Motley Fool Money - Everything at Highs: Tech, Rates, Gold and Cocoa

Episode Date: April 12, 2024

Conventional theory says stocks, debt, and hedges shouldn’t all be at highs at the same time – what does it mean for investors? (00:21) Emily Flippen and Matt Argersinger discuss: - The latest inflation numbers and whether the Fed will actually cut rates in 2024. - The oddity of stocks, interest rates, and alternative hedges like commodities all being up at the same time. - Amazon CEO Andy Jassy’s annual letter, and why Amazon, Meta, and Microsoft are all doing what they can to reduce reliance on Nvidia in AI. . (19:11) Motley Fool Money’s Deidre Woollard talks with Barbara Kellerman – author of Leadership from Bad to Worse: What Happens When Bad Festers – about bad leaders, and bad followers, and lessons we can borrow from Volkswagon’s emissions scandal. (28:33) Emily and Matt break down two stocks on their radar: Hershey and Coupang. Stocks discussed: AMZN, META, MSFT, NVDA, CPNG, HSY Host: Dylan Lewis Guests: Emily Flippen, Matt Argersinger, Deidre Woollard, Barbara Kellerman Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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and crypto rolling, what should investors make of it? This week's Motley Fool Money radio show starts now. That's why they call it money. The best thing. Cool global headquarters. This is Motley Fool Money radio show. I'm Dylan Lewis. Joining me in the studio, Motley Fool senior analysts, Matt Argusinger, and Emily Flippin. Fools, great to have you both here. Dylan. Good to be here. We've got a biotech company going buying, big tech at all-time highs, and of course, stocks on our radar. But we're to start with FedWatch, 24. Fresh CPI data out showing inflation up 3.5% over the last 12 months, up from last month, and the highest it has registered in six months. Matt, what's the culprit here? Well, Dylan, it came down to a couple of the key components, energy prices and shelter costs,

shelter costs, i.e. rents or owner-equivalent rents. Shelter costs were up 0.4% for the month and 5.7% from a year ago. And I know there is considerable debate about the Fed's been methodology and whether or not the data that they use really lags reality. I think it does, but let's not get into that. I mean, this is the methodology they've been using for decades, so I think it's important to stay consistent. So those were the two major expenses. What's interesting, though, food prices, another big component, they were up just 0.1% for the month and 2.2% year-over year. So if you strip out energy and food to get that so-called core inflation number, that number was actually up more than the headline number of 3.8% year over year.

So I think you can only conclude, and I think that's what the market has concluded this week, is that inflation is sticking around. It is definitely stalling out in terms of its downward trajectory. We've talked a lot as we've been following this story about how the last percent, or we'll call it percent and a half in this case, might be the toughest percent when it comes to really moderating inflation. It seems like we've been able to successfully get it below 4 percent, but getting down to that 2 percent, the real target that the Fed is going after is actually quite difficult. It is. It has been quite difficult. And I think the market is really hanging on what the Fed is going to do or what the Fed is thinking. And I tell you what, this week's numbers have really pushed out expectations for that Fed cut. If you look at where they stand in June, the chance of a Fed rate cut is now down to 27%.

July, it jumps up back up to 55%. But here's the thing. If they don't do July, Dylan, then would they cut in September? Just less than two months out from the election? Seems unlikely. Seems unlikely. So, you know, I think that's something J-PAL is probably going to try to avoid. So inflation's been persistent. The economy has seemed to be resilient. I know we're going to talk about that in a moment. So is there a chance? I mean, is there a chance we just do not get a cut this year? I think that's a real possibility that we should talk about. Yeah, Emily, I'm curious. As you try to process the CPI data, try to put together a picture of what you're expecting for interest rates. Are you taking math side here where it's seeming unlikely for the rest of the year that we may see any rate? I unfortunately am, and I say unfortunately, because I love a good debate. And if I can be contrarian, I want to be contrarian. But in this case, I think all of our data is showing that inflation is still

pretty sticky. And despite the fact that the easy gains have been won, they really don't want to fumble the ball here, especially as we get close to that final yard. And so I think the Fed is going to be extremely cautious with how they're handling rate cuts. They would rather cut too late than cut too early, which I think is the right mentality to have when you're talking about the performance of the economy. And I know there's just arguments like, oh, as investors, we hate to hear that because the perception is, okay, well, the value of our companies, right, still going to be higher or lower as interest rates are higher. And we want that rate cut because presumably the value of our companies as a result will go up. But I don't think the Fed is super concerned about that, because

if you look at the aggregate performance of the market by looking at the evaluation of the S&P 500, even with how much rates have increased, the value of the market is still significantly higher than was even pre-pandemic when rates were much, much lower. So I think they're saying to themselves, we don't really care that investors could get hurt if we do not cut rates. We're more concerned about the economy. Emily, you called inflation sticky there. We heard from the nation's leading banker on the issue this week. He wound up calling it persistent. Jamie Diamond releasing his annual letter and providing some commentary. Matt, you dug in to the bank's earnings release and some of the comments from Diamond. What stuck out to you? Well, so he mentioned the persistent

inflationary pressures. I think that was one of his key primary risks, I should say, that he thinks there is for the economy. He also talks about, you know, talked about the terrible wars that we're seeing in the Middle East, Ukraine, and, you know, we got some kind of more troubling news this past week on that. Here was, I think one of his most more interesting points, though, in his letter, which is we're kind of obsessed with the whole interest rate Fed cut, whether they cut, whether they don't cut, and the overall, you know, Fed funds rate. But the Fed has been every month also tightening because they've been kind of letting almost $100 billion of bonds on their balance sheet mature and roll off without replacing them. This quantity of

tidings has been going on since roughly June 2022, and the balance sheet for the Fed has shrunk by about $1.5 trillion. That's quite a bit of tightening. We've never seen tightening on that scale. Of course, we never saw easing on the scale that we saw in the previous decade. But I just think that's a really good point by Diamond that even though we're hanging on this idea that the Fed needs to cut rates, you know, it is getting tired. The credit situation in the the economy is getting tighter. And I think, of course, he as the CEO of the leading bank in the country is worried about that. Emily, Matt just mentioned some of the kind of geopolitical issues that I think are kind of weighing on people as they're looking out. Typically, we see stocks move in one direction,

and a lot of the hedges against instability move in the other direction. I think what is confounding for me is I kind of look at the macro picture is that's not what we're seeing as we look at stocks and as we look at things like gold and metals. Well, it's a great example of when theory doesn't always match reality. So earlier, I was talking about the value of the market. I want to go back to that because, you know, the Fed fund rate back in January 2020 was 1.5%. Today, it is 5.5%. But yet the aggregate price earnings ratio, the S&P 500, is higher than it was in 2020, even pre-pandemic 2020, and earnings are lower. So stock valuations have increased, even though interest rates have increased. And the same is true

for what we're seeing right now in the commodity market, which you just mentioned, which is typically when equities are expected to perform poorly, people will flood into things like commodities, and commodity prices will go up, equity prices will go down. Well, as equity prices have continued to rise, so as commodity prices. So if you look at things like tin, copper, gold, things that are traditionally counter to the performance of traditional equities, those are all increasing. And I think some of that, as you mentioned, is because we're seeing geopolitical concerns that have people thinking to themselves, where is my money the safest? And whether that's logical or illogical, it has led to the price of these commodities increasing as well. So we typically see an opportunity cost when we look

at things like interest-bearing accounts, equities, and the hedges against instability. Matt, right now, pretty much all of those categories are humming along, at least at a high level. As an investor, usually when we make money decisions, there's a mutual exclusivity to it, but that doesn't seem to be happening here. No, everything is loved by everyone. right now. I mean, and I think there are good reasons for this. I'll be optimistic here and say all this hemming and honing about the Fed, what the Fed's going to do, monetary policy, the economy, uncertainty. I mean, look at the jobs report we had last month, 300,000 plus jobs. Look at the unemployment rate below 4%. Look at wages rising faster than inflation. That's something else we got

this week. So you got record household wealth, big consumer spending. Look at US GDP growth. We have the fastest, the fastest, strongest economy of all developed nations right now. do I, so am I, should I be confused at valuations in the stock market at all time highs? I don't know if I really believe in the economy, but the interest rate picture certainly is very, it flies in the face of that. Well, it just goes to show that you can't use theory to drive your investment portfolio alone, right? Right. I think you have to develop a strategy that works to meet your long-term goals, and what happens

around you, happens around you. So I can really only speak for myself, and I know everybody is managing their portfolio and their strategies differently, but as somebody who is coming up on 30 now, so hopefully still have many decades of investing ahead of me, fingers crossed. This isn't really changed in the way that I'm continuing to manage my portfolio. So I am virtually 100% in equities right now. I'm not looking to flood into bonds, even though I think the yield on bonds is not bad. But regardless of the fact that I've just talked about how the VE ratio, the S&B 500 is high, and how we're all worried that there aren't going to be rate cuts and there's geopolitical concerns,

I still try to back my view out, have that foolish take on what does it mean to be a long-term investor? Equity markets tend to go up over time. I expect a big pullback in my portfolio at some point? I don't know when it's going to be. It could be in a week. It could be in a year. It could be in three years. But long-term, I believe that strategy will work to my portfolio's benefit. One of the places that we have seen a little bit of pain with the news on inflation data and the presumption that interest rates will not be coming down anytime soon is some of the more lending-dependent businesses. We saw some of the real estate companies get hit hard this week. We saw some of the auto businesses also get hit hard this week. How are you

factoring in the macro picture for some of those companies where the lending environment matters a little bit more, Emily. Well, what's wild is that as interest rates have increased, yes, the amount of lending has gone down, but a lot of that is not being driven by consumer spending. It's being driven by the appetite of banks to take on additional debt, because again, it goes back to the theory where they're pulling back, they're worried about this. So they're reducing their own risk profiles. Whereas if you look at the actual spending of consumers, I mean, things like car purchases and mortgages, despite the fact that interest rates are so high, people are still spending on it. They're still trying to go out there. There's still an

appetite for big purchases. It's counterintuitive, again, to what you'd expect to see. So despite the fact that the valuations for some of these companies have come down and sure, that could be warranted. Again, we talk about lagging indicators. Perhaps some of these are lagging indicators, and we're still going to see that pullback continuing the future. I still think it's interesting that consumers themselves are indicating to the market. We're still healthy. All right. Coming up after the break, we've got an update on big tech's AI arms race. Stay right here. This is Motley Full Money. What does leadership really look like? On the power of advice, a new podcast series from Capital

Group, you'll hear from athletes, entrepreneurs, entrepreneurs and executives who've led on the field in the boardroom and in their communities. It's not about titles. It's about impact. Discover what drives them and the advice they carry forward. Subscribe and start listening today. Published by Capital Client Group Inc. Welcome back to Motley Full Money. I'm Dylan Lewis, joined in studio by Emily Flippin and Matt Argusinger. It was a big week for Big Tech Amazon CEO Andy Jassy's annual letter out this week. and Emily, this is the third annual letter that we've gotten from Andy Jassy. And I think if by now you haven't gotten used to it, you ought to get used to it.

It has a slightly different, maybe more technical tone than the letters we used to get from our old friend, Jeff Bezos. It does make you miss Bezos a little bit because you have to ask yourself, if you read through this letter, as you mentioned, very technical, it begs the question of who is this written for? Because as an investor, somebody who's somewhat familiar with Amazon's business, I go through the letter. And a lot of the technical jargon just strikes me as unnecessary. fodder. It almost felt like AI wrote it. I wanted to upload it in the chat, GPT, and just give me the summary, because Jesse's words were superfluous in the way that they were talking about the investments that they're making, especially in things like AWS. But when you take out all the silly jargon and all the- Wait, you don't like primitives? The primitives conversation in this letter. I encourage everybody,

download the letter, control-find primitives, and you will see how many times this completely made-up, and I don't even mean when I say that, but effectively made-up term is used, which we spent a long time this morning trying to digest, we take to mean just modules that people can implement in their tech stacks, the building blocks of their tech stacks. It's not anything revolutionary. But reading through this letter, it's like, Jesse's trying to make you feel like Amazon is really on the cutting edge of upgrading its tech. And the truth is, they don't need to be, or they are. They just need to continue to do what they're doing. So the letter felt a little silly to me, but also very focused on their e-commerce business, which I actually found interesting.

given the fact that AWS is their largest profit driver. Matt, as you were looking, obviously, we're doing the primitive count, making sure that we've got all of them down looking at the letter. But we also saw some details on the company's next pillar. JASI talking about marketplace, talking about Prime, AWS. What's next? Generative AI in focus for this company, probably as it should be. Oh, absolutely. I took away some, yeah.

I mean, if you look at, for example, I think it's interesting that he spent some time talking about the fact that they're still regionalizing the business, Still getting to the point where they have enough facilities to give everyone in the country, or at least enable same-day deliveries across the country. It just seems like Amazon's already been there for years, but no, they're still trying to get there, so they're still trying to accelerate delivery to customers. I think that's amazing. But yeah, Generative AI was a big topic.

Prime Video as a standalone profitable business, I think in the landscape of this awful, you know, streaming environment industry that we've been talking about for a couple of years now, the fact that I think Prime could be this profitable entity is interesting. And it speaks to the fact that Amazon, unlike any of the other streaming companies, it's not a streaming company, but it has the service, the prime and the service, there's so much downstream profits for Amazon that the other streaming companies just don't have. If you're, if you're subscribing to Prime Video, of course, you're probably using Amazon for a lot of different things in their ecosystem. I also thought Project Kuiper was interesting. I've heard about this, but I wasn't, you know, I hadn't really dug into it, but this is kind of Amazon's effort to compete with Elon Musk Starlink. They're in the process of launching 3,000-plus low-orbit satellites to, you know, extend broadband to across the world, and I just think, gosh, imagine that. Imagine if that's a part of Prime at some point, another sort of portal into the Amazon ecosystem that they can do to be these satellites. Emily, I am with you. I was similarly a little drowning in the technical jargon of some of Jassy's letter. One thing that I did pull out, and I wanted to emphasize, because it cut

right through for me and kind of got to this other narrative that we are seeing in big tech across. I'm going to quote him here directly. To date, virtually all the leading foundation model, have been trained on invidia chips, talking about AI. We continue to offer the broadest collection of the invidia instances of any provider. That said, supply has been scarce, and costs remain an issue as customers scale their models and applications. Customers have asked us to push the envelope on price for AI chips. As a result, we're building our own AI training chips and interference chips. Shots fired.

Shots fired. Absolutely. I mean, I think that we are starting to see a little bit of the narrative turn on a company like InViDivio where they were a darling, a clear supplier to everybody, but there are limitations to that supply. And now we see updates from the likes of meta and alphabet this week. It seems like there's this awakening in big tech that we need to be a little bit less reliant on Nvidia.

Oh, there's a combination of two things in that. One is the cost of buying chips from Nvidia. So investors will look at this and say, oh, well, this is them attempting to produce their own chips so they can control their costs, which they see as this pretty pervasive CAPEX expense that they're going to experience as they build out AWS in all of these different AI initiatives for the foreseeable future. But there's also this element of timeliness. InVIDIA cannot produce these chips fast enough, right? They're bottlenecked by Taiwan Simi, which is also having months-long lead times on the chips that they're producing. So the fact that the entire industry

is so bottlenecked, it's holding back development, it's holding back production. And this is Amazon, alongside a lot of other big tech players coming in and saying, we got to move faster. We have to do it now. and we think that we can internally, in part, some through partnerships with Nvidia, but there's some element that we can contribute internally to help speed up the process, make the process more efficient, better for our customers, and hopefully as a result, drive profits as well. Yeah, looking over at some updates from meta this week, we saw them focusing on their MTIA chips, which I believe are more purpose-built, maybe not as versatile, maybe not as powerful as the

GPUs that they would get from Nvidia. But meta-noting, because we control the whole stack, we can achieve greater efficiency compared to the commercially available GPUs out there. And Matt, I see a lot of these companies saying, you know what, if we do it ourselves, we customize it for the exact applications that we're working for, we'll accept some of these tradeoffs and maybe not have these more powerful chips from Nvidia. I think it raises serious questions. I think if we look at Nvidia's business over the last 18 months,

it has been an absolute rocket ship, but how much, how much of it has been pulled forward by just the companies that, like these big tech companies, trying to catch up to this AI race, right? And maybe it's the idea that, wait, we just had to make these investments right now because we want to start learning on these models. We want to try to build these capabilities. But gosh, a year from now, two years from now, if all these companies have their own chips, granted, even if they're a generation or two behind, NVIDIA's chips,

are they going to be spending with NVIDIA as much as they have been? I don't know. I mean, Nvidia, to me, and I followed the company well before it became this AI darling. It was always a very cyclical business. Is that still true? I think it might be. And so we're going to see that play out, I think, over the next, say, a year or two. Emily, last segment we were talking about just kind of overall market valuations.

The S&P is looking incredibly strong. A big part of that is the fact that big tech companies, and I'm going to name-check meta, Microsoft, Nvidia, and Alphabet here are at all-time highs have been incredibly strong performers. It seems like when I look out at the companies that have AI exposure or AI that is catapulting them forward, Nvidia is kind of in a league of its own right now. and the other ones are almost catching up and benefiting. What do you make of these businesses at their current valuations?

I love that acknowledgement, which is that big tech is often driving the valuation. So when I talk about the performance of the S&P 500, I'm usually talking about the performance of a handful of companies that drive the overall market performance. But as you mentioned, big tech is a big part of that. And if you look at things like CAPEX spend, R&D spend, it's been incredibly high for a lot of these companies. R&D is like engineering salaries, right? There's repetitive expenses that are hard to get off the balance sheet. Cappex is physically buying more GPUs, putting more infrastructure in place. And actually, out of all of those companies, META is the company that is spending the most.

Around 20% of their revenue over the trailing 12 months was spent in Cappex spend, just to give you an idea about the billions and billions of dollars that are going into these investments. As we try to put a bow on this one, I'm curious. We have a lot of folks who follow the company, NVIDIA, and I want a quick take on this. If you're holding shares, how are you looking at the business, Matt? I do not hold shares, but like I said just a moment ago, and some of the things that Emily has said, I just think this is a business that it's been wonderful. They pulled so much, it's been tens of billions, hundreds of billions of revenue forward.

How much is that has been pulled forward too much? All right. Matt Argusinger, Emily Flippin. Fools, we're going to see you guys a little bit later in the show. Up next, we've got a look at bad leadership and bad followership. Stay right here. You're listening to Motley Full Money. Back to Motley Full Money.

I'm Dylan Lewis. There's no shortage of high-profile leadership issues in the market. right now, from Boeing's Fall from Grace, to Disney's troubles with succession planning. To better understand bad leadership, this week, my colleague Deidre Willard caught up with Barbara Kellerman, professor at the Harvard Kennedy School and author of several books on leadership, including leadership from bad to worse, what happens when bad festers out last month. They talked about bad leaders and bad followers and the lessons we can borrow from Volkswagen's emission scandal. Bad leadership is a little complicated. As you point out in the book, it comes in a few

forms? It comes in lots of different forms and actually I did a book years ago, simply called Bad Leadership, What It Is, How It Happens and Why It Matters. And in that book, I delineated seven different types of bad leadership. To simplify it, I will simply say that I think of it bad, bad leadership and I might add followership as being along two axes. One is from ethical to unethical. Obviously, it's bad to be unethical. And the other is from effective to ineffective. So a bad leader broadly defined can be either unethical or ineffective, but a bad leader more precisely defined comes in seven different types, ranging from, for example, intemperate and ineffective all the way down or up, depending on how you look at it, too evil.

I also want to talk a little bit about CEO pay and how that impacts leadership and ethics, because you point out in the book some of the disparity, it's incredible. The ratio between a CEO's pay and the worker is like almost 400 to 1. It's the highest on record. What are some of the implications of this wide disparity and just how much CEOs are making these days? You know, I think one really, it's a great question, Tadra. And I think one could really say that it is one of the reasons. The extreme income inequity is one of the reasons this country has become quite fractured in recent years.

I'm not saying it's the only reason, but it is one of the reasons. And it's a phenomenon that did not always exist. If you go back to the 60s and 70s, you will see that the gap between the income of those at the top and the income of those in the middle and even at the bottom is much, much, much smaller than it used to be. So what's interesting, I think, is that there's some gradual, very gradual, painfully gradual recognition that this is a problem. And there's a guy, for example, you may know the name, Deirdre, named Brad Gersner, who's got this idea. He's a tech investor, very well known and prominent. He's got this idea that the government should allocate to every baby born $1,000

of seed money, which would then, over time, come. compound thereby narrowing the gap between the haves and the have-nots. I do think there's increasing recognition that this is a problem. That is the gap between those at the top and those at the bottom and then the middle for that matter. But of course, as is always with these things, the devil is in the details. So what to do about it remains obviously a matter of contention. So in the book, you've got the four phases really of bad leadership and how it sort of compounds on itself. I want to go through the example you have in the book of Martin Wintercorn, CEO of Volkswagen during the emissions gate, I guess we'll call it, or diesel gate. It gets a lot of different names.

But take us through the four phases and how they played out in that problem. Well, you know, Americans, it was for a while a very big story even in the United States, but I think most Americans are not really familiar with it. The scandal broke in around 2015. but Volkswagen for a very long time for years cheated on emissions. And it knew people, again, a small number of people at the company knew that there was a so-called defeat device or cheat device being installed on these vehicles, which deceived the general public, deceived regulators, deceived governments as to how many pollutants were really being admitted by these vehicles. So how did this happen? Well, it was decided on, first of all, the possibility even of a defeat device was discovered by accident. But once it was discovered, the decision was obviously made to continue, to continue installing these defeat or cheat devices for years until it was discovered what Volkswagen was doing.

How does it happen? Bad leadership does not unfold overnight, whether in the political, realm, the corporate realm, religion, education, there are similarities in leadership across the board. Is it the same to be a political leader as a corporate one? Absolutely not. But are there universals to leading in every sector and indeed in every country and culture? Absolutely. So the four phases, and by the way, Martin Wintercorn is a perfect example, begin with a leader who is promising the moon and the stars, who is promising more than he can reasonably, and I'll say, he. We're talking about Martin Wintercorn here, who's the CEO in question, more than he can reasonably deliver. So I call that onward and upward again to the moon and the stars. Second phase is

followers join in. These leaders are able through whatever mechanism. Wintercorn, by the way, was a bit of a throwback, quite authoritarian leader in Volkswagen, a company that was, may I say, It started under Hitler, a company that was used to authoritarian leadership beginning in the 1930s, all the way to the early 2000s. And so followers end up following obediently going along, not opening their mouths to protest. And then bad really sets in. You know, it becomes a habit. It is perpetuated.

It becomes more insidious. It becomes worse. so that in the end, you have a situation where nobody talks about it, and it generally has to be, sometimes it's an internal whistleblower, obviously, often it is not. In the case of Volkswagen, it was kept quiet, as I said, for years from about 2008 to about 2015, until some outsider discovered it and revealed it, and then all hell broke loose. You've used a phrase a couple of times, bad followship. And I'm wondering, bad followership, what is it and how does that also have different types of bad followership, the same way you have

different types of bad leadership? Yeah, you know, I'm, of all the questions you've asked, dear driver, most pleased about that one, because people tend to simplify the notion of the leader. In other words, anything good that happens, it's because of a wonderful leader, anything bad that happens, it's because of a bad leader. You cannot have any single leader ever without at least one follower. So you cannot have bad leaders without bad followers. It's just not possible. So at Volkswag, Martin Wintercorn had a very few people, top executives in the main, handful of them, and a handful of engineers who knew exactly what was going on and for how long. They are bad followers as I define them because they knew the company was corrupt and they didn't speak up.

So my simple definition of a bad follower is a follower who does not support a good leader for whatever personal reasons and or a follower who does support a bad leader. Sometimes, by the way, for good reasons. We're too scared to speak up. We think we're better off going along. it's too much time and energy to speak up. So there is often a risk involved entailing speaking up against a bad leader. So I'm sympathetic. You have a bad boss.

You're nervous about doing anything about it. You don't want to lose your job. You don't want to run into trouble. So I'm sympathetic to it. But I do think it's incredibly important to understand the imperative you cannot have a bad leader without at least some bad followers. Motleyful money listeners, we want to hear from you. Who do you want to hear on the show and what questions do you have for our analysts for a future mailbag episode?

Write in at Radio at Fool.com and let us know. Coming up next, Emily Flippin and Matt Argersinger return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool Money. As 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 no part of selling anything based solely on what you hear. I'm Dylan Lewis, joined again by Emily Flippen and Matt.

Argersinger, we've got a couple stories to round out the week before we head over to stocks on our radar. And first up, Emily, Vertex Pharmaceuticals inking a $5 billion deal to acquire Alpine Immune Sciences. Emily, this is Vertex's largest acquisition to date. What's the underlying thinking here? The underlying thinking is that Vertex, by acquiring this business, which has some interesting drugs in development to treat kidney autoimmune disease, that they're going to build a more robust pipeline. and the language that management actually used in this acquisition was, yes, it's expensive, yes, we're spending nearly $5 billion to acquire this other biopharmacurgical company, but we are not acquiring their product.

We're acquiring, quote, a pipeline in a product, meaning that the drug that they have in development, which I'm going to mess up the pronunciation for, provisept. I apologize if I mispronounced it. That kidney autoimmune disease treatment, they believe that the technology that underlies that drug in development can potentially apply to many other. their things as well. And this is not super surprising, given the amount of acquisitions that have been happening in the space, there's been a ton of interest to treat kidney disease. But I'm a little bit surprised that Vertex investors responded so positively to the news. Vertex is a business that has

a pretty robust pipeline already. The most exciting drug they have in development includes a pain medication that many investors hope can be an alternative treatment. Opioids and met at first primary endpoint earlier this year didn't meet its secondary endpoint. So not quite all the way there to replace opioids. but I think this is management saying we're still investing in our pipeline, but $5 billion is an extreme amount of money to make with this acquisition. And if the technology that underlies this kidney treatment doesn't pan out in phase three trials later this year, this could be money just effectively thrown away. Now, Emily, this is a space and a company that I'm not quite as familiar with. And so getting up to speed, just trying to contextualize it for myself, I was like,

okay, $5 billion acquisition, Vertex is roughly in a $100 billion company. That doesn't seem too wild, but it almost sounds like you're saying this is a bigger bet than the market cap numbers would imply. I think so. So Vertex, part of the reason why it is where it is is because they already have commercialized treatments and cystic fibrosis. The business they're acquiring doesn't have that to treat kidney disease yet. So they really are acquiring this product, this pipeline, these drugs and development. But Vertex Pharmaceuticals seems like it can do no wrong right now. And it's been a big favor for investors. We actually just recently added it as a foundational stock and stock advisor. So the conviction behind Vertex has risen a lot over the course of the past year.

So my pessimistic reading of this would be that management is attempting to cash in on a lot of that excitement to try to continue to build interest in the development of their own pipeline as many of their drugs enter later stage trials. But ultimately, we won't have a good sense for whether or not this was $5 billion well spent until we start to see those phase three trials for this kidney disease, autoimmune disease, later in the second half of this year. The presumption is those will be good. If they are not good, expect for the valuation of a vertex to be hit as a result. Earlier on the show, Matt, we were talking about metal prices surging. I have an unlikely beneficiary of that. Costco.

Analysts estimating the company is generating $100 to $200 million a month in sales of their gold bars, which reportedly sell for a small markup on spot price of gold. Are you surprised to see Costco in the gold business? No, because Costco sells some really weird stuff now and then, like caskets. And I think one year they were selling like medical records software, like $1,000 a pop to doctors. It was weird. But my question is, how big are these gold bars? Because I don't know anything about really about gold, but I just Googled. A gold bar typically weighs roughly 32 troye ounces or about one kilogram, which right now costs approximately $75,000.

So are people walking into Costco with suitcases of money to buy? Because you really can't put that on a credit card. generally. So, how are people buying these gold bars? They must be smaller than that. I should have clarified. We are talking about one-ounce bars, which is really, I think, more of a tab of gold. It's a little bit less of a bar. Got it. I was still $2,500 a pop. I mean, how many? Yeah. I mean, that's impressive. Yeah. And actually, Costco limiting customers to five ounces. You can't buy more than five ounces I'm not even sure what to make of that. Is that per day or is that lifetime I got five ounces?

I need to look at the terms and conditions. Can I come in the next day? five ounces, I could see fitting easily in a cart. I have not seen these for sale, but I have to imagine they're next to like the Kirkland Trail mix or something like that, Emily. Yeah, the only gold I own is now attached to my left hand. But maybe I need to go over to Costco and really up my ante here, although I will say I have no commodities in my portfolio, gold included, whether that is a physical tab from Costco or an ETF otherwise. But I'm just curious about the doomsday prepper that this is advertising to. I think, Costco understands its market pretty well.

Yeah, yeah. And I mean, I think we're laughing about this lot, but what I think it reminds me of is that if Costco sees the opportunity to add something that they think people will enjoy, even if it's a little bit more of a cult-type thing or kind of a meme-type thing, they will do it and they're happy to do it. It's up there for me with the dollar-and-soda combo, where it's just we're going to do it because it's fun and people are going to lean into it.

So you walk out with your $2,000 gold bar and $1.50 hot dog, and you've had a good day at Costco. Costco. These are the two ends of the Costco spectrum. 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. Emily, you're up first. What are you looking at this week?

So the stock on my radar is coupon. This is the South Korean e-commerce giant that many people relate to the Amazon of South Korea. And as part of that comparison, they actually have a version of a prime membership, a membership Club, and they're making news today this week because they raise the price of this membership, their WOW membership, 58%. And naturally, if you are a South Korean user and payer of coupon in their wow membership, you're probably, you have your pants on a little bit of a wad today. But the interesting thing about this is that part of the investment thesis on my end for coupon was the belief that they're really underpricing this premium service. And to really exemplify,

58% sounds like a lot, but it's really not a lot when you look at the value that they're providing. compared to Amazon Prime in the United States, which costs around $15 a month, that is around 0.26% of the average American income, with the price of the RocketWWO membership, entering somewhere around $5.5 U.S. dollars. That's around 0.2% of the average income in South Korea. So this is still affordable, presumably affordable for the people who are using the service, but naturally one that may have maybe rubbed users the wrong way.

Dan, a question about coupon. I first want to highlight the Pants in a Wad comment. Just hilarious, Emily. you for that imagery. I love putting my foot in my mouth. So there are so many Amazon's of, you know, ex-country out there, right? Like Mercado Libre and others. When is Amazon just going to buy these things? Well, I think the good thing about Amazon is the build-out fulfillment and logistics and understand a market, that's an extremely expensive endeavor. And one that they haven't necessarily had the same commercial success in the countries in which they've attempted to expand

into the way that domestic enterprises have. So the same reason Mercado Libre has really crafted a niche in South America. I think coupon and the other end has crafted a niche in South Korea, same way with the Chinese e-commerce companies. So there's a market for everyone. All right, Matt, what do you have on your radar this one? All right. The Hershey Company, H-S-Y is the ticker. And I know since I pitched this last fall that Dan hates Hershey's chocolate, but man, I think he should really like the stock here. So for one, Cocoa prices, obviously a huge input for Hershey, they're at almost 50-year high, $10,000 a metric ton. That is roughly 20% higher than the price of copper.

Cocoa prices, in fact, are up almost 200% just in year-to-date, 2024. And you can imagine what that's doing to Hershey's gross margins. Not to mention Hershey's stock price, which has been absolutely crushed lately. In fact, the PE multiple of Hershey stock is trading below the market's multiple for what I think is the third time in the past 25 years. It's a company that's always gotten a premium and I think deserves it. So management is doing everything they can. They're trying to control costs, make things more efficient, expand internationally. Imagine they can do all that. And Coco prices eventually, inevitably fall, probably starting next year. And I think Hershey's profits are

going to soar. I think the stock trades above $250 in under two years, making that stand. Wow, strong prediction. Dan, a question about the Amazon of Chocolate Hershey. Mattie, come on, man. The chocolate is terrible, garbage tier. It's oversweet, it's waxy, it's got terrible mouth feel. What are you doing with this company? Okay, Coco prices, yeah, whatever. They still make trash chocolate.

Dan, you're such a connoisseur on chocolate. I had no idea. I just think, I know. Do you like Starbucks coffee, Dan? Yeah, it's fine. Oh, darn it ruins my point. A lot of people don't. And look what Starbucks is done.

I don't. See that, Emily. And Starbucks has been a wonderful company. First of all, how can you hate Reese's peanut butter cups, Dan? I mean, I know you don't like the chocolate, but they're so good. Anyway, I think there's a lot to like, even if you don't like the chocolate. I want to go on record, okay? I do like Reese's peanut butter cups.

Those things are great, but it's not because of the chocolate. And I don't think anybody out there is eating Reese's peanut butter cups for chocolate. Man, it's just a wad of peanut butter. If there's no chocolate, Dan, they complement each other. so well. We're back to Wogs over here. Look at this. I had to do it. Dan, I think I know, but which one's going on your watch list? I'm going to go a coupon because I would never buy Hershey. I'm sorry, Pennsylvania. That's terrible. Emily Flippin, Matt Argersinger, appreciate you guys being here and bringing your radar stocks. Dan, as always, appreciate you weighing in. That's going to do it for this

week's month, The Full Money Radio Show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.