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Breaking News: The market always defies expectations · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange. It's a
1:14
Speaker 2: Friday here. Wall Street is in mixed territory at the moment.
1:18
Speaker 2: We got the NASDAC off by about twenty points, whereas
1:20
Speaker 2: Dow and SMP are slightly in positive territory. It's been
1:23
Speaker 2: volatile so far, though we had futures markets down by
1:26
Speaker 2: over one percent at one point. They've rebounded since the
1:30
Speaker 2: President had some commentary on China earlier this morning that
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Speaker 2: was a little bit more conciliatory than what we've seen
1:36
Speaker 2: over the last week or so, but continued turmoil when
1:40
Speaker 2: it comes to private credit markets, first brands, bankruptcies in
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Speaker 2: that space and what it could mean for the large area,
1:49
Speaker 2: and then look, there does seem to be I think
1:53
Speaker 2: a shift in the narrative a bit over the course
1:56
Speaker 2: of the last several weeks about concerns about the AI
2:00
Speaker 2: boom and you know, the comparisons to be made to
2:04
Speaker 2: the dot com bubble. Oh so, I just think the
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Speaker 2: narrative shifted a little bit. I think it's become more
2:10
Speaker 2: in the commonplace to question that a bit more. I
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Speaker 2: think it's been more in the narrative of hey, this
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Speaker 2: is actually starting to get concerning from evaluation perspective, much
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Speaker 2: more than I heard back in June, July, and August.
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Speaker 3: Yeah, I would agree with that. I think the announcements
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Speaker 3: of all the deals that OpenAI has struck with a
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Speaker 3: bunch of the big hyperscalar players in the space, the Googles,
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Speaker 3: the microsofts et cetera of an oracle that has put
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Speaker 3: more scrutiny on all this infrastructure build out. Is it
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Speaker 3: going to be justified?
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Speaker 2: Yeah. We're also entering day seventeen of the government shutdown.
2:47
Speaker 2: We'll be getting inflation data in spite of that shutdown
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Speaker 2: next Friday. They'll be They're deeming that data necessary because
2:54
Speaker 2: it will determine cost of living adjustments for social Security.
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Speaker 2: Open questions as to whether we can get other data points,
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Speaker 2: such as the jobs report that was missed for September,
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Speaker 2: the jobs report for October that's supposed to be getting
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Speaker 2: collected right now. The data is supposed to be getting
3:08
Speaker 2: collected right now. So continued questions about the government shutdown
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Speaker 2: and overall impact. Although to this point, I would call
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Speaker 2: the overall push from the general consumer and push back
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Speaker 2: from government employees to be I don't know, just not
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Speaker 2: the top story that's being covered, and I don't think
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Speaker 2: quite elevating to the point where lawmakers feel the need
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Speaker 2: to act so far that can turn pretty quickly. Next week,
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Speaker 2: in addition to that CPI print, we'll be hearing on
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Speaker 2: earnings from a few big companies, including Netflix and Tesla,
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Speaker 2: among many others, and then big interview actually on the
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Speaker 2: show on Tuesday of next week. Andrew Ross Sorkin will
3:48
Speaker 2: be joining us on Tuesday during the show to talk
3:51
Speaker 2: about his new book nineteen twenty nine, which I'm still
3:55
Speaker 2: making my way through, but an excellent piece on the
3:58
Speaker 2: Great Depression, and an entertaining piece too, because it really
4:01
Speaker 2: takes it from the perspective of a lot of public
4:04
Speaker 2: figures that we know and think about today, Winston Churchill
4:07
Speaker 2: and Al Smith and many others who you know common
4:12
Speaker 2: names even today, and a lot of the founders of
4:14
Speaker 2: big banks that exist today. So big interview coming up
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Speaker 2: on Tuesday next week on that piece too, which I'm
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Speaker 2: excited about. But Paul, for three years now, this bull
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Speaker 2: market has continued and defied any concerns that it has
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Speaker 2: about tariffs and semiconductor restrictions and bank failures and inflation.
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Speaker 2: Where I guess you know is that has that been
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Speaker 2: surprising to some extent? And the New York Times has
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Speaker 2: a piece this morning that I'm I'm not sure really
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Speaker 2: what the point of it is to say, other than
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Speaker 2: markets have gone up over the last three years in
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Speaker 2: spite of concerns, to which I say, welcome to the
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Speaker 2: stock market, right, But is there any other conclusion that
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Speaker 2: we can raw here based on this piece, because to
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Speaker 2: me it was mainly a backward looking informational piece which
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Speaker 2: if you need information on what the markets have done
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Speaker 2: in the last three years, then go ahead and read it.
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Speaker 2: I'm not trying to completely chastise it, but I didn't
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Speaker 2: take anything out of it of importance.
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Speaker 3: Yeah, it's the message from it could have been summarized
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Speaker 3: in probably three words, and it often is what is
5:20
Speaker 3: used when we do TV spots. They clip out this
5:23
Speaker 3: one thing that I say, stay the course, you know, hey, Paul,
5:25
Speaker 3: what should everyone do? Stay the course? Like this is
5:28
Speaker 3: kind of the takeaway from this piece is g three
5:31
Speaker 3: years ago, you probably would have thought that we were
5:33
Speaker 3: on the precipice of recession and potentially we could anticipate
5:37
Speaker 3: weaker stock market returns, but the market has defied expectations.
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Speaker 3: But like you said, it's always kind of done that
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Speaker 3: expect It's always not what you anticipate, and there's always
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Speaker 3: going to be concerns, but ultimately it reinforces kind of
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Speaker 3: what Mark Fandetti says so much all the time. That's
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Speaker 3: ingrain in my head, you know, staying the course, believing
5:58
Speaker 3: your allocation, in focusing on the long term. I will say,
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Speaker 3: looking back, it is incredible the returns if you look
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Speaker 3: at the trough of October of twenty two to where
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Speaker 3: we are today. But that's picking up perfect point in
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Speaker 3: time when markets were really low and now they're really high.
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Speaker 4: Yeah.
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Speaker 2: I always try and glean something useful from this, and
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Speaker 2: it's not mentioned here, but I think what I will
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Speaker 2: repeat over and over again is that valuations are in
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Speaker 2: the upper echelones of what we have ever seen. And
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Speaker 2: by valuations I mean stock price to earnings ratios, cyclically
6:36
Speaker 2: adjusted price to earnings ratios, price to revenue, price to book,
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Speaker 2: price to any metric that you want to look at.
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Speaker 2: Almost all of them are in the ninety fifth plus
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Speaker 2: percentile of what we've ever seen. Unfortunately, that doesn't tell
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Speaker 2: you anything about what's going to happen in the immediate
6:53
Speaker 2: future doesn't even tell you what's going to happen in
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Speaker 2: the long term. But what you can do is take
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Speaker 2: a look at other moments throughout history where you've gotten
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Speaker 2: to even similar areas, and pretty much universally what it
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Speaker 2: has led to over the course of the next decade
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Speaker 2: has been below average returns four stocks. And that's as
7:12
Speaker 2: much as I am willing to say about where we
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Speaker 2: are in this moment is doesn't mean we're going to
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Speaker 2: have a crash, doesn't mean that we're going to have
7:19
Speaker 2: a continued boom. What history has told us, though, is
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Speaker 2: every time that markets have gotten nearly as pricey or
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Speaker 2: pricier than where we are now, is that it has
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Speaker 2: meant below average turns for the future, sometimes negative, sometimes
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Speaker 2: just less positive than they usually are. But that has
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Speaker 2: been the lesson that I think that I think is
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Speaker 2: the one lesson you can actually take and apply to
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Speaker 2: today is historically that is what has happened when we've
7:47
Speaker 2: gotten to where we are now.
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Speaker 3: Yeah, that's a very fair point. If you look at
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Speaker 3: the trailing five year average on the S and P
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Speaker 3: five hundred, you're sitting around fifteen percent right now. What
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Speaker 3: do we know about the long term historical average, it's
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Speaker 3: nowhere near that high, So I think I think the argument is,
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Speaker 3: how do you get back to the normal average is
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Speaker 3: probably some periods of lesser returns to bring you back
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Speaker 3: to that kind of nine percent average that the S
8:09
Speaker 3: and P will typically do over an extended.
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Speaker 2: Period of time. Let's take a quick break when we
8:13
Speaker 2: come back, a little bit of trivia here next on
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Speaker 2: We've been talking a lot about the Jeffries and First
10:27
Speaker 2: Brand story Jeffries being the investment bank that had lent
10:30
Speaker 2: a fair bit of money or originated some loans two
10:33
Speaker 2: First Brands. Bit of breaking news on that story. Jeffrey's
10:36
Speaker 2: chief executive, Rich Handler has told investors that the bank
10:39
Speaker 2: believes it was quote defrauded after being grilled over its
10:42
Speaker 2: exposure to bankrupt auto parts supplier First Brands Group. The
10:46
Speaker 2: stock of Jeffries has fallen a good twenty five percent
10:48
Speaker 2: over the course of the last month, almost all concentrated
10:52
Speaker 2: on this one deal, which they apparently have a fair
10:54
Speaker 2: bit of exposure to. So we'll keep you posted on,
10:56
Speaker 2: you know, new updates on this. But Tucker brought it
10:59
Speaker 2: to us and thought it was worth mentioning that the
11:02
Speaker 2: term fraud, which we've been talking about in many media
11:04
Speaker 2: outlets have been talking about, is now being echoed by
11:07
Speaker 2: the CEO of the big investment bank, Jefferies. So we
11:12
Speaker 2: are now through big bank earnings, Paul, I think the
11:18
Speaker 2: only conclusion you can really come to with the big
11:21
Speaker 2: banks has been that they seem fine. Yes, no real
11:26
Speaker 2: exposure to any of this stuff in any meaningful way.
11:28
Speaker 2: JP Morgan did disclose some exposure to Tricolor, but the
11:33
Speaker 2: commentary from them has been what did Diamond say, where
11:37
Speaker 2: there's one cockroach a few more, Yeah, something along those lines,
11:43
Speaker 2: insinuating that hey, you know, yeah, we had this exposure here.
11:46
Speaker 2: It doesn't matter to our bank, but we would be
11:48
Speaker 2: surprised if there weren't more types of this exposure and
11:51
Speaker 2: problems elsewhere, because when you see one, you generally see
11:54
Speaker 2: a few any other. I guess big picture can concerns
12:00
Speaker 2: or optimism that you can glean from the big banks.
12:03
Speaker 3: I think you've used the word fine before to describe
12:05
Speaker 3: the big banks earning, but really they were there. Trementis
12:10
Speaker 3: is probably they were very good. You know, these these
12:12
Speaker 3: earnings were quite strong. I think what it signals is
12:15
Speaker 3: a really increased appetite for deal making activity. You saw
12:19
Speaker 3: investment banking fees on a lot of these big banks
12:22
Speaker 3: rides significantly. So what does that mean from a you know,
12:26
Speaker 3: optimism standpoint on the economy. Business are looking to merge
12:29
Speaker 3: and acquire other businesses out there, and that's why you're
12:32
Speaker 3: seeing an uptick in some of the revenue there. And
12:35
Speaker 3: then trading activity has been really robust for these big
12:38
Speaker 3: financial banks. They've made a lot of money off of
12:41
Speaker 3: trading on the fixed income side and the equity side
12:44
Speaker 3: of things. As markets have been really active this year.
12:47
Speaker 3: We've talked about some of the areas of speculation in
12:50
Speaker 3: the market. You've had a market that's done well and
12:53
Speaker 3: there's been a lot of enthusiasm behind it. So all
12:55
Speaker 3: those factors combined have lead to big banks doing pretty well.
12:58
Speaker 3: And it's fair to say that some of these regional
13:00
Speaker 3: banks actually have come in with pretty reasonable earnings as well.
13:04
Speaker 3: Aside from some of the ones that mention their concerns
13:07
Speaker 3: or mentioned losses from some of these auto manufacturer or
13:11
Speaker 3: these auto industry companies bank recies, there's been some good
13:14
Speaker 3: regional bank earnings too.
13:15
Speaker 2: There have One other company that did report just this
13:18
Speaker 2: morning was American Express. We mentioned this one as important,
13:22
Speaker 2: not just because it is a big company they're a
13:25
Speaker 2: two hundred and thirty six billion dollar company now, but
13:29
Speaker 2: speaks to the same wealth effect spending trends that we
13:35
Speaker 2: have seen here. American Express obviously serving a higher end clientele,
13:40
Speaker 2: generally higher net worth, higher income expensive credit cards. Didn't
13:43
Speaker 2: they just roll out like a nine hundred dollars a
13:45
Speaker 2: year annual fee credit card or was it eight hundred dollars.
13:48
Speaker 3: Beer's b JP, Morgan or Chase has come out with
13:51
Speaker 3: a big one that has an annual fee in that ballpark.
13:54
Speaker 3: I think they're the premium focus. Just like what we
13:56
Speaker 3: talked about, these these card issuers are coming out with
13:59
Speaker 3: some really high annual fee products for the hire income.
14:02
Speaker 2: In any case, American expresstock up about five percent in
14:05
Speaker 2: early trading today after this morning's earnings guidance. They had
14:09
Speaker 2: a solid quarter. Revenue increased eleven percent year over year,
14:13
Speaker 2: a record eighteen point four billion, which exceeded forecasts. The
14:17
Speaker 2: other big piece here they increased their full year twenty
14:19
Speaker 2: twenty five guidance. On top of that, net incrim grew
14:22
Speaker 2: sixteen percent to two point nine billion. Earnings per share
14:25
Speaker 2: rose nineteen percent. Again, for any company that really services
14:30
Speaker 2: a high net worth clientele and relies on the spending
14:34
Speaker 2: of that clientele, it is a good news scenario right now.
14:38
Speaker 3: It is eight hundred and ninety five dollars that annual
14:40
Speaker 3: fee for the American Express PLATM card. And what Chase
14:44
Speaker 3: did is they have a Chase safhire reserve that went
14:48
Speaker 3: from five fifty to seven hundred and ninety five dollars
14:50
Speaker 3: for their annual fee for.
14:51
Speaker 2: This It seems like they're just chasing Amex.
14:55
Speaker 3: Yeah they are. I forget who announced it first.
14:57
Speaker 2: I thought it was Chase, but it was supposed to
14:59
Speaker 2: be a stupid play on words Chase. Nobody got it.
15:02
Speaker 2: It wasn't funny in the first place. Thanks a lot, guys.
15:04
Speaker 2: You didn't even play the car crash joke. Thank you, Tucker.
15:10
Speaker 2: So that leads us to the question about interest rates.
15:13
Speaker 2: Because rates came down a full percentage point last year,
15:18
Speaker 2: they've now come down. Am I losing it? Have? We
15:21
Speaker 2: had half a percent of rate cuts? Quarter percent of
15:23
Speaker 2: rate cuts so far this year just September. Yeah, just
15:26
Speaker 2: a quarter.
15:27
Speaker 3: But another one's coming in twelve.
15:29
Speaker 2: Days, and twelve days we will likely get another one.
15:31
Speaker 2: We'll talk about that. But credit card APR is not
15:35
Speaker 2: really coming down, and I think it's important for us
15:38
Speaker 2: to continue to revisit stories like this that actually apply
15:41
Speaker 2: to the average consumer about why when the FED is
15:45
Speaker 2: cutting interest rates, are we not seeing mortgage rates come
15:47
Speaker 2: down or auto loan rates or in this case aprs
15:50
Speaker 2: on credit cards coming down. The aprs on credit cards
15:53
Speaker 2: is a little bit more surprising than mortgage rates. I
15:57
Speaker 2: think we've pointed this statistic out before. But historically speaking,
16:00
Speaker 2: when the FED is cutting interest rates and they are
16:05
Speaker 2: not doing so in a recession, which again you don't
16:08
Speaker 2: know whether or not you're in recession till after, but
16:10
Speaker 2: you know, we can look back and look at this statistic.
16:15
Speaker 2: Mortgage rates only come down about half the time. It's
16:17
Speaker 2: a coin flip as to whether or not mortgage rates
16:20
Speaker 2: come down when the FED is cutting outside of a recession,
16:23
Speaker 2: and so that one's not entirely unexpected. But aprs, you know,
16:26
Speaker 2: these are short term rates. You do generally anticipate that, Hey,
16:30
Speaker 2: FED cuts rates, helocks come down, savings accounts come down,
16:34
Speaker 2: and yes, credit card APR start to come down. Not
16:36
Speaker 2: what has been happening so far since FED embarked on
16:41
Speaker 2: this rate cutting cycle.
16:42
Speaker 3: Yeah. Jennifer DAWs, who's from Credit Ratings dot com, the
16:45
Speaker 3: executive editor, has stated that the correlation between that FED
16:48
Speaker 3: funds rate the cuts and credit card rates is weaker
16:50
Speaker 3: than expected. The reason behind it, she says, it's heavily
16:54
Speaker 3: influenced by credit conditions and individual credit scores, which I
16:56
Speaker 3: don't really that's very broad and vague.
16:59
Speaker 2: Here's my summary. These credit card companies, maybe other than MX,
17:03
Speaker 2: are terrified of their customers. They're terrified of defaults. They
17:06
Speaker 2: are seeing balances way up, and so how do you
17:09
Speaker 2: mitigate against the eventual default of your credit card customer.
17:12
Speaker 2: You charge the hell out of interest.
17:14
Speaker 3: While you can fear and also greed right to continue
17:17
Speaker 3: those margins on your credit card business that you just
17:21
Speaker 3: hope you can kind of drag your feet longer before
17:22
Speaker 3: you lower in you know, commensurate with the Fed Reserve cuts.
17:26
Speaker 2: Yeah, you know, you think about it for a moment here, Like,
17:31
Speaker 2: I don't know a lot of people that are going
17:32
Speaker 2: to be changing their credit card or applying for one
17:35
Speaker 2: card or over another based on a nineteen and a
17:38
Speaker 2: half versus a twenty percent interest rate. Do you like?
17:40
Speaker 2: That's not where these companies compete.
17:42
Speaker 3: That's no, it's the reward, the rewards.
17:45
Speaker 2: It's because everyone who signs up, who signs up for
17:49
Speaker 2: a credit card saying, ah, I'm planning on not paying
17:53
Speaker 2: this back, So what's the lowest interest rate I can get?
17:56
Speaker 2: It's not a mortgage, right, you don't go shop from
17:58
Speaker 2: that perspective. Everyone who's ever gotten a credit card says,
18:02
Speaker 2: I'm responsible. I'm going to pay this money back every month.
18:04
Speaker 2: I'm going to get my rewards. I'm going to be
18:07
Speaker 2: the perfect goody two shoes. Of course, sixty percent of
18:10
Speaker 2: credit card holders don't do that, but I don't think
18:13
Speaker 2: the rate's the big draw for most people.
18:15
Speaker 3: No, outside of those balance transfer cards, but that's a
18:17
Speaker 3: whole nother deal where you take your balance and move
18:19
Speaker 3: it over to a zero interest for an eighteen to
18:21
Speaker 3: twenty four month period. Then they started hitting you with interest.
18:23
Speaker 3: But yeah, outside of that, it's all about rewards and
18:26
Speaker 3: other factors, not the interest rates.
18:28
Speaker 2: In any case, you know we'll be heading, as Paul mentioned,
18:31
Speaker 2: into a FED meeting just before Halloween, J Powell very
18:38
Speaker 2: likely now has a full backing to cut rates. I
18:41
Speaker 2: think there may even be some compelling evidence depending on
18:45
Speaker 2: what happens with these bank with these loans to different companies.
18:49
Speaker 2: If we see any further cracks in the foundation, I
18:51
Speaker 2: think you could even see a push for a fifty
18:53
Speaker 2: percent rate cut. But right now the markets are settling
18:57
Speaker 2: in on a twenty five basis point rate cut. In
19:00
Speaker 2: October when the fednex meets, there's a ninety nine percent
19:04
Speaker 2: chance of that outcome, only a one percent chance of
19:06
Speaker 2: a further cut, So we'll be keeping an eye on
19:09
Speaker 2: that but clearly, I think we've got a couple more
19:12
Speaker 2: rate cuts through twenty twenty five, and then, yeah, things
19:17
Speaker 2: get a little bit less certain once we get to
19:19
Speaker 2: twenty twenty six, and you know, Jason senioritis mode at
19:23
Speaker 2: that point because he's on his last few days in
19:26
Speaker 2: the job. Quick break. Wall Street Watch coming up.
19:28
Speaker 1: Next, bringing the latest financial news straight to your radio.
19:43
Speaker 1: Every day. It's the Financial Exchange on the Financial Exchange
19:47
Speaker 1: Radio Network. Time now for Wall Street Watch. A complete
19:52
Speaker 1: look at what's moving market so far today right here
19:56
Speaker 1: on the Financial Exchange Radio Network.
19:58
Speaker 5: Seeing some volatility on market today as investors way regional
20:02
Speaker 5: bank concerns. This comes after Zion's Bancorp said it would
20:06
Speaker 5: take a large loss accusing some borrowers of fraud. Right now,
20:10
Speaker 5: the Dow is edging higher, up only twenty four points.
20:14
Speaker 5: SMP five hundred is down about a quarter percent or
20:18
Speaker 5: eighteen points. NASDAC down by six tenths of one percent
20:21
Speaker 5: now or one hundred and thirty four points lower. Russell
20:24
Speaker 5: two thousand selling off over one percent now. Ten year
20:28
Speaker 5: treasureeled is up two basis points at three point ninety
20:32
Speaker 5: nine to nine percent. DAN crude oil is mostly flat
20:36
Speaker 5: dipping into negative territory at fifty seven dollars in thirty
20:39
Speaker 5: nine cents a barrel. After yesterday's ten percent plunge. Shares
20:44
Speaker 5: in Jeffries bouncing back about five percent today. Oppenheimer upgraded
20:48
Speaker 5: the stock to outperform, with the firm said Jeffrey's exposure
20:52
Speaker 5: to First Brands is very limited. Furthermore, The Financial Times
20:55
Speaker 5: are recently reported that Jeffrey's chief executive has told investors
20:59
Speaker 5: at the bank believes it was defrauded after being questioned
21:03
Speaker 5: over its exposure to bankrupt auto parts supplier First Brands. Meanwhile,
21:07
Speaker 5: another big financial name, and American Express, b third quarter
21:10
Speaker 5: expectations and raised its full year guidance. AMMEX up by
21:14
Speaker 5: five percent. Elsewhere, shares an ozembic maker Nova nordes falling
21:19
Speaker 5: four percent after President Trump said the cost of the
21:22
Speaker 5: weight loss drug could be one hundred and fifty dollars
21:26
Speaker 5: or much lower than it is now. Oracle pulling back
21:29
Speaker 5: by seven percent today following its rally yesterday after Oracle
21:34
Speaker 5: confirmed a cloud computing deal with Meta and Apple in
21:38
Speaker 5: Formula One announced a five year US media rights deal
21:42
Speaker 5: that will bring all races to the Apple TV platform
21:46
Speaker 5: beginning next season. CNBC's reporting that Apple is paying about
21:50
Speaker 5: one hundred and forty million dollars per year for F
21:54
Speaker 5: one rights. Apple shares are up by about a half percent.
21:58
Speaker 5: I'm Tucker Silvan. That is Wall Street And in the
22:00
Speaker 5: previous segment we asked you the trivia question. According to Orkin,
22:04
Speaker 5: what has been the rattiest city in America for the
22:07
Speaker 5: last decade? That would be Chicago. Dorothy from Wareham, mass
22:12
Speaker 5: is our winner today taking on the Financial Exchange Show.
22:14
Speaker 2: T Shirt.
22:15
Speaker 5: Congrats to Dorothy, and we played trivia every day here
22:18
Speaker 5: in the Financial Exchange See complete contest rules at Financial
22:21
Speaker 5: looks Change Show dot com.
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Speaker 2: Tucker, I'm pretty sure you just rounded to the thousandth
22:25
Speaker 2: of a percent.
22:26
Speaker 3: In one of your he was he was messing around
22:29
Speaker 3: dropping extra nine.
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Speaker 5: Three point nine nine times.
22:35
Speaker 2: Yeah, yeah, you know. That is the accuracy and attention
22:40
Speaker 2: to detail that people tune in for. So thank you.
22:43
Speaker 5: I'll never pass an opportunity to say, yes, I've had
22:45
Speaker 5: some great music intros today, Tucker, So good job by you.
22:48
Speaker 3: There's one where I was ready to run through a
22:49
Speaker 3: brick wall.
22:50
Speaker 5: Thanks thanks man.
22:51
Speaker 2: Yeah, unfortunately that's not a great Uh. We have a
22:55
Speaker 2: glass studio here's not a great level of manage to
22:57
Speaker 2: bring to a radio show. Unfortunately I didn't do it
23:00
Speaker 2: that I wanted to. Yeah, I got it. I got it.
23:03
Speaker 2: So small businesses, CNBC has a really actually I think,
23:07
Speaker 2: really good piece on small businesses in tariff related costs.
23:11
Speaker 2: They definitely cherry pick a bunch of companies that are
23:14
Speaker 2: heavily affected by terrasts, but they I think bring something
23:18
Speaker 2: home for me, which is small businesses are getting crushed
23:22
Speaker 2: on the tariffront for those that are exposed to it,
23:25
Speaker 2: and it may help explain part of what we're seeing
23:27
Speaker 2: in the labor market too. We tend to focus on
23:30
Speaker 2: big employers because they're easier to cover, We get more
23:33
Speaker 2: data on them, they release earnings, they have to announce
23:35
Speaker 2: their layoffs in very public fashion. But the fact remains
23:38
Speaker 2: that of employees that work for private companies, so non
23:43
Speaker 2: governmental employees, between forty five and forty seven percent of
23:46
Speaker 2: them work for small to medium sized businesses, those with
23:50
Speaker 2: fewer than five hundred employees, and as we've known this
23:55
Speaker 2: whole time, those are the ones that are really struggling
23:57
Speaker 2: with terrorists. It's not Walmart, right, Walmart's based gone to
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Speaker 2: their Chinese suppliers and said, we have to pay tariffs,
24:03
Speaker 2: so lower your prices. We're going to buy it elsewhere.
24:05
Speaker 2: And they've capitulated, by and large, they've capitulated. They've found
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Speaker 2: ways to do this. And in the cases where they
24:10
Speaker 2: do need to pay big tariffs, guess what, they've got
24:12
Speaker 2: pretty deep pockets. If they need to, they'll issue debt.
24:14
Speaker 2: They probably don't even need to. They can come up
24:17
Speaker 2: with the tariff payments. However, when you are av Universal Corp.
24:22
Speaker 2: A small footwear company that's barely existed for nine years
24:25
Speaker 2: and sells through retailers like Macy's and Nordstrom, and your
24:30
Speaker 2: tariffy goes from seventy five hundred dollars to a quarter
24:34
Speaker 2: million dollars, you're left in a pretty tough spot. In
24:37
Speaker 2: this case, the the owner of the business decided to
24:41
Speaker 2: take out a loan. He's sixty four years old. He
24:44
Speaker 2: took out a line of credit coming at a thirty
24:46
Speaker 2: two percent interest rate. Because I mean, again, you're a
24:51
Speaker 2: small business. This is what you're looking at if you
24:53
Speaker 2: need to take it, you know, some sort of secured
24:56
Speaker 2: or even unsecured loan. That's the rate that you're talking about.
25:00
Speaker 2: This is not incredibly unique one. If you're ava universal,
25:03
Speaker 2: good luck manufacturing those shoes in the United States anywhere
25:05
Speaker 2: in anytime in the near future. It's just it's not practical.
25:09
Speaker 2: But you know, they go through a good six or
25:12
Speaker 2: seven companies here, various few employees. But you know, you're
25:16
Speaker 2: seeing pretty universally teriffies doubling compared to twenty twenty four
25:22
Speaker 2: on their products coming into the United States. And so
25:26
Speaker 2: while we might not be seeing it in prices, we
25:28
Speaker 2: might not be seeing it in big publicly traded companies,
25:31
Speaker 2: which you and I care most about here on the
25:33
Speaker 2: Financial Exchange. I do think it helps explain what we're
25:36
Speaker 2: seeing in the labor market.
25:38
Speaker 3: That you don't have just nearly as much hiring in
25:41
Speaker 3: some of those sectors. Yeah, it's an issue that really
25:44
Speaker 3: keep that I have a lot of concern over. Though
25:47
Speaker 3: it won't come directly in the data that you and
25:49
Speaker 3: I dive into every single day of publicly traded companies,
25:52
Speaker 3: but what happens on these small to mid sized companies,
25:57
Speaker 3: it is concerning because they do account for significant percentage
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Speaker 3: of GDP growth, and it is a lot of employers
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Speaker 3: out there, and you just think about some of these
26:05
Speaker 3: increases that you're seeing in the sample of companies that
26:08
Speaker 3: they mentioned here are unsustainable.
26:10
Speaker 2: The only way that they're the only reason they're paying
26:12
Speaker 2: this instead of just throwing up their hands and saying
26:15
Speaker 2: send the stuff back to India is because they're hoping
26:18
Speaker 2: that they can get through one big season and then
26:21
Speaker 2: basically there's a reprieve that the next year either there'll
26:23
Speaker 2: be a reprieve where they just won't order the stuff.
26:25
Speaker 3: Right. It just that part is very concerning because you
26:29
Speaker 3: look at what these businesses do, and it's so important
26:32
Speaker 3: to have these businesses in our country. But how does
26:35
Speaker 3: this not get just swallowed up by the bigger retailers
26:39
Speaker 3: If you have these companies like UAV Technologies just just
26:43
Speaker 3: fold up shop because they're going from a doubling in
26:47
Speaker 3: the cost of the tariffs that they pay or in
26:49
Speaker 3: some other cases that are mentioning this piece. I mean,
26:52
Speaker 3: you're talking exorbitant increases more than double. How do you
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Speaker 3: keep the lights on?
26:56
Speaker 2: I'll be very surprised if five years from now, how
27:01
Speaker 2: the general retail sector is less concentrated than it is now. Again,
27:09
Speaker 2: retail isn't the only thing that matters, But like when
27:11
Speaker 2: I think through that I'd be very, very surprised if
27:15
Speaker 2: small businesses that exist today are able to continue to
27:17
Speaker 2: exist five years from now at the same scale and
27:19
Speaker 2: degree that they do. I do just think that what
27:22
Speaker 2: it's going to mean, for better or worse, whether you
27:24
Speaker 2: like it or dislike it, that big businesses are going
27:27
Speaker 2: to get bigger as a result of some of these
27:28
Speaker 2: tariffs because they can better navigate it. It's just that's
27:31
Speaker 2: the fact of a big business is they have the attorneys,
27:34
Speaker 2: they have the staff to be able to figure out
27:36
Speaker 2: where is the best place for us to manufacture this
27:38
Speaker 2: stuff to lessen our tariff impact, and just deal with
27:41
Speaker 2: the tariffs in the places that it makes sense to
27:43
Speaker 2: do so.
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29:00
Speaker 2: Well. While Elon Musk has been facing all sorts of
29:02
Speaker 2: questions about Tesla's full self driving and autonomous taxis down
29:06
Speaker 2: in Austin, Texas, Honda beating them to the punch with
29:11
Speaker 2: their full self driving lawnmower, which we don't have pricing details.
29:17
Speaker 3: Yeah we done, yeah, we do.
29:17
Speaker 5: Bottom of the artic No, no.
29:19
Speaker 2: No, that's that's the manual model. So, uh, Honda hasn't
29:22
Speaker 2: revealed for the twos unit yet, but the regular old
29:27
Speaker 2: lawnmower that isn't autonomous is going to go for thirty
29:30
Speaker 2: three thousand dollars.
29:31
Speaker 5: Wait what Yes, that's not possible.
29:35
Speaker 3: Espresso Mike is on his game. Good catch on that.
29:37
Speaker 2: Yeah, I can read, despite what some of you consist.
29:41
Speaker 5: So the human operated lawnmower thirty three grand?
29:45
Speaker 3: So can I take it on the highway? Drive it?
29:48
Speaker 3: I just had a client who bought a used car
29:51
Speaker 3: level too. Yeah, so good.
29:53
Speaker 5: Where it has to be this higher price than the
29:56
Speaker 5: used car, right.
29:57
Speaker 2: Ask Honda Tucker. I'm not entirely sure. I don't think
30:01
Speaker 2: there's gonna be a huge market for it. I think
30:02
Speaker 2: they're gonna have to get that price down a little bit.
30:04
Speaker 2: I mean, before I saw the price, I was like, okay,
30:08
Speaker 2: I mean not that I would buy it, But my
30:09
Speaker 2: brother's a landscaper. If he had one of these puppies
30:11
Speaker 2: and you know, could send it on its way to
30:13
Speaker 2: mow my you know, mow my lawn while he takes
30:16
Speaker 2: care of the other jobs that need to be done
30:19
Speaker 2: around my house, that that, you know, that might be
30:21
Speaker 2: something that he could stomach at less than thirty three
30:24
Speaker 2: thousand dollars.
30:25
Speaker 5: I just don't know how he feels about a self
30:27
Speaker 5: driving lawnmower.
30:28
Speaker 2: Oh, I'm all on board.
30:30
Speaker 5: Yeah yeah, I'd have to watch from the window and
30:34
Speaker 5: make sure it's you.
30:34
Speaker 2: Know, yeah, I mean, you might not want to leave
30:36
Speaker 2: your kids out at the same time something, but you know,
30:42
Speaker 2: you imagine the losses quick Sparky when we come back.
30:49
Speaker 2: Paula Monica from Baron's Joint.
30:53
Speaker 3: Doug died, but.
30:58
Speaker 2: Paula Monica Baron's next Financial Exchange.
31:01
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31:38
Speaker 1: Ladies and Gentlemen, the weekend.
31:47
Speaker 2: Joining us now is Paul Lamonica from Barons talking to
31:50
Speaker 2: us about a few different areas, but all surrounding PayPal
31:54
Speaker 2: and their relatively abysmal year they've had. Paul, thanks for joining,
31:57
Speaker 2: appreciate it.
31:58
Speaker 1: Thanks a lot.
31:59
Speaker 2: So let's start off with the funnier of the two stories,
32:03
Speaker 2: if I may, because I doubt PayPal shareholders are are
32:07
Speaker 2: laughing a whole lot of the course in the last
32:09
Speaker 2: couple of years. But a company that PayPal hired to
32:14
Speaker 2: mint and handle their stable coin made a seemingly three
32:19
Speaker 2: hundred trillion dollar whipsie. So for those like myself that
32:23
Speaker 2: might not understand all the ins and outs of how
32:25
Speaker 2: these things work and get created, how does a three
32:30
Speaker 2: hundred trillion dollar error get made on this front?
32:33
Speaker 4: Yeah, it's it's astonishing. Paxos is the company that was
32:38
Speaker 4: minting this PayPal stable coin, a cryptocurrency peg to the
32:45
Speaker 4: dollar py USD you know, competes with things like USD
32:51
Speaker 4: coin and some of the other big cryptos you back
32:56
Speaker 4: to the dollar. The problem was, you know, they just
32:59
Speaker 4: didgitally printed and it was a mistake. Three hundred trillion dollars.
33:05
Speaker 4: Obviously it shouldn't have been that much, and you know,
33:08
Speaker 4: the good news, if you want to call it, that
33:10
Speaker 4: is that in the relatively quick fashion about a half hour,
33:14
Speaker 4: you know, Paxos was able to undo this mistake and burn,
33:19
Speaker 4: as the case would be, you know, taking these assets
33:22
Speaker 4: off the blockchain so that they no longer exist.
33:26
Speaker 2: They said that there was no.
33:27
Speaker 4: Security breach, it was an internal technical era.
33:30
Speaker 3: This is Paxos.
33:31
Speaker 4: So you know, it's a bad and somewhat amusing kind
33:37
Speaker 4: of headline, probably more for Paxos than PayPal, but PayPal
33:41
Speaker 4: I think, you know, got hit on it as well,
33:44
Speaker 4: and it's been a tough week and tough year for
33:47
Speaker 4: PayPal in general. You know, it's you know, the less
33:51
Speaker 4: amusing story, I guess is you know, the Goldman Zachs
33:54
Speaker 4: down grade earlier this week, which I wrote about.
33:56
Speaker 2: So just to finish up on this, because a three
33:58
Speaker 2: hundred trillion dollar you know, fat finger error on a
34:02
Speaker 2: keyboard seems to run directly contradictory to one of the
34:06
Speaker 2: words that is used to describe these coins, i e.
34:09
Speaker 2: The stable part of stable coins. And I guess, before
34:13
Speaker 2: we move on, like, what does this indicate to you
34:16
Speaker 2: about the possibility of yeah, errors like the one we saw, which,
34:20
Speaker 2: again to their credit, was cleaned up within half an
34:22
Speaker 2: hour and didn't cause wides read issues. But I think
34:26
Speaker 2: of the possibility of intentional deception or fraud in this space,
34:30
Speaker 2: given how easy it was to accidentally type in a
34:32
Speaker 2: couple extra zeros.
34:34
Speaker 4: Yeah, I mean that is that's a fantastic question. I
34:36
Speaker 4: think that people who still remain skeptical of cryptocurrencies, whether
34:43
Speaker 4: it's Bitcoin, Ether, some of the goofyer meme coins like
34:47
Speaker 4: doge coin, or these stable coins like the ones issued
34:51
Speaker 4: by Circle and Tether, the two giants of the industry,
34:55
Speaker 4: it does go to show that, in some respects, it's
35:00
Speaker 4: still not all that difficult for technical glitches to happen.
35:04
Speaker 4: Clearly it's not that hard to undo it in quick fashion.
35:08
Speaker 4: But I think the bigger concern is what happens if
35:11
Speaker 4: someone does intentionally, you know, wind up you know, nefariously
35:17
Speaker 4: kind of hacking you know, the blockchain, and you know,
35:22
Speaker 4: I think that does lend, uh, you know, some credence
35:26
Speaker 4: to those who remain nervous about digital currencies and their security.
35:34
Speaker 4: I mean, I think it's a question that is outstanding.
35:38
Speaker 4: But I think, you know, the crypto bulls would argue
35:40
Speaker 4: that this is still a safe and secure form of money.
35:44
Speaker 4: I mean, you know, you have counterfeit paper currencies, you
35:48
Speaker 4: have issues with credit cards and debit cards, you know.
35:51
Speaker 4: I think financial security is a problem for the broader
35:55
Speaker 4: monetary you know, food chain, if you will, all types
35:59
Speaker 4: of currencies, and not just Krypto.
36:00
Speaker 2: All right, So back to PayPal for a moment, not
36:03
Speaker 2: to kick them while they're down, but plenty of long
36:06
Speaker 2: term shareholders will recall that not so long ago, four
36:08
Speaker 2: years ago, the stock was trading over three hundred dollars
36:12
Speaker 2: a share. Currently it's sitting at sixty six or so
36:15
Speaker 2: dollars per share. Downgrade from Goldman Sacks. What did they
36:18
Speaker 2: cite is concern?
36:19
Speaker 4: Yeah, Goldman Sachs obviously worried about you know, inflation remaining
36:26
Speaker 4: a concern for consumers, as well as a weakening job market,
36:32
Speaker 4: which could be a problem for less affluent consumers using
36:36
Speaker 4: PayPal and Vemo and some of the other services you know.
36:39
Speaker 4: But also there's a lot of competition. You know, You've
36:43
Speaker 4: got companies like block but you know which owns a
36:47
Speaker 4: square and cash app. I think the bigger concern would be,
36:51
Speaker 4: you know, the competition from you know, Apple and Google,
36:56
Speaker 4: you know, and Stripe as well. You know, in the
37:00
Speaker 4: digital payments business. You know, if you want to call
37:03
Speaker 4: a good news, you know, Goldman did downgrade the stock
37:06
Speaker 4: to a cell. But the price target seventy, which ironically enough,
37:10
Speaker 4: is actually higher than where it's currently trading, you know,
37:14
Speaker 4: and the consensus price target is a little bit under
37:17
Speaker 4: eighty two dollars a share, So that does represent decent upside,
37:22
Speaker 4: but it's a mixed bag. I mean, there's a lot
37:24
Speaker 4: of analysts that cover PayPal, about half of them ready
37:27
Speaker 4: to buy, another half way to the hold, and there's
37:30
Speaker 4: a smattering of cells, including Goldman Sachs out there as well.
37:34
Speaker 2: Paul Lamonica from Baron's joining us today, talk a little
37:37
Speaker 2: bit about PayPal and a minor three hundred trillion dollar
37:40
Speaker 2: era that was made over the course of the last week. Paul,
37:42
Speaker 2: thanks so much for joining us. Appreciate it.
37:44
Speaker 5: Thank you very next week, appreciate it.
37:46
Speaker 2: Taking a look here at markets as we close in
37:49
Speaker 2: on the noon hour, we've got the Dow and S
37:52
Speaker 2: ANDP in slightly positive territory, but have been bouncing all
37:54
Speaker 2: over the place. Dow up a third of a percent,
37:57
Speaker 2: S and P five hundred up just more than a
37:58
Speaker 2: tenth of a percent and then NASDAC on the way
38:02
Speaker 2: down about a tenth of a percent, so again relative
38:05
Speaker 2: calm after a rough start to the morning, but we'll
38:07
Speaker 2: cover it all and more on Monday on the Financial Exchange.
38:11
Speaker 2: Have a great weekend, everybody,