Tariff Warnings Dominate Earnings & The Spring Housing Market Slumps

0:28This episode is brought to you by State Farm. Neil Freiman. And I'm Kyle Hagee. Today, why every CEO is mentioning the T word on earnings calls. And how the infamous Zinn nicotine pouches are driving shareholder value. Today is Friday, April 25th. Let's ride.

0:49Big thanks to Kyle for stepping in while Toby runs the London Marathon. Yes, great to be here, Neil. And I run no marathon, so I'm always available when Toby's doing his athletic pursuits. All right. A big shakeup in the global economy rankings. There is a new fourth largest economy in the world, according to new data from the IMF, after Japan slipped from the current four spot to fifth. Which country took its place? It's not a country at all, but a state. California is now the world's fourth biggest economy with a GDP of$4.1 trillion, topping Japan's$4.02 trillion. California is now just behind Germany for the bronze medal while the United States and China come in at one and two.

1:29California is indeed an economic juggernaut serving as a global hub for the tech industry, entertainment, manufacturing, and agriculture. Kyle, this is definitely cause for a new Red Hot Chili Peppers album. I mean, California, massive economy, also a beautiful state. Like, you have money and you look good. Like, come on, California. That's too much. Neil, I'm going to quiz you, though, because the people come to you for news. Yeah. Can you name the other top four and the five largest state economies in the U.S.? So number one is California. Let's just go the next biggest state, Texas. Boom. I think New York is going to be next.

2:02Boom. And then, okay. Oh, God. Pressure's on. I'm deciding between Florida and Illinois for this next one. I think, you know, Illinois doesn't have a whole lot out of Chicago, so I will go with Florida as the final one. Neil is five for five, and you can now trust him on this podcast. Let's go. Minnesota, though, I do have to call them out. My home state only has half a trillion in GDP, so we're going to have to pump those numbers up. And now a word from our sponsor, Planet Oat. Neil, you know that one hoodie that's just softer than all the others? Oh yeah, doesn't matter how many you've got, there's always the one.

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3:05Raise the rudders. Raise the sails. Raise the sails. Captain, an unidentified ship is approaching. Over. Roger. Wait, is that an enterprise sails solution? Reach sails professionals, not professional sailors. With LinkedIn ads, you can target the right people by industry, job title, and more. Start converting your B2B audience today. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started today at linkedin.com slash campaign. Terms and conditions apply. This week, a parade of more than 120 public company CEOs hopped on earnings calls and one by one tossed their financial outlooks in the shredder because of tariff uncertainty.

3:45Let's just pick one day this week, Tuesday. day. In earnings calls that day, tariffs were cited on more than 90 percent of them, while the word recession was mentioned in 44 percent of calls, compared to 3 percent for the fourth quarter of 2024, the Financial Times found. And it's not just one sector, one kind of company sounding the alarm. The trade war is touching virtually every part of the economy. It doesn't matter if you sell soda or wireless plants, make airplanes, drill oil, or power electric grids. Yesterday, Pepsi lowered its profit guidance due to tariff uncertainty. American Airlines suspended its 2025 forecast because it has no idea how many people will fly this year.

4:24Norfolk Southern, a railroad said tariffs could reduce shipments of containers. Boeing said it would need to find new buyers of its planes because China can't buy them anymore. NextEra Energy, which owns the largest power utility in the country, said tariffs would raise the cost of gas-fired power generators, even as electricity demand surges. Verizon and AT &T said higher prices are coming for phones and wireless routers. And that was only from the past 72 hours. Overall, CEOs say they're desperate for clarity from Washington about trade policy because they need to plan for the future. And they just can't right now.

4:58As American Airlines' boss said yesterday, we don't know what's going to happen. Yeah. And you mentioned a lot of the companies. The one that you didn't mention was 3M, who also said that a Minnesota company, that tariffs are going to be a headwind this year, which may raise the price of post-it notes. So they're coming for our post-it notes as well. And there's also this demand challenge on the other side because there's volatility in the stock market. We have maybe tariffs increasing the cost of goods, fluctuation in interest rates. So there's a consumer spending challenge also that's affecting some of these companies.

5:31I thought the travel sector was really interesting and United Airlines took this very unusual step where they offered dual earning forecasts. They said, if it kind of continues down this recession path, here's what our earnings might be. And if things can stabilize, here's what our earnings might be, which is very rare for a company to do. The Southwest CEO, Bob Jordan, said that the drop in domestic leisure bookings are the worst he's ever seen outside of COVID, which basically brought travel to a halt. So this is affecting every industry. I thought the travel industry was an interesting one.

6:03Yeah, it was interesting that United offered two earnings projections because that just doesn't happen. And they were like, recession scenario, we're doing this. Regular scenario, we're doing this. Of course, companies are cutting their profit guidance. They are scrapping their outlook. And they're also warning of higher prices. That's another theme to this earnings week so far. They're saying, look, we are being hit with hundreds of millions of dollars in added costs. And simply, we don't want to pay that. Let's go back to American Airlines CEO. He said, aircraft costs too much already. I don't want to pay any more for aircraft.

6:39Certainly, this is not something we would intend to absorb. And I'll tell you, it's not something that I would expect our customers to welcome. So we've got to work on this. Verizon CEO, if the tariff is going to be as high as they say on the handsets, we are not planning to cover that in our work. That is not just going to be possible. So here you have CEOs warning of higher prices because they're just putting their foot in the sand and saying, we're not going to absorb all of these hundreds of millions of dollars of extra costs because of higher tariffs. Yeah, Juan, I don't know who still uses handsets, so we've got to find those people.

7:08I think that's just a fancy word for phone. And then analysts are also saying just like the uncertainty around where these policies are going in the future is causing a lot of concern. You know, TCW's Purdy said that chief executives were stuck in a kind of suspended animation. Basically, like we don't know if we're going to wake up in six months into an entirely new world order or if this is going to feel like a bad fever dream and things get to normal. Until there's a lot of certainty around policy, it's going to be continued tariff talk for these companies. OK, let's move on. Spring has sprung, bringing more sunshine in the evenings, dudes showing more thighs and more Americans buying a new home.

7:48Well, scratch that last one. Home sales for March came in yesterday and they were downright ugly, recording their biggest monthly decline in more than two years. U.S. existing home sales dropped 5.9 % last month to a seasonally adjusted rate of 4.02 million, far below expectations. That's the biggest month-over-month decline since November of 2022 and the weakest March since 2009, which was an infamously bad period for the housing market. It's an ominous sign for housing activity in 2025 because the spring is typically the busiest season of the year for buying a home. Families want to settle in over the summer before kids restart school in the fall.

8:27And even more disappointing, this year was supposed to be a rebound year for the housing market after 2023 and 2024 were complete duds. But it just can't catch a break. Affordability remains a key hurdle. Mortgage rates remain super high, near 7%, while home prices keep on inching up. Meanwhile, the economic uncertainty unleashed by the tariffs has Americans thinking twice about whether now is the best time to drop a wad of cash for a down payment. Kyle, for the past three years, the housing market has been frozen over. And now when it was finally supposed to begin to thaw, another frost comes along.

9:01Yeah, I mean, uncertainty for on the consumer side is never good, obviously, for the housing market. There's this general fear that a recession might be coming. I've stopped buying my Starbucks personally. So Lord knows I would pause on a house. A real estate brokerage Redfin did this survey that I thought was really interesting. They found that about 25 percent of respondents overall were canceling plans outright to make a major purchase due to the tariffs. And nearly four in 10 respondents said the tariff policy was making them less likely. So you have people canceling plans outright and people saying I'm less likely to do it.

9:33Even before the tariff announcement, consumer confidence was fading because of this recession fears. Survey by Fannie Mae in March said that people concerned about losing their jobs in the next 12 months hit a record high. It was about one third of consumers. And then with stock market volatility, a lot of people, how do you pay for a home? You might sell some of your stock or sell some of your Bitcoin. About 16 % of homebuyers use financial assets to do a down payment. When your stocks are down, you don't want to sell. So that is also putting pressure on this housing market. And again, there's a lot of uncertainty of when this will clear up.

10:10Yeah. So one headwind that is not facing the housing market anymore is inventory, right? Maybe over the past few years, we've heard there's just no homes available for sale. And that's driving up prices and leading to this frozen over housing market that we're seeing. Inventory is just so low. No one's leaving their houses. I can't even find a single house to buy because they just don't exist. That is improving that situation. Nationally, there were 1.3 million homes for sale or under contract at the end of March, which was up 8 % from February and up 20 % from March 2024. So there certainly are more choices for buyers, and yet they're still balking at the high prices.

10:49And it's interesting, too, because I think sellers are now in some markets having to make more concessions because buyers are so scared. They said that about 44 % of purchases in the first quarter included a seller concession, according to Redfin. And in some markets such as Seattle, it was 71 percent of sellers were offering concessions. So stay strong and maybe sellers will just, you know, do pay some of your closing costs, fix the roof for you, throw in a hot tub. I don't know. But they're going to have to bring more to the table if they want a buyer to jump in. Yeah. In some senses, this power dynamic between buyer and seller has shifted more to the buyer.

11:22And you're starting to see home prices come down, actually go negative in certain markets in Florida, in Texas, where a lot more inventory is coming. So, yeah, not a good sign for the full year housing market because this is really the busy season. This is their holiday shopping season, the spring, March, April, May, and it just got off to a very slow start. OK, now let's go to Stock of the Week, Dog of the Week, the segment where Kyle and I pick one stock that was selected, one overall and another that slipped to the second round. Surprise! Today we're going to hand out two stocks of the week because, well, we definitely covered just a lot of dogs just now in the first half of the show.

11:59and it's Friday, so who needs more gloom? Our first stock of the week is Alphabet. Surprise, right? After all, Google's parent company was found to be a monopoly twice. It's facing an existential threat to its search business with the rise of ChatGPT, and you know about all the economic uncertainty in the world. But yesterday afternoon, it reported strong earnings that showed all was well in the Googleplex, and shares shot up 5 % after hours. CEO Sundar Pichai said that Search, the company's cash cow, was humming along, and that AI integrations like AI overviews drove stronger engagement. Search revenue increased nearly 10 % to$51 billion, topping expectations.

12:39Its fast-growing cloud computing division continued to grow fast, with sales up 28 % thanks to all these other companies tapping Google's data centers for their own AI ambitions. It also helped that Google launched some shareholder-friendly plans, like boosting its quarterly dividend by 5 % and authorizing an additional$70 billion in share buybacks. Kyle, Google was the first big tech company to report earnings, and investors were bracing for some bad news. They got a pleasant surprise. Yeah, it was really good news for Alphabet. And I think it's nice to step back and realize just how diverse this business is, which makes it they got that whole Alphabet from A to Z.

13:15So YouTube advertising revenue,$8.93 billion in the quarter. Google Cloud revenue,$12.26 billion in the quarter. You mentioned Search did almost$51 billion. And then they're so big, they have this quote-unquote other bets segment, which includes Waymo, the self-driving car, and some life science units, did$450 million. So they have a lot going right in terms of all the different business lines they have. And I feel like they're kind of locking in because of some of this other news. They've turned dark mode on the Chrome browser. They've made their largest acquisition recently in Wiz for$32 billion.

13:51and they're now telling some remote workers, it's time to get back to the office, lock in, collaborate, like let's keep this momentum going. So I think finally some good news for Elphabet, which is really nice to hear for them. Let's talk about some warning signs though, because you're too cheery right now. It's too early for you to be so happy. But you said they're a diversified business, but a lot of that does depend on advertising and big tech companies are bracing for an advertising downturn because so much of those advertising dollars are spent by Chinese e-commerce companies like Taimu and Xi and Facebook.

14:28Meta gets$10 billion in advertising alone from those two companies. Who knows what tariffs are going to do to the advertising market? You have all these advertising analysts come out and say, we expected growth this year. Now we're expecting a decline, which is why a lot of investors and analysts were looking at Alphabet's report saying, well, we don't know what they're going to report with its search ads because it could go down. We're expecting a downturn in the overall ad market. But now I'm playing the angel on my shoulder. Alphabet showed that advertising is staying strong. We don't know what's going to come in the future.

15:02So yeah, Alphabet kicked off big tech earnings in a very positive fashion. We'll see what happens with Meta, Amazon, Apple in the next few weeks. Up next, an app that can help you cheat on everything. The Jack Welch Management Institute at Strayer University helps you go from I know the way to I've arrived with our top 10 ranked online MBA. Gain skills you can learn today and apply tomorrow. Get ready to go from make it happen to made it happen and keep striving. Visit Strayer.edu slash Jack Welch MBA to learn more. Strayer University is certified to operate in Virginia by Shev and as many campuses, including at 2121 15th Street North in Arlington, Virginia.

15:45Eczema isn't always obvious, but it's real. And so is the relief from EBCLIS. After an initial dosing phase, about 4 in 10 people taking EBCLIS achieved itch relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing. EBCLIS, LibriKizumab, LBKZ, a 250 milligram per two milliliter injection is a prescription medicine used to treat adults and children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema. Also called atopic dermatitis that is not well controlled with prescription therapies used on the skin or topicals or who cannot use topical therapies.

16:21EPCLIS can be used with or without topical corticosteroids. Don't use if you're allergic to EPCLIS. Allergic reactions can occur that can be severe. Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EPCLIS. Before starting EPCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ebglis.lily.com or call 1-800-LILY-RX or 1-800-545-5979. Okay, we're back with our next stock of the week. And Neil, it's officially a Zinfandel spring because my stock of the week is Philip Morris International, the maker of the infamous Zin nicotine pouch.

16:57Now, the company announced Wednesday that it expects a bigger adjusted profit this year. Its stock is up nearly 5 % over the past five days. And let's talk numbers. For the first three months of the year, the company recorded a quarterly operating profit of$3.5 billion, up 16 % from a year earlier, and revenue rose 5.8 % to$9.3 billion. Now on Zinn specifically, shipments of Zinn topped 200 million cans, which is 53 % higher year over year, and the company now expects to sell 800 to 840 million cans in 2025. They also have the FDA stamp of approval. Zinn is the only nicotine pouch brand authorized by the FDA.

17:42What is also interesting is tobacco manufacturing is predominantly domestic. And so they're relatively, compared to the competition, insulated from these tariff and trade uncertainties. So, Neil, I guess they found out that selling addictive things makes you money. It's crazy that Philip Morris, ostensibly a tobacco company, hit its stock at a record high this week in the year 2025. But this acquisition of Sweetest Match in 2022, which originally made Zinn, is looking like one of the best M &A deals in recent memory. I mean, this company was making tobacco and needed to move to a more smoke-free base in order to get with the times.

18:27It bought this company in 2022 that made Zin, and now their biggest challenge is making enough Zins to keep up with demand. They're saying we don't even market it, this thing. What we're spending money on is increasing production and building huge Zin factories all over the United States. They're pouring hundreds of millions of dollars into a new plant in Kentucky, another plant in Denver. They're spending$800 million on those plants combined just to make enough to keep up with demand. And so I can't say enough about whoever made that deal back in 2022 to buy Zin, you know, should be employee of the month or maybe employee of the decade.

19:03Give them a race. Yeah, I mean, you mentioned they don't spend anything on marketing. Like the Zins have kind of gone viral and that's the marketing for them. Like this whole like take us in and lock in trend has been everywhere. And so they're putting all their money towards production. Neil, if they ever make the social network, too, I think I have a story for you that they need to base it on. So let me break this down. A high school kid named Roy Lee gets accepted to Harvard, which is his dream. He sneaks away on a high school field trip, tries to outrun a cop, gets into some legal trouble, which causes Harvard to rescind his offer.

19:36And then other colleges don't want to touch him either. He goes to community college. He locks himself away. He learns to code. He finally transfers to Columbia University, where he builds Interview Coder, which is an undetectable application that lets you cheat on LEAT code exams, which are basically coding exams big tech offer often uses. He gets an internship with Amazon because of this. Then he gets discovered that he was cheating. It goes viral. He gets suspended from Columbia. The offer pulled from Amazon. Then he says, I'm just going to take the idea for interview coder and said, what if the application allowed you to cheat on anything virtual like sales calls or live meetings?

20:13He calls this new company. Clearly, he goes viral again on X with an over the top ad where he basically uses this app to like get real time information to hit on an older woman he's on a date with. And it is blowing up all over the Internet. So, Neil, does this have movie potential? What are we thinking? It does. It does. Let's get Aaron Sorkin on it right now. He is Roy Lee and he has certainly a knack for going viral there. Put their pitch here is they're giving you a, quote, cheating tool for literally everything. And it's very much George Costanza coded because George Costanza says it's not lying if you believe it.

20:51Now, these guys say it's not cheating if everyone cheats. And so they've built this app to be your assistant wherever you go to answer questions. Many of the use cases are in job interviews where the clearly is just humming in the background of a computer. It's completely undetectable. And an interviewer asks you questions. It listens in and then tells you exactly what to say and how to respond. Obviously, quite a controversial app here because they are pitching themselves as helping you cheat and it gained notoriety because it helped this guy cheat on his interview. So you can understand why people are like, maybe we shouldn't do this, but it has gained 80 ,000 users.

21:31It did just raise around a$5 million. So it is a thing in the real world. Who knows what's going to come of it, but it does spark an interesting conversation about what cheating is and what cheating is in 2025 with AI. Yeah, I think, I mean, he's being, I think the company's being intentionally like, cheat on everything is very like incendiary. Like you're like, oh, what? What's going on here? They said, quote, we're being ludicrous and controversial almost intentionally. They said, we've just been blowing up the story as much as possible in order to get as much attention and eyes on me, because I really think that's the only differentiator between winner and losers and in a post AI world.

22:06So they're playing up this cheat on everything angle. But to your point, it is interesting, like the ad that they showed where he's talking to this woman, it's basically lying. And so this this idea of like, OK, if you're doing something that's unintentionally or not known to the other person, is that really good? And so it has generated a lot of controversy for that fact. And the problem is a lot of these AI startups that have tried to bring AI from chat GPT, you just typing chat in chat GPT to answer your questions into the real world have totally flopped. Humane, which made a pin to be your AI assistant in the real world, is not a thing anymore.

22:46Rabbit R1 was another little device that was supposed to bring AI into your everyday conversations or your lived life. And that also did not work. So there's a uphill challenge to bring chat GPT or other AI models from the computer to the to the actual lived experience of people. So we'll say, I mean, it's kind of interesting the way they talk about cheating in that, you know, they he references calculators. How everyone thought math teachers thought calculators were cheating when they first came around and things like spell check. But, you know, I don't think I think this is of a different order.

23:22And the biggest problem that they have here as a business is that this thing just takes a long time to spit out answers. That's like the user experience is just not great because say I'm have say you're interviewing me and I want to use Cluely to answer a question. It takes 10 seconds to hear you and then tell me what to say. So I will literally be staring at you like what's the pause here. Yeah, exactly. I'll just be taking my time. So if they can fix those latency issues, maybe it'll be a thing. But either way, it sparks a conversation. And that's all this guy wants to do. And can confirm we're not using Cluely for this podcast.

23:53We are not. No. Okay, let's sprint to the finish with some final headlines to take you into the weekend. Is that Black Widow by Iggy Azalea coming over the speaker? It's 2014 again, folks, because the Ice Bucket Challenge is back. The viral challenge has emerged from hibernation with a second life dedicated to a new cause. Whereas the first Ice Bucket Challenge was dedicated to raising money for ALS, this one aims to raise money for mental health issues. It was started back in March by a student at the University of South Carolina who wanted to come up with an event for his mental health awareness club.