15,920 --> 00:12:19,160 probably Trump wins because he'll win Pennsylvania. 249 00:12:20,240 --> 00:12:23,280 But it's it's too hard to tell. I think he's correct here again. 250 00:12:23,280 --> 00:12:25,800 I didn't see any path where President Biden would win re 251 00:12:25,800 --> 00:12:28,240 election, especially after his debate performance. 252 00:12:28,560 --> 00:12:30,120 But now the calculation has changed. 253 00:12:30,120 --> 00:12:32,960 It seems like a toss up. He still says that he thinks 254 00:12:33,040 --> 00:12:37,200 Trump has the edge most likely to win, but he doesn't know. 255 00:12:37,400 --> 00:12:39,080 And I think right now nobody knows. 256 00:12:39,200 --> 00:12:41,640 Now the next subject he talks about is an update on the 257 00:12:41,640 --> 00:12:44,640 economy and specifically low income spenders. 258 00:12:44,800 --> 00:12:47,080 Think now about. No, I look, there's no question 259 00:12:47,080 --> 00:12:51,960 that the lower end consumers having problems, you know, you 260 00:12:51,960 --> 00:12:55,200 see that in Dollar Tree, Dollar General, you saw that with Ally. 261 00:12:56,000 --> 00:13:00,840 But I don't think that it is dispositive in terms of the 262 00:13:00,840 --> 00:13:04,400 market or or or or the economy. I mean it means the economy is 263 00:13:04,400 --> 00:13:06,160 slowing and it's definitely slowing. 264 00:13:07,120 --> 00:13:10,280 But the last time the lower end consumer was really important 265 00:13:10,280 --> 00:13:13,320 was 2006, seven and eight when that consumer was over levered 266 00:13:14,120 --> 00:13:16,000 and that consumer was not over levered. 267 00:13:16,400 --> 00:13:19,520 That consumer is just having issues in terms of income, is 268 00:13:19,520 --> 00:13:22,040 not keeping up with inflation. So it is true that the low end 269 00:13:22,040 --> 00:13:25,280 consumer slowing down along with the economy, we've seen a lot of 270 00:13:25,280 --> 00:13:27,600 layoffs and job loss over the past couple of months. 271 00:13:28,080 --> 00:13:30,240 But the good news is that they're not over levered. 272 00:13:30,240 --> 00:13:32,520 It's not going to be a repeat of 2007. 273 00:13:32,760 --> 00:13:35,040 There's not millions of people that have taken out more home 274 00:13:35,040 --> 00:13:38,080 loan than they can pay. So as long as we avoid that 275 00:13:38,080 --> 00:13:40,080 leverage, the economy should stay in good shape. 276 00:13:40,120 --> 00:13:42,560 So I think once again, Steve Eisman proves to be mostly 277 00:13:42,560 --> 00:13:44,960 correct with his predictions. Now moving on, we get to an 278 00:13:44,960 --> 00:13:48,040 update of the news of the hotshot CEO Brian Nickel. 279 00:13:48,240 --> 00:13:50,680 Brian Nickel moved away from Chipotle after having an 280 00:13:50,680 --> 00:13:54,120 extremely successful tenure there, running the company with 281 00:13:54,160 --> 00:13:57,200 excellent levels of success. And he's now taking on 282 00:13:57,200 --> 00:13:59,640 Starbucks, which has been a troubled company over the past 283 00:13:59,640 --> 00:14:01,880 five years. The news of him moving over to 284 00:14:01,880 --> 00:14:05,240 Starbucks immediately caused Starbucks stock to go up 20%. 285 00:14:05,520 --> 00:14:08,160 So investors are rather excited about what he's going to do for 286 00:14:08,160 --> 00:14:10,640 this company. And in a new press release, he 287 00:14:10,640 --> 00:14:14,120 laid out his initial plans where he sees the problems for 288 00:14:14,120 --> 00:14:16,600 Starbucks and where he sees the solutions. 289 00:14:17,000 --> 00:14:19,400 Now he goes over a lot of different things here, but the 290 00:14:19,400 --> 00:14:23,200 big take away is he's getting back to the core. 291 00:14:23,440 --> 00:14:25,920 He's getting back to the basics of Starbucks. 292 00:14:26,040 --> 00:14:28,880 He's avoiding the temptation to do frills and gimmicks to gain 293 00:14:28,880 --> 00:14:31,720 back customers. He's focusing on the core. 294 00:14:32,040 --> 00:14:35,080 He says our stores have always been more than a place to get a 295 00:14:35,080 --> 00:14:37,080 drink. They've been gathering space, A 296 00:14:37,080 --> 00:14:39,480 Community Center where conversations are sparked, 297 00:14:39,720 --> 00:14:43,200 friendships form and everyone is greeted by welcoming barista. 298 00:14:43,520 --> 00:14:46,920 A visit to Starbucks is about connection and joy and of 299 00:14:46,920 --> 00:14:49,720 course, great coffee. Many of our customers still 300 00:14:49,720 --> 00:14:52,880 experience this magic everyday, but in some places, because 301 00:14:52,920 --> 00:14:56,200 especially in the US, we aren't always delivering, it can feel 302 00:14:56,200 --> 00:14:58,920 transactional. Menus can feel overwhelming, 303 00:14:59,160 --> 00:15:02,360 products are inconsistent, the wait is way too long and the 304 00:15:02,360 --> 00:15:05,560 handoff is too hectic. These moments are opportunities 305 00:15:05,560 --> 00:15:08,280 for us to do better. Today, I'm making a commitment. 306 00:15:08,560 --> 00:15:11,040 We're getting back to Starbucks right away. 307 00:15:11,040 --> 00:15:14,040 I like his plan for Starbucks. He's focusing on the uniqueness 308 00:15:14,040 --> 00:15:15,920 and differentiation that Starbucks has. 309 00:15:16,200 --> 00:15:19,840 Primarily, the culture of Starbucks, having it be a third 310 00:15:19,840 --> 00:15:23,720 place, a place that you can meet people, have conversations, 311 00:15:24,000 --> 00:15:27,440 bring your laptop, you can work on school there, you can work on 312 00:15:27,440 --> 00:15:30,200 work projects, you have free Wi-Fi, you know, it's a place 313 00:15:30,200 --> 00:15:32,320 that you can meet and have as a third spot. 314 00:15:32,760 --> 00:15:36,040 The other CEO that was leading Starbucks focused on trying to 315 00:15:36,040 --> 00:15:39,320 make Starbucks more like the competition, making it quick, 316 00:15:39,480 --> 00:15:42,000 transactional, not making it a rest place. 317 00:15:42,320 --> 00:15:44,680 So he's bringing Starbucks back to its roots. 318 00:15:44,680 --> 00:15:47,000 And he does this through four different commitments. 319 00:15:47,360 --> 00:15:49,680 One of them is to empower the baristas to take care of 320 00:15:49,680 --> 00:15:52,160 customers. He goes through how simply they 321 00:15:52,160 --> 00:15:54,640 don't have the tools to keep up, so a lot of them are getting 322 00:15:54,640 --> 00:15:56,200 behind. It leads to confusion and 323 00:15:56,200 --> 00:15:59,000 frustration, both for the employees and the customers. 324 00:15:59,360 --> 00:16:02,560 Getting the morning right. People start their day with us 325 00:16:02,800 --> 00:16:04,440 and we need to meet their expectations. 326 00:16:04,440 --> 00:16:06,760 This means delivering outstanding drinks and food 327 00:16:07,160 --> 00:16:10,520 every time on time. The morning has been chaotic, 328 00:16:10,520 --> 00:16:12,800 cluttered. In many cases, they can't get 329 00:16:12,800 --> 00:16:16,040 the orders right or out on time. That's been a major challenge 330 00:16:16,040 --> 00:16:19,080 for Starbucks. Brian Nichol is an expert in 331 00:16:19,080 --> 00:16:22,360 logistics, in processes and getting these type of challenges 332 00:16:22,360 --> 00:16:24,640 correct. So I think he's going to fix the 333 00:16:24,640 --> 00:16:27,920 morning rush, the chaos. If I was to guess, I think he's 334 00:16:27,920 --> 00:16:30,400 going to simplify the menu a little, not make it so that 335 00:16:30,400 --> 00:16:33,200 there's so many different options for every single drink. 336 00:16:33,760 --> 00:16:36,560 The trade off there is that you get better service, better 337 00:16:36,560 --> 00:16:39,760 products, you erase a lot of the complexity and make it more 338 00:16:39,760 --> 00:16:42,000 simple to run Starbucks. He also says he's re 339 00:16:42,000 --> 00:16:44,520 establishing Starbucks as a community coffee house. 340 00:16:44,840 --> 00:16:47,720 Many of the new designs they've came out with don't have much 341 00:16:47,720 --> 00:16:50,400 seating area. It's mostly a place you go in, 342 00:16:50,440 --> 00:16:52,840 you stand, you get your coffee and you leave. 343 00:16:53,400 --> 00:16:56,840 Now he wants to make it back to a seating area, a place that you 344 00:16:56,840 --> 00:16:59,920 can lounge, you can hang around, you can spend time there. 345 00:17:00,200 --> 00:17:03,880 So I think this is another thing that reestablishes Starbucks and 346 00:17:03,880 --> 00:17:07,240 differentiates the company. He also says telling a story, 347 00:17:07,280 --> 00:17:10,760 it's time for us to tell our story again, reminding people of 348 00:17:10,760 --> 00:17:14,040 our unmatched coffee experience, our rolling communities and 349 00:17:14,040 --> 00:17:17,040 special experiences that only Starbucks can provide. 350 00:17:17,280 --> 00:17:19,720 We won't let others define who we are. 351 00:17:19,800 --> 00:17:22,839 Now that's a bit broad, but that last line's important there as 352 00:17:22,839 --> 00:17:24,640 well. He's not going to let others 353 00:17:24,640 --> 00:17:27,040 define who we are. Starbucks right now is being 354 00:17:27,040 --> 00:17:30,320 defined as a pro Israel, anti Palestine company. 355 00:17:30,560 --> 00:17:32,640 And that's not good for any international company. 356 00:17:32,880 --> 00:17:35,400 When you can't control your messaging, when you let other 357 00:17:35,400 --> 00:17:37,960 people, I'll define who you are, that's problematic. 358 00:17:38,240 --> 00:17:41,880 So part of this is repairing the personal relations, the PR of 359 00:17:41,880 --> 00:17:45,280 the company, making sure that they control the messaging, they 360 00:17:45,280 --> 00:17:48,160 control who they are. I don't own Starbucks stock, but 361 00:17:48,160 --> 00:17:49,640 I'd be happy with this messaging. 362 00:17:49,640 --> 00:17:52,480 When I read through it, I think he's spot on with almost 363 00:17:52,480 --> 00:17:55,240 everything he said. I think he's accurately defining 364 00:17:55,240 --> 00:17:57,880 all the problems the company's facing, and he's coming out with 365 00:17:57,880 --> 00:18:00,560 a real solutions for him. Whether or not he can actually 366 00:18:00,560 --> 00:18:03,600 execute on the solutions is an entirely different challenge, 367 00:18:04,080 --> 00:18:06,680 but so far, I like what I see from Brian Nickel. 368 00:18:06,840 --> 00:18:08,760 I think Starbucks investors are lucky to have them. 369 00:18:08,760 --> 00:18:09,960 Now. That's all for this episode. 370 00:18:10,000 --> 00:18:11,680 Hope you enjoy it. See you in the next one.