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Can anything save Target from becoming the next Macy's? · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstrong.
1:12
Speaker 2: Friday here on the Financial Exchange is Chuck, Mike, and
1:17
Speaker 2: is it Ben?
1:21
Speaker 3: I mean it is now. It hasn't been all week,
1:22
Speaker 3: but it is now.
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Speaker 4: It is now.
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Speaker 2: We've gotten to the end of the week and it's
1:26
Speaker 2: been with us as well. And a couple data releases
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Speaker 2: this morning that we're gonna get right into, with retail
1:33
Speaker 2: sales data that came out at eight thirty am Eastern time,
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Speaker 2: and also University of Michigan consumer sentiment data that came
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Speaker 2: out at ten am Eastern. Let's start first with the
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Speaker 2: retail sales report, Michael, what did we see here?
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Speaker 5: Good news and revisions. So it came in exactly at expectations,
1:54
Speaker 5: which was for a half a percent advance from the
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Speaker 5: June numbers. That's precisely what we got Initially. The June
2:01
Speaker 5: numbers themselves were coming in at a six tenth percent
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Speaker 5: advance from May. That's been revised upward to now nearly
2:08
Speaker 5: a full percentage point increasing in retail sales. Not much
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Speaker 5: to look at that would be negative here. I guess
2:16
Speaker 5: the one area if you want to focus on the
2:18
Speaker 5: negative would be building materials, which, no surprise here, not
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Speaker 5: a whole lot of home building going on, and so
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Speaker 5: building materials, guarden equipment, et cetera is struggling. But across
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Speaker 5: the board, we're seeing increases in just about every category.
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Speaker 5: And you know, this was looked at as, hey, is
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Speaker 5: there any sign of drop off from the consumer in
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Speaker 5: you know, what might have been a weaker labor market
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Speaker 5: than we previously thought. And I think the answer is no.
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Speaker 5: Do you read this any differently, Well, I think here's
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Speaker 5: my take on it. Let's look at what we've seen this.
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Speaker 2: Year from retail sales. I'm just going to go through
2:58
Speaker 2: the numbers. I'm looking X autos just because they can.
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Speaker 2: Car sales can be really volidile, especially with tariff front
3:06
Speaker 2: loading and this and that.
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Speaker 4: So this is X autos.
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Speaker 2: January was minus point two seven percent. February point thirty nine,
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Speaker 2: March point six three, April point zero four, May negative
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Speaker 2: point zero six, June point eight, July point two seven.
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Speaker 2: So what we see here is that the two strongest
3:27
Speaker 2: months that we've had are March and June. March is
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Speaker 2: really easily explainable in terms of people trying to front
3:34
Speaker 2: load purchases prior to tariffs. We then had a couple
3:38
Speaker 2: months where retail sales were basically flat even though you know,
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Speaker 2: prices were still up very modestly those months, So real
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Speaker 2: retail sales down there. June was a bounce back, and July,
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Speaker 2: based on what we have from the CPI data, is
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Speaker 2: basically coming in with inflation. Yeah, right, With factoring in inflation,
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Speaker 2: it's basically telling you, hey, like unit volumes aren't really
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Speaker 2: moving in either direction, and that kind of messes with
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Speaker 2: what we're seeing from retailers and consumer facing companies at
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Speaker 2: this point.
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Speaker 4: They're kind of.
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Speaker 2: Saying, yeah, the growth that we're seeing, by and large
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Speaker 2: is happening because we're raising pricing, not because we're seeing
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Speaker 2: a dramatic increase in foot traffic and stuff like that.
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Speaker 4: Is that fair?
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Speaker 5: Yeah? Again, this was not a I don't want to
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Speaker 5: misplace it. It was a half percent increase in total retail trade,
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Speaker 5: like you said, three tenths if you strip out autos.
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Speaker 5: So it's not knocking the cover off the ball. It's
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Speaker 5: not talking about an expanding consumer, but it's not a
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Speaker 5: weakening consumer either.
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Speaker 2: It's something that I think you could probably describe it
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Speaker 2: as a goldilocks report form. Where we are in the
4:42
Speaker 2: cycle right now, where you say, look, it's not so
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Speaker 2: hot that it you know, takes you know, potential rate
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Speaker 2: cuts off the table, and it's not so cold that
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Speaker 2: you get nervous about you know, hey, are things you
4:53
Speaker 2: know falling apart. It basically says kind of what we've
4:56
Speaker 2: been saying for the last few months. The state of
4:58
Speaker 2: the economy hasn't really change a whole lot. It's still
5:02
Speaker 2: chugging along at a little bit slower pace than it was,
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Speaker 2: you know, end of last year. But there are no
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Speaker 2: signs that anything is weakening tremendously. There are no signs
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Speaker 2: that things are improving tremendously. It's just kind of the
5:15
Speaker 2: status quo. And I think that's what this report shows here,
5:19
Speaker 2: in my opinion, we've been kind of where I land.
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Speaker 5: We've been talking a little bit about the weakening sales
5:24
Speaker 5: at some fast casual restaurants like the Kava, Chipotle, others
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Speaker 5: food services and drinking places. Month of a month, i'd
5:31
Speaker 5: see a four tenths a percent decline, But compared to
5:35
Speaker 5: July last year, we're still up pretty substantially. I mean,
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Speaker 5: we're still seeing overall increases in the five and a
5:43
Speaker 5: half percent range. I'm just trying to make sense of
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Speaker 5: the differences there are we seeing that much food inflation
5:51
Speaker 5: at this stage year over year when we talk about
5:53
Speaker 5: you know, dining out right now.
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Speaker 4: In terms of like what we've seen in the.
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Speaker 5: CPI, Yeah, yeah, I'm just wider too much of that inflation.
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Speaker 4: There's some there.
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Speaker 2: It's let me see what we have, so food away
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Speaker 2: from home, food away from homes three nine, So it
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Speaker 2: is still showing year over year, you know, about two
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Speaker 2: percent real growth, which is fine, likes that's a good
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Speaker 2: number to have there.
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Speaker 4: There's nothing wrong with that. I think that when.
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Speaker 2: We look at food services and drinking places and just
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Speaker 2: the trend that we are seeing there, just because I
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Speaker 2: do think this is an indicator just of consumer sentiment,
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Speaker 2: like they're feeling about the economy. You go out to
6:33
Speaker 2: eat more often when you feel comfortable about where you
6:35
Speaker 2: are economically sure, and so you know, you take a
6:39
Speaker 2: look at it, and the monthly numbers just I went
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Speaker 2: back and I pulled them and in twenty twenty three,
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Speaker 2: just as an example, you were seeing, you know, multiple
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Speaker 2: readings on a monthly basis of half a percent to
6:52
Speaker 2: one percent growth in spending at food services and drinking
6:57
Speaker 2: in drinking places, that's the category from the retail report,
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Speaker 2: and in early twenty four that slowed and we saw
7:05
Speaker 2: a couple months of declines and then it kind of
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Speaker 2: bounces back to okay, maybe a quarter percent to half
7:10
Speaker 2: a percent gains through much of twenty four. We saw
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Speaker 2: a big jump in March of this year. That's kind
7:17
Speaker 2: of where a lot of it came from. Is there's
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Speaker 2: a two and a half percent jump in a month,
7:21
Speaker 2: and then you will get two out of the last
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Speaker 2: three months here, and it kind of meshes with what
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Speaker 2: we've heard from earnings from a lot of restaurant companies.
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Speaker 2: May was down by two tenths of a percent, June
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Speaker 2: bounced back up six tenths, but then July comes in,
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Speaker 2: you know, down four tenths and so you sit there
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Speaker 2: and say, okay, so basically over the last three months,
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Speaker 2: spending at restaurants has been flat, and that meshes with
7:43
Speaker 2: what we've seen with you know, a few companies that
7:46
Speaker 2: you noted reporting you know, some bad numbers on their
7:50
Speaker 2: same store sales comps, and a few others kind of
7:52
Speaker 2: treading water to a little bit better. But overall, there's
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Speaker 2: there's no real positive trend on that side. It's just hey,
7:58
Speaker 2: these companies in the restaurant business are treading water right now.
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Speaker 2: On the positive things that are in this retail sales report,
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Speaker 2: like things where you say, oh, like here, here's something
8:10
Speaker 2: you know that that I think is notable, and things
8:12
Speaker 2: that you know are meaningful non store retailers know, basically
8:16
Speaker 2: anything online continue to just chug along a point eight
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Speaker 2: percent for the month and eight percent year over year,
8:21
Speaker 2: so you've just got you know, continued monster growth on
8:24
Speaker 2: that side of things. You did have a nice little
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Speaker 2: bounce back for auto sales the last couple of months,
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Speaker 2: and this is something that we had wondered about simply
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Speaker 2: because again the data in April and May was that
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Speaker 2: auto sales declined, and not surprising, there was a lot
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Speaker 2: of front loading in in February and March because of
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Speaker 2: tariff concerns. And now you've had back to back months
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Speaker 2: where you have north of one percent sales growth for autos.
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Speaker 2: It's good to see people are making those big purchases.
8:53
Speaker 2: You typically make those purchases when you're comfortable, you know,
8:56
Speaker 2: with your economic status. And so i'd say that this
8:59
Speaker 2: is something that's a counterpoint to what we're seeing in
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Speaker 2: food services, where hey, restaurant sales are declining here, but
9:07
Speaker 2: you've got people buying more cars and that's, you know,
9:10
Speaker 2: kind of a positive sign about consumer sentiments. So I
9:13
Speaker 2: think when you take it to the aggregate, this report
9:16
Speaker 2: it's not perfect. It's not something where you say, oh,
9:18
Speaker 2: there's there's nothing wrong. But it's a solid B B
9:21
Speaker 2: plus report where you say, yeah, the economy is continuing
9:24
Speaker 2: to move along. There's no major signs of any problems here.
9:28
Speaker 2: There's also no major signs of an acceleration. But at
9:32
Speaker 2: this point you just want to say, hey, we're avoiding
9:35
Speaker 2: major problems, and this report does that. It's it's it's
9:38
Speaker 2: a perfectly, perfectly cromulent report if you will.
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Speaker 5: Big word and yeah we said yesterday. Look, everything that's
9:46
Speaker 5: going to come out over the next month all feeds
9:49
Speaker 5: into the equation of whether the FED cuts rates or not.
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Speaker 5: And I would say that this report itself, I don't
9:58
Speaker 5: think it does anything in either. And so if you're
10:01
Speaker 5: already thinking I want to cut rates, this report I
10:04
Speaker 5: don't think contradicts that in any way.
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Speaker 2: No, it's it's a report that suggests solid, steady growth
10:13
Speaker 2: in the economy with no major change in trajectory. And
10:18
Speaker 2: that messages with what we're seeing in most other places.
10:21
Speaker 2: There's I struggle right now to find areas where I
10:26
Speaker 2: see signs that the economy is changing dramatically. Can you
10:30
Speaker 2: think of anywhere you're saying, hey, this is either dramatically
10:33
Speaker 2: slowing or expanding from where it was previously.
10:37
Speaker 5: So the only area that I can point to, which
10:38
Speaker 5: we've talked about a lot, is the labor market, and
10:41
Speaker 5: I think that even.
10:42
Speaker 4: There it's inconclusive.
10:43
Speaker 5: It's a very inconclusive so you need a few more
10:46
Speaker 5: months of data to figure that out. But the labor market,
10:50
Speaker 5: what we learned was that in the spring it was
10:53
Speaker 5: pretty weak, and so my kind of expectation here is,
10:56
Speaker 5: like other data that snapped back in the summer, you
11:00
Speaker 5: will see the same happening with hiring rates in the
11:03
Speaker 5: summer and unemployment rate. But that would be the one
11:05
Speaker 5: area you could point to where if that trend from
11:08
Speaker 5: the spring continues into you know, August jobs data, then
11:14
Speaker 5: there's something you can point to weakness there. But we've
11:18
Speaker 5: seen a lot of other data points that would insinuate
11:22
Speaker 5: a snapback on hiring from other areas, so we will
11:25
Speaker 5: have to see.
11:26
Speaker 4: Yeah, I think the last three months.
11:27
Speaker 2: The way that you can summarize the economy pretty much fine,
11:33
Speaker 2: with some concerns about will there be a bigger slow
11:36
Speaker 2: down in the labor market and will there be a
11:39
Speaker 2: bigger uptick in inflation, And there's been nothing to really
11:42
Speaker 2: change that overall view.
11:46
Speaker 4: In the last few months.
11:47
Speaker 2: Now, if you start getting a couple more inflation reports
11:50
Speaker 2: that are hot, okay, we've you know now and now
11:54
Speaker 2: we're seeing it now, we got to deal with it. Likewise, Hey,
11:56
Speaker 2: if they come in cool, okay, great, we can put
11:58
Speaker 2: that one to bed. Right on the job side of things, Yeah,
12:01
Speaker 2: the last job's report kind of a stinker.
12:04
Speaker 4: Oh good news. We get another one in two and a.
12:05
Speaker 2: Half, three weeks, okay, if that's you know, positive, great,
12:09
Speaker 2: we get a whole new spin, you know, on what
12:11
Speaker 2: we saw a couple of weeks ago. So I think
12:14
Speaker 2: by and large, the economy is fine at the moment,
12:18
Speaker 2: with some questions. And that's that's also exactly where we've
12:22
Speaker 2: been the last two Augusts. By the way, you know,
12:25
Speaker 2: we've said, hey, there's some things that we're concerned about
12:27
Speaker 2: heading into the fall, and these three months are going
12:29
Speaker 2: to be important to answering those concerns. This is just
12:32
Speaker 2: like twenty three and twenty four. It's not much different
12:35
Speaker 2: from that. It's it's the same, you know, type of thing,
12:38
Speaker 2: and we'll see if the economy responds with positive answers
12:41
Speaker 2: to those questions for the third year in a row.
12:45
Speaker 2: Let's take a quick break here. When we come back,
12:47
Speaker 2: let's talk a little bit about that you miss consumer
12:50
Speaker 2: sentiment data that we just received, and then we'll talk
12:54
Speaker 2: a little bit more about inflation as well.
12:58
Speaker 1: Tara Fleeber is in high We've got the latest on
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Speaker 1: what might be next and how long it might last.
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13:52
Speaker 2: A little bit earlier today, we received the second big
13:55
Speaker 2: data release that we are looking for, University of Michigan
13:57
Speaker 2: Consumer Sentiment. UH comes with the obvious caveat that I've
14:02
Speaker 2: said for this for the last few months.
14:03
Speaker 4: I'm not really sure.
14:06
Speaker 2: If we should pay attention to this anymore because the
14:09
Speaker 2: results seem so skewed because of whether it's changed in methodology,
14:13
Speaker 2: just changes in how US as humans are responding to this,
14:17
Speaker 2: I don't know.
14:19
Speaker 4: But ultimately.
14:21
Speaker 2: What we saw from this report was not particularly good.
14:26
Speaker 2: And the two numbers that I think matter are the
14:29
Speaker 2: overall consumer sentiment number, which fell from a reading of
14:32
Speaker 2: sixty one seven to fifty eight to six. I have
14:35
Speaker 2: no idea what you want the normal reading to be.
14:39
Speaker 2: It's just like again, it moved up or it moved down.
14:43
Speaker 2: The other one that people have historically paid attention to
14:46
Speaker 2: have been the inflation expectations, which University of Michigan they
14:50
Speaker 2: pull on what your expectations are for the next twelve
14:52
Speaker 2: months and then for the next five years, and both
14:56
Speaker 2: of those numbers, after declining over the prior three month
15:00
Speaker 2: months ticked back up, and so like, here's the trend
15:03
Speaker 2: on what we've seen this year for twelve month inflation,
15:08
Speaker 2: not projections expectations, uh, three point three percent, four point
15:13
Speaker 2: three five, six point five, six point six. So it
15:16
Speaker 2: was increasing through May and then decreased to five percent
15:19
Speaker 2: in June, decreased to four point five in July. For
15:22
Speaker 2: this one came in at four point nine. So you've
15:24
Speaker 2: got a little bit of a rebound there, And you say, okay,
15:26
Speaker 2: is that because you know people may be seeing higher
15:29
Speaker 2: prices coming through now next five years? Inflation this year
15:34
Speaker 2: went three two three five four one four four four
15:37
Speaker 2: two four oh three four, So again kind of three
15:40
Speaker 2: or four months up and then a few months down,
15:42
Speaker 2: but then last month bump back up to three point nine.
15:45
Speaker 2: So I think the question that's out there in my
15:49
Speaker 2: mind is, you know, given the shift in methodology where
15:52
Speaker 2: University of Michigan recently moved I forget the exact timing,
15:56
Speaker 2: it's within the last year or so to an online
15:58
Speaker 2: survey as opposed to what they used to do. The
16:02
Speaker 2: responses seem to have gotten more extreme, not more partisan.
16:09
Speaker 2: The partisanship's always been there.
16:10
Speaker 4: I don't.
16:11
Speaker 2: I don't think there's anything that's gotten more partisan on
16:13
Speaker 2: the reporting. Like you look at this and during the
16:17
Speaker 2: you know, the Biden term, Republicans said things were bad,
16:19
Speaker 2: Democrats that said things were good. During the first Trump term,
16:22
Speaker 2: Democrats said things were bad, Republicans said things were good.
16:25
Speaker 2: This goes all the way back through like you know,
16:27
Speaker 2: Bush and everything. This is this is not a new
16:29
Speaker 2: thing on you know, the partisanship. It's just the readings
16:32
Speaker 2: are more extreme that we're seeing. And is that, you know,
16:37
Speaker 2: a a because of the shift in methodology.
16:40
Speaker 4: Is it something else that I don't know.
16:42
Speaker 5: Does it represent a more extremely polarized I don't know.
16:48
Speaker 2: Is it just because we felt more inflation in the
16:50
Speaker 2: last few years and so you know, people are predisposed
16:53
Speaker 2: to reporting higher numbers.
16:55
Speaker 4: I I don't know.
16:57
Speaker 2: But here's here's the the twelve trillion dollar question. Inflation
17:02
Speaker 2: expectations historically are a big component when it comes to
17:06
Speaker 2: our working model of inflation. The reason being, if you
17:09
Speaker 2: think prices are going to go up five percent over
17:11
Speaker 2: the next year, it makes you more willing to pay
17:14
Speaker 2: price increases now because you still think prices are going
17:17
Speaker 2: to go up more in the future. So the whole
17:21
Speaker 2: question here is, look our inflation expectations actually getting entrenched
17:25
Speaker 2: at a higher level, and if they do, does that
17:30
Speaker 2: turn what is potentially a transitory price increase because of
17:35
Speaker 2: you know, a one time passed through in tariffs into
17:37
Speaker 2: more entrenched inflation because we simply get used to three
17:42
Speaker 2: four five percent price hikes on an annual basis.
17:45
Speaker 5: Right, some context there, Chuck. You mentioned this month's reading
17:48
Speaker 5: was what fifty eight point something. Yes, so we've seen
17:53
Speaker 5: an increase in sentiment over the last few months since
17:55
Speaker 5: the initial tarif announcements that sunk sentiment. This is the
17:59
Speaker 5: first up in the last few months. Just for some
18:02
Speaker 5: context here. The I've got the annual numbers, which I
18:05
Speaker 5: believe are averages from calendar years going back since the
18:09
Speaker 5: survey started. The highest we've seen in recent times was
18:13
Speaker 5: twenty eighteen. We came in at ninety eight point four
18:16
Speaker 5: back in twenty eighteen for an average, which I don't
18:21
Speaker 5: know that helps me contextualize a little bit just how
18:24
Speaker 5: bad fifty eight is. Yeah, yeah, I think context there,
18:30
Speaker 5: you know, and you go back and look at the data.
18:34
Speaker 5: I don't see. So right now, the twenty twenty five
18:36
Speaker 5: numbers are coming in at sixty is your average. I
18:39
Speaker 5: don't see anything below sixty. This is why the survey
18:44
Speaker 5: is not terribly helpful right now. In two thousand and eight,
18:46
Speaker 5: the lowest we got was sixty three point seven. So
18:51
Speaker 5: what exactly do you do with that information? I think
18:54
Speaker 5: is what we've just been scratching our heads on is
18:57
Speaker 5: it has been substantially worse now for several years, and
19:04
Speaker 5: I think most people would objectively look at the economy
19:06
Speaker 5: today and say it's a heck of a lot better
19:08
Speaker 5: than it was, you know, nine.
19:09
Speaker 2: Sure, sure, let's take a quick break here. But when
19:14
Speaker 2: we return, do we were talking anything more on inflation?
19:19
Speaker 2: Do we want to talk tariffs? Where do you want
19:20
Speaker 2: to go.
19:20
Speaker 5: Mike, Well, I want to go to Wall Street Watch
19:23
Speaker 5: and then yeah, let's switch over to Tariff's next.
19:38
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Speaker 1: far today right here on the Financial Exchange Radio.
19:57
Speaker 3: Networks TEND thirty four in markets are in slightly mixed
20:02
Speaker 3: territory here not a lot of green on the board.
20:04
Speaker 3: The Dow Jones represents that lone green of the major indices,
20:08
Speaker 3: up about seven one hundreds of a percent, or just
20:11
Speaker 3: under thirty points. The S and P five hundred is
20:13
Speaker 3: off two tenths of a percent, or thirteen points. The
20:16
Speaker 3: Nasdaq is off a little over two tenths of a percent,
20:19
Speaker 3: or fifty six and a half points. Target shares are
20:22
Speaker 3: down one point three percent after Bank of America downgraded
20:25
Speaker 3: Target to underperform from neutral and trimmed its price target
20:29
Speaker 3: on the stock. Target's long term outlook is deteriorating as
20:33
Speaker 3: the company falls further behind its peers. The bank said.
20:36
Speaker 3: Alta Beauty and Target also agreed to end their partnership.
20:40
Speaker 3: United Health shares are up eleven and a half percent.
20:42
Speaker 3: The advance comes after Warren Buffett's Berkshire Hathaway revealed a
20:46
Speaker 3: stake of five million shares worth about one point six
20:49
Speaker 3: billion dollars. The big short investor Michael Burry and Applouosa
20:53
Speaker 3: Managements David Tepper also disclosed sizeable stakes in the company.
20:57
Speaker 3: If the UNH gains hold through the end of the session,
21:01
Speaker 3: it'll mark the stock's best day in five years. Semiconductor
21:06
Speaker 3: equipment manufacturer Applied Materials is down twelve percent after the
21:10
Speaker 3: company's current quarter outlook trailed estimates from analysts. Applied Materials
21:14
Speaker 3: fiscal third quarter earnings and revenue topped Wall Street expectations.
21:18
Speaker 3: Intel shares are up over four percent, adding to Thursday's
21:22
Speaker 3: seven percent gain. The chip maker jumped after Bloomberg reported
21:25
Speaker 3: that the Trump administration is in talks to buy a
21:28
Speaker 3: stake in Intel, which would help fund factories Intel A
21:31
Speaker 3: is building in Ohio. And finally, Hymns and Hers shares
21:34
Speaker 3: are down just under two percent following the Bloomberg report
21:37
Speaker 3: that said the Federal Trade Commission is investigating the company's
21:40
Speaker 3: business practices. The FTC is reportedly reviewing whether Hymns and
21:44
Speaker 3: Hers makes it too hard for customers to cancel their subscription.
21:48
Speaker 3: I am Ben Kitchen and that was Wall Street. Watch Mike,
21:51
Speaker 3: before we.
21:52
Speaker 2: Talk a little bit on tariffs, can we discuss target briefly?
21:58
Speaker 5: Yeah? Where to begin?
22:03
Speaker 2: I gotta tell you, Mike, it feels like there may
22:06
Speaker 2: be a year or two away from falling into that
22:08
Speaker 2: like Macy's Cole's Camp.
22:11
Speaker 5: Oh, that would be a bit doesn't like, doesn't it
22:14
Speaker 5: feel like that?
22:16
Speaker 4: Yeah?
22:16
Speaker 5: I don't think they're at Sears level catastrophe, but they
22:19
Speaker 5: are you have to go through Macy's to get there, Yeah,
22:22
Speaker 5: you do. Yeah, It would be impressively bad for them
22:31
Speaker 5: to go that direction given that they aren't anchored to
22:35
Speaker 5: shopping malls, right like for Twitter to sorry for Target
22:41
Speaker 5: to have such a disastrous performance without you know, dealing
22:46
Speaker 5: with the shopping mall trend would be just pretty remarkable.
22:54
Speaker 5: You know. It would be the next telling you, so
22:56
Speaker 5: the ultra beauty uh tie up that just did not
22:59
Speaker 5: apparently worked terribly well. And I had no expert on
23:04
Speaker 5: what brings somebody in an alta and as opposed to
23:06
Speaker 5: going to a Target, but apparently that partnership wasn't working
23:09
Speaker 5: terribly well. The other tell would be if Starbucks and
23:12
Speaker 5: Target decided to end their partnership because you go into
23:15
Speaker 5: most Starbucks, or you go into most Targets and there
23:17
Speaker 5: frequently is a Starbucks at the front of the store. Yeah,
23:20
Speaker 5: that would be pretty interesting to me. If they said,
23:22
Speaker 5: you know what, this isn't working for us either, that
23:25
Speaker 5: that would be another kind of nail on the coffin
23:27
Speaker 5: indication for me.
23:28
Speaker 4: Do we have any.
23:29
Speaker 2: Instances of you know, kind of big box stores that
23:34
Speaker 2: have successfully turned themselves around historically, you know what, we
23:41
Speaker 2: have it in a couple niche areas.
23:42
Speaker 4: You remember like best Buy.
23:44
Speaker 2: You know, ten years ago, everyone was nervous about you know,
23:47
Speaker 2: what was going on with best Buy, and they figured
23:50
Speaker 2: their way out of it. But that's that's a niche business.
23:53
Speaker 2: It's it's specific to electronics.
23:55
Speaker 5: I feel like Dick Sporting Goes was kind of in
23:57
Speaker 5: that era in that camp a little bit. They were
24:00
Speaker 5: doing terribly well and then really revolutionize their delivery platform.
24:05
Speaker 5: So anything there.
24:06
Speaker 4: Those two both have.
24:09
Speaker 2: I just I wonder about, you know, a big just
24:12
Speaker 2: big box store that hey, here's a little bit of everything.
24:16
Speaker 2: How do you turn the corner in a day where
24:19
Speaker 2: you're competing with you know, Sam or next day delivery
24:22
Speaker 2: from Amazon and Walmart?
24:24
Speaker 4: Right now, I don't know.
24:26
Speaker 2: What you do to get people like to change their
24:29
Speaker 2: mind about Target at this point.
24:31
Speaker 5: Alcohol. I think replace all the Starbucks with a bar
24:35
Speaker 5: and let everybody get boozed up while they're shopping at Target.
24:38
Speaker 5: That would certainly that might turn the corner from my wife.
24:41
Speaker 4: At least you have to walk through the bar to
24:44
Speaker 4: get to the store.
24:46
Speaker 5: I don't I don't have a great answer here. They need,
24:52
Speaker 5: would need a pretty massive investment in a whole bunch
24:55
Speaker 5: of areas just to compete with Walmart and and Amazon.
25:00
Speaker 5: Their grocery store just isn't isn't there And so there's
25:05
Speaker 5: nothing in particular that I think really drives people into
25:08
Speaker 5: their store anymore.
25:09
Speaker 2: The I mean, look, the only other thing and this
25:12
Speaker 2: is just kind of talking about like just the general
25:14
Speaker 2: change in where trends come from now short form video,
25:20
Speaker 2: whether you're talking like TikTok, Instagram reels like, you gotta
25:24
Speaker 2: have something that catches people's eye on those because that's
25:26
Speaker 2: where that marginal consumer decides to.
25:29
Speaker 4: Make those decisions now. And I say this is.
25:31
Speaker 2: Someone I'm not on any of these platforms, but us
25:35
Speaker 2: old fogies, we've got to understand there's a different way
25:38
Speaker 2: that this all happens now, and short form video is
25:41
Speaker 2: buy and large the dominant transmission method for the people
25:46
Speaker 2: that are those marginal buyers that businesses are looking for.
25:49
Speaker 5: Yes, but it's not driving them into their retail store,
25:52
Speaker 5: I don't think.
25:53
Speaker 2: And that's the problem is, you know it might be
25:56
Speaker 2: about a specific product, how do you do it about
26:00
Speaker 2: a store that you need to go to or shop from,
26:03
Speaker 2: like what's this selling point to get people there? I
26:07
Speaker 2: don't know, you know, it's it's tough. Anyways, that was
26:11
Speaker 2: a digression, but I find it interesting just because it
26:15
Speaker 2: targets in a dangerous spot right now and in retail,
26:18
Speaker 2: once you lose that thing that made you cool, it's
26:22
Speaker 2: tough to get it back.
26:22
Speaker 4: It's not that they can't.
26:23
Speaker 2: I mean, look at look no further than Abercrombie and Fitch.
26:27
Speaker 2: Just as an example, Abercrombie was by and large left
26:32
Speaker 2: for dead after you know, the two thousands. This was
26:36
Speaker 2: a stock that you know, was at eighty bucks a
26:38
Speaker 2: share in two thousand and seven and down to nine
26:41
Speaker 2: bucks a share in both twenty seventeen and twenty twenty,
26:45
Speaker 2: and now is sitting here at ninety five. But I
26:48
Speaker 2: don't think as a target, you know, shareholder or operator,
26:51
Speaker 2: you want to be like, well, we'll just do the
26:53
Speaker 2: Abercrombie and Fitch model, like that's kind of the exception
26:55
Speaker 2: that proves the rule. And again in a niche category
26:58
Speaker 2: where the product is the Taylor.
27:00
Speaker 5: All right, let me come up with an argument. Is
27:02
Speaker 5: Walmart a turn around story? I don't know that they
27:07
Speaker 5: were ever really struggling per se, but I do feel
27:12
Speaker 5: as though they have dramatically brought into their customer base
27:15
Speaker 5: over the last five years, specifically with their grocery appeal
27:19
Speaker 5: and online expansion. So I guess I don't think they
27:23
Speaker 5: perfectly fit the mold because I don't remember ever covering
27:25
Speaker 5: Walmart and being like, oh God, what a dumpster fire.
27:28
Speaker 5: But I do think that they have gone from just
27:33
Speaker 5: the cheapest place to buy everything to a legitimate online
27:36
Speaker 5: competitor to Amazon and a legitimate grocery competitor to Kroger.
27:40
Speaker 2: So yeah, I mean the thing with Walmart is, so
27:43
Speaker 2: let let's look at Target just as an example. So Target,
27:47
Speaker 2: when we talk about like some of the key stats
27:50
Speaker 2: that you know they have with their business, Target, if
27:53
Speaker 2: you look at revenue, the big problem right now, trailing
27:56
Speaker 2: twelve month revenue is down four percent since one of
28:00
Speaker 2: twenty three. They are seeing sales declines on a twelve
28:05
Speaker 2: month basis right now. Walmart, since it's been a publicly
28:09
Speaker 2: traded company, aside from Great Recession where revenue declined half
28:14
Speaker 2: a percent, which you can understand, you know, Great Recession
28:17
Speaker 2: and all that, they have not seen that since they've
28:19
Speaker 2: been a publicly traded company. So it's tough for me
28:22
Speaker 2: to say Walmart was a turnaround more than Hey, they
28:25
Speaker 2: had to get their feet under them and you know,
28:27
Speaker 2: deal with some things in the twenty tens like most
28:29
Speaker 2: businesses did, and then they've executed well on that.
28:32
Speaker 5: Yeah, I guess they saw a threat from Amazon. There
28:36
Speaker 5: are a lot of questions as to whether or not
28:37
Speaker 5: they would adapt to it, and they kind of did.
28:40
Speaker 2: But let's talk about the other thing with Walmart that
28:42
Speaker 2: people don't want to talk about. When it comes to
28:45
Speaker 2: the stock trading at a PE right now of forty two.
28:49
Speaker 2: Right in the twenty tens, it was generally trading at
28:53
Speaker 2: a PE of around fifteen. The vast majority of what
28:58
Speaker 2: has been driving the company is the fact that Walmart
29:03
Speaker 2: is being priced way more expensively now than it used
29:08
Speaker 2: to be. It's not that they're unsuccessful. I'm not saying that.
29:11
Speaker 2: But what I am saying is, Hey, when you look
29:15
Speaker 2: at the actual net income of the company, it's nineteen
29:21
Speaker 2: billion dollars right now. It was eighteen billion back in
29:26
Speaker 2: Q three of twenty thirteen. So profit for the company
29:31
Speaker 2: hasn't seen that dramatic of a shift in the last
29:34
Speaker 2: ten to twelve years. It's just that people are more
29:37
Speaker 2: willing to pay more for that profit. And I don't
29:41
Speaker 2: really know what that says other than I think, look,
29:47
Speaker 2: you pay more for a company for two reasons. Either
29:49
Speaker 2: the growth rate's going to be higher in the future,
29:51
Speaker 2: or you're more convinced that the growth rate there on
29:53
Speaker 2: is stable. And I think that Walmart, more than anything else,
29:56
Speaker 2: has just proven that they are a solid operator with
29:59
Speaker 2: a really stable growth rate, and people are willing to
30:01
Speaker 2: pay for that in the retail space. Let's take a
30:04
Speaker 2: quick break now. When we come back, we are going
30:06
Speaker 2: to get to tariffs right after this.
30:10
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30:28
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30:42
Speaker 2: Peace in Wall Street Journal opinion titled now we know
30:46
Speaker 2: who's paying the tariffs and I will quote from here.
30:50
Speaker 2: The Producer Price Index in July rose point nine percent
30:52
Speaker 2: in the month and three point three percent over the year.
30:54
Speaker 2: Consumer price data released on Tuesday zero point two percent
30:58
Speaker 2: monthly and two point seven for the last twelve months,
31:01
Speaker 2: implied households weren't experiencing tariff induced price increases except in
31:04
Speaker 2: some services such as medical care. The PPI numbers tell
31:07
Speaker 2: us this partly because companies are paying higher prices but
31:11
Speaker 2: haven't passed them on to consumers yet. And this gets
31:14
Speaker 2: it again what the PPI is, which is it's a
31:16
Speaker 2: measure of the prices received by wholesalers as they're making
31:21
Speaker 2: their distribution to retail dis distributors, and so pretty much
31:28
Speaker 2: what it's showing is that wholesalers now are seeing widening
31:32
Speaker 2: margins because they're able to charge more to their buyers.
31:36
Speaker 2: And to this point, the price increases from their buyers
31:41
Speaker 2: have not been higher. They have not been high enough
31:44
Speaker 2: to fully pass those tariffs on. Whether that is the
31:48
Speaker 2: case in the future, we do not know, but this
31:53
Speaker 2: is something that I think again we have to monitor
31:54
Speaker 2: the next few months to see if this starts seeping
31:57
Speaker 2: into other inflation indices over the next quarter or so.
32:01
Speaker 4: Yeah.
32:01
Speaker 5: The other piece that we've talked a lot about is
32:04
Speaker 5: the average effective terif rate, which the Yale Budget Lab
32:07
Speaker 5: which has been doing a lot of the preeminent research
32:09
Speaker 5: on this is estimating around eighteen and a half percent.
32:12
Speaker 5: That's up from like two and a half this time
32:15
Speaker 5: last year. That's obviously a huge increase. Others though, like Barclays,
32:19
Speaker 5: for example, when they're looking at that weighted average, they're
32:23
Speaker 5: estimating closer to ten percent, and you know, that could
32:26
Speaker 5: be a number of different things. One thing they point
32:28
Speaker 5: out is behavioral changes around where companies are importing from,
32:32
Speaker 5: just trying to delay goods coming from China, hoping that
32:34
Speaker 5: there's some sort of deal there. But that's the estimate
32:37
Speaker 5: right now. Is Look, you know, while that terif rate
32:40
Speaker 5: might and probably will continue to climb if it stays
32:43
Speaker 5: in place right now, it's just not all that substantial
32:47
Speaker 5: given a the exclusions we talked about, for instance, Brazil
32:51
Speaker 5: and seven of the top ten goods that we import
32:53
Speaker 5: from Brazil are exempted, and b company behavior on stockpiling
32:59
Speaker 5: and other you know, strategies that they've employed.
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33:56
Speaker 2: Mike Peace in market watch classic catchy headline, Goldman researchers
34:04
Speaker 2: warn of an unfriendly asymmetry. Why the next big market
34:09
Speaker 2: move may be down?
34:13
Speaker 5: What is anyone supposed to do with this information?
34:16
Speaker 2: I don't know. I'll tell you what I do. I
34:19
Speaker 2: crumpled up, I tossed in the trash and said next please,
34:22
Speaker 2: because look, I mean, uh okay, So the next mark
34:27
Speaker 2: the actual details.
34:28
Speaker 5: There's just nothing there there's.
34:30
Speaker 2: No meat on this bone. There's not even a bone there.
34:33
Speaker 2: It's just like like the next move could be down,
34:38
Speaker 2: but it also might not be okay, Like great, what
34:42
Speaker 2: do I do with this? How is this in any
34:43
Speaker 2: way investable information?
34:45
Speaker 5: It's not. It's a Friday over at market Watch. I guess, Yeah,
34:50
Speaker 5: I don't know. I think there's some important things for
34:55
Speaker 5: people to know with markets, like the fact that it's
34:57
Speaker 5: at all time highs, like the fact that we are
35:00
Speaker 5: are in the top ten percent of SMP valuations. Ever,
35:05
Speaker 5: there's a good important information persons to have, like got it?
35:11
Speaker 5: What would anyone reading this article change their current investment thesis?
35:18
Speaker 5: I guess is my question. I think the answer is
35:19
Speaker 5: probably not right.
35:20
Speaker 4: Don't get me wrong.
35:21
Speaker 2: I'm not saying that like stocks are definitely going to
35:24
Speaker 2: go up, because I don't know. But all I know
35:26
Speaker 2: is we've been seeing these pieces published since June. I mean,
35:32
Speaker 2: it's been a couple months of these now that we've
35:34
Speaker 2: been seeing them, and if you listen to them, you've
35:39
Speaker 2: gotten bopped on the head over and over in the
35:42
Speaker 2: last couple of months.
35:43
Speaker 4: Here.
35:43
Speaker 2: It's not to say that it'll continue forever, because you know,
35:46
Speaker 2: there's always wiggles and dips and this and that in markets.
35:50
Speaker 4: But GOLLYE G.
35:52
Speaker 2: Wilkers, if I had a dime for every time that
35:54
Speaker 2: there was a published report of Hey, stocks are overvalued,
35:58
Speaker 2: here's how they could fall, I wouldn't have to invest
36:00
Speaker 2: in stocks. I'd have plenty of dimes. I'd have enough.
36:06
Speaker 2: I'd have enough. So, yeah, this is another one. Hey,
36:09
Speaker 2: be critical when you're reading this stuff, because it's very
36:12
Speaker 2: easy to read this and be like, oh, this is
36:14
Speaker 2: an expensive market.
36:16
Speaker 4: It's time to sell.
36:17
Speaker 2: Valuation has absolutely no bearing on when a market corrects,
36:23
Speaker 2: whether you're talking about for an entire market or for
36:25
Speaker 2: a single stock. How many times have we talked about Look,
36:28
Speaker 2: Amazon's been overvalued for like one hundred years and it's
36:31
Speaker 2: only been around for thirty, you know, and yet it
36:35
Speaker 2: just continued to chug along. Now, it also did go
36:38
Speaker 2: through some pretty gnarly drawdowns during its time. But I
36:43
Speaker 2: don't know what do you do with this? The S
36:45
Speaker 2: and P five hundred has been by just about any
36:49
Speaker 2: metric for the last four years pretty darn overvalued. What
36:54
Speaker 2: you Well, who's to say that it falls apart tomorrow
36:58
Speaker 2: or you know, doesn't continue on to eight thousand instead
37:02
Speaker 2: of the sixty four hundred that it's at. I I
37:06
Speaker 2: just I really don't enjoy these, uh, these these these pieces.
37:10
Speaker 4: But I.
37:12
Speaker 2: Know it's why I'm glad it's in the stack is
37:14
Speaker 2: because it's uh, it's it's you know, it's worthy of
37:17
Speaker 2: a warning as to like, hey, read this critically and
37:20
Speaker 2: understand uh what is being said here.
37:23
Speaker 4: Uh.
37:24
Speaker 2: Speaking of which, yesterday was a big thirteen f unveiling
37:28
Speaker 2: day where you know, a bunch of funds, you know,
37:30
Speaker 2: are required by regulations to unveil, you know, their positions
37:35
Speaker 2: that they held in the most recent quarter. Berkshire Hathaway
37:38
Speaker 2: uh had to show that they bought shares of United Health,
37:41
Speaker 2: which has gotten absolutely bludgeoned this year. And so naturally
37:44
Speaker 2: United Health is up twelve percent today because everyone's like, well,
37:47
Speaker 2: if Warren Buffett's buying it, we have to You don't
37:50
Speaker 2: know when he bought it, You don't know the cost
37:52
Speaker 2: per share of what what he bought it at, you
37:54
Speaker 2: don't know if there are any hedges that are in
37:56
Speaker 2: place on it. And you also, by the way, aren't
37:58
Speaker 2: Warren Buffett, Well he might be listening. You know, you're
38:05
Speaker 2: not gonna know if he sells until after he sells
38:08
Speaker 2: in the thirteen F which could be today.
38:10
Speaker 4: It could be today. He might be selling into you
38:12
Speaker 4: right now.
38:14
Speaker 5: Yeah, good times.
38:16
Speaker 2: In any case, we're done for this hour. But the
38:19
Speaker 2: good news we got more coming up. Stick around for
38:22
Speaker 2: hour two