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AI Fears Slam Software Stocks as Banking Risks Emerge · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstraw.
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Speaker 2: Chuck, Mike ent Tucker with you here today.
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Speaker 3: And it's a pretty quiet day in markets overall, which
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Speaker 3: is nice after the last month or so.
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Speaker 2: We can chill for a little bit and I think
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Speaker 2: that'll be just fine.
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Speaker 3: The Sep five hundred's up to seven points, about a
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Speaker 3: tenth percent. The Dow Jones Industrial Average is down a
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Speaker 3: third of a percent, about one hundred and fifty five points,
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Speaker 3: and the Nasdaq does have a nice little move up
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Speaker 3: today in the Nasdaq Composite one hundred and thirty nine
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Speaker 3: points about two thirds of a percent, and Russell two
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Speaker 3: thousand is basically flat. So again nothing conclusive, just kind
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Speaker 3: of chopping around a new different indices. I will point out, Mike,
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Speaker 3: have have you looked at what's been going on with
1:49
Speaker 3: software stocks this week again?
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Speaker 4: Just getting clobbered.
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Speaker 3: Yes, after a brief break from getting beaten up, software
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Speaker 3: stocks are getting pummeled again. And salesforce off eleven percent
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Speaker 3: in two and off seventeen percent.
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Speaker 2: This is this week.
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Speaker 3: Service Now off eighteen, Adobe off seven, eightyp off six,
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Speaker 3: Autodesk off ten, Workday off fifteen, Paychecks off six, Data
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Speaker 3: Dog off fifteen, just absolutely brutal and on the year
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Speaker 3: to date numbers for those companies, a lot of them
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Speaker 3: down anywhere from twenty five to fifty percent now. So
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Speaker 3: software is just getting eaten by AI fears, and again
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Speaker 3: I think there might be some good reason there when
2:32
Speaker 3: you look at house stocks get priced. We'll talk about
2:35
Speaker 3: that in just as just a first hand example before
2:37
Speaker 3: we move on.
2:38
Speaker 5: I I was playing hockey last night and Jim Men's leader.
2:43
Speaker 4: We did win three three to one. Do you have
2:45
Speaker 4: at No? I scored no goals.
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Speaker 2: Get in a fight?
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Speaker 4: No, I didn't even have a Gordy haw hat trick.
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Speaker 2: In why'd you go?
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Speaker 5: Don either case, in the locker room, I was talking
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Speaker 5: to you guys and one of them just started a
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Speaker 5: small business. And I don't even know what he does.
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Speaker 5: I think it's somewhere something attached to medical. But in
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Speaker 5: either case, he just said, started this up. And I
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Speaker 5: just built my own payroll software. You know, obviously I
3:15
Speaker 5: don't have a lot of people, but like just kind
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Speaker 5: of built it myself and had to tell me how
3:20
Speaker 5: to file the right returns. And you know, at least
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Speaker 5: to start, I'm not going to use a payroll service
3:27
Speaker 5: now that could that's horribly wrong. But the mere fact
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Speaker 5: that somebody who has he has zero tactics, you know,
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Speaker 5: technological experience or software experience I know firsthand, is just
3:39
Speaker 5: going out and saying like, yeah, I don't know that
3:41
Speaker 5: I need these really expensive payroll providers is absolutely fascinating
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Speaker 5: to me. And remind him because you mentioned ADP being
3:48
Speaker 5: down today.
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Speaker 3: It's going to be wild when his payroll tax withholding
3:52
Speaker 3: didn't go to the IRS but just some guy named Ers.
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Speaker 4: Yeah, yeah, that's that's going to be a little awkward.
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Speaker 3: But uh, in any case, that's what's going on in
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Speaker 3: equity markets. Tenure Treasury is up eight tenths of a
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Speaker 3: basis point to four point three h one percent, so
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Speaker 3: not much movement there. Dollar Index is down point one
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Speaker 3: five percent to ninety eight forty four. Gold off eighteen
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Speaker 3: bucks an ounce to forty seven to ninety nine. Crude
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Speaker 3: oil West Text Intermediate up sixty five cents a barrel
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Speaker 3: to ninety eight fifty two, so again not too much
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Speaker 3: movement in the broad scheme of things.
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Speaker 2: I do want to talk about this piece.
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Speaker 3: This caught my eye and I'm glad Tucker put it
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Speaker 3: at the top of the hour. Here Bloomberg report Anthropic
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Speaker 3: models scare sparks Urgent Bessent Powell warning to bank CEOs,
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Speaker 3: I'm gonna read from this piece for a second. Treasury
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Speaker 3: Secretary Scott Bessant and Federal Reserve Chair Jerome Powell summoned
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Speaker 3: Wall Street leaders to an urgent meeting unconcerns that the
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Speaker 3: latest artificial intelligence model from Anthropic PBC will usher in
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Speaker 3: an era of greater cyber risk. Best and Powell assembled
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Speaker 3: the Group of Treasuries headquarters in Washington on Tuesday to
4:57
Speaker 3: make sure banks are aware of possible future risks praise
5:00
Speaker 3: by Anthropics, meethos, and potential similar models, and are taking
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Speaker 3: precautions to defend their systems, according to people familiar with
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Speaker 3: the matter, who asked not to be identified, citing the
5:09
Speaker 3: private discussions. So, a couple thoughts on this. The first
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Speaker 3: one is, Okay, let's take this at face value. Banks
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Speaker 3: need to know if this is potentially a threat, and so, sure,
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Speaker 3: why wouldn't they have this meeting?
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Speaker 5: Yeah, it's the heart of our financial system. If people
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Speaker 5: lose confidence that their money is safe in banks, then
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Speaker 5: our entire system crashes down.
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Speaker 4: We've seen it happen before.
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Speaker 3: Sure, Next, why is j Powell and Scott Bessont Why
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Speaker 3: are they the messengers of this?
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Speaker 4: Can you think of any bigger bank regulators?
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Speaker 3: I guess no, not from that perspective, But like, why
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Speaker 3: are Best and Powell the ones doing this?
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Speaker 2: Yeah?
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Speaker 4: I mean like they don't know anything about anthropic.
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Speaker 5: No, neither of them know anything about it, and it
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Speaker 5: is What's an interesting question is why isn't some underling
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Speaker 5: bank regulator out there calling a meeting?
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Speaker 3: And there's two answers to me. One, why is this
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Speaker 3: not a letter? This meeting could have been an email?
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Speaker 3: I guess is the other place I'm going, Well.
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Speaker 5: I think my point would be there's one of two reasons.
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Speaker 5: One is it's some sort of publicity stunt, which for
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Speaker 5: who maybe Best, And it doesn't make sense to me
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Speaker 5: for Powell, so I don't buy that. The other answer
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Speaker 5: would be it is fundamentally that serious that you are
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Speaker 5: demanding the bank's CEO's foremost attention, which is kind of
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Speaker 5: frightening if that's if that's the reason, because I can't
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Speaker 5: really come up with a whole lot of other other
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Speaker 5: reasons for it. Right, You're making a big publicis of this.
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Speaker 5: Clearly this was printed in Bloomber. I don't think that
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Speaker 5: would have happened without uh, somebody's Okay, but aren't you
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Speaker 5: if you are getting these two in a room and
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Speaker 5: then calling every major bank CEO and by the way,
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Speaker 5: putting aside with all the whole feud between the White
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Speaker 5: House and Powell and the fact that he's on his
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Speaker 5: way out and summoning these CEOs, is that not an
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Speaker 5: acknowledgment that you think this is a genuine, real, serious
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Speaker 5: threat to the banking system.
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Speaker 3: Which then raises a whole bunch of questions if it is. Yeah,
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Speaker 3: but I want to also offer an alternative, going because
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Speaker 3: I was starting to come up with an alternative, then
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Speaker 3: I'll throw into the mix and again like I have
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Speaker 3: absolutely nothing to support this, what if this wasn't.
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Speaker 2: About AI actually Dune.
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Speaker 3: I'm just saying, like, there's there's private credit concerns that
8:02
Speaker 3: are out there, there's other like I I just don't
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Speaker 3: know that when's the last time that the Secretary of
8:09
Speaker 3: the Treasury was on the cutting edge for warning about
8:12
Speaker 3: cybersecurity matters?
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Speaker 5: Never like any sense, Well, frankly, I'd be interested to
8:20
Speaker 5: know when the last time was that the Treasury Secretary
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Speaker 5: and the sitting chair of the Federal Reserve called bank
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Speaker 5: CEOs together for anything, Like.
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Speaker 2: Doesn't it just not quite add up?
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Speaker 5: Only if the threat is as extremely serious we've had plenty.
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Speaker 5: We've had plenty of like threats to the banking sector.
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Speaker 3: Right, when's the first the next time that they are
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Speaker 3: proactive in dealing with it before it emerges will be
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Speaker 3: the first time.
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Speaker 2: You know, like they didn't.
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Speaker 3: They had nothing to say about anything related to Silicon
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Speaker 3: Valley Bank before it blew up.
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Speaker 2: It was oh, this is a problem.
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Speaker 3: Yeah, and yet now it's just, Hey, we're really nervous
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Speaker 3: about this cyber thing, so we're going to invite y'all
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Speaker 3: to a meeting before it's become a problem.
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Speaker 5: Yeah, didn't happen in O eight, didn't happen in twenty
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Speaker 5: What year was still come about, twenty twenty three, twenty
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Speaker 5: twenty three. Yeah, not a lot of crises that these
9:16
Speaker 5: two entities get out ahead of beforehand. So maybe they
9:22
Speaker 5: are breaking new ground on this one, or like I said,
9:25
Speaker 5: the only real logical conclusion I come to, Yeah, maybe
9:29
Speaker 5: they had other concerns that they wanted to share beyond that,
9:32
Speaker 5: or this is such a dramatic threat that they are
9:36
Speaker 5: genuinely concerned about threats to credibility of the banking system,
9:42
Speaker 5: which what I will say if it is actually that
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Speaker 5: dramatic of a threat, because this would be a real signal,
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Speaker 5: like anthropic talking about their own model.
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Speaker 3: We talked about this yesterday, where you know, some of
9:52
Speaker 3: it can be kind of tooting your own horn a
9:53
Speaker 3: little bit.
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Speaker 2: If you've convinced the US.
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Speaker 3: Treasury Secretary in the chair of the FED that there's
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Speaker 3: you know, the potential for a problem here, then again,
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Speaker 3: like that's a real signal as to where these.
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Speaker 2: New models are going.
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Speaker 3: And if the US banking sector isn't safe from these
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Speaker 3: models in terms of like what they can do, then
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Speaker 3: the logical extension is that none of our jobs are safe,
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Speaker 3: like no one's.
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Speaker 5: Yeah, yeah, If that is a genuinely genuine threat, then
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Speaker 5: it might actually be time to unplug this thing.
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Speaker 3: Even I'm not even saying like unplugged, like when we
10:35
Speaker 3: talk about, oh, like who's actually replaceable, but by AI
10:39
Speaker 3: it's literally everyone. If it gets to that point, I
10:45
Speaker 3: don't know any other clear way to interpret it. But
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Speaker 3: the next eighteen months are gonna be wild with this stuff.
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Speaker 3: And and part of this also remember the models that
10:55
Speaker 3: are being rolled out now are the first ones that
10:58
Speaker 3: have actually been developed using in Vidio's new Blackwell chips
11:01
Speaker 3: that were rolled out last year, because it takes time
11:03
Speaker 3: to get those into data centers and up and running.
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Speaker 2: It doesn't just happen.
11:07
Speaker 3: Yeah, So remember, as I've been saying every even today,
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Speaker 3: the models that we're talking about, they are the worst
11:14
Speaker 3: that you will ever see for the rest of your lives.
11:18
Speaker 3: So there's some change happening very quickly, and I don't
11:22
Speaker 3: know what the world's going to look like eighteen to
11:24
Speaker 3: twenty four months from now. It could be very different
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Speaker 3: in a number of respects, depending on how this evolves
11:31
Speaker 3: from here.
11:32
Speaker 2: Take a quick break.
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Speaker 3: When we return, I want to talk about one more
11:36
Speaker 3: implication of this as it relates to software stocks, just
11:38
Speaker 3: because we touched on that briefly. And then after that
11:43
Speaker 3: we're going to talk about insurance companies and the risks
11:46
Speaker 3: that they've been taking recently and whether it is actually
11:49
Speaker 3: caused for concern or just a bunch of hullabaloo.
11:53
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Speaker 3: Mike, I want to do one more piece relating to
13:56
Speaker 3: AI and specifically the concern on software companies. So I'm
14:01
Speaker 3: picking out the worst performing software company out of the
14:04
Speaker 3: S and P five hundred as of right now.
14:06
Speaker 2: You're todate, which happens to be Workday.
14:08
Speaker 3: It's just because they're the worst performing one and I
14:10
Speaker 3: just thought it would be, you know, relevant then. So
14:12
Speaker 3: here's the deal with Workday is, if you take a
14:15
Speaker 3: look at their overall growth, revenue has been growing about
14:21
Speaker 3: seventeen percent a year over the last five years and
14:26
Speaker 3: EPs over that time is effectively flat, but they're they're
14:29
Speaker 3: projecting about twenty percent EPs growth for the next fiscal year.
14:35
Speaker 3: So here's the thing is, when we look at Workday,
14:38
Speaker 3: they are trading at right now ten times forward earnings. Okay,
14:45
Speaker 3: they're trading two and a half times forward sales, which
14:49
Speaker 3: on both those you look at and you're like, man,
14:50
Speaker 3: for a company that's growing like seventeen percent a year,
14:53
Speaker 3: that's really cheap, isn't it. And this is where you
14:57
Speaker 3: get into the math on hey, why is the stock
15:00
Speaker 3: fall and fifty percent. Let's say that I am a
15:05
Speaker 3: chief technology officer at firm X, and I've got, you know,
15:11
Speaker 3: a thousand licenses of Workday that my HR people are using.
15:16
Speaker 3: Given what I'm seeing in the AI space, am I
15:21
Speaker 3: either am I adding either any new seats to that
15:25
Speaker 3: license in the next year? Or am I adding any
15:29
Speaker 3: additional products that I'm buying from that vendor products? No
15:33
Speaker 3: seats maybe, And even there it's a question of you know,
15:37
Speaker 3: do I just want to see what the landscape looks like?
15:39
Speaker 3: Do I want to be committing to any long term
15:41
Speaker 3: contracts because all this is changing so quickly right now,
15:44
Speaker 3: And so here's where you end up again. I'm not
15:48
Speaker 3: saying that this will happen, but here's where you can
15:50
Speaker 3: end up running into problems if you're just looking at
15:52
Speaker 3: things in terms of valuations based on next year's earnings.
15:57
Speaker 3: If all of a sudden, Workday's revenue, which right now
16:00
Speaker 3: is nine point five billion dollars for the last twelve months,
16:04
Speaker 3: a year ago it was at hang on eight point
16:08
Speaker 3: four billion.
16:09
Speaker 2: Okay.
16:09
Speaker 3: So if workday stops growing at the rate they've been
16:13
Speaker 3: growing at and instead just kind of plateaus here, Okay,
16:16
Speaker 3: their earnings growth doesn't happen. Plus, their internal costs are
16:20
Speaker 3: going to go up because you have to pay more
16:21
Speaker 3: for you know, you give people raises and things like that,
16:23
Speaker 3: and YadA YadA.
16:25
Speaker 2: So now you've.
16:26
Speaker 3: Got Okay, I'm not making the twelve dollars a share
16:31
Speaker 3: that I thought I would next year. Now I'm making nine,
16:34
Speaker 3: which is less than this year. And because I'm making
16:37
Speaker 3: twenty five percent less, my multiple is not actually ten
16:42
Speaker 3: for next year.
16:43
Speaker 2: It's steeper than that.
16:45
Speaker 3: And so this is before you you know, even get
16:48
Speaker 3: into the question of hey, what about you know future
16:51
Speaker 3: years after that, do you see similar declines? And so
16:54
Speaker 3: this is why software is being priced this way right now.
16:58
Speaker 3: It's not because anything's actually happened, yeah, to impact these
17:02
Speaker 3: companies and their earnings right now. But relying on future
17:07
Speaker 3: earnings projections when you're dealing with potentially a huge inflection
17:11
Speaker 3: point makes things look cheaper than they may otherwise be.
17:14
Speaker 3: So we might look back a year from now and say, hey,
17:18
Speaker 3: all of those software you know getting eaten by AI
17:20
Speaker 3: fears were overblown. But there's also a case where they're underblown.
17:25
Speaker 3: Because here's the other thing that you got to remember about.
17:28
Speaker 3: You know, companies like this, they don't have you know,
17:30
Speaker 3: a ton of cash on their balance sheet. They don't have,
17:34
Speaker 3: you know, a ton of room to to wiggle things
17:36
Speaker 3: around in a lot of cases, and so you can
17:39
Speaker 3: very quickly go from a company that is you know,
17:42
Speaker 3: pretty profitable right now with eleven percent margins to when
17:45
Speaker 3: that's unprofitable in hemorrhaging money quickly if things turn in
17:49
Speaker 3: the next twenty four months. And that's the risk that
17:51
Speaker 3: markets are trying to price in right now, even though
17:54
Speaker 3: the actual business hasn't changed at all yet.
17:58
Speaker 5: And based on what we are hearing from the private
18:00
Speaker 5: credit space, don't forget that some of them are apparently
18:03
Speaker 5: quite debt heavy too.
18:06
Speaker 3: Yeah, a lot of these big like publicly traded ones,
18:08
Speaker 3: it's not the case, but yeah, you can certainly see
18:11
Speaker 3: that with some of the small, mid sized firms where
18:14
Speaker 3: that can be the case. Insures peace from the Wall
18:17
Speaker 3: Street Journal and exclusive insurers take bigger risks than before
18:20
Speaker 3: two thousand and eight oh nine crisis report warns what's
18:23
Speaker 3: happening here, Michael, something.
18:25
Speaker 5: We've talked about at length, which is that these insurers
18:28
Speaker 5: have a ton of private credit exposure. I gotta be honest,
18:31
Speaker 5: this is just maybe I am just the huge skeptic,
18:36
Speaker 5: but the fact that am best is publishing it in
18:39
Speaker 5: the Wall Street Journal makes me think that maybe it's
18:41
Speaker 5: not as big of a problem because these credit rating
18:44
Speaker 5: agencies have not historically had a great track record of
18:49
Speaker 5: calling out risk in the system. But yeah, look, we've
18:53
Speaker 5: talked about this at length. If there is a concerning
18:56
Speaker 5: area of exposure to private credit, it is on the insurers,
19:00
Speaker 5: and that is specifically what this what am Best is
19:03
Speaker 5: calling out right now. I don't know how to compare
19:05
Speaker 5: it to clearly they have a method of comparing it
19:07
Speaker 5: to the risk they were taking prior to the subprime
19:10
Speaker 5: mortgage Great Financial crisis. And that's the point that they
19:14
Speaker 5: are making here. If it all falls apart, the exposures
19:17
Speaker 5: heavier on those insurers.
19:19
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19:22
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Speaker 6: in line with expectations. This is the first inflation measure
20:15
Speaker 6: since the conflict in Iran began. Right now, the Dow
20:19
Speaker 6: is down about a third of a percent, or one
20:21
Speaker 6: hundred and sixty one points, SMP five hundred, mostly flat,
20:25
Speaker 6: edging higher, NASDAC up over half a percent, RUSTED two
20:29
Speaker 6: thousand edging higher as well. My mouse just died, so
20:33
Speaker 6: I can't do this anymore. That is fantastic. Hold on
20:36
Speaker 6: a second. Here, got to pull up on the old
20:39
Speaker 6: mobile device again. My mouse just stopped working. Fantastic here
20:45
Speaker 6: it is, hold on, hold on, I got it.
20:47
Speaker 2: Relax.
20:49
Speaker 6: Taiwan Semiconductor posted another quarter of record revenue this morning,
20:52
Speaker 6: driven by strong demand for AI chips. That stock is
20:57
Speaker 6: climbing nearly three percent. Meanwhile, we've announced a multi year
21:02
Speaker 6: agreement with the Anthropic two power its clawed AI models.
21:06
Speaker 6: The deal comes one day after it announced a twenty
21:08
Speaker 6: one billion dollar expansion of its agreement with Meta Core.
21:13
Speaker 6: Weave shares are rallying by twelve percent. Elsewhere, shares an
21:17
Speaker 6: optical and photonic producer Lumentum are up three percent after
21:22
Speaker 6: the company CEO told Bloomberg that its products are booked
21:25
Speaker 6: through twenty twenty seven amid the AI buildout in Shares
21:29
Speaker 6: in service now are down by eight percent after the
21:32
Speaker 6: software company was downgraded by UBS from buy to neutral.
21:38
Speaker 6: I'm Tucker Silva and that is Wallstreet Watch. In the
21:41
Speaker 6: previous segment, we asked you the trivia question what year
21:46
Speaker 6: was the wreckage of the Titanic found I'll be nineteen
21:50
Speaker 6: eighty five and Joe from Wyndham, New Hampshire is our
21:53
Speaker 6: winner today taking on the Financial Exchange Show t shirt.
21:56
Speaker 6: Congrats to Joe. Will you play trivia every day here
22:00
Speaker 6: on the Financial Exchange See complete contest rules at Financial
22:04
Speaker 6: Exchange Show dot com.
22:06
Speaker 2: For mails, here, here's the mail then for mails. It
22:10
Speaker 2: makes me want to wag my tail when it comes.
22:13
Speaker 2: I want to wail.
22:15
Speaker 1: You've got questions, We've got answers.
22:18
Speaker 2: It's time for.
22:19
Speaker 1: The Moneymatters Mailbag. We are tackling your calls and emails
22:22
Speaker 1: on everything from economic policy to global markets and everything
22:26
Speaker 1: in between. Leave us a voicemail at three three nine
22:29
Speaker 1: three nine nine four three three three and you might
22:32
Speaker 1: hear it on the show. You can also email your
22:34
Speaker 1: question to TFE Show at gmail dot com. Now it's
22:38
Speaker 1: time for the Moneymatters mail Bag.
22:41
Speaker 6: That's right, it is time for the Moneymatters mail Bag.
22:46
Speaker 6: Let's get to it here, boys. First question is from Chris,
22:52
Speaker 6: who emailed the show TFE Show at gmail dot com
22:56
Speaker 6: with his Moneymatters Mailbag question. Once again, that email address
23:00
Speaker 6: TFE Show at gmail dot com. Chris's question, how important
23:06
Speaker 6: is the crackspread as an indicator of possible inflation or recession?
23:13
Speaker 3: So good question in terms of what a crackspread indicates
23:18
Speaker 3: in first, like a crackspread is the difference in price
23:23
Speaker 3: between a barrel of crude oil and what you are
23:27
Speaker 3: trying to produce from a Now, each barrel of crude
23:29
Speaker 3: doesn't just produce, you know, one type of fuel. It's
23:32
Speaker 3: generally multiple types, but it's it's kind of a one
23:35
Speaker 3: to one comparison. So a crackspread of you know, ten
23:40
Speaker 3: dollars on crude relative to diesel means that diesel is
23:44
Speaker 3: trading ten dollars higher than crude. What we have right
23:48
Speaker 3: now are, again, you have crackspreads that look at specific products,
23:52
Speaker 3: you have ones that look at multiple products within them.
23:55
Speaker 3: So there's all different ones that are out there. But
23:57
Speaker 3: basically what you've seen is that crackspreads have blown out
24:02
Speaker 3: to the highest levels that we've seen in just about
24:05
Speaker 3: every refined product category. And what it indicates is not
24:09
Speaker 3: recession or inflation. It typically is inflationary because that's spread
24:13
Speaker 3: again means that there's higher prices being paid on the
24:15
Speaker 3: refined products. But generally what you are seeing there, it
24:20
Speaker 3: is most indicative when you see very high crack spreads
24:24
Speaker 3: that there is a huge premium for refined product because
24:28
Speaker 3: there's so much demand for relative to what you can get,
24:32
Speaker 3: and so it's an indication that there is just not
24:35
Speaker 3: enough refined product in the system. And this is kind
24:38
Speaker 3: of what we're seeing in terms of jet fuel and
24:41
Speaker 3: bunker fuel and things like that, and so that is
24:44
Speaker 3: where you're seeing the stress, is that there is just
24:48
Speaker 3: not enough of that finished product that can come out
24:51
Speaker 3: right now, that's one of the reasons why crackspreads can
24:54
Speaker 3: blow out to the top side.
24:56
Speaker 2: And that's what we're seeing today, at least to Michael.
25:00
Speaker 5: Oh, it's shortage indicator. But no, nothing else to add there.
25:03
Speaker 2: All right, there you go.
25:04
Speaker 6: In our second question for the Money Matter's mail bag
25:08
Speaker 6: is coming from Emily. She asked the question, I'm trying
25:11
Speaker 6: to get my finances and budget in order.
25:14
Speaker 2: What is your general.
25:15
Speaker 6: Rule for building your emergency savings and where do you
25:19
Speaker 6: actually keep an emergency fund.
25:22
Speaker 4: I'll stop by tackling it.
25:23
Speaker 5: So generally speaking, the bucket for emergency savings, we like
25:28
Speaker 5: to see it anywhere between three and twelve months of
25:32
Speaker 5: your you know, basic living expenses, so you know you're
25:37
Speaker 5: starting on the budget and working through all of this,
25:40
Speaker 5: that's kind of the threshold we build and you know,
25:43
Speaker 5: My general rule of thumb on this is, you know,
25:46
Speaker 5: you don't really save money for other things until you
25:50
Speaker 5: have that emergency savings built. Now, three to twelve months
25:53
Speaker 5: is a big spread, and so this is where it
25:55
Speaker 5: kind of depends on specifics.
25:56
Speaker 4: Right, If you are.
25:59
Speaker 5: Married couple with dual income and no kids, you know,
26:03
Speaker 5: you look at that situation you say, Okay, even if
26:05
Speaker 5: one of us lost our jobs, we probably can pay
26:07
Speaker 5: a lot of the basics, and so maybe we are
26:09
Speaker 5: closer to that three months. If we are married couple,
26:14
Speaker 5: multiple kids, one working income, that's probably closer to the
26:17
Speaker 5: twelve months because you just have a lot more concentration
26:20
Speaker 5: risk in terms of where that comes from. In terms
26:24
Speaker 5: of where that emergency savings goes, it's got to be accessible,
26:34
Speaker 5: not volatile, and predictable. So rather than saying, you know,
26:39
Speaker 5: obviously most FDIC insurance insured products fall into that category.
26:44
Speaker 5: So I mean that's a pretty good starting point, but
26:47
Speaker 5: you know, there are plenty of things that people think
26:49
Speaker 5: of as predictable and stable but aren't accessible. Right, if
26:52
Speaker 5: I've got an annuity probably predictable and stable, but might
26:55
Speaker 5: not be accessible in IRA. I can put a CD
26:59
Speaker 5: in an IRA, but might not be accessible if I
27:03
Speaker 5: am not fifty nine and a half, and so all
27:05
Speaker 5: of that stuff comes into factory, It comes into the
27:08
Speaker 5: equation for where does that emergency fund actually live?
27:11
Speaker 4: And that's really important.
27:14
Speaker 6: Ending to that, chuck Nope, all right, let's go on
27:18
Speaker 6: to the final question for this week's Money Matters mail bag.
27:23
Speaker 6: This one's coming from Tim. Tim asks, I don't have
27:27
Speaker 6: a excuse me. I don't have an employer sponsored for
27:31
Speaker 6: one K and need to start saving for retirement. What
27:34
Speaker 6: will be the best option for someone in their mid
27:36
Speaker 6: forties to begin saving for retirement?
27:40
Speaker 5: This kind of stinks. I want tell your employer to
27:44
Speaker 5: get an employer sponsor retirement plan. They're pretty cheap these days,
27:47
Speaker 5: but highly dependent on your specifics. If you are a
27:50
Speaker 5: w twoter employee and you don't have an employer sponsored plan,
27:55
Speaker 5: you are extremely limited in terms of what you can do.
27:57
Speaker 5: If you're in your forties, you can put seventy five
28:00
Speaker 5: hundred bucks a year into a traditional or wroth iray,
28:05
Speaker 5: so long as you don't make too much money to
28:08
Speaker 5: qualify to be able to do one of those things,
28:11
Speaker 5: and the thresholds depend on whether you're single or married.
28:15
Speaker 5: Talk to a tax professional about what you're eligible to do. Now,
28:19
Speaker 5: if we're in a different scenario and you're self employed,
28:22
Speaker 5: or you have two jobs and one of them is
28:24
Speaker 5: self employment, you have suddenly a whole slew of different options.
28:28
Speaker 5: You can start what's called an individual or solo K,
28:30
Speaker 5: which is basically.
28:31
Speaker 4: Your own personal four oh one K plan.
28:33
Speaker 5: You can build a STEP or a self employment pension
28:36
Speaker 5: iray that allows you to put a whole bunch more
28:40
Speaker 5: in terms of contributions into one of these things and
28:43
Speaker 5: take advantage of the tax benefits. So, to make a
28:46
Speaker 5: long story short, highly dependent on your specifics how much
28:49
Speaker 5: you maybe a spouse, are earning to determine what sort
28:52
Speaker 5: of stuff you're eligible to do. So it's not a
28:54
Speaker 5: one size fits all approach, but the individual k's and
28:58
Speaker 5: seprays for self employed people huge potential tool there that
29:04
Speaker 5: used to be pretty expensive and come have come way
29:06
Speaker 5: down in cost as a tool to utilize.
29:08
Speaker 4: Check anything to add on that.
29:10
Speaker 2: Yeah, I think you got most of it.
29:11
Speaker 3: Again, Like make sure chat with your you know, account
29:15
Speaker 3: and or tax provider, just so that you have an
29:17
Speaker 3: understanding of, uh, you know, some of those tax rules
29:19
Speaker 3: and limitations as far as contribution limits, for each one.
29:24
Speaker 2: It is as I as you noted as well.
29:28
Speaker 3: It's ridiculous that there isn't just a standard amount that
29:32
Speaker 3: everyone can put into a retirement account of their choosing
29:35
Speaker 3: preposterous in any given year. Like I understand that, you know,
29:39
Speaker 3: there's some pretty powerful lobbying that gets done in order
29:42
Speaker 3: to maintain things the way they are, but there's no
29:45
Speaker 3: reason why the amount someone can put into an IRA
29:49
Speaker 3: should be a third of what you can put into
29:50
Speaker 3: a four oh one. K completely agreed, So uh yeah,
29:55
Speaker 3: nothing else to add aside from that. But again, if
29:59
Speaker 3: if you've got ma bad questions for if you want
30:01
Speaker 3: to get into one next week's again, we've been getting
30:04
Speaker 3: you know, emails and texts on these ones. But you
30:07
Speaker 3: can also call in for the mail bag three three
30:10
Speaker 3: nine three nine nine four three three three, or the
30:14
Speaker 3: way I like to say it, double trace single new
30:19
Speaker 3: single trace, double newve single quatro triple new Eve.
30:23
Speaker 6: You can also email the show TFE show at gmail
30:27
Speaker 6: dot com.
30:29
Speaker 5: So let's say, I'm pretty sure you did that wrong
30:30
Speaker 5: in Spanish, but what do you mean?
30:33
Speaker 2: What did I do wrong?
30:35
Speaker 4: Let's not confuse the situation anymore.
30:37
Speaker 6: Yeah, yeah, yeah, I've done that at all.
30:41
Speaker 3: I think I got it right, but we'll we'll play
30:44
Speaker 3: it back during the break and see what happened.
30:46
Speaker 2: Let's take a quick.
30:47
Speaker 3: Break now, and when we come back, paul A Monica
30:49
Speaker 3: from Barons joins.
30:51
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30:54
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30:58
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31:02
Speaker 1: is the Financial Exchange radio network from FED Decisions to
31:06
Speaker 1: Market Moves. Watch the Financial Exchange live on x face.
31:10
Speaker 1: He's the Financial Exchange Ladies and gentlemen the weekend.
31:16
Speaker 7: As promised, the one and Only Mister Paul Lamonica joins
31:26
Speaker 7: us now and Paul, how you doing.
31:31
Speaker 8: I'm good, are you guys?
31:32
Speaker 2: We're great?
31:33
Speaker 3: And it sounds like the owner of some of these
31:35
Speaker 3: stocks are probably doing great as well. You got a
31:37
Speaker 3: piece here how to trade a stock that's just doubled.
31:41
Speaker 3: That sounds like a nice problem for someone to have.
31:44
Speaker 8: Yeah, exactly. If you've invested in companies like sand Disk,
31:49
Speaker 8: Western Digital, Micron. These are all companies that have gone
31:53
Speaker 8: up precipitously in a very short period of time. But
31:59
Speaker 8: you know, if more money comes more problems, so to speak.
32:03
Speaker 8: And I think yes, I know, I know, I date
32:06
Speaker 8: myself there. I think one of the issues that it
32:10
Speaker 8: was raised in this interesting report by Renaissance Macro Research Renmack,
32:15
Speaker 8: is that if you have a stock that has gone
32:18
Speaker 8: up so dramatically, and they looked at companies that have
32:21
Speaker 8: done that going back more than forty years, it may
32:26
Speaker 8: not be that big of a shock, but you know,
32:28
Speaker 8: what goes up must come down, so a lot of
32:31
Speaker 8: these companies do then tend to underperform over the next
32:35
Speaker 8: three years after a quick double. And I think what
32:38
Speaker 8: they warnant investors to be worried about is when it
32:41
Speaker 8: happens with smaller companies that are far more volatile than
32:45
Speaker 8: with large companies in the SP five hundred. Perhaps so,
32:48
Speaker 8: if you're if you own a small stock that has
32:52
Speaker 8: gone up really rapidly, probably not the worst idea in
32:56
Speaker 8: the world to take some money off the table before
33:00
Speaker 8: there's potentially a very steep drop. The good news is
33:03
Speaker 8: that with larger companies the pullback tends to be a
33:07
Speaker 8: lot more gradual as opposed to sudden, so you've got
33:10
Speaker 8: some time. If you're looking at companies like sand Disk,
33:14
Speaker 8: Western Digital, these these large companies in the SP five hundred.
33:17
Speaker 3: Well, and a lot of these these big ones that
33:20
Speaker 3: have gone you know, parabolic top side right now, the
33:23
Speaker 3: ones that you've mentioned, they also happen to operate in
33:27
Speaker 3: the computer hardware space, mostly in the memory area, and
33:31
Speaker 3: that tends to be just a hugely cyclical business with
33:35
Speaker 3: these massive boom bust cycles that we've seen for the
33:39
Speaker 3: last thirty years as well.
33:40
Speaker 8: Oh, definitely, without a question. I mean, you know, a
33:43
Speaker 8: lot of these companies have been you know, hit by
33:48
Speaker 8: worries about pricing and pricing declines so much so, I
33:53
Speaker 8: mean things have changed obviously a lot because of AI.
33:56
Speaker 8: But I remember my prior's writing a story about many
34:03
Speaker 8: of these companies and joke that they were kind of
34:06
Speaker 8: like the airlines of tech in that there were always
34:09
Speaker 8: these huge price wars that would hurt margins. But obviously
34:13
Speaker 8: I'm dating myself again because the airline industry isn't as
34:17
Speaker 8: subject to those precipitous price declines. You know, that's a
34:21
Speaker 8: much more stable business now as well.
34:24
Speaker 3: One of the other things just that investors do need
34:26
Speaker 3: to be aware of in dealing with this, and probably
34:29
Speaker 3: worth a conversation with a tax professional when these things
34:32
Speaker 3: have gone up this much.
34:33
Speaker 2: In a short period of time.
34:34
Speaker 3: You also have to be you know, cognizant of potential
34:37
Speaker 3: cap gains taxes, especially short term capital gains taxes, and
34:40
Speaker 3: how that can impact your tax situation. So that goes
34:43
Speaker 3: into you know, the conversation as well.
34:46
Speaker 8: Exactly, and I think it's yet another reason why if
34:49
Speaker 8: you want to take some money off the table, if
34:52
Speaker 8: you're looking at a stock that's doubled, that probably makes
34:55
Speaker 8: more sense as opposed to say liquidating the entire position
35:00
Speaker 8: ash in on a game, because there is going to
35:02
Speaker 8: be that tax hit as well. And the other thing
35:04
Speaker 8: I warn you know that the the Renmac analysts point out,
35:09
Speaker 8: don't necessarily think that a stock that has gone up
35:12
Speaker 8: this quickly is now suddenly a great short bet, because
35:16
Speaker 8: stocks with momentum can have momentum for a fair amount
35:21
Speaker 8: of time and it's hard to know when the tide
35:23
Speaker 8: will turn. You know, just look at you know, the
35:26
Speaker 8: game Stop Meme stock craze. Obviously many of those stocks
35:30
Speaker 8: were overvalued, but you know, if you tried to short them,
35:34
Speaker 8: you know, unless you did it precisely the right time,
35:37
Speaker 8: you got squeezed.
35:39
Speaker 3: Very good, Paul, appreciate you joining us today. Thank you
35:42
Speaker 3: so much for the time, and I hope you have
35:45
Speaker 3: a lovely Masters weekend this weekend.
35:48
Speaker 8: Thank you very much, hope you do as well.
35:50
Speaker 3: That is Paul Lamonica from Baron's talking about stocks that
35:55
Speaker 3: have gone on some nice little runs in the last
36:00
Speaker 3: last year or so. Mike, what else we got that
36:02
Speaker 3: we haven't covered yet today?
36:04
Speaker 5: A victim of the housing market that I had not
36:07
Speaker 5: quite considered. America's furniture stores are struggling to survive during
36:11
Speaker 5: the housing f not the housing frozen market, the frozen
36:14
Speaker 5: housing market.
36:15
Speaker 4: That we've been experiencing.
36:17
Speaker 5: A Western sorry an act in Massachusetts Furniture Warehouse had
36:21
Speaker 5: to liquidate recently because of a lack of activity, and
36:24
Speaker 5: just not a consideration I had really thought of. We know,
36:27
Speaker 5: the hardware stores have seen sales drop off since the
36:30
Speaker 5: early twenty twenties, and furniture sales too. You do a
36:36
Speaker 5: lot more purchases when you are buying that new home.
36:40
Speaker 5: And while we might be seeing some volume up tick
36:42
Speaker 5: in other parts of the country, around here, it is
36:44
Speaker 5: just not happening, and so especially those smaller furniture stores
36:49
Speaker 5: that do not have the reserves of say a Jordan's
36:51
Speaker 5: Furniture or a what is it? Cardi's based out of
36:54
Speaker 5: Rhode Island, but a big furniture provider.
36:57
Speaker 4: Pretty tough to survive an environment like this.
37:00
Speaker 2: Either of you gonna be watching the Artemis re entry
37:03
Speaker 2: this evening? No, are you kidding?
37:06
Speaker 4: I might now. Yeah, it's gonna be happening.
37:08
Speaker 3: Between seven thirty and eight pm Eastern somewhere in that ballpark.
37:13
Speaker 3: Uh so the uh it's gonna take you know, some time,
37:17
Speaker 3: just because the atmosphere is big. It's a big man,
37:20
Speaker 3: it's a big atmosphere. And uh so, yeah, I guess
37:23
Speaker 3: Tucker's ever sing I've seemed bigger?
37:27
Speaker 2: Yeah, not a big deal.
37:29
Speaker 3: Yeah, you ever been to Jupiter. That's a big atmosphere.
37:31
Speaker 3: This one unimpressive? Uh so yeah, look again, I think
37:36
Speaker 3: this is this is cool. I mean again, these are
37:37
Speaker 3: people that have gone as far away from Earth, farther
37:40
Speaker 3: away from Earth than anyone else ever has. Yeah, and
37:43
Speaker 3: now they're coming back. It's gonna be five thousand degrees
37:46
Speaker 3: on the outside of the spaceship Tucker.
37:49
Speaker 5: Tucker remains unimpressed. Apparently, who you got in the Master's talk?
37:54
Speaker 6: Gotta go Xander man, you think Yeah, I think he's
37:58
Speaker 6: gonna make a nice little move today. Everything's fast out there,
38:01
Speaker 6: everything's fast out there today. The greens are quick. Yes, yes,
38:05
Speaker 6: greens are quick. Don't be surprised if Jordan speed makes
38:08
Speaker 6: him run at it too.
38:10
Speaker 3: Now let's get him in a spaceship. See how he
38:12
Speaker 3: likes that five thousand degrees. We're done for the day,
38:16
Speaker 3: done for the week, and I hope you all have
38:18
Speaker 3: a great weekend. We'll see you back here on Monday.