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The Great Debasement Debate · The Financial Exchange Show

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1:11
Speaker 2: Good morning, Welcome back to the Financial Exchange. It's Mike,
1:14
Speaker 2: Paul and Tucker with you on a Tuesday morning here
1:18
Speaker 2: where markets are trying to stage a comeback here again.
1:21
Speaker 2: We had markets off nearly three SMP was off two
1:24
Speaker 2: point seven percent on Friday, rallied yesterday. This morning on
1:29
Speaker 2: further escalation from China, we saw them selling off. We
1:32
Speaker 2: had the S and P five hundred at one point
1:35
Speaker 2: at least in pre markets was down by one and
1:36
Speaker 2: a quarter percent. We're now only down about a third
1:39
Speaker 2: of a percent on the SMP, flat on the Dow,
1:42
Speaker 2: still down eight ten percent on the NASDAQS.
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Speaker 3: We'll keep you.
1:46
Speaker 2: Updated on where things are going. But you know, someone
1:49
Speaker 2: out there buying stocks in spite of the concerns of
1:52
Speaker 2: China and US trade escalation. Got a dump of Wall
1:56
Speaker 2: Street earnings this morning from the likes of Goldman, Sachs, JP,
1:59
Speaker 2: Morgan Wells, Fargo, and City Group, who, as they always do,
2:03
Speaker 2: reported beats pretty much across the board. But stocks are
2:06
Speaker 2: kind of all over the place in reaction to them,
2:08
Speaker 2: some reacting positively on beats on expectations, others clearly missing
2:13
Speaker 2: where some of the analysts wanted to see things. In
2:15
Speaker 2: terms of the rest of this week, we will have
2:18
Speaker 2: continued earnings reports coming out.
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Speaker 3: Today after the bell.
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Speaker 2: Not much, but tomorrow we will hear from Bank of America,
2:28
Speaker 2: Morgan Stanley, Abbott Labs, Progressive. I'm interested in anyone in
2:34
Speaker 2: the insurance space right now, just based on yesterday's or
2:37
Speaker 2: the weekend warning from SMP Global to insurance companies specifically.
2:42
Speaker 3: About their exposure to private credits.
2:44
Speaker 2: So I'll be interested to hear from any you know,
2:46
Speaker 2: any companies that participate in the insurance industry, want to
2:49
Speaker 2: hear from them and their exposure to this private credit
2:53
Speaker 2: blip that we've been seeing. PNC is also reporting tomorrow
2:57
Speaker 2: before the bell Thursday. I don't think we have a
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Speaker 2: whole lot. Charles Schwab reporting before the bell Thursday, Bank
3:03
Speaker 2: of New York Mellon also and then Friday, we do
3:07
Speaker 2: have American Express reporting, so we'll see if we get
3:09
Speaker 2: that confirmation that we've been hearing from other companies that
3:14
Speaker 2: really service a high net worth clientele like American Express does,
3:18
Speaker 2: which is high net worth folks keep on spending in
3:21
Speaker 2: spite of their lower income counterparts pulling back quite a bit.
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Speaker 2: Anything else catching your eye this morning, Paul in markets, No,
3:31
Speaker 2: I think.
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Speaker 4: You hit on some of the main aspects there.
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Speaker 2: So we've had this piece published a couple times Bloomberg
3:37
Speaker 2: speaking about the Great Debasement debate and the trade that's
3:41
Speaker 2: rippling across global markets. And to be clear here, what
3:45
Speaker 2: you're talking about is a rise in asset prices, especially
3:50
Speaker 2: compared to global currencies. We talked about silver in the
3:53
Speaker 2: first hour of the show. Anybody that's missed it has well,
3:56
Speaker 2: it's tough to have missed where gold has gone over
3:58
Speaker 2: the course of the.
3:59
Speaker 3: Last several months.
4:00
Speaker 2: Cryptocurrencies, stock prices, and others are appreciating dramatically, and the
4:06
Speaker 2: question becomes, well, if you're seeing every heart asset price
4:12
Speaker 2: move up at the same time, or even assets that
4:15
Speaker 2: aren't traditionally deemed herd assets like cryptocurrencies moving up, what
4:20
Speaker 2: does that say about investor's confidence in holding their own
4:24
Speaker 2: currency or holding assets that are denominated in their own currencies.
4:29
Speaker 2: And this piece at least makes the case that, hey,
4:32
Speaker 2: investors are growing increasingly concerned about global borrowing and country's
4:38
Speaker 2: abilities to pay back that future that future cost.
4:41
Speaker 5: Yeah, Basically, what you have is United States government with
4:44
Speaker 5: I believe, you know, some thirty six trillion dollars outstanding
4:47
Speaker 5: from a debt perspective, and for the longest time this has.
4:54
Speaker 4: Not been an issue.
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Speaker 5: Well, you know, you might hear pun ins talk about
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Speaker 5: it in economists talk about it, but it has isn't
5:00
Speaker 5: really warranted any sort of economic issue.
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Speaker 2: Now, if you have bet on the US economy struggling
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Speaker 2: because of how much debt we've taken, you would have
5:08
Speaker 2: been much wrong for the last fifty years. In spite
5:11
Speaker 2: of the legitimate concerns that I personally have. Any of
5:15
Speaker 2: those concerns, if you put them into a trading thesis,
5:18
Speaker 2: you've been wrong exactly.
5:20
Speaker 5: And so now you are facing a period of time
5:23
Speaker 5: where there's potential for upward pressure on interest rates.
5:27
Speaker 4: Certainly, we went through an interest rate.
5:28
Speaker 5: Cycle of a fifteen to twenty year span of time
5:31
Speaker 5: where interest rates were incredibly low. Who's to say what
5:34
Speaker 5: the next twenty years look like. But if there is
5:36
Speaker 5: thirty six trillion dollars of debt outstanding and all of
5:38
Speaker 5: a sudden, from a United States standpoint, it's questioned as
5:41
Speaker 5: to the viability of the United States government paying back
5:45
Speaker 5: its debt, which has never really been an issue. And
5:47
Speaker 5: if you look at financial markets, the risk free rate
5:51
Speaker 5: of return that's assessed in finance is based on a
5:54
Speaker 5: US treasury. It is the gold standard, you know, pun
5:58
Speaker 5: intended with the gold chatter of being able to pay
6:02
Speaker 5: back principle. But as a result of all these debt concerns,
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Speaker 5: you do see that potentially some of the market movements
6:08
Speaker 5: this year would lead to the fact that people are
6:11
Speaker 5: concerned about that debt level, and maybe that is what's
6:14
Speaker 5: driving up these natural metals. I don't know if I'm
6:18
Speaker 5: willing to make that leap just yet based on one
6:22
Speaker 5: tremendous year to be clear of performance for silver and gold,
6:25
Speaker 5: but if you were looking for ways to try and
6:30
Speaker 5: de emphasize the impact of the US debt in your portfolio,
6:35
Speaker 5: maybe that's these would be the places that people would pivot.
6:38
Speaker 3: To me.
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Speaker 2: This is not just a US centric focus issue, sure right,
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Speaker 2: I mean plenty is being written about the dollar and
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Speaker 2: Treasury losing its reserve currency status or Treasury is losing
6:51
Speaker 2: their safe haven status.
6:53
Speaker 3: Many people are voicing that opinion.
6:55
Speaker 2: But I think part of it, I think at least
6:58
Speaker 2: part of what's driving all of this is the same
7:00
Speaker 2: decision being made by many other countries. Right, you have
7:05
Speaker 2: most of the European Union lifting any caps that they
7:07
Speaker 2: had on deficit spending in order to boost defense spending.
7:11
Speaker 2: You have that occurring in Japan, you have that occurring elsewhere.
7:15
Speaker 2: And so what was a it wasn't just a United
7:20
Speaker 2: States issue, but we were definitely the you know, the
7:22
Speaker 2: biggest issuer of this debt, and that has certainly not
7:27
Speaker 2: slowed down. In fact, it's accelerated over the course of
7:29
Speaker 2: the last ten years when you look at deficit to GDP,
7:32
Speaker 2: even this year with the tariff revenue coming in, it
7:35
Speaker 2: has grown even further. But when you have every country
7:40
Speaker 2: in the world doing it at the same time, you know,
7:43
Speaker 2: if you're sitting in France trying to evaluate, hey, what's
7:46
Speaker 2: the future value of my own currency and the future
7:49
Speaker 2: value of a bond that I'm buying, and what will
7:53
Speaker 2: I be paid back in will the Euro still be
7:55
Speaker 2: worth what it is now? You might be making the
7:58
Speaker 2: same bet that's some US and best are. And so
8:01
Speaker 2: even if it doesn't result in complete debasement.
8:04
Speaker 3: Of the dollar or or you know, a new normal
8:08
Speaker 3: for what US treasuries actually mean in global markets, it
8:13
Speaker 3: can still lead to asset price inflation and that can
8:15
Speaker 3: cause a number of its own problems.
8:18
Speaker 5: Ultimately, I'm just not, you know, ready to make the
8:21
Speaker 5: full jump yet. I think in a period of time
8:24
Speaker 5: this is a reasonable case to write out this article.
8:27
Speaker 5: But with just years of history in the size of
8:30
Speaker 5: the treasury market, perhaps there is a setback, but there
8:33
Speaker 5: are resources in place to correct this issue. I'd rather
8:37
Speaker 5: they address it sooner rather than later. But I don't
8:40
Speaker 5: think it's necessarily a long term trend just yet.
8:42
Speaker 3: Let's take a quick break when we come back.
8:45
Speaker 2: Somebody made one hundred and sixty million dollars in crypto
8:50
Speaker 2: markets on Friday, and the timing of the trades were
8:54
Speaker 2: pretty interestingly placed. We're going to be covering that and
8:59
Speaker 2: allegations of cider trading and crypto markets next on The
9:02
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Speaker 2: So we hear on the Financial exchange have been focused
10:48
Speaker 2: on equity markets and the reaction to the president's announcement
10:52
Speaker 2: on tariffs on China. What has also been making a
10:56
Speaker 2: very big splash that we focus a little bit less
10:58
Speaker 2: on typically is what's happened and in crypto markets since then.
11:01
Speaker 2: And to be clear, the sell off that occurred, total
11:07
Speaker 2: liquidations on crypto derivative exchanges hit an all time high,
11:12
Speaker 2: and frankly, it wasn't even close on Friday. It was
11:16
Speaker 2: the biggest liquidation event you've ever seen in crypto. Doesn't
11:19
Speaker 2: mean it was the biggest sell off you've ever seen
11:21
Speaker 2: on a percentage basis, but it was a massive event.
11:24
Speaker 2: It raised over nineteen billion dollars in value from the
11:27
Speaker 2: cryptocurrency we were sitting at around nine thirty am. Crypto
11:33
Speaker 2: bitcoin especially was sitting at one hundred twenty two thousand,
11:36
Speaker 2: four hundred and forty seven dollars per coin. By what
11:43
Speaker 2: time is that? By around five PM you got to
11:47
Speaker 2: a low of one hundred eight thousand, a massive self.
11:50
Speaker 2: It recovered some of that today you're sitting about one
11:52
Speaker 2: hundred eleven thousand dollars per coin, but you had this
11:56
Speaker 2: massive sell off occurring seemingly sparked by the President's and
12:01
Speaker 2: now announcements on tariffs. And because of the way that
12:05
Speaker 2: crypto trades, we're able to tell something very specific, which
12:09
Speaker 2: is two accounts made one hundred and sixty million dollars
12:15
Speaker 2: in trades on this specific information, and many of them
12:23
Speaker 2: very suspiciously timed with the announcement from the president.
12:27
Speaker 5: Yeah, one hundred and sixty million of profit on these
12:30
Speaker 5: two particular trades. One was placed a minute before Trump's
12:36
Speaker 5: tariff announcements, sparking speculation as you would imagine that this
12:41
Speaker 5: was an insider trading move. The other was slightly earlier.
12:48
Speaker 5: But between these two it was deposits of eighty million
12:51
Speaker 5: and thirty million were put into accounts that were betting
12:56
Speaker 5: on bitcoin going down. And then, Mike, like you mentioned,
13:00
Speaker 5: within minutes after the announcement that Trump made against China
13:05
Speaker 5: for potentially one hundred percent tariffs, you saw a twelve
13:08
Speaker 5: percent drop in bitcoin. Making these positions that they took,
13:13
Speaker 5: which were short positions basically betting on bitcoin going down
13:16
Speaker 5: incredibly lucrative. So like has been an issue historically with
13:22
Speaker 5: the stock market, issues with insider trading, you know, but.
13:26
Speaker 2: At least with the stock market, like when you have
13:29
Speaker 2: something like this happened, so you know, for folks that
13:31
Speaker 2: aren't familiar, Let's say you had buy shares in an
13:37
Speaker 2: individual company and minutes later it moves up on an
13:41
Speaker 2: announcement by the company when it comes to, you know,
13:44
Speaker 2: some material fact that they had to disclose, the sec
13:48
Speaker 2: tracks all of those transactions to your brokerage account and
13:51
Speaker 2: goes and.
13:52
Speaker 3: Talks to those folks.
13:52
Speaker 2: There was actually a local police officer in Massachusetts who
13:56
Speaker 2: was charged with insider trading based on this exact series
13:59
Speaker 2: of facts. Actually got some insider information from someone. I
14:02
Speaker 2: think it was at a biotech company, if memory serves me,
14:04
Speaker 2: placed a bunch of trades. I think the guy went
14:07
Speaker 2: to prison. If you personally own crypto today, this should
14:14
Speaker 2: make you furious because this is profiting at your expense.
14:19
Speaker 2: If again, I find it hard to believe that the
14:21
Speaker 2: timing of these trades right a minute before the president's
14:24
Speaker 2: announcements on shorting a bunch of crypto, I find it
14:28
Speaker 2: really hard to believe that that was not somebody that
14:31
Speaker 2: had some sort of inside information. I'm not making, you know,
14:36
Speaker 2: allegations that it was a member of you know, anyone's family.
14:39
Speaker 3: But like you know.
14:39
Speaker 2: It could be a press reporter, it could be you know,
14:42
Speaker 2: somebody who knew this announcement was coming.
14:44
Speaker 3: It could be a social.
14:45
Speaker 2: Media manager who knows. But if you invest in crypto personally,
14:50
Speaker 2: this type of thing should make you absolutely furious because
14:55
Speaker 2: it is costing you money as somebody who you know
14:59
Speaker 2: believes this stuff, so this stuff should make It's also
15:03
Speaker 2: where I lead to my belief that eventually this is
15:06
Speaker 2: going to piss off enough people that this stuff's going
15:09
Speaker 2: to be regularly just like stocks, right, and frankly, stuff
15:12
Speaker 2: like that should be right if it's proven that you're
15:16
Speaker 2: in fact trading on inside information, you know, that's that's
15:19
Speaker 2: illegal and it should be you know, gone after. But
15:22
Speaker 2: because of the nature of the regulatory environment for crypto,
15:25
Speaker 2: it makes it much easier to do in this space,
15:28
Speaker 2: whereas you just cannot pull that sort of thing off
15:31
Speaker 2: in the stock market.
15:32
Speaker 5: What's so funny is that it would move this much
15:34
Speaker 5: on a policy announcement on you know, economically unrelated to crypto, right.
15:39
Speaker 5: I mean, that was the whole focus behind crypto in
15:42
Speaker 5: the first place. It was something that was supposed to
15:44
Speaker 5: be not correlated to anything you know, economic or in
15:47
Speaker 5: the markets. And yet you have it moving significantly off
15:51
Speaker 5: of something that the stock markets would move equally quickly.
15:54
Speaker 3: Yeah, you know, it is.
15:56
Speaker 2: It is very clear to me that at this stage,
15:59
Speaker 2: you know, most of the at least the major care
16:02
Speaker 2: and we didn't even you know, we were talking about
16:03
Speaker 2: bitcoin here. We didn't even talk about some of the
16:05
Speaker 2: smaller coins that got completely wiped out on Friday. But
16:09
Speaker 2: at this stage, you know, for most of its time,
16:12
Speaker 2: if you go and track this and chart it against
16:14
Speaker 2: like the NASDAK, it's basically trading as a leveraged Nasdaq
16:19
Speaker 2: type of holding.
16:19
Speaker 3: Right.
16:20
Speaker 2: It's just a very volatile read on what's going on
16:23
Speaker 2: in the stock market. There can be other outside things
16:25
Speaker 2: that move it in one direction or another, but that's
16:28
Speaker 2: that's what it's looked like. And yeah, so when you
16:31
Speaker 2: have a massive announcement that you know is going to
16:33
Speaker 2: move stocks, it's a very easy thing to trade on
16:36
Speaker 2: with far fewer ramifications than making the same bed on stocks,
16:40
Speaker 2: because you can be sure if somebody had shorted a
16:41
Speaker 2: bunch of the S and P five hundred right before
16:44
Speaker 2: this announcement, they'd be getting a call.
16:46
Speaker 5: Oh yeah, big time. Just to expand further on the
16:48
Speaker 5: Lever's piece. What Mike's alluding to is this idea that, hey,
16:51
Speaker 5: if the Nasdaq were to go down one two percent,
16:53
Speaker 5: that typically something crypto related that has more enhanced volatility
16:58
Speaker 5: characteristics would go down five six percent, multiple times what
17:02
Speaker 5: you'd see from the major indices out there. And that's
17:04
Speaker 5: the deal with investing crypto. It's very volatile.
17:07
Speaker 2: So, according to a Bank of America survey, most investors
17:11
Speaker 2: say that AI stocks are in a bubble, which now
17:15
Speaker 2: makes me question my narrative about AI stocks being in
17:18
Speaker 2: a bubble because of the retail that's the consensus, then
17:22
Speaker 2: we're probably wrong, is kind of where I land on
17:26
Speaker 2: all of this. So one Bank of America performed a
17:29
Speaker 2: survey about fifty four fifty four percent of participants in
17:34
Speaker 2: the October poll indicated that tech stocks were looking too expensive,
17:40
Speaker 2: which was a pretty significant about turn from where they
17:43
Speaker 2: had been, you know, just a few months or just
17:46
Speaker 2: last month rather and so you now have the sentiment
17:50
Speaker 2: clearly shifting more towards the idea that, oh, what sort
17:54
Speaker 2: of concerns should we have here about the state of
17:58
Speaker 2: crypto markets, Sorry, not about state of crypto marks. We're
18:00
Speaker 2: talking about that last about the state of these AI
18:03
Speaker 2: bets that are being made and what it means for
18:05
Speaker 2: the overall industry. But again, I guess I go back
18:09
Speaker 2: to if you have a majority of responding saying this,
18:14
Speaker 2: it makes it tough for the real crisis to happen
18:16
Speaker 2: in that moment. If everybody's worried about it, then everybody's
18:19
Speaker 2: preparing for it, presumably right, Or.
18:22
Speaker 3: Maybe they're not. Maybe they're just saying they know it's
18:24
Speaker 3: a bubble and they're just going to ride that wave.
18:26
Speaker 5: What it probably what it might do is enhance sensitivity
18:31
Speaker 5: around any news related to AI that is more pessimistic
18:36
Speaker 5: in nature. I don't know if you get that anytime soon,
18:39
Speaker 5: but perhaps it does just have investors a little bit more.
18:43
Speaker 2: The biggest argument I get from folks that this isn't
18:46
Speaker 2: some sort of bubble is one, it's super innovative technology
18:51
Speaker 2: that's going to change the world, and I dismiss that one.
18:53
Speaker 2: But you know, earnings are still growing on it. And
18:56
Speaker 2: my counterpoint is, so did they back during the tech
18:59
Speaker 2: bubble until they stopped growing and that is the point
19:02
Speaker 2: where stocks started collapsing. So I don't like to use
19:05
Speaker 2: the evidence that, oh yeah, earnings are growing as evidence
19:07
Speaker 2: that this continued rally can continue. Of course it can
19:12
Speaker 2: so long as that, you know, so long as that
19:16
Speaker 2: continued growth happens, then of course it can keep going.
19:19
Speaker 2: The question is when does that growth on earning start
19:22
Speaker 2: to slow down and pivot to shrinking earnings. Quick break,
19:25
Speaker 2: We're gonna have a full market recap coming up next.
19:28
Speaker 2: Stocks trying to mount a bit of a comeback at
19:30
Speaker 2: least earlier.
19:31
Speaker 3: During the eleven o'clock hour. We'll cover that in more next.
19:40
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19:44
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19:50
Speaker 1: Time now for Wall Street. Watch a complete look at
19:53
Speaker 1: what's moving market so far today right here on the
19:56
Speaker 1: Financial Exchange Radio Network.
19:58
Speaker 6: Market's currently in negative territory after tensions between the US
20:02
Speaker 6: and China increased. Beijing moved to effectively banned Chinese companies
20:07
Speaker 6: from doing business with US subsidiaries of a South Korea
20:11
Speaker 6: ship building giant. Outside of trade, Wall Street's also sifting
20:16
Speaker 6: through third quarter bank earnings posted earlier this morning. Right now,
20:20
Speaker 6: the Dow is down modestly, now only down eight points,
20:25
Speaker 6: trying to claw back its earlier losses. SMP five hundred
20:28
Speaker 6: is down nearly half a percent or thirty points, Nasdaq
20:31
Speaker 6: down over nine tenths of one percent or two hundred
20:34
Speaker 6: and nine points lower. RUSSA two thousand is now edging higher.
20:38
Speaker 6: A ten year treasure reel is flat currently a four
20:41
Speaker 6: point zero four six percent, and crude oil down nearly
20:44
Speaker 6: two percent lower. Trading a fifty eight dollars in thirty
20:47
Speaker 6: four cents a barrel. JP Morgan b third quarter expectations,
20:52
Speaker 6: where it's trading revenue hit a record of nine billion dollars.
20:55
Speaker 6: JP Morgan shares are up by almost or excuse me,
20:59
Speaker 6: down by two percent. Goldman Sachs also exceeded estimates, posting
21:03
Speaker 6: better than expected investment banking activity and bond trading. Goldman
21:07
Speaker 6: stock is down by three percent. Wells Fargo b third
21:10
Speaker 6: quarter expectations as well, where the bank raised its profitability targets,
21:14
Speaker 6: sending that stock up now over six percent higher. Black
21:19
Speaker 6: Rock in City Group also beat third quarter forecast. Those
21:22
Speaker 6: stocks are seeing modest gains outside of bank earnings. Johnson
21:26
Speaker 6: and Johnson beat third quarter estimates and raised its annual
21:29
Speaker 6: sales outlook. The healthcare giant also said it plans to
21:32
Speaker 6: split off its orthopedics unit. Within two years. Johnson and
21:37
Speaker 6: Johnson shares are down almost two percent. Meanwhile, Boeing said
21:41
Speaker 6: it delivered fifty five aircraft to customers last month, putting
21:44
Speaker 6: it on track for its best year since twenty eighteen.
21:49
Speaker 6: Forty of the deliveries were seven thirty seven maxes. Boeing
21:52
Speaker 6: stock is edging higher, and Dominos Pizzas said its third
21:56
Speaker 6: quarter US same store sales grew five point two percent
21:59
Speaker 6: from a year ago, beating analysts expectations. The pizza chain
22:03
Speaker 6: said promotions and a new stuff Cruss Pizza we're helping
22:07
Speaker 6: boost us carry out and delivery sales. Domino shares are
22:11
Speaker 6: up over three percent. I'm Tucker Silva and that is
22:15
Speaker 6: Wall Street Watch and A the previous segment, we asked
22:18
Speaker 6: you the trivia question how many James Bond movies did
22:21
Speaker 6: Roger Moore make? That would be seven seven movies. Jack
22:25
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Speaker 6: Financial Exchange Show T shirt. Congrats to Jack, and we
22:31
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22:34
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22:37
Speaker 2: Well as every day goes on, we seemingly get a
22:40
Speaker 2: new announcements between open Ai and some other company that's
22:44
Speaker 2: going to be responsible for providing them with semiconductors, mainframe computers,
22:50
Speaker 2: power generation to power all of this stuff. And the
22:54
Speaker 2: most recent has been Broadcom, and on the announcement their
22:58
Speaker 2: stocks stored on Monday after this deal was announced with
23:05
Speaker 2: open Ai, the maker of chat GPT together. The announced
23:09
Speaker 2: deals that have been put together so far with open
23:12
Speaker 2: Ai includes Nvidia, Advanced micro Devices and others. They would
23:17
Speaker 2: involve filling data centers with chips and computing infrastructure that
23:21
Speaker 2: would consume twenty six gigawatts of electricity. If it doesn't
23:25
Speaker 2: mean anything to you, it doesn't mean anything to me either.
23:28
Speaker 2: To give you a sense, that is substantially more electricity
23:32
Speaker 2: than what New York City currently uses at peak demand
23:35
Speaker 2: during the summer. Yeah, so it's a lot of electricity.
23:40
Speaker 2: It would seem to power all the air conditioning in
23:42
Speaker 2: New York City. It seems like a lot of electricity,
23:45
Speaker 2: and a lot needs to go right for all this
23:48
Speaker 2: to work. Waltreet Journal is writing today about how this
23:52
Speaker 2: is a special risk for Broadcom. I don't think they
23:55
Speaker 2: have much of an choice for their investors but to
23:59
Speaker 2: participate in this. But I guess what is the risk
24:02
Speaker 2: for these chip suppliers when making these deals with open ai,
24:06
Speaker 2: because you know, obviously this is the company who is
24:09
Speaker 2: at the forefront of artificial intelligence development. Yes, they're burning
24:14
Speaker 2: through cash, but they seemingly have a bunch of investors
24:17
Speaker 2: who are willing to throw more and more cash at them.
24:19
Speaker 2: So what is the risk to a company like Broadcom
24:22
Speaker 2: that signs a deal that inks a deal to do
24:24
Speaker 2: business with open ai.
24:25
Speaker 5: You're basically putting the cart in front of the horse
24:28
Speaker 5: where you're going to have to spend a significant amount
24:31
Speaker 5: of investment in capex to build out these custom chips
24:36
Speaker 5: to assist with the build out of the computing that's
24:40
Speaker 5: required behind this. For a company that, don't get me wrong,
24:43
Speaker 5: you know, was one of the fastest apps or products
24:46
Speaker 5: out there to reach one hundred million users. Ever, I
24:48
Speaker 5: mean there's scaling of the use of open aishat GPT
24:53
Speaker 5: has amazed many out there, and now they're standing at
24:56
Speaker 5: about seven hundred million weekly users. So there certainly is
25:00
Speaker 5: a lot of justified enthusiasm behind what they're doing. But
25:03
Speaker 5: it's a company also that is projected to do about
25:06
Speaker 5: thirteen billion of revenue.
25:08
Speaker 4: I've heard.
25:08
Speaker 5: Maybe it's a private company, So we don't know if
25:10
Speaker 5: that number is exact, but I've heard maybe closer run
25:13
Speaker 5: rate of twenty billion. But regardless, you're talking about hundreds
25:16
Speaker 5: of billions of dollars of commitment for build out on
25:20
Speaker 5: infrastructure that mike. The risk is, is open ai good
25:25
Speaker 5: to pay back all of this debt and investment that
25:30
Speaker 5: they're asking for many technology peers to take on as
25:35
Speaker 5: part of this initiative. You're really banking on exponential revenue
25:40
Speaker 5: growth for open ai once out everything up and running.
25:43
Speaker 3: Yeah. Clear.
25:44
Speaker 2: I mean to be clear, the deal that open ai
25:46
Speaker 2: is striking with Broadcom is not saying, hey, here's a
25:49
Speaker 2: one hundred million dollars go build this stuff out. It's
25:52
Speaker 2: if you build the chips based on our custom designs
25:55
Speaker 2: that we need, then we will pay you for them.
25:58
Speaker 1: Right.
25:58
Speaker 2: That's years of buildout broad Comedies to design and go
26:01
Speaker 2: forward with in order to actually someday sell these things.
26:06
Speaker 2: And if they happen to be and it happens to
26:08
Speaker 2: be the biggest growth industry that we've seen since the Internet,
26:11
Speaker 2: then it could be huge business for them. But if
26:15
Speaker 2: any number of things happens, Broadcom doesn't execute on the
26:18
Speaker 2: design of the chips properly. If open Ai turns out
26:22
Speaker 2: to not have the revenue to pay them, there's any
26:25
Speaker 2: number of things that could go wrong for these companies,
26:27
Speaker 2: and Broadcom is in a position of, Hey, we have
26:30
Speaker 2: to spend this money in order to get to the
26:32
Speaker 2: point where we could sell it.
26:33
Speaker 5: And now with all the deals they've made, Mike, you've
26:35
Speaker 5: got the whole technology, not the whole A lot of
26:38
Speaker 5: the technology sector is intertwined with this. Oracle had tremendous
26:41
Speaker 5: growth in its stock from announcing the five year, three
26:44
Speaker 5: hundred billion dollar deal that it struck with open Ai.
26:47
Speaker 5: So all of this investment is on the optimism that
26:51
Speaker 5: they will turn out to be richly profitable and incredibly successful,
26:56
Speaker 5: and I think for all of us as investors, you
26:58
Speaker 5: want that ultimately, but there's a lot of risks that
27:02
Speaker 5: are in line there.
27:02
Speaker 4: It costs fifty.
27:03
Speaker 5: Billion dollars to build out a gigawatt capacity of power
27:08
Speaker 5: you were just talking about, you know, twenty six gigawatts
27:12
Speaker 5: that will need to be use. They're going to invest
27:13
Speaker 5: over the course the next five years a trillion dollars
27:15
Speaker 5: to build out the power capacity that they're looking for,
27:18
Speaker 5: and ultimately, you got to have the revenue to back
27:21
Speaker 5: this up. And what's probably not talked about a lot
27:24
Speaker 5: is that's just the installation of these data centers. It's
27:29
Speaker 5: not the ongoing maintenance and replacement of the chips within
27:33
Speaker 5: them too that will come from this. So it's fascinating.
27:37
Speaker 5: It's the biggest story right now in the market. It
27:40
Speaker 5: is truly a huge bet that a lot of these
27:43
Speaker 5: companies are making on this technology, Paul.
27:45
Speaker 2: Not only is it a huge bet for the markets
27:47
Speaker 2: at this moment, it's a huge bet for the overall economy.
27:50
Speaker 2: Our economy would not be growing in the way it
27:52
Speaker 2: is today without the actual spend that's occurring on artificial
27:57
Speaker 2: intelligence build out. If this topic fascinates, if you're interested
28:00
Speaker 2: in the direction this is going, we do have a
28:03
Speaker 2: few spots left for our event on Thursday of this
28:07
Speaker 2: week at the Showcase super Lucks in Chestnut Hill. We're
28:10
Speaker 2: doing a live broadcast of the Financial Exchange, followed by
28:12
Speaker 2: a free lunch and meeting with the Armstrong Advisory Group
28:15
Speaker 2: as we give our perspective on what has happened so
28:18
Speaker 2: far this year, the number of different markets we've already
28:22
Speaker 2: been through, just getting through October, and what we may
28:25
Speaker 2: see as we head into the end of year and
28:27
Speaker 2: twenty twenty six.
28:28
Speaker 3: We'd love for you to join us.
28:29
Speaker 2: There's a few spots left again chestnut Hill Showcase super
28:33
Speaker 2: Lucks Thursday of this week, that's the sixteenth of October.
28:38
Speaker 2: Kick things off right at ten am when the show starts,
28:40
Speaker 2: But we'd love for you to join us for all
28:42
Speaker 2: or some of the program. You can call us at
28:44
Speaker 2: eight hundred three to nine three for zero zero one
28:47
Speaker 2: to reserve your spot. You can get a bunch of
28:49
Speaker 2: details at Armstrong Advisory dot com. There's a banner right
28:52
Speaker 2: at the top of the page with the details on
28:53
Speaker 2: the event eight hundred three nine three for zero zero one.
28:58
Speaker 1: The proceeding was paid for by our Strong Advisory Group,
29:01
Speaker 1: a registered investment advisor. Nothing in the ad or in
29:03
Speaker 1: any Armstrong guide a specific financial, legal, or tax advice.
29:06
Speaker 1: Consult your own financial, tax into state planning advisors before
29:09
Speaker 1: making any investment decisions. Armstrong may contact you to offer
29:12
Speaker 1: investment advisory services.
29:14
Speaker 2: All right, Well, I'm meeting maybe the over exaggeration of
29:17
Speaker 2: the week here with the shutdown government shutdown, consequences for
29:21
Speaker 2: the Bureau of Labor Statistics being dire, but I will
29:23
Speaker 2: admit that we are on the cusp of maybe losing
29:26
Speaker 2: out on a whole bunch of information here. So again,
29:28
Speaker 2: the BLS puts together a number of reports on the
29:30
Speaker 2: state of the economy, including the Consumer Price Index and
29:34
Speaker 2: the Jobs Report, two of the ones that we cite
29:36
Speaker 2: most frequently on this program.
29:38
Speaker 3: First off, that Job's report.
29:39
Speaker 2: We missed the one for September, but the BLS did
29:43
Speaker 2: compile all the data for it, so presumably we will still.
29:46
Speaker 3: Get that report.
29:47
Speaker 2: YEP, at some point. The survey period for these reports
29:53
Speaker 2: occurs in the middle of the month, meaning if the
29:56
Speaker 2: government remains shut there's a good chance that we just
29:59
Speaker 2: won't get a report for October because they do need
30:02
Speaker 2: to survey these businesses and these households, which.
30:04
Speaker 3: Is currently not happening, and it usually would be.
30:07
Speaker 2: So even if the government managed to reopen tomorrow, which
30:12
Speaker 2: doesn't seem likely, I would suspect that the data gathering
30:15
Speaker 2: process is going to be shortened and it's going to
30:17
Speaker 2: be difficult to get a good read on the labor market.
30:21
Speaker 2: The longer it goes on, the bigger the chances like,
30:23
Speaker 2: oh yeah, you just can't put together an October jobs
30:26
Speaker 2: report because it doesn't make a ton of sense to
30:28
Speaker 2: ask people in December what the state of their hiring
30:31
Speaker 2: was back in October. So there is that chance, I think,
30:35
Speaker 2: you know, look, the bigger risk overall is that this
30:40
Speaker 2: type of data gets called into question. It already has
30:43
Speaker 2: the President fired the old head of the BLS and
30:45
Speaker 2: has put somebody in there who's been questioning the methodology
30:48
Speaker 2: and questioning you know, where it all comes from. I
30:50
Speaker 2: think most experts would agree that their methodology and the
30:53
Speaker 2: way that they do all this, while imperfect, is probably
30:56
Speaker 2: the best that you could do. And so do we
31:00
Speaker 2: get a large absence of this data and it does
31:02
Speaker 2: it further call into question the credibility of this data
31:05
Speaker 2: in the future is what is on my mind. My
31:07
Speaker 2: answers largely know. I think if they were going to
31:10
Speaker 2: do that, then you would have seen evidence of it.
31:12
Speaker 2: But you know, that is a threat over there. And
31:15
Speaker 2: I think these types of data points that you can
31:18
Speaker 2: rely upon, that are released regularly and that you don't
31:21
Speaker 2: have to question like you do with every data point
31:23
Speaker 2: coming out of China makes the US economy and markets
31:28
Speaker 2: work in an efficient way that can't exist in other
31:30
Speaker 2: parts of the world.
31:31
Speaker 3: And so this is to a huge benefit.
31:33
Speaker 4: Yeah, and no question.
31:34
Speaker 5: And the other concern that I have is for the
31:36
Speaker 5: Federal Reserve, who is effectively flying blind for longer and
31:41
Speaker 5: longer periods of times. The more that this drags on,
31:43
Speaker 5: that is certainly a challenge for them in what was
31:47
Speaker 5: already a very challenging environment.
31:49
Speaker 3: Let's take a quick break.
31:51
Speaker 2: When we come back, we'll touch on markets again, which
31:53
Speaker 2: are again trying to rally into positive territory as that stack.
31:57
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33:04
Speaker 2: We've got markets staging a comeback here. Dow Jones Industrial
33:07
Speaker 2: Average currently up one hundred and twenty six points, about
33:09
Speaker 2: a quarter of a percent, the SMP still down, but
33:11
Speaker 2: now only nine points a little more than a tenth
33:14
Speaker 2: of a percent, and the Nasdaq down about one hundred
33:16
Speaker 2: and twenty nine points, close to six tenths of a percent.
33:20
Speaker 2: But you know, both the SMP and NASDAK were off
33:22
Speaker 2: substantially more, as was the Dow, but all three major
33:26
Speaker 2: indices staging a bit of a comeback and early trading again.
33:29
Speaker 2: The concern for markets this morning was doked by further
33:32
Speaker 2: escalation between the United States and China on the trade
33:35
Speaker 2: tariff front, and specifically China targeting some US owned ship
33:40
Speaker 2: making assets in South Korea. So what do you have
33:43
Speaker 2: for US for a stack roulette, Poul Mike, we've been talking.
33:45
Speaker 4: A lot about perhaps there's an AI bubble out there.
33:48
Speaker 5: We'll see on that. One thing that I think is
33:50
Speaker 5: a bubble that's not getting talked about enough is protein
33:53
Speaker 5: and food.
33:54
Speaker 4: Okay, it's getting out of control. Whathere?
33:56
Speaker 5: You've got the likes of Douredo's sing that it has
34:00
Speaker 5: a higher protein version of its product. You now have
34:03
Speaker 5: pop Tarts announcing that they have a higher protein version
34:07
Speaker 5: of their product.
34:08
Speaker 4: You've got Aggle waffles, You've got.
34:10
Speaker 2: Is this everybody trying to make a product for like
34:13
Speaker 2: Jim rats?
34:15
Speaker 3: Like, what's going on?
34:16
Speaker 6: A lot of this conscious?
34:17
Speaker 5: A lot of this ties in exactly what Tucker's mentioned
34:20
Speaker 5: is health conscious.
34:21
Speaker 4: The fears around.
34:22
Speaker 2: How does me eating a dorita with more protein make
34:25
Speaker 2: me healthy?
34:26
Speaker 6: Because they think you're dumb. That's why that's literally what
34:28
Speaker 6: it is. They put protein on the box like, oh, well, any.
34:32
Speaker 3: I mean Jerry's going to buy this? Jerry's out. I
34:35
Speaker 3: might be dumb. It might do.
34:39
Speaker 4: Many users can't donate.
34:41
Speaker 3: His chicken last night, I'm gonna give hm a pop tart.
34:43
Speaker 6: Yeah, same thing.
34:44
Speaker 5: It's got protein in it, babe, don't worry about it. It
34:46
Speaker 5: has sixty percent of his daily sugar intake, but it
34:48
Speaker 5: has a little bit more protein. Okay, many users of
34:51
Speaker 5: GLP ones are allegedly looking to increase their protein intake
34:56
Speaker 5: to retain muscle mass. So that's part of this push
34:59
Speaker 5: as well, sort of betting on this idea that those
35:02
Speaker 5: drugs for weight loss become more popular and as a
35:04
Speaker 5: result catering their products to those consumers.
35:09
Speaker 2: But somehow, how many years do you give it before
35:11
Speaker 2: the protein additive that they have to put in there,
35:13
Speaker 2: we'd learn is just as harmful as the artificial colors.
35:17
Speaker 2: I can't speculate on that, but I can five year
35:20
Speaker 2: under I can predict that there's no way we're still
35:23
Speaker 2: doing this protein craze a year or two from now.
35:26
Speaker 4: I just don't think now.
35:28
Speaker 5: The experts may be against me here because I apparently
35:31
Speaker 5: they claim that there is a long way to go.
35:33
Speaker 5: The global market for foods fortified with protein is estimated
35:36
Speaker 5: to reach more than one hundred billion by twenty thirty,
35:39
Speaker 5: up from sixty seven billion and twenty twenty three, according to.
35:42
Speaker 4: Grand View Research.
35:44
Speaker 2: ID like to bet the under on that. I'm just
35:46
Speaker 2: picturing again. There's a lot of reasons I don't go
35:48
Speaker 2: to the gym, but I don't go to the gym.
35:50
Speaker 2: But I'm just picturing, you know, one of those giant
35:53
Speaker 2: dudes with a huge arms, tiny little chicken legs, and
35:56
Speaker 2: you know, muscle milk in one hand and a bag
35:58
Speaker 2: of Tritos and you've got the dusty orange stuff getting
36:03
Speaker 2: all over the weights and just it doesn't seem.
36:05
Speaker 5: Not only that, but Mike, fittingly, it's Dorito's jacked jacks,
36:14
Speaker 5: like a very good image for those those gym guys
36:18
Speaker 5: to have. But the same thing applies with Ego waffles
36:22
Speaker 5: and pop tarts.
36:24
Speaker 4: It's everywhere.
36:25
Speaker 2: There's a coworker that I have who Paul knows immediately
36:28
Speaker 2: who comes to mind. But I'm just gonna have to
36:30
Speaker 2: load up on all of this stuff and and put
36:32
Speaker 2: it right in his office for him, because not only
36:34
Speaker 2: you know, is he a workout enthusiast, but he frequently
36:39
Speaker 2: does eat pop tarts, so now he.
36:42
Speaker 3: Can get his proteins.
36:43
Speaker 2: Have to I will have to make this clear to
36:46
Speaker 2: him and just stuff his office with it.
36:49
Speaker 3: You're putting too much solar on your roof.
36:51
Speaker 2: I don't think anybody will be over the course of
36:54
Speaker 2: the next uh several years, here as a lot of
36:56
Speaker 2: those tax credits now phase out. But I do recall
37:00
Speaker 2: when I was putting it on my own roof, a
37:01
Speaker 2: number of companies talking to me about how much they
37:04
Speaker 2: that I should put on there. And you know, especially
37:08
Speaker 2: my father in law in Arizona when he was doing
37:10
Speaker 2: his they were you know, proposing like, hey, you know,
37:12
Speaker 2: put these extra panels on your roof. You can sell
37:14
Speaker 2: it back to the grid and you know, put up
37:16
Speaker 2: one hundred and thirty percent of what you actually need,
37:18
Speaker 2: and you know you can you can make a killing
37:20
Speaker 2: on this stuff. Some people calling that into question now
37:24
Speaker 2: because what many of those utilities are finding is, yeah,
37:27
Speaker 2: during the peak generation times, we don't need to buy
37:31
Speaker 2: all of this solar back from you. We have no
37:33
Speaker 2: use for it, We have no need to take all
37:37
Speaker 2: of this extra capacity.
37:38
Speaker 3: It is not helping us in any meaningful way.
37:40
Speaker 2: And so when I did it on my own, it
37:42
Speaker 2: was primarily because the tax breaks. But you know, it
37:46
Speaker 2: is probably going to pay back in about six years.
37:49
Speaker 2: But I specifically targeted like sixty percent of what I
37:52
Speaker 2: might use so that I'm not reliant on selling it
37:56
Speaker 2: back to the utility company to make my money on
37:59
Speaker 2: all of this companies they don't want it in some
38:03
Speaker 2: places during certain times of the day, they don't need it.
38:06
Speaker 2: They don't want it, and they can't store it. The
38:09
Speaker 2: storing stuff, Yeah, quick break markets making that comeback I mentioned.
38:12
Speaker 2: We'll have a full recap for you tomorrow. Have a
38:14
Speaker 2: great rest of the day, folks,