January 22, 2025 • 38 mins
Chuck Zodda and Paul Lane discuss Netflix's record breaking quarter and recent announcement of a price raise. Can the other streamers keep of with Netflix? Another airline is posting a big profit rebound thanks to American travelers. Mortgage rates aren’t likely to fall any time soon — here’s why. Jamie Dimon says the U.S. stock market is 'kind of inflated’. Are the rich and famous really unaffected by a stock bubble?
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Episode Transcript
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Speaker 1 (00:01):
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(01:06):
Chuck Zada, and Paul Lane.
Speaker 2 (01:09):
Our two here on the financial exchange. Chuck Paul Tucker
with you. We got stocks mostly up, but it's tech
that is.
Speaker 3 (01:17):
Kind of leading them.
Speaker 2 (01:18):
Actually, when you take a look at the broad market
as a whole, the S and P five hundreds kind
of split. It's really just that tech is leading the
way here. But you've got the Dow up fifty three points,
about a tenth of a percent, SMP is up forty
points three, about two thirds of a percent. Nasdaq, which
is tech heavy, up about one and a quarter percent.
Two hundred and forty eight points in the Russell two
(01:40):
thousand small cap companies actually down about half a percentage
point at the moment. When we take a look at
what is going on in bond world, tenure US Treasury
up two point three basis points to four point five
nine seven percent. Has been sliding down a little bit
in terms of yields in the last couple of weeks,
really weak or so, but this finding some stability maybe
(02:03):
around that four point six range.
Speaker 3 (02:06):
We take a.
Speaker 2 (02:06):
Look at oil where West Texas Intermediate is. It's seventy
five eighty eight a barrel right now, up five cents
on the day triple a National Avagur gas prices up
very very modestly at three twelve and nine tenths of ascent,
up three tenths of ascent from yesterday. And we've got
gold today now up twelve thirty ouns to twenty seven
(02:29):
seventy one and fifty cents, continuing its recent strong run
at this point, anything else catching your eye, Paul, before
we go on to the thing that really caught my eye.
Speaker 4 (02:42):
Netflix is catching my eye, man.
Speaker 2 (02:44):
I gotta tell you, these guys are just absolutely cranking.
Speaker 3 (02:48):
They really right now.
Speaker 2 (02:50):
And I know that I know there's still just a
media company. And I say just a media company. It's
I feel like it's kind of okay to be skeptical
of I don't know, just media companies in general and
where their earnings are going to go. And certainly streaming
has been kind of a mixed bag for different legacy
(03:10):
media companies. But for Netflix, this is a freaking monster quarter.
They are just knocking to cover off the ball. Stocks
up twelve percent on the news and basically they added
eighteen point nine million subscribers during the quarter. That was
almost double the number that was expected. And it is
(03:31):
a new quarterly record for editions of new subscribers.
Speaker 4 (03:36):
And think about that, Chuck, when we were in the
midst of COVID and we're all stuck in our house
with nowhere to go. They beat those numbers. They did
about sixteen million of new subscribers in that quarter, which
there couldn't have been more pent up demand for their
service to do nineteen million in this most recent quarter.
(03:56):
Like you said, it's just a blowout number, really just tremendous.
Speaker 2 (04:01):
What I'm trying to figure out is why now, and
specifically y Q four, Netflix pointed to Hey, you know,
Squid Game season two came out, but okay, like, are
there really that many people who weren't on Netflix before
who were like, I gotta catch season two on of
a show that I wasn't subscribed to for season one?
(04:24):
That doesn't really do it for me. They're also pointing
to the action thriller Carry On. Have either of you
watched this this movie on Netflix?
Speaker 1 (04:33):
Yeah?
Speaker 3 (04:33):
I thought it was good.
Speaker 2 (04:34):
It's fine, It's like be action movie, like, it's it's fine.
But okay, like, were there a ton of people signing
up to watch that? I don't really know? So the
the WWE contract didn't start until Q one. January was
the first one there, so it's it's not like you
were like, hey, let me sign up for this in
(04:55):
December just to get the feel of it. Before then,
they did have those NFL games. Maybe that's it, but.
Speaker 4 (05:02):
They yeah, and there Earnie support. They were saying that
none of those isolated events, whether it be Tyson versus Paul,
the fight that had sixty million streams, the NFL games,
they seemed to be inclined to say that none of
these individual events really drove a lot of additions from
new subscribers. It seems like statistically, fifty five percent of
the sign ups and countries where the ad Tier division
(05:24):
was available, that's where the subscriptions were coming from. So
of all new subscriptions where ad Tier was available, fifty
five percent of them were for that lower ad tier
price that was previously six ninety nine a month now
will be marked up to seven ninety nine a month.
So it does seem like the growth is coming from
that side of the business, the AD tier one, getting
(05:46):
more people on the platform at a lower price point.
Speaker 2 (05:48):
Netflix also saying this is going to be the last
quarter that they disclose quarterly subscriber numbers that they had
announced I think earlier last year.
Speaker 4 (05:56):
This has been long telegraphed. They've had really multi quarterly
results in terms of their stock fluctuations. Eight out of
the last sixteen quarters, they've seen fluctuations up ten percent
or more, down ten percent or more. They feel I don't.
They didn't come out and say this, but there's speculation
that some of that subscriber growth numbers leads to that volatility.
(06:17):
They now sit at three hundred and two million subscribers.
There's also the contrarian argument you could make that they're
really not going to see how much more subscriber growth
can you really drive? And similar the iPhone They did
this back in twenty eighteen or twenty nineteen, where you
get so much significant market share that it's almost doing
your company a disservice to try and beat, you know,
(06:37):
nineteen million new subscribers into given quarter.
Speaker 3 (06:40):
Yeah, that's fair.
Speaker 2 (06:42):
So the question for Netflix from here is is not
can they keep up that kind of growth because the
answer is no, They're not going to grow their subscriptions
by six percent.
Speaker 3 (06:52):
Every quarter forever.
Speaker 2 (06:55):
It's just it's it's not possible, but how quick We're
not going to know how quickly they're growing them, but
you know what, what's the pace of growth that they
continue to see and can they figure out ways to
you know, boost up the AD revenue on those AD tiers.
And what's the price point at which people finally say no,
I'm not subscribing to this anymore. Because right now you've
(07:17):
got a company that is worth four hundred and twelve
billion dollars with three hundred what'd you say?
Speaker 3 (07:24):
It was like.
Speaker 4 (07:24):
Three two million?
Speaker 2 (07:26):
Okay, So if you do the math out on this
and you look at it, you say, okay, so they're
worth you know, four hundred and twelve billion dollars. They've
got you know, three hundred and two million subscribers. You're
basically telling me that the company is being valued at
(07:47):
about thirteen hundred dollars per subscriber. That Like, again, I
know this is not like a normal metric, but this
is just how I'm thinking about this. So if you
are going to action, you know, if you're looking at
this from just a pure fundamental standpoint, you say, okay,
you're valued that much. If I wanted to invest in
(08:09):
your company, how is it gonna take for you to
pay me back? Given that the average subscriber is paying
what like fifteen bucks a month something like that.
Speaker 4 (08:16):
The premium they just bumped up to twenty five dollars
a month.
Speaker 3 (08:19):
But the average one's probably like fifteen.
Speaker 4 (08:21):
Yeah, I think like closer twenty. I gotta figure that out.
Speaker 3 (08:23):
Okay, So it's one hundred and eighty bucks a year.
Call it.
Speaker 2 (08:26):
So in order to generate thirteen hundred dollars of revenue
not profit, you're saying, okay, it's gonna take me seven
years just to generate that in revenue. How hard is
it to pay that back? And this gets into like
your actual pees and price to sales ratio where the
company right now it's fifty four times earnings, it's eleven
times sales, it's forty times forward earnings. It's nine and
(08:48):
a half times forward sales. Steeply priced company. If you
keep delivering quarters like this, here's the secret, it doesn't matter.
Because that's what Amazon did for about fifteen years is
everyone kept saying, oh, Amazon's expensive, Amazon's expensive, and Amazon
kept saying, you're buying more crap on my website. I
don't care how expensive I am. Here's the earnings, not earnings.
But here's like the revenue growth because everyone's buying stuff here.
(09:13):
If Netflix continues on the path that Amazon you know,
went down, then this is all completely justified. It's probably
a tough putt for them to do that. And so
you kind of look at this and you go, all right,
we're kind of getting like close to not not the
peak in terms of price, but like the peak excitement
about the company.
Speaker 4 (09:33):
It's it's a tough put for them to do it because,
unlike Amazon, Amazon had a profit spigot that they were
able to really build on, which was aws. They were
able to operate their retail business that we're so familiar
with in terms of the delivery trucks and getting your
shampoo and deer and you know, deliver within in a
couple hours or the next day because they had this
other wing of profitability that we're operating at margins you know,
(09:55):
upwards of twenty five or thirty percent compared to the
you know, couple percent that you operate on with the
Amazon Prime. Netflix doesn't really necessarily have that other lever
to go to that's really high margin. I guess you
could make the argument that the ad tier business is
something that you know, they could build out because they
(10:15):
can just continue to disperse it among it's It doesn't
cost Netflix more to have four hundred million subscribers. You know,
their platform is what it is. They have done a
great job with that. Where their operating margins we're about
nineteen percent five years ago, they now sit it close
to thirty percent. So continuing to build on those operating
margins would be great. But to your point, Chuck Tough
put in the sense that I don't really know if
(10:36):
there's a real folkrum to drive those operating margins further.
Otherwise you got to drive up the revenue side, and
that may be challenging as well when you have three
hundred two million subscribers.
Speaker 3 (10:47):
Take a quick break here.
Speaker 2 (10:48):
When we return, we got trivia, and then we're talking
United and their earnings release and also what's going on
with mortgage rates.
Speaker 1 (10:57):
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Speaker 5 (11:25):
Time for Tributa here on the Financial Exchange Today's Kaitlin
Clark's twenty third birthday. The basketball start had a tremendous
collegiate career before becoming the biggest star in WNBA history.
Turevir question today, which college did Kaitlin Clark play basketball for?
Speaker 3 (11:45):
Once again?
Speaker 5 (11:45):
Which college did Kaitlin Clark play basketball for?
Speaker 3 (11:50):
Be the ninth.
Speaker 5 (11:51):
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Show dot com.
Speaker 2 (12:10):
United continuing the trend of strong airline earnings. They guided
towards higher profits for the current quarter as well, and
so it continues to be something where Americans are spending
a bunch of money on air travel and that trend
is not going anywhere based on what the airlines are
telling us.
Speaker 4 (12:31):
Yeah, this has been echoed by Delta as well. They
came out with a bullish outlook for Q one and
they're seeing just a better balance in terms of the
travel demand that you were speaking of, as well as
the flying roots that they have. Currently. This is the
first time that United has turned to profit since Q
one of twenty nineteen, and overseas travel accounted for about
twenty percent of their revenue, So there still continues to
(12:54):
be a significant demand for Americans to travel internationally and
domestically as well. Backed by some earnings numbers, the United
Airlines was up a whopping one hundred and thirty five
percent last year. It's stock and you have Delta and
Southwest moving in positive direction this morning as well. In
the news on United Airlines's.
Speaker 3 (13:14):
Talk a little bit about mortgage rates.
Speaker 2 (13:16):
I think this is a juicy topic given that we
are now about three weeks away from the Super Bowl,
which is the unofficial start of the spring housing season
these days. And according to Mortgage News Daily, the national
average for thirty year fixed rate mortgages is at seven
point eight percent, so still got a seven in the
(13:36):
first digit there.
Speaker 3 (13:37):
And you know, this is.
Speaker 2 (13:40):
One where if you go back a year ago and say, hey,
what did things look like back at this time in
you know, twenty twenty four national average was at six
eight seven it rose as high as seven three eight
in mid April, and this was one of the things
that kind of precipitated a slowdown in some economic data
that we got over the summer, was rates moved up
(14:02):
and the economy slowed. Same thing has happened over the
last couple months here, and we're seeing some signs that
housing demand is weakening simply because people can't afford to
buy homes at these rates, these insurance premiums and these prices,
Like something has to give there, and it's probably not
going to be insurance premiums, given what we've seen in
(14:23):
California and Florida over the last six months. So it's
got to either be rates or prices. And the case
for interest rates moving down is, hey, you've got to
have either a slow down in economic activity or some
convincingly better data on inflation. And right now, the inflation
(14:43):
data is kind of just floating around, you know, two
and a half to three percent, and the economic data
has continued to be good for the last few months now.
And so how do you get to lower mortgage rates
if you're not having those things happen? So I suspect, unfortunately,
you're probably stuck in like the six seven five to
(15:06):
seven two five range on mortgages for the spring housing
season unless you see either some kind of collapse to
the downside in the US economy, which doesn't really look
like it's showing up right now, doesn't look likely at
the moment, and or unless you see some you know,
return to the upside on inflation, in which case rates
are going higher, which is not great. But if you're
(15:28):
a home buyer heading into this this spring housing season,
I think ultimately you're gonna find that your affordability is
really stretched, and at least in the Northeast, inventory is
still low enough that you're not really seeing much pricing
pressure to the downside if you do live in other
parts of the country we are seeing in Florida, in
(15:50):
places like Austin, Texas and parts of Georgia, you're seeing
downward price pressures because there's inventory that now is you know,
quite high, and so the it just can't clear it
those prices. But again, not everyone who is living in
Florida or Georgia, you know, Tennessee or it's the Northeast
does not have enough inventory still, and so there's not
(16:12):
enough pressure to push prices down.
Speaker 3 (16:13):
So it's just, hey, this is what it is.
Speaker 4 (16:16):
There's a number of factors working against you. You mentioned
a couple of them. You know, part of this thirty
year fixed mortgage crusting over seven percent again is tethered
right to the US tenure Treasury, which was about three
point six percent back in September, got up as high
as close to about four point eight percent, but now
sits around four point five or four point six. You've
got two factors going here. Where one the premium, basically
(16:40):
the spread between the US ten year Treasury and thirty
year fixed mortgage rates. It's at a higher level than
it's been in the past. From nineteen ninety to twenty nineteen,
there was about a one point seven percent differential between
the US ten year Treasury and the average thirty year
fixed mortgage rate. That spread now sits at two point
four percent between the US Tenure Treasury and where we
(17:01):
sit on the thirty year fixed mortgage side of things. So,
with that elevated premium, limited inventory, as you mentioned, it
just doesn't seem like there is really any significant positive
catalyst for the housing market come the spring here.
Speaker 2 (17:15):
And look, there still is some time for you know,
some potential improvement. But I had someone asked me the
other day they were looking at, you know, potentially buying
a place to this spring, and they're like, do you
think mortgage rates are going to get back down in
the fives?
Speaker 3 (17:27):
And Mike and I have talked.
Speaker 2 (17:29):
About this before, but the only path I see to
rates down in the fives is if the US goes
in recession. Yes, And if the US goes in recession,
there's no guarantee that person who's looking for the home
hasn't lost a job and now can't buy the new
home that they thought they were going to get, you know,
at lower rates. But yeah, mortgage rates back in the
fives just a tough putt to get there. I think
(17:50):
a lot would have to go wrong with the US
economically to the point where, yeah, you're probably in recession.
If you're seeing mortgage rates back in the fives for
any extended period of time. Maybe you could get there
if like things went just right, like the economy slowed
but not quite into recession. But I don't think you
really want to play chicken with with recession. It's it's
(18:12):
not something to uh to sneeze at and just be like, oh, well,
maybe we can escape.
Speaker 4 (18:17):
Yeah, you mean you'd be talking about the US ten
year treasure. I was just looking at that would be
and have to be down around two and a half
percent or something like that, you know, to see that
significant of a fall to get to the five percent
level if we're talking five so like not oh not
just five flows yeah, but whatever, you know, even if
it was that three and a half, that's it's a
pretty significant drop. You got a year to get there
(18:39):
off of a policy initiatives that are likely going to
be adding to the US debt.
Speaker 2 (18:44):
So that's what we've got going on with mortgage rates
at the moment. Taking an updated look at markets, that
is now up eighty nine points, so stretching its legs
a little bit. The S and P also up forty
four points, and Nasdaq up two hundred and seventy two
So all three major US indices seeing some good positive
movement as we continue through the week. Here, we're gonna
(19:05):
take a quick break, but when we come back, I'm
gonna get to a few comments from Jamie Diamond, the
CEO of JP Morgan Chase, is out in Davos at
an event that I'm never invited to and quite honestly, like,
I don't know if i'd really have I bet i'd
have a good time there. It looks very picturesque, you know,
And I'm sure the drinks are great, definitely, especially at
(19:27):
altitude beautiful. It's wonderful. Let's take a quick break and
we'll talk Jamie Diamond's comments after this.
Speaker 1 (19:43):
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(20:09):
all right.
Speaker 5 (20:09):
Trigger question today was which college did Caitlin Clark play
basketball for?
Speaker 3 (20:14):
That would be Iowa.
Speaker 5 (20:15):
Caitlin Clark spent four years at the University of Iowa
before being selected with the number one overall pick in
the WNBA draft last year. George from Wallfan Mass is
our winner today taking on a Financial Exchange Show T
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Financial Exchange. See complete contest rules at Financial Exchange Show
(20:38):
dot com.
Speaker 2 (20:40):
So Jamie Diamond out in Davos and doing his thing
out there and Diamond, who's the CEO of JP Morgan
Chase gets interviewed on a wide variety of topics whenever
he goes to these things because we JP Morgan Chase
has great insight into what's going on with the US
and world financial system. They have so many customers and
(21:02):
clients that they they see just about everything. They're huge,
and Diamond has been there. It's got to be like
close to twenty years now.
Speaker 4 (21:11):
I think, Yeah, he's through the financial crisis, so that
puts him bad fifteen plus, so it's got to be
close to twenty. He's one of the longest tenured CEOs
in the financial sector out there. It's probably him and Moynihan,
I would think is the longest.
Speaker 2 (21:23):
Did mornihand cam He came on in like twenty ten, Right,
he's posted a countrywide and all the issues in the
Bank of America.
Speaker 3 (21:29):
Who's the guy beforehand? Kendulo? No, the guy, Uh.
Speaker 2 (21:35):
It was Angelo whatever his name was. The guy from
country Wide took over his right.
Speaker 4 (21:40):
What was his name, Ken Lewis, Let's see, he was one,
but maybe Angelo Mozillo? Yeah was he it?
Speaker 3 (21:48):
So?
Speaker 1 (21:48):
He?
Speaker 3 (21:49):
Oh?
Speaker 2 (21:49):
No, sorry, he was just the country wide CEO. He
was the countrywide CEO when they got sold to Bank
of America to try to save it, and it still
ended up blowing up the financial system.
Speaker 3 (21:59):
So there's that anyways.
Speaker 2 (22:03):
So Jamie Diamond, they asked him, you know, hey, what's
going on with you know, the stock market and so on.
He says, quote, asset prices are kind of inflated by
any measure in the top ten or fifteen percent of
historical valuations. So yeah, they're elevated, and you need fairly
good outcomes to justify those prices. Having pro growth strategies
helps make that happen. But there are negatives out there
and they can tend to surprise you. And he goes
(22:26):
on to say, I have a little bit of caution
about a bunch of subjects. What I'm a little cautious
about is the deficit spending. It's a global one, not
just an American issue. And the related question will inflation
go away? I'm not so sure. So, yeah, he's got
a few things out there, Diamond. Again, even though they
see a lot of stuff, and you know, sometimes he
has strong opinions on it, he's not always right. So
this is one thing that I come back to he's
(22:47):
the one who back in the fall. He's one of
the people back in the fall of twenty twenty two
thought recession was imminent and that there was going to
be I think he said, like there's a hurricane coming,
and it ultimately didn't materialize. So I think that this
is something where you take what he says with again
a grain of salt. But it's always interesting just to
hear his view, even if he's not always right, just
(23:08):
because even if he's not right, he's still pretty well
informed about what's going on, and he sees just a
ton of stuff coming across his desk, and so I
think that's kind of valuable.
Speaker 4 (23:19):
Yeah, he's, you know, one of the best financial executives
you've probably had of the last Like I looked back,
he's all close to twenty years a CEO of JP Morgan,
so he's had a really long tenure of being extremely
successful with the company. So you absolutely value his opinion.
And he is extremely well informed on what's going on
in markets, and he's not wrong that markets are very pricey. However,
(23:41):
you look at it from a metric perspective, there are
probably more risks out there than there are positives. Cases
for the market going forward. So all taken, you know,
all taken into consideration now.
Speaker 2 (23:55):
Diamond also was asked during his interview with CNBC. He
was asked about his thoughts on bitcoin. And it's these
moments that I really do like Jamie Diamond because he's
been really consistent on on this at least you know,
a lot of the other bank executives now where you know,
Mornihan was interviewed the other day and they asked him
about crypto and he's like, yeah, like we'd love to
(24:17):
get into crypto payments if you know it's deemed you know,
legal or whatever. Just like chomping at the bit to
try to get you know, whatever they can there. Diamond
asked about bitcoin on CNBC. I'm not talking about bitcoin.
You guys talk about it plenty, just like you used
to talk about AOL all the time. It's like, oh,
like that's that's a good one right there. I like that,
(24:38):
I do have to say. So occasionally he comes through with, uh,
with something like that, and you know that, Uh, that's
kind of nice to see, I guess.
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Speaker 2 (25:51):
The rich and famous don't fear a stock market bubble.
That's why you should is the headline from market Watch,
and it it's h kind of a horrible headline quite honestly, Like,
just okay, so are there you know, scientific studies showing
that when the people who attend davos or bullish that
the market goes down.
Speaker 3 (26:11):
No, there are no such things.
Speaker 2 (26:13):
Instead, you have a piece here that says, hey, like
how highly valued or stocks relative to their historical averages?
And it makes the point, Yeah, like stocks are, as
Jamie Diamond just said, pretty much near the top of
historical valuations as far as things like PE ratio, dividend
yield price to sales ratio, something called the Q ratio.
Speaker 3 (26:34):
Have either of you ever? What the heck is the
Q ratio?
Speaker 4 (26:38):
How good the market looks?
Speaker 3 (26:39):
No, I'm qute, not cute?
Speaker 4 (26:41):
I have it is a financial ratio that compares the
company's market value to its replacement cost.
Speaker 3 (26:47):
What does that even mean? What's the replacement cost of Apple?
Speaker 2 (26:53):
What does that mean? What's the replacement cost of TikTok.
Speaker 5 (26:58):
Measures whether a firm or or aggregate market is relatively
over armed a valued I've.
Speaker 3 (27:03):
Never heard of the Q ratio. Now maybe that I
don't know how.
Speaker 4 (27:08):
Replacement value?
Speaker 2 (27:09):
Maybe that's a reflection on me. Okay, that's that's fine.
You can only know so much about so much, but
never even heard of that.
Speaker 3 (27:17):
Again.
Speaker 2 (27:17):
It goes through all these things and basically says, yes,
this market's overvalued. We've known about this. This market has
been overvalued for a little while now, and valuation is
a horrible timing metric. Back in nineteen ninety seven, Alan Greenspan,
then Chair of the Federal Reserve, gave his famous speech
talking about the market's irrational exuberance. Market didn't peak for
(27:38):
the next three years. We got all the way through,
you know, ninety seven, ninety eight, ninety nine, even part
of two thousand before things finally said, yeah, we're gonna
roll over for good. And I'm not sitting here telling
you all like you should be all bullish and everything.
Speaker 3 (27:52):
No, but much more.
Speaker 2 (27:53):
Hey, just because something's expensive doesn't mean it's inherently going
to get cheaper immediately, and in fact, it might continue
to go up in price before it finally corrects. You
have no idea just based on whether something is expensive
or not. One of my favorite lines, the opposite's true. Also,
by the way, one of my favorite lines in investing.
(28:15):
Paul You've probably heard this a million times, So I'm sorry,
how does a stock lose seventy five percent but it
loses fifty percent and then it loses fifty percent again,
So you lose that first fifty percent, you're like, oh,
this is cheap, and then it goes down another fifty
and you're like, oh, like this is cheaper, and then
it Just because something has moved in one direction does
(28:36):
not inherently mean that it's going to move in the other,
you know, at any particular point in time. So, yes,
this is an expensive market. It is something where the
historical comps are starting to get a little bit nutty,
But that doesn't mean it can't get nuttier. And so
if you make your investment decisions based on this market
(28:57):
Watch piece by Mark Hulbert, are you going to be
eagerly waiting for Mark's next piece saying when it's time
to buy? What if he doesn't publish that? You know, like,
what if he just doesn't write it for some reason?
So I always these pieces always bother me a little bit.
And again, I just think that there's someone out there
(29:20):
who probably read this and is like, oh, gee, this
is a bubble and I need to sell everything and
maybe they're right, maybe like this is the top, but
this is a horrible way to make that decision by
reading this piece.
Speaker 4 (29:33):
And tie into people attending Davos.
Speaker 2 (29:35):
Yes, who cares what they think? Like they're not super geniuses.
There are plenty of billionaires that lost a lot of
money in the financial crisis because they were like completely wrong.
There are plenty of them that made a bunch of
money in the last few years because they were right
about the market running up. So I don't know, Like,
no one's right or wrong all the time, and who
(29:57):
cares what the people at Davos think about what the
market's doing?
Speaker 3 (30:00):
Take a quick break when we come back.
Speaker 1 (30:02):
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Speaker 3 (31:12):
Paul, what do you got for me? For stack Roulette?
Speaker 4 (31:15):
Bonds used to make sense for your portfolio, but does
perhaps cash look to be the better option? Is a
piece that was covered in barrens and also a fall
up piece in a similar vein. Bonds had their worst
decade in ninety years. What we've seen over the course
of the last several years is a very low interest
(31:36):
rate environment in COVID in twenty twenty and twenty twenty one,
where you had the US ten year treasury I believe
as low as three quarters of a percent now we
sit with the US tenure Treasury at four point six
or four point seven percent. As a result, anyone who
held long term bronze really was being up significantly, particularly
in twenty twenty two, versus cash, which has increased very
(31:58):
significantly over the course to the last couple of years. Ultimately,
you know, the way that we look at this from
a portfolio perspective, bonds are typically, you know, supposed to
be a means of safety. They're supposed to have less
deviation in terms of the returns that they provide. But
the idea of it being you know, an optical time
to buy into bonds now just because they've been beaten
(32:19):
up before, it echoes the sentiment that we were going
through before prior to the break, with this idea that
you never know what the right time is to buy
into the markets, whether they could look cheap but could
only fall further, And the same thing on the upside
front in terms of the expense, The same thing applies
if you're trying to make an interest bet on interest rate,
(32:39):
bet on long term rates. You just never know. Really,
it's all about building an allocation that you, as a
client or an investor can feel comfortable with.
Speaker 2 (32:47):
I think also it's important to remember that, Look, it's
not something where even in a very favorable period for bonds,
you know, the nineteen eighties through twenty twenty, it's not
like they were just a lamb dunk to make money
all the time. These are the annual returns for bonds
since nineteen eighty This is the Bloomberg Aggregate Bond Index
two point seven one six point twenty five. Okay, those
(33:09):
seem like bond like returns nineteen eighty two thirty two
point six two percent. Remember you're getting like a fifteen
percent yield, plus yields came down, so you just made
a ton eight point three five, fifteen point one five
twenty two point one, fifteen point twenty six. Yeah, you're
probably not gonna see returns like that ever. Again in bonds,
like it's like five out of four out of five
(33:30):
years north of fifteen percent. It's insane, Like, okay, like, yeah,
that's not realistic. But then you start to like continue
to go on. You get to the nineties in particular,
eight point nine six sixteen percent seven point four nine
point seven five minus two point nine two eighteen point
four six three point six four nine point six four
(33:50):
eight point seven minus point eight two. So the nineties
had two years where you lost money on bonds, like
it was just you know, kind of how it was.
Then the two thousands very very stable, aside from kind
of the tech bubble where yields were higher three six three,
four one oh two, four point one two, six point
nine seven, five point two four, five point nine three, like,
(34:11):
very consistent, but that's kind of the outlier. Aside from that,
you're you're kind of all.
Speaker 3 (34:16):
Over the place.
Speaker 2 (34:17):
And I think this is the thing to remember about
bonds is yeah, they do have some gravity and that
you have a yield that's pulling you towards you know
where you know you're you're going to eventually end up.
But bonds don't. They're not designed to just make you
the same return each year. Like the prices will and
do fluctuate, and that is something that is normal. They're
(34:39):
supposed to fluctuate less than the overall stock market, but
it doesn't mean that they just they never move. And
I think there's sometimes that misconception about that and that's
just not true based on what we've seen historically.
Speaker 4 (34:52):
Was it down fourteen percent and twenty two, what's twenty two,
twenty three, twenty.
Speaker 2 (34:56):
Four, I can, I can pull the site I was
reading stopped in twelve one. It was on somewhere in
fourteen or fifteen. Yeah, and then the last couple of years.
Speaker 4 (35:06):
Been hard to recover that, I mean, because it's been
a couple percent. I believe it's two percent last year
on for twenty four on the bond index, and I
forget on twenty three. But it's very minimal, like.
Speaker 2 (35:16):
Modest, like low single digits somewhere in that ballpark. So yeah,
it's again it's something where you have the potential for
you know, some some downside on bonds quite honestly.
Speaker 1 (35:28):
But.
Speaker 2 (35:30):
They also tend to be to a certain extent. And
it again, it depends what kind of longer term secular
trend that you're in based on, you know, kind of
where yields were starting and things like that. But in
this economy you kind of feel, okay, there's somewhat self
correcting in that if yields go too high, it's going
to slow the economy too much, and so that tends
(35:51):
to bring yields back down then, which might speed it up,
which pushes them up. So again it's It's just something
to understand about how bond actually work. Where the prices
do move around, they don't just stay in the same
place forever, and you've got to understand where they fit
as part of your overall portfolio. I want to talk
(36:12):
about this story. I saw this one last week. The
Olympic medals from Paris. They are tarnishing apparently already, which
the Paris Olympics, if I'm correct, they were six months.
Speaker 3 (36:25):
Ago, right, yes?
Speaker 2 (36:28):
Is it that like July somewhere somewhere in that range
and July August somewhere.
Speaker 5 (36:34):
Through August eleventh of last year, it was like a while.
Speaker 2 (36:36):
Ago, six months ago, and apparently the medals are starting
to deteriorate. In fact, a US Olympic fencer said his
bronze medals started deteriorating a few days after the Olympics,
and within a few weeks it was more noticeable. And
it's something where it appears to be that the biggest
(36:56):
problem is with the bronze medals. So hey, you medal
in the Olympics. I mean, you're one of the three
best people on the planet at whatever you do, and
they give you this thing that's falling apart in a
few I mean not like completely falling apart, but it
doesn't last a few days before it starts tarnishing, like
(37:17):
what are what are we actually doing here? And they were,
you know, showing off these medals and like, oh, we
spent so much time designing them and this and that
and look, don't don't get me wrong, like trying to
make bronze is not exactly easy. It's not like something
that No, the three of us sitting in this room
could not make a bronze medal that didn't tarnish the
(37:37):
day we made it. Like it's you don't just it
doesn't just happen. But the fact is you made these
for the Olympics and you just want, you hope that
they were a little bit higher quality. So LVMH is
the company that made them, you know, Louis Vauton, and
they're facing some criticism because hey, make your Olympic medals
(37:59):
better better, you know, like what are we really doing here?
Speaker 4 (38:02):
This happened in twenty sixteen too, with read the Rio Games.
There was also some issues with the medals. So get
those medals in line.
Speaker 3 (38:09):
That's what do you gotta do.
Speaker 2 (38:11):
Anyways, markets are in positive territory DOWS up one thirty seven,
SMP's up forty nine, NASDAC up two eighty eight. We're
done for the day, back tomorrow on the Financial Exchange
The Financial Exchange is produced by Money Matters Radio and
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(01:06):
Chuck Zada, and Paul Lane.
Speaker 2 (01:09):
Our two here on the financial exchange. Chuck Paul Tucker
with you. We got stocks mostly up, but it's tech
that is.
Speaker 3 (01:17):
Kind of leading them.
Speaker 2 (01:18):
Actually, when you take a look at the broad market
as a whole, the S and P five hundreds kind
of split. It's really just that tech is leading the
way here. But you've got the Dow up fifty three points,
about a tenth of a percent, SMP is up forty
points three, about two thirds of a percent. Nasdaq, which
is tech heavy, up about one and a quarter percent.
Two hundred and forty eight points in the Russell two
(01:40):
thousand small cap companies actually down about half a percentage
point at the moment. When we take a look at
what is going on in bond world, tenure US Treasury
up two point three basis points to four point five
nine seven percent. Has been sliding down a little bit
in terms of yields in the last couple of weeks,
really weak or so, but this finding some stability maybe
(02:03):
around that four point six range.
Speaker 3 (02:06):
We take a.
Speaker 2 (02:06):
Look at oil where West Texas Intermediate is. It's seventy
five eighty eight a barrel right now, up five cents
on the day triple a National Avagur gas prices up
very very modestly at three twelve and nine tenths of ascent,
up three tenths of ascent from yesterday. And we've got
gold today now up twelve thirty ouns to twenty seven
(02:29):
seventy one and fifty cents, continuing its recent strong run
at this point, anything else catching your eye, Paul, before
we go on to the thing that really caught my eye.
Speaker 4 (02:42):
Netflix is catching my eye, man.
Speaker 2 (02:44):
I gotta tell you, these guys are just absolutely cranking.
Speaker 3 (02:48):
They really right now.
Speaker 2 (02:50):
And I know that I know there's still just a
media company. And I say just a media company. It's
I feel like it's kind of okay to be skeptical
of I don't know, just media companies in general and
where their earnings are going to go. And certainly streaming
has been kind of a mixed bag for different legacy
(03:10):
media companies. But for Netflix, this is a freaking monster quarter.
They are just knocking to cover off the ball. Stocks
up twelve percent on the news and basically they added
eighteen point nine million subscribers during the quarter. That was
almost double the number that was expected. And it is
(03:31):
a new quarterly record for editions of new subscribers.
Speaker 4 (03:36):
And think about that, Chuck, when we were in the
midst of COVID and we're all stuck in our house
with nowhere to go. They beat those numbers. They did
about sixteen million of new subscribers in that quarter, which
there couldn't have been more pent up demand for their
service to do nineteen million in this most recent quarter.
(03:56):
Like you said, it's just a blowout number, really just tremendous.
Speaker 2 (04:01):
What I'm trying to figure out is why now, and
specifically y Q four, Netflix pointed to Hey, you know,
Squid Game season two came out, but okay, like, are
there really that many people who weren't on Netflix before
who were like, I gotta catch season two on of
a show that I wasn't subscribed to for season one?
(04:24):
That doesn't really do it for me. They're also pointing
to the action thriller Carry On. Have either of you
watched this this movie on Netflix?
Speaker 1 (04:33):
Yeah?
Speaker 3 (04:33):
I thought it was good.
Speaker 2 (04:34):
It's fine, It's like be action movie, like, it's it's fine.
But okay, like, were there a ton of people signing
up to watch that? I don't really know? So the
the WWE contract didn't start until Q one. January was
the first one there, so it's it's not like you
were like, hey, let me sign up for this in
(04:55):
December just to get the feel of it. Before then,
they did have those NFL games. Maybe that's it, but.
Speaker 4 (05:02):
They yeah, and there Earnie support. They were saying that
none of those isolated events, whether it be Tyson versus Paul,
the fight that had sixty million streams, the NFL games,
they seemed to be inclined to say that none of
these individual events really drove a lot of additions from
new subscribers. It seems like statistically, fifty five percent of
the sign ups and countries where the ad Tier division
(05:24):
was available, that's where the subscriptions were coming from. So
of all new subscriptions where ad Tier was available, fifty
five percent of them were for that lower ad tier
price that was previously six ninety nine a month now
will be marked up to seven ninety nine a month.
So it does seem like the growth is coming from
that side of the business, the AD tier one, getting
(05:46):
more people on the platform at a lower price point.
Speaker 2 (05:48):
Netflix also saying this is going to be the last
quarter that they disclose quarterly subscriber numbers that they had
announced I think earlier last year.
Speaker 4 (05:56):
This has been long telegraphed. They've had really multi quarterly
results in terms of their stock fluctuations. Eight out of
the last sixteen quarters, they've seen fluctuations up ten percent
or more, down ten percent or more. They feel I don't.
They didn't come out and say this, but there's speculation
that some of that subscriber growth numbers leads to that volatility.
(06:17):
They now sit at three hundred and two million subscribers.
There's also the contrarian argument you could make that they're
really not going to see how much more subscriber growth
can you really drive? And similar the iPhone They did
this back in twenty eighteen or twenty nineteen, where you
get so much significant market share that it's almost doing
your company a disservice to try and beat, you know,
(06:37):
nineteen million new subscribers into given quarter.
Speaker 3 (06:40):
Yeah, that's fair.
Speaker 2 (06:42):
So the question for Netflix from here is is not
can they keep up that kind of growth because the
answer is no, They're not going to grow their subscriptions
by six percent.
Speaker 3 (06:52):
Every quarter forever.
Speaker 2 (06:55):
It's just it's it's not possible, but how quick We're
not going to know how quickly they're growing them, but
you know what, what's the pace of growth that they
continue to see and can they figure out ways to
you know, boost up the AD revenue on those AD tiers.
And what's the price point at which people finally say no,
I'm not subscribing to this anymore. Because right now you've
(07:17):
got a company that is worth four hundred and twelve
billion dollars with three hundred what'd you say?
Speaker 3 (07:24):
It was like.
Speaker 4 (07:24):
Three two million?
Speaker 2 (07:26):
Okay, So if you do the math out on this
and you look at it, you say, okay, so they're
worth you know, four hundred and twelve billion dollars. They've
got you know, three hundred and two million subscribers. You're
basically telling me that the company is being valued at
(07:47):
about thirteen hundred dollars per subscriber. That Like, again, I
know this is not like a normal metric, but this
is just how I'm thinking about this. So if you
are going to action, you know, if you're looking at
this from just a pure fundamental standpoint, you say, okay,
you're valued that much. If I wanted to invest in
(08:09):
your company, how is it gonna take for you to
pay me back? Given that the average subscriber is paying
what like fifteen bucks a month something like that.
Speaker 4 (08:16):
The premium they just bumped up to twenty five dollars
a month.
Speaker 3 (08:19):
But the average one's probably like fifteen.
Speaker 4 (08:21):
Yeah, I think like closer twenty. I gotta figure that out.
Speaker 3 (08:23):
Okay, So it's one hundred and eighty bucks a year.
Call it.
Speaker 2 (08:26):
So in order to generate thirteen hundred dollars of revenue
not profit, you're saying, okay, it's gonna take me seven
years just to generate that in revenue. How hard is
it to pay that back? And this gets into like
your actual pees and price to sales ratio where the
company right now it's fifty four times earnings, it's eleven
times sales, it's forty times forward earnings. It's nine and
(08:48):
a half times forward sales. Steeply priced company. If you
keep delivering quarters like this, here's the secret, it doesn't matter.
Because that's what Amazon did for about fifteen years is
everyone kept saying, oh, Amazon's expensive, Amazon's expensive, and Amazon
kept saying, you're buying more crap on my website. I
don't care how expensive I am. Here's the earnings, not earnings.
But here's like the revenue growth because everyone's buying stuff here.
(09:13):
If Netflix continues on the path that Amazon you know,
went down, then this is all completely justified. It's probably
a tough putt for them to do that. And so
you kind of look at this and you go, all right,
we're kind of getting like close to not not the
peak in terms of price, but like the peak excitement
about the company.
Speaker 4 (09:33):
It's it's a tough put for them to do it because,
unlike Amazon, Amazon had a profit spigot that they were
able to really build on, which was aws. They were
able to operate their retail business that we're so familiar
with in terms of the delivery trucks and getting your
shampoo and deer and you know, deliver within in a
couple hours or the next day because they had this
other wing of profitability that we're operating at margins you know,
(09:55):
upwards of twenty five or thirty percent compared to the
you know, couple percent that you operate on with the
Amazon Prime. Netflix doesn't really necessarily have that other lever
to go to that's really high margin. I guess you
could make the argument that the ad tier business is
something that you know, they could build out because they
(10:15):
can just continue to disperse it among it's It doesn't
cost Netflix more to have four hundred million subscribers. You know,
their platform is what it is. They have done a
great job with that. Where their operating margins we're about
nineteen percent five years ago, they now sit it close
to thirty percent. So continuing to build on those operating
margins would be great. But to your point, Chuck Tough
put in the sense that I don't really know if
(10:36):
there's a real folkrum to drive those operating margins further.
Otherwise you got to drive up the revenue side, and
that may be challenging as well when you have three
hundred two million subscribers.
Speaker 3 (10:47):
Take a quick break here.
Speaker 2 (10:48):
When we return, we got trivia, and then we're talking
United and their earnings release and also what's going on
with mortgage rates.
Speaker 1 (10:57):
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Time for Tributa here on the Financial Exchange Today's Kaitlin
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Turevir question today, which college did Kaitlin Clark play basketball for?
Speaker 3 (11:45):
Once again?
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Speaker 2 (12:10):
United continuing the trend of strong airline earnings. They guided
towards higher profits for the current quarter as well, and
so it continues to be something where Americans are spending
a bunch of money on air travel and that trend
is not going anywhere based on what the airlines are
telling us.
Speaker 4 (12:31):
Yeah, this has been echoed by Delta as well. They
came out with a bullish outlook for Q one and
they're seeing just a better balance in terms of the
travel demand that you were speaking of, as well as
the flying roots that they have. Currently. This is the
first time that United has turned to profit since Q
one of twenty nineteen, and overseas travel accounted for about
twenty percent of their revenue, So there still continues to
(12:54):
be a significant demand for Americans to travel internationally and
domestically as well. Backed by some earnings numbers, the United
Airlines was up a whopping one hundred and thirty five
percent last year. It's stock and you have Delta and
Southwest moving in positive direction this morning as well. In
the news on United Airlines's.
Speaker 3 (13:14):
Talk a little bit about mortgage rates.
Speaker 2 (13:16):
I think this is a juicy topic given that we
are now about three weeks away from the Super Bowl,
which is the unofficial start of the spring housing season
these days. And according to Mortgage News Daily, the national
average for thirty year fixed rate mortgages is at seven
point eight percent, so still got a seven in the
(13:36):
first digit there.
Speaker 3 (13:37):
And you know, this is.
Speaker 2 (13:40):
One where if you go back a year ago and say, hey,
what did things look like back at this time in
you know, twenty twenty four national average was at six
eight seven it rose as high as seven three eight
in mid April, and this was one of the things
that kind of precipitated a slowdown in some economic data
that we got over the summer, was rates moved up
(14:02):
and the economy slowed. Same thing has happened over the
last couple months here, and we're seeing some signs that
housing demand is weakening simply because people can't afford to
buy homes at these rates, these insurance premiums and these prices,
Like something has to give there, and it's probably not
going to be insurance premiums, given what we've seen in
(14:23):
California and Florida over the last six months. So it's
got to either be rates or prices. And the case
for interest rates moving down is, hey, you've got to
have either a slow down in economic activity or some
convincingly better data on inflation. And right now, the inflation
(14:43):
data is kind of just floating around, you know, two
and a half to three percent, and the economic data
has continued to be good for the last few months now.
And so how do you get to lower mortgage rates
if you're not having those things happen? So I suspect, unfortunately,
you're probably stuck in like the six seven five to
(15:06):
seven two five range on mortgages for the spring housing
season unless you see either some kind of collapse to
the downside in the US economy, which doesn't really look
like it's showing up right now, doesn't look likely at
the moment, and or unless you see some you know,
return to the upside on inflation, in which case rates
are going higher, which is not great. But if you're
(15:28):
a home buyer heading into this this spring housing season,
I think ultimately you're gonna find that your affordability is
really stretched, and at least in the Northeast, inventory is
still low enough that you're not really seeing much pricing
pressure to the downside if you do live in other
parts of the country we are seeing in Florida, in
(15:50):
places like Austin, Texas and parts of Georgia, you're seeing
downward price pressures because there's inventory that now is you know,
quite high, and so the it just can't clear it
those prices. But again, not everyone who is living in
Florida or Georgia, you know, Tennessee or it's the Northeast
does not have enough inventory still, and so there's not
(16:12):
enough pressure to push prices down.
Speaker 3 (16:13):
So it's just, hey, this is what it is.
Speaker 4 (16:16):
There's a number of factors working against you. You mentioned
a couple of them. You know, part of this thirty
year fixed mortgage crusting over seven percent again is tethered
right to the US tenure Treasury, which was about three
point six percent back in September, got up as high
as close to about four point eight percent, but now
sits around four point five or four point six. You've
got two factors going here. Where one the premium, basically
(16:40):
the spread between the US ten year Treasury and thirty
year fixed mortgage rates. It's at a higher level than
it's been in the past. From nineteen ninety to twenty nineteen,
there was about a one point seven percent differential between
the US ten year Treasury and the average thirty year
fixed mortgage rate. That spread now sits at two point
four percent between the US Tenure Treasury and where we
(17:01):
sit on the thirty year fixed mortgage side of things. So,
with that elevated premium, limited inventory, as you mentioned, it
just doesn't seem like there is really any significant positive
catalyst for the housing market come the spring here.
Speaker 2 (17:15):
And look, there still is some time for you know,
some potential improvement. But I had someone asked me the
other day they were looking at, you know, potentially buying
a place to this spring, and they're like, do you
think mortgage rates are going to get back down in
the fives?
Speaker 3 (17:27):
And Mike and I have talked.
Speaker 2 (17:29):
About this before, but the only path I see to
rates down in the fives is if the US goes
in recession. Yes, And if the US goes in recession,
there's no guarantee that person who's looking for the home
hasn't lost a job and now can't buy the new
home that they thought they were going to get, you know,
at lower rates. But yeah, mortgage rates back in the
fives just a tough putt to get there. I think
(17:50):
a lot would have to go wrong with the US
economically to the point where, yeah, you're probably in recession.
If you're seeing mortgage rates back in the fives for
any extended period of time. Maybe you could get there
if like things went just right, like the economy slowed
but not quite into recession. But I don't think you
really want to play chicken with with recession. It's it's
(18:12):
not something to uh to sneeze at and just be like, oh, well,
maybe we can escape.
Speaker 4 (18:17):
Yeah, you mean you'd be talking about the US ten
year treasure. I was just looking at that would be
and have to be down around two and a half
percent or something like that, you know, to see that
significant of a fall to get to the five percent
level if we're talking five so like not oh not
just five flows yeah, but whatever, you know, even if
it was that three and a half, that's it's a
pretty significant drop. You got a year to get there
(18:39):
off of a policy initiatives that are likely going to
be adding to the US debt.
Speaker 2 (18:44):
So that's what we've got going on with mortgage rates
at the moment. Taking an updated look at markets, that
is now up eighty nine points, so stretching its legs
a little bit. The S and P also up forty
four points, and Nasdaq up two hundred and seventy two
So all three major US indices seeing some good positive
movement as we continue through the week. Here, we're gonna
(19:05):
take a quick break, but when we come back, I'm
gonna get to a few comments from Jamie Diamond, the
CEO of JP Morgan Chase, is out in Davos at
an event that I'm never invited to and quite honestly, like,
I don't know if i'd really have I bet i'd
have a good time there. It looks very picturesque, you know,
And I'm sure the drinks are great, definitely, especially at
(19:27):
altitude beautiful. It's wonderful. Let's take a quick break and
we'll talk Jamie Diamond's comments after this.
Speaker 1 (19:43):
Bringing the latest financial news straight to your radio every day.
It's the Financial Exchange on the Financial Exchange Radio Network.
Text us at six one seven three, six two one
three eight five with your comments and questions about today's
show and let us know what you think about the
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(20:09):
all right.
Speaker 5 (20:09):
Trigger question today was which college did Caitlin Clark play
basketball for?
Speaker 3 (20:14):
That would be Iowa.
Speaker 5 (20:15):
Caitlin Clark spent four years at the University of Iowa
before being selected with the number one overall pick in
the WNBA draft last year. George from Wallfan Mass is
our winner today taking on a Financial Exchange Show T
shirt and we played trivia every day here on the
Financial Exchange. See complete contest rules at Financial Exchange Show
(20:38):
dot com.
Speaker 2 (20:40):
So Jamie Diamond out in Davos and doing his thing
out there and Diamond, who's the CEO of JP Morgan
Chase gets interviewed on a wide variety of topics whenever
he goes to these things because we JP Morgan Chase
has great insight into what's going on with the US
and world financial system. They have so many customers and
(21:02):
clients that they they see just about everything. They're huge,
and Diamond has been there. It's got to be like
close to twenty years now.
Speaker 4 (21:11):
I think, Yeah, he's through the financial crisis, so that
puts him bad fifteen plus, so it's got to be
close to twenty. He's one of the longest tenured CEOs
in the financial sector out there. It's probably him and Moynihan,
I would think is the longest.
Speaker 2 (21:23):
Did mornihand cam He came on in like twenty ten, Right,
he's posted a countrywide and all the issues in the
Bank of America.
Speaker 3 (21:29):
Who's the guy beforehand? Kendulo? No, the guy, Uh.
Speaker 2 (21:35):
It was Angelo whatever his name was. The guy from
country Wide took over his right.
Speaker 4 (21:40):
What was his name, Ken Lewis, Let's see, he was one,
but maybe Angelo Mozillo? Yeah was he it?
Speaker 3 (21:48):
So?
Speaker 1 (21:48):
He?
Speaker 3 (21:49):
Oh?
Speaker 2 (21:49):
No, sorry, he was just the country wide CEO. He
was the countrywide CEO when they got sold to Bank
of America to try to save it, and it still
ended up blowing up the financial system.
Speaker 3 (21:59):
So there's that anyways.
Speaker 2 (22:03):
So Jamie Diamond, they asked him, you know, hey, what's
going on with you know, the stock market and so on.
He says, quote, asset prices are kind of inflated by
any measure in the top ten or fifteen percent of
historical valuations. So yeah, they're elevated, and you need fairly
good outcomes to justify those prices. Having pro growth strategies
helps make that happen. But there are negatives out there
and they can tend to surprise you. And he goes
(22:26):
on to say, I have a little bit of caution
about a bunch of subjects. What I'm a little cautious
about is the deficit spending. It's a global one, not
just an American issue. And the related question will inflation
go away? I'm not so sure. So, yeah, he's got
a few things out there, Diamond. Again, even though they
see a lot of stuff, and you know, sometimes he
has strong opinions on it, he's not always right. So
this is one thing that I come back to he's
(22:47):
the one who back in the fall. He's one of
the people back in the fall of twenty twenty two
thought recession was imminent and that there was going to
be I think he said, like there's a hurricane coming,
and it ultimately didn't materialize. So I think that this
is something where you take what he says with again
a grain of salt. But it's always interesting just to
hear his view, even if he's not always right, just
(23:08):
because even if he's not right, he's still pretty well
informed about what's going on, and he sees just a
ton of stuff coming across his desk, and so I
think that's kind of valuable.
Speaker 4 (23:19):
Yeah, he's, you know, one of the best financial executives
you've probably had of the last Like I looked back,
he's all close to twenty years a CEO of JP Morgan,
so he's had a really long tenure of being extremely
successful with the company. So you absolutely value his opinion.
And he is extremely well informed on what's going on
in markets, and he's not wrong that markets are very pricey. However,
(23:41):
you look at it from a metric perspective, there are
probably more risks out there than there are positives. Cases
for the market going forward. So all taken, you know,
all taken into consideration now.
Speaker 2 (23:55):
Diamond also was asked during his interview with CNBC. He
was asked about his thoughts on bitcoin. And it's these
moments that I really do like Jamie Diamond because he's
been really consistent on on this at least you know,
a lot of the other bank executives now where you know,
Mornihan was interviewed the other day and they asked him
about crypto and he's like, yeah, like we'd love to
(24:17):
get into crypto payments if you know it's deemed you know,
legal or whatever. Just like chomping at the bit to
try to get you know, whatever they can there. Diamond
asked about bitcoin on CNBC. I'm not talking about bitcoin.
You guys talk about it plenty, just like you used
to talk about AOL all the time. It's like, oh,
like that's that's a good one right there. I like that,
(24:38):
I do have to say. So occasionally he comes through with, uh,
with something like that, and you know that, Uh, that's
kind of nice to see, I guess.
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Speaker 2 (25:51):
The rich and famous don't fear a stock market bubble.
That's why you should is the headline from market Watch,
and it it's h kind of a horrible headline quite honestly, Like,
just okay, so are there you know, scientific studies showing
that when the people who attend davos or bullish that
the market goes down.
Speaker 3 (26:11):
No, there are no such things.
Speaker 2 (26:13):
Instead, you have a piece here that says, hey, like
how highly valued or stocks relative to their historical averages?
And it makes the point, Yeah, like stocks are, as
Jamie Diamond just said, pretty much near the top of
historical valuations as far as things like PE ratio, dividend
yield price to sales ratio, something called the Q ratio.
Speaker 3 (26:34):
Have either of you ever? What the heck is the
Q ratio?
Speaker 4 (26:38):
How good the market looks?
Speaker 3 (26:39):
No, I'm qute, not cute?
Speaker 4 (26:41):
I have it is a financial ratio that compares the
company's market value to its replacement cost.
Speaker 3 (26:47):
What does that even mean? What's the replacement cost of Apple?
Speaker 2 (26:53):
What does that mean? What's the replacement cost of TikTok.
Speaker 5 (26:58):
Measures whether a firm or or aggregate market is relatively
over armed a valued I've.
Speaker 3 (27:03):
Never heard of the Q ratio. Now maybe that I
don't know how.
Speaker 4 (27:08):
Replacement value?
Speaker 2 (27:09):
Maybe that's a reflection on me. Okay, that's that's fine.
You can only know so much about so much, but
never even heard of that.
Speaker 3 (27:17):
Again.
Speaker 2 (27:17):
It goes through all these things and basically says, yes,
this market's overvalued. We've known about this. This market has
been overvalued for a little while now, and valuation is
a horrible timing metric. Back in nineteen ninety seven, Alan Greenspan,
then Chair of the Federal Reserve, gave his famous speech
talking about the market's irrational exuberance. Market didn't peak for
(27:38):
the next three years. We got all the way through,
you know, ninety seven, ninety eight, ninety nine, even part
of two thousand before things finally said, yeah, we're gonna
roll over for good. And I'm not sitting here telling
you all like you should be all bullish and everything.
Speaker 3 (27:52):
No, but much more.
Speaker 2 (27:53):
Hey, just because something's expensive doesn't mean it's inherently going
to get cheaper immediately, and in fact, it might continue
to go up in price before it finally corrects. You
have no idea just based on whether something is expensive
or not. One of my favorite lines, the opposite's true. Also,
by the way, one of my favorite lines in investing.
(28:15):
Paul You've probably heard this a million times, So I'm sorry,
how does a stock lose seventy five percent but it
loses fifty percent and then it loses fifty percent again,
So you lose that first fifty percent, you're like, oh,
this is cheap, and then it goes down another fifty
and you're like, oh, like this is cheaper, and then
it Just because something has moved in one direction does
(28:36):
not inherently mean that it's going to move in the other,
you know, at any particular point in time. So, yes,
this is an expensive market. It is something where the
historical comps are starting to get a little bit nutty,
But that doesn't mean it can't get nuttier. And so
if you make your investment decisions based on this market
(28:57):
Watch piece by Mark Hulbert, are you going to be
eagerly waiting for Mark's next piece saying when it's time
to buy? What if he doesn't publish that? You know, like,
what if he just doesn't write it for some reason?
So I always these pieces always bother me a little bit.
And again, I just think that there's someone out there
(29:20):
who probably read this and is like, oh, gee, this
is a bubble and I need to sell everything and
maybe they're right, maybe like this is the top, but
this is a horrible way to make that decision by
reading this piece.
Speaker 4 (29:33):
And tie into people attending Davos.
Speaker 2 (29:35):
Yes, who cares what they think? Like they're not super geniuses.
There are plenty of billionaires that lost a lot of
money in the financial crisis because they were like completely wrong.
There are plenty of them that made a bunch of
money in the last few years because they were right
about the market running up. So I don't know, Like,
no one's right or wrong all the time, and who
(29:57):
cares what the people at Davos think about what the
market's doing?
Speaker 3 (30:00):
Take a quick break when we come back.
Speaker 1 (30:02):
Stack Rulet find daily interviews and full shows of the
Financial Exchange on how our YouTube page. Get caught up
on anything and everything you might have missed. This is
the Financial Exchange Radio Network. Miss any of the show.
Catch up at your convenience by visiting Financial Exchange Show
dot com and clicking the on demand icon, where you'll
(30:22):
find all of our interviews and full showers. This is
your home for the latest business and financial news in
New England and around the country. This is the Financial
Exchange Radio Network.
Speaker 5 (30:35):
The Financial Exchange is a proud partner of the Disabled
American Veterans Apartment of Massachusetts. By making a donation, you
can support the Veteran Advancement Program, which offers permanent and
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those with families. Visit DAV five k dot Boston to
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Speaker 3 (31:12):
Paul, what do you got for me? For stack Roulette?
Speaker 4 (31:15):
Bonds used to make sense for your portfolio, but does
perhaps cash look to be the better option? Is a
piece that was covered in barrens and also a fall
up piece in a similar vein. Bonds had their worst
decade in ninety years. What we've seen over the course
of the last several years is a very low interest
(31:36):
rate environment in COVID in twenty twenty and twenty twenty one,
where you had the US ten year treasury I believe
as low as three quarters of a percent now we
sit with the US tenure Treasury at four point six
or four point seven percent. As a result, anyone who
held long term bronze really was being up significantly, particularly
in twenty twenty two, versus cash, which has increased very
(31:58):
significantly over the course to the last couple of years. Ultimately,
you know, the way that we look at this from
a portfolio perspective, bonds are typically, you know, supposed to
be a means of safety. They're supposed to have less
deviation in terms of the returns that they provide. But
the idea of it being you know, an optical time
to buy into bonds now just because they've been beaten
(32:19):
up before, it echoes the sentiment that we were going
through before prior to the break, with this idea that
you never know what the right time is to buy
into the markets, whether they could look cheap but could
only fall further, And the same thing on the upside
front in terms of the expense, The same thing applies
if you're trying to make an interest bet on interest rate,
(32:39):
bet on long term rates. You just never know. Really,
it's all about building an allocation that you, as a
client or an investor can feel comfortable with.
Speaker 2 (32:47):
I think also it's important to remember that, Look, it's
not something where even in a very favorable period for bonds,
you know, the nineteen eighties through twenty twenty, it's not
like they were just a lamb dunk to make money
all the time. These are the annual returns for bonds
since nineteen eighty This is the Bloomberg Aggregate Bond Index
two point seven one six point twenty five. Okay, those
(33:09):
seem like bond like returns nineteen eighty two thirty two
point six two percent. Remember you're getting like a fifteen
percent yield, plus yields came down, so you just made
a ton eight point three five, fifteen point one five
twenty two point one, fifteen point twenty six. Yeah, you're
probably not gonna see returns like that ever. Again in bonds,
like it's like five out of four out of five
(33:30):
years north of fifteen percent. It's insane, Like, okay, like, yeah,
that's not realistic. But then you start to like continue
to go on. You get to the nineties in particular,
eight point nine six sixteen percent seven point four nine
point seven five minus two point nine two eighteen point
four six three point six four nine point six four
(33:50):
eight point seven minus point eight two. So the nineties
had two years where you lost money on bonds, like
it was just you know, kind of how it was.
Then the two thousands very very stable, aside from kind
of the tech bubble where yields were higher three six three,
four one oh two, four point one two, six point
nine seven, five point two four, five point nine three, like,
(34:11):
very consistent, but that's kind of the outlier. Aside from that,
you're you're kind of all.
Speaker 3 (34:16):
Over the place.
Speaker 2 (34:17):
And I think this is the thing to remember about
bonds is yeah, they do have some gravity and that
you have a yield that's pulling you towards you know
where you know you're you're going to eventually end up.
But bonds don't. They're not designed to just make you
the same return each year. Like the prices will and
do fluctuate, and that is something that is normal. They're
(34:39):
supposed to fluctuate less than the overall stock market, but
it doesn't mean that they just they never move. And
I think there's sometimes that misconception about that and that's
just not true based on what we've seen historically.
Speaker 4 (34:52):
Was it down fourteen percent and twenty two, what's twenty two,
twenty three, twenty.
Speaker 2 (34:56):
Four, I can, I can pull the site I was
reading stopped in twelve one. It was on somewhere in
fourteen or fifteen. Yeah, and then the last couple of years.
Speaker 4 (35:06):
Been hard to recover that, I mean, because it's been
a couple percent. I believe it's two percent last year
on for twenty four on the bond index, and I
forget on twenty three. But it's very minimal, like.
Speaker 2 (35:16):
Modest, like low single digits somewhere in that ballpark. So yeah,
it's again it's something where you have the potential for
you know, some some downside on bonds quite honestly.
Speaker 1 (35:28):
But.
Speaker 2 (35:30):
They also tend to be to a certain extent. And
it again, it depends what kind of longer term secular
trend that you're in based on, you know, kind of
where yields were starting and things like that. But in
this economy you kind of feel, okay, there's somewhat self
correcting in that if yields go too high, it's going
to slow the economy too much, and so that tends
(35:51):
to bring yields back down then, which might speed it up,
which pushes them up. So again it's It's just something
to understand about how bond actually work. Where the prices
do move around, they don't just stay in the same
place forever, and you've got to understand where they fit
as part of your overall portfolio. I want to talk
(36:12):
about this story. I saw this one last week. The
Olympic medals from Paris. They are tarnishing apparently already, which
the Paris Olympics, if I'm correct, they were six months.
Speaker 3 (36:25):
Ago, right, yes?
Speaker 2 (36:28):
Is it that like July somewhere somewhere in that range
and July August somewhere.
Speaker 5 (36:34):
Through August eleventh of last year, it was like a while.
Speaker 2 (36:36):
Ago, six months ago, and apparently the medals are starting
to deteriorate. In fact, a US Olympic fencer said his
bronze medals started deteriorating a few days after the Olympics,
and within a few weeks it was more noticeable. And
it's something where it appears to be that the biggest
(36:56):
problem is with the bronze medals. So hey, you medal
in the Olympics. I mean, you're one of the three
best people on the planet at whatever you do, and
they give you this thing that's falling apart in a
few I mean not like completely falling apart, but it
doesn't last a few days before it starts tarnishing, like
(37:17):
what are what are we actually doing here? And they were,
you know, showing off these medals and like, oh, we
spent so much time designing them and this and that
and look, don't don't get me wrong, like trying to
make bronze is not exactly easy. It's not like something
that No, the three of us sitting in this room
could not make a bronze medal that didn't tarnish the
(37:37):
day we made it. Like it's you don't just it
doesn't just happen. But the fact is you made these
for the Olympics and you just want, you hope that
they were a little bit higher quality. So LVMH is
the company that made them, you know, Louis Vauton, and
they're facing some criticism because hey, make your Olympic medals
(37:59):
better better, you know, like what are we really doing here?
Speaker 4 (38:02):
This happened in twenty sixteen too, with read the Rio Games.
There was also some issues with the medals. So get
those medals in line.
Speaker 3 (38:09):
That's what do you gotta do.
Speaker 2 (38:11):
Anyways, markets are in positive territory DOWS up one thirty seven,
SMP's up forty nine, NASDAC up two eighty eight. We're
done for the day, back tomorrow on the Financial Exchange
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