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June Hiring Slows as Fed Rate Hike Bets Ease · The Financial Exchange Show

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Speaker 1: making a donation. Today is the Financial Exchange with Mike
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Speaker 1: Armstrong and Mark Vandetti.
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Speaker 3: Good Morning, Happy Thursday, that feels like a Friday Here
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Speaker 3: on the Financial Exchange ahead of the two hundred and
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Speaker 3: fiftieth July fourth holiday. It's Mike Mark and been with
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Speaker 3: you here on Thursday. It's a aday that ends in
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Speaker 3: why so we'll have some AI updates for you in
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Speaker 3: terms of, you know, who's betting on it, who's betting
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Speaker 3: against it, what's meta pivoting to this time, We've got
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Speaker 3: some interesting statistics on the biggest area of growth for
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Speaker 3: divorce attorneys and their clients. And before we get to
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Speaker 3: any of that, though I said it feels like a Friday.
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Speaker 4: Part of the reason why.
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Speaker 3: Is it's the June Jobs report, which usually comes out
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Speaker 3: on the first Friday of the month. We got it
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Speaker 3: a day early instead of a week late here, and
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Speaker 3: we're going to start by jumping right in here, Mark.
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Speaker 3: So markets are moving up after the eight thirty am
1:59
Speaker 3: release of this report. We've got a Joltz report on
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Speaker 3: Tuesday of this week, and people have been looking at
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Speaker 3: this one a little bit less closely than the overall
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Speaker 3: inflation report, which is what's been driving concern at the Fed.
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Speaker 3: But you know, wages and job growth can cause inflation.
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Speaker 3: And part of the read today is that markets are
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Speaker 3: up because we got a worse than anticipated jobs report,
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Speaker 3: So let's dive right in. Their expectations were for job
2:26
Speaker 3: creation in the one hundred to hundred and fifty thousand range.
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Speaker 3: We came in well below that. Unemployment rate actually declined
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Speaker 3: to four point two percent. So help me square these things.
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Speaker 3: What did we actually land at for job creation and
2:38
Speaker 3: unemployment here?
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Speaker 5: Well, those two, the job creation and the unemployment members,
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Speaker 5: as you know, come from different surveys. So households reported
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Speaker 5: more people leaving the labor force about seven hundred thousand,
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Speaker 5: than were separated from their jobs about five hundred thousand.
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Speaker 5: As a result, the unemployment rate went down. So it
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Speaker 5: didn't go down because more people found work. It went
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Speaker 5: down because more people actually left the labor force, maybe
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Speaker 5: because they were retired or for other reasons, then lost
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Speaker 5: their jobskp. That's why the headline you read will say
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Speaker 5: the unemployment rate fell. At the same time, in a
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Speaker 5: different survey, businesses reported hiring fewer people than the previous
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Speaker 5: couple of months, indeed than the average year to date
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Speaker 5: so far fifty seven thousand versus a downwardly revised hundred
3:26
Speaker 5: and what is it twenty nine thousand a month before
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Speaker 5: one hundred and forty some odd thousand a month before that.
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Speaker 3: I'm guessing that brings the average for the year down
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Speaker 3: to around one hundred thousand jobs created per month so far.
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Speaker 3: We'll get an updated average there, but somewhere in that
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Speaker 3: general range. And to the headline point there, Yeah, we
3:42
Speaker 3: saw job creation at only fifty seven thousand, which you
3:46
Speaker 3: can take one of two ways.
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Speaker 4: It's still job.
3:48
Speaker 3: Creation, net net, you're still adding jobs to this economy.
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Speaker 3: To excuse me, yesterday ninety two, so close to one
3:53
Speaker 3: hundred thousand. We're not quite breaching that six six figure
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Speaker 3: number anymore. So I think a mark slowdown for the
4:01
Speaker 3: month of June that was in spite a report, in
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Speaker 3: spite of a report I saw, I think from Morgan
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Speaker 3: Stanley estimating that the World Cup probably added a good
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Speaker 3: fifty thousand jobs in the month of June. We'll see
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Speaker 3: if that plays out in the non seasonally adjusted data
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Speaker 3: in future surveys.
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Speaker 4: Sorry what we're gonna say, no, thank you, So we
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Speaker 4: will see how all this plays out.
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Speaker 3: But I think the key headline that investors are latching
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Speaker 3: onto to me seems to be the weaker job creation number.
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Speaker 3: I don't think they've been all that focused on this
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Speaker 3: slight change in unemployment here. As you mentioned, it had
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Speaker 3: to do with people dropping out of the labor force.
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Speaker 3: Though I will point out that the FED cares what
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Speaker 3: they do care about, at least what Powell was stating
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Speaker 3: they cared most about was that.
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Speaker 4: Unemployment rate figure. And you know how tight the labor market.
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Speaker 3: Is, and whether the labor market tightens because of really
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Speaker 3: robust hiring or people leaving the labor force and not
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Speaker 3: coming back, both can be inflationary. But nonetheless, this report
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Speaker 3: being seen I think by investors and grain of salt
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Speaker 3: here because other than Mark and I, there's not a
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Speaker 3: whole lot of investors that are paying attention to the
5:06
Speaker 3: news today. It's the day before the July fourth holiday,
5:11
Speaker 3: and you do not have a ton of likely big
5:16
Speaker 3: bets being made on Wall Street this morning.
5:18
Speaker 4: But today the odds of a rate hike.
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Speaker 3: At the next meeting are sitting at just shy of
5:25
Speaker 3: twenty percent, and they were closer to thirty percent just
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Speaker 3: a week ago. And so you have had this slight
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Speaker 3: shift in expectations now for what the Fed is going
5:34
Speaker 3: to do on the heels of this employment report.
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Speaker 5: Yeah, it gives the Fed less room to maneuver. It
5:41
Speaker 5: also helps the FED. Those two things sound contradictory. What
5:44
Speaker 5: I mean is if the labor market is running at
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Speaker 5: a lower pressure than previously thought, let's take these numbers
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Speaker 5: at face value, even though, as you pointed out, they're
5:53
Speaker 5: going to be revised. We could have a very different
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Speaker 5: impression of the complexion the state of the labor market
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Speaker 5: a month from now, of course, yet next month. So
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Speaker 5: but this looks like a slowdown taking it face value, Yeah,
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Speaker 5: and I.
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Speaker 3: Think it importantly, it looks like a slow down in
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Speaker 3: pay roll, not only because we got a weak report
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Speaker 3: on jobs created, but to your point, the revisions for
6:13
Speaker 3: the last two months were fairly significant. We wiped out
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Speaker 3: seventy some odd thousand jobs from our understanding of the
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Speaker 3: labor force just a day ago, so that is somewhat
6:24
Speaker 3: significant in terms of revisions.
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Speaker 5: So if you're worried about the labor market running hot
6:28
Speaker 5: prior to this month, you're probably a little less worried
6:30
Speaker 5: about that this morning, which takes a little bit of
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Speaker 5: pressure off the FED. Because the FED in the long
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Speaker 5: term is in control of of course interest rates, indirectly demand,
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Speaker 5: and further indirectly, the amount of slack in the labor market.
6:46
Speaker 5: And on top of that, as Warsh pointed out yesterday,
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Speaker 5: oil price is falling. All lsequel is disinflationary.
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Speaker 6: YEP.
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Speaker 5: That's why I assume the market is rallying today. Less
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Speaker 5: we're worried about federal reserve rate hikes as reflected in
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Speaker 5: the CME data in the months to come.
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Speaker 3: Other pieces here that we keep an eye on. The
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Speaker 3: Tuesday Jolt report indicated that there were a total of
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Speaker 3: seven point six million job openings posted at the end
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Speaker 3: of May. As of this report, there were seven point
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Speaker 3: one million unemployed people.
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Speaker 4: So we've been tracking that statistic over time.
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Speaker 3: It's been hovering around a match in the you know,
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Speaker 3: demand for labor versus supply of labor for a few
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Speaker 3: years now. That's compared to back in twenty one and
7:31
Speaker 3: twenty twenty two when there were nearly two jobs open
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Speaker 3: for every unemployed person looking for work.
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Speaker 4: So we've reached some degree of balance there.
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Speaker 3: I don't think a slight difference in that ratio is
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Speaker 3: much of an indicator of inflation. Like I said, slightly
7:45
Speaker 3: more job openings than there are unemployed people looking for work.
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Speaker 3: The unemployment rate did not really shift around for young
7:54
Speaker 3: people or or you know, any really demographic group that
7:59
Speaker 3: I can see here. It's been pretty consistent on that front.
8:04
Speaker 3: We'll take a look at that youth unemployment ray. We've
8:06
Speaker 3: been talking a lot about that as people have been
8:08
Speaker 3: struggling apparently struggling to find jobs in specific areas of
8:12
Speaker 3: labor market, but not really seeing it picked up in
8:15
Speaker 3: the data those fifty seven thousand jobs that were created
8:19
Speaker 3: for the month of June. Again, we'll see how these
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Speaker 3: things get revised. But professional and business services the biggest
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Speaker 3: category adding thirty six k, Social assistance and healthcare continuing
8:33
Speaker 3: to be robust. Leisure and hospitality interestingly declining by.
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Speaker 4: Sixty one thousand in June. And I would think that
8:39
Speaker 4: if you're.
8:40
Speaker 3: Working for a World Cup you would be categorized in
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Speaker 3: that group. So again, i'll be interested to see how
8:47
Speaker 3: this stuff gets revised over the next couple of months.
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Speaker 3: But the key message for this week's sorry, this month's
8:53
Speaker 3: jobs report for June was weaker than anticipated, in pretty
8:58
Speaker 3: significant revisions downward on the state of the labor market.
9:02
Speaker 3: That all that haven't been said. Even with these downward
9:06
Speaker 3: revisions you mentioned, we're running at a pace of what
9:08
Speaker 3: is it ninety two thousand a month for the first
9:10
Speaker 3: six months of the year. That's roughly ten x what
9:14
Speaker 3: we created for the full.
9:16
Speaker 4: Last year was terrible.
9:18
Speaker 5: Market hit a wall. Inexplicably, we went from one point, well,
9:20
Speaker 5: not inexplicably. Tariff chaos was part of the U was
9:24
Speaker 5: part of the story there. I know that because business
9:26
Speaker 5: is said, we're not hiring because we have no idea
9:28
Speaker 5: what our profit margin is going to because we don't
9:30
Speaker 5: know what our input costs are going to be. That's
9:32
Speaker 5: the flip side of tariffs. You think, oh, great, protect
9:34
Speaker 5: domestic man. I don't want to get on a tariff
9:36
Speaker 5: rant here, but yeah, you think you think, well, let's
9:39
Speaker 5: protect it. Yeah, I always do. Let's protect domestic manufacturers. Well,
9:43
Speaker 5: more than half of imports are bought by businesses that
9:46
Speaker 5: use them for their output. So you're reason you're really
9:49
Speaker 5: raising taxes on businesses you when you do it.
9:51
Speaker 4: So in any case, last year's like market, So my
9:53
Speaker 4: time is businesses.
9:54
Speaker 5: I just want to I'm not just dumping on the
9:56
Speaker 5: Trump economy here. I'm saying there is a clear cause
10:00
Speaker 5: aligne from cause to effect, and that is it's not
10:04
Speaker 5: clear statistically, but there's a good argument for it. So
10:07
Speaker 5: last year was really week doesn't even capture it. Under
10:10
Speaker 5: ten thousand jobs per.
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Speaker 3: Month, not recession, not net job elimination, but very weak
10:18
Speaker 3: job creators.
10:18
Speaker 5: Yeah, I mean, in retrospect, it's weird that GDP didn't
10:22
Speaker 5: contract more. But the AI Data Center investment frenzy, obviously,
10:28
Speaker 5: which was a continuation of twenty twenty three twenty twenty four,
10:32
Speaker 5: obviously bailed us out there. Those worries were tamped down
10:39
Speaker 5: by the first six months of the year. Today gives you.
10:43
Speaker 5: By that, I mean, job growth sort of recovered. Unemployment
10:45
Speaker 5: is historically very very low. Today you should just give you,
10:51
Speaker 5: I guess pause, and it again explains the market, you know,
10:55
Speaker 5: pause in the sense that well, maybe the labor market
10:57
Speaker 5: is is a little wobblier than we had hoped. That
11:00
Speaker 5: gives the FED less room for error. At the same time,
11:04
Speaker 5: it takes as I mentioned, this sounds paradoxical, but it's
11:07
Speaker 5: the case, it also takes a little bit of pressure
11:10
Speaker 5: off the FED, and that a slower, a less vigorous
11:14
Speaker 5: labor market should all lse equal translate into less inflationary pressure.
11:18
Speaker 5: Yet we saw wages increase by point three three or
11:22
Speaker 5: so percent month over month that's not as much as inflation.
11:26
Speaker 5: I guess we should mention probably.
11:28
Speaker 3: Year over year wages average average hourly earnings up about
11:31
Speaker 3: three and a half percent year of your inflation.
11:33
Speaker 5: Yeah, so workers are falling behind. But that's almost an
11:37
Speaker 5: aside from the Fed's point of view. I don't know, Mike,
11:40
Speaker 5: you could tell probably a little bit confused as to exactly,
11:43
Speaker 5: where as anybody sure should be.
11:45
Speaker 3: Yep, pretty much always when it comes to this, I
11:48
Speaker 3: think longer term, you know, describing the labor market that
11:51
Speaker 3: we've all experienced over the last few years. Back in
11:53
Speaker 3: twenty twenty three, we hit one of the lowest unemployment
11:57
Speaker 3: rates we've ever seen. It was down at three point
11:59
Speaker 3: four percent sent in April of twenty twenty three. We've slowly,
12:03
Speaker 3: over the last couple of years climbed all the way
12:05
Speaker 3: up to a peak back in November of the last
12:06
Speaker 3: year of four and a half percent, and we've been.
12:09
Speaker 4: Declining since then. I don't know if we will continue
12:11
Speaker 4: to decline.
12:11
Speaker 3: Maybe this is a blip on the radar, maybe it's
12:13
Speaker 3: temporary because of some massive data center construction.
12:16
Speaker 4: I don't know, but that has been.
12:17
Speaker 3: The longer term trend over the course of the last
12:20
Speaker 3: couple of years was a concerning rise in the unemployment
12:23
Speaker 3: rate that would normally be potentially indication of recession. We've
12:28
Speaker 3: talked about the sum rule and all these different indicators
12:31
Speaker 3: of the past. We hit them, we triggered them, we
12:33
Speaker 3: didn't get a recession. And now we've been seeing that
12:36
Speaker 3: unemployment rate decline for the first for the last six
12:39
Speaker 3: months or so, and we will see if that continues.
12:42
Speaker 3: Let's take a quick break when we come back onto
12:45
Speaker 3: some AI topics. We've got the Anthropic Fable band. That's over.
12:50
Speaker 3: What happened there? What's the news out of China? That's
12:52
Speaker 3: all next. On the Financial Exchange.
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13:31
Speaker 3: So a few months ago, Anthropic rolled out this new
13:36
Speaker 3: AI model called Mythos, and they actually didn't really roll
13:40
Speaker 3: it out to much of anybody because they deemed it
13:44
Speaker 3: so dangerous in terms of its ability to detect bugs
13:49
Speaker 3: in software, that they are worried about how it could
13:53
Speaker 3: be abused effectively, and they I think did not want well,
13:57
Speaker 3: if you want to take the generous interpretation, it would
13:59
Speaker 3: be they were concerned about, you know, society having some
14:03
Speaker 3: form of really difficult collapse due to access to critical software.
14:08
Speaker 3: If you want the less generous view, they didn't want
14:11
Speaker 3: to get sued for providing a tool that would allow
14:13
Speaker 3: everybody's bank accounts to get hacked.
14:15
Speaker 4: So take your pick.
14:18
Speaker 3: Instead, what they did is they, you know, they warned
14:20
Speaker 3: about how you know, significant this tool was. They rolled
14:23
Speaker 3: it out to a bunch of critical institutions that I'm
14:25
Speaker 3: guessing were determined to be critical by a combination of Anthropic, Treasury,
14:30
Speaker 3: FED and some others. And at the time we didn't
14:33
Speaker 3: really know what to make of it. Right In some ways,
14:35
Speaker 3: it seems self serving by Anthropic that, hey, you know,
14:39
Speaker 3: this tool is so powerful that we can't possibly release
14:41
Speaker 3: it to the public. It is a pretty good marketing campaign.
14:45
Speaker 3: It turned out it seemed to be quite powerful and
14:48
Speaker 3: look like with any two new technology, it's a double
14:52
Speaker 3: edged sword. It can be used for good, which would
14:55
Speaker 3: be deploying to a bunch of institutions that allow them
14:58
Speaker 3: to search for bugs in their code, repair that code,
15:02
Speaker 3: and make it so that bad actors can't access it.
15:05
Speaker 4: Yeah. I like that.
15:06
Speaker 3: It can also be used to detect bugs in code
15:08
Speaker 3: and gain access to systems and take down entire systems,
15:12
Speaker 3: you know, steal data, all sorts of fun things like that.
15:17
Speaker 3: They so that was out there for a few weeks,
15:21
Speaker 3: and then finally they came out with this product, Fable,
15:24
Speaker 3: and Fable was same thing as Mythos, but they built
15:28
Speaker 3: some guardrails around it that, you know, from what I understand,
15:33
Speaker 3: would simply kick you out of the model and kick
15:35
Speaker 3: you into a lower end model if you started asking
15:38
Speaker 3: questions or asking requests that you know, were deemed to
15:42
Speaker 3: be security risks, so hey, you know, build me code
15:46
Speaker 3: to infiltrate this website or help me design a chemical weapon,
15:50
Speaker 3: all of those things, you know, would kick you into
15:52
Speaker 3: another version of a different model if it detected that.
15:56
Speaker 3: Almost immediately the White House said, you know what, you
15:59
Speaker 3: cannot distribute this model to anyone, but well, you can't
16:02
Speaker 3: distribute to any foreign nationals, and Anthropic quickly said that
16:06
Speaker 3: we have no ability to do that, So we're just
16:08
Speaker 3: pulling it. Since then, what's happened is China released their No,
16:14
Speaker 3: not China, a lab based in China, released their own
16:18
Speaker 3: model that, according to experts, can do pretty much.
16:21
Speaker 4: Everything that Mythos can do.
16:23
Speaker 3: And because of China's open architecture, they don't you know,
16:28
Speaker 3: require subscriptions. They don't do anything other than release it
16:33
Speaker 3: to the general public, and so it's able to be tested,
16:36
Speaker 3: just like the other models that they've released in the past,
16:39
Speaker 3: where it's pretty easy to gain access to them, look
16:41
Speaker 3: at them, understand the code, and.
16:45
Speaker 4: Use them. Pretty open source.
16:48
Speaker 3: Pretty much immediately now, the US government has again released
16:52
Speaker 3: this Fable model to the public and removed the restrictions there.
16:56
Speaker 3: You know, apparently a deal was negotiated, but interpretation of
17:00
Speaker 3: all this is US government had no choice here. You
17:04
Speaker 3: had to go and release it again because you're once
17:07
Speaker 3: again competing with China for the cutting edge technology on
17:10
Speaker 3: the latest and greatest stuff. And whether it was ripped
17:13
Speaker 3: off from Anthropics, Mythos or Fable or whether they created
17:17
Speaker 3: it on their own, to me is kind of irrelevant.
17:20
Speaker 3: The Chinese will say that they created on their own,
17:22
Speaker 3: it'd be tough to prove otherwise.
17:23
Speaker 4: It's out there.
17:24
Speaker 3: It exists, and it's being used, and it it brings
17:32
Speaker 3: up this very fascinating question as to what role the
17:36
Speaker 3: US government has in regulating this new technology, which I
17:39
Speaker 3: think most would agree would be some role in doing so.
17:43
Speaker 3: But when you have a technology like this that's accessible
17:47
Speaker 3: from anywhere in the world, and you have a direct
17:49
Speaker 3: competitor that's not following any of the same rules.
17:51
Speaker 4: I'll be very interested to see just where this goes.
17:53
Speaker 3: It seems to me that we will just keep stumbling
17:58
Speaker 3: forward as quickly as possible until a catastrophe happens, and then,
18:03
Speaker 3: you know, US and China and other entities we'll get
18:05
Speaker 3: together and say, oh, maybe we weren't doing this quite
18:08
Speaker 3: the right way. So there's my long drawn out commentary
18:12
Speaker 3: on the state of cutting edge AI models.
18:15
Speaker 5: Anything to add, well, this stuff could pose an existential
18:22
Speaker 5: threat because we're so dependent on digital technology.
18:25
Speaker 6: Sure, yeah, give me shut down.
18:26
Speaker 3: I can't acadomy my own life savings. If without access
18:32
Speaker 3: to the company who holds its website.
18:34
Speaker 5: If the wrong person gets a hold of it, or
18:36
Speaker 5: a mischievous person releases something noxious out into the wild,
18:41
Speaker 5: it could effectively bring the economy to a screeching halt.
18:45
Speaker 3: Absolutely take down a major critical financial institution and there
18:48
Speaker 3: you go.
18:49
Speaker 5: So everybody agrees that that potential exists, that the threat is,
18:52
Speaker 5: let's just call it existential. It's like an electronic nuclear weapon.
18:56
Speaker 5: I'm mixing metaphors there a little bit. But so why
18:59
Speaker 5: aren't we regulating it like we did we like we
19:05
Speaker 5: do weapons of mass destruction? That's what I don't understand.
19:08
Speaker 5: We've got people chasing dollars here who are letting effectively
19:11
Speaker 5: write the rules.
19:13
Speaker 4: My take would be, why aren't we regulating it that way?
19:16
Speaker 3: Because we don't know how. But we can't talk about
19:23
Speaker 3: that anymorecause we've gotta head to break Wall Street Watch
19:26
Speaker 3: is coming up next. We'll have a full market recap
19:28
Speaker 3: and more right after this.
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Speaker 1: Street Watch, trecking the stocks, theodato and the headlines driving
19:51
Speaker 1: markets so far today.
19:53
Speaker 2: Right here on the Financial Exchange Radio Network.
19:55
Speaker 7: Ally, major indencies are on the rise, as weak jobs reports,
19:59
Speaker 7: as FED hike expectations. The Dow Jones is up over
20:02
Speaker 7: four hundred and twenty points or eight tenths of a percent.
20:05
Speaker 7: The S and P five hundred it's up nearly half
20:08
Speaker 7: a percent, and the Nasdaq is just barely positive, up
20:11
Speaker 7: three one hundreds of a percent. Oil prices are declining
20:15
Speaker 7: after Qatar says US and Iran made progress during talks.
20:19
Speaker 7: Oil is down one and a half percent, and finally here,
20:23
Speaker 7: gold is extending its gains after the US payroll report.
20:27
Speaker 7: It's up over forty one hundred dollars in ounce. Taking
20:31
Speaker 7: a look elsewhere, Alphabet is on the rise, up three
20:34
Speaker 7: tenths of percent this morning after the subsidiary lost a
20:37
Speaker 7: European anti trust case where a court upheld Google's fine,
20:41
Speaker 7: which was four point six seven billion dollars. The find
20:44
Speaker 7: comes from a twenty eighteen decision by the European Commission
20:47
Speaker 7: to punish Google for what it saws anti competitive practices
20:51
Speaker 7: by the company through giving its own applications unfair advantages
20:55
Speaker 7: in Android products. Shares of the Italian technology company Bending
20:59
Speaker 7: Spoons were off seven point seven percent after its public
21:02
Speaker 7: debut yesterday. The stock had soared almost forty percent from
21:06
Speaker 7: its IPO level. Pallentteer shares jump more than three and
21:10
Speaker 7: a half percent after a DA Davidson upgrade to buy
21:13
Speaker 7: from neutral. Analysts at the firm also said they viewed
21:15
Speaker 7: the stock's valuation as the most attractive in some time.
21:18
Speaker 7: And finally, defense technology company Aero Environment is up thirteen
21:23
Speaker 7: percent after it won a five hundred million dollar contract
21:26
Speaker 7: with the US Army. The contract is developed is to
21:29
Speaker 7: develop counter drone capabilities to the military. I am ben
21:33
Speaker 7: Kitchen and that was Wall Street watch Mark.
21:35
Speaker 3: We were talking right before the break about regulation of
21:39
Speaker 3: AI and AI related companies, and I don't think it's
21:44
Speaker 3: useful to talk in like giant terms of what potentially
21:48
Speaker 3: AI could do and how to properly regulate it. So
21:51
Speaker 3: instead I want to focus on like one thing, which
21:53
Speaker 3: is Mythos.
21:55
Speaker 4: So let's start right there.
21:56
Speaker 3: Which is the latest and seemingly most impressive aa I
22:00
Speaker 3: model that's been created so far, as this Mythos thing
22:02
Speaker 3: from Anthropic that like we talked about, seems to be
22:06
Speaker 3: able to powerfully get into systems and detect bugs and
22:11
Speaker 3: find ways for hackers to get in and find ways
22:13
Speaker 3: for companies.
22:13
Speaker 4: To close those gaps.
22:16
Speaker 3: Okay, but the question was raised with like why wouldn't
22:19
Speaker 3: you why wouldn't the government go regulate that? Right?
22:21
Speaker 5: Okay, so you want to focus on like the little
22:24
Speaker 5: risks like they get into JP Morgan or something. Okay, well,
22:28
Speaker 5: then that's like criminal law will cover that, and consumer
22:31
Speaker 5: protection law might cover that. There's really no big issue
22:34
Speaker 5: to discuss if that's your perspective. I'm not saying it's
22:38
Speaker 5: the wrong perspective. I'm just saying that's not my laws
22:40
Speaker 5: to cover it, so that I would my.
22:42
Speaker 4: Concern is.
22:45
Speaker 3: A criminal hacker gets access to crucial data systems within
22:52
Speaker 3: the US government and is able to shut down a
22:54
Speaker 3: significant portion of Wall Street.
22:56
Speaker 5: Okay, well, that would qualify as an existential to me.
23:00
Speaker 4: Yeah, to me, Like we've talked about existential risks, right.
23:02
Speaker 5: I mean risk to civilization life as we know it.
23:06
Speaker 5: It would send us back ages in terms of the
23:10
Speaker 5: way we live and the way the economy is structured.
23:13
Speaker 5: You couldn't if that happens, and it can't be prevented
23:16
Speaker 5: from happening. Like we might recover from the first episode,
23:19
Speaker 5: but trust will have deteriorated to the point where people
23:22
Speaker 5: are going to start organizing their economic lives differently.
23:25
Speaker 3: And I guess my point would be, you know, I
23:27
Speaker 3: don't know how you go and regulate against that by regularly.
23:31
Speaker 5: Say I'm sorry, I'm sorry, this is too much like
23:33
Speaker 5: nu question technology.
23:35
Speaker 3: Which you cannot do without the agreement of our biggest rival, right.
23:40
Speaker 4: Right, because if China.
23:41
Speaker 5: Say the same thing about nuclear weapons, you're going to
23:43
Speaker 5: bring everybody again. We have a model for this. It's
23:46
Speaker 5: the early years of the atomic age when we go ahead.
23:51
Speaker 4: That's kind of precisely.
23:52
Speaker 3: My point is we only got to there once everyone
23:56
Speaker 3: recognized mutually assured destruction.
23:58
Speaker 5: No, no, usually sure destruction came with thermonuclear weapons. That
24:02
Speaker 5: was later AEC came, right, Ben, correct me if I'm
24:05
Speaker 5: wrong here. I'm not an expert, not a historian. AEC
24:08
Speaker 5: was like forty seven forty eight when government said we
24:11
Speaker 5: want a monopoly on this technology. Private sector can't use it,
24:14
Speaker 5: will license it for power generation and stuff. But it
24:18
Speaker 5: was effectively it was It was as tightly controlled as
24:20
Speaker 5: anything could possibly be.
24:22
Speaker 6: You know, AI is different in that any clever.
24:24
Speaker 5: Kid with their laptop, Yeah, that's kind of the anywhere
24:27
Speaker 5: in the world could unleash something into the wild, devastating
24:31
Speaker 5: to this. No, a like Iran knows how to build
24:34
Speaker 5: a nuclear weapon, but it's hard to do to because
24:38
Speaker 5: it requires practice and enormous economic resources, which is why
24:42
Speaker 5: the Manhattan Project, which is atomic not nuclear. I know,
24:44
Speaker 5: I'm it's again not my area, so I'm gonna watch.
24:47
Speaker 6: Some of this stuff.
24:47
Speaker 5: But if if the threat is existential, then government should
24:51
Speaker 5: be controlling it, because that's government's job. If it's not,
24:54
Speaker 5: then let's all just move on.
24:56
Speaker 3: And my point would be, I don't know if it
24:57
Speaker 3: is existential, I don't know how you you control it.
25:01
Speaker 3: I guess you need the agreement of a whole bunch
25:03
Speaker 3: of foreign countries.
25:04
Speaker 6: Let's start. I mean, okay, now, maybe it's not.
25:08
Speaker 4: You've got to show them clearly. Anthropic thinks it is.
25:12
Speaker 6: Yeah.
25:12
Speaker 5: So if the only people that really know what's going on,
25:14
Speaker 5: the people that code, say, this could be really bad
25:19
Speaker 5: if a bad actor get a hold of it, changed
25:21
Speaker 5: it even slightly and then unleashed it, either for their
25:24
Speaker 5: own ends or just threw it out there just because
25:26
Speaker 5: they like chaos. If the experts are telling us, and
25:30
Speaker 5: by experts, I don't mean MBAs who think they know
25:32
Speaker 5: this stuff for people in finance whose job it is
25:34
Speaker 5: to sell it to us and others, I mean the
25:39
Speaker 5: people that are doing the coding.
25:42
Speaker 6: I would take them at their word.
25:44
Speaker 5: I mean again, Oppenheimer was the expert. He told, well,
25:48
Speaker 5: of course the bomb was used, and then he realized
25:50
Speaker 5: how bad it could be. But yeah, I would take
25:53
Speaker 5: warnings from expert. And I'm sorry to be drawing all
25:55
Speaker 5: these parallels to this.
25:56
Speaker 3: I hear you're not the first person to do it.
25:59
Speaker 3: I think it is a will compare its.
26:00
Speaker 5: Okay, I didn't realize others have drown these parallels. Okay,
26:05
Speaker 5: So the natural extension of this analogy is government should
26:08
Speaker 5: step in. Look, I'm a limited I'm very much a
26:11
Speaker 5: you know, govern's least govern's best type person. But in
26:15
Speaker 5: this case, if the threat is what they say it is,
26:18
Speaker 5: then let's do something about it and just stop yammering
26:20
Speaker 5: every day, hand ringing and adopting half measures. Oh, let's
26:25
Speaker 5: prohibit this behavior by this company that should do it.
26:28
Speaker 6: Doesn't it seem like it does?
26:30
Speaker 3: Seem like that, And it also it also seems to
26:33
Speaker 3: me that doing so may cause a full on recession.
26:36
Speaker 3: Maybe not, maybe the government invests as much as the
26:39
Speaker 3: private sector is in it right now.
26:40
Speaker 4: But if you are a user of AI.
26:43
Speaker 3: Models and you have a genuine concern that thirty days
26:47
Speaker 3: from now, the US government might take your model and
26:49
Speaker 3: say not going to be able to sell.
26:51
Speaker 4: That makes it pretty difficult to invest under that prece So.
26:54
Speaker 5: It's economic contraction now versus a one percent chance of
26:58
Speaker 5: total economic devastation later with you.
27:01
Speaker 6: Yeah, I know you are.
27:02
Speaker 3: No, I just don't know how you measure that one
27:03
Speaker 3: percent risk and how you measure the trade off. But yeah, like,
27:09
Speaker 3: these are the real things that are being talked about
27:11
Speaker 3: in those circles. And it's what's clear to me is
27:15
Speaker 3: that the Chinese AI labs, even without access to the
27:19
Speaker 3: latest and greatest semiconductors through Nvidia and elsewhere, are finding
27:24
Speaker 3: ways to nip at our heels on development.
27:26
Speaker 5: I don't think we'd even be if this were biological.
27:29
Speaker 5: News came out yesterday that a synthetic and artificial cell,
27:32
Speaker 5: and I put sell in quotes because it's not actually living,
27:34
Speaker 5: was a thing. It feeds, It reproduced, it needs to
27:39
Speaker 5: be fed. It reproduces through a few generations anyway, and
27:42
Speaker 5: it can be used for industrial purposes to make plastics
27:46
Speaker 5: and other things like we make insulin now using microbes.
27:49
Speaker 5: If there was even a chance that some clever kid
27:51
Speaker 5: could make a modest modification to this synthetic cell, I'm
27:55
Speaker 5: not using the right term. I forget what they called it,
27:59
Speaker 5: and then it to the child didn't consume everything like
28:03
Speaker 5: it wouldn't even be a question as to whether or
28:05
Speaker 5: not it should be banned. Uh Yet AI has the
28:08
Speaker 5: same potential because we're so reliant on the digital.
28:13
Speaker 4: Yeah, maybe it does, maybe it doesn't.
28:16
Speaker 3: I don't think either of us are qualified to say
28:18
Speaker 3: whether or not it has, but they seem to.
28:21
Speaker 4: Think it is.
28:22
Speaker 6: Okay, Yeah, why are we screwing around?
28:25
Speaker 3: Let's take a quick break when we return. I think
28:30
Speaker 3: I've had enough of the Uh yeah, I think I've
28:33
Speaker 3: had enough of the AI doomsday scenarios here, So let's
28:38
Speaker 3: take a break from that before we revisit in the
28:40
Speaker 3: second hour of the show, and let's go over to
28:43
Speaker 3: a few financial stories. The newly created Trump accounts, who's
28:46
Speaker 3: going to be serving them? And the latest from Michael
28:49
Speaker 3: Burry is all next on The Financial Exchange.
28:52
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29:15
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29:29
Speaker 3: The newly created Trump accounts are now getting up and running.
29:36
Speaker 3: They are going to be comprised of some ETFs that
29:40
Speaker 3: have been selected from a list of providers. They effectively
29:46
Speaker 3: are treated as like youth retirement accounts. But the big
29:52
Speaker 3: difference there is for a certain demographic of kids, they
29:56
Speaker 3: can get a free grant to the.
30:00
Speaker 4: To the Trump accounts.
30:01
Speaker 3: Specifically, so eligible children who are born between pardon me,
30:08
Speaker 3: twenty twenty five and twenty twenty eight can receive a
30:11
Speaker 3: thousand dollars federal deposit into their accounts. That's only available
30:15
Speaker 3: through the Trump accounts. You have to be born between
30:17
Speaker 3: that time period, and then there's an annual contribution limit
30:21
Speaker 3: that you can put into them. All the reading that
30:25
Speaker 3: I've done on these, however, is that you know, compared
30:28
Speaker 3: to a five twenty nine plan, other than the thousand
30:30
Speaker 3: dollars seed money, there's pretty much no point of using one.
30:34
Speaker 3: So unfortunately, you know, I don't think they're going to
30:37
Speaker 3: gain much traction here because ultimately the withdrawals end up
30:42
Speaker 3: being taxed when they come out of there, unless there
30:44
Speaker 3: are certain circumstances, whereas a five to twenty nine plan,
30:48
Speaker 3: your withdrawals are never taxed, and these days you can
30:51
Speaker 3: even convert the proceeds ultimately into a roth ira, even
30:55
Speaker 3: if you never.
30:55
Speaker 4: Spend it on college.
30:56
Speaker 3: So by almost all accounts, I get asked this question
30:59
Speaker 3: every once in a while, like, hey, you know these
31:01
Speaker 3: new Trump accounts, I hear I can get free money,
31:04
Speaker 3: you know, should I put money here or into a
31:06
Speaker 3: five twenty nine plan? And the conclusion I've come to is, yeah,
31:10
Speaker 3: if you do have a kid born in those years,
31:12
Speaker 3: definitely grab your free money. But otherwise there's not much
31:16
Speaker 3: in the way of tax advantages of these accounts. You know,
31:21
Speaker 3: a little bit more investment flexibility probably, you know, contribution
31:26
Speaker 3: limits are far lower for the Trump accounts, so there's really.
31:32
Speaker 4: You know, so the taxation of withdrawals.
31:35
Speaker 3: The Trump accounts grow tax deferred contributions, though not tax deductible,
31:41
Speaker 3: and then withdrawals are taxes ordinary income, which you can't
31:45
Speaker 3: withdraw from until the beneficiary turns eighteen.
31:49
Speaker 4: And so yeah, I don't know, I don't see much of.
31:53
Speaker 5: Advantage income at the beneficiaries correct.
31:56
Speaker 3: Okay, yeah, they still could be a dependent at the time,
31:58
Speaker 3: so maybe it shows up on your tax dram. But again,
32:00
Speaker 3: I just compare that to the benefits of a five
32:02
Speaker 3: twenty nine, where in some states your contributions are tax deductible.
32:08
Speaker 3: It all grows tax free and tax deferred, and so
32:11
Speaker 3: long as you spend it on any one of the
32:13
Speaker 3: qualified educational expenses.
32:15
Speaker 4: For pre.
32:18
Speaker 3: You can spend it on pre university or pre college education,
32:22
Speaker 3: you can spend it on college education, you can spend
32:24
Speaker 3: it on room board.
32:25
Speaker 4: So long as it's used.
32:27
Speaker 3: For a covered category, then there's no taxes due on
32:31
Speaker 3: any of the growth.
32:32
Speaker 4: So really tough to compete with that.
32:33
Speaker 3: But the most interesting piece of all this that I
32:36
Speaker 3: found was that the US Treasury has picked State Street, Vanguard,
32:41
Speaker 3: and Blackrock to serve as investment companies for these Trump accounts.
32:45
Speaker 3: And if you recall, President Trump has picked some pretty
32:49
Speaker 3: big fights with Blackrock and their CEO Larry Fink over
32:52
Speaker 3: the years been heavily critical of Blackrock and their ESG
32:57
Speaker 3: portfolios and their real push from their leadership on that front.
33:01
Speaker 3: It would seem to me with this inclusion that they've
33:05
Speaker 3: been able to set that aside. And move on from
33:11
Speaker 3: any of those concerns that they had. Blackrock has also
33:14
Speaker 3: taken a big step away from any of that ESG
33:17
Speaker 3: stuff over the course of the last few years. So
33:19
Speaker 3: I'm not surprised but interesting to me that they are
33:23
Speaker 3: included here, because I have a tough time believing that
33:28
Speaker 3: somebody at the US Treasury Department just greenlit Blackrock being
33:31
Speaker 3: in these funds without thinking about it the same way
33:33
Speaker 3: I am, and running it by the President. So I'm
33:35
Speaker 3: guessing there was some deal made here to ensure that
33:38
Speaker 3: Blackrock was included.
33:39
Speaker 4: And quite honestly, the.
33:40
Speaker 3: Steps that they've made away from ESG are precisely what
33:44
Speaker 3: I would have anticipated, because, as you've heard, the viewpoint
33:50
Speaker 3: on ESG from this program and elsewhere is that from
33:56
Speaker 3: the very beginning, it seemed very much like a way
33:58
Speaker 3: for investment companies to try arge a little bit more
34:00
Speaker 3: money on funds that didn't do anything terribly fundamentally.
34:03
Speaker 4: Different with their business model, and so.
34:07
Speaker 3: I'm not surprised that they didn't have an issue taking
34:09
Speaker 3: a big step back from that one.
34:12
Speaker 5: Yeah, their approach here is to require that investors use
34:17
Speaker 5: low cost index funds, so it's natural.
34:19
Speaker 4: Yeah, black Cross, so the biggest provider in the.
34:22
Speaker 5: Lacros SSGA and ss SSGA stands for State Street Global Advisors.
34:26
Speaker 5: By the way, people in the Massachusetts area probably know
34:28
Speaker 5: them better as State Street Corporation or State Street Bank.
34:30
Speaker 5: But ssga's their investment management arm, so that's that is
34:33
Speaker 5: the same company if you were wondering. And of course
34:35
Speaker 5: Vanguard is pretty much a household there too, so they're
34:38
Speaker 5: the biggest providers. They're proven. It's a good approach, say,
34:41
Speaker 5: these accounts may not make sense for everybody, or even most,
34:44
Speaker 5: or even a sizable minority of taxpayers slash investors, but
34:49
Speaker 5: the approach is sound. It would be nice if we
34:51
Speaker 5: required four to one k plans frankly to work the
34:53
Speaker 5: same way, agreed.
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36:06
Speaker 3: Well, I told you we were going to move on
36:07
Speaker 3: from AI doomsday, and we are. We are not going
36:10
Speaker 3: to focus on doomsday scenarios for AI. But Michael Burry
36:15
Speaker 3: of Big Short fame, who famously called the disaster scenario
36:21
Speaker 3: in mortgage bonds well ahead of the collapse, has been
36:27
Speaker 3: pumping up his book again with new artificial intelligence Short
36:31
Speaker 3: bets that he is making. He announced well a few things.
36:37
Speaker 3: One the approximate cause of today's rally is spending announced
36:41
Speaker 3: out of Korea, Burry wrote in his sub stack on Tuesday, Well,
36:44
Speaker 3: I see that as the beginning of the end. To
36:47
Speaker 3: be clear here, Samsung and sk Heinez said earlier this
36:51
Speaker 3: this week that they plan to invest more than half
36:53
Speaker 3: a trillion dollars to create a massive chip hub and
37:00
Speaker 3: Burry has been betting against this stuff now for a
37:03
Speaker 3: bit of time. This is not brand new. He didn't
37:06
Speaker 3: call the top on this. Over the course of the
37:08
Speaker 3: last thirty days.
37:09
Speaker 4: He's been.
37:11
Speaker 3: Exposing his worries about this tech AI fueled run for
37:14
Speaker 3: quite some time. I think the important thing to just
37:19
Speaker 3: keep in mind with Burry is that he, by all accounts,
37:22
Speaker 3: is an extraordinarily intelligent person who correctly called the top
37:27
Speaker 3: of not only one. He was a pretty successful investor
37:31
Speaker 3: prior to the Great Financial Crisis, but has also been
37:38
Speaker 3: very wrong about a whole lot of things when it
37:40
Speaker 3: came to the market over the course of the last
37:42
Speaker 3: fifteen years.
37:43
Speaker 4: Is about what I'm willing to say about.
37:44
Speaker 3: Burry, right, like, incredibly smart by all accounts, he was
37:48
Speaker 3: a medical doctor and then changed over to the investment world.
37:52
Speaker 3: Very intelligent individual who hasn't had a great track record
37:56
Speaker 3: of calling the tops of things any time in the
37:57
Speaker 3: last fifteen years.
37:59
Speaker 5: Yeah, he has two at his disposal to express his
38:01
Speaker 5: views much more precisely than the typical investor.
38:05
Speaker 4: Indeed, indeed he does.
38:07
Speaker 3: Uh quick break, but a lot more to come in
38:09
Speaker 3: the second hour of the financial exchange.
38:12
Speaker 4: We'll be right back. Stay tuned.