Motley Fool Money - $1 Trillion in Credit Card Debt

Episode Date: August 11, 2023

The margin of safety for household spending keeps shrinking.  (00:21) Jason Moser and Matt Argersinger discuss: - What the producer price index is saying about the cost of goods and services. - Americans hitting $1 trillion in credit card debt and what it means for the health of the consumer. - Earnings updates from Disney, UPS, and Axon.  (19:11) Motley Fool Money’s Deidre Woollard talks with Tom Larsen, a senior director at Corelogic, about extreme weather’s impact on homeowners and insurers. (28:48) Jason and Matt break down two stocks on their radar: Sky Harbor and Home Depot Stocks discussed: DIS, AXON, UPS, WE, TLRY, HD, SKYH Host: Dylan Lewis Guests: Matt Argersinger, Jason Moser, Deidre Woollard, Tom Larsen Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard, man. Daredevil Born Again, official podcast Tuesdays, and stream season two of Marvel Television's Daredevil Born Again on Disney Plus. We've got updates on PPI, UPS, and A.B. Inveve. Motleyful Money starts now.

That's why they call it money. The best thing. Cool global headquarters. This is Motley Fool Money. It's the Motleyful Money Radio Show. I'm Dylan Lewis, joining me in studio, Motley Fool senior analyst Jason Moser and Matt Argersinger. Guys, great to have you both here. Addie.

Dylan. We've got an inside look at how extreme weather is impacting homeowners and insurers, updates from Disney, and a surprising deal in beer. But we are kicking things off this week. looking at the big macro. Specifically, Matt, we are looking at inflation. Normally when we talk inflation, we're looking at CPI. Not the case this week. We're looking at PPI. We are. It's maybe the ugly step-sister of CPI. That's probably not fair. I mean, it doesn't get as much fanfare as CPI, but it is a measure of costs of goods and services that manufacturers and producers

receive. So it's pretty important. And you know, you had a monthly change on Friday of 0.3% for July, that's the biggest monthly gain since January, and it's up from a month in June where the reading was unchanged. So you can conclude right there that, hey, inflation's not exactly going away. And if you drill down into the data, the services component in particular rose 0.5% for the month. That's the largest gain since August of last year. And that was far higher than the goods prices segment, which was up just 0.1%. So I think to me, this reinforces a couple things. It's first something we've talked about before, which does feel like there's this slowdown in the goods part of the economy, and we've seen that. We've seen that with reports from Amazon,

Target, UPS, which we'll talk about. But it's the services side that seems to be the stickiest when it comes to inflation. I think it also reinforces the idea that rates are going to be high and probably remain higher for longer than most analysts have predicted. It's certainly not something a lot of people were predicting six months ago. So higher rates sticking around. Not necessarily a good thing for borrowers, and there's a lot of borrowing activity that's going on. First time ever American credit card debt passes $1 trillion, according to the New York Fed. Balances up nearly $50 billion in the recent quarter, Matt. What do we make of hitting this milestone? Well, $1 trillion is a big number, so I think that's probably what got a lot of people's attention.

But we are dealing with a bigger economy, and relative to household net worth, it's not that big of a deal. except for this one aspect, which I think a lot of people are kind of overlooking. If you look at the data from the Federal Reserve Bank of New York, the 30-day delinquency rate on credit cards was up to 7.2%. That's the highest level since 2012. And the rate of change, by the way, is really accelerating. We were at roughly 4% on that delinquency rate at the end of 2021. We're now at 7.2%. And a lot of people saying, well, we're just kind of getting back to pre-COVID levels for that.

But remember where we are today. We're at a position where interest rates are a lot higher. We don't have an ocean of federal stimulus about to hit consumer wallets. So I think it is. When you look at credit cards, when you look at auto loan delinquencies, which are also rising sharply, it does start to worry me a little bit. One of the things that is a big part of the debt conversation right now, Jason, I know you've been following this story, is the resumption of student loan interest and the expectation that student loans are going to be being paid again soon.

How do you factor that into the macro picture that we're looking at? Yeah, I think, you know, Maddie made a very good point there in regard to the credit card debt on its own. You know, that number, it's not that big of a deal. It's not that big of a number when you look at the bigger picture. But I think when you dig a little bit deeper to ask yourself a question, why is that happening? I think that's really the question asking, why are these balances going up? And I think it is a mix of things, right? I mean, part of that is absolutely you're seeing the student loan payments getting ready to kick back in

is going to be something that plays into this somewhat. But you look at the dynamics playing out in the economy today. I mean, car ownership, it's more expensive than ever. Homeownership. I mean, really, if you're a new buyer looking for an entry-level home, good luck. Oh, my goodness. Because those are few and far between now. And there's data out there, too, that says household income adjusted for inflation taxes

is around 9.1% below where it was in April 2020. Okay? So that, again, tells you the consumer is having a little bit of, a harder time making ends meet. What do when that happens? Well, you start buying things on credit. And that kind of ultimately gets us to where we are today. Now, when you add to that, the fact that student loan payments are getting ready to start back up. I mean, there are some big numbers that come into play here. You've got around 44 million federal student loan borrowers today. Now, throughout this stretch where those payments were put on pause, I think something to the tune

of maybe 18% actually continued paying during that stretch. The overwhelming majority took that hiatus, right? They weren't paying anything all. And so what that just means is we are going to have a lot of student loan payments coming back in a player that is, that money is not going to be going back into the economy. That also is money that likely, I'm not, I don't think everybody's going to be settling out their credit card bills on time, right? I think we're likely see delinquencies rise that tends to skew a little bit younger because you're not as well-established, you're probably not making as much money, you're still kind of struggling to make ends meet. So it's a very conflicted economy these days, right?

And I think that is seen in that PPI and CPI data right there. It's going to be very interesting to see how this plays out, because the reasonable expectation is that it's going to make for a tougher consumer environment. But with employment where it is today, I don't know, I guess we kind of have to wait and see. I like what Jamo said about affecting younger people more, because I think about it, if you are a young person in this economy, and some of the things JMO said, hard to buy a house, rents are rising, you're back to making student loan payments, you've probably got a car payment that's really high. You don't have a lot of savings or investments. It's kind of tough out there. If you're an older

person, established person, professional, you probably don't have a student loan. You probably have a fixed rate mortgage below 4% on your house. You're earning the highest interest on your savings investments that you have in probably your entire life or career, I kind of think of as rich person stimulus in the paradoxical way that the Fed raising rates has actually helped people that have high savings and investments. So it is, I don't want to make a younger person versus rich person argument, but if you're looking at where in the economy is going to be affected the most, it's probably going to be, to those in their 20s and 30s aren't buying a house and still struggling to build savings.

We talk about it a lot. I mean, I think when we look at these big picture economic numbers, we know it's not evenly felt, right? It's something that gets distributed differently depending on what you're subject to and what your financial situation might be. I want to try to take all these different factors that we've put together here and try to get to one kind of, like, health of the consumer read. It seems to me like generally we would expect credit cards to be somewhere where that spending can go, even if people are a little bit tighter. Matt, is the takeaway here that that extra room that people have isn't going to be there anymore? Well, that's what I think. And I think something else JMO said about the job market, right? As long as the unemployment rate stays at 3.6%, as long as someone who wants a job, it's capable of doing a job, can get a job, I don't think we're going to see a lot of stress here. But there's now no more margin of safety, like you said, Dylan. So if there is any stress in the economy, especially when it comes to jobs, that's where I think you're going to see a lot of pain.

All right. We've got an update on the House of Mouse and a labor deal worth celebrating. Stay right here. This is Motleyful Money. Come back to Motley Full Money. I'm Dylan Lewis here in studio with Jason Moser and Matt Argusinger. One of the major stories, I think, for the big businesses of the market this year, Jason, is the fact that Disney is a little bit of a business in Crossroads. We have some leadership things going on there. We have all of the things that are going on on the labor side with people that work in the entertainment business. And we have a business that's kind of struggled a little bit as of late. They reported earnings this week. What did you see in the results? Well, we've talked a lot about Disney and how one of the advantages of investing in a company like Disney is it has a number of different ways that it can do well, right? It has a number of different ways that it generates money.

So weakness in one or two segments can usually be taken up for by strength in another segment. What we're seeing, unfortunately, with Disney right now is there seems to be weakness in virtually every segment. I mean, this really is a business. It's a business in transition, right? They are really having to pivot into becoming sort of this modern-day media company. And, you know, for all of the credit that we've given Netflix through the years about really being the first to market in streaming, really blazing that trail, we're starting to see the advantages.

If we didn't realize those advantages before, they're very apparent now, right? But with Disney, I mean, it's not just streaming right. They're having issues getting their streaming operations profitable, but the park side of the businesses are really killing it right now. I mean, they're having some issues in theater release. Obviously, a ton of leadership questions. Can this company move on from Bob Iger? It's an interesting setup here that they have with Penn and ESPN, and we'll talk about that

in a minute. But in regard to the company, the quarter itself, I think that with the streaming part of the business in such a state of transition, you know, we look to the park side of the business and say, okay, well, maybe the strength there will help make up for the weakness and streaming. And parks did okay for the quarter, but it wasn't something that was exceptional, I would say. Walt Disney World results themselves were down year-over-year. Now, when you look at the domestic park attendance, that did grow slightly year-over-year.

And that is coming off of a very difficult comparable from last year with the 50th anniversary celebrations. I think that's encouraging news. Now, when you look at spending, spending was relatively comparable to the prior year, and typically we like to see that per capita spending going up, but it's just getting more and more expensive to even go to Disney World now. And I think that's something, as we talked about, the consumer, the state of the consumer in the A segment. You see that playing out with businesses like Disney. Consumers just

can't spend quite as much if they can even make it to Disney world in the first place. I would also say, you know, one thing the market, we know this, the market just doesn't like uncertainty, and they don't like uncertainty around business models and they don't like to question where a company's going to be a year or two years from now. They want to see kind of a trajectory. And I think the problem with Disney is it kind of keeps getting of its own way because we don't know exactly what's going to happen to ESPN. I know Jane was about to talk about that. Or the Hulu segment, or just the parks and the cost-cutting that's going on,

what is this business going to look like in a year? And I think that's where you can look at Disney and say, well, the IP is fantastic. They do have this multifaceted business that can often prop one other business up. But I don't think the market has confidence that anymore because it's the overall confidence in the business based on all the moving parts is creating serious questions. Let's zoom in on that ESPN piece of Disney's business. This was such a strong pillar of Disney's business for a while. They announced layoffs a while back of some of their top and most recognized talent.

The recent news with ESPN is they're partnering up with Penn, and their sports book is rebranding as ESPN bet. Is this something that can revitalize this segment, Jason? I don't know if it revitalizes it, but I think it at least gives ESPN a shot. I mean, ESPN has definitely been one of the bigger question marks in regard to this company over the last several years, again, as this streaming landscape continues to take shape. I think that in regard to the relationship with Penn, clearly Penn needed Disney more than Disney needed Penn or ESPN. But it was close, right? ESPN needed them too. I think Penn needed it just a little bit more because I think, in hindsight, Penn had probably a little buyer's remorse when it came to Barstool.

and so being able to parr ways the way they did made a lot of sense. And I think bringing ESPN into that universe makes sense from the perspective of there's a brand recognition there. Through the content that you're getting through ESPN, I mean, there's a ton of data. You've got a ton of eyeballs, a ton of advertising opportunities to come with it. It's part of what the solution will ultimately be for ESPN. On the flip side of that, when you look at their streaming performance for the quarter, generally speaking, average revenue for paying subscriber continues to grow. with virtually every property, modestly, with the exception of ESPN Plus, which actually declined

incrementally. So, again, it really is going to be, I think, understanding the future in regard to ESPN is going to boil down to partnerships. We've got the partnership with Penn. We know that ESPN is interested in trying to partner up with leagues in some way to help distribute content and monetize that content. But again, I mean, this is going to be Bob Eiger's sort of swan song here, I think. I mean, this is probably his last shot. I think it was very telling. He's bringing in outside consultants to try to help solve this problem because it's not an easy one. It's a busy week for Disney and a busy week for another business, UPS.

The company announced its earnings, but the earnings, Matt, were kind of secondary to the deal that UPS struck with its union workers. Right. That was the headliner because what that did, fortunately for UPS and for the Teamsters, but fortunately for UPS it avoided, would have been a pretty costly strike. you know, that would have really hurt revenue volumes. And so the fact that they got that deal done, and, you know, the fact that your average, or your UPS driver could earn as much as $170,000 in paying benefits by the end of the contract, I mean, those drivers and workers work really hard. So that's a great deal for them. And I think, and a good deal for the company. But turning to the earnings, it gets to something we were talking earlier in the show about the goods part of this economy, especially volumes.

You know, if you look at the domestic segment for UPS, the average daily volume there was down 9.9% in your business. year-over-year. International volume down 6.6%. And this is a business with a lot of operating leverage. So when that happens, margins come way down, and you have earnings per share down 22.8% year-over-year. The company also lowered full-year revenue and operating margin guidance. And I would say that's bad news. I think the Teamsters deal is a good news story. But you also have to take that good news with the idea that, hey, in the long run, what do UPS's margins look like if they've made this pretty generous deal with the Teamsters? That's, I think. I think one long-term where you have to consider, what is the margin profile for this business

in the long run. But certainly, when volumes pick up back up, hopefully in the near future, this business will pick back up as well. So much of what I saw about UPS and the deal that they struck the coverage on that was, wow, we are seeing a flood of interest for people applying to these jobs. And UPS is a major player and a major employer in logistics. What do you think the ripple effects are for other businesses in this space when we see such big numbers and big coverage on a deal like this?

Well, personally, I think I would look pretty good in brown shorts. I think my wife is. But, no, I mean, I think you're right. I mean, these kinds of deals, you know, although there's specific to this union, specific to UPS, definitely have repercussions for other businesses. If an Amazon worker, for example, a Walmart worker sees this kind of a deal getting struck, you know, yeah, does it put wage pressure on other industries? I think it certainly does.

You know, social media is such a funny place. You see everybody just chiming in on this 100 and said. They're just anchoring to this $170,000 number. It seems like overwhelmingly, most are like, how in the world does a UPS driver make that much money? Listen here, man, those men and women work harder than I think most. I have got your back UPS. We love you. Congratulations, because that is well-armed.

100. One more story. Before we wrap up the segment, shares of AXon up 15% this week after the company reported just under 400 million in revenue, beating expectations and adjusted earnings, Jason, that doubled expectations. I'm happy to see it because I'm a shareholder, but I feel like this is one of those companies that just flies under the radar. People don't realize it just continues to put up results. It does fly under the radar. I'm happy like you.

I'm not a shareholder, but I did recommend this in my augmented reality service a number of years ago. It's such a strong business for a number of reasons, right? It's the top dog in its space. I mean, it's helping solve a real and ongoing problem in civil unrest while also living true to its mission, which is to protect life. I mean, I think there's something to that. You have the Taser side of the business, right? The hardware side of the business, and then you couple that with the software side of the business, which has the AXon Cloud, their tremendous growth rates.

And just looking at the quarter, I mean, the AXon Cloud and services revenue, $133 million. It was up 62% from a year ago. This is an interesting stat here. I went back to April 2021. Annual recurring software revenue at that time stood at $242 million. Today, annual recurring revenue, as if this is a national, announcement grew 52% to $559 million. And the thing is, once they get locked in with these forces, I mean, the switching costs don't take long to really grow with a business like this.

The value proposition that they offer their customers is tremendous. And so as that time goes on, the switching costs grow. It gives AXon a chance to raise prices, expand those margins a little bit. And I think we can all pretty much count on the fact that civil unrest, it's going be here for the rest of our lives. It's just human nature, right? Like I said, market doesn't like what's going on at Disney, but they love businesses where there's this high margin recurring revenue. And it's up to 38% of Axon's revenue stream, as you said, Jason. So that's big. Well, they also made an acquisition during the core, which I think is really cool. This company called Sky Hero, which is a Brussels-based company that focuses on drones and ground-based vehicles

for primarily indoor tactical use cases. But you could just all of a sudden see how, this company is expanding what it does to new markets, just with little simple acquisitions like this. I've always been a huge fan. Always felt like this is a business that has the financial profile of a tech company, but the security of government contracts. How can you not love it? Hey, listen, you're going to keep me in line because I don't want to be tased. I don't know about you. All right. Jason Moser, Matt Argusinger, fellas, we'll see you a little bit later in the show. Up next, we've got a look at how weather events and wildfires are impacting insurance coverage in states like Florida and California. Stay right here. You're listening to Motley Full Money.

Back to Motley Full Money, I'm Dylan Lewis. Severe weather conditions have dominated headlines this summer, from wildfires in Canada to extreme heat in Texas and Arizona. These weather events affect people on the ground, and they're impacting the way insurers and risk experts look at the map. To understand how Motleyful Money's Deidre Willard caught up with Tom Larson, a senior director at CoreLogic specializing in catastrophe modeling and helping real estate professionals, insurers, and government agencies

understand and manage risk. Well, I wanted to speak to you because I wanted to give myself and our listeners a better understanding of how people and governments and businesses plan for what really kind of can't be planned, which is natural catastrophes. So how do you and the team at CoreLogic build the models to even look at risk like this? You know, the first is to build the models. The first is the realization that people, government's businesses, they accept risk today. You know, we get in an automobile to go to work. The goal with CAP modeling is to translate this abstract risk of, oh, there could be a bad

event into the types of metrics, the frequency and severity of loss that we use to assess all these other risks. So that is our goal. And how do we build the models is you take these models, these are modeling a natural catastrophe. First, you look at a understanding of what has happened in the past. We have a good record, 120 years. years of hurricane activity. And we go through it. We can extend that to natural severe convective storm events, wildfires. We go back and develop and really understand what has happened. We take the physics and understand and decompose that event into what happens on the ground at every single location. Then there's an engineering aspect of trying to understand, well, what are the

consequences of 150-mile-an-hour winds or strong ground motions and into what does it cost to repair it? So it turns it into that. And we have underlying this is this probability of its occurrence. So we can run through run simulations to be able to give you an understanding of what can happen and how likely is it to occur. Let's talk a little bit about fires because I'm in the Washington, D.C. area. We've been dealing with some of the impact of the smoke from the fires in Canada, which have really blanketed a lot of the East Coast. And I lived in California as well. How has the process of assessing fire damage shifted? Wildfires are increasingly being seen by risk takers, insurers, primarily, as a material risk.

That's a translation because it's material now. I need to manage it a little bit more precisely. And certainly at the regulatory level as well, because the consequences of not managing it are insolvencies and unpaid insurance claims. And those consequences even go to businesses. We've seen in the Paradise Fire. We saw a number of bankruptcies and insolvencies. What it means to a modeler is it's a lot more scrutiny on the specifics because people are making actions to mitigate the risk, and you have to be able to develop a model that can account for. the individual actions of a homeowner to mitigate. So the models are becoming are better at this

thing, really understanding the consequences of it, and hopefully encouraging people to mitigate the risk. Well, you've got major insurers, State Farm and others leaving California. Farmers, I know, just is limiting their policies. What does that mean for the state as more of these insurers leave? There's a lot of, we can unpack that one, but insurers, it's, I think, We're not seeing much right now. In prior crises, these companies' actions have limited the availability of insurance for homes. In prior crises, when that has happened, it leads to slower homes, home purchases, because you can't buy your home if you don't have. You can't get a mortgage for your house unless you have hazard insurance. It certainly leads to higher prices in insurance,

but it's also an availability challenge. I don't think we've seen it. California, but maybe that's because the homeowner purchase rates right now are abnormally low because of other issues, the interest rates primarily. There is a longer-term concern. It's not just availability, but it's also cost. What's being done, though, I think are some positive actions, really focusing on being able to mitigate. Go back to your Paradise example, Paradise has now become a test case in how do we build a safer community. It's not just a just financial insurance of a home because it's too expensive. It's how do I really reduce the risk and how do I demonstrate that for an insurer to be able to offer me lower rates because my community

is invested in safer zones and better hardening of the perimeter of the communities. So you mentioned cost in Florida, the average homeowner insurance policy, it's around $6,000. My mother lives down there. She's thinking this might be the last. Last year, she pays her policy because she can't afford it. I feel I'm worried other people might make a similar decision. And if so, if you have people that own their homes outright and can make that choice, not being insured, what are some of the longer-term repercussions? Yeah, I listen with sadness because that decision of hers is being made by many others.

The demographic cohort that most represents the people who choose not to are older folks on a fixed income where they've been in that home for a while. And because they don't have a mortgage, they have the option of not insuring themselves. Focusing on catastrophes, you see it's a growing cohort, a growing fraction of people that have done that, and then the damage occurs. And they lose probably their largest asset. It's heartbreaking. The challenge is the cost.

It really does represent, it's fairly accurately represents what is the cost. to protect that asset. And so is it the price that's the problem? Or can we reduce that price through better defenses? You know, it's hardening homes or, you know, in the case of wildfire, can we de-risk it by, in the surrounding area? Part of the problem, it seems to me, is that we're kind of, we're building where we shouldn't or where it's riskier. Certainly, that's been a concern in California. And we build because that's where people want to live and that's where the money is and people are willing to pay for for houses in risky areas. Is that something that you think will that change over time? Will home builders and

developers be less willing to take on that risk if they know that there's potential for more damage? There's a different ways. And the pragmatic perspective of that is that's where people prefer to go. And the home builders, they're serving to their community. The challenge is there is a case for optimism. Now, Coralogist data scientists using the real estate transaction data have been able to show that there's greater appreciation for homes that are perceived to being of lower risk. That's a case for optimism because maybe it will be, if the home is worth more, it's higher appreciation assets worth more, then maybe we can start derisking homes.

Maybe people will be incentivized to build beyond the building codes, the minimum standard to strengthen their homes. So despite they're living in riskier areas, there is hope that we can build safer homes. People will prefer a safer home and will invest in the stronger homes that will sort of offset their decision to live in a risky area. But is that enough given the forecasts of how these wildfires and other things might increase? It's never enough. It's a game of inches. You know, where can we do? And so there are reasons for optimism, but there are also a lot of challenges.

There's a lot of homes. Building codes don't change. When you update a building code, you don't strengthen the buildings that are already built. The case of your mother, she's unlikely. to want to invest a lot of money in a stronger roof or preactively because it's not an unreasonable bet that she won't see a hurricane in her life. So, no, there's continual work on it trying to de-risk this. And it will be a concern. Ten years from now, we'll still be talking about it. It will be probably a little bit less if we sort of normalized by the number of people at risk,

but there's still be an extreme risk in these areas. Coming up after the break, Jason Moser and Matt Argersinger return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool Money. Always people on the program may have interests 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 Dylan Lewis, joined again by Jason Moser and Matt Argersinger. We've got radar stocks, but first, a few more stories to round us out this week.

Once valued at $47 billion, WeWork's future seems to be uncertain. In a filing this week, Matt, the co-working company said there were substantial doubts that it could stay in business. You dug in. What do you think? Well, yeah, the late-great Samsell, probably the greatest, I would say U.S. real estate investor of all time, said in 2019, this is when WeWork was kind of originally going public at that ludicrous valuation that you just said. He said it was destined to fail then. And he said that because he'd seen this exact kind of office subletting business model try and fail for 50 years. Really, he's been watching since in the 50s.

And it was always about when you're marrying these long-term liabilities, these long-term sort of master leases, which short-term leases, or in this case, short-term little subscription model, it's never going to work. And of course, we know what happened. And all the things that came out of we work, you know, the allegations about Adam Newman, potential fraud, the mismanagement of money. I mean, it was a failed IPO there in 2019. I think the comeback that they had in 2021 when they came public again via SPAC was really surprising to me.

And there was actually a moment in time in 2021 where I felt, you know what? Maybe just maybe in a post-COVID world, we work's model actually works, that it was ahead of its time, that maybe we are moving to this co-working, co-sharing office paradigm where because of the pandemic, It's not as if corporations want to have these massive headquarters or major long-term leases. They want to go to this subscription model. And so I thought for a split second, it actually might work. But no, no. Sam Zell was still right.

And now the company's on the verge of bankruptcy. So it's just what an evolution over the last five, six years. In addition to just being an incredible story to watch, WeWork is a major real estate tenant, especially in the New York City market. What does the uncertain future of this business bode for commercial real estate, especially in some of these big cities. Right. At the margin, it hurts a lot because I think this was a very popular tenant. It became a very popular tenant for a lot of office buildings that were looking to fill space

and at least a lot of their square footage. And so this takes them out of that picture, or at least really hurts them in that. So I think at the margin, it certainly hurts. In the long run, does it matter a whole lot? I think there's more to deal with in that in the commercial real estate space than the short-term office model. We've also got a deal to talk about this week that will make for some good happy hour talk. Cannabis company Tilray is buying eight craft beer brands from Anheiser-Busch. The $85 million all-cash deal will give Tilrey Shocktop, Breckenridge Brewery, Red Hook Brewery, among others.

Jason, you're wearing a stone brewing shirt. So I'm going to go to you first on this one. I'm clearly a fan of the craft beer. Tillray is the fifth largest craft beer business in the U.S. with this deal. What do you make of this? This is a huge transformation for this business. It is a big transformation, and it is really interesting because this takes me back to a company that I enjoyed digging into many, many years ago.

One of the first companies I really dug into when I first got here to The Fool, Maddie here, Boston Beer, right? We had such a good time digging into that and understanding the same line of its brand. Another company that was far less known was a company called Craft Brew Alliance, and that's ultimately what this is. This collection of brands, more or less, is the Craft Brew Alliance, acquisition that Anheuser-Busch InBev completed, I think, back in 2020. And so brands like Red Hook, Widmer Brothers, you get Square Miles cider and a number of others.

They're good brands, right? They're not top-tier, right? I think craft beer has kind of built a little bit of a snobby reputation. But that's for good and bad reasons, I guess. I think one of the challenges in the craft beer space, it has become very local, right? And so, I mean, getting that stuff out nationally, unless you have that distribution in place in a nationally well-known brand, is just going to be difficult really to make a lot of progress. These are sort of, I guess I would call them second-tier brands.

They're not as well-known, but in a lot of cases, still very good beer, right? I mean, you look at Widmer Brothers, the history behind that beer, I've had plenty of their offerings. It's good stuff. And I think this actually, number one, this gives Tillray a chance to diversify a little bit, right? become a little bit more than just what they have been in pursuing the cannabis market. But also in this space where pricing is becoming a little bit tougher, I think they're going to be able to compete a little bit on pricing, because these aren't brands that necessarily command top-shelf pricing,

but I think that's okay in a lot of cases. Consumers are looking to save a little bit here and there. You get a good quality offering without having to pay necessarily that same heady price tag. All right. Let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Matt, you're up first. What are you looking at this week?

Dylan, I'm going with Sky Harbor Group. The ticker is S-K-Y-H, and that's Harbor with a U, Dan. Immediately, this one for me is a bit out there on the risk curve. Not only did this company come public via SPAC, which I know is a four-letter word these days. It's essentially a pre-revenue company. But I love the business model behind this one. So Sky Harbor builds and operates airport hangers. They ran out to businesses and individuals that own private aircraft.

They also offer a variety of services related to that activity. So if you think about how much demand there is for air travel, the desire for wealthy individuals or businesses to fly into major markets, but not have to deal with the time and hassles it takes to go through a traditional airport, I think it's an attractive model. And I think I see big demand. They're certainly seeing big demand. Now, I have questions about whether they can reach scale quickly enough to be a profitable company.

They report second quarter results next week. I don't own shares yet, but I'm watching this one really closely. Have these SPACs not scared you silly yet? I mean, what are you doing? I know. We're just talking about Wii work. I know, but I think at this point, 2023, you know, maybe the SPACs that actually survive, like Sky Harbor? Maybe those are the ones that are going to do really well.

Wow. Pre-revenue company. Who are you and what have you done with me? I had to go. I had to do 180 from Ron Gross, because I've been too much Ron Gross lately, as he knows. All right. Perverbial cap to you. Dan, all right.

A question about Sky Harbor with a U. When I saw that you had put this on the notes, Dylan, I got excited. I was like, Sky Harbor in Phoenix. I've been there. I've been to that airport. Wonderful. And then when Maddie pointed out to you, I knew something was up here. And then he said pre-revenue.

And I thought to myself, that just sounds like a company that don't make no money. You're not wrong, Dan. All right, Jason, what do you have on your radar this week? Well, I know Dan loves this company, one of his favorites, Home Depot, Oh, ticker is HD. And Home Depot, you know, earnings season is wrapping up. We do have some retail earnings next week, and Home Depot, I think, kicks us off. So looking forward just to kind of seeing what the narrative is this go-around.

You look back to last quarter, and management really noted there, the consumers shift away from products and towards services. And Home Depot's results definitely spoke to that. Furthermore, their guidance spoke to that. They pulled back on guidance a little bit, noting that the consumer is a little bit more pressured than before, and some of that money was being allocated more towards services, things like travel, as opposed to services. I do think it's interesting. We were talking about earlier on in regard to interest rates and talking about how many homeowners are now locked in to these

ultra-low interest rates, right? These fixed mortgages that are 2, 3 percent. I mean, I put myself on that class. I consider that one of my greatest assets is our 30-year fixed mortgage below 3 percent, I think it is. I think that's going to keep a lot of people in their houses for a while. And typically, when people decide not to move but stick around their houses for a while, that kind of lights the fire on some home projects, which could be good for their do-it-yourself segment. I think one thing to keep an eye on with Home Depot, lumber deflation, that's something that continues to play out as a headwind on the top line. When you look at lumber as a part of Home Depot's business, it's about 9% of their overall

business. So we do see that pressuring the top line a little bit, although it's not as much pressure on the margin side, which is good for them. Pro backlogs remain healthy, but they are clearly low. than they wore from a year ago. Larger-scale products or projects are just being pulled, pulled back. It's just the money's not there. So for me, it's going to be paying attention to sort of how they see the rest of this year playing out, how they see this low-interest rate or this high-interest rate environment working in their favor or against them. See if they mentioned anything about those

low-interest rate mortgages. Jason, I think you just gave me an idea for official Motleyful money merchandise. We could have T-shirts that just say, my mortgage is below 3%. It's a serious flex. Big time flex. Dan, a question about Home Depot. Jason, have you ever seen a Home Depot parking lot that wasn't busy? No.

And I go to a Home Depot fairly regularly because, you know, as a homeowner, and I kind of like doing that stuff, I consider myself kind of handy. So I'm there pretty frequently. That's why I own shares myself. The crazy thing is the Home Depot that I go to, it's right next to a Costco. And that thing has a parking lot that makes airports jealous. us. It's a double whammy. It's going to Home Depot. Dan, which company is going on your watch list this week? Well, I don't love going to Home Depot, which is true. I do love the option to go to Home Depot,

so we're going Home Depot this time. It's good to know that it's there, right? Jason Moser, Matt Argersinger. Thanks for being here, guys. Thanks. That's going to do it for this week's Motleful Money Radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.