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Google was a sleepy AI giant. Now it is awake. · The Financial Exchange Show

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Speaker 1: and Paul Lame.
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Speaker 2: Chuck prop chuker with you here on the Wednesday before Thanksgiving,
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Speaker 2: And if you happen to be on the road to
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Speaker 2: grandma and Grandpa's, if you happen to be Grandma and
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Speaker 2: Grandpa on the road to your kid's.
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Speaker 3: House, or if you just happen to be, you know,
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Speaker 3: like us, still working on the day before Thanksgiving, then
1:28
Speaker 3: we're happy to have you listening, because still quite a
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Speaker 3: bit to get to with a shortened week. Again, you're
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Speaker 3: not gonna have trading happening tomorrow. You've got a half
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Speaker 3: day of trading on Friday, but we still have, you know,
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Speaker 3: quite a bit that is going on and quite a
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Speaker 3: bit to sort through. And the place that we're going
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Speaker 3: to start today, Paul is with the FED, since we
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Speaker 3: are now at this point just a couple weeks out
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Speaker 3: from that December meeting, which is on December tenth, two
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Speaker 3: week from today, and the intrigue that's out there has
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Speaker 3: kind of decreased in the last few days where it
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Speaker 3: seems like you're getting more members of the FED signaling
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Speaker 3: the idea that yes, we are likely to get a
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Speaker 3: rate cut in December, but then kind of a hawkish
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Speaker 3: push towards Hey, we'd need to see a lot more
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Speaker 3: before we cut further in January, which I think makes
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Speaker 3: more sense than what I've seen, you know, prior to this,
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Speaker 3: but still some question as to, hey, is the Fed
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Speaker 3: really going to you know, follow through with that and
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Speaker 3: go for a third straight meeting with a quarter percent cut.
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Speaker 4: Yeah, it's been interesting to follow the last couple of weeks, Chuck.
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Speaker 4: As you mentioned the last call it three to five
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Speaker 4: business days, and not so much as it seems to
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Speaker 4: be crystallized a little bit more clearly that we will
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Speaker 4: see that rate cut in that December tenth meeting, but
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Speaker 4: prior to that it was more of a coin flip
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Speaker 4: fifty to fifty, and I feel ultimately it was some
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Speaker 4: commentary from whether it's New York Fed president on William's
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Speaker 4: coming out and sort of reiterating the Fed's course to cut,
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Speaker 4: as well as the jobs report that you could argue
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Speaker 4: for the month of September that wasn't fantastic. I mean,
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Speaker 4: there was a good headline growth in jobs numbers, but
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Speaker 4: we can we've seen how those can be revised down.
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Speaker 4: The unemployment rate did tick up to four point four percent,
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Speaker 4: So where we sit today like you had mentioned eighty
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Speaker 4: three percent probability looking at CMA futures right now that
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Speaker 4: we do see that rate cup on December tenth. So
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Speaker 4: it seems as if the policy trajectory is going to be,
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Speaker 4: like you said, making this cut in December, but also
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Speaker 4: creating a very high bar for future cuts. And it
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Speaker 4: seems to be logical. There's really more risks probably that
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Speaker 4: you run, chuck, if you just say, you know what,
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Speaker 4: We're gonna stand pat here and wait another six or
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Speaker 4: seven weeks until our next meeting before we make a call.
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Speaker 4: There's a lot of data that come out could come
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Speaker 4: out during that time span that could make it that
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Speaker 4: you probably should have cut in December. So why not
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Speaker 4: go another quarter percent? Here?
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Speaker 3: Yeah, And look, as as I've been saying for the
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Speaker 3: last couple of weeks, I hold both of these views simultaneously.
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Speaker 3: That look, if you if you cut in September and October,
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Speaker 3: I don't know that anything's happened in the interim where
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Speaker 3: you say, no, we're not going to cut in December, right,
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Speaker 3: But I also say, look, whether the FED does or
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Speaker 3: does not cut in December, I also don't think it
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Speaker 3: really matters because it's a quarter percent after the FED
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Speaker 3: has already cut interest rates by one and a half
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Speaker 3: percent over the last year and two months since last September.
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Speaker 3: And so my view on this is, look, if you're not,
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Speaker 3: you know, seeing enough movement in the economy or seeing
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Speaker 3: what you want to see from the one hundred and
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Speaker 3: fifty basis points in an interest rate cuts that the
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Speaker 3: Fed's already pushed through. I don't think that last quarter
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Speaker 3: percent is gonna be the thing that does it for you.
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Speaker 4: No, it's not gonna be the straw that that breaks
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Speaker 4: the camel's back. It's hard to figure out what your
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Speaker 4: argument would be if you were so insistent on not cutting.
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Speaker 4: If someone was in that camp, I guess it would
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Speaker 4: be this idea that inflation's going to persist and be
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Speaker 4: stickier than projected for the next few months here, But
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Speaker 4: it's hard to do that. I mean, three percent. Yeah,
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Speaker 4: it's over the target of the feds two percent inflation goal,
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Speaker 4: but I don't think enough evidence to keep it where
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Speaker 4: it is on a rape perspective here.
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Speaker 3: Yeah, the case that I think you could make and
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Speaker 3: I'm not saying this is where I am because I again,
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Speaker 3: I really think they should be cutting in December. The
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Speaker 3: case to be made if you say, look, we shouldn't
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Speaker 3: be doing any additional cuts is we've done this one
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Speaker 3: hundred and fifty basis points and cuts now. The last
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Speaker 3: fifty basis points was in the last few months, and
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Speaker 3: based on the fact that inflation is still above where
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Speaker 3: we'd like to see it, we need to see more
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Speaker 3: evidence in order to have it get to the point
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Speaker 3: where I'd be comfortable with more cuts.
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Speaker 5: That's the hypothetical case.
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Speaker 3: I don't know that I agree with it, because ultimately,
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Speaker 3: like when you look at the economic data that we
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Speaker 3: have out there right now.
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Speaker 5: It shows that housing is still really struggling.
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Speaker 3: And that's on the construction side, that's on the existing
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Speaker 3: home sales side, it's on the renovation side. You're seeing
6:27
Speaker 3: this whether you're like basically anywhere that you look at it,
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Speaker 3: you're seeing it. The only place that you are seeing
6:34
Speaker 3: a bit of a bright spot right now is the
6:36
Speaker 3: fact that new mortgage applications are picking up a little
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Speaker 3: bit finally. But the interesting piece is the size of
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Speaker 3: the mortgage applications is not which indicates that, hey, these
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Speaker 3: are smaller mortgages that are being taken out, which indicates,
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Speaker 3: you know, pricing is still under pressure. And the other
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Speaker 3: thing that I've seen speculated that I don't have the
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Speaker 3: hard data on right now, is that this could be
6:59
Speaker 3: happening just because the prevalence of all cash deals is down,
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Speaker 3: since you just don't have all this extra cash sloshing around.
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Speaker 5: Like you did a few years ago.
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Speaker 3: And so the additional mortgages is not representative of a
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Speaker 3: real uptick in activity, but just more purchases moving to
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Speaker 3: using financing as opposed to using cash. Sure, sure, but otherwise,
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Speaker 3: like you look at existing home sales data basically been
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Speaker 3: between like three point nine million and four and a
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Speaker 3: quarter million for the last three years. No shift, new
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Speaker 3: construction slowing. We're seeing it unsold inventory of new construction growing.
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Speaker 3: Home depot coming out saying, yeah, our earnings weren't that
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Speaker 3: good this quarter. We you know, started to see some
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Speaker 3: you know, negative trends developing there. They blamed it on
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Speaker 3: a lack of hurricanes another extreme weather that normally shows
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Speaker 3: up at the end of Q three, but still something
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Speaker 3: that you know is kind of troubling. So if if
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Speaker 3: you're saying, hey, like the Fed's got to cut this
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Speaker 3: extra quarter percent to help housing, well, the first one
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Speaker 3: to a half percent of cuts hasn't really helped housing
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Speaker 3: very much.
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Speaker 4: Yeah, that's that's a beast sun to itself. That's gonna
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Speaker 4: be hard to tame with just the interest rate side
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Speaker 4: of things here, and then you have a labor market
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Speaker 4: on top of that that is, you know, not in
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Speaker 4: a great spot. Yeah, it's Matt and we'll see what
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Speaker 4: the last the next couple months look like. I do
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Speaker 4: wonder that you just it seems like Chuck more and
8:26
Speaker 4: more in the show we're covering stories. HP is another
8:30
Speaker 4: one yesterday announced that they were going to lay off
8:32
Speaker 4: three to four thousand employees. It just seems like that
8:34
Speaker 4: announcement from public companies is more and more prevalent. That
8:38
Speaker 4: doesn't obviously immediately happen, It's something that phases in over time.
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Speaker 4: So you know, you wonder what the employment picture looks
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Speaker 4: like heading in twenty six And that's of paramount concern
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Speaker 4: for the Federal Reserve and probably prompts this cut that
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Speaker 4: we've been talking about here.
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Speaker 3: Now the other piece that if you want another case
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Speaker 3: for the Fed not cutting, is it safe to say
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Speaker 3: that the economy this year has had a decent chunk
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Speaker 3: of uncertainty thrown at it.
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Speaker 5: Oh yeah, right, like it seems.
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Speaker 4: Like two years ago. It just it seems like we've
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Speaker 4: been up down and all around this year.
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Speaker 5: There's been some uncertainty out there.
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Speaker 3: And the thing that I come back to on in
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Speaker 3: a lot of these things is what matters isn't whether
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Speaker 3: the uncertainty is present or not. It's whether companies have
9:23
Speaker 3: you know, kind of learned to live with it and
9:25
Speaker 3: basically incorporated into their plans and then figure out how
9:28
Speaker 3: to how to go from there. It's almost like the
9:30
Speaker 3: rate of change of the uncertainty is what matters. And
9:34
Speaker 3: I do look forward to twenty six and I say, look,
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Speaker 3: the year over year comps in a lot of different
9:41
Speaker 3: areas are gonna get pretty easy next year. And so
9:46
Speaker 3: all it takes is a little bit of marginal improvement
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Speaker 3: and you might see the economy start to pick up,
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Speaker 3: you know, noticeably, and with that, if it does, that
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Speaker 3: potentially has you know, an uptick in inflation that would
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Speaker 3: go along with it. And so the case for not
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Speaker 3: cutting is, yeah, if a FED member is looking out
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Speaker 3: at you know, their models for how this all fits
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Speaker 3: together and says, yeah, we see something you know, potentially
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Speaker 3: similar happening, then that could be a convincing case also
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Speaker 3: where they say, yeah, we don't want to be you know,
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Speaker 3: cutting right to the end of twenty five. If we
10:21
Speaker 3: think that, you know, starting you know, end of Q
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Speaker 3: two of next year, maybe we need to start hiking again,
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Speaker 3: right right. So that's another potential case that's out there.
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Speaker 3: Let's take a quick break here. When we come back,
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Speaker 3: we've been talking about interest rates a lot. Let's talk
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Speaker 3: about the other piece that the FED manages, the FED
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Speaker 3: balance sheet. Where does it stand now relative to a
10:43
Speaker 3: couple of years ago.
10:44
Speaker 5: Where is it going? We'll discuss when we come back.
10:47
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11:49
Speaker 5: The Federal Reserve has a balance sheets? What is it?
11:53
Speaker 5: Why do they have it, and why are we talking
11:55
Speaker 5: about it now?
11:57
Speaker 4: The Federal Reserve has a balance sheet where basically they
11:59
Speaker 4: build a contingency of reserves, and it was an issue
12:04
Speaker 4: that it had become significantly bloated during the post pandemic
12:09
Speaker 4: period where they were pursuing a significant amount. I believe
12:12
Speaker 4: it was what are we forty billion a month of
12:15
Speaker 4: mortgage backed securities back in the heyday of twenty one
12:17
Speaker 4: or twenty two. It had ballooned to a size of
12:21
Speaker 4: nine trillion dollars at its peak the balance sheet for
12:24
Speaker 4: the Frontal Reserve, and so they had made the decision.
12:27
Speaker 4: Often you could argue maybe too late, that they made
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Speaker 4: this decision with inflation picking up, to basically let securities
12:33
Speaker 4: run off their balance sheets. So if they're buying mortage
12:35
Speaker 4: backed securities or treasuries, whatever, the security vehicle, when you
12:39
Speaker 4: run them off your balance sheet, basically you're buying bonds
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Speaker 4: with a maturity date, and rather than reinvesting those proceeds
12:45
Speaker 4: when the principle comes due to you, you just just
12:48
Speaker 4: let it run off and you don't buy back the security.
12:50
Speaker 4: We now sit the Federal Reserve, I should say, their
12:53
Speaker 4: balance sheet sits at six point five to six trillion,
12:56
Speaker 4: and they've reached a point basically where they've stated that
12:59
Speaker 4: they are no longer going to allow the balance sheet
13:02
Speaker 4: to run if any further. Why is this an area
13:06
Speaker 4: of concern? When you look at the Federal Reserve, some
13:09
Speaker 4: of its job obviously is to set the interest rate
13:11
Speaker 4: that we talk about so frequently, but they're also integral
13:14
Speaker 4: in the overnight lending that occurs between banks, and the
13:17
Speaker 4: risk that you run, without getting too overly complicated, is
13:20
Speaker 4: that the further that it shrinks its balance sheet, the
13:24
Speaker 4: more susceptible it becomes to having money market interest rate
13:28
Speaker 4: fluctuations or repo rates rising and just causing issues. I
13:33
Speaker 4: would guess I would just summarize for banks, and that's
13:36
Speaker 4: why you see the pivot in policy here going forward
13:40
Speaker 4: effective December first.
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Speaker 3: When you look at this piece by Bill Duddley, who
13:46
Speaker 3: used to run the Federal Reserve Bank of New York,
13:50
Speaker 3: anything stand out to you as far as things that
13:52
Speaker 3: he talks about in here that you might be relevant
13:57
Speaker 3: to why this matters to the average person.
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Speaker 4: He makes a good counterpoint. I don't know if people
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Speaker 4: are necessarily viewing it this way, but those who are
14:07
Speaker 4: arguing that if the Federal Reserve balance sheet it needs
14:10
Speaker 4: to reduce in order to accommodate significantly lower rates on
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Speaker 4: the federal funds rate side of things, he disputes that notion.
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Speaker 4: Just given its size and the impact of the shrinking,
14:23
Speaker 4: the risk far outweigh the potential benefits to having its
14:29
Speaker 4: runoff for further continue and reduce interest rates. Really the
14:32
Speaker 4: policy decisions are far more critical. He makes the point
14:36
Speaker 4: than having this balance sheet run down too tight and
14:39
Speaker 4: have too small a balance sheet on the books. That
14:43
Speaker 4: was a fair point that he made, and just sort
14:45
Speaker 4: of characterizes the money supply that we were in an
14:49
Speaker 4: abundant period of money supply, a ton of money slashing around.
14:53
Speaker 4: We now sit as what he quotes us saying an
14:55
Speaker 4: ample sort of supply that is appropriate going forward.
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Speaker 3: Yesterday we received the latest update from the Conference Board
15:04
Speaker 3: on consumer confidence for the month of November, and this
15:08
Speaker 3: is another one that, like, I really struggled to reconcile
15:12
Speaker 3: some of the things that we're seeing right now, where
15:15
Speaker 3: consumer confidence reading comes in at a reading of eighty
15:18
Speaker 3: eight point seven, which again like the actual number, like,
15:23
Speaker 3: don't worry about it, but I think the way that
15:26
Speaker 3: I would phrase this is it's the lowest reading for
15:28
Speaker 3: consumer confidence since January of twenty twenty one, aside from
15:33
Speaker 3: this April when there was just you know, a lot
15:35
Speaker 3: of teriff uncertainty and stuff like that. And so here's
15:38
Speaker 3: what I struggle to reconcile on this, Paul. So we've
15:42
Speaker 3: got really low consumer confidence, right We got consumers saying
15:47
Speaker 3: they're going to be pulling back on spending, and yet
15:51
Speaker 3: we just got through retail sales earnings that were remarkably good,
15:56
Speaker 3: aside from basically Target who's got their own issues. Going one,
16:00
Speaker 3: we continue to see banks and credit card companies saying, yes,
16:04
Speaker 3: there's very consistent four to six percent spending growth year
16:08
Speaker 3: over year.
16:09
Speaker 5: There's no change.
16:10
Speaker 3: Despite the fact that the job market seems kind of messy,
16:14
Speaker 3: and you've got corporate earnings in a really good spot
16:17
Speaker 3: and not really showing any signs of major stress. And
16:21
Speaker 3: so I guess what I'm trying to figure out here.
16:25
Speaker 3: And again I've got my hypothesis on this, But why
16:29
Speaker 3: is consumer sentiment so bad right now? When I will say, okay,
16:36
Speaker 3: this probably answers it. It's three things, I'll answer my
16:40
Speaker 3: own question, Paul, Sorry for the roundabout past, K shape economy.
16:43
Speaker 4: Let me drop one of the things.
16:44
Speaker 5: Yes, K shape economy.
16:45
Speaker 3: Okay, Like, there's a big chunk of people that are
16:47
Speaker 3: feeling bad about the economy because they are in the
16:51
Speaker 3: lower half of the income spectrum and their incomes are
16:55
Speaker 3: not keeping up with inflation and the cost of living.
16:57
Speaker 5: Yep.
16:58
Speaker 3: The other two things that I think are making confidence
17:00
Speaker 3: feel bad. The housing market still a mess in most
17:03
Speaker 3: of the country. I know our show is based in
17:05
Speaker 3: the northeast, but if you talk to people across the
17:07
Speaker 3: southeast and even into the southwest and west coast, now
17:11
Speaker 3: you've got housing markets that are not very good and
17:14
Speaker 3: the job market is bad. So if half the population
17:17
Speaker 3: is struggling to keep up with inflation, the housing market
17:20
Speaker 3: in a lot of the country is not good and
17:22
Speaker 3: the job market is weak. Yeah, Like, I get it
17:25
Speaker 3: because I'm looking. I'm in the Northeast where the housing
17:28
Speaker 3: market's strong, and we are in I'm I'm employed, so
17:35
Speaker 3: I'm not sitting here being like, oh, the labor market's bad.
17:37
Speaker 3: I've been employed the same place for like sixteen years now,
17:40
Speaker 3: so like I'm kind of my personal biases, I just
17:43
Speaker 3: don't notice this stuff. And so yeah, like I get
17:48
Speaker 3: why this is the case, but it's just the thing
17:51
Speaker 3: that's so weird is that the overall economy still seems
17:55
Speaker 3: fine despite these problems, and I think that's the most
17:59
Speaker 3: while the thing to me is housing's not good, the
18:02
Speaker 3: labor market's not good, and yet somehow we're still chugging along.
18:07
Speaker 4: The stock market seems ever more important than at least
18:11
Speaker 4: in the last this year. That's been sort of the
18:13
Speaker 4: biggest takeaway that I've had is in conjunction with us
18:17
Speaker 4: discussing the KSHAPCAMI, those people on the upper end of
18:21
Speaker 4: that k are ones who are invested in the market,
18:24
Speaker 4: and it seems as if that that confidence on that
18:27
Speaker 4: side of things is backed by this idea that hey,
18:30
Speaker 4: they've had jeez, twenty three, twenty four, and twenty five
18:34
Speaker 4: are all you have twenty three and twenty four for
18:36
Speaker 4: stock market returns over twenty percent, and this year we're
18:39
Speaker 4: sitting close to knocking on the door of that at
18:41
Speaker 4: least in excess to fifteen percent. So you've had three
18:44
Speaker 4: tremendous years for those people who have been participating in
18:47
Speaker 4: the market are living off of a portfolio. It's hard
18:52
Speaker 4: these consumer confidence ones. I think it's a mixture of
18:56
Speaker 4: just perhaps people's you know, pessimism and maybe the case
19:00
Speaker 4: shape stuff, But it doesn't really do a great job
19:03
Speaker 4: of encapsulating where the economy stands, the feelings that people have.
19:09
Speaker 4: It's hard to really glean much from it.
19:12
Speaker 3: Yeah, yeah, I think that's a fair summary of where
19:17
Speaker 3: we stand at this point. It's just still a little
19:22
Speaker 3: confusing sometimes when you're looking at it. Just take a
19:25
Speaker 3: quick break here. When we return, we got Wall Street Watch.
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20:01
Speaker 6: What markets are in positive territories Wall Street sifts through
20:04
Speaker 6: more economic data this morning, including durable goods and jobless claims.
20:09
Speaker 6: Right now, the Dow is up just over half a percent,
20:12
Speaker 6: or two one hundred and fifty three points. SMP five
20:14
Speaker 6: hundred also up over half a percent to thirty six points.
20:18
Speaker 6: NASDAC up over half a percent as well, or one
20:21
Speaker 6: hundred and twenty points. RUSS two thousand is up just
20:24
Speaker 6: over four cents of a percent. Ten You're Treasure reeled
20:27
Speaker 6: up one basis point at four point zero two to
20:29
Speaker 6: one percent, and crude oil up modestly, edging just above
20:34
Speaker 6: fifty eight dollars a barrel after the stock pulled back
20:38
Speaker 6: three percent in reaction to optimism around Google's AI, chips
20:42
Speaker 6: and video shares are rebounding over one percent today and in
20:45
Speaker 6: response two concerns, the AI and chip giants said in
20:49
Speaker 6: a post on x that it is a generation ahead
20:52
Speaker 6: of the industry. Alphabeto, by the way, is down over
20:56
Speaker 6: one and a half percent today after its a recent rally. Meanwhile,
20:59
Speaker 6: shares in the technologies rising over four percent after the
21:02
Speaker 6: computer and software maker raised its full year guidance and
21:06
Speaker 6: forecasted its AI server shipments would more than double, sticking
21:10
Speaker 6: with Tech, where HP set it plans to cut up
21:13
Speaker 6: about cut up to ten percent of its workforce as
21:17
Speaker 6: it invests further in AIHP stock is down two percent. Elsewhere,
21:22
Speaker 6: Deer beat earnings and revenue expectations for the previous quarter. However,
21:27
Speaker 6: the farm equipment maker issued downbeat annual forecast and said
21:31
Speaker 6: tariff's in uncertainty would pressure earnings, Deer falling by three percent.
21:37
Speaker 6: Digital design software maker Autodesk raised its annual outlook, sending
21:41
Speaker 6: shares up three percent higher. In apparel, retailer Urban Outfitters
21:45
Speaker 6: posted stronger than expected quarterly results, boosted by its namesake brand,
21:50
Speaker 6: that stock rallying by fifteen percent. I'm Tucker Silva and
21:55
Speaker 6: that is Wall Street Watch. And remember you can watch
21:57
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22:18
Speaker 3: Probably want to talk a little bit about the retail
22:20
Speaker 3: sales data that we got yesterday, just because you get
22:23
Speaker 3: a couple pieces.
22:24
Speaker 5: Here that are all like, hey.
22:27
Speaker 3: Retail sales weren't very good for September, and honestly, I
22:32
Speaker 3: don't care because the actual retail earnings were just fine,
22:36
Speaker 3: and so I don't know why the retail sales data
22:40
Speaker 3: for September is relevant in any way, shape or form to.
22:46
Speaker 5: Anything.
22:47
Speaker 4: No, we had a lot of trouble with this yesterday
22:49
Speaker 4: when the report came out, Mike and I talking about
22:51
Speaker 4: on the show, because it was so backward looking. In September,
22:54
Speaker 4: as you mentioned, some of the retailers had come out
22:57
Speaker 4: with really strong earnings that sort of can work contradictory
23:01
Speaker 4: to what we saw from September's report, And in general,
23:05
Speaker 4: I was just thinking this as an aside check, has
23:08
Speaker 4: there ever been in your time covering the retail sales
23:11
Speaker 4: report where you felt it was just incredibly significant were
23:16
Speaker 4: reporting in one direction and another of where the consumer
23:19
Speaker 4: is going. I just couldn't think back to a time
23:22
Speaker 4: where that retail sales report it really was the start
23:26
Speaker 4: of something.
23:28
Speaker 5: Well.
23:28
Speaker 3: I do think it is informative because it helps to
23:31
Speaker 3: give us guidance. Like I'm a big believer still that
23:34
Speaker 3: traditionally in the business cycle, demand is what leads employment,
23:39
Speaker 3: and so I do think that the early signs that
23:44
Speaker 3: you know, demand was going to go screaming higher back
23:46
Speaker 3: in twenty twenty one was when you know, retail started
23:50
Speaker 3: moving in that direction, and pretty soon, you know, you
23:52
Speaker 3: saw inflation just cooking up as a result of it.
23:55
Speaker 5: And so I do think it can be.
23:58
Speaker 3: You know, informative, but I also think look, aside from
24:05
Speaker 3: you know, what we saw from you know, twenty twenty
24:08
Speaker 3: through twenty three, we haven't really seen any major variations
24:13
Speaker 3: in business cycles in almost twenty years now, you know,
24:18
Speaker 3: like the US, aside from the COVID recession, hasn't been
24:22
Speaker 3: in recession since, you know, in almost twenty years now.
24:26
Speaker 3: It's gonna be twenty twenty six next year, like the
24:29
Speaker 3: I know it's hard to believe, but the financial crisis
24:31
Speaker 3: was almost twenty years ago now.
24:32
Speaker 5: Right, And so.
24:35
Speaker 3: This is kind of what gets it what a lot
24:38
Speaker 3: of people have been saying about markets and macroeconomics, which
24:43
Speaker 3: is like, oh, like this stuff like nothing matters, Like
24:45
Speaker 3: the economy just does what it does. And I get
24:47
Speaker 3: why there's that sense out there, because basically, aside from COVID,
24:54
Speaker 3: nothing's really mattered to the economy. In the last twenty
24:57
Speaker 3: years as far as like will it go into reces
25:00
Speaker 3: session or not even now, like for all of the
25:04
Speaker 3: you know, all of the inkspilled on you know, hey,
25:07
Speaker 3: will there be a recession in twenty twenty three? Will
25:09
Speaker 3: there be a recession in twenty four? Now it's will
25:12
Speaker 3: there be one in twenty five? Now it's gonna be
25:13
Speaker 3: will there be one in twenty six? Sure, the answer
25:17
Speaker 3: is despite all of the things that have concerned us
25:19
Speaker 3: over the last few years, you know, high inflation, the
25:22
Speaker 3: FED hiking rates, Silicon Valley bank blowing up or slowing,
25:26
Speaker 3: labor market, tariffs, this that whatever, you look at the
25:30
Speaker 3: broad economic data and like I I don't blame for
25:33
Speaker 3: people for feeling like none of this matters, Like is
25:37
Speaker 3: I get it.
25:38
Speaker 5: It's you look at the.
25:39
Speaker 3: Broad data and it hasn't mattered, But at some point
25:44
Speaker 3: it will, yep, because you're not just going to never
25:48
Speaker 3: have another recession again.
25:49
Speaker 5: Ever.
25:50
Speaker 3: Sure, I think the problem that we you know, that
25:52
Speaker 3: people tend to get into is they always want to
25:54
Speaker 3: predict recession and usually it doesn't happen. Like recessions are
25:57
Speaker 3: not something happens every year or two. You know, there
26:00
Speaker 3: have to be problems in the business cycle that lead
26:03
Speaker 3: to them, and that just hasn't been present large enough
26:07
Speaker 3: quantities in the last fifteen sixteen years.
26:09
Speaker 5: For that to be the case sure thing.
26:12
Speaker 3: So that's it's kind of where I am on that side.
26:15
Speaker 3: I do want to talk about something that's kind of
26:17
Speaker 3: media in markets over the last week or so, which
26:21
Speaker 3: is the Googs.
26:22
Speaker 4: I'm excited about this.
26:23
Speaker 5: I am too. So Google's a company.
26:24
Speaker 3: If you've been listening to our show for a while,
26:27
Speaker 3: you know that I've kind of had this feeling about
26:29
Speaker 3: Google for the last five or six years where it's
26:31
Speaker 3: kind of just like, what do they do? Like what's
26:35
Speaker 3: interesting about them? They're basically an online ad not monopoly
26:39
Speaker 3: because Facebook is out there in that space and Amazon's
26:42
Speaker 3: big too, but like they're all kind of just you know,
26:45
Speaker 3: huge in that space. And it's kind of like, Okay,
26:47
Speaker 3: do you do anything interesting anymore? And the answer is
26:51
Speaker 3: maybe I'm not willing, Like I don't know enough to
26:54
Speaker 3: say yes definitively.
26:56
Speaker 5: But here's the thing.
26:56
Speaker 3: The big Google announcement last week was that they're Gemini
27:00
Speaker 3: three AI platform uh basically dominates all previous platforms in
27:06
Speaker 3: terms of how it performs on tests. The bigger news
27:09
Speaker 3: was under the surface, which is, hey, the training was
27:11
Speaker 3: done on Google's own self developed chips. Yep, now quick
27:17
Speaker 3: and dirty, like you know, summary of this, just so
27:21
Speaker 3: that when you're at you know, Thanksgiving dinner, you can
27:23
Speaker 3: talk about this and and and sound smart.
27:25
Speaker 4: Little TPU GPU chatter.
27:27
Speaker 5: Oh boy, we're gonna get there. So uh.
27:29
Speaker 3: In Vidia, who makes most of the chips for you know,
27:32
Speaker 3: AI applications to this point. Their chips are known as GPUs,
27:35
Speaker 3: which historically been you know, graphics processing units. Back during
27:39
Speaker 3: you know, the last twenty years or so. If you
27:42
Speaker 3: wanted to play counter strike or you know, the latest
27:45
Speaker 3: call of duty and have it look the best, you
27:48
Speaker 3: needed the strongest graphics processing unit, the strongest GPU to
27:52
Speaker 3: be able to handle that load. Because it takes a
27:54
Speaker 3: ton of computing power to render three D graphics in
27:57
Speaker 3: real time. It's it's a lot for a computer to
28:00
Speaker 3: do that. So in Video's growth into this company that
28:03
Speaker 3: uses those GPUs for AI makes a lot of sense
28:07
Speaker 3: because they've already been developing technology that has a ton
28:11
Speaker 3: of power to handle large scale computing tasks for years.
28:16
Speaker 3: It's been their bread and butter. Google alphabet back in
28:22
Speaker 3: twenty fifteen developed what they call the tensor processing unit
28:27
Speaker 3: tensor spelled tn SR or the TPU, And basically what
28:33
Speaker 3: TPUs are designed to do. They're designed to process a
28:37
Speaker 3: ton of volume in terms of operations, but not with
28:41
Speaker 3: a ton of precisions. So basically, just get me as
28:43
Speaker 3: much information as possible and then we can sort through
28:46
Speaker 3: it on the back end. And they're custom built for
28:49
Speaker 3: specific uses, generally for machine learning and artificial intelligence. And
28:56
Speaker 3: so the big thing with this, you know, this announcement
29:01
Speaker 3: that Google used their own self developed TPUs for training
29:06
Speaker 3: their latest model, is Hey, if the latest and greatest
29:10
Speaker 3: model is this much better and they didn't use in
29:12
Speaker 3: Vidia chips and Google's own chips are a lot cheaper
29:16
Speaker 3: and you know, both to make and operate than Google's chips, hey,
29:20
Speaker 3: that's a potentially huge threat to in Vidia's chip business.
29:24
Speaker 3: Because if companies realize that there's more competition in video
29:29
Speaker 3: has two options either a like, develop things that are
29:32
Speaker 3: just so much better than everyone else that people have
29:34
Speaker 3: to use your stuff, but that doesn't look like the
29:36
Speaker 3: case here, or in video is going to have to
29:39
Speaker 3: start cutting its prices in order to compete, which means
29:43
Speaker 3: that fat margin. That is the reason why in Video's
29:45
Speaker 3: earnings just keep going up and up and up. Is
29:47
Speaker 3: going to get eaten into and more competition again means
29:51
Speaker 3: that not everybody's going to be a winner in the
29:54
Speaker 3: AI space.
29:55
Speaker 5: I think this is fascinating me too.
29:57
Speaker 4: This is the story that captivates me the most. When
29:59
Speaker 4: you talk about markets, I would push back and noticing
30:02
Speaker 4: that Google's boring. I mean, weaimo itself as a business
30:04
Speaker 4: that's covered within goal. Google is pretty fascinating. I know
30:07
Speaker 4: it doesn't really translate to the bottom line if we're
30:09
Speaker 4: looking at revenue, but also there they've they've got a
30:14
Speaker 4: They've done a lot of things right, I mean over
30:16
Speaker 4: the years, for sure, they're all over place. And what's
30:18
Speaker 4: really happened over the course of the last month or so,
30:21
Speaker 4: in addition to what you mentioned with with Gemini, and
30:25
Speaker 4: this is really only in the last week or two,
30:27
Speaker 4: is now that these TPUs that we just spoke about
30:30
Speaker 4: are going to be available for other companies to use. Typically,
30:33
Speaker 4: Google had just developed this in house and used it
30:36
Speaker 4: for the Gemini three model, training it on its own chips.
30:39
Speaker 4: Now it's just announced that a million chips are going
30:42
Speaker 4: to be sold to Anthropic, another artificial intelligence company that
30:45
Speaker 4: builds a large language model. And then the rumors that
30:48
Speaker 4: came out over the course of the last few days
30:50
Speaker 4: was that Meta was considering using Google's chips in its
30:54
Speaker 4: data centers as early as twenty twenty seven, and perhaps
30:58
Speaker 4: renting them out as early as next year. Google's positioning
31:01
Speaker 4: across everything in our official intelligence. It's funny how we
31:05
Speaker 4: were just talking about them not getting broken up as
31:07
Speaker 4: a monopoly a month or so ago, and all of
31:10
Speaker 4: a sudden they're woken up with a lot going here
31:13
Speaker 4: in their favor.
31:14
Speaker 5: Quick break here. When we come back, we're talking turkey
31:17
Speaker 5: after this.
31:19
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32:21
Speaker 3: All right, Paul, before we get to talk to Turkey here,
32:24
Speaker 3: let's let's cover this piece from the Wall Street Journal,
32:28
Speaker 3: just to wrap up our AI chatter. It's titled is
32:31
Speaker 3: it really possible to spend too much on AI?
32:36
Speaker 5: What's to talk about? And what are your thoughts? Check.
32:39
Speaker 4: The reason that this piece is grinding my gears and
32:43
Speaker 4: I think it's inaccurate is because this goes on in
32:46
Speaker 4: the piece here to make an example of Intel and
32:50
Speaker 4: the spending that it did under former CEO Pat Gelsinger
32:54
Speaker 4: in twenty twenty one, where they committed a significant amount
32:58
Speaker 4: of capital to build out their capable ability to manufacture chips.
33:03
Speaker 4: So Intel, historically we were talking about chips in the
33:06
Speaker 4: second but before had both designed and manufactured chips. The
33:10
Speaker 4: chip industry has evolved to where typically, for the most part,
33:13
Speaker 4: you have people who designed the chips or companies that
33:16
Speaker 4: make them. You're kind of one or the other, and
33:19
Speaker 4: Intel was kind of caught in between the two. He
33:21
Speaker 4: came in a CEO and said, we're going to be
33:23
Speaker 4: behind the manufacturing, and the piece goes on to outline
33:26
Speaker 4: that they spent all this money and had really nothing
33:28
Speaker 4: show for it. And the reason that I don't like
33:30
Speaker 4: the piece and think it's inaccurate is because what Gelsinger
33:33
Speaker 4: did in twenty twenty one, you can argue it didn't
33:35
Speaker 4: pay off and they failed at making themselves turn around
33:38
Speaker 4: on the manufacturing side, But the reason that they were
33:41
Speaker 4: in that position were from mistakes that go back a
33:44
Speaker 4: decade plus or more. Really, they lost out in mobile.
33:49
Speaker 4: They were very concentrated on focusing on their PC business.
33:53
Speaker 4: They had made the chips that dominated that market for years,
33:56
Speaker 4: and they sat back while other companies out there, like
33:59
Speaker 4: Are and others, ate their lunch when it came to
34:02
Speaker 4: more chips being used for your cell phones rather than
34:06
Speaker 4: in computers. Same thing applies with the manufacturing side of
34:10
Speaker 4: things on chips. They got their lunch eaten by Taiwan's
34:13
Speaker 4: semiconductor back in twenty seventeen or twenty nineteen, where chips
34:17
Speaker 4: were being made small and smaller. They missed the boat there.
34:21
Speaker 4: So it really was a product of missing technology ways
34:24
Speaker 4: where you could argue that they didn't spend enough to
34:27
Speaker 4: innovate there and sat back cashing their fat checks from
34:31
Speaker 4: their computer business and those chips that led them to
34:34
Speaker 4: that position. So that's what the frustration. Maybe he's right,
34:37
Speaker 4: they're right in this piece that some companies will overspend
34:40
Speaker 4: and they'll fall in their face and fail with artificial intelligence.
34:43
Speaker 4: But Intel's really more an example of not someone who's
34:46
Speaker 4: spent too much and failed. It's just they missed and
34:48
Speaker 4: probably didn't spend enough to keep up with technology that
34:52
Speaker 4: continues to evolve.
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36:01
Speaker 3: Piece in the New York Times that ask the question
36:03
Speaker 3: that I'm completely sick of at this point. How much
36:06
Speaker 3: well Thanksgiving dinner cost? It depends who you ask. So
36:09
Speaker 3: here's the deal. All of the major stores, grocery stores
36:14
Speaker 3: are being like, yeah, like things are like cheaper than
36:16
Speaker 3: last year. Targets saying it, Walmart's saying it. You go
36:20
Speaker 3: down the list, and it's the case because obviously you
36:23
Speaker 3: want to attract shoppers by saying that you have the
36:25
Speaker 3: best prices. On the other hand, you look at the
36:29
Speaker 3: CPI data just you know, off the top, and you say, okay,
36:32
Speaker 3: grocery prices are up a few percentage points since last year.
36:35
Speaker 3: Then you go and you look at Purdue University who
36:38
Speaker 3: says wholesale turkey prices are up seventy five percent from
36:41
Speaker 3: last year. Because remember the time when grocery stores are
36:45
Speaker 3: ordering turkeys for the next year is generally last winter,
36:49
Speaker 3: because they order in advance to not have to pay
36:52
Speaker 3: spot prices when actually buying in the open market. You've
36:56
Speaker 3: got Deloitte who's saying that Thanksgiving prices are point six
36:59
Speaker 3: percent higher.
37:00
Speaker 5: And quite honestly like.
37:04
Speaker 3: The idea that hey, we're gonna accurately judge what people
37:07
Speaker 3: are feeling on inflation from what Thanksgiving dinner costs really
37:11
Speaker 3: bothers me.
37:14
Speaker 4: I don't understand why it's become the focus point over
37:19
Speaker 4: the course of the last week here that the Thanksgiving
37:22
Speaker 4: dinner is where we have to measure pricing changes. And
37:26
Speaker 4: why and how you know the White House has to
37:28
Speaker 4: hang their hat on lower prices, or.
37:32
Speaker 3: I get why politicians of anywhere want to say, hey,
37:35
Speaker 3: prices are you know, lower. I totally get it, But
37:39
Speaker 3: like this battle ground that Thanksgiving dinner is now, it's like,
37:42
Speaker 3: oh my goodness, Like the conversation over Thanksgiving dinner should
37:48
Speaker 3: not be which index are using to track the price
37:51
Speaker 3: of Thanksgiving dinner.
37:54
Speaker 4: It's impossible. And the metrics they're using here, everybody's shifting
37:57
Speaker 4: around the different items in the package with you know,
38:00
Speaker 4: oh this this meal was you know, fifteen items, this
38:02
Speaker 4: one's ten. If you take out these things, it's more expensive.
38:05
Speaker 4: It's just made my head spind this whole sort of
38:08
Speaker 4: chatter over the course of the last few days here
38:10
Speaker 4: on the cost of Thanksgiving meal.
38:12
Speaker 5: So let's cut through it all. Paul, what's your favorite
38:15
Speaker 5: side dish?
38:16
Speaker 4: Stuffing?
38:17
Speaker 6: Tucker, I don't even think like it's a debate really,
38:20
Speaker 6: like I think stuffing should be excluded.
38:23
Speaker 5: That question is number two. So stuffing.
38:26
Speaker 3: I've always had the point that it should be a
38:28
Speaker 3: four season side dish, not.
38:30
Speaker 5: Just a Thanksgiving I go green bean cast role for
38:34
Speaker 5: number two.
38:35
Speaker 1: Not bad, hmm.
38:37
Speaker 6: I mean I gotta go mashed potatoes.
38:39
Speaker 4: I was gonna goto cravy, smothering covered and gravy again.
38:43
Speaker 3: You can have that anytime, any time, deal quick break,
38:47
Speaker 3: Your hour too coming up in a little bit.