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What will the next President do with this remarkable economy? · The Financial Exchange Show

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Speaker 2: Kicking off hour two of the Financial Exchange. Chuck, Mike
1:16
and Tucker with you and Gollag Will Akers. We got
1:20
markets down a decent chunk today, actually, the DOWS off
1:23
four hundred points about one percent, the S and P's
1:26
down ninety three points, about one point six and the
1:28
NASDAC on the back of Microsoft and Meta earnings disappointing
1:32
down the most about four hundred and fifty three points
1:34
are about two and a half percent. So we've got
1:36
some volatility in markets today. Also seeing it in the
1:40
bond market, largely do to a couple different things. But
1:43
the tenure Treasury is up six and a half basis
1:47
points to four point three to nine percent. What are
1:50
those couple things. Well, we did get some economic data
1:52
this morning. Personal income and spending came in in line
1:55
on income but higher on spending, And so you continue
1:59
to get some data that's pointing towards a rather warm
2:03
US economy. Still likes things still chugging along, at least
2:06
as far as the data we've gotten to this point.
2:09
And also overseas, the current UK government, which came into
2:14
office in July of this year, brought forth their budget
2:17
which had a whole bunch of additional borrowing in it
2:20
in addition to, you know, a bunch of tax increases
2:22
as well, And so UK bond selling off quite a bit,
2:26
with their ten year treasury up almost seventeen basis points today,
2:31
and so you've got global bond seeing their yields lifted
2:34
as a result. Well, when bond yields go up but
2:37
actual inflation is not moving up, what do you see
2:39
from gold splat? Gold is down fifty two dollars and
2:44
forty cents an ounce, almost two percent today, not making
2:47
a new all time high for the first time in
2:49
quite a while, it seems like. And we've got oil
2:52
today up ninety three cents a barrel to sixty nine
2:54
to fifty four on West Texas Intermediate, the TRIPAA national
2:58
averageur gas prices though down four tenths of ascent to
3:02
three thirteen and a tenth of assent. Anything I missed, Michael,
3:05
no Chuck, you didn't pretty far right. Well, let's talk
3:10
a little bit about this piece from Greg ip in
3:13
the Wall Street Journal. It's titled The Next President inherits
3:17
a remarkable economy. And what it's talking about is not
3:21
that everything's perfect. That's not what they mean by remarkable.
3:24
What Greg is talking about is that this account economy
3:27
has been counted out basically since twenty twenty two, been
3:32
on the verge of recession. I mean, like, how many
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times have we been we've been told, hey, there's one
3:37
hundred percent chance of recession in the next twelve months.
3:39
Speaker 3: Yeah, that's what I was gonna describe it is. It's
3:41
remarkable in its resilience. It's not remarkable in its growth.
3:44
It's not remarkable in the best labor market or earning's
3:49
growth or any of the earnings growth. Maybe it's not
3:51
remarkable in you know, any one feature, but rather in
3:55
its resilience to what has been been.
3:58
Speaker 4: Pretty wild few years.
4:01
Speaker 3: And it's also remarkable in terms of its place in
4:04
the global economy, continues to dominate just about everywhere in
4:09
comparison to other developed nations.
4:13
Speaker 2: Now, the question that obviously lingers there is, hey, how
4:16
long can the US stand out amongst you know what
4:19
otherwise is a pretty slow and stagnant world economy. And
4:24
I think that's a valid question to ask, But it's
4:27
also one that if we're gonna be intellectually honest about this,
4:31
the US economy has answered those questions over and over
4:34
for the last two years. I mean, I'll go back
4:37
through just the big ones that I can remember. I'm
4:38
sure I'm missing some, so chime in if I miss any, Mike.
4:42
Spring of twenty twenty three, Silicon Valley Bank blows up.
4:46
Oh boy, there's gonna be a banking crisis. This like
4:48
this could be the thing that causes a recession.
4:51
Speaker 5: Did it?
4:52
Speaker 6: No?
4:52
Speaker 5: It did not?
4:54
Speaker 2: No. Then we get to a you know, we continue
4:57
on through the summer. Hey, the economic data is slowing
5:01
into the fall. You know that this could be something
5:03
that causes recession heading into you know, the end of
5:06
twenty three early twenty four.
5:09
Speaker 5: Once again, did it did not?
5:12
Speaker 2: We then continue into this year and we say, hey, look,
5:17
you know there's this rebound in inflation. We might need
5:19
to have higher interest rates, like that could cause recession
5:22
in the first half of the year. Again that that
5:24
didn't end up, you know, proving out for anything. And
5:26
then again I think we can We're far enough along
5:30
this year now that it's it's pretty hard to see
5:33
this turning into a recession by year en now, but look,
5:35
the July and August economic data was quite bad, actually
5:40
pointing towards you know, a deterioration that might have gotten
5:43
recessionary if it continued. And to this point we're not seeing,
5:47
you know, any signs of that continuing. The economic data,
5:49
just like last year, has inflected upward yet again, so
5:53
that this resilience has been tested like three or four
5:56
times in the last couple of years, and each time
5:59
the US economy just come out and passed it with
6:01
flying collars.
6:01
Speaker 4: Yeah.
6:02
Speaker 3: Hey, you've asked this question before, Chuck, and I'll rephrase
6:05
it slightly, but this isn't how the world works. But
6:09
tell me one place anywhere in the world that you
6:14
would prefer to both start a new business and live
6:18
than the United States. Show me one. There's nowhere out there.
6:23
I mean, there's some you could argue, oh yeah, this
6:25
would be a you know, interesting place to start a
6:27
business because look at the oil boom or look at
6:30
this boom, and oh yeah, I could start a business
6:32
there and do pretty well. Show me a place that
6:35
you'd like to both you know, relocate your entire family
6:38
to and start a business that you think would be
6:41
more attractive in the United States, and I can't name one.
6:44
I don't think that many people would have an easy
6:47
time with that.
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Speaker 2: And Mike, you and I are not particularly good oil drillers,
6:53
like I don't think it's not a specialty of ours.
6:57
And so yeah, outside of those edge cases, it's again
7:01
where not only just like where in the world, but
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like where in time would you rather be than at
7:06
this point in time? I mean, the only one that
7:09
I can I can come to in like any semblance
7:13
of anything is the mid nineteen nineties were freaking fantastic
7:18
because the US economy was cranking because of.
7:21
Speaker 5: The tech boom.
7:23
Speaker 2: It looked like there was never gonna be another war
7:25
ever again at any scale.
7:27
Speaker 3: And housing was actually, you know, somewhat reasonable in terms
7:32
of it always looks reasonable in hindsight, but even by
7:35
most accounts, you know, housing costs there were pretty reasonable.
7:39
I don't need to know how to drill oil, by
7:40
the way, right, Like what was the woman that sold
7:42
shovels out in California during the gold boom? Like, you know,
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I can find something else. I'll just sell sandwiches next
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to the oil rig and I'll still make millions.
7:51
Speaker 2: The I don't know if the drillers are going to
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be buying sandwiches, Mike, they get they got more money
7:55
than that with how much oil is coming out.
7:57
Speaker 5: Out of there right now.
7:58
Speaker 4: Well gold flate, gold plated sandwiches.
8:00
Speaker 2: Yeah, yeah, now we're cooking now, we got Now, we
8:02
got a little something going on. So I think this
8:05
piece is interesting in that, Look, whoever ends up being
8:08
the next president, they have this very resilient US economy.
8:12
Speaker 5: The one question that I think you can ask about
8:14
it is, Hey.
8:16
Speaker 2: Deficits are really high right now, both on an annual level,
8:21
and if you look at you know, overall debt to GDP,
8:23
and I think you have questions about how much of
8:26
the growth is deficit financed growth versus you know, or
8:30
organic private sector growth, and is that sustainable given the
8:37
level of debt that's out there overall right now. But
8:39
those are questions that either president is going to have
8:42
to potentially deal with. I say potentially because look, we've
8:46
been talking about a reckoning on the US deficit basically
8:49
since you know, the first dollar was borrowed two hundred
8:52
and fifty years ago.
8:53
Speaker 3: Yeah, I'll venture an opinion here that deficit is not
8:57
going to be the thing that drags down the president
9:01
for the next four years. What's the likelihood that this
9:05
is the four year time period where it really becomes
9:08
the front and center issue and actually sinks the economy
9:12
and sparks inflation or changes how the United States belongs
9:16
in the global economy. I see no evidence that will
9:19
be a problem in the next four years, which is
9:21
why such stupid policies can exist about how we treat
9:24
the deficit. But yeah, I don't think that's a particularly
9:29
bold forecast on my part.
9:30
Speaker 2: No, I think it's an edge case, though that has
9:33
to be considered, But it's not an investible thesis because
9:37
it's like, well, unless you know when and exactly how
9:39
it's going to play out, you can't do anything with it.
9:42
But if you told me, hey, there's like a five
9:45
to ten percent chance that that's gonna have to get
9:47
dealt with, then I would play that is like an
9:50
edge case.
9:52
Speaker 4: Maybe not that you don't think so, No, not in
9:55
four years.
9:56
Speaker 5: How come.
9:59
Speaker 3: For the same reason that you could say the same
10:01
thing about the last thirty So security is not gonna
10:03
run out in four years, Medicare is not going to
10:05
run out in the next four years, and so I
10:08
don't see this to I don't see this as a
10:12
case that pressures politicians in the next four years.
10:14
Speaker 2: So you so you see that twenty twenty eight and
10:17
twenty thirty two election, those ones are the way you're like, hey,
10:21
that like, that's where it's actually gonna like the chickens
10:24
come home to roost, because the reckoning with social security
10:28
and how that's dealt with has huge ramifications.
10:31
Speaker 5: For the broader deficit as a whole.
10:32
Speaker 3: Well, I'll just say that even there, I only put
10:35
it at say, a fifteen percent probability. Really, yes, because
10:39
what have our lawmakers learned how to do quite well,
10:44
raise deficits and borrow more money. So how are they
10:46
gonna fix our security and medicare? They're gonna raise deficits
10:48
and borrow more money.
10:50
Speaker 2: But I guess so here here's where I think there's
10:52
an interesting question though. At some point, and look, I
10:57
don't know where that is, but you start getting to
11:00
the point where your interest payments are covering thirty, forty,
11:03
fifty sixty percent of your tax revenues. Eventually the bond
11:07
market just says I can't buy all of this, which
11:10
means Fed's got to step into be the buyer of
11:12
last resort yep qi again. And if you get that
11:15
in a situation where those deficits are still stoking demand,
11:19
now you're artificially lowering rates, do you get inflation as a.
11:22
Speaker 5: Result of it?
11:22
Speaker 2: So, Like, I don't think my my answer is not
11:25
I'm not saying, hey, we're gonna let social Security go
11:28
belly up. What I'm saying is the resolution. If it's
11:32
just yeah, borrow more, maybe that's what gets things to
11:37
the point where you know, hey, that there really are
11:40
these structural issues with the deficit that the bond market
11:44
just can't deal with on its own, could bit that's
11:48
I think it's again we're all just we're all just
11:51
like holding our finger up in.
11:52
Speaker 5: The air, like yeah maybe this maybe, Like again, none.
11:55
Speaker 2: Of us have any idea, but these are just interesting,
11:58
you know, games to kind of interesting.
12:00
Speaker 5: Things to game out in your mind.
12:03
Speaker 2: Mike, do we want to cover this piece from the
12:05
New York Times about why people still don't like inflation?
12:09
Speaker 4: I think we can.
12:10
Speaker 3: But first what I think we need to do is
12:12
take a break so that Ben can get in his
12:14
last candy trivia question.
12:17
Speaker 5: Yeah, I know, we were gonna take a break. But kay,
12:20
you know, I.
12:22
Speaker 3: Yeah, we can talk about it. I don't know, or Starbocks.
12:25
I want to do Starbucks. Give me Starbucks.
12:27
Speaker 2: It's more interesting to me than why people are still
12:29
upset about inflation, because we've covered that at once for
12:32
a while. Let's talk about Starbucks when we return After trivia.
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in their choice for favorite Halloween candy. Trivia question today,
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what is the most popular candy for Halloween in the
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Speaker 2: Mike Starbucks yesterday announced their corporate earnings for the quarter
14:35
they had previously about a week ago, came out with
14:37
a preliminary report on what they were expecting. The earnings
14:42
are what they are I think, which is not great.
14:45
Which is not great. It's like they have problems, which
14:47
is why they brought in a new CEO, Brian Nickel,
14:49
who has been hugely successful at turning around Chipotle over
14:54
the last seven eight years. And I think the question
14:59
now is what is nick talking about doing for Starbucks
15:02
and will it be successful?
15:04
Speaker 3: Yeah, so he pointed to a few issues at Starbucks
15:09
and they've you know, between the Times and CNBC and
15:12
Nicol himself, they've identified some problems. One would just be
15:16
wait times and general inaccuracies and dissatisfaction from customers. So
15:22
an example was given. You know, somebody walks into the
15:24
door and just wants something pretty simple, like a black
15:27
coffee from the giant. What do you call that craff
15:31
of coffee that they brewed that morning. It shouldn't take
15:34
you four or five minutes to get that done. You
15:36
should be able to turn around, pour the coffee, give
15:39
it to them, put a lid on it, and let
15:40
that person walk out of there. Whereas you know, if
15:43
Mike's walking in there looking for his double machiato with
15:48
you know, shaken espresso on top with a cold foam oleato.
15:54
I'm just lifting words that I know exists at Starbucks.
15:57
I don't know what any of this stuff means. Then, yeah,
15:59
it's going to take a little bit longer, and being
16:00
able to differentiate between those two orders and prioritize them
16:04
needs to be important. I think the continued struggle is
16:08
that Starbucks has built a business on customization is what
16:13
has attracted a lot of customers into that place. And yeah,
16:17
there are people like the guy from Newton whose last
16:21
name is mister so mister.
16:23
Speaker 4: Tutten t Tungian wannin.
16:26
Speaker 6: Why is that relevant?
16:28
Speaker 3: Who just wants a black coffee with a you know,
16:30
with a shot of espresso in it. But like, for
16:32
me personally, if I'm just gonna have a black coffee,
16:35
I'll make it at home. I go to Starbucks because
16:38
I want to try one of their weird different things
16:41
that I can't easily make at home. And they they
16:44
need to thread this needle of still being able to
16:47
cater to the customized orders while also processing stuff faster.
16:51
Speaker 6: I disagree, really disagree wholeheartedly. Yeah, get rid of all
16:54
the customization bull crap and just serve basic things, but
16:58
have specialty drinks on your menu. And the only way
17:01
you can customize it is the dairy that you want
17:04
in it, if you want any that's it. Enough of
17:06
the customization.
17:07
Speaker 4: You're way off base here, talk.
17:08
Speaker 6: I am very on base, and that's what you're going
17:10
to see happen.
17:11
Speaker 3: I think you are going to. I think that's a
17:13
bad strategy, is my point. I think again, there are
17:16
people like you who would like that. I think that there.
17:18
Speaker 6: Are just wasting time.
17:21
Speaker 4: I understand.
17:21
Speaker 3: I think there are thousands of teenagers who walk in
17:25
there with these crazy customized orders and pay seven eight
17:28
bucks for them.
17:28
Speaker 4: And you don't want to piss off the customer.
17:30
Speaker 6: Oh, I don't want to piss off the teenager and
17:32
wants eight hundred pumps of syrup of whatever.
17:35
Speaker 4: No you don't.
17:36
Speaker 6: Oh oh what was what was them?
17:38
Speaker 5: No?
17:38
Speaker 2: You don't let me tell lease, let me ask this,
17:41
because I mean I'm an outsider, right, I don't take
17:43
coffee and both of you do.
17:45
Speaker 4: Yep.
17:47
Speaker 2: In terms of that person who can't get the customizations there, Mike,
17:52
would they stop going No, because it doesn't sound like
17:56
there's anywhere else that does that right now?
17:58
Speaker 5: So what's their other choice?
18:00
Speaker 4: Yeah, I think they might.
18:01
Speaker 3: So let me let me give an example, because I
18:04
am the customer at Starbucks who does not go every day,
18:07
does not bother going there for black coffee because I
18:09
think I can make it as well or better than
18:11
what I can get at Starbucks. I only go there
18:13
for my black coffee when I'm traveling for work and know, hey,
18:16
I'm gonna get the same cup of coffee here in
18:18
California that I would in Massachusetts. Sure, I went there
18:22
because I liked one of the you know, special customized
18:25
orders on there. And even then with the special thing,
18:28
I would add in a shot of espresso and customize
18:30
it further. They took that off the menu and I
18:35
can't get it anymore. I'm not going to Starbucks as
18:38
much as I did this spring when they had it
18:39
on the menu.
18:40
Speaker 6: You have, you have your specialty drinks on the menu,
18:42
but take the customization out of my hands.
18:46
Speaker 3: I customized it further and wouldn't go there and get
18:48
it if I couldn't.
18:49
Speaker 6: Further customers, So what are you gonna go to a
18:50
bar and get a customized cocktail? Because that's what you want,
18:53
get an extra shot of a floater or something like
18:56
NonStop and your margarita or your Manhattan or whatever customizerr
19:00
cocktail there. It's the same premise. Yeah, I go that
19:03
is what you're served on the menu. That's what it is.
19:05
Speaker 3: If I go off menu at bars all the time,
19:08
that's why I go to bars.
19:09
Speaker 4: Then So maybe I'm the problem.
19:12
Speaker 3: Yeah, but yeah I don't. I don't think that they
19:15
are going to get rid of the customization. I think
19:17
that's where threading the needle is incredibly difficult for Starbucks,
19:21
and Tucker completely disagrees with me.
19:23
Speaker 4: But that's that's why I like this country.
19:26
Speaker 3: We'll be right back after this with the trivia winner
19:29
and Todd Lutsky from Christian Dolan joining us right after this.
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Speaker 6: Sure, your question today was what is the most popular
20:13
candy for Halloween? In the majority of the US, there'll
20:17
be Reese's Peanut butter Cups. When it comes to the
20:19
most popular candy purchase in every state, receis dominated the map,
20:23
claiming the top spot in forty three states. Ben from
20:26
Drake and mass is our winner today, taking home a
20:28
Financial Exchange Show t shirt. Ben's also registered to win
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a one hundred dollars gift guard to Applebee's, which you'll
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give away tomorrow. And trivia is brought to you by Applebee's.
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Enjoy half priced late night appetizers after nine pm and
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join Club Applebee's to enjoy exclusive deals and specials. You'll
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eating good. The neighborhood void, we're prohibited, Dinah.
20:48
Speaker 3: Only joining us now is Attorney Todd Lutsky from the
20:52
law firm of Cushing and Dolan to talk to us
20:55
about one of the more complicated and newer developments in
20:59
a state, planning and dedicquide planning. Todd, thanks for joinings, appreciate.
21:02
Speaker 7: It always a pleasure.
21:03
Speaker 5: Thank you so.
21:04
Speaker 3: Todd, one of the kind of core fundamentals of more
21:08
advanced estate planning.
21:09
Speaker 4: From what I.
21:09
Speaker 3: Always understood was the goal of avoiding probate entirely. It
21:13
can be costly, it can be complicated, it's a public process.
21:18
Yet this guide is about using probate in particular. So
21:23
what are we talking about here when it comes to
21:26
leaving your IRA to an estate rather than named beneficiaries.
21:32
Why would one want to consider that?
21:34
Speaker 7: And that is a well asked question, because you're right,
21:38
my whole career, probably everybody listening's lifetime careers, they know
21:45
that naming the estate the beneficiary would almost amount to malpractice,
21:49
and in most cases that was true. But the Secure
21:52
Act came out in twenty twenty two, or at least
21:56
Secure two they called it, and it really clarified some
22:00
things and gave us an opportunity to say, if you
22:04
are seventy three years of age and married and want
22:11
to protect your assets from the nursing home and estate taxes,
22:16
there is this way to do it by naming the
22:20
estate the beneficiary of your IRA, provided you have a
22:25
will built a trust built into your will. That's a
22:28
lot I know, it's a lot of a lot of issues.
22:31
But if you do that, the ultimate result will be
22:37
the asset does have to go to probate. I get it.
22:39
It's one item. It's not your whole estate. It's one item.
22:44
But if you do then it can be sheltered for
22:47
a state taxes for the surviving spouse. It will not
22:51
impact the minimum distribution requirements as long as you do
22:55
it at seventy three or over, and which is by
22:59
the way you're acquired and a beginning date. It allows
23:02
access to the money by the surviving spouse and the
23:05
trustees' discretion, and it's protected from the nursing home for
23:09
the surviving spouse even if she gets sick the next day.
23:13
Speaker 3: So Todd, I can imagine a number of ways to
23:16
screw this up. Quite frankly, you know, first and foremost
23:19
you mentioned you have to have the proper documents in
23:21
place first before you consider this method. Walk me through,
23:26
you know, if you're to look at it from a
23:27
balanced approach and looking at this, I'm sure this makes
23:30
a lot of sense for some folks, not so much
23:32
sense for others.
23:34
Speaker 4: I guess one of the big pitfalls.
23:35
Speaker 3: That I would see would be timing, like how long
23:39
in say Massachusetts or Rhode Island. Should somebody expect to
23:43
be dealing with the probate and the courts if they're
23:46
going this route to try and protect this asset.
23:50
Speaker 7: Well, I would say one year it would be a
23:53
fair estimate. I mean, I would think that, you know,
23:57
going through the process getting the accounts set up up,
24:00
you know. But again it's it's not like you're dealing
24:03
with it for one year. It's just that that's a
24:05
requirement that the estates they opened for a year. But
24:08
once you get that account established, I think you're you're
24:11
pretty home free. That that'll just you know, your financial
24:14
advisors will continue to manage the money just like they
24:17
used to manage the money. They'll help you with your
24:19
required minimum distribution through the new accounts that are set up.
24:23
It's just a matter of getting the accounts set up
24:25
in the right manner after one of you died. I
24:30
think ultimately a small price to pay for the upside benefits.
24:34
But nevertheless, this is explained to each client thoroughly. But folks,
24:40
for you, since we're at the end of the month
24:42
and we only have a limited time on the radio,
24:45
I'm going to offer you this guide. Why name your
24:47
estate an IRA beneficiary? It is a complicated area. Everybody
24:53
or a lot of people have iras. Learn how to
24:57
make the IRA fit best into your estate plan from
25:00
an estate tax and income tax and a nursing home
25:05
protection standpoint. Get the guide eight six six eight four
25:10
eight five six nine nine, or go to our website
25:13
Legal exchange Show dot com again, last chance to get
25:17
at folks eight six six eight four eight five six
25:20
nine nine or Legal exchange show dot com.
25:24
Speaker 3: Excellent Todd an immensely complicated topics. As I know, and
25:28
as I'm sure you know, so, I appreciate you joining us.
25:30
Thank you, and we'll talk to you again soon.
25:33
Speaker 7: Oh, thank you. Have a great day.
25:35
Speaker 1: The proceeding was paid for and the views expressed are
25:37
solely those of Cushing and Dolan. Cushing and Dolan and
25:39
or Armstrong Advisory may contact you offering legal or investment services.
25:42
Cushing and Armstrong did not endorse each other and are
25:44
not affiliated.
25:46
Speaker 2: Mich Let's talk a little bit about super micro Computer.
25:49
Yesterday we covered the story that their auditor, Ernst and
25:54
Young was resigning saying that they can't rely on managements
25:59
representation of their financial data. Basically saying, hey, we're auditing
26:06
this and we don't know what's going on. I'll quote
26:10
here from their letter. They said they were resigning due
26:12
to information that has recently come to our attention, which
26:14
has led us to no longer be able to rely
26:16
on managements in the Audit Committee's representations. Now, Ertztenejung has
26:20
been trying to, you know, thin out the number of
26:24
clients that has in the you know, the overall marketplace.
26:28
They're trying to, you know, get a little bit smaller.
26:30
But ultimately, you don't write a letter like this to
26:33
each one. And this also is a company that four
26:38
years ago, in twenty twenty, super Micro had to pay
26:40
seventeen point five million dollars to the sec amidst allegations
26:45
of accounting violations. At that point, they also had a
26:49
short sellar report from Hindenberg Research earlier this summer that
26:53
found glaring accounting red flags as well. So there there's
26:59
been you know, some some smoke and even some fires
27:01
over the last few years when it comes to their
27:03
accounting practices. I think the ultimate question that needs to
27:09
be asked here and again none of us have any
27:12
answers on what's going on, but what is the nature?
27:17
Here are the questions in order, is there any actual
27:19
accounting fraud going on, what is the nature of that
27:24
accounting fraud, and does that in any way change the
27:28
overall narrative with regards to AI, because super Micro is
27:33
a company that builds servers for AI deployment for other companies,
27:38
and if there is something there, then you kind of
27:41
end up in a situation where you know there's a saying, hey,
27:45
there's never just one cockroach. Sure, you kind of start
27:49
to wonder, Okay, what else is out there in terms
27:51
of potential problems.
27:52
Speaker 4: Yeah, it's not to be.
27:54
Speaker 3: It's not great to be in the company the likes
27:56
of Nikola and other company that Ey dropped here. There's
28:00
some key differences, like super Micro's actually doing work and
28:03
has sales and contracts with some of the biggest semiconductor
28:08
and chip makers out there and artificial intelligence companies out there.
28:12
This is a company that very definitively has revenue and
28:15
knows what they are doing. I think the point that
28:18
most auditors would make and admit, if you really pin
28:21
them down, is that none.
28:23
Speaker 4: Of it really matters if you're lying on your accounting.
28:26
Speaker 2: So this is going to have a whole bunch of
28:29
questions here. Now, there is this piece from CNBC. It
28:34
talks about you know, hey, you know, it's titled super
28:37
Micro's fifty billion dollars stock collapse. Underscores the risk of
28:40
AI hype. No, it understands it. You know, maybe underscores
28:45
the risk of potential accounting fraud if in fact that's
28:49
what's going on here. We still don't have any actual
28:52
detail on what's happening. But ultimately the risk is not
28:57
that like every AI company is going to be admitting
29:00
accounting fraud.
29:01
Speaker 5: It's that, hey, maybe.
29:02
Speaker 2: The AI boom, Peter's out and it's just another Capex cycle.
29:06
Speaker 3: Yeah, this is ultimately a fraud story. And whether it
29:09
has to do with artificial intelligence like it is this year,
29:12
or whether it had to do with electric vehicles and
29:15
self driving cars back in twenty twenty.
29:18
Speaker 5: One, or.
29:21
Speaker 3: I don't know, what are some of the other big
29:23
hype stories or remember three D printing? Yeah, I don't
29:27
remember any fraud stories related to it. But you know,
29:29
whenever there is a narrative of you know, this technology
29:34
is going to trade change the world and a bunch
29:36
of hype built around it.
29:38
Speaker 4: Cryptocurrency is a very good example where.
29:40
Speaker 5: Oh, yeah, Long Island bchain occurred.
29:44
Speaker 3: There are, as Chuck mentioned, the cockroaches out there that
29:47
come out and take advantage of it. Do we know
29:49
the degree to which super Micro Computer has fallen guilty
29:54
in that front. No, But this is ultimately, you know,
29:59
a repetitive story that we deal with every time that
30:02
a sector or technology gets a whole bunch of hype.
30:05
And I think the lesson here is buyer beware because
30:10
every time there's this excitement, there's always one or two
30:12
bad actors out there that turns out to be running
30:15
some sort of fraud.
30:17
Speaker 2: And by the way, super Micro was supposed to file
30:20
its annual report for twenty twenty four fiscal twenty twenty
30:25
four back in August.
30:26
Speaker 5: They still have not filed it.
30:28
Speaker 2: Obviously, this is going to probably delay it further given
30:31
that their auditor just left. So we still don't have
30:35
full fiscal year numbers because they have not filed it.
30:39
And in their announcement then they said that they needed
30:44
more time to assess their financial reporting control, so that
30:47
super Micro saying, yeah, there is a problem here, whether
30:52
it rises to the level of you know, fraud versus incompetence,
30:55
like there clearly is a problem. It's just unclear what
30:59
the problem is right now. H I'll throw some shade
31:02
at Ernst Young while we're at it. By the way,
31:04
you know, it takes you until October thirty first to
31:08
resign as the auditor and accountant on a company like
31:12
this who's already so fully into investigations.
31:16
Speaker 4: That's uh.
31:17
Speaker 3: You know, it's not like ey was the one that
31:18
brought it to regulator's attention by any stretch.
31:21
Speaker 5: No, that that is fair.
31:23
Speaker 2: I think that's a fair criticism of them. Let's take
31:26
a quick break here. When we come back, stack Rue, let's.
31:30
Speaker 1: Thanks to us six one seven, three, six two thirteen
31:33
eighty five with your comments and questions about today's show,
31:37
and let us know what you think about the stories
31:39
we are covering. This is the Financial Exchange Radio Network.
31:44
If you missed any of today's show, catch up whenever
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31:49
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31:52
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31:55
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31:59
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32:01
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32:36
Speaker 3: Mike, what do you got for me for stack roulette?
32:38
I've got beer. Chuck Budweiser maker Anheuser Busch abn Bev
32:45
as well as Carlsburg are reporting declines in volumes that
32:48
were worse than expected, particular in the Chinese market who
32:52
are consumers allegedly there cutting back on spending and beer
32:57
sales in the region as well as a few other
33:00
Argentina and the United States has just been kind of
33:02
a mixed bag for these two makers for a while now.
33:06
But the piece in China that I'm just always suspect,
33:09
suspicious about. When you see recessions. In the world, you
33:15
generally don't see a big pullback in beer sales. Tends
33:20
to be one of those items that people still spend
33:22
money on. What makes it a little bit different in
33:25
China is that, you know, Budweiser might not be seen
33:29
as the discount beer brand in the same way that
33:33
they are in the United States, and so you know,
33:36
perhaps you know sales of I think snow beer is
33:39
the most popular in China, with a with a massive
33:42
state there, maybe that's doing just well, and perhaps Budweiser
33:45
and Carlsberg are looked at.
33:47
Speaker 4: As luxury brands in the beer market there.
33:49
Speaker 3: I'm uncertain, but I'm I guess I'm just surprised because
33:52
I don't usually think of, hey, economic slowdown, watch out
33:57
beer makers, because you're you're gonna see your sales hit. No,
33:59
everybody wants to drink a little bit more when things
34:01
are going terribly poorly.
34:03
Speaker 2: Hell yeah, this gives off more of a vibe of
34:06
maybe like some nationalism from China.
34:09
Speaker 3: Yeah, I could see that too. Yeah, Budweiser is an
34:11
absolutely American brand. I'm sure they don't sell that beer
34:15
terribly well. But even the brands that I'm sure, they
34:18
have some Chinese brands that are more locally you know,
34:21
more locally developed and targeted towards that consumer. But you're right,
34:24
it's probably still pretty obvious who the ultimate owner is.
34:27
Although important distinction none of these companies are American companies anymore.
34:32
Speaker 2: I want to talk about this piece from the Wall
34:33
Street Journal. It's titled the Little Sins We Commit at
34:36
Work and the Bosses who are cracking down, And this
34:38
comes on the back of we covered a couple of
34:40
weeks ago the folks at Meta that get a twenty
34:43
five dollars daily meal allowance and they were using it for,
34:46
you know, all kinds of stuff that wasn't related to meals.
34:50
And this piece is trying to make the case that, hey,
34:54
companies are like, the reason that you're seeing this is
34:56
because companies are cracking down on this and you know,
34:58
trying to prevent people from you know, using perks for
35:01
things that they're not used for. And my case is more, Hey,
35:06
these people at Meta were posting like TikTok videos of it,
35:09
and so it was like very public and so you
35:12
kind of had to do something. They also cite a
35:15
case from Wells Fargo in twenty eighteen where they fired
35:20
or suspended. I'm quoting it from the Loster Journal. More
35:22
than a dozen bankers who put dinner dinners on the
35:25
company tab and doctored the receipts. Basically like the people
35:28
were editing the timestamp of the receipts to make it
35:30
look like they were buying dinner when in fact they weren't.
35:33
And in both of these cases, and again there's a
35:36
couple others that are cited as well, But in these ones,
35:39
I don't think the problem was that people were like
35:42
using company funds for something else, Like, sure, that's not ideal,
35:46
but I'm sure it happens everywhere.
35:48
Speaker 5: It's that one set was posting the stuff online for.
35:51
Speaker 2: People to see and the other was literally trying to
35:55
commit fraud by doctoring the receipts. Instead of being like, hey, man,
35:58
i this I felt like a few minutes outside, is
36:02
it okay if we just you know, do this this time.
36:04
Speaker 3: So it's usually not the theft, it's usually the cover up.
36:08
It's usually not the crime, it's the cover up that
36:09
gets you caught. And again, yeah, if you're going about
36:13
ripping off your employer and then covering it up, wouldn't
36:18
you have some big suspicions about that employee's morals.
36:22
Speaker 2: Right, that's kind of a trust thing with the employee.
36:24
Not hey, you spent twenty five dollars on dinner, but no,
36:27
if you spent all of this time doctoring or a
36:29
seat to get a free meal, well look, if you're
36:32
a salesperson and your compensation is based on commission, what
36:35
are you doctoring there?
36:36
Speaker 5: Yeah?
36:37
Speaker 4: Yeah, that's uh. And I don't know that people understand that.
36:42
I hope you would.
36:43
Speaker 3: But like, at some point down the line there, don't
36:46
you say, huh, yeah, this is wrong. This is gonna
36:50
get me in trouble, and forget about like whether or
36:53
not you're get in trouble. Just like, at some point,
36:55
don't you stop there and be like, oh, yeah, this
36:57
doesn't feel right.
37:00
Speaker 4: Now?
37:00
Speaker 2: Then you also have something that seems just kind of
37:02
quaint right now that's cited here. In two thousand and
37:05
nine and the Teeth of a Great Recession, a former
37:07
private client relationship manager at Fidelity told the Fort Worth
37:10
Star Telegram that he and three colleagues lost their jobs
37:12
for running fantasy football leagues at work in violation of
37:15
the corporate policy against gambling. The stakes in his league
37:18
twenty dollars. Doesn't that just seem quaint given where sports
37:22
gambling is today?
37:23
Speaker 3: Mike Yes, And as a former Fidelity employee, I distinctly
37:27
remember the warnings right around March Madness coming out like
37:30
we know this is a big time of gambling. If
37:32
you use your company resources on gambling, you will be terminated.
37:35
Please don't do it. So it was always it made
37:38
a big deal of over at Fidelity, coming first hand
37:40
there from somebody that used to work there.
37:42
Speaker 2: Let's take a quick look at markets as we head
37:44
towards the top of the hour. The Dow is down
37:46
three hundred and fifty four points, the S and P
37:48
is down ninety three. Nasdak's still heaviest loss is about
37:52
two and a half percent, or four hundred and seventy
37:54
two points, so all three major US indices still selling
37:57
off as we get to the mid waypoint in the day.
38:02
Hope you all have a great afternoon. We do have
38:04
a big day tomorrow to finish off the week. We
38:07
got jobs report, we got Amazon and Apple earnings, we
38:11
got ism manufacturing, Baker Hughes is putting out their rig count.
38:17
Everything's coming up tomorrow. We'll see you on the financial
38:21
exchange