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Risks to the Rally, Scoring Berkshire's Abel, and Wyndham's Win 5/4/26
00:43:26
Strong earnings pushing stocks to record highs despite high oil prices, can the rally keep running? Scoring Greg Abel's first time at the helm of Berkshire's Annual Meeting. Plus, the case for Wyndham Hotels & Resorts as a stealth AI beneficiary.
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- [00:00]
Dr. Guy Winch
Men are struggling with their mental health at some of the highest rates we've ever seen, but most aren't getting the support they need. And that needs to change. I'm Dr. Guy Winch, your host for season three of the Visibility Gap, presented by Cigna Healthcare. This season, we're focusing on men's mental health, bringing together real stories and expert insight to explore the pressures men face every day and why opening up can feel so difficult. Join us for the new season wherever you stream your podcasts.
- [00:30]
AT&T Business Wireless Representative
Not every sale happens at the register. Before AT&T business Wireless, checking out customers on our mobile POS systems took too long. Basically a staring contest where everyone loses. It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sale or two. Sometimes I do miss the bonding time.
- [00:54]
AT&T Business Wireless Announcer
Sometimes AT&T business Wireless Connecting changes everything.
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Kelly Evans
You're listening to the Exchange. Here's today's show. Thank you, Scott, and welcome to the Exchange. I'm Kelly Evans. Stocks are selling off this afternoon on concerns the Iran war will flare up again. Although the small cap Russell's hit a new high earlier, they're down about 1% right now. The S&P 500 is still up 13% from the March 30 lows. And if you're asking why, it's really because of strong earnings. Only 5% of S& P companies have missed estimates so far, according according to Goldman Sachs. That's the fewest in 25 years, excluding Covid. Michael Darda of Roth expects the strength to continue. He points to leading indicators like ism, new orders and credit spreads. Those have all improved year on year. And economist Nancy Lazar says jobless claims another leading gauge are at the lowest relative to the size of the labor force in more than 50 years. Let's bring in Scott Wren. He's senior global market strategist at Wells Fargo Investment Institute for today's opening exchange. So today, Scott, we're balancing worsening possibly outlook for the Iran conflict against an improving one, a much better, better than expected one for earnings.
- [02:10]
Scott Wren
Yeah, you know, Kelly, it's, it's kind of funny because in, in a given quarter, you know, earnings are expected at 10% and they come in at 12%. And that's all well and good, but, you know, as some of the stats you just pointed out show, I mean, these are just some huge beats. And, and I mean, the, the earnings results are crushing expectations. And that's kept, we Know that just the AI related capex and it's trickling through the economy right now. Investors are overlooking these issues with the straight. But certainly there's lots of risks remain there and it's kind of a day by day situation. You and I have talked before. For us, when you look ahead, I mean you have to make an assumption is the strait going to be closed for a long time or not? And we've been under the assumption that it's been of limited duration. Now, has it lasted longer than what we initially thought? It kind of has, but, and it could go a little bit longer. But I think that, you know, both sides don't want to have another all out military conflict. At least that's our take.
- [03:19]
Kelly Evans
Right. And I see that, okay, earnings are better than expected at the same time that we're off the worst. You know, when it comes to the Iran conflict, fine. But you look at that and you go, the supply disruptions are piling up. They said the price of aluminum is up 90% year on year and it's all creating a huge problem for car makers, for instance. So are there problems that are going to come down like over the next couple of months that will make this conflict much more real, especially for investors or no?
- [03:48]
Scott Wren
Well, I, I think I, you know, I think, you know, I think these tensions are over the next couple of months going to abate somewhat. But you know, just before this, this morning I wrote down if you, you know, you're going from price volatility in, in these commodities and the stock market and everything else that we've seen here over the last couple, then pretty soon you're going to be moving into just absolute physical shortages. If you look at what it takes to make fertilizer, to refine copper, sulfuric acid, things coming out of the straight that are used and now there's inventories and supplies and all this. But if this goes on for a bit more, those inventories are going to be used up and you're going to go from price volatility to actual physical shortages. And I think that, you know, that would be a much bigger problem than what we're seeing right now. And you know, certainly prices aren't going to come up if that come off, if that's the situation.
- [04:49]
Kelly Evans
Your biggest overweight, Scott, is actually in financials. Why is that?
- [04:53]
Scott Wren
It is. Well, I tell you, I think Kelly, for us we're expecting lots of deregulation and you know, it'll, that'll help financials, but a couple of other sectors too. But we've been expecting a better economy. We've expecting a lot more IPOs and M and A activity. We've expected the curve to steepen now it's flattened a little bit. The twos to tens have flattened a little bit. But if the economy plays out the way that we think inflation, it might be a little bit higher temporarily. But by the end of next year we've got, you know, we think we'll be close to the mid twos probably. I think financials in that kind of an environment are better. And Kelly, I will say that also. I mean we like utilities and that's more of an AI play but, but we want to lean towards those sectors that are going to benefit from an expansion in the economy. Not just here, but a little bit better growth abroad. And then of course you got to play this AI theme. And we've largely been playing that through the tech sector, through industrials and utilities. So you know, we want to be leaning toward better economic activity as we look out between now and the end of 2027.
- [06:05]
Kelly Evans
What about the consumer? That's the one area consumer retail can be a little bit, you know, and it makes sense. I mean even Dean Mackey this morning of point 72 was writing about how the consumption trends are much weaker than other parts of the economy right now.
- [06:20]
Scott Wren
Yeah, they really are. And I think, you know, as I look back over the last 40 years worth of cycles that I've lived through, the spending typically is always skewed somewhat and sometime powerfully like it is now towards the upper end of the income scale. And you know, maybe once gasoline crosses five doll everywhere on average, that might be a little different story. But I think we talk about the K shaped recovery and all that and I think there is a bifurcation out there and the high end spenders are carrying the boat right now. But I tell you, Kelly, I just spoke a couple of weeks ago at a high net worth investor event where there were 350 people there and I had a lot of conversations before and after I gave my presentation and a lot of these people, people own their own businesses and I mean overwhelmingly these people said business was good. Now were they concerned about energy costs? Sure. But right now business is pretty good and I think you're going to keep seeing the high end consumer spending money.
- [07:26]
Kelly Evans
Yeah, 445 per gallon is now the average. It just ticks up it seems with every passing day. Let's go back to small caps which hit a record high earlier on, at least for the Russell 2000. You like the Large caps, you like mid caps even, but the small caps, you're more unfavorable. And I'm curious why
- [07:45]
Scott Wren
we are. You know, we felt like balance sheets are weaker, their product array is weaker, they have tougher time with financing, they're not buying back shares. And so there's a lot of things that play into that. But clearly the market's been optimistic that we're going to see a broadening in the economy, which of course small caps would benefit from that. But when you look back at most cycles, you know, when you have an earnings contraction, which we haven't had, or you have a very meaningful slowdown at the very least, and probably a recession coming out of that is when small caps tend to outperform. So right now we're at neutral. And as you pointed out, I mean, small caps have done really, really well here. So did we miss a little bit? We certainly did. We're trying to keep an eye on it. But for us, I think that with the growth rates we're expecting, we do not expect small caps to outperform, you know, for an extended period of time from here.
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Kelly Evans
Right. The overall market has done. I think we're at 7200 now for the S and P. Would you rule out 8,000 for this year? We've been asking our guests now that kind of seeing where we are in May relative to a few months ago,
- [08:56]
Scott Wren
for sure it is. You know, we came in, we're looking at 7,500, which, you know, not all that long ago, that looked like a pretty good leap. Now we're right there. So in the way the market's performed lately, could that 7,500 be conservative? I think it could be conservative. We need to see the straight open and we need to see a little bit better economic growth abroad. And if we see both of those things without inflation really climbing much higher than where it is right now, you know, that could be a conservative number. But we're not calling for 8,000. We're not calling for 8,000 this year.
- [09:33]
Kelly Evans
But I'm going to repeat what you just said. The formula for kind of the bull case, let's call it from here, the straight open. Better overseas earnings growth without inflation.
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Scott Wren
Yes. Because right now, I mean, clearly the US earnings just not going to cover off the ball. Now. We need the rest of the world to participate. But you know, the rest of the world's a lot more dependent on exports. It's a lot more dependent on importing energy and things like that. So they're in a little bit different spot. But I would argue that if we can just get a little bit better growth out of the developed world, a little bit better out of emerging markets, you know, with 35 or 40% of the revenues for the S and P coming from outside the country, that's going to help.
- [10:14]
Kelly Evans
All right, Scott, really appreciate it. Thanks for joining us today. Scott Ren Thanks, Kelly, with Wells Fargo Investment Institute. Meantime, we're getting some new headlines out of Iran as the UAE says it has intercepted a missile. Megan Casella is at the White House with the very latest. Megan?
- [10:30]
Megan Casella
Kelly, there's some real signs of escalation in the region today and questions about whether the ceasefire is still intact after reports of attacks both in the air and on the water to the US Military saying just in the last hour or so that Iran has launched missiles, drones and attacks via small boats at ships that the US Is protecting in the Strait of Hormuz. That's according to wire reports citing Admiral Brad Cooper. He's the CENTCOM commander. Cooper told reporters that Iran has attempted but failed to interfere in commercial shipping with those attacks and that the US Military, in response, sank six Iranian small boats that were targeting civilian vessels. Now, that comes after there was some back and forth this morning over traffic through the strait with CENTCOM saying that two U.S. flagged merchants, merchant vessels were able to transit the strait safely, while Iran's Revolutionary Guard Corps said that those claims were baseless and that no commercial vessels or oil tankers had passed through. And then separately, the UAE also reporting, as you mentioned, that it intercepted three missiles fired from Iran, while a fourth, they say, has crashed into the sea. The UAE's Ministry of Defense saying that its air defense systems were fending off Iranian attacks of both drones and missiles. And Kelly, this was the first time that the UAE activated its missile alert system since the ceasefire was struck between the US And Tehran just a little under a month ago. The White House is not so far answering my questions as to whether or not the US Considers any of this a violation of the ceasefire. But the big question that we're waiting for at this point, of course, is just how Washington plans to respond.
- [11:57]
Kelly Evans
Kelly, any other movements, kind of say behind the curtain between the US And Iran?
- [12:04]
Megan Casella
We know that there have been proposals passed back and forth over the weekend. The president said that he was reviewing those. I'll also flag that the president just this hour is speaking with a reporter on Fox News. So we're starting to get some headlines out of that. And the top line there is that he was reiterating his threat that if Iran targets boats in the strait, targets US Flagged boats or ships that the US Is protecting, that they will be, his quote was blown off the face of the earth. So he's upping those threats really and saying that even in light of this proposal, which over the weekend was reported to be sort of a two step proposal, a reopening of the strait while pushing nuclear talks down the road that's happening in the background, Trump does continue to say that conversations are ongoing and that some of them are good. But this threat is really at the forefront, especially to today with these reports of new attacks.
- [12:49]
Kelly Evans
I see. But so far, the president has reiterated his threats against Iranian attacks, as you said that, saying they would be blown off the face of the earth. But as far as we know, the plan that he had announced is still in place.
- [13:03]
Megan Casella
That's right. The ceasefire in name at least holds for now. And I do think it's interesting, Kelly, to just notice that we haven't heard yet from the White House. It's been about 90 minutes now, I would say, since the reports of these attacks that the UAE intercepted these and we haven't heard from the White House. And even though we're hearing from the president so far, I don't think he's reacted to this idea of whether or not the ceasefire is still holding. That suggests just the pause by itself suggests that Washington might want this ceasefire to hold, that they're sort of treading lightly here and figuring out at least wanting to be methodical about how they do respond. You could say that because there are reports of fire, that means there's no more ceasefire. But because they're taking some time to respond here, I think they're being methodical about this and we have to wait and see if they want to respond with the, with further attacks or if the threat remains a threat for now.
- [13:55]
Kelly Evans
All right, perhaps our next guest will weigh in a little bit on this. Megan, thanks very much, Megan Casella, we appreciate it. The war in Iran certainly putting energy independence back in the spotlight as traffic in the strait is still near a halt. We're grappling with the threat of potential oil shortages as well. With WTI around 105 today, let's head out to Milken, the Global Milken Institute global conference where Chevron CEO Mike Wirth is with our own David Faber. David,
- [14:22]
David Faber
thank you very much, Kelly. Yeah, never a bad time to talk to Mike Worth, especially now given all the tumult in world markets. Thank you.
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Bill Stone
You bet.
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David Faber
For taking a moment here at Milken I think you've said this is one of, if not the most significant disruptions to the global energy system that you've seen in 44 years. And so to the extent we're about eight weeks into this conflict, are we any closer or are you any closer to sort of getting a view on what the energy business and the landscape is really going to look like on the other side of this?
- [14:53]
Mike Wirth
I think it's difficult to say with confidence what it looks like on the other side. We're trying to get through this right now. I do think there'll be changes in the energy system on the other side. When you have a big shock to the system like this, typically people sit back and say, okay, were we holding enough strategic reserves? Do we have access to the right trade routes? Do we have the infrastructure in the right place? Are policies incentivizing the right kinds of investment? And so I do think on the other side of this, the energy system will evolve to a different condition.
- [15:25]
David Faber
Can you give me some sense as to what that means?
- [15:27]
Mike Wirth
Well, I think you're going to see a little bit like post Covid, I think countries are going to want more resilient supply chains. Right. For a long time over the last several years, the discussion, particularly in the west, is primarily focused on the environment and climate. Affordability and reliable supply. Energy security are always part of energy, the energy business, but they really dropped off the radar in the public discussion in many places. And I think those topics, whether you're in Europe, whether you're in Asia, whether you're in Australia, those are topics that are going to have to be dealt with. So I think we're going to see countries reassess how they're set up in both the short term and the long term. What exactly that looks like.
- [16:05]
David Faber
Right. Well, we still don't know when we're actually going to get there either. At this point. I believe, and please correct me if I'm wrong, that you still have a $70 Brent mid cycle planning assumption. At least, at least I'm told that that remains sort of untouched. Is that true?
- [16:17]
Mike Wirth
Well, we put a planning assumption out for investors when we do some of our big investor day communications. Obviously now we're working with scenarios and scenarios that relate to the length of the duration and the implications of it. I think it's quite likely that the price this year is going to be higher than $70.
- [16:33]
David Faber
Well, yeah. Do you revisit that number for planning purposes and for the communication to the investment world and if so, when?
- [16:39]
Mike Wirth
Well, we, we really don't reset our long term capital spending plans quickly or easily because we need to have a conviction about what the future looks like. This is eight weeks in now and we don't have enough information, I think to have a well informed view about what the world looks like on the other side. So we've got our essential planning assumptions in place, but for the purposes of the balance of this year, we've got different scenarios relating to how we're going to manage our way through that.
- [17:06]
David Faber
Yeah, and again that goes back to obviously how long this continues, what it looks like to your pointing on the other side. But on that point, Mike,
- [17:13]
Bill Stone
how long
- [17:13]
David Faber
if the conflict were to end today, how long would it be till we get back to normalization in the strait of hormones?
- [17:19]
Mike Wirth
I think it's going to take weeks and probably into months. There are questions about whether or not the strait has been mined. Clearing mines takes time. Clearing the number of ships. There are hundreds of ships inside the Gulf right now that need to come out. They need to get redeployed around the world. We've got other shipping assets that are trading different voyage routes than they would typically be trading, including a lot that are showing up now in the United States to take production from this country predominantly back to Asia. So you need to reestablish kind of more normal flows of energy around the world. And it's taken weeks for this to get disrupted. It will take weeks into months I think to re establish.
- [18:00]
David Faber
You know, we're obviously there's focus here, as you might expect, on the price of gasoline at the pump going up. American consumer right now seems to be dealing with it. Fine. But, but put it in perspective, what they're dealing with in Asia and Europe is quite different. There's a magnitude of difference, isn't there, in terms of what we're dealing with here in the United States.
- [18:18]
Mike Wirth
Well, the price signals in some of these places have been quite extreme. And what they're really running into now is a concern about supply. Are they going to have enough supply? And so you've seen in some countries restrictions on days at work. We're seeing some of the things we saw from COVID I think you're going to see certain we're seeing jet fuel
- [18:35]
David Faber
restrictions or at least airlines cutting back on their capacity potentially.
- [18:39]
Mike Wirth
Flights are being canceled, routes are being reinstated, optimized. I think as people look at the realities of very tight supplies, it's not just a question of price, it's actually can we get the, can we get the fuel? And I think over the course of the next several weeks, we'll see those effects begin to move throughout the system.
- [18:56]
David Faber
Yeah, I just did a whole panel here on sort of capital deployment and the capital markets. I am curious about yours. Coming right off of earnings on Friday, I think you're targeting free cash flow actually turned negative and you are pulling back on your spending in the Permian. And again, correct me if I'm wrong here, but that's what I heard. So are you more cautious on capital deployment?
- [19:21]
Mike Wirth
No, we're really staying with the plan we came into the year with, which was we've run our Permian from a few hundred thousand barrels a day to over a million over the last few years. We had always indicated we were going to move towards a plateau that allows us to bring capital spending down, focus more on productivity and efficiency, deploy the free cash flow from that asset into other opportunities around the world. So that's what we're doing. And as I said, there's really no change in our capital plans after a few weeks of this conflict. We need to see more information before we.
- [19:51]
David Faber
I mean, for example, you held your buyback in the same range, 2.5 to $3 billion. Right. So is there a point at which you revisit that again as well?
- [19:58]
Mike Wirth
Well, in the short term, I think the cash will begin to accumulate on the balance. She'll see debt come down. We've got a track record, 19 of the last 23 years. We've repurchased shares. We repurchased shares in 2020 during COVID when really nobody else in our industry did. And so we've got a long track record of steady, predictable repurchases. The one piece of feedback I get from investors is that our industry has historically purchased shares when oil prices are high and therefore the stock price is high. We try to buy through the cycle and not predict the cycle.
- [20:30]
David Faber
Thank you. We were talking before you sat down because we haven't seen each other physically, at least in about a year, I believe. Believe Hess was still a question mark a year ago, though. Getting close to an answer.
- [20:40]
Mike Wirth
Obviously, we were here a year ago. It was still a question.
- [20:42]
David Faber
Yeah, it's no longer. Obviously it's a part of the company. You are a minority partner in Guyana. I'm just curious as to how you view that acquisition. Obviously now, with the benefit of a little bit of hindsight and where we are right now.
- [20:56]
Mike Wirth
Well, we always liked it and I think we like it even better now. Now that we've integrated the company, we've seen the strength of the business performance. We've seen the talent of the people. And as we move into a period now where we've got strong commodity prices, we're producing 4 million barrels a day. Our production is going to be up this year 7 to 10%. A good part of that is through the addition of Hess and obviously price
- [21:19]
David Faber
times volume is always execution challenges. With a large deal like that, are you still sort of working through them?
- [21:24]
Mike Wirth
We had a lot of time to prepare.
- [21:26]
David Faber
Yes, you did.
- [21:26]
Mike Wirth
And so we were well prepared to integrate quickly. People learned the status of their new roles quickly. And, you know, there's still some things in the background on IT systems and the like that take some time to go through. But the integration has been very smooth. There have been no negative surprises. And we're even more pleased with the deal today.
- [21:44]
David Faber
And finally, I just got to end on Guyana since I spent almost a week there a number of years ago, of course. But you know, with Exxon, your partner, could it get to a million, a
- [21:54]
Kelly Evans
million barrels a day?
- [21:54]
David Faber
Is that a real possibility?
- [21:56]
Mike Wirth
It's not far from it today and the execution of this has been very strong throughout. And yeah, I think it's just a matter of time before we see it, see that number and beyond as more of the floating production and storage units come online. So the, the projects are moving forward and, and everything's good.
- [22:15]
David Faber
And any more consolidation in the oil industry overall, or are you kind of done?
- [22:19]
Mike Wirth
Well, you know, there's, there's always something in the future. It's a resource business. What, when and where remains to be determined.
- [22:26]
David Faber
All right, Mike, appreciate your taking time. Thank you.
- [22:28]
Jeff Bilotti
You're right.
- [22:29]
David Faber
Mike Worth, CEO of Chevron. Kelly, back over to you.
- [22:31]
Kelly Evans
Great to have you both joining us today, especially with the those headlines David doing on the Iran situation. Thanks, David Faber and Chevron CEO Mike Wirth. Coming up, it's Greg Abel's first major test as Berkshire Hathaway's new CEO. Did he pass muster with investors? We'll get one shareholder's take. Plus, Wyndham Hotels posting solid results last week despite rising fuel and air travel costs, will ask their CEO how much longer consumer spending can hold up. That's coming up on the Exchange.
- [23:03]
AT&T Business Wireless Announcer
This is the exchange on cnbc. This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Lansford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trade. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.
- [23:38]
Dr. Guy Winch
Men are struggling with their mental health at some of the highest rates we've ever seen, but most aren't getting the support they need, and that needs to change. I'm Dr. Guy Winch, your host for season three of the Visibility Gap, presented by Cigna Healthcare. This season we're focusing on men's mental health, bringing together real stories and expert insight to explore the pressures men face every day and why opening up can feel so difficult. Join us for the new season wherever you stream your podcasts.
- [24:08]
AT&T Business Wireless Representative
Not every sale happens at the register. Before AT&T business Wireless, checking out customers on our mobile POS systems took too long. Basically a staring contest where everyone loses. It's crazy with positive people say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sailor too. Sometimes I do miss the bonding time.
- [24:32]
AT&T Business Wireless Announcer
Sometimes AT&T business Wireless connecting changes everything.
- [24:42]
Kelly Evans
Got some more breaking news out of Washington. Megan Casella what's going on, Kelly?
- [24:47]
Megan Casella
President Trump just posted on Truth Social for the first time in response to all of these developments today, acknowledging the attacks by Iranian boats on ships in the Strait of Hormuz. He says Iran has taken some shots at unrelated nations with respect to the ship movement Project Freedom, including a South Korean cargo ship. Perhaps it's time for South Korea to come and join the mission. We've shot down seven small boats, or as they like to call them, fast boats. It's all they have left other than the South Korean ship. There has been at this moment, no damage going through the strait. Secretary of War Pete Hegseth and Chairman of the Joint Chiefs of Staff Dan Kane will have a news conference tomorrow morning. Thank you for your attention to this matter. Now, Kelly, a few things that I do want to flag about this post again. It's the first time we're hearing from the President directly since all of these developments today. There's no mention in it of the missiles that were fired at the UAE from Iran that the UAE intercepted. There's no mention of the US responding either to those attacks or really to the attacks on the ships in the strait. And he's emphasizing no damage going through the strait. So not exactly, in my view, looking to escalate here, at least not in this post so far. I will, though, say also just in the last few minutes, the UAE did put out its own statement and it says it, quote, reserves its full and legitimate right to respond to these unprovoked attacks. So the UAE saying that it'll respond, Trump acknowledging some of these attacks, not the UAE attacks, not quite going so far, Kelly, as to pledge any sort of response just yet.
- [26:10]
Kelly Evans
Yeah, to your point, stocks went to session lows when that news first crossed around 12:30. Megan, we're a little off those levels, but thank you for bringing that to us. We'll leave it there for now. Megan Casella Shares of Berkshire Hathaway peaked May 2 of last year, the day before Warren Buffett announced he would step down as CEO. Fast forward to this past weekend, Greg Abel's first time leading the company's annual shareholder meeting as its new CEO. Our next guest was pleased with his debut, but when will the market agree and take the shares to new highs? Let's bring in Berkshire shareholder Bill Stone. He's CIO of the Glenview Trust Company. Bill, it's great to have you. And again, the stock Berkshire is trading down under pressure with the broader markets today, so we won't blame anything there. But how did you think it went this weekend under Greg's tenure? I was like, maybe he'll figure it out if I just draw it out long enough. We'll try to get Bill back. We'll take a quick break until then. Coming up, GameStop is the meme stock that sparked a retail frenzy five years ago, using the capital it has raised to now make a 50 billion dollar offer to buy ebay, although it's still much smaller in market cap. So how exactly would the deal work? We'll have those details next.
- [27:28]
AT&T Business Wireless Announcer
This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keith Landsford for this information packed daily market Preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions and key results and statistics that may impact your trading. Download the latest episode and subscribe@schwab.com MarketUpdatePodcast or find Schwab Market Update wherever you get your podcasts.
- [27:57]
Dr. Guy Winch
Men are struggling with their mental health at some of the highest rates we've ever seen, but most aren't getting the support they need. And that needs to change. I'm Dr. Guy Winch, your host for season three of the Visibility Gap presented by Cigna Healthcare. This season we're focusing on on men's mental health, bringing together real stories and expert insight to explore the pressures men face every day and why opening up can feel so difficult. Join us for the new season wherever you stream your podcasts before we had
- [28:28]
Scott Wren
AT&T business wireless coverage.
- [28:30]
AT&T Business Wireless Announcer
Our delivery GPS wasn't the most reliable.
- [28:33]
Scott Wren
Once our driver had to do a
- [28:34]
AT&T Business Wireless Announcer
14 point turn to get back on route. A 14 point turn, an influencer, even
- [28:40]
Scott Wren
livestream stream, the whole thing not good for business. Now with AT T Business wireless, routes are updating on the fly and deliveries are on time. And the influencer did get us 53 new followers though.
- [28:52]
AT&T Business Wireless Announcer
AT&T business Wireless connecting changes everything.
- [28:58]
Kelly Evans
Welcome back again. As we mentioned, shares of Berkshire Hathaway peaked the day before Buffett announced his CEO transition. Bill Stone is CIO of the Glenview Trust Company. He's back with us, I think. And Bill, how did you think it went over the weekend with Greg Abel? Look, they have a huge, huge cash pile. He's got to do something. But so he's like, darned if he does nothing, but darned if he does something that takes the company in the wrong direction. And I'm sure shareholders are feeling a little frustrated. Granted they have, you know, decades of outperformance, but still.
- [29:26]
Bill Stone
Well, for sure he's doing better than my audio did in the first part when we tried this. But no, seriously, I thought it did great. You know, I think two things I think we talked about before, which was, you know, I think think my one piece of advice to him was don't try and be Warren Buffett. I think did a great job of laying out what he brings to the, to the job, which is really, you know, I always, I joked with a few people, you could have started a drinking game around the same operational excellence. But I think it's a great thing. You know, they built up this massive conglomerate of all these companies. There's clearly going to be a lot of opportunity to improve some of the processes, to have things work better. And I think he laid out a compelling case that that should be one of the value drivers going forward for Rupert.
- [30:13]
Kelly Evans
Here's what I so I look at it and go, okay, it's a trillion dollar market cap. They have $400 billion in cash. You know, so the company has to do a lot of heavy lifting to get its return above whatever that yield is, 4 or 5%. What's it going to be?
- [30:27]
Bill Stone
Well, I mean, I think they tried to make the case and Buffett even jumped in for it because I think we weren't necessarily expecting to hear from Buffett and we didn't hear from a lot, but he clearly added to the case of patience. Right. Give them time. We have a process, but, but we, things have to be at a price or a value we're willing to buy them at. And so, you know, that has always been our process and that is what Greg's going to continue to do. So I think that was, you know, probably the second part of the story. So operational excellence. But then also we're going to look for our spots and it may take a while. We can't make it happen.
- [31:00]
Kelly Evans
Yeah. And even reading the last letter I remember, I think it was Buffett still was talking about some of his disappointment with one of the railroads and they're operating. And so look, this stuff isn't easy, but maybe that's the, the fruit, the low hanging fruit to some extent that kind of gives those returns down the road. I know some investors wanted a little bit more maybe on the share buyback front. Are you one of them?
- [31:19]
Bill Stone
Yeah, I was kind of surprised we didn't get a little bit more. It was a relatively small amount. I still think, you know, it's the, in my opinion, the shares are still in the range that you're likely to continue to see buybacks because roughly they don't exclusively use price to book, but it's certainly one of the metrics they, I'm sure they look at and we're at about 1.4 times book. And that is, tends to be there or lower. It tends to be where they step in. So I wouldn't be surprised if they, they do buy some more here along the way, particularly if the stock gets any weaker. I think that's the nice thing, being an owner of the stock is, you know, or at least, I don't know, is maybe an overstatement. You feel very confident you have some sort of a backstop, that if we see some more pressure on the stock, they will step in, I believe in size.
- [32:03]
Megan Casella
Right.
- [32:03]
Kelly Evans
And Bill, we have to go, but would you tell clients you think Berkshire is going to outperform the S and P for the next few years?
- [32:09]
Deirdre Bosa
Years?
- [32:11]
Bill Stone
I mean, I think from these levels that is good chance. I mean the hard part is it's, if the, if the S and P is going to be extremely strong, then I don't think it can keep up. But in any sort of a, maybe more normal market or a difficult market, that's where I think a Berkshire Hathaway shines and maybe has a chance to put some of that capital to work too.
- [32:28]
Kelly Evans
That's a great point. The stronger the public markets are, the harder probably for them to find those opportunities. Bill, appreciate it. Thanks for making the time. Bill Stone with Glen View. Let's get to Leslie Picker now for the CNBC news update. Leslie.
- [32:42]
L
Hey, Kelly. The Supreme Court has temporarily lifted a lower court's ban on the abortion pill mifepristone being set through the mail. The temporary order blocks a ruling by a federal appeals court on Friday restricting access to the pill. The block gives the court time to consider next steps in the case as it weighs requests by two drugs, Danko Laboratories and GenBioPro, to lift the abortion pill ban. Police are looking for suspects after a shooting broke out last night at a lakeside party in Oklahoma that left at least 18 people hospitalized. The shooting took place by Arcadia Lake outside of Oklahoma City. It follows two other shootings this weekend involving young people, one at a post prom party in Indianapolis and one at an apartment party in Amarillo, Texas. In an update on Rudy Giuliani, the former New York City mayor is recovering from pneumonia, according to his spokesperson, who says Giuliani required mechanical ventilation to maintain adequate oxygen levels, but is now breathing on his own. He remains in critical but stable condition. Kelly, I'll send it back to you.
- [33:47]
Megan Casella
Scary.
- [33:47]
Kelly Evans
All right, Leslie, thanks very much. We wish him all the best. Coming up, a first on cnbc, interview with Wyndham Hotel CEO Jeff Bilotti. The company beating earnings estimates, markets and standing by its full year guidance. Is that a bullish sign for consumer travel and spending? We will ask him next. Welcome back. While there has been plenty of concern about the consumer with rising energy prices, of course, you wouldn't know it looking at Wyndham's results. The company beat earnings on the top and bottom lines, boosted their revenue outlook. Management says leisure travel trends are strengthening with longer stays and increased booking lead times. And management is here to comment on that. Wyndham CEO JE Belates here on set with me. It's great to have you here. Thank you so much. Really appreciate it.
- [34:32]
Jeff Bilotti
Thanks as always. Kelly, to be here.
- [34:34]
Kelly Evans
Is it true? Are we missing something? You know, 445 is the national average for gasoline. So is this backwards looking? Is it possible things are softening now with prices being where they are?
- [34:42]
Jeff Bilotti
If we look back to the last two gas downturns where where gas price just spiked and everybody was making that downturn assumption. Leisure travel, domestic, drive to there. We've never found a correlation between between gas prices and the amount of miles that our customers are driving. 90% of our business is drive to to begin with.
- [35:02]
Kelly Evans
You've never found a correlation, a correlation
- [35:05]
Jeff Bilotti
between rising gas prices. If we look back to what is WTI Today, is it 110? It was at 110 before I came in I thought and you look back to 2011, 2012 coming out of the GFC, that was a really strong summer and, and WTI was up at about 120. If you look at 2022 where it was up at about 1 as well, that was one of the strongest summers of drive to domestic leisure travel. And our customers are driving 600 miles, 300 miles out to their vacation, 300 miles back in gas up a dollar is about a $60 price increase. But what are the options if you are going to take your family on a vacation? $60 is less than 2% of the average cost of an American American American vacation at 3, $400.
- [35:56]
Kelly Evans
And I don't think of your consumers being kind of the, the aspiration. I think of them as a little bit more middle. I mean you tell me who, who are the Wyndham consumers?
- [36:04]
Jeff Bilotti
They are squarely middle class. That that that hundred thousand dollar plus household income that that is, that is looking to travel. We saw a big pickup in the quarter. Our domestic Revpar was, was improved 600 basis points domestically, 2 or 300 basis points better than I think what people were expecting. Our development pipeline and our growth picked up as well and that's why both our EPS and EBITDA was ahead of expectation. But as we look out, consumer confidence is coming back. People are looking to take that vacation more so at this point this year than they were at this point last year. There's a lot to be optimistic about moving forward into the summer and the tax refunds are probably helping.
- [36:48]
Kelly Evans
Right, Because I thought that in Revpar revenue per available room and I thought it was a little bit softer this year than a year ago. Is that right?
- [36:54]
Jeff Bilotti
Or it turned out to be 600 basis points better than the fourth quarter but still flattish domestically. But the optimism is in that improvement. As we look across America, our three largest states are Florida, Texas and California. Texas for example, where we have 700 hotels was down 5% in revenue per available room in the fourth quarter quarter. It finished the first quarter at plus 2%. And there's lots of reasons for that leisure demand. Certainly it was a strong spring break period. I think our small business owners, our franchisees are very optimistic about the summer season ahead, but also that business travel is coming back that we're more blue collar, we're more drive to more everyday business travel that you're seeing infrastructure pick up. All of your guests are talking about throughout this morning so broadcast about the investment, the private investment in in things like data Centers where we're tracking 300 data centers across the country where we have in market tracks dozens and dozens of hotels that are doing very, very well. So the combination of leisure travel and business travel picking up is what swung that type of revenue per available room.
- [38:05]
Kelly Evans
But you could almost argue Wyndham is an AI play. I know you're not going that far, but I see what you're saying that if people who are going to scout out these sites and work on these projects and bring, you know, they have to stay in a hotel and that might be one of yours.
- [38:16]
Jeff Bilotti
There are 2 million companies out there bidding right now to build these hyperscalers, these neo cloud data centers. And it is, I mean you look at the chips and Science Act, $250 billion act, it's only 40 billion of that has been spent but it's unlocked, as we heard this morning with, with, with David Farber, it's unlocked 700 billion of spending this year. There's another $4 trillion of data center spending spending to come in the next three years. There is not enough economy mid scale select service lodging to fill the demand for all of those workers that are going to be out there traveling. We believe our small business owners, which is why our development pipeline is so far ahead of where it was historically, last year or ever in its history. There's a lot of interest in building select service lodging.
- [39:03]
Kelly Evans
I think that this helps connect some dots for people. How can the economy be quote unquote so strong? What when gasoline prices and fuel and whatever. So are there just a quick final comment aside from the macro about you know, deal making or whatever. So what is your philosophy on that now? Is it in the whole industry? We really haven't heard other than the period that you guys went through, but we really haven't heard a lot about consolidation and deal making and anything like that in the industry for some time.
- [39:29]
Jeff Bilotti
Well, I mean our philosophy developers are optimistic that we're at the point of a cycle where it's going to pick up and that there's never been a time to. If we look at our fastest growing brand right now, Echo Suites by Wyndham, a premium economy or one could argue mid scale economy, extended state product that they want to build. We signed 300 over 300 development contracts to build those and it's just a period of time that there's not enough new construction going on. We believe that's going to pick up and surprising, that's what's been fueling our, our U.S. pipeline.
- [40:06]
Kelly Evans
Jeff, thanks for coming on to Break it down for us. Really appreciate it.
- [40:09]
Jeff Bilotti
Thanks for having us.
- [40:09]
Kelly Evans
Jeff Bilotti is the CEO of Windham Hotels. On a separate note, Elon Musk, well, actually on the same note, he's ready to put. Well, here's the problem for hotels. If the data centers all go to space, one Peter Thiel backed company is looking to the high seas for future demand. We'll explain next on the Exchange. Welcome back. AI's appetite for power putting some strain on the electrical grid and on the availability of land. But one Peter Thiel backed startup thinks the answer isn't there. It's floating in the open ocean. Deirdre Bossa has more in today's tech check. Hi Deirdre.
- [40:48]
Deirdre Bosa
Hey, Kelly. So the hunt for AI compute, everyone's talking about it all the time. It is pushing capital into new frontiers. And so the smart money billionaires like Elon Musk and Eric Schmidt, now Peter T. Thiel, they're betting on putting GPUs beyond land. Today. Panthalassa, it's a wave energy startup. It's coming out of stealth mode with $140 million round led personally by founders funds Peter Thiel, a source tells me that it values the company at close to a billion dollars. Now how it works is that enormous node. You can see one here in the ocean. It's essentially covered with chips and powered by waves and then it beams tokens back via satellite. They're currently working with Musk Stargate. Now I caught up with Panthalassa, Garth Sheldon Colson and I asked him how he's even gauging demand that can be years out.
- [41:38]
Scott Wren
We think that demand will be very large and what the fleet of AI generating assets looks like. We think that there'll be a major component that's on land, there may be a major component that's in space. The land component will have different energy sources and we think there will be a huge ocean component. And so you're basically taking advantage of all of the energy resources you can find to supply the lowest cost, provide the largest volume and we think that's what lifts the most people.
- [42:05]
Deirdre Bosa
Now the broader bet on AI Compute is every available frontier all at once and basically Jevons Paradox. If it does become more efficient, that is, the more accessible it is, the more companies, consumers, everyone will use. The notion that AI demand won't ever soften is Kelly what is underpinning the AI trade at large? From hyperscaler capex to moonshots like this one. And these moonshots, Kelly, they're getting more and more ambitious. Certainly looking to past physical land.
- [42:31]
Kelly Evans
Jevons that's what I was trying to think of the other day. We were talking to Western Digital CEO and he his point again was at some, you know, everyone's saying when is the cycle going to turn but as compute becomes less expensive, he thinks there's going to be even more demand for their product in the long run.
- [42:48]
Deirdre Bosa
It's essentially the argument that everyone in AI makes to justify huge amounts of demand and you know, more than a trillion dollars in a build out. It's a convenient one, one we'll see.
- [42:59]
Kelly Evans
Yeah, floating on the ocean. If they're fighting over windmills, I guess this would be further out. Deirdre, thank you very much. Appreciate it for now. Deirdre Bosa Coming up, Kevin Warsh taking a clear stance on Fed independence when it comes to monetary policy. But his message a little muddier in other areas like the balance sheet, the changes that could be coming under a war led Fed next.
- [43:25]
Megan Casella
Welcome back.
- [43:25]
Kelly Evans
Kevin Warsh has expressed a vision of Fed independence that is unique but not entirely clear according to some former Fed officials. Steve Liesman spoke with several of them and is here with that story.
- [43:36]
Steve Liesman
Steve, thank you Kelly. On the critical issue, monetary policy, Fed chair nominee Kevin Warsh is pretty clear. Strict independence in setting rates but after that gets a little unclear and even worrisome to some former Fed officials. In his Senate testimony testimony Warsh said I am equally committed to working with the administration and Congress on non monetary matters that are part of the Fed's remit. CNBC spoke to six former Fed officials and their views of Warsh's statement range from unclear at best to concern about Fed independence at worst. The main problem Warsh hasn't yet specified what he means by non monetary and other matters. A focus now is on this issue of swap lines. Warsh wouldn't say if the Fed should exceed the Treasury's request to provide provide currency swap lines to countries like the uae. One Fed official said it could be like using the Fed's balance sheet as foreign aid. Treasury Fed accord that could limit the size and composition of the balance sheet that a lot of people think is just like monetary policy. Former Fed President Boston Fed President Eric Rosengrand telling me the challenge is if we have a severe crisis in fiscal policy doesn't respond quickly. The flexibility that monetary policy provides is hamstring. Armstrong was going to need a majority of the FOMC to make big changes. But the concerns of former Fed officials likely mirrored on the Fed right now teeing Up a series of debates to come. The full story with my colleague Matt Peterson. You can read that on cnbc.com I
- [44:55]
Kelly Evans
have it in front of me. And I thought it was interesting what Lacker said that, you know, could there be a. He said it followed to its logical conclusion, the Fed could lose control of its balance sheet, which I'm sure is not.
- [45:03]
Steve Liesman
Lacker didn't say that. That was a. That was an unnamed.
- [45:06]
Kelly Evans
Thank you for clarifying. Thank you. We have to be sensitive with.
- [45:09]
Steve Liesman
Very clear about what he said. And so he had his concerns some.
- [45:12]
Kelly Evans
Would you.
- [45:13]
Steve Liesman
Yeah.
- [45:13]
Kelly Evans
In talking to you, that the Fed could lose control of its balance sheet via a Treasury Fed accord, which obviously would not be Warshire's intention. But what do they think? What is the concern that they think this could open up to?
- [45:24]
Steve Liesman
So Kevin has pointed out that the Fed goes into crises and boosts its balance sheet, but never goes away. Kind of like the roach Motel or something like that. Right. You go in, you never come out. It never comes out of. So he's. That's a concern of his. At the same time, there were those who for many years, and Lackers among them said, you know what, the Fed should only buy Treasuries because anything else is credit allocation or credit policy. Let the treasury handle that. Rosengrand pointed out that we bought mortgages because we were buying so much Treasuries during the pandemic that had we kept buying them, we would have become a huge player in certain parts of the treasury market.
- [46:02]
Kelly Evans
And we did mortgages after the financial crisis, didn't we? Or no. Was mortgages more.
- [46:06]
Steve Liesman
Yes, we did. We did both. Yeah, we did both, is my recollection.
- [46:08]
Kelly Evans
But of course, that was the housing bubble.
- [46:10]
Steve Liesman
And then we did junk bonds and all kinds of stuff during the pandemic. And Warsh looks at that and says, that's credit policy. That's the. But here's the question. Do you then give the treasury access to the Fed's balance sheet? Cause a lot of people on the Fed say, you know what balance sheet is just interest rates by another name. It's quantity, not price. So it's very, very tricky. And the real problem that everybody told me was Kevin has just not been clear.
- [46:37]
Kelly Evans
I mean, it's the way that interest rates are. I think a lot of people would wonder, is there a way that the Fed is trying to bring them down through other means?
- [46:46]
Steve Liesman
Basically, that's what balance sheet policy introduced by, you know, Bernanke said at the time, this is a new thing, except it's been around forever. We just haven't used it when it came to balance sheet policy. It's gonna be very interesting to watch and there will be some debates on the Fed about it.
- [47:01]
Kelly Evans
All right. And you can read more of the piece on CMC.com Steve thank you very much. Steve Liesman that's it for us. Thank you for watching the exchange and I'll join Brian Sullivan for a special power lunch right after this. Quick, You've been listening to the exchange. Make sure you're subscribed to get each episode every day, same time, same place on Etsy. Every sign of spring is a reason to celebrate.
- [47:29]
Megan Casella
Welcome the warmer weather with a light
- [47:31]
Kelly Evans
linen jacket made by a real person or enjoy your morning coffee outdoors in a hand thrown mug. Refresh your style and your space with pieces you won't find anywhere else. Celebrate the new season and original small shops on the Etsy app.