Latest / The Financial Exchange Show / Why employers deserve more blame for higher heath insurance costs

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Why employers deserve more blame for higher heath insurance costs · The Financial Exchange Show

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Speaker 2: Good morning, Happy Friday, Welcome back to the Financial Exchange.
1:15
Speaker 2: It's Mike, Paul and Tucker with you on a Friday here,
1:18
Speaker 2: still digesting this week's CPI report that came out this
1:23
Speaker 2: just yesterday with hotter than expected numbers. We're gonna be
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Speaker 2: joined in just ten or so ten to fifteen minutes
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Speaker 2: by Michael san Totally from CNBC. Later in the program
1:34
Speaker 2: by Paul Lamonica from Barons as well for their takes
1:38
Speaker 2: on where this market and economy stands. But before we
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Speaker 2: get there, the labor market continuing to have this overall shift,
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Speaker 2: and just we're talking about the practice of labor hoarding
1:52
Speaker 2: and where that situation could be going next. The other
1:56
Speaker 2: piece to all of this is the remote work shift,
1:58
Speaker 2: and to me they surprisingly kind of go hand in hand.
2:02
Speaker 2: But the argument from some has been, look, the situation
2:07
Speaker 2: in the labor market has been one of employers wanting
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Speaker 2: to hold on to their employees out of some sense
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Speaker 2: of desperation, out of some sense of not willing to
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Speaker 2: see change. And that's meant a number of things, including
2:20
Speaker 2: a lot of folks working from home. I guess my
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Speaker 2: question would be, Paul, if we start to see a
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Speaker 2: younger demographic getting employed, does the shift in work from
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Speaker 2: home start to change as well? To be clear here,
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Speaker 2: the share of US workers who were primarily working from
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Speaker 2: home last year was thirteen point three percent. That's about
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Speaker 2: double where it was in twenty nineteen, about two point
2:46
Speaker 2: three times higher. The percentage of work days spent at
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Speaker 2: home is now three point eight times higher than it
2:53
Speaker 2: was in twenty nineteen. So that speaks to just the
2:56
Speaker 2: hybrid piece. There's twice as many people working full time
2:58
Speaker 2: from home, nearly four times as many people working home
3:01
Speaker 2: occasionally compared to where we were in twenty nineteen. And
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Speaker 2: that's had big changes for not so much the yeah,
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Speaker 2: I guess everybody. It's had big changes for businesses in
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Speaker 2: terms of how they do business. I immediately go to
3:17
Speaker 2: the big changes for municipalities who were used to a
3:21
Speaker 2: whole boatload of tax revenues coming to the oft. Yeah,
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Speaker 2: I mean the revenue that the City of Boston, for example,
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Speaker 2: would raise from taxes on commercial properties, specifically the high
3:34
Speaker 2: rise office buildings has taking a massive hit. And frankly,
3:39
Speaker 2: it's you know, front and center when it comes to
3:41
Speaker 2: the upcoming mayoral race, and it is an issue that
3:46
Speaker 2: is everywhere, but you know, it concentrates and depends city
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Speaker 2: to city. I tend to think though, that if we
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Speaker 2: end up seeing I don't think it's going to be
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Speaker 2: a quick trend. But I the argument here in this
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Speaker 2: article from Bloomberg is that we've now settled into this
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Speaker 2: rate of work from home and it's not going to change.
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Speaker 2: And I don't know that I agree. I think that
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Speaker 2: if you start to have more baby boomers retiring over
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Speaker 2: the course of the next couple of years who have
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Speaker 2: largely been working hybrid or you know, fully remote. My
4:24
Speaker 2: wife isn't a baby boomer, She's a millennial like I am.
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Speaker 2: But she works in the office one week and works
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Speaker 2: from home the next week. A twenty two year old
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Speaker 2: might not want to do that. Most twenty two year
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Speaker 2: olds that I know have well, at least when I
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Speaker 2: was twenty two, I was sharing an apartment with five
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Speaker 2: other guys. I had no interest in working remotely. You
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Speaker 2: don't think so I'm wrong?
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Speaker 3: Yeah, they'd want to work from home.
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Speaker 2: Yeah, huh? Are there employeers can think about?
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Speaker 3: Think about the irresponsible twenty two or twenty three year
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Speaker 3: old that might go out on a Thursday night on
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Speaker 3: Friday they might want to be working remotely, not like
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Speaker 3: I know anyone like that. You'd much be rather hidden
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Speaker 3: in the shower shadows working remotely in some of those instances.
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Speaker 3: And I think the post college thing in general, they
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Speaker 3: wouldn't be opposed to it.
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Speaker 2: So are the employer's going to be willing?
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Speaker 4: Then?
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Speaker 3: That is the better question to me is that if
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Speaker 3: the labor and I've said this before, I thought that
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Speaker 3: it would shift more back towards the employer court of
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Speaker 3: more people would be in the office if the labor
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Speaker 3: market were to weaken substantially, like if you saw an
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Speaker 3: unemployment rate of five or six percent, then the employer
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Speaker 3: would have all the muscle in the world to flex
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Speaker 3: to say no, you're going to come into the office
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Speaker 3: because if you don't like it, you can leave. And oh,
5:40
Speaker 3: by the way, it's a really bad labor market that
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Speaker 3: you're about to thrust yourself into if you don't want
5:44
Speaker 3: to play.
5:44
Speaker 2: That's what d Yeah, they did work pretty well.
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Speaker 3: But I don't think as a whole the labor markets
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Speaker 3: at that point where you can make that shift. I
5:52
Speaker 3: think ultimately that I agree with your point that these
5:55
Speaker 3: things move in cycles. I'm not so sure that there.
6:00
Speaker 3: I don't think the prevalence of remote work the hybrid structure.
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Speaker 3: I think it's more ingrained. But that doesn't mean if
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Speaker 3: the labor market were to shift to a really bad
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Speaker 3: period that it could just be everyone's back in the
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Speaker 3: office again. Maybe that flexibility's gone. I could go either
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Speaker 3: way on it, though it does seem like hybrid is
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Speaker 3: just so prevalent that most companies are okay with that.
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Speaker 2: Willing to do it. Yeah, I don't know where I
6:24
Speaker 2: trying to train up a twenty two year old, I
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Speaker 2: wouldn't be okay with it. But yeah, I guess you know.
6:29
Speaker 2: It depends on place to place and where folks are
6:32
Speaker 2: feeling comfortable. The piece of all of the employment situation
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Speaker 2: that is not really up for debate is costs around
6:41
Speaker 2: healthcare about to shoot upwards. As they know they've been
6:45
Speaker 2: increasing generally, but what we're about to see next year
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Speaker 2: is going to pre a little bit nuts. Employers are
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Speaker 2: expecting that they will need to pay almost nine percent
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Speaker 2: more per employee on average for healthcare benefits in twenty
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Speaker 2: twenty six compared to twenty twenty five. That would be
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Speaker 2: the biggest price increase in fifteen years. According to a
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Speaker 2: new study by Mercer, fifty nine percent of those employers
7:11
Speaker 2: told Mercers that they plan to pass those higher prices
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Speaker 2: right along to their workers in the form of cost
7:15
Speaker 2: cutting changes. So rather than saying, hey, you have to
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Speaker 2: pick up a bigger share of this total, they're just
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Speaker 2: going to increase deductibles, cope's other out of pocket expenses
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Speaker 2: in order to keep those net prices to the employer similar.
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Speaker 2: And this is one of those scenarios that gets frankly,
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Speaker 2: it gets tricky to even talk about, because everybody wants
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Speaker 2: to point a finger and say this is what is
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Speaker 2: causing all of these blow ups and health care expenses,
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Speaker 2: when the reality is there is a lot of blame
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Speaker 2: to go around here, and it's a pretty tricky scenario.
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Speaker 2: I don't think it's a good thing that we have
7:53
Speaker 2: the most expensive health care in the country, or sorry,
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Speaker 2: in the world. The United States spends more on healthcare
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Speaker 2: per person than any other country in the world. But
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Speaker 2: I'm also not sure it's terribly surprising we are one
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Speaker 2: of the most expensive countries to live in the world.
8:10
Speaker 2: We top that list in a number of different categories,
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Speaker 2: and so I'm not shocked by that reality. In terms
8:17
Speaker 2: of the causes that you know are being pointed at here.
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Speaker 2: One is employers. Employers are basically saying, you know, we're
8:24
Speaker 2: going to be keeping our cost structure the same regardless
8:27
Speaker 2: of what these health insurance providers levy on us. So
8:30
Speaker 2: you employee are going to end up bearing a larger
8:33
Speaker 2: portion of that overall cost. So employers are to blame.
8:37
Speaker 2: Health insurance companies are most certainly to blame. And I
8:41
Speaker 2: mean that culminated in a you know, deranged person killing
8:45
Speaker 2: a United Healthcare CEO last year and then a bunch
8:47
Speaker 2: of the world applauding him, which was just I don't
8:51
Speaker 2: need to get into that. So yeah, there's some blame there.
8:55
Speaker 2: But you think about, if we're talking about the cost
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Speaker 2: control side of things, the thing that makes people angry
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Speaker 2: at health insurance companies is not how expensive they are.
9:03
Speaker 2: The thing that makes them. The thing that makes them
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Speaker 2: angry are the denials which they're doing to try and
9:08
Speaker 2: control costs. And then finally you have the pharmacy benefit
9:11
Speaker 2: managers who have raised prices a lot too, and the
9:14
Speaker 2: drugs have gotten better. We've got to take a quick break.
9:17
Speaker 2: Michael sand Totally from CNBC joins us next here on
9:19
Speaker 2: the Financial Exchange.
9:22
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9:51
Speaker 2: Joining us now is CNBC's Michael sand Totally for a
9:55
Speaker 2: look at markets hitting their all time highs and next
9:58
Speaker 2: week's FED meeting. Meg, thanks for joining. I appreciate it.
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Speaker 4: Yeah, go ahead to you, Thank you very much.
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Speaker 2: Let's start right there with the Federal Reserve. We've got
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Speaker 2: a meeting next week. It's looks pretty baked for a
10:09
Speaker 2: twenty five basis point rate cut. Do you think there's
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Speaker 2: any chance of a fifty?
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Speaker 4: I don't think there's a significant chance of a fifty. Basically,
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Speaker 4: all the data we'd have that they'd be working with
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Speaker 4: next week is in hand. You also probably don't. You
10:26
Speaker 4: would be unusual for the market to be priced for
10:29
Speaker 4: twenty five this close to a meeting and have them
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Speaker 4: not at least have made.
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Speaker 5: An effort to try and sway the market another way.
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Speaker 5: So I wouldn't foreclose on the possibility as as a whole.
10:39
Speaker 5: It really depends on which of the members decides to
10:43
Speaker 5: kind of migrate from, you know, still being vigilant on
10:46
Speaker 5: inflation to saying, look, the recent labor market data has
10:49
Speaker 5: been so weak that we need to kind of double
10:52
Speaker 5: up and get ahead of it. It's somewhat similar to
10:55
Speaker 5: what happened last year. Actually, they did not do a
10:58
Speaker 5: July rate cut as many thought they would. The uneployment
11:00
Speaker 5: rate tick high, and then in September they did what
11:02
Speaker 5: they characterized as a catch up move of fifty I
11:05
Speaker 5: don't know that whatever happens is going to change the
11:07
Speaker 5: overall total for let's say the rest of the year
11:10
Speaker 5: of let's say three quarters of a percentage point.
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Speaker 2: I don't know that this changes the markets or the
11:14
Speaker 2: narrative at all. But what's been interesting in the last
11:17
Speaker 2: couple of meetings are the defections. You'd rarely see them,
11:20
Speaker 2: generally speaking, the twelve FED members vote altogether. At the
11:25
Speaker 2: last two you've seen defections. Is it possible you get
11:27
Speaker 2: defections to both directions this time?
11:29
Speaker 4: Right?
11:29
Speaker 2: Some calling for a larger cut and some calling to
11:32
Speaker 2: keep rates steady at this next meeting, I.
11:35
Speaker 5: Think you have to consider it a possibility. I think
11:38
Speaker 5: in the end, those wanting any kind of cut would
11:42
Speaker 5: probably line up behind you whatever the majority decides, and
11:47
Speaker 5: not necessarily decides to dissent because of the magnitude of
11:50
Speaker 5: a cut. But it's hard to know. But I think
11:52
Speaker 5: even the discussion tells us what juncture we're at right now,
11:56
Speaker 5: when in theory you're kind of short of your target
11:59
Speaker 5: on both unemployment and on inflation at least a little bit,
12:04
Speaker 5: and so that sort of creates a little bit of
12:06
Speaker 5: a back and forth.
12:07
Speaker 2: So with that context in mind, what do we learn
12:09
Speaker 2: new about the jobs market and the prices that we're
12:13
Speaker 2: all paying at the grocery store and everywhere else this week?
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Speaker 5: I think we're in a fascinating spot because inflation broadly speaking,
12:20
Speaker 5: is kind of stuck around these levels let's call it
12:23
Speaker 5: between two and a half and three percent on an
12:24
Speaker 5: annual basis. That's not really changing. You're not seeing a
12:27
Speaker 5: huge rush of terra flated inflation, but you're seeing it
12:30
Speaker 5: in some core good sectors. And then just in general,
12:33
Speaker 5: the labor market data has really turned pretty soggy. But
12:37
Speaker 5: now there's also a lot of these folks wanting to
12:39
Speaker 5: rationalize by saying that's labor supply. You're having immigration crackdowns, demographics,
12:44
Speaker 5: So I think there's a lot of room for play
12:46
Speaker 5: in that. What I do know is the markets for
12:48
Speaker 5: the last month have been betting on rate cuts that
12:51
Speaker 5: we're going to get, but we may not really need
12:54
Speaker 5: because the underlying economy seems okay, especially outside of the
12:58
Speaker 5: labor market data. That labor marketing it is really important,
13:01
Speaker 5: but there's a chance that it's not fully reflecting the
13:04
Speaker 5: pace of underlying economic activity. Whether it's because wealthy you
13:07
Speaker 5: are still spending, because companies are throwing money at capital expenditures,
13:12
Speaker 5: or all the rest. But it does seem like the
13:14
Speaker 5: markets are priced for that kind of nirvana scenario where
13:18
Speaker 5: we get lower borrowing rates, and it's not because we
13:22
Speaker 5: have an emergency in the economy.
13:24
Speaker 2: By most accounts, that fed kind of missed the ball
13:27
Speaker 2: when it came to inflation three years ago. They were
13:29
Speaker 2: late to the game by most accounts in terms of
13:31
Speaker 2: raising interest rates. They created a taboo around the word
13:37
Speaker 2: transitory when it came to inflation. Is there a chance
13:40
Speaker 2: they're missing the ball on this one again, right, They
13:43
Speaker 2: clearly seem much more concerned about the labor market right
13:46
Speaker 2: now than they do inflation. What could cause them to
13:50
Speaker 2: be off on all the cut off sides on this one.
13:52
Speaker 2: Once again, there's.
13:53
Speaker 5: No doubt that they believe, at least most people in
13:57
Speaker 5: the committee believe there is a chance that they could
13:59
Speaker 5: be caught off.
13:59
Speaker 4: Again.
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Speaker 5: There's these examples from history. In the late sixties, this happened.
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Speaker 5: They started easing, Things were okay for a while, and
14:05
Speaker 5: the economy overheated. It became a big inflation problem. I
14:08
Speaker 5: do think that they have a little bit of room
14:10
Speaker 5: to play with here, though, because by their numbers, they
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Speaker 5: remain let's say, one percentage point in terms of where
14:17
Speaker 5: short term race are above what they consider neutral. So
14:21
Speaker 5: I think they would they can kind of tell themselves, look,
14:24
Speaker 5: we're just adjusting the race to be a little bit
14:26
Speaker 5: less restrictive given the underlying inflation rates and source of
14:30
Speaker 5: growth in the economy. And so until we get to it,
14:33
Speaker 5: you know, closer to neutral, we don't necessarily have to
14:36
Speaker 5: worry about really that we're gunning the economy and letting
14:39
Speaker 5: it overheat. We'll see if that really holds up. These
14:41
Speaker 5: models are obviously not precise, but I think that's where.
14:44
Speaker 2: They end up landing regardless of what the FED does next.
14:48
Speaker 2: The AI mania and a little bit of IPO mania
14:51
Speaker 2: now continues. We saw Oracle stock pop earlier this week,
14:56
Speaker 2: last couple of days, been retracting a lot of that,
14:58
Speaker 2: down about five percent in early trading so far today
15:03
Speaker 2: so far. What's your take on the Oracle move and
15:06
Speaker 2: just you know, it is a little bit strange to
15:09
Speaker 2: see such a big pop and then of an immediate
15:11
Speaker 2: pullback for a very mature company that's now entering into
15:15
Speaker 2: the mainstream narrative when it comes to AI.
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Speaker 5: Right, almost fifty year old company was considered kind of old, legacy,
15:21
Speaker 5: boring tech. They've certainly refashioned themselves as basically an enabler
15:25
Speaker 5: an outsourcer for a lot of this AI data center work. Now,
15:29
Speaker 5: you did have a massive move higher in the stock
15:32
Speaker 5: I think because just the magnitude of their forward revenue
15:35
Speaker 5: guidance was so enormous. What it tells me is the
15:40
Speaker 5: entrenched players in terms of trying to build out AI
15:43
Speaker 5: infrastructure are in a phase of desperate urgency, and so
15:46
Speaker 5: they're so pot committed that they're just going to keep
15:49
Speaker 5: ramping what they think they need in terms of building capacity.
15:52
Speaker 5: That's going to benefit those in the direct line of
15:55
Speaker 5: all that spending. That includes Oracle, though maybe it's kind
15:57
Speaker 5: of low margin business for them. It includes all the
16:00
Speaker 5: semiconductor companies. Obviously Nvidia has already gotten its huge bump
16:03
Speaker 5: from that. What it doesn't tell you is whether this
16:07
Speaker 5: is going to be over investment in the end, and whether,
16:10
Speaker 5: in fact it's going to be a winner take most
16:13
Speaker 5: type of a platform or an environment where a lot
16:16
Speaker 5: of the spending ends up looking redundant or ill conceived
16:19
Speaker 5: in the end. We simply don't know that. What we
16:21
Speaker 5: know is the numbers are massive. Open AI, which seems
16:24
Speaker 5: the source of much of the Oracle revenue guidance, Boost
16:28
Speaker 5: still has to raise money to do this right. It's
16:29
Speaker 5: not in the days that Microsoft's got the money in
16:31
Speaker 5: their pocket to just spend on it. So it's a
16:34
Speaker 5: different it's a different phase of.
16:37
Speaker 4: This AI store.
16:38
Speaker 2: I agree that we don't know, Michael, but gosh, when
16:40
Speaker 2: you talk about companies as old as Oracle getting bid
16:44
Speaker 2: up on being the underlying infrastructure play for the latest
16:47
Speaker 2: and greatest technology, it is really tough to not make
16:49
Speaker 2: the comparisons to the late nineteen nineties.
16:52
Speaker 5: It's very true because you know, what you had back
16:54
Speaker 5: then was old telephone companies doing the same thing. Old
16:58
Speaker 5: telephone companies Nortel and Loosen, which was the old at
17:01
Speaker 5: P Bell Labs type business, did in fact say hey,
17:05
Speaker 5: we are building the broadband network of the world. We're
17:08
Speaker 5: building we're the fiber companies. And they did it with
17:11
Speaker 5: debt in large to a large degree. That's sort of
17:13
Speaker 5: starting to be a debt financed aspect of the AI
17:16
Speaker 5: boom too. So there is similar. It is similar, and
17:18
Speaker 5: you know, back then the logic was, look, the main
17:21
Speaker 5: constraint is we need broadband capacity and that's going to
17:24
Speaker 5: enable all these wonderful things. It was true, yeah, but
17:27
Speaker 5: the price of accessing that broadbelt crashed and nobody really
17:31
Speaker 5: made money on it. It was all about the applications. Now,
17:34
Speaker 5: I don't know if we're in for something similar in
17:36
Speaker 5: terms of the AI part of it, but you can't
17:38
Speaker 5: roll it out.
17:39
Speaker 2: Michael Santali from CNBC join us today talk about the
17:42
Speaker 2: markets and next week's FED meeting. Always appreciate Michael, thanks
17:45
Speaker 2: so much, and have every weekend you too.
17:48
Speaker 5: Thanks.
17:48
Speaker 4: Great to do it.
17:49
Speaker 2: I've got a new scam of the week here, Paul.
17:52
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17:57
Speaker 2: you'll get a message as a small business owner that
17:59
Speaker 2: pays up or we're gonna start plastering your Google web
18:02
Speaker 2: page and your Yelp page with garbage reviews.
18:05
Speaker 1: Wow.
18:06
Speaker 2: I don't know how you prevent that one.
18:09
Speaker 1: A tough one.
18:09
Speaker 2: It's a pretty good it's a pretty good scam.
18:11
Speaker 3: But a scummy thing to do, terrible thing.
18:13
Speaker 2: To do, and a pretty good scam that a lot
18:17
Speaker 2: of people are probably gonna pay up for. One example
18:20
Speaker 2: was given of an LA business that had a random
18:22
Speaker 2: WhatsApp message. You know, basically I got in order to
18:25
Speaker 2: post twenty bad reviews of your business. Pay up or
18:27
Speaker 2: I'm gonna do it. Oh, good luck with that one.
18:31
Speaker 2: Quick break. Wall Street Watches.
18:32
Speaker 6: Next, bringing the latest financial news straight to your radio.
18:45
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18:54
Speaker 6: look at what's moving market so far today. Right here
18:58
Speaker 6: on the Financial Exchange Radio.
19:00
Speaker 7: Markets are mixed after a week filled full of inflation
19:04
Speaker 7: and labor data. Head of the FEDS anticipated meeting on
19:09
Speaker 7: deck next week. Right now, the Dow is down by
19:12
Speaker 7: four tenths of one percent or two hundred and four points,
19:15
Speaker 7: SMP five hundred completely flat, Nasdaq is up four tenths
19:19
Speaker 7: of one percent or eighty eight points higher, Russell two
19:22
Speaker 7: thousand retreating seven tenths of one percent, Tenure Treasure reeled
19:26
Speaker 7: up six basis points now at four point zero eight percent,
19:31
Speaker 7: and crude oil up over one and a half percent higher,
19:34
Speaker 7: training at sixty three dollars in thirty nine cents a barrel.
19:37
Speaker 7: Big news in the media world after CNBC reported that
19:40
Speaker 7: Paramount Skydance was readying an offer for Warner Brothers Discovery. However,
19:45
Speaker 7: as of Thursday, Warner Brothers had yet to receive an offer,
19:49
Speaker 7: but a bid could come as soon as next week. Yesterday,
19:53
Speaker 7: Warner Brothers stock surged twenty eight percent on the news,
19:56
Speaker 7: Today up another fourteen percent. Meanwhile, shares in super Microcomputer
20:02
Speaker 7: rising three percent after the AI tech firm announced it
20:05
Speaker 7: is now delivering equipment powered by Nvidia's Blackwell Ultra technology
20:09
Speaker 7: in volume two customers. Elsewhere, Open Ai and Microsoft reach
20:13
Speaker 7: a deal to extend their partnership despite a summer of
20:16
Speaker 7: difficult negotiations. Microsoft is up by about two percent. Adobe
20:22
Speaker 7: raised its annual outlook for the second time this year
20:24
Speaker 7: after reporting better than expected quarterly results. That stock is
20:28
Speaker 7: flat at the moment. Furniture retailer rh trimmed its annual
20:33
Speaker 7: outlook as it struggles with higher terror related costs and uncertainty.
20:37
Speaker 7: That stock is down over three percent now. And Apple
20:41
Speaker 7: delayed the launch of its new iPhone Air in China
20:45
Speaker 7: citing regulatory approval issues. Apple is up nearly two percent
20:50
Speaker 7: at the moment. I'm Tucker Silva and that is Wall
20:53
Speaker 7: Street Watch. And in the previous segment, we asked you
20:55
Speaker 7: the trivia question, what is the name of the smurfs
21:00
Speaker 7: primary villain? That'll be something called Gargamel.
21:02
Speaker 6: I don't know.
21:03
Speaker 7: I never watched the Smurfs. Rob from Pittsmell, Pittsfield, Mass
21:07
Speaker 7: is our winner today, taking home a Financial Exchange Show teacher.
21:11
Speaker 7: Congrats to Rob. We played trivia every day here in
21:14
Speaker 7: the Financial Exchange. See complete contest rules at Financial Exchange
21:17
Speaker 7: Show dot com.
21:18
Speaker 2: Paul, you want to talk buy Now, Pay Later or IPOs?
21:21
Speaker 3: I want to talk about this IPO story because it's
21:23
Speaker 3: very puzzling to me. Okay, and I'll explain why. So
21:25
Speaker 3: basically what this IPO story is talking about, how on
21:29
Speaker 3: recent public offerings for companies that are being publicly traded
21:33
Speaker 3: on our stock markets out there. Typically the way that
21:35
Speaker 3: those broke out, it would be very difficult if you
21:37
Speaker 3: were a regular Joe Schmoe like you and I, to
21:40
Speaker 3: get access to buy shares of Facebook. I think about
21:42
Speaker 3: as a famous one in twenty twelve when I started
21:44
Speaker 3: my career, everyone wanted a piece of the Facebook IPO
21:47
Speaker 3: and it's very hard to get. You had to go
21:49
Speaker 3: through institutions typically to get access to those types of offerings.
21:52
Speaker 2: Yeah, the way this works, you typically go to an
21:55
Speaker 2: investment banker like Goldman Sachs, like JP Morgan. You say
21:58
Speaker 2: I want to go public. I want you to, you know,
22:00
Speaker 2: sponsor the offering or I want several companies to sponsor
22:02
Speaker 2: the offering. They will then take it to their clients.
22:05
Speaker 2: They will sell the shares to those clients who support
22:08
Speaker 2: the IPO, and then it becomes publicly traded. And that's
22:11
Speaker 2: part of the special access that you get by working
22:13
Speaker 2: with an investment bank.
22:14
Speaker 3: And to further that even more, though a lot of
22:16
Speaker 3: it gets concentrated in their mutual funds or their products
22:19
Speaker 3: the share of those companies, because I'd worked at Merrilyn
22:23
Speaker 3: Morgan some the wirehouses that would run deals, and you'd
22:26
Speaker 3: think being a client of the advisory for you get shares,
22:29
Speaker 3: you get just pittances, you get really small allocations to it.
22:33
Speaker 3: Fifty shares of Facebook, you know, doesn't move the needle
22:36
Speaker 3: for these high network clients. Anyway, the way it's transitioned now,
22:39
Speaker 3: heavier and heavier percentage of IPOs are being allocated to individuals.
22:43
Speaker 3: And what strikes me is so puzzling about this piece
22:45
Speaker 3: in the Wall Street Journal is they're actually stating that
22:48
Speaker 3: the individual investors, the retail investors, are stabilizing the price
22:52
Speaker 3: of these IPOs, and it's the institutional they never sells.
22:57
Speaker 2: Yo, baby, I guess, I guess this. I'm in hands.
23:00
Speaker 3: Thing to me coming up through the industry was always
23:03
Speaker 3: retail is the dumb money, and they are the first
23:06
Speaker 3: ones to panic and jump out when things get rough,
23:09
Speaker 3: and that's usually what happens with IPOs. They pop really
23:12
Speaker 3: quickly when they come out of the gate, but then
23:14
Speaker 3: typically they're structured to have a ninety day lock up
23:16
Speaker 3: where the employees can't sell their shares and after ninety
23:19
Speaker 3: days they want to buy that house. They want to
23:21
Speaker 3: buy that vacation home. So they sell off their shares,
23:24
Speaker 3: causing a draw down in the stock, which would be,
23:28
Speaker 3: in my mind a reason for retail investors to get
23:31
Speaker 3: spooked and jump out. This I guess is I.
23:34
Speaker 2: Don't think it's I don't think this is permanent. But
23:37
Speaker 2: I will say that since twenty twenty, there has been
23:40
Speaker 2: a blow up in terms of the percentage of Americans
23:43
Speaker 2: and number of Americans that are interested in stock trading
23:46
Speaker 2: of one sort or another. And the trend line has
23:48
Speaker 2: been buy companies that we think are cool for some
23:52
Speaker 2: worrieson or another, and never sell them. Right you think
23:56
Speaker 2: about some of these things that have occurred with other
23:59
Speaker 2: memes companies, it's been nope, just I don't, I don't.
24:04
Speaker 2: You know, this isn't about making money, but it's always
24:06
Speaker 2: about making money. But like they say, you know, Roaring
24:10
Speaker 2: Kitty publicly said things like that, Right, you know, this
24:13
Speaker 2: is about something that I truly believe in, and I'm
24:16
Speaker 2: with you. I don't think that sticks. But if you
24:19
Speaker 2: can harness that moment in time as a new company,
24:22
Speaker 2: it builds a whole bunch of excitement about your stock,
24:26
Speaker 2: especially if you are a well known company like a
24:28
Speaker 2: number of these have been recently, like Clarna, the buy now,
24:31
Speaker 2: pay later firm. Then I can see what it does
24:34
Speaker 2: to benefit you by offering this out to the everyday
24:37
Speaker 2: retail investor, as opposed to just going after your Goldman
24:40
Speaker 2: sas clients that have, by the way, probably never used
24:43
Speaker 2: Golden buy now, pay later. Sure if you are, if
24:46
Speaker 2: you are working with Goldman Sachs, my guess is you
24:49
Speaker 2: are not accessing buy now, pay later for most of
24:52
Speaker 2: your transactions or any of your.
24:54
Speaker 3: It's an interesting paradigm shift. I think all it takes
24:56
Speaker 3: is one bad market cycle to kind of wash that out.
24:59
Speaker 2: But haven't gotten it yet.
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26:11
Speaker 2: Wall Street Journal asked for people how they use by
26:13
Speaker 2: Now pay Later Again. We're talking about this and in
26:16
Speaker 2: the wake of Klarna's pretty big IPO that occurred this week,
26:19
Speaker 2: and we've both kind of scratched our heads. We're just
26:23
Speaker 2: slightly older than the typical buy now, pay later crowd.
26:26
Speaker 2: I think Paul and I've kind of wondered how it's
26:29
Speaker 2: being utilized, if it is really replacing credit card transactions
26:33
Speaker 2: or supplementing them in some way. In this case, Watson
26:36
Speaker 2: Journal interviewed for people in terms of how they're using it,
26:38
Speaker 2: and I have to say, I didn't find one of
26:40
Speaker 2: these that I thought was an intelligent use case of
26:44
Speaker 2: using buy now, Pay Later. It all seemed like it
26:48
Speaker 2: didn't seem like they're all getting whacked with interest, but
26:50
Speaker 2: it seemed like it was interesting Robin pe to pay
26:54
Speaker 2: Paul or in some cases doing things that are kind
26:56
Speaker 2: of dangerous. Aaron Moncad, who they reviewed as a software
27:01
Speaker 2: engineer out in Seattle, says that he will oftentimes put
27:06
Speaker 2: things on buy now, Pay later, and then take the
27:09
Speaker 2: cash that he can afford to buy the thing with
27:11
Speaker 2: and invest it in the stock market for those like
27:14
Speaker 2: two weeks in between the buy now, pay later, to
27:17
Speaker 2: which I would say, that's probably worked out really well
27:20
Speaker 2: for you, but I don't even know. I would imagine
27:24
Speaker 2: the odds of the stock market going up over a
27:27
Speaker 2: four week time period is pretty close to a coin toss.
27:32
Speaker 2: You're probably coming out slightly ahead there. But the problem
27:35
Speaker 2: is if you go the other direction, then you're totally screwed.
27:39
Speaker 2: If you miss one of these payments, you rack up
27:41
Speaker 2: all these fees, and you're basically saying, hey, let's take
27:45
Speaker 2: the money that I would have used to buy this
27:47
Speaker 2: item and just put it on black. Right again, better
27:50
Speaker 2: odds and putting it on black, but not buy a lot.
27:54
Speaker 2: The other ones that are used are, hey, look, you know,
27:56
Speaker 2: I put my discretionary stuff on this. I pay cash
27:58
Speaker 2: for my groceries and things like that. But all of them,
28:02
Speaker 2: the other stories, it just seemed to me like, Hey,
28:05
Speaker 2: this is stuff that I wouldn't have bought if I
28:07
Speaker 2: had to pay cash, And because I can pay for
28:10
Speaker 2: it over four months, I'm willing to spend money that
28:13
Speaker 2: I don't really have.
28:14
Speaker 3: I've never understood from the business case perspective as to
28:18
Speaker 3: why Klarna and others why these are good businesses because oftentimes,
28:24
Speaker 3: don't get me wrong, they're providing access to financing for
28:27
Speaker 3: people to purs certain items. But on the credit score
28:30
Speaker 3: a lot of things, you're typically getting the lower credit
28:32
Speaker 3: score person, and in a time of financial upheaval, I
28:38
Speaker 3: just don't know how a company like this would weather
28:41
Speaker 3: a storm like that.
28:42
Speaker 2: I don't think they would. Yeah, again, we're in a
28:44
Speaker 2: good economy, and so they're making a lot of money,
28:47
Speaker 2: presumably on companies paying for access to this because that's
28:50
Speaker 2: where they're making their money. Is you know, the company
28:52
Speaker 2: that sold the mattress is paying for access to Klara
28:55
Speaker 2: so that their customers can use it. But they're not
28:58
Speaker 2: going to repossess the match that you bought if you
29:01
Speaker 2: default in those payments, and so somebody would be left
29:03
Speaker 2: holding the bag at the end of the day.
29:05
Speaker 3: It just doesn't seem like a super durable business to me,
29:08
Speaker 3: like some others would be. Even if they went through
29:11
Speaker 3: a downturn, you'd say, Okay, I can see how they
29:13
Speaker 3: could pick back.
29:14
Speaker 2: Up quick break when we come back. Paulamonica from Baron's
29:17
Speaker 2: joins us next, talking about Larry from Oracle. That's next
29:21
Speaker 2: on the Financial Exchange.
29:23
Speaker 1: The Financial Exchange streams live on YouTube. Subscribe to our
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29:30
Speaker 1: All morning. Long Face is the Financial Exchange Radio Network.
29:35
Speaker 8: Ladies and Gentlemen the weekend.
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Speaker 2: Joining us now is Paul Lamonica from Baron's Happy Friday. Paul,
30:17
Speaker 2: thanks for joining us.
30:18
Speaker 8: Yeah, thanks for having me.
30:20
Speaker 2: So let's start right off there with who was briefly
30:23
Speaker 2: the world's richest man on Wednesday of this week, Larry Ellison.
30:27
Speaker 2: I'm guessing with the stock price fall over the last
30:29
Speaker 2: two days, he's not still holding that title. But what
30:33
Speaker 2: did we see with Oracle stock and what do you
30:35
Speaker 2: make of the I guess the big boom and then
30:38
Speaker 2: the kind of fall apart over the last couple of
30:40
Speaker 2: days that we've seen.
30:42
Speaker 8: Yeah, last I checked, Larry Ellison is once again trailing
30:46
Speaker 8: Elon Musk a little bit. But yeah, I mean, I
30:49
Speaker 8: know you have to feel really badly for him, for
30:52
Speaker 8: both of them, for that matter. I mean, Oracle's earnings
30:55
Speaker 8: were not fantastic by you know, the notion that they
31:01
Speaker 8: didn't really blow away earnings expectations for the quarter. It
31:06
Speaker 8: was the guidance in the outlook that really wowed everyone
31:10
Speaker 8: that there's still all of this spending on you on
31:15
Speaker 8: data Center's cloud that really is boosting oracles revenue and
31:20
Speaker 8: profit growth expectations going forward. And there were reports of
31:24
Speaker 8: the multi hundred billion dollar deal apparently that open ai
31:30
Speaker 8: might be working on with Oracle, so that is very significant.
31:36
Speaker 8: I think right now we are looking at a company
31:40
Speaker 8: where it's I'm not going to say shades of ninety
31:46
Speaker 8: nine two thousand just yet, because the valuation's not nearly
31:50
Speaker 8: as crazy as what you had would say, Cisco in
31:53
Speaker 8: the late nineties. But if you look at what happened
31:55
Speaker 8: after earnings, Oracle was already a somewhat pricey stock, trading
31:59
Speaker 8: around thirty three times forecasts before their earnings report. After earnings,
32:04
Speaker 8: that pe went up to about forty three. So that's
32:06
Speaker 8: a dramatic stretch in terms of what investors are willing
32:11
Speaker 8: to pay for this company based on the expectations of
32:14
Speaker 8: all this AI related growth.
32:17
Speaker 2: Paul plenty of listeners probably weren't investing in the late
32:20
Speaker 2: nineties that are listening to us right now. So connect
32:24
Speaker 2: the dots for us. I mean, I see the connections here.
32:28
Speaker 2: It's a legacy tech company whose stock is being bid
32:30
Speaker 2: through the roof for providing infrastructure. What are the connections
32:34
Speaker 2: that you are seeing. What are the comparison points that
32:36
Speaker 2: you are seeing between today and the late nineties as
32:39
Speaker 2: these valuations continue to climb for not only in Nvidia
32:43
Speaker 2: but the rest of the market as well.
32:45
Speaker 8: Yeah, that's a great question. I think the big difference
32:47
Speaker 8: now is that I'd say in the late nineties, investors
32:52
Speaker 8: were even more willing to accept the premise that the
32:59
Speaker 8: Internet was going to be this revolution, which it turned
33:01
Speaker 8: out to be, and that companies you know that were
33:07
Speaker 8: very sketchy, to put it mildly, didn't have great business models.
33:11
Speaker 8: Some of them didn't have revenue, let alone profits. It
33:15
Speaker 8: was back in the day where people were doing things.
33:17
Speaker 8: I'll still remember the stupid phrase monetizing eyeballs. It was
33:21
Speaker 8: all about traffic. Now, I think you look at the
33:24
Speaker 8: companies that are getting bid up on AI expectations. You
33:29
Speaker 8: can call it hype if you want, Companies like Nvidia
33:32
Speaker 8: and Oracle and Broadcom and then the hyperscalers, Microsoft, Amazon,
33:36
Speaker 8: et cetera. There's real business there. I think the question
33:40
Speaker 8: is when do the benefits of AI filtered down to
33:45
Speaker 8: companies that are hoping to use AI to boost revenue
33:50
Speaker 8: and cut costs. I don't think we're there yet outside
33:53
Speaker 8: that handful of big tech companies, but the big tech
33:57
Speaker 8: companies dominate the market. Our stats team that dal Jones
34:02
Speaker 8: just ran me some numbers, if you want to call
34:05
Speaker 8: them the Fine nine or Cloud nine, the Magnificent seven,
34:09
Speaker 8: plus Oracle and Broadcom. They now make up more than
34:12
Speaker 8: forty percent of the S and P five hundreds market valuation.
34:16
Speaker 8: So in some respects, it's almost as if those other
34:18
Speaker 8: four hundred ninety companies they don't really matter as much
34:22
Speaker 8: as long as Nvidia, Oracle, et cetera are continuing to
34:25
Speaker 8: do this.
34:26
Speaker 2: Well, while we're on the subject of Larry Ellison and
34:29
Speaker 2: his wealth, his son David now and making his move
34:33
Speaker 2: in this paramount Skydance potential Warner Brothers deal, what do
34:38
Speaker 2: you make of that and what do you think of
34:40
Speaker 2: the combination.
34:41
Speaker 8: Yeah, it's fascinating. As a former very long time CNN employee,
34:47
Speaker 8: I wish all of my former colleagues all the best
34:51
Speaker 8: with whatever happens they you know, they've lived through many
34:55
Speaker 8: mergers before, AOL time, Warner at and T, you know,
35:00
Speaker 8: Warner Brothers Discovery, so you know, having a new parent,
35:03
Speaker 8: if that works out to be the case, wouldn't be new.
35:07
Speaker 8: But I don't think it's a coincidence that the speculation
35:12
Speaker 8: about this deal has really picked up steam days after
35:16
Speaker 8: Larry Alison, David's father the game briefly the World's Richest Person.
35:21
Speaker 8: So it will be very interesting to see. I mean,
35:23
Speaker 8: Paramount Skuidance is technically smaller than Warner Brothers Discovery, but
35:28
Speaker 8: the pockets are I think, just a little bit deeper.
35:31
Speaker 2: Paul Lamonica from Baron's Joints today to talk about the Oracle,
35:34
Speaker 2: stock Pop and all the activity among the Ellison family
35:38
Speaker 2: this week. So thanks so much for joining us. Paul,
35:40
Speaker 2: have a great weekend.
35:41
Speaker 8: Thanks you too, guys.
35:43
Speaker 2: What do you have for us? Paul? For last story
35:45
Speaker 2: of the day.
35:45
Speaker 3: Kodak is launching a vinched style toy camera with strong sales.
35:50
Speaker 3: It's called the Charmer I guess see it, yeah, CHARMERA.
35:54
Speaker 3: These are cameras that they're launching that are being sold
35:58
Speaker 3: in blind boxes, so consumers don't get know what they
36:01
Speaker 3: get until they're buying it. But it has all the
36:03
Speaker 3: old vintage cameras from the eighties from Kodak.
36:07
Speaker 2: Did they make them digital or do you actually have
36:09
Speaker 2: to digital process?
36:10
Speaker 3: Yeah, it's a line of inspired digital toy cameras called
36:14
Speaker 3: the Kodak Cameras.
36:15
Speaker 2: I bought my kids one of these for their summer camp.
36:17
Speaker 2: They're not allowed to have devices when they went to
36:19
Speaker 2: summer camp, but one of the it was just a
36:21
Speaker 2: point and shoot digital camera that could store a thousand pictures.
36:25
Speaker 2: I kind of like the idea. I think it's awesome.
36:27
Speaker 3: This is reminds me of the story we covered where
36:30
Speaker 3: landlines are remis making it come back, come back for
36:33
Speaker 3: kids so that you don't get them exposed to the
36:36
Speaker 3: wild world of smartphones.
36:38
Speaker 2: Yeah. I like it as well anything. Of course, if
36:43
Speaker 2: I buy one of these things, I'm going to be
36:44
Speaker 2: in company with, you know, tons of hipsters, and so
36:48
Speaker 2: I'm not sure I'll be able to pull it off,
36:49
Speaker 2: but nonetheless, good business. IDEA quick break for the next
36:54
Speaker 2: forty eight hours. We'll be right back at it on Monday,
36:56
Speaker 2: folks for a FED meeting week, So stay tuned. Have
36:59
Speaker 2: a right weekend
37:11
Speaker 1: Sh