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- [00:04]
WhatsApp Narrator
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- [00:32]
Ann Barry
Your rewards credit card may soon be rejected by some merchants. We break down why with the latest from MasterCard and Visa. It's Veterans Day and to honor those who've served, we welcome one asset manager to share not only his market perspectives, but lesson learned from his time in the military and Instacart. From Marketplace to software as a service, where the new CEO wants this company to go next for Tuesday, November 11th, it's Brew Markets Daily and I'm Ann Barry. More market details to come. But first, Instacart CEO Chris Rogers just had his first earnings call. After being promoted to the big job in August, Rogers joined the grocery delivery giant market cap just under $10 billion in 2019 since serving as Chief Business officer. Well the headlines for Instacart were strong. Overall third quarter revenue hitting $993 million, earnings beating estimates and the company's share repurchase plan increasing by $1.5 billion. But in amongst the good news, Rogers wanted to focus investor attention on one particular operating line and that's providing enterprise software solutions. Let's hear what he had to say.
- [01:46]
Chris Rogers
Our storefront or white label e commerce technologies now powers more than 350 retailer E Commerce storefronts on retailers own website, large retailers like Costco, Publix and Sprouts to specialty stores and local independents. Grocery tech is is very complex and every retailer is unique in how they operate and how they serve customers. Which is exactly why this matters. We've built the best grocery specific platform that can handle that complexity at scale and make it simple for retailers to grow online with us.
- [02:15]
Ann Barry
Well, that's a far cry from the marketplace and delivery that Instacart has become famous for. And Rogers went on to highlight four other quote pillars of the enterprise strategy. Technology for picking and packing, technology to power ads on partner websites, technology to power catering services and smart cars that use AI to recommend to shoppers what to grab from shelves as they're going around the stores. Well that's a lot of tech and frankly a lot of airtime for a business segment for which financials are still not disclosed. So while the ideas are Great. I certainly got excited. I got a little bit less excited when I went to the original filings to go find the devil in the detail and get the performance numbers. We don't have them yet, but we certainly need them. Well, the market meanwhile, liked what it heard Instacart stock up in response, but just for some context, it is down nearly 10% year to date with concerns about increased competition. Lots going on there at Instacart. We're going to keep watching. Well, coming up, Visa and MasterCard strike a new merchant agreement. We explore why your rewards card may get rejected in the future. And my conversation with Ted Oakley of Oxbow Advisors on where he thinks young people should invest their money and what he learned from his time in the army. But First Brew Markets daily is sponsored by Public. Before the show today, our producer John mentioned a feature he recently found on Public that's right.
- [03:35]
John Croteau
I know it's the investing platform for those who take it seriously and I'm serious about getting more interest on my cash. I discovered you can access industry leading yields with their suite of fixed income.
- [03:45]
Ann Barry
Products with public's high yield cash account. You can earn a 3.6% APY on your cash with no fees or or minimums. And you can lock in a 5% or higher yield with a diversified portfolio of corporate bonds with Public's bond account. So get started at public.com brewmarkets that's public.com brewmarkets paid for by Public Investing.
- [04:02]
John Croteau
Full disclosures in Podcast Description well, there.
- [04:05]
Ann Barry
Was an interesting settlement announcement this week that may just impact how we use our credit cards. It's an agreement between Visa and MasterCard and merchants that settles a lawsuit for filed in 2005. That's right. 20 years ago now in that lawsuit it was alleged that the credit card issuers were involved in anti competitive behavior. So just to put this in some context though, MasterCard $497 billion market cap Visa $646 billion market cap so when you hear the words anti competitive and you see a trillion dollars of combined market cap, you know there's a lot to get through.
- [04:41]
John Croteau
Let's say you went into a store to buy a $20 pair of headphones and you pulled out your Visa card. You Visa charges the merchant that's selling the headphones a processing fee, an interchange fee and those fees are typically two or two and a half percent of the purchase. So $20 pair of headphones, 40, 50 cents is going to Visa on that purchase. And that may not sound like a lot of money, but in 2024, merchants paid $83 billion in fees to card issuers. So that money is really adding up and coming out of merchants pockets.
- [05:12]
Ann Barry
Well, that's a lot. And just to be clear, the kind of fee and the fee level is actually based on what kind of credit card that you. So let's focus in for a moment on one of my favorite things. I'm an avid traveler and that's rewards cards.
- [05:24]
John Croteau
Yeah.
- [05:24]
Ann Barry
So in that example, you may have an airline card that folks pay hundreds of dollars in annual fees. And the idea is you get access to travel lounges, you accumulate loyalty points or air miles at a faster rate by paying for specific flights with those cards. And as a result, these command a higher fee. Now in the past, merchants had to honor all cards, meaning if you were a store, you had to take all of these kinds of MasterCard and Visa cards, no matter whether they were rewards based cards or not. But under the new agreement that would change and a merchant could choose not to honor an airline Visa card, for example. So if they go down that route, John, it feels as though retailers may risk losing business. And by the way, a court struck down a similar deal last year.
- [06:07]
John Croteau
Right. Can you imagine how confusing it would be if I walk in with my Chase Sapphire Reserve, that's $795 annual fee and I want to buy a soda and they say no, we don't, we don't take that, the fee is too high. But if I went in with a different no fee, no frills credit card, then the merchant would take it. I've noticed this happening, Ann, in the past couple years, at least here in New York, that merchants are charging you anyway to use a credit card. If I go to a restaurant, they have written there that it's going to be 3% more if I pay with a credit card. Or other places say, well, will take 3% off the bill if you pay with cash.
- [06:43]
Ann Barry
Right. So, so basically when you get to the heart of this, there's a way in which a merchant was able to stand, was standing to pay a higher fee, depending on whether it was a rewards card or not. That now the settlement now is saying no, that has to go away. They should be free and clear to take whichever kind of card is necessary without basically facing discrimination based on the nature of the card. Well, that the Eastern District Court of New York still has to sign off on the settlement. So it may not come to pass. I just think from a practical perspective, just to double down on what you were saying, if you walk into A retail store. The idea that there's going to be a menu of options that placed up there saying we accept this kind of card, we reject that kind of card at some point. You know what this reminds me of? When I walk now into a CVS or a Walgreens and I want to go and buy some toothpaste and it's sitting behind a Perspex, a cover on the shelf. There are points where I just walk out and just go to the bodega and try and get my toothpaste. I just can't be bothered to deal with the complexity of it. And I do think there's a risk here that consumers just say, I'll just go find somewhere else rather than this retailer. I just want to go where it's easy.
- [07:43]
John Croteau
And it reminds me of this, which is a little bit different because it wasn't a menu of different things. But Costco for 17 years only accepted American Express, right? And then they switched to visa in 2016. And at the time Costco said that they expected to save $220 million annually in lower interchange fees, that Visa made a deal with them over what they were getting from American Express.
- [08:04]
Ann Barry
That's so interesting actually because, you know, growing up in Europe, for the longest time, European retailers did not want to take American Express. That was sort of one of the bugbears from having just as a final thought, just to take a big step back and think about the payments industry more broadly. This is not a time if you're the traditional credit card players again, a trillion dollars of combined market cap. You've got all of these folks nipping away at your ankles. You've got Stripe, right? You've got Apple Pay, you've got Walmart with its own sort of in house fintech play. The amount of competition now PayPal cash app. Everyone is trying to go over and go and win in that consumer to merchant payments space. It's no longer about peer to peer, right? It's no longer about sort of fairly niche markets. Everyone's going off the biggest possible market, which is this one. And it just feels as though Visa and MasterCard really needs to figure out a way to play in a sort of clean, easy to understand, straightforward fashion to keep the market share that has kept them going for so long. Well, look on the announcement, shares in Visa and MasterCard were down about half a percent. You are our points like the complexity of this, both are up around 5% year to date, but lagging, you know, the broader markets. When we put that in perspective, let's Take a quick break and when we come back, my conversation with Ted Oakley of Oxbow Advisors. And now a word from our sponsor, Surf Air Mobility. Surf Air Mobility is behind a major shift in transportation. They're building an AI enabled software platform powered by Palantir that's being built to serve as an intelligent operating system for the air mobility industry.
- [09:32]
John Croteau
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- [09:47]
Ann Barry
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- [09:57]
John Croteau
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- [10:07]
Ann Barry
I'm absolutely delighted to welcome Ted Oakley, managing partner and founder of Oxbow Advisors, which is based in Austin, Texas and has over two and a half billion dollars in assets under management. Ted, thank you for joining us live right now from Austin. Ted, you've, you've seen many, many cycles and in your writing you have said that at the moment you think the financial markets are currently exhibiting a, quote, madness, an unprecedented level of risk, while the actual US Economy is only, quote, so, so when you think about that balance and this paradox, what do you say to folks trying to figure out how to invest, for example, their retirement savings? Is this the time to put money into the stock market or even to stay invested?
- [10:54]
Ted Oakley
Well, thanks, Ann. I think what happens is, you know, this is an observation, not a prediction. But if you observe that the markets are statistically very expensive, which they are now, we can prove that. And they're as expensive as they've ever been in any period. So if you, if you observe that, then the natural thing to do for someone is to take action, to at least settle their portfolio in a little bit to where they have what I call a buffer or something that gives them, you know, some safety going forward because at some point in time, markets always revert back to the mean and they will again at some point in time. And we have a tremendous amount of speculation outside of just the market. If you look at crypto and single day options and there's all sorts of things that are going on, a lot of leverage. But if you can observe that and you say, okay, I know that that's the most it's ever been. Then you might want to make step back and say, I think I'll take a little bit off the table here.
- [12:02]
Ann Barry
Okay, so let's say that someone does that and they're holding cash. Talk to us about places where there might be value. Talk to us in particular about commodities. That's somewhere that unlike crypto and some of the other assets you've just named, commodities have actually underperformed the s and P500 for quite a long time. Do you think that changes? Is that an opportunity?
- [12:22]
Ted Oakley
I do. And over the next 10 years, I think you need some commodity exposure because it's been really 25 years or longer. And if you look at a lot of the commodities today, they're very, very cheap. We happen to think that energy, for example, is the cheapest thing there is right now. But if you look at the amount of dividends they pay, the cash flows they throw, they're down on the lows. But other things as well, you know, you can own fertilizer, you can own iron, you can own copper. There's a lot of things big to hard assets and commodities. Not as much on soft commodities like, you know, soybeans, cocoa, coffee, that sort of thing, but hard asset commodities. I think you, you want to own some of those over the next five to ten years.
- [13:09]
Ann Barry
TED let's talk about one particular commodity, which is gold, which has been absolutely skyrocketing this year in particular. What's your perspective on that pricing now, over $4,000?
- [13:21]
Ted Oakley
Well, you know, we've owned and we've owned gold for a long time. Actually, we own it. And one of our very, very conservative strategies, we carry about 4 or 5% of it, just as a currency hedge. And we're, you know, we've owned it. We weren't low to the party or anything. Our cost basis is low. Yeah, but what happens with gold is it goes through cycles like everything else. It's not something necessarily that you can say I'm going to own for 15 or 20 years because typically those cycles are a little bit shorter. We think we're in a pretty good cycle now. I don't, I'm not certain it's over. I know for us in the last two months, we, we own the gold miners too, and we took, we sold some of the gold mining companies, at least part of them, I should say. We never sold any of the gold bullion, but it wouldn't surprise us here to have some more weakness in gold. But in the long run, I'm talking about over the next one to two years, I think it could go to a new high.
- [14:25]
Ann Barry
And for the non commodity strategy that you mentioned, Ted, give us some specific names. What are examples of those?
- [14:31]
Ted Oakley
Well, there's a lot we own a lot of different industries you might add, and it's a real spread. But I'll just give you four or five that we own. For example, we own O'Reilly Automotive owning for years. It's a great aftermarket automotive stock. It's been a great stock for us, you know, over the years. We own Booking, which is, you know, if you believe that people going to keep traveling. It's a company when it gets cheap, that's when we buy them, then we sell them when they get expensive in that and that sort of thing. We just bought Union Pacific, the rail company you know, we own.
- [15:02]
Ann Barry
Do you think that deal happens, Ted? Do you think the Union Pacific merger is going to go through?
- [15:06]
Ted Oakley
Well, I think it will. Yeah, I think it will. I, I think people forget about with pipelines and railroads you only have so much right away. If you went in today to try to put a put a rail line through over half the country, you'd never get it through because you never could get the easement. And so they sort of have a monopoly in their own way. From that standpoint then we own, you know, we own in the stock accounts we own a couple of of royalty gold companies. That's where you don't own the miner itself, but you get royalties off of other gold miners. And one of those is called Royal Gold. The other one Sweet Pressure Metals, they're Wheaton is good, they're both good companies but you don't have the risk of having to go in and find the gold in a miner you know itself. But then you know, my own Unilever in the you look at almost every product you probably use as some of them are Unilever.
- [16:03]
Ann Barry
You mentioned that you're actually holding quite a lot in short term Treasuries. How are you thinking about holding government debt, Ted, instead of corporate debt, lots of big companies are out there issuing new debt at the moment. What's your perspective on buying some of that new issuance?
- [16:18]
Ted Oakley
Well, Ann, in one of their when our high income portfolio, what's called a high income portfolio, we bought a number of corporate bonds that were only five years in maturity or less. It's only about three and a half now. But we were trying to get five to five and a half percent on those corporates at the time. We're not, you know, that's that's only about 10 or 12% of that portfolio. The reason we keep it in short term Treasuries is because we don't like the long treasury over the long term. Now, in the short run here, maybe it does well, but we feel like over the next 10 years, you do not want to own 20 and 30 year bonds. And so we keep it everything less than 18 months. And here's why. If rates went up significantly, then we're going to adjust automatically to it. For that matter, if they go down significantly, we don't think that lasts very long before inflation comes back with a vengeance. And so we want everything mostly to be short term.
- [17:20]
Ann Barry
Well, last question for you, Ted. This interview is going to be publishing on Veterans Day. I know that you are a veteran, so thank you for your service. Talk to us about what perhaps your military service gave you in terms of skills for your role in investing. How has that carried forward with you?
- [17:39]
Ted Oakley
Well, I think one of the things it did for me, you know, I've been really, I'm probably one of the most blessed people you will ever see. I grew up with absolutely zero, actually. I grew up with negative. And so when I went in the army, you know, it was a way for me to sort of see what was going on. It was during the Vietnam War, but it was, it was a time when I got to see a lot of different people and a lot of different actions and people from all levels, you know, wealthy people, not, you know, a lot of poor guys, different things. But what it gave me, when I got out, I had the GI Bill, so I was able to go on and go to school. But I think what it did for me is it gave me a healthy respect for people of all sorts of people. Okay, because we're, you know, even though we're all a lot alike, we're a little different depending on geographically where we are, kind of how we look at things and that sort of things. But it's probably one of the best things that ever happened to me because I really grew up a lot in the Army.
- [18:45]
Ann Barry
And how did those lessons serve you as you went into the world of stock picking and investing?
- [18:50]
Ted Oakley
When you're really going through tough army or Marine sort of things, you have to have a grind that makes you realize that, hey, I gotta, I gotta make this work every day. I gotta make it work this month. And so when you go out in the world, in the sakes of the world of investing, you have the same thing. In other words, we're, we're a lot like coaching, like, we had a great year this year. But you know What? It's over December 30, December 31, and we're like coaches, what have you done for me lately? So you start all over again January 1st. But it makes you realize, hey, you got to keep on pressing and you got it. You'll get there. You don't let up. You always keep, keep your standards high on what you want to own, how you want to do business with people. And I think that's where it gave me the best sort of look at things.
- [19:41]
Ann Barry
Great wisdom. Ted Oakley, managing partner and founder of Oxford Advisors, thank you very much indeed for joining. Appreciate your time.
- [19:48]
Ted Oakley
You bet, Anne, thanks.
- [19:50]
Ann Barry
A big thanks to Ted Oakley for joining me today. Well, there are a host of companies reporting earnings this evening. We will be tracking those results, including Beyond Me. Lots of coming back tomorrow, freshly caffeinated and ready to dig into those for you. That's it for today's Brew Markets Daily.
- [20:06]
John Croteau
Brew Markets Daily is hosted by Ann Berry and produced by John Croteau, Tarek Abdelatif and Emily Milian. Technical direction by Uchena Waugu and Kelsey Jones. Brittany To Taco handles audio. And the president of Morning Brew, Inc. Is Devin Emery.
- [20:17]
Ann Barry
Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.