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Generative AI is not ready for prime time · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
1:07
Speaker 1: and Mike Armstrong.
1:11
Speaker 2: Chuck Mike Tucker with the kicking off hour two of
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Speaker 2: the financial exchange, stocks mostly moving up. The Dow is
1:18
Speaker 2: up two hundred and eleven points today, SMP five hundred
1:22
Speaker 2: is up seventy nasdac's up three seventy one, three seventy
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Speaker 2: two now three seventy three. Not bad for a couple seconds,
1:32
Speaker 2: right there.
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Speaker 3: Huh.
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Speaker 2: We got the ten year US Treasury that is selling
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Speaker 2: off just a touch down three point seven basis points
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Speaker 2: to four point six three two percent. Oil West Texas
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Speaker 2: Intermedia continuing its recent run up, but not by too
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Speaker 2: much today, only up seventeen cents a barrel to seventy
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Speaker 2: four to thirteen. We got gold down nine eighty and
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Speaker 2: ounced to twenty six forty four and ninety cents, and
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Speaker 2: the TRIPAA national AVERAGUR gas prices moving back up as well.
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Speaker 2: We never got below three dollars nationally, which is one
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Speaker 2: it's my great regret for twenty twenty four is that
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Speaker 2: we didn't get to say, like two ninety nine, everyone
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Speaker 2: has regrets about years.
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Speaker 3: Sorry, can you can you extract late expand on that?
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Speaker 3: What was your regret about gas prices in twenty twenty fifth.
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Speaker 2: The national average didn't get below three dollars a gallon.
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Speaker 2: Oh okay, yeah, what'd you think it was? I just
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Speaker 2: I missed that for a minute there, Yeah, okay, got it. Yeah,
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Speaker 2: we were just floating around like three o two, three
2:24
Speaker 2: oh three. We could never punch through, at least nationally.
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Speaker 2: So today back up to three oh six and four
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Speaker 2: tenths another three tenths of a cent up, and that's
2:34
Speaker 2: what we've got going on in markets here. Speaking of markets,
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Speaker 2: piece from Michael Santoli on CMBC dot com stock market
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Speaker 2: is losing juggernaut status as twenty twenty five begins, but
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Speaker 2: it doesn't mean the bowl is over and uh. Santoli
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Speaker 2: and connorson, by the way, had this on social media first,
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Speaker 2: so there's a little bit of a uh, a little
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Speaker 2: bit of a competition to see who's getting credit for
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Speaker 2: this metaphor actually, but basically people were saying, hey, the
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Speaker 2: stock market right now is like the Kansas City Chiefs.
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Speaker 2: It's won the last two Super Bowls because you know,
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Speaker 2: the market's been over twenty percent gains in the S
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Speaker 2: and P five hundred the last two years, so it's
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Speaker 2: done well. It's still undefeated to start this year, but
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Speaker 2: it doesn't quite feel the same, is the point Santole
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Speaker 2: makes kind of like the Chiefs, like, yeah, there's sixteen
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Speaker 2: and one heading in the playoffs too, fifteen to two
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Speaker 2: that they was yesterday.
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Speaker 4: Yeah, I get smoked yesterday.
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Speaker 2: Who cares what happened yesterday?
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Speaker 1: Oh?
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Speaker 3: In either case, who'd you have?
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Speaker 1: The Chiefs?
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Speaker 3: While I'm marry well, I might not have a lot
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Speaker 3: of contexts to add on the Chiefs comparison. I can't
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Speaker 3: assure you that I've been to Kansas City and nobody
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Speaker 3: sounds like that there.
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Speaker 2: Well, no, it's it's not a Kansas Citian.
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Speaker 3: Okay.
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Speaker 4: That was like a football Oh okay, thing.
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Speaker 2: That was yeah, like that was the book maker that
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Speaker 2: Tucker got it in any case, So you've got market,
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Speaker 2: a market that has rallied the last two years strongly.
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Speaker 2: And look, people are looking at the foundation now saying, hey,
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Speaker 2: it's it's expensive. Everything's priced in like it's it's gonna
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Speaker 2: go you know great. You know things have you know,
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Speaker 2: maybe gone a little bit too far. And it's kind
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Speaker 2: of where people are with the Chiefs, like I'm just
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Speaker 2: gonna finish the metaphor. Travis Kelcey not what he used
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Speaker 2: to be Patrick Mahomes not putting up the numbers he
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Speaker 2: used to speaking of, you know, wasting money and you
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Speaker 2: know sports horrible fantasy pick for me this year. You
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Speaker 2: don't pick Patrick Mahomes this year because the Chiefs aren't
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Speaker 2: what they used to be. But how do you bet
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Speaker 2: against them? Is the other question that that you look at.
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Speaker 2: And it's kind of the same thing that people are
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Speaker 2: saying with stocks now, which is, yeah, it might not
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Speaker 2: look great, but how do you bet against it? And I'm
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Speaker 2: not saying that that's the meat the outlook you should have,
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Speaker 2: but more that's where are right now to.
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Speaker 3: Continue that, Like, hey, five years from now, I'm not
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Speaker 3: sure what it's going to look like, but twenty twenty five, huhm.
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Speaker 3: To bet against that you will.
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Speaker 2: Get the consensus estimates for the S and P five
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Speaker 2: hundred for this year. And if you will get I
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Speaker 2: think the average investment banking growth, like the S and
5:11
Speaker 2: P five hundred projection is for like twelve and a
5:13
Speaker 2: half percent growth.
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Speaker 3: Yeah, I say somewhere the ten percent.
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Speaker 1: Right.
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Speaker 2: There's no one saying that the market's going to struggle
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Speaker 2: this year, and so this is kind of where you
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Speaker 2: find yourself, which is, Hey, what what do I do
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Speaker 2: here at this point? Because everything is just pulled this
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Speaker 2: market up for the last two years. And sure, you've
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Speaker 2: got a new incoming administration that's, you know, promising to
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Speaker 2: be friendly to business and so on, which again kind
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Speaker 2: of tough to bet against, you know, an administration that
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Speaker 2: that's saying those things. But also if the slightest thing
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Speaker 2: goes wrong, you've got a market that is not priced
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Speaker 2: with a lot of caution in it.
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Speaker 3: Yeah, so let's talk about indicators that are useful and
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Speaker 3: not useful. They point out, or Michael points out in
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Speaker 3: this piece that January performance has ten to be poor
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Speaker 3: after a twenty percent annual gain in the S and
6:03
Speaker 3: P five hundred useful or not useful statistic not useful.
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Speaker 3: Years after an abundance of record highs, twenty twenty four
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Speaker 3: had fifty seven separate record highs have likewise been tougher,
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Speaker 3: and the first year of a new president's term tends
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Speaker 3: to not be the most rewarding. Again, maybe the presidential
6:21
Speaker 3: stuff you can pull some decent statistics out of, but
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Speaker 3: I'm not sure that there's anything to a high number
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Speaker 3: of record highs contributing anything to the next year's performance.
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Speaker 2: Here's the big thing about twenty twenty four, and here's
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Speaker 2: where the rubber actually meets the road on this stuff.
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Speaker 2: Twenty twenty four was not just a year of great performance.
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Speaker 2: It was a year of great risk adjusted performance. And
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Speaker 2: by that I mean there was almost no volatility. You
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Speaker 2: had a ten percent eight lineup where you had a
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Speaker 2: ten percent dip in August where everyone became yen carry
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Speaker 2: trade experts overnight. Other than that, you did not have
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Speaker 2: a ten percent dip in markets. You remember that.
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Speaker 3: Whole episode, I do, and I'm just like, yen carry
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Speaker 3: just sounds like someone's name, So I was just kind
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Speaker 3: of confused for like half a millisecond there. And yeah,
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Speaker 3: but everyone.
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Speaker 2: Became experts in the Japanese yen carry trade for you know,
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Speaker 2: a period of a week. Other than that, we had
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Speaker 2: a few like five to seven percent pullbacks, but there
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Speaker 2: was very low volatility. And the number one driving force
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Speaker 2: behind that low volatility was there was very low equity
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Speaker 2: correlation throughout the year. It was, Hey, the first half,
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Speaker 2: tech stocks are leading, everything else is just kind of meth.
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Speaker 2: The next five months five and a half, even tech
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Speaker 2: stocks are struggling. The other stuff is you know, moving
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Speaker 2: around utilities there, you know, the leader in the clubhouse
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Speaker 2: for like four months the last month and a half
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Speaker 2: of the year rotate back into tech. But small caps
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Speaker 2: had like it was just it was a market that
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Speaker 2: did not have any consistency amongst who was pulling it forward,
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Speaker 2: and so it was a very low volatility year. The
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Speaker 2: data that's out there when it comes to volatility is
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Speaker 2: that low volatility is not the norm, and specifically, low
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Speaker 2: correlation is not the norm in equity markets. They tend
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Speaker 2: to become more correlated over time, and they tend to
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Speaker 2: see higher volve when they become more correlated. So I'm
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Speaker 2: not saying this from the perspective of, hey, this is
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Speaker 2: inherently bad. Remember, volatility cuts both ways. People think of
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Speaker 2: it as just being a downy prove. Volatility is just hey,
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Speaker 2: how much are you moving? Not what direction is it in?
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Speaker 2: And so I think that for twenty twenty five, if
8:37
Speaker 2: if you want my honest opinion, you gotta be more
8:40
Speaker 2: prepared for tail outcomes on either side. There's a possibility
8:44
Speaker 2: that the S and P five hundred rips another twenty
8:46
Speaker 2: five thirty percent here, it's a legit possibility. Sure, hey,
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Speaker 2: you get you know, tax cuts, deregulation, inflation doesn't spike
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Speaker 2: as a result of this, that the tariff implementation goes
8:59
Speaker 2: well great s and P. Five hundred at you know,
9:03
Speaker 2: seventy eight hundred not out of the question. Counterpoint though, Hey,
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Speaker 2: if some of this stuff goes badly s and P
9:14
Speaker 2: at forty two hundred thirty percent, pullback also very much
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Speaker 2: a possibility.
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Speaker 3: And by the way, we tend to think about these
9:22
Speaker 3: outsize years that we had for the last two or
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Speaker 3: the really devastating years that we all experienced in say
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Speaker 3: two thousand and nine, as the as the irregular ones.
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Speaker 3: Taking a look at one hundred years worth of data,
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Speaker 3: markets have gone either up by twenty percent in a
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Speaker 3: calendar year or fallen by more than twenty percent in
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Speaker 3: a calendar year, a little bit more than a third
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Speaker 3: of the time.
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Speaker 2: It's not irregular, no, And we talked about how look,
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Speaker 2: even if you expect your long term equity returns to
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Speaker 2: be you know, between eight and ten percent, equities almost
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Speaker 2: never return eight to ten percent. It's usually fifteen percent
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Speaker 2: plus or fifteen percent. Mind, there's a handful of years
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Speaker 2: you know, ten to twenty percent of the time, but
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Speaker 2: it's It's not a distribution that is, you know, concentrated
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Speaker 2: around like eight to ten percent. It's much more. Hey,
10:12
Speaker 2: you tend to either make a lot of money or
10:13
Speaker 2: lose a lot in stocks in a given year, and
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Speaker 2: this year, to me, I think it's that, but extended
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Speaker 2: even further in my opinion as the possibility. I think
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Speaker 2: there is a really wide range of outcomes this year
10:27
Speaker 2: and investors need to be prepared for that. Let's take
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Speaker 2: a quick break. When we come back, we've got trivia
10:35
Speaker 2: and then we'll talk about how the FED is approaching
10:40
Speaker 2: the new year as well.
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11:12
Speaker 4: Time for trivia here on the Financial Exchange. And on
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Speaker 4: this day in history, one of the country's greatest presidents
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Speaker 2: Mike, I came across thing during the break and I
12:01
Speaker 2: showed it to you, and we've we've got to take
12:04
Speaker 2: a little bit of a detour on this.
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Speaker 3: So it's job market Week, so this is in theme
12:09
Speaker 3: it is.
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Speaker 2: So zip recruiter has ah the a page on it
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Speaker 2: where you can find salaries for any job, uh and
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Speaker 2: you can put in you know, basically whatever you want,
12:23
Speaker 2: uh and like see what happens. So if you go
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Speaker 2: to ZipRecruiter dot com and then at the top there's
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Speaker 2: a button that says salaries that you can put in,
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Speaker 2: and once you click on that button and get taken
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Speaker 2: to the page. You can type in anything, So Tucker,
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Speaker 2: give me a completely made up job that has no
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Speaker 2: basis in reality.
12:47
Speaker 4: AI brisket slicer.
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Speaker 2: Okay, So if you if you put that in it
12:53
Speaker 2: hit enter. It gives you the distribution of AI brisket
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Speaker 2: slicers nation will and in your market. And according to
13:03
Speaker 2: ZipRecruiter dot com, the average salary nationwide for an AI
13:09
Speaker 2: brisket slicer is thirty thirty eight dollars. So you don't
13:13
Speaker 2: get paid well in that role. But on the other hand,
13:17
Speaker 2: if you go and say, hey, I want to be
13:21
Speaker 2: a potato mining engineer, moon mining manager with shrimp, oh,
13:27
Speaker 2: the nationwide average is sixty and fifty one dollars to
13:31
Speaker 2: do that. If you want to be a cheese petter,
13:34
Speaker 2: so you want to get paid to pet cheese, ZipRecruiter says, hey,
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Speaker 2: you can get paid thirty eight four hundred nine dollars
13:43
Speaker 2: a year on average, including there's some people three percent
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Speaker 2: of jobs pay over sixty seven grand.
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Speaker 3: Do they have geographic Can I Can I put in
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Speaker 3: a New York City giraffe walker?
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Speaker 1: Uh?
13:54
Speaker 2: Yes, So if I do, let me do New York city,
13:56
Speaker 2: So Manhattan or just New York Manhattan. Okay, and you
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Speaker 2: want to be a raft walker. Yeah, okay, hold on,
14:05
Speaker 2: hold on, let me go back, because you actually have
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Speaker 2: to do it from the salaries page if you type
14:10
Speaker 2: it into the search somewhere else. So giraffe walker, Yeah,
14:13
Speaker 2: it's the big leash in Manhattan. Oh, they might have
14:18
Speaker 2: just fixed it. Hang on, they just fixed it. They
14:23
Speaker 2: they literally might have just fixed it.
14:25
Speaker 3: I doubt it.
14:28
Speaker 2: I'm gonna try. I'm gonna try one more thing.
14:30
Speaker 4: I typed in whale washer, not watch her, and it
14:33
Speaker 4: came in as forty two thousand dollars a year washed.
14:36
Speaker 2: Honestly, I think it's something with giraffe. Giraffe is the
14:39
Speaker 2: one that doesn't work for some. So maybe maybe there's
14:42
Speaker 2: a limit in that you can't walk a giraffe.
14:44
Speaker 1: Mic.
14:45
Speaker 2: Obviously you are silly goose.
14:46
Speaker 3: I didn't think mine on the Moon in the shrimp,
14:49
Speaker 3: but apparently you can. So I think the conclusion here
14:53
Speaker 3: is a good reminder that don't trust what you read
14:55
Speaker 3: on the internet.
14:57
Speaker 4: I just typed in goose walker to an sixty three
15:00
Speaker 4: thousand dollars a year goosewalker walk on that silly goose
15:04
Speaker 4: is that.
15:05
Speaker 2: For like goose the animal, goose, the.
15:09
Speaker 4: Fighter pilot, goose the band or goose.
15:13
Speaker 2: These are questions that you wonder about, right, Wow, but uh,
15:16
Speaker 2: something's off.
15:17
Speaker 3: So Zip Recruiter, I'm gonna guess, by the way, I'm
15:21
Speaker 3: gonna guess poor use of generative AI would be my
15:24
Speaker 3: guess on the back end of Ziprecruiter's website.
15:27
Speaker 2: Almost certainly, because here here's the interesting thing is it's
15:31
Speaker 2: not the interesting thing because I don't know that there's
15:33
Speaker 2: anything that interesting about this other than hey, you really
15:37
Speaker 2: wouldn't expect a website like zip recruiter to have this
15:41
Speaker 2: kind of issue. The jobs that then get listed, like
15:45
Speaker 2: under the category so if you again goosewalker, which again
15:52
Speaker 2: sounds like a great job nationwide, the average is a
15:55
Speaker 2: little bit lower. Okay, there's nothing that comes up as
15:57
Speaker 2: even a comparable. But for other things like I would
16:00
Speaker 2: again the moon mining manager, moon mining manager with shrimp,
16:07
Speaker 2: which sounds like something you would order, not a job.
16:12
Speaker 2: These are the things that come up. It's like nearby
16:14
Speaker 2: moon mining manager with shrimp jobs, a New England outside
16:18
Speaker 2: sales territory manager for Aggs Co Manufacturing. Okay, I kind
16:23
Speaker 2: of get how they might get there. Maybe maybe a
16:28
Speaker 2: civil engineer at jobot okay, like kind of this one
16:35
Speaker 2: bar manager at Kitchen and Cocktails by Kevin Kelly. Probably
16:39
Speaker 2: not you know, the in that category. But again shrimp
16:43
Speaker 2: probably throws it off. But it's clearly a generative AI
16:46
Speaker 2: thing where it's like, here are the words that are
16:48
Speaker 2: similar to this, and dealed.
16:50
Speaker 3: Us a chart with some salary information and that is uh.
16:54
Speaker 2: Again, this is why I think generative AI is not
16:57
Speaker 2: ready for prime time, Like it's this is a public
17:00
Speaker 2: facing website, Mike. We're talking about this in front of
17:03
Speaker 2: thousands of people right now. Right.
17:05
Speaker 3: The uses where generative AI is completely falling down are
17:09
Speaker 3: in areas like search. The areas where it is really
17:13
Speaker 3: becoming useful and helpful is in areas where a worker
17:17
Speaker 3: is using it on the back end to come up
17:18
Speaker 3: with conclusions and come up with work that they are
17:22
Speaker 3: then cross checking and presenting to somebody. But the idea
17:27
Speaker 3: that generative AI is going to do away with Google
17:30
Speaker 3: in some way, shape or form is I won't say.
17:34
Speaker 3: I won't say years ahead, because the pace at which
17:37
Speaker 3: this technology is developing is quite impressive and I have
17:39
Speaker 3: to acknowledge that. But it does not seem like the
17:42
Speaker 3: thing that we should be concerned about. We should instead
17:44
Speaker 3: be concerned about those workers who are not going to
17:46
Speaker 3: get their jobs anymore because coders can be thirty percent
17:51
Speaker 3: more efficient with generative AI.
17:54
Speaker 2: How do we Where do I apply for one of
17:56
Speaker 2: those goose jobs? I don't know that you're gonna be
18:00
Speaker 2: able to support of the street? Wait wait, oh no,
18:03
Speaker 2: that was the one that was like two hundred and
18:04
Speaker 2: sixty grand.
18:04
Speaker 3: Yeah, okay, that does sound like a relatively stress free environment.
18:08
Speaker 2: To be fair, you ever been around geese?
18:11
Speaker 4: A lot of poop?
18:11
Speaker 2: Yeah, not the nicest either, very nice and very not nice.
18:15
Speaker 2: Not the nicest animals, A lot of poop and not nice. Yep,
18:18
Speaker 2: you know, generally something you try to avoid. Taking a
18:22
Speaker 2: look at markets as we head towards the bottom of
18:25
Speaker 2: the hour, that was now up three hundred and twenty
18:27
Speaker 2: four points, continuing to rally. Smp IS up seventy four,
18:31
Speaker 2: Nasdaq up three fifty nine, So a broad based rally
18:34
Speaker 2: taking place here, but led largely by tech companies. If
18:38
Speaker 2: you actually look, you do still have a little bit
18:40
Speaker 2: of weakness under the hood here. Utilities getting whacked today.
18:43
Speaker 2: The utility sector down as a whole Telecoms getting whacked.
18:48
Speaker 2: Beverage and tobacco companies are falling. I don't know why,
18:52
Speaker 2: but they are banks struggling a little bit, and uh,
18:55
Speaker 2: drug makers struggling a little bit today as well. But
18:58
Speaker 2: overall decent amount of green on the board, led by Nvidia, Google, Meta, Microsoft, Amazon,
19:05
Speaker 2: and Apple. Let me know if you've heard any of
19:07
Speaker 2: those names before. We are going to take a quick
19:10
Speaker 2: break here when we come back again. We had to
19:14
Speaker 2: detour into that zip recruiter piece just because it's worth
19:18
Speaker 2: detouring and it might fix it at some point. Maybe
19:20
Speaker 2: they'll fix it now. We will get to a little
19:23
Speaker 2: bit of talk about the FED after this. We've also
19:25
Speaker 2: got the trivia answer coming up next.
19:43
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Speaker 1: Text uys six one seven, three six two one eight
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20:00
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20:07
Speaker 4: Trivia question today was which US president is the only
20:11
Speaker 4: one who had been awarded the Medal of Honor be
20:14
Speaker 4: Teddy Roosevelt, who won the Medal of Honor for whose
20:17
Speaker 4: courageous charge up San Juan heights during the Spanish American War.
20:20
Speaker 4: Roosevelt is the only person in history to win their
20:23
Speaker 4: nation's highest military honor and the Nobel Peace Prize. Winner
20:28
Speaker 4: today of the Financial Exchange Show T shirt was Susan
20:30
Speaker 4: from Methuen, Mass. Congrats to Susan taking home that Financial
20:34
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20:37
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20:43
Speaker 2: Mike, what do we got from the Fed? In terms
20:46
Speaker 2: of Bill Dudley who used to be at the FED,
20:48
Speaker 2: he ran the Federal Reserve Bank of New York for
20:51
Speaker 2: about ten years. He was talking about how the FACT
20:53
Speaker 2: can improve their communication heading into this year.
20:57
Speaker 3: He does, and he talks a lot about out how
21:00
Speaker 3: they have this flexible inflation target, these individual growth projections,
21:05
Speaker 3: and so there leaves I guess a lot of room
21:08
Speaker 3: for misinterpretation in terms of how the FED plans to
21:11
Speaker 3: react to things, and I think it feeds in. The
21:13
Speaker 3: perfect example that I can think of of all of
21:15
Speaker 3: this is going into twenty twenty four, when the Federal
21:19
Speaker 3: Reserve had very specific expectations about inflation, growth and unemployment.
21:26
Speaker 3: The economy proved to have higher inflation, lower unemployment, and
21:32
Speaker 3: yet the FED cut interest rates more than they were
21:34
Speaker 3: anticipating doing. And so you think about all that logically
21:37
Speaker 3: and it doesn't make sense from where they were on
21:39
Speaker 3: January first, and under the surface, it probably speaks to
21:42
Speaker 3: a lot of what Bill Dudley's talking about here as well.
21:44
Speaker 3: They have these other economic models that speak to what
21:46
Speaker 3: they think is going to happen, but don't do a
21:49
Speaker 3: great job of setting those expectations with the public and
21:52
Speaker 3: explaining them very well. And I don't know. I don't
21:56
Speaker 3: know what you change about the framework to make that better,
22:00
Speaker 3: because I think a lot of it has been about
22:03
Speaker 3: inconsistencies in the chair's Jern Powell's speaking engagements when it
22:09
Speaker 3: comes to addressing the nation on their policies. Yeah, I.
22:14
Speaker 2: Just think I think there's too much focus on communication now.
22:20
Speaker 2: And I know that that's how they want to try
22:24
Speaker 2: to push policy at this point is say more and
22:28
Speaker 2: do less, like have the market do its work for them.
22:32
Speaker 2: But ultimately, I just don't know. I don't know that
22:37
Speaker 2: there's the marginal benefit that you get from more. Differently,
22:43
Speaker 2: I just don't know that it's there at this point,
22:46
Speaker 2: and it makes us too focus then on, you know,
22:51
Speaker 2: trying to interpret every little word instead of just we
22:54
Speaker 2: did this and you got to deal with it. You know,
22:59
Speaker 2: we don't all need to feel like we're on the
23:02
Speaker 2: Federal Open Market Committee. We're not. We're not. Just tell
23:09
Speaker 2: us what you're doing and do it. And if you
23:11
Speaker 2: do a bad job, then you'll be remembered to someone
23:13
Speaker 2: who did a bad job. If you did a good job,
23:15
Speaker 2: you'll be remembered to someone who did a good job.
23:17
Speaker 3: But yeah, it's been strange over the course of the
23:19
Speaker 3: last few years because generally speaking, since the early mistakes
23:24
Speaker 3: of the FED in twenty twenty two and twenty twenty one,
23:29
Speaker 3: the results have been fantastic, but I think the messaging
23:32
Speaker 3: has been not helpful. And so I'm judging on these
23:37
Speaker 3: dual sides. We're like, hey, it's tough to argue with
23:38
Speaker 3: the results. The results have been unemployment that stayed around
23:41
Speaker 3: low fours and inflation that's come in around three. That's
23:45
Speaker 3: a pretty darn good result compared to where we were
23:47
Speaker 3: in twenty twenty two. But the messaging around it and
23:50
Speaker 3: the guidance and the explanations as to how we're getting
23:54
Speaker 3: here and how we're going to remain here I think
23:57
Speaker 3: have been confusing.
23:58
Speaker 2: But I'll give you an example. We get this piece
24:00
Speaker 2: from Bloomberg, another one FEDS Daily, and Coogler stressed that
24:04
Speaker 2: inflation fight has not yet been won. Well, how about
24:08
Speaker 2: instead of telling us this, just raise rates.
24:10
Speaker 3: Of quarter percent?
24:12
Speaker 2: Why do you have to tell us this? It's because
24:14
Speaker 2: they don't want to actually undertake those actions and they
24:17
Speaker 2: want the market to make the move for them.
24:20
Speaker 1: Right.
24:20
Speaker 3: And furthermore, if you believe that the inflation fight has
24:24
Speaker 3: not yet been won, then I need a little bit
24:26
Speaker 3: more context as to why you voted for another rate
24:29
Speaker 3: cut on December What was that thirteen, sixteenth, sixteenth, somewhere
24:34
Speaker 3: like seventeenth. Yet those two things don't really play well
24:39
Speaker 3: with me. So what's the story? Why did you do so?
24:42
Speaker 3: And it comes back to you know, our star, the
24:46
Speaker 3: neutral raid, all these all these kind of complex topics
24:49
Speaker 3: that I don't think they do a great job of messaging.
24:51
Speaker 2: But it's also trying to manage a central bank this
24:56
Speaker 2: way is very much an elite problem. And what I
25:03
Speaker 2: mean by that is, if you're the central bank in Brazil,
25:07
Speaker 2: or you're the central bank in South Korea, if the
25:12
Speaker 2: bond market moves against you. You're basically like, Okay, I
25:16
Speaker 2: gotta do what I gotta do, otherwise I lose credibility.
25:19
Speaker 2: You can't talk your way out of it, right, it's
25:22
Speaker 2: only by virtue of the United States being the United
25:25
Speaker 2: States that you can even consider this. The only other
25:29
Speaker 2: place on the planet, there's two The only other two
25:31
Speaker 2: places on the planet that can consider this are Europe
25:34
Speaker 2: and Japan. There's no one else, and even Europe getting
25:38
Speaker 2: kind of dodgy in terms of, you know how the
25:41
Speaker 2: euro's being used internationally these days. So I look at
25:46
Speaker 2: this and sure you can, you can try to talk
25:49
Speaker 2: your way out of it, but eventually the market's gonna
25:53
Speaker 2: force you in ways that you don't anticipate, and you're
25:57
Speaker 2: gonna have to just do what you're gonna have to do,
26:00
Speaker 2: and no amount of talking is going to get you
26:01
Speaker 2: out of it. So it's kind of where I am.
26:05
Speaker 3: I think.
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27:10
Speaker 2: I'm really happy we get to discuss this next piece, actually,
27:12
Speaker 2: because I think it's a really interesting one, in some
27:16
Speaker 2: ways horrifying, in some ways exciting. It's from the Financial Times.
27:20
Speaker 2: It's titled Private Equity to lobby Trump for access to
27:23
Speaker 2: savers retirement funds, And basically what it's talking about is
27:25
Speaker 2: that the private equity industry wants to find a way
27:29
Speaker 2: to get its investment options into four to one K plans.
27:34
Speaker 3: Or just retirement accounts and investors that are at least,
27:37
Speaker 3: according to most regulators, considered less sophisticated than the current
27:42
Speaker 3: typical private equity fund investor. To invest in a lot
27:46
Speaker 3: of these places, you need to be deemed in a
27:48
Speaker 3: credited investor by I believe those are SEC standards, meaning
27:53
Speaker 3: you have to have a million dollars in investable assets
27:56
Speaker 3: and or two hundred thousand dollars of income. And there's
28:00
Speaker 3: a whole swath of people that don't meet those standards,
28:02
Speaker 3: and it appears nowhere in four one K is regardless
28:05
Speaker 3: of your accreditation status.
28:07
Speaker 2: So a couple things here. First, When we talk about
28:10
Speaker 2: like accredited investors and this and that, there's a case
28:14
Speaker 2: to be.
28:15
Speaker 4: Made that.
28:18
Speaker 2: Why aren't you allowing a broader swath of people to
28:22
Speaker 2: access you know, these types of things.
28:24
Speaker 3: I would completely agree. We've talked about this, but it's
28:26
Speaker 3: been a while. I mean, if you want to pave
28:29
Speaker 3: a path where someone doesn't meet those standards and instead
28:32
Speaker 3: goes and educates themselves on how private equity investments works
28:36
Speaker 3: and earns their accreditation status. You got to taste, you know,
28:38
Speaker 3: a six hour course or something like, and arguably, given
28:41
Speaker 3: the incentives there for people to sell these types of
28:44
Speaker 3: things to accredited investors who don't know what the hell
28:47
Speaker 3: they're buying, there might be a case for doing that. Anyway,
28:50
Speaker 3: Does anyone think that.
28:51
Speaker 2: Like, wealthier people are just smarter? I mean, like not
28:56
Speaker 2: a lot of evidence. I'm not saying they're dumber. I'm
28:59
Speaker 2: just saying, hey, like smarts and financial wealth are not
29:05
Speaker 2: tied together necessarily, Like it's not one and the same. Like, sure,
29:10
Speaker 2: you can be correlated in some ways, but like, quite honestly,
29:13
Speaker 2: I know some people that are not like the smartest
29:16
Speaker 2: as far as like if you ask them very basic
29:19
Speaker 2: math questions and stuff, they'd struggle with them. Yes, but
29:23
Speaker 2: they've made large amounts of money because of acumen in
29:26
Speaker 2: other areas and whatever it might be. I guess that's
29:28
Speaker 2: what I'm getting at. So on one hand, you look
29:31
Speaker 2: at this and you're like, sure, why should investments with
29:34
Speaker 2: you know that the types of return that private equity
29:36
Speaker 2: can generate sometimes, why should it only be limited to
29:39
Speaker 2: those who were very wealthy. The reasoning that's justified it
29:43
Speaker 2: to this point is that historically these have also been
29:46
Speaker 2: some of the riskiest investments for a couple of reasons. A.
29:50
Speaker 2: They may hold, you know, investments that are illiquid, so
29:53
Speaker 2: you don't have access to your principle. They may employ
29:56
Speaker 2: large amounts of leverage, so you have the greater risk
29:59
Speaker 2: of wipeout. There's all kinds of potential downsides.
30:02
Speaker 3: They are riskier, and by and large, they don't have
30:04
Speaker 3: the same requirements about disclosures, so you won't see the
30:07
Speaker 3: same things that you get out of a mutual fund
30:09
Speaker 3: perspectus when you talk about a private equity investment. Correct.
30:12
Speaker 2: So this tends to lead you to okay, if you're
30:16
Speaker 2: talking about people's retirement, sure they have this potential upside,
30:20
Speaker 2: but if the downside risk materializes, that risk doesn't leave
30:24
Speaker 2: the system. Now you've got a whole bunch of people
30:26
Speaker 2: where their retirement if things go badly, is compromised. And
30:31
Speaker 2: what do you do then if you have a bunch
30:33
Speaker 2: of people that committed their retirement into these things and
30:37
Speaker 2: now are out of luck because they're four to one,
30:39
Speaker 2: k is.
30:39
Speaker 3: Worthless, or even if it's doesn't all fall apart. Even
30:44
Speaker 3: in somewhat stressful times, there are severe liquidity issues and
30:47
Speaker 3: things that aren't a great fit for retirement accounts. If
30:50
Speaker 3: you think about correct eighty year olds have whoever required
30:53
Speaker 3: a minimum distribution requirements and at the same time have
30:56
Speaker 3: a bunch of their money in private equity, that could
30:58
Speaker 3: be a real problem. So I think where both of
31:01
Speaker 3: us are landing here is that I think it's perfectly
31:04
Speaker 3: reasonable to have a conversation and debate about who should
31:08
Speaker 3: be eligible to place money into these things. But purely
31:11
Speaker 3: deregulating it and saying yeah, any financial advisor out there
31:14
Speaker 3: can go and sell private equity investments to the general
31:17
Speaker 3: public in their retirement plans is a really dangerous path
31:20
Speaker 3: that I don't think you want to go down.
31:22
Speaker 2: Here's the other place that I'm gonna go with this
31:25
Speaker 2: number one. If you're talking like four to one k's,
31:28
Speaker 2: how many four to one K fiduciaries are just gonna
31:30
Speaker 2: be like, yeah, sign me up for like this kind
31:33
Speaker 2: of risk. Right, It's a little like is if you're
31:37
Speaker 2: a fiduciary managing that four to one K plan, Okay,
31:41
Speaker 2: you're held to a really high standard. Yes, you're gonna
31:45
Speaker 2: just take on that kind of risk. How are you
31:47
Speaker 2: gonna manage it? If again you talk about you know,
31:49
Speaker 2: these funds tend to be liquid. Hey, if someone wants
31:52
Speaker 2: to start withdrawing funds, they can't just do it pro rata, right,
31:55
Speaker 2: you know, how do you manage those types of things.
31:58
Speaker 2: The other piece on this, and this is where I
32:03
Speaker 2: always go is look private equity and private credit and
32:06
Speaker 2: you know, hedge funds and this and that. They don't
32:11
Speaker 2: want to have a lot of thousand dollars clients.
32:15
Speaker 3: Right, That's why the four ohne casepase makes sense.
32:17
Speaker 2: That's not their business. It's not that they like don't
32:21
Speaker 2: like you, It's just they don't want you. It's not
32:23
Speaker 2: what their businesses are set up for. They're not set
32:25
Speaker 2: up for like large scale record keeping in this and
32:27
Speaker 2: that they want not Robin Hood. No. So the question
32:31
Speaker 2: that I always ask is when they start talking about
32:35
Speaker 2: doing this, why are they doing it now?
32:39
Speaker 3: Have they?
32:40
Speaker 2: Again?
32:41
Speaker 3: Well?
32:41
Speaker 2: I mean very clearly because Trump administration is coming into
32:43
Speaker 2: office and is in favor of deregulation and like maybe,
32:49
Speaker 2: but even for this entire year, you've been seeing like
32:52
Speaker 2: Apollo and other managers trying to start up like private
32:55
Speaker 2: credit ETFs and interval funds and things along these lines,
32:59
Speaker 2: and you're kind of like, why are they pushing it
33:02
Speaker 2: on the retail person, because the retail person gets burned
33:05
Speaker 2: on these a lot of times after everyone else has
33:07
Speaker 2: made their money.
33:08
Speaker 3: Last one of the punch bowl is the argument.
33:10
Speaker 2: That's kind of how I feel sometimes, and so it's
33:12
Speaker 2: another thing that just gets my intent uping make me go.
33:16
Speaker 2: We'll have to see if this is actually a good
33:18
Speaker 2: idea or not. Take a quick break when we come back.
33:21
Speaker 2: Stack Roulette.
33:23
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34:35
Speaker 2: Mike, what do you got for stack Roulette?
34:37
Speaker 3: Interesting generational stuff, and it comes to investing right now.
34:40
Speaker 3: I remember in one of my first jobs at a
34:43
Speaker 3: financial services company, I was taking a look at trends
34:46
Speaker 3: when it came to millennials in their investing habits. And
34:50
Speaker 3: millennials came of age or entered the labor force around
34:56
Speaker 3: the Great Recession, and their investing habits tended to fall.
35:00
Speaker 3: Of that they were more interested in large blue chip
35:03
Speaker 3: dividend paying stocks. And at the time, I distinctly remember
35:07
Speaker 3: speaking to somebody who you know, I was, I think
35:11
Speaker 3: I was still a college student at the time, who
35:12
Speaker 3: was pointing out They're like, that's not the usual and
35:15
Speaker 3: you know, recommended path for somebody that's eighteen to twenty
35:19
Speaker 3: five years old. You would want to be a more
35:20
Speaker 3: aggressive investor at that stage, and yet they are are
35:23
Speaker 3: you know, quite conservative. Gen Z also appears to be
35:27
Speaker 3: a product of their time and have gotten started investing
35:33
Speaker 3: earlier and more aggressively. On average, gen Z those born
35:36
Speaker 3: between ninety seven and twenty twelve started investing at age eighteen,
35:39
Speaker 3: Millennials started at twenty five, gen X started at thirty two,
35:43
Speaker 3: and boomers started at thirty five. So I can take
35:45
Speaker 3: some good news from all of this. The bad news
35:49
Speaker 3: would be that anyone that's invested long enough knows that
35:52
Speaker 3: these things also go down. We have always had a
35:55
Speaker 3: period of time where stocks boom and then bust, and
35:58
Speaker 3: gen Zers are getting started earlier, hopefully with money that
36:02
Speaker 3: they have that they're able to actually save, but will
36:04
Speaker 3: likely be subject to one of these bust cycles at
36:07
Speaker 3: some point, and are likely invested more aggressively than their
36:10
Speaker 3: previous generations at their age.
36:12
Speaker 2: Yeah, it's uh again. Volatility in these these markets. It's
36:17
Speaker 2: a feature, not a bug. Ye, And thus far most
36:21
Speaker 2: of that volatility has been in the upward direction. But look,
36:23
Speaker 2: twenty twenty two was a brutal year for gen Z
36:26
Speaker 2: investors who might have been starting out. Hopefully they didn't
36:28
Speaker 2: get too discouraged and didn't lose all their capital and
36:31
Speaker 2: you know, are able to learn some lessons and continue on.
36:34
Speaker 2: But it can be tough navigating those waters. You know,
36:37
Speaker 2: early on, DraftKings is putting out a subscription service. It's
36:43
Speaker 2: going to be called Draft.
36:45
Speaker 3: Kings Ambler's Anonymous.
36:47
Speaker 2: No, that's that's actually a thing. It's called Draft Kings
36:51
Speaker 2: Sportsbook Plus. Because we just need another plus here, and
36:55
Speaker 2: I'll quote from market Watch. Members would have access to
36:58
Speaker 2: stepped up boosts for all part parlays where the individual
37:01
Speaker 2: legs are minus five hundred or shorter two leg parlays.
37:04
Speaker 2: We'll see profits increase by ten percent as part of
37:06
Speaker 2: the membership, and the boost will grow as the parlays
37:09
Speaker 2: get bigger. Parlay with more than ten legs will have
37:12
Speaker 2: the profits for the better doubled. I knew like three
37:16
Speaker 2: to five of those words, like I know very little
37:19
Speaker 2: about betting, and Tucker's probably going to be like, you're
37:21
Speaker 2: all wrong, Tucker, Am I correct that if you're betting
37:24
Speaker 2: ten leg parlays, it's basically as good as giving your
37:26
Speaker 2: money away.
37:28
Speaker 4: Correct, Like, first of all, it's extremely rare for a
37:33
Speaker 4: ten leg parlay to hit.
37:35
Speaker 2: Beyond that, here's the thing. You could hit on nine
37:37
Speaker 2: of these, meaning that you were like right most of
37:39
Speaker 2: the time, and if you lose that last one you
37:43
Speaker 2: get nothing. So it doesn't even reward someone with good skill,
37:47
Speaker 2: it rewards someone with luck. It is like it's gambling
37:51
Speaker 2: on gambling, is the way that I would put it.
37:53
Speaker 3: And you pay a subscription fee for access to this.
37:56
Speaker 2: They're not doing this out of the goodness of their hearts.
37:58
Speaker 2: They're not doing this to make you money. They're doing
38:02
Speaker 2: this to make them money. They've run the numbers and
38:08
Speaker 2: you better believe, Hey, if you're good at this, they're
38:11
Speaker 2: gonna throttle how much you can win because that's what
38:13
Speaker 2: they do.
38:14
Speaker 4: I'll just limit you. Yeah, So.
38:19
Speaker 2: There's that quick break for the rest of the day.
38:21
Speaker 2: We'll see tomorrow on the Financial Exchange,