May 15, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss Walmart's earnings coming in better than expected but warn customers that price increases are coming. How much pricing power do US companies actually have? Walmart is preparing to welcome its next customer: AI shopping agents. UnitedHealth Group is under criminal investigation for possible Medicare fraud. Why are so many couples having pets instead of children?
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Speaker 1 (00:00):
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(01:06):
Zadath and Mike Armstrong.
Speaker 2 (01:13):
Chuck, Mike and Tucker with you here and our top stories.
We kick off our show today is Walmart earnings. They
came out early this morning at I don't know, it
was around seven thirty or eight something like that, Who
knows the exact time that they that they came out
with those earnings. But the earnings were largely fine for
(01:34):
the quarter, like there was nothing, you know, particularly surprising
in them. But we got a whole bunch on the
Walmart conference call that I think is nice, juicy, you know,
meaty steak to dig into as we kick things off here,
and it starts first with this comment from their CFO,
(01:55):
who I think, really, you know, kind of you know,
just nails it on, you know this as far as
where we're heading here, this is John David Rainey who said, quote,
if you haven't already seen it, referring to price increases,
it'll happen in May and then become more pronounced as
we get into June. And so look, Walmart is the
(02:19):
I don't know if there's still the largest retailer in
the country like them and Amazon, regardless of whether the
largest or the second largest them in Amazon know more
about the individual buyer than anyone else in the world,
and by virtue of their size and the sheer volume
of stuff that they sell, they have a tremendous amount
(02:43):
of pricing power to their suppliers, not as much. Do
you know what company actually has the most pricing power
with their suppliers? No Costco. Why So, here's the interesting
thing about Costco. From talking with like people that actually
do business with them, what they say is Costco only
(03:04):
carries like five to ten percent of the skews of
other major retailers skew is sku's. I forget what it
stands for, but it's basically like how many different products
you sell. So they sell a very narrow set of
products relative to a Walmart or a Target or an Amazon.
But the interesting thing is, because you have to buy
in bulk, they sell a metric ton of volume in
(03:27):
each of those and so the people that are selling
into them often a ton of their business comes through Costco,
and so Costco can basically beat them up and say,
you need to deliver the highest quality, the hot you know,
the best pricing that you can otherwisewise moving on. Otherwise
we're moving on for you weers. Walmart's kind of like, okay,
(03:48):
we sell like five of these a month. Who cares?
As long as we can make two percent on the thing,
you know, like it doesn't matter. So in any case,
Walmart has a ton of pricing power though, that they
can use on their suppliers. And so when Walmart is
telling you, hey, we are going to you know, have
to see prices increase over the next month or so.
(04:10):
If Walmart can't keep prices down because of what we're
seeing from a trade perspective, Gym's, you know, toy store
is not going to be able to keep prices down
because they don't have the same kind of pricing power.
Speaker 3 (04:22):
Yeah, I'm trying to remember these stories from just earlier
this year where Walmart said, no, we are holding on prices.
We are not moving up. We are you know, in
spite of tariffs coming, we are going to be the
cheapest player out there.
Speaker 2 (04:34):
And they did.
Speaker 3 (04:35):
They held on prices and their volumes grew, right, Sales
rows four and a half percent year over year for Walmart,
which you know stands in start contrast maybe not to
Costco and to Amazon, but you think about other categories
in the cheap space, right, like McDonald's and other categories
in the cheap space.
Speaker 4 (04:55):
Yeah right, that was a bad description.
Speaker 1 (04:57):
But the.
Speaker 3 (04:59):
Lowest price point that's generally considered in any category. Walmart
maybe not the absolute lowest, but is looked at as
that discount retailer. McDonald's and others are looked at it
as the discount restaurant, and McDonald's other types of places
have been struggling quite a bit. Walmart really grew sales,
and I think a lot of it had to do
with that value proposition of no, we're keeping prices low.
Speaker 4 (05:23):
Sounds like that story's over.
Speaker 2 (05:24):
Well. I think they're trying to thread a you know,
a really tough needle right now. Because here's the thing.
If you go and take a look at Walmart, they're
operating margins, which is basically, hey, like, what is you know,
the profit that you make relative to your sales? They're
operating margins are four point three percent. There's not much
(05:44):
to defend there. And by the way, that's not like
a Walmart thing that's unique to them. Now, this is retail,
Like this retail. This is the deal with with retail
and how it works, Like you do not have wide
operating margins if you go back to nighteen ninety, and
I'm going back there just because it's it's the only
period that, like, it's as far back as I have
(06:06):
data on Walmart. If you go back and look at
Walmart's average margin since nineteen ninety, it's five point four percent.
And really it dipped in twenty fifteen, largely as they
got into more competition with Amazon and Costco got bigger
and stuff like that. But margins are in like the foes,
and especially you think it's also you know, more groceries
(06:27):
and those are lower margins, so that you know, drags
it as well. But when you have a four percent
margin and your supplier comes to you and says, hey, costs,
you're going up ten percent, which remember ten percent is
baseline from everything that you're importing, not everything that Walmart
makes is imported. A lot of the food that they
(06:48):
sell is you know, domestic, domestically produced in everything. I'm
actually curious, like, what are the biggest items for sale
at Walmart other than food that are domestically produced.
Speaker 3 (06:57):
There can't be many, no idea it's gonna be. It
cannot be many.
Speaker 2 (07:01):
It's gonna be something really weird, like you know, upside
down basketball's or something like that. Maybe not that weird.
Speaker 4 (07:08):
Yeah, yeah.
Speaker 2 (07:09):
Anyways, when you have a four percent margin, you don't
have a ton of room for er. You don't have
a ton of margin for area if you will. They're
trying to screw a very narrow line between hey, we're
keeping prices low and we're doing everything we can, and
we have to defend this margin. Because here's the other
(07:32):
thing about Walmart is and look, they can always go
out and you know say, okay, like we'll figure out,
you know, some kind of way to raise cash if
we need to. They've only got nine billion dollars in
cash on their books, which for a company that does
seven hundred billion dollars in revenue a year, that's not
(07:56):
a lot of cushion that you have out there. There's
not a lot of cushion that you have out there.
Their free cash flow is twelve point six billion dollars.
So what it tells you is, look, if Walmart's net
costs on average go up two percent, their free cash
flow is gone. If they don't change prices, prices are
(08:18):
going to be going up. And they told you this today,
and it's just because otherwise the math doesn't work Walmart.
Speaker 3 (08:24):
The previous story was there's not going to be goods
on shelves. That story is now dead, and it's now
a story left. The stuff that is on shelves is
going to be pricier to some degree. And to your point,
Walmart does not have these giant margins where they're marking
these things up three hundred percent, and so a large
portion of that tariff is likely to be passed through.
(08:45):
What they're also trying to delicately thread here is avoiding
the ire of the Trump administration. You remember when Amazone
was it last months ago, a couple of weeks ago,
proposed putting the tariff as a list on the actual
price tag on the website, and they got a very
Jeff Bezo has got a very quick call from President
(09:08):
Trump saying don't let that happen, and they had to
reverse course. So I think Walmart's acknowledging that, hey, prices
are going to have to go up without being hugely
explicit about how much and how they're going to place
the blame.
Speaker 2 (09:22):
So where do these prices go? I think there's a
pretty clear uh past, there's a pretty clear example of this,
or a pretty clear outline of this. The Yale Budget Lab,
who's been doing great work on the tariff situation all
along over the last couple months. It really pains me
to say something nice about the Yalees, but like they're
doing a great job putting this together. So as of
(09:45):
the new May twelfth tariffs, here's where the Yale Budget
Lab thinks prices are going to go on different item categories.
And you have to assume that a lot of these
are going to be at Walmart simply because a they
sell everything, and B A lot of what they sell
is imported. It's not necessarily all from China. They don't
have a ton of direct China exposure, but there's a
(10:06):
lot of Vietnam and Pakistan and Malaysia and so on
and so forth. Leather products anything from like wallets to
jackets to if you're a leather pant person, hey have
at it like you do you fifteen percent apparel fourteen percent, computer,
electronic and optical equipment fourteen percent, textiles ten percent, motor
(10:26):
vehicles and parts nine point three percent. Some of this
other stuff is like natural gas. I don't think Walmart
sells that, but listen, you never know. Let's see what
else falls in the category here, fishing, you know, like sure,
if you're buying again, it's probably more of like a
Dick sporting goods or you know, Bass.
Speaker 4 (10:45):
Pro shops that whole section.
Speaker 2 (10:46):
Yeah, of course they do one and a half percent,
paper products two percent. Even again you start getting into food,
cereal grains, processed rice one percent, vegetable oils one percent,
stuff that's not really affected as much. When you you know,
kind of go down the list, it's not really stuff
that Walmart sells because it's again like I'm going through
(11:11):
like the categories dwellings, no major changes. Well, of course,
well Walmart doesn't sell you know, houses, electricity, Okay, Walmart
doesn't produce electricity. So the stuff that is going to
see the larger increases is kind of right where they are.
Does it mean that prices go up exactly what the
Ale Budget Labs specifies. No, Walmart's going to figure out
(11:31):
how to do it, and they've got better pricing power
than other companies, So figure maybe the increases are on
the lower end of these numbers. You know, maybe instead
of apparel prices up fourteen percent at Walmart, maybe they're
up seven. But maybe other companies have to raise them
fifteen or sixteen percent, and that's how you get to
the average.
Speaker 3 (11:48):
But I think another point here is right now and
for the next eighty five days or so, the biggest
obsession is probably not with price when it comes to
companies like Walmart for their suppliers.
Speaker 4 (11:59):
Is what I mean.
Speaker 3 (12:00):
When they are trying to get stuff, it's China, it's
can I get it? And can I get it into
the United States borders in the next eighty five days, yep.
Speaker 2 (12:10):
And most of what matters, And it's because no one
knows what the situation is going to be after that.
We don't know if tariffrates are going to come down further,
which is a possibility. We don't know if they're going
to go up higher, also a possibility. We don't know
if they're going to stay the same, also a possibility.
Remember on our Friday show last week, we talked about, Hey,
going into these China negotiations, even though everyone's expecting a
(12:31):
tariff rate of you know, fifty to sixty percent, could
come in higher than that could come in lower. It
came in lower, does that mean that that's where it
comes in? You know, always as we go through these negotiations.
Speaker 4 (12:43):
No like it.
Speaker 2 (12:45):
I have no idea what we're going to be sitting
here talking about ninety days from now. As far as
the effect of tariff rate on China, would it surprise
me if it goes down to ten percent? No, would
surprised me. If it's still at thirty No, would surprise
me if it goes back up to fifty four?
Speaker 1 (12:59):
No.
Speaker 2 (13:00):
Yeah, it's all all possibilities here. Let's take a quick
break when we come back. Another thing that Walmart talked
about today, artificial intelligence getting ready to do it's shopping
for you. We'll talk about whether or not that's a
good idea after this.
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Speaker 3 (14:13):
Chuck, we were talking before the break about Walmart and
price increases that they mentioned on the Mistris earnings call.
Whether it's Amazon, whether it's Walmart, you're talking about the
two most famous retailers out there, both of which have
pointed towards tariffs as driving up prices for consumers. Now,
how much cover does this give everybody else to start
raising prices?
Speaker 2 (14:34):
Right?
Speaker 3 (14:34):
We saw this during COVID, which was, Hey, you know,
everyone's expecting prices to go up, and so we're going
to raise them even if we're not affected by COVID
because we can. And so, you know, discounts disappeared, any
sort of you know, coupons at the grocery store went away,
and prices went up substantially. And I wonder how much
(14:56):
cover is being provided now because you do have the
biggest ret tailor out there Walmart and arguably the most
famous one out there, Walmart saying yeah, we're raising prices, Mike.
Speaker 2 (15:05):
Not only do companies that import a bunch of stuff
have covered, now, companies that aren't impacted by tariffs right
have covered. And we've seen this. If you look through
some of the PMI reports, some of the Purchasing Manager
Index reports that we get, and you read the commentary,
you see an awful lot of, you know, companies that
are quite literally admitting, hey, tariffs are giving us cover to,
(15:30):
you know, raise prices even though we're not directly impacted
by them.
Speaker 3 (15:33):
And this was a big theme during earnings calls during
like the early twenty twenties, was hey, you know, we
were impacted by COVID, but we were able to drive
up prices more than this. You heard CEOs bragging about
this as they would to their investors during that period
of time. We haven't yet heard that this time around,
and I'll be interested to see you won't see it
for another.
Speaker 2 (15:52):
Course, they don't want to brag about it. Yeah, it's
so two things make this a different environment. The first,
the fiscal impulse for the over for the United States
as a whole, is dramatically different. You don't have this
huge jump in the deficit that has you know, resulted
from giving people a bunch of money, right, and so
given that, I think one of the questions is, hey,
(16:16):
how much pricing power do companies actually have?
Speaker 3 (16:19):
Yeah, can consumers actually absorb these or are they going.
Speaker 4 (16:23):
To pull back?
Speaker 2 (16:24):
Because a key difference right now. At the time that
we saw the last bout of inflation, wage growth was
rocketing higher as well. You had wage growth heading depending
on the metric you're looking at, anywhere from like five
and a half to nine percent bumps in wage growth.
Today you got wage growth slowing. Actually, I think the ECI,
the employment uh whatever, the compensation whatever it is, I
(16:45):
forget the exact name for it, but the ECI came
in at three six. If you look at like the
metrics from indeed in paychecks in those places, those show
wage growth slowing as well into that range. The Atlanta
Fed has a wage tracker. I'm pulling it up right now.
So the Atlanta Fed has a wage growth tracker that
(17:07):
right now is running at four three. In June of
twenty two, it was at six seven. So it's been
steadily coming down. So I think one of the key
differences in this setup here, and this is why the
chatter that's out there is for that you know, still
vague and not vague, but that that remote possibility of
(17:30):
any kind of extended stagflationary environment is, hey, if prices
go up but you don't have wages moving up to offset,
your standard of living effectively goes down. It's not the
problem you know that we had in twenty twenty two.
For a chunk of it was prices are rising faster
(17:50):
than wages. But by the time he got past that
initial impulse, it was just, hey, prices are going up
like seven percent a year, wages are going up seven
percent a year. I'm treading water. I'm not any better.
Speaker 4 (18:01):
Yeah, it doesn't feel good, but you're not worse off.
Speaker 2 (18:03):
The one that the possibility that you have out there,
if the recent trends continue on wages are okay, wage
growth slows back to you know, kind of the normal
three and a half percent range, and if prices start
moving up four five percent, now you've got you know,
that situation we saw in the first half of twenty
two that just sucked for everyone, which is okay, your
(18:24):
real standard of living is going down.
Speaker 3 (18:27):
All of this kind of brings me to the conclusion
that while Walmart may be raising prices, and we might
see that show up in parts of the consumer price
index reports that we get over the coming months, it's
hard for me to envision a scenario where we have
lasting inflation like we did in twenty one and twenty two.
(18:49):
You might see a blip on the radar, prices bump up,
but overall, unless there is some giant stimulus package coming,
either in the form of tax decreases or direct stimulus,
just don't see a path for inflation to take hold here.
Speaker 2 (19:05):
Probably not, I'd say probably, because inflation is one of
those things. It's not physics. It doesn't you know, have
you know, firm laws that are always in place, and
it's such a complicated economic system that you never know
exactly what's going to happen. But yeah, look, there is
a chance if you look at this and view this
through the lens of a tax increase from tariffs. Typically
(19:28):
tax increases or deflationary because they create problems with demand.
We'll see what happens. Quick Break Wall Street watches Next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE Show Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall Street.
Watch a complete look at what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Zay on Wall Street and markets are in negative territory
as Wall Street is sifting through retailer earnings from Walmart
and their commentary on the impact they saw from tariffs.
Investors also reacting to a new batch of economic data points,
including the Producer Price Index, retail sales for April, and
weekly jobless claims. On top of all that, FED chairman
(20:21):
Jerome Powell spoke earlier this morning. Right now, the Dow
is down by a third of a percent, or one
hundred and forty five points. SMP five hundred also down
about a third of a percent, or twenty one points,
and the Nasdaq is down by just over eight tenths
of a percent or one hundred and sixty four points.
RUSS two thousand is off by half a percent. Tenure
(20:41):
treasure reel down by three basis points at four point
four to nine percent, and crude oiled down two point
six percent, trading at sixty one dollars in forty eight
cents a barrel. Walmart reported better than expected first quarter earnings,
but fell just short of sale expectations. The retail giants
CFO also that consumers could start to see higher prices
(21:02):
as soon as later this month, passing along some of
the cost of tariff impacted products. Walmart shares retreating by
three percent. Meanwhile, major acquisition news in the retail space
after Dick's Sporting Goods agreed to buy Footlocker for two
point four billion dollars at twenty four dollars per share,
implying an eighty six percent upside to the stocks price.
(21:25):
Dick stock is down by fifteen percent, while shares and
Footlocker are surging by eighty three percent. Elsewhere, appleed down
by one percent after President Trump said he told CEO
Tim Cook he didn't want the iPhone maker to produce
more of its devices for the US market. In India,
Cisco's Systems up by five percent after the networking technology
(21:47):
company beat street expectations for its quarterly results. The company
also offered upbeat guidance for the full year. US listed
shares of Ali Baba down by eight percent after the
Chinese e commerce giant missed analyst forecast for its fiscal
fourth quarter in United Health Group stock down sixteen percent
(22:07):
after the Wall Street Journal reported that the health insurer
is being investigated by the Department of Justice for possible
Medicare fraud. I'm Tucker Silvan.
Speaker 1 (22:17):
That's Wall Street watch.
Speaker 2 (22:19):
Piece here in the Wall Street Journal and kind of
riffing on Walmart, but you can apply this to any
retailer and talking about the I don't want I don't
know if expected is the right word, but the coming
potential for AI agents to aid us in our shopping process. Now,
(22:42):
an AI agent is basically an artificial intelligence program that
doesn't just spit something back to you as far as like, hey,
tell me a joke about Chuck like he's not funny,
Like you know, it's not that. But an AI agent
is an artificial intelligence program. They can actually go out
and execute different tasks for you in in in you know,
(23:07):
kind of the virtual world. They know the first size
it's not someone who can fold your laundry, but again,
something who something that can go out and make a
purchase at Walmart dot com for you, or someone that can, uh,
you know, look up different travel arrangements for you or
things like that.
Speaker 3 (23:24):
And the first AI agents we started to see were
AI customer service.
Speaker 4 (23:28):
Agents through different websites, you know.
Speaker 3 (23:31):
That can answer a basic set of inquiries as opposed
to connecting you with a real, live human being. And
though those are more frequently out there these days, although
they can't actually do a whole lot, but this would
be yeah, build a shopping cart.
Speaker 4 (23:47):
For X y Z.
Speaker 2 (23:49):
The example they give here is, you know, tell your agent,
I want to build a unicorn theme party for my daughter,
buy me the relevant stuff from Walmart. So a couple
of things on this that that I think are again,
I don't want to seem like the party pooper, but
I'm gonna poop on the party.
Speaker 3 (24:09):
Okay, that's really a weird phrase when you put it
that way.
Speaker 2 (24:13):
Well, just as an example, No, do you remember the
girl that had the poop themed party a few years back?
Speaker 4 (24:19):
Yeah?
Speaker 2 (24:20):
Okay, imagine instructing your AI agent buy me stuff for
a poop themed party. Can you see how that can
go wrong?
Speaker 4 (24:31):
I don't.
Speaker 2 (24:32):
Yeah.
Speaker 3 (24:33):
So the end story here is that Walmart and other
retailers are apparently thinking about how they might need to
list items on their websites and market towards an AI
bought that would actually be doing the shopping instead of
a real live human being, which is interesting and I
don't know how they're going to do that. But to
(24:53):
your point, I just don't know that this is what
people want artificial intelligence for.
Speaker 4 (24:59):
People.
Speaker 3 (24:59):
Actually shopping is one of those things that people have
a physical, like an actual psychological addiction to shopping. I
don't know that it's something they want to send to
an artificial intelligence spot.
Speaker 2 (25:11):
And there's also the stuff where just as an example,
one of the other things that they talk about is, hey,
you could have you know, an AI agent that you
know buys your groceries every week for you. Okay, well,
what if I know that the grapes have been bad
the last two weeks. No, I don't want to buy
grapes anymore now. Granted, like I could message the AI agent, hey,
(25:32):
don't buy grapes, but I don't know, Like, then you're
getting into micromanaging it. Aren't you just building a shopping
list that you would do anyways.
Speaker 3 (25:40):
Yeah, I'm just not seeing the use case for this
in shopping specifically.
Speaker 2 (25:46):
And here's the other piece that I then wonder about. Okay,
they're obviously not going to do this for free, like
operating an AI agent doesn't have no cost? How much
of people willing to pay for this?
Speaker 5 (25:58):
Probably if it was warm, it would be part of
their membership.
Speaker 2 (26:01):
Okay, how much does that drive up the cost then?
Speaker 1 (26:03):
Of that?
Speaker 2 (26:04):
You know, these things aren't free? And and why is
this better? You know, like, why is this something that
is is better?
Speaker 4 (26:16):
Yeah?
Speaker 3 (26:16):
I don't see much of a compelling argument when it
comes to shopping specifically. Look, plenty of things that AI
is really good at. I think we might just be
focusing on what are.
Speaker 2 (26:25):
The plenty ones? What are the plenty mic.
Speaker 4 (26:30):
Here's what AI guess narrowly. Yeah, you're right, it's not plenty.
Speaker 2 (26:33):
It's good at summarizing text back to you, and it
can do some things in certain like niche cases where
you have AI that's specifically programmed for certain tasks to
provide you know, good starting points for what you want
to do, think code generation and stuff like that or writing.
You know that there's some stuff that it can do there.
(26:57):
I just need to see more from to know that
I can trust it with this stuff, because uhh.
Speaker 3 (27:04):
It's not to me. It's not a trust thing. It's
I don't know why we're focusing it. It doesn't understand humanity.
Speaker 2 (27:11):
Like, just as an example, yesterday, I was asking it
just I had something I was trying to work on,
and I asked AI at one point to write me
a joke about money, just because I was like, hey,
like could jack.
Speaker 4 (27:28):
Nas be funny?
Speaker 2 (27:28):
I needed a lift. Here's what it came up with, client,
Why is my portfolio so conservative? Advisor because it's shy
around risk and prefers to keep its bonds close.
Speaker 4 (27:41):
That's not great.
Speaker 2 (27:42):
It doesn't even make sense. It's it's not it's it's
not even coherent, Okay, Like it just doesn't make make
any sense there. What is a what is an investment
manager's favorite bedtime story Goldilocks in the three risk profiles? Yeah,
(28:05):
so it's like it's not really there, Like it understands
the words, but it doesn't understand why they're funny. Likewise,
when we talk about something like grocery shopping, is it
going to understand the why? Like, if if you tell it, hey,
I'm making this recipe, is it going to know that
(28:26):
if it includes basil, Hey, buy fresh basil and not
the kind that is just you know in dry basil,
the dry basil. Sure, yeah, fresh.
Speaker 5 (28:35):
As opposed to the seasoning.
Speaker 3 (28:37):
Yeah sure, Yeah, to me, it's simpler than that. I
don't see the use case for tasks that most people
enjoyed doing. I wouldn't ask artificial intelligence to go to
the bar with my friends on a Friday night. I
would probably not going to ask it to go shop
at the mall for me. Hey, it's just I know,
(28:58):
maybe I'm different than everybody else. I just I'm not
getting it.
Speaker 2 (29:01):
You're forgetting that You're not going to be sending the
AI to the bar with your friends. You're gonna be
hanging out with your AI friends. According to Mark Zuckerberg,
because the average human has demand for fifteen friends and
we only have three of them.
Speaker 4 (29:16):
If I had fifteen friends, that would be so exhausted.
Speaker 2 (29:19):
This is the thing about Mark Zuckerberg. He misses out
like he does not understand humans. The problem is not
that we don't have enough people that we like in
our lives. It's that there's no time in the average
person's life to maintain fifteen close friendships. So and in
order to have that time, you either Okay, if if
(29:43):
someone actually wants to invent an AI that is going
to do what people want, go to the bar do
our jobs for us so we can have all that
free time, but still allow us to get paid for it,
still pay me. Other than that, it's not gonna work.
You're like, they're trying to take away the stuff that
p people like. Let's get hammered. Oh, I'd love to
(30:05):
What are we going to drink? What can I get
you something? Are you interested to drink yourself? Yes? What
do you think you would like to drink? I have
to tell the bartender bud lights this. I'll get you
a milk. How about that. Let's take a quick break.
When we come back, we'll talk about j Powell. No milk, Okay,
(30:26):
milk for Powell.
Speaker 1 (30:27):
Right after this breaking business and financial news first throughout
the day, only here on the Financial Exchange Radio Network.
The Financial Exchange Show podcast drops every day on Apple, Spotify,
and iHeartRadio. Hit that subscribe button and leave us a
five star review. You're listening to the Financial Exchange Radio Network.
Speaker 5 (30:52):
This segment of The Financial Exchange is brought to you
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The US Virgin Islands are a Saint Croix's Thomas and
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visit USVII dot com.
Speaker 2 (31:21):
United Health Group and a Wall Street Journal exclusive. They
are under criminal investigation for possible Medicare fraud. The stock
has been hammered really bad even before this, so uh again,
Like you look at where it stands right now. It's
trading at two hundred and forty nine dollars a share.
The really interesting thing, do you remember the beginning of
(31:42):
the month when stocks were getting hammered, at the beginning
of April where stocks were getting hammered, Yeah, right, Like
it was really bad for stocks. Then United Health on
April first opened at five point twenty five a share,
and by the day after the tariffs were the reciprocal
tariffs were put up on hold, it cleared six hundred
(32:02):
dollars a share, So it went up twenty percent in
the first week and a half of April. Since then
I did the math based on I'm currently trading at
two hundred and fifty dollars a share. It has lost
fifty nine percent of its value in a month, which
is bad, not great. So here here's the thing about
(32:25):
United Health, Like again, their CEO is leaving. Now you've
got this, that's that's coming out. The piece that's really
kind of interesting to me is this one. If you
are a company that uses United Health for your employees,
(32:52):
how concerned do you have to be that any potential
action by this criminal investigation impacts their ability to actually
cover what they need to cover. Oh gosh, isn't that
where Like that's where my mind went, Yeah, that's scary.
The counterpoint to that is that, you know, it might
(33:14):
be pretty systemically important Chuck, Well, they are. But here's
the thing, Like everyone likes to rip on like big
health insurance because quite honestly.
Speaker 4 (33:23):
Rip suck.
Speaker 2 (33:23):
Yeah, they don't actually make a lot of money on
a per unit basis. It's just healthcare in the country
so expensive that they make it up on volume. United Health,
like you know, we talk about some businesses we're like, oh,
and videos got like seventy percent margins or hey, like Visa, Like,
what a great business to be and they got forty
percent margins and no competition. United Health has eight percent margins. Like,
(33:49):
they don't make a lot of money on what they do.
It's just they do four hundred billion dollars in revenue
a year. And so yeah, they make like twenty five
billion dollars just because of that.
Speaker 3 (33:59):
Yeah, and they are, you know, especially dominant in that
Medicare advantage plan space between them and Humanna. As of
twenty twenty four, that made up just about half the
market for Medicare advantage plans in general. And that's where
they are being accused or not accused. They are being
investigated for this fraud because effectively, the reimbursements that you
(34:21):
get and from the Medicare system for your sick patients
creates this big conflict of interest to diagnose sick patients
and pertend to potentially over diagnose those sick patients.
Speaker 2 (34:32):
Now, I will note, according to this Wall Street Journal exclusive,
United Health's in a statement it had not been notified
by the Department of Justice of a criminal investigation. Regardless
of that statement by them, the stocks down additional eighteen
percent today.
Speaker 3 (34:45):
Yeah, outside of this we're talking about Medicare advantage plans.
In this article they talk about basic Medicare versus Medicare advantage.
I have to say, I don't know about you, Chuck.
One of the most confusing topics for pre retirees is
how their Medicare is going to work compared to employee
health insurance. Everyone has it, and they eventually do you know,
(35:07):
figure it out and understand how it all works, But
it takes a little bit of getting used to. How
are you eligible? When am I eligible? What if I
lose my job or retire before I reach sixty five?
Do I want an advantage plan versus a traditional Medicare plan?
What's the difference? These are all really complicated before you
even get to the fact that the average Medicare beneficiary
(35:28):
has access to some forty three different advantage plans to
choose from. It's complicated if you have questions about your
eligibility for Medicare, how it's going to work within the
confines of your long term retirement plan. Give the folks
at arm Strong Advisory Group a call. We're not Medicare agents,
but we're well versed on all of the different parts
of retirement and Medicare is a huge one. If you're
(35:49):
facing down retirement or maybe early before sixty five retirement
and want to know how medicare is going to work
with your social security and other assets to protect you
and ensure a sound retirement. Give us a ring at
Armstrong Advisory Group at eight hundred three nine three four
zero zero one. That number again is eight hundred three
nine three for zero zero one.
Speaker 1 (36:11):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax, and estate planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (36:27):
I have no idea how people can afford a kid.
Why so many couples are having pets instead of children?
That's the headline front on your pet. That's the headline
from us this market watch.
Speaker 1 (36:38):
Yes.
Speaker 2 (36:38):
Yes, First of all, you can't have a pet. The
human body cannot physically push a dog or cat out
of it. Okay, so that's not what we call it.
So I have issues with the headline right now.
Speaker 4 (36:53):
Yeah, beyond that or the person that they quoted you
had a dog.
Speaker 2 (36:57):
Well, no, that's that's even before no idea how people
can afford a kid. That's like you just walk into
kmart and buy one, like oh yeah, like you hear
this one's a blue light special, you know, like double
it up. So here's the thing that I come back
to on this. And this is not to say that
like people were tougher in the olden days, but they
were tougher in the olden days. My grandfather was one
of eight kids living in a two bedroom apartment in
(37:19):
New York. His parents didn't think about how are we
going to afford these kids. They just went out and
had them and then they lived wherever they could. And
it wasn't a perfect life for them. It wasn't you know,
all sunshine and puppy dogs and rainbows. But that's how
they did it. And it's not to say that like
we should all aspire to be eight, you know, ten
people living in a two bedroom apartment. But there's always
something that will stop you from having a kid. If
(37:41):
it's concerned that you're not going to have enough money,
you will never have enough money to have a kid. True,
Like you the expenses always go up, so I just
don't know that that should be why people decide to
or not to have a child.
Speaker 4 (37:57):
Good reasons.
Speaker 3 (37:59):
I would make a terrible parent, and I'm terrified of
children and i never want to have them. Exactly fantastic
reason to not have a kid.
Speaker 2 (38:04):
Bad one. I'm nervous. I'm not gonna have enough money. Newsflash,
you will never have enough money to have a kid.
They are a bottomless pit of just sucking in the
money that we still love for some reason, because they
really are just awesome. Let's take a quick break here.
When we come back, we got our two coming up
in a little bit.
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
or anyone else. Investments can lose money. This program does
not offer any specific financial or investment advice. Please consult
your own financial, tax, and estate planning advisors before making
(00:20):
any investment decisions. Armstrong Advisory and the advertisers heard on
this program do not endorse each other or their services.
Armstrong and Money Matters Radio do not compensate each other
for referrals and are not affiliated. This is the Financial
Exchange with Chuck Zada and Mike Armstrong, your exclusive look
at business and financial news affecting your day, your city,
(00:42):
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heroes by visiting dav five K DOC Boston and making
a donation today. This is the Financial Exchange with Chuck
(01:06):
Zadath and Mike Armstrong.
Speaker 2 (01:13):
Chuck, Mike and Tucker with you here and our top stories.
We kick off our show today is Walmart earnings. They
came out early this morning at I don't know, it
was around seven thirty or eight something like that, Who
knows the exact time that they that they came out
with those earnings. But the earnings were largely fine for
(01:34):
the quarter, like there was nothing, you know, particularly surprising
in them. But we got a whole bunch on the
Walmart conference call that I think is nice, juicy, you know,
meaty steak to dig into as we kick things off here,
and it starts first with this comment from their CFO,
(01:55):
who I think, really, you know, kind of you know,
just nails it on, you know this as far as
where we're heading here, this is John David Rainey who said, quote,
if you haven't already seen it, referring to price increases,
it'll happen in May and then become more pronounced as
we get into June. And so look, Walmart is the
(02:19):
I don't know if there's still the largest retailer in
the country like them and Amazon, regardless of whether the
largest or the second largest them in Amazon know more
about the individual buyer than anyone else in the world,
and by virtue of their size and the sheer volume
of stuff that they sell, they have a tremendous amount
(02:43):
of pricing power to their suppliers, not as much. Do
you know what company actually has the most pricing power
with their suppliers? No Costco. Why So, here's the interesting
thing about Costco. From talking with like people that actually
do business with them, what they say is Costco only
(03:04):
carries like five to ten percent of the skews of
other major retailers skew is sku's. I forget what it
stands for, but it's basically like how many different products
you sell. So they sell a very narrow set of
products relative to a Walmart or a Target or an Amazon.
But the interesting thing is, because you have to buy
in bulk, they sell a metric ton of volume in
(03:27):
each of those and so the people that are selling
into them often a ton of their business comes through Costco,
and so Costco can basically beat them up and say,
you need to deliver the highest quality, the hot you know,
the best pricing that you can otherwisewise moving on. Otherwise
we're moving on for you weers. Walmart's kind of like, okay,
(03:48):
we sell like five of these a month. Who cares?
As long as we can make two percent on the thing,
you know, like it doesn't matter. So in any case,
Walmart has a ton of pricing power though, that they
can use on their suppliers. And so when Walmart is
telling you, hey, we are going to you know, have
to see prices increase over the next month or so.
(04:10):
If Walmart can't keep prices down because of what we're
seeing from a trade perspective, Gym's, you know, toy store
is not going to be able to keep prices down
because they don't have the same kind of pricing power.
Speaker 3 (04:22):
Yeah, I'm trying to remember these stories from just earlier
this year where Walmart said, no, we are holding on prices.
We are not moving up. We are you know, in
spite of tariffs coming, we are going to be the
cheapest player out there.
Speaker 2 (04:34):
And they did.
Speaker 3 (04:35):
They held on prices and their volumes grew, right, Sales
rows four and a half percent year over year for Walmart,
which you know stands in start contrast maybe not to
Costco and to Amazon, but you think about other categories
in the cheap space, right, like McDonald's and other categories
in the cheap space.
Speaker 4 (04:55):
Yeah right, that was a bad description.
Speaker 1 (04:57):
But the.
Speaker 3 (04:59):
Lowest price point that's generally considered in any category. Walmart
maybe not the absolute lowest, but is looked at as
that discount retailer. McDonald's and others are looked at it
as the discount restaurant, and McDonald's other types of places
have been struggling quite a bit. Walmart really grew sales,
and I think a lot of it had to do
with that value proposition of no, we're keeping prices low.
Speaker 4 (05:23):
Sounds like that story's over.
Speaker 2 (05:24):
Well. I think they're trying to thread a you know,
a really tough needle right now. Because here's the thing.
If you go and take a look at Walmart, they're
operating margins, which is basically, hey, like, what is you know,
the profit that you make relative to your sales? They're
operating margins are four point three percent. There's not much
(05:44):
to defend there. And by the way, that's not like
a Walmart thing that's unique to them. Now, this is retail,
Like this retail. This is the deal with with retail
and how it works, Like you do not have wide
operating margins if you go back to nighteen ninety, and
I'm going back there just because it's it's the only
period that, like, it's as far back as I have
(06:06):
data on Walmart. If you go back and look at
Walmart's average margin since nineteen ninety, it's five point four percent.
And really it dipped in twenty fifteen, largely as they
got into more competition with Amazon and Costco got bigger
and stuff like that. But margins are in like the foes,
and especially you think it's also you know, more groceries
(06:27):
and those are lower margins, so that you know, drags
it as well. But when you have a four percent
margin and your supplier comes to you and says, hey, costs,
you're going up ten percent, which remember ten percent is
baseline from everything that you're importing, not everything that Walmart
makes is imported. A lot of the food that they
(06:48):
sell is you know, domestic, domestically produced in everything. I'm
actually curious, like, what are the biggest items for sale
at Walmart other than food that are domestically produced.
Speaker 3 (06:57):
There can't be many, no idea it's gonna be. It
cannot be many.
Speaker 2 (07:01):
It's gonna be something really weird, like you know, upside
down basketball's or something like that. Maybe not that weird.
Speaker 4 (07:08):
Yeah, yeah.
Speaker 2 (07:09):
Anyways, when you have a four percent margin, you don't
have a ton of room for er. You don't have
a ton of margin for area if you will. They're
trying to screw a very narrow line between hey, we're
keeping prices low and we're doing everything we can, and
we have to defend this margin. Because here's the other
(07:32):
thing about Walmart is and look, they can always go
out and you know say, okay, like we'll figure out,
you know, some kind of way to raise cash if
we need to. They've only got nine billion dollars in
cash on their books, which for a company that does
seven hundred billion dollars in revenue a year, that's not
(07:56):
a lot of cushion that you have out there. There's
not a lot of cushion that you have out there.
Their free cash flow is twelve point six billion dollars.
So what it tells you is, look, if Walmart's net
costs on average go up two percent, their free cash
flow is gone. If they don't change prices, prices are
(08:18):
going to be going up. And they told you this today,
and it's just because otherwise the math doesn't work Walmart.
Speaker 3 (08:24):
The previous story was there's not going to be goods
on shelves. That story is now dead, and it's now
a story left. The stuff that is on shelves is
going to be pricier to some degree. And to your point,
Walmart does not have these giant margins where they're marking
these things up three hundred percent, and so a large
portion of that tariff is likely to be passed through.
(08:45):
What they're also trying to delicately thread here is avoiding
the ire of the Trump administration. You remember when Amazone
was it last months ago, a couple of weeks ago,
proposed putting the tariff as a list on the actual
price tag on the website, and they got a very
Jeff Bezo has got a very quick call from President
(09:08):
Trump saying don't let that happen, and they had to
reverse course. So I think Walmart's acknowledging that, hey, prices
are going to have to go up without being hugely
explicit about how much and how they're going to place
the blame.
Speaker 2 (09:22):
So where do these prices go? I think there's a
pretty clear uh past, there's a pretty clear example of this,
or a pretty clear outline of this. The Yale Budget Lab,
who's been doing great work on the tariff situation all
along over the last couple months. It really pains me
to say something nice about the Yalees, but like they're
doing a great job putting this together. So as of
(09:45):
the new May twelfth tariffs, here's where the Yale Budget
Lab thinks prices are going to go on different item categories.
And you have to assume that a lot of these
are going to be at Walmart simply because a they
sell everything, and B A lot of what they sell
is imported. It's not necessarily all from China. They don't
have a ton of direct China exposure, but there's a
(10:06):
lot of Vietnam and Pakistan and Malaysia and so on
and so forth. Leather products anything from like wallets to
jackets to if you're a leather pant person, hey have
at it like you do you fifteen percent apparel fourteen percent, computer,
electronic and optical equipment fourteen percent, textiles ten percent, motor
(10:26):
vehicles and parts nine point three percent. Some of this
other stuff is like natural gas. I don't think Walmart
sells that, but listen, you never know. Let's see what
else falls in the category here, fishing, you know, like sure,
if you're buying again, it's probably more of like a
Dick sporting goods or you know, Bass.
Speaker 4 (10:45):
Pro shops that whole section.
Speaker 2 (10:46):
Yeah, of course they do one and a half percent,
paper products two percent. Even again you start getting into food,
cereal grains, processed rice one percent, vegetable oils one percent,
stuff that's not really affected as much. When you you know,
kind of go down the list, it's not really stuff
that Walmart sells because it's again like I'm going through
(11:11):
like the categories dwellings, no major changes. Well, of course,
well Walmart doesn't sell you know, houses, electricity, Okay, Walmart
doesn't produce electricity. So the stuff that is going to
see the larger increases is kind of right where they are.
Does it mean that prices go up exactly what the
Ale Budget Labs specifies. No, Walmart's going to figure out
(11:31):
how to do it, and they've got better pricing power
than other companies, So figure maybe the increases are on
the lower end of these numbers. You know, maybe instead
of apparel prices up fourteen percent at Walmart, maybe they're
up seven. But maybe other companies have to raise them
fifteen or sixteen percent, and that's how you get to
the average.
Speaker 3 (11:48):
But I think another point here is right now and
for the next eighty five days or so, the biggest
obsession is probably not with price when it comes to
companies like Walmart for their suppliers.
Speaker 4 (11:59):
Is what I mean.
Speaker 3 (12:00):
When they are trying to get stuff, it's China, it's
can I get it? And can I get it into
the United States borders in the next eighty five days, yep.
Speaker 2 (12:10):
And most of what matters, And it's because no one
knows what the situation is going to be after that.
We don't know if tariffrates are going to come down further,
which is a possibility. We don't know if they're going
to go up higher, also a possibility. We don't know
if they're going to stay the same, also a possibility.
Remember on our Friday show last week, we talked about, Hey,
going into these China negotiations, even though everyone's expecting a
(12:31):
tariff rate of you know, fifty to sixty percent, could
come in higher than that could come in lower. It
came in lower, does that mean that that's where it
comes in? You know, always as we go through these negotiations.
Speaker 4 (12:43):
No like it.
Speaker 2 (12:45):
I have no idea what we're going to be sitting
here talking about ninety days from now. As far as
the effect of tariff rate on China, would it surprise
me if it goes down to ten percent? No, would
surprised me. If it's still at thirty No, would surprise
me if it goes back up to fifty four?
Speaker 1 (12:59):
No.
Speaker 2 (13:00):
Yeah, it's all all possibilities here. Let's take a quick
break when we come back. Another thing that Walmart talked
about today, artificial intelligence getting ready to do it's shopping
for you. We'll talk about whether or not that's a
good idea after this.
Speaker 1 (13:16):
Find daily interviews and full shows of the Financial Exchange
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This is the Financial Exchange Radio Network. Get up to
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Speaker 5 (13:41):
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Speaker 2 (13:49):
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Speaker 3 (14:13):
Chuck, we were talking before the break about Walmart and
price increases that they mentioned on the Mistris earnings call.
Whether it's Amazon, whether it's Walmart, you're talking about the
two most famous retailers out there, both of which have
pointed towards tariffs as driving up prices for consumers. Now,
how much cover does this give everybody else to start
raising prices?
Speaker 2 (14:34):
Right?
Speaker 3 (14:34):
We saw this during COVID, which was, Hey, you know,
everyone's expecting prices to go up, and so we're going
to raise them even if we're not affected by COVID
because we can. And so, you know, discounts disappeared, any
sort of you know, coupons at the grocery store went away,
and prices went up substantially. And I wonder how much
(14:56):
cover is being provided now because you do have the
biggest ret tailor out there Walmart and arguably the most
famous one out there, Walmart saying yeah, we're raising prices, Mike.
Speaker 2 (15:05):
Not only do companies that import a bunch of stuff
have covered, now, companies that aren't impacted by tariffs right
have covered. And we've seen this. If you look through
some of the PMI reports, some of the Purchasing Manager
Index reports that we get, and you read the commentary,
you see an awful lot of, you know, companies that
are quite literally admitting, hey, tariffs are giving us cover to,
(15:30):
you know, raise prices even though we're not directly impacted
by them.
Speaker 3 (15:33):
And this was a big theme during earnings calls during
like the early twenty twenties, was hey, you know, we
were impacted by COVID, but we were able to drive
up prices more than this. You heard CEOs bragging about
this as they would to their investors during that period
of time. We haven't yet heard that this time around,
and I'll be interested to see you won't see it
for another.
Speaker 2 (15:52):
Course, they don't want to brag about it. Yeah, it's
so two things make this a different environment. The first,
the fiscal impulse for the over for the United States
as a whole, is dramatically different. You don't have this
huge jump in the deficit that has you know, resulted
from giving people a bunch of money, right, and so
given that, I think one of the questions is, hey,
(16:16):
how much pricing power do companies actually have?
Speaker 3 (16:19):
Yeah, can consumers actually absorb these or are they going.
Speaker 4 (16:23):
To pull back?
Speaker 2 (16:24):
Because a key difference right now. At the time that
we saw the last bout of inflation, wage growth was
rocketing higher as well. You had wage growth heading depending
on the metric you're looking at, anywhere from like five
and a half to nine percent bumps in wage growth.
Today you got wage growth slowing. Actually, I think the ECI,
the employment uh whatever, the compensation whatever it is, I
(16:45):
forget the exact name for it, but the ECI came
in at three six. If you look at like the
metrics from indeed in paychecks in those places, those show
wage growth slowing as well into that range. The Atlanta
Fed has a wage tracker. I'm pulling it up right now.
So the Atlanta Fed has a wage growth tracker that
(17:07):
right now is running at four three. In June of
twenty two, it was at six seven. So it's been
steadily coming down. So I think one of the key
differences in this setup here, and this is why the
chatter that's out there is for that you know, still
vague and not vague, but that that remote possibility of
(17:30):
any kind of extended stagflationary environment is, hey, if prices
go up but you don't have wages moving up to offset,
your standard of living effectively goes down. It's not the
problem you know that we had in twenty twenty two.
For a chunk of it was prices are rising faster
(17:50):
than wages. But by the time he got past that
initial impulse, it was just, hey, prices are going up
like seven percent a year, wages are going up seven
percent a year. I'm treading water. I'm not any better.
Speaker 4 (18:01):
Yeah, it doesn't feel good, but you're not worse off.
Speaker 2 (18:03):
The one that the possibility that you have out there,
if the recent trends continue on wages are okay, wage
growth slows back to you know, kind of the normal
three and a half percent range, and if prices start
moving up four five percent, now you've got you know,
that situation we saw in the first half of twenty
two that just sucked for everyone, which is okay, your
(18:24):
real standard of living is going down.
Speaker 3 (18:27):
All of this kind of brings me to the conclusion
that while Walmart may be raising prices, and we might
see that show up in parts of the consumer price
index reports that we get over the coming months, it's
hard for me to envision a scenario where we have
lasting inflation like we did in twenty one and twenty two.
(18:49):
You might see a blip on the radar, prices bump up,
but overall, unless there is some giant stimulus package coming,
either in the form of tax decreases or direct stimulus,
just don't see a path for inflation to take hold here.
Speaker 2 (19:05):
Probably not, I'd say probably, because inflation is one of
those things. It's not physics. It doesn't you know, have
you know, firm laws that are always in place, and
it's such a complicated economic system that you never know
exactly what's going to happen. But yeah, look, there is
a chance if you look at this and view this
through the lens of a tax increase from tariffs. Typically
(19:28):
tax increases or deflationary because they create problems with demand.
We'll see what happens. Quick Break Wall Street watches Next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE Show Breaking business news is always first right here
on the Financial Exchange Radio Network. Time now for Wall Street.
Watch a complete look at what's moving markets so far
today right here on the Financial Exchange Radio Network.
Speaker 5 (20:00):
Zay on Wall Street and markets are in negative territory
as Wall Street is sifting through retailer earnings from Walmart
and their commentary on the impact they saw from tariffs.
Investors also reacting to a new batch of economic data points,
including the Producer Price Index, retail sales for April, and
weekly jobless claims. On top of all that, FED chairman
(20:21):
Jerome Powell spoke earlier this morning. Right now, the Dow
is down by a third of a percent, or one
hundred and forty five points. SMP five hundred also down
about a third of a percent, or twenty one points,
and the Nasdaq is down by just over eight tenths
of a percent or one hundred and sixty four points.
RUSS two thousand is off by half a percent. Tenure
(20:41):
treasure reel down by three basis points at four point
four to nine percent, and crude oiled down two point
six percent, trading at sixty one dollars in forty eight
cents a barrel. Walmart reported better than expected first quarter earnings,
but fell just short of sale expectations. The retail giants
CFO also that consumers could start to see higher prices
(21:02):
as soon as later this month, passing along some of
the cost of tariff impacted products. Walmart shares retreating by
three percent. Meanwhile, major acquisition news in the retail space
after Dick's Sporting Goods agreed to buy Footlocker for two
point four billion dollars at twenty four dollars per share,
implying an eighty six percent upside to the stocks price.
(21:25):
Dick stock is down by fifteen percent, while shares and
Footlocker are surging by eighty three percent. Elsewhere, appleed down
by one percent after President Trump said he told CEO
Tim Cook he didn't want the iPhone maker to produce
more of its devices for the US market. In India,
Cisco's Systems up by five percent after the networking technology
(21:47):
company beat street expectations for its quarterly results. The company
also offered upbeat guidance for the full year. US listed
shares of Ali Baba down by eight percent after the
Chinese e commerce giant missed analyst forecast for its fiscal
fourth quarter in United Health Group stock down sixteen percent
(22:07):
after the Wall Street Journal reported that the health insurer
is being investigated by the Department of Justice for possible
Medicare fraud. I'm Tucker Silvan.
Speaker 1 (22:17):
That's Wall Street watch.
Speaker 2 (22:19):
Piece here in the Wall Street Journal and kind of
riffing on Walmart, but you can apply this to any
retailer and talking about the I don't want I don't
know if expected is the right word, but the coming
potential for AI agents to aid us in our shopping process. Now,
(22:42):
an AI agent is basically an artificial intelligence program that
doesn't just spit something back to you as far as like, hey,
tell me a joke about Chuck like he's not funny,
Like you know, it's not that. But an AI agent
is an artificial intelligence program. They can actually go out
and execute different tasks for you in in in you know,
(23:07):
kind of the virtual world. They know the first size
it's not someone who can fold your laundry, but again,
something who something that can go out and make a
purchase at Walmart dot com for you, or someone that can, uh,
you know, look up different travel arrangements for you or
things like that.
Speaker 3 (23:24):
And the first AI agents we started to see were
AI customer service.
Speaker 4 (23:28):
Agents through different websites, you know.
Speaker 3 (23:31):
That can answer a basic set of inquiries as opposed
to connecting you with a real, live human being. And
though those are more frequently out there these days, although
they can't actually do a whole lot, but this would
be yeah, build a shopping cart.
Speaker 4 (23:47):
For X y Z.
Speaker 2 (23:49):
The example they give here is, you know, tell your agent,
I want to build a unicorn theme party for my daughter,
buy me the relevant stuff from Walmart. So a couple
of things on this that that I think are again,
I don't want to seem like the party pooper, but
I'm gonna poop on the party.
Speaker 3 (24:09):
Okay, that's really a weird phrase when you put it
that way.
Speaker 2 (24:13):
Well, just as an example, No, do you remember the
girl that had the poop themed party a few years back?
Speaker 4 (24:19):
Yeah?
Speaker 2 (24:20):
Okay, imagine instructing your AI agent buy me stuff for
a poop themed party. Can you see how that can
go wrong?
Speaker 4 (24:31):
I don't.
Speaker 2 (24:32):
Yeah.
Speaker 3 (24:33):
So the end story here is that Walmart and other
retailers are apparently thinking about how they might need to
list items on their websites and market towards an AI
bought that would actually be doing the shopping instead of
a real live human being, which is interesting and I
don't know how they're going to do that. But to
(24:53):
your point, I just don't know that this is what
people want artificial intelligence for.
Speaker 4 (24:59):
People.
Speaker 3 (24:59):
Actually shopping is one of those things that people have
a physical, like an actual psychological addiction to shopping. I
don't know that it's something they want to send to
an artificial intelligence spot.
Speaker 2 (25:11):
And there's also the stuff where just as an example,
one of the other things that they talk about is, hey,
you could have you know, an AI agent that you
know buys your groceries every week for you. Okay, well,
what if I know that the grapes have been bad
the last two weeks. No, I don't want to buy
grapes anymore now. Granted, like I could message the AI agent, hey,
(25:32):
don't buy grapes, but I don't know, Like, then you're
getting into micromanaging it. Aren't you just building a shopping
list that you would do anyways.
Speaker 3 (25:40):
Yeah, I'm just not seeing the use case for this
in shopping specifically.
Speaker 2 (25:46):
And here's the other piece that I then wonder about. Okay,
they're obviously not going to do this for free, like
operating an AI agent doesn't have no cost? How much
of people willing to pay for this?
Speaker 5 (25:58):
Probably if it was warm, it would be part of
their membership.
Speaker 2 (26:01):
Okay, how much does that drive up the cost then?
Speaker 1 (26:03):
Of that?
Speaker 2 (26:04):
You know, these things aren't free? And and why is
this better? You know, like, why is this something that
is is better?
Speaker 4 (26:16):
Yeah?
Speaker 3 (26:16):
I don't see much of a compelling argument when it
comes to shopping specifically. Look, plenty of things that AI
is really good at. I think we might just be
focusing on what are.
Speaker 2 (26:25):
The plenty ones? What are the plenty mic.
Speaker 4 (26:30):
Here's what AI guess narrowly. Yeah, you're right, it's not plenty.
Speaker 2 (26:33):
It's good at summarizing text back to you, and it
can do some things in certain like niche cases where
you have AI that's specifically programmed for certain tasks to
provide you know, good starting points for what you want
to do, think code generation and stuff like that or writing.
You know that there's some stuff that it can do there.
(26:57):
I just need to see more from to know that
I can trust it with this stuff, because uhh.
Speaker 3 (27:04):
It's not to me. It's not a trust thing. It's
I don't know why we're focusing it. It doesn't understand humanity.
Speaker 2 (27:11):
Like, just as an example, yesterday, I was asking it
just I had something I was trying to work on,
and I asked AI at one point to write me
a joke about money, just because I was like, hey,
like could jack.
Speaker 4 (27:28):
Nas be funny?
Speaker 2 (27:28):
I needed a lift. Here's what it came up with, client,
Why is my portfolio so conservative? Advisor because it's shy
around risk and prefers to keep its bonds close.
Speaker 4 (27:41):
That's not great.
Speaker 2 (27:42):
It doesn't even make sense. It's it's not it's it's
not even coherent, Okay, Like it just doesn't make make
any sense there. What is a what is an investment
manager's favorite bedtime story Goldilocks in the three risk profiles? Yeah,
(28:05):
so it's like it's not really there, Like it understands
the words, but it doesn't understand why they're funny. Likewise,
when we talk about something like grocery shopping, is it
going to understand the why? Like, if if you tell it, hey,
I'm making this recipe, is it going to know that
(28:26):
if it includes basil, Hey, buy fresh basil and not
the kind that is just you know in dry basil,
the dry basil. Sure, yeah, fresh.
Speaker 5 (28:35):
As opposed to the seasoning.
Speaker 3 (28:37):
Yeah sure, Yeah, to me, it's simpler than that. I
don't see the use case for tasks that most people
enjoyed doing. I wouldn't ask artificial intelligence to go to
the bar with my friends on a Friday night. I
would probably not going to ask it to go shop
at the mall for me. Hey, it's just I know,
(28:58):
maybe I'm different than everybody else. I just I'm not
getting it.
Speaker 2 (29:01):
You're forgetting that You're not going to be sending the
AI to the bar with your friends. You're gonna be
hanging out with your AI friends. According to Mark Zuckerberg,
because the average human has demand for fifteen friends and
we only have three of them.
Speaker 4 (29:16):
If I had fifteen friends, that would be so exhausted.
Speaker 2 (29:19):
This is the thing about Mark Zuckerberg. He misses out
like he does not understand humans. The problem is not
that we don't have enough people that we like in
our lives. It's that there's no time in the average
person's life to maintain fifteen close friendships. So and in
order to have that time, you either Okay, if if
(29:43):
someone actually wants to invent an AI that is going
to do what people want, go to the bar do
our jobs for us so we can have all that
free time, but still allow us to get paid for it,
still pay me. Other than that, it's not gonna work.
You're like, they're trying to take away the stuff that
p people like. Let's get hammered. Oh, I'd love to
(30:05):
What are we going to drink? What can I get
you something? Are you interested to drink yourself? Yes? What
do you think you would like to drink? I have
to tell the bartender bud lights this. I'll get you
a milk. How about that. Let's take a quick break.
When we come back, we'll talk about j Powell. No milk, Okay,
(30:26):
milk for Powell.
Speaker 1 (30:27):
Right after this breaking business and financial news first throughout
the day, only here on the Financial Exchange Radio Network.
The Financial Exchange Show podcast drops every day on Apple, Spotify,
and iHeartRadio. Hit that subscribe button and leave us a
five star review. You're listening to the Financial Exchange Radio Network.
Speaker 5 (30:52):
This segment of The Financial Exchange is brought to you
in part by the US Virgin Islands Department of Tourism.
The US Virgin Islands are a Saint Croix's Thomas and
Saint John and are consistently voted one of the top
Caribbean vacation destinations. Enjoy world class cuisine, pristine Beach's rich history,
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(31:15):
and more information, go to visit USVII dot com. That's
visit USVII dot com.
Speaker 2 (31:21):
United Health Group and a Wall Street Journal exclusive. They
are under criminal investigation for possible Medicare fraud. The stock
has been hammered really bad even before this, so uh again,
Like you look at where it stands right now. It's
trading at two hundred and forty nine dollars a share.
The really interesting thing, do you remember the beginning of
(31:42):
the month when stocks were getting hammered, at the beginning
of April where stocks were getting hammered, Yeah, right, Like
it was really bad for stocks. Then United Health on
April first opened at five point twenty five a share,
and by the day after the tariffs were the reciprocal
tariffs were put up on hold, it cleared six hundred
(32:02):
dollars a share, So it went up twenty percent in
the first week and a half of April. Since then
I did the math based on I'm currently trading at
two hundred and fifty dollars a share. It has lost
fifty nine percent of its value in a month, which
is bad, not great. So here here's the thing about
(32:25):
United Health, Like again, their CEO is leaving. Now you've
got this, that's that's coming out. The piece that's really
kind of interesting to me is this one. If you
are a company that uses United Health for your employees,
(32:52):
how concerned do you have to be that any potential
action by this criminal investigation impacts their ability to actually
cover what they need to cover. Oh gosh, isn't that
where Like that's where my mind went, Yeah, that's scary.
The counterpoint to that is that, you know, it might
(33:14):
be pretty systemically important Chuck, Well, they are. But here's
the thing, Like everyone likes to rip on like big
health insurance because quite honestly.
Speaker 4 (33:23):
Rip suck.
Speaker 2 (33:23):
Yeah, they don't actually make a lot of money on
a per unit basis. It's just healthcare in the country
so expensive that they make it up on volume. United Health,
like you know, we talk about some businesses we're like, oh,
and videos got like seventy percent margins or hey, like Visa, Like,
what a great business to be and they got forty
percent margins and no competition. United Health has eight percent margins. Like,
(33:49):
they don't make a lot of money on what they do.
It's just they do four hundred billion dollars in revenue
a year. And so yeah, they make like twenty five
billion dollars just because of that.
Speaker 3 (33:59):
Yeah, and they are, you know, especially dominant in that
Medicare advantage plan space between them and Humanna. As of
twenty twenty four, that made up just about half the
market for Medicare advantage plans in general. And that's where
they are being accused or not accused. They are being
investigated for this fraud because effectively, the reimbursements that you
(34:21):
get and from the Medicare system for your sick patients
creates this big conflict of interest to diagnose sick patients
and pertend to potentially over diagnose those sick patients.
Speaker 2 (34:32):
Now, I will note, according to this Wall Street Journal exclusive,
United Health's in a statement it had not been notified
by the Department of Justice of a criminal investigation. Regardless
of that statement by them, the stocks down additional eighteen
percent today.
Speaker 3 (34:45):
Yeah, outside of this we're talking about Medicare advantage plans.
In this article they talk about basic Medicare versus Medicare advantage.
I have to say, I don't know about you, Chuck.
One of the most confusing topics for pre retirees is
how their Medicare is going to work compared to employee
health insurance. Everyone has it, and they eventually do you know,
(35:07):
figure it out and understand how it all works, But
it takes a little bit of getting used to. How
are you eligible? When am I eligible? What if I
lose my job or retire before I reach sixty five?
Do I want an advantage plan versus a traditional Medicare plan?
What's the difference? These are all really complicated before you
even get to the fact that the average Medicare beneficiary
(35:28):
has access to some forty three different advantage plans to
choose from. It's complicated if you have questions about your
eligibility for Medicare, how it's going to work within the
confines of your long term retirement plan. Give the folks
at arm Strong Advisory Group a call. We're not Medicare agents,
but we're well versed on all of the different parts
of retirement and Medicare is a huge one. If you're
(35:49):
facing down retirement or maybe early before sixty five retirement
and want to know how medicare is going to work
with your social security and other assets to protect you
and ensure a sound retirement. Give us a ring at
Armstrong Advisory Group at eight hundred three nine three four
zero zero one. That number again is eight hundred three
nine three for zero zero one.
Speaker 1 (36:11):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide a specific financial, legal, or tax advice. Consult
your own financial, tax, and estate planning advisors before making
any investment decisions. Armstrong may contact you to offer investment
advisory services.
Speaker 2 (36:27):
I have no idea how people can afford a kid.
Why so many couples are having pets instead of children?
That's the headline front on your pet. That's the headline
from us this market watch.
Speaker 1 (36:38):
Yes.
Speaker 2 (36:38):
Yes, First of all, you can't have a pet. The
human body cannot physically push a dog or cat out
of it. Okay, so that's not what we call it.
So I have issues with the headline right now.
Speaker 4 (36:53):
Yeah, beyond that or the person that they quoted you
had a dog.
Speaker 2 (36:57):
Well, no, that's that's even before no idea how people
can afford a kid. That's like you just walk into
kmart and buy one, like oh yeah, like you hear
this one's a blue light special, you know, like double
it up. So here's the thing that I come back
to on this. And this is not to say that
like people were tougher in the olden days, but they
were tougher in the olden days. My grandfather was one
of eight kids living in a two bedroom apartment in
(37:19):
New York. His parents didn't think about how are we
going to afford these kids. They just went out and
had them and then they lived wherever they could. And
it wasn't a perfect life for them. It wasn't you know,
all sunshine and puppy dogs and rainbows. But that's how
they did it. And it's not to say that like
we should all aspire to be eight, you know, ten
people living in a two bedroom apartment. But there's always
something that will stop you from having a kid. If
(37:41):
it's concerned that you're not going to have enough money,
you will never have enough money to have a kid. True,
Like you the expenses always go up, so I just
don't know that that should be why people decide to
or not to have a child.
Speaker 4 (37:57):
Good reasons.
Speaker 3 (37:59):
I would make a terrible parent, and I'm terrified of
children and i never want to have them. Exactly fantastic
reason to not have a kid.
Speaker 2 (38:04):
Bad one. I'm nervous. I'm not gonna have enough money. Newsflash,
you will never have enough money to have a kid.
They are a bottomless pit of just sucking in the
money that we still love for some reason, because they
really are just awesome. Let's take a quick break here.
When we come back, we got our two coming up
in a little bit.
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