Latest / The PhilStockWorld Investing Podcast / Nvidia Earnings and the Tapped Out Consumer

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Nvidia Earnings and the Tapped Out Consumer · The PhilStockWorld Investing Podcast

• 0:00
  Penny: Welcome to today's deep dive. So our mission today is to, well, really make sense of what can only be described as just a wildly volatile, totally whiplash inducing trading day.
• 0:11
  Roy: Oh, absolutely.
• 0:12
  Penny: We are zeroing in on Wednesday, 05/20/2026. And to figure out exactly what happened, we're pulling from a pretty massive stack of source material today.
• 0:21
  Roy: Yeah. We've got a lot to get through.
• 0:23
  Penny: Right. We're looking at the real time market action captured in the PhilStockWorld Morning reports, the end of day wrap ups, and of course that really fascinating real time analysis happening in their live member chat room.
• 0:36
  Roy: And you know what makes this particular stack of sources so compelling as well, it's the analytical engine driving it.
• 0:41
  Penny: Yeah, the AI.
• 0:42
  Roy: Exactly. We aren't just relying on traditional human financial commentary here. We are looking at insights from Phil Davis and his AGI roundtable.
• 0:51
  Penny: Which is just wild to read.
• 0:52
  Roy: It really is. For those unfamiliar, this is a team of specialized artificial intelligence analysts that process the market in real time. So you have, Basho, an AI acting as like a market plumbing engineer. Then there's Zephyr, the data synthesizer. There's Warren two point zero who runs the value quant models and, you know, a few others.
• 1:10
  Penny: Yeah. And they're ingesting macroeconomic data, geopolitical breaking news, and these highly specific sector breakdowns at a speed that, honestly, humans just simply can't match.
• 1:20
  Roy: They really can't.
• 1:21
  Penny: So we are taking their real time chat room analysis, and we're cross referencing it with the end of day financial reporting to just try and connect the dots on a massive scale.
• 1:30
  Roy: Because there are a lot of dots today.
• 1:32
  Penny: Seriously. We have an overarching mission here, which is to connect the mechanics of this multi trillion dollar AI super cycle, a violently swinging bond market, a sudden geopolitical headline that just flipped the market upside down, and underneath it all, an American consumer who
• 1:48
  Roy: Who the data suggests is completely tapped out.
• 1:51
  Penny: Exactly. Fundamentally tapped out.
• 1:53
  Roy: I mean, it is a diagnostic muddy water scenario right now. We're looking at a market where the surface level metrics look, you know, fantastic. But they are completely masking these severe underlying mechanical failures.
• 2:05
  Penny: Which brings me to this analogy. I was thinking about this. If you look at the stock market right now, it feels exactly like a really successful, glamorous house party in a trillion dollar mansion.
• 2:18
  Roy: Okay. I like this.
• 2:19
  Penny: Right. Like, you step into the living room, the music is playing, the guests are dressed to the nines, and everyone is crowded around the host, completely mesmerized by these massive, shiny, new artificial intelligence gadgets they just bought.
• 2:32
  Roy: Yeah. It looks like the absolute picture of prosperity.
• 2:35
  Penny: It does. But if you take a moment and you step away from the crowd and just, like, press your ear to the floorboards
• 2:41
  Roy: Do you hear the plumbing?
• 2:42
  Penny: The pipes down the basement are making these terrifying, violent clunking noises and everyone is just, you know, pretending they can't hear it.
• 2:50
  Roy: Yeah. And the timeline of May 20 perfectly illustrates those clunking pipes.
• 2:54
  Penny: For sure.
• 2:55
  Roy: We saw a morning defined by pure macroeconomic panic in the bond market. Then you know an afternoon tape that was suddenly rescued by a massive geopolitical headline out of The Middle East.
• 3:07
  Penny: Out of nowhere too!
• 3:10
  Roy: And finally, an after hour session dominated by the single most important corporate earnings report of the decade.
• 3:16
  Penny: Okay, so let's start with that morning panic. Because the AGI analyst, Boschow, laid out a thesis in the chat about the hidden market mechanics driving interest rates higher.
• 3:25
  Roy: Right. And it all originates with the tech giants, the hyperscalers.
• 3:29
  Penny: Okay. Let's unpack this. Yeah. Because whenever I read about these tech monopolies, your Microsofts, your Googles, your Metas, the overarching narrative is just that they have these fortress balance sheets.
• 3:42
  Roy: Oh, yeah. Like they have infinite money.
• 3:44
  Penny: Right. They're basically bottomless wells of cash. So, if they are projected to spend a staggering $600,000,000,000 this year on AI infrastructure and, you know, maybe $637,000,000,000 next year, the assumption is they just pay for that out of their checking account, right?
• 4:00
  Roy: Yeah. I mean, that is the widespread assumption. Oh. But the mechanical reality of corporate treasury management is entirely different.
• 4:08
  Penny: How
• 4:08
  Roy: Well, companies of that size do not keep hundreds of billions of dollars sitting in a basic cash account yielding nothing. That's just not how it works. During the zero interest rate era of the past decade when money was essentially free, these hyperscalers took their massive profits and built up colossal portfolios of low interest corporate bonds and marketable securities. They locked their money into assets yielding like maybe one or 2%, because that was the standard at the time.
• 4:38
  Penny: Wait, I want to make sure I understand this clearly for you listening. If they locked their money up in low interest bonds years ago, and now they suddenly need, say, dollars $6,600,000,000,000 in liquid cash to buy endless racks of Nvidia GPUs.
• 4:51
  Roy: And build entirely new data centers.
• 4:53
  Penny: Right, to build new data centers. They have to sell those bonds. Exactly. But why is that a problem? Selling bonds is pretty normal.
• 4:59
  Roy: It's a problem because of the current interest rate environment. We were no longer in the 0% world.
• 5:05
  Penny: Oh right!
• 5:06
  Roy: Yeah, so if a tech giant tries to sell a bond today that only pays a 1.5% interest rate, no buyer on earth is going to pay full price for it.
• 5:15
  Penny: Why would they?
• 5:16
  Roy: Exactly! Not when they can go buy a brand new US Treasury Bond that pays nearly 5%.
• 5:20
  Penny: Wow! Okay.
• 5:21
  Roy: So to get rid of those old low interest bonds, the tech companies have to sell them at a steep discount. In finance, this is called realizing a mark to market loss.
• 5:31
  Penny: So they're taking a hit?
• 5:33
  Roy: Yes, they are willingly taking a financial hit on their massive portfolios just to generate the raw cash needed to fund this AI arms race.
• 5:42
  Penny: So they are basically taking a haircut on their savings account just to make sure they don't fall behind in the AI wars.
• 5:48
  Roy: That's a great way to put it.
• 5:49
  Penny: But how does one tech company selling its old bonds affect the entire global plumbing of the market? Like why does it matter to everyone else?
• 5:56
  Roy: It becomes a plumbing disaster because of the sheer volume and well because of who else is trying to use that exact same pipe at the exact same time.
• 6:04
  Penny: Okay, who else is in the pipe?
• 6:05
  Roy: The AGI roundtable pointed out that this massive corporate bond dumping by the hyperscalers is flowing into the exact same liquidity pool as a massive US Treasury supply storm.
• 6:16
  Penny: Oh man, Uncle Sam.
• 6:18
  Roy: Uncle Sam. The US government is currently running a massive deficit, so to fund the government, they have to auction off incredible amounts of debt.
• 6:25
  Penny: How much debt are we talking about?
• 6:27
  Roy: We are talking about over six seventy billion dollars in new treasury supplies expected later this summer alone.
• 6:34
  Penny: So I see the collision now. You have the biggest companies in the world liquidating hundreds of billions in corporate bonds, and simultaneously, the US government is trying to sell hundreds of billions in new treasury bonds.
• 6:46
  Roy: It's an ocean of supply hitting the market all at once.
• 6:49
  Penny: That's insane!
• 6:50
  Roy: So let's walk through the basic bond math for the listener just because understanding this dynamic is really the key to understanding why everything fell so incredibly precarious this morning.
• 7:00
  Penny: The
• 7:01
  Roy: bond market operates on basic supply and demand. When the supply of bonds drastically outweighs the demand from available buyers.
• 7:09
  Penny: Which is what's happening.
• 7:10
  Roy: Right. The sellers, whether it's Microsoft selling an old bond or the US Treasury selling a new one, they have to make their bonds more attractive to get someone to bite.
• 7:19
  Penny: And the only way to make a bond more attractive is to offer a better return. So the yield has to go up.
• 7:25
  Roy: Exactly. The sheer volume of supply from both the hyperscalers and the government is physically forcing yields higher to attract the limited pool of buyers.
• 7:34
  Penny: Which explains the spike we saw.
• 7:35
  Roy: Yeah, this is why we saw the thirty year U. S. Treasury yield touch 5.18% earlier this week. To put that in perspective, that is a level we haven't seen since 2007.
• 7:45
  Penny: Which is right on the doorstep of the global financial crisis.
• 7:48
  Roy: Precisely. And on the morning of May 20, the ten year treasury yield hovered dangerously near 4.67%.
• 7:56
  Penny: Okay, so let's talk about the victim of this plumbing Because if a trillion dollar tech giant takes a slight mark to market loss, they survive. You know, they'll be fine.
• 8:06
  Roy: Sure. They barely feel it.
• 8:07
  Penny: But who is getting crushed by these 2007 era yields? Because the PhilStockWorld Morning report specifically pointed a finger at the Russell 2,000.
• 8:16
  Roy: Yeah. The Russell 2,000. That's the index tracking small cap companies. So these are your regional manufacturers, your mid size retail chains, logistics companies
• 8:23
  Penny: Regular businesses.
• 8:24
  Roy: Regular businesses. And Bashow's analysis highlighted a truly alarming statistic about them.
• 8:29
  Penny: What was it?
• 8:30
  Roy: 43% of the entire Russell two thousand is currently classified as a zombie cohort.
• 8:35
  Penny: A zombie cohort? That sounds terrible.
• 8:38
  Roy: It is. This term refers to unprofitable companies that do not generate enough operating profit to even cover the interest payments on their existing debt.
• 8:48
  Penny: Wow!
• 8:48
  Roy: Yeah. They rely entirely on continuously refinancing their debt just to keep the lights on and make payroll.
• 8:55
  Penny: And the type of debt they hold is the crucial detail here, right? Because the sources mention floating rate debt. Can we break down what that actually means for a mid sized business owner?
• 9:05
  Roy: Absolutely. So if you have a fixed rate mortgage on your house at say 3%, it doesn't matter if the Federal Reserve raises rates to 10%.
• 9:12
  Penny: Right. Your payment stays exactly the same.
• 9:14
  Roy: Your payment stays the same. But floating rate debt is variable. It's tied directly to the broader market rates.
• 9:20
  Penny: Oh I see.
• 9:21
  Roy: So as that ten year treasury yield climbs toward 4.7% because of that massive supply dumping we just discussed, the interest payments for these small cap companies automatically reset higher.
• 9:33
  Penny: They don't have any long term protection at all.
• 9:35
  Roy: None. Their survival is entirely dependent on the corporate credit pool remaining cheap and accessible, which it currently is not.
• 9:43
  Penny: So if money is flowing out of the bond market to fund Uncle Sam's massive deficit and money is flowing out to buy Nvidia GPUs for the hyperscalers
• 9:53
  Roy: Yeah.
• 9:53
  Penny: Does that mean the AI boom is actively like mechanically choking the life out of regular small cap businesses?
• 10:00
  Roy: I mean that is the direct causality Basho presents in the chat room. The tech narrative often treats AI as this isolated phenomenon that just lifts the whole market.
• 10:09
  Penny: The rising tide lifts all boats.
• 10:10
  Roy: Right, that's the story. But mechanically they are sitting at opposite ends of the exact same plumbing system.
• 10:15
  Penny: Wow.
• 10:17
  Roy: The liquidity flowing out of the credit market to fund the AI supercycle is liquidity that is fundamentally no longer available for small caps to refinance their floating rate debt. Basho actually flagged a specific technical kill shot level for this, 4.7% on the ten year treasury.
• 10:32
  Penny: Which is terrifying because the ten year was sitting at 4.67% this morning. And let me just explain basis points really quickly for you, the listener, because you'll hear that term a lot in finance.
• 10:43
  Roy: That's a good point.
• 10:43
  Penny: Yeah, one basis point is simply one hundredth of 1%. So, if we are at 4.67%, we are just three basis points away from that 4.7% threshold.
• 10:54
  Roy: Where the math just completely breaks down for these smaller companies.
• 10:56
  Penny: Right. But it gets even crazier. Because according to the AGI Roundtable, there is actually a third pipe draining this liquidity pool.
• 11:05
  Roy: Yes, the massive initial public offerings. The IPOs. So the primary market is aggressively siphoning capital away from the secondary market. The sources track the sheer volume of capital being sucked out to fund these mega ITOs.
• 11:21
  Penny: Like Cerebras.
• 11:22
  Roy: Exactly. We have the new Cerebras IPO, which is an AI chipmaker. They somehow generated a $95,000,000,000 valuation basically out of thin air on what they call a tiny public float.
• 11:33
  Penny: I'm really glad you brought up the term public float. Let's clarify that. The float is just the number of shares actually available for the public to trade.
• 11:39
  Roy: Right. This is right.
• 11:40
  Penny: So if a company is valued at $95,000,000,000 but the founders and insiders keep, like, 95% of the stock locked up, the float is only that remaining 5% that's actually available to the public.
• 11:52
  Roy: Which makes a stock highly volatile, yeah, because there just aren't many shares to go around.
• 11:56
  Penny: And Cerepus isn't even the biggest one we're looking at.
• 11:58
  Roy: Oh, far from it. We have the impending SpaceX IPO looming over the market too. Right. Which is reportedly seeking an astronomical $2,000,000,000,000 valuation.
• 12:08
  Penny: 2,000,000,000,000?
• 12:09
  Roy: Yeah. A $2,000,000,000,000 valuation for a single IPO is just difficult to even conceptualize in terms of market mechanics.
• 12:17
  Penny: So walk me through the mechanics of that. In the PSW chat room, Basho brought up a concept called the conservation of weight theory.
• 12:23
  Roy: Yes.
• 12:23
  Penny: How does a $2,000,000,000,000 IPO physically impact the rest of the stock market?
• 12:28
  Roy: So think about how modern investing works. A massive portion of the market is driven by passive index funds.
• 12:34
  Penny: Like your standard four zero one ks.
• 12:35
  Roy: Exactly. Your standard four zero one ks tracking the S and P 500 or total market indexes. Now these funds operate on rigid algorithms. When a massive behemoth like SpaceX eventually gets floated onto the public markets and added to the major indexes, these passive funds do not have a choice.
• 12:54
  Penny: They're forced to buy it.
• 12:55
  Roy: Their mandate requires them to buy enough shares of the new company to match its exact weight in the index.
• 13:01
  Penny: But wait, the Federal Reserve isn't just printing fresh trillions to hand over to Vanguard and BlackRock to buy these new shares.
• 13:08
  Roy: Nope.
• 13:08
  Penny: And retail investors certainly don't have trillions in cash sitting around. So where does the actual money come from to make that mandatory purchase?
• 13:15
  Roy: The equity market is forced to self cannibalize. To generate the cash required to execute those mandatory buys of Cerebras or SpaceX, the index fund algorithms have to sell off billions of dollars of their existing holdings.
• 13:29
  Penny: And what do they sell? What's the easiest, most vulnerable meat to cut?
• 13:33
  Roy: The long tail of the index. The legacy companies.
• 13:36
  Penny: The small caps.
• 13:37
  Roy: Exactly, the small cap and mid cap stocks at the bottom of the S and P 500. The algorithms mechanically liquidate the foundation of the market, just to make room for the massive new tech and aerospace giants at the top.
• 13:49
  Penny: Man, it's a brilliant way to visualize it. It is literally like ripping the foundational bricks out of a house just to build a heavier, shinier roof.
• 13:57
  Roy: It's a perfect analogy.
• 13:58
  Penny: So if we summarize the morning tape, we have three massive pipes draining the lifeblood out of the market. We've got the hyper scaler expenditure, the treasury supply storm, and the mega IPO section line.
• 14:11
  Roy: All three.
• 14:12
  Penny: All three are violently pulling liquidity away from the bottom 499 companies in the S and P 500.
• 14:18
  Roy: Yeah.
• 14:19
  Penny: But that naturally leads us to look at the people who actually buy products from those struggling companies.
• 14:24
  Roy: The consumer.
• 14:25
  Penny: Right. If the corporate side is choking on lack of liquidity and soaring rates, what is happening to the American household?
• 14:31
  Roy: Well, you cannot maintain a functioning macroeconomic environment if the consumer base is exhausted.
• 14:37
  Penny: Right.
• 14:38
  Roy: And the data parsed by the AGI roundtable today paints a very stark picture of household borrowing. The human cost of these macroeconomic shifts is finally really showing up in the data.
• 14:50
  Penny: Yeah. I was reading the credit card metrics from the morning report and the numbers are just staggering. Total credit card debt in The US has surged to $1,250,000,000,000.
• 15:02
  Roy: Trillion. With a t.
• 15:04
  Penny: And it's not just the total number. Right? It's the velocity. It's growing at an average annual rate of 10.2% over the last five years.
• 15:12
  Roy: Which is huge.
• 15:13
  Penny: To put that in perspective for you, that is double the growth rate of all other consumer loans like your auto loans or mortgages.
• 15:19
  Roy: Yeah, we have to interrogate the root cause of that velocity because, you know, a 10.2% growth in credit card debt could theoretically mean consumers are incredibly confident, feeling wealthy going on massive discretionary shopping sprees.
• 15:33
  Penny: But they aren't.
• 15:34
  Roy: No. The data correlates this explosion in debt directly to the rising costs of basic survival. The inflation reports synthesized in the chat room highlight that the cost of a pound of steak is up 17% year over year.
• 15:47
  Penny: 17%.
• 15:48
  Roy: Gasoline is stubbornly back over $4 a gallon nationally, with diesel pushing over $5.50.
• 15:54
  Penny: So people aren't using their credit cards to buy jet skis, they're using to buy ground beef and fuel just to get to work. They simply don't have the liquid cash to absorb these continuous price shocks. So the basic cost of living goes on plastic.
• 16:07
  Roy: And the delinquency metrics confirm that this is not manageable debt. Serious delinquencies, which are defined as accounts that are ninety days or more past due, they have skyrocketed to 13.1%. That is the highest level we have witnessed in fifteen years. It completely surpasses the stress levels of the early pandemic.
• 16:28
  Penny: Let's pause on the math of this for a second because the sources highlighted a trap here that I think a lot of people fall into. The data shows that ten point eight percent of borrowers are currently making only the minimum monthly payments on their credit cards.
• 16:41
  Roy: Against an average interest rate of 21%.
• 16:43
  Penny: 21%. Walk me through what that actually looks like for a household.
• 16:46
  Roy: Okay, so when a consumer makes a minimum payment against a 21% compounding interest rate, they are effectively entering a state of mathematical debt peonage. Wow. Let's say you have $10,000 in credit card debt. At 21%, the interest alone is over $175 a month.
• 17:01
  Penny: Just the interest.
• 17:02
  Roy: Just the interest. So if your minimum payment is only $200 you are only reducing the actual principal by $25
• 17:10
  Penny: Oh my God.
• 17:11
  Roy: You could make payments for a decade and barely make a dent in the original balance. The interest compounds so aggressively that the debt just becomes a permanent fixture of their monthly budget.
• 17:21
  Penny: So they're trapped.
• 17:22
  Roy: Completely trapped. These households are running with zero margin for error. One medical emergency or, you know, a single blown transmission on their car pushes them from struggling to total default.
• 17:33
  Penny: And we saw this exact consumer distress play out in the equities market in real time this morning.
• 17:39
  Roy: With Target.
• 17:39
  Penny: Yes. With Target's q one earnings report. I really wanna look at this closely because on paper, if you just read the headline, it looked like a generally positive report.
• 17:49
  Roy: Right. It did.
• 17:49
  Penny: Comparable sales jumped 5.6%, which was their biggest bump since the end of twenty twenty one, and they beat earnings per share estimates coming in at $1.71. But the market reaction was brutal.
• 18:01
  Roy: It was a bloodbath.
• 18:02
  Penny: Target's stock dropped 6.5% right at the open. Why did Wall Street punish them for a seemingly good quarter? Well,
• 18:10
  Roy: the market operates as a forward looking mechanism. It rarely rewards past performance if the future looks bleak.
• 18:16
  Penny: During
• 18:17
  Roy: the earnings call, Target's management was basically forced to admit that this Q1 sales bump was heavily reliant on temporary exogenous factors.
• 18:26
  Penny: Like what?
• 18:27
  Roy: Specifically, they cited higher than usual tax refunds that arrived earlier in the quarter. It gave shoppers a momentary one time injection of cash.
• 18:36
  Penny: So it was just a temporary band aid?
• 18:38
  Roy: Exactly.
• 18:39
  Penny: Consumer got like a $1,500 tax refund, went to Target, caught up on some deferred purchases, and now that money is gone. Gone. It wasn't a structural improvement in their wages or their financial health?
• 18:49
  Roy: Not at all. Right. And management explicitly warned that the tax refund benefit is fading rapidly as we move into the summer.
• 18:57
  Penny: Right.
• 18:57
  Roy: Furthermore, they are looking ahead to a brutal Q2 comparison. Right. Last year, they benefited massively from the launch of the Nintendo Switch two.
• 19:05
  Penny: Oh, right. It was huge.
• 19:07
  Roy: It was a huge high margin hardware event that drove massive foot traffic. Right. And they have to lap that quarter this year without any similar catalyst. No. So the algorithms parsing the earnings call essentially translated the management's tone as 'our consumers only shopped because of tax refunds, and those refunds are now spent.'
• 19:25
  Penny: That makes a lot of sense. The PhilStockWorld chatroom did a brilliant job contrasting Target's specific struggles with Walmart's anticipated success later this week.
• 19:34
  Roy: The bifurcated consumer.
• 19:35
  Penny: Yes. They used the phrase the bifurcated consumer because Target traditionally caters to a slightly more affluent demographic.
• 19:42
  Roy: The solid middle and upper middle class.
• 19:43
  Penny: Right. But that exact demographic is getting squeezed the hardest by housing inflation, auto insurance spikes, and grocery costs. So they are doing what economists call trading down.
• 19:54
  Roy: Which is why we are seeing Walmart actively gaining market share in groceries from households earning over $100,000 a year. Wow. Yeah. When the middle class consumer abandons the premium shopping experience and consolidates their purchases at the absolute lowest cost discount retailer just to make their budget work,
• 20:12
  Penny: Yeah.
• 20:12
  Roy: That is a glaring, undeniable signal of macroeconomic distress.
• 20:17
  Penny: Here's where I have a major bone to pick with the broader narrative, though. The sources referenced a recent interview where the director of the National Economic Council literally cheered the current economic data.
• 20:29
  Roy: Oh, I saw that.
• 20:30
  Penny: He said, and I quote, credit card spending is through the roof, as if it were a sign of robust economic health and consumer confidence. Right. I read that and thought, isn't that like celebrating a massive leak in a lifeboat because you suddenly have plenty of water to drink?
• 20:46
  Roy: That's a very vivid way to put it. Yeah.
• 20:47
  Penny: Why does the system misinterpret this so badly?
• 20:51
  Roy: Well, traditional macroeconomic models often struggle to differentiate between discretionary demand and desperate survival.
• 20:57
  Penny: Okay, so they just see the volume.
• 20:59
  Roy: Exactly. The model simply sees transaction volume, it sees money moving, it doesn't inherently code for the fact that the transaction was funded by a 21% debt instrument to buy essential calories.
• 21:11
  Penny: That's so frustrating!
• 21:12
  Roy: It is! But while the government might be misinterpreting this desperation, the corporate sector is absolutely weaponizing it.
• 21:20
  Penny: Oh yes, the AGI chatroom brought up a concept today that the Federal Trade Commission is currently investigating.
• 21:26
  Roy: Surveillance Pricing
• 21:27
  Penny: Surveillance pricing. This was hands down the most chilling part of the entire morning report.
• 21:35
  Roy: Terrifying.
• 21:35
  Penny: I want to talk directly to you, the listener, for a second. Think about the last time you bought groceries online or booked a hotel or even just browsed a retailer's app. We are all familiar with dynamic pricing. Right? Yeah.
• 21:46
  If you try to order an Uber during a rainstorm at rush hour, the price surges. If you book a flight the day before Thanksgiving, it costs more. But that is based on aggregate, macro supply and demand.
• 21:58
  Roy: Right, that's just the market.
• 21:59
  Penny: Surveillance pricing is entirely different.
• 22:01
  Roy: It is. Dynamic pricing looks at the market. Surveillance pricing looks at you. Specifically, you. It utilizes advanced AI algorithms to ingest your individual data profile.
• 22:12
  So, your purchase history, your browsing habits, your exact geolocation.
• 22:16
  Penny: Even the type of phone you're using.
• 22:18
  Roy: Yes. Yeah. Even data scraped from your credit profile. The algorithm uses all of this to calculate your personal reservation price.
• 22:26
  Penny: And what is a reservation price?
• 22:28
  Roy: That is the exact maximum dollar amount of financial pain you individually will tolerate before you abandon your digital shopping cart.
• 22:36
  Penny: So to use an example, the algorithm looks at my profile and says, okay, this guy has a history of consistently paying a premium for organic milk. He lives in a high income zip code, and we know his direct deposit just hit his bank account on Friday. Right. The algorithm will literally display a price for that gallon of milk that is 40¢ higher on my screen than it is on the screen of someone living in a different zip code who usually buys the store brand.
• 23:02
  Roy: It is the absolute ruthless optimization of Wells extraction.
• 23:06
  Penny: That is so dark.
• 23:08
  Roy: The AI is actively learning how to squeeze every last available cent of margin out of a consumer base that it, as we just discussed, is already funding their daily lives with compounding debt.
• 23:18
  Penny: It fundamentally destroys the concept of a transparent open market where a product has a set knowable price.
• 23:25
  Roy: Completely destroys it.
• 23:26
  Penny: So we have a morning defined by plumbing failures in the bond market, threatening small businesses, and a consumer base that is quite literally being financially strip mined by customized surveillance algorithms.
• 23:39
  Roy: It paints an incredibly grim, claustrophobic picture.
• 23:42
  Penny: It really does. But and here's the crazy part. If you were trading the market on May twentieth, twentieth, right around midday, the entire narrative violently shifted on a dime.
• 23:52
  Roy: Oh, the afternoon tape was an entirely different reality. Totally. This is where the geopolitical theater hijacked the macroeconomic data.
• 23:59
  Penny: Okay, let's set the scene for the listener. It's just before midday. The markets are tense. Treasury yields are flirting with disaster levels. Oil is highly elevated, and the indices are basically bleeding out.
• 24:09
  Roy: And suddenly?
• 24:11
  Penny: Suddenly, a breaking headline drops across the terminal. President Trump, speaking to reporters from Air Force One, announces that The US and Iran are in the, quote, final stages of a diplomatic deal.
• 24:22
  Roy: A huge deal.
• 24:23
  Penny: Yeah. Potentially outlining a thirty day cease fire to the conflict that has been severely disrupting the Middle East.
• 24:28
  Roy: So to understand the market's instantaneous reaction to this, you have to understand what was actually priced into commodities at that exact moment.
• 24:36
  Penny: Okay, break that down.
• 24:37
  Roy: For months, the price of crude oil had a massive geopolitical risk premium baked into every single barrel.
• 24:43
  Penny: Just based on fear.
• 24:44
  Roy: Exactly. The fear of a bratter regional war or the nightmare scenario of a permanent closure of the Strait Of Hormuz, which by the way sees about 20% of the world's liquid petroleum pass through it.
• 24:55
  Penny: That's a huge chunk of global oil.
• 24:57
  Roy: Massive. So that fear had pushed Brent crude to over $110 a barrel and WTI crude well over $105
• 25:06
  Penny: But the second the word ceasefire hits the algorithm scrapers, how does the market mechanize that?
• 25:11
  Roy: That risk premium is apparates in milliseconds. Milliseconds. The explosion in commodity selling was instantaneous. Oil prices plummeted over 5% in a matter of minutes. WTI crude dropped all the way down to roughly $98 a barrel and Brent fell back to $105
• 25:27
  Penny: But how does oil dropping suddenly fix the panic in the bond market we talked about earlier? Like why did the stock market care so much about crude oil in that specific moment?
• 25:35
  Roy: Because energy costs are the foundational driver of inflation. Every physical good in the economy requires fuel to be manufactured and transported. So when oil drops 5% in an hour, the algorithms instantly recalculate and lower their future inflation expectations. And when inflation expectations drop, the pressure is immediately lifted off the bond market.
• 25:56
  Penny: So that ten year treasury yield
• 25:59
  Roy: Which had been threatening that 4.7% kill shot level all morning, it rapidly slipped down to 4.57%.
• 26:07
  Penny: Oh, it acted like a massive pressure release valve for the entire system, and the equities market reacted with a violent relief rally.
• 26:14
  Roy: Oh, it surged.
• 26:15
  Penny: The Dow jumped 645 points, blasting upward to close over 50,000. The Nasdaq surged nearly 400 points, crossing 29,000. And if you look at the specific stocks that led the charge, it makes perfect mechanical sense.
• 26:28
  Roy: The biggest winners were the most rate sensitive and fuel sensitive sectors.
• 26:32
  Penny: Like the cruise lines.
• 26:33
  Roy: Exactly. Cruise lines. Carnival and Norwegian absolutely skyrocketed. Their operating margins are intensely tethered to the cost of diesel and maritime fuel.
• 26:41
  Penny: Makes sense.
• 26:42
  Roy: And homebuilders like Toll Brothers and Doctor Horton, they surged on the promise that the drop in treasury yields will eventually filter through the system and result in lower thirty year mortgage rates for home buyers.
• 26:54
  Penny: It felt like the entire market was just exhaling a breath that had been holding for three straight months.
• 26:59
  Roy: It did.
• 27:00
  Penny: But here's where I wanna push back, and where the AGI team and the PhilStockWorld chat threw a massive bucket of cold water on the Euphoria.
• 27:09
  Roy: Yeah. They did not buy it.
• 27:10
  Penny: The AI analysts Zephyr and Hunter immediately flagged this rally as pure political theater. Did anything physically change in The Middle East today?
• 27:20
  Roy: No, the physical reality on the ground remained entirely unchanged.
• 27:24
  Penny: Euro change.
• 27:24
  Roy: And this is where investors must distinguish between a sentiment driven relief rally and a structural cure to an economic disease.
• 27:32
  Penny: First,
• 27:33
  Roy: the AGI team pointed out what they call the worst trade pause.
• 27:36
  Penny: The worst trade?
• 27:37
  Roy: Yeah. The market has been terrified of impending, aggressive interest rate hikes from the incoming Federal Reserve Chair Kevin Warsh. The diplomatic headline was so loud and sudden that traders used it as an excuse to temporarily suspend those fears.
• 27:52
  Penny: They hit pause on the macro reality?
• 27:54
  Roy: Precisely. They deferred the panic. They didn't solve it. And let's look at the physical logistics. Despite the rhetoric on Air Force One, the Strait Of Hormuz remains effectively closed to commercial shipping due to insurance premiums and physical threats.
• 28:08
  Penny: The ships aren't going through.
• 28:10
  Roy: They aren't. Yeah. So the underlying inflation for the past three months of ships having to reroute entirely around the continent of Africa that is already permanently baked into the global supply chain.
• 28:20
  Penny: Right. Because a retailer cannot retroactively un pay for the expensive diesel fuel that moved their inventory last month.
• 28:26
  Roy: Exactly.
• 28:27
  Penny: So the market traded a headline, not a physical reality. The sources pointed out that it isn't just oil that moves through those specific choke points too. Crucial agricultural inputs, like vital fertilizers are still physically blocked from exiting the Gulf Cooperation Council countries.
• 28:44
  Roy: Which brings us to the compounding factors that headlines cannot fix.
• 28:47
  Penny: Oh boy.
• 28:48
  Roy: Yeah. While the market was cheering a potential thirty day cease fire, the AGI synthesis highlighted a developing catastrophic situation regarding Russian wheat.
• 28:59
  Penny: Russian wheat? What's happening there?
• 29:01
  Roy: Heavy rains followed by severe cold snaps have caused the worst start to spring wheat planting in Russia in twenty five years.
• 29:07
  Penny: And Russia is the world's top wheat exporter, correct?
• 29:11
  Roy: Correct. The projected planting area is plummeting to a two decade low.
• 29:16
  Penny: Wow.
• 29:17
  Roy: So when you combine the world's primary wheat supplier suffering catastrophic weather delays with ongoing fertilizer disruptions from the Hormuz blockade
• 29:24
  Penny: Oh, man.
• 29:25
  Roy: You are looking at the mathematical certainty of an agricultural inflation shock later this year.
• 29:30
  Penny: So if the cost of wheat and fertilizer explodes, food inflation is inevitably gonna cause another panic, regardless of what diplomatic headlines cross the terminal today.
• 29:39
  Roy: It is highly probable. I mean, the algorithms can trade a headline in a millisecond, but you cannot negotiate a diplomatic treaty with a frost freeze.
• 29:46
  Penny: Good luck with that.
• 29:47
  Roy: Right. And you cannot speed up a harvest cycle, which is why the expert consensus in the PSW chatroom was extremely pragmatic today.
• 29:56
  Penny: What did they advise?
• 29:57
  Roy: They said, use this afternoon relief rally to trim your energy profits, trail your stop losses tightly and maintain high cash levels.
• 30:05
  Penny: Just be smart about it.
• 30:06
  Roy: Yeah, you do not mistake a temporary headline for a regime change in the physical economy.
• 30:11
  Penny: Okay, so we survived the morning bond plumbing panic, we rode the afternoon geopolitical relief rally, but as the closing bell rang at four view PM, the entire financial world shifted its focus to the after hours market.
• 30:25
  Roy: The main event.
• 30:26
  Penny: Because if the hyperscalers are draining liquidity to buy AI chips, we have to look at the company selling those chips. This brings us to the absolute main event of the day, Nvidia's Q1 Earnings Print.
• 30:36
  Roy: It is genuinely difficult to overstate the sheer gravity of Nvidia in the 2026 market ecosystem. Nvidia is not just a company anymore, it is the fundamental fulcrum upon which the entire multi trillion dollar artificial intelligence super cycle rests.
• 30:51
  Penny: Let's set the stage with the sheer numbers because they are just astronomical. Going into this earnings sprint, Nvidia was sitting at a $5,430,000,000,000 market cap. Trillion.
• 31:02
  Roy: With a key.
• 31:03
  Penny: But despite that size, it was also the most heavily shorted stock in the entire S and P 500 with a staggering $62,500,000,000 in short bets wagered against it.
• 31:15
  Roy: Let's clarify what those short sellers were risking too. When you short a stock, you are borrowing shares and selling them hoping the price goes down so you can buy them back cheaper later.
• 31:24
  Penny: Right.
• 31:24
  Roy: But if the price goes up, your potential losses are mathematically infinite.
• 31:28
  Penny: Infinite?
• 31:29
  Roy: Yes. And the options market, the derivative bets placed on the stock's movement, was pricing in a massive 5% swing in either direction based purely on this single earnings release.
• 31:39
  Penny: A 5% swing on a $5,400,000,000,000 company is roughly $270,000,000,000 in market value created or destroyed in a single after hours session.
• 31:48
  Roy: Unbelievable.
• 31:49
  Penny: And if it swings up, triggers a massive short squeeze. Let's explain that dynamic.
• 31:53
  Roy: Sure. So a short squeeze occurs when a heavily shorted stock rapidly increases in price. Those short sellers who bet against the stock are suddenly facing massive losses.
• 32:03
  Penny: So they panic.
• 32:04
  Roy: They panic. To close their positions and stop the bleeding they are forced to buy the stock at the current market price.
• 32:10
  Penny: Which just drives the price up even more.
• 32:12
  Roy: Exactly. This mandatory buying pressure adds explosive fuel to the rally, pushing the price even higher, forcing even more short sellers to buy, creating a vicious upward spiral.
• 32:21
  Penny: And the entire market was just holding its breath, waiting to see if Nvidia would trigger the 62,000,000,000 squeeze.
• 32:27
  Roy: If Nvidia sneezes, the entire Nasdaq catches a cold.
• 32:30
  Penny: Truly. So 4.05PM hits and the numbers drop, and they are mind bending.
• 32:35
  Roy: Oh, they were.
• 32:36
  Penny: Revenue was up 85% year over year, coming in at $81,610,000,000 for the quarter, I'm going say that again to let it sink in, 81,610,000,000 in ninety days.
• 32:47
  Roy: And the composition of that revenue is what analysts really dissect. Data center revenue alone, which is the hardware powering the AI revolution, accounted for $75,200,000,000 of that total.
• 32:58
  Penny: Completely blowing
• 33:01
  Roy: past Wall Street's expectations, they posted an adjusted earnings per share of 1.87
• 33:07
  Penny: And the CEO, Jensen Huang, drops this massive quote in the press release, Agentic AI has arrived.
• 33:14
  Roy: That's the keyword, Agentic.
• 33:16
  Penny: Yeah. He is explicitly saying that we have moved past the novelty chatbot phase. We are into the era of AI agents autonomously executing complex, multi step tasks, generating real value, and scaling rapidly across global industries.
• 33:31
  Roy: And Nvidia management didn't just rely on rhetoric. They provided a massive show of financial force. They projected Q2 revenue to hit $91,000,000,000
• 33:40
  Penny: Unbelievable.
• 33:41
  Roy: They increased their dividend payout and, to absolutely flex their balance sheet, they announced an $80,000,000,000 share buyback program.
• 33:47
  Penny: So they crushed expectations on the top line revenue, they crushed the bottom line earnings, they raised future guidance to the moon, and they threw in an $80,000,000,000 buyback just for fun.
• 33:56
  Roy: Yep.
• 33:56
  Penny: So the stock must have absolutely exploded in after hours trading, right? Must have squeezed those 62,000,000,000 in short sellers to death.
• 34:02
  Roy: Well this is the defining anomaly of the day.
• 34:04
  Penny: Wait, really?
• 34:05
  Roy: Yes. This is the twist that perfectly illustrates the current psychology of the tech market despite delivering a report that was fundamentally spectacular by every traditional financial metric.
• 34:17
  Penny: Nvidia stock actually fell fractionally in extended trading.
• 34:20
  Roy: It did.
• 34:21
  Penny: I read that and couldn't believe it. How is that mechanically possible?
• 34:24
  Roy: It comes down to the psychology of a market that is fundamentally priced for perfection. When a stock has run up as far and as fast as Nvidia has over the past three years, the baseline expectation of the market is no longer just good or great. Exactly. The market had already fully priced in exceptional quarter. When perfection is expected, merely meeting or slightly beating those expectations does not trigger a short squeeze.
• 34:54
  It triggers a collective shrug from institutional algorithm.
• 34:57
  Penny: Or they just sell.
• 34:58
  Roy: Or worse, it triggers profit taking.
• 35:00
  Penny: The AGI analyst Basho actually called this perfectly in the morning report hours before the print.
• 35:05
  Roy: You did?
• 35:05
  Penny: Yeah. He noted that while the directional bet of the stock was a coin flip, the volatility was mispriced high. He knew the beat was already baked into that $5,400,000,000,000 valuation.
• 35:15
  Roy: And we must connect this seemingly invincible AI software cycle back to the extreme vulnerability of the physical world. While Wall Street analysts were marveling at the $81,000,000,000 in revenue and parsing Jensen Huang's quotes, the AGI system in the PSW chatroom flagged a breaking news story out of South Korea.
• 35:36
  Penny: That threatens the entire foundational layer of this growth.
• 35:39
  Roy: Yes.
• 35:40
  Penny: The Samsung Electronics labor strike.
• 35:42
  Roy: Exactly. Labor negotiations at Samsung failed, and the union announced a general indefinite work stoppage.
• 35:48
  Penny: Wow. But why does a strike at a consumer electronics company matter to Nvidia's AI dominance?
• 35:53
  Roy: Because Samsung is the world's largest supplier of advanced memory chips. These specific memory chips are absolutely vital, irreplaceable components for every single AI data center server being built around the globe.
• 36:05
  Penny: So it doesn't matter if Microsoft and Meta have a $100,000,000,000 in liquid cash to buy Nvidia GPUs. It doesn't matter how brilliant Nvidia's architecture is.
• 36:15
  Roy: Right.
• 36:16
  Penny: If the factory workers in South Korea walk off the assembly line, the physical memory chips just don't get manufactured.
• 36:23
  Roy: It is the ultimate physical bottleneck. The strike proves that no matter how much capital is thrown at the artificial intelligence supercycle, no matter how advanced the software agents become, the entire industry remains fundamentally tethered to human labor, complex global supply chains, and actual physical molecules.
• 36:42
  Penny: You cannot code your way out of a factory strike.
• 36:44
  Roy: You really can't.
• 36:44
  Penny: Which provides an incredible transition to the final chapter of our deep dive today. Let's talk about the K shaped survival.
• 36:51
  Roy: Because we have to.
• 36:52
  Penny: Right. If we want to navigate this environment, we have to look at how we reconcile a world where tech giants are minting $80,000,000,000 a quarter while the physical economy and the average consumer are systematically breaking down.
• 37:03
  Roy: We must look at the human capital liquidation happening in real time. Because the massive profits and the $600,000,000,000 AI capital expenditures we discussed earlier are being directly funded by the human cost we discussed in the credit card data.
• 37:17
  Penny: The chat room highlighted a deeply jarring juxtaposition today. On the exact same day that we are tracking Nvidia's mind blowing $81,000,000,000 quarter, we have Meta Facebook's parent company announcing 8,000 global job cuts.
• 37:31
  Roy: 8,000 jobs.
• 37:32
  Penny: And they are explicitly targeting their engineering and product development teams. Why? To offset their massive AI infrastructure costs.
• 37:39
  Roy: And the trend goes far beyond social media. Intuit, the massive financial software giant responsible for TurboTax and QuickBooks announced they're firing 17% of their entire global workforce.
• 37:50
  Penny: 17%.
• 37:51
  Roy: And they explicitly stated to shareholders that they are pivoting those human payroll funds directly toward AI integration and automation.
• 37:57
  Penny: It is like a terrifying completely closed loop system. The hyperscalers are systematically firing the exact same middle class workers who, as we saw earlier, are currently drowning in 21% credit card debt and can no longer afford to shop at Target. Yeah. And they're firing them so they can take that payroll cash and hand billions of dollars over to Nvidia to build faster AI that will eventually replace even more workers.
• 38:22
  Roy: It is the absolute definition of a K shaped macroeconomic environment. If you visualize the letter K, the top line is shooting straight up. That top line represents the corporate masters, the AI hardware providers, the hyperscalers of fortress balance sheets. The bottom line of the K is pointing straight down.
• 38:40
  Penny: And who is on that line?
• 38:41
  Roy: That line represents the labor force facing automation, the indebted consumer facing surveillance pricing, and the unprofitable small cap businesses facing 5% treasury yields.
• 38:51
  Penny: So if you are listening to this as an investor or just someone trying to protect your four zero one ks or your retirement savings, Yeah. How do you survive this? How do you, as Phil Davis often says in the chat room, be the house?
• 39:02
  Roy: The strategic takeaway developed by Phil and the AGI team today was incredibly clear and actionable. To survive a market that is this aggressively bifurcated, they are pivoting hard into what they call Halo stocks.
• 39:15
  Penny: Halo H A L O, it stands for Hard Assets Local Operations. Let's walk through exactly what that means mechanically and look at the specific they actually traded today.
• 39:25
  Roy: The underlying logic of the halo strategy is to completely avoid the tech multiple contraction.
• 39:30
  Penny: Okay, let's explain multiple.
• 39:31
  Roy: A multiple is just the price to earnings ratio, the PE. When you buy a tech stock with a PE of 50 or 60, you are paying a massive premium for future growth. But if interest rates stay near 5% because of that bond plumbing disaster we talked about, those high multiples mathematically contract, they shrink.
• 39:49
  Penny: So you lose money even if the company does well.
• 39:51
  Roy: Exactly. The Halo strategy avoids that entirely by anchoring your capital in companies that generate immediate real cash flow from physical necessities. The strict rule is they must have a PE ratio under 20.
• 40:03
  Penny: So no flying high on a 60x PE ratio hoping some larger tech company buys them out. Give me an example of a halo play from today's chat room.
• 40:13
  Roy: Toll Brothers, kicker symbol t o l. This play perfectly capitalizes on the bifurcated consumer we discussed earlier with Target and Walmart.
• 40:21
  Penny: Oh, I see where you're going.
• 40:23
  Roy: The middle class consumer is tapped out and trading down to discount groceries. But the high end luxury consumer is entirely insulated from 21% credit card debt. Their wealth is tied up in equities and assets.
• 40:35
  Penny: And Toll Brothers makes luxury homes.
• 40:37
  Roy: Exactly. They are a luxury homebuilder. They reported a massive earnings beat today, significantly raising their housing delivery guidance. They are a hard asset builder capitalizing on the severe structural shortage of physical housing in The US.
• 40:50
  Penny: And they trade at a very conservative multiple well under 20.
• 40:54
  Roy: Right. The AGI Warren two point zero specifically flagged them based on that valuation.
• 40:58
  Penny: And what was the other major halo example they discussed? Yes,
• 41:03
  Roy: Nutrien. They are the perfect mechanical hedge against the geopolitical and weather shocks we unpacked in the afternoon session.
• 41:08
  Penny: Because they make fertilizer.
• 41:09
  Roy: They are a global agricultural powerhouse, specifically dominating the production of potash and vital fertilizer. With the Strait Of Hormuz effectively blocking GCC fertilizer exports from reaching the global market and the Russian wheat crisis threatening global food supplies due to weather.
• 41:26
  Penny: The demand is gonna be huge.
• 41:28
  Roy: The structural demand for safe North American fertilizer is gonna skyrocket.
• 41:32
  Penny: And crucially, Nutrien pays a solid dividend, it generates massive real cash flow, and it trades well under that 20 bikes PE threshold. It is totally insulated from whether or not Microsoft or Meta decide to liquidate their bond portfolios tomorrow morning.
• 41:49
  Roy: Exactly the point. You are buying the fundamental physical molecules that the world desperately needs to survive housing and food rather than the digital pixels and high multiple software companies that are currently priced for absolute perfection.
• 42:02
  Penny: That makes total sense.
• 42:03
  Roy: That is the mechanical strategy for how you be the house in a deeply K shaped regime shift.
• 42:08
  Penny: Well, let's bring this all the way home. What an incredibly dense, revealing journey we've been on today, tracing the exact mechanics of 05/20/2026.
• 42:19
  Roy: The events of today truly highlight the absolute interconnectedness of the modern global economy. You cannot look at a single data point in isolation.
• 42:28
  Penny: We started all the way down in the basement, listening to the violent clunking pipes of the bond market, watching the tech hyperscalers drain liquidity from the small cap Russell two thousand just to fund their AI dreams.
• 42:41
  Roy: We did.
• 42:42
  Penny: We broke down how that specific liquidity drain combined with 21% compounding interest rates is actively crushing the average American consumer, perfectly illustrated by Target's dire earnings warning and the truly terrifying rise of AI driven surveillance pricing.
• 42:56
  Roy: And then we navigated the violent whiplash of the afternoon tape where a single unconfirmed diplomatic headline about an Iran cease fire caused oil risk premiums to plummet.
• 43:05
  Penny: Right. Which triggered a massive algorithm driven relief rally in equities even as the physical supply chains in the Strait Of Hormuz and the Russian wheat fields remain fundamentally broken.
• 43:16
  Roy: And we capped it all off with Nvidia's astronomical $81,000,000,000 earnings print which meant a strangely muted market reaction simply because flawless perfection was already baked into the stock price.
• 43:29
  Penny: All while a labor strike in South Korea reminded us that no matter how smart the AI gets, it still requires human hands to build physical chips out of physical molecules.
• 43:39
  Roy: It is a market defined by deep structural contradictions that are testing the absolute limits of financial models.
• 43:46
  Penny: Which leaves us with one final, profound puzzle to ponder. Something that wasn't explicitly debated in the chat room today, but is the undeniable logical endpoint of everything we've discussed.
• 43:57
  Roy: Jensen Huang stood up today and confidently declared that Agentic AI has arrived. He stated that it is autonomously doing productive work and relentlessly optimizing corporate efficiency across every single industry.
• 44:08
  Penny: So here's the question for you to mull over as you look at your own portfolios. If AI agents are now successfully optimizing corporate surveillance pricing algorithms to extract the absolute maximum dollar from consumers while simultaneously AI integration is eliminating the very jobs those middle class consumers rely on to earn a paycheck to pay those prices.
• 44:30
  Roy: The collision.
• 44:31
  Penny: What happens when the perfect ruthless efficiency of the algorithm finally collides with a human wallet that is entirely, completely empty.
• 44:39
  Roy: It is the ultimate paradox of this technological super cycle. Does a highly advanced pricing algorithm actually know how to factor in a society that can no longer afford to play the game?
• 44:50
  Penny: It's the ultimate question. You can have the most glamorous party in the world up in the living room with the smartest AI gadgets optimizing the music and the lighting to perfection. But if the pipes in the basement finally burst because they've been starved of investment and choked by structural pressure, the party ends for everyone.
• 45:07
  Roy: Well said.
• 45:08
  Penny: Thank you so much for joining us on this deep dive. Keep looking beneath the headlines. Keep questioning the mechanics. Keep listening for the clunking pipes, and we will see you next time.