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The AI Boom Is Running Into a Wall of Debt and Higher Rates · The Financial Exchange Show

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  Speaker 1: is The Financial Exchange with Chuck Zotta and Mike Armstrong.
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  Speaker 2: Chuck, Mike, Tucker with you here. It's Friday and markets
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  Speaker 2: are mixed much the same way they've been the last
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  Speaker 2: day or so. S & P 500 is down 14 points.
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  Speaker 2: The Dow Jones Industrial Average is up 227. NASDAQ Composite
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  Speaker 2: down 254. So tech stocks once again leading the way down.
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  Speaker 2: And this has not been a recipe for success at
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  Speaker 2: the index level probably since like 2021. You know, it's
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  Speaker 2: Try and think of like the last time that we
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  Speaker 2: had tech underperformance and stocks did okay in the aggregate. Yeah.
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  Speaker 2: Not often. It's probably been five years, maybe seven. I'd
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  Speaker 2: have to look at 2021 even to see what that
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  Speaker 2: year looked like. But, I mean, you probably got to
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  Speaker 2: go back to like 2021 or 2019 because 22 was
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  Speaker 2: bad for everyone. That was a bad one. 23.
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  Speaker 3: 23.
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  Speaker 2: Tech dominated, 24. Tech dominated, 25. Tech dominated, 26. Tech
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  Speaker 2: has dominated. Energy's had a nice little run this year
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  Speaker 2: as well, but... It's not what's lifted all the books. Guys,
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  Speaker 2: Energy's 2% of the S & P 500. It's not
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  Speaker 2: dragging it up. I'm sorry. Just stop trying to make
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  Speaker 2: Fetch happen. It's not that it hasn't done well, but
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  Speaker 2: you can't lift the index when you're at 2% weighting.
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  Speaker 1: Correct.
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  Speaker 2: So... This is what's going on in equities. Bonds, after
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  Speaker 2: being up a couple of basis points early this morning,
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  Speaker 2: 10-year treasury back down one basis point to 5.077%. Dollar
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  Speaker 2: index is sliding as well. So two runs that we
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  Speaker 2: thought were getting a little extended with yields moving up,
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  Speaker 2: they have reversed. And so yields coming down the last
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  Speaker 2: few days and the dollar as well. Mike, I'll ask again.
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  Speaker 2: has the U S debt situation gotten any better in
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  Speaker 2: the last 48 hours? I haven't seen anything on that. No,
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  Speaker 2: I don't think so. Then where are the pieces talking
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  Speaker 2: about how yields are down because the U S debt
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  Speaker 2: situation is more sustainable. Cause all we get are when
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  Speaker 2: yields are going up, it's just nonstop. And look, Mike
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  Speaker 2: and I are very much on record being like, Hey,
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  Speaker 2: there's a debt problem with like debt. Yes. That's, that's
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  Speaker 2: what I've said. Uh, Here's the deal. Whenever you get
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  Speaker 2: interest rates going up, people are like, oh, it's because
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  Speaker 2: the U.S. has too much debt. And then when they
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  Speaker 2: go back down, no one's like, well, now they don't
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  Speaker 2: have enough debt. Because, like, that's just not true. This
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  Speaker 2: is why, like, you have to look at the broader
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  Speaker 2: context of different assets and how they perform. And so
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  Speaker 2: when yields were going up, but the dollar was strengthening
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  Speaker 2: and gold was weakening, that was not indicative of a U.S.
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  Speaker 2: debt spiral. Markets this week are very clearly... being pulled
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  Speaker 2: in two opposite directions.
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  Speaker 4: And not that these are completely opposing forces, but on
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  Speaker 4: one side, we have concerning inflation reports.
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  Speaker 5: Yeah.
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  Speaker 4: In part caused by, or in large part caused by,
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  Speaker 4: energy price shocks. In other part caused by a tremendous
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  Speaker 4: build out of AI data centers that's pushing up prices
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  Speaker 4: for a lot of things. On the other hand, we
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  Speaker 4: have renewed concerns about the AI build-out itself, what it's costing,
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  Speaker 4: how it's going to be financed, whether or not there's
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  Speaker 4: enough capital, and whether or not the finished product is
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  Speaker 4: ever going to pay for itself. And for bonds anyway,
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  Speaker 4: those are pretty opposing forces, right? If you're concerned about
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  Speaker 4: long-term higher inflation, you're going to demand higher interest rates
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  Speaker 4: on bonds. If you are terrified that the economy is
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  Speaker 4: about to come to a screeching halt because the main
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  Speaker 4: thing lifting it for the last three years is about
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  Speaker 4: to fall apart, then you want to probably buy a
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  Speaker 4: whole bunch of government debt and lock in your interest
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  Speaker 4: rates for the next five years. They are opposing forces,
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  Speaker 4: and I think plenty of investors are lining up on
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  Speaker 4: either side of that trade right now, and that's what
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  Speaker 4: we are seeing this week more than.
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  Speaker 2: Much of anything else.
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  Speaker 4: And that's important because the bond market, the interest rate moves,
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  Speaker 4: have been what's dominated the headlines since August.
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  Speaker 2: Gets nicely to this piece from the New York Times
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  Speaker 2: that is our top one. as we kick things off here,
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  Speaker 2: why bad news in the bond market may be good
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  Speaker 2: news for investors. And so here's the deal. Again, let's
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  Speaker 2: read through some of this and talk about what's happening here.
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  Speaker 2: So what this is talking about is that, look, yields
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  Speaker 2: have gotten high enough where they're starting to get pretty
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  Speaker 2: attractive for a lot of investors. I mean, again, when
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  Speaker 2: you had the 10-year at like 5.3%, Again, it was
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  Speaker 2: getting to the point where it's like you have random
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  Speaker 2: people who know nothing about bonds that are like, hey,
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  Speaker 2: I heard that you can get 5.25% on a 10-year
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  Speaker 2: bond now. And it's like, what are we talking about?
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  Speaker 2: You've never mentioned this. So I think that it clearly
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  Speaker 2: is something that seeped into the public consciousness in the
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  Speaker 2: last month or so in particular with this last move
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  Speaker 2: up that we've seen. But when we talk about... you know,
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  Speaker 2: kind of what this means here, it's something where, look,
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  Speaker 2: higher yields obviously have made bonds, you know, more attractive than,
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  Speaker 2: which is exactly what, like, it's this reflexive phenomenon where
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  Speaker 2: yields go up and then that in turn causes yields
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  Speaker 2: to go down as more people buy those bonds. Like,
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  Speaker 2: we see this over and over.
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  Speaker 3: Yeah.
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  Speaker 4: Which is not necessarily intuitive. I've definitely gotten the question
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  Speaker 4: from a few people this year.
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  Speaker 2: I'm confused.
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  Speaker 4: I'm losing a bunch of money on bonds, but bonds
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  Speaker 4: are paying higher interest rates.
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  Speaker 2: What's the disconnect?
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  Speaker 4: And the answer is, well, You owned the bonds before
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  Speaker 4: the rates went up, and therefore you've taken losses on them.
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  Speaker 2: And let's talk a little bit about how that works mechanically,
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  Speaker 2: because I get this question like, hey, why do bond
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  Speaker 2: prices go down when yields go up? So let's say
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  Speaker 2: that I need to borrow money. I've had a hard
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  Speaker 2: time of it, and I say, Mike, can you lend
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  Speaker 2: me $ 100? Right. What do you say to me? Absolutely, Chuck.
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  Speaker 2: And are you just going to give it to me,
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  Speaker 2: and then I'll just give it back?
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  Speaker 4: No.
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  Speaker 2: How much do I need to pay you in order
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  Speaker 2: to borrow $ 100? Today, I'm going to be looking... For
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  Speaker 2: how long are we talking? Just a year. I just
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  Speaker 2: need a year.
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  Speaker 4: I'm going to be looking for your risk about 6.5%, Chuck.
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  Speaker 2: Okay, so the way it works, I am paying Mike
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  Speaker 2: $ 100 back at the end of this year, and I
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  Speaker 2: pay him 6.5% in interest over the course of the year.
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  Speaker 2: So $ 6.
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  Speaker 3: 50.
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  Speaker 2: Right. Now, let's say that Tucker.
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  Speaker 2: Goes to Mike, and interest rates have moved up 1%
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  Speaker 2: by tomorrow, which I know is dramatic and everything. But
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  Speaker 2: Tucker says, Hey, Mike, I need $ 100. Mike says, No. Exactly.
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  Speaker 2: He says no to Tucker. No. So he says, Okay,
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  Speaker 2: I'll lend you the $ 100, but you've got to give
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  Speaker 2: me 7.5%, not 6.5%. Now, We have two bonds that
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  Speaker 2: are out there. One at 6.5 and one at 7.5.
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  Speaker 2: They're not just going to coexist at those interest rates
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  Speaker 2: because all else being equal, my bond is not going
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  Speaker 2: to have any takers. If you tried to resell my
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  Speaker 2: bond to someone else, like let's say Mark Fandetti came
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  Speaker 2: in and said, hey, do you have any bonds that
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  Speaker 2: you want to sell me? You'd say, yeah, I'll give
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  Speaker 2: you Chuck's. Like, I don't want it. And Mark would say, well,
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  Speaker 2: I don't want that one either. It's only yielding 6.5.
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  Speaker 2: Tucker's is yielding 7.5. Give me Tucker's.
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  Speaker 6: Right.
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  Speaker 2: Exactly. Mark wants that 7.5% yield. So instead, what ends
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  Speaker 2: up happening is the 6.5% bond, instead, that one, the
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  Speaker 2: price falls to the point where the yields are equivalent,
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  Speaker 2: assuming Tucker and I are equal credit quality and yada yada.
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  Speaker 2: And so that is why when rates go up, you
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  Speaker 2: see prices go down on bonds is because the ones
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  Speaker 2: that were issued at the lower rates... their prices have
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  Speaker 2: to fall to make the yields equal to where they
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  Speaker 2: now currently are, right? So where you get to now is, again,
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  Speaker 2: 10-year treasury is a little bit north of 5.1%, or
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  Speaker 2: right around 5.1% right now. And the things that you
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  Speaker 2: have to pay attention to, longer-term bonds are more sensitive
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  Speaker 2: to changes in interest rates, simply because there's more interest
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  Speaker 2: that is happening over the course of the bond. If
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  Speaker 2: I have that one-year bond, Mike, and I'm paying you 6.5%
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  Speaker 2: to borrow that money, I pay you $ 106.
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  Speaker 1: 50.
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  Speaker 2: If it's over 10 years, I'm paying you $ 160, $ 165,
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  Speaker 2: which means that a greater proportion of the value is
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  Speaker 2: tied up in the interest payments. And so a greater
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  Speaker 2: percentage change is going to be needed to equalize bond
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  Speaker 2: prices when there's a longer duration until maturity. So these
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  Speaker 2: are things that you need to be aware of as
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  Speaker 2: you navigate it. Again, there's a lot that we can
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  Speaker 2: go into on this. Happy to take some text questions
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  Speaker 2: at 617-362-1385.
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  Speaker 6: Again, 617-362-1385.
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  Speaker 2: Let's take a quick break now. When we return, Luke
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  Speaker 2: Cowell from Sherwood News joins us next.
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  Speaker 3: As promised, we are now joined....
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  Speaker 2: By Luke Cowell from Sherwood News, here to talk a
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  Speaker 2: little bit about what is going on in markets. Luke,
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  Speaker 2: it's good to have you here today. Oh, great to
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  Speaker 2: be back.
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  Speaker 7: Happy Friday.
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  Speaker 2: So it's obviously been, you know, just a very quiet
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  Speaker 2: week here. You know, a modest 1% decline in the
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  Speaker 2: S & P 500. Just not much to write home about, right? Yeah, yeah, no, exactly.
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  Speaker 7: Nothing to report. Been happy to take a lot of
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  Speaker 7: week off away from the desk. Yeah, no, it's been
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  Speaker 7: an amazingly exciting week and, you know, at the risk of,
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  Speaker 7: hyperventilating while we're still so close to all-time highs you
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  Speaker 7: do have to say just the moves under the surface
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  Speaker 7: both the the losing streak and semiconductors which looks to
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  Speaker 7: be extending today as well as the more intense pain
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  Speaker 7: for the companies at the kind of fringes the lever
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  Speaker 7: to the leverage speculative edge of the ai boom and
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  Speaker 7: anthropic as a private market company looking to go public
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  Speaker 7: and join them has certainly kind of captured a lot
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  Speaker 7: of attention.
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  Speaker 2: Yeah, I mean, look, front and center in this is
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  Speaker 2: obviously Corweave, which has been, you know, people have been
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  Speaker 2: writing about their bonds. People have been writing about the stock.
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  Speaker 2: People have been writing about the fact that there's a
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  Speaker 2: ton of insider sales without insider buys. What are we
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  Speaker 2: seeing here? What questions are being asked? And what do
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  Speaker 2: you think is a realistic timeline for when those questions
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  Speaker 2: can actually be answered? Because it's probably not by 4 p.m.
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  Speaker 1: Today.
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  Speaker 2: Yeah, highly doubtful.
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  Speaker 7: I think, you know, zooming out, looking at both CoreWeave
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  Speaker 7: and other parts of the AI boom, I think the
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  Speaker 7: key question that'll be answered probably, hey, might even really
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  Speaker 7: start to get answers by next Wednesday, I would think, is, okay,
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  Speaker 7: so we know that higher rates on these more leveraged players,
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  Speaker 7: they're now assumed to be a constraint on the boom.
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  Speaker 7: We were, you know, about two weeks ago, it was,
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  Speaker 7: you know, AI is immune from higher rates for forever. And,
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  Speaker 7: you know, now, oh, how the tides have turned in
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  Speaker 7: just a short period of time. So I think the
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  Speaker 7: question that investors have to be asking and might get
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  Speaker 7: an answer to in the next week or so is, okay,
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  Speaker 7: does the negative impact on the AI hardware side from
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  Speaker 7: things like Anthropic maybe not having as much cash to
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  Speaker 7: burn because they're not getting as much coming in the door,
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  Speaker 7: and that means a lower valuation, and as well as
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  Speaker 7: the ripple-on effects for a core weave from that from
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  Speaker 7: a potential customer, are those offset? and by how much
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  Speaker 7: from things like, hey, every hyperscaler is still up 10%
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  Speaker 7: year to date. They're going to report earnings. Next week
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  Speaker 7: is Meta going to say, hey, news really blew away
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  Speaker 7: our expectations. We're now going to spend less on CapEx.
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  Speaker 7: Don't think that's in the cards. So it's kind of
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  Speaker 7: that balancing act of, hey, how much do the hyperscalers
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  Speaker 7: offset the more marginal companies that we would expect to
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  Speaker 7: be the first in line to be hit by a
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  Speaker 7: headwind from higher rates?
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  Speaker 2: Luke, the big one that I look at longer term
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  Speaker 2: is still, okay, so you've got all this CapEx in
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  Speaker 2: the pipeline. The next three years are like $ 4 trillion
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  Speaker 2: in CapEx and change. Isn't the real question that's out there,
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  Speaker 2: can we continue in the aggregate to see spending on
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  Speaker 2: AI models grow enough to support that? And we don't
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  Speaker 2: have any idea because we don't know what the adoption
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  Speaker 2: rate is going to be what people are actually willing
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  Speaker 2: to pay for this, what businesses will be willing to pay.
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  Speaker 2: That's like the whole answer to this thing. And it's
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  Speaker 2: just going to take time to get that final one
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  Speaker 2: on the CapEx build out. Am I wrong?
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  Speaker 7: I don't think you're wrong. I think some of the,
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  Speaker 7: you know, complicating factors in that, or at least, you know,
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  Speaker 7: things to help put context around that is, you know,
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  Speaker 7: Jensen Wong at last earnings report in video had said, hey, we,
• 14:45
  Speaker 7: you know, we only expect the Frontier Labs to be
• 14:48
  Speaker 7: about 25% of our sales for next year. Hey, that's
• 14:51
  Speaker 7: a big number, but he also expects sales to be
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  Speaker 7: half of what they could be if there were no
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  Speaker 7: supply constraints at all on NVIDIA chips. So that's kind
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  Speaker 7: of the balancing act of, obviously, this is a huge
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  Speaker 7: source of demand right now. And it's also, you've got
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  Speaker 7: a bit of a, I would call it a pebble
• 15:06
  Speaker 7: at the start of a stream. We know if you
• 15:08
  Speaker 7: put one there, you can change the trajectory of a
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  Speaker 7: lot of things. So AI demand is driven a lot
• 15:13
  Speaker 7: on the training side by frontier lab demand, but also
• 15:16
  Speaker 7: when they come up with better models, more functionality, that
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  Speaker 7: drives more breadth, more widespread adoption. So it really is
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  Speaker 7: getting to the point where how much things change downstream
• 15:26
  Speaker 7: when you just change that one factor. And that is
• 15:29
  Speaker 7: definitely a question that will have to be answered by
• 15:31
  Speaker 7: how kind the fundraising environment is and how much acceptance
• 15:35
  Speaker 7: there is and how indicative Anthropic is of wider trends
• 15:38
  Speaker 7: or just perhaps company-specific dynamics.
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  Speaker 2: At the moment. Luke, Mike and I were talking earlier
• 15:43
  Speaker 2: this week about the potential for the Anthropic IPO. just
• 15:49
  Speaker 2: trying to figure out like, hey, is there any chance
• 15:51
  Speaker 2: that this thing gets shelved? We saw a big Australian
• 15:54
  Speaker 2: one get shelved. I forget if it was late last
• 15:56
  Speaker 2: week or early this week. You obviously have jitters going
• 16:00
  Speaker 2: through the AI ecosystem this week. My thought is there's
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  Speaker 2: just so much force behind it that I think they
• 16:05
  Speaker 2: get it out the door. But I'm curious just to
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  Speaker 2: get your thoughts on whether there's any chance that that
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  Speaker 2: IPO ends up getting shelved before the end of the year.
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  Speaker 7: You know, never say never is the sort of thing
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  Speaker 7: I can guarantee you that's the story that every financial
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  Speaker 7: journalist worth their salt is chasing and putting out feelers
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  Speaker 7: for on right now.
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  Speaker 2: So, you know, you can never say never.
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  Speaker 7: That would obviously be incredibly deleterious to the AI ecosystem
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  Speaker 7: because I was just reading a very well-timed working paper
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  Speaker 7: that was published by the NBER. earlier this week, and
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  Speaker 7: it was, hey, the reason companies go public, especially VC
• 16:44
  Speaker 7: companies that needed a lot of capital, is not just
• 16:46
  Speaker 7: because they need the capital from the IPO, but also
• 16:49
  Speaker 7: going public helps them raise more capital thereafter at better
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  Speaker 7: terms than they would otherwise have.
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  Speaker 2: So this is very much.
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  Speaker 7: A, you gotta raise it to spend it, and for
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  Speaker 7: an AI boom that needs spending to be sustained and
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  Speaker 7: accelerated and grow, a successful IPO to give the ability
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  Speaker 7: to raise even more money after that is a prerequisite
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  Speaker 7: for the entire system to keep working as well as
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  Speaker 7: it has with, you know, fits and starts over the
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  Speaker 7: past couple of years.
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  Speaker 2: Very good. Luke, appreciate you joining us today. Hope you
• 17:18
  Speaker 2: have a fantastic weekend and look forward to catching up
• 17:21
  Speaker 2: again soon.
• 17:23
  Speaker 7: My pleasure. Same to you, partner.
• 17:24
  Speaker 2: That is Luke Cowell with Sherwood News talking about what
• 17:27
  Speaker 2: we are seeing in markets, specifically the jitters related to
• 17:33
  Speaker 2: AI and AI adjacent stocks this week.
• 17:36
  Speaker 3: Yeah.
• 17:39
  Speaker 2: I don't think anybody's going to have an answer on
• 17:41
  Speaker 2: any of this stuff, Chuck. We're just going to have
• 17:43
  Speaker 2: to see. The question is going to be pace of
• 17:45
  Speaker 2: adoption in my mind because I have two different opinions
• 17:50
  Speaker 2: that are in my head and I can't figure out
• 17:51
  Speaker 2: which one's right. On one hand, if you're building out
• 17:56
  Speaker 2: all of this AI infrastructure... My guess is that you're
• 18:01
  Speaker 2: doing it, like, along the way, you're talking to your
• 18:04
  Speaker 2: customers and saying, hey, like, do you have, like, the
• 18:10
  Speaker 2: need for this next year? Right. Right. You're not just
• 18:15
  Speaker 2: doing this blindly, I would think. But then there's part
• 18:18
  Speaker 2: of me that's like, well, all these companies just talk
• 18:20
  Speaker 2: about this as being a race where even if we're
• 18:22
  Speaker 2: not sure that we want to be in it, we
• 18:23
  Speaker 2: have to compete because if we don't compete, then we're
• 18:25
  Speaker 2: going to lose. And who knows what happens when we lose,
• 18:27
  Speaker 2: but I hear it's bad. And so I'm like, maybe
• 18:30
  Speaker 2: they just don't actually know if the demand is going
• 18:32
  Speaker 2: to be there.
• 18:33
  Speaker 4: On one hand, the news over the course of the
• 18:35
  Speaker 4: last few weeks in this AI, we talked about the
• 18:37
  Speaker 4: mathematics profession and just the incredible problem solving that this
• 18:42
  Speaker 4: software has gone from three years ago, not being able
• 18:45
  Speaker 4: to count the number of R's in strawberry to to now,
• 18:48
  Speaker 4: you know, absorbing all of this mathematics research and answering
• 18:52
  Speaker 4: truly fascinating questions in fascinating ways about mathematics. And you say, wow,
• 18:58
  Speaker 4: that pace of growth is incredible. Can it be applied
• 19:03
  Speaker 4: to more practical areas, right? Are we going to have
• 19:06
  Speaker 4: AI creating new drug combinations within the next 12 months
• 19:09
  Speaker 4: at this pace? Or are these things so fundamentally different?
• 19:14
  Speaker 4: Because let's be honest, think, you know, creates a new
• 19:17
  Speaker 4: drug combination that healthcare companies can sell, then yeah, you
• 19:20
  Speaker 4: have paid for a whole bunch of this stuff. But
• 19:23
  Speaker 4: that's literally what people are betting on right now.
• 19:25
  Speaker 2: Let's take a quick break. When we return, we've got
• 19:28
  Speaker 2: Wall Street Watch next.
• 19:39
  Speaker 1: Bringing the latest financial news straight to your radio every day.
• 19:44
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:49
  Speaker 1: time now for wall street watch tracking the stocks the
• 19:53
  Speaker 1: data and the headlines driving markets so far today right
• 19:56
  Speaker 1: here on the financial exchange radio network.
• 19:59
  Speaker 6: Markets are mixed to close out a choppy week, but
• 20:01
  Speaker 6: we are seeing another sell-off in tech by midday.
• 20:05
  Speaker 2: Right now, the Dow is.
• 20:07
  Speaker 6: Up a quarter of a percent or 137 points higher.
• 20:08
  Speaker 6: S & P 500 is down a third of a
• 20:09
  Speaker 6: percent or 25 points lower. NASDAQ selling off over 1%
• 20:11
  Speaker 6: or 286 points off. Rust 2000 is down half a percent.
• 20:12
  Speaker 6: 10-year treasury yield is flat at the moment of 5.085%.
• 20:15
  Speaker 6: And Crude oil is currently at $ 97 a barrel. Tesla
• 20:30
  Speaker 6: finally unveiled its highly anticipated second-generation Roadster at an event
• 20:34
  Speaker 6: last night. The biggest surprise was the vehicle uses SpaceX-developed
• 20:38
  Speaker 6: rocket-style thrusters and demonstrated aerial maneuvers. Production expected to begin
• 20:44
  Speaker 6: in 2028. Tesla down by 1%, while SpaceX shares are
• 20:48
  Speaker 6: down over 2%. Meanwhile, Corweave shares continue to come under
• 20:52
  Speaker 6: pressure over worries about how higher interest rates will impact
• 20:56
  Speaker 6: the computing provider's debt. After a modest rebound Thursday, shares
• 21:00
  Speaker 6: today down another 9%. Elsewhere, after announcing job cuts earlier
• 21:05
  Speaker 6: this week, Netflix added to its shakeup and announced the
• 21:08
  Speaker 6: departure of its chief content officer. The streaming giant continues
• 21:12
  Speaker 6: to struggle with slowing growth and customer engagement. Netflix down
• 21:16
  Speaker 6: over 2%. And Alcoa shares are jumping 7% after the
• 21:20
  Speaker 6: aluminum producer announced reported higher profit and revenue in the
• 21:25
  Speaker 6: third quarter. I'm Tucker Silva, and that is Wall Street Watch.
• 21:31
  Speaker 2: Rising mortgage rates risk plunging housing into further crisis. They do,
• 21:37
  Speaker 2: but can we talk about gasoline instead? Oh, you want
• 21:39
  Speaker 2: to do that?
• 21:40
  Speaker 5: Yeah.
• 21:40
  Speaker 2: Yeah, that's a better story. Let's do that. So, Tucker
• 21:43
  Speaker 2: grabbed this a couple days ago, and we just didn't
• 21:45
  Speaker 2: have the time to get to it, but... Yeah.
• 21:48
  Speaker 6: I wouldn't play the audio for you because it speaks
• 21:50
  Speaker 6: for itself. So this is a news report down in Atlanta, Georgia,
• 21:53
  Speaker 6: and this is courtesy of WSB-TV in Atlanta.
• 21:58
  Speaker 8: New tonight, drivers say they thought it was a prank
• 22:00
  Speaker 8: when two gas stations had regular unleaded gas as low
• 22:03
  Speaker 8: as 97 cents.
• 22:05
  Speaker 9: They were caught in the middle.
• 22:06
  Speaker 8: Of a gas war where drivers say they were the winners.
• 22:09
  Speaker 8: Channel 2's Tom Jones reports from Powder Springs where the
• 22:12
  Speaker 8: gas war caused a traffic nightmare.
• 22:15
  Speaker 9: It got so bad, police had to come out and
• 22:18
  Speaker 9: shut down traffic to the pumps at these two gas stations.
• 22:21
  Speaker 2: When I got here, regular gas.
• 22:23
  Speaker 9: Was $ 1.
• 22:23
  Speaker 2: 69.
• 22:24
  Speaker 9: Then the price kept getting lower and lower and lower,
• 22:29
  Speaker 9: much to the light of drivers sick and tired of
• 22:32
  Speaker 9: paying all that money to fill up. People were losing
• 22:34
  Speaker 9: their minds.
• 22:36
  Speaker 1: Feels like Christmas over here, y'all.
• 22:37
  Speaker 8: I need to get down here.
• 22:38
  Speaker 9: It was the greatest gift of all when they got
• 22:41
  Speaker 9: regular gas at prices we haven't seen this low since
• 22:44
  Speaker 9: the 90s.
• 22:45
  Speaker 2: We were here this afternoon, it was $ 2.
• 22:46
  Speaker 5: 54.
• 22:47
  Speaker 2: Then it went down again. Then it went down again.
• 22:49
  Speaker 1: When we pulled in, it.
• 22:50
  Speaker 7: Was $ 1. 44.
• 22:51
  Speaker 3: 139.
• 22:52
  Speaker 9: Gas got as low as 97 cents. Managers at the
• 22:56
  Speaker 9: Amoco and its next-door neighbor, Sunoco, on Marietta Street, told
• 23:00
  Speaker 9: me they were in the midst of a gas war.
• 23:03
  Speaker 9: Amoco said its policy is to set its gas prices.
• 23:06
  Speaker 2: So, I gotta be honest. You hear gas war, and immediately...
• 23:10
  Speaker 2: I'm picturing, you know, Zoolander with like... Immediately, yes. You
• 23:15
  Speaker 2: go right there. So it's like, oh, the owners are,
• 23:17
  Speaker 2: you know, spraying each other with gasoline. And obviously, like...
• 23:20
  Speaker 2: It was actually a much more cordial gas war. It was.
• 23:23
  Speaker 2: It was.
• 23:24
  Speaker 9: Amico said its policy is to set its gas prices
• 23:27
  Speaker 9: five cents lower than its neighbor.
• 23:29
  Speaker 1: We want to be five cents higher than them.
• 23:32
  Speaker 9: And they just don't want to agree to that.
• 23:34
  Speaker 1: They want to match.
• 23:34
  Speaker 9: Sunoco said it had to keep matching Amico's price.
• 23:39
  Speaker 2: How long is this going to last?
• 23:41
  Speaker 1: I don't know, sir.
• 23:42
  Speaker 2: You need to ask them. Doesn't this seem like what
• 23:46
  Speaker 2: AI would do if trying to optimize for like, we
• 23:49
  Speaker 2: need to sell the most gas, drop the price. They
• 23:52
  Speaker 2: dropped it. Drop it again.
• 23:54
  Speaker 4: That was, I mean, this only lasted an afternoon, but
• 23:59
  Speaker 4: it wasn't a PR marketing joke.
• 24:02
  Speaker 6: No.
• 24:03
  Speaker 2: This actually happened. Yeah, yeah, yeah, yeah.
• 24:07
  Speaker 1: I don't know, sir.
• 24:08
  Speaker 2: You need to ask them.
• 24:09
  Speaker 9: The gas war made a mess of traffic in the area.
• 24:12
  Speaker 2: I called my mama, my sister, my brother.
• 24:13
  Speaker 3: It got so bad.
• 24:14
  Speaker 9: Everybody, your car is currently on this road.
• 24:16
  Speaker 2: You need to get it.
• 24:21
  Speaker 3: Moving, sir.
• 24:23
  Speaker 9: Police arrived and blocked entrance to the pumps at both
• 24:26
  Speaker 9: gas stations.
• 24:28
  Speaker 2: Now that just doesn't seem right. What, are they trying
• 24:30
  Speaker 2: to take it all for themselves? Come on, what are
• 24:34
  Speaker 2: we doing here?
• 24:34
  Speaker 6: I encourage you out there listening to go and look
• 24:37
  Speaker 6: at this video because the audio doesn't do it justice
• 24:40
  Speaker 6: in terms of how many cars and how chaotic this
• 24:43
  Speaker 6: really is.
• 24:45
  Speaker 2: I got to be honest, though. Here's the thing. Because, like...
• 24:49
  Speaker 2: If I found that someone was selling something below market price,
• 24:56
  Speaker 2: I would tell no one. Yeah, but it's a gas station. Well,
• 25:00
  Speaker 2: I know, but like... They literally put it on fire.
• 25:02
  Speaker 2: I know, but like the line develops... Not because of
• 25:04
  Speaker 2: the signs. Not because of normal traffic. It was because
• 25:06
  Speaker 2: of social media. You know, people are like, oh, gas
• 25:08
  Speaker 2: is cheap here. It's like, if you want that to
• 25:11
  Speaker 2: keep up, you don't tell anyone about it. Maybe they'll
• 25:15
  Speaker 2: start paying you for gas.
• 25:18
  Speaker 4: I wonder how much money these two stations lost over
• 25:22
  Speaker 4: the course of a day.
• 25:23
  Speaker 2: It's not a small amount. All right, so let's assume...
• 25:27
  Speaker 2: And what's the lowest it got to? 97 cents. 97 cents.
• 25:30
  Speaker 2: So let's assume... Assume they sold for an average of
• 25:32
  Speaker 2: two bucks. Let's assume eight pumps. Okay. How long does
• 25:36
  Speaker 2: it take you to fill up your tank? Probably three minutes? Yeah. Yeah. Okay.
• 25:42
  Speaker 2: And let's call it 15 gallons. So five gallons a
• 25:44
  Speaker 2: minute times eight pumps... Times 60 minutes is an hour.
• 25:51
  Speaker 2: Times probably a $ 2 loss on each one. Times... 15 gallons.
• 25:56
  Speaker 2: Call it 12 hours. And I've got 800... No, hang on.
• 26:01
  Speaker 2: I think I multiplied too much. Okay, so we've got
• 26:03
  Speaker 2: 5 gallons a minute. Okay. Times 8 pumps. So we've
• 26:07
  Speaker 2: got 40 gallons a minute going out. Then we've got
• 26:11
  Speaker 2: 60 minutes in an hour. And then we've got 12
• 26:14
  Speaker 2: hours in a day... Am I missing anything? Oh, $ 2 now.
• 26:18
  Speaker 2: $ 2 per gallon. So each of these stations, assuming they
• 26:24
  Speaker 2: had eight pumps that were going around the clock, probably
• 26:28
  Speaker 2: lost about $ 60, 000 for the day. Worth it. That showed him.
• 26:36
  Speaker 2: How do you not step in as the owner and
• 26:38
  Speaker 2: just be like, no, we're not going to match that price?
• 26:43
  Speaker 2: I don't really understand. We need to be 50. We
• 26:45
  Speaker 2: need to be five cents lower. No, you don't. You
• 26:48
  Speaker 2: need to make money. I mean, the margins on gas
• 26:53
  Speaker 2: normally are like three cents a gallon. Keep going. Oh, yeah,
• 26:58
  Speaker 2: keep it going. Pumps at both gas stations.
• 27:01
  Speaker 9: Once traffic died down, they allowed drivers back inside. Wartana
• 27:05
  Speaker 9: Haywood usually pays 90 bucks to fill up her truck.
• 27:08
  Speaker 2: She paid $ 1.
• 27:09
  Speaker 3: 14.
• 27:09
  Speaker 9: It cost her $ 15 to fill up.
• 27:10
  Speaker 5: Yes!
• 27:10
  Speaker 9: Look at God, baby!
• 27:12
  Speaker 2: Look at!
• 27:17
  Speaker 9: Well, the gas war eventually ended and the prices are
• 27:21
  Speaker 9: back up. Police say they had to shut down traffic
• 27:24
  Speaker 9: to the pumps because traffic had gotten out of control.
• 27:27
  Speaker 9: They say they plan to speak with the owners of
• 27:29
  Speaker 9: these gas stations and tell them to coordinate with police
• 27:33
  Speaker 9: next time there is a gas war to avoid all
• 27:36
  Speaker 9: these problems. Reporting in Powder Springs in Cobb County, I'm
• 27:39
  Speaker 9: Tom Jones for Channel 2 Action News.
• 27:42
  Speaker 4: I don't think that they planned this gas war. It
• 27:44
  Speaker 4: seems like There was a regular gas sale day going on,
• 27:48
  Speaker 4: and a war erupted.
• 27:50
  Speaker 2: Yeah, they're staring out the window at each other, like, Lord, again!
• 27:53
  Speaker 2: I wouldn't even call it a gas war. This is
• 27:55
  Speaker 2: like a gas peace.
• 27:57
  Speaker 4: Yeah, I hope there are more competitions of this sort,
• 28:02
  Speaker 4: specifically between these two owners.
• 28:06
  Speaker 2: So here's the deal. Snickers bars, five cents. They should
• 28:09
  Speaker 2: actually make this an annual thing.
• 28:11
  Speaker 6: Yeah.
• 28:14
  Speaker 2: Oh, yeah, the police won't mind that at all. No, no,
• 28:17
  Speaker 2: but you could actually coordinate with police. They should.
• 28:21
  Speaker 4: And to be fair here, if I am living in
• 28:26
  Speaker 4: this area, I'm going to buy gas from this gas
• 28:29
  Speaker 4: station as much as possible going forward. If I filled
• 28:33
  Speaker 4: up my truck for $ 15.
• 28:34
  Speaker 2: Instead of $ 90, I don't care. I'm going there every time,
• 28:37
  Speaker 2: just in case. Because you never know. You never know
• 28:39
  Speaker 2: if they're in the midst of another gas war. Are
• 28:41
  Speaker 2: they selling gas today for like $ 6. 70? Are they going
• 28:44
  Speaker 2: to make it up? All I know is that when
• 28:49
  Speaker 2: the guys walked in the studio today, they looked at
• 28:51
  Speaker 2: me and said, Yes!
• 28:52
  Speaker 3: Look at God, baby!
• 28:54
  Speaker 2: Oh, thank you, guys. Appreciate that. I was so kind
• 28:57
  Speaker 2: of you to say that. I do agree. You know,
• 28:59
  Speaker 2: it's whatever you've done, you know, whatever you did with
• 29:03
  Speaker 2: the hair, it's working today.
• 29:05
  Speaker 3: Thanks, man.
• 29:06
  Speaker 2: Let's take a quick break, and when we return, we're
• 29:11
  Speaker 2: going to bring in Paul Amonica, a veteran of many
• 29:13
  Speaker 2: gas wars, and he's going to be talking about not
• 29:16
  Speaker 2: gas wars. Bending spoons. Bending spoons? Next.
• 29:20
  Speaker 1: Watch the Financial Exchange live every day on YouTube with
• 29:24
  Speaker 1: market moves, breaking business news, and analysis throughout the show.
• 29:28
  Speaker 1: Join the live chat and be part of the conversation.
• 29:31
  Speaker 1: This is the Financial Exchange Media Network. Miss the Financial Exchange?
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• 29:30
  Speaker 1: Ladies and gentlemen, the weekend.
• 29:59
  Speaker 4: Joining us now is Barron's Paul LaMonica to close out
• 30:04
  Speaker 4: the week and talk to us about a pretty successful IPO,
• 30:07
  Speaker 4: it turns out, this year. I think you might have
• 30:09
  Speaker 4: brought this one up earlier this year, too, Paul. Thanks
• 30:12
  Speaker 4: so much for joining us. We're talking bending spoons this
• 30:14
  Speaker 4: Friday morning.
• 30:16
  Speaker 5: Yeah, yeah, definitely. We did speak about bending spoons on
• 30:20
  Speaker 5: the show back when they went public during the summer. And,
• 30:24
  Speaker 5: you know, this is an Italian digital media company that–
• 30:29
  Speaker 5: has gone out and it goes and scoops up some
• 30:33
  Speaker 5: of these brands of yesteryear, if you will, stocks, companies
• 30:40
  Speaker 5: in the digital media landscape that have fallen on hard times,
• 30:44
  Speaker 5: if you will. AOL is probably the most well-known. brand
• 30:49
  Speaker 5: that it owns. But they also own Vimeo. They recently
• 30:52
  Speaker 5: bought Miro, Airtable. And they buy these brands, these companies,
• 30:57
  Speaker 5: for a fraction of what their peak valuations were. The
• 31:01
  Speaker 5: stock surged this week. And it had nothing to do
• 31:04
  Speaker 5: with any new acquisitions. It's because Berkshire Hathaway, of all companies,
• 31:10
  Speaker 5: disclosed that it has bought a $ 930 million stake in
• 31:17
  Speaker 5: in bending spoons. So hard to know whether or not
• 31:23
  Speaker 5: Warren Buffett had anything to do with this purchase or
• 31:26
  Speaker 5: if it's the new regime at Berkshire. But it's an
• 31:30
  Speaker 5: interesting investment, given that I wouldn't go so far to
• 31:35
  Speaker 5: say that bending spoons is the 21st century of Berkshire
• 31:39
  Speaker 5: per se, but there are some similarities with how this
• 31:44
  Speaker 5: is a company that goes out and looks for undervalued,
• 31:48
  Speaker 5: hard-hit assets and makes a purchase of them.
• 31:51
  Speaker 4: Well, I was going to say, just because something is
• 31:53
  Speaker 4: cheap does not necessarily mean it's a good value. Nonetheless,
• 31:59
  Speaker 4: clearly somebody over at Berkshire has taken an interest. But
• 32:02
  Speaker 4: when you take a look at.
• 32:04
  Speaker 2: Okay, so.
• 32:05
  Speaker 4: I would imagine if you're buying up a whole bunch
• 32:07
  Speaker 4: of software companies that you think there's some area of
• 32:10
  Speaker 4: synergy here, either to cross-promote these applications or fire a
• 32:14
  Speaker 4: whole bunch of the staff that is currently on board
• 32:17
  Speaker 4: with them and cut costs. But when you take a
• 32:20
  Speaker 4: look at the combined entity right now, I think you'd
• 32:23
  Speaker 4: have a tough time convincing much of anybody that it's
• 32:25
  Speaker 4: cheap right now, would you?
• 32:26
  Speaker 5: Yeah. No, without question. This is a stock that is
• 32:30
  Speaker 5: trading at a very rich multiple value. on EBITDA estimates.
• 32:36
  Speaker 5: It has a fair amount of debt because of some
• 32:39
  Speaker 5: of the acquisitions it's done. So this is still a
• 32:43
  Speaker 5: very risky investment. What I do find interesting, I spoke
• 32:47
  Speaker 5: to the CEO on the day of the IPO back
• 32:52
  Speaker 5: in early July. And at the time, he told me
• 32:54
  Speaker 5: that what they were really looking to do was not
• 32:57
  Speaker 5: necessarily find synergies. I think that in, again, not to
• 33:02
  Speaker 5: overkill on the Berkshire analogies, but similar to Berkshire, What
• 33:07
  Speaker 5: I think they are trying to do is run these
• 33:10
  Speaker 5: businesses as standalone entities, not really look for synergies per se.
• 33:16
  Speaker 5: But the bad news probably for people that work there
• 33:19
  Speaker 5: is that one easy way to cut costs and boost
• 33:23
  Speaker 5: profits is probably through layoffs. And I think some of
• 33:27
  Speaker 5: these businesses have already had some job cut, job reduction announcements.
• 33:32
  Speaker 5: So I think any further acquisitions that bending spoons make
• 33:36
  Speaker 5: makes they probably will look to cut costs through headcount attrition,
• 33:41
  Speaker 5: which is unfortunate, of course.
• 33:43
  Speaker 4: We have seen a bounce back in the stock prices
• 33:46
  Speaker 4: of a number of different software companies that were initially
• 33:48
  Speaker 4: hit earlier this year on AI-related concerns. And so I
• 33:52
  Speaker 4: can see how this has played into the timing of
• 33:55
  Speaker 4: Bending Spoon's acquisitions.
• 33:56
  Speaker 2: But one piece that the.
• 33:58
  Speaker 4: CEO was quoted on for your article is talking about
• 34:03
  Speaker 4: AOL specifically. And I would imagine this applies to a
• 34:06
  Speaker 4: number of their businesses, talking about the substantial loyal customer base.
• 34:11
  Speaker 4: And I have to say, maybe I'm missing the boat,
• 34:14
  Speaker 4: but when I think about these businesses, Vimeo, AOL, and
• 34:19
  Speaker 4: the rest of that, do you see a substantial loyal
• 34:23
  Speaker 4: customer base on these platforms?
• 34:27
  Speaker 5: I think the argument is that the people that are
• 34:31
  Speaker 5: still there are likely to stick with it if they
• 34:36
  Speaker 5: haven't left already. There are plenty of people over the
• 34:41
  Speaker 5: past few decades who used to have AOL email addresses
• 34:45
  Speaker 5: and went to AOL.com to get all their news that
• 34:49
  Speaker 5: are no longer doing that. But if you haven't left,
• 34:53
  Speaker 5: then maybe what's going to make you leave now? It
• 34:57
  Speaker 5: does beg the question of whether or not that is
• 35:00
  Speaker 5: the type of subscriber that an advertiser might want to
• 35:06
  Speaker 5: cater to.
• 35:07
  Speaker 6: But that's a different question, I think.
• 35:09
  Speaker 5: What is fascinating is that They're not arguably, bending spoons,
• 35:15
  Speaker 5: that is overpaying for these assets. And what I think
• 35:18
  Speaker 5: that is interesting, you mentioned the SaaS software comeback. As
• 35:22
  Speaker 5: of right now, bending spoons has shown no interest or
• 35:25
  Speaker 5: inclination to be looking to buy publicly traded companies. They
• 35:31
  Speaker 5: are buying these privately held assets, oftentimes from VCs or
• 35:37
  Speaker 5: other investors that are probably just looking for an exit.
• 35:41
  Speaker 4: Paul and Monica from Barron's joining us today to talk
• 35:44
  Speaker 4: about Bending Spoons, the recent IPO, the Berkshire investment in
• 35:48
  Speaker 4: the company, and the real surge they have seen since
• 35:51
  Speaker 4: that IPO.
• 35:52
  Speaker 2: Paul, thanks so much for joining us. Appreciate it. We'll
• 35:54
  Speaker 2: talk to you again soon. Great.
• 35:56
  Speaker 7: Have a good weekend, guys.
• 35:58
  Speaker 2: What do you have for us for Stack Roulette, Mr. Zada?
• 36:03
  Speaker 2: Trying to think of the direction I want to go.
• 36:06
  Speaker 2: I want to go back to where we started the show.
• 36:10
  Speaker 2: Tesla Roadster. Again, I think that the most likely reason
• 36:15
  Speaker 2: why this is being released is because it's got some
• 36:18
  Speaker 2: technology that is, you know, adjacent to SpaceX. And so
• 36:23
  Speaker 2: that you can end up with a SpaceX Tesla merger
• 36:26
  Speaker 2: sometime in the very near future. Proof of concept. Yeah. Look,
• 36:30
  Speaker 2: they're not going to sell many of these.
• 36:32
  Speaker 4: No, there's a chance profitable, but it's, you know, it's
• 36:35
  Speaker 4: It's going to be at least a quarter million dollar car.
• 36:37
  Speaker 2: Let me be honest. On the one that, you know,
• 36:39
  Speaker 2: can fly, I don't know if they ever produce one.
• 36:43
  Speaker 1: Yeah.
• 36:44
  Speaker 2: Like, I'm not sure they do.
• 36:46
  Speaker 4: Well, but didn't he say just in the press conference
• 36:48
  Speaker 4: last night that it's going to be for real this
• 36:51
  Speaker 4: time in 2028?
• 36:52
  Speaker 2: The Roadster may be for real. The flying one may
• 36:56
  Speaker 2: not be.
• 36:57
  Speaker 4: I'm guessing we don't get anybody before 2030, by the way.
• 37:01
  Speaker 2: Not even bother putting it on the board. Again, I
• 37:04
  Speaker 2: think that the main reason for this is potentially the
• 37:08
  Speaker 2: largest merger in world history. And I think that this
• 37:13
  Speaker 2: is also, by the way, something that Elon Musk has
• 37:15
  Speaker 2: done before. Remember, X and XAI got bought up by SpaceX.
• 37:21
  Speaker 2: Do you remember a little company by the name of SolarCity? Yeah.
• 37:24
  Speaker 2: Got bought by Tesla. Yeah. And part of me wonders... If, again,
• 37:31
  Speaker 2: like you just look at, you look at the history
• 37:35
  Speaker 2: of these mergers. The SolarCity one was largely done in
• 37:37
  Speaker 2: order to buy a company that didn't look like it
• 37:41
  Speaker 2: was going anywhere, that had like some real problems with
• 37:43
  Speaker 2: its business. And so I guess I look at this,
• 37:49
  Speaker 2: and again, Tesla stabilized in the last year. But stabilized
• 37:53
  Speaker 2: is not, you know, growing rapidly, right? And so I
• 37:57
  Speaker 2: guess I look at this, and my question is, if
• 38:01
  Speaker 2: SpaceX is trying to buy Tesla, is it because there
• 38:04
  Speaker 2: are assets there that they want, and they just don't
• 38:06
  Speaker 2: like the long-term trajectory for a car company? Like, maybe
• 38:10
  Speaker 2: that's not actually what they think is a winner anymore.
• 38:14
  Speaker 2: I don't know. Tesla, by the way, now down today
• 38:17
  Speaker 2: after originally being up about 3%. We're done for the day,
• 38:20
  Speaker 2: done for the week. We'll see you Monday on the
• 38:22
  Speaker 2: Financial Exchange.