In this podcast, Motley Fool analyst Asit Sharma and host Ricky Mulvey discuss:
- Their reflections on one of the best days in the market since WWII, and the hangover.
- Nike and Lululemon getting caught in a brewing trade war.
- Andy Jassy's annual letter to Amazon shareholders.
Then, Motley Fool analyst Tim Beyers and host Mary Long discuss some "icks" for investors to watch for as companies report earnings.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.
A full transcript is below.
This video was recorded on April 10, 2025
Ricky Mulvey: One truth can rock a market. You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Asit Sharma. Asit, good seeing you physically a few days ago at Fool Palooza. Good to see you on the Internet today to talk about a very wild past 24 hours in the stock market.
Asit Sharma: Ricky, it was so nice to see you in person. Again, on Zoom, actually came up to one of our colleagues at our company get together and said, hey, we need to find some time to catch up on Zoom together. I mean, they were right in front of me physically, but the world we live in is nice.
Ricky Mulvey: The Internet has affected our brain in permanent ways. Speaking of the Internet affecting things, let's talk about this post on Truth social from yesterday. Sent the market skyrocketing. We talked about it on the show yesterday, but this was since World War II, the third largest gain in a single stock trading session. The two other ones that were really big were back in 2008.
This was President Trump announcing that he's just doing a 10% tariff on imports, pausing the heavy tariffs for everybody except China. Importantly, this 10% gain in the market came in just 20 minutes. If you move to cash, you missed out on that, and you're also missing out on the market declining today. But that's significant. That's 20 minutes giving what the market is expected to return every year. There's more to this story, but just now that we've had some time to process this, any broad reflections on what happened yesterday?
Asit Sharma: Sure, Ricky. I mean, this was a psychological reaction. This was in some ways, a classic relief rally. There was probably also some short selling that had started to work its way into the market after consecutive days of so many points shaved off the major indices. Some covering of short positions. But in general, this was people just reacting with relief because they'd been so traumatized by what the future might look like. I think there was also some weird circular reasoning of major players saying, this is good for the bond market because we're worried about the bond market, so we feel even better, and we can get into that a little bit if you want.
Ricky Mulvey: Let's get into it. China holds about more than $700 billion in US debt. This number could change. It's hard to find an exact figure on that. But while there was a relief rally, we've also declared a trade war on China. Asit, they have a lot of US treasuries.
Asit Sharma: They do. Ricky, I think that number may be even higher, but the bond market has not been acting like its sleepy self lately. What you're pointing out here may be one reason behind this, something that the Chinese may be selling a bit of US treasuries to send a message to the Trump administration, which is say, hey, we hold a lot of your debt, and we can put some supply on the market in a hurry. But there's another bit of phenomenon going on here as well, is that, I think countries are waking up to the fact that if we're not going to project stability, then why would the rest of the world still consider US treasuries to be this risk-free asset? The demand for treasuries has decreased a bit. That's why we saw yields going up.
This is something that, I think, investors may want to pay attention to. It's something that we take for granted that folks always want to buy our debt because the dollar is the World's Reserve currency. But that's predicated on us being maybe the least risky place around the world when you consider everything that could happen. If we're not, wouldn't you want to go to something safer like German bonds, which is where a lot of players went this week?
Ricky Mulvey: Or how about a physical asset? Gold? Maybe even the volatile Bitcoin.
Asit Sharma: There's even the bottom volatile Bitcoin, correct.
Ricky Mulvey: Asit, they don't ring a bell at the bottom, but they might post to truth. Hours before the announcement that tariff pause ish was coming. Trump posted on Truth Social, All Caps. This is a great time to buy DJT. This seems not good to me. We're going to foreshadow a dramatic rise in the market by telling my followers and supporters on social media that, hey, go out and buy stocks right now. If you listened, you did fabulously well. I think politics and investing are becoming inseparable, and this is another example of that. This seems not good. I don't know. How about you?
Asit Sharma: I think this is interesting on a few levels. One is that, now if you have a cynical view of the world, you might want to ask, did some people profit by this, who might have been in the administration? Understanding that the tariffs were going to be set on pause and maybe taking some positions. For that matter, maybe last week on the way down, if this was part of a strategy, I'll leave that to other people to think about who are in a position to deal with compliance. For the average investor, though, does this mean? I think what you're asking, Ricky, does this mean that I have to start following President Trump on Truth Social to understand how I should invest, and is this something now that I have to work into the way I invest? I would say no, because at the end of the day, stocks follow businesses which have earnings, and so you're better off as an investor, always following what happens with the business.
You can take a very similar case with some CEOs who are really great at selling their business proposition. They come with the sizzle at earnings time. They are able to push stock prices a little bit up, a little bit down just based on their ability to convince and persuade, but at the end of the day, results come out, and that's how stocks move over the long-term. They really follow what the business is output. Maybe for a while, you could play this game, of course, President Trump is one of the most influential figures in the world. In the short-term, he may have some ability to knock stock prices around a bit, but as time goes on, that effect will surely decrease because at the end of the day, it's really the policies that are going to affect how businesses are making money. I see as we're talking, you can't see this members, viewers, but I can see Ricky looking at me in disbelief.
Ricky Mulvey: A little bit. I think it's different. I don't want to stay here too long. I want to get to some other stories, but what's different than the CEO example is, let's say, Calvin McDonald of Lululemon goes out on X and puts in all caps, "Now is a great time to buy Lululemon stock." Exclamation point, exclamation point, exclamation point. Then Lululemon reports blowout earnings. There might be some SEC looks at what that is. But I don't have a smarter take other than it's a really weird time to be an investor and try not to be emotional despite the violent market reactions. Let's go to this Bloomberg story because there's some broad scale things happening. Bloomberg's Kim Bhasin is doing some great reporting on what's happening at Nike, and these apparel makers right now, because tariffs are paused for now, China is the exception. If you're Nike, 95% of your footwear production comes from Vietnam, China, and Indonesia. Elliott Hill has already stepped into a difficult situation at Nike. That's the new CEO. You have a big question, what are you doing about your supply chains, especially as these countries have the potential to continue to get heavily tariffed? Be really expensive, probably impossible to move that production to the United States. One example is the GDP of folks in Vietnam is about $4,000. In the United States. It's more than 82,000. I think as we're looking at this tariff war, there are some things that seem to be not everlasting, but really difficult to pull. One of those is garment production, even as manufacturing is supposed to be coming back to the United States. I know you looked at the reporting, bounce that take off you. What did you think of it?
Asit Sharma: If you're Elliott Hill, I think you are in a tough spot. Elliott Hill was around for 25 years at Nike before he left and came back. He was there for almost the entirety of the company's push away from China as the concentration of its supply chain. It took 30 years for Nike to make this much progress. You can imagine how difficult it is. Sure, Ricky, that's not a bad figure to cite the per capita GDP of Vietnam. It's roughly correlated with what the average salary is, which is some $360 a month. You can imagine if ask the average American worker, hey, work ten or 12 hour shifts, 5-6 days a week, and you'll get 360 bucks, and you'll realize the difficulty of this proposition for major companies. There is a rough analogy that's been presented by the Trump administration, which is the iPhone, like, hey, instead of so many armies of people making the iPhone by hand, we want to bring that back to the US and have robots do that.
Here, it really bumps up against reality on both fronts, because the robotics as they exist either in China and the US, they're advanced. We've all seen the Boston scientific dogs. You and I saw one just the other day, Ricky, live and up close, and we've seen the sort of clumsy humanoid robot prototypes that Tesla has, and we've seen the cobots, which are just arms that pick things up and put them someplace else that Amazon has and other companies have developed. But the manual dexterity you need to sew a garment or to assemble an iPhone is years away on an industrial scale in robotics. Therefore, if it took Nike 30 years, just to still be concentrated in South Asia at supply chain, you can imagine the difficulty of figuring out how to reorient this supply chain. I don't envy that task that's on his hands, but we'll get to this in a minute as we talk about some other retailers. There are some longer term plays, I'm sure that Nike is exploring and how it makes its products.
Ricky Mulvey: Nike is not alone in manufacturing in Vietnam. Adidas, Puma, Lululemon, Skechers, and Allbirds all have a presence in Vietnam, according to Bhasin's reporting. You're probably not moving your factory from Vietnam to Alabama if you're these companies. Realistically, it would take tariffs in the thousands to it to make economic sense for these companies. But what do you think these extended tariffs mean for these apparel manufacturers?
Asit Sharma: Well, one, they're all smaller than Nike. They do have the ability to do something like, funnily enough, IT Consultants have done in the past, like 10-15 years, which is to spread supply everywhere in Asia, in Eastern Europe, in Latin America, even in Africa. When you're smaller and nimbler, the consequences are less, and you look at a company like On Holdings as an example, it tends to lease buildings rather than buy them, so it's really going to be easier for it to move supply around. The other element is technology. All of these smaller competitors to Nike have leaned into tech to develop shoes. Again, On Holdings developed its own robots to spin shoes out of filament. Now, that's a really high-end shoe, and it costs a lot of money. But you can see the writing on the wall that they're going to explore that tech in the years to come is, what I was alluding to with Nike. Everyone's going to explore how can get to that point where some of this stuff really becomes automated, and we start to see scale where we don't have to rely on human fingers working in concert to produce our product.
Ricky Mulvey: One company that is probably, in my view, going to get caught in the middle of this tariff war with China, this trade war is Lululemon. When you look at the last quarter, America's revenue rose 2%, and this was one. The Lynchian approach or the Lynchian investor in me, I was at the mall, and I'm seeing lines backed up at the Lululemon store. I'm feeling great as a shareholder, Asit. Then I look back into the reporting. America's revenue just up 2% in the past year. International revenue rose 30%, and a lot of that growth is coming from mainland China. There's a scenario in this trade war where the People's Republic of China government says, we're shutting down your stores, no more business here. Go buy from Chinese legging manufacturers. Is this scenario, though, inevitable? How much are you thinking about or how much should I be thinking about this as a Lululemon shareholder?
Asit Sharma: It's funny. The concentration in Asia at one time looked like it was going to be much more than it is today for Lululemon, but they still have a substantial amount of growth, as you point out, centered in places like China. Now, it's an advantage in a tariff space world because they're manufacturing and selling within the same geography. But what you bring up is the P word again, and I think this is really legit. Well, what if the government just says out of here? We've seen the Chinese government play hard with US retailers, and really the only one of consequence that's been able to keep on their good side for extended periods of time is Starbucks. Other companies have really come to terms with the fact that you could be asked to pick up stakes in a hurry. There was a book called The $1 Trillion Prize.
It was put out by some thinkers at the Boston Consulting Group several years ago, which was about how great the Chinese market was and how vast it was, and the opportunity there for any US company that could master it. The risk section in that book was at the end and very small, but it turns out a lot of us underestimated the political risk that exists within China. If you're Lululemon, you are thinking about the benefits you have currently in this tariff based world, but I think you're going to think more about some of the newer things they're doing like expanding in the Middle East, in Dubai, and other affluent areas.
Ricky Mulvey: Quickly, I want to hit this shareholder letter from Amazon CEO, Andy Jassy, released this morning. The headline, Asit, 2024 was a strong year for Amazon, and he backed that on up, revenue growing 10% for that company. That means it grew to $638 billion. As highlighting moves to eliminate bureaucracy, the movie on Amazon Prime Road House. There's a comma in there. Also a meditation on the value of working together in person, and then an extended part about enabling a why culture, what that's meant. The past for Amazon and also what it's going to mean in the future. When you looked through that annual letter to shareholders, what were your high level takeaways?
Asit Sharma: I liked the why culture framework because it is very Amazon. They have made a lot of progress in asking why I liked the call out to Amazon web services, but I want to point out here. This is one of the whys. Like, why should companies have to build their own infrastructure? Really, some of these whys have been converted over time into simple opportunistic business thinking from Amazon. Your margin is my opportunity, and so just looking around the landscape, seeing what they could attack, in retrospect, Jassy dressing it up as well. We just thought, why do things have to be this way? Well, they had to be this way because you guys are sharks. You dominate every market you go into. Of course, in retrospect, we can say why, but I actually do want to honor that part of Amazon's culture. You can be both at the same time.
You can be just an assassin and also be someone who likes to sit after an assassination and have a cup of coffee and think, well, looking at the field, why not that target? This is a compliment that I'm trying to make about Amazon, but I found that a little disingenuous.
Ricky Mulvey: I said the part about roadhouse tongue-in-cheek, as well. It's definitely a focus on streaming there. But the part later is the one that really caught my attention for the next generation wise. Big focus on artificial intelligence is you can imagine. One of the questions was, why do chips and AI have to be this expensive for customers? Jassy pointing out the ways that inference will be less expensive in the future, and they have a track record of doing that with compute and storage and Amazon Web Services. I think this would be one of the big value drivers for Amazon moving forward. As we wrap up here, do you think Amazon can do to AI inference what it did to the cost of compute and storage with Amazon Web Services?
Asit Sharma: Yeah. I think it can over short periods of time. The strategy it's taking is to have very specialized chips to lower those costs. But as the technology changes from what we need out of the LLMs, those chips, so these ASIC chips, very specific type of chips, which are the backbone of Trainium 2 and now Trainium 3, those may have to be replaced on a quicker cycle than they are today, so the jury is still out on that, but the near term looks good. They're starting to shave some costs and show those savings to customers. It's a great value proposition. I love that why question. That is a great why question to ask. Why should we have to pay in video so much? Why should customers have to pay so much for inference? Just one more why question that I'll add in, Ricky, which I really liked is, why should Elon Musk have control over the skies? We figured out how to get stuff to people's doorsteps overnight. Why can't we put satellites up there, and they're launching their competition to StarLink in short order, and we'll see how that fight goes in the next quarters and years.[MUSIC]
Ricky Mulvey: Asit Sharma, I appreciate you being here. Thank you for your time and insight.
Asit Sharma: Thanks a lot for having me, Ricky.
Ricky Mulvey: You know what red flags look like in a relationship, but how about a company's earnings report? Up next, Tim Beyers joins Mary Long to discuss some of the icks, the red flags he looks out for when companies report. On Monday, they're going to share some of the green flags.
Mary Long: Tim, you and I, we're both based in Denver, Colorado. We like to go into a co-working space. When you get people together in person, sometimes that spurs interesting conversation. Some creative energy happens. Once upon a time, I actually forget what company we were talking about, but we started talking about something we didn't love that we were seeing in management. You mentioned that that was an ick. That single word started an idea about, wait, what are your other icks? On the flip side, what are your kicks? What do you love to see a company do? We're going to break that down and get a little bit inside Tim Beyers head and have a better understanding first of the icks and then of the kicks that you don't and do like to see when management rolls them out. We'll start with the icks, because this is what inspired this whole idea in the first place. A top Tim Beyers' ick, when a company changes reporting metrics, fitting because that was what we were talking about initially, an example you flagged as you and I were going back and forth was of ICHI. I had not even heard of this company before. They're an entertainment company out of China that was spun off in 2018.
Once upon a time, it was called or referred to as the Netflix of China. But post-COVID, ICHI was struggling to release content, partially due to increasingly sensitive government censorship. That led to a slow but steady decrease in ICHI's popularity. As a result of that, management began pointing to a new metric, the number of connected TV monthly average users. Why wasn't that useful?
Tim Beyers: It's not that it isn't useful, Mary. It's that it was sudden and it seemed entirely designed. It's a bit like moving the goalposts. You may have heard this term in sports. Hey, you know what? Don't pay attention to this over here. If I do this, I am amazing. That's the thing. It's moving the goalposts. It's you go out to play golf, and like, today, you know what? I shot five under, but I shot it from the blue tees, not the black tees. But that doesn't matter. It's still the tees. Once you change the context of what it is you are measuring and if you do it suddenly and if you do it to make yourself look better, that I think is a real ick, Mary. In the case of ICHI, again, not necessarily wrong. Connected TV is a big thing. It's an important thing.
You want to be able to isolate how you're doing here. But I would have been a lot better. I would have been a lot more interested in it if you had kept the old metric and said, hey, look, here's the whole universe of things that we're looking at. By the way, something you're going to want to pay attention to over the next several quarters, is this connected TV stuff? That would have been different. Would have been like, I see you're going in a direction. You're not playing three card monte with me here. What you're doing instead is pointing me in a direction, but that wasn't the thing. It's like it's trying to get you to, don't look over there, look over here and see how good we're doing. It's just a little bit weird. Especially where this gets really icky and I can't say that ICHI did this, I don't want to accuse him of something that isn't true. This ick is so important, Mary, because it raises the possibilities. Once they do the diversion tactic, then it is sometimes followed with in the proxy statement, a whole new set of incentive pay items that are tied to these newly achievable goal posts.
Mary Long: Changing incentive structures is one thing that we can perhaps tackle a bit later, but it also sounds like what really turns you off in this setting is the timeliness of it. It's the sudden change rather than, hey, we're preparing you. We're steering the ship in a different direction. Here's a reasoned explanation of why we're steering the ship in a new direction. As we change that, we're going to be paying attention to new metrics. This is what those metrics are. Another company that comes to mind when I think of this ick in particular is Netflix. They changed their reporting metrics.
Tim Beyers: Great example.
Mary Long: Do you get the heebie-jeebies when they stopped reporting quarterly subscribers growth and average revenue per membership?
Tim Beyers: No. They are the model of how to do this right. I'm glad you brought up Netflix. They had been preparing the market for two years almost. Like, hey, you know what? Average revenue per user. That's still thing. We're going to keep reporting it. But just so you know, that's not really going to be the big emphasis here. Our total member count is not going to necessarily be the biggest metric here. Part of the reason for that, it made sense. I shouldn't have said, average revenue per user certainly is an important metric, but they were talking about total memberships, total members, and everything was tied to how many members could they get. But that was changing as soon as they started talking about advertising. Then it was about, look, we want to be able to maximize the amount we can get from every member we can get. It isn't necessarily just about scaling a massive number of new members.
It is about how efficient we are, how profitable we are on a unit basis because this advertising business is going to be really interesting for us. The context of our membership, the contours of it is going to change. All of this made a huge amount of sense, and they didn't get rid of the old metric right away. They kept reporting it, warning people from when the change was coming. Then they did it. It was like, I can see what is happening here and you aren't springing this on me suddenly. I think Netflix did this exactly right. If ICHI was weird and did it fishy, Netflix was totally not opposite end of the spectrum.
Mary Long: We'll move on to another ick, but we'll maybe stick with this theme of time because another ick that you flagged was sudden leadership changes, especially CFO departures. Again, it falls in the same bucket. There's the grown, the grumble. [laughs] But it sticks in the same bucket up of you're unprepared and you're not warning investors and shareholders of these changes and how you're going to adjust moving forward. I was trying to think of an example of one of these, and Lucid Motors came to mind, the EV start-up. They went through a CFO shakeup in late 2023. Sherry House resigned pretty immediately to pursue other opportunities, but didn't outline what those opportunities were at the time. This was after a pretty volatile year for the company. It had cut production expectations, reduced headcount, seen a pretty steep stock decline.
More than a year later, Lucid continues to struggle, but House is now CFO at Ford. So she definitely won the breakup and did indeed leave to pursue other opportunities. The thing that I found interesting about this that I wanted your take on is, sometimes leaders realize that the current company doesn't have the resources or the will to support them on the vision that that leader has. Sometimes people just get poached. When is a sudden departure like that, a reflection of a company leader saying they are better making a move for themselves versus leaving because there is no more room for them at the company. You see the difference, the distinction that I'm trying to make?
Tim Beyers: First I just wanted to say, I love that you used the term won the breakup. Won everything great. That's fantastic. This one is harder to tell, but I think the real ick here is when you see a sudden departure, and it's like in an AK filing, and it's one of the, it's a bit like a non-denial denial. Leaving to spend more time with their family. That's adorable, except it's not true. Come on. That's a standard excuse. At least pursue other opportunities is more truthful. It's probably closer to the truth, but they can't say more than that. I prefer, especially when we're talking about executive transitions, we say, like so and so has let us know that they are intending to leave, retire, whatever it may be, and it's going to happen within a quarter or two. Just like, give a quarter. Because you're a senior executive. It's when it happens suddenly that it really raises questions. More often than not, what's happening here is they have either been given a great opportunity at another company, winning the breakup to use your words here, or there are warning signs here or there's a disagreement of some sort and they have said, I'm done. I need to be out.
You will sometimes see in some of these announcements that there was no disagreement with management about, blah, blah, blah. You'll sometimes see that, and that in itself can be a tell. You're like, OK. Well, that's interesting. They feel like if they're saying that, there is at least a general feeling that there may be some discontent inside the company. Whether or not it's with this specific person, maybe not. But there are some real questions here. The suddenness of it is very important. The real warning excuses are leaving to spend more time with their family. That's probably the big one, or no excuse at all. Pursue other opportunities. Not great. At least it's more truthful. Retirement, going to a big deal, especially if it's been this person who's going to spend the next three quarters helping find their successor, and then they're retiring, who cares? That one doesn't matter.
Mary Long: We'll move on to our final ick to close this out, and that was turning acquisitions to fund growth. When you and I were brainstorming the outline for this segment, you said, Cisco is the prototypical example of this. Why do you have beef with Cisco's acquisitions, Tim?
Tim Beyers: Yeah, I like that you personalized it there.
Mary Long: What's the problem?
Tim Beyers: Why do you hate Cisco? What is wrong with you?
Mary Long: Answer.
Tim Beyers: I think Cisco from years ago, not the current incarnation of the company, but it was just really becoming obvious that they were having a hard time accelerating the growth in their core market because they were back in the day, there were a router company. They were making routers for the infrastructure of the Internet routers, switches, gateways, things of that nature, networking equipment. That business was good, and then it was just not as a gangbuster as a business. In order to keep growth going, they started thinking like, where else can we buy growth? They started looking around the market for places to buy growth, even if the businesses were not directly related, even if they were only loosely related. They just bought an absolute ton of businesses, and it was every year. They were doing it every single year.
Even though a lot of them were related businesses, when you keep doing this and loading up your balance sheet with more goodwill, there's a law of large numbers here, Mary, that if you're going to buy a lot of inorganic growth, that inorganic growth is not cheap. It's going to result in goodwill on your balance sheet. The more you do this, the more likely it is one of those acquisitions is going to fail. When it fails, and if you pay a lot of money for those acquisitions, then the goodwill write-off can be enormous. That can really hit the stock. The way I would describe this is if you are trying to grow by just acquisition or primarily by acquisition, it's like eating an all-carb diet. You might get big. You might get muscular. You might get fat, as well.
Ricky Mulvey: 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 don't buyer or sell stocks based solely on what you hear. While personal finance content follows Motley Fool editorial standards and are not approved by advertisers, The Motley Fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
