In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest headlines from Wall Street. They discuss the Nikola (NASDAQ:NKLA) controversy and its impact on the GM (NYSE:GM) partnership. Two banking giant stocks hit all-time lows. The Fools have a curious medical study to share, they answer questions from listeners, and much more.
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This video was recorded on September 21, 2020.
Chris Hill: It’s Monday, September 21st. Welcome to MarketFoolery. I’m Chris Hill, with me today, Mr. Bill Barker. Good to see you my friend.
Bill Barker: Good to be here.
Hill: We are going to talk asset management, we’re going to talk global banking, we have a groundbreaking medical study. We’re going to start with the stock of the day.
Shares of Nikola started the day falling nearly 30%; it bounced back up from that, last I checked, it was only down around 15%, 16%. And this is because Trevor Milton, the Founder of the electric truck maker, is stepping down as Chairman of the Board; this is effective immediately. And it comes in the wake of investigations started by both the SEC and the Justice Department on the potential that Nikola has misled investors. For those, [laughs] you know, was it Hindenburg Research, is that the outfit that came out with the short report about 10 days ago? I’m certain that they believe that this is a “Where there’s smoke, there’s fire” situation. But I don’t know, [laughs] this seems like one of those sudden, effective immediately departures that doesn’t happen if everything is going great at the company.
Barker: Yeah, I would say this is one of the more impactful short reports that I can recall, given the speed with which things have been happening, both, you know, when a fairly thorough report comes out from some of the names that we know in that space, that could be 20%, 30% on a stock, and that was the case with Nikola. But then to drive out, lets for the moment give credit to the short report for today’s news, I’m sure that that is not how the company is spinning it, but I’m going to go ahead and do it for the moment and say, that’s a speed with which we’ve seen a reaction to a short report that I can’t recall. And for a company that was in the news on its seeming merits for an improved situation, having just locked up a deal with GM, selling 11% of itself to GM for some in-kind services, this has been a reversal of fortune for Nikola and its shareholders that is, if not unique, you know, on a shortlist.
Hill: Yeah. And to your point, just to give a little bit more detail, Hindenburg Research came out September 10th with a report entitled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America.” I haven’t read the report, I cannot vouch for the report, but kudos to whoever came up with that headline, because that is — I mean, it’s not the New York Post, but that’s a pretty strong headline.
Barker: Well, I mean, they put a little thought into their headlines naming themselves Hindenburg, right? So, [laughs] they know one of the angles that they are out there to play, and it is a good one for a short seller if they are skilled at their work and doing more than just taking shots that they can’t back up. And I think that Nikola now is going to be run by a former GM exec, so to the extent that GM has bet intelligently, rather than poorly on the actual technology that Nikola has, the removal of one of the key points of controversy regarding frankly truthfulness may allow the hope for a deal to go forward in a meaningful manner. But if the technology is real, things will work out, if the technology has been hyped in a way that GM got duped and other investors got duped, well, probably a couple of heads at GM might roll in that case, I’m not saying that is the case, but there definitely seems to be some serious questions about the truthfulness of the outgoing CEO.
Hill: Yeah. And to your point about GM, look, say what you [laughs] want about GM, it is not a stock that has been in favor for a long time now. It is still a company that within the auto industry has a good reputation and they’re going to be doing investigating on their own, [laughs] whether they announce it in any formal way, you know. So, among Nikola’s other issues, they’re dealing with separate investigations from the DoJ, the SEC, and now GM is rightfully going to [laughs] be crawling around with a microscope of their own. So, one of those three entities [laughs] is probably going to come out with an announcement of their own in the next few months, and we’ll see where all this goes.
Let’s move on to global banking. Deutsche Bank and HSBC are both falling and they’re both hitting all-time lows today; and we’ll come back to that in a second. In the case of HSBC, there are multiple reports, and I’m just going to quote from one news source, multiple reports, “they allegedly moved large sums of suspicious funds.” I’m sorry, that’s a little too vague for my taste. Are we trying to politely say that they’ve been laundering money, because that’s what that sounds like?
Barker: Well, that’s the conclusion that you can jump to, and we don’t know, because this is an ongoing investigation, it covers, I think the investigation was citing 20 years of SARs reports, Suspicious Activity Reports, to FinCEN, Financial Crimes Enforcement Network. And over 20 years global banking is going to have a lot of complaints or reports of money that might be suspicious. All this seems to have amounted to at least $2 trillion, that’s over enough players and over enough time that I think there are going to be some red herrings in there. But has the global banking industry been operating a clean machine for 20 years? No. [laughs] And, you know, Deutsche Bank, this is just one more nail in the coffin of Deutsche Bank. I don’t know how the coffin hasn’t been buried yet, but …
Hill: Deutsche Bank appears to be involved [laughs] in $1 trillion worth of transactions that have raised red flags. I mean, to your point about red herrings, what’s the best-case scenario, that 90% of that is red herrings and so that they only had $100 billion worth of inappropriate transfers?
Barker: I don’t know what the best-case scenario is, I don’t think Deutsche Bank has sniffed a best-case scenario in the last decade plus, so they wouldn’t know a best-case scenario if it beat them in the head, but this is not it. And they’re joined by, sort of, everybody in terms of, if you’re looking at somehow all of the suspicious activity reports globally over a 20-year period, there are going to be transactions that are suspicious, and it doesn’t turn out to be a problem everywhere. And there are going to be some of these players, because, look, by definition, if there is dirty money there, it is going through something, right? And maybe now you can make more of it go through bitcoin, but once upon a time there wasn’t bitcoin and it had to travel through the normal mechanisms. And who it was that knew what when is what we are going to hear more about. And I wouldn’t want to be anybody cited in that report today, because I’m sure they’re all doubling their legal efforts yet again.
Hill: It’s pretty amazing that both these stocks are hitting all-time lows today, when you consider both of these entities were around and publicly traded during the Great Recession, which is when a lot of other banks [laughs] were hitting their lows. Yeah, this really seems like a falling knife situation in both cases. I’m sure there are some investors out there in the corners of the internet who are looking at them saying, boy! I don’t know, all-time low, you know, this might be a cigar butt situation, but this really seems like stay away at all costs.
Barker: Yeah, Deutsche Bank was about some-$150/share back in 2007, it’s $8 today. You know, their stocks, and Nikola would be one, that I would say is a stock which has visited lots of interesting places over the last year. Deutsche Bank hasn’t visited an interesting place for years, it’s just a down into the rate charts with a massive drop around the financial crisis’ partial recovery, but really since 2009-2010, there’s a litany of stories that have come out about Deutsche Bank being a less than competent actor.
Hill: Our email address is [email protected] Question from Justin Russell, he writes, “I’m curious about your thoughts on Brookfield Asset Management. You’ve spoken well of them in the past, and the stock price was essentially cut in half around the Spring and has been there ever since. Is this a buying opportunity or has something fundamentally changed about the business?”
Brookfield Asset Management, earlier this year around February was in the mid-$40s. To Justin’s point, it did get cut in half, it was down in the low-$20s. It’s crept back up, it’s now, I think, around $32/share but still down from both the high for the year and down overall year-to-date. To his question though, what do you think when you look at the stock relative to it potentially being a buying opportunity?
Barker: Well, yeah, it came down about as much as many other things back in the Spring, being cut in half put it into a large pool, it’s recovered 50% since then, which also puts it into a large group of things which have recovered, saw more or a lot, but not all of what they had going into March. Now, the big-cap tech stocks have gone well beyond where they started the year at, but most of the rest of the market, most of the other names have a stock chart that looks a lot more like Brookfield Asset Management than otherwise.
And what I think of when I look at them is, a lot of exposure to retail and to office space, which I don’t like, and that’s one of the reasons why the stock is still quite a bit lower than it was. There are a few other major parts to the company, it’s an asset management company, it has a controlling interest in Oaktree Capital, it’s got the investment partnerships in infrastructure and in some clean technology. So, it’s far more diversified than what I used to think of it as, as being a largely commercial and retail office space entity. So, it’s got a decent amount of diversification. You’re really betting on management here and how well they are capital allocators. And I think they’ve got a proven record, but they are sitting on some assets which are going to struggle for a good long time in terms of the office and retail space.
Hill: I think that’s true, although we’re starting to hear more CEOs come out and talk about getting back into the office, and I’m thinking about Reed Hastings, interviews he’s done around his book promotion that just came out, and then Narayen, the CEO at Adobe, last week talking about wanting to get back to the office, and in particular, and I remember when he said this thinking, yeah, this is one of those things that really seems true, and he would know a lot better than I would, but he was talking about remote work being, and I’m paraphrasing here, remote work can be effective for existing projects, but if you want to launch new projects, if you want to create new projects and new ideas, it’s so much harder to do that remotely than if you are all in a conference room together, if you’re meeting together in-person.
And to get back to Brookfield Asset Management, it’s going to be very interesting to see the companies that are, you know, once everything is safe, are quick to say, all right, yeah, we actually are going back into the office. I do think that there will continue to be large companies, Facebook and Twitter among them, that will say, no, we’re going remote for as long as possible, we’re going to offer as much flexibility as possible, but I’m thinking that the overall corporate response is going to be much more mixed than I would have thought, say, four months ago.
Barker: Well, there’s the office part and there’s the retail part, and they have a lot of exposure to malls and they have attempted to address some of that, I think, by acquiring stakes in, if I’m not mistaken, Aeropostale and something else that went bankrupt. And you know, you’re seeing more of both Simon Property Group and Brookfield Asset Management, trying to mitigate their exposure by buying some of the chains that are large entities in their properties, and maybe that way they can lose less than if all of those things liquidate. You know, as I say, this is a management team that’s got an outstanding long-term record of capital allocation. So, I would bet on that continuing to be the case within their sectors. And the issues are, with their exposure to energy, with their exposure to retail, even if they do a great job going forward, have they placed themselves in a diversified package in a few sectors that really long-term make it hard to, even if you’re outperforming the competition in terms your capital allocation, is that still an attractive package? I like management, and I just am worried about some of the sectors that they have a very large exposure to.
Hill: One more email to get to, and I’ll just remind the dozens of listeners that even if you’re not on Twitter, if you’re on Twitter you can follow MarketFoolery, it’s just @MarketFoolery. If you’re not on Twitter, you should know that the Twitter profile of this show reads as follows, “One of @themotleyfool’s daily podcasts. Analysts discussing stocks, business, investing news, and occasional tangents.” We’ve now reached the tangent portion of the show, so if you’re not interested in that, you should just go ahead and stop listening now.
If you like the occasional tangent, we got an email from a very longtime listener, Fred Gaddis in Missouri, listener No. 94, Fred writes, “Forget an apple a day, I think there’s enough literature to show that a coffee a day keeps the doctor away.”
And he included a link to [laughs] a medical study that was just concluded, this appears to be a joint effort between the Mayo Clinic in Rochester, Minnesota and the Dana-Farber Cancer Institute and a little place I like to call the Harvard Medical School, about — well, the title of the study is, “Association of Coffee Intake With Survival in Patients With Advanced or Metastatic Colorectal Cancer.” And, look, we’re not doctors, we’re not scientists, although every once in a while, we’ll get a comment on Twitter from someone who gives the impression that we think we’re doctors or scientists, we’re not, we know that, we’re well aware we’re not doctors or scientists. However, this scientific study just adds to the growing mountain of medical research that says coffee is really, really good for you. And in this case, I think I have this right, four cups a day is going to help deal with this form of cancer.
Barker: So, and to underline that we are not scientists or doctors we’re going to repeat that again, just in case anybody [laughs] is confused about the matter. But we absolutely are — you know, we are not objective observers of the coffee medical news. We have a vested interest in coffee curing virtually everything, because if there is any downside to drinking large amounts of coffee, you, and I think especially I, are in the crosshairs of whatever that might be. And you know I’ve said before, OK, you know, if you’ve got hypertension, if you’ve got high blood pressure, some of this doesn’t apply and coffee can be bad for those categories, I think there’s also some recent studies that pregnant women should limit, in some cases maybe entirely avoid coffee, there seems to be some doubt from the grand council about whether it’s to only stick to two cups or eliminate altogether. But all of those caveats aside, another great day for the people who drink a lot of coffee.
Hill: So, this is one of those peer reviewed, this is not like just some article on Bloomberg or something like that, like, we got — you know, Fred included a link to the study, you scroll all the way down, there’s a whole disclosure section, which is good to see. And nowhere in the disclosure section does it indicate any association with the following companies, Starbucks, Dunkin’ Brands, like, no, this is not big coffee funding this research, this is actual medical research happening here.
I will also just add this, the final sentence of the conclusion of this paper begins with these four words, “Further research is needed.” So, this is the authors of this study saying, look, we’ve done this, here are our conclusions, here’s what we found, shocker, coffee is good for you, but further research is needed. Which leads me to this, how do we get in on one of these studies? I feel like we could give back to the global medical community if we just raised our hands and said, hey, we’re men of a certain age, we consume multiple cups of coffee a day, can we, if you will, donate our bodies to science? Now, I don’t want to speak for you, for me, I’d be happy to do this depending on what’s involved. So, the drinking of coffee, I got that down, don’t worry about it, doc, I’m with you on that. But then if there are others, and then if it’s like, hey, we need you to, we’re going to need a blood sample every week for six months, no problem, I have no problem with that. But then I just don’t know if there are other things beyond that, if it’s like, actually, we need you to have an MRI every week for six months, like, all right, I think I could do that, but it’s going to take some scheduling, and I don’t know …
Barker: They should corner you when you’re getting your driver’s license, like, you know, oh, would you like to donate some organs in case of a tragedy? And you’re like, oh, sure, yeah, of course. You know, can we help you register to vote today? And you’re like, yes, thank you very much. And then they could enroll you in a couple of tests while you’re there. So, you know, they ask you the questions, figure out, oh, Mr. Hill, your thing is you drink 12 cups of coffee a day, we would like to study that, you know? Rather than donate your body to science, which is more of the organ donor thing, I think they need to intercede with special cases such as yourself and perhaps myself on, you know, unique coffee consumption habits, it’s not that unique, there are millions who drink the amounts of coffee, I think, that we do.
Hill: Final line from Fred Gaddis, and longtime listeners will remember Fred. Every Fall, Fred holds Fredtoberfest and we get invited. He sends a printed invitation to Fool Global Headquarters. Fred included a PS in his email. Fredtoberfest had to be cancelled. “My priority needs to be keeping my kids at school and the last thing I needed was for my church, work and kids’ school to be shut down because someone contracted COVID and spread it everywhere. No one drinking and eating at a party is going to keep a physical distance nor a mask on, hopefully next year.”
Fingers crossed, Fred. And hopefully we’re all much closer back to normal next year; and not just because we love getting the invitation.
Barker: Absolutely. You’ve talked about going to Fredtoberfest.
Hill: Yeah. And you know, the longer this pandemic goes on, the itchier I get to travel, so [laughs] depending on the timing, this may push me into a road trip to Missouri next Fall or the Fall thereafter. Bill Barker —
Barker: Since we’re on the tangent section, you can cut this out later, you know, but I want to focus on one thing you said, which was, if you’re not on Twitter yet, would you recommend that somebody who is not on Twitter get on Twitter?
Hill: I think it depends on what you’re looking for, I find Twitter to be very helpful because I record a show every day, and so the main reason I use Twitter is for news purposes. So, I think depending on what you’re looking for, Twitter can be a very helpful tool. It can also [laughs] be a horrible place and just a hellscape of negativity.
Barker: Yeah, just follow like the, you know, the cute animal sites. I think that’s what I need to cut down on, all things that are not focused completely on cute animals, and perhaps sports, because the political Twitter is a place to avoid at times.
Hill: As I said, a hellscape of negativity. [laughs] Thanks for being here.
Barker: Thanks for having me.
Hill: 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 buy or sell stocks based solely on what you hear.
That’s going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I’m Chris Hill, thanks for listening, we’ll see you tomorrow.