Moneybeat - Prepare for more price escalation

MARY REICHARD, HOST: Next up on The World and Everything in It: the Monday Moneybeat.

NICK EICHER, HOST: Time now for our regular conversation on business, markets, and the economy. Financial analyst and adviser David Bahnsen is here. Morning, David.

DAVID BAHNSEN, GUEST: Good morning, Nick, good to be with you.

EICHER: Another month, another inflation report, the consumer price index still at a four-decade high, March prices 8-1/2 percent higher than prices in March of 2021. That’s the government consumer price index report out last week and again, to emphasize, we’ve not had CPI price spikes like these since the early 1980s.

Of course, this has been the reality for several months, just putting a number on what we’re all noticing every time we go to the store or fill our gas tanks. David how do you read the consumer price index report?

BAHNSEN: Yeah, I think it was 1/10 of a point better than expected, meaning lower inflation than expected on the goods side. The services inflation is, not surprisingly, still going higher. I'm of the opinion, and this may be a bit out of consensus, but I have a high conviction about it, that the inflation number for goods has seen its peak. I think that number will begin to go down. And the main reason is that the very high contributor to goods inflation that has been both new and used car sales appears to have peaked, and those numbers came substantially down. And so if that starts to bring the goods inflation number down, it will bring the aggregate a bit lower, but really, on the food side, the energy side and the services side, there's more to go. I'm one who has believed the housing number is far too high for quite some time, pretty much unrelated to the current round of inflation, I think there's a lot of distortion in housing price assets. And if we haven't seen the peak yet, I think we're very close to it, just simply on the basis of interest rates alone, have really gotten out in front of this and mortgage rates on the 30 year now being above 5%, I think will start to substantially erode demand. And at first, we're already seeing this, the volume of housing transactions comes way lower, and then all the sellers that get met with reality start to have to lower prices. We're not there yet. But I think that that comes in the quarters ahead. So the overall picture is pretty mixed. But we're still you know, in this price escalation phase, and we'll stay there for a bit more to come in aggregate.

EICHER: Let’s talk about Elon Musk and this drama around his bid to purchase Twitter—the offer of $54 per share—works out to $43 billion, give or take. This one we could file under cultural news, but I want to get your sense of things from a business perspective, David. How do you see this one playing out?

BAHNSEN: Well, it depends on what people mean, do I think that Musk is going to end up owning Twitter? I would be very surprised. There are some paths that could happen. But my best guess is that it ends up being a mixed bag, where he doesn't go away right away. It isn't binary of either a yes or no kind of a thing. But rather that he has a sort of strategic angle here in the little chess he's playing. This initial offer is way too low to really think that the board would either meet it or would be pressured to meet it legally. You know, there is a perfectly plausible argument that it doesn't capture all the value that Twitter would ultimately have, and therefore, the board is not under obligation legally, to meet this current offer. But I think Musk is up to something. And I think it will be interesting to watch but I don't expect from the media super impressive capturing of what's going on because I don't think the media is quite up to the job of being inside Elon Musk's brain.

EICHER: Yeah, imagine that’s a pretty complicated place. But take a stab at it. What do you think he’s up to?

BAHNSEN: Oh, I think he's definitely up to the process of getting Twitter to be less censorship oriented and to being a bit more open of a platform. And then also, I think unlocking value around some of the other operational things that he thinks are subpar - not having an edit button, not having the ability to do long form tweets, little things like that. That stuff's more small ball, it probably makes Twitter a better company and unlocks value, but it's not super ideological. But on that front about modern centralized moderation versus a more open platform, I think he's going to try to come out of this with some kind of progress, and he could very well end up running the company in the end or owning the company, but not at $54 a share.

EICHER: So the offer’s too low, he doesn’t get Twitter for that price, and he’s just playing chess here, what change can he bring without actually acquiring the company?

BAHNSEN: Well, he would need board seats, he'd need concessions from management, he’d need to see new policies implemented. All of that I consider very unlikely to happen. but there are plenty of things that could, in theory, you know, Twitter without Elon Musk could implement those things. It's a question of will. And I'm not entirely clear at this time as to where this will go. I think Twitter is a more valuable company if they were to allow themselves to be rebranded as something different than a sort of anti-right-wing, you know, highly moderated, censorship driven platform. I don't think all those things are totally true all the time. But they're true enough that it has created this impression in the marketplace. The companies that are far more a threat here are all these little startup right wing alternative Twitters. I mean, President Trump's Twitter alternative is dead if Elon Musk were to take over Twitter, and I don't even remember the names of all the others GETTR and Parler and these other things that have really just become kind of you know, I, well let me put it this way: I think that we have plenty of innings to go in this - I think it's nowhere near done.

EICHER: All right, David Bahnsen, financial analyst and advisor, head of the financial planning firm The Bahnsen Group.

You can catch David’s daily writing at DividendCafe.com. Sign up there for his daily email newsletter on markets and the economy. David, thanks again!

BAHNSEN: Thanks so much, Nick.

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