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Walmart warns that price increases are coming · The Financial Exchange Show

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Speaker 2: Chuck, Mike and Tucker with you here and our top stories.
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Speaker 2: We kick off our show today is Walmart earnings. They
1:20
Speaker 2: came out early this morning at I don't know, it
1:24
Speaker 2: was around seven thirty or eight something like that, Who
1:27
Speaker 2: knows the exact time that they that they came out
1:30
Speaker 2: with those earnings. But the earnings were largely fine for
1:34
Speaker 2: the quarter, like there was nothing, you know, particularly surprising
1:37
Speaker 2: in them. But we got a whole bunch on the
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Speaker 2: Walmart conference call that I think is nice, juicy, you know,
1:46
Speaker 2: meaty steak to dig into as we kick things off here,
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Speaker 2: and it starts first with this comment from their CFO,
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Speaker 2: who I think, really, you know, kind of you know,
1:59
Speaker 2: just nails it on, you know this as far as
2:02
Speaker 2: where we're heading here, this is John David Rainey who said, quote,
2:06
Speaker 2: if you haven't already seen it, referring to price increases,
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Speaker 2: it'll happen in May and then become more pronounced as
2:13
Speaker 2: we get into June. And so look, Walmart is the
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Speaker 2: I don't know if there's still the largest retailer in
2:21
Speaker 2: the country like them and Amazon, regardless of whether the
2:24
Speaker 2: largest or the second largest them in Amazon know more
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Speaker 2: about the individual buyer than anyone else in the world,
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Speaker 2: and by virtue of their size and the sheer volume
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Speaker 2: of stuff that they sell, they have a tremendous amount
2:43
Speaker 2: of pricing power to their suppliers, not as much. Do
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Speaker 2: you know what company actually has the most pricing power
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Speaker 2: with their suppliers? No Costco. Why So, here's the interesting
2:55
Speaker 2: thing about Costco. From talking with like people that actually
3:00
Speaker 2: do business with them, what they say is Costco only
3:04
Speaker 2: carries like five to ten percent of the skews of
3:08
Speaker 2: other major retailers skew is sku's. I forget what it
3:10
Speaker 2: stands for, but it's basically like how many different products
3:13
Speaker 2: you sell. So they sell a very narrow set of
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Speaker 2: products relative to a Walmart or a Target or an Amazon.
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Speaker 2: But the interesting thing is, because you have to buy
3:23
Speaker 2: in bulk, they sell a metric ton of volume in
3:27
Speaker 2: each of those and so the people that are selling
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Speaker 2: into them often a ton of their business comes through Costco,
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Speaker 2: and so Costco can basically beat them up and say,
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Speaker 2: you need to deliver the highest quality, the hot you know,
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Speaker 2: the best pricing that you can otherwisewise moving on. Otherwise
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Speaker 2: we're moving on for you weers. Walmart's kind of like, okay,
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Speaker 2: we sell like five of these a month. Who cares?
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Speaker 2: As long as we can make two percent on the thing,
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Speaker 2: you know, like it doesn't matter. So in any case,
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Speaker 2: Walmart has a ton of pricing power though, that they
3:59
Speaker 2: can use on their suppliers. And so when Walmart is
4:03
Speaker 2: telling you, hey, we are going to you know, have
4:07
Speaker 2: to see prices increase over the next month or so.
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Speaker 2: If Walmart can't keep prices down because of what we're
4:13
Speaker 2: seeing from a trade perspective, Gym's, you know, toy store
4:17
Speaker 2: is not going to be able to keep prices down
4:19
Speaker 2: because they don't have the same kind of pricing power.
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Speaker 3: Yeah, I'm trying to remember these stories from just earlier
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Speaker 3: this year where Walmart said, no, we are holding on prices.
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Speaker 3: We are not moving up. We are you know, in
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Speaker 3: spite of tariffs coming, we are going to be the
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Speaker 3: cheapest player out there.
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Speaker 2: And they did.
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Speaker 3: They held on prices and their volumes grew, right, Sales
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Speaker 3: rows four and a half percent year over year for Walmart,
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Speaker 3: which you know stands in start contrast maybe not to
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Speaker 3: Costco and to Amazon, but you think about other categories
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Speaker 3: in the cheap space, right, like McDonald's and other categories
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Speaker 3: in the cheap space.
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Speaker 4: Yeah right, that was a bad description.
4:57
Speaker 1: But the.
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Speaker 3: Lowest price point that's generally considered in any category. Walmart
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Speaker 3: maybe not the absolute lowest, but is looked at as
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Speaker 3: that discount retailer. McDonald's and others are looked at it
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Speaker 3: as the discount restaurant, and McDonald's other types of places
5:14
Speaker 3: have been struggling quite a bit. Walmart really grew sales,
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Speaker 3: and I think a lot of it had to do
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Speaker 3: with that value proposition of no, we're keeping prices low.
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Speaker 4: Sounds like that story's over.
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Speaker 2: Well. I think they're trying to thread a you know,
5:27
Speaker 2: a really tough needle right now. Because here's the thing.
5:29
Speaker 2: If you go and take a look at Walmart, they're
5:32
Speaker 2: operating margins, which is basically, hey, like, what is you know,
5:36
Speaker 2: the profit that you make relative to your sales? They're
5:39
Speaker 2: operating margins are four point three percent. There's not much
5:44
Speaker 2: to defend there. And by the way, that's not like
5:45
Speaker 2: a Walmart thing that's unique to them. Now, this is retail,
5:49
Speaker 2: Like this retail. This is the deal with with retail
5:53
Speaker 2: and how it works, Like you do not have wide
5:56
Speaker 2: operating margins if you go back to nighteen ninety, and
6:01
Speaker 2: I'm going back there just because it's it's the only
6:03
Speaker 2: period that, like, it's as far back as I have
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Speaker 2: data on Walmart. If you go back and look at
6:08
Speaker 2: Walmart's average margin since nineteen ninety, it's five point four percent.
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Speaker 2: And really it dipped in twenty fifteen, largely as they
6:18
Speaker 2: got into more competition with Amazon and Costco got bigger
6:21
Speaker 2: and stuff like that. But margins are in like the foes,
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Speaker 2: and especially you think it's also you know, more groceries
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Speaker 2: and those are lower margins, so that you know, drags
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Speaker 2: it as well. But when you have a four percent
6:32
Speaker 2: margin and your supplier comes to you and says, hey, costs,
6:38
Speaker 2: you're going up ten percent, which remember ten percent is
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Speaker 2: baseline from everything that you're importing, not everything that Walmart
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Speaker 2: makes is imported. A lot of the food that they
6:48
Speaker 2: sell is you know, domestic, domestically produced in everything. I'm
6:51
Speaker 2: actually curious, like, what are the biggest items for sale
6:54
Speaker 2: at Walmart other than food that are domestically produced.
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Speaker 3: There can't be many, no idea it's gonna be. It
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Speaker 3: cannot be many.
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Speaker 2: It's gonna be something really weird, like you know, upside
7:03
Speaker 2: down basketball's or something like that. Maybe not that weird.
7:08
Speaker 4: Yeah, yeah.
7:09
Speaker 2: Anyways, when you have a four percent margin, you don't
7:13
Speaker 2: have a ton of room for er. You don't have
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Speaker 2: a ton of margin for area if you will. They're
7:20
Speaker 2: trying to screw a very narrow line between hey, we're
7:23
Speaker 2: keeping prices low and we're doing everything we can, and
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Speaker 2: we have to defend this margin. Because here's the other
7:32
Speaker 2: thing about Walmart is and look, they can always go
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Speaker 2: out and you know say, okay, like we'll figure out,
7:40
Speaker 2: you know, some kind of way to raise cash if
7:43
Speaker 2: we need to. They've only got nine billion dollars in
7:46
Speaker 2: cash on their books, which for a company that does
7:52
Speaker 2: seven hundred billion dollars in revenue a year, that's not
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Speaker 2: a lot of cushion that you have out there. There's
8:00
Speaker 2: not a lot of cushion that you have out there.
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Speaker 2: Their free cash flow is twelve point six billion dollars.
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Speaker 2: So what it tells you is, look, if Walmart's net
8:09
Speaker 2: costs on average go up two percent, their free cash
8:13
Speaker 2: flow is gone. If they don't change prices, prices are
8:18
Speaker 2: going to be going up. And they told you this today,
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Speaker 2: and it's just because otherwise the math doesn't work Walmart.
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Speaker 3: The previous story was there's not going to be goods
8:26
Speaker 3: on shelves. That story is now dead, and it's now
8:29
Speaker 3: a story left. The stuff that is on shelves is
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Speaker 3: going to be pricier to some degree. And to your point,
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Speaker 3: Walmart does not have these giant margins where they're marking
8:40
Speaker 3: these things up three hundred percent, and so a large
8:43
Speaker 3: portion of that tariff is likely to be passed through.
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Speaker 3: What they're also trying to delicately thread here is avoiding
8:50
Speaker 3: the ire of the Trump administration. You remember when Amazone
8:55
Speaker 3: was it last months ago, a couple of weeks ago,
8:57
Speaker 3: proposed putting the tariff as a list on the actual
9:02
Speaker 3: price tag on the website, and they got a very
9:05
Speaker 3: Jeff Bezo has got a very quick call from President
9:08
Speaker 3: Trump saying don't let that happen, and they had to
9:10
Speaker 3: reverse course. So I think Walmart's acknowledging that, hey, prices
9:14
Speaker 3: are going to have to go up without being hugely
9:17
Speaker 3: explicit about how much and how they're going to place
9:21
Speaker 3: the blame.
9:22
Speaker 2: So where do these prices go? I think there's a
9:25
Speaker 2: pretty clear uh past, there's a pretty clear example of this,
9:29
Speaker 2: or a pretty clear outline of this. The Yale Budget Lab,
9:32
Speaker 2: who's been doing great work on the tariff situation all
9:35
Speaker 2: along over the last couple months. It really pains me
9:38
Speaker 2: to say something nice about the Yalees, but like they're
9:41
Speaker 2: doing a great job putting this together. So as of
9:45
Speaker 2: the new May twelfth tariffs, here's where the Yale Budget
9:48
Speaker 2: Lab thinks prices are going to go on different item categories.
9:53
Speaker 2: And you have to assume that a lot of these
9:55
Speaker 2: are going to be at Walmart simply because a they
9:57
Speaker 2: sell everything, and B A lot of what they sell
10:01
Speaker 2: is imported. It's not necessarily all from China. They don't
10:03
Speaker 2: have a ton of direct China exposure, but there's a
10:06
Speaker 2: lot of Vietnam and Pakistan and Malaysia and so on
10:08
Speaker 2: and so forth. Leather products anything from like wallets to
10:12
Speaker 2: jackets to if you're a leather pant person, hey have
10:15
Speaker 2: at it like you do you fifteen percent apparel fourteen percent, computer,
10:21
Speaker 2: electronic and optical equipment fourteen percent, textiles ten percent, motor
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Speaker 2: vehicles and parts nine point three percent. Some of this
10:31
Speaker 2: other stuff is like natural gas. I don't think Walmart
10:33
Speaker 2: sells that, but listen, you never know. Let's see what
10:37
Speaker 2: else falls in the category here, fishing, you know, like sure,
10:41
Speaker 2: if you're buying again, it's probably more of like a
10:43
Speaker 2: Dick sporting goods or you know, Bass.
10:45
Speaker 4: Pro shops that whole section.
10:46
Speaker 2: Yeah, of course they do one and a half percent,
10:50
Speaker 2: paper products two percent. Even again you start getting into food,
10:55
Speaker 2: cereal grains, processed rice one percent, vegetable oils one percent,
11:00
Speaker 2: stuff that's not really affected as much. When you you know,
11:04
Speaker 2: kind of go down the list, it's not really stuff
11:06
Speaker 2: that Walmart sells because it's again like I'm going through
11:11
Speaker 2: like the categories dwellings, no major changes. Well, of course,
11:15
Speaker 2: well Walmart doesn't sell you know, houses, electricity, Okay, Walmart
11:19
Speaker 2: doesn't produce electricity. So the stuff that is going to
11:23
Speaker 2: see the larger increases is kind of right where they are.
11:27
Speaker 2: Does it mean that prices go up exactly what the
11:29
Speaker 2: Ale Budget Labs specifies. No, Walmart's going to figure out
11:31
Speaker 2: how to do it, and they've got better pricing power
11:34
Speaker 2: than other companies, So figure maybe the increases are on
11:37
Speaker 2: the lower end of these numbers. You know, maybe instead
11:40
Speaker 2: of apparel prices up fourteen percent at Walmart, maybe they're
11:43
Speaker 2: up seven. But maybe other companies have to raise them
11:45
Speaker 2: fifteen or sixteen percent, and that's how you get to
11:47
Speaker 2: the average.
11:48
Speaker 3: But I think another point here is right now and
11:51
Speaker 3: for the next eighty five days or so, the biggest
11:54
Speaker 3: obsession is probably not with price when it comes to
11:57
Speaker 3: companies like Walmart for their suppliers.
11:59
Speaker 4: Is what I mean.
12:00
Speaker 3: When they are trying to get stuff, it's China, it's
12:04
Speaker 3: can I get it? And can I get it into
12:07
Speaker 3: the United States borders in the next eighty five days, yep.
12:10
Speaker 2: And most of what matters, And it's because no one
12:12
Speaker 2: knows what the situation is going to be after that.
12:14
Speaker 2: We don't know if tariffrates are going to come down further,
12:17
Speaker 2: which is a possibility. We don't know if they're going
12:19
Speaker 2: to go up higher, also a possibility. We don't know
12:22
Speaker 2: if they're going to stay the same, also a possibility.
12:25
Speaker 2: Remember on our Friday show last week, we talked about, Hey,
12:28
Speaker 2: going into these China negotiations, even though everyone's expecting a
12:31
Speaker 2: tariff rate of you know, fifty to sixty percent, could
12:34
Speaker 2: come in higher than that could come in lower. It
12:36
Speaker 2: came in lower, does that mean that that's where it
12:40
Speaker 2: comes in? You know, always as we go through these negotiations.
12:43
Speaker 4: No like it.
12:45
Speaker 2: I have no idea what we're going to be sitting
12:47
Speaker 2: here talking about ninety days from now. As far as
12:50
Speaker 2: the effect of tariff rate on China, would it surprise
12:53
Speaker 2: me if it goes down to ten percent? No, would
12:56
Speaker 2: surprised me. If it's still at thirty No, would surprise
12:58
Speaker 2: me if it goes back up to fifty four?
12:59
Speaker 1: No.
13:00
Speaker 2: Yeah, it's all all possibilities here. Let's take a quick
13:04
Speaker 2: break when we come back. Another thing that Walmart talked
13:07
Speaker 2: about today, artificial intelligence getting ready to do it's shopping
13:11
Speaker 2: for you. We'll talk about whether or not that's a
13:13
Speaker 2: good idea after this.
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14:13
Speaker 3: Chuck, we were talking before the break about Walmart and
14:16
Speaker 3: price increases that they mentioned on the Mistris earnings call.
14:20
Speaker 3: Whether it's Amazon, whether it's Walmart, you're talking about the
14:23
Speaker 3: two most famous retailers out there, both of which have
14:27
Speaker 3: pointed towards tariffs as driving up prices for consumers. Now,
14:30
Speaker 3: how much cover does this give everybody else to start
14:33
Speaker 3: raising prices?
14:34
Speaker 2: Right?
14:34
Speaker 3: We saw this during COVID, which was, Hey, you know,
14:38
Speaker 3: everyone's expecting prices to go up, and so we're going
14:41
Speaker 3: to raise them even if we're not affected by COVID
14:44
Speaker 3: because we can. And so, you know, discounts disappeared, any
14:49
Speaker 3: sort of you know, coupons at the grocery store went away,
14:52
Speaker 3: and prices went up substantially. And I wonder how much
14:56
Speaker 3: cover is being provided now because you do have the
14:59
Speaker 3: biggest ret tailor out there Walmart and arguably the most
15:02
Speaker 3: famous one out there, Walmart saying yeah, we're raising prices, Mike.
15:05
Speaker 2: Not only do companies that import a bunch of stuff
15:10
Speaker 2: have covered, now, companies that aren't impacted by tariffs right
15:13
Speaker 2: have covered. And we've seen this. If you look through
15:16
Speaker 2: some of the PMI reports, some of the Purchasing Manager
15:19
Speaker 2: Index reports that we get, and you read the commentary,
15:22
Speaker 2: you see an awful lot of, you know, companies that
15:25
Speaker 2: are quite literally admitting, hey, tariffs are giving us cover to,
15:30
Speaker 2: you know, raise prices even though we're not directly impacted
15:33
Speaker 2: by them.
15:33
Speaker 3: And this was a big theme during earnings calls during
15:35
Speaker 3: like the early twenty twenties, was hey, you know, we
15:39
Speaker 3: were impacted by COVID, but we were able to drive
15:41
Speaker 3: up prices more than this. You heard CEOs bragging about
15:44
Speaker 3: this as they would to their investors during that period
15:48
Speaker 3: of time. We haven't yet heard that this time around,
15:51
Speaker 3: and I'll be interested to see you won't see it
15:52
Speaker 3: for another.
15:52
Speaker 2: Course, they don't want to brag about it. Yeah, it's
15:55
Speaker 2: so two things make this a different environment. The first,
15:59
Speaker 2: the fiscal impulse for the over for the United States
16:03
Speaker 2: as a whole, is dramatically different. You don't have this
16:06
Speaker 2: huge jump in the deficit that has you know, resulted
16:09
Speaker 2: from giving people a bunch of money, right, and so
16:12
Speaker 2: given that, I think one of the questions is, hey,
16:16
Speaker 2: how much pricing power do companies actually have?
16:19
Speaker 3: Yeah, can consumers actually absorb these or are they going.
16:23
Speaker 4: To pull back?
16:24
Speaker 2: Because a key difference right now. At the time that
16:26
Speaker 2: we saw the last bout of inflation, wage growth was
16:29
Speaker 2: rocketing higher as well. You had wage growth heading depending
16:32
Speaker 2: on the metric you're looking at, anywhere from like five
16:34
Speaker 2: and a half to nine percent bumps in wage growth.
16:38
Speaker 2: Today you got wage growth slowing. Actually, I think the ECI,
16:41
Speaker 2: the employment uh whatever, the compensation whatever it is, I
16:45
Speaker 2: forget the exact name for it, but the ECI came
16:49
Speaker 2: in at three six. If you look at like the
16:51
Speaker 2: metrics from indeed in paychecks in those places, those show
16:56
Speaker 2: wage growth slowing as well into that range. The Atlanta
17:01
Speaker 2: Fed has a wage tracker. I'm pulling it up right now.
17:04
Speaker 2: So the Atlanta Fed has a wage growth tracker that
17:07
Speaker 2: right now is running at four three. In June of
17:12
Speaker 2: twenty two, it was at six seven. So it's been
17:14
Speaker 2: steadily coming down. So I think one of the key
17:18
Speaker 2: differences in this setup here, and this is why the
17:23
Speaker 2: chatter that's out there is for that you know, still
17:25
Speaker 2: vague and not vague, but that that remote possibility of
17:30
Speaker 2: any kind of extended stagflationary environment is, hey, if prices
17:34
Speaker 2: go up but you don't have wages moving up to offset,
17:39
Speaker 2: your standard of living effectively goes down. It's not the
17:44
Speaker 2: problem you know that we had in twenty twenty two.
17:47
Speaker 2: For a chunk of it was prices are rising faster
17:50
Speaker 2: than wages. But by the time he got past that
17:53
Speaker 2: initial impulse, it was just, hey, prices are going up
17:56
Speaker 2: like seven percent a year, wages are going up seven
17:58
Speaker 2: percent a year. I'm treading water. I'm not any better.
18:01
Speaker 4: Yeah, it doesn't feel good, but you're not worse off.
18:03
Speaker 2: The one that the possibility that you have out there,
18:05
Speaker 2: if the recent trends continue on wages are okay, wage
18:09
Speaker 2: growth slows back to you know, kind of the normal
18:12
Speaker 2: three and a half percent range, and if prices start
18:15
Speaker 2: moving up four five percent, now you've got you know,
18:19
Speaker 2: that situation we saw in the first half of twenty
18:21
Speaker 2: two that just sucked for everyone, which is okay, your
18:24
Speaker 2: real standard of living is going down.
18:27
Speaker 3: All of this kind of brings me to the conclusion
18:30
Speaker 3: that while Walmart may be raising prices, and we might
18:33
Speaker 3: see that show up in parts of the consumer price
18:36
Speaker 3: index reports that we get over the coming months, it's
18:40
Speaker 3: hard for me to envision a scenario where we have
18:44
Speaker 3: lasting inflation like we did in twenty one and twenty two.
18:49
Speaker 3: You might see a blip on the radar, prices bump up,
18:51
Speaker 3: but overall, unless there is some giant stimulus package coming,
18:56
Speaker 3: either in the form of tax decreases or direct stimulus,
19:00
Speaker 3: just don't see a path for inflation to take hold here.
19:05
Speaker 2: Probably not, I'd say probably, because inflation is one of
19:09
Speaker 2: those things. It's not physics. It doesn't you know, have
19:13
Speaker 2: you know, firm laws that are always in place, and
19:16
Speaker 2: it's such a complicated economic system that you never know
19:19
Speaker 2: exactly what's going to happen. But yeah, look, there is
19:22
Speaker 2: a chance if you look at this and view this
19:25
Speaker 2: through the lens of a tax increase from tariffs. Typically
19:28
Speaker 2: tax increases or deflationary because they create problems with demand.
19:32
Speaker 2: We'll see what happens. Quick Break Wall Street watches Next.
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Speaker 1: TFE Show Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look at what's moving markets so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: Zay on Wall Street and markets are in negative territory
20:02
Speaker 5: as Wall Street is sifting through retailer earnings from Walmart
20:06
Speaker 5: and their commentary on the impact they saw from tariffs.
20:09
Speaker 5: Investors also reacting to a new batch of economic data points,
20:13
Speaker 5: including the Producer Price Index, retail sales for April, and
20:17
Speaker 5: weekly jobless claims. On top of all that, FED chairman
20:21
Speaker 5: Jerome Powell spoke earlier this morning. Right now, the Dow
20:25
Speaker 5: is down by a third of a percent, or one
20:27
Speaker 5: hundred and forty five points. SMP five hundred also down
20:31
Speaker 5: about a third of a percent, or twenty one points,
20:33
Speaker 5: and the Nasdaq is down by just over eight tenths
20:36
Speaker 5: of a percent or one hundred and sixty four points.
20:38
Speaker 5: RUSS two thousand is off by half a percent. Tenure
20:41
Speaker 5: treasure reel down by three basis points at four point
20:44
Speaker 5: four to nine percent, and crude oiled down two point
20:47
Speaker 5: six percent, trading at sixty one dollars in forty eight
20:50
Speaker 5: cents a barrel. Walmart reported better than expected first quarter earnings,
20:54
Speaker 5: but fell just short of sale expectations. The retail giants
20:58
Speaker 5: CFO also that consumers could start to see higher prices
21:02
Speaker 5: as soon as later this month, passing along some of
21:05
Speaker 5: the cost of tariff impacted products. Walmart shares retreating by
21:10
Speaker 5: three percent. Meanwhile, major acquisition news in the retail space
21:14
Speaker 5: after Dick's Sporting Goods agreed to buy Footlocker for two
21:17
Speaker 5: point four billion dollars at twenty four dollars per share,
21:21
Speaker 5: implying an eighty six percent upside to the stocks price.
21:25
Speaker 5: Dick stock is down by fifteen percent, while shares and
21:28
Speaker 5: Footlocker are surging by eighty three percent. Elsewhere, appleed down
21:33
Speaker 5: by one percent after President Trump said he told CEO
21:36
Speaker 5: Tim Cook he didn't want the iPhone maker to produce
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Speaker 5: more of its devices for the US market. In India,
21:43
Speaker 5: Cisco's Systems up by five percent after the networking technology
21:47
Speaker 5: company beat street expectations for its quarterly results. The company
21:51
Speaker 5: also offered upbeat guidance for the full year. US listed
21:56
Speaker 5: shares of Ali Baba down by eight percent after the
21:58
Speaker 5: Chinese e commerce giant missed analyst forecast for its fiscal
22:02
Speaker 5: fourth quarter in United Health Group stock down sixteen percent
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Speaker 5: after the Wall Street Journal reported that the health insurer
22:10
Speaker 5: is being investigated by the Department of Justice for possible
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Speaker 5: Medicare fraud. I'm Tucker Silvan.
22:17
Speaker 1: That's Wall Street watch.
22:19
Speaker 2: Piece here in the Wall Street Journal and kind of
22:23
Speaker 2: riffing on Walmart, but you can apply this to any
22:27
Speaker 2: retailer and talking about the I don't want I don't
22:32
Speaker 2: know if expected is the right word, but the coming
22:36
Speaker 2: potential for AI agents to aid us in our shopping process. Now,
22:42
Speaker 2: an AI agent is basically an artificial intelligence program that
22:47
Speaker 2: doesn't just spit something back to you as far as like, hey,
22:51
Speaker 2: tell me a joke about Chuck like he's not funny,
22:54
Speaker 2: Like you know, it's not that. But an AI agent
22:58
Speaker 2: is an artificial intelligence program. They can actually go out
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Speaker 2: and execute different tasks for you in in in you know,
23:07
Speaker 2: kind of the virtual world. They know the first size
23:09
Speaker 2: it's not someone who can fold your laundry, but again,
23:12
Speaker 2: something who something that can go out and make a
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Speaker 2: purchase at Walmart dot com for you, or someone that can, uh,
23:20
Speaker 2: you know, look up different travel arrangements for you or
23:24
Speaker 2: things like that.
23:24
Speaker 3: And the first AI agents we started to see were
23:27
Speaker 3: AI customer service.
23:28
Speaker 4: Agents through different websites, you know.
23:31
Speaker 3: That can answer a basic set of inquiries as opposed
23:35
Speaker 3: to connecting you with a real, live human being. And
23:37
Speaker 3: though those are more frequently out there these days, although
23:41
Speaker 3: they can't actually do a whole lot, but this would
23:43
Speaker 3: be yeah, build a shopping cart.
23:47
Speaker 4: For X y Z.
23:49
Speaker 2: The example they give here is, you know, tell your agent,
23:51
Speaker 2: I want to build a unicorn theme party for my daughter,
23:54
Speaker 2: buy me the relevant stuff from Walmart. So a couple
23:58
Speaker 2: of things on this that that I think are again,
24:04
Speaker 2: I don't want to seem like the party pooper, but
24:07
Speaker 2: I'm gonna poop on the party.
24:09
Speaker 3: Okay, that's really a weird phrase when you put it
24:13
Speaker 3: that way.
24:13
Speaker 2: Well, just as an example, No, do you remember the
24:17
Speaker 2: girl that had the poop themed party a few years back?
24:19
Speaker 4: Yeah?
24:20
Speaker 2: Okay, imagine instructing your AI agent buy me stuff for
24:25
Speaker 2: a poop themed party. Can you see how that can
24:30
Speaker 2: go wrong?
24:31
Speaker 4: I don't.
24:32
Speaker 2: Yeah.
24:33
Speaker 3: So the end story here is that Walmart and other
24:37
Speaker 3: retailers are apparently thinking about how they might need to
24:40
Speaker 3: list items on their websites and market towards an AI
24:46
Speaker 3: bought that would actually be doing the shopping instead of
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Speaker 3: a real live human being, which is interesting and I
24:51
Speaker 3: don't know how they're going to do that. But to
24:53
Speaker 3: your point, I just don't know that this is what
24:56
Speaker 3: people want artificial intelligence for.
24:59
Speaker 4: People.
24:59
Speaker 3: Actually shopping is one of those things that people have
25:03
Speaker 3: a physical, like an actual psychological addiction to shopping. I
25:07
Speaker 3: don't know that it's something they want to send to
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Speaker 3: an artificial intelligence spot.
25:11
Speaker 2: And there's also the stuff where just as an example,
25:15
Speaker 2: one of the other things that they talk about is, hey,
25:17
Speaker 2: you could have you know, an AI agent that you
25:19
Speaker 2: know buys your groceries every week for you. Okay, well,
25:23
Speaker 2: what if I know that the grapes have been bad
25:26
Speaker 2: the last two weeks. No, I don't want to buy
25:27
Speaker 2: grapes anymore now. Granted, like I could message the AI agent, hey,
25:32
Speaker 2: don't buy grapes, but I don't know, Like, then you're
25:36
Speaker 2: getting into micromanaging it. Aren't you just building a shopping
25:38
Speaker 2: list that you would do anyways.
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Speaker 3: Yeah, I'm just not seeing the use case for this
25:43
Speaker 3: in shopping specifically.
25:46
Speaker 2: And here's the other piece that I then wonder about. Okay,
25:50
Speaker 2: they're obviously not going to do this for free, like
25:53
Speaker 2: operating an AI agent doesn't have no cost? How much
25:57
Speaker 2: of people willing to pay for this?
25:58
Speaker 5: Probably if it was warm, it would be part of
26:00
Speaker 5: their membership.
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Speaker 2: Okay, how much does that drive up the cost then?
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Speaker 1: Of that?
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Speaker 2: You know, these things aren't free? And and why is
26:08
Speaker 2: this better? You know, like, why is this something that
26:14
Speaker 2: is is better?
26:16
Speaker 4: Yeah?
26:16
Speaker 3: I don't see much of a compelling argument when it
26:19
Speaker 3: comes to shopping specifically. Look, plenty of things that AI
26:23
Speaker 3: is really good at. I think we might just be
26:25
Speaker 3: focusing on what are.
26:25
Speaker 2: The plenty ones? What are the plenty mic.
26:30
Speaker 4: Here's what AI guess narrowly. Yeah, you're right, it's not plenty.
26:33
Speaker 2: It's good at summarizing text back to you, and it
26:41
Speaker 2: can do some things in certain like niche cases where
26:44
Speaker 2: you have AI that's specifically programmed for certain tasks to
26:47
Speaker 2: provide you know, good starting points for what you want
26:50
Speaker 2: to do, think code generation and stuff like that or writing.
26:53
Speaker 2: You know that there's some stuff that it can do there.
26:57
Speaker 2: I just need to see more from to know that
27:00
Speaker 2: I can trust it with this stuff, because uhh.
27:04
Speaker 3: It's not to me. It's not a trust thing. It's
27:07
Speaker 3: I don't know why we're focusing it. It doesn't understand humanity.
27:11
Speaker 2: Like, just as an example, yesterday, I was asking it
27:16
Speaker 2: just I had something I was trying to work on,
27:19
Speaker 2: and I asked AI at one point to write me
27:23
Speaker 2: a joke about money, just because I was like, hey,
27:27
Speaker 2: like could jack.
27:28
Speaker 4: Nas be funny?
27:28
Speaker 2: I needed a lift. Here's what it came up with, client,
27:33
Speaker 2: Why is my portfolio so conservative? Advisor because it's shy
27:37
Speaker 2: around risk and prefers to keep its bonds close.
27:41
Speaker 4: That's not great.
27:42
Speaker 2: It doesn't even make sense. It's it's not it's it's
27:46
Speaker 2: not even coherent, Okay, Like it just doesn't make make
27:51
Speaker 2: any sense there. What is a what is an investment
27:57
Speaker 2: manager's favorite bedtime story Goldilocks in the three risk profiles? Yeah,
28:05
Speaker 2: so it's like it's not really there, Like it understands
28:09
Speaker 2: the words, but it doesn't understand why they're funny. Likewise,
28:13
Speaker 2: when we talk about something like grocery shopping, is it
28:17
Speaker 2: going to understand the why? Like, if if you tell it, hey,
28:22
Speaker 2: I'm making this recipe, is it going to know that
28:26
Speaker 2: if it includes basil, Hey, buy fresh basil and not
28:29
Speaker 2: the kind that is just you know in dry basil,
28:33
Speaker 2: the dry basil. Sure, yeah, fresh.
28:35
Speaker 5: As opposed to the seasoning.
28:37
Speaker 3: Yeah sure, Yeah, to me, it's simpler than that. I
28:41
Speaker 3: don't see the use case for tasks that most people
28:45
Speaker 3: enjoyed doing. I wouldn't ask artificial intelligence to go to
28:49
Speaker 3: the bar with my friends on a Friday night. I
28:51
Speaker 3: would probably not going to ask it to go shop
28:55
Speaker 3: at the mall for me. Hey, it's just I know,
28:58
Speaker 3: maybe I'm different than everybody else. I just I'm not
29:00
Speaker 3: getting it.
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Speaker 2: You're forgetting that You're not going to be sending the
29:04
Speaker 2: AI to the bar with your friends. You're gonna be
29:07
Speaker 2: hanging out with your AI friends. According to Mark Zuckerberg,
29:10
Speaker 2: because the average human has demand for fifteen friends and
29:13
Speaker 2: we only have three of them.
29:16
Speaker 4: If I had fifteen friends, that would be so exhausted.
29:19
Speaker 2: This is the thing about Mark Zuckerberg. He misses out
29:21
Speaker 2: like he does not understand humans. The problem is not
29:25
Speaker 2: that we don't have enough people that we like in
29:27
Speaker 2: our lives. It's that there's no time in the average
29:30
Speaker 2: person's life to maintain fifteen close friendships. So and in
29:38
Speaker 2: order to have that time, you either Okay, if if
29:43
Speaker 2: someone actually wants to invent an AI that is going
29:45
Speaker 2: to do what people want, go to the bar do
29:49
Speaker 2: our jobs for us so we can have all that
29:51
Speaker 2: free time, but still allow us to get paid for it,
29:54
Speaker 2: still pay me. Other than that, it's not gonna work.
29:57
Speaker 2: You're like, they're trying to take away the stuff that
29:59
Speaker 2: p people like. Let's get hammered. Oh, I'd love to
30:05
Speaker 2: What are we going to drink? What can I get
30:07
Speaker 2: you something? Are you interested to drink yourself? Yes? What
30:13
Speaker 2: do you think you would like to drink? I have
30:14
Speaker 2: to tell the bartender bud lights this. I'll get you
30:20
Speaker 2: a milk. How about that. Let's take a quick break.
30:22
Speaker 2: When we come back, we'll talk about j Powell. No milk, Okay,
30:26
Speaker 2: milk for Powell.
30:27
Speaker 1: Right after this breaking business and financial news first throughout
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31:21
Speaker 2: United Health Group and a Wall Street Journal exclusive. They
31:23
Speaker 2: are under criminal investigation for possible Medicare fraud. The stock
31:29
Speaker 2: has been hammered really bad even before this, so uh again,
31:35
Speaker 2: Like you look at where it stands right now. It's
31:38
Speaker 2: trading at two hundred and forty nine dollars a share.
31:40
Speaker 2: The really interesting thing, do you remember the beginning of
31:42
Speaker 2: the month when stocks were getting hammered, at the beginning
31:45
Speaker 2: of April where stocks were getting hammered, Yeah, right, Like
31:48
Speaker 2: it was really bad for stocks. Then United Health on
31:51
Speaker 2: April first opened at five point twenty five a share,
31:54
Speaker 2: and by the day after the tariffs were the reciprocal
31:59
Speaker 2: tariffs were put up on hold, it cleared six hundred
32:02
Speaker 2: dollars a share, So it went up twenty percent in
32:06
Speaker 2: the first week and a half of April. Since then
32:10
Speaker 2: I did the math based on I'm currently trading at
32:12
Speaker 2: two hundred and fifty dollars a share. It has lost
32:15
Speaker 2: fifty nine percent of its value in a month, which
32:20
Speaker 2: is bad, not great. So here here's the thing about
32:25
Speaker 2: United Health, Like again, their CEO is leaving. Now you've
32:29
Speaker 2: got this, that's that's coming out. The piece that's really
32:35
Speaker 2: kind of interesting to me is this one. If you
32:43
Speaker 2: are a company that uses United Health for your employees,
32:52
Speaker 2: how concerned do you have to be that any potential
32:56
Speaker 2: action by this criminal investigation impacts their ability to actually
33:03
Speaker 2: cover what they need to cover. Oh gosh, isn't that
33:07
Speaker 2: where Like that's where my mind went, Yeah, that's scary.
33:12
Speaker 2: The counterpoint to that is that, you know, it might
33:14
Speaker 2: be pretty systemically important Chuck, Well, they are. But here's
33:17
Speaker 2: the thing, Like everyone likes to rip on like big
33:20
Speaker 2: health insurance because quite honestly.
33:23
Speaker 4: Rip suck.
33:23
Speaker 2: Yeah, they don't actually make a lot of money on
33:28
Speaker 2: a per unit basis. It's just healthcare in the country
33:30
Speaker 2: so expensive that they make it up on volume. United Health,
33:34
Speaker 2: like you know, we talk about some businesses we're like, oh,
33:37
Speaker 2: and videos got like seventy percent margins or hey, like Visa, Like,
33:41
Speaker 2: what a great business to be and they got forty
33:42
Speaker 2: percent margins and no competition. United Health has eight percent margins. Like,
33:49
Speaker 2: they don't make a lot of money on what they do.
33:51
Speaker 2: It's just they do four hundred billion dollars in revenue
33:55
Speaker 2: a year. And so yeah, they make like twenty five
33:57
Speaker 2: billion dollars just because of that.
33:59
Speaker 3: Yeah, and they are, you know, especially dominant in that
34:02
Speaker 3: Medicare advantage plan space between them and Humanna. As of
34:06
Speaker 3: twenty twenty four, that made up just about half the
34:08
Speaker 3: market for Medicare advantage plans in general. And that's where
34:11
Speaker 3: they are being accused or not accused. They are being
34:14
Speaker 3: investigated for this fraud because effectively, the reimbursements that you
34:21
Speaker 3: get and from the Medicare system for your sick patients
34:25
Speaker 3: creates this big conflict of interest to diagnose sick patients
34:29
Speaker 3: and pertend to potentially over diagnose those sick patients.
34:32
Speaker 2: Now, I will note, according to this Wall Street Journal exclusive,
34:36
Speaker 2: United Health's in a statement it had not been notified
34:38
Speaker 2: by the Department of Justice of a criminal investigation. Regardless
34:42
Speaker 2: of that statement by them, the stocks down additional eighteen
34:45
Speaker 2: percent today.
34:45
Speaker 3: Yeah, outside of this we're talking about Medicare advantage plans.
34:50
Speaker 3: In this article they talk about basic Medicare versus Medicare advantage.
34:54
Speaker 3: I have to say, I don't know about you, Chuck.
34:56
Speaker 3: One of the most confusing topics for pre retirees is
35:01
Speaker 3: how their Medicare is going to work compared to employee
35:04
Speaker 3: health insurance. Everyone has it, and they eventually do you know,
35:07
Speaker 3: figure it out and understand how it all works, But
35:09
Speaker 3: it takes a little bit of getting used to. How
35:12
Speaker 3: are you eligible? When am I eligible? What if I
35:14
Speaker 3: lose my job or retire before I reach sixty five?
35:17
Speaker 3: Do I want an advantage plan versus a traditional Medicare plan?
35:21
Speaker 3: What's the difference? These are all really complicated before you
35:25
Speaker 3: even get to the fact that the average Medicare beneficiary
35:28
Speaker 3: has access to some forty three different advantage plans to
35:31
Speaker 3: choose from. It's complicated if you have questions about your
35:35
Speaker 3: eligibility for Medicare, how it's going to work within the
35:37
Speaker 3: confines of your long term retirement plan. Give the folks
35:40
Speaker 3: at arm Strong Advisory Group a call. We're not Medicare agents,
35:44
Speaker 3: but we're well versed on all of the different parts
35:46
Speaker 3: of retirement and Medicare is a huge one. If you're
35:49
Speaker 3: facing down retirement or maybe early before sixty five retirement
35:53
Speaker 3: and want to know how medicare is going to work
35:55
Speaker 3: with your social security and other assets to protect you
35:58
Speaker 3: and ensure a sound retirement. Give us a ring at
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Speaker 3: Armstrong Advisory Group at eight hundred three nine three four
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Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
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36:16
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
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Speaker 1: your own financial, tax, and estate planning advisors before making
36:22
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36:25
Speaker 1: advisory services.
36:27
Speaker 2: I have no idea how people can afford a kid.
36:29
Speaker 2: Why so many couples are having pets instead of children?
36:33
Speaker 2: That's the headline front on your pet. That's the headline
36:36
Speaker 2: from us this market watch.
36:38
Speaker 1: Yes.
36:38
Speaker 2: Yes, First of all, you can't have a pet. The
36:43
Speaker 2: human body cannot physically push a dog or cat out
36:47
Speaker 2: of it. Okay, so that's not what we call it.
36:51
Speaker 2: So I have issues with the headline right now.
36:53
Speaker 4: Yeah, beyond that or the person that they quoted you
36:57
Speaker 4: had a dog.
36:57
Speaker 2: Well, no, that's that's even before no idea how people
37:00
Speaker 2: can afford a kid. That's like you just walk into
37:02
Speaker 2: kmart and buy one, like oh yeah, like you hear
37:05
Speaker 2: this one's a blue light special, you know, like double
37:07
Speaker 2: it up. So here's the thing that I come back
37:10
Speaker 2: to on this. And this is not to say that
37:11
Speaker 2: like people were tougher in the olden days, but they
37:13
Speaker 2: were tougher in the olden days. My grandfather was one
37:17
Speaker 2: of eight kids living in a two bedroom apartment in
37:19
Speaker 2: New York. His parents didn't think about how are we
37:21
Speaker 2: going to afford these kids. They just went out and
37:23
Speaker 2: had them and then they lived wherever they could. And
37:25
Speaker 2: it wasn't a perfect life for them. It wasn't you know,
37:28
Speaker 2: all sunshine and puppy dogs and rainbows. But that's how
37:31
Speaker 2: they did it. And it's not to say that like
37:32
Speaker 2: we should all aspire to be eight, you know, ten
37:35
Speaker 2: people living in a two bedroom apartment. But there's always
37:39
Speaker 2: something that will stop you from having a kid. If
37:41
Speaker 2: it's concerned that you're not going to have enough money,
37:44
Speaker 2: you will never have enough money to have a kid. True,
37:47
Speaker 2: Like you the expenses always go up, so I just
37:52
Speaker 2: don't know that that should be why people decide to
37:55
Speaker 2: or not to have a child.
37:57
Speaker 4: Good reasons.
37:59
Speaker 3: I would make a terrible parent, and I'm terrified of
38:01
Speaker 3: children and i never want to have them. Exactly fantastic
38:03
Speaker 3: reason to not have a kid.
38:04
Speaker 2: Bad one. I'm nervous. I'm not gonna have enough money. Newsflash,
38:07
Speaker 2: you will never have enough money to have a kid.
38:10
Speaker 2: They are a bottomless pit of just sucking in the
38:13
Speaker 2: money that we still love for some reason, because they
38:16
Speaker 2: really are just awesome. Let's take a quick break here.
38:19
Speaker 2: When we come back, we got our two coming up
38:20
Speaker 2: in a little bit.