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Why do markets view weak jobs data as good news? · The Financial Exchange Show

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  Speaker 1: making a donation today. This is the Financial Exchange with
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  Speaker 1: Chuck Zada and Mike Armstraw.
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  Speaker 2: Chuck, Mike Tucker with you here. It is a Thursday,
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  Speaker 2: the first one of December, and as we kick things
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  Speaker 2: off today, gonna take another look at the labor market
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  Speaker 2: to start off. Then we'll talk a little bit more
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  Speaker 2: about AI, because people just love to talk about AI.
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  Speaker 2: Then we'll talk a little bit about the Fed, and
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  Speaker 2: then we're gonna talk about billionaires, lots lots of them.
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  Speaker 2: But let's kick things off with a labor market piece.
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  Speaker 2: Barons has this piece that's up. It's titled markets view
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  Speaker 2: week job data as good news. Why that's a problem, Well,
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  Speaker 2: it's generally because if job data continues to get weaker,
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  Speaker 2: the Fed historically has an uneven track record at being
• 1:52
  Speaker 2: able to potentially preempt recession through rate cuts. Usually there's
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  Speaker 2: something that helps after the fact.
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  Speaker 3: Yeah, So, look, we've been through market cycles before where
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  Speaker 3: good news equals bad news and bad news equals good
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  Speaker 3: I'm not really sure if that's what we are in
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  Speaker 3: right now, but you know, the most recent data on
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  Speaker 3: the jobs market. Let's see, we had the September jobs report,
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  Speaker 3: which which actually was quite strong, but the ADP payroll
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  Speaker 3: data for was that for November that just came out
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  Speaker 3: this week was was fairly weak. And you know, it's
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  Speaker 3: all been insinuating and pushing investors to believe that rate
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  Speaker 3: cuts are coming at this December meeting. I guess the
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  Speaker 3: reason that I don't feel as though we're in one
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  Speaker 3: of these cycles is because, you know, this morning, then again,
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  Speaker 3: we got a job's report that was actually quite strong,
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  Speaker 3: the weekly jobless claims numbers, and we don't really have
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  Speaker 3: much moving on the expectations around a rate cut.
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  Speaker 4: And so I don't know.
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  Speaker 3: I keep getting this mixed data on the labor market,
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  Speaker 3: and I can tell that it's weakened compared it to
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  Speaker 3: years past.
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  Speaker 2: I don't think the data is that mixed. I think
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  Speaker 2: the data is pretty unambiguously weak.
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  Speaker 3: Yeah, but I think when you have stuff, when you
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  Speaker 3: have the data from like Challenger, Gray and Christmas making
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  Speaker 3: all these headlines about.
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  Speaker 4: The worst labor made, no, No, that looks like garbage to me.
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  Speaker 3: Whereas you know, yes, it's unambiguously weak, it's weaker than
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  Speaker 3: it has been, it's showing weak job creation. But then
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  Speaker 3: you get this weekly jobless claims number, and yeah, we're
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  Speaker 3: just not seeing anything confirm a free fall.
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  Speaker 4: In the labor market.
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  Speaker 2: I guess it's all right. So there's two different things
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  Speaker 2: at play here. The first is we've had a continued
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  Speaker 2: weakening in the labor market since early twenty twenty two, agreed, unambiguous.
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  Speaker 2: It has been a move down in linear fashion, pretty
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  Speaker 2: steadily like that. As you note, there's been no acceleration
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  Speaker 2: down at any point, but it's been a pretty consistent weakening.
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  Speaker 2: And this is backed up like if you just look
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  Speaker 2: recent Okay, and again we haven't been getting you know,
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  Speaker 2: government jobs reports, but like, let's take a look at
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  Speaker 2: the data that we have been been getting ADP, and
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  Speaker 2: let's look at kind of six months now, so let's
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  Speaker 2: say second half of the year ADP has been getting
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  Speaker 2: better or worse, worse bls unemployment again, because we don't
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  Speaker 2: have like everything, but unemployment.
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  Speaker 4: Better or worse, the rate has been getting worse.
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  Speaker 2: The answer is worse, continuing jobless claims better or worse, worse.
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  Speaker 2: They've been going up, the rising five percent year over year,
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  Speaker 2: you know, warn notices, warn notices going up, getting worse
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  Speaker 2: Beige books. So what the Fed's actually talking to business
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  Speaker 2: is about getting worse. Indeed, job openings better or worse worse.
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  Speaker 2: Like you go through pretty much everything and the only
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  Speaker 2: piece that's holding up is initial claims. It's the hiring.
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  Speaker 3: The rate of hires for September pick picked back up
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  Speaker 3: after a week summer.
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  Speaker 2: It's one month, Like I can't look at it. One month.
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  Speaker 2: The job market is unambiguously worse now than at the
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  Speaker 2: beginning of the year.
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  Speaker 4: Yep.
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  Speaker 2: And this is before we even get into what I
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  Speaker 2: do think ultimately is what matters, which is, hey, how
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  Speaker 2: much your people being paid in the aggregate because aggregate
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  Speaker 2: payroll ends up working out to aggregate spending. When we
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  Speaker 2: look at federal FIKA tax withholding, so the tax that
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  Speaker 2: gets withheld for Social Security and Medicare, it's a great
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  Speaker 2: proxy for how much people are getting paid because companies
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  Speaker 2: have to do it right, like it's it's not optional.
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  Speaker 2: When you go set up your payroll system. They don't say, hey,
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  Speaker 2: would you like to pay Social Security tax through this?
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  Speaker 2: It's no like you're you're going to pay Social Security tax.
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  Speaker 2: And what we've seen is over the last five months
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  Speaker 2: July through September, I'm sorry, July through November, we've gone
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  Speaker 2: from seven point four percent year over year growth to
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  Speaker 2: seven to two to four to three to three two.
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  Speaker 2: It's confirming that year over year growth in tax withholding
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  Speaker 2: is slowing. Right, So the labor market, in my opinion,
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  Speaker 2: is unambiguously worsening. And this is not something that's new
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  Speaker 2: this year. This has been going on since twenty twenty two.
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  Speaker 2: So this is not I'm not sitting here being like, well,
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  Speaker 2: this is something that's you know, new this year and
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  Speaker 2: it's you know, the administraate. No, this has been going
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  Speaker 2: on since mid twenty two. It's a three year, four
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  Speaker 2: year trend now, actually since we're almost in twenty six,
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  Speaker 2: so it's a four year trend that's been in place,
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  Speaker 2: and it's been moving in linear fashion, meaning hey, it's
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  Speaker 2: generally slowing at a pretty consistent rate. There has not
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  Speaker 2: been you know what you typically see heading into recession,
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  Speaker 2: which is an acceleration of the worstening and the rate
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  Speaker 2: of job loss picking up. But it's something where it's
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  Speaker 2: pretty consistent where yeah, every quarter job gains are being
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  Speaker 2: reduced on a monthly basis by like fifty to seventy
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  Speaker 2: five K and that's been what we've been seeing for
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  Speaker 2: almost four years now. So the question is does this
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  Speaker 2: actually matter to the economy It does matter to people
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  Speaker 2: that are looking for jobs, no doubt about it. But
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  Speaker 2: I think the question that the FED is asking on
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  Speaker 2: this is does it matter to the economy, And it's
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  Speaker 2: the question all of us should be asking, by the way,
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  Speaker 2: because here's the confusing part of this, and this is
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  Speaker 2: where there is some ambiguity in the data. In my opinion,
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  Speaker 2: despite the worstening of the labor market, slowing job growth,
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  Speaker 2: you know, slowing wage growth, all these things, spending growth
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  Speaker 2: hasn't changed. We've been running consistently for the entire year,
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  Speaker 2: four to six percent spending growth year over year. That's
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  Speaker 2: what the banks are telling us, It's what the credit
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  Speaker 2: card companies are telling us, it's what retailers are telling.
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  Speaker 4: Us, Macy telling us.
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  Speaker 2: It's there is no ambiguity on that side. Despite the
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  Speaker 2: labor market weakness, there has been no spending weakness. And
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  Speaker 2: so the question that's really interesting to me personally is why.
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  Speaker 2: And the two theories that I think are possible and
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  Speaker 2: plausible right now are number one, Demographically, we're older than
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  Speaker 2: we've ever been, I mean, and you and I, Mike,
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  Speaker 2: we're older than we've ever been too, like getting older every.
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  Speaker 4: Day, yep.
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  Speaker 3: But you know, more of us don't rely on the
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  Speaker 3: job market for our spending, then that's a factor.
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  Speaker 2: If if there's a higher percentage of spending being driven
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  Speaker 2: by social security, pensions and portfolio withdrawals, does the labor
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  Speaker 2: market matter as much to the economy as it used to?
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  Speaker 2: You know, it's you look at the statistics on social
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  Speaker 2: security just as an example, and when you when again
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  Speaker 2: just looking at kind of the broad you know setup
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  Speaker 2: that you have as far as you know, how many
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  Speaker 2: people are receiving social Security benefits? Seventy two point nine
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  Speaker 2: million people and this is for twenty twenty four. Okay,
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  Speaker 2: the labor force last time I checked, has about one
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  Speaker 2: hundred and sixty million people employed in it. So if
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  Speaker 2: we like do the math, there are half as many
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  Speaker 2: people that are collecting social Security as there are in
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  Speaker 2: the labor force. That's the highest that that ratio has
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  Speaker 2: ever been. Now you go back, I'll have to pull
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  Speaker 2: the data to see, but if you looked back at
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  Speaker 2: like the nineties, instead of being you know, a two
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  Speaker 2: to one ratio, I'm going to go out on a
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  Speaker 2: limit and say it was probably close to a three
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  Speaker 2: to one or three and a half to one. So, like,
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  Speaker 2: does that matter, Like, these are big questions and they're
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  Speaker 2: really interesting ones too, in my opinion.
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  Speaker 3: Uh, apparently we've got a listener named Mark Fandaddy paying
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  Speaker 3: attention right now because he says the Dallas Fed has
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  Speaker 3: the possible answer. Consumption concentration has increased over the last
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  Speaker 3: thirty years, and the sheriff spending back consumers in the top
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  Speaker 3: twenty percent of the income distribution is up four percentage
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  Speaker 3: points over the last three decades. It's actually ooh less
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  Speaker 3: than I get to.
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  Speaker 4: Play him when he's not even on the show.
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  Speaker 2: Those were Fandetti's from yesterday.
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  Speaker 3: That's actually less than I would have guessed over the
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  Speaker 3: last three decades.
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  Speaker 2: Oh, we should get that Mark Fandetti guy to do
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  Speaker 2: a show with us sometimes, Yeah, we should.
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  Speaker 3: I just write, if you had to pin me down,
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  Speaker 3: like how much has consumption concentration increased over the last
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  Speaker 3: three decades, and is this effect like this, this data,
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  Speaker 3: if it's correct, does not really fully explain to me
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  Speaker 3: what's going on in this economy because a four percentage
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  Speaker 3: point increase over three decades. Yeah, just it's not quite
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  Speaker 3: as severe as I would have guessed.
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  Speaker 2: The other piece that I think is interesting on this
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  Speaker 2: in terms of getting back to that, that question markets
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  Speaker 2: view week job data is good news. Why that's a problem?
• 10:56
  Speaker 2: Look if if things are if if what drives the
• 11:01
  Speaker 2: US economy now is different from what it used to be,
• 11:05
  Speaker 2: What if the Fed changing interest rates doesn't have the
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  Speaker 2: impact that it used to either.
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  Speaker 3: Sure, I will agree that this very well could be
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  Speaker 3: a problem, but I also want to reiterate to people
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  Speaker 3: that it is a phenomenon good news being bad news
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  Speaker 3: and bad news being good news that we have lived
• 11:21
  Speaker 3: through almost constantly for the last like fifteen years when
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  Speaker 3: it comes to interest rates.
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  Speaker 2: Even longer than that, Mike, the example that I brought up,
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  Speaker 2: I think was maybe a month or so ago, early
• 11:32
  Speaker 2: January of two thousand, the FED did an unexpected fifty
• 11:37
  Speaker 2: basis point interest rate cut in between meetings. The Nasdaq
• 11:41
  Speaker 2: had its best day ever, going up fourteen percent on
• 11:45
  Speaker 2: that cut, and yet by the end of the year
• 11:48
  Speaker 2: it was still I don't have the exact numbers, it
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  Speaker 2: was somewhere like thirty to fifty percent lower by the
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  Speaker 2: end of the year. And so this is normal to
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  Speaker 2: be able to say, yeah, like the FED cuts are
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  Speaker 2: going to save us, and then usually they don't. Like
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  Speaker 2: if you you look at all of the previous FED
• 12:02
  Speaker 2: cutting cycles that we've had, and I'll define it as like,
• 12:05
  Speaker 2: you know, more than a couple percent. Nineteen fifty seven
• 12:08
  Speaker 2: recessions still happen, nineteen sixty recessions still happen, nineteen sixty
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  Speaker 2: nine recessions still happened, seventy three recession, I'm sorry, eighty
• 12:16
  Speaker 2: one recession, ninety recession, two thousand recession, two thousand and
• 12:22
  Speaker 2: seven recession. Like you go through the list, FED does
• 12:26
  Speaker 2: not have a great track record of avoiding them. The
• 12:28
  Speaker 2: only one that I see out here that might fit
• 12:31
  Speaker 2: the bill is nineteen sixty seven, right, And other than that,
• 12:35
  Speaker 2: it's just generally rate cuts don't usually do it. Seventy
• 12:39
  Speaker 2: one you could put in there as well, So like
• 12:40
  Speaker 2: two out of you know, thirteen potential recessions may be averted.
• 12:45
  Speaker 2: We'll see. Take a quick break here. When we come back,
• 12:48
  Speaker 2: let's talk AI after.
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• 13:48
  Speaker 2: Peace and barons. The stock market roade AI to record highs.
• 13:51
  Speaker 2: Here's what could knock it down. AI stock's doing badly.
• 13:57
  Speaker 2: The last part was my editorialization.
• 14:02
  Speaker 3: Yeah, that would do it? Uh, like you like if
• 14:06
  Speaker 3: good stocks do bad?
• 14:08
  Speaker 2: Market do bad?
• 14:09
  Speaker 3: I was thinking about how to you know, appropriately phrase
• 14:14
  Speaker 3: this these days without scaring people. But in reality, if
• 14:18
  Speaker 3: you are buying a market cap weighted US stock index
• 14:23
  Speaker 3: these days, like the S and P five hundred, oh,
• 14:26
  Speaker 3: put it one out there. It's really hard to argue
• 14:29
  Speaker 3: that you're not making a pretty big bet on artificial
• 14:31
  Speaker 3: intelligence or it's pretty concentrated bacial intelligence, right, like what
• 14:35
  Speaker 3: else out there? You know, if I look at the
• 14:37
  Speaker 3: top ten, what is not a big AI bet? It's
• 14:39
  Speaker 3: basically Apple.
• 14:41
  Speaker 4: Is that the only one?
• 14:42
  Speaker 2: Let's see, I'm pulling it up right now just to
• 14:44
  Speaker 2: get what we have. Uh, top ten Berkshire Hathaway.
• 14:48
  Speaker 4: Okay, not a huge AI bet? True? So those are
• 14:52
  Speaker 4: your two?
• 14:53
  Speaker 2: Yeah, because that's hang on one, two, three, four, five, six, seven,
• 14:57
  Speaker 2: eight nine yeap Berkshire Hathaway is your own choice there.
• 15:01
  Speaker 3: Oh well, technically JP Morgan because if you combine alphabet.
• 15:04
  Speaker 2: Oh yeah, you get two alphabets, which is wild, like
• 15:07
  Speaker 2: you should really only have one alphabet. But it's just me.
• 15:11
  Speaker 2: Uh yeah, so JP Morgan, So yeah, iud to the
• 15:12
  Speaker 2: top ten and again on a percentage waiting JP Morgan
• 15:15
  Speaker 2: birks you're half to wear three percent of the index.
• 15:18
  Speaker 2: So the rest of the top ten is north of
• 15:20
  Speaker 2: you know, thirty, So it's you know, kind of problematic.
• 15:25
  Speaker 2: And and this is the thing that we've talked about
• 15:27
  Speaker 2: a little bit before, which is, look, Mike, if someone
• 15:29
  Speaker 2: came to you with a portfolio and they said, hey,
• 15:33
  Speaker 2: I've got you know, seven percent portfolio and two stocks,
• 15:37
  Speaker 2: and then six percent in another two, and then four
• 15:40
  Speaker 2: percent in another two. You'd be like, it's a little
• 15:43
  Speaker 2: concentrated on the high end there. Like generally, you know,
• 15:46
  Speaker 2: you might be like, hey, anything above five percent concentration
• 15:49
  Speaker 2: is starting to get you know, a little bit high
• 15:51
  Speaker 2: for a single stock. And yet when you tell someone hey,
• 15:54
  Speaker 2: I'm just buying the S and P five hundred, there
• 15:56
  Speaker 2: you go. People go, oh, like, that's that's fine, You're diversified.
• 16:00
  Speaker 2: And the fact is, and this has been the case
• 16:03
  Speaker 2: for the last couple of years, when the big boys
• 16:06
  Speaker 2: have struggled, the index hasn't been able to get moving.
• 16:09
  Speaker 2: I know, we have all this talk about, oh, you
• 16:11
  Speaker 2: want good breadth, and you want you know, a lot
• 16:14
  Speaker 2: of participation on the upside, and you want, you know,
• 16:16
  Speaker 2: lots of stocks to go up. The fact is, in
• 16:19
  Speaker 2: this market since the start of twenty four, twenty three
• 16:22
  Speaker 2: was a little different, but since the start of twenty four,
• 16:26
  Speaker 2: when the big ai guys have struggled, the market has
• 16:30
  Speaker 2: not been able to find its footing. We've had this
• 16:33
  Speaker 2: on a few different occasions, the most recent one by
• 16:36
  Speaker 2: the way being look at the last like few weeks,
• 16:39
  Speaker 2: you know, we hit all time highs in September. Markets
• 16:42
  Speaker 2: just kind of chopped around recently, and it's because a
• 16:43
  Speaker 2: lot of these AI guys have been, you know, kind
• 16:46
  Speaker 2: of chopping around, not being able to keep moving up.
• 16:49
  Speaker 2: Last July before Jen mcgeddon where the Japanese yen blew
• 16:54
  Speaker 2: up the carry trade. What was going on in July
• 16:58
  Speaker 2: yet megacap, you know, AI starting to falter, and you know,
• 17:01
  Speaker 2: regional banks trying to lead that didn't work, right, you know,
• 17:05
  Speaker 2: it's I'm not saying that it can't work, but the
• 17:09
  Speaker 2: underlying market structure right now is not one that is
• 17:14
  Speaker 2: supportive of It's not one that is supportive of you know,
• 17:22
  Speaker 2: I'm just curing doctor Pepper being able to drive the index.
• 17:26
  Speaker 2: You know, it's not supportive of eBay being able to
• 17:28
  Speaker 2: drive the index. And until that changes, I don't know
• 17:32
  Speaker 2: that it you know, really can't.
• 17:34
  Speaker 4: So US stocks.
• 17:35
  Speaker 3: We're in agreement that AI is driving US stocks if
• 17:39
  Speaker 3: you're looking at a market market cap weighted index, which
• 17:42
  Speaker 3: is pretty much how almost everybody invests these days. Yeah,
• 17:47
  Speaker 3: everyone's comparing to the dot com bubble, and part of
• 17:49
  Speaker 3: the problem during the dot com era. Other than you know,
• 17:53
  Speaker 3: everyone bidding up stocks that turned out to not really
• 17:57
  Speaker 3: have any revenue, profit or anything else.
• 17:59
  Speaker 4: Was that the the monetization of.
• 18:01
  Speaker 3: The Internet and the products that came out, they weren't
• 18:05
  Speaker 3: very fast. It took a while to really innovate on
• 18:08
  Speaker 3: this product, right. Google went public in two thousand and four.
• 18:11
  Speaker 3: Uber wasn't founded until two thousand and nine. Facebook didn't
• 18:14
  Speaker 3: go public until twenty twelve. Obviously it was used a
• 18:17
  Speaker 3: lot before then. And so, to me, the multi trillion
• 18:21
  Speaker 3: dollar question here is, Look, there are plenty of companies
• 18:24
  Speaker 3: making money on AI, That's not what I'm saying, but
• 18:27
  Speaker 3: almost nobody's making money by charging individuals and businesses for
• 18:33
  Speaker 3: developing artificial intelligence related tools. And so to me, that's
• 18:39
  Speaker 3: the multi trillion dollar question is does it take a
• 18:41
  Speaker 3: decade like it did with the Internet or is AI different?
• 18:44
  Speaker 3: And we're going to see this monetization happen on a
• 18:47
  Speaker 3: much faster pace.
• 18:48
  Speaker 2: Did you happen to catch Mark Benioff's comments yesterday from
• 18:53
  Speaker 2: Salesforces quarterly earnings?
• 18:56
  Speaker 4: No, should we cover them now?
• 18:58
  Speaker 2: Well, we could cover them now, but I think what's
• 19:00
  Speaker 2: more appropriate is for us to take a quick.
• 19:03
  Speaker 4: Break, do Wall Street Watch.
• 19:04
  Speaker 2: Do Wall Street Watch, and then I want to talk
• 19:07
  Speaker 2: about what he said, because Mark's been talking a lot
• 19:10
  Speaker 2: about how Salesforce has both been trying to sell and
• 19:14
  Speaker 2: utilize AI, and I found one of his comments yesterday
• 19:17
  Speaker 2: particularly interesting. So let's take a quick break here, and
• 19:20
  Speaker 2: on the back end of it, we are going to
• 19:22
  Speaker 2: do Wall Street Watch, and then we will talk about
• 19:26
  Speaker 2: mister Benioff's AI comments and what potentially means for the industry.
• 19:37
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:40
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:45
  Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
• 19:50
  Speaker 1: Street Watch. A complete look at what's moving market so
• 19:53
  Speaker 1: far today right here on the Financial Exchange Radio Network.
• 19:57
  Speaker 5: All markets are mostly quiet as traders sift through weekly
• 20:00
  Speaker 5: jobless claims data and ready for the core PC index
• 20:04
  Speaker 5: for the latest looking inflation, due out tomorrow morning. Right now,
• 20:08
  Speaker 5: the Dow is up nearly twenty seven points, SMP five
• 20:13
  Speaker 5: hundred is up one single point, Nasdaq is down one
• 20:17
  Speaker 5: single point, RUSS two thousand is flat, Tenure treasure reeled
• 20:22
  Speaker 5: up three basis points at four point zero nine to
• 20:24
  Speaker 5: two percent, and crude oil up about a third of
• 20:27
  Speaker 5: a percent higher, trading just above fifty nine dollars a barrel.
• 20:32
  Speaker 5: Some breaking news from Meta this morning, following reports that
• 20:35
  Speaker 5: Mark Zuckerberg is expected to meaningfully cut resources for building
• 20:40
  Speaker 5: the Metaverse, potentially with budget cuts as high as thirty
• 20:43
  Speaker 5: percent next year. MetaStock rallying four percent on that news. Meanwhile,
• 20:48
  Speaker 5: Salesforce shares rising about two percent after the software company
• 20:52
  Speaker 5: hiked its full year of guidance as its AI product
• 20:56
  Speaker 5: Agent Force gained some traction as for its third quarter
• 20:59
  Speaker 5: of the company b Earning's forecast, but just miss street
• 21:02
  Speaker 5: expectations for its revenue. Elsewhere, a cloud software company, Snowflake,
• 21:06
  Speaker 5: posted a narrow quarterly loss and reported growing demand for
• 21:10
  Speaker 5: its AI agency. However, its outlook for product revenue growth
• 21:16
  Speaker 5: for the January quarter disappointed investors. Additionally, Snowflake agreed to
• 21:21
  Speaker 5: a two hundred million dollars deal with AI startup Anthropic.
• 21:25
  Speaker 5: Snowflake shares are plunging ten percent and Dollar General shares
• 21:31
  Speaker 5: jumping ten percent after the discount retailer lifted its full
• 21:33
  Speaker 5: year guidance after topping third quarter expectations. I'm Tucker Silva
• 21:38
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• 21:40
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• 21:43
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• 21:57
  Speaker 2: Mike was of the week going to get two on AI. Salesforce.
• 22:00
  Speaker 2: Mark benioffs right, So here's something that I found interesting
• 22:05
  Speaker 2: when he was talking. So Salesforce. If you're not familiar
• 22:08
  Speaker 2: with them, they are a provider of They started off
• 22:12
  Speaker 2: just doing a customer relationship management CRM software. They've since
• 22:16
  Speaker 2: bought up a bunch of different companies such as Tableau, Slack,
• 22:20
  Speaker 2: and so they've got basically a whole suite of business
• 22:23
  Speaker 2: software that falls under what's called Software as a service
• 22:27
  Speaker 2: sas as a basically kind of their their platform. They
• 22:32
  Speaker 2: sell these recurring subscriptions to use their software. It's a
• 22:35
  Speaker 2: very popular model these days, and one of the things
• 22:38
  Speaker 2: they've been doing over the last year and a half
• 22:40
  Speaker 2: is both trying to use AI internally but also now
• 22:44
  Speaker 2: sell AI tools through what they call their Agent Force platform.
• 22:48
  Speaker 2: And Benioff made a comment yesterday specifically talking about you know,
• 22:54
  Speaker 2: how they use AI internally and basically what he said was, look,
• 23:01
  Speaker 2: all of these platforms are basically the same. We use
• 23:05
  Speaker 2: whatever's cheapest. And that, to me was the first time
• 23:09
  Speaker 2: that anyone in a position of power and knowledge as
• 23:14
  Speaker 2: it relates to artificial intelligence has come out and said that,
• 23:18
  Speaker 2: because what we've been hearing for the last you know,
• 23:20
  Speaker 2: few years is oh, you know, this model's newer and
• 23:23
  Speaker 2: better and it does this, and it does that. And
• 23:25
  Speaker 2: Benioff's no dummy, like he sees what's going on in
• 23:29
  Speaker 2: tech and he sees how all of this is working.
• 23:31
  Speaker 2: And for him to come out and just say, yeah,
• 23:33
  Speaker 2: we use whatever's cheapest, that's kind of interesting to me.
• 23:38
  Speaker 3: Yeah, that's fascinating because he has another cases praised, you know,
• 23:43
  Speaker 3: Google's Gemini.
• 23:44
  Speaker 4: I know he's come out and said that.
• 23:47
  Speaker 3: He's also the other commentary that he's made and granted,
• 23:50
  Speaker 3: this is what you're ready to hear from any CEO
• 23:52
  Speaker 3: that is pushing AI is basically that, hey, you know,
• 23:58
  Speaker 3: the customer is just catching up to the pace of
• 24:00
  Speaker 3: innovation that you know, we're seeing among these tech companies,
• 24:03
  Speaker 3: and so yeah, it's okay to be skeptical, but the
• 24:06
  Speaker 3: demand is going to come because of how groundbreaking all
• 24:09
  Speaker 3: this is, which you know, welcome to every other tech company.
• 24:13
  Speaker 4: CEO's earnings calls that piece is interesting.
• 24:19
  Speaker 3: That is the that is the other piece of all
• 24:23
  Speaker 3: of this, which is the ease of switching. I don't
• 24:28
  Speaker 3: I don't claim to fully understand this, but the ease
• 24:30
  Speaker 3: of switching between generative AI platforms seems to be a
• 24:36
  Speaker 3: pretty crucial requirement for these companies, and it leads to
• 24:43
  Speaker 3: big questions for me, at least about Google or open
• 24:47
  Speaker 3: AI's ultimate value when it comes to these things.
• 24:50
  Speaker 2: Well, and let's this is actually, I think a great topic.
• 24:55
  Speaker 2: If you're an individual. Let's say that you're not a company.
• 24:57
  Speaker 2: Let's say that you're just an individual user, and you've decided, Hey,
• 25:01
  Speaker 2: you know what, I like open ai the best. I'm
• 25:03
  Speaker 2: gonna I'm gonna pay them twenty dollars a month to
• 25:05
  Speaker 2: use their platform. Is there anything keeping you on that
• 25:10
  Speaker 2: platform and preventing you from going to use Gemini? For
• 25:14
  Speaker 2: I think there. You know Base one is like twenty
• 25:16
  Speaker 2: or twenty five a month. Is there anything that keeps
• 25:18
  Speaker 2: you there today?
• 25:20
  Speaker 3: No, I suppose one thing that would keep you there,
• 25:23
  Speaker 3: Like when I use Gemini, I have all the history
• 25:25
  Speaker 3: of every query that I've done.
• 25:27
  Speaker 2: You still have that even if you're not paying for it?
• 25:29
  Speaker 3: Right, Yeah, I guess I would. But do they start
• 25:32
  Speaker 3: to gate keep some of this stuff?
• 25:34
  Speaker 2: Maybe? But also like how much do I need my history?
• 25:38
  Speaker 2: Like as an indipendent, how much do I need my conversation?
• 25:42
  Speaker 2: Like I've been using llms for I don't know, two
• 25:46
  Speaker 2: two and a half years now. Sure do you know
• 25:50
  Speaker 2: how many times I've had to go back and be like, hey,
• 25:53
  Speaker 2: what was that thing that I like looked up you know,
• 25:56
  Speaker 2: X long ago?
• 25:57
  Speaker 4: Yeah?
• 25:58
  Speaker 2: Maybe once or twice.
• 25:59
  Speaker 3: It's not like other technologies. It's not Apple, where you
• 26:02
  Speaker 3: need to be in the Apple universe because all of
• 26:05
  Speaker 3: your friends and family are and you need to be
• 26:06
  Speaker 3: seen wearing an Apple product. It's not Facebook where all
• 26:11
  Speaker 3: of your friends have a social media page and you've
• 26:14
  Speaker 3: got your history of all your photos and events on
• 26:17
  Speaker 3: your Facebook or Instagram page. It is unlike any of
• 26:21
  Speaker 3: those technologies. I suppose it's a bit more like search.
• 26:25
  Speaker 2: Which you never go back and like look at your
• 26:27
  Speaker 2: searchestor where you just search again.
• 26:29
  Speaker 3: True, but what let me ask this is Google, the
• 26:34
  Speaker 3: absolute best search engine that's ever existed. I don't use it,
• 26:40
  Speaker 3: and yet they have what ninety percent market dominance, so
• 26:45
  Speaker 3: users can easily switch between search engines they choose not to.
• 26:49
  Speaker 2: Or in some cases are defaulted into it.
• 26:52
  Speaker 3: Right, So maybe that's the model for this and we're
• 26:55
  Speaker 3: over and maybe we don't need to be concerned about
• 26:57
  Speaker 3: that switching effect.
• 27:00
  Speaker 2: The count Like the counter to that is, so if
• 27:03
  Speaker 2: you look at like the areas where there's basically, you know,
• 27:07
  Speaker 2: a winner takes all situation, search is one operating system
• 27:12
  Speaker 2: is basically another. And again I say this is someone who,
• 27:15
  Speaker 2: like I do, own a bunch of Apple products. But
• 27:17
  Speaker 2: when you look at market share, act doesn't really matter. Yeah,
• 27:20
  Speaker 2: you know, it's still a tiny fraction relative to Windows
• 27:24
  Speaker 2: as an operating system. All you Linux people out there,
• 27:27
  Speaker 2: good luck, But like it's it's something where so you've
• 27:31
  Speaker 2: got you know, okay, search is kind of a winner
• 27:33
  Speaker 2: take all situation. Operating system has been a winner take
• 27:38
  Speaker 2: all situation. Other than that, I'm trying, I'm struggling to
• 27:43
  Speaker 2: like think of areas where I guess if you're just
• 27:44
  Speaker 2: looking at like document sharing, like you know, PDFs as
• 27:47
  Speaker 2: the standard, sure you know is something that's out there.
• 27:50
  Speaker 2: So they're like there's a few areas, but more often
• 27:55
  Speaker 2: than not, we've ended up with like three to four
• 27:57
  Speaker 2: big players in a space, or kind kind of a
• 28:00
  Speaker 2: smattering of smaller ones. Like there's still consolidation, but it
• 28:03
  Speaker 2: doesn't get to win or take all. And in all
• 28:06
  Speaker 2: of those the ones that like you look at operating system,
• 28:09
  Speaker 2: there's a clear reason why, like you all need to
• 28:11
  Speaker 2: use the same operating system, right, yep, there's a huge
• 28:15
  Speaker 2: reason why you don't just let people you know, at
• 28:17
  Speaker 2: a company like choose, you know exactly what they're doing.
• 28:20
  Speaker 2: You need compatibility, so I get it there. The search
• 28:23
  Speaker 2: one is interesting to me because there is no reason
• 28:26
  Speaker 2: why people should just use Google right Historically, like you
• 28:32
  Speaker 2: go back twenty years ago and the answer was it
• 28:34
  Speaker 2: did produce the best search results. I'm just not sure
• 28:36
  Speaker 2: it does anymore. But that might just be that the
• 28:39
  Speaker 2: Internet's dying more than anything else. So I guess I
• 28:44
  Speaker 2: just don't know, but it's it's interesting to me that
• 28:48
  Speaker 2: if this is going to be commoditized, what you did see,
• 28:52
  Speaker 2: if you look at like how technology commoditization usually works,
• 28:55
  Speaker 2: you do end up with like two or three companies
• 28:57
  Speaker 2: that dominate the space. Think about on the hardware side,
• 29:01
  Speaker 2: for processing. Like historically for CPUs it's Intel an AMD,
• 29:05
  Speaker 2: and Intel basically kept AMD alive just so that they
• 29:08
  Speaker 2: wouldn't get suit for antitrust memory, you've got kind of
• 29:12
  Speaker 2: the same thing, digital storage, same thing. So like it's
• 29:17
  Speaker 2: it might not be winner take all, but it's probably
• 29:19
  Speaker 2: gonna be like top three or four take all just
• 29:21
  Speaker 2: because of the scale that you get there, right.
• 29:24
  Speaker 4: Seems like it.
• 29:26
  Speaker 3: But again, the pace at which these models have been
• 29:28
  Speaker 3: coming out and leapfrogging each other has been fascinating to
• 29:31
  Speaker 3: watch and really cause into question their ultimate value.
• 29:34
  Speaker 2: And you don't know, You still don't know who the
• 29:35
  Speaker 2: winner's going to be. Remember Google was not the first
• 29:38
  Speaker 2: search engine. I know, I know one thing for certain
• 29:43
  Speaker 2: about winners. They're not all going to be winners, correct,
• 29:47
  Speaker 2: we listen. The market does not give participation trophies. No.
• 29:53
  Speaker 4: Right now they.
• 29:54
  Speaker 2: Are, Right now they are, and it's making everyone feel
• 29:58
  Speaker 2: good about themselves. But eventually you got to grow up
• 30:01
  Speaker 2: and you start keeping score and those participation trophies you
• 30:06
  Speaker 2: can still hold them, but they're not going to mean
• 30:07
  Speaker 2: much to you, you know, down the road. Just take
• 30:10
  Speaker 2: a quick break when we return. I think that's enough.
• 30:14
  Speaker 2: Like AI and stock bubble talk right like we can
• 30:16
  Speaker 2: move alone, right like I'm good on AI for now. Uh,
• 30:21
  Speaker 2: let's talk fed after this.
• 30:24
  Speaker 1: Text guys six one seven three six two one three
• 30:27
  Speaker 1: eighty five with your comments and questions about today's show.
• 30:30
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• 31:33
  Speaker 4: All right.
• 31:33
  Speaker 2: So we got a couple different pieces out, one in
• 31:36
  Speaker 2: Bloomberg and one of the Financial Times discussing how bond
• 31:41
  Speaker 2: investors have basically talked to the US Treasury Department and said, hey,
• 31:47
  Speaker 2: we'd prefer not to see Kevin Hassett running the FED.
• 31:52
  Speaker 2: And we even have someone on record here, Gregory Peters,
• 31:56
  Speaker 2: the co chief investment officer at PGM Fixed Income, saying
• 32:02
  Speaker 2: that they're not sure that Hassen would be able to
• 32:05
  Speaker 2: deliver what the President is necessarily looking for when it
• 32:11
  Speaker 2: comes to how the FED would move not just short
• 32:13
  Speaker 2: term rates, but potentially be able to influence longer term rates.
• 32:17
  Speaker 3: Bluster or real action here, because ultimately, I don't see
• 32:22
  Speaker 3: any move in yields or I mean, I guess I
• 32:24
  Speaker 3: don't remember when the President more or less acknowledged that
• 32:27
  Speaker 3: Hassett was the pick. But the lowest we've gotten to
• 32:30
  Speaker 3: over the last month on the ten year has been
• 32:32
  Speaker 3: three point nine to nine.
• 32:33
  Speaker 4: We're sitting at four to one right now.
• 32:35
  Speaker 3: It's not a nothing move, but I don't know that
• 32:38
  Speaker 3: it actually lines up with it, And I don't know
• 32:41
  Speaker 3: that this commentary is actually meaningful if they're not acting
• 32:45
  Speaker 3: upon it.
• 32:45
  Speaker 2: Yeah, I'm just not sure that this dog's gonna hunt
• 32:49
  Speaker 2: Like I just I just don't know that the market
• 32:56
  Speaker 2: is going to have some kind of freak out about
• 32:58
  Speaker 2: Hasset being named. If that's the case, I think again,
• 33:02
  Speaker 2: this has kind of been telegraphed for quite some time now,
• 33:05
  Speaker 2: you know, I think you know it's it's been something
• 33:07
  Speaker 2: that's been pretty likely probably for the last four to
• 33:13
  Speaker 2: six months.
• 33:13
  Speaker 3: Is that fair, Mic, Yeah, So if they're not trying
• 33:17
  Speaker 3: to actually influence things, then they're not placing bets based
• 33:20
  Speaker 3: on their commentary. What is the purpose of this to
• 33:23
  Speaker 3: lay a stake in the ground that, hey, the FED
• 33:25
  Speaker 3: still needs to be independent here and any FED chair
• 33:28
  Speaker 3: that tries to bring down long term interest rates is
• 33:31
  Speaker 3: going to fail to do so. Just kind of marking
• 33:33
  Speaker 3: their territory on this one so that they can quote
• 33:36
  Speaker 3: it three years from now.
• 33:38
  Speaker 4: And I'm just.
• 33:38
  Speaker 3: Saying, why do they need to, Like, what's what's the
• 33:40
  Speaker 3: point of that, Like the you're not actually trying to
• 33:45
  Speaker 3: get the president to change his mind. It doesn't seem
• 33:47
  Speaker 3: like you are.
• 33:49
  Speaker 2: The President's not going to change his RND, Like he's
• 33:51
  Speaker 2: going to do what he wants to do on this, right,
• 33:54
  Speaker 2: And ultimately here's the other thing that like on this
• 33:58
  Speaker 2: Hassett is going to end up having to do what
• 34:00
  Speaker 2: the market forces him to do. Like before Scott Besson
• 34:05
  Speaker 2: came into office as the Treasury Secretary. Bessont said a
• 34:09
  Speaker 2: lot of stuff over the last year. Some of it
• 34:12
  Speaker 2: was in relation to, Hey, I don't like how Janet
• 34:17
  Speaker 2: Yellen is issuing a lot more debt on the you know,
• 34:23
  Speaker 2: oncertain schedules. I would do things differently.
• 34:26
  Speaker 4: Got there did the exact same thing.
• 34:28
  Speaker 2: There's been no shift at all in terms of the
• 34:30
  Speaker 2: maturity schedule for the debt that Besson has been issuing,
• 34:35
  Speaker 2: because ultimately, when push came to shove, he said, Okay,
• 34:38
  Speaker 2: this is what's actually demanded by the market, and if
• 34:41
  Speaker 2: I don't issue this, the market's gonna say you need
• 34:44
  Speaker 2: to change your mix. And that's how you end up
• 34:45
  Speaker 2: where you are. So when I look at you know,
• 34:49
  Speaker 2: whoever it is that's running for a FED chair, whether
• 34:52
  Speaker 2: it's Hassett, whether it's Warsh, whether it's Waller again Zervos,
• 34:57
  Speaker 2: like you can go through like the whole laundry list
• 34:59
  Speaker 2: of people that have been and you know, consider to
• 35:00
  Speaker 2: throw their hat in the ring. They're all saying yes,
• 35:04
  Speaker 2: like I want to cut, I want to cut. I
• 35:05
  Speaker 2: want to cut. And by the way, as I said yesterday,
• 35:09
  Speaker 2: I'm pretty darn sure that at this point, given what
• 35:12
  Speaker 2: we are seeing from the US labor market, I'm more
• 35:15
  Speaker 2: nervous about, you know, needing to cut in twenty twenty
• 35:18
  Speaker 2: six than you know, needing to hike. I think labor
• 35:21
  Speaker 2: is going to be the bigger problem next to your
• 35:23
  Speaker 2: relative to inflation. But also you're gonna be dictated by
• 35:27
  Speaker 2: what the market shows you. If you have an economy
• 35:31
  Speaker 2: with high growth and inflation starting to build, you're not
• 35:36
  Speaker 2: gonna be able to cut, right. If you have an
• 35:38
  Speaker 2: economy with slowing growth and unemployment starting to build, you're
• 35:42
  Speaker 2: gonna be able to cut. And so I I don't
• 35:46
  Speaker 2: think anyone running for FED chair is, you know, to
• 35:52
  Speaker 2: to the point where they would be like, yeah, even
• 35:54
  Speaker 2: though inflation's going up, I'm just gonna cut because that's
• 35:56
  Speaker 2: what I said I was gonna do. No like these are.
• 35:59
  Speaker 2: They're no du in this list. Like they're all campaigning
• 36:02
  Speaker 2: in their own way to try to get the president's attention.
• 36:06
  Speaker 2: But ultimately I don't think anyone that's in the running
• 36:10
  Speaker 2: here is like an idiot or anything like that.
• 36:14
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• 37:22
  Speaker 2: Mike Grate a peace in Financial Times, How will the
• 37:24
  Speaker 2: rise in Japanese bond yields effect global markets? I remember
• 37:31
  Speaker 2: you tell me, Well, here's the thing. So last year
• 37:34
  Speaker 2: last summer, Japanese bondilds were rising, and that, in conjunction
• 37:37
  Speaker 2: with a couple other things, kind of broke markets for
• 37:39
  Speaker 2: a week or two last August. It ultimately, you know,
• 37:43
  Speaker 2: ended up being something that was a non factor for
• 37:46
  Speaker 2: the long term, but it caused some pretty significant volatility
• 37:49
  Speaker 2: for about a week or so. And I'm skeptical something
• 37:53
  Speaker 2: will happen similarly, just because again, once you've seen a
• 37:56
  Speaker 2: problem and everyone's aware of it, then you know, mart
• 38:00
  Speaker 2: WHI has been generally you know, set their portfolios upsets
• 38:03
  Speaker 2: that they're like, oh, I won't make the same mistake twice.
• 38:06
  Speaker 2: In doing so, they might make entirely new mistakes. But
• 38:10
  Speaker 2: it's really kind of rare that you see the same
• 38:14
  Speaker 2: problem bite markets in the same way, in that I'm
• 38:19
  Speaker 2: not sure there's a direct spill through to equity markets
• 38:21
  Speaker 2: the way there was last year. But could rising Japanese
• 38:25
  Speaker 2: bond yields put pressure on global bond yields and almost
• 38:30
  Speaker 2: make hassets job tougher? Could it make hasts job tougher.
• 38:33
  Speaker 2: You darn right it could. It's absolutely a possibility. There,
• 38:38
  Speaker 2: let's take a quick break. We got our two coming
• 38:41
  Speaker 2: up in a little bit.