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Meta’s $700 Billion AI Financing Plan Raises New Questions · 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: It's Chuck, Mike, and Tucker with you here on the
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  Speaker 2: Financial Exchange. And quite a bit to get to today,
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  Speaker 2: so we're going to dive right into it, starting with
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  Speaker 2: our top story. Continuing to see a rebound in oil prices,
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  Speaker 2: with Brent Crude topping $ 1. 12 a barrel at one point
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  Speaker 2: earlier today. West Texas Intermediate currently around $ 0. 9910, but also
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  Speaker 2: had topped $ 100 a barrel earlier today. This not really
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  Speaker 2: on any... news. And so I think that by and large, investors, listen,
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  Speaker 2: most people listening have no business trading crude oil to
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  Speaker 2: begin with. So like, don't even bother with it. But
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  Speaker 2: I think, by and large, investors have been well served
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  Speaker 2: this year, not to do the thing that we generally
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  Speaker 2: tell people to do, which is, hey, don't pay attention
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  Speaker 2: to what people say, pay attention to what people do.
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  Speaker 2: And you can save yourself a whole lot of headache.
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  Speaker 2: And I think that continues to be the case. as
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  Speaker 2: we look at the energy situation, Michael?
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  Speaker 3: Yeah, look, the president earlier on in this cycle was
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  Speaker 3: able to talk down the price of crude quite successfully,
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  Speaker 3: but that's what it was. It was talk and ultimately
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  Speaker 3: led to very little in the way of change, right?
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  Speaker 3: I mean, compared to where we were in April, July,
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  Speaker 3: and now October, I don't see much in the way
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  Speaker 3: of differentiation other than what has been said about the
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  Speaker 3: situation in Iran. And so unsurprising, I suppose, that we
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  Speaker 3: head into the winter season with prices where they are now,
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  Speaker 3: given the dramatic reshaping of supply coming from the Middle East.
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  Speaker 2: Yeah, I think the big thing is, let's just look
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  Speaker 2: at this in the aggregate, because I know sometimes we
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  Speaker 2: get hung up on, like, well, this is what's happening today,
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  Speaker 2: or here's what I saw in this product or this
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  Speaker 2: and that. Here's the deal. If you look at the
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  Speaker 2: years 2021 through 2025, actually, I'm going to strip out
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  Speaker 2: 2021 just because it's not particularly useful to us. At
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  Speaker 2: this point in the year, through the 42nd week in
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  Speaker 2: the year, according to EIA data, here is the amount
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  Speaker 2: that has been in U.S. petroleum inventories for crude oil,
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  Speaker 2: including the SPR. gasoline, jet fuel, and distillate. Big four
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  Speaker 2: is what they're typically referred to because they're the vast
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  Speaker 2: majority of transportation fuel in one way, shape, or form
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  Speaker 2: that the U.S.
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  Speaker 1: Uses.
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  Speaker 2: So back in 2022, we had about 1.192 million barrels
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  Speaker 2: combined of all this stuff. 2023, 1.149 million. 2024, 1.181. 2025, 1.206.
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  Speaker 2: The general idea here that I'm trying to get around, Mike,
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  Speaker 2: is right around 1.15 to 1.2 billion barrels of crude, gas, diesel,
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  Speaker 2: and jet fuel. That's what we typically had at this
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  Speaker 2: point in the year. Right now, it is 1.047 billion barrels.
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  Speaker 2: So down anywhere from about 100 million to 150 million barrels.
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  Speaker 2: that is how much smaller the overall stocks or inventories
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  Speaker 2: of crude, gas, jet fuel, and distillates are right now.
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  Speaker 2: And I know people will say, well, that's great. We've
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  Speaker 2: still got a billion barrels. And normally I'd say, yes,
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  Speaker 2: we've had instances in the past where you've gotten into
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  Speaker 2: some hairy situations and figured out how to get out
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  Speaker 2: of them. The difference here, is that in all of
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  Speaker 2: those situations, the Strait of Hormuz was not a shooting gallery,
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  Speaker 2: and you didn't have a whole lot of uncertainty surrounding
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  Speaker 2: the Middle East as a whole and what it will
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  Speaker 2: look like a week, a month, or a year from now.
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  Speaker 2: And so that makes this a fundamentally different situation than
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  Speaker 2: in any of the other ones that we have seen.
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  Speaker 2: The other piece is that When we talk about, hey,
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  Speaker 2: like 1.04 billion barrels, well, gee, that's plenty of stuff.
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  Speaker 2: Except the thing you have to remember, that includes all
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  Speaker 2: pipeline line fill. That includes tank bottoms, which if you're
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  Speaker 2: not familiar with it, we talked about this a lot
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  Speaker 2: in the summer. Storage tanks, typically about 4% to 6%
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  Speaker 2: of that tank. is inaccessible by pumping. And that's not
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  Speaker 2: an accident. It's not like oil companies were like, hey,
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  Speaker 2: let's build this tank and just, like, forgot to put
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  Speaker 2: the pipe out of it at the bottom. The reason
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  Speaker 2: why this is the case is because often there's quite
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  Speaker 2: a bit of sediment that ends up getting mixed in
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  Speaker 2: in one way or another. And so as part of
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  Speaker 2: pumping out of tanks... You don't want to send a
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  Speaker 2: bunch of sediment in either refined product or crude into
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  Speaker 2: whoever you're selling to because they won't like it. And
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  Speaker 2: so a chunk of this is what we call tank
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  Speaker 2: bottoms that are inaccessible because you're not able to get
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  Speaker 2: there because there's often sediment and other things that are
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  Speaker 2: mixed in. And then the other thing that you've got
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  Speaker 2: to remember is this also includes working inventory because if
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  Speaker 2: you are a refinery, you are built to be efficient
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  Speaker 2: running 24-7.
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  Speaker 1: More or less.
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  Speaker 2: You need some downtime for maintenance, but you are built
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  Speaker 2: to run consistent operations. So you don't just say, well,
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  Speaker 2: we'll get the oil tomorrow. No, you generally have anywhere
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  Speaker 2: from a week to 10 days of supply of oil
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  Speaker 2: on hand, of crude, so that you can actually continue
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  Speaker 2: to make product. And if there's a one or two
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  Speaker 2: day disruption for some reason, say, Mike, do you remember
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  Speaker 2: the cyber attack on the pipeline a few years back? Yeah.
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  Speaker 2: If you have something unexpected like that or anything else,
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  Speaker 2: you can continue operations while you wait for flows to resume.
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  Speaker 2: So we don't actually have 1.04 billion barrels that you
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  Speaker 2: can actually access right now. The reality is it's probably,
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  Speaker 2: when you look at all of the different pieces, like crude,
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  Speaker 2: I'm going to strip out the SPR just because that's
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  Speaker 2: a separate piece, but when you look at commercial crude stocks, gasoline,
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  Speaker 2: jet fuel, and distillate, you are much closer to 100
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  Speaker 2: million barrels of stocks that you can use as opposed
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  Speaker 2: to a billion.
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  Speaker 3: Help square the stories that we've all been reading over
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  Speaker 3: the last week, Chuck, of more oil leaving the.
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  Speaker 2: Middle East than we saw prior to war.
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  Speaker 3: I've been able to square those in my head, but
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  Speaker 3: you see that headline and say, okay, well, why are
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  Speaker 3: prices moving up another 2% today or why are they
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  Speaker 3: sitting at 100 bucks a barrel?
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  Speaker 2: There are two reasons why this is the case. Really,
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  Speaker 2: three that you can point to. The first is because
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  Speaker 2: it's much more dangerous to transit through the Strait of Hormuz,
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  Speaker 2: prices have gone up on that transit.
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  Speaker 3: Insurance, staffing, everything that you need to get a ship
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  Speaker 3: through is going to be more expensive when they're worried
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  Speaker 3: about being shot at.
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  Speaker 2: Yes, and so remember, when you're buying crude, you're paying
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  Speaker 2: the full landed price. You're not just paying what it
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  Speaker 2: costs to get it out of the ground. You've got
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  Speaker 2: to pay for that transportation fee. That transportation has gone
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  Speaker 2: from about $ 1 to $ 2 a barrel up to somewhere
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  Speaker 2: around $ 20 to $ 25 a barrel now. It was as
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  Speaker 2: high as $ 30 to $ 35 in recent weeks and has
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  Speaker 2: actually come down a little bit. The main reason being
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  Speaker 2: you're starting to see companies pull back from wanting to
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  Speaker 2: send more ships into Hormuz. A couple reasons for this.
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  Speaker 2: This gets into the second piece, which is the way
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  Speaker 2: that a lot of oil has been getting out of
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  Speaker 2: Hormuz is through what we call a In, like, social
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  Speaker 2: media and everything, it's called the ship-to-ship transfer shuttle. The
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  Speaker 2: premise of this is that you have fleets of tankers
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  Speaker 2: that are, in many cases, owned by the national oil
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  Speaker 2: companies in the Persian Gulf. They are able, they're willing
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  Speaker 2: to take on the risk because they're owned by, you know,
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  Speaker 2: the sovereign, and they say, okay, like, we'll take this on.
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  Speaker 2: And so what they are doing is basically they fill
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  Speaker 2: up these tankers, they run them through the Strait of Hormuz,
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  Speaker 2: right now anywhere from, like, Five to 15% of those
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  Speaker 2: tankers get hit in any given period. And the ones
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  Speaker 2: that make it through, again, the vast majority, but listen,
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  Speaker 2: if you're losing, you know, anywhere from like one to
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  Speaker 2: two tankers a day, which is kind of what we've
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  Speaker 2: been seeing this month, it still is meaningful. We'll talk
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  Speaker 2: about that next. These tankers make it through. They park
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  Speaker 2: off Fujairah, which is a port in Oman. I'm sorry,
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  Speaker 2: the UAE. And then What you have is they load
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  Speaker 2: their oil from one ship to another that will then
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  Speaker 2: take it to its final destination. So part of the
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  Speaker 2: problem is that you have a limited number of ships
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  Speaker 2: that can actually do this on both sides, and so
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  Speaker 2: we now have a backup infrastructure. Fujairah where you've got
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  Speaker 2: a bunch of ships that have come through Hormuz, and
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  Speaker 2: there's nowhere for them to offload their oil because there
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  Speaker 2: are higher rates coming from other parts of the world now.
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  Speaker 2: Because buyers are saying, okay, we don't know if we
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  Speaker 2: want to buy the oil coming out of there because
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  Speaker 2: more of it's getting hit. Let's redirect and buy from
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  Speaker 2: the U.S. or Brazil or Guyana or whoever it might be.
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  Speaker 2: The third piece on this that you've got to pay
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  Speaker 2: attention to that will start to matter at some point
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  Speaker 2: when it comes to tanker rates. Well, actually, there's actually
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  Speaker 2: four things. Third piece on tanker rates, global super tanker fleet,
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  Speaker 2: about 1,000 ships. If you've got one to two a
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  Speaker 2: day that are being taken out of commission, that starts
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  Speaker 2: to matter when you get to, you know, an extended
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  Speaker 2: period where that's the case. Like supply and demand, you
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  Speaker 2: can't just build a new supertanker tomorrow. The orders, I believe,
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  Speaker 2: are like three years out. And so it's something where
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  Speaker 2: the global supertanker fleet is seeing smaller and smaller numbers gradually.
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  Speaker 2: And so you have fewer ships and so higher prices.
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  Speaker 2: The last piece in terms of the amount of oil
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  Speaker 2: coming out of Hormuz is, yes, in the last week
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  Speaker 2: we've had a really nice uptick. There's no guarantee that continues.
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  Speaker 2: And if you look at where we're coming from, it
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  Speaker 2: still is something where, okay, you've had one week of
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  Speaker 2: uptick there. We've still had the whole rest of the year, basically,
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  Speaker 2: where you've had lower production. And that could be the
• 11:24
  Speaker 2: case at some point in the future. So remember, when
• 11:27
  Speaker 2: someone's buying oil, oil futures, they're not buying it for
• 11:31
  Speaker 2: today's delivery. They're saying, no, I want to make sure
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  Speaker 2: I have supply for a month in the future or
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  Speaker 2: a year or whatever it might be. And so what
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  Speaker 2: we're seeing is just not a lot of confidence that
• 11:42
  Speaker 2: what's going on right now is going to be sustainable.
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  Speaker 2: It might be. It might not be. But that's, I think,
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  Speaker 2: how you can square all of this is higher transit costs,
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  Speaker 2: smaller tanker fleet, more complicated operations, and no guarantee that
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  Speaker 2: what we've seen the last week continues. I'm done.
• 12:01
  Speaker 1: Cool.
• 12:02
  Speaker 2: Quick break. A lot more to cover. A bunch of earnings.
• 12:05
  Speaker 2: We'll be right back.
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• 13:15
  Speaker 2: Mike, we got two big earnings reports yesterday after the bell.
• 13:18
  Speaker 2: Let's start off first with Meta. Ooh, I just checked
• 13:22
  Speaker 2: on that stock price. Hadn't seen it in a couple hours. Yeah,
• 13:24
  Speaker 2: I got to tell you, if you've been following it
• 13:27
  Speaker 2: since the earnings release, it's been about a 10% reversal
• 13:31
  Speaker 2: since it was up four right after the report, now
• 13:34
  Speaker 2: down about six and a quarter. And let's talk about
• 13:38
  Speaker 2: what we're seeing. This is really interesting to me, and
• 13:44
  Speaker 2: there's a lot to digest here. First, their quarter was fantastic.
• 13:50
  Speaker 2: Good quarter. Are there any problems at all with the
• 13:53
  Speaker 2: current quarter? Not unknown ones, right?
• 13:55
  Speaker 3: Like they had to pay a massive settlement fine for
• 13:57
  Speaker 3: 52 state attorneys general that sued them. Or no, only
• 14:01
  Speaker 3: 20 sued them, I think. But in any case, $ 7 billion.
• 14:03
  Speaker 3: We knew that was coming. But we knew it was coming.
• 14:05
  Speaker 3: They had already settled it. It was already public news.
• 14:08
  Speaker 3: So no, not much in here that I think you
• 14:11
  Speaker 3: can be upset about unless you generally are opposed to
• 14:16
  Speaker 3: expanding CapEx.
• 14:18
  Speaker 2: Well, here's the thing. So there are a couple things
• 14:23
  Speaker 2: that we need to sort through on this. The first,
• 14:25
  Speaker 2: Meta said that their CapEx for the full year, fiscal
• 14:28
  Speaker 2: year 2026, which ends at the end of this year,
• 14:31
  Speaker 2: will be $ 135 to $ 145 billion. Not a meaningful shift. Basically,
• 14:35
  Speaker 2: they raised the floor from $ 130 to $ 135. They're basically saying, look,
• 14:39
  Speaker 2: our CapEx for this year is locked in. They did
• 14:42
  Speaker 2: not tell us what they would be spending next year,
• 14:45
  Speaker 2: which I found interesting on one hand.
• 14:47
  Speaker 1: Mm-hmm.
• 14:48
  Speaker 2: Because the general thing that we've seen from a lot
• 14:51
  Speaker 2: of these companies is, okay, our previous CapEx was, you know,
• 14:55
  Speaker 2: going to be 150 billion next year. Now it's 165.
• 14:57
  Speaker 2: Like that's really normal for what we've seen from the hyperscalers,
• 15:01
  Speaker 2: the big data center builders in the past several years.
• 15:05
  Speaker 2: Meta gave no guidance on what they were going to
• 15:07
  Speaker 2: spend next year for CapEx.
• 15:09
  Speaker 1: Yep.
• 15:10
  Speaker 2: So immediately after, what you saw was that the chip makers,
• 15:14
  Speaker 2: they didn't really move a ton, but Meta was up
• 15:16
  Speaker 2: 4% and the chip makers were just kind of hanging
• 15:18
  Speaker 2: out flat. They didn't really do anything right after the announcement.
• 15:23
  Speaker 2: But then there are two things that are interesting to me.
• 15:26
  Speaker 2: The first, they have created a new class of shares
• 15:32
  Speaker 2: that will be basically... pretty much like super voting shares.
• 15:39
  Speaker 2: It basically... It.
• 15:42
  Speaker 3: Gives Zuckerberg more voting power to ensure that he can
• 15:44
  Speaker 3: dilute himself from an ownership perspective, but not from a
• 15:47
  Speaker 3: voting and control perspective.
• 15:48
  Speaker 1: Yes.
• 15:49
  Speaker 2: It basically allows him to... It allows Meta to continue
• 15:55
  Speaker 2: to issue additional shares without diluting Mark further because California
• 16:00
  Speaker 2: has this Prop 40 thing, which is a one-time... wealth
• 16:04
  Speaker 2: tax that's on the ballot this fall for a 5%
• 16:08
  Speaker 2: cut of any wealth held by California residents. And basically,
• 16:13
  Speaker 2: did you read the New York Times reporting on this
• 16:14
  Speaker 2: and the subsequent Wall Street Journal piece as well? Specific
• 16:18
  Speaker 2: to Meta and the board and their choice to do this? Yeah.
• 16:22
  Speaker 2: Zuck was basically like, guys, I'm going to... I'm leaving. Basically,
• 16:25
  Speaker 2: he went to the board and was like, I'm going
• 16:26
  Speaker 2: to put my house on the sale on the market
• 16:28
  Speaker 2: publicly so that everyone knows I'm leaving California if you
• 16:31
  Speaker 2: don't do this.
• 16:32
  Speaker 3: Right.
• 16:33
  Speaker 2: It's like, oh, okay, I see what you're talking about here.
• 16:38
  Speaker 2: And so pretty much Zuck now is committed to living
• 16:41
  Speaker 2: in California for the next eight years, so Meta's not moving.
• 16:45
  Speaker 2: And the other piece that is interesting when you look
• 16:50
  Speaker 2: at this and the comments about this Class C share,
• 16:57
  Speaker 2: I'm going to read from the quarterly filing here because
• 17:00
  Speaker 2: this is the big one, I think. The special committee
• 17:04
  Speaker 2: also recognized that the timing is important to secure capital
• 17:07
  Speaker 2: before competitors saturate various funding options. Remember when we were
• 17:13
  Speaker 2: talking about how SpaceX front-ran everyone else trying to IPO?
• 17:16
  Speaker 3: Yeah.
• 17:17
  Speaker 2: I got echoes of that there. Recent significant capital raises
• 17:21
  Speaker 2: at other notable companies and from others soon anticipated to
• 17:23
  Speaker 2: take place to fund the same AI growth, for example, Alphabet, SpaceX, Anthropic,
• 17:27
  Speaker 2: and OpenAI, have resulted in an increasingly challenging environment for
• 17:31
  Speaker 2: raising capital. It's nice, Mike. They've been listening to our show. Yeah,
• 17:35
  Speaker 2: we're going to.
• 17:36
  Speaker 3: Cover a piece about exactly this later on, too. There's
• 17:39
  Speaker 3: not enough capital to go around, seemingly. Meta is telling us, hey,
• 17:43
  Speaker 3: we've got to get this thing out the door. But
• 17:46
  Speaker 3: here's the thing.
• 17:47
  Speaker 2: This is in reference to the Class C common stock
• 17:50
  Speaker 2: that they're talking about issuing. Mike, do you find it
• 17:54
  Speaker 2: interesting that they are talking about issuing equity rather than
• 17:57
  Speaker 2: raising debt? Yeah.
• 18:01
  Speaker 3: I mean, it's not like they're not going to do both.
• 18:05
  Speaker 2: They very well may.
• 18:06
  Speaker 3: But yeah, they're issuing a bunch of equity here to
• 18:09
  Speaker 3: try and raise cash for.
• 18:10
  Speaker 2: It sounds like a dual purpose. They haven't announced it yet,
• 18:14
  Speaker 2: but here's the thing. I'm going to read it here.
• 18:16
  Speaker 2: This is from.
• 18:21
  Speaker 2: Where's this written here? Here we go. Yeah, this is
• 18:24
  Speaker 2: from the filing. The maximum the company could raise is
• 18:28
  Speaker 2: approximately $ 700 billion in equity capital over a number of
• 18:34
  Speaker 2: years without Mr. Zuckerberg's voting power dropping below 50%. So
• 18:39
  Speaker 2: the market's looking at this and saying, hey, you just
• 18:41
  Speaker 2: prepared a facility to raise potentially $ 700 billion in equity.
• 18:46
  Speaker 2: But you're not telling us what your CapEx is going
• 18:47
  Speaker 2: to be next year. And the market's looking at this
• 18:51
  Speaker 2: and saying, okay, what does this mean for... If you
• 18:54
  Speaker 2: look at credit default swaps on all the hyperscalers, they're
• 18:58
  Speaker 2: moving up today because the market's reading this as like,
• 19:02
  Speaker 2: is the debt financing cycle dying because no one wants
• 19:06
  Speaker 2: to commit to debt? Because remember, if you're doing this
• 19:09
  Speaker 2: as debt, if you're lending to them, you're saying, okay,
• 19:12
  Speaker 2: I'm willing to take a fixed payment but not participate
• 19:15
  Speaker 2: in upside. And have we now shifted to hey, this
• 19:18
  Speaker 2: might be risky enough that in order for me to
• 19:20
  Speaker 2: give you the money, I need an upside slice, which
• 19:24
  Speaker 2: is an interesting message. Let's take a quick break. We
• 19:27
  Speaker 2: got more on this. We got Tesla as well right
• 19:29
  Speaker 2: after this.
• 19:39
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
  Speaker 1: TFE Show. Breaking business news is always first, right here
• 19:46
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:51
  Speaker 1: Street Watch. Tracking the stocks, the data, and the headlines
• 19:54
  Speaker 1: driving markets so far today, right here on the Financial
• 19:58
  Speaker 1: Exchange Radio Network.
• 19:59
  Speaker 4: Markets in negative territory led by a sell-off in tech
• 20:02
  Speaker 4: as rising oil prices continue to weigh on sentiment. Right now,
• 20:07
  Speaker 4: the Dow is down 0.6% or 306 points lower. S
• 20:08
  Speaker 4: & P 500 selling off about 1.4% or 106 points off.
• 20:10
  Speaker 4: Tech-heavy Nasdaq selling off 2.1% or 586 points lower.
• 20:13
  Speaker 2: Rust 2000 is flat.
• 20:14
  Speaker 4: 10-year treasury yield is 20%. down 13 basis points at 5.015%.
• 20:30
  Speaker 4: Crude oil up nearly 2% higher at $ 99 a barrel,
• 20:34
  Speaker 4: while Brent is at $ 111 per barrel. Meta selling off
• 20:39
  Speaker 4: over 6%. Despite the social media giant beating third quarter
• 20:42
  Speaker 4: revenue expectations, the company said it would create a new
• 20:45
  Speaker 4: class of non-voting stock to raise capital for its substantial
• 20:50
  Speaker 4: AI bets. Meanwhile, Tesla shares are flat after the EV
• 20:53
  Speaker 4: maker said it will spend about $ 20 billion in capital
• 20:56
  Speaker 4: expenditures this year elsewhere. American Airlines down 4% after it
• 21:01
  Speaker 4: forecast deeper losses this year despite record revenue due to
• 21:05
  Speaker 4: a jump in fuel costs. American Airlines is the fourth
• 21:08
  Speaker 4: major U.S. airline to cut its 2026 forecast this month.
• 21:14
  Speaker 4: And Spotify shares are jumping 9% after its fourth quarter
• 21:18
  Speaker 4: revenue Guidance beat estimates and also saw its monthly active
• 21:22
  Speaker 4: users climb 11% to $ 788 million year-over-year. I'm Tucker Sullivan.
• 21:29
  Speaker 4: That is Wall Street Watch.
• 21:33
  Speaker 2: Mike, we've been talking about Meta's earnings, and not so
• 21:36
  Speaker 2: much the earnings, but more the idea of, hey, what's
• 21:39
  Speaker 2: their CapEx look like? There's potentially setting up to raise
• 21:43
  Speaker 2: a whole bunch of money in terms of equity capital
• 21:46
  Speaker 2: rather than debt. Also, I don't know if you noticed,
• 21:49
  Speaker 2: their free cash flow ended up going negative in the
• 21:52
  Speaker 2: most recent quarter as well. How much of that, though, is.
• 21:55
  Speaker 3: Due to the settlement? Probably a good chunk. I mean,
• 21:59
  Speaker 3: not to excuse it, but.
• 22:01
  Speaker 2: The settlement probably hasn't hit free cash flow yet. I
• 22:04
  Speaker 2: don't think they've paid anything out.
• 22:05
  Speaker 1: True. Yeah, you're right.
• 22:07
  Speaker 2: So, again, you look at this. I'll take a look
• 22:10
  Speaker 2: through and see if it was something. But either way...
• 22:14
  Speaker 2: you've got a situation where free cash flow is plummeting
• 22:18
  Speaker 2: at a pretty quick rate. And remember, the plan for
• 22:23
  Speaker 2: these companies in a perfect world is it's the idea of, hey,
• 22:26
  Speaker 2: you've got to spend money to make money, which, by
• 22:28
  Speaker 2: the way, Meta's never had to do. And this is
• 22:30
  Speaker 2: the part that I will say is important. As a
• 22:32
  Speaker 2: publicly traded company, Meta has never had negative free cash
• 22:36
  Speaker 2: flow on an annual basis before.
• 22:39
  Speaker 1: Never.
• 22:40
  Speaker 2: So I do think that the piece that's interesting to
• 22:42
  Speaker 2: me is that these companies are saying, okay, we'll spend
• 22:45
  Speaker 2: this money now. Yes, we'll have all of this negative outflow.
• 22:48
  Speaker 2: And then once the revenue starts picking up, then we
• 22:51
  Speaker 2: will see the profits and the free cash flow return
• 22:55
  Speaker 2: on the back end of it. Next year, I've been
• 22:57
  Speaker 2: saying this for a while now, next year is going
• 22:59
  Speaker 2: to be the year where it's put up or shut
• 23:00
  Speaker 2: up time for this. It's going to be this is
• 23:03
  Speaker 2: going to work and continue to scale, or these CapEx
• 23:05
  Speaker 2: plans are going to have to come in. It's kind
• 23:08
  Speaker 2: of where we are. Can we talk about Muse for
• 23:10
  Speaker 2: a moment here?
• 23:11
  Speaker 3: Because I was talking with Vinny Penn down in New
• 23:13
  Speaker 3: Haven this morning about it. He was not familiar with it,
• 23:16
  Speaker 3: which I was shocked by because I see billboards for Muse.
• 23:19
  Speaker 1: Do you?
• 23:20
  Speaker 2: All the time. Really? You guys don't see these?
• 23:22
  Speaker 1: No.
• 23:23
  Speaker 2: Are you hallucinating them? I mean, not only digital billboards,
• 23:26
  Speaker 2: but physical billboards.
• 23:27
  Speaker 3: I'm seeing for Meta's Muse. They are advertising the living
• 23:30
  Speaker 3: heck out of this thing.
• 23:31
  Speaker 2: You're seeing physical billboards for a digital agent?
• 23:36
  Speaker 1: Yes.
• 23:36
  Speaker 2: Granted, they're digital billboards, too, that switch over every once
• 23:40
  Speaker 2: in a while.
• 23:40
  Speaker 3: But yes, I have seen them all over the greater
• 23:43
  Speaker 3: Boston area.
• 23:44
  Speaker 2: And clearly this is....
• 23:48
  Speaker 3: A success story so far, no matter which way you
• 23:51
  Speaker 3: cut it, I recognize it hasn't been monetized, and there's
• 23:55
  Speaker 3: a lot of big questions about monetization here. But arguably,
• 23:58
  Speaker 3: to me, this is the biggest Facebook success story for
• 24:01
  Speaker 3: something that they've invented since Facebook itself.
• 24:05
  Speaker 2: Yes and no. Here's what we're seeing, and I'm going
• 24:09
  Speaker 2: to pull who's done the study on this, just because
• 24:14
  Speaker 2: I want to make sure that I'm quoting this appropriately.
• 24:16
  Speaker 1: Okay.
• 24:17
  Speaker 3: As you go and pulled that, because again, they had
• 24:21
  Speaker 3: other successes like Instagram, WhatsApp, but they bought those.
• 24:24
  Speaker 2: They didn't invent them internally. The thing that came to
• 24:28
  Speaker 2: mind for me is... Here we go. I've got it.
• 24:29
  Speaker 2: Go ahead. So this is data from... It looks like...
• 24:36
  Speaker 2: Who's actually the source here? The data's from Morgan Stanley,
• 24:41
  Speaker 2: I guess.
• 24:41
  Speaker 1: Okay.
• 24:42
  Speaker 2: Uh, and yeah, the data is from sensor tower and
• 24:46
  Speaker 2: Morgan Stanley research. Okay. So that's, that's who put this together, uh,
• 24:50
  Speaker 2: on by day 14 of someone installing Metamuse, only 23%
• 24:56
  Speaker 2: of those users are remaining active.
• 24:59
  Speaker 1: Okay.
• 25:00
  Speaker 2: So this is like, yes, a lot of people got
• 25:02
  Speaker 2: interested in it, but retention is a huge problem. If
• 25:05
  Speaker 2: you want a point of comparison, uh, for Instagram, Facebook, uh,
• 25:10
  Speaker 2: You're talking almost 60% retention after 40 days. So the
• 25:14
  Speaker 2: retention is only about 40% as strong as what you
• 25:20
  Speaker 2: see from social media typically. Obviously, a fundamentally different technology.
• 25:25
  Speaker 2: So there's a lot of people interested in it. But
• 25:27
  Speaker 2: if you look two weeks out, they're not really sticking.
• 25:31
  Speaker 2: So my bigger question about this had to do with privacy.
• 25:34
  Speaker 3: We've all been either forced or asked to give up
• 25:37
  Speaker 3: a bunch of our privacy data to use free applications
• 25:40
  Speaker 3: like Facebook.
• 25:41
  Speaker 2: And certain users block some of that.
• 25:43
  Speaker 3: I personally limit the degree to which they get all
• 25:47
  Speaker 3: sorts of information about me, but they still get a
• 25:49
  Speaker 3: ton of information about me. And frankly, I did that
• 25:52
  Speaker 3: because the value of giving up a bunch of my
• 25:55
  Speaker 3: personal information was not making the tool much better. This
• 25:59
  Speaker 3: is one of the first pieces of software that first
• 26:03
  Speaker 3: free pieces of software that I can think of that,
• 26:06
  Speaker 3: from what I understand, actually becomes a far more usable
• 26:10
  Speaker 3: and effective product the more personal information you give to it.
• 26:16
  Speaker 2: Maybe. So, like, I have a couple buddies who have
• 26:19
  Speaker 2: been using this. They're, like, fully in the AI ecosystem
• 26:23
  Speaker 2: and interested in all this.
• 26:25
  Speaker 3: Sure.
• 26:26
  Speaker 2: And I was hanging out with one of them over
• 26:27
  Speaker 2: the last weekend, and I was like, hey, like, have
• 26:29
  Speaker 2: you tried Muse? And he's like, Yeah, I have. Basically,
• 26:34
  Speaker 2: I used it for a bunch of stuff at first,
• 26:35
  Speaker 2: and then I was kind of like, I'm not really
• 26:38
  Speaker 2: getting much from this, and so he hasn't used it much. Now,
• 26:41
  Speaker 2: the two of us were going later in November to
• 26:45
  Speaker 2: see a football game, and so he has Muse checking
• 26:48
  Speaker 2: the ticket prices so that he doesn't have to, just
• 26:51
  Speaker 2: as an example. And I was talking to him, and
• 26:55
  Speaker 2: I'm like, oh, what's it saying? And he goes, oh,
• 26:57
  Speaker 2: it's showing ticket prices jumping. I'm like, man, I was
• 27:01
  Speaker 2: just on this today, and because one of the teams
• 27:04
  Speaker 2: that's playing in the game lost, ticket prices actually fell 25%.
• 27:07
  Speaker 2: Are you any good at this? I don't know if
• 27:11
  Speaker 2: it's actually any good at some of this stuff. Again,
• 27:15
  Speaker 2: it's not to say that this stuff won't get better,
• 27:17
  Speaker 2: but the other piece is, Mike, I sent this over
• 27:21
  Speaker 2: to you just before. Axios has a piece this morning,
• 27:26
  Speaker 2: and I'll read from you. I'll read from it. Banks
• 27:30
  Speaker 2: including Morgan Stanley, Bank of America, J.P. Morgan, Wells Fargo,
• 27:33
  Speaker 2: and others are racing to contain agent risks. Some are
• 27:35
  Speaker 2: aware of unauthorized access, people familiar with the issue said.
• 27:39
  Speaker 2: These are generally situations where an agent or AI assistant
• 27:42
  Speaker 2: accesses a human's account with the user's permission and login credentials.
• 27:46
  Speaker 2: Even if permitted by the user, it goes against the
• 27:48
  Speaker 2: guidelines of most banks requiring that humans log into their
• 27:51
  Speaker 2: own accounts. Okay, I understand. Maybe we need to tweak that.
• 27:55
  Speaker 2: This presents significant security risk. Banking executives fear the steps
• 27:59
  Speaker 2: agents with login action may take. But in other instances,
• 28:02
  Speaker 2: some banks have tracked activity when agents programmed to fulfill
• 28:05
  Speaker 2: requests or complete tasks on a user's behalf contact call
• 28:09
  Speaker 2: centers or appear to take actions independent of user instructions.
• 28:14
  Speaker 2: And so basically, Morgan Stanley has begun blocking third-party agents.
• 28:18
  Speaker 1: J.P.
• 28:18
  Speaker 2: Morgan, Bank of America, and Citi are also starting to
• 28:20
  Speaker 2: do so. And... Chase has gone so far as to
• 28:24
  Speaker 2: say customers should not give their usernames or passwords to anyone,
• 28:27
  Speaker 2: including agents. And so where they think they're going to
• 28:32
  Speaker 2: end up landing is with allowing for read-only access, much
• 28:36
  Speaker 2: like if you ever have a connected app that pulls
• 28:40
  Speaker 2: all of your financial information in.
• 28:42
  Speaker 3: Mint was a big one, but buy all accounts or
• 28:44
  Speaker 3: any of these services.
• 28:45
  Speaker 2: Any of those. More along the lines of that, hey,
• 28:48
  Speaker 2: your agent could see but not execute transactions on your behalf.
• 28:52
  Speaker 2: Because there's obviously a huge risk if an agent drains
• 28:56
  Speaker 2: your bank account, given how banking regulations work and who's
• 29:00
  Speaker 2: liable for what. They also probably are.
• 29:04
  Speaker 3: There is certainly the security concern that they most definitely have.
• 29:08
  Speaker 3: I would imagine there's also a cost concern that they
• 29:10
  Speaker 3: have of, hey, if these AI agents are going to
• 29:13
  Speaker 3: start calling our call centers to dispute charges because they
• 29:17
  Speaker 3: have that type of access.
• 29:20
  Speaker 2: Uh, well, but you can't bog us down. You can't
• 29:22
  Speaker 2: prevent that. That's like, that's the problem.
• 29:24
  Speaker 3: Yeah.
• 29:25
  Speaker 2: And, and we talked about this yesterday where the world
• 29:29
  Speaker 2: as we know it today exists because there's friction. Like if,
• 29:32
  Speaker 2: if you're upset about something with your bank, if it's
• 29:35
  Speaker 2: really small, are you actually going to call them?
• 29:38
  Speaker 1: No.
• 29:38
  Speaker 2: Like we all have the threshold. where we're like, that
• 29:41
  Speaker 2: doesn't rise to the level of me making the call.
• 29:43
  Speaker 1: Right.
• 29:44
  Speaker 2: But we do have the thing where we're like, okay,
• 29:45
  Speaker 2: now we need to call. If agents lowers that threshold
• 29:50
  Speaker 2: so much that, and we were just talking about like
• 29:52
  Speaker 2: restaurant reservations as an example, hey, like You're going to
• 29:56
  Speaker 2: end up with worse customer service because everyone now is
• 29:59
  Speaker 2: going to optimize for, hey, there are too many people calling.
• 30:03
  Speaker 2: And so great. Like you're not going to you won't
• 30:06
  Speaker 2: be able to get a person because it's just going
• 30:09
  Speaker 2: to be agents responding. And so the overall level of
• 30:12
  Speaker 2: customer service will go down or restaurants will disconnect their
• 30:17
  Speaker 2: phones because they can't like their front desk. People don't
• 30:20
  Speaker 2: know what to do. governments have started to see this.
• 30:24
  Speaker 3: Getting government forms filled, getting information requests from local governments,
• 30:29
  Speaker 3: notoriously a bit.
• 30:32
  Speaker 2: Frictionful. Can I use that word? Yeah. It's got a
• 30:36
  Speaker 2: lot more frictionality.
• 30:38
  Speaker 3: And they are dealing with these heavy volume requests because
• 30:41
  Speaker 3: all of a sudden these AI agents are able to
• 30:43
  Speaker 3: pour through paperwork and submit You know, basically just fill
• 30:46
  Speaker 3: out all the forms and get this stuff submitted. And
• 30:48
  Speaker 3: so they are dealing with ballooning costs at the government
• 30:51
  Speaker 3: level because, yeah, they make this stuff difficult to get
• 30:54
  Speaker 3: your hands on for a reason.
• 30:56
  Speaker 1: Yeah.
• 30:57
  Speaker 2: Yeah. Let's take a quick break here. When we return,
• 31:02
  Speaker 2: we've got a couple items on Social Security. Then we'll
• 31:04
  Speaker 2: cover Tesla earnings as well.
• 31:07
  Speaker 1: Your business day moves fast. Keep up with the Financial
• 31:10
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• 31:14
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• 31:23
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• 31:45
  Speaker 2: Mike, we got a piece in the Wall Street Journal
• 31:47
  Speaker 2: who I guess has been listening to us. It's titled,
• 31:51
  Speaker 2: Five Ideas to Start Fixing Social Security's Finances. We only
• 31:54
  Speaker 2: talk about this, oh, I don't know, a couple times
• 32:00
  Speaker 2: a month.
• 32:02
  Speaker 3: They have nicer charts than we put together on an
• 32:05
  Speaker 3: audio-only medium, though.
• 32:07
  Speaker 2: Well, that's fair. We don't put together charts for our
• 32:11
  Speaker 2: radio listeners because they would cause car accidents, and we
• 32:17
  Speaker 2: don't want a chart of those going up that we
• 32:19
  Speaker 2: would then send to our radio listeners who are no
• 32:21
  Speaker 2: longer driving. So here's the thing. There are plenty of
• 32:25
  Speaker 2: different ways that you can fix Social Security. We've been
• 32:29
  Speaker 2: over this a lot. Yes, there are going to be problems,
• 32:32
  Speaker 2: but if you do anything, not like anything, but just
• 32:35
  Speaker 2: like a few things, you can fix the whole thing
• 32:38
  Speaker 2: pretty darn easily, and we just aren't doing those things. Correct.
• 32:44
  Speaker 3: Yeah, I mean, there's a combination of things, but... Yeah,
• 32:48
  Speaker 3: I don't know. Nobody's going to like the solutions here.
• 32:52
  Speaker 3: But there's very reasonable ones. Mike, we can't keep saying that.
• 32:55
  Speaker 2: I know. At some point, we have to do the
• 32:57
  Speaker 2: things that people don't like.
• 32:58
  Speaker 4: I don't like doing the dishes, but I got to
• 33:00
  Speaker 4: do it.
• 33:01
  Speaker 2: I love doing the dishes, and I do them.
• 33:03
  Speaker 1: Weirdo.
• 33:04
  Speaker 2: I know, but it gets me a lot of slack
• 33:05
  Speaker 2: elsewhere in my life, so it's fine. But look, here's
• 33:09
  Speaker 2: the thing. We've gotten to this point because all we
• 33:11
  Speaker 2: want to do is like the wee fun stuff that
• 33:14
  Speaker 2: like gets you to like, oh, like there's like two
• 33:16
  Speaker 2: chickens in every pot. Well, that's wonderful. But I can't
• 33:19
  Speaker 2: like pay for anything anymore because we're all out of
• 33:22
  Speaker 2: all the other money. So here's the deal. The easiest
• 33:26
  Speaker 2: way is to handle this. And again, like you don't
• 33:29
  Speaker 2: have to like these, but you just have to understand
• 33:32
  Speaker 2: like what we're talking about doing here. Number one, if
• 33:36
  Speaker 2: you want to handle the biggest chunk of this, right
• 33:40
  Speaker 2: now Social Security payroll tax phases out $ 184, 500 of earned income.
• 33:47
  Speaker 2: Get rid of that cap.
• 33:49
  Speaker 3: Which would raise taxes for wealthy Americans and businesses to
• 33:55
  Speaker 3: the tune of 6%.
• 33:57
  Speaker 2: Correct. It's a big tax increase. Michael, this is what
• 34:00
  Speaker 2: we need to do. I don't disagree.
• 34:03
  Speaker 3: I am merely bringing up the point of why nobody
• 34:06
  Speaker 3: wants to deal with this, because you are raising the
• 34:09
  Speaker 3: tax on your biggest donors.
• 34:12
  Speaker 2: If you also, in addition to that, just as an example,
• 34:16
  Speaker 2: I'm trying to think of ones that are balanced here. Here,
• 34:18
  Speaker 2: let's do a couple different things. So that's the only
• 34:21
  Speaker 2: thing we're going to do on the tax side. Let's
• 34:23
  Speaker 2: change the cost of living adjustments. So instead, for the
• 34:28
  Speaker 2: top half of beneficiaries, we are going to cap colas
• 34:33
  Speaker 2: at a lower level until high-income beneficiaries receive the same
• 34:39
  Speaker 2: cola as the medium beneficiary when basically you equalize the benefits.
• 34:46
  Speaker 2: That covers another 23% of the gap. And then to
• 34:49
  Speaker 2: finish the final thing... Right now, Social Security, Mike, how
• 34:52
  Speaker 2: many years do you need to work in order to
• 34:55
  Speaker 2: max out your benefit? To max out 30 years, is
• 34:58
  Speaker 2: that right? 35.
• 34:58
  Speaker 3: 35. Okay.
• 34:59
  Speaker 2: I'm going to extend that to 40.
• 35:01
  Speaker 1: Yeah.
• 35:02
  Speaker 2: I have now closed 98% of the gap. Yes, I
• 35:05
  Speaker 2: had to raise taxes on about 10% to 15% of
• 35:08
  Speaker 2: Americans and on businesses. Yes, I did have to reduce
• 35:12
  Speaker 2: benefits for the top 50% of Social Security recipients. Yes.
• 35:17
  Speaker 2: And for future workers, you now have to calculate 40
• 35:21
  Speaker 2: years of work history instead of 35. Here's where we're screwed.
• 35:23
  Speaker 2: Everyone gets hit somehow. Yeah. Here's where. People are going
• 35:26
  Speaker 2: to text in and be like, Chuck, I don't want.
• 35:28
  Speaker 2: I'm not saying I don't want this either, but if
• 35:34
  Speaker 2: you have a better option, tell me. Yeah.
• 35:39
  Speaker 3: I don't see a whole lot of them. Nonetheless, this
• 35:42
  Speaker 3: is something you have to plan for if you are
• 35:44
  Speaker 3: building your financial strategy.
• 35:46
  Speaker 2: Right?
• 35:47
  Speaker 3: It's going to be some combination of tax increases, benefit decreases, change.
• 35:53
  Speaker 2: In how long you have to work.
• 35:55
  Speaker 3: There's no way around it unless you are of the belief,
• 35:58
  Speaker 3: which I kind of am, that the government's just going
• 36:00
  Speaker 3: to print higher deficits and fund it that way. If
• 36:04
  Speaker 3: you're not factoring in changes to Social Security within your
• 36:07
  Speaker 3: financial strategy, you are, in my.
• 36:09
  Speaker 2: Opinion, making a mistake.
• 36:11
  Speaker 3: It is a key risk to Most people that are
• 36:15
  Speaker 3: out there, some change in how these benefits work, whether
• 36:18
  Speaker 3: it's increased taxes or reduced benefits down the road. And
• 36:22
  Speaker 3: it's something that you need to at least understand and
• 36:24
  Speaker 3: test within your financial scenario. If you have questions about
• 36:27
  Speaker 3: how Social Security is going to work in your financial plan,
• 36:31
  Speaker 3: give the Armstrong Advisory Group a call at 800-393-4001. We
• 36:36
  Speaker 3: provide this type of consultation to all of our clients
• 36:39
  Speaker 3: and work with them hands-on to understand how Social Security.
• 36:42
  Speaker 2: Works and works for them. That number again is 800-393-4001.
• 36:46
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 36:51
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 36:53
  Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
• 36:56
  Speaker 1: your own financial, tax, and estate planning advisors before making
• 36:59
  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 37:02
  Speaker 1: advisory services.
• 37:03
  Speaker 3: Chuck, one more item on Social Security before we move on.
• 37:07
  Speaker 3: If we go and actually fix this problem, It will
• 37:10
  Speaker 3: be one of the largest tax increases or benefit reductions
• 37:14
  Speaker 3: that we've seen in, what, last 30 years?
• 37:18
  Speaker 2: Yes, and the senators being elected in two weeks are
• 37:21
  Speaker 2: going to have to make that decision because they're going
• 37:24
  Speaker 2: to be in a seat when this becomes an imminent problem.
• 37:27
  Speaker 3: My point is that it also does not fix the
• 37:30
  Speaker 3: deficit problems at all. And so we are going to
• 37:35
  Speaker 3: have to deal with this problem. that is going to
• 37:37
  Speaker 3: hopefully shore up Social Security without fixing anything around deficits.
• 37:41
  Speaker 2: To my point, we are never going.
• 37:42
  Speaker 3: To fix anything with deficits because we will just have
• 37:45
  Speaker 3: to deal with this issue and it will not improve
• 37:49
  Speaker 3: our country's borrowing situation.
• 37:52
  Speaker 2: Really at all. From what perspective?
• 37:57
  Speaker 3: All you're doing is fixing the trust fund issue here.
• 37:59
  Speaker 3: You're not reducing overall government spending and you're not increasing
• 38:04
  Speaker 3: taxes that go into that overall government pool. And so
• 38:09
  Speaker 3: I don't see how there's going to be any appetite
• 38:10
  Speaker 3: to raise taxes beyond this down the road or cut
• 38:13
  Speaker 3: benefits further down the road to deal with these problems.
• 38:16
  Speaker 2: We'll discuss more in hour two, and we've got a
• 38:19
  Speaker 2: whole bunch more to get to as well.