August 7, 2025 • 38 mins
Chuck Zodda and Mike Armstrong discuss mega cap companies continuing to hold up markets are their backs. Luke Kawa, Sherwood News, joins the show to continue the conversation about mega cap dominance. Peloton posts surprise profit but announces 6% layoffs anyway. Draft Kings profit doubles ex[ectations as people are betting and losing more.
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Episode Transcript
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Speaker 1 (00:00):
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(01:03):
This is the Financial Exchange with Chuck Zada and Mike Armstrong.
Speaker 2 (01:10):
Chuck, Mike and Tucker with you, and we got mixed
markets today as markets have given up early gains and
who knows where this ends up going. I mean, you
could see this puppy rebounding, you could see it sliding
and continuing, you know, some of last week's struggles. But
ultimately right now, the Dow Jones Industrial Average, or the
Dow as it's commonly referred to, is off two hundred
(01:31):
and fifty nine points, being largely dragged lower by Caterpillar, Intel,
and oh G. United Health continuing to have just one
of the worst years that I've ever seen for a
megacap company. I don't think I've ever seen anything quite
like it, to be honest. The S and P five
hundred is flat on the day and the Nasdaq being
(01:52):
you know, spurred forward by chip makers today after a
couple weeks of chip maker's kind of sucking wind a
little bit, the NASDAK is up half a percent, so again,
very much mixed markets at the moment. Ten year US
Treasury not really doing much of anything, just saying hey,
I'm good, bro, I'm just gonna chill. It is at
four point two two nine percent. That is down three
(02:13):
tenths of a basis point, so not much going on there.
Oil anything exciting there, down twenty two cents a barrel. Okay,
that could help at the pump a little bit, sixty
four to thirteen on West Texas Intermediate, and the national
average still remains stubbornly stuck at three sixteen a gallon.
We've just been in this three ten to three twenty
range pretty much the entire year right now. It could
(02:35):
be worse, it could be better, but that's where we are. Finally,
we've got gold gold moving a little bit up fifteen
dollars and twenty cents nowns to thirty four forty eight
right now. And so overall a pretty quiet day in
markets thus far. But under the surface you've got a
lot of movement and a lot of dispersion there. I mean,
you've got some stocks like AMD which is up five
(02:56):
point seven percent after being down six percent yesterday when
it reported, So why does any of this matter? You've
got Apple up another two point seven percent a day
after Tim Cook went to the White House to meet
with the President in video, up about one point three percent.
So again like tech kind of being, you know, the
leader in the clubhouse. On the other side of things,
(03:18):
you got Caterpillar, Delta Airlines, American Express, Nike, all down
north of one percent. And the result is a market
that look for the S and P pretty much in balance,
completely flat today.
Speaker 3 (03:30):
This is a market and this is you know, something
we have talked about before, but this is a market
right now that is being so anchored by those giant
megatap megacap tech companies who frankly are just not affected
all that much by tariffs, and even if they are,
they're getting carve outs like Apple has seen here when
you look at you know, four hundred of the other
(03:51):
companies in the S and P five hundred, they are struggling.
They just don't matter as much for the direction of
the S and P five hundred. But where it does matter, right, like,
where this really does matter is those top companies in
terms of market cap, the ones that are dragging the
stock market higher are not huge employers.
Speaker 4 (04:11):
And that's to me, why then they can't do this forever?
Speaker 1 (04:13):
Right?
Speaker 4 (04:14):
They can't United States of Apple? Right.
Speaker 2 (04:16):
I know you wouldn't have to change the acronym, but
fundamentally I'd have problems.
Speaker 3 (04:21):
What's what's the one of the two big companies in idiocracy,
I think it's Costco and Starbucks. But in either case,
you're right, it's not going to be that forever. But
the other situation I worry about is, look, if you're
in that four hundred company camp that's not having a
great year, eventually you cut costs and you look at
your employment situation, and that's where this can start to
(04:43):
affect the real economy. And you know, it's it's tough
to work your way through, but like, yeah, if Caterpillars
Terra situation and business situation gets so bad, they will
start to cut employment, even if it's even if it's
still hanging on there.
Speaker 2 (05:00):
This is actually a great segue. We're going to be
joined next segment by Luke Kwa, who's the market's editor
at Sherwood News and just one of my favorite follows
online on social media. He actually puts something out yesterday
on this very topic. So it's I can't believe that
you did this so nicely. But if you look at
the S and P five hundred and equal weight it
(05:22):
so each one of the five hundred companies is point
two percent of the index margins during the last two
and a half years. From Q one of twenty three
through Q two of twenty five, margin on the equal
weight S and P five hundred have gone from about
nine and a half down to eight point eight percent.
So margins have declined on an equal weighted basis over
(05:45):
the last two years.
Speaker 4 (05:45):
Plus.
Speaker 2 (05:47):
If you look at the S and P five hundred
on a market cap weighted basis, margins have expanded from
about twelve point seventy five up to thirteen point seven.
Why because the big tech companies margins are getting wider
and else since everyone else is are narrowing. But like
in the aggregate, the other four hundred ninety three companies,
(06:09):
their margins are narrowing. And so this is kind of
the whole ballgame. And this is this is a two
year trend here. So this is not just because of
you know, this is not a tariff thing. This is
not a this is hey, corporate profits in the aggregate
are look at a little bit dodgier. It's just that
(06:31):
you have these big tech companies with these huge margin
expansions that are driving the story. And so look the
thing that I will say, I know everyone always likes
to talk about, you know, hey, you want a wider
market in a market with more breath, will you need
breadth of earnings growth too, because if that narrow earnings growth,
if that narrow margin expansion goes away, we'll get below
(06:54):
quite honestly, yeah, that's and it's pretty easy to drive
the line. You can't ask is AIG growth going to
last forever? Right? It's like it's the only thing driving it.
This is the ballgame here, speaking of ballgames. Actually no,
you know what, let's take a quick break when we
come back. Just we've been talking about this. Luke Cowa
is going to join us immediately after this in order
to talk about what is going on in markets.
Speaker 1 (07:19):
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Speaker 5 (07:58):
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Speaker 2 (08:26):
As promised from now. Joined by Luke Kawa, the Markets
editor at Sherwood News. Luke, appreciate you joining us today.
Speaker 6 (08:34):
Oh, pleasure to be here. Thanks for having me, Luke.
Speaker 2 (08:37):
We were just talking last segment about something you had
posted yesterday, the divergence in profit margin when you look
at the S and P on a market cap weighted
basis versus equal weight. Can you talk a little bit
just about what you're seeing there and really what's the
driving force behind this? Right now?
Speaker 1 (08:56):
Well, right now, I.
Speaker 6 (08:57):
Do think this is a bit of a broader story
about the US economy in the short term, but it's
also a story about just the longer run trajectory of
what market's been doing over the past ten to fifteen years,
and that is the ascendance and the dominance of of
mega cap tech companies. These companies have more earnings power
and more pricing power than the rest of the universe
(09:20):
combined effectively. So what we're seeing is effectively the average
company in the s and P five hundred, what are
they facing if they're not a mega cap tech company,
they're facing well, a world of a little more consumer
uncertainty and cost pressures because of tariffs, and at the
same time consumers that don't have the same degree of
income growth that they've had in the past. So that's
(09:42):
a bit more of a precarious situation in which to
be protecting profitability. If you raise prices, you may lose
out a lot on volume. I think that'll be a
very fun story to be tracking in the next three months.
And on the other side of the spectrum, you do
have meg tech companies which are now effectively introducing a
lot more AI accessibility and enhancements to their models. These
(10:09):
capabilities are trying to be adopted by effectively every major
company and every major industry, and they're willing to pay
up to do it. And the kind of proof that's
in the putting is even you know, though you don't
effectively expect capex to pay for itself in one year,
you expect longer payback periods for that. If you just
look at some of the biggest tech companies, the hyper scalers,
(10:33):
everything they've done to juice Capex in the past year
has more than been made up with in sales already.
Speaker 2 (10:43):
When we look at the long term play, then for
these big AI companies, the hyper scalers, I guess what
I'm trying to wrap my head around is ultimately they
need to be able to sell their services to all
the other companies that are out there, hey, you know
and pop whoever you need AI in order to do
(11:03):
this all the way up to you know, you know,
regional companies that need AI to do something. But those
companies still need to make you know, final sales to
end buyers and consumers. How does this all work if
we're in a really stagnant labor market that could be
made worse by AI, Like, how do we reconcile where
all of this can be going in the next several years.
(11:24):
I kind of tie myself in notts trying to figure
it out.
Speaker 6 (11:29):
Oh man, I wish I had the perfect answer to that,
But that is the exact right question to be asking
right now. When you think about CAPEX booms zooming out,
CAPEX booms generally happen as a result of two to
three things. One is a response to an acceleration and
consumer demand. Consumers who want to buy a lot more.
You don't have the capacity to produce it, so you've
(11:50):
got to expand capacity in order to meet that demand.
The second is a large shock and commodity prices that
tends to, you know, engender some supply response, whether it
be from oil producers, miners, et cetera. The third is
a policy change. Sometimes around you know, big tax policy changes.
You do see kind of one off jumps in CAPEX.
(12:11):
Right now, we really don't have any of those. I
think there's there's an argument to be made that's been
slept on a little that some of the tax changes
in the One Big Beautiful Bill Act have made it
a little easier to be spending billions and billions more
on on AI related needs. But what we have right
now is a situation in which consumers spending has been
(12:32):
decelerating a lot, capex has been picking up a lot,
and we haven't really had a rubber meets the road
point where we've had to choose between the two because
even as you know, even as you note that margins
for the average company might not be getting too much better,
they're also not getting too much worse and sales are
still going up. So we're still in a in a
(12:53):
bit of a situation where although consumer spending has been
softening at the margins certainly not off to a great
start this year, it has not been bad enough to
effectively pull down the incentive to be spending a lot
more to invest in AI. Ultimately, you know, consumers about
seventy percent of the US economy. If you think about
(13:15):
what will ultimately happen, the consumer will ultimately win. The
consumer quote unquote wins in two ways. Either a all
of this spending on AI, all of the kind of
associated productivity benefits we're supposed to get down the road,
and also just the increase in network that's coming from
the market rally being led by a lot of these stocks.
(13:37):
Either that is sufficient to help choose consumer spending or
keep it good enough so that effectively it's consumers steadying
up or kind of the capex the floor being built
up onto the capex that's being met by consumer demand.
Or it's quite simply that in choosing to have the
marginal dollar from corporates increasingly and increasingly go towards AI
(14:00):
rather than labor, that you're creating a situation which the
consumer wins by falling down and dragging everything else down
with it. I do think that this is the key
question that will be coming up as we head through
the rest of the year.
Speaker 2 (14:13):
It's a question of.
Speaker 6 (14:14):
That also encompasses, Hey, have was spending just delayed due
to tariff uncertainty or is the kind of real spending
drag really something that's getting in train as tariff's more
and more work their way through the system, companies work
down inventory and then you get additional rounds of price
increases going forward. I think it's a very open question.
(14:35):
I'm not sure what the answer is, but I'm sure
the answer at the end is the consumer wins.
Speaker 2 (14:41):
Look, so these are you know, kind of bigger long
term things. I want to focus now on just what's
been going on the last week, because it's been kind
of an odd week that I'm trying to make sense
out of here pretty much ever since the FED meeting.
Last week we have a FED meeting and then after
hours you get Microsoft and Meta that have you know,
blowout earnings to the top side there through the roof.
(15:02):
Stocks open the next day, Positive can't hold their games,
the S and p n's up down for the day,
and then Friday we get kind of puky with a
bad jobs report. So it looks like we're heading for
a leg down potentially this week. No major news aside
from I guess yesterday maybe some of the tariff exemptions
for semiconductors, but this market feels like it doesn't want
(15:24):
to go down. Now, What is going on here in
this last week because I'm having a little trouble making
sense of market action.
Speaker 6 (15:32):
Herein Join the club, Join the club. I do think
that a big catalyst, a big reason for why markets
seem to rebound very quickly, is that if you look
over the past ten plus years, you can again you
can zoom out to make sense of what's happening in
the near term. I think this is one of those
(15:53):
examples dip buyers have not ever effectively been that punished.
The only year you could argue in the past, you know,
fifteen or so where that's really been the case is
twenty twenty two. We've seen that when there's policy changes
that are seen as negative.
Speaker 2 (16:10):
Those will be reversed.
Speaker 6 (16:12):
So a negative catalyst on the trade front, for instance,
seems to get watered down if it's judged to be
doing sufficiently sufficient damage to the forward outlook for stocks.
We have seen that through the first week of April.
So we have a situation which there is a Pavlovian
response to be buying the dip because you aren't punished. Hey,
(16:32):
if you continuously get rewarded for the same behavior, you'll
keep doing it. It's the same way if AI companies
get rewarded for spending more and more on capax in
the form of both sales and their market value going up,
they're going to do a lot more of it. If
people get rewarded for buying the dip and there is
this habit of doing so, the direction of travel will
be to do so until you know there comes a sufficient.
Speaker 4 (16:54):
Time where you're punished for it. And I believe you can.
Speaker 6 (16:58):
You can continue to make the argument that what the
US economy is really seeing is just a slow slowdown,
a moderation and growth, and that there's no real near
term cliff to fall off of the idea that job
growth should be going down a lot because labor supply
has decreased. A law to that consumer income growth, once
(17:19):
you include transfers, really isn't that awful, and it's decent
to support the ongoing expansion of consumer spending. You can
fall back on these fundamental arguments to justify it, but
in the end, it's what the behavior that you're really
rewarding is that, Hey, the last time I did this,
it worked, and it worked the time before that and
the time before that, so I'm going to do it again.
Speaker 2 (17:41):
Fantastic, Luke, appreciate you joining us today and thanks so
much for the time.
Speaker 6 (17:46):
Pleasure to be here.
Speaker 1 (17:47):
Thank you.
Speaker 2 (17:47):
That is Luke Kawa, the markets editor at Sherwood News.
Speaker 5 (17:51):
All right, time for trivia here on the Financial Exchange,
and on this day. Back in two thousand, al Gore
announced his selection of a running mate. The decision by
Gore came two weeks after Bush announced Dick Cheney as
his running mate. So trivia question today, who is al
Gore's running by back in two thousand. Once again, who
is al Gore's running May back in two thousand, Be
the ninth person to text us at six one seven
(18:14):
three six two thirteen eighty five with the correct answer,
You'd win a Financial Exchange Showed T shirt. Once again,
the ninth correct response to text us to the number
six one seven three six two thirteen eighty five will
win that T shirt. See complete contest rules at Financial
Exchange Show dot com.
Speaker 2 (18:31):
Let's see I don't want to talk about this at
and T story right now.
Speaker 3 (18:37):
Starbucks, Airbnb, Airbnb struggling to continue to grow, and when
you think about their business model, it makes total sense
to me. Not only are you facing consumers that are
I think, having trouble keeping up with the travel spend,
but I just looked up the list of cities that
are now banning Airbnb in some way, shape or form,
(18:58):
New York City, Boston, San Francisco, Los Angeles, Las Vegas, Barcelona,
and total bands are They're not total bands, but they
make it very difficult to host Airbnb's in these cities Barcelona, Amsterdam, Berlin, Paris, Montreal,
and those were just naming the ones that I could
easily find those are your growth areas, so you can
only you know, you can only rent out so many
(19:20):
yurts in Montana before your business starts to stry.
Speaker 2 (19:24):
I got to tell you though your season is common,
Your season is common. Quick break here when we come back,
we got the trivia answer in Wall Street.
Speaker 1 (19:31):
Watch, bringing the latest financial news straight to your radio
every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time now for Wall Street Watch. A complete
(19:52):
look at what's moving markets so far today right here
on the Financial Exchange Radio Network.
Speaker 5 (19:58):
It looks like markets are now retreating from early morning
gains after reciprocal tariffs on several countries went into effect
at midnight. Right now, the Dow is off by over
six tenths of one percent, or two hundred and eighty
seven points. SMP five hundred is down by a tenth
of a percent or eight points. Nasdaq is actually up
(20:19):
by four tenths of one percent or eighty two points higher.
Rusted two thousand is off nearly a half a percent.
Ten year treasure Field is flat at four point two
two five percent, and crude oil is down about a
third of a percent, trading just above sixty four dollars
a barrel. President Trump took to truth social this morning,
calling for Intel CEO Lipbou Tan to resign immediately. Tan
(20:42):
was named Intel's CEO back in March. Intel shares are
down by three percent. Meanwhile, Apple adding to its gains
yesterday and is up another three percent today after the
tech giant announced an extra one hundred billion dollars in
US manufacturing. Sticking with Apple related news, where Corning shit
are climbing over one percent higher after Apple said it
(21:03):
would expand its partnership with the Precision glass maker as
part of its US push. Another Apple partner in Rare
Earth Minor MP Materials, also seeing gains of over two percent. Elsewhere,
ELI Lilly sinking fourteen percent after the drug maker said
it's experimental weight loss pill help people lose up to
twelve percent of body weight, a bit less than Wall
(21:25):
Street had expected, however, and dual Lingo shares are surging
nearly thirty percent after the language learning platform boosted its
guidance due to strong user growth driven by artificial intelligence.
I'm Tucker Silva and that is Wall Street Watch. And
in the previous segment, we asked you who is al
Gore's running mate back in two thousand. I'll be Joe Lieberman.
(21:47):
Lenny from Burlington, Mass is our winner today taking home
a Financial Exchange Show t shirt and rest to Lenny.
And we played trivia every day here in the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:00):
Piece in CNBC Peloton post surprise profit announces yet another
round of layoffs, impacting six percent of staff.
Speaker 3 (22:09):
Finally hitting a I don't mean a stock bottom, but
a business bottom for this company where they are stabilizing sales.
Speaker 2 (22:16):
I guess I didn't realize they had much in the
way of staff left, but I guess you can always
cut another six percent. Look, this is one of those
that it's going to be just a classic study of hey,
how did this stock get to one hundred and fifty
dollars a share back in twenty twenty one and then
go down to you know, two dollars in change before rebounding.
(22:37):
It's it's seven thirty right now. And here's the thing
about Peloton. When you look at the overall business, they
do about two point five billion dollars in revenue a year,
so it's like it's a business, you know, it's it's
not to say that there's nothing there. It obviously is
still you know, somewhat of a niche product. But I'll
(22:58):
also point out Planet Fitness does a billion dollars in
revenue a year, so like again, when it comes to
exercise equipment, there's only so much money that's out there.
And look, Peloton has at least a decently sized business.
The problems that they have had. Number one, they obviously
have not been profitable basically ever, aside from a couple
(23:22):
quarters in twenty twenty and early twenty one details Chuck,
in fact, they were hugely unprofitable for a while, losing
you know, almost three billion dollars across the first half
of twenty two and second half of twenty one. So
like that was a problem. From a free cash flow perspective,
another area where they were pretty heavily negative until the
(23:42):
end of twenty three, they're actually free cash flow positive now.
So yeah, it seems like they've you know, figured out
how to form you know a little bit of stability
in the business. But ultimately the problem is still going
to come back to one thing. At the end of
twenty one one, they're trailing twelve month revenue was four
point one three billion dollars and now it's two point
(24:04):
five and it's continuing to decline very very slowly. You
can't build a long term successful business off a shrinking
revenue base.
Speaker 3 (24:14):
Yeah, it does just feel like it's not a standalone company,
at least not a sustainable standalone business that's going to
be able to grow in the stock market.
Speaker 2 (24:23):
It feels like a company that, ultimately, I mean, I mean, look,
it should be under Apple. Let's call a spade a spade.
It's a high priced product that you know, is its
brand is all about image and and this and that.
It should be under Apple. Apple's already got you know,
(24:45):
this whole Apple Fitness thing. They've got Apple Health. You
could fold it in a million different ways. Hey, if
you subscribe to Apple TV, will give you, you know,
a Peloton subscription for free just by the hardware.
Speaker 3 (24:57):
Plus plus, Apple's got to spend six hundred billion dollars
in the United States.
Speaker 4 (25:03):
Apples made this.
Speaker 2 (25:04):
Commitment to spend six hundred billion dollars. Why not spend
the three billion dollar company now you have them a
thirty percent premium fine, spend four billion of it buying
Peloton I don't know. It just feels too easy to
me like it. There's some things that just makes sense,
and Peloton being bought by Apple makes sense aside from
(25:25):
they probably don't want to pay this much, so they're
probably hoping that the stock goes down more.
Speaker 4 (25:28):
But back to two dollars.
Speaker 2 (25:30):
Yeah, exactly, But look what when you're in the size
of Apple, A billion dollars is a rounding error. Not
quite but almost.
Speaker 3 (25:37):
I would be very interested to know the iPhone to
Peloton user overlap, and I'd be willing to bet it's
a lot higher than the national average.
Speaker 2 (25:46):
I think so. I think so.
Speaker 5 (25:49):
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Speaker 2 (27:06):
So DraftKings is a company that makes money based on
you being bad at gambling, and.
Speaker 4 (27:14):
Not you specifically, but the collective view.
Speaker 2 (27:17):
We'd be they make money based on us being bad
at gambling, and the good news for DraftKings is that
we got worse at gambling in the most recent quarter.
Speaker 3 (27:25):
So good news for DraftKings, good news for a shareholders,
bad for everyone else, including people that don't bet on
Draft gangs.
Speaker 2 (27:32):
Yes, the average revenue per monthly unique player or mooph
as they or is it mup. I'm gonna go mup
like a muppet. I don't want to be a muppet though.
I don't want to be a moope either, But you
know it's when forced to choose, one chooses the moop. It. So,
the average revenue per moop jumped twenty nine percent over
(27:53):
from last year to one hundred and fifty one dollars,
a lot of money. And so that means that on average,
the the average person on DraftKings lost lost one hundred
and fifty one dollars for the quarter.
Speaker 3 (28:08):
And there's a lot of people on DraftKings, right, Sorry,
was that annualizers that in a quarter?
Speaker 4 (28:14):
That was that was the revenue per moop for the quarter.
Speaker 3 (28:17):
So if you're as bad so annualize that, you're talking
about six hundred bucks a year people are losing on
DraftKings on average.
Speaker 4 (28:23):
That is really bad on average.
Speaker 2 (28:26):
And this is so a moop as they define it,
it's the number of users that at least one real
money paid engagement in a month. So you're basically you're
making at least one bet a month in order to
qualify there and they had three point three million of those.
So two percent of the US population on average is
losing six hundred dollars a year just to DraftKings.
Speaker 3 (28:48):
So I want to compare this to something that's not
very comparable. But let's talk about Facebook for a minute.
They have a different metric of their users, which is
our poo the average revenue per user, and I haven't
looked at it in a while in the United States.
Speaker 4 (29:01):
I think it was in the high teens.
Speaker 2 (29:03):
Fifteen to eighteen feels right, per year that they would
earn on their average Facebook user fifteen dollars per year.
Speaker 4 (29:13):
DraftKings is making some six hundred dollars per year on
their average user.
Speaker 2 (29:16):
Is that No, that was per quarter. That's per quarter
still eighty dollars. So DraftKings is making ten times as
much than Facebook is. Obviously, Facebook has you know, three
point three billion users. I think it's like two eight instead.
Speaker 3 (29:28):
Of different scale, correct and different muddle right, They're not
paying anything to be on Facebook's platform, but wow, that
is a lot.
Speaker 4 (29:37):
Of money to be losing on gambling every quarter.
Speaker 2 (29:40):
I gotta be completely honest, and look, I don't sports
gambled Tuckle like you can probably have the other side
of this. I'm starting to really wonder whether having sports
gambling available via the phone is something we should have. Yeah,
I'm not saying banned sports books. I might be saying
ban mobile sports books.
Speaker 5 (30:02):
Well, now you're seeing this leak into sports now, well
it's you see a couple of pictures from the Guardians.
Now it's a who are like throwing balls on purpose?
Speaker 2 (30:11):
Right, So, A, you've got, you know, some questionable things
happening when it comes to actual players and umpson referees.
B I can't go five minutes without someone telling me
the parlay of the day in a broadcast, which, by
the way, if you're parlaying, you're losing. Just want to
let you know.
Speaker 4 (30:30):
Uh.
Speaker 2 (30:30):
And So honestly, I kind of look at this and
I'm just no, I'll be quite honest, it's a net
drag on society to have mobile sports books allowed.
Speaker 5 (30:43):
Well, the thing where they get you is all these
advertisements for bonus bets. Oh I know, because it's just like, oh,
well it's free money. It was like, well not really,
because you can't cash out, correct.
Speaker 3 (30:54):
So I see all these downsides to it. I recognize
all of them. And it just contradicts the way I
generally feel about how we should legalize things and deal
with them. And I get that it's different because it's
an addictive type of thing, and so you know, maybe
it belongs in the same classification as other addictive products
(31:15):
that were put out there.
Speaker 4 (31:16):
But I don't know when this got legalized.
Speaker 3 (31:19):
I was kind of all in favor, like, yeah, legalize it,
make it safe, tax it, rather than having people, you know,
gamble I legally with their sports book, with their But
I do see.
Speaker 4 (31:29):
The societal negatives here that we are all.
Speaker 3 (31:32):
Because you know, we joke around about these things, and
we can talk about how annoying it is to people
talking about their parlays and all this stuff. The real
style damage is that there are a bunch of young
twenty something year old mainly men, who are in thousands
of dollars of gambling debt.
Speaker 4 (31:49):
Yeah, like that, that's the problem.
Speaker 3 (31:51):
Like that that is a really big issue for those people,
and honestly, society generally like that.
Speaker 4 (31:59):
That is a really big you know.
Speaker 2 (32:00):
And I'll give you just an example.
Speaker 4 (32:04):
Well, let me take a quick break and then we'll
do an example gambling example. Okay, let's get right after.
Speaker 1 (32:09):
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Speaker 2 (32:52):
All right, So, last second, we were talking about draft
kings and I made the point like, look, I don't
really have a problem with legalized sports batting. I think
I do have a problem with legalized mobile sports betting.
And I'll use myself as a point of comparison. Last weekend,
I went to a casino and I played some blackjack
(33:13):
for about six hours. I made fifty dollars over the
entire time, So net I entertained myself. I got some
free drinks, and I made fifty dollars.
Speaker 4 (33:20):
It was fine.
Speaker 2 (33:21):
You know, it didn't lose the house, didn't make a
new house. It was just it was what it was.
But the point is I had to drag myself to
that casino, get there, and go through the act of
actually doing that in order to make those bets. I
couldn't just be sitting at work on my phone firing
(33:43):
off a bunch of blackjack bets during the day and
trying to pretend that I'm a functioning human being otherwise.
And so I think my point on this is I
don't really have a problem with gambling in and of itself.
Like I gamble, I don't do it on sports just
because I'm really bad at it to be only that's,
you know, just a me thing. But gambling in and
of itself, I don't think is something that should be banned.
(34:06):
I think the problem is on the phones, it's way
way too easy to get yourself into trouble because you
can literally do it twenty four hours a day, even
on stuff you don't know of. I remember during the pandemic,
everyone's betting on freaking Korean baseball at two am because
they needed something to do, and I don't.
Speaker 3 (34:25):
Know, try this just is such a weird, dangerous slope
to me, Like what's their slope? I just don't I
don't know that we I have a tough time making
this argument that hey with gambling specifically, we shouldn't allow
that on our phones, whereas I'll go further fun we
should just ban smartphones? Yeah, like just get rid of them,
(34:46):
like they're awful. They're awful in general.
Speaker 2 (34:48):
Yeah, you know, And I say, this is someone who
uses one, so like, I get what I'm saying, but honestly.
Speaker 3 (34:54):
I recognize it's a problem, and I don't know, I
still have to die and that I think, But I'd
rather legalize it.
Speaker 2 (35:02):
And what do you think the problem is in saying, hey,
you have to gamble in a casino instead of on
a smartphone.
Speaker 4 (35:09):
I would be.
Speaker 3 (35:11):
Yeah, I guess I'm perfectly fine with that on a
but I want the states to be able to decide it,
I guess.
Speaker 4 (35:17):
But yeah, it's a fair point. Should we Should we
just do that?
Speaker 3 (35:22):
DraftKings would certainly not like it, but all the casinos
be pretty darn happy about it.
Speaker 2 (35:26):
I don't know, Like that's kind of where I land is.
I'm totally fine with gambling of any kind. I gamble
on a regular.
Speaker 3 (35:34):
Basis, and I think there is something to the psychology
of needing.
Speaker 2 (35:40):
So I was first out of college, I was going
to boggling right now, as we speak right now. No,
but I can't. Like that's the thing. I can't be
playing blackjack on my phone for money. Oh yeah, you can't. Yeah,
I'm sure. I'm sure there's like an app I could download,
but you know, like then I get into all kinds
of weird stuff.
Speaker 3 (35:56):
So and I think there's something psychologically about physically walking
yourself into a casino.
Speaker 4 (36:02):
You kind of make that rule in your.
Speaker 3 (36:04):
Head, like all right, I've got the cash in my pocket,
that's the money I have to spend tonight.
Speaker 4 (36:07):
And when that, I'm.
Speaker 2 (36:08):
True, you can you can always take out a cash
e vance on a credit card.
Speaker 4 (36:11):
Yeah, and people do. But to your point, trust me,
I have much more.
Speaker 2 (36:15):
This is what I'm saying. Like I've been there where
it's like, hey, if I don't win this next bet,
I don't know if I can pay the rent this month.
I've actually been there in a casino once. To be fair,
Fortunately I won the next bet and it was like
everything worked okay. But direction of Chuck's life, I we've
(36:35):
been all we've been all downhill from there. But I
understand like where all of that comes from. My point
is I had to go to a casino in order
to do that, and so that put a natural guard
rail on how badly I could potentially spiral in that. Yeah,
I could go down every Saturday, and that was what
it was when I was a year out of college.
(36:56):
Like my buddies and I like doing that. But I
couldn't just sit at my day on my couch.
Speaker 4 (37:01):
The bag on the stage.
Speaker 3 (37:03):
I mean, like the sports, the professional sports leagues are now.
It might be they're making so much money on this, Yeah,
they're not gonna get it there.
Speaker 4 (37:11):
There's just no way in my mind that they're go backwards.
Speaker 2 (37:15):
They're not gonna give it up.
Speaker 4 (37:17):
This.
Speaker 3 (37:17):
This is this is done right like this. This is
going to be part of society for a long time
until something breaks.
Speaker 2 (37:22):
I mean guys like look at look at Europe just
as an example, Like there's been sports gambling there for
a long long time. They kind of tried to warn
us about this, but ultimately, even though some really bad
things happened there, it's just like, Okay, what are we
gonna do? You know what, Once it's there, it's there
and we got to live with it.
Speaker 3 (37:39):
I just I just think that there's a yeah, what
I think is going to happen is there's going to
be a bunch of twenty year olds that are going
about to learn a lot of very hard lessons.
Speaker 2 (37:49):
I'd see what it's doing to young men financially, and
it hurts me, like it really does. And I say,
this is someone again who's kind of been through some
of that on not quite the same scale. But it's
just something where I'd rather have you have to go
somewhere to do it as opposed to just do it
twenty four hours a day. But that's me and kind
(38:12):
of an old fogie about this. I don't know. We're
done for the day and we'll see you tomorrow. To
wrap up the week on the Financial Exchange,
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(01:03):
This is the Financial Exchange with Chuck Zada and Mike Armstrong.
Speaker 2 (01:10):
Chuck, Mike and Tucker with you, and we got mixed
markets today as markets have given up early gains and
who knows where this ends up going. I mean, you
could see this puppy rebounding, you could see it sliding
and continuing, you know, some of last week's struggles. But
ultimately right now, the Dow Jones Industrial Average, or the
Dow as it's commonly referred to, is off two hundred
(01:31):
and fifty nine points, being largely dragged lower by Caterpillar, Intel,
and oh G. United Health continuing to have just one
of the worst years that I've ever seen for a
megacap company. I don't think I've ever seen anything quite
like it, to be honest. The S and P five
hundred is flat on the day and the Nasdaq being
(01:52):
you know, spurred forward by chip makers today after a
couple weeks of chip maker's kind of sucking wind a
little bit, the NASDAK is up half a percent, so again,
very much mixed markets at the moment. Ten year US
Treasury not really doing much of anything, just saying hey,
I'm good, bro, I'm just gonna chill. It is at
four point two two nine percent. That is down three
(02:13):
tenths of a basis point, so not much going on there.
Oil anything exciting there, down twenty two cents a barrel. Okay,
that could help at the pump a little bit, sixty
four to thirteen on West Texas Intermediate, and the national
average still remains stubbornly stuck at three sixteen a gallon.
We've just been in this three ten to three twenty
range pretty much the entire year right now. It could
(02:35):
be worse, it could be better, but that's where we are. Finally,
we've got gold gold moving a little bit up fifteen
dollars and twenty cents nowns to thirty four forty eight
right now. And so overall a pretty quiet day in
markets thus far. But under the surface you've got a
lot of movement and a lot of dispersion there. I mean,
you've got some stocks like AMD which is up five
(02:56):
point seven percent after being down six percent yesterday when
it reported, So why does any of this matter? You've
got Apple up another two point seven percent a day
after Tim Cook went to the White House to meet
with the President in video, up about one point three percent.
So again like tech kind of being, you know, the
leader in the clubhouse. On the other side of things,
(03:18):
you got Caterpillar, Delta Airlines, American Express, Nike, all down
north of one percent. And the result is a market
that look for the S and P pretty much in balance,
completely flat today.
Speaker 3 (03:30):
This is a market and this is you know, something
we have talked about before, but this is a market
right now that is being so anchored by those giant
megatap megacap tech companies who frankly are just not affected
all that much by tariffs, and even if they are,
they're getting carve outs like Apple has seen here when
you look at you know, four hundred of the other
(03:51):
companies in the S and P five hundred, they are struggling.
They just don't matter as much for the direction of
the S and P five hundred. But where it does matter, right, like,
where this really does matter is those top companies in
terms of market cap, the ones that are dragging the
stock market higher are not huge employers.
Speaker 4 (04:11):
And that's to me, why then they can't do this forever?
Speaker 1 (04:13):
Right?
Speaker 4 (04:14):
They can't United States of Apple? Right.
Speaker 2 (04:16):
I know you wouldn't have to change the acronym, but
fundamentally I'd have problems.
Speaker 3 (04:21):
What's what's the one of the two big companies in idiocracy,
I think it's Costco and Starbucks. But in either case,
you're right, it's not going to be that forever. But
the other situation I worry about is, look, if you're
in that four hundred company camp that's not having a
great year, eventually you cut costs and you look at
your employment situation, and that's where this can start to
(04:43):
affect the real economy. And you know, it's it's tough
to work your way through, but like, yeah, if Caterpillars
Terra situation and business situation gets so bad, they will
start to cut employment, even if it's even if it's
still hanging on there.
Speaker 2 (05:00):
This is actually a great segue. We're going to be
joined next segment by Luke Kwa, who's the market's editor
at Sherwood News and just one of my favorite follows
online on social media. He actually puts something out yesterday
on this very topic. So it's I can't believe that
you did this so nicely. But if you look at
the S and P five hundred and equal weight it
(05:22):
so each one of the five hundred companies is point
two percent of the index margins during the last two
and a half years. From Q one of twenty three
through Q two of twenty five, margin on the equal
weight S and P five hundred have gone from about
nine and a half down to eight point eight percent.
So margins have declined on an equal weighted basis over
(05:45):
the last two years.
Speaker 4 (05:45):
Plus.
Speaker 2 (05:47):
If you look at the S and P five hundred
on a market cap weighted basis, margins have expanded from
about twelve point seventy five up to thirteen point seven.
Why because the big tech companies margins are getting wider
and else since everyone else is are narrowing. But like
in the aggregate, the other four hundred ninety three companies,
(06:09):
their margins are narrowing. And so this is kind of
the whole ballgame. And this is this is a two
year trend here. So this is not just because of
you know, this is not a tariff thing. This is
not a this is hey, corporate profits in the aggregate
are look at a little bit dodgier. It's just that
(06:31):
you have these big tech companies with these huge margin
expansions that are driving the story. And so look the
thing that I will say, I know everyone always likes
to talk about, you know, hey, you want a wider
market in a market with more breath, will you need
breadth of earnings growth too, because if that narrow earnings growth,
if that narrow margin expansion goes away, we'll get below
(06:54):
quite honestly, yeah, that's and it's pretty easy to drive
the line. You can't ask is AIG growth going to
last forever? Right? It's like it's the only thing driving it.
This is the ballgame here, speaking of ballgames. Actually no,
you know what, let's take a quick break when we
come back. Just we've been talking about this. Luke Cowa
is going to join us immediately after this in order
to talk about what is going on in markets.
Speaker 1 (07:19):
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Speaker 2 (08:26):
As promised from now. Joined by Luke Kawa, the Markets
editor at Sherwood News. Luke, appreciate you joining us today.
Speaker 6 (08:34):
Oh, pleasure to be here. Thanks for having me, Luke.
Speaker 2 (08:37):
We were just talking last segment about something you had
posted yesterday, the divergence in profit margin when you look
at the S and P on a market cap weighted
basis versus equal weight. Can you talk a little bit
just about what you're seeing there and really what's the
driving force behind this? Right now?
Speaker 1 (08:56):
Well, right now, I.
Speaker 6 (08:57):
Do think this is a bit of a broader story
about the US economy in the short term, but it's
also a story about just the longer run trajectory of
what market's been doing over the past ten to fifteen years,
and that is the ascendance and the dominance of of
mega cap tech companies. These companies have more earnings power
and more pricing power than the rest of the universe
(09:20):
combined effectively. So what we're seeing is effectively the average
company in the s and P five hundred, what are
they facing if they're not a mega cap tech company,
they're facing well, a world of a little more consumer
uncertainty and cost pressures because of tariffs, and at the
same time consumers that don't have the same degree of
income growth that they've had in the past. So that's
(09:42):
a bit more of a precarious situation in which to
be protecting profitability. If you raise prices, you may lose
out a lot on volume. I think that'll be a
very fun story to be tracking in the next three months.
And on the other side of the spectrum, you do
have meg tech companies which are now effectively introducing a
lot more AI accessibility and enhancements to their models. These
(10:09):
capabilities are trying to be adopted by effectively every major
company and every major industry, and they're willing to pay
up to do it. And the kind of proof that's
in the putting is even you know, though you don't
effectively expect capex to pay for itself in one year,
you expect longer payback periods for that. If you just
look at some of the biggest tech companies, the hyper scalers,
(10:33):
everything they've done to juice Capex in the past year
has more than been made up with in sales already.
Speaker 2 (10:43):
When we look at the long term play, then for
these big AI companies, the hyper scalers, I guess what
I'm trying to wrap my head around is ultimately they
need to be able to sell their services to all
the other companies that are out there, hey, you know
and pop whoever you need AI in order to do
(11:03):
this all the way up to you know, you know,
regional companies that need AI to do something. But those
companies still need to make you know, final sales to
end buyers and consumers. How does this all work if
we're in a really stagnant labor market that could be
made worse by AI, Like, how do we reconcile where
all of this can be going in the next several years.
(11:24):
I kind of tie myself in notts trying to figure
it out.
Speaker 6 (11:29):
Oh man, I wish I had the perfect answer to that,
But that is the exact right question to be asking
right now. When you think about CAPEX booms zooming out,
CAPEX booms generally happen as a result of two to
three things. One is a response to an acceleration and
consumer demand. Consumers who want to buy a lot more.
You don't have the capacity to produce it, so you've
(11:50):
got to expand capacity in order to meet that demand.
The second is a large shock and commodity prices that
tends to, you know, engender some supply response, whether it
be from oil producers, miners, et cetera. The third is
a policy change. Sometimes around you know, big tax policy changes.
You do see kind of one off jumps in CAPEX.
(12:11):
Right now, we really don't have any of those. I
think there's there's an argument to be made that's been
slept on a little that some of the tax changes
in the One Big Beautiful Bill Act have made it
a little easier to be spending billions and billions more
on on AI related needs. But what we have right
now is a situation in which consumers spending has been
(12:32):
decelerating a lot, capex has been picking up a lot,
and we haven't really had a rubber meets the road
point where we've had to choose between the two because
even as you know, even as you note that margins
for the average company might not be getting too much better,
they're also not getting too much worse and sales are
still going up. So we're still in a in a
(12:53):
bit of a situation where although consumer spending has been
softening at the margins certainly not off to a great
start this year, it has not been bad enough to
effectively pull down the incentive to be spending a lot
more to invest in AI. Ultimately, you know, consumers about
seventy percent of the US economy. If you think about
(13:15):
what will ultimately happen, the consumer will ultimately win. The
consumer quote unquote wins in two ways. Either a all
of this spending on AI, all of the kind of
associated productivity benefits we're supposed to get down the road,
and also just the increase in network that's coming from
the market rally being led by a lot of these stocks.
(13:37):
Either that is sufficient to help choose consumer spending or
keep it good enough so that effectively it's consumers steadying
up or kind of the capex the floor being built
up onto the capex that's being met by consumer demand.
Or it's quite simply that in choosing to have the
marginal dollar from corporates increasingly and increasingly go towards AI
(14:00):
rather than labor, that you're creating a situation which the
consumer wins by falling down and dragging everything else down
with it. I do think that this is the key
question that will be coming up as we head through
the rest of the year.
Speaker 2 (14:13):
It's a question of.
Speaker 6 (14:14):
That also encompasses, Hey, have was spending just delayed due
to tariff uncertainty or is the kind of real spending
drag really something that's getting in train as tariff's more
and more work their way through the system, companies work
down inventory and then you get additional rounds of price
increases going forward. I think it's a very open question.
(14:35):
I'm not sure what the answer is, but I'm sure
the answer at the end is the consumer wins.
Speaker 2 (14:41):
Look, so these are you know, kind of bigger long
term things. I want to focus now on just what's
been going on the last week, because it's been kind
of an odd week that I'm trying to make sense
out of here pretty much ever since the FED meeting.
Last week we have a FED meeting and then after
hours you get Microsoft and Meta that have you know,
blowout earnings to the top side there through the roof.
(15:02):
Stocks open the next day, Positive can't hold their games,
the S and p n's up down for the day,
and then Friday we get kind of puky with a
bad jobs report. So it looks like we're heading for
a leg down potentially this week. No major news aside
from I guess yesterday maybe some of the tariff exemptions
for semiconductors, but this market feels like it doesn't want
(15:24):
to go down. Now, What is going on here in
this last week because I'm having a little trouble making
sense of market action.
Speaker 6 (15:32):
Herein Join the club, Join the club. I do think
that a big catalyst, a big reason for why markets
seem to rebound very quickly, is that if you look
over the past ten plus years, you can again you
can zoom out to make sense of what's happening in
the near term. I think this is one of those
(15:53):
examples dip buyers have not ever effectively been that punished.
The only year you could argue in the past, you know,
fifteen or so where that's really been the case is
twenty twenty two. We've seen that when there's policy changes
that are seen as negative.
Speaker 2 (16:10):
Those will be reversed.
Speaker 6 (16:12):
So a negative catalyst on the trade front, for instance,
seems to get watered down if it's judged to be
doing sufficiently sufficient damage to the forward outlook for stocks.
We have seen that through the first week of April.
So we have a situation which there is a Pavlovian
response to be buying the dip because you aren't punished. Hey,
(16:32):
if you continuously get rewarded for the same behavior, you'll
keep doing it. It's the same way if AI companies
get rewarded for spending more and more on capax in
the form of both sales and their market value going up,
they're going to do a lot more of it. If
people get rewarded for buying the dip and there is
this habit of doing so, the direction of travel will
be to do so until you know there comes a sufficient.
Speaker 4 (16:54):
Time where you're punished for it. And I believe you can.
Speaker 6 (16:58):
You can continue to make the argument that what the
US economy is really seeing is just a slow slowdown,
a moderation and growth, and that there's no real near
term cliff to fall off of the idea that job
growth should be going down a lot because labor supply
has decreased. A law to that consumer income growth, once
(17:19):
you include transfers, really isn't that awful, and it's decent
to support the ongoing expansion of consumer spending. You can
fall back on these fundamental arguments to justify it, but
in the end, it's what the behavior that you're really
rewarding is that, Hey, the last time I did this,
it worked, and it worked the time before that and
the time before that, so I'm going to do it again.
Speaker 2 (17:41):
Fantastic, Luke, appreciate you joining us today and thanks so
much for the time.
Speaker 6 (17:46):
Pleasure to be here.
Speaker 1 (17:47):
Thank you.
Speaker 2 (17:47):
That is Luke Kawa, the markets editor at Sherwood News.
Speaker 5 (17:51):
All right, time for trivia here on the Financial Exchange,
and on this day. Back in two thousand, al Gore
announced his selection of a running mate. The decision by
Gore came two weeks after Bush announced Dick Cheney as
his running mate. So trivia question today, who is al
Gore's running by back in two thousand. Once again, who
is al Gore's running May back in two thousand, Be
the ninth person to text us at six one seven
(18:14):
three six two thirteen eighty five with the correct answer,
You'd win a Financial Exchange Showed T shirt. Once again,
the ninth correct response to text us to the number
six one seven three six two thirteen eighty five will
win that T shirt. See complete contest rules at Financial
Exchange Show dot com.
Speaker 2 (18:31):
Let's see I don't want to talk about this at
and T story right now.
Speaker 3 (18:37):
Starbucks, Airbnb, Airbnb struggling to continue to grow, and when
you think about their business model, it makes total sense
to me. Not only are you facing consumers that are
I think, having trouble keeping up with the travel spend,
but I just looked up the list of cities that
are now banning Airbnb in some way, shape or form,
(18:58):
New York City, Boston, San Francisco, Los Angeles, Las Vegas, Barcelona,
and total bands are They're not total bands, but they
make it very difficult to host Airbnb's in these cities Barcelona, Amsterdam, Berlin, Paris, Montreal,
and those were just naming the ones that I could
easily find those are your growth areas, so you can
only you know, you can only rent out so many
(19:20):
yurts in Montana before your business starts to stry.
Speaker 2 (19:24):
I got to tell you though your season is common,
Your season is common. Quick break here when we come back,
we got the trivia answer in Wall Street.
Speaker 1 (19:31):
Watch, bringing the latest financial news straight to your radio
every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time now for Wall Street Watch. A complete
(19:52):
look at what's moving markets so far today right here
on the Financial Exchange Radio Network.
Speaker 5 (19:58):
It looks like markets are now retreating from early morning
gains after reciprocal tariffs on several countries went into effect
at midnight. Right now, the Dow is off by over
six tenths of one percent, or two hundred and eighty
seven points. SMP five hundred is down by a tenth
of a percent or eight points. Nasdaq is actually up
(20:19):
by four tenths of one percent or eighty two points higher.
Rusted two thousand is off nearly a half a percent.
Ten year treasure Field is flat at four point two
two five percent, and crude oil is down about a
third of a percent, trading just above sixty four dollars
a barrel. President Trump took to truth social this morning,
calling for Intel CEO Lipbou Tan to resign immediately. Tan
(20:42):
was named Intel's CEO back in March. Intel shares are
down by three percent. Meanwhile, Apple adding to its gains
yesterday and is up another three percent today after the
tech giant announced an extra one hundred billion dollars in
US manufacturing. Sticking with Apple related news, where Corning shit
are climbing over one percent higher after Apple said it
(21:03):
would expand its partnership with the Precision glass maker as
part of its US push. Another Apple partner in Rare
Earth Minor MP Materials, also seeing gains of over two percent. Elsewhere,
ELI Lilly sinking fourteen percent after the drug maker said
it's experimental weight loss pill help people lose up to
twelve percent of body weight, a bit less than Wall
(21:25):
Street had expected, however, and dual Lingo shares are surging
nearly thirty percent after the language learning platform boosted its
guidance due to strong user growth driven by artificial intelligence.
I'm Tucker Silva and that is Wall Street Watch. And
in the previous segment, we asked you who is al
Gore's running mate back in two thousand. I'll be Joe Lieberman.
(21:47):
Lenny from Burlington, Mass is our winner today taking home
a Financial Exchange Show t shirt and rest to Lenny.
And we played trivia every day here in the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:00):
Piece in CNBC Peloton post surprise profit announces yet another
round of layoffs, impacting six percent of staff.
Speaker 3 (22:09):
Finally hitting a I don't mean a stock bottom, but
a business bottom for this company where they are stabilizing sales.
Speaker 2 (22:16):
I guess I didn't realize they had much in the
way of staff left, but I guess you can always
cut another six percent. Look, this is one of those
that it's going to be just a classic study of hey,
how did this stock get to one hundred and fifty
dollars a share back in twenty twenty one and then
go down to you know, two dollars in change before rebounding.
(22:37):
It's it's seven thirty right now. And here's the thing
about Peloton. When you look at the overall business, they
do about two point five billion dollars in revenue a year,
so it's like it's a business, you know, it's it's
not to say that there's nothing there. It obviously is
still you know, somewhat of a niche product. But I'll
(22:58):
also point out Planet Fitness does a billion dollars in
revenue a year, so like again, when it comes to
exercise equipment, there's only so much money that's out there.
And look, Peloton has at least a decently sized business.
The problems that they have had. Number one, they obviously
have not been profitable basically ever, aside from a couple
(23:22):
quarters in twenty twenty and early twenty one details Chuck,
in fact, they were hugely unprofitable for a while, losing
you know, almost three billion dollars across the first half
of twenty two and second half of twenty one. So
like that was a problem. From a free cash flow perspective,
another area where they were pretty heavily negative until the
(23:42):
end of twenty three, they're actually free cash flow positive now.
So yeah, it seems like they've you know, figured out
how to form you know a little bit of stability
in the business. But ultimately the problem is still going
to come back to one thing. At the end of
twenty one one, they're trailing twelve month revenue was four
point one three billion dollars and now it's two point
(24:04):
five and it's continuing to decline very very slowly. You
can't build a long term successful business off a shrinking
revenue base.
Speaker 3 (24:14):
Yeah, it does just feel like it's not a standalone company,
at least not a sustainable standalone business that's going to
be able to grow in the stock market.
Speaker 2 (24:23):
It feels like a company that, ultimately, I mean, I mean, look,
it should be under Apple. Let's call a spade a spade.
It's a high priced product that you know, is its
brand is all about image and and this and that.
It should be under Apple. Apple's already got you know,
(24:45):
this whole Apple Fitness thing. They've got Apple Health. You
could fold it in a million different ways. Hey, if
you subscribe to Apple TV, will give you, you know,
a Peloton subscription for free just by the hardware.
Speaker 3 (24:57):
Plus plus, Apple's got to spend six hundred billion dollars
in the United States.
Speaker 4 (25:03):
Apples made this.
Speaker 2 (25:04):
Commitment to spend six hundred billion dollars. Why not spend
the three billion dollar company now you have them a
thirty percent premium fine, spend four billion of it buying
Peloton I don't know. It just feels too easy to
me like it. There's some things that just makes sense,
and Peloton being bought by Apple makes sense aside from
(25:25):
they probably don't want to pay this much, so they're
probably hoping that the stock goes down more.
Speaker 4 (25:28):
But back to two dollars.
Speaker 2 (25:30):
Yeah, exactly, But look what when you're in the size
of Apple, A billion dollars is a rounding error. Not
quite but almost.
Speaker 3 (25:37):
I would be very interested to know the iPhone to
Peloton user overlap, and I'd be willing to bet it's
a lot higher than the national average.
Speaker 2 (25:46):
I think so. I think so.
Speaker 5 (25:49):
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Speaker 2 (27:06):
So DraftKings is a company that makes money based on
you being bad at gambling, and.
Speaker 4 (27:14):
Not you specifically, but the collective view.
Speaker 2 (27:17):
We'd be they make money based on us being bad
at gambling, and the good news for DraftKings is that
we got worse at gambling in the most recent quarter.
Speaker 3 (27:25):
So good news for DraftKings, good news for a shareholders,
bad for everyone else, including people that don't bet on
Draft gangs.
Speaker 2 (27:32):
Yes, the average revenue per monthly unique player or mooph
as they or is it mup. I'm gonna go mup
like a muppet. I don't want to be a muppet though.
I don't want to be a moope either, But you
know it's when forced to choose, one chooses the moop. It. So,
the average revenue per moop jumped twenty nine percent over
(27:53):
from last year to one hundred and fifty one dollars,
a lot of money. And so that means that on average,
the the average person on DraftKings lost lost one hundred
and fifty one dollars for the quarter.
Speaker 3 (28:08):
And there's a lot of people on DraftKings, right, Sorry,
was that annualizers that in a quarter?
Speaker 4 (28:14):
That was that was the revenue per moop for the quarter.
Speaker 3 (28:17):
So if you're as bad so annualize that, you're talking
about six hundred bucks a year people are losing on
DraftKings on average.
Speaker 4 (28:23):
That is really bad on average.
Speaker 2 (28:26):
And this is so a moop as they define it,
it's the number of users that at least one real
money paid engagement in a month. So you're basically you're
making at least one bet a month in order to
qualify there and they had three point three million of those.
So two percent of the US population on average is
losing six hundred dollars a year just to DraftKings.
Speaker 3 (28:48):
So I want to compare this to something that's not
very comparable. But let's talk about Facebook for a minute.
They have a different metric of their users, which is
our poo the average revenue per user, and I haven't
looked at it in a while in the United States.
Speaker 4 (29:01):
I think it was in the high teens.
Speaker 2 (29:03):
Fifteen to eighteen feels right, per year that they would
earn on their average Facebook user fifteen dollars per year.
Speaker 4 (29:13):
DraftKings is making some six hundred dollars per year on
their average user.
Speaker 2 (29:16):
Is that No, that was per quarter. That's per quarter
still eighty dollars. So DraftKings is making ten times as
much than Facebook is. Obviously, Facebook has you know, three
point three billion users. I think it's like two eight instead.
Speaker 3 (29:28):
Of different scale, correct and different muddle right, They're not
paying anything to be on Facebook's platform, but wow, that
is a lot.
Speaker 4 (29:37):
Of money to be losing on gambling every quarter.
Speaker 2 (29:40):
I gotta be completely honest, and look, I don't sports
gambled Tuckle like you can probably have the other side
of this. I'm starting to really wonder whether having sports
gambling available via the phone is something we should have. Yeah,
I'm not saying banned sports books. I might be saying
ban mobile sports books.
Speaker 5 (30:02):
Well, now you're seeing this leak into sports now, well
it's you see a couple of pictures from the Guardians.
Now it's a who are like throwing balls on purpose?
Speaker 2 (30:11):
Right, So, A, you've got, you know, some questionable things
happening when it comes to actual players and umpson referees.
B I can't go five minutes without someone telling me
the parlay of the day in a broadcast, which, by
the way, if you're parlaying, you're losing. Just want to
let you know.
Speaker 4 (30:30):
Uh.
Speaker 2 (30:30):
And So honestly, I kind of look at this and
I'm just no, I'll be quite honest, it's a net
drag on society to have mobile sports books allowed.
Speaker 5 (30:43):
Well, the thing where they get you is all these
advertisements for bonus bets. Oh I know, because it's just like, oh,
well it's free money. It was like, well not really,
because you can't cash out, correct.
Speaker 3 (30:54):
So I see all these downsides to it. I recognize
all of them. And it just contradicts the way I
generally feel about how we should legalize things and deal
with them. And I get that it's different because it's
an addictive type of thing, and so you know, maybe
it belongs in the same classification as other addictive products
(31:15):
that were put out there.
Speaker 4 (31:16):
But I don't know when this got legalized.
Speaker 3 (31:19):
I was kind of all in favor, like, yeah, legalize it,
make it safe, tax it, rather than having people, you know,
gamble I legally with their sports book, with their But
I do see.
Speaker 4 (31:29):
The societal negatives here that we are all.
Speaker 3 (31:32):
Because you know, we joke around about these things, and
we can talk about how annoying it is to people
talking about their parlays and all this stuff. The real
style damage is that there are a bunch of young
twenty something year old mainly men, who are in thousands
of dollars of gambling debt.
Speaker 4 (31:49):
Yeah, like that, that's the problem.
Speaker 3 (31:51):
Like that that is a really big issue for those people,
and honestly, society generally like that.
Speaker 4 (31:59):
That is a really big you know.
Speaker 2 (32:00):
And I'll give you just an example.
Speaker 4 (32:04):
Well, let me take a quick break and then we'll
do an example gambling example. Okay, let's get right after.
Speaker 1 (32:09):
This Here the Financial Exchange every day from eleven to
noon non Serious XM's business radio channel one thirty two.
Keep it here for the latest business and financial news
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(32:33):
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Speaker 2 (32:52):
All right, So, last second, we were talking about draft
kings and I made the point like, look, I don't
really have a problem with legalized sports batting. I think
I do have a problem with legalized mobile sports betting.
And I'll use myself as a point of comparison. Last weekend,
I went to a casino and I played some blackjack
(33:13):
for about six hours. I made fifty dollars over the
entire time, So net I entertained myself. I got some
free drinks, and I made fifty dollars.
Speaker 4 (33:20):
It was fine.
Speaker 2 (33:21):
You know, it didn't lose the house, didn't make a
new house. It was just it was what it was.
But the point is I had to drag myself to
that casino, get there, and go through the act of
actually doing that in order to make those bets. I
couldn't just be sitting at work on my phone firing
(33:43):
off a bunch of blackjack bets during the day and
trying to pretend that I'm a functioning human being otherwise.
And so I think my point on this is I
don't really have a problem with gambling in and of itself.
Like I gamble, I don't do it on sports just
because I'm really bad at it to be only that's,
you know, just a me thing. But gambling in and
of itself, I don't think is something that should be banned.
(34:06):
I think the problem is on the phones, it's way
way too easy to get yourself into trouble because you
can literally do it twenty four hours a day, even
on stuff you don't know of. I remember during the pandemic,
everyone's betting on freaking Korean baseball at two am because
they needed something to do, and I don't.
Speaker 3 (34:25):
Know, try this just is such a weird, dangerous slope
to me, Like what's their slope? I just don't I
don't know that we I have a tough time making
this argument that hey with gambling specifically, we shouldn't allow
that on our phones, whereas I'll go further fun we
should just ban smartphones? Yeah, like just get rid of them,
(34:46):
like they're awful. They're awful in general.
Speaker 2 (34:48):
Yeah, you know, And I say, this is someone who
uses one, so like, I get what I'm saying, but honestly.
Speaker 3 (34:54):
I recognize it's a problem, and I don't know, I
still have to die and that I think, But I'd
rather legalize it.
Speaker 2 (35:02):
And what do you think the problem is in saying, hey,
you have to gamble in a casino instead of on
a smartphone.
Speaker 4 (35:09):
I would be.
Speaker 3 (35:11):
Yeah, I guess I'm perfectly fine with that on a
but I want the states to be able to decide it,
I guess.
Speaker 4 (35:17):
But yeah, it's a fair point. Should we Should we
just do that?
Speaker 3 (35:22):
DraftKings would certainly not like it, but all the casinos
be pretty darn happy about it.
Speaker 2 (35:26):
I don't know, Like that's kind of where I land is.
I'm totally fine with gambling of any kind. I gamble
on a regular.
Speaker 3 (35:34):
Basis, and I think there is something to the psychology
of needing.
Speaker 2 (35:40):
So I was first out of college, I was going
to boggling right now, as we speak right now. No,
but I can't. Like that's the thing. I can't be
playing blackjack on my phone for money. Oh yeah, you can't. Yeah,
I'm sure. I'm sure there's like an app I could download,
but you know, like then I get into all kinds
of weird stuff.
Speaker 3 (35:56):
So and I think there's something psychologically about physically walking
yourself into a casino.
Speaker 4 (36:02):
You kind of make that rule in your.
Speaker 3 (36:04):
Head, like all right, I've got the cash in my pocket,
that's the money I have to spend tonight.
Speaker 4 (36:07):
And when that, I'm.
Speaker 2 (36:08):
True, you can you can always take out a cash
e vance on a credit card.
Speaker 4 (36:11):
Yeah, and people do. But to your point, trust me,
I have much more.
Speaker 2 (36:15):
This is what I'm saying. Like I've been there where
it's like, hey, if I don't win this next bet,
I don't know if I can pay the rent this month.
I've actually been there in a casino once. To be fair,
Fortunately I won the next bet and it was like
everything worked okay. But direction of Chuck's life, I we've
(36:35):
been all we've been all downhill from there. But I
understand like where all of that comes from. My point
is I had to go to a casino in order
to do that, and so that put a natural guard
rail on how badly I could potentially spiral in that. Yeah,
I could go down every Saturday, and that was what
it was when I was a year out of college.
(36:56):
Like my buddies and I like doing that. But I
couldn't just sit at my day on my couch.
Speaker 4 (37:01):
The bag on the stage.
Speaker 3 (37:03):
I mean, like the sports, the professional sports leagues are now.
It might be they're making so much money on this, Yeah,
they're not gonna get it there.
Speaker 4 (37:11):
There's just no way in my mind that they're go backwards.
Speaker 2 (37:15):
They're not gonna give it up.
Speaker 4 (37:17):
This.
Speaker 3 (37:17):
This is this is done right like this. This is
going to be part of society for a long time
until something breaks.
Speaker 2 (37:22):
I mean guys like look at look at Europe just
as an example, Like there's been sports gambling there for
a long long time. They kind of tried to warn
us about this, but ultimately, even though some really bad
things happened there, it's just like, Okay, what are we
gonna do? You know what, Once it's there, it's there
and we got to live with it.
Speaker 3 (37:39):
I just I just think that there's a yeah, what
I think is going to happen is there's going to
be a bunch of twenty year olds that are going
about to learn a lot of very hard lessons.
Speaker 2 (37:49):
I'd see what it's doing to young men financially, and
it hurts me, like it really does. And I say,
this is someone again who's kind of been through some
of that on not quite the same scale. But it's
just something where I'd rather have you have to go
somewhere to do it as opposed to just do it
twenty four hours a day. But that's me and kind
(38:12):
of an old fogie about this. I don't know. We're
done for the day and we'll see you tomorrow. To
wrap up the week on the Financial Exchange,
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