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Netflix continues on its path to streaming domination · The Financial Exchange Show

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Speaker 1: making a donation today. This is the Financial Exchange with
1:06
Speaker 1: Chuck Zada, and Paul Lane.
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Speaker 2: Our two here on the financial exchange. Chuck Paul Tucker
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Speaker 2: with you. We got stocks mostly up, but it's tech
1:17
Speaker 2: that is.
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Speaker 3: Kind of leading them.
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Speaker 2: Actually, when you take a look at the broad market
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Speaker 2: as a whole, the S and P five hundreds kind
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Speaker 2: of split. It's really just that tech is leading the
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Speaker 2: way here. But you've got the Dow up fifty three points,
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Speaker 2: about a tenth of a percent, SMP is up forty
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Speaker 2: points three, about two thirds of a percent. Nasdaq, which
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Speaker 2: is tech heavy, up about one and a quarter percent.
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Speaker 2: Two hundred and forty eight points in the Russell two
1:40
Speaker 2: thousand small cap companies actually down about half a percentage
1:44
Speaker 2: point at the moment. When we take a look at
1:47
Speaker 2: what is going on in bond world, tenure US Treasury
1:50
Speaker 2: up two point three basis points to four point five
1:52
Speaker 2: nine seven percent. Has been sliding down a little bit
1:56
Speaker 2: in terms of yields in the last couple of weeks,
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Speaker 2: really weak or so, but this finding some stability maybe
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Speaker 2: around that four point six range.
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Speaker 3: We take a.
2:06
Speaker 2: Look at oil where West Texas Intermediate is. It's seventy
2:10
Speaker 2: five eighty eight a barrel right now, up five cents
2:12
Speaker 2: on the day triple a National Avagur gas prices up
2:17
Speaker 2: very very modestly at three twelve and nine tenths of ascent,
2:21
Speaker 2: up three tenths of ascent from yesterday. And we've got
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Speaker 2: gold today now up twelve thirty ouns to twenty seven
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Speaker 2: seventy one and fifty cents, continuing its recent strong run
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Speaker 2: at this point, anything else catching your eye, Paul, before
2:39
Speaker 2: we go on to the thing that really caught my eye.
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Speaker 4: Netflix is catching my eye, man.
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Speaker 2: I gotta tell you, these guys are just absolutely cranking.
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Speaker 3: They really right now.
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Speaker 2: And I know that I know there's still just a
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Speaker 2: media company. And I say just a media company. It's
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Speaker 2: I feel like it's kind of okay to be skeptical
3:02
Speaker 2: of I don't know, just media companies in general and
3:05
Speaker 2: where their earnings are going to go. And certainly streaming
3:07
Speaker 2: has been kind of a mixed bag for different legacy
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Speaker 2: media companies. But for Netflix, this is a freaking monster quarter.
3:16
Speaker 2: They are just knocking to cover off the ball. Stocks
3:19
Speaker 2: up twelve percent on the news and basically they added
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Speaker 2: eighteen point nine million subscribers during the quarter. That was
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Speaker 2: almost double the number that was expected. And it is
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Speaker 2: a new quarterly record for editions of new subscribers.
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Speaker 4: And think about that, Chuck, when we were in the
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Speaker 4: midst of COVID and we're all stuck in our house
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Speaker 4: with nowhere to go. They beat those numbers. They did
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Speaker 4: about sixteen million of new subscribers in that quarter, which
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Speaker 4: there couldn't have been more pent up demand for their
3:51
Speaker 4: service to do nineteen million in this most recent quarter.
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Speaker 4: Like you said, it's just a blowout number, really just tremendous.
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Speaker 2: What I'm trying to figure out is why now, and
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Speaker 2: specifically y Q four, Netflix pointed to Hey, you know,
4:10
Speaker 2: Squid Game season two came out, but okay, like, are
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Speaker 2: there really that many people who weren't on Netflix before
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Speaker 2: who were like, I gotta catch season two on of
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Speaker 2: a show that I wasn't subscribed to for season one?
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Speaker 2: That doesn't really do it for me. They're also pointing
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Speaker 2: to the action thriller Carry On. Have either of you
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Speaker 2: watched this this movie on Netflix?
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Speaker 1: Yeah?
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Speaker 3: I thought it was good.
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Speaker 2: It's fine, It's like be action movie, like, it's it's fine.
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Speaker 2: But okay, like, were there a ton of people signing
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Speaker 2: up to watch that? I don't really know? So the
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Speaker 2: the WWE contract didn't start until Q one. January was
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Speaker 2: the first one there, so it's it's not like you
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Speaker 2: were like, hey, let me sign up for this in
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Speaker 2: December just to get the feel of it. Before then,
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Speaker 2: they did have those NFL games. Maybe that's it, but.
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Speaker 4: They yeah, and there Earnie support. They were saying that
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Speaker 4: none of those isolated events, whether it be Tyson versus Paul,
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Speaker 4: the fight that had sixty million streams, the NFL games,
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Speaker 4: they seemed to be inclined to say that none of
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Speaker 4: these individual events really drove a lot of additions from
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Speaker 4: new subscribers. It seems like statistically, fifty five percent of
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Speaker 4: the sign ups and countries where the ad Tier division
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Speaker 4: was available, that's where the subscriptions were coming from. So
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Speaker 4: of all new subscriptions where ad Tier was available, fifty
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Speaker 4: five percent of them were for that lower ad tier
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Speaker 4: price that was previously six ninety nine a month now
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Speaker 4: will be marked up to seven ninety nine a month.
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Speaker 4: So it does seem like the growth is coming from
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Speaker 4: that side of the business, the AD tier one, getting
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Speaker 4: more people on the platform at a lower price point.
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Speaker 2: Netflix also saying this is going to be the last
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Speaker 2: quarter that they disclose quarterly subscriber numbers that they had
5:54
Speaker 2: announced I think earlier last year.
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Speaker 4: This has been long telegraphed. They've had really multi quarterly
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Speaker 4: results in terms of their stock fluctuations. Eight out of
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Speaker 4: the last sixteen quarters, they've seen fluctuations up ten percent
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Speaker 4: or more, down ten percent or more. They feel I don't.
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Speaker 4: They didn't come out and say this, but there's speculation
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Speaker 4: that some of that subscriber growth numbers leads to that volatility.
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Speaker 4: They now sit at three hundred and two million subscribers.
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Speaker 4: There's also the contrarian argument you could make that they're
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Speaker 4: really not going to see how much more subscriber growth
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Speaker 4: can you really drive? And similar the iPhone They did
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Speaker 4: this back in twenty eighteen or twenty nineteen, where you
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Speaker 4: get so much significant market share that it's almost doing
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Speaker 4: your company a disservice to try and beat, you know,
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Speaker 4: nineteen million new subscribers into given quarter.
6:40
Speaker 3: Yeah, that's fair.
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Speaker 2: So the question for Netflix from here is is not
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Speaker 2: can they keep up that kind of growth because the
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Speaker 2: answer is no, They're not going to grow their subscriptions
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Speaker 2: by six percent.
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Speaker 3: Every quarter forever.
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Speaker 2: It's just it's it's not possible, but how quick We're
7:00
Speaker 2: not going to know how quickly they're growing them, but
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Speaker 2: you know what, what's the pace of growth that they
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Speaker 2: continue to see and can they figure out ways to
7:09
Speaker 2: you know, boost up the AD revenue on those AD tiers.
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Speaker 2: And what's the price point at which people finally say no,
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Speaker 2: I'm not subscribing to this anymore. Because right now you've
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Speaker 2: got a company that is worth four hundred and twelve
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Speaker 2: billion dollars with three hundred what'd you say?
7:24
Speaker 3: It was like.
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Speaker 4: Three two million?
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Speaker 2: Okay, So if you do the math out on this
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Speaker 2: and you look at it, you say, okay, so they're
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Speaker 2: worth you know, four hundred and twelve billion dollars. They've
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Speaker 2: got you know, three hundred and two million subscribers. You're
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Speaker 2: basically telling me that the company is being valued at
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Speaker 2: about thirteen hundred dollars per subscriber. That Like, again, I
7:52
Speaker 2: know this is not like a normal metric, but this
7:54
Speaker 2: is just how I'm thinking about this. So if you
7:58
Speaker 2: are going to action, you know, if you're looking at
8:03
Speaker 2: this from just a pure fundamental standpoint, you say, okay,
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Speaker 2: you're valued that much. If I wanted to invest in
8:09
Speaker 2: your company, how is it gonna take for you to
8:10
Speaker 2: pay me back? Given that the average subscriber is paying
8:14
Speaker 2: what like fifteen bucks a month something like that.
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Speaker 4: The premium they just bumped up to twenty five dollars
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Speaker 4: a month.
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Speaker 3: But the average one's probably like fifteen.
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Speaker 4: Yeah, I think like closer twenty. I gotta figure that out.
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Speaker 3: Okay, So it's one hundred and eighty bucks a year.
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Speaker 3: Call it.
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Speaker 2: So in order to generate thirteen hundred dollars of revenue
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Speaker 2: not profit, you're saying, okay, it's gonna take me seven
8:34
Speaker 2: years just to generate that in revenue. How hard is
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Speaker 2: it to pay that back? And this gets into like
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Speaker 2: your actual pees and price to sales ratio where the
8:41
Speaker 2: company right now it's fifty four times earnings, it's eleven
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Speaker 2: times sales, it's forty times forward earnings. It's nine and
8:48
Speaker 2: a half times forward sales. Steeply priced company. If you
8:51
Speaker 2: keep delivering quarters like this, here's the secret, it doesn't matter.
8:55
Speaker 2: Because that's what Amazon did for about fifteen years is
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Speaker 2: everyone kept saying, oh, Amazon's expensive, Amazon's expensive, and Amazon
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Speaker 2: kept saying, you're buying more crap on my website. I
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Speaker 2: don't care how expensive I am. Here's the earnings, not earnings.
9:08
Speaker 2: But here's like the revenue growth because everyone's buying stuff here.
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Speaker 2: If Netflix continues on the path that Amazon you know,
9:16
Speaker 2: went down, then this is all completely justified. It's probably
9:21
Speaker 2: a tough putt for them to do that. And so
9:24
Speaker 2: you kind of look at this and you go, all right,
9:26
Speaker 2: we're kind of getting like close to not not the
9:28
Speaker 2: peak in terms of price, but like the peak excitement
9:31
Speaker 2: about the company.
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Speaker 4: It's it's a tough put for them to do it because,
9:35
Speaker 4: unlike Amazon, Amazon had a profit spigot that they were
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Speaker 4: able to really build on, which was aws. They were
9:42
Speaker 4: able to operate their retail business that we're so familiar
9:45
Speaker 4: with in terms of the delivery trucks and getting your
9:47
Speaker 4: shampoo and deer and you know, deliver within in a
9:49
Speaker 4: couple hours or the next day because they had this
9:52
Speaker 4: other wing of profitability that we're operating at margins you know,
9:55
Speaker 4: upwards of twenty five or thirty percent compared to the
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Speaker 4: you know, couple percent that you operate on with the
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Speaker 4: Amazon Prime. Netflix doesn't really necessarily have that other lever
10:07
Speaker 4: to go to that's really high margin. I guess you
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Speaker 4: could make the argument that the ad tier business is
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Speaker 4: something that you know, they could build out because they
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Speaker 4: can just continue to disperse it among it's It doesn't
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Speaker 4: cost Netflix more to have four hundred million subscribers. You know,
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Speaker 4: their platform is what it is. They have done a
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Speaker 4: great job with that. Where their operating margins we're about
10:27
Speaker 4: nineteen percent five years ago, they now sit it close
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Speaker 4: to thirty percent. So continuing to build on those operating
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Speaker 4: margins would be great. But to your point, Chuck Tough
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Speaker 4: put in the sense that I don't really know if
10:36
Speaker 4: there's a real folkrum to drive those operating margins further.
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Speaker 4: Otherwise you got to drive up the revenue side, and
10:42
Speaker 4: that may be challenging as well when you have three
10:44
Speaker 4: hundred two million subscribers.
10:47
Speaker 3: Take a quick break here.
10:48
Speaker 2: When we return, we got trivia, and then we're talking
10:52
Speaker 2: United and their earnings release and also what's going on
10:55
Speaker 2: with mortgage rates.
10:57
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12:10
Speaker 2: United continuing the trend of strong airline earnings. They guided
12:15
Speaker 2: towards higher profits for the current quarter as well, and
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Speaker 2: so it continues to be something where Americans are spending
12:24
Speaker 2: a bunch of money on air travel and that trend
12:27
Speaker 2: is not going anywhere based on what the airlines are
12:30
Speaker 2: telling us.
12:31
Speaker 4: Yeah, this has been echoed by Delta as well. They
12:33
Speaker 4: came out with a bullish outlook for Q one and
12:36
Speaker 4: they're seeing just a better balance in terms of the
12:38
Speaker 4: travel demand that you were speaking of, as well as
12:41
Speaker 4: the flying roots that they have. Currently. This is the
12:43
Speaker 4: first time that United has turned to profit since Q
12:46
Speaker 4: one of twenty nineteen, and overseas travel accounted for about
12:50
Speaker 4: twenty percent of their revenue, So there still continues to
12:54
Speaker 4: be a significant demand for Americans to travel internationally and
12:58
Speaker 4: domestically as well. Backed by some earnings numbers, the United
13:02
Speaker 4: Airlines was up a whopping one hundred and thirty five
13:04
Speaker 4: percent last year. It's stock and you have Delta and
13:08
Speaker 4: Southwest moving in positive direction this morning as well. In
13:12
Speaker 4: the news on United Airlines's.
13:14
Speaker 3: Talk a little bit about mortgage rates.
13:16
Speaker 2: I think this is a juicy topic given that we
13:19
Speaker 2: are now about three weeks away from the Super Bowl,
13:21
Speaker 2: which is the unofficial start of the spring housing season
13:25
Speaker 2: these days. And according to Mortgage News Daily, the national
13:29
Speaker 2: average for thirty year fixed rate mortgages is at seven
13:32
Speaker 2: point eight percent, so still got a seven in the
13:36
Speaker 2: first digit there.
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Speaker 3: And you know, this is.
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Speaker 2: One where if you go back a year ago and say, hey,
13:44
Speaker 2: what did things look like back at this time in
13:47
Speaker 2: you know, twenty twenty four national average was at six
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Speaker 2: eight seven it rose as high as seven three eight
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Speaker 2: in mid April, and this was one of the things
13:57
Speaker 2: that kind of precipitated a slowdown in some economic data
14:00
Speaker 2: that we got over the summer, was rates moved up
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Speaker 2: and the economy slowed. Same thing has happened over the
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Speaker 2: last couple months here, and we're seeing some signs that
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Speaker 2: housing demand is weakening simply because people can't afford to
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Speaker 2: buy homes at these rates, these insurance premiums and these prices,
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Speaker 2: Like something has to give there, and it's probably not
14:20
Speaker 2: going to be insurance premiums, given what we've seen in
14:23
Speaker 2: California and Florida over the last six months. So it's
14:27
Speaker 2: got to either be rates or prices. And the case
14:30
Speaker 2: for interest rates moving down is, hey, you've got to
14:34
Speaker 2: have either a slow down in economic activity or some
14:38
Speaker 2: convincingly better data on inflation. And right now, the inflation
14:43
Speaker 2: data is kind of just floating around, you know, two
14:46
Speaker 2: and a half to three percent, and the economic data
14:50
Speaker 2: has continued to be good for the last few months now.
14:54
Speaker 2: And so how do you get to lower mortgage rates
14:58
Speaker 2: if you're not having those things happen? So I suspect, unfortunately,
15:03
Speaker 2: you're probably stuck in like the six seven five to
15:06
Speaker 2: seven two five range on mortgages for the spring housing
15:09
Speaker 2: season unless you see either some kind of collapse to
15:13
Speaker 2: the downside in the US economy, which doesn't really look
15:16
Speaker 2: like it's showing up right now, doesn't look likely at
15:18
Speaker 2: the moment, and or unless you see some you know,
15:22
Speaker 2: return to the upside on inflation, in which case rates
15:24
Speaker 2: are going higher, which is not great. But if you're
15:28
Speaker 2: a home buyer heading into this this spring housing season,
15:31
Speaker 2: I think ultimately you're gonna find that your affordability is
15:36
Speaker 2: really stretched, and at least in the Northeast, inventory is
15:41
Speaker 2: still low enough that you're not really seeing much pricing
15:43
Speaker 2: pressure to the downside if you do live in other
15:46
Speaker 2: parts of the country we are seeing in Florida, in
15:50
Speaker 2: places like Austin, Texas and parts of Georgia, you're seeing
15:53
Speaker 2: downward price pressures because there's inventory that now is you know,
15:58
Speaker 2: quite high, and so the it just can't clear it
16:01
Speaker 2: those prices. But again, not everyone who is living in
16:05
Speaker 2: Florida or Georgia, you know, Tennessee or it's the Northeast
16:09
Speaker 2: does not have enough inventory still, and so there's not
16:12
Speaker 2: enough pressure to push prices down.
16:13
Speaker 3: So it's just, hey, this is what it is.
16:16
Speaker 4: There's a number of factors working against you. You mentioned
16:19
Speaker 4: a couple of them. You know, part of this thirty
16:22
Speaker 4: year fixed mortgage crusting over seven percent again is tethered
16:25
Speaker 4: right to the US tenure Treasury, which was about three
16:28
Speaker 4: point six percent back in September, got up as high
16:31
Speaker 4: as close to about four point eight percent, but now
16:33
Speaker 4: sits around four point five or four point six. You've
16:36
Speaker 4: got two factors going here. Where one the premium, basically
16:40
Speaker 4: the spread between the US ten year Treasury and thirty
16:43
Speaker 4: year fixed mortgage rates. It's at a higher level than
16:46
Speaker 4: it's been in the past. From nineteen ninety to twenty nineteen,
16:49
Speaker 4: there was about a one point seven percent differential between
16:52
Speaker 4: the US ten year Treasury and the average thirty year
16:55
Speaker 4: fixed mortgage rate. That spread now sits at two point
16:58
Speaker 4: four percent between the US Tenure Treasury and where we
17:01
Speaker 4: sit on the thirty year fixed mortgage side of things. So,
17:04
Speaker 4: with that elevated premium, limited inventory, as you mentioned, it
17:08
Speaker 4: just doesn't seem like there is really any significant positive
17:11
Speaker 4: catalyst for the housing market come the spring here.
17:15
Speaker 2: And look, there still is some time for you know,
17:18
Speaker 2: some potential improvement. But I had someone asked me the
17:20
Speaker 2: other day they were looking at, you know, potentially buying
17:23
Speaker 2: a place to this spring, and they're like, do you
17:24
Speaker 2: think mortgage rates are going to get back down in
17:26
Speaker 2: the fives?
17:27
Speaker 3: And Mike and I have talked.
17:29
Speaker 2: About this before, but the only path I see to
17:31
Speaker 2: rates down in the fives is if the US goes
17:33
Speaker 2: in recession. Yes, And if the US goes in recession,
17:36
Speaker 2: there's no guarantee that person who's looking for the home
17:38
Speaker 2: hasn't lost a job and now can't buy the new
17:40
Speaker 2: home that they thought they were going to get, you know,
17:43
Speaker 2: at lower rates. But yeah, mortgage rates back in the
17:46
Speaker 2: fives just a tough putt to get there. I think
17:50
Speaker 2: a lot would have to go wrong with the US
17:51
Speaker 2: economically to the point where, yeah, you're probably in recession.
17:56
Speaker 2: If you're seeing mortgage rates back in the fives for
17:59
Speaker 2: any extended period of time. Maybe you could get there
18:02
Speaker 2: if like things went just right, like the economy slowed
18:06
Speaker 2: but not quite into recession. But I don't think you
18:09
Speaker 2: really want to play chicken with with recession. It's it's
18:12
Speaker 2: not something to uh to sneeze at and just be like, oh, well,
18:15
Speaker 2: maybe we can escape.
18:17
Speaker 4: Yeah, you mean you'd be talking about the US ten
18:19
Speaker 4: year treasure. I was just looking at that would be
18:21
Speaker 4: and have to be down around two and a half
18:22
Speaker 4: percent or something like that, you know, to see that
18:25
Speaker 4: significant of a fall to get to the five percent
18:27
Speaker 4: level if we're talking five so like not oh not
18:30
Speaker 4: just five flows yeah, but whatever, you know, even if
18:33
Speaker 4: it was that three and a half, that's it's a
18:37
Speaker 4: pretty significant drop. You got a year to get there
18:39
Speaker 4: off of a policy initiatives that are likely going to
18:42
Speaker 4: be adding to the US debt.
18:44
Speaker 2: So that's what we've got going on with mortgage rates
18:47
Speaker 2: at the moment. Taking an updated look at markets, that
18:49
Speaker 2: is now up eighty nine points, so stretching its legs
18:52
Speaker 2: a little bit. The S and P also up forty
18:53
Speaker 2: four points, and Nasdaq up two hundred and seventy two
18:57
Speaker 2: So all three major US indices seeing some good positive
19:01
Speaker 2: movement as we continue through the week. Here, we're gonna
19:05
Speaker 2: take a quick break, but when we come back, I'm
19:08
Speaker 2: gonna get to a few comments from Jamie Diamond, the
19:11
Speaker 2: CEO of JP Morgan Chase, is out in Davos at
19:15
Speaker 2: an event that I'm never invited to and quite honestly, like,
19:19
Speaker 2: I don't know if i'd really have I bet i'd
19:21
Speaker 2: have a good time there. It looks very picturesque, you know,
19:24
Speaker 2: And I'm sure the drinks are great, definitely, especially at
19:27
Speaker 2: altitude beautiful. It's wonderful. Let's take a quick break and
19:30
Speaker 2: we'll talk Jamie Diamond's comments after this.
19:43
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20:09
Speaker 5: Trigger question today was which college did Caitlin Clark play
20:13
Speaker 5: basketball for?
20:14
Speaker 3: That would be Iowa.
20:15
Speaker 5: Caitlin Clark spent four years at the University of Iowa
20:19
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20:22
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20:27
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20:40
Speaker 2: So Jamie Diamond out in Davos and doing his thing
20:44
Speaker 2: out there and Diamond, who's the CEO of JP Morgan
20:47
Speaker 2: Chase gets interviewed on a wide variety of topics whenever
20:51
Speaker 2: he goes to these things because we JP Morgan Chase
20:54
Speaker 2: has great insight into what's going on with the US
20:58
Speaker 2: and world financial system. They have so many customers and
21:02
Speaker 2: clients that they they see just about everything. They're huge,
21:07
Speaker 2: and Diamond has been there. It's got to be like
21:09
Speaker 2: close to twenty years now.
21:11
Speaker 4: I think, Yeah, he's through the financial crisis, so that
21:13
Speaker 4: puts him bad fifteen plus, so it's got to be
21:15
Speaker 4: close to twenty. He's one of the longest tenured CEOs
21:18
Speaker 4: in the financial sector out there. It's probably him and Moynihan,
21:22
Speaker 4: I would think is the longest.
21:23
Speaker 2: Did mornihand cam He came on in like twenty ten, Right,
21:26
Speaker 2: he's posted a countrywide and all the issues in the
21:28
Speaker 2: Bank of America.
21:29
Speaker 3: Who's the guy beforehand? Kendulo? No, the guy, Uh.
21:35
Speaker 2: It was Angelo whatever his name was. The guy from
21:37
Speaker 2: country Wide took over his right.
21:40
Speaker 4: What was his name, Ken Lewis, Let's see, he was one,
21:45
Speaker 4: but maybe Angelo Mozillo? Yeah was he it?
21:48
Speaker 3: So?
21:48
Speaker 1: He?
21:49
Speaker 3: Oh?
21:49
Speaker 2: No, sorry, he was just the country wide CEO. He
21:53
Speaker 2: was the countrywide CEO when they got sold to Bank
21:55
Speaker 2: of America to try to save it, and it still
21:57
Speaker 2: ended up blowing up the financial system.
21:59
Speaker 3: So there's that anyways.
22:03
Speaker 2: So Jamie Diamond, they asked him, you know, hey, what's
22:05
Speaker 2: going on with you know, the stock market and so on.
22:08
Speaker 2: He says, quote, asset prices are kind of inflated by
22:10
Speaker 2: any measure in the top ten or fifteen percent of
22:12
Speaker 2: historical valuations. So yeah, they're elevated, and you need fairly
22:16
Speaker 2: good outcomes to justify those prices. Having pro growth strategies
22:19
Speaker 2: helps make that happen. But there are negatives out there
22:21
Speaker 2: and they can tend to surprise you. And he goes
22:26
Speaker 2: on to say, I have a little bit of caution
22:27
Speaker 2: about a bunch of subjects. What I'm a little cautious
22:30
Speaker 2: about is the deficit spending. It's a global one, not
22:32
Speaker 2: just an American issue. And the related question will inflation
22:35
Speaker 2: go away? I'm not so sure. So, yeah, he's got
22:37
Speaker 2: a few things out there, Diamond. Again, even though they
22:41
Speaker 2: see a lot of stuff, and you know, sometimes he
22:42
Speaker 2: has strong opinions on it, he's not always right. So
22:45
Speaker 2: this is one thing that I come back to he's
22:47
Speaker 2: the one who back in the fall. He's one of
22:50
Speaker 2: the people back in the fall of twenty twenty two
22:52
Speaker 2: thought recession was imminent and that there was going to
22:54
Speaker 2: be I think he said, like there's a hurricane coming,
22:57
Speaker 2: and it ultimately didn't materialize. So I think that this
23:01
Speaker 2: is something where you take what he says with again
23:04
Speaker 2: a grain of salt. But it's always interesting just to
23:06
Speaker 2: hear his view, even if he's not always right, just
23:08
Speaker 2: because even if he's not right, he's still pretty well
23:11
Speaker 2: informed about what's going on, and he sees just a
23:15
Speaker 2: ton of stuff coming across his desk, and so I
23:17
Speaker 2: think that's kind of valuable.
23:19
Speaker 4: Yeah, he's, you know, one of the best financial executives
23:22
Speaker 4: you've probably had of the last Like I looked back,
23:25
Speaker 4: he's all close to twenty years a CEO of JP Morgan,
23:28
Speaker 4: so he's had a really long tenure of being extremely
23:30
Speaker 4: successful with the company. So you absolutely value his opinion.
23:34
Speaker 4: And he is extremely well informed on what's going on
23:36
Speaker 4: in markets, and he's not wrong that markets are very pricey. However,
23:41
Speaker 4: you look at it from a metric perspective, there are
23:44
Speaker 4: probably more risks out there than there are positives. Cases
23:49
Speaker 4: for the market going forward. So all taken, you know,
23:52
Speaker 4: all taken into consideration now.
23:55
Speaker 2: Diamond also was asked during his interview with CNBC. He
23:58
Speaker 2: was asked about his thoughts on bitcoin. And it's these
24:02
Speaker 2: moments that I really do like Jamie Diamond because he's
24:06
Speaker 2: been really consistent on on this at least you know,
24:10
Speaker 2: a lot of the other bank executives now where you know,
24:12
Speaker 2: Mornihan was interviewed the other day and they asked him
24:15
Speaker 2: about crypto and he's like, yeah, like we'd love to
24:17
Speaker 2: get into crypto payments if you know it's deemed you know,
24:20
Speaker 2: legal or whatever. Just like chomping at the bit to
24:22
Speaker 2: try to get you know, whatever they can there. Diamond
24:25
Speaker 2: asked about bitcoin on CNBC. I'm not talking about bitcoin.
24:29
Speaker 2: You guys talk about it plenty, just like you used
24:30
Speaker 2: to talk about AOL all the time. It's like, oh,
24:34
Speaker 2: like that's that's a good one right there. I like that,
24:38
Speaker 2: I do have to say. So occasionally he comes through with, uh,
24:41
Speaker 2: with something like that, and you know that, Uh, that's
24:45
Speaker 2: kind of nice to see, I guess.
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25:51
Speaker 2: The rich and famous don't fear a stock market bubble.
25:54
Speaker 2: That's why you should is the headline from market Watch,
25:59
Speaker 2: and it it's h kind of a horrible headline quite honestly, Like,
26:03
Speaker 2: just okay, so are there you know, scientific studies showing
26:07
Speaker 2: that when the people who attend davos or bullish that
26:10
Speaker 2: the market goes down.
26:11
Speaker 3: No, there are no such things.
26:13
Speaker 2: Instead, you have a piece here that says, hey, like
26:16
Speaker 2: how highly valued or stocks relative to their historical averages?
26:20
Speaker 2: And it makes the point, Yeah, like stocks are, as
26:23
Speaker 2: Jamie Diamond just said, pretty much near the top of
26:26
Speaker 2: historical valuations as far as things like PE ratio, dividend
26:31
Speaker 2: yield price to sales ratio, something called the Q ratio.
26:34
Speaker 3: Have either of you ever? What the heck is the
26:36
Speaker 3: Q ratio?
26:38
Speaker 4: How good the market looks?
26:39
Speaker 3: No, I'm qute, not cute?
26:41
Speaker 4: I have it is a financial ratio that compares the
26:45
Speaker 4: company's market value to its replacement cost.
26:47
Speaker 3: What does that even mean? What's the replacement cost of Apple?
26:53
Speaker 2: What does that mean? What's the replacement cost of TikTok.
26:58
Speaker 5: Measures whether a firm or or aggregate market is relatively
27:01
Speaker 5: over armed a valued I've.
27:03
Speaker 3: Never heard of the Q ratio. Now maybe that I
27:06
Speaker 3: don't know how.
27:08
Speaker 4: Replacement value?
27:09
Speaker 2: Maybe that's a reflection on me. Okay, that's that's fine.
27:11
Speaker 2: You can only know so much about so much, but
27:14
Speaker 2: never even heard of that.
27:17
Speaker 3: Again.
27:17
Speaker 2: It goes through all these things and basically says, yes,
27:19
Speaker 2: this market's overvalued. We've known about this. This market has
27:23
Speaker 2: been overvalued for a little while now, and valuation is
27:28
Speaker 2: a horrible timing metric. Back in nineteen ninety seven, Alan Greenspan,
27:31
Speaker 2: then Chair of the Federal Reserve, gave his famous speech
27:34
Speaker 2: talking about the market's irrational exuberance. Market didn't peak for
27:38
Speaker 2: the next three years. We got all the way through,
27:41
Speaker 2: you know, ninety seven, ninety eight, ninety nine, even part
27:43
Speaker 2: of two thousand before things finally said, yeah, we're gonna
27:46
Speaker 2: roll over for good. And I'm not sitting here telling
27:49
Speaker 2: you all like you should be all bullish and everything.
27:52
Speaker 3: No, but much more.
27:53
Speaker 2: Hey, just because something's expensive doesn't mean it's inherently going
27:58
Speaker 2: to get cheaper immediately, and in fact, it might continue
28:01
Speaker 2: to go up in price before it finally corrects. You
28:05
Speaker 2: have no idea just based on whether something is expensive
28:09
Speaker 2: or not. One of my favorite lines, the opposite's true. Also,
28:12
Speaker 2: by the way, one of my favorite lines in investing.
28:15
Speaker 2: Paul You've probably heard this a million times, So I'm sorry,
28:18
Speaker 2: how does a stock lose seventy five percent but it
28:22
Speaker 2: loses fifty percent and then it loses fifty percent again,
28:26
Speaker 2: So you lose that first fifty percent, you're like, oh,
28:28
Speaker 2: this is cheap, and then it goes down another fifty
28:31
Speaker 2: and you're like, oh, like this is cheaper, and then
28:32
Speaker 2: it Just because something has moved in one direction does
28:36
Speaker 2: not inherently mean that it's going to move in the other,
28:39
Speaker 2: you know, at any particular point in time. So, yes,
28:43
Speaker 2: this is an expensive market. It is something where the
28:47
Speaker 2: historical comps are starting to get a little bit nutty,
28:51
Speaker 2: But that doesn't mean it can't get nuttier. And so
28:54
Speaker 2: if you make your investment decisions based on this market
28:57
Speaker 2: Watch piece by Mark Hulbert, are you going to be
29:00
Speaker 2: eagerly waiting for Mark's next piece saying when it's time
29:04
Speaker 2: to buy? What if he doesn't publish that? You know, like,
29:08
Speaker 2: what if he just doesn't write it for some reason?
29:10
Speaker 2: So I always these pieces always bother me a little bit.
29:16
Speaker 2: And again, I just think that there's someone out there
29:20
Speaker 2: who probably read this and is like, oh, gee, this
29:22
Speaker 2: is a bubble and I need to sell everything and
29:25
Speaker 2: maybe they're right, maybe like this is the top, but
29:28
Speaker 2: this is a horrible way to make that decision by
29:31
Speaker 2: reading this piece.
29:33
Speaker 4: And tie into people attending Davos.
29:35
Speaker 2: Yes, who cares what they think? Like they're not super geniuses.
29:40
Speaker 2: There are plenty of billionaires that lost a lot of
29:42
Speaker 2: money in the financial crisis because they were like completely wrong.
29:46
Speaker 2: There are plenty of them that made a bunch of
29:48
Speaker 2: money in the last few years because they were right
29:50
Speaker 2: about the market running up. So I don't know, Like,
29:53
Speaker 2: no one's right or wrong all the time, and who
29:57
Speaker 2: cares what the people at Davos think about what the
29:59
Speaker 2: market's doing?
30:00
Speaker 3: Take a quick break when we come back.
30:02
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31:12
Speaker 3: Paul, what do you got for me? For stack Roulette?
31:15
Speaker 4: Bonds used to make sense for your portfolio, but does
31:19
Speaker 4: perhaps cash look to be the better option? Is a
31:21
Speaker 4: piece that was covered in barrens and also a fall
31:26
Speaker 4: up piece in a similar vein. Bonds had their worst
31:28
Speaker 4: decade in ninety years. What we've seen over the course
31:32
Speaker 4: of the last several years is a very low interest
31:36
Speaker 4: rate environment in COVID in twenty twenty and twenty twenty one,
31:39
Speaker 4: where you had the US ten year treasury I believe
31:41
Speaker 4: as low as three quarters of a percent now we
31:43
Speaker 4: sit with the US tenure Treasury at four point six
31:46
Speaker 4: or four point seven percent. As a result, anyone who
31:49
Speaker 4: held long term bronze really was being up significantly, particularly
31:54
Speaker 4: in twenty twenty two, versus cash, which has increased very
31:58
Speaker 4: significantly over the course to the last couple of years. Ultimately,
32:01
Speaker 4: you know, the way that we look at this from
32:03
Speaker 4: a portfolio perspective, bonds are typically, you know, supposed to
32:08
Speaker 4: be a means of safety. They're supposed to have less
32:10
Speaker 4: deviation in terms of the returns that they provide. But
32:13
Speaker 4: the idea of it being you know, an optical time
32:17
Speaker 4: to buy into bonds now just because they've been beaten
32:19
Speaker 4: up before, it echoes the sentiment that we were going
32:22
Speaker 4: through before prior to the break, with this idea that
32:25
Speaker 4: you never know what the right time is to buy
32:28
Speaker 4: into the markets, whether they could look cheap but could
32:31
Speaker 4: only fall further, And the same thing on the upside
32:34
Speaker 4: front in terms of the expense, The same thing applies
32:37
Speaker 4: if you're trying to make an interest bet on interest rate,
32:39
Speaker 4: bet on long term rates. You just never know. Really,
32:42
Speaker 4: it's all about building an allocation that you, as a
32:44
Speaker 4: client or an investor can feel comfortable with.
32:47
Speaker 2: I think also it's important to remember that, Look, it's
32:51
Speaker 2: not something where even in a very favorable period for bonds,
32:55
Speaker 2: you know, the nineteen eighties through twenty twenty, it's not
32:59
Speaker 2: like they were just a lamb dunk to make money
33:01
Speaker 2: all the time. These are the annual returns for bonds
33:03
Speaker 2: since nineteen eighty This is the Bloomberg Aggregate Bond Index
33:07
Speaker 2: two point seven one six point twenty five. Okay, those
33:09
Speaker 2: seem like bond like returns nineteen eighty two thirty two
33:12
Speaker 2: point six two percent. Remember you're getting like a fifteen
33:15
Speaker 2: percent yield, plus yields came down, so you just made
33:17
Speaker 2: a ton eight point three five, fifteen point one five
33:20
Speaker 2: twenty two point one, fifteen point twenty six. Yeah, you're
33:23
Speaker 2: probably not gonna see returns like that ever. Again in bonds,
33:26
Speaker 2: like it's like five out of four out of five
33:30
Speaker 2: years north of fifteen percent. It's insane, Like, okay, like, yeah,
33:34
Speaker 2: that's not realistic. But then you start to like continue
33:37
Speaker 2: to go on. You get to the nineties in particular,
33:39
Speaker 2: eight point nine six sixteen percent seven point four nine
33:43
Speaker 2: point seven five minus two point nine two eighteen point
33:47
Speaker 2: four six three point six four nine point six four
33:50
Speaker 2: eight point seven minus point eight two. So the nineties
33:52
Speaker 2: had two years where you lost money on bonds, like
33:55
Speaker 2: it was just you know, kind of how it was.
33:57
Speaker 2: Then the two thousands very very stable, aside from kind
34:01
Speaker 2: of the tech bubble where yields were higher three six three,
34:04
Speaker 2: four one oh two, four point one two, six point
34:08
Speaker 2: nine seven, five point two four, five point nine three, like,
34:11
Speaker 2: very consistent, but that's kind of the outlier. Aside from that,
34:15
Speaker 2: you're you're kind of all.
34:16
Speaker 3: Over the place.
34:17
Speaker 2: And I think this is the thing to remember about
34:20
Speaker 2: bonds is yeah, they do have some gravity and that
34:22
Speaker 2: you have a yield that's pulling you towards you know
34:25
Speaker 2: where you know you're you're going to eventually end up.
34:29
Speaker 2: But bonds don't. They're not designed to just make you
34:32
Speaker 2: the same return each year. Like the prices will and
34:35
Speaker 2: do fluctuate, and that is something that is normal. They're
34:39
Speaker 2: supposed to fluctuate less than the overall stock market, but
34:43
Speaker 2: it doesn't mean that they just they never move. And
34:46
Speaker 2: I think there's sometimes that misconception about that and that's
34:50
Speaker 2: just not true based on what we've seen historically.
34:52
Speaker 4: Was it down fourteen percent and twenty two, what's twenty two,
34:55
Speaker 4: twenty three, twenty.
34:56
Speaker 2: Four, I can, I can pull the site I was
34:59
Speaker 2: reading stopped in twelve one. It was on somewhere in
35:03
Speaker 2: fourteen or fifteen. Yeah, and then the last couple of years.
35:06
Speaker 4: Been hard to recover that, I mean, because it's been
35:08
Speaker 4: a couple percent. I believe it's two percent last year
35:11
Speaker 4: on for twenty four on the bond index, and I
35:13
Speaker 4: forget on twenty three. But it's very minimal, like.
35:16
Speaker 2: Modest, like low single digits somewhere in that ballpark. So yeah,
35:19
Speaker 2: it's again it's something where you have the potential for
35:25
Speaker 2: you know, some some downside on bonds quite honestly.
35:28
Speaker 1: But.
35:30
Speaker 2: They also tend to be to a certain extent. And
35:33
Speaker 2: it again, it depends what kind of longer term secular
35:36
Speaker 2: trend that you're in based on, you know, kind of
35:39
Speaker 2: where yields were starting and things like that. But in
35:43
Speaker 2: this economy you kind of feel, okay, there's somewhat self
35:46
Speaker 2: correcting in that if yields go too high, it's going
35:48
Speaker 2: to slow the economy too much, and so that tends
35:51
Speaker 2: to bring yields back down then, which might speed it up,
35:53
Speaker 2: which pushes them up. So again it's It's just something
35:58
Speaker 2: to understand about how bond actually work. Where the prices
36:02
Speaker 2: do move around, they don't just stay in the same
36:04
Speaker 2: place forever, and you've got to understand where they fit
36:08
Speaker 2: as part of your overall portfolio. I want to talk
36:12
Speaker 2: about this story. I saw this one last week. The
36:15
Speaker 2: Olympic medals from Paris. They are tarnishing apparently already, which
36:22
Speaker 2: the Paris Olympics, if I'm correct, they were six months.
36:25
Speaker 3: Ago, right, yes?
36:28
Speaker 2: Is it that like July somewhere somewhere in that range
36:31
Speaker 2: and July August somewhere.
36:34
Speaker 5: Through August eleventh of last year, it was like a while.
36:36
Speaker 2: Ago, six months ago, and apparently the medals are starting
36:41
Speaker 2: to deteriorate. In fact, a US Olympic fencer said his
36:45
Speaker 2: bronze medals started deteriorating a few days after the Olympics,
36:48
Speaker 2: and within a few weeks it was more noticeable. And
36:54
Speaker 2: it's something where it appears to be that the biggest
36:56
Speaker 2: problem is with the bronze medals. So hey, you medal
37:01
Speaker 2: in the Olympics. I mean, you're one of the three
37:03
Speaker 2: best people on the planet at whatever you do, and
37:07
Speaker 2: they give you this thing that's falling apart in a
37:10
Speaker 2: few I mean not like completely falling apart, but it
37:13
Speaker 2: doesn't last a few days before it starts tarnishing, like
37:17
Speaker 2: what are what are we actually doing here? And they were,
37:20
Speaker 2: you know, showing off these medals and like, oh, we
37:22
Speaker 2: spent so much time designing them and this and that
37:25
Speaker 2: and look, don't don't get me wrong, like trying to
37:28
Speaker 2: make bronze is not exactly easy. It's not like something
37:32
Speaker 2: that No, the three of us sitting in this room
37:35
Speaker 2: could not make a bronze medal that didn't tarnish the
37:37
Speaker 2: day we made it. Like it's you don't just it
37:40
Speaker 2: doesn't just happen. But the fact is you made these
37:44
Speaker 2: for the Olympics and you just want, you hope that
37:47
Speaker 2: they were a little bit higher quality. So LVMH is
37:50
Speaker 2: the company that made them, you know, Louis Vauton, and
37:54
Speaker 2: they're facing some criticism because hey, make your Olympic medals
37:59
Speaker 2: better better, you know, like what are we really doing here?
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Speaker 4: This happened in twenty sixteen too, with read the Rio Games.
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Speaker 4: There was also some issues with the medals. So get
38:07
Speaker 4: those medals in line.
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Speaker 3: That's what do you gotta do.
38:11
Speaker 2: Anyways, markets are in positive territory DOWS up one thirty seven,
38:14
Speaker 2: SMP's up forty nine, NASDAC up two eighty eight. We're
38:17
Speaker 2: done for the day, back tomorrow on the Financial Exchange