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Why $8 Gas Prices No Longer Sound Impossible · The Financial Exchange Show

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Speaker 2: Good morning, you made it a Friday here on the
1:14
Speaker 2: Financial Exchange.
1:15
Speaker 3: We've got a.
1:17
Speaker 2: Market in reverse this morning as we open up the show,
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Speaker 2: but a busy, busy show today. In the second hour
1:23
Speaker 2: of the show, we're going to be joined by Lawrence Ball,
1:26
Speaker 2: he's professor of economics at Johns Hopkins, talking to us
1:28
Speaker 2: about the interest rate and inflation scenario we seem to
1:32
Speaker 2: be in right now. We've got the Money Matters mail
1:35
Speaker 2: bag at eleven thirty Paul Lamonica from Baron's joining us. Yesterday,
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Speaker 2: we had the biggest IPO of the year so far,
1:43
Speaker 2: with a AI related tech company that nobody had heard
1:47
Speaker 2: of prior to last week unless you worked in AI
1:50
Speaker 2: going public and some perhaps irrational exuberance being seen in
1:56
Speaker 2: the tech market there. And President Trump returned from China.
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Speaker 2: So I don't think we were anticipating quite as busy
2:05
Speaker 2: a week as we got this week, but between the
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Speaker 2: inflation report from Tuesday.
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Speaker 3: And everything else that's been going on, it turned out
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Speaker 3: to be.
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Speaker 2: And so let's jump in there first before we get
2:19
Speaker 2: elsewhere with the visit to China, because that just wrapped
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Speaker 2: up first state visit of a city US President to China.
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Speaker 3: I don't remember since when, since the twenty tens at least, and.
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Speaker 2: Frankly, most went into this with pretty low expectations. I
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Speaker 2: don't know that, you know, post visit, you know, the
2:40
Speaker 2: results defied those low expectations by any stretch.
2:44
Speaker 3: You know.
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Speaker 2: Any sort of agreement on things was you know, fairly
2:48
Speaker 2: high level and no big details. I do think there
2:52
Speaker 2: was one. If there was one interesting piece of the meeting,
2:56
Speaker 2: it was about Iran. In my view, a few things
3:00
Speaker 2: happened on that front, none of which, to me, is
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Speaker 2: a great indicator for where things are to come. But
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Speaker 2: you know, generally speaking, you know, the first day, President
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Speaker 2: Trump said that the US and China agreed that the
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Speaker 2: war in Iran should end, that ship traffic through the
3:14
Speaker 2: Strait should be free, Iran shouldn't get a nuclear weapon.
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Speaker 2: You know, they highlighted that they tend to agree on
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Speaker 2: those major items. But at the same time, what happened
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Speaker 2: in Iran was Iranian state media reported that they had
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Speaker 2: released some thirty odd ships carrying products to China. It's
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Speaker 2: unconfirmed how many of those actually, if any, actually navigated
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Speaker 2: through the Strait of Horror moves, but at the same
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Speaker 2: time that, you know, Iran has been saying, hey, we
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Speaker 2: are going to control the Straight of Horror US and
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Speaker 2: the United States is saying, no, we're going to blockade
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Speaker 2: it and prohibit any ships that are using this you know,
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Speaker 2: payment method and defined method of Irans to navigate the
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Speaker 2: Straight of Horm moves. We're going to prevent those ships
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Speaker 2: from going. Very interesting timing obviously for Iran to say, oh, yeah,
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Speaker 2: but we're allowing these Chinese ships while the president is
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Speaker 2: on a state visit to China talking about the Iranian
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Speaker 2: war very clearly not coincidental. So I found that to
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Speaker 2: be an interesting power move and unclear to me.
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Speaker 3: If those ships made it through. I haven't seen any
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Speaker 3: of it.
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Speaker 4: Time what pretty widely reported that they did? That they did, Okay,
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Speaker 4: I say that, I'm talking about the Financial Times, and
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Speaker 4: I think I saw something in Bloomberger as well.
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Speaker 2: Which indicates that the United States was either unable or
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Speaker 2: unwilling to blockade those ships. And that's obviously fascinating. But
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Speaker 2: we're not going to board a Chinese flagged ship, right,
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Speaker 2: one would think active war. Yeah, So I don't know,
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Speaker 2: not a maritime lawyer, but interesting dynamics there, obviously, and
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Speaker 2: very intentionally timed, I believe, for those events. On the
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Speaker 2: second day of the summit, China's Foreign ministry released a
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Speaker 2: statement saying that the US should never have started the
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Speaker 2: war in the first place, which does not directly contradict
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Speaker 2: thing that was said by the President on the first day,
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Speaker 2: but clearly indicates that the two don't see eye to
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Speaker 2: eye on the US vision of Iran and the Strait
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Speaker 2: and and everything else.
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Speaker 4: Well, forget about all the propaganda, press releases and flowery
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Speaker 4: statements coming out of both sides at the resolution of
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Speaker 4: this meeting. Look at what markets are doing. Oil is up,
5:21
Speaker 4: bond yields, interest rates that is, on longer term government
5:25
Speaker 4: bonds are way up, presumably reflecting anticipated additional inflationary pressure,
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Speaker 4: and equities don't seem to like it. So markets seem
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Speaker 4: to have rendered their verdict.
5:35
Speaker 3: Mic.
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Speaker 2: Yeah, I'm not sure that US equities are responding to
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Speaker 2: the China visit or the event.
5:40
Speaker 3: Well, maybe they're responding.
5:42
Speaker 4: Rates rates go up, stock prices, all sequals should come down, right, Yep.
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Speaker 2: We've cited this a couple of times, so I'll just
5:48
Speaker 2: you know, throw this one out there too. There's a
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Speaker 2: bet on polymarket, right, now about the strait of horror
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Speaker 2: moves and when traffic will return to normal. The bets
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Speaker 2: on it returning to norm by the end of this month,
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Speaker 2: by the end of May is sitting at right now
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Speaker 2: a six percent chance, so almost no possibility based on
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Speaker 2: betting markets, and by June thirtieth, you're only looking at
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Speaker 2: a thirty percent chance.
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Speaker 4: So I haven't been part of your and Chuck's conversations
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Speaker 4: for the past few days, but so enlighten me, maybe
6:23
Speaker 4: who has an incentive other than us, who is urgently
6:26
Speaker 4: motivated to bring this crisis to an end.
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Speaker 2: A bunch of powers that don't have any influence on
6:34
Speaker 2: doing such.
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Speaker 4: China doesn't seem to They can get through what they
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Speaker 4: want to get through. That was the point in the article.
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Speaker 4: I think it was in the Financial Times this morning.
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Speaker 4: And of course they enjoy us being bogged down there,
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Speaker 4: I assume is a geopolitical adversary. It's in their interest. Yeah,
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Speaker 4: I don't I take it up there because I'm asking you.
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Speaker 3: I don't like to give too much.
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Speaker 2: I think far too often we look at China and say, oh,
6:54
Speaker 2: you know, they're really taking advantage of this moment. I
6:56
Speaker 2: think there's an argument that given the shortages of all
7:01
Speaker 2: sorts of fuels, China may be able to expand their
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Speaker 2: influence in the region further.
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Speaker 3: Because of this.
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Speaker 2: You've heard stories of Australian delegations and other Southeast Asian
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Speaker 2: countries going to China requesting fuel reserves, and presumably there's
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Speaker 2: some sort of trade there. I think you could make
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Speaker 2: an argument that post this crisis, China stands in a
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Speaker 2: good position to distribute all sorts of non oil energy
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Speaker 2: producing infrastructure like solar panels, wind, etc. But they are
7:29
Speaker 2: also hurting. They are also seeing higher prices, and they're
7:31
Speaker 2: needing to draw down their strategic petroleum reserves, which is
7:34
Speaker 2: probably not ideally what they would like to do. The
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Speaker 2: countries that are probably most incentivized to see this happen
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Speaker 2: or to see a resolution come it would probably be India,
7:44
Speaker 2: Southeast Asia, the poorer Asian nations that are literally cut
7:48
Speaker 2: off from a lot of these supplies. You saw a
7:51
Speaker 2: commentary from Prime Minister Modi this week that farmers were
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Speaker 2: going to be receiving one half of their normal amount
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Speaker 2: of fertilizer. You saw him request that citizens stopped buying
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Speaker 2: gold to see outflows.
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Speaker 4: Uh and then I guess I'm meant among the big
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Speaker 4: powers that actually have the weight to bring this to
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Speaker 4: a conclusion. I'm not saying. I'm not saying this will
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Speaker 4: go on, and that China and even Russia want this
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Speaker 4: to go on indefinitely. But seeing us twist in the
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Speaker 4: wind and drained is problem.
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Speaker 2: I think Russia is a clear beneficiary. Yeah for yeah,
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Speaker 2: uh price reasons that they are.
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Speaker 4: And China, as you said, they are, they are building.
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Speaker 2: If they are, yeah, it hurts them, but they are
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Speaker 2: building a Chips influence Chips Europe influences Europe. If they
8:43
Speaker 2: could get any sort of degree of act together in
8:46
Speaker 2: terms of their influence and a coherent message from European
8:51
Speaker 2: nations that seemed to disagree on anything would be another
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Speaker 2: one that's severely.
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Speaker 4: They seem to They seem to agree on this, the
8:56
Speaker 4: agree they weren't consulted to begin with, and then resent
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Speaker 4: being asked to come in and help out and then
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Speaker 4: told well, we don't need you. But comedy of errors, Mike,
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Speaker 4: I'm sorry on our part, comedy of errors.
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Speaker 2: Let's take a quick break when we come back a
9:09
Speaker 2: bit more on this trip to China. But then I
9:12
Speaker 2: want to get to this Blockbuster Ipo, Sarah Bras, the
9:16
Speaker 2: company that went public yesterday and how investors reacted.
9:20
Speaker 3: That's next on the Financial Exchange.
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9:51
Speaker 2: Well, we were having some technical difficulties earlier, but Chuck
9:54
Speaker 2: is back and Chuck.
9:55
Speaker 3: When it came to the.
9:58
Speaker 2: US visit to President Trump's visits to China, I found
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Speaker 2: the most interesting thing to be the what was and
10:05
Speaker 2: was not said regarding Iran, the ship movements over the
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Speaker 2: course of the last couple of days, through the Strait
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Speaker 2: of Horror moves, and then the commentary from China's Foreign Ministry.
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Speaker 2: But I may just be too focused on the events
10:19
Speaker 2: in Iran to pay attention to the other items. What takeaways,
10:22
Speaker 2: if any others, did you have from the state visit
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Speaker 2: to China by President Trump?
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Speaker 5: Well, I think when you look at this, you know,
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Speaker 5: over the course of President Trump's two terms. We've had
10:34
Speaker 5: what would you say, maybe half dozen, like like somewhere
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Speaker 5: between like six and nine of these that we've.
10:39
Speaker 2: Had summits of some sort conversations, whether they were in
10:42
Speaker 2: China or not.
10:43
Speaker 3: Yeah, probably somewhere in that range, somewhere in that ballpark.
10:47
Speaker 5: It's hard to say that this one is anywhere near
10:50
Speaker 5: the most important in terms of the outcomes that we've seen.
10:54
Speaker 5: I don't think there's much in the way of tangible
10:59
Speaker 5: takeaways for either side, and I think that's probably by design,
11:03
Speaker 5: and that I think both sides largely went into this
11:06
Speaker 5: with a fairly defensive posture, not wanting to ask the
11:09
Speaker 5: other for too much, simply because that would open them
11:12
Speaker 5: up to needing to have something you know, that they
11:15
Speaker 5: need to give as well. And so I just don't
11:19
Speaker 5: think that there's that much to really take away from this.
11:23
Speaker 5: It's like, again, I don't know that you can point
11:27
Speaker 5: to any level of meaningful progress that was made. I
11:31
Speaker 5: don't think that's a bad thing. It means that you know,
11:34
Speaker 5: you didn't necessarily give away anything that you didn't want to.
11:38
Speaker 5: But I'm just not sure that there's anything tangible here.
11:42
Speaker 5: We'll see over the next few weeks and months if
11:44
Speaker 5: maybe there's something behind the scenes that you know, was
11:47
Speaker 5: not necessarily announced that ends up coming to fruition, you know,
11:51
Speaker 5: in any other realms such as you know, the Middle
11:53
Speaker 5: East or you know, currencies or whatever it might be.
11:56
Speaker 5: But on the surface, it doesn't really look like there's
12:01
Speaker 5: anything overly consequential that came out of this, and that's fine,
12:04
Speaker 5: there doesn't have to be. But I think, as we said,
12:08
Speaker 5: going in, expectations should be pretty low for this one
12:11
Speaker 5: given the broader context of what's going on in the world.
12:14
Speaker 3: Right. Yeah, that's kind of my takeaway as well.
12:18
Speaker 5: So I think that's kind of you know, where where
12:21
Speaker 5: we land on this. Let's turn nowt I touched on
12:24
Speaker 5: the Middle East briefly. There we get a piece in
12:26
Speaker 5: the Wall Street Journal. It's titled the World is burning
12:29
Speaker 5: through its oil safety net? Mike, Have they been listening
12:32
Speaker 5: to our show for the last month? Yeah, seems like
12:34
Speaker 5: it nice to see this piece finally published. I mean, look,
12:37
Speaker 5: you're seeing a handful of these that are making their
12:39
Speaker 5: way out in the last week or so. But we've
12:41
Speaker 5: been on this for a couple of months, and it's
12:45
Speaker 5: only now that the rest of the world seems to
12:48
Speaker 5: be waking up to this in any meaningful way.
12:51
Speaker 2: So when we look at the kind of critical points here, right, yeah,
12:57
Speaker 2: I think it's First of all, I don't think you
13:00
Speaker 2: and I have a immediate certainty precisely when the United
13:05
Speaker 2: States oil reserves would run too low to get them
13:08
Speaker 2: pumped out. But I think it's pretty clear based on
13:10
Speaker 2: actions in places like India that plenty of places in
13:14
Speaker 2: the world are very aware of the massive shortage that
13:18
Speaker 2: is coming through just now and how disruptive it could be.
13:22
Speaker 3: In India if you didn't see.
13:24
Speaker 2: Over the course of the last week privacy remote, he
13:27
Speaker 2: has basically cut fertilizer supplies in half.
13:31
Speaker 3: He's asked its citizens to stop.
13:34
Speaker 2: Buying gold, he has encouraged different types of he can
13:39
Speaker 2: encourage people to stop commuting and work from home instead,
13:43
Speaker 2: big big pushes to try and curb the demand side
13:46
Speaker 2: of the equation for all sorts of different energy supplies
13:49
Speaker 2: and other stuff coming out of the Middle East. What
13:53
Speaker 2: does the timeline look like to you when it comes
13:56
Speaker 2: to US stockpiles? Because JP Morgan had their estimate from
13:58
Speaker 2: this week that was pretty pretty stark.
14:02
Speaker 5: Basically, it's going to be sometime in the back out
14:06
Speaker 5: for the summer. It's you know, that's kind of where
14:09
Speaker 5: it is. In particular, parts of the system are going
14:12
Speaker 5: to start to show stress in the next four to
14:14
Speaker 5: six weeks. So by we get by the time we
14:17
Speaker 5: get to the busy fourth of July holiday for driving,
14:21
Speaker 5: you're going to see you know, more stress that's popping up.
14:24
Speaker 5: But it's you know, realistically, you're probably talking somewhere in
14:27
Speaker 5: the late July to early September range. And ultimately, like, look,
14:33
Speaker 5: every day that you go is a day that you
14:36
Speaker 5: can't get back for trying to mitigate the damage on this,
14:39
Speaker 5: and we're past the point of.
14:41
Speaker 3: No return now.
14:42
Speaker 5: Yeah, and there is no button that you can press
14:46
Speaker 5: right now that will prevent the US system from reaching
14:50
Speaker 5: minimum operational levels later this summer.
14:54
Speaker 3: Which means what for you and me?
14:56
Speaker 2: Right Like, I want to just purely understand this, because
14:59
Speaker 2: I there's visions in some people's minds of the nineteen
15:02
Speaker 2: seventies gas lines, and I'm not sure.
15:04
Speaker 5: That's parts of the United States will have that California
15:07
Speaker 5: will not have enough fuel because they have to import
15:10
Speaker 5: a bunch from either Asia or the Middle East and
15:13
Speaker 5: there is no surplus there like there's a decent chance
15:17
Speaker 5: California has fuel shortages this year.
15:20
Speaker 3: That'd be so wild to think about.
15:22
Speaker 5: The rest of the country. Where you are probably heading
15:27
Speaker 5: is towards energy prices that are again I don't know
15:32
Speaker 5: exactly where, like no one does, because we've never had
15:36
Speaker 5: this happen before. I wish we could get through one
15:38
Speaker 5: year without saying that, but we haven't had one of
15:42
Speaker 5: those normal years since like twenty nineteen.
15:44
Speaker 3: So it is what it is.
15:47
Speaker 5: But where you're heading again, I know this sounds crazy,
15:52
Speaker 5: and again I hope that we can all just laugh
15:53
Speaker 5: and be like, oh, like Chuck was wrong, hah, like that,
15:55
Speaker 5: It's fine.
15:56
Speaker 3: I'll happily be wrong.
15:58
Speaker 5: I think there's a realistic ants that you see gas
16:01
Speaker 5: by the end of the summer somewhere in the six
16:03
Speaker 5: to eight dollars a gallon range, likes, that's potentially where
16:09
Speaker 5: you are heading now. Because here's how this works. Actually,
16:13
Speaker 5: when you get down to those minimum operational levels and
16:16
Speaker 5: even just before then, remember that you can't sell those
16:19
Speaker 5: barrels that you need in order to keep line filling
16:22
Speaker 5: pipelines and things like that. Those need to be there.
16:25
Speaker 5: So if you keep prices where they are, then you
16:29
Speaker 5: have more bidders who come in and say, yep, I'm
16:31
Speaker 5: willing to pay this because I've got no oil. I
16:33
Speaker 5: need to buy up that crude and I need to
16:35
Speaker 5: buy up that product. Well, then you can't deliver all
16:39
Speaker 5: of the barrels that they want at that price because
16:42
Speaker 5: those barrels don't exist. So what has to happen is
16:46
Speaker 5: you have to get to the point where prices rise
16:49
Speaker 5: such that those buyers, whether for crude or for finished products,
16:53
Speaker 5: say no, that's just too expensive. I just can't do it.
16:57
Speaker 5: And it's no different from anything else than anyone buys. Mike,
17:00
Speaker 5: if if I could offer Americans a car for six dollars,
17:05
Speaker 5: I would sell a ton of cars.
17:06
Speaker 3: Right, if you could produce any of them. Yeah, but
17:09
Speaker 3: but there's a.
17:09
Speaker 5: Way smaller demand at you know, an average price of
17:13
Speaker 5: forty eight thousand, and so we sell about fifteen million
17:15
Speaker 5: vehicles a year instead of three hundred million at six
17:18
Speaker 5: dollars a car. Sure, it's the same thing with oil.
17:22
Speaker 5: I can sell you know, X million, twenty million barrels
17:26
Speaker 5: a day of you know, product at prices of you know,
17:29
Speaker 5: one hundred and fifty a barrel. When you're talking, you know,
17:32
Speaker 5: finished product and this and that. If that price rises
17:35
Speaker 5: to two twenty five, hey, there are buyers who are
17:38
Speaker 5: gonna say, no, I can't do that, it doesn't make sense,
17:42
Speaker 5: and so demand comes down. That's what we call, you know,
17:44
Speaker 5: demand destruction. So ultimately the US, I don't think we'll
17:49
Speaker 5: see shortages throughout most of it, because we produce a
17:53
Speaker 5: lot of oil and a lot of refined product. But
17:56
Speaker 5: when you do get to the point where these you know,
17:58
Speaker 5: stockpiles are exhausted, you're talking about needing price to rise
18:04
Speaker 5: in order to meet that. And again you're probably talking
18:09
Speaker 5: somewhere in the range of another thirty to sixty percent
18:14
Speaker 5: in pricing, which means you could potentially get in that
18:16
Speaker 5: sixty eight dollars range if and when this happens.
18:21
Speaker 2: Yeah, so I look raise against time to get the
18:24
Speaker 2: straight open. But a lot of this is kind of
18:27
Speaker 2: already done, and as we're seeing out that I don't know,
18:31
Speaker 2: it seems hard to believe, based on where we are today,
18:36
Speaker 2: that traffic returns to normal by the next forty five days.
18:41
Speaker 2: And if it doesn't, it does feel like a pretty
18:46
Speaker 2: high likelihood that we go in the direction that you're describing.
18:49
Speaker 2: So yeah, it is one of those things you hope
18:52
Speaker 2: you're wrong on because it would be tremendously destructive to
18:56
Speaker 2: the American household and life threatening. Another part to the
19:00
Speaker 2: world is the really scary part.
19:02
Speaker 3: Yeah.
19:02
Speaker 5: I mean, look, I think the vast majority of Asia
19:08
Speaker 5: is already feeling this right now, and it's only going
19:12
Speaker 5: to get worse over the next month or so. Europe
19:15
Speaker 5: is about a month or so behind that. We're a couple,
19:17
Speaker 5: We're about another month or so behind. So it's this
19:22
Speaker 5: thing that's just moving from east to west, and this
19:24
Speaker 5: is where we're going. Take a quick break here. When
19:27
Speaker 5: we come back, We've got Wall Street Watch next.
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Speaker 1: Exchange Radio Network.
20:00
Speaker 6: Markets are selling off as Wall Street pumps the brakes
20:03
Speaker 6: on the recent tech rally, with several chip makers including Nvidia,
20:07
Speaker 6: AMD and Intel seeing losses. Sentimentals also lower after the
20:12
Speaker 6: summit between President Trump and Chinese President g yielded no
20:15
Speaker 6: major policy developments. Right now, the Dow is down seven
20:18
Speaker 6: tenths of a percent, SMP five hundred down about nine
20:21
Speaker 6: tenths of a percent, NASDAK selling off one and a
20:25
Speaker 6: quarter percent, or three hundred and thirty points, RUSSED two
20:28
Speaker 6: thousand down nearly two percent. Tenure Treasure realed up ten
20:32
Speaker 6: basis points at four point five six six percent, and
20:35
Speaker 6: Oil up nearly three percent higher, trading at one hundred
20:38
Speaker 6: and four dollars a barrel, well after its NASDAK debut yesterday.
20:42
Speaker 6: Shares and chip maker Sarah Bras down by four percent today. Yesterday,
20:47
Speaker 6: the stock served sixty eight percent to close at three
20:51
Speaker 6: hundred and eleven dollars a share after it opened at
20:53
Speaker 6: one hundred and eighty five dollars a share in its IPO,
20:57
Speaker 6: valuing the chip maker at about ninety five billion dollars.
21:00
Speaker 6: Is more on Sarah Bras, with Chuck and Mike coming
21:03
Speaker 6: up here. Meanwhile, shares and Applyed Materials down by two
21:06
Speaker 6: percent despite the semiconductor equipment maker beating second quarter expectations
21:11
Speaker 6: on the top and bottom lines. The company also said
21:14
Speaker 6: it expects stronger sales this year than it previously forecasted
21:18
Speaker 6: as it continues to see strong demand for AI computing
21:21
Speaker 6: and Starbucks announced another round of corporate layoffs this morning,
21:25
Speaker 6: about three hundred in the US. This marks the coffee
21:29
Speaker 6: chain's third round of layoffs since CEO Brian Nickel took over.
21:34
Speaker 6: Starbucks stock is up by two percent. I'm Tucker Silva
21:38
Speaker 6: and that is Wall Street Watch mikeus.
21:40
Speaker 5: Tucker mentioned yesterday we got the big old Sarah bras Ipo.
21:46
Speaker 5: They raised about five and a half billion dollars. The
21:50
Speaker 5: market cap is now around sixty seven billion dollars, which
21:55
Speaker 5: you know, again for a company that again no one
21:58
Speaker 5: had even really heard of a year and a half
22:00
Speaker 5: or two years ago, this is pretty wild. And if
22:04
Speaker 5: you're not familiar with what they do, you're not alone.
22:06
Speaker 5: But there they are a company that makes semiconductors, specifically
22:11
Speaker 5: processors for inference in AI usage. And I think, look,
22:17
Speaker 5: the more competition that you can get in this space,
22:20
Speaker 5: the more it's gonna end up driving costs down and
22:22
Speaker 5: producing you know, better outcomes. Overall, it certainly is you know,
22:28
Speaker 5: crazily priced when you look at the actual you know,
22:30
Speaker 5: either revenue or profit of the company. But look again,
22:38
Speaker 5: this is a company that did one hundred and seventy
22:40
Speaker 5: one million dollars in revenue in the last quarter, and
22:43
Speaker 5: that was valued at sixty seven billion dollars. So, you know,
22:46
Speaker 5: price to sales is steep, price to earnings you know,
22:49
Speaker 5: obviously even steeper given that they're not profitable. But this
22:53
Speaker 5: is I still think a good thing in that. Hey,
22:57
Speaker 5: you want more competition in this space. It is going
23:00
Speaker 5: to help deal with the crazy level of demand that
23:03
Speaker 5: you have right now for these products.
23:05
Speaker 3: Yeah, look, I welcome the competition.
23:08
Speaker 2: I'll also note that nobody had really heard of Nvidia
23:10
Speaker 2: than gamers until the last what do you think five
23:14
Speaker 2: years I'd say mid twenty tens, Like people started to
23:18
Speaker 2: pick them up. They were more of a play on
23:19
Speaker 2: like either you know, autonomous driving Bash then as well
23:24
Speaker 2: as cryptocurrency mining. So you know, they were starting to
23:27
Speaker 2: get some play in twenty fifteen sixteen. But before that, yeah,
23:30
Speaker 2: I mean, look, they made graphics cards for computers's you know,
23:33
Speaker 2: that's what they did. The closing price on this company
23:37
Speaker 2: on Thursday values at around one hundred and thirty four
23:39
Speaker 2: times its revenue.
23:41
Speaker 3: For the past four quarters.
23:42
Speaker 2: That's backwards looking just to put that in context, it's
23:46
Speaker 2: about five times in video is multiple on the same metrics.
23:49
Speaker 2: So that's just a little bit of context for you.
23:51
Speaker 2: I'd also there's this Wall Street Journal piece today, the
23:54
Speaker 2: blockbuster Cebus IPO is a huge bet on Nvidia fatigue.
23:59
Speaker 3: Not sure it. I mean maybe over the long term
24:00
Speaker 3: it is.
24:01
Speaker 2: But you know, up until today, when you know in
24:04
Speaker 2: video is moving down as a Sarah rest today, but
24:07
Speaker 2: this week in Vidia moved up ten percent the day
24:11
Speaker 2: of the IPO, in Vidio moved up four percent. I'm
24:14
Speaker 2: not sure I can look at this and say, oh, yeah,
24:16
Speaker 2: this is investors jumping ship from Nvidia and buying this
24:21
Speaker 2: other company.
24:22
Speaker 3: It seems to be more.
24:24
Speaker 2: The uh exuberance for any company in the space that
24:29
Speaker 2: has a path to supporting the AI industry, regardless of
24:33
Speaker 2: their That piece is more concerning to me than it
24:36
Speaker 2: would be if investors were being nuanced and saying, hey,
24:40
Speaker 2: I'm taking some profits from this chip company and deploying
24:44
Speaker 2: it with this other chip company.
24:47
Speaker 5: Now, the question that you always do wonder about with
24:50
Speaker 5: you know, any IPO that UH is you know notable,
24:55
Speaker 5: is this marking you know, a local top for that
24:58
Speaker 5: particular industry. We saw this a bunch back in twenty
25:01
Speaker 5: one and twenty two. Uh, you know whether you're talking
25:04
Speaker 5: you know, oh, Robin Hood's going public and that was
25:06
Speaker 5: kind of the short term top for you know, meme
25:08
Speaker 5: stocks and crypto and stuff like that. We've seen it
25:12
Speaker 5: in other cases as well, where that happens.
25:15
Speaker 3: And so you do look.
25:16
Speaker 5: At this and you say, hey, is this something that
25:19
Speaker 5: represents you know, maybe a short term top in semiconductors.
25:23
Speaker 5: It does seem like there's enough you know, demand out
25:25
Speaker 5: there that, Hey, even if there's some wobbles after a
25:28
Speaker 5: crazy you know, seventy percent monthly you know, month and
25:31
Speaker 5: a half run that semiconductor stocks have taken, Hey, you
25:34
Speaker 5: can you know, after you know, consolidating and maybe a
25:37
Speaker 5: little pullback, there's probably you know, there's.
25:39
Speaker 3: Potentially still upside there.
25:41
Speaker 5: But you do look at this and say, hey, is
25:45
Speaker 5: this something that indicates maybe we're getting close to you know,
25:49
Speaker 5: a short term top when it comes to semiconductors.
25:53
Speaker 2: Yeah, Well, I think we'll have a few more tests
25:55
Speaker 2: this year in all likelihood, because I don't believe that
25:58
Speaker 2: Sarah Bross will be the last to AI related or
26:04
Speaker 2: the last company that claims to be AI related to
26:07
Speaker 2: go public this year.
26:08
Speaker 3: We have a few that are on the list and it's.
26:11
Speaker 2: Not definitive that they'll be able to go public, but
26:14
Speaker 2: this one, you know, however, it turns out the IPO
26:17
Speaker 2: itself pretty darn well timed. Again, you know, this company
26:20
Speaker 2: priced their IPO in the low hundreds range initially, by
26:23
Speaker 2: the time they made it through underwriting, they upped it
26:25
Speaker 2: to one hundred and eighty was one hundred and eighty
26:27
Speaker 2: five or sixty five a share? He dropped off, I
26:31
Speaker 2: think it was one hundred and eighty five, and by
26:33
Speaker 2: the time it was trading was up near the high
26:36
Speaker 2: three hundreds. And so clearly a lot of excitement about
26:40
Speaker 2: this one. But we have SpaceX that's talking about an
26:43
Speaker 2: IPO of two trillion dollars this year, We have open
26:47
Speaker 2: AI that wants to go public. We have Anthropic that
26:50
Speaker 2: wants to go public. So there will be likely more
26:52
Speaker 2: tests as to what the appetite is for these lower
26:59
Speaker 2: no profit and AI related growth stories throughout the rest
27:02
Speaker 2: of this year.
27:03
Speaker 5: Chuck, Yeah, And again I think the big We've had
27:08
Speaker 5: a few tests in that AI space over the last
27:11
Speaker 5: couple of years, and each time it's been you know,
27:14
Speaker 5: kind of a three to six month pause, and then
27:16
Speaker 5: you see that next catalyst and they're able to take
27:18
Speaker 5: that next leg up. So we'll see if that's the
27:21
Speaker 5: case here when it relates to semiconductors. The big thing
27:25
Speaker 5: that I think is still an open question, you know
27:28
Speaker 5: at this point is for all those hyperscalers. Yes, they've
27:31
Speaker 5: bounced off their late March bottoms just like everything has.
27:35
Speaker 5: But you know, you take a look at Microsoft stock,
27:37
Speaker 5: it still is twenty percent off its highs from last year.
27:42
Speaker 5: You take a look at MetaStock and it is still
27:47
Speaker 5: twenty percent off its highs from last year. The only
27:51
Speaker 5: one of of the big guys that's been able to
27:52
Speaker 5: make headway has been Google or Alphabet whatever you want
27:55
Speaker 5: to call it. And that's partly because they are on
27:59
Speaker 5: the set conductor side too, with their Googles got was
28:03
Speaker 5: it the tranium set of chips or is it the TPUs?
28:06
Speaker 3: Google's the TPUs that they have.
28:09
Speaker 5: So they've got some things that they're doing on that
28:12
Speaker 5: side as well. But otherwise, you know, the big hyper
28:16
Speaker 5: scalers are are not necessarily.
28:18
Speaker 3: In a great spot.
28:19
Speaker 5: I mean, Oracle is still you know, forty percent off
28:21
Speaker 5: of where it was. Amazon, let's see where are you
28:25
Speaker 5: hanging out? Amazon's bumped, But again Amazon different business also,
28:30
Speaker 5: and they've got their tranium chips again, they're on the
28:32
Speaker 5: semiconductor side too. So I think that the jury is
28:36
Speaker 5: still out on whether the actual model makers are going
28:40
Speaker 5: to be able to figure this out. But the companies
28:44
Speaker 5: that they're buying the hard product from, Yeah, there's been
28:47
Speaker 5: no questions there yet.
28:49
Speaker 3: Yeah, let's see. Let's take a quick break.
28:52
Speaker 5: When we return, let's dig in more on the SpaceX IPO.
28:56
Speaker 5: We're expecting to get some information next week. We'll talk
28:59
Speaker 5: to you about what is coming next.
29:03
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30:11
Speaker 3: Mike.
30:12
Speaker 5: We're probably somewhere in the range of three to six
30:14
Speaker 5: weeks away from the SpaceX IPO. I believe we're scheduled
30:18
Speaker 5: to potentially get the prospectus for it within the next
30:24
Speaker 5: week or so. A lot of excitement building towards this puppy.
30:27
Speaker 2: We're talking about a two trillion dollar company and a
30:31
Speaker 2: two trillion dollar attempt for their IPO. And you know, frankly, weah,
30:38
Speaker 2: there are a lot of potentially big name IPOs this year.
30:41
Speaker 2: If you were to see Anthropic and Open Ai also
30:46
Speaker 2: go public this year, you're potentially talking about five trillion.
30:49
Speaker 3: Dollars of IPOs.
30:51
Speaker 2: What's the most SpaceX has to be the most brand
30:54
Speaker 2: recognizable of those three, right, I.
30:58
Speaker 3: Don't know, they're all pretty like recognizable at this point. Yeah,
31:01
Speaker 3: you know, it's yeah, people might not use all of them.
31:04
Speaker 5: I mean, none of us use SpaceX really, I guess
31:07
Speaker 5: like the starlink users, you could say do, but you know,
31:09
Speaker 5: none of us are riding in the rockets or anything
31:11
Speaker 5: like that.
31:12
Speaker 3: Saw one of their rockets launch ones that was pretty cool,
31:14
Speaker 3: did you.
31:15
Speaker 5: Yeah, I gotta tell you, like, rocket launches are amazing.
31:20
Speaker 2: It was a funny event because none of us knew
31:22
Speaker 2: that it was happening, and we were prett far away
31:24
Speaker 2: from it, and all of a sudden just saw this
31:26
Speaker 2: light streaking across the sky from very low and thought
31:30
Speaker 2: we all might be, you know, on the verge of
31:32
Speaker 2: dying or something like that, but we were.
31:34
Speaker 3: But you lived. Yeah.
31:35
Speaker 2: Turned out we just looked it up and said, oh, yeah,
31:37
Speaker 2: there's a SpaceX launch this evening.
31:39
Speaker 3: It's good.
31:40
Speaker 5: Uh So, I think, look, here's the thing about SpaceX,
31:45
Speaker 5: and when we get all of the numbers in the
31:48
Speaker 5: next week or two, we're going to look at them
31:50
Speaker 5: and say, wow, that valuation is crazy, it doesn't make
31:52
Speaker 5: any sense.
31:53
Speaker 3: Blah blah blah.
31:54
Speaker 5: We know this like this is this We're not gonna
31:58
Speaker 5: be you know, we're not gonna wake up next week
32:00
Speaker 5: and say, hey, this is a you know, two trillion
32:03
Speaker 5: dollar company that's doing a trillion in revenue.
32:05
Speaker 3: What a value stock.
32:06
Speaker 5: Yeah, So, like, let's let's save the chatter about oh,
32:11
Speaker 5: this is value too steeply blah blah blah, because quite honestly,
32:14
Speaker 5: there's another Elon Musk company with the name Tesla that's
32:17
Speaker 5: been crazily valued for the last decade or so and
32:21
Speaker 5: it still is. And like, despite the fact that Tesla
32:26
Speaker 5: pretty much isn't growing anymore, it hasn't changed anything for
32:31
Speaker 5: the company. I mean, Tesla's revenue has been right around
32:34
Speaker 5: one hundred billion dollars a year for the last three
32:39
Speaker 5: years right now. It's still valued at one point six
32:42
Speaker 5: trillion today, right, you know, it's it's it hasn't been
32:48
Speaker 5: an impediment because there is this Elon Musk premium for
32:52
Speaker 5: his companies. It does represent I think you can make
32:55
Speaker 5: a case for both of these probably the greatest key
32:59
Speaker 5: man risk in history. Unlike, Like, let me ask you this, Mike,
33:04
Speaker 5: because we're going through a transition at Apple right now
33:07
Speaker 5: where Tim Cook is stepping down and what's the name
33:11
Speaker 5: of the guy taking over John something. No, that's that's
33:17
Speaker 5: a Jacure.
33:18
Speaker 3: Oh sorry, you're right, No, I don't remember it's.
33:21
Speaker 5: John, thank you, You're welcome. Has apple Stock moved it
33:26
Speaker 5: all as a result of this? Really, because like people
33:30
Speaker 5: will get Tim Cook and yes, he's a good operator,
33:32
Speaker 5: like we understand that, But the Apple ecosystem exists not
33:37
Speaker 5: because of a Tim Cook, you know premium. You can
33:41
Speaker 5: make a case maybe there's a Steve Jobs premium back
33:43
Speaker 5: in the day, but Tim Cook proved, okay, like you
33:45
Speaker 5: don't really need that.
33:46
Speaker 3: Ultimately, what you are paying for when you.
33:48
Speaker 5: Buy Apple Stock is the fact that they're the rare
33:50
Speaker 5: hardware manufacturer that still maintains forty percent margins.
33:54
Speaker 3: That's the deal with Tesla.
33:57
Speaker 5: Like if if On Musk got hit by a falling
34:02
Speaker 5: piece of SpaceX rocket tomorrow and no longer could be
34:06
Speaker 5: the CEO, what happens the Tesla stock?
34:10
Speaker 3: I don't know.
34:10
Speaker 2: Yeah, it is a fascinating argument to make because he
34:14
Speaker 2: is just he is the type of person who will
34:20
Speaker 2: not relinquish that type of control the way that other CEOs.
34:23
Speaker 3: Have chosen to do so.
34:25
Speaker 2: And look, we have plenty of you know history here
34:28
Speaker 2: of CEOs that attempted to relinquish control and are incapable
34:31
Speaker 2: of doing it, and their stocks suffered, But none of
34:35
Speaker 2: your Yeah, Iiger.
34:38
Speaker 3: Howard Scheltz.
34:39
Speaker 2: Yeah, I mean plenty of history there of CEOs that
34:42
Speaker 2: are bad at relinquishing control and then you know, fight
34:45
Speaker 2: with the newly chosen CEO and end up back.
34:47
Speaker 3: In the position.
34:50
Speaker 2: But none of it is so integral to the stock
34:52
Speaker 2: price as arguably Tesla.
34:56
Speaker 3: Yeah, it's there's there's nothing else that's even close.
34:58
Speaker 2: I mean, heck even Burke. I mean clearly, my mind
35:00
Speaker 2: was on Berkshire Hathaway earlier. Yeah, had the most famous
35:05
Speaker 2: investor in the world retire who had been leading the
35:08
Speaker 2: company for what half a century? And yeah, crickets nothing.
35:14
Speaker 5: We will need to see how things go there a
35:16
Speaker 5: great Yeah, but there wasn't an immediate selloff. No, But
35:21
Speaker 5: part of it's because these companies are not valued crazily
35:23
Speaker 5: like that. Yeah, you look at Berkshire Hathaway just as
35:28
Speaker 5: Berkshire is a tough example because it's a financial company.
35:30
Speaker 5: So the metrics are all you know, nutty. But let's
35:32
Speaker 5: take a look at Apple just as an example. And Apple,
35:37
Speaker 5: even if you wanted to believe that there is a
35:39
Speaker 5: Tim Cook premium, Okay, so that's good for a forward
35:43
Speaker 5: pe ratio of thirty four, which again is you know, steep.
35:47
Speaker 5: But remember, like Apple's basically been valued this way for
35:51
Speaker 5: a while now, Like that's a market feature, not you know,
35:55
Speaker 5: it's not an Apple feature that the companies like this
35:58
Speaker 5: are getting these kinds of multiples. Apple's basically been in
36:01
Speaker 5: the thirties for the last you know, six years, ever
36:03
Speaker 5: since the pandemic. So I think that you look at
36:07
Speaker 5: you know, Tesla, on the other hand, and you say, oh, like, yeah,
36:12
Speaker 5: this is a company that's valued sixteen times sales, not earnings,
36:17
Speaker 5: but sales. It's valued two hundred and eight times forward
36:21
Speaker 5: earnings and three hundred and eighty nine times you know,
36:25
Speaker 5: trailing earnings. What what what gives you know, Like, if
36:30
Speaker 5: Elon Musk is not running that company, how do you
36:32
Speaker 5: command that multiple?
36:33
Speaker 3: Right you? You don't quite honestly, like you won't.
36:39
Speaker 5: But again, I'm saying this because the fact that SpaceX
36:43
Speaker 5: is going to have this crazy valuation doesn't mean it's
36:47
Speaker 5: good or bad. Sometimes, like Elon Musk, companies can carry
36:51
Speaker 5: these crazy valuations for a long time without running into problems.
36:56
Speaker 5: They also might eventually run into issues if the business
36:59
Speaker 5: you know, fundamentally unprofitable and they can't make it work.
37:02
Speaker 5: But that's a separate issue from Hey, this company is
37:05
Speaker 5: profitable but just has a crazy valuation.
37:08
Speaker 3: Well okay, like, if if.
37:10
Speaker 5: You want to put your money where your mouth is,
37:12
Speaker 5: then you can bet against either of these in the market.
37:14
Speaker 3: Yeah, I mean, I've had it to your point.
37:16
Speaker 2: There's a reason that X hasn't been a miraculous turnaround story.
37:20
Speaker 3: And gone public won't curt with every one of them.
37:24
Speaker 5: Well, is X technically going to be in space X
37:28
Speaker 5: because XAI is was X part of XAI?
37:31
Speaker 2: Now, oh, is Twitter slash X part of space We'll
37:38
Speaker 2: find out.
37:38
Speaker 3: In the perspectus, I.
37:39
Speaker 5: Can't even remember, like how many different you know, machinations
37:42
Speaker 5: have move things around there on that side.
37:45
Speaker 2: So, yeah, you know what, based on reports from earlier
37:49
Speaker 2: this year, I'm seeing some indication. I would say, let's
37:54
Speaker 2: wait on the perspectus because it's not entirely clear, but yeah,
37:57
Speaker 2: there's been mentioned of lumping it into this thing.
38:00
Speaker 3: Just take a quick break.
38:01
Speaker 5: We got our two coming up in just a little bit,
38:05
Speaker 5: so make sure you stick around a whole bunch of
38:07
Speaker 5: good stuff.
38:08
Speaker 3: Next