Latest / The Financial Exchange Show / Bigger tax refunds are coming in 2026. What does that mean for the economy?

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Bigger tax refunds are coming in 2026. What does that mean for the economy? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Mark Vandetti.
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Speaker 2: Chuck, Mark and Tucker with you here, and we've got
1:15
Speaker 2: kind of.
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Speaker 3: A strange day in markets.
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Speaker 2: Major US equity indices all are down. The Dows off
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Speaker 2: about two hundred and seventy seven points half percent. S
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Speaker 2: and P is down sixty five points about one percent,
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Speaker 2: the NASDAK composite down three hundred and thirty eight points
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Speaker 2: about one and a half percent. So tech kind of
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Speaker 2: leading the way down. Uh, similar to what we saw yesterday.
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Speaker 2: By the way, Uh you've got the tenuere Treasury down
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Speaker 2: two point nine basis points to four point one four
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Speaker 2: to two percent, and so like on the surface there
1:50
Speaker 2: you say, okay, this.
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Speaker 3: Was you know, flock to safety.
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Speaker 2: But the interesting thing when you look at the S
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Speaker 2: and P five hundred right now, despite it being down
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Speaker 2: almost one percent, there are actually four more stocks up
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Speaker 2: in the S and P today than there are down.
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Speaker 2: So it's really Hey, the big heavy hitters that make
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Speaker 2: up big chunks of the index, they're the ones getting
2:11
Speaker 2: rocked in a lot of other stuff is doing just fine,
2:14
Speaker 2: but it's just kind of tough to overcome Broadcom being
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Speaker 2: down five percent, while Oracle's down four, while in Video
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Speaker 2: is down two while Tesla is down to while Amazon's
2:22
Speaker 2: down two, while Meta is down to, while Microsoft is
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Speaker 2: down to. Look, it doesn't matter how many Deers and
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Speaker 2: exonmobiles and UPS's are are up. It's just like it's
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Speaker 2: a lot to overcome because of the sheer weight of
2:37
Speaker 2: those stocks in the index. Uh So, that's what's going
2:41
Speaker 2: on in equity markets. Dollar index is down point one
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Speaker 2: seven ninety eight seventy four. We've got gold up another
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Speaker 2: twenty six ten and ounce to forty six, twenty five
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Speaker 2: and twenty cents silver. I gotta tell you what's going
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Speaker 2: on in silver.
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Speaker 3: I don't.
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Speaker 2: Here's the thing, two things can be true at the
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Speaker 2: same time. I know next to nothing about silver, next
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Speaker 2: to nothing.
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Speaker 3: You know.
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Speaker 2: What I do know is that things can't go up
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Speaker 2: six percent a day forever. And that's kind of what
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Speaker 2: silver has been doing recently. For a while, silver is
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Speaker 2: I saw this stat today. Silver is now the furthest
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Speaker 2: it has ever been from its one hundred day moving average.
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Speaker 2: It is over one hundred percent above it at the moment.
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Speaker 1: Now.
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Speaker 2: I don't, Again, I know nothing about silver, but it's
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Speaker 2: just like the there's so much speculative money that's in
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Speaker 2: there right now it's hard to tell what's legit and
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Speaker 2: what isn't, but it's it's moving. I'll tell you that
3:39
Speaker 2: much crude oil. We've got West Texas Intermediate up another
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Speaker 2: forty three cents a barrel to sixty one p fifty nine,
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Speaker 2: sneaky upward move there over the last week or so,
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Speaker 2: and it's now hitting gas prices. Trip a national averageur
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Speaker 2: gas price is up two cents overnight from two eighty
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Speaker 2: two to two eighty four. So we bottomed around two
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Speaker 2: eighty one and now we're up about one percent from there.
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Speaker 2: There's still nothing here that probably pushes us back above three,
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Speaker 2: but you're probably getting into that two ninety to two
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Speaker 2: ninety five range if crude oil stays, you know, around
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Speaker 2: sixty one on West Texas Intermediate going forward. So this
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Speaker 2: is what is going on in markets today. Peace in
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Speaker 2: CNBC that will kick things off with bigger tax refunds
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Speaker 2: are coming for twenty twenty six. What it could mean
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Speaker 2: for the economy, Well, i'll tell you what it could
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Speaker 2: mean for the economy. Generally, when people get a tax refund,
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Speaker 2: they either tend to spend it or have already spent it,
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Speaker 2: usually on you know, Christmas, presents or holiday travel or
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Speaker 2: something along those lines. And so what I am personally
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Speaker 2: expecting is that you do get some kind of you know,
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Speaker 2: consumer spending boost that starts to roll in probably a
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Speaker 2: month from now and continues over the next four to
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Speaker 2: five months. The estimates that are out there are that
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Speaker 2: individual income tax payments are going to be around a
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Speaker 2: one hundred and forty four billion dollars less than if
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Speaker 2: the Big beautiful Bill had not passed. But the distribution
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Speaker 2: is one where it does raise questions about whether it's
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Speaker 2: going to translate into additional spending, just because when you
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Speaker 2: look at the you know, average family, the refund might
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Speaker 2: be you know, several hundred dollars more. But if you are,
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Speaker 2: you know, a family with high income, you might end
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Speaker 2: up with you know, twenty thirty thousand dollars in tax savings,
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Speaker 2: but you might not spend it because you don't spend
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Speaker 2: your income in the same proportion that families with lower
5:36
Speaker 2: incomes do.
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Speaker 4: Yeah, it's a little hard to estimate the multiplier effect,
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Speaker 4: if you will. If you think of this rebate as
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Speaker 4: government spending, to what extent will it trickle through the economy?
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Speaker 4: Is it one for one? Does it generate benefits beyond
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Speaker 4: the amount that government is spending on this. I know,
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Speaker 4: I don't. I don't like thinking about government giving you
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Speaker 4: your own money back as government spending. But we're talking
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Speaker 4: about fiscal policy and that's the right framework I think.
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Speaker 4: So don't don't get agitated. I'm the last person to
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Speaker 4: call you keeping more of what you earn government spending.
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Speaker 4: But that's the framework we're in, or will it be
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Speaker 4: less than one? For one, some instances of tax rebates
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Speaker 4: have significant sort of multiplier effects and demonstrable effects on
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Speaker 4: real economic activity. Others don't seem to move the needle.
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Speaker 4: I think one thing's for sure, coupled with the monetary
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Speaker 4: stimulus that we talked about in the last hour, the
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Speaker 4: FED lowering rates and stimulating aggregate demand. That's the only
6:35
Speaker 4: way the FED can work on the economy. It prints money,
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Speaker 4: it credits banks, they lower interest rates. That stimulates demand.
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Speaker 4: That's basically the mechanism you've got fiscal policy. The other
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Speaker 4: lever that the federal government can control being expansionary or
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Speaker 4: stimulative or more so. And it's a change that matters here.
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Speaker 4: Absent some like AI driven productivity miracle, this should put
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Speaker 4: upward pressure all else equal, and I want to emphasize
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Speaker 4: that should put upward pressure on inflation, which is not
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Speaker 4: helpful right now.
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Speaker 2: So that's kind of where we stand on this. I
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Speaker 2: think this is also in my opinion, it's kind of
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Speaker 2: why I look at the next two to three months
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Speaker 2: as the real window for weakness in the labor market,
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Speaker 2: simply because I do think if you get this additional
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Speaker 2: money that starts coming through, I think increased demand tends
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Speaker 2: to increase demand for labor. And again generally, once we
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Speaker 2: start to see that kick in, I think any concerns
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Speaker 2: about the labor market are probably gone at that point.
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Speaker 2: But I think the next three to four months you
7:41
Speaker 2: can still look at the labor market and say, yeah,
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Speaker 2: there's things to watch out for here.
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Speaker 3: But that fiscal.
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Speaker 2: Impulse is just so hard to fight against, and I
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Speaker 2: don't know why you would want to once it kicks
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Speaker 2: in on that front. So even as it stands right now,
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Speaker 2: even with a slowing labor market, it hasn't slowed consumer spending.
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Speaker 2: But this is because most consumers, By the way, the
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Speaker 2: most consumers, yes, like they might think about their income,
8:11
Speaker 2: they might think about their net worth, but ultimately they
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Speaker 2: think about, hey, can I buy this through the use
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Speaker 2: of credit or something else, and that's how we power
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Speaker 2: the economy.
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Speaker 3: If you were to see, uh.
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Speaker 2: You know, any shift in the labor market that is
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Speaker 2: more severe to the downside, that starts to impact spending.
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Speaker 2: But consumer spending hasn't been impacted by the labor market
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Speaker 2: to this point in any noticeable fashion.
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Speaker 4: How much are we talking about here in aggregate in
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Speaker 4: terms of tax rebates or however, are the.
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Speaker 2: Estimates that are out there, maybe an extra hundred and
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Speaker 2: fifty billion dollars? Okay, yeah, so like it's it's not nothing,
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Speaker 2: it's it's it's not going to drive like an additional
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Speaker 2: one percent in GDP growth.
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Speaker 4: The economy is about a thirty trillion dollar economy, and
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Speaker 4: a trillion is one thousand billion, just for perspective, So yeah,
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Speaker 4: you're right, it could be a little boost, but yeah,
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Speaker 4: you'll probably fade fast.
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Speaker 3: Quarter to a half percent GDP.
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Speaker 4: Oh really they think you've seen estimates that I mean, I'm.
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Speaker 2: Just doing the math. That's the max you get to
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Speaker 2: if they if it all gets spent.
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Speaker 4: Yeah, that's what I'm wondering.
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Speaker 2: If it's not going to because a lot of it
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Speaker 2: a already has been spent yeah again. Like a lot of people,
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Speaker 2: their tax refund goes to paying off Christmas gifts and
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Speaker 2: things like that. Let's take a quick break. When we
9:24
Speaker 2: come back. We got trivia after this.
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10:10
Speaker 5: It's time for trivia here on the Financial Exchange.
10:14
Speaker 3: On this day.
10:14
Speaker 5: In nineteen eighty four, Ray Kroc passed away at the
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Speaker 5: age of eighty one. The twenty sixteen film The Founder
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Speaker 5: into the most successful and profitable fast food operation.
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Speaker 3: In the world.
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Speaker 5: So our triviute question today which actor portrayed Ray Kroc
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11:15
Speaker 2: The story that keeps on giving the love triangle between Netflix,
11:19
Speaker 2: Warner brother Discovery and Paramount Skiddance.
11:22
Speaker 3: Netflix.
11:22
Speaker 2: Today it's being reported that they are working on revised
11:28
Speaker 2: terms for their offer for Warner Brothers Discovery and are
11:32
Speaker 2: considering trying to make it an all cash deal. Remember
11:35
Speaker 2: we're talking about, you know, somewhere in the range of
11:38
Speaker 2: a seventy five to eighty billion dollar acquisition. So when
11:43
Speaker 2: you take a look at Netflix and you get led
11:46
Speaker 2: to their balance sheet, you then see that, oh gee,
11:49
Speaker 2: it's interesting. Netflix has nine point three billion dollars in
11:54
Speaker 2: cash and short term investments, Mark, can you do some math?
11:58
Speaker 2: Is nine billion dollars less than eighty billion? I believe
12:03
Speaker 2: it is, Juck, Okay, can you check again?
12:07
Speaker 3: It's your opinion, Tucker. Can I get a second on this, Yes, okay.
12:13
Speaker 2: And the last time I checked, it's short by about
12:15
Speaker 2: seventy billion dollars, which means that it increases the amount
12:19
Speaker 2: of borrowing they have to do relative to a cash
12:21
Speaker 2: plus stock deal. So, look, I don't know exactly what
12:26
Speaker 2: Netflix would have to borrow at in you know, the
12:29
Speaker 2: open market for a new amount of debt, you know,
12:32
Speaker 2: with that much that they're going to be issuing. But
12:35
Speaker 2: Netflix right now is about twenty eight billion dollars in liabilities,
12:38
Speaker 2: so there's a pretty good chance that you're talking about
12:40
Speaker 2: their liabilities tripling. And again, like, I don't know exactly
12:44
Speaker 2: what you're going to end up having to pay. But Mark,
12:47
Speaker 2: is it unreasonable to say based on look, just based
12:51
Speaker 2: on what we see in the corporate bond market in
12:55
Speaker 2: terms of you know, corporate bond spreads, you're talking probably
12:58
Speaker 2: somewhere in the range of you know, a one to
13:03
Speaker 2: one and a half percent premium for you.
13:05
Speaker 4: Know, what's their credit rating?
13:06
Speaker 3: Do you know? Off netflix? I assume it's we'll take.
13:10
Speaker 2: A look, you know better than it's got to be
13:14
Speaker 2: floating around here somewhere. I got to pull it up
13:16
Speaker 2: on my screen, one.
13:17
Speaker 4: Of the higher tiers of investment grade. So I guess
13:19
Speaker 4: to answer your question, no, not, based on what I
13:23
Speaker 4: have read recently about corporate spreads, and by that we
13:25
Speaker 4: mean interest rate on corporate bonds over US treasuries.
13:29
Speaker 2: Let's say they're going to pay five and a half
13:31
Speaker 2: six percent somewhere in that ballpark. When it's all said
13:34
Speaker 2: and done. It might be a little more, it might
13:35
Speaker 2: be a little less, but let's let's use that just
13:37
Speaker 2: as a benchmark. So if you've got issue seventy billion
13:40
Speaker 2: dollars in again five percent debt, let's call it five
13:46
Speaker 2: and a half. Just to make the math fun. You're
13:48
Speaker 2: talking about four billion dollars a year in interest expense
13:52
Speaker 2: that you are now realizing as a result of this. Effectively,
13:57
Speaker 2: when you look at this, that is going to eat
14:01
Speaker 2: up about forty percent of their free cash flow and
14:05
Speaker 2: about forty percent of their net income. Like it's it's
14:07
Speaker 2: a big chunk of change, like no pun intended and
14:11
Speaker 2: So the risk that Netflix has here is if they're
14:16
Speaker 2: wrong about this acquisition, which, by the way, the last
14:20
Speaker 2: two buyers of this company have been wrong about it.
14:25
Speaker 2: I'm just not really sure that this is going to
14:28
Speaker 2: you know, like it. It presents some real risks to
14:32
Speaker 2: Netflix if they're not who they think they are.
14:36
Speaker 3: And so.
14:38
Speaker 2: I mentioned this when this deal was first announced. Wouldn't
14:41
Speaker 2: it be interesting if the company that loses out ends
14:43
Speaker 2: up actually kind of you know, missing out on that
14:46
Speaker 2: winner's curse of this one And maybe, you know, buying
14:49
Speaker 2: Warner Brothers Discovery isn't actually the best thing. So we'll
14:53
Speaker 2: have to see how this continues to evolve. But I
14:57
Speaker 2: do think that when we look at this, it is,
15:01
Speaker 2: you know, something that's getting increasingly expensive in a media
15:06
Speaker 2: market that is inherently unpredictable. Is you try to look,
15:09
Speaker 2: you know, longer term, at what these properties are necessarily worth.
15:14
Speaker 3: That's all I'm saying.
15:15
Speaker 2: Yeah, I don't know if I would spend if I
15:17
Speaker 2: would borrow seventy billion dollars to buy any media company.
15:24
Speaker 4: Would you assume their cash flow increases as a result.
15:28
Speaker 4: What are you using their current free cash flow?
15:30
Speaker 3: I'm just looking at their current like okay, and again
15:32
Speaker 3: I get.
15:32
Speaker 4: So, what's what's I'm sorry, who's the opposition marketing apartment?
15:36
Speaker 3: Warner Brothers Discovery?
15:37
Speaker 4: I get so.
15:38
Speaker 2: So if you look at Warner Brothers Discovery, free cash
15:40
Speaker 2: flows four billions, So basically your net net nothing, net
15:43
Speaker 2: income for Warner Brothers discovers three hundred and fifty six million.
15:46
Speaker 2: So like, it's it's not something that's going to be
15:49
Speaker 2: a creative in any way immediately, and you're betting on
15:52
Speaker 2: being able to either use the IP better or get
15:54
Speaker 2: a bunch of synergies read firing people that are you know,
15:58
Speaker 2: duplicates of you know, things that you already possess.
16:02
Speaker 3: It's it's not a great.
16:07
Speaker 2: Look at it, you know, Like it's it's not a
16:09
Speaker 2: slam dunk in my opinion, that's just me.
16:13
Speaker 3: And it's a media company.
16:16
Speaker 2: Like with everything we know about how media evolves, and
16:21
Speaker 2: granted Netflix has been the winner over the last fifteen
16:24
Speaker 2: to twenty years in this market, how do you know
16:27
Speaker 2: what's gonna be the winner over the next fifteen or twenty.
16:32
Speaker 3: Like, I know he's wrong.
16:32
Speaker 2: On this, but like what if Mark Zuckerberg had been
16:35
Speaker 2: right and the metaverse was gonna be the next big thing,
16:38
Speaker 2: you know, and that's how you're gonna watch all media.
16:41
Speaker 3: I don't know, like it's.
16:43
Speaker 2: I just don't know that I have any trust in
16:45
Speaker 2: what in how we're gonna consume media content ten years
16:50
Speaker 2: from now relative to today.
16:51
Speaker 4: Yeah, it's hard to put yourself in these guys' shoes.
16:53
Speaker 4: I think it comes down to boredom. When you're bored,
16:55
Speaker 4: you sit around on the weekend. Your wife's like, let's
16:57
Speaker 4: redo the bathroom or something out. Geez with there goes
16:59
Speaker 4: my summer. These guys get bored, Well, they have ten
17:02
Speaker 4: houses they pay, They don't even know many bathrooms they
17:04
Speaker 4: have totally in total.
17:06
Speaker 3: Just you can't redo all of them in one something.
17:07
Speaker 4: You probably could, they wouldn't be aware, is my point.
17:10
Speaker 4: They go in bathroom, they're not sure if they've ever
17:11
Speaker 4: been there before, if they live there, toilet's never been flushed. Yeah,
17:14
Speaker 4: and nobody cares because they're all billionaires, so it's kind
17:17
Speaker 4: of communal property. These guys get bored, they decide to
17:21
Speaker 4: invade Greenland or buy a big company because well, why
17:25
Speaker 4: the hell not. I've got all this power. I'm feeling
17:28
Speaker 4: a little low today, I may as well use some
17:30
Speaker 4: of that power and get my dopamine levels up. I've
17:33
Speaker 4: come down to that sort of philosophy for explaining behavior
17:37
Speaker 4: and powerful people that I can't immediately explain using a
17:41
Speaker 4: normal person framework. Oh he's just bored, that's all. It's
17:44
Speaker 4: the same thing I would do if I went out
17:46
Speaker 4: and put up a fence or something. They decide to.
17:49
Speaker 4: They decide to, you know, surely take over Venezuela. Well,
17:53
Speaker 4: if you're looking at you.
17:55
Speaker 2: If you're looking at Ted Sarandas running Netflix, it's like, okay,
17:59
Speaker 2: we've done.
17:59
Speaker 3: That's a big I like what I'm doing. No, not
18:02
Speaker 3: big enough.
18:03
Speaker 4: Excuse me.
18:03
Speaker 3: Well, someone will lend to me. You know what. I
18:06
Speaker 3: guess what you and I say about. You know what?
18:10
Speaker 3: I could use a new TV.
18:12
Speaker 2: Okay, I've got to put it on the credit card,
18:13
Speaker 2: but I can stead off. They're looking to that saying, hey,
18:16
Speaker 2: I don't need a new TV. I need a new
18:18
Speaker 2: TV providing and I pick.
18:20
Speaker 4: On CEO's only if you're president, you get antsy. And
18:25
Speaker 4: Greenland's looking pretty good on that map.
18:27
Speaker 3: But what are we doing next week? All of us
18:28
Speaker 3: get antsy. That's That's what I'm saying.
18:30
Speaker 4: I think it's just a magnified version of that tendency
18:35
Speaker 4: driven motivated by boredom techno.
18:38
Speaker 2: Look at markets as we head towards the bottom of
18:41
Speaker 2: the hour. The Dow is off about a quarter percent points,
18:44
Speaker 2: the S and ps off three quarters of a percent,
18:47
Speaker 2: about fifty points, and the nasdak can posit off one
18:50
Speaker 2: to quarter percent, down two hundred and eighty five points
18:53
Speaker 2: right now, So again tech kind of dragging things. We've
18:56
Speaker 2: actually seen some improvement to get in markets over the
18:59
Speaker 2: last half hour, and even with the S and P
19:02
Speaker 2: down three quarters of a percent, one hundred and eight
19:05
Speaker 2: more companies in the green compared to those in the
19:07
Speaker 2: red at this point. Now, so again, you've got a
19:10
Speaker 2: lot of companies that are actually up today. It's just
19:13
Speaker 2: your big tech heavyweights are some of the ones that
19:17
Speaker 2: are really dragging on this thing and making it tougher trading,
19:22
Speaker 2: at least in the short term. Here, let's take a
19:24
Speaker 2: quick break. When we come back, we've got the trivia answer,
19:26
Speaker 2: We've got Wall Street Watch, and we're talking car payments.
19:41
Speaker 1: Bringing the latest financial news straight to your radio every day.
19:45
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:51
Speaker 1: Time Now for Wall Street Watch. A complete look at
19:54
Speaker 1: what's moving market so far today right here on the
19:57
Speaker 1: Financial Exchange Radio network.
20:00
Speaker 5: Well, markets are in negative territory with a pullback in
20:04
Speaker 5: the tech sector. As Wall Street sifts through more economic
20:07
Speaker 5: data points posted this morning, including retail sales from December,
20:11
Speaker 5: the producer price index from November, and existing home sales.
20:16
Speaker 5: We also have a new batch of bank earnings right now.
20:20
Speaker 5: The Dow is off by about a quarter percent, or
20:23
Speaker 5: one hundred and twelve points lower, SMP five hundreds down
20:26
Speaker 5: three quarters of a percent or fifty two points lower,
20:28
Speaker 5: Nasdaq selling off one point two percent or two hundred
20:31
Speaker 5: and ninety five points lower, Rustle two thousand edging higher,
20:35
Speaker 5: mostly flat, Tenure Treasure reeled down three basis points at
20:39
Speaker 5: four point one four percent, and crude oil up two
20:42
Speaker 5: thirds of a percent, rating at sixty one dollars and
20:46
Speaker 5: fifty six cents a barrel. Bank of America reported better
20:49
Speaker 5: than expected fourth quarter earnings driven by consumer spending, where
20:53
Speaker 5: the bank's profit increase twelve percent. The bank also said
20:56
Speaker 5: spending on debit and credit cards row six percent, while
21:00
Speaker 5: delinquencies of over ninety days on credit cards fell to
21:03
Speaker 5: one point two seven percent versus one point three five
21:06
Speaker 5: percent a year ago. However, Bank of America down by
21:10
Speaker 5: three percent. Wells Fargo also reported where the lenders net
21:14
Speaker 5: income per share disappointed investors, sending that stock down by
21:19
Speaker 5: four percent. City Group saw its quarterly profit and revenue decline,
21:23
Speaker 5: but also top forecast that stock still down by three
21:26
Speaker 5: percent outside of bank earnings. Netflix shares it down over
21:31
Speaker 5: one and a half percent following reports that the streaming
21:34
Speaker 5: giant is preparing an all cash bid for Warner Brothers,
21:37
Speaker 5: Discovery Studios and HBO Max streaming business. This development comes
21:41
Speaker 5: as Paramount efforts a competing offer, and shares in Trip
21:45
Speaker 5: dot Com are now sinking seventeen percent after Rouder's reported
21:49
Speaker 5: that Chinese market regulators are investigating the travel website over
21:53
Speaker 5: monopolistic practices. I'm Tucker Silva and that is while you're watching.
21:57
Speaker 5: On the previous segment, we asked you the trivia question
22:00
Speaker 5: which actor portrayed Ray Krock in the twenty sixteen movie
22:04
Speaker 5: The Founder. That would be Michael Keaton Mike from Gray
22:08
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22:11
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22:13
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22:20
Speaker 2: According to the most recent data from Edmunds UH, the
22:25
Speaker 2: share of new car buyers who pay one thousand dollars
22:28
Speaker 2: or more per month for their auto loans rose to
22:32
Speaker 2: a record twenty point three percent of all new vehicles
22:36
Speaker 2: purchased in the fourth quarter of twenty twenty five. It's
22:41
Speaker 2: up from nineteen point one percent in the third quarter.
22:43
Speaker 2: And used car buyers six point three percent of them
22:48
Speaker 2: have thousand dollars per month car payments as well.
22:52
Speaker 3: Now look, here's the thing.
22:56
Speaker 2: We all have our things that we liked to spend
23:00
Speaker 2: money on that aren't great financially, quite honestly, Like anyone
23:06
Speaker 2: listening has one of those things. Sometimes they're small and
23:10
Speaker 2: maybe it's, you know, a couple bucks a day on
23:12
Speaker 2: you know, the coffee that you like. Sometimes it's something bigger.
23:16
Speaker 2: You like boating and sow. You own a boat and
23:18
Speaker 2: then you upgrade to a new boat, and you got
23:20
Speaker 2: a boat loan for that new boat. Sometimes you're a golfer,
23:23
Speaker 2: sometimes you're a hunter. Sometimes you're into art or ballet
23:28
Speaker 2: or whatever. We all have our things, so I'm not
23:31
Speaker 2: one to judge people on what they spend their money on.
23:36
Speaker 2: But what I can tell you is that the other
23:38
Speaker 2: thing that we're seeing is that autolone delinquencies have now
23:41
Speaker 2: reached a new all time high. And so it does
23:44
Speaker 2: suggest to me that we're not really spending what we
23:49
Speaker 2: can afford to spend on these vehicles. And I'm less concerned,
23:55
Speaker 2: to be honest, about the people buying new cars that
23:58
Speaker 2: have these payments, because in general, what we see from
24:00
Speaker 2: the statistical data, the people who buy new cars tend
24:04
Speaker 2: to have higher incomes and be fairly wealthy. Like there's
24:08
Speaker 2: a reason why the average new car costs fifty thousand dollars,
24:11
Speaker 2: and it's because the people buying them tend to have
24:14
Speaker 2: high levels of income. The used car buyer, I've really
24:19
Speaker 2: got to admit that I struggle with this in a
24:22
Speaker 2: couple of respects, and that the reason you buy a
24:25
Speaker 2: used car over a new one is for one reason
24:28
Speaker 2: only to spend less money. I don't really understand wanting
24:34
Speaker 2: to spend less money on a vehicle and still walking
24:36
Speaker 2: away with one thousand dollars car payments.
24:43
Speaker 4: It's a reminder that lower interest rates don't translate into affordability.
24:47
Speaker 4: They can prop up prices, they can drive up prices.
24:50
Speaker 4: It's far more complicated than if we just get interest
24:53
Speaker 4: rates down or try this or that gimmick it will
24:56
Speaker 4: help affordability. It's just very difficult to say how other
25:00
Speaker 4: things will adjust in response to any changes in behavior
25:03
Speaker 4: that happen as a result of, in this example, lower
25:06
Speaker 4: interest rates.
25:07
Speaker 2: And by the way, when we look at automakers, there's
25:10
Speaker 2: not a lot of fat there. Automaker margins are generally
25:12
Speaker 2: in the mid single digits these days. I'd say most
25:16
Speaker 2: of them are anywhere between like four and seven percent margins,
25:19
Speaker 2: And so you look at it and it's not like
25:22
Speaker 2: you can like trim a lot of fat. And these automakers,
25:26
Speaker 2: if you have ever either worked for one or if
25:28
Speaker 2: you know anyone that works for them, it's something where
25:31
Speaker 2: it's like, hey, we're buying you know, eight thousand screws
25:36
Speaker 2: that go in this part of the door or eight
25:38
Speaker 2: million screws that go in this part of the door.
25:40
Speaker 2: For the year, you're down to, you know, fractions of
25:43
Speaker 2: a fraction of a penny in your negotiations with your
25:46
Speaker 2: suppliers on this stuff. Because all of that matters when
25:49
Speaker 2: you're in a commoditized business with the audit, which is
25:52
Speaker 2: what the auto industry is. So I'm not again, I'm
25:57
Speaker 2: not here to criticize people for spending money.
26:00
Speaker 3: You spend money on what you do. Like I have
26:02
Speaker 3: my dumb things, my thing.
26:03
Speaker 2: I like going to hockey games, so I go to
26:05
Speaker 2: a lot of Bruins games because like, that's where I
26:08
Speaker 2: spend my money. But ultimately, the concerning part to me
26:12
Speaker 2: is not that people are, you know, racking up these payments.
26:15
Speaker 2: It's that they rack them up and now we're seeing
26:17
Speaker 2: higher levels of defaults. That's the part that is concerning.
26:21
Speaker 2: And it suggests that we should spend less on cars
26:25
Speaker 2: because you can. And look, here's the core.
26:30
Speaker 3: Of my problem is. Look, I love cars, but I
26:34
Speaker 3: hate spending money on them. That's why I drive a SUPERU.
26:36
Speaker 3: I'm boring.
26:37
Speaker 2: I don't enjoy you know, I don't enjoyed it enough
26:40
Speaker 2: to love paying that payment every month for you know,
26:43
Speaker 2: seventy two months. And so instead I say no, like,
26:47
Speaker 2: that's that's not gonna be me because the newness and
26:49
Speaker 2: the joy wears off and I'm still stuck with the
26:51
Speaker 2: payment and I hate that feeling. There's other people who
26:54
Speaker 2: feel differently, and that's your thing. That's fine, But all
26:57
Speaker 2: I'm suggesting is we're in a dangerous spot. Is a
26:59
Speaker 2: lot of these zones are running into some trouble.
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28:10
Speaker 3: I want to talk a little bit about Delta.
28:12
Speaker 2: They reported earnings yesterday, and there's a piece in Bloomberg
28:15
Speaker 2: opinion on it that is largely I don't really care
28:20
Speaker 2: about the piece. It's just it's it's fine. But there's
28:22
Speaker 2: a couple of things that I want to talk about
28:24
Speaker 2: with Delta. Number one, the Delta earnings report is the
28:29
Speaker 2: exact evidence of the K shaped economy that you don't
28:35
Speaker 2: want to see, but you're seeing more and more often.
28:38
Speaker 2: Main cabin ticket revenue for the year twenty twenty five
28:43
Speaker 2: came in at twenty three point three nine billion dollars,
28:47
Speaker 2: down one point one billion, so down about five percent
28:50
Speaker 2: year over year. Premium product ticket revenue came in at
28:55
Speaker 2: twenty two point zero nine seven billion, up seven percent
28:58
Speaker 2: for the year. First class ticket revenue up seven percent,
29:03
Speaker 2: everyone else down five percent. Like that is your CA
29:07
Speaker 2: shaped economy evidence that you have. It still works out
29:10
Speaker 2: to two percent revenue growth for Delta in terms of
29:12
Speaker 2: passenger revenue. But the other piece that I want to
29:15
Speaker 2: talk about, and this is part of what's in this
29:19
Speaker 2: piece from Bloomberg. It talks about how investors are disappointed
29:24
Speaker 2: at the free cash flow forecast. Last year, the airline
29:27
Speaker 2: earned four point six billion dollars in free cash flow
29:29
Speaker 2: compared with projections of three to four billion this year,
29:32
Speaker 2: so free cash flow is expected to decline. And then
29:35
Speaker 2: I remembered, and this is from where was this published?
29:39
Speaker 2: Originally here we go. This was in Delta's earnings report,
29:45
Speaker 2: but this is reporting from a view from the wing.
29:47
Speaker 2: They're a travel website that I poke around on occasionally.
29:51
Speaker 3: And here's the thing.
29:53
Speaker 2: Eight billion dollars of Delta's revenue for the full year
29:57
Speaker 2: comes from their credit card partnership with American Express.
30:00
Speaker 3: And the way this works.
30:02
Speaker 2: If you're wondering, like how do they get money from,
30:04
Speaker 2: you know, the credit card company. You ever see one
30:06
Speaker 2: of those Delta sky Miles cards that's offering you like
30:09
Speaker 2: one hundred thousand mile bonus or whatever. Well, those miles
30:13
Speaker 2: don't just come from nowhere. Amex pays Delta for those
30:17
Speaker 2: miles and gives them to you as a bonus. It's
30:20
Speaker 2: there it's a customer acquisition cost for AMEX, but Delta
30:23
Speaker 2: is realizing that revenue through the purchase of those miles,
30:27
Speaker 2: to the tune of eight billion dollars a year.
30:33
Speaker 3: Last year, the.
30:34
Speaker 2: Airline earned four point six billion dollars of free cash flow.
30:37
Speaker 2: This means that were it not for American Express buying
30:41
Speaker 2: eight billion dollars worth of miles to give to new
30:44
Speaker 2: card sign ups, Delta would be free cash flow negative
30:48
Speaker 2: to the tune of three point four billion dollars last year. Now,
30:51
Speaker 2: they may also, you know, adjust their business as needs,
30:54
Speaker 2: but the adjustments are one of three things. Higher prices,
30:59
Speaker 2: cutting expense, or basically the server like a certain service
31:03
Speaker 2: doesn't exist anymore as a form of cutting expenses. And
31:07
Speaker 2: so I find it wild that the most profitable airline
31:11
Speaker 2: in the country today is profitable not because of the
31:16
Speaker 2: flying that they actually do, but because of a credit
31:19
Speaker 2: card company paying them eight billion dollars over the last
31:22
Speaker 2: year to buy miles to give to new card holders.
31:27
Speaker 4: That's a little unfair. I mean, it is because they fly,
31:31
Speaker 4: just it's not because of any service they delivered simultaneous with.
31:35
Speaker 3: It's not that.
31:37
Speaker 2: It's unclear that they would be profitable if they had
31:40
Speaker 2: to rely on consumer demand.
31:41
Speaker 4: But like you said, and I think it's the key point,
31:43
Speaker 4: they would have done something else. One hopes would it
31:46
Speaker 4: have been, would it have returned?
31:50
Speaker 2: Look at the airlines that don't have such robust credit
31:52
Speaker 2: card partnerships. You the airlines that don't have such robust
31:56
Speaker 2: partnerships and their profit. There's a reason why has almost
32:00
Speaker 2: all of the profit in the airline business.
32:03
Speaker 4: But if you're an investor, you don't care. What you
32:05
Speaker 4: care about is the company generating money.
32:08
Speaker 3: You do, but you wonder how sustainable both sides of
32:10
Speaker 3: that are.
32:12
Speaker 4: Well, yeah, sure, it's all going to collapse at the
32:14
Speaker 4: same time.
32:16
Speaker 2: Correct, Like the high end credit card business and high
32:19
Speaker 2: end travel business are one and the same. And when
32:21
Speaker 2: they go, they go. Let's take a quick break. When
32:25
Speaker 2: we come back, we've got stack roulette.
32:28
Speaker 3: That's what it's called. Right after this.
32:30
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32:36
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32:44
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32:58
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33:06
Speaker 5: The Financial Exchange is incredibly proud to be a partner
33:08
Speaker 5: of the Disabled American Veterans Department of Massachusetts. Planning is
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33:44
Speaker 3: Mark. What do you have for me for stack Roulettes?
33:47
Speaker 4: City Group reported earnings today and their earnings were fine,
33:51
Speaker 4: Their profits were fine, their sale growth was a little
33:54
Speaker 4: bit weak. I guess what I thought was notable or
33:57
Speaker 4: what stuck out to me, given that I'm not really
34:00
Speaker 4: qualified to dig into their dig into their reported earnings.
34:04
Speaker 4: Not something I follow closely was Jane Fraser's remarks following
34:09
Speaker 4: those earnings, remarks directed at employees. We're judged by our results,
34:14
Speaker 4: Fraser says, I expect to see the last vestiges of
34:17
Speaker 4: bad habits. I'm gonna start skipping words here, fall away,
34:20
Speaker 4: more discipline, confident approach, she says she wants in twenty
34:25
Speaker 4: twenty six. It's just also bland garden variety. Nothing really
34:31
Speaker 4: inspiring about her message. Look, their sales growth was disappointing,
34:36
Speaker 4: so how.
34:36
Speaker 2: Can you be inspiring it like a money center, bank
34:39
Speaker 2: acount then regulated utility.
34:42
Speaker 4: But each one of us, she says, has to adopt
34:43
Speaker 4: a more commercial mindset. What's the mindset now? It's city.
34:48
Speaker 4: It's not charitable, nor should it be. Ask for the business,
34:52
Speaker 4: compete for the full wallet. Don't settle for a secondary
34:55
Speaker 4: roll or missed opportunity, do you These these people are
34:57
Speaker 4: probably among the hardest working anywhere. You could say finance
35:00
Speaker 4: is a bit of a racket, and it is a
35:01
Speaker 4: bit of a racket, but people still work very hard
35:04
Speaker 4: to make the best out of that racket, like people
35:06
Speaker 4: would in any racket. But it's just such uninspired. I
35:11
Speaker 4: guess you could call it a pep talk, but it
35:13
Speaker 4: really falls short, especially in light of the I was
35:17
Speaker 4: gonna say DRACONI in there. Maybe not that drastic, but
35:19
Speaker 4: the big head count reductions she's got to make to
35:22
Speaker 4: keep up with with with earnings growth. I was expecting
35:25
Speaker 4: maybe something more specific or inspired, I.
35:29
Speaker 3: Think, quite honestly, I mean, look, what else can the
35:33
Speaker 3: big banks do that's like new and you unique at
35:36
Speaker 3: this point.
35:36
Speaker 2: I mean it's look, all of finance ultimately boils down
35:40
Speaker 2: into two things. Can I lend to you? And then
35:43
Speaker 2: can I securitize that into something else that's like that's.
35:46
Speaker 4: Increasingly it's like wealth management.
35:47
Speaker 2: And it is, but like ultimately, like banking traditional yeah,
35:52
Speaker 2: is I'm going to lend and then I'm going to
35:54
Speaker 2: securitize it like that.
35:55
Speaker 3: That is the business of running a bank.
35:59
Speaker 2: And basically every problem that we've ever run into in
36:01
Speaker 2: banking is one of those two things going wrong. Great
36:04
Speaker 2: Financial crisis it was both of them going wrong at
36:06
Speaker 2: the same time. But like that, that's where all of
36:09
Speaker 2: the problems in the financial system come from. We went
36:12
Speaker 2: too much of the money to the wrong people, and
36:14
Speaker 2: we securitized it badly and now we need please yes,
36:20
Speaker 2: please please send help.
36:22
Speaker 3: Thank you Like that.
36:23
Speaker 2: That's that's pretty much the par for the course. Like,
36:26
Speaker 2: that's what happens. I just don't know how much innovation
36:31
Speaker 2: or interesting stuff can happen in the banking system.
36:35
Speaker 4: I mean, ideally, you don't want you don't want much
36:38
Speaker 4: to happen.
36:41
Speaker 5: You know.
36:42
Speaker 2: Like again, traditionally bankers are among the most like conservative,
36:47
Speaker 2: risk averse people out there. It's you know, like when
36:51
Speaker 2: they when they start taking risks is when things start
36:54
Speaker 2: going badly. But yeah, I don't know, it's uh.
36:59
Speaker 4: As you put now, financials are the only I think,
37:03
Speaker 4: UH sector with a negative in the S and B
37:05
Speaker 4: five hundred with a negative return year today. Maybe part
37:08
Speaker 4: of that is regulatory risk and worries about yeah you.
37:12
Speaker 3: Know, yeah, I don't know. Uh.
37:14
Speaker 2: PIMCO says that rally sweeping emerging markets can last for years.
37:20
Speaker 2: I mean, look, I've got no idea. It may it
37:24
Speaker 2: may not, but especially when we talk about emerging markets,
37:30
Speaker 2: and and look, if you've never invested in emerging markets,
37:33
Speaker 2: you're you're missing out on one of the you know,
37:37
Speaker 2: great experiences that you can possibly have when oh you've
37:41
Speaker 2: got this great thesis and then political instability in that
37:44
Speaker 2: emerging market leads to it being completely blown up in
37:46
Speaker 2: a span of an hour, and you're sitting there like
37:48
Speaker 2: what just happened?
37:50
Speaker 3: You know, like, oh, there was a coup where oh
37:53
Speaker 3: the you.
37:54
Speaker 2: Know, they fired the head of you know, they've they fight,
37:56
Speaker 2: they got rid of the entire central bank, and inflation
37:58
Speaker 2: went to you know, one hundred percent, and like, this
38:01
Speaker 2: is what happens in emerging markets is crazy stuff that
38:04
Speaker 2: you can't predict. I just don't know how one can
38:07
Speaker 2: predict that the em rally is going to last for
38:10
Speaker 2: years given the unpredictability of one emerging market, let alone
38:15
Speaker 2: all of them. We're gonna take a quick break for
38:18
Speaker 2: the next twenty four hours, but do join us tomorrow.
38:20
Speaker 3: Sh will be better then