1 00:00:00,040 --> 00:00:03,440 Since January of 2022, the Federal Reserve has raised 2 00:00:03,440 --> 00:00:07,800 interest rates over and over and over again, from essentially 0% 3 00:00:07,800 --> 00:00:11,040 up to five and a quarter. They did this to combat 4 00:00:11,080 --> 00:00:15,120 inflation, and inflation has been going down at a brisk pace. 5 00:00:15,520 --> 00:00:18,400 With the economy now getting tighter and it being more 6 00:00:18,400 --> 00:00:21,520 difficult to find jobs, the Federal Reserve has decided to 7 00:00:21,520 --> 00:00:25,360 cut interest rates, and they're going to be doing so this week. 8 00:00:25,680 --> 00:00:28,000 They're meeting this Wednesday to announce whether or not 9 00:00:28,000 --> 00:00:32,119 they're cutting interest rates by 25 basis points or 50. 10 00:00:32,360 --> 00:00:35,320 We get to find out in the meeting, but this puts us in a 11 00:00:35,320 --> 00:00:38,160 tricky situation. It's not often that you have the 12 00:00:38,160 --> 00:00:41,520 Federal Reserve start a new interest rate cut cycle. 13 00:00:41,520 --> 00:00:44,160 This is the type of thing that happens like once every 10 14 00:00:44,160 --> 00:00:45,640 years. And we know that interest rates 15 00:00:45,640 --> 00:00:49,000 have a huge impact on inflation, mortgages, car loans, credit 16 00:00:49,000 --> 00:00:51,000 cards. And as noted by Warren Buffett, 17 00:00:51,000 --> 00:00:53,760 interest rates also have a huge impact on stocks. 18 00:00:54,000 --> 00:00:56,960 He called them like gravity for equities. 19 00:00:57,320 --> 00:00:59,960 So we're going to be taking a look at these new interest rate 20 00:00:59,960 --> 00:01:03,680 cuts, what we think the Fed is going to do and the impact this 21 00:01:03,680 --> 00:01:06,080 has on our portfolios. Now, of course, we have some 22 00:01:06,080 --> 00:01:08,400 other news to get to. Overall today in the market, 23 00:01:08,400 --> 00:01:10,880 somewhat unremarkable except for Apple. 24 00:01:11,160 --> 00:01:16,160 Apple is down 3.3% on a news report of weak iPhone 16 demand. 25 00:01:16,560 --> 00:01:18,840 We're going to take a look at the analyst reports and see 26 00:01:18,840 --> 00:01:21,720 what's going on with Apple. Chipotle is also piloting their 27 00:01:21,720 --> 00:01:23,600 new robots. They're finally adding them to 28 00:01:23,600 --> 00:01:26,200 their restaurant. This one can make guacamole. 29 00:01:26,200 --> 00:01:28,160 We'll take a look at how more and more of these robots are 30 00:01:28,160 --> 00:01:31,120 impacting food companies. President Biden is cracking down 31 00:01:31,120 --> 00:01:34,040 on Sheen and Timu by closing a loophole that allows them to 32 00:01:34,040 --> 00:01:36,280 skip tariffs. We're going to be looking at 33 00:01:36,280 --> 00:01:39,720 this loophole, how Timu has been exposing it, and how this is 34 00:01:39,720 --> 00:01:42,400 going to benefit Amazon. And then finally, here we have a 35 00:01:42,400 --> 00:01:46,160 story about the Nike CEO. This is a scathing report going 36 00:01:46,160 --> 00:01:48,440 over the man who made Nike uncool. 37 00:01:48,440 --> 00:01:52,320 We're going to be taking a look at why Nike stock is down 25% on 38 00:01:52,320 --> 00:01:55,040 the year. Nike's been a big loser over the 39 00:01:55,040 --> 00:01:58,600 past five years and how they've allowed competitors to catch up 40 00:01:58,920 --> 00:02:01,280 and invade their Moat. So we have a lot of news to get 41 00:02:01,280 --> 00:02:02,880 to. Let's go ahead and jump in now. 42 00:02:02,880 --> 00:02:05,720 We start off with the main story today that the Federal Reserve 43 00:02:05,720 --> 00:02:08,360 is going to be cutting interest rates this Wednesday. 44 00:02:08,680 --> 00:02:12,040 They're going to be cutting it either between 25 basis points 45 00:02:12,280 --> 00:02:14,840 or 50. The markets right now are 46 00:02:14,840 --> 00:02:17,680 betting that they're actually more likely to cut it by 50 47 00:02:17,680 --> 00:02:20,240 basis points. So that's kind of like two rate 48 00:02:20,240 --> 00:02:22,600 cuts put into one. That would be a really 49 00:02:22,600 --> 00:02:25,040 aggressive rate cut. The derivative markets show 50 00:02:25,040 --> 00:02:28,040 roughly a three and five chance that investors are betting on 51 00:02:28,360 --> 00:02:32,120 1/2 point cut on Wednesday. So realistically, we have three 52 00:02:32,120 --> 00:02:34,040 options. We know the Federal Reserve is 53 00:02:34,040 --> 00:02:36,760 not going to keep interest rates the same, so they're going to be 54 00:02:36,760 --> 00:02:39,080 cutting them. The question is by how much. 55 00:02:39,360 --> 00:02:43,240 We have between 2550 and 75 basis points. 56 00:02:43,640 --> 00:02:46,480 Most investors right now are saying that 75 is a little too 57 00:02:46,480 --> 00:02:50,000 aggressive, that's a little too big of a cut, 25 might be a 58 00:02:50,000 --> 00:02:53,160 little too weak, That's not doing things quite fast enough. 59 00:02:53,760 --> 00:02:56,560 Most investors believe it's going to be that 50 basis point 60 00:02:56,560 --> 00:02:59,680 cut. So it's either between 25 or 50, 61 00:02:59,840 --> 00:03:01,680 with most of them leaning towards 50. 62 00:03:02,040 --> 00:03:06,200 Now, anytime you get the start of a new interest rate cut cycle 63 00:03:06,440 --> 00:03:09,880 and we see the Fed going down this path, we have a lot of 64 00:03:09,880 --> 00:03:11,960 different opinions on what this really means. 65 00:03:12,240 --> 00:03:15,320 A lot of people will drudge through historical data digging 66 00:03:15,320 --> 00:03:18,440 up what happened last time we cut interest rates, but a lot of 67 00:03:18,440 --> 00:03:21,160 that data is misleading. If we look at the data right 68 00:03:21,160 --> 00:03:23,480 now, there isn't a clear historical template for the 69 00:03:23,480 --> 00:03:26,160 current situation. Usually by the time the Fed 70 00:03:26,160 --> 00:03:29,360 starts cutting rates, the economy is already in pretty big 71 00:03:29,360 --> 00:03:31,680 trouble. That isn't the case now. 72 00:03:31,880 --> 00:03:35,400 The labor market has cooled, but still it's decent and the 73 00:03:35,400 --> 00:03:37,400 economy has been posting solid growth. 74 00:03:37,600 --> 00:03:40,560 So we see all of this post and analysis and what happened last 75 00:03:40,560 --> 00:03:43,600 time we had interest rate cuts, It's not fully applicable to 76 00:03:43,600 --> 00:03:45,360 today. And that's the problem with 77 00:03:45,360 --> 00:03:48,480 these type of events. We don't have context to really 78 00:03:48,480 --> 00:03:51,440 know what's going to happen. In some cases, we're going in a 79 00:03:51,440 --> 00:03:53,640 bit blind and that's the situation here. 80 00:03:54,000 --> 00:03:57,080 But there are some things that we know for sure, some solid 81 00:03:57,080 --> 00:04:00,560 financial principles that are true no matter what happens this 82 00:04:00,560 --> 00:04:02,320 time. The most important one, I 83 00:04:02,320 --> 00:04:05,560 believe, is what Warren Buffett has to say about interest rates. 84 00:04:06,040 --> 00:04:09,440 He says interest rates are like gravity for every other 85 00:04:09,440 --> 00:04:12,840 financial investment. When interest rates go up, it's 86 00:04:12,840 --> 00:04:14,480 like increasing the amount of gravity. 87 00:04:14,480 --> 00:04:17,760 It pushes down everything else. And that is because of the 88 00:04:17,760 --> 00:04:19,760 simple math behind interest rates. 89 00:04:20,320 --> 00:04:23,240 If we look at this slide here, this is something I created to 90 00:04:23,240 --> 00:04:26,640 illustrate the overall impact that interest rates have. 91 00:04:26,720 --> 00:04:30,080 Interest rates go up, then the Treasury, the risk free rate 92 00:04:30,120 --> 00:04:32,480 goes up as well. The yield that you get on 93 00:04:32,480 --> 00:04:36,040 Treasury bonds, and you've seen that happen with savings 94 00:04:36,040 --> 00:04:38,200 accounts. People are pouring money into 95 00:04:38,200 --> 00:04:40,880 savings accounts and money market accounts because the 96 00:04:40,880 --> 00:04:43,360 yield is higher right now. You can put your money in a 97 00:04:43,360 --> 00:04:47,440 savings account or buy a treasury and earn a 5% yield on 98 00:04:47,440 --> 00:04:49,960 that money. As you can see looking at this 99 00:04:49,960 --> 00:04:54,720 chart, 5% earnings yield is the same as APE ratio of 20. 100 00:04:55,040 --> 00:04:58,560 That's the simple math. So right now, if you're looking 101 00:04:58,560 --> 00:05:01,960 at treasuries and you're trying to equate them to companies, 102 00:05:02,440 --> 00:05:05,760 it's as though you're buying a company at a 20 PE ratio. 103 00:05:06,280 --> 00:05:08,840 It's not that bad. It's actually a low PE ratio, 104 00:05:08,840 --> 00:05:10,520 right? It's not too bad, especially 105 00:05:10,520 --> 00:05:12,520 factoring in that treasuries don't have risk. 106 00:05:12,960 --> 00:05:15,320 So that seems like a decent deal and that's why a lot of people 107 00:05:15,320 --> 00:05:17,560 are pouring money into savings account. 108 00:05:17,960 --> 00:05:20,880 Trillions of dollars have gone into money market funds, savings 109 00:05:20,880 --> 00:05:24,960 account and buying treasuries. But as interest rates go down, 110 00:05:25,120 --> 00:05:28,480 like what's going to happen this week, the yield on savings 111 00:05:28,480 --> 00:05:31,840 account and the rate that bonds yield go down as well. 112 00:05:32,200 --> 00:05:36,840 It goes down to 4%. When you have a 4% yield, that's 113 00:05:36,840 --> 00:05:39,160 equivalent to a 25 Ford PE ratio. 114 00:05:39,360 --> 00:05:41,960 As the yield goes down, the multiple goes up. 115 00:05:42,400 --> 00:05:45,600 If it goes down to 3 1/2 percent, that's a 28 Ford PE 116 00:05:45,600 --> 00:05:48,120 ratio. If it goes down to 3%, that's a 117 00:05:48,120 --> 00:05:51,120 33. You can see that as the interest 118 00:05:51,120 --> 00:05:54,680 rates go down, investing your money and Treasuries becomes 119 00:05:54,680 --> 00:05:57,200 more and more expensive. So Warren Buffett says that 120 00:05:57,200 --> 00:05:59,880 interest rates are like gravity. As interest rates go up, 121 00:06:00,120 --> 00:06:03,240 everything else is pushed down. Well, the inverse is true as 122 00:06:03,240 --> 00:06:05,160 well. If interest rates start their 123 00:06:05,160 --> 00:06:09,120 path downward, that makes all other relative investments aside 124 00:06:09,120 --> 00:06:12,400 from Treasuries and guaranteed instruments worth more. 125 00:06:12,600 --> 00:06:16,000 The discount rate is lowered for alternative investments, and 126 00:06:16,000 --> 00:06:19,080 that's a good thing for stocks. Investors are always seeking 127 00:06:19,080 --> 00:06:21,520 yield. Investors always want to return. 128 00:06:21,760 --> 00:06:23,360 You want your money working for you. 129 00:06:23,800 --> 00:06:27,760 If investors can get a positive expected return of 5% from a 130 00:06:27,760 --> 00:06:30,560 risk free savings account, many of them will just shrug their 131 00:06:30,560 --> 00:06:32,760 shoulders and say I'm going to put my money there. 132 00:06:33,000 --> 00:06:35,640 I'll earn my 5% with no risk and I'll be happy. 133 00:06:36,080 --> 00:06:39,360 But as the interest rates go down, that 5% moves to 4% and 134 00:06:39,360 --> 00:06:42,760 then the 3% and then the 2% at 2%. 135 00:06:42,760 --> 00:06:45,560 Investors think I'm not getting a real return here because 136 00:06:45,560 --> 00:06:49,400 inflation is 2%, so I need to move my money somewhere else. 137 00:06:49,600 --> 00:06:53,600 That somewhere else is equities. That's where equities become 138 00:06:53,600 --> 00:06:55,800 more valuable. That's where the portfolios you 139 00:06:55,800 --> 00:06:59,880 have of world class assets all of a sudden have money off the 140 00:06:59,880 --> 00:07:02,760 sides pouring into them. If you've already built 141 00:07:02,760 --> 00:07:06,040 positions in world class companies, having investors move 142 00:07:06,040 --> 00:07:08,920 money from the sides, from money market funds, from savings 143 00:07:08,920 --> 00:07:11,240 accounts into equities is a good thing. 144 00:07:11,240 --> 00:07:14,240 And the amount of money that investors have put into savings 145 00:07:14,240 --> 00:07:17,920 accounts seeking these high yield, risk free investments is 146 00:07:17,920 --> 00:07:20,760 incredible. Americans piled trillions of 147 00:07:20,760 --> 00:07:24,720 dollars with AT into savings accounts and money market funds 148 00:07:25,000 --> 00:07:27,840 the past two years. When rising interest rates made 149 00:07:27,840 --> 00:07:31,160 cash more appealing, retail assets and money market funds 150 00:07:31,480 --> 00:07:35,000 totaled nearly 2.6 trillion last week. 151 00:07:35,080 --> 00:07:37,960 So the amount of money in these risk free assets has increased 152 00:07:37,960 --> 00:07:40,840 by 1.1 trillion in just the past two years. 153 00:07:41,240 --> 00:07:44,640 Now financial advisors say it's time to recalibrate that cash 154 00:07:44,640 --> 00:07:46,280 hoard. The calculation is already 155 00:07:46,280 --> 00:07:48,080 changing. They say, quote, you'll see 156 00:07:48,080 --> 00:07:51,640 banks pull back on CD offerings pretty fast Already you're 157 00:07:51,640 --> 00:07:54,320 seeing banks do this and they have a chart here showing how 158 00:07:54,320 --> 00:07:57,920 quickly banks did this historically in March of 2020. 159 00:07:57,920 --> 00:08:01,040 You can see how fast banks lowered their interest on CDs 160 00:08:01,360 --> 00:08:04,480 after the new was announced. It only took a couple months. 161 00:08:04,720 --> 00:08:07,520 Within two months, most banks have moved down their CD 162 00:08:07,520 --> 00:08:09,920 offerings down to the current interest rate. 163 00:08:09,960 --> 00:08:12,480 So banks are going to react very quickly to this move. 164 00:08:12,600 --> 00:08:15,120 Now, of course, this isn't to suggest that when interest rates 165 00:08:15,120 --> 00:08:17,520 go down, everyone's going to move their money out of savings 166 00:08:17,520 --> 00:08:20,680 accounts into equities. That's likely not going to 167 00:08:20,680 --> 00:08:22,920 happen. But it is true that investors 168 00:08:22,920 --> 00:08:25,760 looking to have some type of attractive yield will be more 169 00:08:25,760 --> 00:08:28,760 inclined to take on additional risk if you're not getting the 170 00:08:28,760 --> 00:08:31,840 returns that you require with the risk profile and with the 171 00:08:31,960 --> 00:08:34,600 accounts you have. Now, if interest rates go down, 172 00:08:34,600 --> 00:08:37,480 that changes the calculation. And many of these people 173 00:08:37,679 --> 00:08:41,039 stocking away a lot of money in savings accounts are going to be 174 00:08:41,039 --> 00:08:44,600 forced to move it into equities. So when I look at this, I see it 175 00:08:44,600 --> 00:08:46,520 is only a positive thing for stocks. 176 00:08:46,840 --> 00:08:49,720 Even though you can show some data that historically stocks 177 00:08:49,720 --> 00:08:53,360 have gone down with interest rate declines, that is mostly a 178 00:08:53,360 --> 00:08:55,600 consequence of the economy faltering. 179 00:08:56,040 --> 00:08:58,920 When you look at this just purely mathematically, interest 180 00:08:58,920 --> 00:09:01,920 rates going down is undoubtedly good for stocks. 181 00:09:02,200 --> 00:09:05,200 When we look at our investments. I have the same game plan. 182 00:09:05,320 --> 00:09:08,240 I will continue to hold these world class assets because even 183 00:09:08,240 --> 00:09:11,800 in the event that we potentially enter into a recession, these 184 00:09:11,800 --> 00:09:13,400 companies are going to be more than fine. 185 00:09:13,680 --> 00:09:16,760 They will make it through and in the event that the economy does 186 00:09:16,760 --> 00:09:19,800 well, I think they're going to be extra attractive given the 187 00:09:19,800 --> 00:09:22,160 situation. Now moving on, this hasn't been 188 00:09:22,160 --> 00:09:25,920 a good day for Apple. It's down 2.8% on the news that 189 00:09:26,040 --> 00:09:29,400 analysts are saying that they're experiencing lower than expected 190 00:09:29,400 --> 00:09:31,680 demand. Now Apple doesn't give out how 191 00:09:31,680 --> 00:09:34,440 much demand they have. So this is all from third party 192 00:09:34,440 --> 00:09:37,080 analysis and we can take a look at how they try to piece this 193 00:09:37,080 --> 00:09:38,760 together. So it's based on my latest 194 00:09:38,760 --> 00:09:41,520 supply chain survey and pre-order results from Apple's 195 00:09:41,520 --> 00:09:44,720 official websites. I've compiled key data on iPhone 196 00:09:44,720 --> 00:09:47,880 16's first week pre-orders for each model. 197 00:09:48,000 --> 00:09:50,480 Now he outlines the most important part of his analysis. 198 00:09:50,480 --> 00:09:54,080 The conclusions here. First of all, the iPhone 16 199 00:09:54,080 --> 00:09:57,920 series first weekend pre-order sales are estimated to be about 200 00:09:58,040 --> 00:10:02,480 37 million units, which is down 12.7% year over year. 201 00:10:03,040 --> 00:10:06,640 So sales estimates so far are down 12% year over year. 202 00:10:06,960 --> 00:10:10,160 The delivery times for the iPhone 16 Pro series are 203 00:10:10,160 --> 00:10:13,280 significantly shorter than those of the 15 Pro series. 204 00:10:13,840 --> 00:10:16,160 So they're looking at this analysis again, it's all third 205 00:10:16,160 --> 00:10:19,080 party stuff, but they're noticing that the pre-order 206 00:10:19,080 --> 00:10:22,800 sales and the delivery times are both down and shorter. 207 00:10:22,880 --> 00:10:26,200 So judging this right now, it looks like Apple's off to a weak 208 00:10:26,200 --> 00:10:28,520 start. Things may change in the future. 209 00:10:28,520 --> 00:10:30,960 It may speed up. We've seen Apple grow demand 210 00:10:30,960 --> 00:10:33,920 over time and there's a lot of explanations of why it could be 211 00:10:33,920 --> 00:10:36,560 off to a weak start, but the data doesn't look good right 212 00:10:36,560 --> 00:10:38,520 now. There's other analysts that have 213 00:10:38,520 --> 00:10:41,480 more positive views on the future of Apple, specifically 214 00:10:41,480 --> 00:10:43,760 this iPhone cycle. Gene Munster being one. 215 00:10:44,240 --> 00:10:47,320 Gene explains why he thinks the upgrade cycle of Apple is most 216 00:10:47,320 --> 00:10:48,960 similar to looking at a box office. 217 00:10:49,640 --> 00:10:53,800 You can use a box office approach to an iPhone upgrade 218 00:10:53,800 --> 00:10:55,680 cycle. Basically, looking at lead times 219 00:10:55,680 --> 00:10:58,760 of the first few days can generally get you a sense in 220 00:10:58,760 --> 00:11:00,760 terms of what that cycle is going to look like. 221 00:11:01,120 --> 00:11:03,640 This time, of course, it's different given some of the 222 00:11:03,640 --> 00:11:06,120 comments that you had. The timing on when these AI 223 00:11:06,120 --> 00:11:09,760 features come into play at the end of the day is that there is 224 00:11:09,760 --> 00:11:13,360 a lot of talk around AI. There's actually not a lot of 225 00:11:13,360 --> 00:11:17,960 usage of it and ultimately that consumers need to use these 226 00:11:17,960 --> 00:11:20,080 features to get excited. I think that's going to happen. 227 00:11:20,280 --> 00:11:22,320 I just want to put a finer point on this. 228 00:11:22,320 --> 00:11:24,160 A lot of talk and not a lot of usage. 229 00:11:24,160 --> 00:11:28,160 Open AI now has given the number of their weekly subscribers, 230 00:11:28,280 --> 00:11:33,160 their users, it is 200 million. That puts the dailies probably 231 00:11:33,160 --> 00:11:35,640 somewhere around 75 to 100 million. 232 00:11:35,920 --> 00:11:39,400 Facebook, Google have 3 billion plus dailies across their 233 00:11:39,400 --> 00:11:41,640 properties. There's a lot of talk of AI. 234 00:11:41,640 --> 00:11:44,400 There hasn't been much usage. I think 1 when consumers 235 00:11:44,400 --> 00:11:47,760 actually get a hold of these features, you're going to see a 236 00:11:47,760 --> 00:11:50,600 significant increase in that. I understand what he's really 237 00:11:50,600 --> 00:11:52,440 saying. Right now, the AI features are 238 00:11:52,440 --> 00:11:55,520 not released on the iPhone, so there's little incentive to 239 00:11:55,520 --> 00:11:58,000 upgrade today. But overtime, they're going to 240 00:11:58,000 --> 00:12:01,880 roll out those new AI features that are mostly only on the new 241 00:12:01,880 --> 00:12:04,200 iPhones. And if a lot of people are 242 00:12:04,200 --> 00:12:06,840 online using these new flashy features, if people are in 243 00:12:06,840 --> 00:12:09,280 person using them, then naturally, if they're really 244 00:12:09,280 --> 00:12:12,280 cool and they're sharing them online, other people are going 245 00:12:12,280 --> 00:12:15,240 to want them. So over time, we might have a 246 00:12:15,240 --> 00:12:18,560 more gradual upgrade cycle. It's like a movie that starts 247 00:12:18,560 --> 00:12:21,880 off a little slow in the box office, but the second weekend 248 00:12:21,880 --> 00:12:23,720 it does really well. And then it does really well 249 00:12:23,720 --> 00:12:26,080 internationally. And it does well over time. 250 00:12:26,440 --> 00:12:29,400 There could be a chance of Apple having the same outcome with 251 00:12:29,400 --> 00:12:31,360 this new iPhone. Right now, Wall Street has 252 00:12:31,360 --> 00:12:34,520 iPhone sales growing at 7%. This analyst Gene Munster 253 00:12:34,520 --> 00:12:36,640 believes are going to grow at 15%. 254 00:12:37,080 --> 00:12:40,400 So right now Apple's being priced with 7% growth based on 255 00:12:40,400 --> 00:12:43,640 Wall Street's expectations and he thinks that Apple's going to 256 00:12:43,640 --> 00:12:47,120 round double those expectations. I don't think that Apple's going 257 00:12:47,120 --> 00:12:49,840 to double them, but I do think it will be easy for Apple to 258 00:12:49,840 --> 00:12:53,120 beat the 7%. In almost every case Apple comes 259 00:12:53,120 --> 00:12:56,320 above their expectations. So I believe the analysis that 260 00:12:56,320 --> 00:12:59,600 right now the iPhone 16 has lower than expected demand. 261 00:12:59,880 --> 00:13:02,000 I think that's very likely to be accurate. 262 00:13:02,280 --> 00:13:05,800 But I also agree with the argument that if AI really does 263 00:13:05,800 --> 00:13:09,400 wow users if but it really is magical if Siri is all of a 264 00:13:09,400 --> 00:13:12,840 sudden way better, like 10 times better, then I think there's a 265 00:13:12,840 --> 00:13:15,800 chance they could have an incremental positive upgrade 266 00:13:15,800 --> 00:13:19,360 cycle that more and more people be convinced to finally pull the 267 00:13:19,360 --> 00:13:22,480 trigger to finally upgrade. If they see their buddy that has 268 00:13:22,480 --> 00:13:25,480 the new iPhone and it's amazing, if your friend has one that's 269 00:13:25,480 --> 00:13:28,880 amazing that has all of these AI features that he keeps bragging 270 00:13:28,880 --> 00:13:31,280 about, you're eventually going to want to upgrade. 271 00:13:31,600 --> 00:13:33,680 But Apple needs to have those features. 272 00:13:33,960 --> 00:13:36,960 They need to have very compelling, interesting, useful 273 00:13:37,080 --> 00:13:40,080 features with AI. If it's just some incremental 274 00:13:40,080 --> 00:13:42,840 enhancements, some small changes, it's not going to be 275 00:13:42,840 --> 00:13:44,360 enough. Now we get to the news that 276 00:13:44,360 --> 00:13:47,280 Chipotle is finally launching. They're actually implementing 277 00:13:47,440 --> 00:13:50,120 their new robots. A lot of people will mock you 278 00:13:50,120 --> 00:13:53,640 for saying that Chipotle is becoming this robotics company, 279 00:13:53,920 --> 00:13:56,480 but they're actually proving it. They have a robot that makes 280 00:13:56,480 --> 00:13:59,320 guac and one that makes actual bowls faster. 281 00:13:59,800 --> 00:14:01,000 You can see some of the images here. 282 00:14:01,160 --> 00:14:04,200 This is their avocado. It peels the avocados and gets 283 00:14:04,200 --> 00:14:06,240 them ready for this tub. But then they also have the 284 00:14:06,280 --> 00:14:09,880 automated make line. You can see right here that this 285 00:14:09,880 --> 00:14:13,400 bowl that came out of the counter was underneath it and it 286 00:14:13,400 --> 00:14:16,240 was made automatically. The employee here is rolling a 287 00:14:16,240 --> 00:14:20,080 burrito while the the make line that's automatic made this bowl. 288 00:14:20,120 --> 00:14:22,760 I think these advancements in robotics in Chipotle are great 289 00:14:22,760 --> 00:14:24,880 for the company. One of them is obviously the 290 00:14:24,880 --> 00:14:27,400 reduced labor costs. No longer are your employees 291 00:14:27,640 --> 00:14:29,720 having to prepare all these avocados. 292 00:14:30,160 --> 00:14:34,240 But not only that, the automatic make line makes perfectly 293 00:14:34,240 --> 00:14:36,720 consistent meals. One of the biggest complaints 294 00:14:36,720 --> 00:14:39,240 people have for Chipotle is not knowing what their portions are 295 00:14:39,240 --> 00:14:41,560 going to look like. The automated make line would 296 00:14:41,560 --> 00:14:44,720 have the exact same proportions every single time you come. 297 00:14:45,160 --> 00:14:47,640 There'd be no discrepancy. So you'd get a completely 298 00:14:47,640 --> 00:14:49,560 consistent meal every single time. 299 00:14:49,880 --> 00:14:52,520 In fact, one of the things they promise here is that it will 300 00:14:52,520 --> 00:14:55,120 never skimp you. It'll never give you less 301 00:14:55,120 --> 00:14:58,280 protein than what you want. So that is another massive 302 00:14:58,280 --> 00:15:00,800 potential benefit that could solve one of their biggest 303 00:15:00,800 --> 00:15:04,000 challenges. Chipotle's up 2.46% on this 304 00:15:04,000 --> 00:15:06,440 news. The stock is back up to $57. 305 00:15:06,680 --> 00:15:09,240 It's actually doing rather well. It's recovering a little bit 306 00:15:09,640 --> 00:15:12,120 now. I sold Chipotle couple months 307 00:15:12,120 --> 00:15:15,080 ago because I thought the valuation was getting a little 308 00:15:15,080 --> 00:15:17,520 up there, a little bit higher than what I'd like for this 309 00:15:17,520 --> 00:15:20,600 company. But Even so, a lot of people may 310 00:15:20,600 --> 00:15:24,560 look at me selling the stock and the fact that it's recovering as 311 00:15:24,560 --> 00:15:27,440 a negative thing. They think that if you sell a 312 00:15:27,440 --> 00:15:30,000 stock, it means the stock should go down. 313 00:15:30,000 --> 00:15:32,560 That's a good sale. I don't agree with that. 314 00:15:32,920 --> 00:15:36,520 I think it's a good indication when even the stocks I sell end 315 00:15:36,520 --> 00:15:39,120 up doing well. I don't like selling stocks and 316 00:15:39,120 --> 00:15:42,560 then seeing them go down 50 or 60 or 70%. 317 00:15:42,960 --> 00:15:47,040 If Chipotle just plummeted and it went down 50%, there's 70%, 318 00:15:47,440 --> 00:15:50,200 then selling it right here would feel like I dodged a bullet. 319 00:15:50,680 --> 00:15:52,800 And when I'm investing, I don't want to feel like I'm dodging 320 00:15:52,800 --> 00:15:54,680 bullets. I want to feel like I'm making 321 00:15:54,680 --> 00:15:58,080 great investments that even though I'm preferencing one over 322 00:15:58,080 --> 00:16:00,440 another, all of them are great investments. 323 00:16:00,440 --> 00:16:02,760 And I continue to believe that even though I sold Chipotle, 324 00:16:02,760 --> 00:16:04,600 this will continue to be a great investment. 325 00:16:04,600 --> 00:16:07,240 Even from today. The company will likely do 326 00:16:07,240 --> 00:16:09,680 really well with earnings growth and free cash flow growth. 327 00:16:10,320 --> 00:16:13,160 So I look at companies that I sold and I'm happy if they 328 00:16:13,160 --> 00:16:15,640 continue to do well. I don't like investing in 329 00:16:15,640 --> 00:16:18,560 companies where I feel like I got away with something where I 330 00:16:18,560 --> 00:16:21,000 sold the company luckily just before it tanks. 331 00:16:21,080 --> 00:16:23,840 Now we have this news, which is really good news for Amazon. 332 00:16:24,120 --> 00:16:27,560 Biden is cracking down on this exploitive loophole that Sheen 333 00:16:27,560 --> 00:16:30,720 and Timu have been using to unfairly compete with Amazon. 334 00:16:30,800 --> 00:16:34,320 So apparently there's this rule, the de minimis imports rule, 335 00:16:34,480 --> 00:16:38,320 where if you import something that's worth less than $800 then 336 00:16:38,320 --> 00:16:41,600 you don't pay a tariff on it. Now this is probably thrown in 337 00:16:41,600 --> 00:16:44,480 there, I would guess, because they want to be fair to small 338 00:16:44,480 --> 00:16:46,840 retailers and people importing small goods. 339 00:16:47,280 --> 00:16:49,880 But apparently this has been heavily exploited by large 340 00:16:49,880 --> 00:16:53,160 Chinese e-commerce companies. These importers, mainly from 341 00:16:53,160 --> 00:16:56,800 China, have used the de minimis exemption for shipments of 342 00:16:56,840 --> 00:16:59,600 $800.00 or less to flood the US markets. 343 00:17:00,080 --> 00:17:03,120 The number of these shipments has jumped from 140 million 344 00:17:03,120 --> 00:17:06,520 annually to over 1 billion a year, according to White House 345 00:17:06,520 --> 00:17:08,319 statements. We can look at a chart here 346 00:17:08,319 --> 00:17:11,880 showing how many day minimus imports there have been over the 347 00:17:11,880 --> 00:17:14,240 years. In 2018 it was around 400 348 00:17:14,240 --> 00:17:16,520 million and now it's jumped all the way up to a billion. 349 00:17:16,560 --> 00:17:19,040 Now the US government has a list of reasons for doing this. 350 00:17:19,040 --> 00:17:21,319 They believe that the exemption is making it more difficult to 351 00:17:21,319 --> 00:17:23,960 track different drugs like fentanyl and synthetic drug 352 00:17:23,960 --> 00:17:25,599 content. They believe that Chinese 353 00:17:25,599 --> 00:17:29,080 retailers specifically are abusing this rule and importing 354 00:17:29,080 --> 00:17:31,040 cheap goods that they can flood the US market. 355 00:17:31,120 --> 00:17:33,680 They say finally that the loss of the exemption could be a blow 356 00:17:33,680 --> 00:17:37,360 to the Chinese companies such as Tamu and Sheen that compete by 357 00:17:37,360 --> 00:17:40,240 keeping their prices low and might now have to face 358 00:17:40,240 --> 00:17:42,560 additional scrutiny. Now, both Tamu and Sheen have 359 00:17:42,560 --> 00:17:45,000 responded to this saying that it's not a big deal. 360 00:17:45,160 --> 00:17:47,200 They don't rely on these exemptions for their business 361 00:17:47,200 --> 00:17:50,160 model, but either way, this is going to make it more expensive 362 00:17:50,160 --> 00:17:52,840 for them, it's going to make it more difficult, and this will 363 00:17:52,840 --> 00:17:55,680 help out companies that compete with them, like lots of US 364 00:17:55,680 --> 00:17:58,680 retailers and Amazon. Now finally, we get to the story 365 00:17:58,680 --> 00:18:01,480 on Bloomberg, which is a scathing breakdown for the CEO 366 00:18:01,480 --> 00:18:03,320 of Nike. If you haven't been keeping up 367 00:18:03,320 --> 00:18:07,800 with Nike stock, the stock is up today, but it's down 25% year to 368 00:18:07,800 --> 00:18:09,800 date. When we zoom out over the past 369 00:18:09,800 --> 00:18:13,640 half of a decade, the stock is down 8.7%. 370 00:18:14,000 --> 00:18:18,360 Nike is a globally dominant brand, an incredible asset, and 371 00:18:18,360 --> 00:18:21,040 it has not performed well. Investors have not done well in 372 00:18:21,040 --> 00:18:24,040 this company, and a lot of it comes down to the person running 373 00:18:24,040 --> 00:18:26,440 the company and specific decisions he made. 374 00:18:26,480 --> 00:18:29,120 The CEO of Nike in this case is John Donahoe. 375 00:18:29,120 --> 00:18:31,600 Under Donahoe, a veteran technology executive and 376 00:18:31,600 --> 00:18:34,800 consultant who arrived at Nike knowing little about sneakers 377 00:18:34,800 --> 00:18:37,640 and everything about server side infrastructure and cloud storage 378 00:18:37,640 --> 00:18:41,120 elasticity, the company's most successful shoes had been some 379 00:18:41,120 --> 00:18:43,640 of its oldest. His first two years were a 380 00:18:43,640 --> 00:18:46,280 triumph. As he deftly navigated the early 381 00:18:46,280 --> 00:18:49,440 stages of the COVID-19 pandemic and sales improved by around 382 00:18:49,440 --> 00:18:53,800 25%, Donahoe flooded the market with sneakers shoppers couldn't 383 00:18:53,800 --> 00:18:56,720 get enough of. Nike released more Dunks, Air 384 00:18:56,720 --> 00:19:00,120 Force Ones and Air Jordan models they developed around 40 years 385 00:19:00,120 --> 00:19:04,000 ago and hundreds of colors with new drops almost daily. 386 00:19:04,240 --> 00:19:07,480 These were lifestyle lines by means of St. wear, not to be 387 00:19:07,480 --> 00:19:10,160 worn on the fields or in the courts by athletes who had 388 00:19:10,160 --> 00:19:12,160 driven Nike's business since inception. 389 00:19:12,480 --> 00:19:15,480 Watching revenue pour in, Donahoe was hooked. 390 00:19:16,040 --> 00:19:17,400 So what was the first thing he did? 391 00:19:17,880 --> 00:19:20,920 He focused on the technology and he made it so that Nike could 392 00:19:20,920 --> 00:19:24,520 release new drops on their apps every single day. 393 00:19:25,240 --> 00:19:27,320 And this worked. People were buying these things. 394 00:19:27,320 --> 00:19:29,800 I remember when Nike was the most hype brand. 395 00:19:29,800 --> 00:19:31,360 Everybody was looking for their next drop. 396 00:19:31,480 --> 00:19:34,000 There are forms or entire communities around this, but 397 00:19:34,000 --> 00:19:36,600 things started to change rather dramatically after a couple 398 00:19:36,600 --> 00:19:38,880 years. They started to go downhill as 399 00:19:38,880 --> 00:19:42,320 he implemented these changes in distribution of their products. 400 00:19:42,680 --> 00:19:45,720 They say, like Apple, Nike was masterful at making product 401 00:19:45,720 --> 00:19:48,720 breakthroughs and engineering cultural movements along with 402 00:19:48,720 --> 00:19:51,280 them. Nike hired Donahoe to transform 403 00:19:51,280 --> 00:19:54,520 its selling machinery for the modern age, cutting out the 404 00:19:54,520 --> 00:19:57,320 middleman so it could get better margins from each sale. 405 00:19:57,640 --> 00:20:01,120 He led a corporate culling on global scale, ending 406 00:20:01,120 --> 00:20:03,720 relationships with more than half of its retail partners, 407 00:20:04,000 --> 00:20:06,720 terminating hundreds of agreements, and downsizing sales 408 00:20:06,720 --> 00:20:08,600 teams and marketing around the world. 409 00:20:08,960 --> 00:20:12,400 As Nike directed customers to its own stores and websites, it 410 00:20:12,400 --> 00:20:15,320 halted the flow of sneakers to retailers including Amazon, 411 00:20:15,600 --> 00:20:18,840 Zappos, Dillard's and Urban Legends, and even curtailed 412 00:20:18,840 --> 00:20:21,080 goods in its. Closest partners at US 413 00:20:21,080 --> 00:20:24,200 Footlocker. So what they did here and the 414 00:20:24,200 --> 00:20:27,840 basic decision from Donahoe was to make it so that Nike was no 415 00:20:27,840 --> 00:20:30,880 longer selling everywhere. They closed off a lot of their 416 00:20:30,880 --> 00:20:33,160 distribution. They made it so that the only 417 00:20:33,160 --> 00:20:36,040 retailers, physical ones that were selling their products was 418 00:20:36,040 --> 00:20:39,520 like 10 or 15 top ones. They're very picky and choosy 419 00:20:39,520 --> 00:20:41,720 with which ones. And then they took all of their 420 00:20:41,720 --> 00:20:44,880 products off of Amazon. Amazon used to be a massive 421 00:20:44,880 --> 00:20:48,040 sales outlet for Nike, but they said they wanted to control the 422 00:20:48,040 --> 00:20:50,360 sales experience. They didn't want to pay Amazon 423 00:20:50,360 --> 00:20:52,800 any fees, so you have to go to the Nike app. 424 00:20:53,280 --> 00:20:55,360 Now. All of this, again, seemed like 425 00:20:55,360 --> 00:20:59,120 it was working right away. The margins of Nike went up. 426 00:20:59,400 --> 00:21:01,600 So a lot of people thought that this was a huge success. 427 00:21:01,680 --> 00:21:03,560 So like a lot of these decisions, you have the 1st 428 00:21:03,560 --> 00:21:05,520 order impact. What immediately happened 429 00:21:05,520 --> 00:21:08,800 following these decisions, Nike's revenue grew like crazy. 430 00:21:08,960 --> 00:21:11,880 That was a very positive thing. Nike's margins went up. 431 00:21:11,920 --> 00:21:14,600 That was another positive thing because they were selling on 432 00:21:14,600 --> 00:21:17,400 their own website, they cut a lot of costs and they cut a lot 433 00:21:17,400 --> 00:21:19,800 of retail expenses. So it seemed like things are 434 00:21:19,800 --> 00:21:22,240 really good so far with this strategy. 435 00:21:22,280 --> 00:21:26,080 The problem was this caused some 2nd and 3rd order outcomes, and 436 00:21:26,080 --> 00:21:27,920 those outcomes weren't good for Nike. 437 00:21:28,240 --> 00:21:31,160 Donahoe's strategy seemed to be working until it didn't. 438 00:21:31,480 --> 00:21:34,560 That recently abandoned shelf space was quickly filled by all 439 00:21:34,560 --> 00:21:38,840 of Nike's top competitors. Adidas, New Balance, Puma, even 440 00:21:38,840 --> 00:21:40,920 Ugg. A flurry of running shoe brands, 441 00:21:40,920 --> 00:21:44,520 many of them upstart such as Brooks, Hoka and Solomon, 442 00:21:44,720 --> 00:21:48,200 suddenly found themselves with more exposure and they ate away 443 00:21:48,200 --> 00:21:51,120 at Nikes market share in one of its most important categories. 444 00:21:51,440 --> 00:21:53,960 Meanwhile, at the company's headquarters, the pace of 445 00:21:53,960 --> 00:21:57,400 product development had slowed as Donahoe took fewer risks on 446 00:21:57,400 --> 00:21:59,920 performance oriented shoe lines across the sports. 447 00:22:00,480 --> 00:22:02,960 So he took a lot of shoes off the shelves. 448 00:22:03,360 --> 00:22:06,120 He put everything on the Nike app, allowing all the 449 00:22:06,120 --> 00:22:10,920 competitors, all these start-ups like On and Hoka Brooks, all 450 00:22:10,920 --> 00:22:13,680 these companies that were small that are now massive took 451 00:22:13,680 --> 00:22:17,240 massive market share from Nike because the retailers replaced 452 00:22:17,240 --> 00:22:21,000 Nike with these new brands. And then he also cut cost 453 00:22:21,000 --> 00:22:23,200 raising margins by slowing down development. 454 00:22:23,560 --> 00:22:26,840 Slowing down development gave more access to companies like on 455 00:22:27,080 --> 00:22:30,920 to develop newer exciting shoes while Nike was falling behind. 456 00:22:31,040 --> 00:22:33,280 In December, Nike slashed their revenue forecast. 457 00:22:33,280 --> 00:22:35,960 Donahoe said, quote, we know that we must be faster, 458 00:22:35,960 --> 00:22:37,520 increasing the pace of innovation. 459 00:22:37,760 --> 00:22:40,200 He unveiled a plan to cut $2 billion of costs. 460 00:22:40,440 --> 00:22:42,080 So they're laying off more employees. 461 00:22:42,080 --> 00:22:44,120 And if we look at the stock price today, we can see the 462 00:22:44,120 --> 00:22:47,400 history of CEO 10 years. When Donahoe became the CEO of 463 00:22:47,400 --> 00:22:51,880 Nike, the stock price was around $100, so now it's well below the 464 00:22:51,880 --> 00:22:55,600 price when he first became CEO. The stock peaked above 160. 465 00:22:55,600 --> 00:22:58,320 When he first implemented his plans, when Nikes were selling 466 00:22:58,320 --> 00:23:01,720 really well, when the market started to catch up, all the new 467 00:23:01,720 --> 00:23:04,640 brands started to take market share and it became increasingly 468 00:23:04,640 --> 00:23:07,280 clear to investors that Nike has a serious problem with 469 00:23:07,280 --> 00:23:09,880 competition. Now the stock is at a new low 470 00:23:10,000 --> 00:23:11,200 now. This write up continues on 471 00:23:11,200 --> 00:23:14,520 detailing out his entire tenure and it's not good right now. 472 00:23:14,520 --> 00:23:17,760 Nike has a lot of internal issues and if I had a guess, I 473 00:23:17,760 --> 00:23:21,000 believe that the current CEO of Nike, John Donahue, is going to 474 00:23:21,040 --> 00:23:24,640 go down as one of the worst CE OS, if not the worst one that 475 00:23:24,640 --> 00:23:26,200 Nike has had throughout its history. 476 00:23:26,520 --> 00:23:29,040 The policies that he's implemented, the direction that 477 00:23:29,040 --> 00:23:32,000 he's brought the company, the lack of focus on innovation and 478 00:23:32,000 --> 00:23:35,880 driving new designs, allowing so many other top competitors to 479 00:23:35,880 --> 00:23:39,160 form and create real brand value has caused devastating 480 00:23:39,160 --> 00:23:42,360 consequences to the ongoing terminal value of Nike. 481 00:23:42,840 --> 00:23:44,400 So I think this is a real struggle. 482 00:23:44,600 --> 00:23:46,720 And the more that you read about the struggles this company 483 00:23:46,720 --> 00:23:49,600 faces, the more I'm concerned about their future. 484 00:23:49,760 --> 00:23:52,600 So I hope the best for Nike investors, but as of right now, 485 00:23:52,920 --> 00:23:54,920 this is what I'm avoiding. That's all for now. 486 00:23:54,960 --> 00:23:55,520 See you in the next.