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Why is Warren Buffett hoarding so much cash? · The Financial Exchange Show

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Speaker 2: Kicking off the second hour the Financial Exchange. We've got
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Speaker 2: markets in negative territory across the board, with the Dow
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Speaker 2: Jones off about four hundred points, the S and P
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Speaker 2: five hundred off two thirds of a percent, of the
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Speaker 2: Nasdaq offero point seven percent as well. We got some
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Speaker 2: home sales data earlier this morning that was not particularly strong.
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Speaker 2: We saw home sales drop sharply as prices hit an
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Speaker 2: all time high for the month of January, with the
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Speaker 2: national medium home price clocking in at three hundred ninety
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Speaker 2: six nine hundred dollars. We also saw a decrease in
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Speaker 2: sales volume of about five percent for the month of
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Speaker 2: January on a seasonally adjusted basis. Part of the other
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Speaker 2: reason why we're seeing the Dow Jones sell off a
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Speaker 2: little bit. Of course, it's only thirty companies and its
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Speaker 2: price weighted and as a result of that, United Healthcare,
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Speaker 2: the company that we're going to talk about in our
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Speaker 2: next story, which is over four hundred and fifty seven
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Speaker 2: dollars this year, as its price has a pretty significant
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Speaker 2: waiting within the Dow Jones, United health is off nine
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Speaker 2: percent today. The reason that they are off is that
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Speaker 2: the Department of Justice has initiated a civil fraud investigation
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Speaker 2: to United Health Group's Medicare billing practices. Specifically, they're looking
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Speaker 2: at whether United Health recorded diagnoses that led to increased
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Speaker 2: payments for its Medicare advantage plans. This is saying that
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Speaker 2: the report of United Health documentation methods may have resulted
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Speaker 2: in billions of dollars in additional federal payments. As a result.
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Speaker 2: Like I mentioned, the stock is selling off. They're also
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Speaker 2: dealing with some other challenges. There's an antitrust investigation by
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Speaker 2: the DOJ to block its acquisition of a medius. I
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Speaker 2: don't know if I'm doing that one right, but three
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Speaker 2: point three billion was what they were looking to person for.
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Speaker 2: So again, mark United Health finding itself in hot water
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Speaker 2: here with this investigation. Hard to say what the findings
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Speaker 2: are going to be, but certainly selling off on some
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Speaker 2: of this news.
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Speaker 3: Yeah, the Centers for Medicare and Medicaid Services estimates that fraud.
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Speaker 3: I think it was last year total something like twenty
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Speaker 3: billion dollars and I'm rounding up a bit. So not
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Speaker 3: only is United Health selling off a bit today on
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Speaker 3: the prospect that this investigation will escalate into charges, but
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Speaker 3: the entire sectors being weighed down by it. I guess
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Speaker 3: it suggests, as others have pointed out, that the government
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Speaker 3: might be looking more carefully at practices of those who
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Speaker 3: offer Medicare advantage and other I'm going to garble some
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Speaker 3: of the terminology, or I'd just call it all part
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Speaker 3: C part C benefits in the context of looking to
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Speaker 3: recoup money, generally, you don't want to be on the
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Speaker 3: wrong side of the elon musk freight trade. This isn't
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Speaker 3: related to that, but this is another tool that the
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Speaker 3: government has at its disposal I guess to crack down on.
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Speaker 3: I'll call it wasteful spending. I don't know that there
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Speaker 3: were I don't know if it's fraud. I guess the
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Speaker 3: investigation will make that determination.
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Speaker 2: The scrutiny that's being placed on is specifically the company's
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Speaker 2: house calls unit, amongst other areas. But this was a
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Speaker 2: area of the business that would include in home visits
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Speaker 2: by nurses working for that unit, And what they found
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Speaker 2: is that each visit by the United Health employed nurses
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Speaker 2: was worth an average of two seven hundred and thirty
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Speaker 2: five dollars in additional federal payments. A journal analysis of
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Speaker 2: Medicare data spanning from twenty nineteen to twenty twenty one found.
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Speaker 2: So we'll keep you posted as those developments go. But
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Speaker 2: as a result of it, you do see United Healthcare
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Speaker 2: selling off a little bit today, off about eight percent
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Speaker 2: in the early trading here almost nine percent. Warren Buffett
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Speaker 2: is holding a significant amount of cash on the balance
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Speaker 2: sheet for Q three, Berkshire Halfway now is up to
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Speaker 2: over three hundred billion dollars of cash and treasury bills.
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Speaker 2: This is the highest on record of cash and treasure
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Speaker 2: bills as a percentage of the company's assets going back
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Speaker 2: to nineteen ninety eight, according to Dow Jones Market data.
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Speaker 2: So certainly Warren Buffett isn't a market timer per se mark,
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Speaker 2: but obviously he's someone that scrutinizes valuations quite a bit,
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Speaker 2: and you would think, trying to parse through the details
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Speaker 2: of his behavior, that he finds that stocks are over
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Speaker 2: at valued, which we've covered they are historically speaking, and
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Speaker 2: as a result he's keeping more cash in the war chest.
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Speaker 2: But we will get the annual shareholder letter from Berkshire
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Speaker 2: Halfway tomorrow, so always interesting his commentary. He is such
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Speaker 2: still a huge presence in the financial sector and on
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Speaker 2: Wall Street. That will be interesting to see what he
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Speaker 2: has to say out of that sharehold letter tomorrow.
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Speaker 3: Yeah, if you look at Berkshire's cash is a percentage
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Speaker 3: of total assets under management over time, they're not a
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Speaker 3: great market timing. That statistic is not a great market
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Speaker 3: timing indicator. Now, the data I have here is a
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Speaker 3: little bit different than the statistic that you just read
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Speaker 3: with respect to cash being at its highest level since
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Speaker 3: nineteen ninety eight, I have a few years where it
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Speaker 3: looks like it was higher, but I may be using
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Speaker 3: a different measure year than the source that you cited.
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Speaker 3: Either way, I think when a value manager like Buffett
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Speaker 3: loads up on cash, it's not necessarily though it might
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Speaker 3: be due to his overall bearish outlook. It's just because
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Speaker 3: he can't deploy cash and valuations that he thinks are attractive.
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Speaker 3: This is true of any active manager. So not a
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Speaker 3: great market timing, aid Hall, And that's probably not surprising
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Speaker 3: given Buffett's philosophy.
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Speaker 2: As I understand it, Buffett is ninety five years old
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Speaker 2: and the company finally eclipse the trillion dollar market value
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Speaker 2: you market cap earlier this year, so it's been sixty
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Speaker 2: years at the Helm for Buffett. It'll be interesting to
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Speaker 2: see what kind of commentary he has there. They do
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Speaker 2: have Greg Abel, who will be the successive CEO once
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Speaker 2: Buffett likely you know, passes away or if he ever
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Speaker 2: decides to step down. But just amazing the run that
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Speaker 2: he's had at the company, going over sixty years and
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Speaker 2: a tremendous performance for Berkeire halfway in general, we're going
7:28
Speaker 2: to take a quick break here on the Financial Exchange.
7:31
Speaker 2: When we come back, when we're talking a little bit
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Speaker 2: about credit card debt, we have reached the level of
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Speaker 2: one point two trillion dollars of credit debt as a nation.
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Speaker 2: Will be going over that, whether it's significant or not,
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Speaker 2: and we'll also be talking about Nvidia stock and its
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Speaker 2: wild ride. That's right after this break here on the
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Speaker 2: One of the favorite tropes of some of the investment
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Speaker 2: publications that we track closely, whether it be The Wall
9:55
Speaker 2: Street Journal or Bloomberg or Financial Times out there is
9:59
Speaker 2: to the amount of credit card debt that this country
10:03
Speaker 2: has and how it's reached record highs. And part of
10:06
Speaker 2: that I get annoyed with that piece because yeah, obviously
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Speaker 2: we're going to have more credit card debt than we
10:12
Speaker 2: did in two thousand over twenty five years. There's this
10:15
Speaker 2: thing called inflation, so the numbers of debt out there
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Speaker 2: are going to be higher because things cost more. We
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Speaker 2: do sit at about close to one point two trillion
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Speaker 2: in credit card debt, but if you look at percentages
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Speaker 2: and particularly the delinquency rate is an area that is
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Speaker 2: helpful to focus on to get a sense for is
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Speaker 2: this debt problematic? We have seen some declines in the
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Speaker 2: delinquency rate. We were sitting around two and a half
10:38
Speaker 2: percent credit card delinquency rates. This is from the Saint
10:42
Speaker 2: Louis fred Organization, their Federal Reserve Bank put this data out.
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Speaker 2: We've gone up to around three to three point two
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Speaker 2: percent over the course of twenty three and twenty four,
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Speaker 2: but that has backed off a little bit through the
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Speaker 2: end of twenty four, down to three point zero eight.
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Speaker 2: So it's not something that I'm significantly worried about. This
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Speaker 2: is nowhere near the delinquency levels we saw in eight
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Speaker 2: or nine, where we were eclipsing anywhere from six and
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Speaker 2: a half to almost seven percent. But it certainly is
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Speaker 2: troublesome that you have the average consumer credit card balance
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Speaker 2: at sixty six hundred bucks, just given where interest rates
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Speaker 2: are on that credit card debt at the moment.
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Speaker 4: Mark.
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Speaker 3: Yeah, well, as you said, if the economy continues to
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Speaker 3: grow and spending continues to grow credit card balance, they,
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Speaker 3: as a researcher, would point out, they share a time
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Speaker 3: trend with this other stuff. That's a fancy way of saying, yeah,
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Speaker 3: everything's growing, We're going to hit new records in stocks,
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Speaker 3: in home prices, in credit card debt you name it,
11:43
Speaker 3: every single year all LSEQL. When the economy slows, obviously
11:47
Speaker 3: this series and others that are tied to economic growth
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Speaker 3: might turn over. That will be a huge problem obviously
11:54
Speaker 3: for people who are over leveraged you've taken on too much.
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Speaker 3: Credit card balance a slightly different subject. I'll just point
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Speaker 3: out that the eye popping growth we've seen in credit
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Speaker 3: card balances over the past five years, and I'm using
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Speaker 3: as you might have been referring to Paul, the Federal
12:13
Speaker 3: Reserve Database for large bank consumer credit card balances. The
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Speaker 3: growth rate over the past five years hasn't been much
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Speaker 3: different than the previous five so basically we're on the
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Speaker 3: old trend line. I'm not saying this won't be a
12:27
Speaker 3: problem if the economy slips into recession, job losses pick up,
12:32
Speaker 3: people aren't able to make their payments, but this won't
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Speaker 3: be a problem probably until that point, which is not
12:38
Speaker 3: a very profound insight, but.
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Speaker 2: It bears monitoring. And I can't reiterate enough for listeners
12:44
Speaker 2: out there. If you have credit card debt, just understand
12:48
Speaker 2: the interest rates you're paying their upwards of twenty to
12:50
Speaker 2: twenty five percent, and so if you can avoid it
12:54
Speaker 2: best to do that because you don't want those card
12:57
Speaker 2: issuers collecting that significant amount of interest. In Vidia stock
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Speaker 2: has been on a wild ride. Wall Street has stayed
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Speaker 2: relatively calm and continued its bullest position back a couple
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Speaker 2: of weeks ago, the Chinese AI startup Deep Seek released
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Speaker 2: one of its new models that really spooked a lot
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Speaker 2: of technology investors out there, and we saw in Video's
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Speaker 2: stock drop seventeen percent in one day. Very important to
13:23
Speaker 2: note that in Vidia stock has been one of the
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Speaker 2: best performing stocks in the S and P five hundred
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Speaker 2: over the course of the last couple of years, so
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Speaker 2: it was significantly valued, whether you look at a price
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Speaker 2: to earnings ratio or just its market cap in general.
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Speaker 2: Still I believe is eclipsing somewhere around three trillion dollars.
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Speaker 2: But the concerns regarding the company was that because of
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Speaker 2: this new AI startup, Deep Seek, initially there was some
13:50
Speaker 2: false information sort of mentioned out there that it was
13:54
Speaker 2: less costly to build this model. It's not entirely clear.
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Speaker 2: It seems like the more analysis that been done to
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Speaker 2: build deep Seeks model, there was still a tremendous amount
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Speaker 2: of capital investment that went into building it billion. Close
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Speaker 2: to billions of dollars or five hundred million was the
14:10
Speaker 2: number mentioned, though the cost to run this type of
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Speaker 2: model is much cheaper than it's United States peers open
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Speaker 2: AI and chat GPT is one of its biggest competitors.
14:21
Speaker 2: So it certainly did shake up the market. I've done
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Speaker 2: a lot of reading on it, and ultimately it seems
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Speaker 2: like investors, while initially spooked by the news, have sort
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Speaker 2: of lessened their concerns a little bit. Really, what is
14:34
Speaker 2: going to be important is we're going to get in
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Speaker 2: Video's earnings report next week. I believe it's either Wednesday
14:39
Speaker 2: or Thursday. For the Wednesday after the bell, we'll see
14:42
Speaker 2: how they're continuing to sell their new chips. But it
14:45
Speaker 2: seems like the overall tech sector takeaway from this is
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Speaker 2: that they're still going to be an integral player in
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Speaker 2: Vidia in the AI infrastructure. Perhaps their margins that are
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Speaker 2: eighty five or ninety percent on some of their chips,
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Speaker 2: those will be eaten away. But this release of deep
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Speaker 2: Seek's new model really only makes AI likely more prevalent
15:06
Speaker 2: and widespread because it's open source, and that ultimately will
15:09
Speaker 2: be beneficial for those companies that are AI adjacent. Granted,
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Speaker 2: in Nvidia might take a little bit of hit on
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Speaker 2: its margins. From a longer term perspective.
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Speaker 3: Yeah, it doesn't seem like anything can stuff the or
15:20
Speaker 3: diminish the optimism exuberance you might say of analysts that
15:25
Speaker 3: cover this stock or overwhelmingly bullish, and of course individual investors,
15:30
Speaker 3: they just shrug off all the possible threats to the
15:33
Speaker 3: business model. Something as existential as a shortcut in code
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Speaker 3: that would reduce the chip requirement by I don't know,
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Speaker 3: and order of magnitude more than that, a reduce it
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Speaker 3: by ninety percent more, I don't know.
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Speaker 2: It's something that it's sitting at three point four trillion
15:52
Speaker 2: for a market gap. But when you have a lot
15:54
Speaker 2: of big players like Microsoft and others spending billions of
15:57
Speaker 2: dollars of capax to invest in in building out this technology,
16:02
Speaker 2: you know, and this isn't a secret that they're investing
16:04
Speaker 2: internally themselves to try and replicate some of the infrastructure
16:08
Speaker 2: or look for cost alternatives to in Vidia's dominant place
16:12
Speaker 2: in the market. And what's always been a constant in
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Speaker 2: tech is innovation and driving costs down and deep seeks.
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Speaker 2: Unveiling was a prime example of that that you know,
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Speaker 2: these models could be run much more cheaply and could
16:25
Speaker 2: be more widely available for many you know, consumers out
16:30
Speaker 2: there or investors, business owners and things like that. So
16:33
Speaker 2: continuing to be interesting to see what we get out
16:36
Speaker 2: of in Vidia. They are trading at fifty five times
16:39
Speaker 2: on a price to earnings basis. But we'll get more
16:41
Speaker 2: data on their revenue growth next week on Thursday rather
16:46
Speaker 2: Wednesday after the bell, but we'll cover it on a
16:49
Speaker 2: Thursday show. Japan is looking to court Tesla on a
16:54
Speaker 2: Nissan investment. This was a bit of a head scratcher. Obviously,
16:58
Speaker 2: Nissan was in the news because it was looking to
17:00
Speaker 2: merge with its rival Honda. Those merger talks had collapsed
17:05
Speaker 2: over the course of the last couple of weeks. Now
17:07
Speaker 2: a new proposal being led by a former Tessa board member,
17:11
Speaker 2: is that Tesla would now invest into the struggling carmaker Nissan.
17:16
Speaker 2: And I just don't understand what would be the upside
17:19
Speaker 2: if you're Tessa mark to invest into Nissan, which has
17:24
Speaker 2: been fledgling really a lot recently in terms of its
17:27
Speaker 2: sales growth.
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Speaker 3: Well, Elon Musk, who is sometimes a little cagy, he's
17:31
Speaker 3: calling this fake news.
17:33
Speaker 2: Okay, that's an important update for yah.
17:36
Speaker 3: I'm getting this second hand from someone on social media
17:39
Speaker 3: is reporting that that's what he said, So I should
17:42
Speaker 3: qualify this with I'm not actually looking at something he wrote,
17:45
Speaker 3: which is also strange. He talks about he has opinions
17:48
Speaker 3: about a lot of things, as we all know, the
17:53
Speaker 3: fact that he maybe hasn't said something more concrete. I'll
17:57
Speaker 3: dig more deeply and see if this fake news comment
18:00
Speaker 3: attributed to him is his self fake news or not.
18:03
Speaker 3: But I found it curious that when we first read
18:05
Speaker 3: this story this morning, Musk apparently hadn't commented on it yet.
18:09
Speaker 3: He's not shy about commenting, So what's actually going on here?
18:12
Speaker 2: If anything, Nissan is in the middle of an emergency turnaround.
18:16
Speaker 2: In November, they cut nine thousand jobs, and also what
18:21
Speaker 2: Moody's downgraded Nissan's credit rating to junk status on Friday.
18:26
Speaker 2: There's a lot of risks associated with their restructuring plan
18:29
Speaker 2: and not having a partner at the table, whether it
18:32
Speaker 2: be an investment from another company or the merger talks
18:35
Speaker 2: with Honda, is put it in a very precarious position.
18:38
Speaker 2: Reading through the tea leaves, it does seem like the
18:41
Speaker 2: Japanese government would really like to see some sort of
18:44
Speaker 2: partner found for Nissan. They take a tremendous amount of
18:47
Speaker 2: pride in Nissan's position in the auto market, though Honda
18:53
Speaker 2: has done a lot better job managing its balance sheet.
18:55
Speaker 2: But it is important, it seems like to the Japanese government,
18:59
Speaker 2: so be in to see if they can get an
19:01
Speaker 2: investment from an outside firm or some sort of merger
19:04
Speaker 2: talks will will emerge. But from all indications early on,
19:08
Speaker 2: it looks like Tesla's got enough on their plate, not
19:11
Speaker 2: looking necessarily, but we'll continue to research that if Elon
19:15
Speaker 2: Musk is willing to play ball with Nissan. Taking a
19:18
Speaker 2: look at markets, we've got the Dow Jones off over
19:21
Speaker 2: three hundred and fifty points in the S and P
19:23
Speaker 2: five hundred off about a half percent. We're gonna take
19:26
Speaker 2: a quick break here, but when we come back, we've
19:28
Speaker 2: got the answer to our trivia question and much much more.
19:31
Speaker 2: Right after this.
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Speaker 2: so companies like GM and Ford and Stilantis. We've spoke
20:53
Speaker 2: about the potential impact there. I've also covered earlier this
20:56
Speaker 2: week on the show Walmart and what impact tariffs may
20:59
Speaker 2: have on their business. The difference between those businesses due
21:03
Speaker 2: to their size and scale, they're able to better pivot
21:07
Speaker 2: strategically to lessen the blow from some of the tariff impacts. Again,
21:12
Speaker 2: a lot of these tariffs are just being rumored. We
21:14
Speaker 2: don't have any further information on tariffs on Canada and
21:18
Speaker 2: Mexico March first as the deadline for those though, we
21:22
Speaker 2: have seen an additional ten percent tariff on Chinese goods,
21:25
Speaker 2: and that is leaving some small businesses in a difficult
21:28
Speaker 2: spot mark because they don't have that same agility and flexibility.
21:32
Speaker 2: Maybe they might have agility and flexibility, but not the
21:34
Speaker 2: resources that these larger companies have to diversify their supply
21:38
Speaker 2: chain from other sources.
21:40
Speaker 3: Yeah, if you think about the way small firms set prices,
21:43
Speaker 3: it's probably just periodic. Amazon can reset their prices every millisecond,
21:48
Speaker 3: small firms set them occasionally. I think, well, I don't
21:51
Speaker 3: just think research bears this out, but it's old research,
21:54
Speaker 3: so maybe it needs to be updated. But if you
21:56
Speaker 3: think about small businesses and their relationships with each other,
22:00
Speaker 3: with bigger suppliers, they might have contracts, they might have handshakes,
22:04
Speaker 3: but the point I'm trying to make is they're stickier,
22:07
Speaker 3: their prices are, their arrangements are longer term, maybe because
22:11
Speaker 3: they're personal, maybe because the nature of the contracts that
22:14
Speaker 3: they engage in, and this not knowing what your inputs
22:17
Speaker 3: are going to cost a year from now can recavoc
22:20
Speaker 3: on profits and on prices.
22:23
Speaker 5: Too.
22:23
Speaker 3: It's what actually makes inflation difficult to conquer. I know
22:29
Speaker 3: I'm tying in an entirely different issue here, but it's
22:32
Speaker 3: actually related. The rigidities, as a researcher would call them
22:36
Speaker 3: in prices are what makes inflation hard to bring down
22:40
Speaker 3: without costs, and also what makes it difficult for say
22:44
Speaker 3: the Federal Reserve to manage monetary policies. There are all
22:47
Speaker 3: kinds of implications here, Paul.
22:48
Speaker 2: Business investment is another one. You have companies out there
22:52
Speaker 2: like General Motors saying that they're not going to spend
22:55
Speaker 2: a large amount of capital without clarity. So there is
22:58
Speaker 2: a bit of a holding pattern from large businesses and
23:01
Speaker 2: small ones out there in terms of business investment that
23:04
Speaker 2: they want to look before they leap into any of
23:06
Speaker 2: these future products endeavors. So hopefully this uncertainty regarding tariffs
23:12
Speaker 2: is at least something that is only an issue for
23:15
Speaker 2: the first quarter and we get a little bit more
23:18
Speaker 2: clarity as to what the tariff environment will look like
23:20
Speaker 2: so that businesses can adapt and consumers likewise, when we
23:24
Speaker 2: get more information.
23:26
Speaker 3: It's just baffling to me, Paul, because the adverse effects
23:30
Speaker 3: are concrete and they're in the present. The benefits of tariffs,
23:35
Speaker 3: And anyone who's ever looked at tariffs is concluded that
23:38
Speaker 3: they hurt a large number of people but just a
23:41
Speaker 3: little bit, and they benefit a small number of people
23:44
Speaker 3: a lot. On average. We're worse off, but the costs
23:49
Speaker 3: are widespread. So nobody squeals too loudly. I guess you
23:53
Speaker 3: could say, but we know tariffs generally don't contribute to
23:57
Speaker 3: economic growth, and in the short term this uncertainty is
24:02
Speaker 3: a drag on economic growth. It's pushing up inflation expectations,
24:05
Speaker 3: it's delaying investment decisions. As you said, I guess policymakers,
24:09
Speaker 3: if there's any consistent thought process behind all this at all,
24:14
Speaker 3: must think the benefits are going to be huge. Boy,
24:16
Speaker 3: they better be to justify the economic damage that these
24:20
Speaker 3: could do if actually implemented, and that they are doing
24:22
Speaker 3: in the here and now.
24:23
Speaker 2: No question.
24:24
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25:26
Speaker 2: Piece here from Bloomberg Walmart is worried. That's a bad
25:29
Speaker 2: sign for everyone. I have to push back a little
25:32
Speaker 2: bit on this piece. We covered Walmart extensively this week
25:35
Speaker 2: because they are a massive retailer, and they came out
25:39
Speaker 2: with their Q four earnings numbers, and the piece here
25:42
Speaker 2: goes on to say that there is some unpredictability and
25:45
Speaker 2: uncertainty that they mentioned in their conference call that they
25:49
Speaker 2: are concerned about, But I don't really see a tremendous
25:53
Speaker 2: amount of uncertainty that came out from their earnings call.
25:58
Speaker 2: They've continued to see tremendous amount of growth in their
26:01
Speaker 2: e commerce space. They're investing in higher margin businesses, selling
26:05
Speaker 2: advertising to suppliers, and making more of a presence in
26:11
Speaker 2: Amazon's sort of playground with the third party market sellers
26:14
Speaker 2: on their site, and like the e commerce stuff that
26:16
Speaker 2: I mentioned. So I just don't know if I necessarily
26:19
Speaker 2: see a great level of concern from Walmart. I mentioned
26:22
Speaker 2: them earlier. They're the type of company that wouldn't be
26:26
Speaker 2: as significantly impacted from potential tariffs with Canada and Mexico.
26:30
Speaker 2: The CFO was reported in the quarterly earnings calls saying
26:34
Speaker 2: that two thirds of goods that Walmart sells and makes
26:39
Speaker 2: and puts together are done domestically in the US, and
26:43
Speaker 2: so they've been operating with these terrifts for seven or
26:45
Speaker 2: eight years, just being in sort of existence, and they're
26:48
Speaker 2: not overly concerned with the impact. So I'm not sure
26:50
Speaker 2: if I see the same level of concern that this
26:53
Speaker 2: Bloomberg Opinion's column does Mark, Yeah, hard.
26:58
Speaker 3: To know if we could generalize from is this something specific?
27:01
Speaker 3: And I'm just repeating I think what you said, but
27:03
Speaker 3: saying it a little bit differently. I was scrambling to
27:06
Speaker 3: look up Walmart's share of retail sales. I should know
27:08
Speaker 3: that off the top of my head, but I don't.
27:11
Speaker 3: So if it's big enough, you could probably generalize from it.
27:16
Speaker 3: If it's not, it might be more specific to It's
27:19
Speaker 3: hard to say they're sector because they are retail in
27:23
Speaker 3: a macro sense or something else business specific. It's hard
27:28
Speaker 3: to say. I think you said earlier in the week,
27:29
Speaker 3: or one of us did that. We'll believe there's a
27:32
Speaker 3: problem with the consumer when we see aggregate spending numbers
27:35
Speaker 3: like PCE personal consumption expenditures, which we get a read
27:40
Speaker 3: on next week. When that starts to roll over, then
27:43
Speaker 3: I'll start to be concerned about potential softness in the
27:46
Speaker 3: economy or worse.
27:48
Speaker 2: We're going to take a quick break here on the
27:50
Speaker 2: Financial Exchange. When we come back, when we be talking
27:53
Speaker 2: with paul A Monica from Barons, We're going to be
27:56
Speaker 2: going over Hasbro and Mattel with Paul and much more
28:00
Speaker 2: or right after this break.
28:02
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28:24
Speaker 1: Financial Exchange Radio Network. Ladies and gentlemen the weekend.
28:39
Speaker 2: As promised, we are joined by Paul Monica from Barons
28:43
Speaker 2: here to talk with us a little bit about Mattel
28:46
Speaker 2: and Hasbro stock, two of the biggest toy makers out there. Paul,
28:50
Speaker 2: thanks so much for joining us. Thanks a lot, so, Paul.
28:53
Speaker 2: A lot has been talked about in terms of tariffs
28:56
Speaker 2: and their impact on US companies. Before the break, I
28:59
Speaker 2: was talking talking about Walmart and sort of its ability
29:02
Speaker 2: to pivot and use different suppliers if the tariffs were
29:07
Speaker 2: to come down the road from Mexico and Canada. But
29:10
Speaker 2: you cover here in your piece that in the case
29:13
Speaker 2: of the Chinese tariffs, that actually Mattel and Hasbro are
29:16
Speaker 2: pretty well positioned, even though most most of us may
29:19
Speaker 2: think the made in China markers on every every toy
29:23
Speaker 2: out there.
29:24
Speaker 5: Yeah, it may seem that way, but both companies have
29:28
Speaker 5: been you know, transitioning their supply chains globally to other
29:33
Speaker 5: parts of the world. So you know, you know, there
29:36
Speaker 5: are estimates saying that you know, for like the whole industry,
29:39
Speaker 5: maybe about eighty percent of toys made in China, but
29:44
Speaker 5: you know, mctellan Hasbro it's you know, a little less
29:46
Speaker 5: than forty percent or so, and you know, some of
29:49
Speaker 5: the companies are hoping to try and get that number,
29:51
Speaker 5: you know down, you know, Hasbro say, is hoping to
29:54
Speaker 5: get it down to twenty percent over the next few years.
29:57
Speaker 5: So I think that is one reason why these stocks
30:00
Speaker 5: have actually held up better than you might have expected
30:04
Speaker 5: in light of all the concerns about a global trade war,
30:08
Speaker 5: and the earnings have been you know solid as well.
30:10
Speaker 5: Mattel reported decent results earlier this month, and Hasbro you know,
30:16
Speaker 5: announced better than expected earnings this week, and that drove
30:20
Speaker 5: the stock substantially higher.
30:22
Speaker 2: You mentioned that in December the CFO of Hasbro was
30:26
Speaker 2: working with suppliers to invest in new manufacturing sites. Just
30:30
Speaker 2: out of curiosity. What are some of the areas that
30:31
Speaker 2: they're looking at for new manufacturing sites. Is it other?
30:35
Speaker 2: Is it Vietnam, Cambodia? Are they still staying within Asia?
30:38
Speaker 2: Is it domestic? What are the some of the options
30:40
Speaker 2: they may be considering there.
30:42
Speaker 5: Yeah, I think that you know, Hasbro and obviously Mattel
30:46
Speaker 5: as well will be considering you know, sites both in
30:50
Speaker 5: Asia as well as you know, the near shoring trend.
30:54
Speaker 5: I mean that is definitely something that you know, companies
30:58
Speaker 5: and not just in the toy industry of kind of
31:00
Speaker 5: found religion in to try and have some of its factories.
31:05
Speaker 5: They are factories closer to the US, be that Mexico
31:08
Speaker 5: despite you know, the tariff threats there or other parts
31:11
Speaker 5: of you know, Latin and South America. So it'd be
31:14
Speaker 5: interesting to see how that pans out. But you know,
31:18
Speaker 5: I think another issue that you know, kind of analysts
31:21
Speaker 5: have talked about is that, you know, keep in mind
31:23
Speaker 5: that you know, Hasbro in particular, and I think maybe
31:25
Speaker 5: Matel to a little bit of a lesser extent. You know,
31:28
Speaker 5: they're also doing more in digital games. You know, Hasbro
31:32
Speaker 5: is a very big, uh, you know, revenue generator from
31:36
Speaker 5: its Dungeons and Dragons and Magic the Gathering franchises, So
31:40
Speaker 5: developing these online role playing games where you're not necessarily
31:45
Speaker 5: maybe selling a physical product made in China or elsewhere,
31:49
Speaker 5: you have fewer tariff concerns there as well.
31:52
Speaker 2: Certainly, is there any catalyst that they've mentioned for for
31:56
Speaker 2: this year in terms of Mattel or Hasbro that would
31:59
Speaker 2: potentially to increase toilet sales? I know, obviously Barbie the
32:03
Speaker 2: movie was fantastically popular over the course of the last
32:06
Speaker 2: couple of years for Mattel. Anything that they have sort
32:09
Speaker 2: of in the uh in the you know, quiver that
32:13
Speaker 2: maybe some an accelerant for sales growth for you the
32:15
Speaker 2: two companies.
32:16
Speaker 5: I know, that's a that's a that's a great question.
32:18
Speaker 5: I mean, I think with regards to Barbie, you know,
32:21
Speaker 5: that's obviously still an area that Mattel can benefit from.
32:25
Speaker 5: But Hasbro, interestingly enough, yesterday just announced a deal with
32:30
Speaker 5: Mattel to sell Barbie branded Plato sets. So Hasbro makes Plato.
32:37
Speaker 5: So that's an interesting area where you know, the two companies.
32:41
Speaker 5: Who knows if going forward there are you know, more
32:44
Speaker 5: opportunities for Hasbro Mattel to do joint ventures. So you know,
32:48
Speaker 5: there had been you know, I think a lot of
32:50
Speaker 5: rumors on and off over the past few years about
32:53
Speaker 5: merger between the two that has never panned out, but
32:57
Speaker 5: you know, both companies could benefit there from partnering. But
33:00
Speaker 5: also I think you can underestimate the fact that there's
33:03
Speaker 5: going to be a lot more movie and TV content
33:07
Speaker 5: compared to last year because of the resolution of the
33:10
Speaker 5: writers and actors strikes in twenty twenty three. So a
33:14
Speaker 5: lot of movies that were expected to maybe be on
33:17
Speaker 5: the calendar last year got pushed to this year. And
33:20
Speaker 5: both Marvel and Hasbro had various Disney franchises that could
33:25
Speaker 5: benefit them. So, you know Marvel with the Disney Princess,
33:29
Speaker 5: you know that could be something with a snow White
33:31
Speaker 5: movie coming out. And then you know, we've got a
33:34
Speaker 5: couple of more Marvel movies you know that could benefit
33:40
Speaker 5: Hasbroo because they have you know, the licensing.
33:47
Speaker 4: There as well.
33:49
Speaker 2: As a father of three young children, there is a
33:52
Speaker 2: lot of Plato that is around our house. I absolutely
33:54
Speaker 2: hate it, but I'm sure there will be demand in
33:57
Speaker 2: my household to purchase that Barbie you know, sponsored Plato
34:01
Speaker 2: or that partnership that you mentioned there, So I'll keep
34:04
Speaker 2: an eye out for it. That's Paul and Monica from
34:07
Speaker 2: Baron's thanks so much for the time, Paul really appreciate it.
34:10
Speaker 5: Thank you having go on guys.
34:12
Speaker 2: Mark time for a little bit of stack roulette. I
34:14
Speaker 2: know you're chomping at the bit with I'm sure some
34:16
Speaker 2: media economic story rather than the usual lighthearted fare that
34:20
Speaker 2: we like to banter about on a Friday afternoon. I
34:23
Speaker 2: shall remind you, Yeah, I heaven forbid.
34:27
Speaker 3: I approached the weekend with some sense of levity.
34:30
Speaker 2: Should we should retet the music back on Tucker Everybody's
34:35
Speaker 2: working for love boy?
34:36
Speaker 4: Yeah?
34:37
Speaker 3: Yeah, I might burst into flames if you played that
34:40
Speaker 3: well I was speaking. We talk a lot about inflation
34:43
Speaker 3: and what drives it, and one important component is expectations.
34:47
Speaker 3: The other component is how hot the economy is running.
34:50
Speaker 3: But expectations are a key driver. If your expectations for
34:53
Speaker 3: inflation are higher, you're going to ask for more money
34:55
Speaker 3: from your employer. If you're a company, you're going to
34:57
Speaker 3: push up prices more. Today, back to that comp we
35:00
Speaker 3: were having earlier Paul about how businesses might have to
35:03
Speaker 3: respond to tariffs by raising prices now before those tariffs
35:06
Speaker 3: are even implemented. Well, here's the news we learned today
35:09
Speaker 3: from Bloomberg others are reporting this too, that long term
35:13
Speaker 3: inflation expectations inflation expectations for prices five years from now,
35:19
Speaker 3: or how much people think prices will change on average
35:21
Speaker 3: per year between now and twenty thirty, it climbed to
35:25
Speaker 3: their highest level in decades. Consumers now expect inflation to
35:29
Speaker 3: average three and a half percent over the next several years. Now,
35:33
Speaker 3: this is about where core inflation is today, so it
35:36
Speaker 3: probably shouldn't surprise. Maybe people are just looking backward. It
35:40
Speaker 3: could also be that people are expecting higher prices because
35:43
Speaker 3: of tariffs. Your guess is as good as mine. But
35:46
Speaker 3: one thing the reason I bring this up, in addition
35:48
Speaker 3: to it being inherently interesting to me anyway, is that
35:51
Speaker 3: it's largely driven by political reference. Democrat sentiment. Democrat inflation
35:56
Speaker 3: expectations have gone way down and way up, respectively, their
36:04
Speaker 3: outlook for the economy as soured. Maybe you should expect
36:06
Speaker 3: that Republicans inflation expectations have in turned gone way down
36:10
Speaker 3: and economic expectations have gone way up. So you might
36:13
Speaker 3: just say, well, these numbers are just political. But I'll
36:15
Speaker 3: tell you what. People that voted Democrat in the last election,
36:18
Speaker 3: they make up over sixty percent of the country's GDP.
36:22
Speaker 3: Trump voters make up under forty He got thirty six
36:26
Speaker 3: percent of GDP. In twenty sixteen he got twenty nine percent,
36:30
Speaker 3: and twenty twenty did a little better this time at
36:32
Speaker 3: thirty eight percent. So how Blue states to generalize feel
36:36
Speaker 3: about the economy is important. They are most of the
36:40
Speaker 3: GDP and it's not even close.
36:42
Speaker 2: That's interesting. I'm amazed at how they're able to put
36:45
Speaker 2: that data together, but I guess from a state perspective,
36:49
Speaker 2: it certainly makes sense.
36:50
Speaker 1: That's how they do it.
36:51
Speaker 2: Yeah, basically just going by state by state. It will
36:53
Speaker 2: be interesting to see how that fares out. You're right,
36:56
Speaker 2: expectations play a huge role in what inflation and looks
37:00
Speaker 2: like going forward. It can almost become a self fulfilling prophecy.
37:04
Speaker 2: ESPN and MLB are agreeing to end their TV deal.
37:07
Speaker 2: ESPN had been a partner with the MLB since nineteen ninety,
37:11
Speaker 2: doing the national broadcast for Sunday Night Baseball, the Home
37:15
Speaker 2: Run Derby, and All Star Game, but that is going
37:17
Speaker 2: to stop heading into I believe the twenty twenty six
37:21
Speaker 2: season it will be out forbid. And it just speaks
37:24
Speaker 2: to I would think the position the MLB is and
37:28
Speaker 2: right now is relatively weak to some of its other
37:32
Speaker 2: competitors or other you know leagues out there, the NBA
37:35
Speaker 2: and NFL. Where you've got ESPN saying financially they wanted
37:39
Speaker 2: to pay less for this deal. I have to imagine
37:42
Speaker 2: that the viewership has declined over this period of time.
37:46
Speaker 4: I mean, they've been the whole ESPN's been in the
37:48
Speaker 4: home to Sunday Night baseball, and that is just something
37:51
Speaker 4: that that's a relationship, like you said, has been around
37:53
Speaker 4: sin nineteen ninety. Like, I was floored when I saw
37:56
Speaker 4: this today.
37:57
Speaker 2: It had such an allure to it. I mean, maybe
37:59
Speaker 2: that speaks to my own preference, but I absolutely love
38:01
Speaker 2: Sunday Night Baseball. But it just doesn't seem to carry
38:03
Speaker 2: the same weight that it once did. So it'll be
38:06
Speaker 2: interesting to see who scoops up those rights or what
38:08
Speaker 2: the MLB does with it. That's all the time that
38:10
Speaker 2: we have for this edition of the Financial Exchange. DOWD
38:13
Speaker 2: Jones off three hundred and eighty five points, S and
38:15
Speaker 2: P five hundred off a little over a half percent.
38:17
Speaker 2: Have a fantastic weekend. We'll be with you right again
38:20
Speaker 2: here on Monday at ten o'clock Thanks so much,