Lions, and tigers, and tariffs. Oh my!

Summary

Motley Fool Money - Episode: "Lions, and Tigers, and Tariffs. Oh My!"
Release Date: April 4, 2025

Hosts: Ron Gross (hosting for Dylan Lewis), Jason Moser, and Asit Sharma

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1. Introduction: Navigating the Tariff Terrain

The episode opens with a spirited discussion on the recent tariff announcements by the Trump administration. Ron Gross sets the stage by highlighting the global scale of these tariffs, affecting approximately 180 out of 195 countries. The hosts emphasize the complexity and potential long-term impacts on the economy and stock market.

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2. Understanding the Reciprocal Tariffs

Timestamp: [00:54] - [04:24]

Jason Moser delves into the specifics of the reciprocal tariffs, explaining their origins and broader implications:

"Tariffs were brought to the table as a way to help control border issues, concerns of fentanyl crossing the border and whatnot. But now it's obviously gone virtually global." – Jason Moser ([01:27])

He discusses the underlying issue of trade deficits, noting:

"Trade deficits are one piece of the puzzle. If we import more than we export, it can lead to shrinking domestic production, job losses, higher deficit spending." – Jason Moser ([02:10])

Asit Sharma adds that the tariffs, while labeled "reciprocal," often vary based on the trading country's status, resulting in inconsistent rates:

"Many of these tariffs are adhering to a calculation based on these very trade deficits." – Jason Moser ([03:00])

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3. Short and Midterm Consequences for U.S. Companies

Timestamp: [04:37] - [05:51]

Asit Sharma analyzes the immediate impact on U.S. companies:

"The short term consequences are going to be a hit to earnings for many companies because the tariffs are effective." – Asit Sharma ([04:37])

He warns of potential stock value declines and advises investors to remain calm:

"My caution here to investors is not to just jump out of the market out of fear unless you really need that money." – Asit Sharma ([05:20])

Ron Gross offers a historical perspective, reassuring listeners:

"100% of the time stocks have come back, rebounded and moved higher through wars, depressions, pandemics." – Ron Gross ([05:51])

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4. Earnings Insights: RH's Struggle Amid Tariffs

Timestamp: [06:38] - [08:39]

Ron Gross discusses RH's disappointing Q4 earnings, exacerbated by tariff news:

"RH reported fourth quarter earnings that were worse than expected." – Ron Gross ([06:38])

Asit Sharma breaks down the financials:

"Revenue up by about 10%, but earnings per share were 25% below consensus estimates." – Asit Sharma ([07:24])

He cautions investors about RH's leveraged position:

"They've taken on about $2.6 billion in debt... the company is a little stretched right now." – Asit Sharma ([08:39])

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5. Rocket Companies' Strategic Acquisition

Timestamp: [08:39] - [10:07]

Rocket Companies' acquisition of Mr. Cooper Group for $9.4 billion is analyzed:

"Rocket shares were actually up on the news... moving towards a one-stop shop for homeowners." – Ron Gross ([09:08])

Jason Moser praises the strategic fit:

"The combined company would service about one in every six mortgages here in the US, equating to about $2.1 trillion in loan volume." – Jason Moser ([09:30])

He notes the potential catalyst from improving housing starts:

"There’s a catalyst on the horizon here when housing starts to improve." – Jason Moser ([10:07])

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6. Roblox Ventures into Video Advertising

Timestamp: [11:03] - [12:42]

Ron Gross shifts focus to Roblox's new advertising strategy:

"Gamers can choose to watch video advertisements up to 30 seconds long in exchange for in-game rewards." – Ron Gross ([11:03])

Asit Sharma explains the business rationale:

"This is a really great way to tap into that programmatic style advertising space." – Asit Sharma ([12:42])

He highlights impressive completion rates:

"A completion rate of over 80%, with some experiences seeing a 90% completion rate." – Asit Sharma ([12:42])

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7. Encino’s Market Reaction to Q4 Results

Timestamp: [13:08] - [15:11]

Encino's Q4 results led to a sharp stock decline:

"Shares were down more than 30%." – Jason Moser ([13:40])

Jason defends Encino's performance, focusing on growth metrics:

"Revenue up 14% from a year ago. Subscription revenue up 16% from a year ago." – Jason Moser ([14:10])

He attributes the stock drop to overly optimistic future guidance:

"The market wanted more than the guidance leadership provided for the coming year." – Jason Moser ([14:59])

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8. OpenAI’s Transformation and Funding

Timestamp: [15:11] - [17:47]

Ron Gross reports on OpenAI's significant funding round:

"OpenAI raised up to $40 billion in new funding, valuing the company at $300 billion." – Ron Gross ([15:11])

Asit Sharma discusses the conditional nature of the funding:

"They're going to receive $10 billion upfront from SoftBank, but to get the rest, they must convert to for-profit status." – Asit Sharma ([16:03])

The hosts exchange opinions on AI platforms:

"I like Gemini on my phone... If I'm on my computer and I'm typing, then I'm a chatgpt guy." – Ron Gross ([17:30])
"Claude's my friend." – Asit Sharma ([17:40])

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9. Tesla’s Q1 Challenges and Future Outlook

Timestamp: [17:47] - [19:40]

Tesla's Q1 sales slump is dissected:

"First quarter sales fell 13% to the weakest in nearly three years." – Ron Gross ([17:47])

Jason Moser explores the factors:

"Investors were expecting deliveries around 365,000, but came in at 336,681." – Jason Moser ([18:22])

He discusses Elon Musk's influence and competitive pressures:

"His big political presence has made his bed, so to speak, and he's laid his cards on the table there." – Jason Moser ([19:08])

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10. Interview with Liz Ann Saunders: Lessons from Market Corrections

Timestamp: [20:04] - [34:38]

Guest: Liz Ann Saunders, Chief Investment Strategist at Charles Schwab

Liz Ann addresses the unexpected nature of the tariff announcements:

"I think maximum a 10 out of 100. Yeah, I think it was a huge surprise." – Liz Ann Saunders ([23:14])

She analyzes the potential for a bear market:

"Every cycle is different, but recession probabilities have gone up, elevating concern for a bear market." – Liz Ann Saunders ([24:00])

Guidance for investors includes:

• Avoid Panic: "Panic is not an investing strategy." – Liz Ann Saunders ([25:31])
• Diversification: Emphasizes the importance of not having all eggs in one basket, particularly advocating for international exposure.
• Rebalancing: Encourages trimming high-performing assets and reinforcing diversification.

Liz Ann also reflects on historical corrections and the heightened exposure of households to equities:

"This tentacle from market performance to economic performance is a bit tighter than we've seen in the past." – Liz Ann Saunders ([34:20])

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11. Lighthearted Segment: Subway’s New Nacho Creation

Timestamp: [35:05] - [37:03]

Ron introduces a fun segment about Subway's partnership with Doritos:

"Subway is partnering with Doritos to sell foot-long nachos for $5." – Ron Gross ([36:08])

Jason humorously critiques the menu addition:

"How in the world are you using cheddar cheese on these things? It just doesn't melt good." – Jason Moser ([36:38])

Asit offers a playful alternative:

"Buy yourself a party bag of Doritos and get some Cheez whiz at home." – Asit Sharma ([36:58])

Dan humorously refuses to try the new offering:

"Never underestimate the laziness of the American consumer... I will not go." – Dan Boyd ([37:00])

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12. Stocks on Radar: DoorDash and Pure Storage

Timestamp: [37:15] - [39:35]

DoorDash (DASH): Asit Sharma highlights DoorDash's strong free cash flow and strategic partnerships:

"This company may seem like not a great stock to have on your radar, but it's a free cash flow monster." – Asit Sharma ([37:15])
"DoorDash is looking good with expansion into retail deliveries and a deal with Domino's." – Asit Sharma ([37:56])

Dan expresses his humorous disinterest:

"All I want to say is never underestimate the laziness of the American consumer." – Dan Boyd ([38:08])

Pure Storage (PSTG): Jason Moser recommends Pure Storage, emphasizing its data storage solutions:

"Data centers consume a lot of power, and Pure Storage offers an all-flash alternative to traditional methods." – Jason Moser ([38:11])

He underscores the company's sustainability and financial health:

"It's profitable, cash flow positive, and has a healthy balance sheet." – Jason Moser ([38:11])

Dan humorously questions the nature of the storage business:

"I thought it was going to be a physical storage company... and it's data centers." – Dan Boyd ([39:08])

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13. Closing Remarks

Ron Gross wraps up the episode with final thoughts on the discussed topics and thanks listeners for tuning in. He reiterates the importance of thoughtful investing amidst market volatility and global economic shifts.

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Notable Quotes:

• Ron Gross:
  “Stocks have come back, rebounded and moved higher through wars, depressions, pandemics.” ([05:51])

• Jason Moser:
  “Trade deficits are part of the puzzle. If we import more than we export, it can lead to shrinking domestic production, job losses, higher deficit spending.” ([02:10])

• Asit Sharma:
  “The short term consequences are going to be a hit to earnings for many companies because the tariffs are effective.” ([04:37])

• Liz Ann Saunders:
  “Panic is not an investing strategy.” ([25:31])

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Conclusion: This episode of Motley Fool Money provides a comprehensive analysis of the recent tariff announcements and their multifaceted impact on the global economy and U.S. stock market. The hosts, alongside expert guest Liz Ann Saunders, offer insights into navigating market volatility, strategic investments, and the importance of diversification. Lighthearted segments and stock recommendations add a balanced mix of information and engagement, making it a valuable listen for investors seeking to understand and adapt to current economic challenges.

Transcript

[Ron Gross]

Did someone say tariffs? Motley Fool Money starts now.

[Jason Moser]

Everybody needs money.

[Ron Gross]

That's why they call it money. From Fool Global headquarters.

[Jason Moser]

This is Motley Fool Money.

[Ron Gross]

It's the Motley Fool Money radio show. I'm Ron Gross, sitting in for Dylan Lewis. Joining me today are senior analysts Jason Moser and Asit Sharma. Fools, how you doing?

[Jason Moser]

Ron? How you doing?

[Asit Sharma]

Doing all right. Ron, how you doing?

[Ron Gross]

I'm well, guys, today we're going to talk earnings, acquisitions and partnerships. But we must begin with the big macro and it's a doozy. On Wednesday afternoon, the Trump administration revealed the details around what it is calling reciprocal tariffs, which, by the way, they are not sending the stock market down sharply on Thursday and Friday. Jason, let's unpack this. What did the administration actually announce and what are they actually trying to achieve?

[Jason Moser]

Yes, a very hectic couple of days. Very understandable for investors to be on edge here. I think we go back to the beginning here and ask why is this happening? If you remember, this all started really with Canada, Mexico and China. Tariffs were brought to the table as a way to help control border issues, concerns of fentanyl crossing the border and whatnot. But now it's obviously gone virtually global with about 180 countries in play here. There's maybe 195 countries in the world, Ron. So that's a lot. To me, I think trade deficits are part of this. I think there's a lot that has to do with this. It's not just one thing and it can be confusing. But trade deficits are one piece of the puzzle. I think here that's where we as an economy, we import more than we export. You like to see more of a balance there. But right now we're just importing more than we're exporting. That ultimately can lead to things like shrinking production domestically, job losses, higher defic deficit spending. One thing to note here too, in regard to that, while we've heard the word reciprocal a lot in regard to these tariffs, they don't really seem like they're necessarily reciprocal. You got this 10% number that applies to everyone, but then you got a lot of other countries they deem as bad actors where these numbers are all over the place. It seems that many of these tariffs are adhering to a calculation based on these very trade deficits. That's one way to look at it. This is just something to keep in mind. There are those who believe that he may at least in part be doing this to ultimately try to bring interest rates down during recessionary Times that tends to be the case. They want to free up spending, make life a little easier for consumers. It would allow to refinance much of the higher cost national debt. We have, I think about $1 trillion in interest payments on the federal debt alone this year in 2025. Now, I'm not saying, saying that's what he's doing. I'm saying that line of thinking exists. Ultimately, I think what that leads me to is there are a lot of reasons why this is going on and there's all sorts of speculation out there. I think it's worth investors kind of pulling back a little bit and saying, you know what, there's a lot going on. I want to make sure, I acknowledge there's a lot of stuff that I don't know here. If you peruse social media, there are a lot of experts out there these days, Ron.

[Ron Gross]

So we want to try, stay away from social media.

[Jason Moser]

Want to try to be a little bit humble about this. Remember, there are a lot of things that we just don't know. This is just a very complex process. I suspect it will get worse before it gets better. But I think it's interesting to note we already saw where Vietnam is out there saying, hey, we want to negotiate and bring these tariffs down to zero. Lo and behold, right now you see companies like Nike and Wayfair and even Under Armour in the green today on what is otherwise a very, very red day.

[Ron Gross]

Stocks are obviously getting slammed. Not all of them, but most of them. What do you think the short and midterm consequences are for US Companies? And then I'll ask you, what should an individual investor do?

[Asit Sharma]

If anything, the short term consequences are going to be a hit to earnings for many companies because the tariffs are effective. This morning we heard that China is going to have retaliatory tariffs of 34%, which is the effective rate that they've been slapped with. And there's no easy way in the short term to navigate these waters. So we can just expect that the landscape of earnings is going to be pitted with mea culpas. And those mea culpas really won't be about we didn't conduct our business correctly. It's going to be about, well, we just didn't see this risk. It came out of the blue. We expected some tariffs, not this much for individual investors. What's going to be the impact is we're going to see lots of security valuations near term across the board get whacked because it's very confusing right now as details emerge as negotiations happen, then we'll start to see some companies bouncing back and some that now are going to have longer term effects. They'll still be relatively underwater. My caution here to investors is not to just jump out of the market out of fear unless you really need that money or have to make that personal decision to get out. Let this take its course and study it as we go along. We'll be doing that here at the Motley Fool. There may also be some opportunities going forward.

[Ron Gross]

And I'll remind investors that 100% of the time stocks have come back, rebounded and moved higher through wars, depressions, pandemics. I don't see any reason why this would be any different. And if it is, we've got more to worry about than stock prices. So I think there's some optimism you can take based on history. All right, let's move on to some earnings. On Wednesday, RH reported fourth quarter earnings that were worse than expected. And CEO Gary Friedman actually used the S word on a call with analysts when he saw that his stock was down 40%. So asit the stock got smacked on the tariff news. But how did the quarter actually look to you and how bad will the tariffs hurt rh?

[Asit Sharma]

The quarter looked fine, Ron. The top line, we saw an increase of about 10%. So RH booked about 812 million bucks on that revenue line. But earnings per share of $3.92 was about 25% below the consensus estimate estimate. So more in costs than investors were expecting. Bottom line didn't look as healthy and the stock would have been for a bad day. But this was being released and talked about in the conference call at the same time that President Trump was rolling out his tariff structure in the Rose Garden, as you just alluded to. CEO Gary Friedman asked his colleagues to pull up the screen while he was talking to analysts so he could see the stock price. And he said, oh, shizzles. Well, we can abbreviate that.

[Ron Gross]

Yes, fascinating.

[Asit Sharma]

Put a few asterisks by to quote, oh, blank. I just looked at the screen, the reason that the stock was getting hammered and as you pointed out, hey, we've been transparent in our sourcing. 72% of the goods that RH brings into the US come from Asia. I will point out 35% from Vietnam, 23% from China. As Jason pointed out, when Vietnam came out today and said we want to negotiate, suddenly rh, which that stock was down considerably again today, shot up a bit. I'm not sure it's quite green yet, but I Wanted to point out a few things really quickly. First of all, Gary Friedman is such a colorful character. He also quoted Pablo Picasso and Teddy Roosevelt in that same conference call. But the company is a little stretched in my eyes. They've taken on about $2.6 billion in debt over the last few years to buy back shares. They only have $400 million in working capital. They've got negative free cash flow because they're spending a lot to build out these great flagship stores. So the company is a little stretched right now. You may be tempted to maybe buy on the dip here, but with those headwinds from tariffs and with the company's balance sheet, I'd be a little cautious here.

[Ron Gross]

Sounds good. On Tuesday, mortgage giant Rocket Companies moved one step closer to becoming a one stop shop for homeowners when it announced it would acquire Mr. Cooper Group, the country's largest mortgage servicer, for $9.4 billion. And Jason, investors must have liked this deal because Rocket shares were actually up on the news. Not something we typically see from the perspective of the acquirer. Do you agree? Is this a good deal for Rocket?

[Jason Moser]

I think at least it makes sense when you consider what Rocket is ultimately trying to build. There's an important quote from the call. CEO Varun Krishna said home search, brokerage, financing, title closing and servicing should be seamless, but today they're not. I think we could all probably agree there as homeowners. But then he went on to say, if we truly want to fix that, we have to own the client experience from beginning to its true end. That's what this deal is really all about. In my eyes. The combined company would service about one in every six mortgages here in the US and that would ultimately equate to about $2.1 trillion in loan volume. Then one final point. Housing market activity has dried up since 2021. It's its lowest level since 1995. There's a catalyst on the horizon here when housing starts to improve. Not if, Ron, when. We just don't know when that's going to be. But when it does, that could serve as a nice catalyst for this combined entity and really make more sense of the deal.

[Ron Gross]

Sounds good. Coming up, we'll talk gaming, fintech and a bit of a stumble for Tesla. You're listening to Motley Fool Money.

[Liz Ann Saunders]

Incoming transmission.

[Matt]

Hello, my name is Matt.

[McKinley]

And I'm McKinley. We are the father son team that brings you History Dispatches.

[Matt]

History Dispatches is a short daily history show where we talk about topics from all over the world and all throughout history, we talk about people, places, events, and even objects.

[McKinley]

While anything is fair game, we have a soft spot for the weird, the wacky, and the obscure things you may have never even heard.

[Matt]

Do you have any examples?

[McKinley]

How about Wojciek the bear who rose to the rank of corporal in the Polish army? Or the Great Emu War? Or how about the biggest treasure take in the history of piracy?

[Matt]

That sounds cool, but do you have a story about the head of Oliver Cromwell? Or one about the ancient library of Alexandria? And a story about the first woman to climb Mount Everest would be cool.

[McKinley]

Well, we got those as well. Every weekday there's something new and fun.

[Matt]

Sweet. So how do I get this trove of goodness?

[McKinley]

All you have to do is go to history dispatches.com or just look for History dispatches in your favorite podcast app.

[Dan Boyd]

We don't need no education.

[Ron Gross]

Welcome back to Motley Fool Money. I'm Ron Gross here with Jason Moser and Asit Sharma. On Tuesday, Roblox launched a new format of video advertising on its gaming platform and announced a partnership with Google to help boost the growth of its developing ad business. Gamers can choose to watch video advertisements up to 30 seconds long in exchange for boosts, lifelines, or resources in a particular game through rewarded videos and asset. I know next to nothing about this space, but it seems to actually make good sense to me. What's your take?

[Asit Sharma]

Yeah, fellow old timer makes good sense to me too. I mean, we came up in an age where you put a quarter into a machine to play a video game and there was for the longest time, no way to extend your lives. After a while, they figured out you could put another quarter in and that was a way to get more lives. But yeah, I think this makes sense from a business perspective. I mean, the demographic they're trying to target here is Gen Z, which is all into this thing called immersive experiences where you take on a Persona and you play with other people in your Persona. So this is the immersive ad space. Now that's sort of like paradoxical because if you're immersed in your Persona, are you going to step out of that Persona and remove the veil of illusion to watch an ad and then continue playing?

[Ron Gross]

Perhaps.

[Asit Sharma]

But I tell you what, the teenage mind is really good at this. Going from fantasy to reality, back to fantasy. So I get that and I also get the stats that Roblox released in the test they've done of these 30 second full screen video ads. Ron A completion rate of over 80% with some experiences seeing a 90% completion rate, which means the kids are sticking through. This is a really great way to tap into that programmatic style advertising space and really get to that gear that Roblox has for a long time been predicting it could hit.

[Ron Gross]

On Tuesday, Fintech company Encino's shares got absolutely smacked after reported weak fourth quarter results and issued guidance for the current year that fell short of Wall Street's expectations. Jason, the shares were down more than 30%. Was it really that bad of a quarter?

[Jason Moser]

No, it was a heavy reaction for sure. But I thought these were pretty encouraging results. The company hit their targets on everything save one item which was non GAAP earnings per share. That was just essentially due to the currency impacts. But as always, investing is about the future and the market wanted more than the guidance leadership provided for the coming year. As a reminder, encino is a SaaS company that provides cloud based software to financial institutions in the US and internationally. We're talking customers like bank of America, Barclays, Santander, TD Bank. Revenue for the quarter up 14% from a year ago. Subscription revenue up 16% from a year ago. I thought these metrics were really impressive, these customer metrics. They ended fiscal 2025 with 549 customers that contributed greater than $100,000 to subscription revenues for the year. That was up 10% from a year ago. Of those 105 contributed more than $1 million. That was up 22% from a year ago. And 14 contributed more than $5 million to subscription revenues. That was up 27% from a year ago. These guys are growing. Again, it was just about the guidance. It's not profitable on a GAAP basis. While they're technically cash flow positive, if you account for stock based compensation, it's not expect volatility with this one, but it does seem like a good business that's doing a lot of good things.

[Ron Gross]

I haven't looked at valuation, but I'm guessing it was priced somewhat to perfection. And that's why people kind of head for the hills when they didn't get the future guidance that they needed.

[Jason Moser]

I think that's safe to say. Yep.

[Ron Gross]

On Monday, OpenAI announced that it had raised up to $40 billion in new funding from investors led by SoftBank Group. Valuing the ChatGPT maker at $300 billion. Said OpenAI is not getting all of this money up front. It's got some work to do.

[Asit Sharma]

Yeah, yeah. So they're going to receive $10 billion upfront from SoftBank and its syndicate partners. But look, OpenAI, if you want this next $30 billion, you got to get out of this nonprofit business, not for profit business. What this means is OpenAI has been saying for a while that it's going to convert to for profit status. And so basically the deal is, look, go ahead and complete that by the end of the year and you'll get the rest of your money. Because who wants to throw t tens of billions around for a nonprofit to keep growing and making money?

[Ron Gross]

Am I right that Elon Musk has been very vocal about that? He does not want that to happen in terms of turning into a for profit.

[Asit Sharma]

Yeah, so there's some back history here. Elon Musk was an original investor in OpenAI and famously parted ways with Sam Altman. So he's been doing everything he can to detract from their success. Not just with his words, but of course he's invested tens of billions of dollars of money he's raised into his own AI platform, the now well known Grok feature. And you know, ChatGPT just keeps on just trudging along. And honestly, some days are really great versus some days that are bad. A really great day, I'll just quickly say here was just a few days ago with a release of this viral feature that lit users on the free version make like Studio Ghibli type images. They added as many users in an hour as they did in their first several weeks, if you remember when they went viral in 2023. So another day at the office in some ways for Sam Alton.

[Ron Gross]

Just yesterday, ChatGPT helped me re landscape in my backyard. I now know more about Blue Star junipers than I ever thought I would know, but it was actually fantastic.

[Jason Moser]

Well, we use these tools all the time on the team and what I'm finding is there's a lot of parity there. They all work pretty well. Ron, what's your AI interface of choice? Are you a ChatGPT guy? Are you a Gemini guy or Grok guy?

[Ron Gross]

I like Gemini on my phone where you can keep it on live and have conversations back and forth with it. If I'm on my computer and I'm typing, then I'm a chatgpt guy.

[Jason Moser]

What about you, Asit?

[Asit Sharma]

Claude's my friend.

[Ron Gross]

Claude.

[Jason Moser]

Okay.

[Asit Sharma]

Good old Claude. I use a few of them, but I think Claude is my favorite.

[Ron Gross]

Sounds good. On Wednesday, Tesla reported that its first quarter sales fell 13% to the weakest in nearly three years, hurt by a backlash against CEO Elon Musk's politics, increasing global competition and people waiting for a refresh to its highest selling electric vehicle, Model Y. And Jason Tesla's stock price has basically been cut in half since the end of 2024. And one analyst actually called this a fork in the road moment for Tesla. So where do you think Tesla goes from here?

[Jason Moser]

I think that depends on exactly where Musk goes from here. But, yeah, those numbers were not encouraging. Investors were expecting Tesla to report deliveries around 365,000 at the midpoint, coming in at 336,681. And certainly questions about the competitive landscape going forward. Now, there were some partial factory shutdowns as the company upgrades its production lines to get that new Model Y going. So that will take a little time. But I think there's this news that Musk may be moving away from Doge here soon and focusing more on his companies again. Honestly, I think that's the right call. The question is, is it too late? His big political presence has made his bed, so to speak, and he's laid his cards on the table there. The question is, is that a permanent loss of capital, so to speak? I don't know. Time will tell there. It's clearly become a far more competitive market. That's one question. But the other, I think, is just in regard to the reputational risk and what kind of impact that will ultimately have. I think they can get by it, but we may need to pack a lunch because I think it's going to take a little while.

[Ron Gross]

Musk has been very vocal that the attention that he's been putting towards government work has hurt the company, has hurt the stock. And I think investors would most likely.

[Jason Moser]

Agree with that, no question.

[Ron Gross]

All right, fools, we'll see you a little bit later in the show. Up next, a conversation with Charles Schwab's chief investment strategist, Liz Ann Saunders, on some lessons from past market corrections that can help investors with this one. You're listening to Motley Fool Money. I guess you have to have a problem if you want to, then a.

[Asit Sharma]

Contraption.

[Ron Gross]

First to cause a train wreck. Then they put me in traction. Welcome back to Motley Fool Money. I'm Ron Gross. Liz Ann Saunders is the chief investment strategist at Charles Schwab. The Motley Fool's chief investment officer, Andy Cross, caught up with Lizanne for the Fool's Market Volatility Summit. They break down why markets were surprised by the Liberation Day tariff announcements and how she is guiding clients right now. Motley fool members can access the full interview and replays from the [e-mail] Liz.

[Dan Boyd]

Ann Gosh we're so fortunate to have you today. Thank you for being here. I know you've been all over the place talking about these and it's just a real pleasure to have you. So we gotta start with what you're seeing today in the markets as a reaction to the scope of that tariff policy. How are you interpreting what we saw and what guidance are you giving to investors who are trying to navigate all this news and the market when they look out the next few years?

[Liz Ann Saunders]

Well, you know, there were a lot of scenarios that were laid out in advance of yesterday's announcement, usually characterized as, you know, base case, best case, worst case. And I would say the base case was something more along the lines of some sort of blanket tariff at maybe some percent that was still lofty but could be navigated around. The worst case scenario was some sort of reciprocal tariff structure, plus maybe against vats. We went well beyond what was announced was well beyond any worst case scenario that I saw laid out, especially given what has caused a lot of consternation over the last less than 24 hours, which is the math behind the numbers, the percentages that were declared. And that being just an import export relationship relationship, not about trade barriers, not about tariffs. And now everybody is doing the digestion of, okay, this is massive. What is the hit to the US economy? What is the hit to the global economy in a backdrop where we were already seeing pre liberation day weakness showing up not just in the soft economic data, but the hard economic data. So recession probabilities have gone up. And then the other I think takeaway is even though you saw a big jump in probabilities that the Fed might have the ammunition to move back to easing mode maybe as soon as the May meeting, it begs the question, well, how does that type of stimulus actually help under these tariff set of circumstances? And I'm not sure anybody has a good answer for that. So there's a lot that's going on into the market action today, but clearly it's ugly.

[Dan Boyd]

On a scale of 1 to 100, one being, oh, we were completely, completely shocked and surprised by what came out yesterday from the White House. And 100, like, no, we added 100%, we got everything right. Where do you think the investing analysts in the investing world is? How, how surprised were we with what came out yesterday?

[Liz Ann Saunders]

I got to think maximum a 10 out of 100. Yeah, I think, yeah, I think it was a huge surprise. I didn't see any prognosticator lay out this scenario.

[Dan Boyd]

And do you think, is there, is there something that that the market is. Is missing. How, how right do you this right now when you think about the stocks today?

[Liz Ann Saunders]

I don't know that the market is missing anything. I think when you think about corrections that have happened throughout the course of history and we clearly already had a correction and now we're making that more significant courtesy of the action today and you look at those historical corrections that have bottomed out within that sort of correction territory and then recovered versus corrections that morph into bear markets. And every cycle is correction is different in terms of its drivers and what might be the differentiator. But if there's one clear differentiator of corrections that stay just that or corrections that morph into bear markets, it's recession. And so as a result of a pretty big acceleration in recession probabilities that develops the weakness in the market and elevates concern rightly so for this morphing into a bear market. Not, not just a correction. And I think that the correction as it stood probably did have priced in what might be deemed the best base case scenario that existed prior to 4:00 yesterday. I think even at this point we're not quite at okay, it's discounting most of the negative implications of what was announced. Now we're just dealing with digesting the actual announcement. The hard work now comes in figuring out just how much damage this is going to do to the US economy and or the global economy.

[Dan Boyd]

And so Liz Ann, how do you think about guiding and talking to clients today or to or to our listeners or our viewers of this? As we're thinking we're long term investors at the fool, we're trying to look out three, five years and plus and now we're digesting this news of stock prices today and trying to figure out how do we take this information into it to make decisions.

[Liz Ann Saunders]

Well, when you're sort of of thinking right in the moment on a day like today, what do I do right now? Maybe the best piece of advice is a reminder that panic is not an investing strategy. I think maybe the type of advice that we always give and certainly have been giving over the past year or so, things like don't have all your eggs in one basket, whether that was all US equity exposure versus not having any international exposure or letting your magnificent seven exp get to a point where you had as big a concentration problem as the S&P 500 did or just staying all in on tech and tech adjacent. So it's sort of our perpetual reminders. And this is not me saying hey, we were telling you that this was going to happen. It's just those tried and true disciplines, including rebalancing and trimming. When you have profits and when asset classes get outsized as a weight in your portfolio, driven by excessive outperformance relative to other components of the asset classes, it's those types of moves that sort of help investors ride through a difficult period. What specifically we have been saying, particularly as we came into this year anticipating that we were going to see an increase in volatility, that we had policy related risk ahead of us, was to not only continue to stay factor focused, as you know, Andy, we've been very factor focused. So invest based on characteristics. But we didn't shift our attention away from sort of a quality wrapper around factors. Strength of balance sheet and stability and profit margins and high interest coverage, those traditional quality based factors. But really, Sudan, you may want to consider adding factors like low volatility in a backdrop that we anticipated would likely be a bit more volatile. So that's the way we have suggested investors navigate within the swirl of the US equity asset class, but also reminding investors why it is beneficial to have diversification outside of just US equities. And I often say sometimes we learn the hard way that there's a peril to not going through those disciplines, especially around rebalancing, because rebalancing forces us to do a version of what we know we're supposed to do, which is not so much buy low, sell high. That sometimes sends a message of get in, get out, which is not an investing strategy. But add low, trim high, and it just makes the ride a bit smoother. But we sometimes forget about those disciplines when we're riding high on certain asset classes or segments of the market that are doing well.

[Dan Boyd]

Yeah, we need to have some of our spinach to go along with that chocolate mousse that we've all enjoyed. And as you mentioned, international exposure too, because international has really kind of lagged the US over the last, I don't know how many years, quite a few years.

[Liz Ann Saunders]

But you do tend to go in multi year cycles of either US outperformance or international outperformance. They have secular cycles. And we were saying last year, be mindful of not keeping all your eggs in the US basket, that there were signs that we could see a shift underway. My colleague Jeff Kleinhop talks about that because that's his bailiwick, the international side of things. And we don't know for sure whether this is truly the beginning of a secular cycle in favor of non US but it certainly was a support for a remind of the benefits of international diversification.

[Dan Boyd]

And just. Liz Ann, just one more question on the tariffs, then we'll get to some more general topics. But when you look at the tariffs and you think about all the factors that are going into that, do you have any key questions that you're asking yourself or thinking about the markets today that we can all learn from?

[Liz Ann Saunders]

Yeah. So I guess there's been a lot of focus on the math behind what was announced yesterday, not all of it in a positive way, given that we're not really talking about reciprocal tariffs here. The math was basically comparing what the United States exports with a country to what the United States imports from that country. And here's an example. I think the highest tariff rate as it was defined on that table was against Cambodia. So goods being imported from Cambodia to the United States, I think their biggest export is something in the textiles and garment area. Well, Cambodia is a pretty poor country. They have about a $7,000 per capita GDP compared to, I think, 85,000 for the US so part of the reason why they export more to us in dollar terms than we export to them is because they're an incredibly poor country. They can't afford what we have to export. Services, innovation, technology. But their ab build an export market in things like textiles has helped their economy and given something for their workers to have in terms of the ability to earn wages. So the real question associated with that is not so much why do you want to punish a country like that? But the question is more okay, when you talk about what concessions the United States might want from these countries on which there's been a high tariff applied to their exports is how do you negotiate there? What is a concession that a Cambodia or a Sri Lanka or a Madagascar or a Bangladesh or even a Vietnam can offer in order to bring those tariffs down. And that's where I think the question should start to get geared toward. But so far you're only seeing that on the periphery.

[Dan Boyd]

When you think about all of the experiences you've had as the chief investment strategist at Schwab for, gosh, almost 25 years and many more years in the industry too, you've been through certainly bear markets and pullbacks before. Any learnings this the what is driving this one is different than all the rest. But there are things that might rhyme with it or learnings that individual investors can take away. What are you hearkening back to from your experiences?

[Liz Ann Saunders]

Yeah, and you're right. Every bear market, every Recession. Every crisis has different characteristics associated with it. What we're at least not facing right now is some sort of financial system crisis or certainly not like a policy era of the monetary variety, which can often be a precursor to problems and sometimes they're related in terms of when you get a crisis within the financial system. This is sort of a policy choice that has significant economic dislocations. And I think what makes this a unique environment is that given the increased probability of recession happening sooner rather than that would generally mean you unleash looser monetary policy on the part of the Fed. And they probably will do that if the deterioration in the economy, particularly the labor market, is significant enough. But that also means they would be potentially fighting against the other part of their dual mandate, which is the inflation side, which this tariff policy has implications for that. So it does put the Fed in a somewhat unique position in trying to battle stagflationary type backdrop with traditional monetary policy tools. I also think that there are maybe some memories of the 2000, 2001, 2002 period that should be thought about in the context of what we're experiencing today. Because in 2000 at the peak in the market at that time, households exposure to equities was at an all time high. So the 2001 recession that ultimately happened I think wouldn't have happened were it not for the bear market and stocks. We didn't have a lot of economic dislocations, we didn't have a financial system cris crisis. We had a serious wealth effect crisis by virtue of the bear market and stocks. And I think that needs to be considered today too because we have an even higher share of exposure to equities by households, an all time record high. And at every income level over the last several years you've seen an increase in exposure to equities, whether it's through direct holdings or 401ks or pension plans, whatever that exposure looks like. So I think this the tentacle from market performance to economic performance is a bit tighter than we've seen in the past, save for maybe that 2000 to 2001 period.

[Ron Gross]

Coming up after the break, Jason Moser and Asit Sharma return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money.

[Asit Sharma]

Don't worry about us then.

[Dan Boyd]

Gonna be alright.

[Ron Gross]

As always, people on the program may have interest in the stocks they talk about and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All Personal finance content follows Motley fool editorial standards and are not not approved by advertisers. The Motley fool only picks products that it would personally recommend to friends like you. Welcome back to Motley Fool Money. Ron Gross here with Jason Moser and Asit Sharma. Fools. We've got time for one quick story before we hit stocks. On our radar, Subway is adding nachos to its menu, but with an unusual twist. The chain is partnering with Doritos to sell foot long nachos for $5. The new dish is freshly prepared using nacho cheese flavored Doritos, cheddar cheese, jalapeno slices, diced tomatoes, red onions drizzled with chipotle sauce. You can get a scoop of chicken or steak for no extra charge or a scoop of avocado for an additional cost. Jason, are you in?

[Jason Moser]

Ron, I absolutely tip my cap to Subway for experimenting and trying new things. I mean, that's what this is all about. And I love the fact that they're leveraging materials that they've already got there. I mean, they can do what amazing. Million bags of Doritos in those stores anywhere you go, right? I have one little hold up here, something I've got a nitpick about. How in the world are you using cheddar cheese on these things? I mean, that just sounds absurd. It just sounds like you don't know what you're doing. I mean, it just doesn't melt good. I mean, it's queso or bust in my eyes.

[Ron Gross]

Asset.

[Asit Sharma]

Kids, I know times are hard and this comfort food looks good, but look, buy yourself a party bag, size of Doritos, take it home, get you some Cheez whiz. If we're going to go cheddar here, generous handful, throw it in a bowl, do all this stuff at home, you'll save a lot of money and frankly, a lot of time.

[Ron Gross]

Dan, can I entice you into trying this?

[H]

No. Subway is terrible. I will not go.

[Ron Gross]

Well, there you have it. Okay, time for stocks on our radar. With a couple minutes left, I'll bring in our man Dan Boyd to ask a question and pick his favorite assit. You're up first. What do you got?

[Asit Sharma]

Speaking of food, let's talk about doordash symbol D A, S H. This company may seem like not a great stock to have on your radar as consumers start pulling back on those discretionary spends. But hear me out. This is a free cash flow monster. Generated $2 billion of free cash flow in the last 12 months. It has a stellar balance sheet with about $3 billion of working capital, no long term debt. Better yet, doordash is proving itself out. I think Uber Eats has been losing a little bit of ground and so with this expansion into retail deliveries, doordash is looking good. Last, lastly, just inked a deal with Domino's of all chains to bring pizzas to your door.

[Ron Gross]

Dan, you got a question about DoorDash?

[H]

No, but I do have a comment. All I want to say is never underestimate the laziness of the American consumer.

[Ron Gross]

Love that. Jason, you're up. What are you looking at?

[Jason Moser]

Sure. Taking a look at Pure storage. Ticker is pstg. A pure storage. Storage might fly under the radar of many investors, but I'm actually very excited about its data storage opportunity because that's what they do, Ron, they're in data storage. The value proposition is pretty simple. Data centers consume a lot of power. But pure storage has an all flash alternative to the traditional data storage methods. And like the hard disk drives and whatnot, that ultimately helps lower data centers power consumption. Therefore the total cost of owners ownership, not to mention positive environmental impacts. It's profitable, it's cash flow positive, they've got a healthy balance sheet. Brian, the stock just hit surprise, surprise. It's 52 week low this week. It's starting to get on my radar. There's one that several of our analysts here at the fool like a lot. It's one that I'm continuing to keep an eye on.

[Ron Gross]

Dan, question or comment?

[H]

Not going to lie. I thought when you, you brought this to the radar here, Jason. I thought it was going to be a physical storage company like you know, you see on the side of the road and everything. And I got excited because I understand that business. But then I read a little bit more and it's data centers and I'm like what?

[Jason Moser]

What?

[Asit Sharma]

Jason, count me as one of the fans of this business.

[Jason Moser]

Data matters, Dan. Data matters.

[Ron Gross]

So Dan, what are you going to put on your watch list? We got Pure Storage and Doordash.

[H]

I'm not putting doordash on because I have integrity. I do not use doordash. So we're going to go pure storage.

[Ron Gross]

All right, thanks fools for being here. That's going to do it. For this week's Motley fool money, our engineer is Dan Boyd. I am Ron Gross. Thanks for listening. We'll see you next week.