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Why did UnitedHealth's stock nosedive this morning? · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange. I hope
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Speaker 2: everyone is staying warm if you live anywhere between I
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Speaker 2: don't know Oklahoma and North in northeastern United States. It's
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Speaker 2: about the area that got wallified. Yeah, it's you know,
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Speaker 2: national show, Paul. We can't just acknowledge the Oklahoma not
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Speaker 2: was most of the country that got a good whipping
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Speaker 2: from this most recent snowstorm. Anyway, we are back added
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Speaker 2: here on the Financial Exchange. Paul was able to dig
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Speaker 2: out of his home and made it here today to
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Speaker 2: join us, and a fair bit to cover this week.
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Speaker 2: As we mentioned earlier, this week, we will have a
1:49
Speaker 2: Federal Reserve.
1:50
Speaker 3: Meeting tomorrow with an interest rate announcement.
1:52
Speaker 2: We'll have earnings from Meta, Microsoft, Apple, and Tesla, among others.
1:56
Speaker 2: We have earnings for major credit card companies as well.
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Speaker 2: We've got some job cut announcements coming from UPS. We've
2:03
Speaker 2: got new policies on seating arrangements from Southwest Airlines.
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Speaker 3: But the news.
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Speaker 2: That is moving markets today, or at least moving the
2:13
Speaker 2: shares of some major health insurance.
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Speaker 4: It's tough to be a healthcare investor.
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Speaker 3: To big time.
2:18
Speaker 2: You've got some major cuts coming from the Trump administration
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Speaker 2: to proposed Medicare reimbursement rates, and this is a topic
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Speaker 2: that is having a major impact on companies that operate
2:29
Speaker 2: in this space, but is not on the surface all
2:32
Speaker 2: that easy to understand as a regular consumer, especially one
2:37
Speaker 2: who's not yet on Medicare. If you're on Medicare, it's
2:39
Speaker 2: a little bit clearer, but even then it's a little
2:41
Speaker 2: bit complex. And so we're going to spend a little
2:43
Speaker 2: bit of time during this first segment explaining why we
2:46
Speaker 2: think United Healthcare stock, for example, is down nineteen and
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Speaker 2: a half percent today as we speak, wiping out one
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Speaker 2: fifth of its market capitalization in a morning. By the way,
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Speaker 2: that follows other news where United Healthcare stock over the
3:00
Speaker 2: last twelve months is down nearly half. So been a
3:04
Speaker 2: rough go for some of these health insurers as they
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Speaker 2: face increase pressure about controlling prices and reimbursement rates on Medicare.
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Speaker 2: But here's how. There's a bunch of different pieces to
3:16
Speaker 2: this one. All of the Medicare consumers out there are
3:19
Speaker 2: used to the cost of their part B premiums going
3:22
Speaker 2: up every year. It comes right out of your Social
3:24
Speaker 2: Security check. This year, in particular, they went up a lot,
3:28
Speaker 2: nearly ten percent in terms of the overall cost increase
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Speaker 2: of Medicare Part B, topping out it over two hundred dollars.
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Speaker 2: I think that was an eighteen dollars increase year over year,
3:38
Speaker 2: and the cola on your Social Security most certainly doesn't
3:41
Speaker 2: cover that. But that's not what we are referring to here.
3:44
Speaker 2: That is what you pay for Medicare. What we're talking
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Speaker 2: about here is the proposal from the Trump administration to
3:51
Speaker 2: increase year over year a point zero nine percent bump
3:57
Speaker 2: in what the government reimburses those companies that provide Medicare
4:01
Speaker 2: plans to individuals, right, And so this is not what
4:06
Speaker 2: you pay. It is what the insurance companies get reimbursed.
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Speaker 2: And it has some complex problems for those insurers. The
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Speaker 2: first one is clearly a squeeze to their margins and
4:17
Speaker 2: how they make money on these Medicare advantage plans that
4:21
Speaker 2: they offer across the country.
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Speaker 5: Yes, so I want to try and set the scene
4:24
Speaker 5: by sort of explaining the differences between the two, because
4:27
Speaker 5: you're right, if you're not in the weeds of being
4:29
Speaker 5: enrolled in one of these programs, it's probably harder to
4:31
Speaker 5: wrap your mind around. And this will dovetail into why
4:33
Speaker 5: we'll talk about it specific to why the healthscare sector
4:36
Speaker 5: is getting beaten up so far so hard today in
4:38
Speaker 5: early trading. So, Medicare, like you mentioned before, Part B
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Speaker 5: is sort of the main premium that's set by the government.
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Speaker 5: Then if you're on Medicare, then you're paying some deductibles
4:48
Speaker 5: and twenty percent co insurance and there is no out
4:51
Speaker 5: of pocket cap on unless you buy additional coverage. You
4:55
Speaker 5: could spend on that twenty percent upwards of significant sums
4:59
Speaker 5: of money. Sure, what the benefit is with being on
5:02
Speaker 5: Medicare Part B or just within the system is you
5:05
Speaker 5: go to the doctor there's something wrong with you. They
5:07
Speaker 5: service it, They send the bill to the government. The
5:10
Speaker 5: government pays them a fee for what the service is. Yeah,
5:13
Speaker 5: there's that twenty percent and the deductibles that you have
5:15
Speaker 5: to worry about, but it's really a relationship between the
5:18
Speaker 5: health insurance sending the bill to the government. We flip
5:22
Speaker 5: that around on Medicare advantage. This is the deal with
5:25
Speaker 5: the healthcare insurers where you are signing up with the
5:29
Speaker 5: United Healthcare with the Humanity and basically what they're saying
5:32
Speaker 5: is we're gonna go out there and we're gonna negotiate
5:35
Speaker 5: your healthcare coverage. We're gonna promise you pretty low in
5:39
Speaker 5: terms of premiums or sometimes zero dollar premums. You're not
5:42
Speaker 5: gonna be subject to the Part B cost that others
5:44
Speaker 5: are in Medicare. You're gonna have to pay co pays,
5:47
Speaker 5: but you don't have to pay that twenty percent co
5:49
Speaker 5: insurance that I'm talking about here. And we're gonna cap
5:52
Speaker 5: your out of pocket maximum a year. And that's the
5:54
Speaker 5: big selling point is that you are capped in terms
5:57
Speaker 5: of knowing you will not spend over x amount. What
6:00
Speaker 5: are some of the limitations with Medicare advantage? You got
6:02
Speaker 5: to go in network, you need referrals. It's not as
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Speaker 5: seamless as a system as Medicare.
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Speaker 4: We now dovetailing that. What's the big deal.
6:12
Speaker 5: We've now kind of decided the two differences have gone
6:14
Speaker 5: over the differences between the two. How United Healthcare and
6:18
Speaker 5: particularly Humana, which generates about eighty six percent of premium
6:21
Speaker 5: revenue from Medicare advantages. They're getting paid a lump sum
6:25
Speaker 5: amount from the government to offer you that healthcare for
6:28
Speaker 5: Medicare advantage. That percentage is going up very minimally this year,
6:33
Speaker 5: and that's why these healthcare stocks are taking a big hit.
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Speaker 2: Yeah, to be clear, I won't claim to know what
6:41
Speaker 2: CVS and United Health executives were anticipating, but the general
6:45
Speaker 2: term that's been out there is hey, with the cost
6:47
Speaker 2: of medical care increasing so much, with the cost of
6:51
Speaker 2: GLP one drugs, that medical utilization.
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Speaker 3: Is what they refer to here.
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Speaker 2: You know, the frequency of people going to the doctor,
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Speaker 2: are getting prescribed to new medications, et cetera, et cetera.
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Speaker 2: These companies were anticipating a four to six percent increase
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Speaker 2: for twenty twenty seven. They just got a point one
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Speaker 2: percent increase.
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Speaker 4: What is that one percent increase?
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Speaker 3: I you rounded up?
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Speaker 2: No, No, it was point zero two point zero SOOT
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Speaker 2: rounded effectively. No increase is what these companies received. So
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Speaker 2: immediate effect there is shrinking margins. Right, If your costs
7:23
Speaker 2: are increasing four to six percent and your reimbursement from
7:26
Speaker 2: the government goes up nothing, then you are going to
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Speaker 2: see margins shrink in the future.
7:31
Speaker 3: I mentioned United Healthcare.
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Speaker 2: There stocks down nineteen point let's call it nineteen point
7:36
Speaker 2: four percent now, Humanna down twenty percent today CVS Health,
7:40
Speaker 2: which obviously has a big insurance network but also operates
7:43
Speaker 2: the stores, down about ten point seven percent all on
7:46
Speaker 2: this news. I think the next order question is what
7:52
Speaker 2: precisely happens next. And by the way, I know this
7:56
Speaker 2: is dramatic. I know we're framing it as a negative
7:58
Speaker 2: for these investors. I'm not sure sure or it's a
8:00
Speaker 2: net negative for the system as a whole, But I
8:02
Speaker 2: do think Medicare beneficiaries are going to be impacted ultimately,
8:06
Speaker 2: Like you know, United, Humana and CVS investors are not
8:10
Speaker 2: going to sit there and say, oh, yeah, this is fine,
8:13
Speaker 2: don't make any changes to your business. So what is
8:16
Speaker 2: likely to happen in twenty twenty seven, I think is
8:19
Speaker 2: the open question, because this is when this is affected one.
8:23
Speaker 2: In the meantime, they might just try and deny more
8:25
Speaker 2: claims and find ways to make up the margins in
8:28
Speaker 2: twenty twenty six because they know this cliff is coming
8:30
Speaker 2: in twenty twenty seven. But if you're on a Medicare
8:34
Speaker 2: advantage plan, you may be familiar with some kind of
8:37
Speaker 2: nice to have perks that are on your plan, right
8:39
Speaker 2: That can include over the counter drugs, gym memberships, you know,
8:44
Speaker 2: transportation options to doctors, dental vision. You know, all these
8:48
Speaker 2: things are selling points of the plans, but they're not required,
8:53
Speaker 2: so could you see some cuts there. All of these
8:56
Speaker 2: plans also have different out of pocket maximums, so how
9:00
Speaker 2: much are you required to pay? The premium might not move,
9:04
Speaker 2: but hey, maximum that you can take out of the
9:06
Speaker 2: pocket might be different in the coming plan years. In
9:11
Speaker 2: a worst case scenario, some markets, they might just say, look,
9:15
Speaker 2: we can't continue to offer plans in XYZ market. And
9:18
Speaker 2: you've already been seeing that with a number of insurers
9:20
Speaker 2: across the country. If you're on Medicare or Medicare advantage
9:23
Speaker 2: now you might be familiar with this. I know here
9:26
Speaker 2: in New England there was a major insurer that just said, nope,
9:29
Speaker 2: we're not offering plans anymore, I think anywhere in New Hampshire.
9:33
Speaker 2: So these are the likely ramifications of what all of
9:39
Speaker 2: this could look like. Now I mentioned I'm not sure
9:43
Speaker 2: this is a net negative for the overall system. Ultimately,
9:47
Speaker 2: this is an attempt to control costs right, and the
9:53
Speaker 2: problem we've been talking a lot about subsidies on the
9:56
Speaker 2: show and interference by the government in different markets and Medicare.
10:00
Speaker 2: You know, the definition of that, right, it is a
10:02
Speaker 2: government provided program for health insurance, and as such, you know,
10:07
Speaker 2: you see some waste, fraud, and abuse in the system.
10:10
Speaker 2: Many of these insurance have been accused of marking up
10:13
Speaker 2: bills to the government or not, you know, really creating
10:16
Speaker 2: incentives for people to not use as much healthcare. And
10:19
Speaker 2: I think that this is a on the surface, it
10:23
Speaker 2: seems like a blunt force attempt to try and control
10:26
Speaker 2: some of those costs, saying, hey, you're going to continue
10:29
Speaker 2: to provide health insurance to your customers, and the reimbursements
10:33
Speaker 2: that the government is going to give you are going
10:35
Speaker 2: to shrink. And so the natural reaction by the insurance companies, though,
10:38
Speaker 2: to be clear, I think is going to be passed
10:40
Speaker 2: along some of this. It's not a cost increase, right,
10:44
Speaker 2: It's a I guess it is a cost increase because
10:47
Speaker 2: their costs are increasing because of the drugs and the reimbursements.
10:50
Speaker 2: They're just not seeing the corresponding revenue increase from the government.
10:54
Speaker 3: So what is the likely outcome?
10:56
Speaker 2: Like I mentioned, for beneficiaries on these plans, likely outcome
11:01
Speaker 2: is eventually shrinking benefits, stepping out of certain areas that
11:06
Speaker 2: are high costs, you know, as particularly rural areas have
11:09
Speaker 2: been mentioned here as hey, if we're offering a health
11:12
Speaker 2: insurance plan in rural Wyoming where it's really more you know,
11:17
Speaker 2: we're doing it because we feel like we need to.
11:19
Speaker 2: But you know, between transportation costs and you know, limited
11:22
Speaker 2: hospital choice, it's really expensive to offer these plans. You
11:26
Speaker 2: could see them stepping out of those areas, and you know,
11:29
Speaker 2: it sets up a flight a fight obviously between the
11:32
Speaker 2: Trump administration and these insurance companies. Come twenty twenty six
11:36
Speaker 2: and twenty twenty seven, let's take a quick break. This
11:39
Speaker 2: is again a bit of a breaking news story with
11:41
Speaker 2: those companies dropping dramatically. We'll be coming back to it
11:45
Speaker 2: throughout the show, but we do have a FED meeting tomorrow,
11:47
Speaker 2: so we're doing a bit of FED talk next on
11:49
Speaker 2: the Financial Exchange.
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12:24
Speaker 2: All right, Paul, FED meeting tomorrow, and you know, really
12:29
Speaker 2: important deliberative one in terms of what could happen here
12:34
Speaker 2: tomorrow at two thirty pm when Jay Powell takes the stage. I'm,
12:38
Speaker 2: of course joking, because there is currently a ninety seven
12:40
Speaker 2: point two percent chance that when J.
12:42
Speaker 3: Powell takes the stage, or rather before J.
12:45
Speaker 2: Powell takes the stage, the Federal Reserve is going to
12:47
Speaker 2: announce that they did nothing at this meeting in terms
12:50
Speaker 2: of moving rates in one direction or another. But what
12:52
Speaker 2: sort of questions do you anticipate FED Chair J. Powell
12:55
Speaker 2: getting And are any of them going to be actually
12:57
Speaker 2: relevant to the path of interest rates or is it
12:59
Speaker 2: all going to be, you know, the drama of Fed
13:04
Speaker 2: versus White House.
13:05
Speaker 5: It seems like that would be an easier place to
13:07
Speaker 5: start with to maybe ask about the criminal investigation, which
13:10
Speaker 5: I'm sure he probably has to have a cant you know,
13:12
Speaker 5: he can't really give much further comment to it.
13:15
Speaker 4: But ultimately, when.
13:17
Speaker 5: You look at this Fed Reserve meeting, we're not going
13:19
Speaker 5: to try and oversell it. It is probably going to
13:22
Speaker 5: be quite straightforward. What are really the factors at play
13:25
Speaker 5: here heading into this meeting? You have a FED that
13:29
Speaker 5: has that dual mandate of keeping employment under control and
13:33
Speaker 5: also dealing with inflation. We've seen inflation sit at about
13:37
Speaker 5: two point eight percent. It doesn't seem like there are
13:39
Speaker 5: tremendous catalysts to have that driven down any further over
13:43
Speaker 5: the course of the year. I mean, it could who knows,
13:45
Speaker 5: But ultimately the Fed's target is two percent. We've been
13:49
Speaker 5: sitting at two point eight percent. There isn't really a
13:52
Speaker 5: huge argument with any of the recent data that we've
13:54
Speaker 5: seen to certainly increase interest rates. That's totally off the
13:58
Speaker 5: table because that inflation number has stayed around that two
14:00
Speaker 5: point eight percent. The bigger concern and the biggest focus
14:03
Speaker 5: for twenty twenty six is the labor market. That would
14:06
Speaker 5: really be the only real impetus for the FED to
14:09
Speaker 5: cut further. As these months march along. It really seems
14:13
Speaker 5: like if we look back at twenty twenty five, once
14:15
Speaker 5: some of the revisions are completed, there is going to
14:18
Speaker 5: be almost no job growth, or let's just say minimal
14:21
Speaker 5: job growth over the course of the trailing twelve months.
14:24
Speaker 5: So heading into twenty twenty six, it's really the labor
14:26
Speaker 5: market that takes center stage. But when it pertains to
14:30
Speaker 5: this meeting tomorrow at two o'clock, there's not a lot
14:33
Speaker 5: to be said here. There's not a lot of new
14:35
Speaker 5: data to analyze. So ultimately the questions about the criminal
14:39
Speaker 5: investigation are far more juicier for you know, economists and
14:44
Speaker 5: journalists to ask rather than anything on monetary policiley. I
14:47
Speaker 5: guess you could say looking at individual people and what
14:50
Speaker 5: they may vote. You know, FED Governor Steven muerm has
14:53
Speaker 5: been unsuccessfully pushing for easing. There's been other members of
14:58
Speaker 5: the Federal Reserve Board who have been trying push for
15:00
Speaker 5: lower rates. Outside of that drama in potential infighting, which
15:03
Speaker 5: you're not really going to get a lot on, there's
15:05
Speaker 5: not a lot to see here.
15:06
Speaker 3: Now, I tend to agree.
15:08
Speaker 2: And again, setting that frame where Paul mentioned the inflation
15:11
Speaker 2: numbers as of the absolute most recent read on CPI,
15:15
Speaker 2: which was December, it came in, you know, rounded at
15:18
Speaker 2: two point seven percent, which was lower than what we
15:21
Speaker 2: saw in the fall of last year. Then you had
15:23
Speaker 2: the government shutdown where you kind of couldn't compare these
15:25
Speaker 2: numbers for a period of time. You on the unemployment side,
15:30
Speaker 2: had unemployment climbing.
15:32
Speaker 3: Through the course of last year.
15:34
Speaker 2: Right, if we take a look at January of twenty
15:37
Speaker 2: twenty five, we were sitting around four to four point
15:39
Speaker 2: one percent by July, yeah, had it at four point
15:42
Speaker 2: three percent, And so that caused the FED to say, Okay,
15:45
Speaker 2: inflation hasn't gotten two out of control. Here in spite
15:48
Speaker 2: of our concern about tariffs, you are starting to see
15:51
Speaker 2: a climb in the unemployment rate. Could this be the
15:54
Speaker 2: beginning of another trend on unemployment? And so they cut
15:58
Speaker 2: rates at the meetings in let's see September of last year, October,
16:03
Speaker 2: and December by twenty five basis points at each of
16:06
Speaker 2: those three meetings, and since then both inflation and unemployment
16:13
Speaker 2: have dipped down a bit. Furthermore, we've been getting weekly
16:17
Speaker 2: jobless claims numbers, we get those every Thursday. Those have
16:19
Speaker 2: been coming in at very low levels. And so while
16:23
Speaker 2: the FED had some concerns and I think was justified
16:25
Speaker 2: in their concern about the state of the labor market
16:27
Speaker 2: in the fall of last year because the data was
16:29
Speaker 2: indicating and increasing unemployment, the continuation of that move just
16:35
Speaker 2: doesn't make a ton of sense when you know, again,
16:38
Speaker 2: inflation is lower but not defeated, and unemployment has seemingly
16:44
Speaker 2: calmed down a bit. So the weekly jobles claims, by
16:47
Speaker 2: the by the way, have been coming in below two
16:50
Speaker 2: hundred thousand, which is a really low level meeting. Yeah,
16:53
Speaker 2: they might not be getting new jobs, but it doesn't
16:55
Speaker 2: appear that the unemployment rate would be increasing based on
16:58
Speaker 2: those firing rates. And so while there's been a lot
17:02
Speaker 2: written about, for instance, the layoff announcements covered by Challenger,
17:06
Speaker 2: Gray and Christmas and the difficulty in finding new work,
17:11
Speaker 2: the data doesn't really support a economy that's in some
17:15
Speaker 2: sort of free fall and needs to be rescued by
17:17
Speaker 2: lower interest rates.
17:18
Speaker 3: And so I do think you see a pause.
17:21
Speaker 2: I don't think that means that they will do nothing,
17:23
Speaker 2: but it's growing increasingly difficult to see the case for
17:27
Speaker 2: making any rate changes.
17:30
Speaker 3: For the rest of Jay Powell's term.
17:31
Speaker 2: I agree again, he's in here until May, and you've
17:37
Speaker 2: got meetings tomorrow, March eighteenth and April twenty ninth. Can
17:42
Speaker 2: a lot change between now and the end of April, Absolutely,
17:45
Speaker 2: but you'd need to see a pretty significant shift in
17:48
Speaker 2: the direction of this economy right now. And if I
17:51
Speaker 2: am thinking about shifts in the economy, I'm actually a
17:54
Speaker 2: little bit more worried about the inflation side than I
17:56
Speaker 2: am at the unemployment side.
17:58
Speaker 3: Today.
17:59
Speaker 2: If I'm taking a look outlook here we've got tax
18:03
Speaker 2: filing season where the average benefit or the average tax
18:07
Speaker 2: filer is going to receive a significantly larger refund than
18:11
Speaker 2: last year. We have, you know, the the Social Security
18:14
Speaker 2: recipients who, if they earned less than a quarter million
18:17
Speaker 2: dollars in twenty twenty five, are going to be getting
18:19
Speaker 2: a larger deduction. On that front, this is for married couples.
18:23
Speaker 2: You've got folks that are pulling in tips that are
18:27
Speaker 2: going to receive a larger deduction over time, that's going
18:29
Speaker 2: to receive a larger deduction. And a bunch of other
18:32
Speaker 2: things on the corporate side. And so if I am
18:35
Speaker 2: the FED and I know absent any data about inflation
18:39
Speaker 2: tacking up or unemployment ticking up, and I'm trying to
18:42
Speaker 2: read the tea leaves, which is their job, Yeah, I
18:44
Speaker 2: think you acknowledge that, Hey, there's some risk to both
18:47
Speaker 2: of these things. And let's see how tax filing season goes.
18:50
Speaker 2: Meaning you're bringing yourself right towards the end of spring
18:53
Speaker 2: here before you make a real judgment call on data
18:57
Speaker 2: that gets released about that tax filing season.
18:59
Speaker 5: Yeah, yeah, it has to be much more of a
19:01
Speaker 5: wait and see approach. And it seems like that's what
19:03
Speaker 5: we'll get tomorrow. We'll be covering it on I Guess
19:06
Speaker 5: Thursday Show. But ultimately shouldn't be too much to report there.
19:09
Speaker 2: Market's a big time mixed territory here, a lot of
19:13
Speaker 2: that due to some of the major moves in the
19:15
Speaker 2: health insurance space. We're gonna take quick break when we
19:18
Speaker 2: come back, a full market recap with Wall Street Watches
19:22
Speaker 2: coming right up.
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19:40
Speaker 1: Facebook and follow us on Twitter at TFE show. Breaking
19:44
Speaker 1: business news is always first right here on the Financial
19:47
Speaker 1: Exchange Radio Network. Time now for Wall Street. Watch a
19:53
Speaker 1: complete look at what's moving markets so far today right
19:56
Speaker 1: here on the Financial Exchange Radio Network.
19:59
Speaker 4: Markets are mixed extays.
20:00
Speaker 6: Traders shift their attention to health insurer stocks this morning
20:05
Speaker 6: after the Trump administration floated a proposal to hold Medicare
20:08
Speaker 6: rates almost flat next year, far less than expectations of
20:12
Speaker 6: a four to six percent increase. Wall Street's also rating
20:15
Speaker 6: for a FED meeting with the decision on interest rates
20:17
Speaker 6: tomorrow afternoon. In addition to big tech earnings. Right now,
20:23
Speaker 6: the Dow is down just over one percent, or five
20:26
Speaker 6: hundred and four points lower, SMP five hundred down or
20:29
Speaker 6: to me up about a third of a percent, or
20:32
Speaker 6: twenty five points higher, Nasdaq up nearly nine tenths of
20:35
Speaker 6: a percent or two hundred and seven points higher, Rust
20:39
Speaker 6: two thousand mostly flat, Tenure treasure yealed flat at four
20:42
Speaker 6: point two to one five percent, Andank crude oil up
20:44
Speaker 6: nearly one percent higher, trading at sixty one dollars in
20:48
Speaker 6: twenty cents a barrel. United Health sinking eighteen percent following
20:52
Speaker 6: that news that the Trump administration is proposing to hold
20:55
Speaker 6: Medicare rates mostly flat in twenty twenty seven, Humana also
20:59
Speaker 6: seeing it tumble of eighteen percent. Shares in CBS Health
21:04
Speaker 6: are down nearly eleven percent. Newil General Remoters reported a
21:08
Speaker 6: three point three billion dollar quarterly lost, but still reported
21:11
Speaker 6: better than expected earnings for the fourth quarter. The automaker
21:14
Speaker 6: also issued a twenty twenty six outlook that also exceeded
21:18
Speaker 6: analysts forecast. Furthermore, GM uped its quarterly dibnend by twenty
21:22
Speaker 6: percent and announced a six billion dollar buy back program.
21:26
Speaker 6: GM stock jumping eight percent on that news. Elsewhere, Boeing
21:32
Speaker 6: reported stronger than expected fourth quarter revenue and said it
21:35
Speaker 6: was making solid progress with its turnaround plan. However, Boeing
21:39
Speaker 6: shares are falling about two percent. American Airlines down by
21:43
Speaker 6: three percent after the carrier took a three hundred and
21:45
Speaker 6: twenty five million dollar revenue hit from the government shutdown. However,
21:49
Speaker 6: Americans still posted quarterly revenue growth and issued an encouraging
21:54
Speaker 6: annual outlook. And ups An will eliminate an additional thirty
21:58
Speaker 6: thousand operational jobs as it winds down it's partnership with Amazon.
22:03
Speaker 6: The cuts come after the company eliminated forty eight thousand
22:06
Speaker 6: jobs in twenty twenty five. Ups shares are up over
22:10
Speaker 6: two percent. I'm Tucker Silva and that is Wall Street Watch.
22:15
Speaker 2: We talk a lot about debt and deficits at the
22:17
Speaker 2: national level on this program, and New York Times has
22:20
Speaker 2: a piece today which is well done, correct and also
22:26
Speaker 2: potentially irrelevant for the moment, but I think worth discussing.
22:30
Speaker 2: So record debt in the world's richest nations threaten global growth.
22:33
Speaker 2: The United States national debt, for instance, sets at thirty
22:36
Speaker 2: eight trillion with a T dollars for some context, because
22:40
Speaker 2: that is a meaningless number for almost everybody. That's roughly
22:43
Speaker 2: one hundred and twenty five percent the size of the
22:46
Speaker 2: American economy. So the debt is you know, one hundred
22:50
Speaker 2: and twenty five percent of the overall economy. And in fact,
22:54
Speaker 2: when you look at the G seven, six of those
22:59
Speaker 2: wealthy G seven nations, the national debt equals or exceeds
23:03
Speaker 2: the country's annual economic output.
23:06
Speaker 3: Japan's is roughly two times.
23:08
Speaker 2: So this varies country by country, but the trend that
23:12
Speaker 2: New York Times accurately points out is that across the board,
23:16
Speaker 2: national debt compared to GDP or output has increased and
23:21
Speaker 2: increased dramatically over the last five years, but been on
23:25
Speaker 2: one steady increase line for the last several decades. And
23:29
Speaker 2: there's a number of different things to blame here. Part
23:32
Speaker 2: of it is politics and politicians unwillingness to take away
23:36
Speaker 2: benefits from citizens. Part of it is demographics, with almost
23:40
Speaker 2: all of those G seven nations experiencing slowing population growth
23:45
Speaker 2: and strong.
23:47
Speaker 5: And aging population growth on top of the slowing population growth,
23:51
Speaker 5: so there's more cost for healthcare and pension servicing, not
23:54
Speaker 5: so much domestically here when I'm talking about pensions, but
23:56
Speaker 5: more on a global level.
23:59
Speaker 2: And so when you combine that with an unwillingness to
24:01
Speaker 2: raise taxes to dramatic levels, you have what you are
24:04
Speaker 2: seeing now, And the question.
24:06
Speaker 3: Is are the second part.
24:10
Speaker 2: Of this is that you know it's going to threaten
24:12
Speaker 2: global growth and it's raising broader alarms. And there's some
24:17
Speaker 2: evidence of those broader alarms. You know, people have pointed
24:20
Speaker 2: to this as being a contributing factor to the run
24:23
Speaker 2: up in gold as of late or other commodities, some
24:28
Speaker 2: lack of confidence in country's ability to pay that debt
24:32
Speaker 2: or their confidence in those currencies of those nations. And
24:36
Speaker 2: you talk about that here domestically. It's obviously more pronounced
24:40
Speaker 2: in other countries that are not a reserve currency. But
24:43
Speaker 2: the question still remains, will this be an issue that
24:47
Speaker 2: you and I even face and have to reckon with
24:49
Speaker 2: in our lifetimes. And I don't have a firm answer
24:52
Speaker 2: for you, and I don't have have a firm answer
24:54
Speaker 2: for anybody that's listening out there as well.
24:58
Speaker 4: But there's a lot more yes.
25:00
Speaker 1: The no.
25:00
Speaker 5: If I had to put a probability on it. Debt
25:03
Speaker 5: is always like this, it's it's a problem. It's not
25:06
Speaker 5: a problem until it is a problem. And you can
25:08
Speaker 5: look at just stories on a company level over decades
25:12
Speaker 5: and decades, there's always been this abuse and misuse of
25:15
Speaker 5: debt over time, and it only rears itself in times
25:19
Speaker 5: of strife and difficulty, and for the most part outside
25:24
Speaker 5: of COVID, where you know, we did see a short
25:27
Speaker 5: sort of uptick in sort of economic uncertainty, and as
25:30
Speaker 5: a result of that, trillions of dollars were spent to
25:32
Speaker 5: kind of correct that trend. We've been fortunate that the
25:36
Speaker 5: last fifteen to twenty years have been a reasonably you know,
25:41
Speaker 5: stable period from an economic standpoint.
25:43
Speaker 2: And we've dramatically increased the pace of spending with that relation, right, And.
25:47
Speaker 5: So the accurate, the salient point made in this piece
25:50
Speaker 5: is that it's nice.
25:52
Speaker 4: To be able to turn to spending more.
25:55
Speaker 5: Like you did in two thousand and eight to stimulate
25:58
Speaker 5: the economy and get it out of a really tough spot.
26:00
Speaker 5: It becomes more challenging, you'd think to do that when
26:03
Speaker 5: you're operating at one hundred and twenty five percent debt
26:05
Speaker 5: to GDP. If another crisis were to emerge, it would
26:09
Speaker 5: limit your ability to spend more. Now, government is not
26:11
Speaker 5: like Mike and ice household budget, where it can just
26:14
Speaker 5: continue to run that deaf set up higher and higher.
26:16
Speaker 5: But interest rates and what debt costs are out there
26:20
Speaker 5: as a result of your debt. That is something that
26:23
Speaker 5: can snowball into a huge problem. If you look at
26:25
Speaker 5: the United States right now, the second biggest line item
26:28
Speaker 5: on the budget sheet is social security, being the first
26:33
Speaker 5: is our costs and interest. We spend a trillion dollars
26:35
Speaker 5: servicing our debt and interest. And I know we've brought
26:38
Speaker 5: this up ad nauseum on the program, but we're going
26:40
Speaker 5: to continue to beat that drum that it's an issue
26:43
Speaker 5: that's out there and politicians are going to continue to
26:45
Speaker 5: ignore those crises.
26:47
Speaker 2: Yeah, and I think you're right that it will be
26:50
Speaker 2: an issue that continues to be ignored and continues to
26:53
Speaker 2: worsen until a time of crisis. And the time of crisis,
26:56
Speaker 2: who knows what it looks like. It could be, you know,
26:59
Speaker 2: a shut down like we saw during the COVID pandemic.
27:01
Speaker 2: It could be a war. But in one of those events,
27:05
Speaker 2: there will come a time in all likelihood where maybe
27:07
Speaker 2: in the US, maybe in another country, the government needs
27:10
Speaker 2: to dramatically expand spending without dramatically increasing taxes, and the
27:15
Speaker 2: net result could be higher interest rates for the citizens.
27:19
Speaker 2: It could be higher inflation for their citizens. But there's
27:23
Speaker 2: likely to come a point in time, and we've seen
27:25
Speaker 2: it in other less fiscally serious countries where government goes
27:31
Speaker 2: on a spending spree for sometimes good reasons, sometimes terrible reasons,
27:36
Speaker 2: and the net result is, yeah, higher interest rates, interest
27:39
Speaker 2: rates shooting up into the teens, inflation to the point
27:42
Speaker 2: where your currency is deemed useless, and a big reset
27:46
Speaker 2: that needs to happen with some.
27:47
Speaker 3: Of those with some of those effects.
27:50
Speaker 2: But again to the point that I think is important here,
27:53
Speaker 2: I can paint all these doomsday scenarios and I am
27:56
Speaker 2: genuinely concerned about the fiscal path of the United States
27:58
Speaker 2: and other wealthy countries are on.
28:02
Speaker 3: But am I confidence that it's going to happen in
28:04
Speaker 3: the next decade?
28:05
Speaker 2: No, yeah, I don't have the time. Am I one
28:06
Speaker 2: hund percent sure it's going to happen in my lifetime? Also, no,
28:10
Speaker 2: I don't want to burden my kids with it. But
28:13
Speaker 2: you know, I am not certain that this is going
28:15
Speaker 2: to be the outcome. And by the way, the only
28:17
Speaker 2: solution is a dramatic combination of tax increases and spending cuts,
28:22
Speaker 2: which no one will ever win an election on. So
28:25
Speaker 2: paint me the path where that gets fixed. We've got
28:28
Speaker 2: to take a quick break when we come back a
28:30
Speaker 2: little bit more Company News GM seeing some good news
28:32
Speaker 2: ups out there with some potential cuts and airlines talking
28:36
Speaker 2: about the latest storm and its potential impact on earnings.
28:39
Speaker 3: That's next on the Financial Exchange.
28:41
Speaker 1: There's only one show that follows Wall Street's continued volatility.
28:45
Speaker 1: Keep it here all morning long on the Financial Exchange
28:48
Speaker 1: Radio Network. This is your home for the most comprehensive
28:52
Speaker 1: coverage of the economy and the trends on Wall Street.
28:55
Speaker 1: Face is the Financial Exchange Radio Network.
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29:40
Speaker 2: General Motors moving up nine and a quarter percent in
29:43
Speaker 2: early trading today. They're seeing their profits growing two billion
29:47
Speaker 2: dollars this year. They're planning to issue share buybacks. All
29:50
Speaker 2: of this obviously on the back of their hybrid and
29:54
Speaker 2: electric vehicles and real gas efficient cars that they're selling
29:58
Speaker 2: out there.
29:59
Speaker 3: I'm, of course joking.
30:00
Speaker 2: They're making all of their money on giant trucks and
30:02
Speaker 2: SUVs and luxury vehicles, which they are doing quite well
30:05
Speaker 2: with after they pivot away from evs that pretty much
30:09
Speaker 2: every large automaker has had to do.
30:12
Speaker 3: Based on just I don't know. I continue to blame
30:16
Speaker 3: this on just.
30:16
Speaker 2: Bad leadership out of the major especially US automakers, of
30:20
Speaker 2: the course of the last five or six years, and
30:23
Speaker 2: misidentifying a market of hey, this is a really popular car,
30:27
Speaker 2: the Tesla Model three specifically, and oh, it's going to
30:31
Speaker 2: be a permanently growing segment of the car market, and
30:34
Speaker 2: we should invest tens.
30:35
Speaker 3: Of billions of dollars in it.
30:36
Speaker 2: So since they've pivoted away from that, they've been doing
30:38
Speaker 2: quite well. I think the other obvious question, though, is
30:42
Speaker 2: these all the US automakers have been disrupted by tariff
30:45
Speaker 2: threats and implementation where they manufacture cars is in question
30:50
Speaker 2: in terms of what's going to be reliable and allowed
30:52
Speaker 2: in the future. And as much volatility as we're seeing now,
30:55
Speaker 2: I can obviously I can very clearly see another bout
30:59
Speaker 2: of volatile a three years from now if we have
31:01
Speaker 2: a Democrat controlled Congress that goes and rewrites all the
31:04
Speaker 2: rules on fuel efficiency and EVE subsidies and all this stuff.
31:09
Speaker 3: Again, So it has been.
31:10
Speaker 2: A volatile decade for automakers and I don't really see
31:14
Speaker 2: a path where that changes for them.
31:17
Speaker 5: Yeah, I think if you're an automaker, And obviously they
31:19
Speaker 5: haven't been the best stewards of capital over a twenty
31:23
Speaker 5: year period, GM in particular, and this is another evidence
31:26
Speaker 5: of that, even though the stock has done quite well
31:28
Speaker 5: recently as they've kind of pivoted their strategy shift, but
31:32
Speaker 5: the amount of spending Mike here that they just took
31:35
Speaker 5: a seven billion dollar right off, largely tied to the
31:38
Speaker 5: EV business, and more write offs with that to come
31:41
Speaker 5: this whole idea of them transitioning to all electric by
31:44
Speaker 5: twenty thirty five. Finally, GM chief executive Mary Barra said
31:49
Speaker 5: that while they're committed to it, you know, twenty thirty five,
31:52
Speaker 5: little ambitious in terms of making that full transition and
31:57
Speaker 5: ultimately taking a more balanced approach would be the way
32:02
Speaker 5: I would armchair quarterback advise them, because, like you mentioned,
32:06
Speaker 5: the swings in the political market and in terms of
32:09
Speaker 5: policies and things like that can really, it seems like,
32:13
Speaker 5: influence what these businesses, these auto manufacturers were doing, and
32:17
Speaker 5: I would just caution them to not get overly one
32:21
Speaker 5: way or the other depending on what the policy whims are.
32:25
Speaker 5: It's just it's not the best way to run a
32:28
Speaker 5: business because they can change very quickly.
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33:34
Speaker 2: Ups Stock is moving up nearly three percent today on
33:37
Speaker 2: news that we don't really love to cover but certainly
33:40
Speaker 2: helps the bottom line. They've announced that they'll be cutting
33:42
Speaker 2: an additional thirty thousand positions this year as they continue
33:47
Speaker 2: to try and reshape the package delivery giant. They've been
33:50
Speaker 2: cutting their network with I mean Amazon cutting package deliveries there,
33:54
Speaker 2: which that deal from the very beginning, you just looked
33:59
Speaker 2: at it and you said, I was Amazon not going
34:01
Speaker 2: to just take advantage of this deal that they have
34:03
Speaker 2: with UPS to deliver packages to the last mile and
34:06
Speaker 2: to handle returns when they are actively trying to compete
34:09
Speaker 2: with them. FedEx identified it pretty early on. UPS stuck
34:13
Speaker 2: with it, and now are backing away from it, saying
34:16
Speaker 2: it's a pretty low margin business and doesn't make.
34:18
Speaker 3: Much sense for us.
34:19
Speaker 2: Nonetheless, they've been closing, consulting dozens of storting facilities, offering
34:23
Speaker 2: buyouts to union drivers, cutting back on seasonal workers, all
34:27
Speaker 2: to trim those expenses and again, according to investors, at
34:32
Speaker 2: least seeing some positive effect there with the stock moving
34:35
Speaker 2: up today and you know, after really bottoming out this fall,
34:41
Speaker 2: seeing some recovery and share price there. But I think
34:44
Speaker 2: a long way to go is the answer for UPS
34:46
Speaker 2: as a company.
34:47
Speaker 4: Yeah, it's interesting.
34:48
Speaker 5: I've worked with the client who had worked at UPS
34:51
Speaker 5: and had taken a severance package buyout, and he was
34:54
Speaker 5: of the opinion that there was more to come of this,
34:56
Speaker 5: and this was last summer and this is just evidence
34:58
Speaker 5: of it. I feel like these that are going to
35:00
Speaker 5: continue to come. His viewpoint was that they are just
35:02
Speaker 5: going to continue to slash expenses as much as possible,
35:06
Speaker 5: and that seems like that's going to be a trend
35:08
Speaker 5: heading into this next fistil year just to try and
35:11
Speaker 5: bring down their costs across the board.
35:13
Speaker 2: Here speaking of cuts and changes Southwest Airlines as of today,
35:19
Speaker 2: first day that they will be rolling out the ticketed
35:23
Speaker 2: seats where you are going to be assigned to your spot,
35:26
Speaker 2: which I was talking about this with Jimplito this morning.
35:29
Speaker 2: Like I hated the arrangement on Southwest, I was fine
35:32
Speaker 2: with it as a twenty something year old when traveling alone.
35:35
Speaker 2: As an adult with three kids, you know, trying to
35:38
Speaker 2: navigate that experience and not knowing if we're going to
35:41
Speaker 2: be able to sit together no thank you, Like it
35:44
Speaker 2: made me intentionally avoid Southwest, even though they had a
35:47
Speaker 2: lot of other nice perks and we don't fly first
35:49
Speaker 2: class so don't need that. Nonetheless, they've been undergoing a
35:53
Speaker 2: bunch of changes over the course of the last few years.
35:55
Speaker 2: The tagline bags fly free. That's out. The seating arrangement
36:00
Speaker 2: where you get grouped and pick your seats is out.
36:04
Speaker 2: I think some dedicated hardcore Southwest fans are probably pretty
36:07
Speaker 2: upset about this. I think the bag piece is a
36:12
Speaker 2: different debate and different conversation. I don't know what Southwest
36:15
Speaker 2: identity is now that they have implemented.
36:17
Speaker 3: These, but.
36:20
Speaker 2: On the seating piece, I have to say that I
36:23
Speaker 2: don't think people are gonna be too upset. I mean,
36:25
Speaker 2: I mean the number of times that I flew that,
36:27
Speaker 2: and there are just the you know, the group see
36:28
Speaker 2: people walking up and down the aisle, desperately trying to
36:31
Speaker 2: find a seat, the flight attendants trying to, you know,
36:34
Speaker 2: enforce that you can't leave your sweatshirt on the middle
36:37
Speaker 2: seat and save it for your husband or boyfriend or
36:40
Speaker 2: sister's cousin. Like it seemed like a bit of a cluster,
36:43
Speaker 2: quite honestly to administer on behalf the Southwest, And I'm
36:48
Speaker 2: sure the flight attendants are overjoyed at this to not
36:50
Speaker 2: have to like break up fights over this and figure
36:53
Speaker 2: out where we're going to put that last press.
36:55
Speaker 4: I just feel like there's no differentiation in airline experience anymore.
36:58
Speaker 3: You know.
36:59
Speaker 4: Each one used to have its own sort of niche,
37:01
Speaker 4: and it seems like, remember.
37:03
Speaker 2: When Jet Blue came out, It's like, oh, this discount
37:05
Speaker 2: airline that has a TV in every seat, right cool?
37:10
Speaker 3: And now later, who would you point.
37:13
Speaker 5: To that does anything radically different than the other. I
37:15
Speaker 5: mean between Delta and.
37:16
Speaker 4: American and yeah, not for the possible.
37:21
Speaker 5: And I think Ryanair internationally too, which falls in that
37:24
Speaker 5: same sort of category. But discount airlines have struggled mightily.
37:28
Speaker 5: And then you have just the premium the Deltas and Americans.
37:31
Speaker 5: All they're doing is just funneling more money into charging
37:33
Speaker 5: outrageously high costs for their first class seats and business seats.
37:37
Speaker 5: There's nothing which is doing well. It is doing really well,
37:39
Speaker 5: but there's nothing unique. It just seems like all these
37:42
Speaker 5: airlines are the same worth matching.
37:45
Speaker 2: By the way, the Southwest, you know, with all these
37:48
Speaker 2: changes and a number of different things, they've been focusing on.
37:51
Speaker 2: The Wall Street Journal's reliability rankings came in number one
37:54
Speaker 2: in twenty twenty five, beat out Delta for the first
37:56
Speaker 2: time in a long time, and really shined in terms
37:59
Speaker 2: of on time, baggage, you know, baggage and everything along
38:02
Speaker 2: those lines. The operational side of Southwest going quite well.
38:06
Speaker 2: We've got to take a quick break, but a lot
38:08
Speaker 2: more to cover the second hour the financial exchange.
38:10
Speaker 3: We'll be right back