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Walmart posts rare profit miss. Time to worry? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada
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Speaker 1: and Paul Lane.
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Speaker 2: Chuck Paul and talker with you, and we kick things
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Speaker 2: off looking at Walmart earnings from this morning and Walmart
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Speaker 2: stock down about four percent. Paul, what did we see
1:22
Speaker 2: from Walmart?
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Speaker 3: Chuck out. I thought it was overall a pretty good
1:26
Speaker 3: quarter that reported. But ultimately it seems like the concern
1:30
Speaker 3: here with the market is that their profitability numbers fell
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Speaker 3: in a little bit short of estimates. Their earnings per
1:36
Speaker 3: share came in at sixty eight cents to share versus
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Speaker 3: what Wall Street had expected of seventy four census share.
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Speaker 3: A lot of that reason for the miss on the
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Speaker 3: earnings front, the retailer sited was insurance claims, lead legal charges,
1:51
Speaker 3: and restructuring costs that weigh down on profitability. But otherwise,
1:56
Speaker 3: outside of that, I understand, you know, that's what the
1:58
Speaker 3: street cares about, is the missed there. There were many
2:01
Speaker 3: positives that I took away from this report. Unless you know,
2:05
Speaker 3: you can feel free to disagree. But the sales growth
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Speaker 3: that they're anticipating for the rest of the fiscal year
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Speaker 3: is going to be ranging from three point seventy five
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Speaker 3: percent to four point seventy five percent. That's up from
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Speaker 3: where it previously was so continuing to see strong sales
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Speaker 3: growth for the remainder of the year. They reported comp
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Speaker 3: sales growth of four point six percent in Q two
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Speaker 3: compared to last year. Like we just talked about the
2:28
Speaker 3: last couple of days, how Target has seen declining sales
2:32
Speaker 3: growth and some of these other retailers, granted on the
2:34
Speaker 3: home improvement SIDEM, Home Depot and Low's have barely been
2:38
Speaker 3: able to scratch out one percent. And I know Walmart's
2:41
Speaker 3: business is a different makeup, but still some pretty good
2:43
Speaker 3: numbers there. Their e commerce side of things continues to
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Speaker 3: roar twenty five percent growth there, and the CEO CFO
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Speaker 3: rather stating that the consumer has continued to be quite
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Speaker 3: resilient in terms of the face of tariff impact. Tier
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Speaker 3: They saw prices rise across items in the US about
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Speaker 3: one percent in the quarter. You had a little bit
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Speaker 3: of mixed messaging from the CEO differing slightly from the
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Speaker 3: cfo's commentary about the consumer being resilient, mentioning that some
3:14
Speaker 3: of these discretionary purchases showed a little bit of sensitivity
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Speaker 3: to tariffs. But overall, I take this as a whole
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Speaker 3: as a pretty good quarter for Walt Walmart stock had
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Speaker 3: been bid up pretty high, so some of this selloff
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Speaker 3: could just be as a result of the fact that
3:29
Speaker 3: it's been on a tear.
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Speaker 2: Yeah, I think that when when I look at this,
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Speaker 2: it's something where you've got, you know, a number of
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Speaker 2: good items that you mentioned in terms of, you know,
3:41
Speaker 2: the the e commerce sales moving up. But I think
3:45
Speaker 2: the big thing is, look, if you look at their
3:48
Speaker 2: net sales projections and you know that higher guidance that
3:51
Speaker 2: they gave, they also gave guidance as to earnings for
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Speaker 2: the full year that were basically unchanged, like less than
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Speaker 2: a one percent shift in earning, And what that implies
4:01
Speaker 2: is basically, look, the reason that we are expecting net
4:05
Speaker 2: sales to rise is because we think our cost of
4:08
Speaker 2: good sould is going to rise, and as sets, we're
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Speaker 2: going to try to pass that through. So it's not
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Speaker 2: really they're not expecting stronger organic growth. It's just they're
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Speaker 2: going to be seeing some higher costs and they're going
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Speaker 2: to be passing that through to maintain margins because Walmart
4:22
Speaker 2: operates on a pretty tight leash when it comes to
4:26
Speaker 2: their margins, just like most retailers. I mean this is
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Speaker 2: you can go back one hundred and fifty years and
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Speaker 2: find you know, information on grocery stores basically, you know,
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Speaker 2: grocery stores and retailers saying, hey, we're trying to operate,
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Speaker 2: you know, at low margins in order to you know,
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Speaker 2: maximize sales. And that's Walmart's game. They've just leveraged it
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Speaker 2: better than anyone else because of you know, the when
4:47
Speaker 2: and where they operate. So when you have margins of
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Speaker 2: you know, four percent, you don't have a ton of
4:54
Speaker 2: wiggle room to be able to absorb higher prices. You
4:56
Speaker 2: can do a little bit of it, but ultimately you
4:59
Speaker 2: gotta pass those through. You can't just be like, Okay,
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Speaker 2: our costs are going up by three percent, We're gonna
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Speaker 2: let you know, three quarters of our profit go away. No,
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Speaker 2: it doesn't really work like that. You can't do that.
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Speaker 2: So when I look at Walmart, I think that the
5:13
Speaker 2: second piece that you said makes it makes a ton
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Speaker 2: of sense, which is, look, it's a company that's been
5:17
Speaker 2: on a tear and it's priced expensively. I mean, I
5:20
Speaker 2: don't know that people realize this right now. They should.
5:25
Speaker 2: Walmart right now trades at thirty seven times forward earnings,
5:30
Speaker 2: meaning projected earnings for the next twelve months. To put
5:33
Speaker 2: this in perspective, in Vidia trades it forty times forward
5:38
Speaker 2: earnings right now. Now, the earnings growth projections for Nvidia
5:41
Speaker 2: are steeper, So you can make a case it's priced,
5:44
Speaker 2: you know, way more steeply than Walmart. But in terms
5:47
Speaker 2: of hey, what does everyone think their next twelve months
5:49
Speaker 2: earnings are gonna be and what's their price relative to that,
5:52
Speaker 2: the two companies are priced pretty darn closely at the moment.
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Speaker 2: And I think we all can agree that, Hey, as
5:59
Speaker 2: much as you know, Walmart is really really consistent in
6:02
Speaker 2: its business, it's not doing the things that Nvidia has
6:05
Speaker 2: been doing over the last couple of years. Nor is
6:07
Speaker 2: it going to suddenly start doing that. You know, We're not.
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Speaker 2: We're not gonna see walmart sales suddenly start going up
6:12
Speaker 2: fifty percent year over year and their profit going up
6:15
Speaker 2: two hundred percent year over year because they sell pita chips,
6:19
Speaker 2: not computer chips. It's just it is what it is.
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Speaker 2: So I think the two things that can absolutely be
6:26
Speaker 2: true here are, Hey, Walmart continues to show they're a
6:29
Speaker 2: great operator. Their e commerce business is showing some really
6:33
Speaker 2: good growth. I think they're up to I think like
6:35
Speaker 2: twenty percent of all their sales now being online through
6:38
Speaker 2: Walmart dot Com, which is huge given you know where
6:41
Speaker 2: they've come from in the last five to seven years.
6:44
Speaker 2: And I think ultimately having that grocery piece attached to them,
6:49
Speaker 2: where what is it, like fifty percent of their sales
6:52
Speaker 2: I think are groceries as well, So keep in mind,
6:55
Speaker 2: like most people don't buy a ton of groceries online
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Speaker 2: through Walmart like that the data is not strong on
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Speaker 2: that side, and that basically means that like forty to
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Speaker 2: fifty percent of their non grocery sales are coming online,
7:08
Speaker 2: which is huge. Like that's that's huge for them. So
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Speaker 2: I think overall it's a well run company. There's nothing
7:15
Speaker 2: too exciting about it, but they continue to execute well.
7:19
Speaker 2: And in this environment right now, you're going to pay
7:22
Speaker 2: for good execution, and I think that's the reason why
7:24
Speaker 2: it's still isn't priced as highly as it is. The
7:30
Speaker 2: thing that I wonder about with Walmart and this I
7:32
Speaker 2: even I've said this before about other companies, like you know,
7:35
Speaker 2: you look at take Apple or Microsoft as an example.
7:39
Speaker 2: So like let's say that Apple has you know, a
7:41
Speaker 2: bad year two, what does that actually look like and
7:49
Speaker 2: why does this is gonna sound kind of dumb at first,
7:52
Speaker 2: but assuming that you own Apple stock, even if they
7:57
Speaker 2: had a bad year or two, why would the price
8:01
Speaker 2: move down? And I know that sounds kind of dumb
8:06
Speaker 2: because I'm basically saying why should applestock ever go down?
8:10
Speaker 2: But I want you to hear me out for a minute.
8:12
Speaker 2: So the the reasons why you know, markets tend to
8:15
Speaker 2: price things, you know, to try to price things efficiently,
8:18
Speaker 2: is because, hey, if you don't, then you get caught
8:21
Speaker 2: by surprised by someone you know, pulling an end around
8:23
Speaker 2: on you, and all of a sudden you're like, oh,
8:25
Speaker 2: like what happened? Example would be okay, let's say that
8:29
Speaker 2: you are you know, what's a what's a bad company?
8:34
Speaker 2: Right beyond meat? Okay, not a bad company, but just
8:36
Speaker 2: a bad stock. Okay, how dare you? No, we're not
8:41
Speaker 2: gonna do this. We're not gonna do this, not here. Okay,
8:44
Speaker 2: this is the war room. You can't fight here. So
8:47
Speaker 2: you take beyond meat right now. And the worry with
8:50
Speaker 2: beyond meat is very real in that, hey, it's one
8:54
Speaker 2: hundred and eighty two million dollar company. They're not profitable,
8:57
Speaker 2: they're free cash flows negative, they don't have a lot
9:00
Speaker 2: of cash on hand, they could go out of business,
9:03
Speaker 2: and if they declare bankruptcy and you still own the shares,
9:05
Speaker 2: you have nothing. I think that we can all generally
9:09
Speaker 2: agree that in the short term, the risk of bankruptcy
9:12
Speaker 2: to an Apple or Microsoft or even a Walmart is
9:15
Speaker 2: pretty low, and likewise, the idea that someone's going to
9:19
Speaker 2: come in with some monster bid to acquire them is
9:23
Speaker 2: also kind of low as well. So I guess you
9:25
Speaker 2: kind of look at them and I have this weird
9:27
Speaker 2: thought from time to time on them where I just
9:29
Speaker 2: look at the stocks and I'm like, why does anyone
9:31
Speaker 2: trade these? Because they can't really go out of business tomorrow.
9:38
Speaker 2: They're not going to be acquired by anyone, so who
9:41
Speaker 2: really cares what the fair value is for these?
9:43
Speaker 3: Anyways, I would push back on that because ultimately, the
9:48
Speaker 3: reason why Walmart can trade at thirty five thirty five
9:53
Speaker 3: times forward earnings is because of the perception of them,
9:56
Speaker 3: like you mentioned before, as good operators and good executors.
9:59
Speaker 2: But if for some.
10:00
Speaker 3: Reason that story change for whatever reason, whether it is
10:05
Speaker 3: something that is at the corporate level, loss of employees,
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Speaker 3: some sort of scandal that hits them, the same thing
10:12
Speaker 3: can apply for Apple too. Ultimately, the reason that they're
10:15
Speaker 3: able to command these high valuations part of it is
10:18
Speaker 3: just kind of the reputation story around them, where fundamentally
10:23
Speaker 3: I don't think you could really make the argument that Walmart,
10:25
Speaker 3: given its business, should trade it thirty five times earnings,
10:28
Speaker 3: But it's trading that way because of kind of the
10:31
Speaker 3: premium that it commands for its reputation. Those things take
10:35
Speaker 3: a hit, then you can see a differing story as
10:38
Speaker 3: to where it would trade. I guess that would be
10:40
Speaker 3: the thought I would have.
10:42
Speaker 2: Sure. I just I kind of look at these sometimes
10:44
Speaker 2: and I'm like, I don't know, Like nothing's really gonna happen.
10:48
Speaker 2: It's notable in either direction, or like it doesn't seem
10:51
Speaker 2: like it. You know, even look at all the AI
10:54
Speaker 2: hype and everyone's like, oh Apple doesn't have you know, AI. Well,
10:57
Speaker 2: they still have forty percent margins, So like who cares?
11:01
Speaker 2: Like if if AI starts to threaten their business, then
11:03
Speaker 2: actually care. But otherwise I don't know, Like do we
11:07
Speaker 2: really need to Does CNBC need something to.
11:09
Speaker 3: Talk about the global market share in China declining? For
11:14
Speaker 3: for Okay, that's concerned they could sell less product there.
11:18
Speaker 3: That's twenty percent of their sales and they're decreasing their
11:22
Speaker 3: I'm not saying, but why should that affect the price
11:24
Speaker 3: of the stock based on their revenue relative to what they're.
11:29
Speaker 2: I guess here's what I'm getting, Like, these companies are.
11:32
Speaker 3: So developed that you're saying revenue couldn't shift that much
11:35
Speaker 3: to jigger it one way or another.
11:38
Speaker 2: I know that what I'm saying is going to sound dumb,
11:40
Speaker 2: and I know that it's not one hundred percent true,
11:43
Speaker 2: But like, is Apple going to go the way of digital?
11:47
Speaker 2: Like everyone always likes to be like, oh, all these
11:49
Speaker 2: like seventies and eighties tech companies went out of business
11:51
Speaker 2: and it happened to that kind of thing, Like you
11:54
Speaker 2: really think with how entrenched Apple is today, it's going
11:56
Speaker 2: to happen to them because they like. Comparing Apple to
11:59
Speaker 2: Kodak is like comparing a Ferrari to a horse drawn carriage.
12:04
Speaker 3: I'm drawing blank on historical their scott Their size and
12:08
Speaker 3: scale is crazy, but I'm sure there has been historical
12:12
Speaker 3: examples of companies that you thought g has researched. But
12:15
Speaker 3: they're a company that probably twenty years ago you would
12:18
Speaker 3: say that they could do no wrong, and they couldn't
12:21
Speaker 3: go through what was a period that was really challenging.
12:23
Speaker 3: Did they go to business No, but it looked a
12:25
Speaker 3: lot different going forward. Could they spread themselves too thin? Yeah,
12:29
Speaker 3: not to think with some other examples, it's just hard.
12:31
Speaker 3: I have this thought that goes through my head.
12:33
Speaker 2: I don't fully believe it, but sometimes I'm just like,
12:37
Speaker 2: why why should that go down? Like just because they
12:39
Speaker 2: sold fewer iPhones, Like they're still making a boatload of money.
12:42
Speaker 2: Who cares how many they sold this quarter?
12:44
Speaker 3: There probably was a horse and buggage company out there
12:47
Speaker 3: that got crushed by Ford back in the day. Maybe
12:50
Speaker 3: I'm sure, I'm sure, but not the size of Apple.
12:53
Speaker 2: I get it. And look, I'm sure all the AI
12:55
Speaker 2: people are just like looking at me around the corner,
12:57
Speaker 2: just like ooh, like Chuck's gonna be wrong. I get it.
13:01
Speaker 2: But I have these thoughts that bubble up occasionally, and
13:03
Speaker 2: I just to let you guys know that's it's the worroom.
13:07
Speaker 2: Take a quick break. When we return, we'll talk a
13:09
Speaker 2: little bit about the details from the EU and US
13:12
Speaker 2: trade agreement that were unveiled this morning.
13:15
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13:24
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13:45
Speaker 2: All right, this morning, somewhere in the seven to eight
13:49
Speaker 2: o'clock hour, I don't know exactly when we saw the
13:52
Speaker 2: text of the deal between the US and EU posted
13:59
Speaker 2: by the White House online. What we learn through the
14:05
Speaker 2: actual written deal here.
14:08
Speaker 3: Basically what the case is going to be for certain
14:13
Speaker 3: areas of imports. There will be potentially the ability for
14:19
Speaker 3: the EU to import things such as cars, pharmaceuticals, or
14:23
Speaker 3: semiconductors at a fifteen percent tariff rate. If you look
14:28
Speaker 3: at autos that was previously at twenty seven and a
14:31
Speaker 3: half percent, it would come down to fifteen percent. However,
14:33
Speaker 3: there are some conditions that the EU would need to
14:36
Speaker 3: meet in order to get those preferential rates on some
14:39
Speaker 3: of those sectoral discounts that I mentioned before. What those
14:42
Speaker 3: conditions are. The EU will have to eliminate its own
14:45
Speaker 3: tariffs on US industrial goods, as well as opening the
14:50
Speaker 3: door to the US to be able to sell agricultural
14:54
Speaker 3: goods as well as seafood into the EU, So that
14:59
Speaker 3: was probably the biggest piece. And to me, it seems
15:03
Speaker 3: as if fifteen percent is kind of going to be
15:06
Speaker 3: the standard level for most of assuming the conditions get met.
15:11
Speaker 2: Seems like it. Yeah, And so obviously the you know,
15:13
Speaker 2: the question is going to be predominantly when it comes
15:16
Speaker 2: to the EU. Hey, how do the automakers deal with this?
15:19
Speaker 2: Because the literal and metaphorical engine for the EU is
15:24
Speaker 2: the German auto Sector're glad we got that one in there.
15:28
Speaker 2: And so obviously, look, if it's more expensive to send
15:32
Speaker 2: Volkswagens and Mercedes over to the US, hey, that's going
15:35
Speaker 2: to be a thing. Both those companies do have facilities
15:38
Speaker 2: that they operate in the United States, but if you
15:40
Speaker 2: look at what they mostly make in the US, it
15:43
Speaker 2: is a lot of the SUVs and stuff that we
15:45
Speaker 2: tend to buy. If you are buying a Mercedes Sedan
15:48
Speaker 2: as an example, they are exporting that from Germany. Likewise,
15:53
Speaker 2: if you look at a number of Volkswagen models, it's
15:56
Speaker 2: the same situation as well. So it's not at all
15:58
Speaker 2: or nothing, and we'll have to figure out how they
16:00
Speaker 2: deal with pricing and margins, because look, auto business, it's
16:04
Speaker 2: tough business. It's like, hey, let's spend you know, fifty
16:07
Speaker 2: billion dollars developing this plant, and then we're gonna eke
16:10
Speaker 2: out you know, five to seven percent margins if we're
16:12
Speaker 2: lucky and there's no recession over the next ten years,
16:14
Speaker 2: and that'll figure out how to pay for this thing.
16:17
Speaker 2: So it's it's a tough business to be in and
16:21
Speaker 2: they're gonna have to figure out how to adapt. That's
16:23
Speaker 2: the only only thing that you can say about it.
16:25
Speaker 3: Particularly a concern for Germany. As you mentioned, that had
16:28
Speaker 3: imported thirty five billion of autos and auto parts in
16:31
Speaker 3: twenty twenty four to the US, and it's a huge
16:33
Speaker 3: part of their economy. So this is something that is
16:36
Speaker 3: of significant importance to Germany.
16:39
Speaker 2: Let's talk a little bit about the Fed minutes that
16:42
Speaker 2: we saw yesterday. These came out I think it was
16:45
Speaker 2: like two pm somewhere in that ballpark, and it's really
16:49
Speaker 2: interesting what we saw actually from the Fed minutes. Normally
16:53
Speaker 2: I don't really pay much attention to them. If I'm
16:56
Speaker 2: being one hundred percent honest, I'm kind of like, okay,
16:59
Speaker 2: like who cares what, Like the tenor of the meeting was,
17:03
Speaker 2: it's not really important to me. But we got a
17:07
Speaker 2: whole bunch of detail about kind of not who thought what,
17:11
Speaker 2: but like what quantity of people at the FED meeting
17:15
Speaker 2: thought what? And I found it, you know, useful to
17:19
Speaker 2: kind of break this down into different categories. So what
17:22
Speaker 2: did most people believe? Inflation is above the two percent goal?
17:27
Speaker 2: The tariff effect can take time to seep in, and
17:30
Speaker 2: those were kind of the two big things that the
17:32
Speaker 2: majority of people believed. Several people thought that the risks
17:38
Speaker 2: were balanced, that they were concerned about acid valuations specifically,
17:43
Speaker 2: like kind of market valuations and real estate and prices
17:45
Speaker 2: like that being you know, high, expect some weaker growth
17:49
Speaker 2: in the second half of the year and are starting
17:52
Speaker 2: to see signs of slower income growth hitting consumers as well. Okay,
17:56
Speaker 2: then what were the things that a few people noted.
18:00
Speaker 2: Tariff passed through has been kind of limited so far.
18:03
Speaker 2: Businesses are trying to avoid passing on costs. Tariffs could
18:07
Speaker 2: be a one time price bump, or they could cause
18:09
Speaker 2: persistent inflation, Like you had both sides expressed there by
18:13
Speaker 2: a few people. Immigration policies hurting labor supply. This I
18:17
Speaker 2: think we're going to continue to hear more about over
18:19
Speaker 2: the next six months, weakening housing demand, and you know,
18:24
Speaker 2: those are kind of the big things there. And then
18:26
Speaker 2: you got to, hey, what did a couple members believe
18:29
Speaker 2: tariffs are masking true inflation which is closer to two percent?
18:33
Speaker 2: Expectations are driven by overall inflation, and households have low
18:38
Speaker 2: delinquencies and there's not much you know, concern on on
18:42
Speaker 2: that side of things. So I think overall, the message
18:45
Speaker 2: from this was actually a little bit more hawkish than
18:48
Speaker 2: what we heard a couple weeks ago, in that it
18:51
Speaker 2: was pretty much, hey, most of us didn't really want
18:54
Speaker 2: to do anything. A few people actually thought we should
18:57
Speaker 2: raise rates, and there were a couple that you know,
18:59
Speaker 2: publicly that already yes, I wanted to you know, lower rates.
19:02
Speaker 3: Yeah, that was most publicized, the cutting rate piece.
19:07
Speaker 2: Yeah, because no one voted to raise rates in the
19:10
Speaker 2: last meeting. But it sounds like there were a few
19:13
Speaker 2: people that actually talked about it as if, Okay, maybe
19:16
Speaker 2: we should And what I wonder about on this in
19:19
Speaker 2: terms of the Fed minutes, it's a little bit more
19:22
Speaker 2: hawkish tilt than I think people were expecting. Is it
19:25
Speaker 2: a preview of what we're gonna hear from mister Powell?
19:28
Speaker 2: Jackson Hole tomorrow. The good news when we come back,
19:31
Speaker 2: We're gonna preview that preview after this.
19:40
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19:53
Speaker 1: Watch a complete look at what's moving market so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 4: After beginning of the day well into negative territory, markets
20:03
Speaker 4: are now relatively flat at the moment as traders digest
20:07
Speaker 4: significant retailer earnings from Walmart and await FED chairman Jerome
20:11
Speaker 4: Powell's speech in Jackson Hole tomorrow morning. At the moment,
20:15
Speaker 4: the Dow is down by two tenths of one percent
20:18
Speaker 4: or ninety points lower. SMP five hundred is down over
20:21
Speaker 4: a tenth of a percent or eleven points lower, Nasdaq
20:24
Speaker 4: down a tenth of a percent as well, or twenty
20:27
Speaker 4: points lower. Russell two thousand mostly flat at the moment.
20:31
Speaker 4: Tenure treasure yield is up three basis points at four
20:34
Speaker 4: point three two eight percent. In crude oil is up
20:38
Speaker 4: about half a percent higher, trading right around sixty three
20:42
Speaker 4: dollars a barrel. Walmart reported rapid sales growth in the
20:46
Speaker 4: second quarter and raised its outlook, saying it is winning
20:49
Speaker 4: over shoppers with grocery discounts and fash shipping. However, the
20:53
Speaker 4: retail giant missed earnings expectations on an adjusted basis, sending
20:58
Speaker 4: shares four percent lower on the day. According to the
21:01
Speaker 4: Wall Street Journal, Meta has frozen hiring in its artificial
21:04
Speaker 4: intelligence division after spending months scooping up researchers and engineers.
21:10
Speaker 4: Shares in the Facebook parent company are down over half
21:13
Speaker 4: a percent. Speaking of hiring freezes, Novo Nordisk announced to
21:17
Speaker 4: hiring freeze in non critical areas as it looks to
21:20
Speaker 4: fend off competition and control costs. Shares in the Ozepic
21:24
Speaker 4: and wegovie maker are up over one percent. Meanwhile, beauty
21:29
Speaker 4: and sense company Cody is seeing its stock plunge nineteen
21:32
Speaker 4: percent after it posted an unexpected quarterly net loss. The
21:37
Speaker 4: Rimmel owner is expanding into fragrance myths and said consumers
21:41
Speaker 4: still want to pamper themselves. Cracker Barrel plunging over twelve
21:45
Speaker 4: percent after the restaurant and gift shop chain on Wilden
21:48
Speaker 4: updated logo earlier this week, leading to criticism on social
21:53
Speaker 4: media and new streaming services from ESPN and Fox officially
21:57
Speaker 4: launched today, making their cable network offerings available for a
22:01
Speaker 4: monthly subscription that's not confusing in the least bed and
22:04
Speaker 4: doesn't overwhelm me at all. Disney is down by one percent,
22:08
Speaker 4: while Fox is up modestly. I'm Tucker Silvan and that
22:12
Speaker 4: is Wall Street Watch.
22:13
Speaker 2: So tomorrow j Powell is going to give his annual
22:18
Speaker 2: speech at Jackson Hole, and the lingering question out there
22:24
Speaker 2: is what shade of purple will Jay Powell's tie be.
22:28
Speaker 2: I've prepared a selection for you. I'm curious to hear
22:31
Speaker 2: what you guys think. Is it gonna be just, you know,
22:34
Speaker 2: base purple? Is that what we're going with? Are we
22:37
Speaker 2: going with something more amethyst in nature? Maybe a mauve,
22:42
Speaker 2: maybe a raspberry, something along those lines. Violet? What direction
22:47
Speaker 2: do you think he's gonna take the tie in?
22:49
Speaker 3: I'll goo violet solid or pattern solid? Tucker, any thoughts.
22:55
Speaker 4: I don't know. But he's gonna wear his finest denim
22:57
Speaker 4: jeans because it is a Friday.
22:59
Speaker 2: You think he's going jeans? Took him to the.
23:02
Speaker 4: Dry cleaner like Michael Scott did.
23:03
Speaker 1: Yep.
23:05
Speaker 2: I don't know if Jay Powell. I feel like ja
23:08
Speaker 2: Powell gardens and khakis, not that there's anything wrong with that.
23:12
Speaker 4: Well, then you know he's making a speech though, but it.
23:14
Speaker 3: Is a Friday.
23:15
Speaker 4: You know, he's still on a trip to keep the cash.
23:18
Speaker 2: I don't know. Let me ask this, does Ja Powell
23:23
Speaker 2: own a pair of shorts?
23:25
Speaker 1: Oh?
23:26
Speaker 4: Yeah, he's a cargo guy, cargo shorts.
23:28
Speaker 3: You think he's the down of the mafia, doesn't wear shorts.
23:31
Speaker 2: I think I think he wears sweatshorts.
23:33
Speaker 4: I think he's a cargo shorts guy. I think he's
23:35
Speaker 4: got all that gardening equipment he's got to handle, you know, I.
23:37
Speaker 2: See him as as as sweatshorts, maybe even like cut
23:41
Speaker 2: off sweatshorts Bill Belichick style. But for the pants.
23:45
Speaker 3: Actually, one of these articles to tie into something from
23:48
Speaker 3: the stack, did mention that he works out quite a bit,
23:50
Speaker 3: So he definitely has shorts. He's got a personal trainer.
23:54
Speaker 2: I don't know.
23:54
Speaker 3: Some some people were.
23:55
Speaker 2: Pants worker outers. You know, you always have that one
24:00
Speaker 2: guy at the gym that is in you know, full pants,
24:03
Speaker 2: full like you know, long sleeves, just working up the sweat.
24:07
Speaker 2: But we digress. Jackson Hole question is what is Powell's
24:11
Speaker 2: speech going to be like? Now. Three years ago, back
24:14
Speaker 2: in twenty twenty two, he delivered arguably his most hawkish
24:18
Speaker 2: speech of his tenure. The rumor out there is that
24:22
Speaker 2: he rewrote it actually like the night before, just because
24:24
Speaker 2: he was unhappy with what he had done previously. The
24:28
Speaker 2: S and P five hundred promptly puked about fifteen percent
24:31
Speaker 2: through mid October, and then we've been on a steady
24:34
Speaker 2: upward clip since then, with you know, a couple of
24:36
Speaker 2: hiccups here and there the other you know years you
24:40
Speaker 2: will get again. Kind of the most I'm looking at
24:42
Speaker 2: the post pandemic era just because like seeing what Jay
24:45
Speaker 2: Powell said in twenty nineteen is not really relevant to
24:47
Speaker 2: where the economy is today. You look the other three years,
24:51
Speaker 2: you know, kind of during that time period, and Powell had,
24:56
Speaker 2: you know, some mixed speeches to the point where last
24:58
Speaker 2: year arguably one of his most dubbish speeches. Hey, the
25:01
Speaker 2: we believe, you know, it's appropriate to now, you know,
25:04
Speaker 2: pay more attention to the unemployment risk and you know,
25:06
Speaker 2: the balance of risks have changed. And even with that,
25:09
Speaker 2: by the way, the market kind of anticipated it and
25:12
Speaker 2: fell like four or five percent shortly after over the
25:14
Speaker 2: next week or so before bottoming. So the trend over
25:19
Speaker 2: the last four years has been whatever Powell has said,
25:21
Speaker 2: the market really hasn't liked it in the subsequent weeks.
25:25
Speaker 2: But what is he actually going to say? The people
25:28
Speaker 2: that are plugged into to Powell think it's going to
25:31
Speaker 2: be with a hawkish tilt, but with no specificity, so
25:33
Speaker 2: that basically no one can grab on to anything. I
25:38
Speaker 2: kind of wonder if Powell wants to be more specific here.
25:42
Speaker 2: And I mentioned that only because of two things. The
25:45
Speaker 2: first is obviously Powell and the President not getting along great,
25:49
Speaker 2: and this is a chance for him to show FED independence.
25:52
Speaker 2: The second piece, this is this is his last speech
25:55
Speaker 2: at jackson Hole. No matter what, he will not be
25:59
Speaker 2: the FED chair at this time next year, and so
26:03
Speaker 2: it's a chance for him to kind of leave a legacy.
26:05
Speaker 2: And I wonder if he's thinking about that in terms
26:08
Speaker 2: of how he frames his speech. I'm not saying that
26:11
Speaker 2: that will be more dubbish or more hawkish. I don't know,
26:15
Speaker 2: but it's going to be his last Jackson Hole speech,
26:19
Speaker 2: and I wonder if he thinks about it in that
26:21
Speaker 2: context and pushes in one direction more than he otherwise
26:26
Speaker 2: would have.
26:26
Speaker 3: Because of that, certainly sentiment on FED independence. I could
26:29
Speaker 3: potentially see that being something that Powell focuses on during
26:34
Speaker 3: this discussion. I would say that in general, the specificity
26:38
Speaker 3: I would imagine will be incredibly limited, probably to your
26:42
Speaker 3: point on the Hawky stance. He'll mention some of the
26:45
Speaker 3: concerning pieces with potential increases to inflation and the cooling
26:50
Speaker 3: labor market, but not commit to anything and ask for
26:53
Speaker 3: us to see several more months of data. That's probably
26:57
Speaker 3: how he'd play it, right down the middle. Well, something
27:00
Speaker 3: that's more longer term will be interesting. Any sort of
27:03
Speaker 3: commentary he has on longer term Federal Reserve monetary policy.
27:07
Speaker 3: One of the big decisions that was made pre pandemic
27:11
Speaker 3: was this idea of letting inflation run hotter than two percent,
27:14
Speaker 3: because for the last ten or fifteen years or so,
27:16
Speaker 3: we never talked about inflation all because there wasn't really
27:19
Speaker 3: any inflation out there.
27:20
Speaker 2: It was lower for a while. It was this idea
27:22
Speaker 2: of average inflation targeting. Hey, if we've been at you know,
27:25
Speaker 2: one seven for the last five years, maybe it running
27:27
Speaker 2: at two five for a few years. Isn't the worst thing.
27:30
Speaker 3: That I don't think is going to be part of
27:32
Speaker 3: the plans going forward, because when we got up to
27:35
Speaker 3: nine percent in twenty twenty two and the mistakes that
27:38
Speaker 3: were made thinking that inflation was transitory, pretty good indication
27:42
Speaker 3: of not having that be part of the future plans.
27:44
Speaker 3: But that, along with some other concepts just in terms
27:47
Speaker 3: of what monetary policy looks like going forward, that will
27:50
Speaker 3: be the other piece of it. It will be a
27:51
Speaker 3: much more minor part of the speech in terms of
27:54
Speaker 3: what pundits focus on the next day, but also something
27:57
Speaker 3: that will be interesting to follow.
27:59
Speaker 2: The interesting piece on this is how projections for the
28:03
Speaker 2: September meeting have evolved over the last week. Just as
28:06
Speaker 2: an example, if we go back a week ago, you
28:12
Speaker 2: had a one hundred percent chance of I'm sorry, it
28:15
Speaker 2: was a ninety two percent chance of a quarter percent
28:19
Speaker 2: rate hike. At the September meeting. Yesterday it was down
28:24
Speaker 2: to an eighty two point four percent chance, and today
28:27
Speaker 2: it's a seventy five point three percent chance. So we've
28:30
Speaker 2: kind of seen this backsliding, and it's been because of
28:33
Speaker 2: a few different things that we've gotten as far as
28:36
Speaker 2: you know, different data points that have come out during
28:38
Speaker 2: that time. Quite honestly, like you look at how the
28:41
Speaker 2: data has come out, and you say, okay, I can understand,
28:44
Speaker 2: you know, how we may have gotten near Obviously, you
28:46
Speaker 2: had the Fed Minutes yesterday. This morning you had the
28:50
Speaker 2: Philly Fed Manufacturing Index, which came in with not really
28:53
Speaker 2: a great reading, but prices paid continued to increase there. Likewise,
28:58
Speaker 2: SMP Global MANU Facturing PMI came in hotter than expected,
29:03
Speaker 2: with you know, some signs of pricing pressure as well,
29:06
Speaker 2: and so what you're starting to see showing up in
29:09
Speaker 2: more of the data is additional pricing pressure. And quite honestly,
29:14
Speaker 2: the data, as far as economic activity goes, as we've
29:17
Speaker 2: talked about, hasn't been as bad as people feared. And
29:20
Speaker 2: so I think aside from that Job's report at the
29:24
Speaker 2: beginning of this month, you look at the data in
29:26
Speaker 2: the aggregate and you're kind of like, Okay, I'm not
29:29
Speaker 2: sure the economy is worsening, And if it isn't worstening,
29:33
Speaker 2: doesn't that mean that cuts probably don't need to happen
29:37
Speaker 2: and we need to see what happens with pricing. This
29:41
Speaker 2: is just what the market might be thinking right now.
29:44
Speaker 2: This can obviously all change over the next three weeks.
29:48
Speaker 2: If we get some weekly jobless claims numbers that start
29:51
Speaker 2: to trend higher, if we get another week jobs report,
29:54
Speaker 2: you know, these are things that could alter the balance
29:57
Speaker 2: here and move us much much closer to you know,
30:00
Speaker 2: a certainty of a cut again. But at this point,
30:03
Speaker 2: the trend has been in the opposite direction over the
30:05
Speaker 2: last week or so, and we'll have to see how
30:07
Speaker 2: it evolves clearly through Powell's speech tomorrow, So this will
30:11
Speaker 2: be a again. I think it'll be really interesting to
30:15
Speaker 2: listen to because, quite honestly, and this is the tough
30:19
Speaker 2: part right now, I think there's a compelling case for cuts.
30:25
Speaker 2: I think there's also a compelling case to do nothing,
30:28
Speaker 2: and I think there's a compelling case to hike if
30:31
Speaker 2: you think that the inflation stuff that's happening on services
30:34
Speaker 2: is potentially sticking around. So all I know is I'm
30:38
Speaker 2: really happy that I'm not sitting in J. Powell's chair
30:41
Speaker 2: because I'd be there trying to find my three sided coin,
30:44
Speaker 2: being like what am I gonna do? Because I don't
30:47
Speaker 2: know how to handle it.
30:48
Speaker 3: I can't tell you how many times that thought has
30:50
Speaker 3: popped in my head as too, I'm so glad I
30:53
Speaker 3: don't have to do this.
30:53
Speaker 2: Job right and here's the thing. It's really in terms
30:58
Speaker 2: of your actual decision making, there's.
31:03
Speaker 3: Not that pretty by to do yes or no.
31:05
Speaker 2: You know, it's okay, every six six weeks, we're gonna
31:08
Speaker 2: get the gang together and we're gonna decide. You know,
31:09
Speaker 2: up down are the same. But it like there's a
31:13
Speaker 2: lot that goes into it, and if you get it wrong,
31:16
Speaker 2: oh boy.
31:17
Speaker 3: It's I've compared it to being a referee before. It's
31:20
Speaker 3: you get a ton of heat if you get it wrong,
31:23
Speaker 3: but not a lot of credit if you do things right.
31:25
Speaker 2: It's, you know, a referee, you have a lot of
31:27
Speaker 2: little decisions you have to make.
31:29
Speaker 3: I'm not saying the yes and no piece, just the
31:30
Speaker 3: credit piece.
31:31
Speaker 2: This is just like you show up every six weeks
31:34
Speaker 2: and that's that's it. I mean, I'm not saying he's
31:36
Speaker 2: not working in the interrum. He obviously is. But ultimately
31:39
Speaker 2: you're judge based on your actions, not based on your thoughts.
31:42
Speaker 2: And so man, imagine imagine having eight things that you
31:46
Speaker 2: do each year and and that's it, and and all
31:51
Speaker 2: the pressure that goes into it with basically like the
31:54
Speaker 2: global economy just resting on your shoulders. It's a lot,
31:58
Speaker 2: it is. It is. I don't know how you deal
32:00
Speaker 2: with that kind of pressure. To be honest, it's it's
32:03
Speaker 2: quite a bit. Let's take a quick break when we return. Oh,
32:08
Speaker 2: this is a good one. We're going to talk about
32:10
Speaker 2: Boston property valuations because.
32:13
Speaker 3: This very interesting story.
32:14
Speaker 2: This is a really good story and I think a
32:17
Speaker 2: fascinating look at a problem that could be hitting a
32:20
Speaker 2: number of different cities and states in the coming years.
32:24
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Speaker 4: The Financial Exchange is a broad partner of the Disabled
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33:28
Speaker 2: Piece from Baloomberg today. Crazy vacancies forced Boston landlords to
33:33
Speaker 2: challenge valuations. And what it talks about is that owners
33:39
Speaker 2: of office buildings in the city of Boston have challenged
33:42
Speaker 2: assess values for three hundred and eighty eight different commercial
33:44
Speaker 2: buildings in downtown Boston this year. That is an eighty
33:47
Speaker 2: three percent jump from the same time period in twenty
33:51
Speaker 2: twenty four. And the big thing is Boston receives a
33:56
Speaker 2: ton of its tax revenue from commercial property taxes. Likewise,
34:01
Speaker 2: those commercial properties, often office buildings, do not have the
34:05
Speaker 2: same level of occupancy that they did five, six, seven
34:09
Speaker 2: years ago for obvious reasons. And so you have landlords
34:12
Speaker 2: that are out there. And again sometimes these are small,
34:15
Speaker 2: you know, individuals that have you know, a six thousand
34:19
Speaker 2: square foot you know, small office building that's out there.
34:22
Speaker 2: Sometimes they are you know, the giant office buildings on
34:25
Speaker 2: State Street and so on and so forth. And the
34:29
Speaker 2: big thing is that property taxes supply about three quarters
34:33
Speaker 2: of the city's four point eight billion dollar budget. They
34:37
Speaker 2: have already lowered the collect the assessed value of properties
34:43
Speaker 2: by twelve percent over the past two years. But you've
34:46
Speaker 2: got landlords out there saying no, like this needs to
34:48
Speaker 2: be you know, discounted close to fifty percent. So who's
34:51
Speaker 2: actually right. It's probably somewhere in between, because obviously the
34:54
Speaker 2: landlords are going to want to pay as little property
34:56
Speaker 2: tax as possible. Likewise, the City of Boston wants to
34:59
Speaker 2: collect as much as possible in terms of where the
35:02
Speaker 2: assessed values actually land. Look, things probably weren't going to
35:07
Speaker 2: stay as good as they were, you know, in twenty
35:09
Speaker 2: eighteen and twenty nineteen forever. They're probably not going to
35:11
Speaker 2: stay as bad as they are right now. And you
35:13
Speaker 2: don't want to have to be making big adjustments every
35:15
Speaker 2: year based on, you know, assessing where vacancy in this
35:19
Speaker 2: and that is. And so I think it is pointing
35:22
Speaker 2: towards these tax valuations having to come down. But now
35:25
Speaker 2: you're blowing a hole in city budgets, and the question
35:28
Speaker 2: is where do you come up with the revenue to fill.
35:31
Speaker 3: That's the question that was popping around my head Okay,
35:33
Speaker 3: how would you even go about fixing this if you're
35:36
Speaker 3: talking about three quarters of revenue. The short answer is
35:39
Speaker 3: there's not a real immediate fix to it, and that
35:42
Speaker 3: twelve percent lowering that they've done over the last two
35:44
Speaker 3: years is a start. I think maybe the fifty percent
35:48
Speaker 3: value decline on the office building is a little rich,
35:51
Speaker 3: but I don't think it's that far off from maybe
35:54
Speaker 3: thirty percent, right Chuck. In terms of value. The problem
35:57
Speaker 3: is there's such limited transactions that there's not a lot
36:00
Speaker 3: of comparisons that you can make on the sales side
36:04
Speaker 3: because people aren't selling these office buildings. But it's a
36:07
Speaker 3: really difficult mine. And then on the backs of that,
36:10
Speaker 3: you also have those residential owners in Boston, which there
36:14
Speaker 3: aren't many, but they will have to pick up more
36:18
Speaker 3: of their share of property tax revenue if they could
36:22
Speaker 3: see their property taxes increases as a results of that.
36:25
Speaker 3: So that's a big concern that politicians have. Michelle wou
36:28
Speaker 3: is running for reelection and trying to still push more
36:32
Speaker 3: of that through commercial property landlords. The need for more
36:38
Speaker 3: revenue on the tax side of things from them.
36:40
Speaker 2: Now some of this also one of the people they
36:42
Speaker 2: interview here I'll quote on this. So a property from
36:45
Speaker 2: this landlord is one of the few to win debatement.
36:47
Speaker 2: The city agreed to take nearly two million office initial
36:50
Speaker 2: fourteen point two million dollars assessment for an eleven story
36:52
Speaker 2: court square office building that he says it's about two
36:55
Speaker 2: thirds empty. If your building is two thirds empty, maybe
36:58
Speaker 2: you got to lower the prices that you're you know,
37:00
Speaker 2: asking for on it. Also, I mean this cuts both ways.
37:03
Speaker 2: Who's to say that you need to get those prices
37:06
Speaker 2: you know for your building as well? So there's that
37:11
Speaker 2: let's see this bone story. No, I don't want to
37:13
Speaker 2: do that. I want to hop forward to Chipotle. I'm
37:18
Speaker 2: really glad the Tucker put this in. They're teaming up
37:21
Speaker 2: with a company called Zipline to test drone burrito delivery.
37:26
Speaker 2: And I am here to tell you.
37:28
Speaker 3: Hell no, you're in uh ah, thought about it, you are.
37:31
Speaker 4: I'm talking about this for ten years now, right.
37:32
Speaker 3: First of all, yeah, I feel like this concept is not.
37:35
Speaker 2: We've been covering this since I had hair, so like
37:38
Speaker 2: this is just not a new idea. Second, if there's
37:42
Speaker 2: one thing that I don't want delivered by drone, it's
37:45
Speaker 2: a three pound burrito that could land on my head
37:48
Speaker 2: if you put it in the wrong spot, or if
37:49
Speaker 2: it falls out of the little carrying case, or however
37:52
Speaker 2: they do it. Beyond that, As I've said before, I
37:54
Speaker 2: just don't want a million small drones flying about in
37:57
Speaker 2: the skies. It doesn't strike me as the kind of
38:00
Speaker 2: environment that I would like to live in.
38:03
Speaker 3: It seems like the Thomas vehicle would probably be the
38:06
Speaker 3: more likely.
38:08
Speaker 2: Now, if you need to get you know, medical supplies
38:10
Speaker 2: to a remote, you know place in you know the mountains. Sure,
38:14
Speaker 2: I understand why drone delivery makes sense. Otherwise, uh huh,
38:20
Speaker 2: quick break here, Hour two coming up.