Motley Fool Money: "There is No (Convenient) Alternative" – May 19, 2025

Hosted by Dylan Lewis, Ricky Mulvey, and Mary Long

Introduction

In this insightful episode of Motley Fool Money, host Dylan Lewis and Motley Fool analyst Asit Sharma delve into the recent downgrade of U.S. debt by Moody's, exploring its implications for investors and the broader economy. The discussion extends to the impact of rising interest rates on corporate finance, the interplay between tariffs and national deficits, and the evolving landscape of the S&P 500 with Coinbase's inclusion. Additionally, industry expert David Henkes joins the show to shed light on the challenges facing the restaurant sector. This comprehensive analysis offers listeners a nuanced understanding of current financial trends and their potential long-term effects.

Moody's Downgrade of U.S. Debt

[00:57] Dylan Lewis opens the discussion by highlighting Moody's recent decision to downgrade U.S. debt, following similar actions by S&P and Fitch in previous years. He poses a critical question to Asit Sharma: Is this downgrade merely symbolic, or does it signify a substantial shift in the economic landscape?

[01:20] Asit Sharma responds, “I think it's in between, Dylan. So they changed the debt rating from capital A2 lowercase A's or AAA to capital A lowercase A1. That's a slight difference, but it is a notch down and it does join its peers which had already taken the US out of their top tier rating bucket.” Sharma emphasizes that the downgrade reflects long-term concerns such as elevated interest rates and the growing national debt, issues that have been escalating over several years.

[02:47] He further explains, “This shouldn't be a surprise to investors. And in fact, after some initial, I think, sell off in the futures this morning, things stabilized as market sort of realized. Well, everyone knows the situation the US is in.” Sharma asserts that while the downgrade is significant, the U.S. remains the preeminent global reserve currency, mitigating immediate concerns.

Impact on Corporate Finance

[04:33] Transitioning to the impact on corporate finance, Dylan Lewis notes the immediate effect of the downgrade on debt yields, particularly the spike of the 30-year treasury above 5%.

[04:56] Asit Sharma articulates the broader implications: “Corporations utilize debt in two ways. ... short term interest rates rising has made commercial paper more expensive.” He elaborates that increased borrowing costs constrain companies' abilities to invest and operate efficiently, leading to a cascade of economic challenges.

[06:22] Lewis aptly describes the situation as “the financial Rube Goldberg machine,” to which Sharma agrees, highlighting the interconnectedness of financial elements and their cumulative impact on the economy.

Tariffs and Deficit Relation

[07:10] The conversation shifts to the "Sell America" tariff initiative, with Dylan asking Sharma about alternative investment destinations amid U.S. economic uncertainties.

[07:10] Asit Sharma responds emphatically, “Dylan, there is no convenient alternative.” He discusses the potential for investors and governments to diversify into markets like Europe and Asia, hinting at a gradual shift away from U.S. dominance in global finance.

[09:05] The dialogue then moves to Secretary of Treasury Scott Bessant's interactions with Walmart regarding tariffs and their broader impact on the U.S. deficit.

[09:31] Sharma provides a detailed analysis: “Walmart is a company that does about $680 billion worth of business in a year... It's about the experience you have through servers.” He underscores the delicate balance Walmart must maintain between absorbing tariff costs and maintaining profitability, emphasizing the broader economic implications of such corporate decisions.

S&P 500 Update: Coinbase Joins, Discover Exits

[13:17] In a symbolic move, Dylan Lewis announces the inclusion of crypto exchange Coinbase into the S&P 500, marking a significant milestone for the cryptocurrency sector. He juxtaposes this with Discover's exit following its acquisition by Capital One, highlighting a narrative shift within the financial services landscape.

[13:49] Asit Sharma reflects on this development: “Coinbase has been very key in driving the industry forward... it shows how far they have come as a business.” However, he also cautions about the volatility inherent in the crypto market, noting, “if you see another crypto winter, ... it could happen.”

[16:03] Lewis succinctly summarizes, “If you are a crypto lover, if you are a crypto hater, if you own the index fund, you now own crypto exposure.” Sharma concurs, emphasizing the pervasive influence of cryptocurrency in mainstream financial instruments.

Challenges in the Restaurant Industry

[17:56] Shifting gears, Ricky Mulvey hosts David Henkes, Senior Principal at Technomic, to discuss the significant drop in restaurant patronage, particularly during lunch hours.

[18:43] David Henkes contextualizes the decline, stating, “the restaurant industry is struggling right now... consumers have really pulled back from restaurants over probably the last 12 to 18 months.” He attributes this to factors like inflation, menu price increases (~30-35% higher than pre-pandemic), and economic uncertainties exacerbated by tariffs.

[20:47] Mulvey shares his observations on consumer behavior, including the frustration with automated ordering systems and the fatigue from pervasive tipping requirements.

[21:42] Henkes adds, “the US has a tip fatigue problem... consumers have really noticed higher prices and have pulled back.” He highlights the strain on restaurant economics, where increased operational costs are often shifted to consumers, further dampening patronage.

[23:32] The discussion turns to the disparity between large chains and independent restaurants. Henkes notes, “the pain is being most acutely felt by the smaller mom and pop independent restaurants,” though even major chains like McDonald's and Starbucks are not immune.

[25:15] Highlights of specific chains' performances reveal a mixed landscape:

• Chili’s experiences a remarkable 31% increase in same-store sales, attributed to effective marketing, relevance to younger consumers, and a robust barbell strategy offering both value and premium options.
• Taco Bell also shows resilience with a 9% rise, whereas giants like McDonald's and Starbucks report declines of 3.5% and 2%, respectively.

[28:09] Mulvey commends Chili’s strategy, contrasting it with Applebee's struggles, and Henkes emphasizes the importance of relevance, customer experience, and adaptive management in driving success amid challenging economic conditions.

Closing Remarks

As the episode winds down, Henkes shares his personal favorites in desserts, adding a light-hearted touch to the comprehensive discussions. Dylan Lewis takes a moment to announce his departure from the hosting role, expressing gratitude to listeners and the Motley Fool community.

[32:49] Mulvey humorously reflects on the demanding tastes they discussed, underscoring the diverse consumer preferences that restaurants must navigate to thrive.

[33:25] Lewis closes with a heartfelt farewell, highlighting the value of time and the importance of informed investing, leaving listeners with a thoughtful sign-off.

Key Takeaways

• Debt Downgrade Implications: Moody’s downgrade of U.S. debt signals long-term fiscal challenges, affecting interest rates and corporate borrowing costs.

• Corporate Financial Strain: Rising interest rates constrain corporate investments and operational flexibility, posing broader economic risks.

• Tariff Effects: Tariffs contribute to national deficits and place operational pressures on major corporations like Walmart, balancing profitability with economic policies.

• Crypto’s Mainstream Integration: Coinbase’s inclusion in the S&P 500 marks a significant step towards crypto’s legitimacy, though market volatility remains a concern.

• Restaurant Industry Struggles: The sector faces declining patronage due to inflation, menu price hikes, and tipping fatigue, with smaller independents bearing the brunt while select chains like Chili’s and Taco Bell excel through strategic adaptations.

Notable Quotes:

• Asit Sharma [01:20]: “It is a notch down and it does join its peers which had already taken the US out of their top tier rating bucket.”

• Asit Sharma [04:56]: “Short term interest rates rising has made commercial paper more expensive.”

• David Henkes [18:43]: “Consumers have really pulled back from restaurants over probably the last 12 to 18 months.”

• Asit Sharma [07:10]: “Dylan, there is no convenient alternative.”

• David Henkes [21:42]: “The US has a tip fatigue problem... consumers have really noticed higher prices and have pulled back.”

This episode of Motley Fool Money offers a thorough exploration of pressing financial issues, blending expert analysis with real-world implications. Whether navigating the complexities of national debt, the shifting tides of corporate finance, or the nuanced challenges of the restaurant industry, listeners are equipped with valuable insights to inform their investment strategies and economic understanding.