Snap’s “Crucible Moment” Flops On Wall Street

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2:10Mark Zandi:Welcome to Prof G Markets. I'm Ed Elson. It is June 18th. Let's check in on yesterday's market vitals. The major indices tumbled following the Federal Reserve's press conference. More on that in a moment. Treasury yields spiked, as did the dollar, and the odds of a rate hike before the year end are now at 62 % on Kalshi. Meanwhile, SpaceX declined for the first time since it went public, ending the day down 5%. Okay, what's happening? Snap just unveiled its new augmented reality glasses, and despite a lot of anticipation and a lot of hype, it was a bit of a flop. The glasses, called Snap Specs, feature an in-frame display which overlays apps onto the real world.

2:59Mark Zandi:They're priced at$2 ,195, making them significantly more expensive than Meta's Ray-Ban display glasses, which start at$800. CEO Evan Spiegel called Snap Specs a leapfrog advancement and the computer of the future. But the market doesn't seem to agree. The stock closed down almost 8 % today, and it's now off 40 % over the past year. So here to tell us more about the Snap specs and potentially why it was such a flop to Wall Street, we're speaking with Mark Gurman, Managing Editor and Chief Correspondent for Bloomberg News. Mark, thank you for joining us. These glosses are all over my social media feed and not in a good way.

3:47Mark Zandi:everyone is making fun of them and i gotta say i've looked at these things i've seen the way that they sit on evan spiegel's face particularly his ears um and i just think this thing is way too heavy and cumbersome and they don't seem to look very good and i wonder if that's the problem here what do you make of these snap specs and also the reaction to them i think for the available technology today, something that has augmented reality, something that's an all-in-one wearable headset, I think the design actually is quite good. And I think the price is actually quite reasonable for the tech. Now, I don't think it's reasonable for a mass consumer.

4:27I don't think anything of this ilk is going to become a hit at$2 ,200 US. But I do think for what the state of this technology is, they are in a fairly good place. I think the 8 % decline in their stock is more a reaction to how expensive these are to develop and build and how much money Snap is putting into this product that is unlikely to become a smash hit. So I think that's what the concern is stemming from. But in terms of the technology, it's intense technology, it's advanced technology. And I think it's an exercise that's showing us what eventually is going to be a mainstream computing form factor, because I do heavily believe in the augmented reality category.

5:05I'm just not sure Snap is going to be the one to take it to that next level.

5:10Mark Zandi:What do we know about how much they're spending on this stuff? Because we know that Meta's been plowing, you know, tens of billions into this thing. Apple, the same, doing the same thing. But it's almost like they have the capital and the cash flows to do it. Snap is a significantly smaller company, and yet they're also going for the big fish in augmented reality. So what do we know in terms of the spending and whether this is even possible for a company like Snap? They've spent billions on this, and I do think it is certainly possible for a company like Snap. If there's a scenario in which there is gigantic demand for these things, I think they are going to find a way to be able to get these into the hands of consumers.

5:53But I think early on, this is going to be the early adopter of early adopters. This is going to be developers. This is maybe going to be an enterprise play. If you think about the other products that have launched in this space, none of them have really taken the world by storm with consumers. A lot of these are enterprise products. And a lot of these companies, they don't even sell the product anymore. Microsoft tried their hands on this with the HoloLens. Meta has tried their hands on this as well. The Quest is no longer the priority. It's all about the smart glasses. Magic Leap no longer sells their product anymore.

6:25They've become an AR lens supplier now based in the U.S. The Apple Vision Pro, obviously, has not taken off in the way that Apple had anticipated. So this is not a thriving category at this point. I think we're still in a very early stage here. What is it going to take for this stuff to work?

6:44Mark Zandi:Because, you know, we've been hearing about it for such a long time, and it seems like there's issues with how long it lasts in terms of battery, like the look of them, motion sickness. I mean, so many things. It's like, what do you think it would look like to see an AR headset that actually is popular? A lot of things are going to have to converge. You're going to have to see a combination of all day battery life, which we don't have yet. You're going to have to see a price point in the$1 ,000 to$1 ,500 range, which we're not at yet. You're going to have to see that be in an all-in-one design that's nearly as thin and light as everyday glasses.

7:22And we're so many years away from that. and you're going to have to see that all with visual fidelity and quality where you can't really tell the difference between the real world and what you're seeing in the displays because that in that technology has to look innovative has to look impressive has to look highly legible and so i think we're several years away from hitting any of those metrics let alone all of them converging simultaneously into a singular product but what we're seeing from snap

7:48Mark Zandi:is the closest incarnation to that yet i just want to read you a tweet that i saw uh this is from a user Uncle Duma.

8:00Mark Zandi:This individual said, quote, anyone who has ever built anything can tell you that there's a point in the development cycle where the sunk costs become too great and the entire org chart starts walking on eggshells around an exec who is too tunneled in to realize that his product sucks. That was in relation to these Snap Specs. And I think it does kind of capture probably what the concerns are on Wall Street, which is that Evan Spiegel is the founder CEO. He and his co-founder at least have 99 % of the voting power. He decides what to do as a company. He is going full steam ahead with this thing.

8:38Mark Zandi:And I think there are now concerns for the company, which, you know, the stock has been really struggling, that he's out over his skis or maybe in over his head or too committed to this vision. And I'd just be curious to get your reactions to that view of Evan Spiegel and the direction of this company. I think investors are asking, why are we playing with hardware when, you know, the money is to be made on high margin products, which is applications and software and AI? And so, yeah, the big question is, why are you even playing in hardware and burning all this money? And Snap recognizes this.

9:13This is why they've created a subsidiary called Specs Inc., which they're running this all through. I think it's going to help, you know, the numbers they're able to talk about in their, you know, earnings reports and what have you. I think that's the driving force behind this. But, you know, they've been investing so much in this for 12 years. They are really one of the pioneers in the AR space. If you think about the lenses and different overlays and such, you can do in Snapchat. So I think there's a lot to like from this product. It's just not something that people are going to buy.

9:40Mark Zandi:Say this just doesn't work out. uh snap specs there are no sales uh and it's it really is a flop what do you think that means for the company like is there a a viable way out for snap uh if specs don't work well the viable way out is being the uh platform or the app provider and becoming a hit software product like they were on the iphone for these next generation of of devices that someone is going to have success with, whether it's Apple, Amazon, or Meta, or even Snap, someone is going to do this successfully. And being able to transform Snapchat to being the killer app on that platform, on that hardware, will probably be their next step.

10:22But I think if this Specs product is not successful, I don't think this is a wrap. I think they'll keep trying and keep building and try to get out a subsequent version that's thinner, lighter.

10:31Mark Zandi:My final question for you, Mark, would you ever buy these things or wear these things? It's hard to tell. I haven't used the latest version at this point. I'm going to have to see the use cases and how they would fit into my daily life. I am a huge believer in the AR glasses category. I will say that. All right. Mark Gurman, Managing Editor and Chief Correspondent for Bloomberg News. Mark, we really appreciate your time. Thank you. Thank you, sir. After the break, the first unanimous Fed rate decision of the year. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

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14:44Mark Zandi:We're back with Prof G Markets. In its first decision under Chair Kevin Walsh, the Federal Reserve held rates steady. It was the fourth meeting in a row that rates went unchanged, but it was the first time this year that the vote was unanimous. Still, the committee is divided on the path forward. Nine officials expect at least one hike this year, while eight expect to hold and one expects to cut. Meanwhile, Walsh declined to submit his own rate forecast, an unusual move for a sitting chair. As a reminder, inflation remains elevated, reaching 4.2 % in May, the highest reading in three years. Joining us to discuss this interest rate decision and Kevin Walsh's first press conference, we're speaking with Mark Zandi, chief economist at Moody's Analytics.

15:35Mark Zandi:Mark, thank you for joining us on the show. the Fed has decided to hold rates here, which no one was surprised by. I think the one thing that really stands out to me, at least, is that the vote was unanimous this time. No one voted to cut, which to me says that the Fed and all of its officials are really taking inflation seriously at this point, or at least maybe more seriously than they were before. What do you make of what we saw in this press conference. Yeah, that's right, Ed. I think they're taking the inflation very serious. You know, as you point out, we're 4 %-ish, and that's double the Fed's 2 % target.

16:17And Chair Warsh did make a point several times about price stability and the 2 % target. And then you got the dot plots, which are very clear that many of the Fed members want at least one rate hike this year, or thinking there will be at least one rate hike this year, and perhaps two. And that was much more hawkish than I had anticipated, certainly for this first meeting for Chair Walsh. So, yeah, I was a bit taken aback by how aggressive they were at this first meeting.

16:49Mark Zandi:Which is also striking, given the rhetoric we've been hearing from the president, who has been aggressively calling for rates to be cut. This is what he was complaining about with Chair Powell for the longest time. There was a lot of debate over whether Kevin Walsh would kind of obey those demands, those sort of implicit demands, or if he would decide to be hawkish. He has decided to be hawkish here, in a lot of ways, defying the president. Do you think that this could be, I don't know, maybe a point of tension moving forward? Were you surprised by the fact that he didn't do what the president might have wanted him to do?

17:29Well, you know, and he couldn't do it. And, you know, even if he wanted to, right? I mean, he's a vote on a committee with a lot of votes. And clearly the committee had a very different perspective on things. So even if he wanted to cut interest rates, that wasn't going to happen. And, you know, I think the data are pretty clear. I mean, it's irrefutable that, you know, the inflation is just too high. And, yeah, there's some arguments as to why that might come back in as the Iran war winds down and hopefully oil prices come in and stay down and that translates through. But there's a lot of reasons to be concerned that it would be more persistent as well.

18:05You know, we talked last time about artificial intelligence and the impact that's having on inflation, which will be more durable. So, you know, I think that the reality of what's going on is just too difficult to ignore. You just can't. And, you know, therefore, you have to be hawkish. The other thing to consider, I don't know if the president would think this way, but, you know, I think it's clearly the case that if you start trying to cut interest rates in a world where everything screams you should be raising interest rates, you might get the federal funds rate target down. You know, by definition, you can get that down because you're the Fed.

18:40But long-term interest rates will go the opposite direction. They'll rise. And, in fact, they did rise today. So I don't think he – Chair Walsh had any options here, right? He had to go along with this and be very hawkish in the way he's presenting things.

18:55Mark Zandi:Yeah, just look at the odds on Calci of a Fed rate hike. It started around 12 % towards the beginning of the year. Now we're up to 62%. So traders believe that the likelihood is that we will see a rate hike. I think I would agree. I would be interested to hear your perspective on that too. But just going to Iran for a moment, we have seen this deal memorandum up for debate how real we think it will be, but seems certainly more real than previous announcements of deals that we have seen before because Iran has signed up for this and they've publicly spoken about it. Did we learn anything from the Fed, or at least on their views, of how real this deal actually is?

19:45Mark Zandi:Because it seems that what happens in Iran is the most consequential event as it relates to inflation and prices. So it seems that there's something that we might be able to learn about what's happening in Iran from the Federal Reserve. Did we get any insight on that front or still unclear? I don't know that we get any insight into what's going on with Iran and how they're thinking about it. I mean, I'm sure they're as uncertain as we are about how this is going to play out. That's playing into their thinking that maybe we need a rate hike or two here just to keep things, inflation from becoming even worse in the context of the uncertainty around the war.

20:26But I didn't learn anything per se about the war and how that might unfold. I'm guessing there is in the dark about this as everyone else is. This thing can go in lots of different directions. I will say, Ed, you know, I mean, I'll push back on the rate hike. My sense is the economy is also pretty soft. You know, yeah, we did get a couple, three months of good job numbers, but I suspect that's not going to be sustained, particularly as the deficit-financed fiscal stimulus that we've enjoyed since the beginning of the year fades into the background, and we're still paying higher prices for gasoline and groceries.

21:00So I think the Fed's got a problem not only with inflation, but they are also going to have a problem with growth, which is going to complicate things even further for them.

21:09Mark Zandi:Oh, wow. So you would bet then that we probably won't see a hike this year? I mean, where do you stand? No, I don't think so. So, you know, my sense is that, you know, it's clearly inflation screams for a rate hike, but the job market will be telling a strong story that rate hikes don't make any sense and maybe rate cut. And that'll go to a draw and we don't get any change in policy this year. And that would be my thinking. So, but, you know, a lot of script here to be written. But my sense is as we move into the summer months, the economy is going to start to weaken again. All right. Mark Zandy, Chief Economist at Moody's Analytics.

21:48Mark Zandi:Mark, always appreciate your time. Thank you. Anytime, Ed.

21:56Mark Zandi:AI is taking an outsized presence in the market, from AI companies going public to the rise of AI agents trading on a user's behalf. Now, more than ever, investors need to consider what role AI should actually play in their portfolio. So joining us to discuss that is an AI researcher who brought machine learning to Wall Street decades ago. Vasant Dar is a professor at the NYU Stern School of Business, founder of SCT Capital Management, and author of Thinking With Machines, his new book. Vasant, thank you for joining me on the show. You are an AI researcher. You founded a hedge fund that specializes in machine learning and machine learning-based investment.