Morning Brew Daily - Mortgage Rates Skyrocket to 20-Year High & Is Tourism Helping or Hurting Maui?

Episode Date: August 18, 2023

Episode 128: Neal and Toby dive right in and discuss what has sent mortgage rates to the highest they have been in over 20 years and how US Treasury Yields are closing in on a 16-year high. They also discuss the debate in Hawaii of whether tourism could help or hurt Maui as the island recovers from devastating wild fires. Also, if you're investing your 401k properly you could be a millionaire by the time retirement comes around. The guys share their stock and dog of the week and James Harden sells 10,000 bottles of his wine on a Chinese livestream. Finally what high schools are investing millions into dining options and football fields. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Listen to the Our Future Podcast Here: https://chartable.com/podcasts/our-future-looking-beyond-with-michael-sikand Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash US slash brew AI. That's pwc.com slash us slash brew aI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. On today's pod, tensions are rising in Maui over whether tourists should be encouraged to come to areas of the island not hit by wildfires. And we'll tell you how NBA player James Hardin sold 10,000 bottles of wine in 10 seconds. Then we'll dig into some 401k data from Fidelity that shows the use are actually all right when it comes to savings.

Plus, one small golf company quietly had the best IPO of the year this week, so you know Neil and I have to dig into that. It's Friday, August 18th. Let's ride. All right, Toby, did you see what we wrote about in our intro in the newsletter this morning? We get up too early. The newsletter hasn't hit my inbox. I know. It's coming out right now. Anyway, kind of mind-blowing fact from Neil deGrasse Tyson that he posted in a TikTok video.

Basically, he said the number of ways you can shuffle a deck of 52 cards is so low. unfathomably large, 52 factorial, that there likely has never been two shuffled card decks with the same exact sequence in the history of playing cards. Oh my gosh. I'm trying to wrap my mind around that right now. I have played a lot of poker in my life too, and I find it hard to believe that I've never had the same deck because I swear I have been screwed multiple times. All the comments were like, then why does the dealer hit 21 when I hit 30? Yeah, exactly, exactly. Wait, I kind of have a fact, though, that I didn't know that I was getting this fact, but here's one for you. There's more estimated combinations of the game of chess than there are atoms in the universe.

Okay. And that is including illegal moves, though. And so that number is between 10 to the 111th power to 10 to the 123rd power of positions, which that is truly mind-blowing. So it makes sense that a robot could beat all of us because he can do that computing power and our brains are so small compared to that. Yeah. I don't know.

When you're talking, it just makes me think about when you're talking about probabilities, with such big numbers, it gets so big factorials. Oh, I know. You know, like 53 factorial compared to 52 factorial is even exponentially larger. Yeah. All right, but let's bring it back to Earth here. Fast week, slow week on Friday, Toby. Oh, my gosh.

Today was a slow week. It's just like the dog days of summer for me. It did drag on a little bit. Yeah. What about you? Fast week. I can't wait for us to, we have a little golf outing in the afternoon. and I was just envisioning the first tee shot all week.

We always have a golf outing. All right, Neil, let's jump into our top story of the day. Remember that housing compound that you and I were going to move into in Montana? Well, I'm backing out because mortgage rates are higher than big sky right now. According to government data released yesterday, the average mortgage rate rose to 7.09%, which is the highest level in more than 20 years. And those rates are translating into an affordable housing cost. crunch. New buyers are wary of those record high rates. Existing homeowners are loath to sell and give up

the super low rates they locked in, while a lack of new homes being built has constricted supply and jacked up prices. Mortgage rates also move in tandem with the 10-year treasury yield, which are also at their highest level since 2007, signaling that investors are looking for returns outside the safety of government bonds. So, Neil, it's a very ugly time to be a home buyer, yet the economy as a whole, appears to be, at least to investors, pretty strong and resilient. So what the heck is going on here? Well, we've been talking about this affordability housing crisis for a long time. And it just keeps getting worse and not better because mortgage rates continue to climb. And no one wants to move right now because 75% of mortgage holders have a rate of less than 4%. And so you've got to be out of

your mind if you want to leave your house. And so that leaves no inventory for people who want to buy. So basically what's happening in the housing market is it's frozen. It's led. It's August, but it's completely frozen. I like that. The median existing home price was over $410,000 in June, which is the second highest ever actually. Previously, it was a little bit higher, but still absolutely ridiculous. And it's so ridiculous, too, if we go back just a few years because rates were at those record lows during the high of the pandemic rates fell to right around 3%.

And then that led to a massive housing boom, skyrocketing prices in places like Phoenix and places like Austin, especially as remote workers look for more space. And then we just, we needed to do that record scratch freeze frame. Look at where we are now. And it's just crazy that we're touching the highest rates we've seen in two decades. And it really adds up. You can see why people don't want to switch a 4% mortgage for a 7% mortgage because, so here, I'm crunching some numbers here. If you buy a $500,000 house with a 20% down payment, so with a 4% mortgage rate with that down payment, you can expect to pay about $290,000 over 30 years in interest payments.

But with a 7% mortgage rate, you're paying $560,000 with an interest. So if you're just looking at that numbers, you're like, well, all right, maybe my home isn't the most perfect thing in the world, but it's not worth that much money. They add up quick. It's not quite 52 factorial, but those payments do add up. And you mentioned the yields, which I know a bunch of our listeners ears disclays over when I mentioned bond yields. But that's really what's driving this whole thing. And when you want to look for clues at what's going on in the economy, you kind of have to avert your gaze away from stocks, which are very volatile and may just represent the performance of a few companies.

And look at bond yields, which are really what investors bet on to, you know, invest in the future of the economy. and bond yields are surging the 10-year yield hit a highest level since 2007. So this is investors betting that there is a strong economy, that the Fed is going to have to keep interest rates higher for longer, and that this whole maybe soft landing might come into play, but the Fed is not going to reduce interest rates anytime soon, so that mortgage rate is going to stay very high for a long time, which is going to put further chill on the housing market. Yeah, people are kind of coming to terms with that fact. And then if we just want to zoom out for another kind of proxy for the,

the economy. Walmart reported earnings this week and absolutely crushed it. They beat sales, expectations. Same source sales from Walmart grew by 6.4%. In contrast to target sales, which we spoke about yesterday, which fell by 4.9%. And the general consensus is Walmart is the big box retailer for people who are looking for more affordable prices. They sell a lot of staple goods, like their grocery business is massive. And so if Walmart is doing well, it usually means that people, like the economy as a whole, is doing pretty well, just because, or doing well in terms of if we're in an environment with high inflation, Walmart tends to do well because they still can offer the best prices.

So that's a good proxy for kind of how the economy on a whole. So what we're seeing is a very strong economy, but the Fed's interest rate hikes and their continued interest rate hikes because they might still do it. Who knows is hitting the housing market really hard. All right, let's head back to Mowler. where the death toll from the wildfires now stands at at least 111 people, and the financial costs are expected to top $5 billion. As recovery efforts continue, tensions are rising over whether tourists should be encouraged backed on the island.

On one hand, you have many locals who say that now is not the time for out-of-towners to come on vacation, taking up resources that should be devoted to helping everyone who lost their homes and businesses and livelihoods from the fire. the actor Jason Mamoa encapsulated this vibe last weekend when he said, do not convince yourself that your presence is needed on an island that is suffering this deeply. But on the other hand, you have officials like the Maui mayor saying, it's totally fine to come, just don't go to the devastated west side of the island. The rest of Maui is still open, he said, we've not shut down. And the Hawaii Tourism Authority is still encouraging visitors to keep their plans,

but also avoid going to the west side. And that's because tourism is the only economic game. in town, accounting for four of every five dollars made in Maui. So what's clear is that after the fire, the simmering tensions native Hawaiians have with tourism has erupted into a full boil. Locals have increasingly chaped at tourists coming in and putting extra strain on already fragile natural ecosystems and the site of visitors enjoying themselves on the beach while their grieving only exacerbates the feeling that this dynamic has to change.

And this actually sparked a really interesting debate among the brewwriters this week, whether it'd be ethical to travel to Maui right now. Yeah, I mean, I do think that initial anti-tourism push that we saw from Jason and Moa saw from some prominent people was because resources were just so valuable in those first few days after the fire. Every hotel room counted, every bit of running water, every bit of electricity needed to go to someone who had been displaced by the fires. But then if you zoom out just a little bit, Maui can't tell tourists to stay away forever

because it's truly the lifeblood of their economy. You mentioned that four out of five dollars generated on Maui come from tourists. So I do think that as we get further and further from the actual disaster, of course, tourists are going to have to come back because it's just the reality of their economy. Yeah, I think there's just been a longstanding antagonism to tourists because they have been seen as prioritized. Like, basically resources are scarce on Maui. It is a island in the middle of the Pacific and it has very fragile ecosystems that are already getting battered by climate change. And then you have hordes of tourists coming in. At some points, you have one out of every three people on this island is a tourist.

So they're already putting pressure. And then there's this sense that they are prioritized over locals. Last year, there were, you know, water cuts because of a drought. And the, you know, golf resorts and the other tourist hotspots were prioritized while locals were told to reduce their water use. So you have this already strained relationship that kind of blew up over the course of the wildfires. So when you hear stuff like that, it becomes very easy to kind of get mad at tourists. I mean, it's not technically their fault. It was someone's decision to prioritize water usage.

And then you've also been seeing this kind of name and shame discourse that's been happening in the wake of the fires where there's an Instagram video that went relatively viral of a native Hawaiian posting a video of tourists snorkeling off the coast of Maui. And everyone's like, just not time for it. But then the tourist agency had already posted. that we are doing this event to donate all the proceeds to Maui. So again, that is a perfect encapsulation of the discourse where someone is trying to use tourism for good and yet it's still a bad look.

So it's just complicated. I think like landing in Maui right now, I just would not feel. It just doesn't quite feel. There's so many other places. But then you're like, well, I should support the economy because these people left lost everything in this. I think just donate, right? Yeah, there's got to be other ways.

But like I just cannot imagine boarding a flight to Hawaii right now. Yeah, for sure. All right, now let's move on to our next story where we have some good news for those of you who have remained committed to your 401k savings accounts over the years. The average 401k balance is up 39% in the past decade, according to Fidelity, while the number of people with at least $1 million in their 401k accounts has grown about 25% so far this year alone. There were two main characteristics that Fidelity identified about those in the two comma club. one, the average age of a 401k millionaire is 59, and two, they save an average of 17.2% of their pay.

So, Neil, if you want to be a millionaire, get old and save a lot in the process. Slow and steady, baby. Slow and steady. Anything else stand out to you from this 401k data dump we got? I thought that the student loan data was interesting, so a lot of borrowers that didn't have to pay their student loan back over the course of this freeze over the past three years. piled into 401k savings, which is good to hear, right? Very good, yeah. So I think close to 75% of student loan borrowers put at least 5% of their pre-tax

salaries during this period into 401ks during this period when payments were paused, and before that it was just 63%. So you definitely saw a surge there. So that stood out. But the biggest thing here is you've got to just stock away a lot of money for a long time, and only then will you feel like somewhat comfortable retiring because costs of everything has gone so out. You mentioned prices of housing. So imagine, you know, trying to pay off a mortgage when you're not really having a steady income besides your retirement fund and Social Security.

That Fidelity did say, like, we do realize that a million is not what it used to be. It's always been this symbolic number for retirees, but obviously with inflation, it doesn't go as far. This actually isn't peak millionaire, though, peak 401k millionaire. That came back in the final three months of 2021, which, again, it was post kind of stimulus checks, post-student loans. loans being paused. The stock market kind of ripped post-2020, so that was peak millionaire, but I mean, obviously it's done really well. The S&P's up 16.7% this year, which contributes to the 401K balances going up as well. And then also young people are doing pretty well. The Gen Z workers' balances jump 66% over the past year. I'm not going to say the number yet

because to what the balances are at. It's kind of funny, while boomers only rose 6.3%, but Gen Z's balance is $8,000. Average balance is $8,100. While boomers, obviously it's going to jump higher. Boomers only rose to $220,000. So obviously it's in context, but like millennials have, if you're checking your 401K balance,

which I don't actually recommend doing, you might see a pretty big green arrow this year. Maybe it's because Gen Z is, you know, you can select which fund you go in. Maybe they go in the meme stuff. fun. Oh my gosh. Instead of like the long-term small cap, you know, EGF, Vanguard.

Gen Z, what are we going to do with you? All right, before we jump into our next story, we're going to take a quick break. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill 3-burner gas grill, or get $50 off a select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights. that bring it all together. Shop spring backyard days for seven days at the Home Depot.

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The biggest prize in Yamaba's history. Club Serrano members can earn daily instant prizes and secure a spot in the finale May 29th. pass go and own it all only at Yamava celebrating its 40th anniversary you win details at yamava dot com must be 21-20 please gamble responsibly monopoly is a trademark of hasbro has bro has not a sponsor of this promotion all right neil we are back with our friday segment stock of the week dog of the week where we look at one stock that you totally go to for a relationship advice and one stock that thinks leonarro decaprio is relationship goals i won the pre-show slapboxing match so i'll go first but as always do remember that we are just

humble podcasters, so please don't take any of this as financial or relationship advice. And our stock of the week is Sacks Parente Golf. What if I told you, Neil, that this little-known maker of putters had the best IPO of the year this week. After listing on Tuesday, shares of the golf equipment company skyrocketed 624% on its first day of trading. It closed just shy of $29 a share after listing at $4. But much like my actual golf game, it couldn't sustain its high level of performance. We'll see about that.

85% the next day to settle at 447 a share, which was still above its listing price. Pretty solid, right? Well, again, like my golf games, things continued to spiral yesterday with the stock falling another 29% to close below its IPO price. So maybe this shouldn't be stock of the week after all, but we're making an exception because it's not every day

that a golf company that makes $400 putters has the best IPO of the year. Yeah. I mean, I think it's the first golf IPO since the titleless parent went public in 2016. I don't know, man. This company dissed $190,000 in sales in 2022, which is maybe five of it. So it sold five putters, basically. Yeah. I don't know whether this market is ripe for disruption.

I mean, we both pay attention to golf a lot. And there's a lot of legacy makers out there. There's the Scotty Cameron Putter that is lauded. It's used by a lot of pros. And you have just Titleist and Calloway and all of these Mizuno and all of these other big sporting goods, golf equipment makers that, you know, I think a lot of golfers have a lot of affiliation with. And if you had never heard of this company before, then that surprises me. And I'm just not sure if it can break in. I'd never heard of it.

I've never seen one either, but I was doing some digging into it. It's founded by two retirees with who are just sitting around. They both started talking. They both realized they knew a lot about the golf club making process. So they decided to found this company. And their whole thing is that their putters have a really high MOI, which is a moment of a Russia. So they have a ton of weight on the front and the back of the putter. So they do have some technological innovation.

And they just make, they say, really high quality putters. And I mean, golf people are insane. If any new putter comes out, of course people are going to look to it, see if it improves their game. at any way. And then also if you just want to look at it from a stock perspective, I mean, Calloway's valued at $3.1 billion. So there is... That's because they have top golf. They have top golf. They have, they make equipment just beyond actual putters. But if you want it to bowl case, I guess you could say, well, if it turns into tidalus or it turns into Callaway, then there is like this huge runway. But I don't know. What's the probability you get this putter in the next five years?

The probability is high. It's high as the MOI, I would say. All right. I could talk about that forever, but we have to move on. My dog of the week is CVS, who stock plunged 8% yesterday after getting a shark bite from none else than Mark Cuban. Here's what happened. Blue Shield of California, a major health insurer, said it's dropping its partnership with CVS's pharmacy benefit manager, CareMark, and instead we'll link up with five other companies to supply drugs, including Mark Cuban's cost plus drug company and Amazon Pharmacy. It's a big move that threatens the traditional system and Americans pay for drugs, which is through these pharmacy benefit managers like CVS's that negotiate drug prices with pharmaceutical makers in this opaque and complex process. Blue Shield of California thinks that a more piecemeal approach, like working with Cubans company to secure low-cost medications and Amazon for at-home drug delivery, it can ultimately lower drug prices for its 5 million members. So this isn't only a blow to CVS, but also an existential threat to this entire pharmacy benefit manager business that has come under a lot of fire recently.

And that's why you saw CVS competitors like Cigna shares fall yesterday. So this all depends on whether this ambitious new model that Blue Shield of California is pioneering is whether other insurers will follow its lead. I mean, Blue Shield CEO said that this new plan could save the company $500 million annually. So even if it kind of, I mean, you have to try that. Anytime you can save $500 million annually, you're going to have to experiment with it. It could blow up in their face. It could blow up in their face.

But, I mean, Mark Cuban set out to a lot of people in the back of their mind, it's like, why do drugs cost so much? Like, isn't there a better way to get just some brand name or not brand name drugs for less? And, I mean, he's doing it. And I didn't expect him to make this big of an inroad this quickly and just kind of almost disrupt the entire. industry. It's pretty impressive. All right, we have to move on. 76ers guard James Hardin isn't the most popular person in Philadelphia right now. He was mostly invisible in last year's playoffs and a few days ago called the team's general manager a liar burning all remaining bridges with the team.

But luckily for Hardin, he isn't in Philadelphia right now. He is in China. And this week, he experienced the power of Chinese live stream shopping firsthand. On Tuesday, Hardin went live with Chinese internet celebrity Crazy Brother Yang on China's version of TikTok, and Yang sold 10,000 bottles of Hardin's wine brand in seconds. At $60 for two bottles, that's $300,000 of product moved in the time it takes an opposing player to drive past Hardin for a layup. So Hardin, like all of us who have never seen live stream shopping in person, seemed genuinely shocked at what happened.

He laughed. There's this video where it shows him laughing. He said, no way. And then he did a cartwheel out of giddiness. 10,000 bottles of crappy wine in a few seconds. First of all, that was the fastest I've ever seen a move in years was him running to go do a cartwheel because he just made $300,000. But the data coming from this live stream was absurd.

They said 15 million viewers tuned in. I don't know how many of those are concurrent and how many of those were over the lifespan of it, but still, 15 years... Well, it didn't seem like it lasted a long time. It lasted like 15 seconds. It was crazy. And I mean, the concurrent view record on...

Twitch is 3.4 million. And this live stream had, again, concurrent is different than total. So who knows how many concurrent people were watching. But it had to be a significant amount to sell 10,000 bottles of wine in literally 10 seconds. It was crazy

to watch you because the guy claps his hands to go start buying and then he claps his hand and say stop buying. And so it could have been much bigger. It was truly just a power to show in an instant we can sell the bottles. It was such a flex because he goes like, hey, like how many How many bottles of wine do you think I can sell right now?

You know, he's like, just watch me. Like, I have such power. I'm a huge influencer. And live shopping, this live stream shopping market is so big and people are so primed to buy via this method that I can literally just like snap my fingers and move $300,000 worth of wine. Yeah, I mean, just to zoom out to the entire Chinese live streaming market, it's done $174 billion in sales in the first six months of this year. Crazy.

There's been over 2.7 million live streamers. that hosts 110 million shows. They've sold 70 million different kinds of products. This is such a big integral part of life in China, and yet no one's been able to figure it out in the U.S. so far. Like, TikTok's trying to do it, but it's just not working. We're not primed to do it. I mean, we look at the, it's kind of very similar to the MPC stuff.

I feel like, right? Like the NPC ice cream thing that we talked about a few weeks ago, it traces its lineage in part back to these live streaming events where people are paying for things, you know, to happen on the video. But yeah, it's really interesting how a lot of these social media companies are trying to make live stream shopping happen. But as of last year, it was only 2% of total e-commerce market in the U.S. and just 0.3% of the total retail market in the U.S. So we're clearly just not primed to shop this way.

But also, just another factor in the Hardin thing is that Chinese people are crazy about basketball and the NBA. Yeah, and they love James Hardin. Really? James Hardin has... You will learn. You will learn, guys. Like on the, he's been on this I hate Philly trail and he's been saying every time I come to China, I just feel crazy love here. They feel like, I feel like they deserve to actually see me play.

He said these things about China. So I could see James Harden to China happening in the near future. You know they loved Kobe. Yeah. They loved Kobe more than anything else. Absolutely. All right. To close out the week, it is back to school season.

And I want to talk about some high schools that are spending more money on their facilities than Saudi Arabia is. spending on soccer players. Well, not quite, but you'll hear it. It is a lot of money. First, let's head to my neck of the woods where I grew up, Western Massachusetts, to Deerfield Academy, which is your quintessential, super elite, super exclusive New England prep school. But apparently its eating areas could be a little fancier. So it's selling an $89 million municipal bond to finance the renovation of its dining hall. Okay, Deerfield takes its sit-down meals extremely seriously. More so than your mom who insisted that you all eat together at dinner when you grew up. The school says that sit-down meals provide an important opportunity for enhancing the community,

so it serves family-style meals seven times per week and also assigns students to a different table every three weeks so they can meet other students and teachers. So apparently perfecting this experience is worth taking out $89 million in debt. It's truly crazy, and the average boarding tuition for students is $68,000, which is $8,000, which is $8,000. which is just absurd, while commuter students pay $48,000. I mean, that's collegiate level stuff right there. I asked my parents to go, and they were like, absolutely not. Yeah, absolutely not. You should have sold them with the meal thing.

Like, Mom, I'll get to meet so many new people. Future presidents and the Koch brothers and like Rockefellers went there. So it's pretty hoity-toity. Do you know what the goat of expensive high schools is, though? Like Choate, maybe? IMG Academy, which is right in my hometown of Bradenton, Florida. Classic one upper right there. It can cost up to $90,000 to go there as if you're a full student athlete with room and board.

Absurd. So that's focused on sports. It's focused on sports. It is a, I mean, and their facilities are pretty much better than any college facilities. So I guess you can justify the pace. But $90,000 a year to go to high school. All right. Well, that is a good segue to the other high school I want to talk about, which is Walnut Grove High School in Prosper, Texas.

This pictures of this high school, which is completely brand new, was just built and opened in August. went viral on social media in the past few weeks because these facilities look like they are from a D1 SEC school. There is a 22-person 100, 200-person NBA-looking arena with a jumbo-tron in the middle kind of thing for its basketball. They have a food court that has a Sonic and a Jimmy Johns. And overall, this place is like, I can't believe high school goes, high school people go there. I know, it's crazy. I mean, and then, yeah, Texas is just truly, absurd when it comes to their high schools. I mean, you have towns with populations of 19,000 people, building stadiums that seat 10,000 people. It's crazy. With serving high schools that only have

1,500 total students. So it is truly amazing how big football is in that neck of the woods. And we just, I just can't wrap my mind. Did you see pictures of their weight room? Yeah. It's like 17 squat rat. We got to go there, Neil. Like, let's, again, we filmed a video about high school students getting free gym memberships. Let's just go back to high school just to use their gym facilities because, yeah, we need it. All right, Toby, before we go,

got to get your prediction. England versus Spain in the Women's World Cup final on Sunday. I told you, I refuse to give predictions. Well, we need your predictions, so our listeners know to bet on the opposite. Yeah, people have literally been messaging me. It's the reverse to be.

Yeah, reverse fade Toby. So I guess I'm going to back England because I want, I kind of want Spain to win. So I'm all in on England. The lionesses. All right, that's our show for today. Hope everyone has a wonderful Friday and weekend. If you're near McCarran Park in Brooklyn on Saturday, stop by. We'll be there playing wiffleball. Our email address is Morning Brew Daily

at Morningbrew.com. If you want to give us a shout about anything we talked about on this episode, let's roll the credits. Emily Milliron is our editor and producer, and noted James Hardin Hater, Samantha Bellas, and Raven Lou are associate producers. Isabel Wynn is our technical director. Billy Minino is on audio, hair and makeup announced their retirement after becoming a 401k millionaire, and Devin Emery is our chief content officer. Our show is a production of Morning Brew. Great show today, Neil. I wish you all well.

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