Motley Fool Hidden Gems Investing - Big Macro & Big Red

Episode Date: February 14, 2023

Once again the monthly CPI report got Wall Street's attention.  (0:21) Bill Mann discusses:- How the Federal Reserve is working without precise instruments - Why no one wants surprises from the Fed - Higher prices in the core division fueling Coca-Cola's 4th-quarter revenue (12:00) In this blast-from-the-past segment from 2018, Alison Southwick and Robert Brokamp celebrate Valentine's Day by discussing money as a source of conflict for couples. Stocks discussed: KO, PEP Looking for even more stock research and recommendations? Check out the details on our Epic Bundle membership at Epicstart.Fool.com Host: Chris Hill Guest: Bill Mann, Alison Southwick, Robert Brokamp Producer: Ricky Mulvey Engineers: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Great news! The Federal EV Rebate is back! Eligible customers get up to $5,000 with the Federal EVAP Rebate on select 2027 Volt and 2026 Equinox EV models. Visit your local Chevrolet dealer today for more details. We've got the latest on the Big Macro and the latest from Big Red. Motley Fool Money starts now. Chris Hill. I'm Chris Hill. Joining me today, Motley Fool Senior Analyst, Bill Mann. Thanks for being here. Bill Mann. Hey, Chris. How are you? I'm doing all right. Let's start with

the big macro. The Consumer Price Index report this morning showed inflation rose 0.5% in January, slightly higher than economists were expecting, but we are seeing this methodical easing seventh month in a row. What was your reaction to this? That's a great analysis. Well, I'll get to my frustration in a minute, but let's just start with this. What was your reaction to the report and the subsequent reaction from the market, which was negative? Is duh an okay? Yes. Is that an okay analysis? yeah yeah that's about what that that's about where it was i know that's i i i know the people

want a little bit more than that but there's such a bizarre kabuki dance when it comes to the cpi particularly since we did go through really what i would describe as a as a traumatic change in circumstances over the last year so obviously a slowing in inflation uh is a positive but they also mentioned a slowing in the slowing of inflation, which is a negative. So to me, what you're starting to see is some of the less economically sensitive components of CPI finally reacting to the first of the rate cuts. And it's been several months now since that has happened. So it always bears reminding that the Federal Reserve doesn't have precise instruments. They're kind of like the gorilla in the old Samsonite ad, you know, throwing the luggage

around. Their capacity to actually pinpoint at the inflection points is not much higher than hours is. So, yeah, I think it's a positive thing. I'm glad to see that the tenor is still going the right direction. But I really try to make a point not to overreact to monthly prints. So, with that in mind, why do you think there is this small cohort of people in the financial media who seem to be expecting inflation just to come to a full stop, like it hit a brick wall or something. And I'm wondering if one of the positive ripple effects of this CPI report is maybe we get fewer people on financial television talking about the Fed cutting interest rates. I think a lot of it has to do with the fact that what we have had,

And I think that this is empirically true, is that the rate of inflation over the last year was higher than we have seen in a generation. So when you see something like that, you are already attuned to extreme events. So when you ask someone who is a prognosticator, they now have some incentive to also make an extreme answer. And what if they're right? If they're right, it absolutely makes their career. It's one of the reasons why we really suggest that people don't pay much attention to prognosticators, because if they are right one in 10 times, nobody ever talks about the other nine.

It's safe to assume that the quarter percent interest rate hike that many expect to come in March is still on track. Yeah, I guess so. It's the way to bet. Yeah, exactly. I don't think that, again, talking about an extreme environment, I don't think that the Fed Board of Governors has any real incentive to create surprise for the market. I mean, they are telling you and have been telling you for a really long time exactly what was going to happen. They are playing poker with their hand facing the other direction and have done so. And I actually think that that's smart. I think it's smart just like if we're going to change our minds, I'm going to tell you what I'm going to tell you, and then I'm going to tell you, and then I'm going to tell you what I told you.

And I think that's a really smart way for them to go about it. So if that's what they have been saying they're going to do, I would pretty much put put put a lot of faith in the fact that that's what's going to happen. Yeah. Let me be clear. I never want surprise. I never want the element of surprise from the Federal Reserve. I don't care who the chair is. I don't care who's on the Board of Governors. That is not the area of my life that I am seeking surprises from. I'd make him say, hey, I'll bet you didn't see this coming. It's not an experience that I think any of us want. Yeah, that's a phrase you never want to see in a Federal Reserve statement.

Bet you never saw this coming. Chairman Powell would. Let's mix things up a little. No, you want to see that from DJs, not from Fed chairs. Let's move on to earnings. Coca-Cola's fourth quarter revenue came in higher than expected, thanks to higher prices. Unit case volume fell slightly. But this is something we've seen from other businesses, including their chief rival, Pepsi,

where they're able to charge a little bit more, and it helps boost the overall numbers. Yeah, it wasn't a bad report from Coca-Cola at all. And again, this is one of those areas with a consumer product. Pepsi maybe had it worse, but it does bear reminding that Coca-Cola's comparables now exclude Russia, which is a big, big market for their products. So they have actually taken a big step back. So the fact that they were even close to flat with a reduced case level is pretty good. Absolutely. Unlike Pepsi, they don't have a snack division, but like Pepsi, they have different parts of their beverage portfolio. It was the soda part of the portfolio doing the

heavy lifting here, because to your point, the non-carbonated beverages, the juices and the plant-based drinks, that did see more of a drop because of suspending operations in Russia. Exactly. I have to giggle a little bit every time I read a Koch report. And I don't know if they're doing this on purpose, but when they use financing terms like flat and organic, and then this time James Quincy came out and said that they had some hiccups in 2022 with their sports drinks, I really wonder whether they are putting us on, because these are things that you experience from Koch products, maybe not so much from the stock. Yeah, I think for a pretty straightforward and some might argue boring business,

yeah, have a little fun with those statements. Why not? They had some hiccups. I forget what the sport is and who the athletes were, but I was looking at their results and thinking about a comment someone made once about a championship team that was loaded with talent. The coach or the manager said tongue-in-cheek, it's like, well, I couldn't have done it without the players, that sort of thing. Looking at Coca-Cola's results, it's like, if you're in the business of selling non-alcoholic beverages, it helps when in your portfolio, you have two of the top three best-selling sodas in America. When you have Coke and Diet Coke on your team, you're going to win

some games. Yes, that's exactly right. Now, one of the things that they did talk about, which is a worry, I think, is that they spent $5.5 billion to buy Body Armor this last year. And I don't think that that integration has gone well at all. They already had Powerade as a brand, and there is some form of duality between having multiple sports drink brands. Five and a half billion dollars is a pretty big hit to the capital account for something to not be going well and for there to be a decline right out of the gate for body armor. So when they are talking about hiccups, they are specifically talking about that. And that is an issue that they are going to need to correct. And we've seen this from Coca-Cola with other types of beverages.

We saw this, I think, in the past 12 months with tea. And they essentially had within their portfolio competing tea brands and decided, well, we're just going to shut down Honest Tea. And so it's sort of the cost of doing business if you're Coca-Cola, where you want to acquire these additional brands. And at some point, you have to weigh the cost of like, all right, well, if we're going to go out and spend this money on body armor, then what are we going to do with Powerade? Right. I think what is true about Coca-Cola and has been for a while, and I'm so glad that you brought up Honest Tea, Dasani was in the same boat. They have found themselves behind in a bunch of different trends over the last decade, and they have spent to catch up.

Now, Coca-Cola is an excellent brands company, and it's an excellent marketing company. So it has not necessarily cost them. But I do think that what we are seeing right now, what we've just seen with Honest Tea and what we're seeing now with Body Armor does suggest the fact that they are integrating high-powered brands rather than developing themselves. And that is something that investors, I think, need to keep in mind when they are thinking about Coca-Cola as an investment. Because although that doesn't necessarily get into a profit and losses discussion, Coca-Cola does not pay a big dividend. And so $5.5 billion that, I'm not saying it's been wasted, but they're not necessarily optimizing the asset at this point, that to me would be a

concern. Bill Mann, always great talking to you. Thanks for being here. Hey, thanks, Chris. We're celebrating Valentine's Day by finding out if money is really the biggest source of conflict for couples, or if it's actually something else. From The Motley Fool Answers podcast vault in 2018. Here's Alison Southwick and Robert Brokamp with some research that's still relevant today. You have been taking financial therapy classes. I don't know if your professor planned this on purpose, but you had a lot of reading to do these last couple of weeks around couples and cash. Yes. I'm getting my graduate certificate in financial therapy from Kansas State. It

It was coincidental that in this last class I'm now taking, I had to do a bunch of reading on Couples Under Cash. As we were talking about what to do for this episode, I thought, well, certainly after reading the 10 to 20 articles that I plan to read, I'll be able to pull out a few tidbits. So what I found out was, five things to know about... Tidbits is a funny word! Tidbits! You don't like tidbits? No, I just think the DayQuil is kicking in! Oh, sorry! Oh, well, it just gets better from here!

Let's get some love and money tidbits. Tidbit No. 1. Five things to know about marriage money and then five things to do about it. I guess my first question was, we all hear that money is the No. 1 reason people get divorced, the No. 1 cause of conflict in marriages. So my first question was, is that really true? So number one, is money the number one source of tension in marriage? And the answer is probably, but the results weren't quite as conclusive as I thought they would be. So there is research that found, for example, that 70% of all divorces cite money as the reason. There's research that couples that fight on a weekly or daily basis about money are more

likely to get divorced than people who have a few disagreements over the course of a month. How often do people fight? Well, some people fight a lot. Just fight, period. Well, that is a good question. We'll get to that later. I just can't imagine fighting with my spouse twice a week about anything. I don't know. Rick, how often do you fight with your spouse? What is fighting? You guys are such lovely, beautiful people that I can't imagine the Engdahls fighting at all.

No. I cannot imagine that. I can just imagine them just being like, you know what, honey, when you leave your harps and your guitars out, I feel like maybe we should jam for a while, and then you guys just play some folk songs and smooch. Can you fight when you have a harp? I don't think it's possible. You know, this is probably too much of a story, but we have a friend of mine from college up in New Jersey, and she had a daughter who was about five or six at the time, and this

before we had kids. But they were coming to visit us, and it was the first time they were coming down to visit. We had been up there before and played our music and blah, blah, blah. That's the tone that they fight in, by the way. That was it. They came down, and when the daughter entered our house, she looked around and she was a little bit crestfallen. She was a little disappointed. She said, I thought your house would be full of flowers. Right? You enter the door and your wife places a flower garland on your hair. It's like we live at the Renaissance Festival.

I can totally understand that. A couple of fairies blowing bubbles. Turns out that's not exactly how we live day to day. It's more like a metalhead situation going on in the Engel house. We'll stick with your imagined view of what our lives are like. It's a nice picture. Alright, sorry. That was a bit of a digression. Still, it seems like that would be a lot to be fighting about anything, let alone money. Yes, that's true. As I'll talk about a little bit later, there's some question about whether money is the real reason people are fighting, or it's just that people are fighting,

and money is the thing they've decided to fight about. But regardless, other studies found that one-third of couples who receive marriage counseling reported having financial issues as one of the problems. But there are studies that have found not really a very strong connection between money and conflict or money and divorce, which again gets to the point, maybe it's not really just about money. Another interesting part about this is that studies have found that arguments about money are a little different in that they tend to be more intense, they often last longer, and they often retread old topics. Old topics keep getting brought up.

So there is something about money that is important or contentious about marriages. No. 2, though, is that money in marriage is not all bad news. The fact is that for most people, on average, being married is good for your financial well-being. Married couples have higher incomes than any other family form, meaning higher than people who live on their own or people who are living together but are not married. People who are married tend to have higher levels of investments, higher levels of wealth, less debt, and they're more likely to be saving for retirement. There's some belief about making that public commitment about getting married makes people

more likely to invest, more likely to buy a house, more likely to do things that will pay off over the long term, versus people who are single or people who are just living together. I don't know if I want to buy a house with you quite yet." That's the good news. No. 3. What determines whether a couple is going to fight about money or not? The truth is, money actually can buy happiness to a degree in a marriage. There's plenty of evidence that shows that couples with higher incomes, higher levels of wealth, less debt, are more likely to be happier, more likely to find satisfaction in the marriage and less likely to fight about it.

One interesting study I found said that income, once you incorporate other measures of financial well-being, income isn't actually important. What it really means is what you do with the money that you make. So even if you're not making quite so much money, if you are saving it and staying out of debt, you are more likely to be happy and less likely to fight about money. Another study found that couples who engage in sound financial practices, so budgeting, saving, getting enough insurance, are more likely to be happy. Even compared to other couples of the same level of financial wellness and wealth, the

people who are doing these good day-to-day financial chores are more likely to be happy. One thing I would say, though, it does get to a point where all that stuff doesn't really explain happiness. For example, the difference between a couple that makes $25,000 and a couple that makes $50,000, there's going to be a big difference in their overall satisfaction because they're not going to be experiencing so much financial stress. The difference between a couple making $200,000 and $225,000 is not going to be so much. So at some point, money doesn't really explain the difference.

What does explain it? This comes to point No. 4. Being financially compatible is important. There's a couple of studies that classified people as either tightwads or spenders. My first reaction was, I haven't heard the term tightwad in a long time. But basically, do you see yourself as a tightwad or spender and see your spouse as a tightwad or spender? It seems like it's a spectrum. Do I have to put myself in one or the other? It is. And you're right, it is a spectrum. The interesting thing about the spectrum is, first of all, the most interesting thing is, opposites often attract.

What they found was, people who were tightwads were often attracted to the spenders and vice versa, especially if they were not satisfied with their own attitudes. So, let's say you were a spender, but you knew that you probably are spending too much. You are more likely to be attracted to someone who is a tightwad and vice versa. The problem is, though you might be attracted to each other, once you get married, that can be a problem. The greater the distance on that spectrum of tightwad to spender, the greater the chance that you're going to argue about money and there are going to be problems down the road. There was also another study that analyzed people's materialistic tendencies and found

that people who score higher on this score of materialism, chances are they're going to be less happy being married. Alright, tidbit No. 5. No. 5. If it's not about money, it's about... want to take a guess? I don't want to say sex on our show because I don't think we've ever said that word on our show. You said sexy earlier in the show. Yeah, but that's different than saying sex. I said it again! What is it? Just say what the answer is. It is the byproduct of sex. Kids. Oh! You just made it worse! At least according to one study.

Oh, kids! Kids. So this is one of those studies that found... I think Rick can't breathe. He's laughing so hard. Are you going to be OK, buddy? Anyway, so one study, they had 100 couples keep a diary and write down all the times they had any sort of conflict. Money was No. 5 and No. 6 on the list, depending on if it was the husbands or the wives. No. 1 was actually kids. The next was chores and communication and leisure. But this study also confirmed, again, that while money wasn't the most common issue, or a common contentious issue, the fights about it were more intense

and they lasted longer. Another study found that women with children living in the home were nearly twice as likely to report being a money-arguing couple. And then another study, actually the Tightwad Spender study, found that for men, not women, but for men who had three or more children, they're more likely to find themselves engaged in financial arguments. The point here is not that you shouldn't have kids. The point is, I think that if you are married, you should make sure that you are on a firm financial setting, and you're comfortable in the relationship before you have kids. 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. I'm Chris Hill. Thanks for listening! We'll see you tomorrow! Thanks for watching!