Good morning and welcome back to another meet. Kevin Report today we're on episode number 38 it is March 1st A Lowe's forecasting is seven percent a decline in Revenue ahead thanks to a week home ownership spend and never forget that homeowners spend more money when home prices are going up and the opposite when home prices are going down. Not terribly much of a surprise. New York City is of seeing Elon Musk over our Twitter scale back New York offices by trying to sublease 200 000 square feet of office space.

It's all part of Elon Musk's effort to make it Twitter substantially more efficient and lean and bring it to profitability. Uh, that follows about 200 more layoffs this weekend Colgate Wants to divest from their Pet Food business now I Personally actually see that as an inflationary red flag one of the things that I've been noticing and I've been hearing about anecdotally from pet store owners, including one who is a course member who's so kind to send me some information from his Las Vegas pet Store. It seems like pet stores are still seeing or costs arise in many different areas of their business, but despite these cost rise and their intentions of still raising prices somewhat, it doesn't look like they're able to anymore fully pass on the price increases, especially for things like foods, but even things like dog toys. And so it's no surprise in my opinion that now you're potentially seeing a risk that pricing or rather margins might be getting squeezed at some of the pet stores we saw uh PetSmart and Petco Uh, actually it was Petco uh was uh, was the earnings call that I looked at the earnings called Petco was telling us hey, look, we think we still have the ability to essentially raise prices here in Q1 Q2 but we don't think we're going to have much ability left.

So they're starting to see the end of the ability to pass on higher costs to their customers and so at the same time having Colgate Palm Oil Olive now trying to divest their pet business and focus on what they consider as growing faster, the oral and skin care business and trying to prune off the pet food industry or just sort of the pet unit in general. Uh is to me another sign that a lot of businesses that are facing higher costs are actually losing the ability to pass on all of those costs to their customers. And so to me that's actually positive inflation impetus. but we want to pay attention to that.

Another thing to pay attention to uh is uh, well uh. actually this is more of a statement some folks were asking me about. uh, the um, the idea that House Hack might be sort of the Robin Hood of real estate I think maybe a a good way to think about it would be sort of a combination of like the Vanguard and Robin Hood sort of What? What Robin Hood did for the retail Community for housing is something that we think Househack can do for the vast majority of people who don't have access to homeowner Equity but then also doing it in a way uh, that that uh is is almost Vanguard-esque Uh, that makes it easy, uh, low to no cost in many cases to do exactly that. And so we're really excited about those uh, potentials.

Uh, so those are things, uh, that hopefully add a little bit more clarity. I I'm really focused on making sure that people who don't have access to Building Wealth through real estate can do so with what House app will end up providing right. A Househack isn't this company that's uh, you know, solely focused on trying to buy real estate and then, uh, you know, jack up rents and try to gentrify areas or make housing unaffordable. It's actually designed to give the vast majority of people access, uh, to to investing in real estate who don't have it today.

So it's actually completely the opposite that I've got to work on that messaging because my last House Hack update I wasn't exactly clear about that messaging. And so I Want to be clear that house hack it isn't isn't like a, you know, a kind of company that's trying to go around and gentrify areas. or you know, Jack Up rents. It's actually designed to provide high quality housing while at the same time making sure people who do not have the ability to invest in real estate end up getting the ability to invest in real estate much the same way that Vanguard and Robin Hood gave tools to the disenfranchised when it came to trading or investing in stocks.

We think we can do exactly that in real estate, and we've got a pretty good plan for that. Of course. learn more details by going to Househack.com for that. So hopefully that's A.

That's a little bit of insight. But I Want to be very clear because some folks were, uh, you know, a little confused. They're like wait a minute, You're talking about how profitable House Hack could be based on your projections. But does that mean you just want to make housing more unaffordable? And no, like, you can have a company that actually can be sustained, financially profitable, with a lot of cash flow without actually with actually contributing towards people's ability to to have access to housing, wealth and housing equality rather than inequality.

Uh, that's that's a big fan or a big goal of mine. so that'll all be incorporated into House High. And I actually think you could do it in a win-win manner where basically the company can win, employees can win, renters and tenants can win, and people who want to invest in real estate can wait. So in other words, win win win We We think what we're doing, everybody can win from what we're doing, so we're really excited about that.

Okay, now we've got to talk about Arabian Arivian posted some numbers yesterday, so they've got some to do about. Arabian All right, stand by for Arabian two seconds. Well, Rivian posted some numbers and while things are getting slightly better, let's just put it this way: things are only getting slightly better. They are still burning cash and over a fist.

Their goal was is now to produce 50 000 electric vehicles in a year. They had a goal of 25 000. Vehicles They did slightly miss that gold coming in at just over 24 000 vehicles. I Mean that's not bad.

Okay I don't want to take that away from them. Uh, obviously they manufacture pickups. SUVs Amazon Vehicles They mainly blame Supply chains as a limiting factor in terms of why they are not able to produce as many vehicles. This comes at the same time as they've stopped disclosing the number of net new pre-orders from customers.

That number did stand at about 114 000 as of early. November I Actually was one of those people who pre-ordered Arivian, but now I'm not taking delivery of Iridium because I'm spending too much money on investing in my businesses. That's okay I don't need more cars I think I put six or seven thousand miles on my car in the last 18 months that have had the darn thing. So anyway, regarding Iridium, they uh they when it comes to some of their numbers I think it's it's just worth going straight to the numbers and seeing what we're facing because you know some of the numbers.

Okay, getting slightly better, but again, we're going to want to pay attention to what is this going to mean long term for the business over at Rivier is Rivian the kind of business that you want to invest in now? I've been pretty critical of Rivian not just here on YouTube but also on Twitter At one point I was shorting Rivian I'm not shorting Rivian right now I Just want to be very transparent about that. but I do want to provide perspective because I do think there are some red flags that if you're an investor in Rivian, you want to be a pay attention you want to pay attention to. If you're not an investor in Rivium, then at least explore some of the things that we're talking about to understand some red flags that you want to pay attention to. So let's jump into uh oh okay, all right, well, the darn iPad's gonna be a little funky with the way it displays this again, but that's okay.

So um, what do we have here? We've got the Rivian Q4 shareholder letter and uh, some of the things to pay attention to is there costs of Revenue uh increased only about 14.4 percent. Quarter over a quarter. Now their revenue increase increased about 23 percent. That means they're actually expanding their gross margin.

Uh, which is good. It in other words means they're losing less money. Remember this? Uh, back in, Uh, we were. Let's see here last quarter.

Uh, Rivian was spending about two dollars and 71 cents just to get a dollar of Revenue. So think about that for a moment. This is not a net income calculation. This has nothing to do with your operating expenses or your advertising or anything.

It's literally just to say that Rivian spent two dollars and 71 cents to be able to get uh, one dollar of Revenue. That's not ideal, right? Obviously, that's not ideal because it means you're spending a lot of money to be able to get less money. Not ideal. right? there we go.

iPad Pro Fix. So what do we have? Uh, when we keep going or or look at this quarter's numbers, we see that that loss uh, has fallen. Now we're only looking at about 2.51 lost for every dollar of gross profit they're making. Their net income is even worse.

So you know. Obviously the net income is is a problem. They're losing a lot of money losing about 1.73 billion dollars. Uh, but that's okay.

let's ignore that for a moment. And at least what we're seeing is they're trending towards more profitability. But you've got a long way to go. A lot of people get upset at me because they think oh, I only care about Tesla uh and what they do is they say hey, well Tesla in the early days lost money as well.

But if you actually go back to 2014, remove any kind of vehicle tax credits that Tesla got Tesla was still profitable on a gross margin basis. You could go all the way back to 2014 and Tesla when Tesla produced about 7 700 vehicles and what you ended up finding was oh wow, Tesla was profitable in 2014 on a gross profit basis, they were making about uh, 20 bucks for every 100 of Revenue with 7 700 Vehicles produced without tax credits. So think about that really clearly for a moment without tax credits, Tesla managed to make 20 bucks on 8 000 Vehicles about 8 000 vehicles on a hundred dollars spent. So I think the easiest way to visualize that is like this or rather, a hundred dollars of Revenue equaled twenty dollars gross profit for Tesla in 2014 with about 8K Vehicles right? No credits? That's without credits.

It was even better without credits. Today you have Rivian. A hundred dollars of Revenue equals uh, 251 of gross loss, gross loss. Okay, so we're nowhere even close to profitable margin here.

Uh, at about the same Vehicles produced, right? So that's your red flag. That's what you're running against. Here is now. The Rivian is really, uh, beautiful I Have to say uh I was just in Arabian I went to Redding California the realtor was amazing.

He showed me his review and I drove in his Rivian. The thing is beautiful, but it looks like the warthog of cars. It's absolutely gorgeous. Like you look at the car and you're like, please be profitable because I want more rivians, right? But the problem is it's not.

It's not anywhere near close to profitable and you could see that in the numbers here now. I Want to show you where they're cutting? But something I Want to remind you when we talk about cutting is one thing that's not getting cut or the prices and the courses and building your wealth. Today was the last day we're keeping the prices at this flash sale level in honor of investor day. We're raising the prices after today, in honor of investor day, prices are going up.

so if you want to get the best price guaranteed going forward. Uh, and this is the same promise we have for people who bought the course in the past. You can always email us if you think there's uh, there's an issue, but this is the best price you're going to get going forward. Uh, send us an email Kevin.com if you want to bundle up.

but uh, today we will. After today, we will be raising the prices on the course. So if you want to get lifetime access on those for building your wealth in stocks or real estate or my perspective on entrepreneurship being an employee, real estate agents YouTube whatever. check out those courses linked down below.

You get lifetime access to any of them including the course member live streams. Okay, so uh, where they are cutting here though is: they're cutting off X quarter over quarter they cut Opex 7.2 percent. Year over year, they over halved Opex So they're really trying. They're cutting down their research and development.

They've almost have their research involvement year over year. They're cutting down their SG A Also almost having that year over year. So they're trying. But that cost of goods uh, cost decline is not something I would touch with a 10-foot Pole Right now, it's very, very scary.

I Want to see them actually get close to break even now they say in their earnings call oh, don't worry, we think we're going to be gross margin Pro Profitable by 2024 I Personally don't believe that this is their uh, their earnings call and I Want to say the Highlight uh moment was okay. They're talking about bringing on their second shift. Oh yeah, over here, they've got a goal of being gross margin profitable in 2024. I Personally, highly doubt they can pull that off.

Hey, maybe their second shift is going to bring them closer, right? Maybe they can only spend a hundred dollars for every hundred dollars of gross profit they bring in, right? That would put them at basically zero margin. That would be fantastic. But right now they're spending 251 dollars per 100 of Revenue on a gross margin basis. That's horrible.

It's really, really bad. Now They have these grandiose visions and this is where I have a big concern for Rivien. Okay, watch this. So not only do they have these visions of being able to get to profitability gross margin profitability in 2024, 2025, they think they can.

They can fund themselves through 2025. So they're basically trying to say hey, look, we're not planning on diluting investors. We think we can get to 2025 profitability without having to dilute investors more. That's great I don't believe it I'm coughing because I'm allergic to but you know, hey, maybe they can pull it off.

but this sounds crazy. They say they see a clear path to 25 gross margin like they in other words by burning 251 dollars per quarter right now. only down from 271 dollars of burn on a gross margin basis per 100 of Revenue. They think from that they can go to a profitable 25 per 100 of Revenue on a gross margin basis.

That's a Tesla kind of Target They think they can achieve that. Hey, if they can. Fantastic, But you want to see how they plan to achieve that and this is where I Literally just wrote what the F Okay, they think that they're going to increase their margin by reducing their cost of goods sold per vehicle made. Okay, hopefully maybe your second shift will help you with that, because right now it's disgusting where you are I Mean if you sell a car for eighty thousand dollars, you're spending over 160 170 000 to get that.

Revenue I Mean think about it. All you have to do is multiply it by 2.5 So their average vehicle selling price is about eight hundred thousand or eighty thousand dollars. Holy Smokes. That means right now it costs them Two Hundred thousand dollars to get an eighty thousand dollar car off the line? That's insane.

That's actually an even easier way to put it. It costs Rivian Two Hundred thousand dollars to make an about eighty thousand dollar, uh, average selling price vehicle right now now I can tell you the exact average selling price I Wrote it down and that was the Q3 I believe I wrote it right here. Eighty Two thousand Three Hundred dollars is the current average selling price. So the average selling price right now is eighty Two thousand Three hundred dollars.

Uh, and uh, they think they can make their vehicles profitable, so somehow bring that gross cost down from two hundred thousand dollars a vehicle to eighty two thousand three hundred. But actually, not just that, they think they can get their costs to twenty five percent, right? Or seventy five percent. So they think they could actually get to their goal. which is a fair goal to have is sixty one thousand 725 of cost for an eighty two thousand three hundred dollar vehicle.

But this is where the WTF moment is for Rivian. Okay, you ready for this They think they can actually improve on their average selling price per vehicle. They are already selling the cars for eighty Two thousand Three hundred dollars and they think they can raise the prices even more. And there's I mean what do you want to sell them like Lucid pricing or something like that and start selling them for like 200 000 a car? It's insane I Don't know I don't see it.

It seems it seems ludicrous to me. that's Q3 there is Q4 Uh, what do we have on actual cash flow? They're burning. Uh, their cash free cash flow right now is a negative. 4.4 billion dollars.

Uh, but they do have cash. You know you know where they got this cash from folks from you. If you were a retail investor, they should be sending you a thank you card because they built up an 18 billion dollar cash pile. and In Fairness.

Hey, Oh, I'm sorry, that's now down to 11.5 billion. That was the 21, uh, 2021 number. Well anyway, that's where they got the money from, right? They did a direct listing, they saved on underwriting fees, and they took advantage of retail momentum thinking that this was the next Tesla And because people thought this was the next Tesla they threw money hand over fists at the stock, giving the company. now what's 11.5 billion dollars in cash left? They've got some info Tory they've got plant property and Equipment fine.

That's great. We've got some payables over here of only about two billion dollars. They've got maybe a, you know, some long-term debt over here. So call it three billion dollars.

They've got free and available cash. I Would call it free cash of somewhere around eight billion dollars. That's fantastic. That should give them about one point.

You know, seven, five ish years before needing to raise money, which is roughly 20 25. That's when they actually think they can be gross profitable. That's fantastic. You know, if all things go great, maybe they can pull it off.

But let me just say, you know, going from a where's that earnings call going from? Uh, you know, spending 200 000 on a car that costs eighty two thousand three hundred dollars? I Don't know man. good luck. That's all. I'm saying good luck Rivian.

Uh, you know, like and if I were an investor, those are things I'd be paying attention to again. Maybe with the second shift, they can get that cost substantially down. Maybe maybe we'll only spend 150 000. A vehicle is still a far cry from eighty two thousand three hundred dollars.

I Don't know how much really the second shift is going to make a difference. I Get it and get more Vehicles Off the line it should. Is it going to double production? Maybe I mean at these numbers. If you are able to double production, in theory, you could get the cost per vehicle down to a hundred thousand dollars.

So if you have a perfect scale, right? So in other words, you open up a second shift and you perfectly double production, you're still going to have an increase of cogs right? because you have material costs and labor costs that go into it. But let's just say they could double production without doubling costs. Well, okay, then you bring the cost per vehicle down to a hundred grand. So you're still losing 20 grand on a gross margin basis per vehicle.

But you're not going to be able to double it that way because you're going to have increased labor and and a material costs. So even though your manufacturing may be twice as many cars, you're not going to get twice the benefit. So you're still going to be losing 120 130 to 150 000 per or spending 130 to 150 000 per 80 000 vehicle, it still does not make sense. The numbers are very very bad and all you have to do is go look at Teslas in 2014.

Uh, and when they were manufacturing 8 000 vehicles and they're not that bad, These numbers are are a company that looks like it potentially will never be profitable and that's scary. They'll probably have to go bankrupt or get acquired by someone else or raise their prices substantially for their vehicles. I Don't see that happening. If they can't raise the prices for the vehicle substantially, then they're potentially on the course of bankruptcy or they just start putting less expensive stuff in the cars.

But then at that point, if they start cheaping cheapening out on the car which is beautiful right now. Absolutely beautiful. Some of the stuff they put in the car right now. gorgeous.

If they start cheaping out on it, well, then why would you buy a ravine over a Tesla which Tesla has the autonomy which Rivian doesn't? You know Rivian has like adaptive cruise control. It makes no sense to me. I don't know. You know, Maybe maybe I'm just like passionately concerned.

we'll call it that. I'm like the Doctor Who's you know yelling at somebody who has a terrible diet trying to say, would you just eat some salty nuts please like get some good fats in you? That's just not what I feel like right now? Yeah, I'm not saying they can't survive off, you know, a rib eye and a Cheesy hamburgers and prime rib dips. but they're probably gonna die of a heart attack. You know? Is there a chance? they won't Sure, but they're playing with fire.

That's all I'm saying about Rivia Okay, I look beautiful car. I Just want to be so crystal clear because I'm not trying to offend Rivie notice. In fact, you know what I think if you buy a Rivian, you are getting a 200 000 car for 80 grand. That's the way to look at it.

You win if you're the customer at Rivian, unless of course, there are a bunch of service issues that come up in the future. But assuming that's not an issue, you win. If you're a Rivian customer because you are basically robbing Rivien, you are getting an 80 grand car or a 200 000 car basically for for you know, 80 grand. You win.

All right now, we gotta talk about the Federal reserve and the potential for a reverse wage price spiral. Yeah, and what did the FED just say because the FED just said something Totally new and it's really interesting. In fact, this this new Fed President the of the FED Bank of Chicago Mr Goolsby Yes, his name is Goolsby Anyway, the new Fed Bank president Goolsby uh will talk about his comments first and then I want to talk about the reverse wage price spiral. So this is a really important segment on the Fed.

You want to get caught up on the Feds thinking okay, this is going to be what we want to talk about. Uh, it is worth noting that uh, the Fed's terminal rate or in other words, the Market's expectation of How High the terminal rate for the Federal Reserve will go has moved to stand substantially to the upside. we were sitting at about 4.9 percent for most of the fourth quarter of last year. That, uh, and even into January, that puts us up 4.9 percent as a terminal rate and we were pricing in rate cuts for 2023.

Now we are no longer pricing in rate cuts and the terminal rate has been creeping up almost on a daily basis. Right now, the terminal rate is sitting at about 5.42 That's the current expectation that's actually up from yesterday, where the terminal rate was sitting at 5.4 so it's moved up even more. Okay, so pay attention to that. but what is Mr Goldsby have to say who just took office man I'd like take a shot every time I say Google speak.

but anyway, maybe don't I mean shot a coffee? You know, something, that or water? There we go. Okay, but anyway, so uh, Goolsby says that he is now tempted. uh or I'm sorry. The FED used to be tempted to lean on the instant reaction of the stock market to see how they should react uh to to their Communications and their their policy.

In other words, like when they say something, is the stock market going down Okay, great, we're accomplishing work over here. That's kind of what they're saying. How is the bond market reacting right? But listen to this. Goolsby just said something totally new and then we're going to talk about the reverse wage price bro, which totally new Goolsby says it is a danger and a mistake for policy makers to rely too heavily on Market reactions.

Instead, we need to supplement traditional data with observations from the real economy. This is especially true when things are strange and up in the air. If they have, as they have been through much of the pandemic holy Smokes, take a pause there for a moment. That is a flippy, floppy doodly do.

Okay, first, you have most of the people at the FED going. hey, we want Financial conditions to tighten. We're trying to massage the market to react a certain way. We're trying to move down housing and stocks or whatever to make the wealth effect have an impact on demand.

We can only affect the demand side of the equation. We don't know what the lags are. maybe the lags are a lot shorter than they used to be, and if the lags are shorter than they used to be, then we have to keep tightening. And so what schools be saying? Yes! First of all, he is reminding you that the flash sale expires today and you get the best price guaranteed going forward that you can get by emailing me at Kevinb Kevin.com If you want to bundle up or just go to the link down below and check out the courses on building your wealth.

whether it's the Sierra to millionaire, real estate, investing, stocks and psychology Money YouTube Real Estate agent, sales entrepreneur uh in the Property Property Management course or the employee uh Elite Hustlers group where you could learn how to build your wealth and make more or money as an Employee or entrepreneur. They all come with course member live stream for life and uh, promised updates for the course to make sure everything stays relevant. Anyway, that expires today in honor of Tesla yesterday. But what is Google What does this really mean? What this means is the FED is trying to be more aware of hey, wait a minute.

This is very similar to what Master said. By the way, wait a minute. Maybe we should wait to see if all these lives come through because maybe our actions on the market are actually starting to have more of an effect than we think. Now that's really interesting and how does that relate to potentially Now what's being called the Reverse Wage Price file.

Oh well, it relates hugely and you're gonna love this. So watch this. The wage price spiral is when you have prices rise and then employees demand more payment so they can afford higher prices. Now when they afford higher prices, the cost of doing business goes up.

So companies want to raise prices. Well then employees demand more wage raises. Okay, well, that's a problem. That's a wage price spiral.

But what could potentially be a reverse wage price spiral that the FED is starting to pay attention to. Listen to this: if companies can't raise prices anymore because all of a sudden people just won't buy anymore. That is, all of a sudden, demand is becoming elastic. which means as prices go up, people spend less money, right? And where are you seeing that? Well, you're seeing it at: Lyft Uber Starbucks Chipotle Uh, or else are you seeing it.

Tyson Foods You think chicken prices are inelastic? People are going to keep buying chicken Wrong. Read the: Tyson Foods Earnings Call Not inelastic anymore. Price go up. People Stop buying.

What do the companies have to do? Then start discounting? So what does that create? It actually lowers. And we're seeing this in the survey data as well. Individual Expectations of Inflation. Now, this is not to be confused with the Bond Market's expectation of inflation.

It has to with surveyed expectations of inflation by actual laborers. So when you look at the University of Michigan what do they say, they say that inflation expectations are not only stable, but they're falling. And so what's actually happening is you have employees who are starting to realize. Well, first of all, you have employers who are realizing we are out of price hikes.

Like the inflation is here and it's here to stay. But we're out of price hikes. Like the inflation that has occurred has occurred. But we we can't hike anymore.

Like we are taking it in the margin and employees are starting to realize crap businesses are starting to take into the margin. Maybe my job isn't safe because layoffs might occur After all, we did just go from doing the same damn job before the pandemic at 10 bucks an hour to now getting paid 15 or 16 or 17 or 18 dollars per hour for the same work. Okay, so if prices are stable and employees are realizing crap, I might get laid off I Really want to make sure I keep making this money because it's so much better than what we were getting before the pandemic. Maybe we could actually start seeing a paradoxical reverse wage price spiral.

In fact, consider this. The Phillips curve tells you that when the unemployment rate goes down, wage inflation goes up. but what's actually happening? the unemployment rate has just Fallen to a 50-year low. And what's happening with wage growth? Oh damn, it's starting to fall.

I'll pull up a picture of it I'll show you wage growth actually starting to fall. It's on my phone over here, so it's going to take a little moment to get it here. But anyway, the point is, wage growth is falling. While unemployment is at these record lows, suggesting that we could potentially be with these extremely anchored and falling personal laboring inflation expectations, we could actually be in a situation where oh man, maybe just maybe we.

Face a reverse wage price spiral, not a real wage price spiral. To the upside. Now, this is where a lot of economists surveyed by Bloomberg are actually taking this seriously and they're suggesting that there's been real damage to the job market. and now this reverse price spiral wage price spiral is gaining attention.

And now they say uh, this is not universally accepted, but we're also starting to see that in company earnings reports and earnings calls. Now that's interesting to me. So what I decided to do is look at some recent earnings. Let me just show you quickly the chart that I promised you.

It's on screen. Uh, right here you can see this is the slowing wage growth Chart Just basically shows you the employment cost index how it's starting to fall. Fantastic. While at the same time as employment is Rise is unemployment is falling.

This is not to say you don't want to see people make more money. Okay, I Always get those stupid comments and it's just like economically illiterate People don't realize that if wages keep going up forever at the rates that they are the acceleration the first derivative I Already lost like 90 of people by saying first derivative. But anyway, when the rate of change keeps going up, what happens? Oh crap. you're going to end up walking into a massive depression.

You're gonna have a lot more pain than if wages just grow at a stable rate anyway. So what's really important, uh, is looking at earnings calls. So what did I do? Well, obviously this is just what I do on a daily basis. Uh, it sounds really fun doesn't it? But anyway, I look at earnings calls and one that I wanted to look at was um, uh Ross So look at Ross stores.

They just reported earnings. This earnings call is from yesterday. What did they say Yesterday Wage costs have risen, but are growing at a slower rate than they did during the pandemic. Okay, wait a minute.

Put this data together. Okay. I Really want you to put this data together for a moment? The FED is saying let's look at what the real economy is doing AKA People what's actually happening on the ground, not just markets. That's really good because it means we maybe don't have to get Paul Volckert.

Especially if we're seeing a reverse wage price spiral. We expect from a wage perspective that it will be ongoing pressure on their margins and this is where you have to read between the lines. What they're trying to do is they're trying to defend their margins and so even the wages have gone up. What we're looking for is any sign that wage growth is expanding at a higher rate, but if it's just up and stable or up and growing at a slow stable rate, that's not a concern.

The FED doesn't have to rug pull us then like Paul Volcker gave it to us. Dirty. We expect from a way age perspective that will be ongoing pressure, but we're finding some ways to be more efficient with the business in offsetting those costs. Wait a minute.

That is a substantial U-turn from last year. last year it was Wages just went up a ton because of the pandemic. We're going to raise prices because we think we got big PP big pricing power. Well what's happening now? Yeah, you know wages are up.

Uh so um, we're gonna try to be more efficient. Yeah, but but think about that. Hold that thought for a moment. Okay, because I went to the Auto Zone and this was really incredible.

Hold on: I Wanna I Wanna just where? Where is it? Where is it? Where is it One of them? Auto Can I find it? Can I find it? Oh God AutoZone's mentioned on every page. Of course it is. Uh, basically AutoZone uh and it could have been Target I Looked at Target Ross in this one and we'll go through this a little bit more detail and find it. But anyway, we'll find this in a moment.

somewhere in these earnings calls and I noted it so we'll find it should be easy to find. But anyway, they start talk talking about not only trying to become more efficient with the business, but actually investing in autonomous more so. in other words, they're realizing yeah, look you know wages have gone up. so we're just going to maybe try to replace jobs with more autonomy.

That's the risk factor of wages keep going up. like the politically or or the economically illiterate who just want to go catfish gang ways it shouldn't go up anymore or like missing the point. That's not what I'm saying. What I'm saying is we don't want to see evidence of a wage price spiral coming because that's bad, but what we're actually seeing is evidence of a reverse wage price spiral.

Which means the FED could honestly just take its time. We don't have to get Paul Volckert Yes, that means higher rates for longer. Yes, that means more of a shitty real estate environment. Yes, that means you have to be more patient with buying real estate, but that might be an opportunity because it means more opportunity to get affordable housing, right? Anyway, we've seen wage price increases in Uh in our stores and distribution centers, and while that's easing, we have not been fully able to mitigate those increases.

Listen to what they're saying. Wages went up now. they're not going up as as much anymore, but we're taking it in the margin. This is what I've been saying for months on the channel here and I'm just not providing you.

Uh, I mean I regularly try to provide you evidence because that's why I think you come to my channel is for that sort of unique perspective that I don't think you really get anywhere else. I've been patting myself on the back here. okay I am wearing your Christmas sweater it March 1st after all. But anyway.

oh there it is. there. It is there it is. Look at this and they're basically telling you like, but we can't figure it out like we can't get, uh, we like, we can't figure out how to be more efficient at these higher costs.

So in other words, our margins going down. And look at this, you'll see at our Capital spend this year we have about 810 million included in that. one of our biggest increases our technology Investments that we're making And some examples of that would be Automation in our distribution centers. In other words, companies are being forced to innovate because they're taking it in the margin.

they can't raise prices anymore. They say at this point, wage increases are not driven by pricing power of employees. guess what the wages are being actually driven by. But overall, it's really driven at this point by those minimum wage increases, those darn minimum wage increases.

So in other words, the only place you're really actually still seeing labor pricing power is not where laborers actually have pricing power. it's actually where the government is forcing more inflation. This is a bad time for minimum wage increases, but you know what? Again, I'm not saying I don't want people to make more money I'm just saying in an inflationary time, government always seems to come around and F crap up even more. Okay, anyway, so what do we have over here? So this is: AutoZone We're continuing to experience substantially higher wage inflation than at the higher than historically in the mid single digits, while Staffing environment has substantially improved versus this time last year, we don't Envision wage and play inflation abating soon and there continues to be Regulatory and Market pressures.

Okay, so listen to that promote. What they're saying is look, wages went up a lot. Regulatory pressures is another way of saying look, minimum wage keeps push string wages up and we can't figure out how to pass on these margins at AutoZone either And that's a problem. Now listen to this.

uh and again. I'm not saying we're going to go to zero uh, pricing power for wages, or rather, zero inflation for wages. Wages are still moving up right right now. We're moving up at an annualized rate of about 4.6 to 5.2 percent.

So it's still above pre-pandemic levels. but it's starting to plummet that pricing power is going away. So what do we have over here? To be clear, we do not believe inflation is going away, especially wage inflation. But I do expect it to slow a bit as the economy slows.

That's good. Okay, so not as uh, sort of bullish on inflation going away as Ross but still at AutoZone letting us know like, hey, look, we're not spiraling out of control, right? So Ross is like we're basically reverse wage price spiraling. That's what they're saying. They're like we can't pass on these costs, Minimum wages are screwing us going up or we're taking it in the margin we're going to invest in.

Uh uh, in in Automation to get rid of workers as much as we can. And here's AutoZone Saying hey, look yeah, Look, it's slowing down like the rate of increase is definitely slowing down and that aligns with the chart that we just showed as well. Uh, but this is interesting. They say here that some of the parts they sell have low price elasticity because, uh, purchases are driven by a failure or routine maintenance.

That's great. They're trying to talk up their ability to maintain a pricing power, right? Unfortunately, that's not what they mentioned Elsewhere on their earnings call. So they talk specifically about certain like needs Parts Like I'm gonna make a guess here. If you need new spark plugs or glow plugs, you're going to buy them because you need them to get your car to keep going right? Kind of like you need a medicine.

If you're dying of an allergic reaction, you will pay for the EpiPen even if it's 50 more expensive. If you're thirsty in the desert of with without water, you will pay a hundred dollars for a bottle of water. It doesn't matter, right? You're like you need it. Uh, so anyway, what do you have over here I Think it's important for you all to understand.

We saw enormous spikes in freight costs. We did not pass all of those costs along. of course not because you don't have that big of a PP Nobody does. Those were really expensive now.

Fortunately, those costs have come down as we look forward. I Think you've got to separate the gross margin piece from the labor piece. We're going to continue to see elevated wage growth elevated compared to pre-pandemic We want to pay attention to not just things that say everything's going down Okay, obviously AutoZone says we still see some uh wage growth. We want to pay attention to it.

But listen to how he describes it. We've seen it now, probably for five years. So in other words, what they're saying here is this is not a unique wage price spiral that's continuing to happen. They're saying, look, you know, minimum wages basically have been rising for about the last five years and so that wage growth is going to continue to affect our margin and we're not going to be able to pass on all of those costs.

See, take a look at this. They literally tell you that we will be mindful of labor costs, but generally that's not a big driver of what we do with pricing To customers we need. What we need to do is make sure we're finding ways to be as efficient as possible. So even the company that's bitching about labor costs going up over the last five years and that they're still trending up because of minimum wage increases is telling you, yeah, we can't really pass on those prices.

You know it. just it sucks we're just taking it. in the margin, so even one that's like potentially giving you bad news on inflation is actually telling you no, we we can't keep raising prices. In fact, we're not going to.

and in fact, most of this is just driven by minimum wage increases. which is basically the government forcing more inflation at the worst possible time in an inflationary crisis. Again, the government just screwing up everything. Uh, so over here.

They talk a little bit about this as well. They talk about how the cost of businesses doing business is going up structurally, so things are basically materially getting more expensive. They're trying to find ways to be more efficient, But listen to this. This is basically telling you they can't innovate like AutoZone Can't figure it out.

Listen to what they say. We're looking for ways to be more creative and more efficient. but we can't We can't drive that level of efficiency in a 43 year old. Business Without Some kind of structural change.

We're looking for it, but we haven't identified it at this point. How interesting. So AutoZone is literally telling you yeah, dude, we don't know how to pass on these higher like minimum wages. so we're just gonna have to take it on the margin.

and we can't automate it in a way like other businesses can. We're trying to, but we can't figure it out. We can't innovate. You know what? the writing on the wall here is.

AutoZone stock has done actually I think pretty decently over the last year because it's kind of been considered a staple. But you know what? AutoZone here is telling you right? This is a leading indicator that the writing is on the wall that they could go bankrupt in the future. Now that sounds insane. Okay, the stock is up 36.

Over the last year, the stock has massively outperformed because it's being considered a staple, right? So people like, oh my gosh, we're going into a session. People are still going to buy stuff at AutoZone right? Yeah, Fantastic. That's what they're That's what they're saying. But wait a second.

Wait a second. They're giving you a heads up here. Yeah, we're not going to be able to innovate our way out of this. We we can't figure it out.

And in other words, unless they can figure it out, they're going to continue to take you to the margin and in the future that could mean getting replaced by a company like Amazon which could basically supplement a product. Uh, like delivering a retail product with their web services business, right? Amazon Dude, Amazon is Not profitable. People are like, oh, I'm buying stuff on Amazon They got to be profitable, right? They're losing money hand over fist on their business. The way they rig their their uh revenue and income statement to show the expenses is they show you the revenue that they get from merchandise.

but their cost of goods sold is like a bundled jumble of a bunch of different of their businesses because they don't want to show you how blatantly they're losing money on doing retail work because they're losing money hand over fist on the thing that makes Amazon Amazon So they try to make money on web services to offset that AutoZone have is Amazon going to get into the web services business to offset their money losing retail business. Now, don't get me wrong not losing money right now. Their margins are just going down right, but it's It's interesting to me that you're actually seeing in, uh, earning skulls throughout this industry and you can even go to and I've mentioned these a million times before: Uber Lyft Uh, Chipotle Starbucks Read the reports, read the earnings calls what they're saying about Labor And when you do that, you realize there's no wage price spiral. We are not facing a wage by spiral.

The only leftover wage inflation we're seeing is because politicians are being numbnuts and and are basically forcing prices up in the worst time to do that, It's like sending it would be as stupid as sending inflationary stimulus checks when inflation is eight percent. Oh wait, that's exactly what California did. But then again, what do you expect? it's California. So that's really important to pay attention to the wage price spiral.

It ain't happening. It's not, It's not visible. Uh, which is very good and we hope it continues to be visible. And to me, as an investor, the Federal Reserve telling you we're looking at the real economic data.

Not just what the Market's saying, but we're looking at the real economic data is basically their way of saying look, you know what we we need to be cognizant of getting too aggressive here and what are we going to do? Well, in my opinion, what they're telling us point blank is we're just going to do 25 BP hikes. There's no rush, we're just going to take our time. We're not gonna no cut, you know? So so ignore this idea of cutting. No.

Cuts That's fine, but we're going to take our time. We'll go 25 BP Maybe we'll pause at some point here at higher rates, but right now the real economy is saying we're starting to see the effects and we're not seeing wage Price file which means Nepal Volcker. Which means if you were an investor in the stock market I Go back and reiterate my thesis which I have reiterated since December that we are in the greatest Nike Swoosh recovery you could potentially invest in in my opinion I think Investments Today well they will be going through insane volatility are relatively insulated from another Lake To the downside unless of course we get like horrible inflation news next month or actually this month now here in March you know we get bad labor news on March 10th we get bad CPI report on March 14th. That then reiterates the inflationary impetus that we saw in January.

But then again, even the FED is starting to talk away the noise of some of these reports because we're at such a unique time. as long as we don't have a spiral of inflation I Think the market does this a Nike a volatile Nike Swoosh up and I think it's probably we're going to look back and go. Damn you know. the last month of 2022 and and the first half of 2023 were probably a generationally best time to ever invest.

No guarantees. Yeah I'm a licensed financial advisor? Yeah I Run an active ETF Yeah I have programs on building your wealth I Will give you my opinion. That's the point as well of these videos and my programs on building your wealth is I will give you my opinion and my perspective. It's not personalized advice for you I Don't know what the hell your situation is, but the perspectives I give I think are unique and if you want unique perspectives and you want to invest in yourself, use the flash sale coupons.

It's today's the day tomorrow. the prices go up. So raising the prices on the programs because that's what we do. We continue to provide more value and then prices go up.

Does that mean we're contributing to inflation? Good news is we don't get surveyed by uh by the CPI reports, so no, uh, okay. now let's uh, move on. Okay, Hunky Dory, Then what do we have next? Oh boy, there's a lot to cover. That's all right, we got coffee.

Investor day. We gotta talk about investor Day. All righty shine Bye five seconds. We've got to talk about Tesla in the new preview out by Barclays this preview adjusts out.

We got to go through what their opinion is of Master Plan Three and I Think that's really important to do because the Tesla event the investor Day event actually occurs after the market closes. I Mean that's no surprise. It's no surprise that all the juicy stuff will occur after the market closes. Uh, In fact, I can give you the schedule of what we're looking at for investor day at least I think I can I have that here somewhere? Uh, But anyway, most of the activities and most of the actual announcements we expect to occur in the second half of the day.

Here we go: 11 A.M Today is event check-in. All of these times are Central Standard Time 11 A.M is event check-in Uh, there will be factory tours and Plaid Demo Rides. Doesn't particularly say that there'll be any kind of demo rides for the Cyber truck, but maybe there will be. Who knows.

It says Plaid Demo Rides. Uh, that will go from 11 A.M to 2 45 p.m and I believe Tesla's starting to live stream at 1pm. but I Don't actually expect anything to really occur until the keynote which the keynote address is set for 3. P.M Central Time that's 1pm California time the keynote literally starts the moment the market closes.

Uh, so kind of interesting. Q A will be from 4 30 to 5 30 p.m and then there will be a meet and greet between 5 30 to 7 P.M Uh, Seven? Yeah. 7 P.M So 90 minutes Anyway, So what does Barclay say for the investor? Day Preview Well, let's take a look at that. All right and now.

So their preview reminds you that I have timed the expiration of my flash sale for today. Yeah, sometimes there are more coupons on the channel, but you know what? the price trends up over time. So if you want to guarantee the best price and if you ever think you need a price adjustment because you didn't get the best price, just email me Kevin.com But if you want to get guaranteed the best price guaranteed, Uh, you buy today because if the prices go up over the time, you want to lock in that lifetime access. Even if you're not ready to take the courses yet on zero to millionaire real estate investor, you're like I'm not gonna buy a house until six months from now.

You know I'll learn them. You may as well lock it in now because you'll end up saving money a lot of money. Same thing for the stocks and psychology. Money Group or any of the other programs.

I'm Building Growth today is The Flash sale and that means prices go up tomorrow again. You get lifetime access to not only new lectures that are added I Keep them updated. Course Member Live Streams: If you join the Elite Hustler Group, we do a Saturday sort of Mastermind live stream together every uh day. That's what's nice about that.

every Saturday is it's a smaller group of course. Member Livestream, though, is the perfect size group because we have plenty of time to answer questions everyone's questions uh, mostly for those questions and do fun, fundamental analysis together. We do those right after the morning. Uh, public live streams anyway.

Investor: Day Preview: Master Plan Three: Grand Scale Okay, great. let's look at some of the comments here. So as a reminder: Master Plan One was number one. Build a Sports Car Number two: Use that money to build an affordable car.

Number three. Use that money to build an even more affordable car. and while doing the above, provide a zero emission electric power generation option. Okay, so that has somewhat been achieved.

A lot of these plans have been quote never fully uh, realized, or have never fully materialized. But it's okay to sort of like you make a plan and as long as you can Trend in that direction, you're doing pretty dang well, right? So Master Plan One: Uh, pretty great. Master plan 2 was created Stunning solar roofs and those really haven't scaled terribly well with integrated battery storage, those are doing pretty decently. Those are ramping pretty well.

uh, as well as the mega packs. Fantastic. In fact, a lot of Tesla Bulls are saying you know we've got to start realizing the potential 50 margin that uh, that uh that all of a sudden you end up having with um uh with with mega packs and you start putting that into Tesla uh uh, you know, forecast for for stock pricing? Oh Everything Changes Everything Changes when you start putting Mega packs into the Tesla analysis now I Personally don't like putting in mega packs into the Tesla analysis because I see it as the icing on the cake, right? I Wanna I Want to ideally try to stay somewhat conservative with my projections and I say somewhat conservative because I think they're already? You know they're already on the more bullish side, right? We know that if Tesla can manufacture 4 000 vehicle or sorry, four million vehicles in 2025 at an average selling price of 40, seven thousand dollars I align uh with with a lot of the industry on this average selling price and if anything, my number of vehicles produced is probably on the lower side for 2025. But anyway, uh, if I use this with only about a 10 take rate on FSD uh, on uh on the number of vehicles and then only 10 of those, uh, that money being realized in 2025.

So it's uh, basically the point of that uh is to say Hey you know we're going to take the number of hold on. Let me make sure I have this right. Uh, we have the number of vehicles four million Vehicles we're gonna assume a 10 take rate. Okay, I actually have it at 10 take rate.

The reason I did a 10 take rate rather than the current take rate of 20 or the potential forecast to take rate of 30 or 40 percent by 2025 is because they did come out with a monthly option to pay monthly for this. So I don't think it'll all translate down to uh cash flow. Although a lot of people will sign up for full self-driving as part of their Uh amortization for their loan. which basically means Tesla's paying for getting the money up front.

So I think I'm actually very conservative. Bottom line: I think I'm very conservative on a 10 take rate here 25 margin. We know that Tesla's probably going to go to about a 20 gross margin. Their goal is 30.

I'm just going to go with about a 25 margin here and I'm mostly going to leave Uh Energy and Services out of this. I'll have a little bit in here for uh leases Services energy I have about uh one percent over here and I have margin of energy of only 18. Some people think you could massively 10x these numbers. You could probably have a margin of 50 here and maybe 10.

uh, you know, 10x the energy Revenue I'm just going to call that icing on the cake as well as a higher take rate for FSC That's just icing on the cake for me. So in my opinion, as long as Tesla's growing earnings per share in excess of 30 and we take a PEG ratio of one, you know at that level of about 1.6 Well, PEG ratio of about 1.6 percent would drive us to about a 500 reasonable price target for Tesla by 2025.. the present value for Tesla is about 210 dollars per share, which gets you about a compounded annual rate of return of about 34. That's pretty substantial.

Now that's not a guarantee, right? Still, pretty substantial. Not a guarantee of course, but it's great. It's fantastic. So uh, that sort of gives you just a catch up on this.

So what does Barclays tell us here? Well, they talk about Master Plan Two again. You know, coming out with full self-driving being much more capable. 10x safer than manual learning. So what is this next? Master Plan 3 likely to reveal? Well, Barclays believes that their Generation 3 platform is going to be what we get revealed and it will be the basis for the quote-unquote Model Two.

Now this is really interesting because I Personally don't think there's going to be an announced model too unless it's specifically for the Chinese market. I Actually think the model 3 is the model two? I think the model 3 is what Tesla wants to reduce its cost in by about 50. And if they can reduce their cost on the model 3 by 50, then that's fantastic Because right now you're running at a margin of you're running at a cost of about 32 250 for the car are. If they could reduce that to about sixteen thousand five hundred bucks and they want to operate at a margin of twenty five percent, Well now all of a sudden you've got a car that probably could sell uh for about Let's see if I divide it that car at actually even a 30 margin.

if 16 000 represents seventy percent. There we go: you get a car that costs only about twenty three thousand dollars. So in other words, if they could reduce the cost of the Model three today by fifty percent, they could sell the model three for twenty five thousand dollars and actually make more profit. Phenomenal! So I Actually personally think the model 3 is the next model too.

but Arc Invest thinks they're going to announce a new model too today. Uh, or some kind of new model vehicle today. Uh, Barclays thinks that they're going to announce the basis for the model too, especially given that Tesla right now is primarily positioned for the luxury Market Uh, and they say that in order for Tesla to actually achieve that 20 million volume number that they're trying to achieve by the end of the decade or at some point in the future, then they need to have some kind of 25 000 the taller vehicle. Again, my take is that's already the Model 3 and just reducing the cost there.

Now they have a different opinion. They base that opinion on Elon Musk suggesting that the vehicle will be smaller than the Model 3 Model y platform and it will shortly exceed the production of all of our other vehicles combined. I Think they mean surely here surely here. But but anyway, uh Elon Musk apply implied in the Q3 earnings call that Tesla will aim for a 50 cost of goods sold reduction and uh Barclays here is suggesting they think they're going to see somewhat similar of an investor day today.

Like what we saw at battery Day Battery day is basically where they showed like pictures of of the batteries uh, the 4680 cells and how they're able to increase the efficiency of these batteries while reducing costs. Now I'm a little skeptical about how great some of these things are because the battery is bigger, right? Like of course, a battery cell that's larger has five times more energy or six times potentially more power. It's a bigger cell. You know? it's kind of like going from a C battery to a D battery.

So I'm a little skeptical there. But I do think they'll get some kind of marginal improvements like you know, maybe 16. More efficiency or whatever we want to see is today going to be a realistic path to potentially lower cost of production. Are we going to see more Giga castings? Can we do the whole you know? Can we do the front, the back and the bottom? not just those in Giga Uh, you know via Giga castings? But can we do bigger vehicles like maybe Vans like Sprinter vans.

Can we cast together Sprinter vans from Tesla and then have full self-driving Sprint advance I Love the Sprinter van. By the way, I think Tesla needs to get in that market. There really is no Mommy car for Tesla By the way, if you have two kids. best case scenario: you have a five seat model X or model why and then you actually have some trunk space.

But if you have any more than two kids or you have the seven seed option for the model of or even the six seat option for the model X or Y, you're screwed. Your trunk space goes down to zero. You ain't putting a stroller in as soon as you have a third kid, you're screwed. There is no three child mommy Tesla car you need.

You need to go to a minivan. And personally, I think that sucks. Don't get me wrong, I'm not trying to offend minivan folks. We own a minivan and it's the most functional car we have.

Uh, you know when we got to take uh, the in-laws the kids me and Lauren we got two kids to the airport and have all our luggage. The minivan works. as soon as we have one other kid, we're screwed. and we have to have a Sprinter van which I'm really excited about Lauren's like I don't know man I don't want to drop my kids off at a sprinter van I'm like this is why we need a mommy car anyway.

like that's not a minivan. But anyway, they talk here about cost reductions coming uh to batteries, potentially increasing scale, vertical integration, structural improvements, structural castings, manufacturing improvements, and trying to reduce manufacturing floor space by 50 for their third Gen platform. Now it's worth noting that they are looking at, uh, potentially announcing today, the Mexico Gigafactory that would be about three hours from a Giga Texas The Mexico Gigafactory is expected to see about one billion dollars of Capex Investments soon and up to 10 billion dollars of Capex Investments over time. We actually actually also just got this update here that in addition to potentially announcing an actual Gigafactory in Northeast Mexico, now there's an update just now coming in that Tesla is considering opening an electric battery vehicle or an electric battery plant I'm sorry, not a vehicle plant in Central Mexico So not just a Gigafactory in Northeast Mexico Where remember in California we're paying like 20 bucks an hour for workers and taxes you're paying like 15 bucks an hour for workers in Northeast Mexico You're paying like three dollars and 40 cents.

uh, per hour for labor in Northeast Mexico Some people are like oh my God that's exploitation But Realize, like capitalism that brings more work to those areas drives wages up in those areas. so this actually helps those areas get wages up. Uh, but anyway, the United Auto Workers Union by the way, in the United States is like punching the air right now. they're like damn you Elon Musk going to Mexico And that's because the Inflation Reduction Act uh, which is important for capitalizing on that 7 500 vehicle tax credit which you have over here and Barclays mentioned as well.

Uh, it means that Tesla has to Source its battery materials from North America and then assemble the stuff in North America Well look low and Below Lo and behold, new Tesla Nuevo Leon Plant could create up to 6 000 jobs battery plan in central Mexico Fantastic! So again, Lower costs for Tesla You help increase wages in Mexico You have a substantially lower cost of doing business and you meet the benefit of the Inflation Reduction act. Now maybe that wasn't the political intention. Maybe the political intention was to have Tesla manufacturers up here, but instead they're not doing it in Mexico because they can. But hey, that's The politicians problems.

And that's exactly why the United Auto Workers Union Here's an example of what Barclays thinks for