Apple’s Headset Strategy & Tesla’s EV Sales Windfall

18:13Lou Whiteman:I want to know not what happened in the last three months. I want to know what to expect the next three, six months to come. And I think that that is at least a little bit of a window into what's going on out there.

18:24Travis Hoium:Lou, do you think tariffs is going to be a bigger topic of discussion or less than it was over the last two quarters? And I'll say maybe the second quarter, because first quarter was a lot of like, we have no idea what's going on. Second quarter, companies have kind of gotten their heads around it. third quarter, now we're really in it. Are we going to hear a lot about it, or is it going to just be in the background?

18:45Lou Whiteman:I think we're going to hear a ton about it, but I think it's going to be in the guidance side, because we're in the holiday quarter now. I think that that's going to be front of mind. Travis, I've used this with you before, the boiling frog analogy, that tariffs are not a light switch. It's just over time, suddenly, whoa, what happened? The holiday season seems like, If I was a CEO, that would be front of mind for me at the holiday season. And so I think you'll be hearing about it a lot in the guidance.

19:11Travis Hoium:It is going to be fascinating to see what companies can, who has pricing power, who doesn't, who has to, like you said, eat those tariffs and who's able to pass them on to customers and where they're impacting. A lot to learn over the next few weeks. When we come back, I'm going to have Emily and Lou take an over or under position on a bunch of predictions for the rest of the year. You're listening to Motley Fool Money.

19:40Lou Whiteman:As a podcaster, my voice is heard by thousands. And now with Vanguard Investor Choice, I can be heard by the companies that I invest in too. Vanguard Investor Choice makes it easy to set your proxy voting preference for your Vanguard index funds. In just a few clicks, you can make your voice heard on important shareholder topics like executive pay and direct our elections. Visit vanguard.com slash investor choice to learn more. Vanguard investors own shares of Vanguard index funds and those funds own shares of the companies they invest in. Available for Vanguard index funds that participate in investor choice.

20:14Lou Whiteman:Vanguard Marketing Corporation Distributor.

20:21Travis Hoium:Welcome back to Motley Fool Money. Today we're going to play a little game called Over Under. I'm going to give a prediction about something that's going to happen in the economy or the market. And Emily and Lou are going to guess whether they think there's going to be an over or under. So let's start with the topic that we discussed earlier, Meta's glasses. They sold about a million pairs of these smart glasses in 2024. That's a pretty big number. My question is, are they going to sell over or under 5 million units in 2028? Emily, I'm going to have you first, go first, over or under$5 million?

20:59Yeah. I feel like this will come as no surprise for anybody who listened to the first half of the show, but I have to go under here. I just don't see the use cases for it on Metis side. When you look at Metis Financials, this business spent more on CapEx in the last 12 months than the business generated in operating cash flow in all of 2022. They are just throwing money at the wall. It's amazing to me how much money they're investing into various things, but nothing is sticking with consumers. And ultimately, you can't force a consumer to come out and buy a new product if they don't see a use case for it.

21:32So it's amazing to me that they even sold a million units in 2024. That is peak hype, in my opinion. And unless something really sticks here for Meta, I expect that number to actually fall over the course of the next few years.

21:45Lou Whiteman:Wow. Okay. I am going to use Emily's words and come to the conclusion that over. Because yes, Zuck needs this. And Zuck is more than willing to spend money. And Zuck is still sort of hurting about metaverse.

21:59Travis Hoium:You may just give them away.

22:00Lou Whiteman:I mean, I wasn't going to go quite that far, but since you got there, I don't think that profitability, I mean, I'm glad we're talking volume. We're talking units, not profitability or success here.

22:13Travis Hoium:But yeah, I don't think we're under the delusion that these are going to be profitable in the next three years.

22:17Lou Whiteman:My guess is he's going to move these darn things come higher high water.

22:21Travis Hoium:This will be interesting because I do think the adoption of the VR space really hit a wall. But glasses are different. Glasses are a little bit more passive. They're not quite lower cost, which is, I think, interesting. You know,$800 for these new display glasses. But there's definitely a market for it. The other thing to think about, too, is if you bought one in 2024, when are you going to want to update that? if there's not a lot of new features, that could be a headwind too. So we'll be fascinated to see how successful or unsuccessful Meta is moving into more of the glasses space. Let's go to the overall economy.

22:58Travis Hoium:And I want to get your thoughts on mortgage rates. And the reason that I think this is important is housing is a huge driver of the economy. A huge portion of our money is spent on rents, on mortgages, provides tons of jobs. And higher mortgage rates, at least than we've had over the past decade, has been a real headwind. Fed funds rate is coming down. The rate that the Fed controls is coming down. The problem is the longer term rates that drive mortgage rates and the borrowing rates for companies is not coming down kind of at the same rate. So right now we have a mortgage rate average of about 6.3%.

23:38Travis Hoium:A year from now, do you think those mortgage rates are going to be over or under 6 %? So down just slightly from where we are today. Lou, I'll have you go first.

23:47Lou Whiteman:Yeah, we're getting a real-time lesson in the limits to the Fed's power, aren't we? There's just so much going on other than the Fed that's driving these long-term rates. I am going under, and I'm not sure it's a good thing. I am all over the place of what's going to happen in the economy in the next year. But I am increasingly worried, I think. And I think that there's going to need to be more and more aggressiveness. And I think housing is a natural place for both politics and policy to get involved here. So I don't want to go too much under there, but I have a feeling we'll be eventually pushed downward one way or the other.

24:27It might be a hot take here, but we're sitting at about 6 % right now. And I think the general expectation is that the housing market can't handle these high rates for very much longer, and that the Fed is going to continue to cut rates, which eventually, hopefully, even though there is obviously a disconnect here between what the Fed is doing and what lenders are doing, that will eventually come down. But I have to say over. I think mortgage rates are going to be over 6 % one year from now. And the reason is, is because I don't actually think we're going to get as many rate cuts as the market is expecting.

24:58And I think that tepidness is going to pull over into the market for mortgages. And the reason I say that is because a lot of the inflation data, despite the fact that it has cooled off and it's come down, although obviously not to the Fed's target rates, I expect that will probably heat up as a lot more of these price increases from tariffs are passed along to consumers in the back half of this year. A lot of that evidence has shown that companies so far have eaten the price of these tariffs. And that is eventually, that dam is eventually going to break. And in my opinion, that's unfortunately going to impact interest rates.

25:32Travis Hoium:I do think it is interesting that we have not really seen, we've been talking about this on these shows for months. We have not really seen the impact of tariffs yet. You know, the, the inventory cycle for a lot of these companies is not a month or two. So if tariffs went in place, April 2nd. It's not like you're going to see that in stores. Even in June, they were planning in April for now, for the holidays. And so this is when we're going to see those price increases. I mean, I have kids. We're buying stuff for them all the time. And you're seeing those prices go up. I'm interested to see if that impacts consumers.

26:12Travis Hoium:So Emily, is your point just that the market is going to say, you know what? Sure, these rates are going to come down short-term, but long-term, they're going to have to go back up to fight inflation? Yeah, I think it's going to be a combination between a weaker labor market and inflation here that is going to put the Fed in a bit of an odd position. And ultimately, I think whenever you see broader economic concerns in combination with the dynamics that we're seeing in terms of the housing market today, I would just be surprised if rates fall that dramatically within one year. I hope I am wrong.

26:45I do tend to be a pessimist and I like to be pleasantly surprised. So I hope a year from now, we're sitting here in October, 2026, talking about our nice four to 5 % mortgages. But that feels like a pipe dream to me these days.

26:56Lou Whiteman:You know, it's fascinating, Emily's I'm kind of pessimistic too, but I think in the near term, it's easier to play games with it. And in the longterm, it eventually comes back to bite you. So I'm kind of focused on the one year too, but who knows? That's what makes market, right?

27:10Travis Hoium:All right, let's quickly do an over-under on the number of Fed rate cuts in the next 12 months. Emily, it sounds like you're going under three. That's where I'm going to set the bar. But is that officially your call? Yeah, it is. In fact, I'll tell you what, in the next 12 months, I will even go further. I think we have maybe one rate cut. So the market is pricing in two this year. Yes. You don't think that's going to happen in 12 months? I don't. I've talked about this on Motley Fool Money in the past, I believe. I think I expected one rate cut in September, which we got. And despite the fact that all of the blind polling here from the Federal Reserve does indicate that even the people on the panel themselves expect a number of rate cuts over the remainder of the year, we don't have, obviously, with the government shutdown, our most recent jobs data.

27:58And inflation has not moderated. I can't emphasize this enough. It has not moderated to the extent that the Fed wants it to moderate. It's still well above their target rate. We've actually seen it accelerate on a month-over-month basis. And there's a fair bit of evidence that despite the fact that tariffs have not had the impact that I think a lot of economists and investors fear to this point, which is wonderful, that that shoe is, in my opinion, likely to drop towards the back half of the year. Again, I really hope I'm wrong here. I really hope mortgage rates come down. I really hope we have three rate cuts.

28:28But I'm betting on one rate cut in the next year.

28:31Lou Whiteman:Yeah, I really hope I'm wrong-ger. Because for the record, I agree with, if you want me, I play pundit. I agree with everything Emily said. I was reluctant to even cut the first time. I'm scared about that. And I don't want rate cuts. I'm worried about inflation. But again, I think politics plays into this. And especially as the year goes on with the Fed, I think market dynamics is providing pressure. Officially, I would push to three. I think we are at three. But if anything, if you force me not to push, I'm going to take the over. That scares me a bit. But I do think that the pressure on the Fed to cut rates is only going to accelerate as Powell steps away and does other changes and as just kind of assist the situation.

29:18Lou Whiteman:I'm afraid we are going to deteriorate some from here.

29:22Travis Hoium:Lou, I did allow you to push on that one, but this one, we're going to make things a little bit more difficult. NVIDIA is the most valuable company in the world, $4.6 trillion market cap, Microsoft for 3.9, Apple 3.8 trillion. My question for you, is NVIDIA going to be over or under the 1.5? So basically, are they going to be first or are they going to be lower than first most valuable company on January 1st, 2030. So you have a little over four years between now and then, are they going to maintain this ranking?

30:00Lou Whiteman:Any good gambler has to take the field on that. And I'm going to take the field and say under, however, NVIDIA is a pretty good choice to, um, to be there. It's a great company. They have staying power, but now, if you're going to give me every company or NVIDIA and have it play out four years, I'll take everybody else. Yeah. Unfortunately, if you look historically speaking, companies that are the largest in the world, when you zoom out in a five to 10 year period, don't tend to maintain that positioning. So I have to agree with Lou here that I think it's probably going to take the under. That being said, if anybody can do it, it's Nvidia.

30:37And so this would be, and you hate as an investor to say, you know, this time is different, but this could be the exception to the rule.

30:45Travis Hoium:We'll end on this one. I want to get your S &P 500 picks over the next 12 months. Over or under 7 ,000. And as we're recording, we're at about 6 ,750. So I'm giving a little bit of a gain, 5 % gain or so. Do you think a year from now, we are over or under 7 ,000 on the S &P 500, Emily? So this is an interesting question because I think everyone and their dog will tell you right now that the S &P 500 is overvalued. The market is overvalued. We have all of these headwinds. Consumers are feeling hurt. I mean, the government, as we are talking, is literally shut down and the stock market is up. The market doesn't care.

31:27Exactly. There is this real disconnect that's happening between the American consumer, the American economy, and I guess general vibes of the American people here versus what we're seeing in the market. So I fear that the irrationality to some extent can maintain over the course of the next year because it hasn't made a lot of sense to this point. That being said, I can't get behind why that would be. So I have to take the under. I think it's less than five. In fact, I think the stock market's probably down from where we are today, a year from now. Again, I hope I'm wrong and pessimists sound smart.

32:04Optimists tend to make more money. So I'm staying fully invested regardless of what my short-term prediction is for the markets. But it's hard for me to rationalize how the market could go up from here, given the factors and the headwinds that we're seeing in the broader economy.

32:17Lou Whiteman:It's hard to disagree with that. And I've been all doom and gloom when we're talking about the Fed and stuff. But here's the deal. I do think that it's quote unquote priced in. I think one of the weird things is Liberation Day was such a shock that we kind of just normalized that or, We kind of became immune to that real quick. I am more confident that we aren't going massively in one direction or the other. I think it's going to just be a grind, but I'm going to take the over. I think that we can just grind along almost regardless of what's going on on Main Street for a while.

32:50Travis Hoium:When we come back, we will get to stocks on our radar. You are listening to Motley Fool Money. Friend, when you go, hope you cure your disease.

33:03Lou Whiteman:Pick up the pieces and dust off the jeans And I'll hit the highway

33:12Travis Hoium:You know it helps with the grief

33:17Lou Whiteman:You go your way and take part of me And I hope you're wrong about destiny on how we are bound by rage and tragedy.

33:37Travis Hoium:Our shackles are strong and the road is steep. But when you were gone, brother, it's all...

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34:54Travis Hoium:and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. One of the interesting news items for the week is Spotify founder and CEO Daniel Eck is stepping down. He is going to be replaced by co-CEOs, Gustav Saderstrom and Alex Nordstrom. Emily, this has been a phenomenal run for Spotify and for Eck over the past three years. I think they've kind of solidified their business model. But going with the CEO, the co-CEO strategy seems to be a trend too. So what did you take away from this announcement?

35:31I was really disappointed by this announcement because as you mentioned, Travis, while it looks good for Spotify over the last couple of years, it wasn't always the case. And when Spotify first went public, part of my conviction behind the business was the way that Dan Eck talked about the company being very focused on the long term. And investors can forget that there is a period for Spotify there, a very long period, where investors were very pessimistic, believing that Spotify would never be able to get its gross margin above 30 % because of the limits and the caps on the way that the licensing agreements for music operated.

36:02And Dan Eck had a really impressive long-term vision for what the Spotify platform could be. And he really did execute well on that, raised prices when it was appropriate, while expanding into things like audiobooks and podcasting, of which so many people, even internally in Spotify, were very skeptical about his investments there. and Eck kind of led that initiative. So it's disappointing to see him leave, even though he will stay on his executive chair. I don't love co-CEOs in general, but I will say if anybody can pull it off, it's possibly this pair. Nordstrom and Soddersam have already acted kind of together as co-presidents of Spotify.

36:36They seem to have different expertise, one more product, one more operational. So hopefully they'll find a way to marry in that sense, but the devil's always in the details. And it's scary when you have a founder CEO leaving the helm of a great company.

36:49Lou Whiteman:Everything in my gut makes me want to hate the co-CEO structure. You need one person in charge. I think I need to get over that, though. We've seen it in a lot of companies. I do think, look, the CEO title has always been vague. It means different things in different companies. It's too much for one human being to do all the work of a big company. Average tenure of CEOs is falling, so you need to have a lot of talent there. I think if you look at this case, and I think there's a good chance it works, I think the idea of just we're almost just recategorizing what we call people. And when inevitably nobody was multitasking everything and everybody had different roles anyway, I think what's evolving more is just how we describe these things, not how companies work.

37:34Lou Whiteman:You need the right people. You need well-defined roles. You need maybe a founder as executive chairman to play referee if needed. I think it can work, and I need to be less scared of it. So hopefully for the best year.

37:47Travis Hoium:It has been interesting to see Netflix has done a similar thing where they have different expertise. And so it does seem like kind of a two-headed dragon at the top. And these companies are so big now that maybe that makes sense because it's a huge job to fill. Let's get to the stocks that are on our radar. We're going to bring in Dan Boyd from behind the glass. Lou, I'm going to have you go first. What's on your radar this week?

38:07Lou Whiteman:Dan, I'm looking at Delta Airlines, ticker D-A-L. They kick off transport earnings next week, Thursday, I think. Should set the tone not just for airlines, but could provide insight into the consumer, into big macro and all that. Baseline expectations is that corporate travel is holding up better than tourists, international is steady, and premium products are in demand. If that proves true, that is really, really good news for investors, not just in Delta, but in United too, which I think Delta and United are probably the best stocks in this sector. very curious to hear what they have to say and what we can read into the entire sector from them.

38:42Travis Hoium:Dan, what do you think about getting into airline stocks? Now, Lou, you are a Georgia guy. So how much of this is blind homerism?

38:52Lou Whiteman:I haven't lived in Georgia that long.

38:55Travis Hoium:So none? You're saying none is blind homerism?

38:57Lou Whiteman:No, no, no. I don't believe it. I don't believe that for a second. Look, Dan, as someone who flies Delta regularly, I have all the reason in the world to hate them. Trust me. Fair enough.

39:07Travis Hoium:All right. Emily, what's on your watch list? Hopefully a stock that generates a little less hate than Delta Airlines. I'm looking at Mercado Libre. The ticker is M-E-L-I. Mercado Libre shares are down about 15 % this week because this e-commerce behemoth that operates in South America looks like it's getting a bit of renewed competition from Amazon. Amazon announcing that in their attempt to expand their presence in Brazil, they'd be waiving additional fees for sellers and fulfillment by Amazon throughout the country over the holiday season. And in my opinion, this is a great buying opportunity, Dan.

39:41You have to listen to me here because MercadoLibre has been there, done that. C-Limited with the Shopee app, tried to move into Brazil and Latin America, South America a couple of years ago, and got absolutely trounced by MercadoLibre. MercadoLibre has by far the biggest lead in the space. I couldn't be less concerned for the lead they have here. And with shares off around 15%, I mean, what's a better time to be buying.

40:02Travis Hoium:Dan, Emily is going with a long-term winner compared to the troubling industry in the airlines. What do you think about Mercado Libre? I mean, she said, you have to listen to me, Travis. So I guess I have to listen to Emily now. Let this be a lesson to ask for what you want in life. So what's going on your watch list? Is it officially Mercado Libre? It's definitely going to be Mercado Libre. I think the price point might be a little too good to ignore these guys. For Lou Whiteman, Emily Flippen, our production leader, Dan Boyd, and the entire Motley Fool team, I'm Travis Hoyam. Thanks for listening to Motley Fool Money.

40:37Travis Hoium:We'll see you here tomorrow.