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Latest economic data points further away from a recession · The Financial Exchange Show

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This is the Financial Exchange with Mike Armstrong and Paul Lane.
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Speaker 2: Good morning, Paul, and welcome to the last week of
1:20
relevant financial and economic data ahead of the election. Just me,
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no intro for anyone else, No just for you, Paul.
1:27
It's this is going to be a show entirely dedicated
1:30
to me talking to you, and Tucker will immediately mute
1:35
my mic if we do that. Why would this be
1:39
the last week of relevant data on the economy prior
1:42
to the election? Well, one, there isn't a lot that
1:46
comes out before the November early November election, but even
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the stuff that does is no longer going to be
1:53
relevant because of everything that has happened over the last
1:56
few days and weeks.
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Speaker 3: Here as a status.
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Speaker 2: For the labor market, you have now got which we
2:03
will talk about doc workers across the Eastern Seaboard and
2:08
Gulf Coast on strike. You have Boeing workers that have
2:11
now entered I think their third week of strikes, and
2:15
you had Hurricane is it, Helene?
2:18
Speaker 3: Helena?
2:19
Speaker 1: Uh?
2:20
Speaker 4: I forget Helene, I killed a.
2:22
Speaker 3: Bunch of people probably, so I apologize, Helene.
2:25
Speaker 2: That has likely and we don't really even understand yet
2:30
the economic impact of that hurricane, but likely disrupted the.
2:34
Speaker 3: State of things pretty substantially.
2:35
Speaker 2: And so we'll be talking about a whole bunch of
2:37
data points this week that measure things back in September.
2:39
But the point of the matter is it's kind of
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irrelevant for the state of the job market, and any
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of the stuff that we get on the job market
2:45
for October is going to be super irrelevant because you know,
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on one hand, you might say, you know, we might
2:50
be entering a recession, but we won't know about it
2:53
until we get this other stuff cleaned up.
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Speaker 3: I bring this all up because we did get.
2:58
Speaker 2: A pretty important reading on the state of the labor
3:00
market just this morning, seven minutes ago at ten am
3:04
from the Bureau of Labor Statistics. Paul and I were
3:07
just discussing it before the opening of the show Expectations.
3:10
So this labor report that we get every month, it's
3:15
it's called the Jolts Report. It tells you a bit
3:17
about how many companies are looking for employees, how many
3:20
separations they were, where they voluntary, were they firings, layoffs,
3:24
And it's also where we derive this special ratio of
3:27
how many people are looking for work versus how many
3:30
people or how many companies are looking for employees. And
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at its peak back in twenty twenty one, twenty twenty one,
3:37
maybe twenty twenty two, twenty two March March twenty two,
3:41
it reached an all time high of two job openings
3:45
for every one person looking for work. We know that's
3:47
cooled off quite a bit. This morning, the reading on
3:50
this beat expectations. We saw the number of job openings
3:54
tick back up pretty significantly in the This is the
3:57
last day of August, I believe, is where the report reads,
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and a pretty surprising shift in terms of what many
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had been seeing as a continuous downward trend in the
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state of employers looking for workers.
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Speaker 4: Yes, and I'm kind of confused as to why global
4:15
markets are reacting so negatively, and I'm trying to parse
4:18
through information as to why that's the point. I mean.
4:20
On CNBC, the headline is indicating that perhaps rising Middle
4:25
East tensions is perhaps overwhelming what is I think in
4:30
large and we'll digest at more Mike, relatively reasonable jobs
4:34
report that we got out, So perhaps those concerns over
4:36
the Middle East trump the data that we saw here
4:39
with major indices off about one percent on the S
4:42
and P five hundred and about one and a half
4:44
percent on the NASDAK, granted only a half hour plus
4:47
into trading or so, but to be able to see
4:49
that we crusted over eight million relative to where we
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were previously on this Jolt's number, that is encouraging. It
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seems like on the the quits rate and everything else
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measured here, those sted relatively in line. Here. In fact,
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that quits rate coming down, I guess a little bit.
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But to me, and it's tough because we're just doing
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this pretty much off the cuff, it doesn't seem like.
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Speaker 3: I see negative report.
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Speaker 2: Now, I've see nothing to be concerned about on this
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jolt report, and so I have to assume that markets
5:19
are reacting to something else. So a few things that
5:22
they could hypothetically be reacting to in early trading. You
5:26
know that just opened forty minutes ago, So don't read
5:29
too too much into what's happening in early trading, But
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one would be around where interest.
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Speaker 3: Rates may be going.
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Speaker 2: Now there's been this, I think, kind of confused optimism
5:41
about how the Fed is going to dramatically cut interest
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rates continue with fifty basis point cuts like they did.
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Joan Powell spoke yesterday and really tried to tamp down
5:52
on any of those expectations, said we're going to be
5:54
slow and intentional about this, and then this job's report
5:57
would seem to cement the fact that they are not
5:59
going to be seeing a significant rate cut in that
6:01
November meeting a week ago, people were betting on that happening.
6:05
In fact, there's a fifty eight percent chance that there
6:08
would be another fifty basis point rate cut in that
6:11
November meeting that was right on the heels of the
6:13
September rate cut. We're now down to only a one
6:16
in three chance that the FED will end up cutting
6:18
rates by fifty basis points.
6:20
Speaker 3: And this is just one.
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Speaker 2: More labor market report that would support that theory of
6:24
hey being slow and intentional with this. As you pointed out,
6:28
we have big rise and escalation of tensions in the
6:32
Middle East, with the United States sending troops and I
6:37
think aircraft carriers to the Middle East in response to
6:41
Israel and Hesbala and Lebanon tensions going on there. We
6:47
now have one of the most significant strikes, if not
6:50
the most significant strike of the year, occurring not at Boeing,
6:54
but rather the dock workers strike that took place this morning.
6:57
And then finally you got an is manufacturing survey just
7:03
this morning at when did that come out? Eight thirty
7:05
or ten o'clock now ten o'clock as well, that missed
7:08
expectations and pointed to further deterioration in the sentiment of
7:14
US based manufacturing sector.
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Speaker 3: So did we get a good jobs report this morning?
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Speaker 2: Yeah, we did have I hesitate to look at this,
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and like we said, we came out twelve minutes ago,
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so maybe there's something buried in here that we're missing.
7:27
But indications would be that employers who have been dramatically
7:32
slowing down how many people they're looking to hire bumped
7:36
that number back up by a good million job openings
7:39
over the last month. That is a positive sign for
7:42
where hiring may go in the future. And perhaps we
7:46
are avoiding this Psalm rule recession that we've talked so
7:49
much about.
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Speaker 3: However, if we do, it means that rates are staying
7:53
higher for longer.
7:55
Speaker 2: It means that you know, the overall narrative of mortgage
7:58
rates coming down into the fire, the tenure coming down further,
8:02
auto loan rates, all these other things improving over this year,
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you have to reset those expectations as well, And so
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we're back into this weird period of time where maybe
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good news is bad news, but it's not all good
8:14
news right now, aside from the state of the labor market.
8:18
In fact, there's quite a bit of bad news out
8:20
there this morning when it comes to what's going to
8:22
happen over the next month or so in terms of
8:27
the state of the US economy.
8:29
Speaker 4: It's really hard to draw a through line through all
8:31
the information that we're parsing through where you know, some
8:33
of it's positive, like we said with the labor market
8:35
data that we got today, we'll see on Friday when
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we get the actual jobs report for the month of
8:40
September how that comes in. But then, of course you
8:43
have all these geopolitical concerns that we mentioned, and then
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you have the domestic strikes that we'll talk about a
8:49
little bit as well, that are of bigger areas of concerns.
8:53
So I wouldn't say, you know, necessarily any of this
8:57
is panic or anything like that. And I wouldn't say
9:00
ain't necessarily that we're in a fantastic place. It just
9:02
seems to be very murky you're just really trying to
9:04
unpack what trend this data is going to go in,
9:08
And as your own palace said yesterday, you just got
9:11
to kind of take it as it comes and try
9:13
to adjust your expectations as information comes out.
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Speaker 2: I mean, look, biggest takeaway, don't pay attention to what
9:19
one report may or may not be doing to influence
9:22
markets on a single day, especially when we're only forty
9:24
five minutes into trading. Who the heck knows markets the moment,
9:28
you know, taking a bit of a turn. Could that
9:30
be because they had a great September? How long will
9:34
it be before everyone starts publishing articles? Well, when you know,
9:37
markets go down in October, this is what happens ahead
9:40
of the Santa Claus rally, and this is what you
9:43
can expect for Halloween shopping. Like, just give me a break.
9:48
It's one day. We had a great September so far.
9:51
You know, we had a great September in equity markets,
9:53
and here we sit in October with some new data
9:56
to digest here, but in an economy that looks quite
9:59
on unexpectedly different than it did in September due to
10:03
the strikes as well as the hurricane that just devastated
10:06
parts of the Southeast, so a lot more to take
10:10
in and to digest than I think people were anticipating
10:14
just a week or two ago. Let's take a quick break.
10:17
When we come back, we should get right into the
10:21
dock worker strike that took place last night at midnight.
10:24
First time a strike of this magnitude has hit the
10:27
United States since the nineteen seventies. What does it mean
10:30
for all of us heading into the fourth quarter of
10:33
this year. We'll cover that next on The Financial Exchange.
10:37
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10:51
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11:39
Speaker 2: At midnight last night, DOC workers from Maine to Texas
11:43
went on strike, some forty five thousand individuals no longer
11:49
reporting in. This is the first strike of its sort
11:53
that impacts all ports on the East Coast and Gulf
11:56
Coast since nineteen seventy seven.
12:00
Speaker 3: Good News. It was pretty well forecast that this was
12:03
going to happen.
12:04
Speaker 2: The dock workers have not been negotiating with the other
12:07
side since I think it was June of this year,
12:11
and so a number of shippers have been moving product
12:16
around early. It sounds like certainly well prepared for the
12:20
Halloween season, maybe even the Christmas shopping season. But the
12:26
effects of this I think are yet to be really
12:29
understood in terms of what it might do for grocery
12:32
stores and just general pricing around the Eastern Seaboard, in
12:38
particularly really anything Mississippi and East You do have to
12:43
wonder if this thing stretches out, what will things look
12:46
like in a few months.
12:47
Speaker 4: Yeah, it could be something that is relatively minor mic
12:51
or this could be extremely significant depending on the longevity
12:54
of this strike. Nine of the most ten active ports
12:58
in the United States are part of this strike effort
13:01
that you were just speaking about. Really, what's at the
13:05
crux heer of the issue is the longshoremen are looking
13:08
for a raise of about seventy seven percent over a
13:12
six year period. If we are to use the West
13:16
Coast Docks Union, which is a separate entity, they went
13:19
through this negotiation just about a year ago where they
13:23
sought a thirty two percent increase over six year period,
13:26
getting them up to an hourly wage about sixty bucks
13:29
coming in twenty twenty seven. Where we sit on the
13:32
East Coast side of things, in terms of what they're
13:34
looking for, they are trying to get their hourly wages
13:37
up to sixty nine dollars an hour as of twenty
13:40
thirty over that six year period that I was mentioning
13:43
really the argument from the longshoreman and there was a
13:46
piece here that Barons did which thought I thought had
13:50
sort of a catchy title that I wasn't in love with.
13:53
They basically said, many dock workers make one hundred and
13:56
fifty thousand or more, but here's why they're going on strike.
13:59
And I I get upset by that a little bit,
14:01
just because I listened to the Wall Street Journal podcast
14:04
on the way into work too, and that was a
14:05
similar rhetoric that was mentioned that, Hey, these guys make
14:09
a lot of money, but they're striking. That's not what
14:12
a strike is about. If a business is making billions
14:15
of dollars, which the shipping industry from twenty twenty to
14:18
twenty twenty two saw a four hundred percent increase in
14:20
shipping container costs and profits abound from many of those companies.
14:24
In an industry, they have the leverage now to go
14:28
out there and strike and demand more favorable working conditions.
14:31
I'm not gonna sit here and say just because they
14:33
make X. And to be clear, those are tough jobs too.
14:36
These are not cushy desk jobs that these guys are doing.
14:39
So I pushed back a little bit on that notion.
14:42
Speaker 2: All three people in here would have no working back
14:46
anymore after one single day of work has a long
14:48
short right YEA, I can assure you of that much. So, yes,
14:52
the wages, let's I guess let's start there, since that
14:55
is seemingly at the crux of this issue, and neither
14:58
side has really disclosed exactly where wages are right now.
15:02
But according to a twenty twenty report by the Waterfront Commission,
15:05
it's the regulator that oversees New York Harbor, more than
15:08
half of longshoremen who were based there made one hundred
15:11
and fifty thousand dollars in more So, again that means
15:15
several you know, that means half. We're under one hundred
15:18
fifty thousand dollars. You also have to imagine that along
15:21
the East Coast at least, and probably in the entire nation,
15:25
there's no port that makes more money than a longshoreman
15:29
working in New York City. Right, so let's discount what
15:33
we know about New York. According to other reports, you know,
15:37
under the current contract with the East Coast Union, people
15:40
can earn up to thirty nine dollars an hour, which
15:43
translate to about eighty one thousand dollars per year. Obviously,
15:48
with overtime and extra pay, you get up to those
15:50
higher rates, but not every longshoreman is making one hundred
15:53
and fifty thousand dollars, and that's certainly not where all
15:57
this lands. The fact of the matter is that they
15:59
have a contract that expired. They're well within their rights
16:02
to go on strike here, and it seems like they
16:05
have a pretty solid negotiating position here. The strike that
16:10
hit the West Coast, I think it was just last year,
16:14
perhaps ended up bringing wages on that West Coast. Yeah, sorry,
16:18
it was last year, twenty two thousand West Coast doc
16:21
workers struck striked, struck, struck, struck. I know you strike,
16:28
you know struck gold, but I don't know if you
16:30
struck strokes have stopped working, walked off the job for me,
16:34
they ratified a new contract that improved their paid by
16:37
thirty two percent over six years, but got to them
16:40
to basically the same place that this union wants to
16:43
this union wants to be on the East Coast, they
16:44
ended up at sixty dollars eighty five cents an hour
16:46
by twenty twenty seven. The current offer from the group
16:53
representing the employers wants to get them to sixty nine
16:56
dollars by twenty thirty. So you're you're not terribly far
17:00
off from what the West Coast ended up with in
17:01
terms of total compensation packages. Here the union themselves are
17:06
looking for a seventy seven percent increase in wages over
17:09
that six year time scale. The group representing the employers
17:16
is somewhere in the fifty percent range, so you're not
17:19
incredibly far off here. But again, talking through the impact
17:24
of everything right now, this is we import so much
17:30
that this just affects everything. Seventy seven percent of coffee
17:34
comes through East Coast ports. I think eighty plus percent
17:37
of bananas come through East Coast ports. These are not
17:40
products that can just sit on a ship sitting outside
17:43
of New York Harbor for an extended period of time.
17:46
Speaker 3: You had.
17:46
Speaker 2: We covered this yesterday with Tim Ryan, who's the owner
17:48
of Square one Farms, has been making a ton of
17:51
news recently because he literally he supplies asparagus to Walmart, Kroger, Wegmans,
17:57
all sorts of different grocers, and they had to fly
18:00
in a bunch of vegetables on cargo jets in order
18:04
to make sure that he didn't have this stuff rotting
18:07
out at sea. Not only do you have the forty
18:10
five thousand workers, but you think about how many tag
18:13
along industries are just not going to be working during
18:17
this period of time. If you're a restaurant that's in
18:19
the area, if you are a truck driver that services
18:22
the ports, you know, all of these things are either
18:24
going to strike in sympathy with the union or are
18:28
going to be furloughed because there's no work for them
18:29
to do.
18:30
Speaker 1: Yeah.
18:30
Speaker 4: So, in terms of a timeframe on this, if it
18:32
can be settled within the next week, all indications is
18:35
that there would be minimal disruption if they can wrap
18:38
this up over the course of the week. If it
18:40
starts to linger on more than a week or so,
18:42
that's where you could see an impact. JP Morgan estimates
18:45
that between three point eight billion to four and a
18:47
half billion a day is the cost of these workers
18:50
no longer being out there on the long shore manner
18:53
at the ports, and that could be a point one
18:55
percent hit annualized to GDP every week that this goes on.
18:59
Speaker 2: By the way, why President Biden was asked on Sunday
19:01
whether or not he planned to invoke the Taft Hartley
19:04
Act and nearly eighty year old law that would force
19:06
DOC workers back to.
19:07
Speaker 3: Work if they were to strike.
19:08
Speaker 2: He said he has no intention of doing so, and
19:11
so we'll see where this one goes. Like Paul mentioned,
19:14
short strike not really a huge deal. This goes on
19:17
a couple of weeks, everyone in the country will start noticing.
19:21
Speaker 4: It's in everyone's best interest to try and get this done. Yeah,
19:24
well the workers quick break.
19:27
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19:41
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19:54
Watch a complete look at what's moving market so far
19:57
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20:01
Speaker 5: The fourth quarter officially underway. Marcus today are selling off
20:05
as investors are reacting to some economic data points this morning,
20:09
including manufacturing and the Joltz Reporter jobs opening data and
20:15
that came in higher than expected. Wall Street is also
20:18
monitoring the increasing tensions in the Middle East. Right now,
20:22
the Dow is off by three quarters of a percent,
20:24
or three hundred and twenty four points, SMP five hundreds
20:27
down sixty six points over one percent, and the Nasdaq
20:32
down nearly two percent, now down three hundred and forty
20:35
two points. Russell two thousand also down nearly two percent
20:39
as well. Ten Year Treasure reeled, pulling back eight basis
20:42
points at three point seventy one percent, and crude oil
20:46
jumping on those Middle East tensions by three percent, trading
20:49
just above seventy dollars a barrel. CBS Health share is
20:53
down by nearly two percent following reports that the drug
20:56
store chains board has hired bankers to help undertakers street
21:00
ategic review of options for the company, including a potential breakup.
21:04
CBS also said it will lay off about twenty nine
21:07
hundred workers. Meanwhile, according to Bloomberg News, Boeing is considering
21:11
selling at least ten billion dollars in new stock as
21:14
the aircraft maker continues to work its way through the
21:17
strike of its factory workers, costing hundreds of millions of
21:20
dollar hundreds of millions of dollars a week. Boeing shares
21:23
are up, however, about a quarter percent. Elsewhere, Ford up
21:28
by about half a percent after Goldman Sachs upgraded the
21:31
Detroit automaker's stock two buy from neutral, highlighting its growing
21:35
software and services in addition to super duty vehicles as
21:39
potential tailwinds. Super Microcomputer began trading on a post split
21:44
basis at the open this morning after a ten to
21:46
one stock split took effect. That stock is up by
21:50
half a percent, and after today's closing bell, all eyes
21:54
will shift to Nikes anticipated earnings. I'm Tucker Silvan.
21:59
Speaker 1: That's Wallstreet Watch.
22:00
Speaker 2: Boeing reportedly weighing at least a ten billion dollar cash
22:05
raise via selling stock as questions loom about their quite frankly,
22:12
their financial wellbeing and their ability to avoid junk debt status. Paul,
22:17
just before we even get there, why is it important
22:20
for a company.
22:21
Speaker 3: To maintain a.
22:24
Speaker 2: High bond rating from the major reporting agencies out there?
22:29
Speaker 3: SMP Fitch, Who am I missing smp Fitch and Moody Moodies.
22:34
Speaker 4: Yeah, it's really significant because of your access to capital markets.
22:38
If you are to be downgrade below investment grade, it
22:42
bars you from being able to access capital as freely.
22:47
You have a lot of the ETFs, some mutual funds
22:49
out there that will focus on buying investment grade or
22:52
above debt, and if you don't fall under that criteria,
22:56
it just zaps a significant amount of demand for the
22:59
debt that you're in issueing. We're in a situation here
23:02
with Boeing where they have thirty three thousand workers that
23:05
have walked out. In addition, if you look at the
23:08
first half of this year for Boeing, they were blowing
23:11
through a billion dollars of cash a month. It came
23:14
out to even more than that if you annualize it
23:18
out over six months, you saw about eight and a
23:20
quarter billion burned in their first half of the year.
23:25
This issue is going to persist in Q three them
23:28
burning through about three point three billion. So it's just
23:30
in a really precarious spot financially for Boeing. Right now,
23:33
they have forty five billion dollars in debt less less
23:36
the cash that they have on their balance sheet six
23:38
years ago. Mike, we're talking about five billions, So they've
23:40
nine times their debt over this period of time of
23:44
six years. And you've got fifty five hundred aircrafts in
23:48
their backlogs, So there's revenue that's sitting there waiting. But
23:52
if they don't get their acting gear soon, they're going
23:55
to find themselves in a really precarious position from a
23:58
debt ratings stamp point, which would be just another hit
24:02
to a company that's already down forty percent year to data.
24:05
Speaker 3: Yeah, I mean so yeah.
24:06
Speaker 2: To Paul's point, the borrowing costs just plain and simple
24:09
because there are fewer buyers of that debt for no
24:12
other reason than a bunch of mutual funds exclude you
24:15
from their process. The borrowing costs go up, and they
24:19
already have for Boeing, but they would go up, you know,
24:21
another tier should they fall into that junk status. You
24:24
also have to question, like I wonder, is there any
24:29
other Dow component today that has bonds rated as junk?
24:34
Speaker 3: I would imagine not.
24:35
Speaker 2: I would quite frankly be surprised if there were ever
24:37
a long term Dow component that had their bonds rated
24:40
as junk for a significant period of time. So do
24:42
you get booted out of the Dow Jones Industrial average
24:45
like that has a potential stock price hit or just
24:47
reputational hit as well. As you pointed out thirty three
24:52
thousand workers continuing to strike out of their plant in
24:56
the Pacific Northwest that began on September thirteenth, it would
25:01
seem to me that we're as far away from a
25:03
resolution as we have been there. So I don't see
25:06
any end in sight to that one. When you go
25:09
about raising or selling stock, like, you know, just to
25:13
be clear about what that actually means. You know, a
25:16
company has a bunch of ability to just to sell
25:20
new stock. Practically speaking, what that means is that when
25:23
you do so, you do dilute all other shareholders. So
25:27
if you own stock today and then Boeing raises ten
25:31
billion dollars via stock sales, they're either issuing new stock
25:36
or selling stock from the treasury of Boeing. In either case,
25:39
the number of outstanding shares by common shareholders is higher,
25:43
and likely, you know, depletes the power of the existing
25:47
shareholders and you know, their ability to vote on things,
25:49
and your ownership of those future profits is you know,
25:53
what it all ultimately comes down to is how many
25:55
shareholders out there versus.
25:59
Speaker 3: Or what the number of shares are outstanding.
26:01
Speaker 2: Ultimately is what drives all of that stuff and the
26:05
ultimate value of those stocks. And unlike some other companies
26:08
who have been raising and selling new shares of the
26:11
last few years on good news, this is attempting to
26:14
do a stock raise on bad news. Like it's one
26:18
thing you take a look at. You know, I think
26:21
it was a bit preposterous when companies like AMC and
26:25
game Stop were doing you know, new stock issuance and
26:29
people were gobbling that stuff up. But from the board's perspective,
26:32
what a good idea. There's no better time to sell
26:35
your stock than when it's going gangbuster. When you're trying
26:38
to do a stock raise and dilute existing shareholders, when
26:41
all the news surrounding you is quite abysmal, you have
26:45
to wonder how that's going to going to ultimately go.
26:49
So at the moment in early trading today, stock is
26:52
actually up on Boeing by four tenths of percent. Read
26:55
into that what you will. I haven't heard anything in
26:57
terms of progress on the strike. It could just be
27:00
an insinuation that, hey, Boeing's taken the threat of being
27:03
downgraded pretty seriously to the point that they're willing to
27:05
issue new stock to avoid it. So we will see
27:08
where all of this goes. But they continue to find
27:13
themselves in a financial position that.
27:16
Speaker 3: I would have six years ago believed impossible for a
27:21
company like Bowing.
27:21
Speaker 4: Really challenging for the airline industry as a whole. Mike,
27:24
It's worth pointing that out where you really only have
27:27
two large suppliers in this space, it's Airbus and Boeing,
27:31
and both of them are struggling tremendously right now to
27:35
produce new planes, and that has a trickle down impact
27:38
to the Southwest and other airliners out there of the
27:42
world not getting new inventory. And on top of that,
27:46
you have an industry that was shaken up dramatically through
27:49
twenty twenty post COVID with the amount of pilots that
27:52
they have. So just the airline industry in general really
27:54
in a precarious position if you look at a lot
27:57
of the suppliers and just the airliners.
28:00
Speaker 2: And there's something also going on. I can't remember with
28:03
the Airbus A three eighty having some sort of again
28:06
not safety problems with their A three eighty, but I
28:09
think it was maintenance requirements.
28:12
Speaker 4: Something with the engine issues that I was hearing about
28:14
on the way in that they're bumping into and that
28:17
has has slowed them down from a manufacturing standpoint.
28:21
Speaker 2: So yeah, I mean, yes, the manufacturers are ultimately the
28:24
ones that are most felt by all this, but the
28:27
airlines themselves, right, you had a long term contract with
28:30
Boeing to supply you airplanes and you're now five years
28:32
delayed on some of this stuff. It's weighing on them
28:36
as well, and then you know, likely to continue towagh
28:39
on all of us during the busy travel seasons with
28:42
more and more delays, more and more airplanes taken out
28:45
of service for maintenance, and things along those lines.
28:47
Speaker 3: Quick break.
28:48
Speaker 2: When we come back, layoffs at a local New England
28:52
company here, we'll be covering that next here on the
28:55
Financial Exchange.
28:57
Speaker 1: These is You're a home for the most comprehensive bridge
29:00
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29:25
Speaker 2: CBS, the Rhode Island based company announcing layoffs of twenty
29:30
nine hundred jobs and, according to some sources, considering a breakup.
29:35
So we all think of CVS as the local pharmacy
29:40
and convenience store that is just a segment of their
29:46
overall business. The company has over the years combined their
29:51
pharmacy benefit manager see a CVS care Mark with their
29:56
health insurer Etna, which is the third largest health insurer
29:59
in the country. And then obviously the retail healthcare clinics
30:04
and and you know, actual retail stores all into one
30:08
big company here, and quite frankly, I think the most
30:11
confusing part about.
30:12
Speaker 3: All this is, How the hell can you not make
30:15
money on this? You control the insurance, you control where
30:21
people get their drugs. You are expanding the place where
30:24
people go to get their healthcare with the with the
30:29
what do they called the clinics, the medic clinics. You
30:32
control the pharmacy benefit managers, which determine drug prices. How
30:38
are you not making more money on this?
30:40
Speaker 2: I recognize healthcare is a really tricky area. If it
30:43
were simple, Amazon, Berkshire, Hathaway, and JP Morgan, when they
30:47
put together that you know, combined effort to go tackle
30:51
the healthcare scenario, would have found something. And instead they
30:54
broke that thing up and said, never mind, we're not
30:56
doing this. But honestly, it's seems like a series of
31:01
missteps at CVS time after time. So the medicare business,
31:06
which is a huge portion of ETNA, took a big
31:11
plunge this year offering really enticing perks to you get
31:14
seniors to sign up for the product. They enrolled hundreds
31:17
of thousands of new members and then lo and behold,
31:20
oh turns out some higher costs than we were anticipating
31:23
here on the medicare side, and had to disappoint on earning.
31:27
It's like nobody in the entire country should have a
31:30
better sense of how much this stuff is going to
31:32
cost than CVS. They have literally their fingers in every
31:38
piece of the pie here and should be better at
31:42
understanding how this is going to affect their overall business.
31:45
Speaker 4: This is the major issue to me, if you read
31:47
through it is the acquisition of ETNA has just been
31:50
really dismal in terms of the financial benefits. Now, if
31:53
you look at their revenue, they still get a third
31:55
of their revenue from the Yetna side of things, But
31:58
this medicare Dallian that EDNA has gone through by offering
32:02
their own private version of it has just been an
32:04
absolute disaster. And you're right, Mike, they should have known.
32:07
They should have gone into the size wide open, recognizing
32:10
potential pitfalls from a cost perspective to unrolling this to
32:14
hundreds of thousands of people throughout the United States. But
32:17
you're now in a situation where CBS, as you mentioned,
32:20
laying off twenty nine hundred employees and looking at two
32:23
billion dollars in cost cuts that the expenses behind this
32:27
are just exorbitant and it's dragging away significantly at CBS profits,
32:32
and it just has to come back to this issue
32:35
of being unaware of the cost. Now, what they perhaps
32:40
didn't anticipate is the federal government has gotten a lot
32:42
more involved with Medicare and really has been fighting for
32:46
bargaining power for all of those people who are part
32:49
of the federal government's Medicare coverage, and that has significantly
32:54
been a detriment to EDNA in their way that they've
32:57
unrolled this side.
32:58
Speaker 2: Absolutely that that wasn't NANTIS paid. A piece of all
33:00
this is the federal government's new ability to negotiate drug
33:04
prices with Medicare is a huge change to the overall
33:07
system that CVS couldn't have well, maybe should have foreseen,
33:11
but didn't.
33:11
Speaker 3: Apparently.
33:13
Speaker 2: The other piece that has been a consistent drag on
33:15
CVS's business, but more so Walgreens and Rite Aid as well.
33:20
Speaker 3: It's been foot traffic.
33:21
Speaker 1: Right.
33:21
Speaker 2: You just do not go to CVS to go buy
33:24
your gallon of milk. You don't go there for your
33:26
band aids, for your SODA's, for all the stuff that
33:29
they were getting front of house sales from. These days,
33:33
people are trying to buy that stuff on Amazon or
33:36
somewhere else, and with pharmacy delivery from a number of
33:40
big providers like Amazon. It's really cut into that business.
33:43
So one almost sure thing from all of this to
33:46
me seems like far fewer retail stores for cvs in
33:49
the future.
33:50
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34:51
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35:00
Speaker 2: Soon to be irrelevant companies are announcing a merger. Now
35:03
that AT and T has sold off their stake in DirecTV.
35:07
The company plans to acquire Dish Network, which completely forgot
35:12
that they even exist, and merge the two together, which
35:15
I mean, that does make sense. You've got some pretty
35:18
fixed cost when it comes to launching satellites on a
35:21
regular basis and then installing satellites on people's homes, and
35:25
then furthermore, your ability to negotiate with major networks wasn't
35:29
it was it DirecTV that lost Disney earlier this year.
35:33
Speaker 5: There was a contract dispute with I think it was
35:37
revolving around some sort of football broadcast.
35:41
Speaker 1: Yeah.
35:41
Speaker 2: Yes, ESPN returns to DirectTV with new Disney deal right
35:47
after the blackout, so that I was fourteenth that got negotiated.
35:51
And you know, obviously if DirecTV also has Dish Network
35:54
under their arm, then you can negotiate a little bit harder.
35:57
Speaker 3: Dish Network also owns which I.
36:00
Speaker 2: I didn't know of previously owned Sling TV, which is
36:03
a somewhat popular streaming platform. Does Direct TV still have
36:08
a streaming platform? And what's it called direct TV stream?
36:13
Speaker 3: Yeah?
36:14
Speaker 2: Just direct TV stream because they recognize that. Yeah, for
36:19
vast majority of Americans these days, there is no real
36:22
necessity to put a satellite dish on your roof and
36:25
get it beamed down from the heavens television.
36:29
Speaker 5: There's a package for seventy nine bucks, eighty eight bucks,
36:33
and ninety nine bucks.
36:34
Speaker 2: So presumably they merge the streaming platforms together too. I
36:38
think that Sling has a slightly better reputation in that space.
36:42
They were one of the first, you know, internet streaming
36:46
cable television packages that were out there, so I would
36:49
think that they merge it under that one, But you know,
36:52
I don't honestly know. Definitely in my mind though, if
36:56
nothing else, this has to go down as one of
37:00
the pretty historically bad acquisitions in modern history in the
37:06
United States. Like this is up there for me with
37:08
aol Time Warner, it's up there with Google, Motorola. They
37:13
paid some sixty odd billion dollars for Direct TV in
37:19
mid twenty tens. They're remaining seventy percent steak on this
37:23
thing was just sold for seven point six billion dollars.
37:26
Speaker 4: Wow, oh my gosh, that.
37:30
Speaker 3: Is just I mean, look, is this gonna sink AT
37:33
and T? No, of course not.
37:34
Speaker 2: They are a cash cow that just prints money, basically
37:37
a telecom at this point, right, Like, say what you will,
37:41
but there's not a lot of people that are all
37:43
that tempted by Ryan Reynolds' cell phone service.
37:47
Speaker 3: What is his mint mint mobile?
37:49
Speaker 2: Right Like, yeah, he's a good looking guy who started
37:52
his own mint mobile. But I'm probably either gonna go
37:54
with Verizon or AT and T if I actually want
37:56
a cell phone that gets good service. AT and T
38:00
is going to continue to print money, but if they
38:02
continue to do things like buy and sell HBO and
38:05
direct TV, those dividends aren't going to be there forever.
38:11
Let's take a quick break. A lot more to cover
38:14
in the second hour of the show, including some pretty
38:17
abysmal looking auto sales. Why is that in twenty twenty four?
38:21
We'll cover that next