Transcript:
Everybody, welcome to Friday, I want to thank everybody that came to Go Live with Tom today, I really had a good time. We had some technical difficulties with Katie’s mic, but it’s still I thought was, you know, a lot of good questions came in, hopefully helped with some of those answers. So today was a really good day for the market. The S&P 500 was up, you know, almost .4%. And today was a day where value did really well, or models did great, you know, the 10 year treasury bond came up, and it’s been really just every other day, I think the markets gonna continue to wander down this zigzag path until it gets some kind of a, you know, a direction. As far as that goes, I still think that directions on the value side, and I’ll tell you, one of the things that I’ve been thinking about too, is just companies that have pricing power. So I saw a headline for an article that said, rental cars that were going for $60 a day are now going for $500 a day.
And so you know, you think about that, as a consumer, you know, if I want to go to Hawaii and I want to rent a rental car for a week, it’s going to cost me a lot more money than it would have in the past. And so it’s not a great thing as a consumer in any of these situations. But as an investor, I’m also glad that I have Avis in my portfolio right now, because what’s going to happen is that Avis is going to be able to control more of the price that they can charge, because there’s a shortage and the rental cars really fascinating Hertz, you know, declared bankruptcy and a part of that proceeding, they had to sell off 18,000 of their cars. And so over the last year, all the rental car companies have been cutting back on the number of cars that they have, I mean, why in 2020, would you sit on a million cars when nobody was traveling, so now they’re trying to ramp up, but in the interim is everybody wants to travel between probably now and the end of the summer, it’s gonna take a while for this to really pick up that the automobile manufacturers are actually backed up also, because the semiconductors are backed up.
So you know, all of these places, they’re going to be able to charge more for automobiles, because there’s a shortage of supply, people that want them desperate enough will pay a higher price, then you know, there’s gonna be a higher price for the semiconductors, again, because there’s a shorter supply, people want them desperately enough, they’ll pay a higher price. And all of those cases, those companies have pricing power, and it allows them to really make more money per unit sold. Now, in some cases, they might be selling less units for different reasons, for example, you know, because the rental car companies cut back on the number of units, they have to rent, they’ll make less, you know, in that regard, but when you’re making $500, instead of $60, you’re still gonna have a really phenomenal profit. So that’s happening all over the place. And you know, as as shortage comes in, there’s probably going to be some shortage of hotel rooms, you know, by the end of the summer or next fall. If you look at the mobility data for the US, and they track, basically, the cell phone mode movement data, it’s still 23%, lower than it was back in February of last year, means almost a quarter of Americans are still kind of sheltering in place. So when that gets back to where it was last year, I think it’s going to go a lot higher, there’s gonna be a lot more people going around and doing things. And of course, we’re all going to be trying to do some of the same things, there’s going to be a shortage of some of that supply, that means the price will be higher. And so of course, that’s bad, you know, for us as consumers, but it’s really, really amazingly good for those of us who are investors.
So what we have is a portfolio chock full of companies that are going to have really good pricing power, the airlines, the cruise lines, the semiconductor companies, the rental car companies, even the clothing manufacturers in the retail stores that are going to have, you know, they’ll be able to charge a bit more than normal, because the demand will be higher, and the supply takes time to come online, semiconductor ones amazing. If you think about it, in order to make a lot more semiconductors, they can probably squeeze more efficiency out of some of the existing factories. So that’ll help. But beyond that, they’re gonna have to build new factories, that takes a long time to get all that in place. So that shortage could stay there, they could stay quite profitable for quite some time because of that situation. So really interesting.
So pricing power is part of what you have to consider here. And look, when you’re looking at these companies, will they have pricing power? What’s the situation, it’s kind of like having a monopoly where you have that control over the price? Not quite. But similar. As far as that goes, that’ll eventually work its way out. And that won’t be such a big deal. But that’s why we’re going to see such explosive profits coming out of some of these places. Not only will the demand go up higher than average, but their supply that they’re able to give will be lower than average because of all the cutbacks and so that means a much higher price, which means a much higher profit possibility. So anyway, that’s, that’s one of the things we’ll watch for here. And I think we’re starting to start to slowly see that here as earnings come out, I still think we’re gonna be on kind of a wiggle path here, you know, for a while until the market kind of really settles in on this reopening position. So good day today. Thank you again for coming to Go Live with Tom, look forward to seeing you next Friday. And I’ll talk to you on Monday for the daily update. Thank you.