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Are investors getting worried the bull run is coming to an end? · The Financial Exchange Show

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Speaker 2: Welcome to this Tuesday edition the Financial Exchange. I hope
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Speaker 2: everyone was able to successfully get themselves out of the
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Speaker 2: snow and that some of the ice will melt and
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Speaker 2: subside over the course of the next couple of days
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Speaker 2: for those in the New England area. Paul Lane, Mark Vendetti,
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Speaker 2: and Tucker Silva here with you on this Tuesday. As
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Speaker 2: stock market was closed yesterday in observance of Presidence Day.
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Speaker 2: Looking at the market today, relatively mixed territory as we
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Speaker 2: have what is rather quiet week in terms of economic data.
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Speaker 2: We had a lot of data that came out last week,
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Speaker 2: the retail sales report as well as the CPI inflation
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Speaker 2: report on Wednesday. This week we will get some housing data.
1:51
Speaker 2: We do have Walmart, one of the country's biggest retailers,
1:55
Speaker 2: reporting its earnings on Thursday, but other than that, there
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Speaker 2: is no sizable economic report. We will also get the
2:03
Speaker 2: Fed meeting minutes on Wednesday as well. Like I said,
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Speaker 2: markets and sort of mixed territory today, no real significant
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Speaker 2: trends in one direction or another. We start our show
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Speaker 2: today with a sort of checkpoint in terms of where
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Speaker 2: we are from a market perspective. This piece here from
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Speaker 2: the Wall Street Journal, Mark goes over the signs of
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Speaker 2: market froth during a long bowl market. They're claiming that
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Speaker 2: some fear of growing speculation in the options market, meme stocks,
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Speaker 2: and crypto exists. And this is something to me that
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Speaker 2: isn't really news. This has been something that's been ongoing
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Speaker 2: for quite a while. We have seen that there was
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Speaker 2: a significant period of time of speculation heading into twenty
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Speaker 2: twenty two with the meme stocks and bitcoin, and after
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Speaker 2: twenty twenty two, where those asset classes were beating up significantly,
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Speaker 2: there was a period of time where there was a
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Speaker 2: pause to all that speculation. But I would agree with
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Speaker 2: the piece in the Wall Street Journal here that there
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Speaker 2: has been a lot of pockets of speculation, but that.
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Speaker 1: Is not news.
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Speaker 2: Over the course of the next the last month or so,
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Speaker 2: this has been a year plus, I would say.
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Speaker 3: Yeah, arguably at least a couple to a few. That's
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Speaker 3: always the case, though, periods of as they call it frauth,
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Speaker 3: which we would more specifically characterize as periods of elevated
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Speaker 3: prices is compared to past earnings, either long term earnings
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Speaker 3: if you like that measure, or just the last year
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Speaker 3: or even look ahead earnings forward so called forward earnings.
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Speaker 3: By any of those measures, stocks are expensive, as the
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Speaker 3: finance lingo puts it, relative to what you could reason
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Speaker 3: what you have earned, what they have earned, I should say,
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Speaker 3: or what you might reasonably expect them to, what companies
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Speaker 3: might reasonably be expected to earn over the next twelve months.
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Speaker 3: And historically, when stocks get expensive, they get fragile. By that,
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Speaker 3: I mean if they get if something happens in outside shock,
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Speaker 3: things don't go well in the negotiations to end the
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Speaker 3: war in Ukraine, for example, an oil price shock, collapse
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Speaker 3: of a major bank, I mean, you name it. The
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Speaker 3: fact that stocks are expensive means they have more room
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Speaker 3: to fall.
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Speaker 2: Absolutely in terms of some of the pockets of speculation
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Speaker 2: that I was alluding to, there are the meme stocks
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Speaker 2: out there. We've seen a heavy amount of option trading.
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Speaker 2: Fifty eight million options contracts changed hands daily on average
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Speaker 2: in the month of January. That was a record for
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Speaker 2: a significant period of time. And like Mark mentioned, stocks
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Speaker 2: are expensive. The S and P five hundred is trading
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Speaker 2: at twenty two times it's expected earnings over the course
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Speaker 2: of the next twelve months. The ten year average for
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Speaker 2: what the S and P five hundred has traded at
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Speaker 2: as a multiple of its earnings has been around nineteen,
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Speaker 2: and that number was in er around twenty six back
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Speaker 2: in two thousand before the dot com crash, where it
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Speaker 2: was at its highest level. The problem with covering these
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Speaker 2: pieces is that, not to be too flip, but it's
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Speaker 2: sort of so what you know? I mean, yes, we
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Speaker 2: know that markets are elevated. Yes, we know that markets
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Speaker 2: are expensive. The really hard part, and we wish we
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Speaker 2: all knew the answer to this and had a crystal ball,
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Speaker 2: is when is that global shock? When is that event
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Speaker 2: that would cause some of this market fragility to expose
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Speaker 2: itself and we'd see enhance volatility. None of us know that.
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Speaker 2: I don't know, and neither does Mark. And that's just
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Speaker 2: sort of where we sit today. We're at a point
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Speaker 2: where the positive news, I would say, is that the
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Speaker 2: S and P five hundred, some of these earnings reports,
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Speaker 2: we have seen a bit of a jump in profits.
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Speaker 2: But other than that, it is an elevated market and
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Speaker 2: you sort of just have to wait to see when
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Speaker 2: things will change.
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Speaker 3: There are a lot of changes coming either way at
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Speaker 3: the national and federal level. There's a we all know
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Speaker 3: a big re examination of the way the federal government
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Speaker 3: spends money. I'll just put it very general and leave
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Speaker 3: it at that. There are big realignments in the world underway.
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Speaker 3: We seem to we've moved from a country that has
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Speaker 3: traditionally defended sovereignty to a more aggressive foreign policy stance.
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Speaker 3: The White House is threatening Panama, it's threatening Denmark with
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Speaker 3: respect to the Netherlands. It seems to be neutral with
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Speaker 3: respect to the Russia Ukraine conflict. This is a very
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Speaker 3: different stance for the United States internationally than anything I've
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Speaker 3: seen in my lifetime or anyone who's alive today has seen.
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Speaker 3: We're not necessarily the good guy anymore, is what I'm
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Speaker 3: trying to say. Monetary policy is up in the air.
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Speaker 3: Even if the White House wasn't threatened, wasn't threatening excuse me,
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Speaker 3: fed independence. It's amazing to me that stocks remain on
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Speaker 3: the same trajectory they were on before these seismic changes.
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Speaker 3: It could be a very different world in a couple
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Speaker 3: of years in a.
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Speaker 1: Lot of ways.
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Speaker 2: It's interesting there was a survey that they did as
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Speaker 2: much as there's these pockets of speculation, you know, whatever
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Speaker 2: area you want to point to at the same point
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Speaker 2: in time, there was a survey that was put together
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Speaker 2: by the American Association of Individual Investors which they gleaned
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Speaker 2: that forty three percent of investors expects stock prices to
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Speaker 2: fall over the next six months. That was a survey
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Speaker 2: that ended on February twelfth, that they put together at
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Speaker 2: the highest level since November twenty twenty three. And this
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Speaker 2: is not to say that this is predictive of anything.
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Speaker 2: I just alluded to the fact before that, you know,
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Speaker 2: just because stocks are elevated doesn't mean we're on the
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Speaker 2: precipice of them correcting. But it does speak to a
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Speaker 2: bit of a contrast where you have a lot of
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Speaker 2: speculation in some areas of the market, but yet surveyed
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Speaker 2: and individual investors do feel as if stock prices could
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Speaker 2: fall over the next six months. And it does probably
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Speaker 2: point to the fact that there are many unknowns right
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Speaker 2: now from you know, policies regarding tariffs or whether you
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Speaker 2: want to point to the war in Russia and Ukraine.
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Speaker 2: There's just a lot of there's a lot of different
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Speaker 2: balls in the air at the moment, and that's why
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Speaker 2: you could see some sort of pessimism out there. But
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Speaker 2: if you do look at the VIX, which is the
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Speaker 2: fear volatility gauge. As much as there may be some
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Speaker 2: pessimism out there, we have traded in a very sort
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Speaker 2: of calm range for a significant period of time here,
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Speaker 2: even though there have been many headlines that you would
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Speaker 2: think would cause the market to react negatively in one
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Speaker 2: direction or another.
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Speaker 1: Yeah, it is astonishing.
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Speaker 3: Stocks are up four percent you're to date, which is
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Speaker 3: a very solid If you annualize it, it gives you an
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Speaker 3: absurd number. So I'm not going to go through that exercise.
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Speaker 3: It's not hard to do, obviously, but that is a
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Speaker 3: solid gain. As you say, volatility as measured by the
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Speaker 3: so called VIX, which is the market's best guess if
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Speaker 3: you like, of how bumpy east the ride and stocks
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Speaker 3: will be over the next thirty days. So it's a
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Speaker 3: short term volatility measure, but pretty mild right now. There
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Speaker 3: are no market wide indications in the stock or the
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Speaker 3: bond market. If you look at the price of risk
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Speaker 3: key bonds relative to more conservative bonds, there are no
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Speaker 3: red flashing warning signs there either. Relatively quiescent market environment overall.
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Speaker 2: We're going to take a quick break here on the
9:13
Speaker 2: financial exchange. When we come back. We're me talking a
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Speaker 2: little bit about the FED. I mentioned the FED Meetia
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Speaker 2: mass will be coming out on Wednesday. Can they look
9:19
Speaker 2: past Trump's tariffs? What actions are they looking to take
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Speaker 2: here over the course the next couple months. That's right
9:24
Speaker 2: after this break Here in the Financial Exchange.
9:27
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Speaker 2: We were talking about before the break. Can the Federal
10:40
Speaker 2: Reserve look past some of Trump's tariffs? The top officials
10:43
Speaker 2: are grappling with trying how they handle potential increases caused
10:46
Speaker 2: by the administration's policies. And really the biggest news from
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Speaker 2: last week, mark was the inflation report that we got
10:53
Speaker 2: last Wednesday, where the indications were that month over month
10:57
Speaker 2: inflation increased zero point four percent. Year over year, inflation
11:01
Speaker 2: through the month of January was running at three percent. Now,
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Speaker 2: as more commentary has begun to come out from the
11:08
Speaker 2: Federal Reserve, and I'm interested on your take on this,
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Speaker 2: that there has been some data to indicate that perhaps
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Speaker 2: the hot reading that we saw in the month of
11:15
Speaker 2: January was more of a product of seasonality, where consumer
11:20
Speaker 2: price grows tends to run higher at the start of
11:23
Speaker 2: the year and then subside the second half of the year.
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Speaker 2: You had the Federal Reserve President from Philadelphia, Patrick Harker,
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Speaker 2: stating that nine of the last nine of ten times
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Speaker 2: in the last decade, we've seen January inflation exceed expectations,
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Speaker 2: and then going back sixteen of the last twenty two
11:39
Speaker 2: years there has been some sort of elevated impact because
11:42
Speaker 2: of seasonality on January's inflation report. So that brings us
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Speaker 2: to the question today, where we're going to have the
11:47
Speaker 2: FED meeting minutes coming out tomorrow is terms of what
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Speaker 2: should the Fed do going forward?
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Speaker 3: Talk about seasonality for a second. The whole point of
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Speaker 3: making a seasonal adjustment is that these periodic blimps are predictable,
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Speaker 3: so you want to smooth out the cut you know,
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Speaker 3: cut the cut off the peaks and beef up the troughs.
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Speaker 3: If you know, for example, retail sales are going to
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Speaker 3: jump every December, you don't want to misread that is
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Speaker 3: thinking that somehow economic activity picked up.
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Speaker 2: So hiring around the holiday season is another.
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Speaker 3: One classic example. December is full of all kinds of
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Speaker 3: seasonal I'll call them distortions. They're just regularities, but you
12:22
Speaker 3: you build that in to your so called seasonal adjustments.
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Speaker 3: So the idea. I've heard that explanation too. I'm somewhat
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Speaker 3: familiar with the method that the BLS uses to make
12:33
Speaker 3: their seasonal adjustments. It's constantly updating the whole The whole
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Speaker 3: point is I don't get it, is what I'm saying.
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Speaker 3: I don't get the argument. The whole point of seasonal
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Speaker 3: adjustments is to remove systematic over or I was gonna
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Speaker 3: say over undershoots. That's not quite the right way to
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Speaker 3: think about it, but I'll just call them excesses related
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Speaker 3: to time of year, So it doesn't make The whole
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Speaker 3: point of seasonal adjustment in January is that you adjust
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Speaker 3: for the pricing because you know it's coming, and they're
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Speaker 3: constantly re evaluating that. These methods are pretty tried and true,
13:09
Speaker 3: so I'm not sure I buy it. Additionally, there are
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Speaker 3: other measures of underlying inflation. We get the core measure,
13:16
Speaker 3: which removes food and energy. There are other measures that
13:20
Speaker 3: try to get it the trend in inflation. The part
13:23
Speaker 3: of inflation, if you think of inflation, is having two parts.
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Speaker 3: An underlying part that's pretty persistent. The FED can control
13:32
Speaker 3: that by adjusting the supply of money, which in turn
13:35
Speaker 3: influences economy wide demand. Then there's the so called transitory part.
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Speaker 3: The word transitory got a bad name in twenty twenty two,
13:44
Speaker 3: but it's what we've always used to describe the one
13:48
Speaker 3: offs like oil jumps and then goes back down. Egg
13:51
Speaker 3: prices go down and then go back up. You want
13:54
Speaker 3: to strip those out. The FED can't necessarily influence those,
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Speaker 3: though they have to pay attention to them as they
13:59
Speaker 3: do tariffs, because those can influence people's expectations, which in
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Speaker 3: turn drive higher wages and higher prices. So I guess
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Speaker 3: my point is underlying inflation, the persistent part, the part
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Speaker 3: the FED does have control over, has been elevated. It's
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Speaker 3: running somewhere in the load to mid threes, which is
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Speaker 3: a lot higher than the fed's target of two, which
14:19
Speaker 3: is why at last week's press conference or whenever that was,
14:23
Speaker 3: Chairman Powell said, I think it was a week before.
14:27
Speaker 3: But I forget. Fed's got work to do, That's what
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Speaker 3: he means. So will they look past tariffs. I think
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Speaker 3: the answer is probably yes, because it's a one time
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Speaker 3: jump in the level of prices unless the administration decides
14:39
Speaker 3: to ease into them, you know, two percent at a time.
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Speaker 3: Then you're talking about the incremental increases that could actually
14:48
Speaker 3: feed into the inflation a process more persistently, particularly as
14:53
Speaker 3: people adapt their expectations to them. So I think the
14:57
Speaker 3: FED does think to answer I think a question you asked,
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Speaker 3: will they look past tariffs? Probably should they? I'm not sure, Paul, not,
15:04
Speaker 3: given elevated underlying inflation. And then you've got political pressures
15:08
Speaker 3: which we haven't even started to talk about wait till
15:11
Speaker 3: the White House starts to badger them.
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Speaker 2: And you also just have Some people have said that
15:17
Speaker 2: the Federal Reserve can use the first term of Presidents
15:21
Speaker 2: Trump's time in office as a as a backdrop. But
15:24
Speaker 2: many people have made this point and I'll make it too.
15:26
Speaker 2: The economic conditions were far different the first time around
15:29
Speaker 2: with this tit for tat tariff policies were instituted where
15:33
Speaker 2: you had inflation that could barely crack two percent, and
15:36
Speaker 2: you also had just a period of time where there
15:40
Speaker 2: was less not a lot of optimism of economic growth.
15:43
Speaker 2: So instituting tariffs didn't have the same sort of sensitivity
15:47
Speaker 2: from an inflation. So so you can take some solace
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Speaker 2: from the first time around, but not not a whole lot,
15:55
Speaker 2: just because no, I don't.
15:56
Speaker 3: Think it gives you a good template. The economy is
15:58
Speaker 3: running far hotter, unemployment is way lower, growth relative to
16:02
Speaker 3: potential or trend is much higher. Inflation, as we just
16:06
Speaker 3: talked about, is far higher, way higher than the fed's goal.
16:11
Speaker 3: And on top of all that, Trump the White House
16:14
Speaker 3: is behaving differently this time than they did during his
16:17
Speaker 3: first term. He's far more emboldened and aggressive. He didn't
16:21
Speaker 3: like a show at the Kennedy Center, so we fired everybody.
16:24
Speaker 3: This is not a president who's going to sit by
16:26
Speaker 3: and let the FED lead him around by the No,
16:30
Speaker 3: it's not quite the right expression, but you know what
16:32
Speaker 3: I mean, He's probably going to take action if he
16:35
Speaker 3: doesn't like what the FED is doing. Markets seem to
16:37
Speaker 3: be ignoring that. That will be really interesting.
16:41
Speaker 1: I don't mean in a good way.
16:42
Speaker 2: Ness, I'll have to continue to follow that. The FED
16:44
Speaker 2: is doing a inclusive study of their policy over the
16:48
Speaker 2: last five years. They're doing a review rather of their
16:51
Speaker 2: policy strategy in the first time for five years, where
16:54
Speaker 2: they're confronting the question did their goal for an inclusive
16:59
Speaker 2: job market recover reafter the pandemic slow their response to
17:02
Speaker 2: surgery inflation. For a lot of economists out there, the
17:05
Speaker 2: answer is clearly yes. That they were too slow to
17:10
Speaker 2: change some of their commodative monetary policies, and as a
17:14
Speaker 2: result of that, that led to the uptick in inflation.
17:16
Speaker 2: I'm assuming you kind of sit on the same side
17:18
Speaker 2: of that.
17:19
Speaker 3: I don't know how you build that into the pretty
17:21
Speaker 3: sophisticated models that they use to answer the question, our
17:26
Speaker 3: interest rates too high to lower? Just right, That's the
17:28
Speaker 3: question they're always asking themselves. I think you have to
17:30
Speaker 3: keep that in mind. FED is charged with keeping prices
17:33
Speaker 3: st with keeping inflation stable, excuse me, and keeping unemployment
17:37
Speaker 3: as low as possible as is consistent with stable inflation.
17:42
Speaker 3: I while they probably had discussions around the unemployment rate
17:47
Speaker 3: of different minority groups, and we won't know until the
17:50
Speaker 3: minutes come out several years from now. We get summaries,
17:52
Speaker 3: but not actual minutes where you learn what individual policy
17:55
Speaker 3: makers we're thinking. You don't get those for several years.
18:00
Speaker 3: Would be nice if we could blame the FEDS errors
18:03
Speaker 3: of omission and commission I guess on being distracted by DEI,
18:09
Speaker 3: but I honestly don't think that's the case. They were
18:11
Speaker 3: pretty clear when they held their fire why they were
18:14
Speaker 3: doing it. They thought the spike would be transitory. They
18:17
Speaker 3: were partially right. The spike was transitory, but underlying inflation
18:21
Speaker 3: went up too, and we're still living with that problem today.
18:24
Speaker 3: Much incidentally, like the nineteen seventies. So, Paul, if anybody
18:27
Speaker 3: tries to pin the Fed's errors in twenty twenty one,
18:30
Speaker 3: twenty twenty two on some sort of dei fetish, I
18:37
Speaker 3: think they're probably just making excuses for errors that the
18:40
Speaker 3: FED has made before, which is misreading the economy's productive potential.
18:44
Speaker 2: It's been a labor market that has been incredibly strong. However,
18:48
Speaker 2: you want to study whatever metric you look at. We
18:50
Speaker 2: had a historic lows of unemployment, reaching a trough of
18:54
Speaker 2: three and a half percent. We're now sitting at four percent,
18:57
Speaker 2: but tremendous amounts of job growth. We had a tremendously
19:00
Speaker 2: high quits rate during the period of twenty twenty two.
19:03
Speaker 2: Some of that has subsided in terms of the mobility piece,
19:07
Speaker 2: but still we sit at a very strong place from
19:10
Speaker 2: a participation standpoint rate as well as unemployment rate. You know,
19:14
Speaker 2: at this point in time, taking a look at markets
19:17
Speaker 2: of the moment, in relatively mixed territory, if the DOW
19:19
Speaker 2: off about ninety three points, the SMP only off three points,
19:23
Speaker 2: and the NASDAC off about forty points, we're gonna take
19:26
Speaker 2: a quick break here. But when we come back, we're
19:28
Speaker 2: gonna have Wall Street Watch and much more right after
19:30
Speaker 2: this break.
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Speaker 4: As trader's return from the holiday weekend, markets are kicking
20:04
Speaker 4: off the shortened trading week narrowly in negative territory. Not
20:08
Speaker 4: much movement today right now. The Dow is off by
20:12
Speaker 4: about eighty points, SMP five hundred is completely flat, and
20:17
Speaker 4: the Nasdaq is down by only thirty three points. Of
20:20
Speaker 4: rust of two thousand edging higher.
20:22
Speaker 1: Not much movement there.
20:23
Speaker 4: Ten You're treasure reeled up by three basis points now
20:27
Speaker 4: at four point five to one percent, and crude oil
20:31
Speaker 4: is up just over one percent higher today, trading at
20:34
Speaker 4: seventy one dollars forty nine cents a barrel. Intel shares
20:38
Speaker 4: jumping by about eleven percent after the Wall Street Journal
20:42
Speaker 4: reported over the weekend that Broadcom and Taiwan Semiconductor were
20:46
Speaker 4: eyeing deals that would break up the US chip maker
20:50
Speaker 4: into two. Meanwhile, Delta shares are flat following yesterday's crash
20:54
Speaker 4: landing of a flight from Minnesota to Toronto, where at
20:57
Speaker 4: least eighteen people were injured. Another airline in the news
21:01
Speaker 4: today after Southwest Airlines announced it would cut fifteen percent
21:05
Speaker 4: of its corporate workforce, or just north of seventeen hundred jobs,
21:10
Speaker 4: as the company has been under pressure to cut costs.
21:14
Speaker 4: That stock is flat Elsewhere. Medtronic shares down by about
21:18
Speaker 4: seven and a half percent after the medical device maker
21:22
Speaker 4: posted disappointing quarterly revenue, even as it exceeded earnings expectations
21:27
Speaker 4: due to strong demand for its heart and diabetes products.
21:31
Speaker 4: And taking a look at a few stock grade updates
21:34
Speaker 4: to begin the week, Wolf Research upgraded Snowflake to outperform
21:39
Speaker 4: from peer perform, where the firm pointed to better consumption
21:42
Speaker 4: trends as a catalyst for growth and believers the data
21:46
Speaker 4: analytics software maker will report solid fourth quarter results due
21:50
Speaker 4: out next week. That stock is up by about one percent.
21:54
Speaker 4: Altais USA was upgraded by Raymond James to outperform from
21:58
Speaker 4: market perform, with fur believes operational changes made by management
22:03
Speaker 4: can show tangible results in the next eighteen months. That
22:07
Speaker 4: stock is up by about two percent, and Tapestry shares
22:11
Speaker 4: jumping by about two percent after Redburn Capital upgraded the
22:16
Speaker 4: stock to buy, noting that the company's Coach brand still
22:21
Speaker 4: has momentum after a strong twenty twenty four. The firm
22:25
Speaker 4: also sees further margin improvement. I'm Tucker Silvan. That's Wall
22:29
Speaker 4: Street Watch.
22:31
Speaker 2: With falling US sales, companies are trying to hit the
22:33
Speaker 2: sweet spot for prices. A piece from the Wall Street
22:36
Speaker 2: Journal here where makers of cigarettes, snacks, and cosmetics are
22:39
Speaker 2: tinkering with their products to wing back value obsessed customers.
22:43
Speaker 2: I mean, this is a story that has been going
22:45
Speaker 2: on for a bit. Obviously, we've been dealing with the
22:47
Speaker 2: impacts of inflation for several years now. But you have
22:50
Speaker 2: companies out there like Pepsi and s day Lauder, as
22:54
Speaker 2: well as Reynolds American trying to reach low income smokers
22:59
Speaker 2: with more affordable pack. You also have Pepsi behind the
23:03
Speaker 2: makers of Cheetos and Dorito's findings servings in a multi
23:08
Speaker 2: pack that are less than the typical one, and then
23:10
Speaker 2: Este latter is looking to sort of hit people at
23:13
Speaker 2: the low end of the market with more value based
23:15
Speaker 2: options and then also catering to those on the higher
23:18
Speaker 2: end of things too with value and with innovation in
23:22
Speaker 2: the products.
23:23
Speaker 3: So it's so funny this is news. It's like CEO's
23:26
Speaker 3: are managing their companies by tinkering with prices and quality
23:30
Speaker 3: and quantities, and Clorox is introducing a more concentrated pine
23:33
Speaker 3: soal in case you wanted to burn your fingertips completely off.
23:37
Speaker 2: There is like this is what companies should be doing.
23:39
Speaker 3: Why is this even news? I think about it for
23:42
Speaker 3: just a second. Am I being too flipped to use
23:44
Speaker 3: your word from earlier, which I love?
23:45
Speaker 2: No, there's always going to be yeok, the companies are
23:49
Speaker 2: always going to be innovating, making sure what else are
23:51
Speaker 2: they up to? I do feel as if the point
23:53
Speaker 2: is lower income consumers. There has been. It has been
23:57
Speaker 2: challenging for them to keep up with inflation and have
24:00
Speaker 2: wages kept up on the lower income side of things.
24:02
Speaker 2: I know you had done some research on this recently, my.
24:05
Speaker 3: Go to average hourly earnings. Yeah, and yes they have,
24:08
Speaker 3: but for a long time during the present recovery, they
24:11
Speaker 3: did not, which is why it feels like people in
24:15
Speaker 3: the middle of the income distribution in particular fallen behind.
24:17
Speaker 3: So the answers is with many things pull yes and no.
24:20
Speaker 2: The grocery store prices private They've been making the point
24:23
Speaker 2: that private label products have been making inroads on the
24:26
Speaker 2: traditional options out there, like the you know, Cheetos and Doritos,
24:30
Speaker 2: et cetera. People are looking for for cheaper options out
24:33
Speaker 2: there on the lower income side of things, while you
24:36
Speaker 2: do have higher income folks seeming to fare a little
24:40
Speaker 2: bit better. So that seems like.
24:43
Speaker 3: With the okay the very poor. There's an old saying
24:48
Speaker 3: wealthy people always okay for the most part. I'm not
24:50
Speaker 3: diminishing how hard it is to stay wealthy very poor.
24:53
Speaker 3: There are networks, they'll always be okay. It's always the
24:56
Speaker 3: middle they gets the shaft right.
24:57
Speaker 2: Yeah, particularly after two years of stock market I got
25:01
Speaker 2: to come back.
25:02
Speaker 1: To it again.
25:02
Speaker 3: This is the Wall Street Journal. This is the premier
25:05
Speaker 3: business publication in the United States. No disrespect to Investors'
25:08
Speaker 3: Business Daily. And the story here is companies are experimenting
25:11
Speaker 3: with prices and quality as what were they doing last.
25:14
Speaker 2: Week running the same playbook? Who knows, We'll see if
25:19
Speaker 2: we can get some uptick sales from pepsine.
25:22
Speaker 3: Can I bring up another management issue that bothered me
25:25
Speaker 3: last week? This dovetails with DEI discussion, something we typically
25:29
Speaker 3: don't get into but this is squarely in the court
25:32
Speaker 3: of business and management companies, big companies that are running
25:37
Speaker 3: away from inclusion policies. They're taking them off their website,
25:40
Speaker 3: they're removing them from job descriptions. That's fine. The political
25:43
Speaker 3: climate has changed. But much like the question I asked
25:47
Speaker 3: with respect to the last story about companies, this watershed
25:51
Speaker 3: moment that companies started actually thinking about quality and prices. Apparently,
25:54
Speaker 3: according to the Wall Street Journal, have business has suddenly
25:58
Speaker 3: decided that all the time, money, and other resources that
26:01
Speaker 3: they spent on a more inclusive workforce or a more
26:05
Speaker 3: diverse product line, was that just a waste of time?
26:07
Speaker 3: And if so, what data changed their mind? Or are
26:10
Speaker 3: they just knee jerk responding to the political climate That
26:13
Speaker 3: bothers me to not the fact that they're doing it,
26:16
Speaker 3: but the fact that it's such a dramatic one to
26:18
Speaker 3: eighty from a few years ago. JP Morgan's CEO, Jamie Diamond,
26:23
Speaker 3: made a statement last week about DEI being mostly bunk
26:27
Speaker 3: and what a waste of time and all these questionneers
26:30
Speaker 3: and changing our hiring policies, So he was quite vulgar.
26:33
Speaker 3: Was a call with investors, so it wasn't. I don't
26:36
Speaker 3: think aired publicly, but I thought, well, that's great, pal,
26:39
Speaker 3: But a few years ago you were among its champions,
26:42
Speaker 3: and now they're all scrambling. It's probably just a curry
26:46
Speaker 3: favor with the current regime. But it raises the question
26:48
Speaker 3: to me of what are these people action people that
26:50
Speaker 3: run big businesses. What do they actually do? Some are
26:55
Speaker 3: quite aggressive and active, Others I swear they're just protecting
26:59
Speaker 3: their options and they do very little.
27:03
Speaker 2: Someone like JP Morgan and CEO of JP Morgan, you
27:06
Speaker 2: are constrained in terms of how much you can do
27:09
Speaker 2: just because the regulation on big banks in general.
27:14
Speaker 3: So renovations a little limited there.
27:16
Speaker 2: I would say that likely protecting what they have is
27:19
Speaker 2: probably a big focus.
27:21
Speaker 3: When you get that job and you're getting thirty to
27:22
Speaker 3: fifty million a year in options, very little indirect compet's
27:26
Speaker 3: all inequity. Your job is just to play defense and
27:29
Speaker 3: make sure you don't.
27:29
Speaker 2: Screw and ride the coattails of the us GDP growth basically,
27:33
Speaker 2: I mean, that's that is all keeps growing exactly. That's
27:36
Speaker 2: really you should be your main focus there. I absolutely
27:39
Speaker 2: think that it's caring favor to the administration that you're
27:42
Speaker 2: seeing that from many different We were focusing on Jamie Jamon,
27:45
Speaker 2: but Zuckerberg and Facebook is another example of pandering.
27:50
Speaker 3: Then you have, yeah, he's actually putting money in the
27:52
Speaker 3: White House's pockets, you know, twenty five million.
27:55
Speaker 2: Musk must obviously serving the role that he has. He's
27:59
Speaker 2: certainly many feel like it's better to be on you know,
28:03
Speaker 2: Trump's side than to be against them. There's no question
28:06
Speaker 2: about that. You're seeing at across all industry, and if
28:09
Speaker 2: you're a business leader, that is the smart thing to do.
28:12
Speaker 2: Smart thing.
28:13
Speaker 3: Of course you don't want to you don't want to
28:14
Speaker 3: be upset the regulators.
28:17
Speaker 2: But I would agree with your point. Why why to
28:20
Speaker 2: spend so much time in research on something that's not
28:22
Speaker 2: going to be out of.
28:22
Speaker 3: Their cure was so high a few years ago. It
28:26
Speaker 3: was We saw it in advertising, we saw it in
28:28
Speaker 3: their public statements. Their their commitment level was high, Their
28:31
Speaker 3: conviction appeared to be high.
28:33
Speaker 1: Was that just theater?
28:34
Speaker 3: I think I'm just naive. The answer is obviously yes,
28:37
Speaker 3: given the speed with which they're now running away from it.
28:39
Speaker 3: As a shareholder, and I don't know own these companies directly,
28:42
Speaker 3: I own them as many of us do through an
28:43
Speaker 3: index fund. You gotta wonder what value were these meatballs
28:47
Speaker 3: actually adding. They just wet their finger and whichever way
28:50
Speaker 3: the political and cultural winds are blowing in the morning,
28:54
Speaker 3: they'll tack accordingly. Maybe that's how it's always been done,
28:57
Speaker 3: and it's just well, we're.
28:59
Speaker 2: Obviously focusing one area of their day to day, but
29:02
Speaker 2: today as a leader of a company is to keep
29:05
Speaker 2: up brand recognition and go with whatever the winds are
29:08
Speaker 2: blowing at, which you could knock them for because it
29:11
Speaker 2: creates these hypocritical stances that they take. But ultimately it
29:15
Speaker 2: comes down to how are they going to grow earnings
29:18
Speaker 2: and how are they going to make the stock price
29:20
Speaker 2: go higher? And part of that is keeping the brand
29:22
Speaker 2: up with whatever. But I'd really fand for somebody.
29:25
Speaker 3: We don't interview executives here, but if we did, I'd
29:27
Speaker 3: love for somebody to ask them the question you thought
29:29
Speaker 3: three years ago, DEEI was the way to do that.
29:31
Speaker 3: Go back and look at their statements. It's about any
29:33
Speaker 3: publicly traded company, and it pervaded everything about their brand
29:38
Speaker 3: and the way they position it. Now they've done a
29:40
Speaker 3: one to eighty. That's like saying McDonald's saying we no
29:44
Speaker 3: longer believe in Hamburgers or something. I mean, I need
29:48
Speaker 3: a little explanation for that, because you've spent a lot
29:50
Speaker 3: of time and as a result, we've spent a lot
29:53
Speaker 3: of time on something you appear to have high conviction
29:56
Speaker 3: and only a few years ago. I know I'm going
29:58
Speaker 3: a little bit off topic here, but I think it's
29:59
Speaker 3: kind of related to this last story, and it always
30:03
Speaker 3: raises when I read stories like this, it raises the
30:04
Speaker 3: question for me, what are these people actually do? I'm
30:07
Speaker 3: talking about C suite types.
30:08
Speaker 2: You're making a lot of money, that's for sure. We're
30:10
Speaker 2: going to take a quick break here on the Finished Exchange.
30:12
Speaker 2: When we come back, Cisco and IBM are showing how
30:15
Speaker 2: old school tech names can be AI winners too. We're
30:18
Speaker 2: going to talk about that as well as the world's
30:21
Speaker 2: most important market signal is being sent. We're to discuss
30:25
Speaker 2: those two things right after this break.
30:28
Speaker 1: Breaking business and financial news first throughout the day. Only
30:32
Speaker 1: here on the Financial Exchange Radio Network. Find daily interviews
30:37
Speaker 1: and full shows of the Financial Exchange on how are
30:39
Speaker 1: YouTube page get cut up on anything and everything you
30:42
Speaker 1: might have missed. This is the Financial Exchange Radio Network.
30:53
Speaker 2: Cisco and IBM are two old school tech companies that
30:58
Speaker 2: have not garnered nearly the amount of support and hype
31:01
Speaker 2: that the Magnificent Seven has. Over the course of the
31:04
Speaker 2: last couple of years, they have been sort of relegated
31:07
Speaker 2: to technology that is not as exciting as all of
31:11
Speaker 2: the AI improvements and AI investment that we talk about
31:14
Speaker 2: so much with Microsoft, Google, Nvidia and others out there.
31:18
Speaker 2: But more recently, we have seen Cisco uptick a little
31:22
Speaker 2: bit this year, up nearly ten percent year to date,
31:24
Speaker 2: while IBM has rallied about nineteen percent compared to some
31:29
Speaker 2: of the Magnificent companies that have stumbled a little bit.
31:32
Speaker 2: I am hesitant to make too big a deal of this.
31:34
Speaker 2: We're only about not even two months into the year,
31:37
Speaker 2: and these companies. Last year, the Magnificent Seven really tore
31:41
Speaker 2: the cover up the ball from evaluation perspective. But what
31:43
Speaker 2: we are seeing with Cisco and IBM compared to its
31:47
Speaker 2: peers in the technology sector is they're trading at a
31:51
Speaker 2: much more reasonable multiple. So when we talk about valuations
31:54
Speaker 2: and how some of these companies are priced to perfection,
31:58
Speaker 2: you'd have these other companies out there, like Cisco and
32:01
Speaker 2: IBM that are trading more fairly or more cheaply, I
32:04
Speaker 2: should say, relative to what they earned. Cisco had upticked
32:09
Speaker 2: its stock performance year to date because of some more
32:13
Speaker 2: demand from its corporate clients to spend more to build
32:16
Speaker 2: out their networking solutions to be ready for the use
32:20
Speaker 2: of AI. This is offsetting a little bit some of
32:23
Speaker 2: the lesser orders that they're anticipating from the federal government.
32:26
Speaker 2: You've also seen IBM and Oracle rally on some of
32:31
Speaker 2: this investment as well, so certainly something to follow, but
32:36
Speaker 2: it really is probably largely the valuation piece.
32:39
Speaker 3: So for active investors, that is, individuals who own stocks
32:42
Speaker 3: and weights or institutions, they're different than the S and
32:46
Speaker 3: P five hundred so called market gap weights. I guess
32:49
Speaker 3: it makes sense if you want to stay fully invested
32:51
Speaker 3: in tech to look for companies with mature, established businesses,
32:55
Speaker 3: good cash flow that will benefit if AI. For example,
33:01
Speaker 3: if the demand for hardware that is expected as companies
33:05
Speaker 3: beef up AI capabilities pans out, that'll benefit from that growth,
33:10
Speaker 3: but aren't as as you point out, stratospherically priced as
33:13
Speaker 3: some of the so called Magnificent seven. So this is
33:15
Speaker 3: a way to play technology and AI. Incidentally, without having
33:19
Speaker 3: to pay through the nose for it.
33:20
Speaker 2: I guess Cisco trades it less than seventeen times estimated
33:24
Speaker 2: earnings compared to the Magnificent seven index, which multiple is
33:27
Speaker 2: above thirty. And then you also have Cisco and IBM
33:31
Speaker 2: paying about two and a half percent for dividend yields,
33:34
Speaker 2: which you don't really tend to get from the higher
33:38
Speaker 2: tech companies, the higher valuation tech companies in the Magnificent
33:42
Speaker 2: Magnific seven. The revenue growth for Cisco is much more muted.
33:46
Speaker 2: They're seen to have revenue perhaps rising five percent in
33:50
Speaker 2: its twenty twenty five fiscal year. You compare that to
33:52
Speaker 2: the likes of Nvidia, who is basically doubling their revenue
33:56
Speaker 2: year over year. So it's a more mature business with
33:58
Speaker 2: a lot more cash and a different focus to its shareholders.
34:02
Speaker 2: But there's bargains to be found everywhere when you look
34:05
Speaker 2: at individual stocks.
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35:16
Speaker 2: Warren Buffett has continued to be a net seller of
35:20
Speaker 2: stocks through his company Berkshire Halfway. I cannot believe that
35:23
Speaker 2: Warren Buffett is going to be ninety five in August.
35:26
Speaker 2: That is just incredible that how long.
35:30
Speaker 3: He's over ninety three.
35:33
Speaker 2: It's just incredible how long he's been active, and you
35:36
Speaker 2: could still when he gets out there and speaks, he
35:38
Speaker 2: still has it together. I mean, particularly for that age.
35:41
Speaker 2: It's incredibly impressive the way he's able to command a
35:44
Speaker 2: room and the amount of knowledge that he has over
35:46
Speaker 2: the course of his career. He's been at the helm
35:49
Speaker 2: of Berkshire Halfway for sixty years is of twenty twenty five.
35:53
Speaker 2: But like I mentioned, he's been selling off some positions
35:57
Speaker 2: from Berkshire Hathaway's three hundred billion dollar equity portfolio. As
36:02
Speaker 2: the S and P five hundred hits new highs it
36:04
Speaker 2: had sold a significant amount of its Apple steak. Berkshire
36:08
Speaker 2: Halfway they cut about two thirds of their position to
36:12
Speaker 2: three hundred million shares, a stake that's now worth about
36:15
Speaker 2: seventy three billion, which is the highest the largest holding
36:19
Speaker 2: that Apple has. Their second not Apple that Berkshire Halfway has.
36:22
Speaker 2: Their second largest holding is American Express, valued at forty
36:26
Speaker 2: seven billion.
36:27
Speaker 3: Yeah, without context and color if you like, it's hard
36:31
Speaker 3: to know whether he's just sticking to his usual cell discipline.
36:35
Speaker 3: He's an active manager backing up most of us know that.
36:38
Speaker 3: But when you buy BRKAB or whatever, the ticker symbol
36:42
Speaker 3: is you're buying a portfolio of companies right right, just
36:44
Speaker 3: like you're buying a portfolio companies if you buy an
36:46
Speaker 3: actively managed mutual fund or a passively managed one for
36:49
Speaker 3: that matter. But active management's a little more interesting because
36:51
Speaker 3: they hold as I mentioned in the last little segment,
36:54
Speaker 3: they hold stocks in different proportions. Then they are represented
36:59
Speaker 3: in the broad market. Is different than you would find
37:02
Speaker 3: in an index fund. It's it's good to know why
37:05
Speaker 3: when you hire an active manager, and you can when
37:07
Speaker 3: you buy BRKAB or an actively management two FUN three
37:11
Speaker 3: or four O one K you are hiring them effectively.
37:13
Speaker 3: It's good to understand why they sold. Did they have concerns,
37:15
Speaker 3: Did it just get too expensive, did it exceed their
37:17
Speaker 3: price target? Is there something else going on? We don't
37:20
Speaker 3: have that level of detail here yet.
37:22
Speaker 2: Berkshire Halfway is set to report its fourth quarter earnings
37:25
Speaker 2: on Saturday morning, and it's going to release its annual
37:28
Speaker 2: report and shareholder letter at the same time. Berkshire Hathaway
37:31
Speaker 2: had a record three hundred and ten billion of cash
37:34
Speaker 2: and cash equivalents on September thirty, if that number may
37:38
Speaker 2: be higher when we get more information come this Saturday.
37:42
Speaker 2: You know, Buffett has always sort of operated on his
37:45
Speaker 2: own timeline in terms of stock sales and things like that.
37:47
Speaker 2: So those sales, they weren't the best time because the
37:51
Speaker 2: market has rallied since some of the sales of apples
37:54
Speaker 2: and other positions. But he's always going to operate based
37:56
Speaker 2: on what he feels is the best course of action.
37:59
Speaker 2: Take a look at markets. We're in relativeory, mixed territory,
38:02
Speaker 2: very muted action on the markets. Dow jones off about
38:05
Speaker 2: ten points, s and P five hundred up about six points,
38:08
Speaker 2: and the Nasdaq is up about down about eight points.
38:11
Speaker 2: It's all the time that we have for the first
38:13
Speaker 2: hour here in the Financial Exchange, but we're gonna take
38:15
Speaker 2: a quick break with much much more to cover in
38:17
Speaker 2: the second hour right after this break.