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How long can Nvidia keep growing? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:06
Speaker 1: Zada and Paul.
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Speaker 2: Lane, Chuck, Paul and Tucker with you here. And we
1:13
Speaker 2: got markets not really not really doing much of anything.
1:18
Speaker 2: You know. It's like you're kind of poking them with
1:21
Speaker 2: a stick, like hey, do something, and they won't really
1:25
Speaker 2: do that. They just want to do nothing. We got
1:27
Speaker 2: the Dow up forty nine points, about a tenth of
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Speaker 2: a percent, the S and P's up three points, about
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Speaker 2: a twentieth of a percent, and the Nasdaq is up
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Speaker 2: three points about a fiftieth of a percent. So there's
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Speaker 2: just not much movement happening overall. Under the surface, you do,
1:42
Speaker 2: you have a little bit of an interesting rotation that
1:45
Speaker 2: is happening today where you've got semiconductor stocks getting bludgeoned,
1:50
Speaker 2: just like bopped on the head repeatedly. Right now, they're
1:54
Speaker 2: down about almost two percent overall. This on the back
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Speaker 2: of AML, the Dutch company that makes the lithography machines
2:04
Speaker 2: that helped to make semiconductors. They indicated earlier after their
2:11
Speaker 2: earnings call that they are not sure if they are
2:14
Speaker 2: going to see growth in twenty twenty six. Yet they
2:16
Speaker 2: think it's possible, but they're not sure. And so ASML
2:19
Speaker 2: is down ten percent and dragging most of the semiconductor
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Speaker 2: sector with it as well. Other than that, tenure Treasury
2:29
Speaker 2: is down three basis points to four point four five
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Speaker 2: seven percent, and we've got oil today off eighty six
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Speaker 2: cents a barrel on West Texas Intermediate at sixty five
2:40
Speaker 2: sixty six. Gold is up ten dollars and twenty cents
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Speaker 2: announced to thirty three, forty six and ninety cents. But overall,
2:49
Speaker 2: a pretty quiet day on the surface. The only other
2:53
Speaker 2: thing that I will add that's of note is just
2:57
Speaker 2: a few minutes ago, I said to Tucker, what was
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Speaker 2: that new one?
3:00
Speaker 3: What?
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Speaker 2: And I go, well, the S and P five hundred
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Speaker 2: just fell fifteen points in a minute, So like, what's
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Speaker 2: going on? And it turned out it was right, as
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Speaker 2: CBS News reported that during a meeting with Republican lawmakers yesterday,
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Speaker 2: President Trump asked them whether or not he should fire
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Speaker 2: Jerome Powell, and so that was the cause for the
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Speaker 2: one minute of volatility in the S and P five hundred.
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Speaker 2: Let's talk a little bit about earnings, because we've got
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Speaker 2: a bunch of them this week, mostly bank earnings, but
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Speaker 2: a few other companies reporting as well. Before the real
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Speaker 2: heavy hitters start in the next two weeks. But we've
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Speaker 2: got Bank of America and Goldman Sacks both out with earnings,
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Speaker 2: and best I can tell, Paul not being you know,
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Speaker 2: dedicated banking analyst, you know, but best I can tell,
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Speaker 2: earnings were pretty darn solid on all the major banks,
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Speaker 2: and so we continue to see no major signs of
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Speaker 2: stress from what they're telling us about how their customers
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Speaker 2: are behaving. Yeah.
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Speaker 4: JP Morgan had some good numbers that came out yesterday.
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Speaker 4: We talked about those.
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Speaker 5: In the show.
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Speaker 4: I would say the recurring themes across the three major
4:10
Speaker 4: banks here that were discussing JP Morgan yesterday and Bank
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Speaker 4: of America and Goldman Sacks that came out this morning
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Speaker 4: is you saw an increase in trading revenue across all
4:19
Speaker 4: these major banks here in Q two. A lot of
4:22
Speaker 4: that was driven by the volatility that we saw in
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Speaker 4: markets in April allowing them to In Goldman Sacks case,
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Speaker 4: we saw a significant jump thirty six percent increase year
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Speaker 4: over year in terms of its Q two numbers, So
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Speaker 4: that was pretty strong. You also had on the mergers
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Speaker 4: and acquisition side of things, b of A. Bank of
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Speaker 4: America was the one category that they fared I guess
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Speaker 4: not as well as JP Morgan and Goldman Sachs did here.
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Speaker 4: But on Goldman Sacks and JP Morgan you saw an
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Speaker 4: increase on mergers and acquisitions fees. That is important because
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Speaker 4: it's showing that business cycle is resuming after what was
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Speaker 4: likely a pretty significant pause in the month of April.
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Speaker 4: There So those would be sort of the biggest tapeways
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Speaker 4: increase in investment banking revenues or better than anticipated increases
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Speaker 4: there on the major banks, and then also seeing an
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Speaker 4: increase on the trading revenue side there So all these
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Speaker 4: banks reports, like you mentioned, none of these are overly concerning,
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Speaker 4: and the sentiments from CEOs have been that the consumer
5:30
Speaker 4: has held, you know, relatively resilient, particularly looking back at
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Speaker 4: Q two numbers and in Q three here it seems
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Speaker 4: as if things are in relatively good stasis at the moment.
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Speaker 2: Yeah, it messes with a lot of the broader economic
5:43
Speaker 2: data that we've seen, which is hey, at least in
5:45
Speaker 2: Q two the economy really didn't change course dramatically from
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Speaker 2: what it was doing previously. It might have slowed a
5:51
Speaker 2: little bit, but not in areas that you know, would
5:53
Speaker 2: impact what the banks are seeing. And so by and large,
5:58
Speaker 2: the economy, as we've continued to say for the last
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Speaker 2: couple of years. Hey, it is pretty tarn resilient and
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Speaker 2: dynamic at this point, and you know, we'll have to
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Speaker 2: see what the second half brings, But so far, Bank's
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Speaker 2: not really seeing any troubling signs, and I think that
6:14
Speaker 2: has to be an encouraging sign for the overall health
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Speaker 2: of the US economy, given, you know, kind of their
6:20
Speaker 2: insight into what they see, you know, with you know,
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Speaker 2: millions of customers and billions of dollars changing hands every day,
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Speaker 2: they get a pretty good sense of what's going on
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Speaker 2: in the economy.
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Speaker 4: Yeah, the only last one I'll add that we talked
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Speaker 4: a little bit about yesterday. You know, Wells Fargo, which
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Speaker 4: is kind of on a different track than the rest
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Speaker 4: of the bank sucks. Their numbers weren't particularly strong that
6:42
Speaker 4: came out yesterday, But that's more of some of the
6:44
Speaker 4: constraints that they've dealt with from asset growth size over
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Speaker 4: the last eight years since that scandal that they battled
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Speaker 4: in twenty seventeen.
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Speaker 2: Yeah, Wells Fargo's kind of the black sheep. I was
6:56
Speaker 2: gonna go, you know, the they're like the you watch
7:00
Speaker 2: the Lion King.
7:01
Speaker 5: Sure, of course which one.
7:03
Speaker 2: There's only one the original obviously they're they're the dumb Hyena.
7:10
Speaker 5: Yeah, I don't know their names. I forget, I forget.
7:11
Speaker 5: I gotta get my son into it right there.
7:13
Speaker 2: Yet it's they are the American version of Credit Squeez
7:18
Speaker 2: or deutsch Bank. Sure, I guess there's a lot of
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Speaker 2: European banks that that hit that hit that category.
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Speaker 5: I've had some trouble, but yeah, like that's kind of
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Speaker 5: what you know.
7:25
Speaker 2: You look at JP Morgan, you're like, wow, Like Jamie
7:27
Speaker 2: Diamond runs ed yes, ed, Yeah, wells Fargo is ed.
7:34
Speaker 2: Can we tweet that.
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Speaker 4: I had to throw them thro the shade at them
7:39
Speaker 4: because I covered all the major ones here and excluded them.
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Speaker 2: No, Like, look like, let's be honest. They've they've not
7:45
Speaker 2: They've been the most poorly run large bank in the
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Speaker 2: last decade and it's not even close and without there's
7:54
Speaker 2: no one else that even comes close to it. They've
7:56
Speaker 2: had multiple different scandals they've had.
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Speaker 4: Yeah, because last decade is all twenty fifteen to twenty
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Speaker 4: twenty five, so you can't even lump in any of
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Speaker 4: the great financial crisis they've had.
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Speaker 2: They've had a ton of different scandals, that their growth
8:09
Speaker 2: has lagged all their industry peers and what used to be.
8:14
Speaker 2: And the sad thing is you would get like the
8:15
Speaker 2: previous two to three decades, and they stood out because
8:18
Speaker 2: of how high quality their business was. I mean, they
8:20
Speaker 2: were like Warren Buffett's, you know, his favorite company. It
8:24
Speaker 2: was like, oh, like this is my baby.
8:25
Speaker 4: Service and the reputational yeah, parts that they had. They
8:29
Speaker 4: What I had forgotten is that the FED had stepped
8:32
Speaker 4: in and curbed their asset growth over the last eight years,
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Speaker 4: an unprecedented measure. And I was just revisiting that yesterday
8:38
Speaker 4: as we went through that. That is why it's been
8:41
Speaker 4: a challenge eight years for good reason.
8:43
Speaker 2: There to take a quick break here. When we come back,
8:45
Speaker 2: we're gonna be joined by Trip Mikkel from The New
8:48
Speaker 2: York Times. We're talking about in Vidia after this.
8:53
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9:39
Speaker 2: All right, as promised, we're now joined by the one
9:42
Speaker 2: and only Trip mikel from the New York Times, here
9:45
Speaker 2: to chat a little bit about in vidio. Trip, Thanks
9:47
Speaker 2: for joining us today.
9:49
Speaker 3: Thanks. It's been busy and in video lan the past week.
9:52
Speaker 2: It has been. I know, Jensen's been all over the place.
9:55
Speaker 2: He was in the White House, he's in China now,
9:57
Speaker 2: and so things are busy. And obviously the big thing
10:00
Speaker 2: in Nvidia topped four trillion dollars in market cap, first
10:04
Speaker 2: company to ever hit that metric. Hap, How did they
10:06
Speaker 2: get there? From being just another you know, another chip maker,
10:10
Speaker 2: another semiconductor manufacturer, subject to the whims of these CAPEX cycles,
10:14
Speaker 2: to being a four trillion dollar company.
10:16
Speaker 3: Now, they weren't just another semi conductor maker. They were
10:20
Speaker 3: really like a niche semiconductor maker that started their business
10:24
Speaker 3: three decades ago making chips for video games. But the
10:29
Speaker 3: chips that they made, which are called graphic processing units,
10:33
Speaker 3: are capable of doing multiple computations simultaneously, thousands of them. Right,
10:39
Speaker 3: This is an order of magnitude of what you of
10:43
Speaker 3: the kind of performance and capabilities you get out of
10:45
Speaker 3: the traditional chips that we use in our computers. And
10:49
Speaker 3: Jensen recognized more than a decade ago that the power
10:54
Speaker 3: of those chips could potentially allow the creation of artificial
10:59
Speaker 3: intel diligence, which is something that computer scientists has been
11:02
Speaker 3: talking about delivering for decades. And so he spent billions
11:06
Speaker 3: of dollars on software to make the chips capable of
11:11
Speaker 3: building artificial intelligence systems. He was attacked by activist investors
11:16
Speaker 3: over these investments. People thought he was crazy, but essentially,
11:20
Speaker 3: years before anyone else thought AI systems could be built,
11:23
Speaker 3: Jensen bet his entire business on it and he was right.
11:27
Speaker 4: I mean, he.
11:28
Speaker 3: Delivered a supercomputer to a startup called open Ai and
11:32
Speaker 3: twenty sixteen that almost nobody had heard of, and six
11:36
Speaker 3: years later they delivered chat GPT and it set off
11:40
Speaker 3: such a frenzy for Nvidia, GPUs and chips that Jensen
11:45
Speaker 3: was having dinner with Elon Musk and Larry Ellison and
11:49
Speaker 3: they were literally begging him for more chips. I mean,
11:52
Speaker 3: he couldn't make them fast enough to deliver and fulfill
11:55
Speaker 3: the appetite in the marketplace.
11:57
Speaker 2: When when you look at the semicin space, the one
12:01
Speaker 2: thing that at least historically has been true is, hey,
12:04
Speaker 2: if you have fat margins in that space, they typically
12:07
Speaker 2: get eaten into over time. And Video's got some really
12:11
Speaker 2: fat margins right now. Is there anything unique that prevents
12:16
Speaker 2: them from falling into that same trap of seeing those
12:18
Speaker 2: margins eaten away in the coming three, four, five, six years.
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Speaker 3: I'm going to answer this question by talking about another
12:26
Speaker 3: dominant computer technology company, and that's Apple. And part of
12:31
Speaker 3: the reason we've seen Apple rake in eighty five percent
12:35
Speaker 3: of the profits in the smartphone market is it makes
12:37
Speaker 3: not only the smartphone, but also the software for that smartphone,
12:42
Speaker 3: and Video is essentially structured the same way. Because Jensen
12:46
Speaker 3: made this bet on building software to control these chips.
12:51
Speaker 3: He built a software system called Kuda, and that's really
12:56
Speaker 3: what everyone relies on to build their AI system. It's
13:00
Speaker 3: kind of the default preference for developers, and he's got
13:04
Speaker 3: this massive loyal base of users that are committed to
13:08
Speaker 3: that software, which means they're also committed to his hardware.
13:12
Speaker 3: And it's that kind of software hardware lock in that
13:14
Speaker 3: we've seen that was so effective for Apple that's also
13:17
Speaker 3: paying dividends for Nvidia.
13:20
Speaker 2: When we look at the big question for in Vidia,
13:24
Speaker 2: in my opinion, it's kind of related to the idea
13:28
Speaker 2: of these capex cycles where we see these in semiconductors
13:31
Speaker 2: and it's just brutal on the backside of them. Is
13:35
Speaker 2: there any indication that what we're seeing with AI spending
13:38
Speaker 2: right now is a normal CAPEX cycle that's just supercharged
13:41
Speaker 2: or is this unique? And hey, this is going to
13:44
Speaker 2: keep building because of that desire for the big tech
13:48
Speaker 2: companies to get to artificial general intelligence AGI.
13:54
Speaker 3: We have several years of runway left and this build
13:58
Speaker 3: out right, I mean, right now, these companies are really
14:02
Speaker 3: spending big, big, big time bucks on this. Part of
14:07
Speaker 3: in the investment thesis on Nvidia is that that the
14:12
Speaker 3: company updates its chips on an annual basis, and the
14:16
Speaker 3: chips performance is improved so much that people will re
14:21
Speaker 3: up and buy new versions of those chips. So even
14:24
Speaker 3: as you kind of spin the ball forward and look
14:27
Speaker 3: out on the horizon, there's you know, there's potential if
14:31
Speaker 3: you're bullish on the company, that they will continue to
14:34
Speaker 3: have tremendous sales going forward. Well, they have the explosive
14:37
Speaker 3: growth they've enjoyed over the past couple of years. I mean,
14:40
Speaker 3: you know, when you go from a profit of like
14:42
Speaker 3: four billion dollars a year to seventy four billion dollars
14:45
Speaker 3: on a spend of two years, like, it's really hard
14:47
Speaker 3: to replicate that, right, the law of the large numbers
14:50
Speaker 3: begins to catch up with you. But but they they
14:53
Speaker 3: have the promise and potential to sustain these high numbers
14:58
Speaker 3: that they're posting and putting up on a quarterly basis
15:01
Speaker 3: for some time to come.
15:03
Speaker 2: Very good, Trip, appreciate you joining us today. Obviously, just
15:06
Speaker 2: fascinating stuff going on within video, and we appreciate you
15:09
Speaker 2: chatting with us about what it is they're doing.
15:12
Speaker 3: All right, thanks so much, great to reconnect with you all.
15:14
Speaker 2: See absolutely that is Trip Mikkel from The New York
15:17
Speaker 2: Times talking about in video.
15:19
Speaker 6: All right, Time for trivia here on the Financial Exchange
15:22
Speaker 6: and today's Will Ferrell's fifty eighth birthday. Will Ferrell is
15:26
Speaker 6: the highest grossing comedic actor in history, with just under
15:29
Speaker 6: four billion dollars in box office returns. Farrell's running movies
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Speaker 6: a cast member of Saturday Night Live so trivia question today,
15:41
Speaker 6: how many seasons was Will Ferrell? A cast member of SNL?
15:45
Speaker 6: Once again, how many seasons was Will Ferrell a cast
15:49
Speaker 6: member of SNL. Be the fourth person today to text
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Speaker 6: Exchange Show T shirt once again. The fourth correct response
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Speaker 6: to Texas to the number six one seven three six
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Speaker 6: two thirteen eighty five will win that T shirt. See
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Speaker 6: complete contest rules at Financial Chain Show dot com.
16:13
Speaker 2: We've got markets on the move here. S and P
16:17
Speaker 2: five hundred just sold off about half a percent in
16:20
Speaker 2: the last couple minutes. The US dollar is getting absolutely bludgeoned,
16:25
Speaker 2: now down about two thirds of a percent in the
16:28
Speaker 2: last few minutes as well. Thirty year treasury is up
16:31
Speaker 2: four basis points ten years now flat. This on a report.
16:36
Speaker 2: I don't know who had it originally, but I see
16:38
Speaker 2: it's published on Bloomberg. I'll quote here. President Donald Trump
16:42
Speaker 2: is likely to fire Federal Reserve Chair Jerome Powell soon,
16:45
Speaker 2: a White House official said, and discuss the possible move
16:48
Speaker 2: in a meeting with congressional Republicans on Tuesday night. While
16:52
Speaker 2: longmakers voiced support for the move, which would likely royal
16:55
Speaker 2: financial markets and lead to a consequential legal showdown. Trump
16:58
Speaker 2: has not made a final decision and could change his mind,
17:00
Speaker 2: according to the official, who requested anonymity to discuss a
17:04
Speaker 2: private conversation. So here's what I can tell you based
17:09
Speaker 2: on my read of this. For the last couple weeks
17:13
Speaker 2: now we've had the stories floated from the White House
17:18
Speaker 2: surrounding the FED renovation and the costs of that renovation.
17:24
Speaker 2: Now we've had a couple different things in the last
17:26
Speaker 2: day or two with these trial balloons being floated. This
17:31
Speaker 2: is typically how you end up making a decision. I
17:35
Speaker 2: don't think this isn't entirely a done deal, but this
17:38
Speaker 2: is looking more and more likely because you don't float
17:42
Speaker 2: this stuff just to do nothing. You already could beat
17:45
Speaker 2: up on Jay Powell and the FED all that you
17:47
Speaker 2: wanted to without having to go down this road. You
17:51
Speaker 2: just keep saying, he's not lowering rates, enoff, he's not
17:53
Speaker 2: doing this, he's not doing that. He provides you a
17:54
Speaker 2: nice foil in there, And this stuff, to me feels
17:58
Speaker 2: a little bit more intense as far as you know
18:01
Speaker 2: why it's being published. And I really start to wonder
18:04
Speaker 2: if they have in fact already made the decision UH
18:07
Speaker 2: to move forward with firing him. But you do have
18:11
Speaker 2: markets acting pretty darn disjointed right now in the last
18:16
Speaker 2: fifteen to twenty minutes here, And we'll have to see
18:20
Speaker 2: how this ends up playing out, because this is not
18:23
Speaker 2: the kind of stuff that you typically like to see
18:25
Speaker 2: in markets. With currencies moving that much and yields moving
18:29
Speaker 2: in the opposite direction, that tends to be pretty spooky
18:32
Speaker 2: and ends up usually usually blowing something up somewhere in markets.
18:37
Speaker 4: So to be clear, they had floated out these stories
18:39
Speaker 4: regarding the costs of the renovations of the Federal Reserve
18:42
Speaker 4: building right these numbers. The theory is that that could
18:46
Speaker 4: be the four cause that they would allow to that
18:49
Speaker 4: would allow them to fire j.
18:51
Speaker 2: Potter.
18:51
Speaker 4: And so then next we're looking at a legal dispute
18:54
Speaker 4: as to whether or not that's justification for grounds of termination.
18:58
Speaker 5: Probably always something.
19:02
Speaker 2: I'm just I'm just here, and I'm just here.
19:07
Speaker 5: Yields aren't moving, the ten year not moving too much.
19:11
Speaker 5: The news.
19:11
Speaker 2: Here's the wild stuff that's happening in the yield curve.
19:14
Speaker 2: The two year treasury is down seven basis points this
19:16
Speaker 2: on the expectation that if they move forward with this,
19:18
Speaker 2: you'd see more rate cuts in the short term. The
19:21
Speaker 2: long end, the twenty year and thirty year both are
19:24
Speaker 2: seeing yields blowing out to the upside, a reversal of
19:27
Speaker 2: about seven or eight basis points from where they were earlier,
19:30
Speaker 2: and even the ten year is up three basis points
19:31
Speaker 2: from where it was and basically flat. Now, quick break.
19:35
Speaker 2: When we come back, we got the Trivia answer.
19:42
Speaker 1: Bringing the latest financial news straight to your radio. Every day,
19:46
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:52
Speaker 1: Time now for Wall Street. Watch a complete look at
19:55
Speaker 1: what's moving markets so far today right here on the
19:59
Speaker 1: Financial Exchange Radio Network.
20:01
Speaker 6: Breaking news as of moments ago. After a White House
20:04
Speaker 6: officials said that President Trump is likely to fire FED
20:07
Speaker 6: chairman Jerome Powell soon and discuss the possible move with
20:12
Speaker 6: congressional Republicans. Last night, Bloomberg reporting that Trump has not
20:17
Speaker 6: made a final decision and could change his mind. Right now,
20:21
Speaker 6: markets are adding to their losses. Dow is off by
20:25
Speaker 6: a tenth of one percent, or forty seven points, SMP
20:28
Speaker 6: five hundred is off four tenths of one percent or
20:30
Speaker 6: twenty six points. NASDAK now down one hundred points are
20:34
Speaker 6: about half a percent lower. Rusted two thousand is edging
20:37
Speaker 6: three points higher. Ten year Treasure reeled down by one
20:40
Speaker 6: basis point, now at four point four to seven nine
20:43
Speaker 6: percent in crude oil is off about eight tenths of
20:47
Speaker 6: one percent, trading right around sixty six dollars a barrel.
20:51
Speaker 6: More bank earnings to report this morning, Bank of America
20:54
Speaker 6: shares down over one percent after it posted higher than
20:57
Speaker 6: expected earnings while it's revenue fell short of four Morgan
21:01
Speaker 6: Stanley beats second quarter earnings and revenue estimates, However, that
21:04
Speaker 6: stock is retreating three percent. Goldman Sachs down nearly half
21:08
Speaker 6: a percent, despite the bank reporting a stronger than expected
21:12
Speaker 6: quarterly profit, driven by a pickup in deal making and
21:16
Speaker 6: surging trading outside of banks. Johnson and Johnson beat second
21:20
Speaker 6: quarter earnings and revenue forecast, where the pharmaceutical giant also
21:25
Speaker 6: raise its full year guidance for several metrics. That stock
21:28
Speaker 6: is now up six percent. Meanwhile, ASML warned and may
21:32
Speaker 6: see no growth in twenty twenty six due to increasing
21:35
Speaker 6: uncertainty from tariffs, sending shares in the semiconductor maker down
21:40
Speaker 6: by ten percent and tomorrow morning ahead of the opening bill,
21:44
Speaker 6: we'll see more second quarter earnings from Taiwan Semiconductor, ge Aerospace, Novardes,
21:50
Speaker 6: Abbott Labs, and PEPSI. I'm Tucker Silva and that is
21:54
Speaker 6: Wall Street Watch. And the trivia question we asked in
21:57
Speaker 6: the prior segment was how many seasons was Will Ferrell
22:00
Speaker 6: a cast member of SNL. That would be seven, seven
22:04
Speaker 6: seasons for Will Ferrell. Stephen Maine is our winner today
22:07
Speaker 6: taking home a Financial Exchange Show t shirt. And we
22:10
Speaker 6: play trivia every day here on the Financial Exchange See
22:14
Speaker 6: complete contest rules at Financial Exchange Show dot com.
22:18
Speaker 2: All right, so we have in our stack today it's
22:22
Speaker 2: three different pieces talking about the FED. And I guess,
22:26
Speaker 2: given what is now being reported by multiple different media
22:33
Speaker 2: news news outlets of you know, hey, it appears that
22:37
Speaker 2: President Trump is honing in on potentially firing Jerome Powell,
22:41
Speaker 2: I think we need to spend a little bit of
22:43
Speaker 2: time on these. There's one from the Wall Street Journal
22:46
Speaker 2: Diamond Defense Fed Independence after Trump attacks. Another one of
22:49
Speaker 2: politically captive FED would be a week Fed. That from
22:52
Speaker 2: Ernie Tedesky at the Budget Lab at Ale University. And
22:55
Speaker 2: one from Bloomberg. Hasset grabs pole position in race to
22:58
Speaker 2: be Trump's new FED chair. As we speak, the SMP
23:01
Speaker 2: just fell another fifteen points, So it's not taking this
23:04
Speaker 2: news very well, to say the least. Even worse actually
23:09
Speaker 2: is what's happening with the long bond. The thirty year
23:11
Speaker 2: treasury now up five basis points to five point zero
23:14
Speaker 2: seven percent. Earlier in the day it was down three
23:17
Speaker 2: basis points. So you've got the long end of the
23:20
Speaker 2: yield curve not really appreciating this, And I think it's
23:25
Speaker 2: important to talk about why, because look, those of you
23:30
Speaker 2: who have listened to us for a day or two,
23:32
Speaker 2: you don't know anything about like how we've we've viewed
23:35
Speaker 2: the FED. But if you're a longtime listener, you know
23:38
Speaker 2: the Back in twenty twenty one and twenty two, we
23:41
Speaker 2: pretty aggressively said the FED is making some huge mistakes
23:43
Speaker 2: on inflation, they're behind the curve, and they're doing a
23:46
Speaker 2: bad job. The last year or two we've said that
23:49
Speaker 2: they've generally done a pretty good job. By sin Since
23:51
Speaker 2: late twenty twenty three, I think they've been largely spot
23:54
Speaker 2: on in what they've needed to do. But we're Paul
23:57
Speaker 2: and I are not FED apologists, Like we're pretty article
24:00
Speaker 2: of them where needed, and we understand that they're not
24:05
Speaker 2: like geniuses or wizards or anything like that, Like they
24:07
Speaker 2: get things wrong just like all of us, and they
24:12
Speaker 2: should be held accountable when their decisions are incorrect, Like
24:16
Speaker 2: they should be called out and said, you're not doing
24:17
Speaker 2: a good job. And in the cases where like there
24:20
Speaker 2: is really a four cause issue with hey, they're not
24:23
Speaker 2: performing appropriately, you could make a case that when their
24:26
Speaker 2: term expires, they should not be you know, renewed for
24:29
Speaker 2: another term. But generally, like, I don't have I don't
24:33
Speaker 2: think I have anything in my mind in terms of
24:35
Speaker 2: any examples where FED officials have been fired for a cause.
24:38
Speaker 2: Because monetary policy is hard. Yo is the technical term
24:42
Speaker 2: for it. So here here's why central bank independence matters,
24:48
Speaker 2: and here's why you don't want I've heard people say, like,
24:51
Speaker 2: why why should the FED be independent? Like what you
24:53
Speaker 2: know what they're not, you know, responsible to the electorate
24:56
Speaker 2: and this and that, And I say, yes, like that's
24:58
Speaker 2: that's what you want. And the reason is if you
25:00
Speaker 2: get monetary policy wrong the way that elected officials typically
25:04
Speaker 2: want it to be conducted, which is pretty much always, hey,
25:07
Speaker 2: we want lower interest rates because it's like, obviously you
25:11
Speaker 2: want people to see cheaper borrowing costs. If you get
25:14
Speaker 2: it wrong consistently, you wind up with really bad inflation
25:18
Speaker 2: that doesn't go away. Is the long and short of it.
25:22
Speaker 2: And you see this across a wide swath of different
25:25
Speaker 2: countries that have futzed around with you know, central bank
25:30
Speaker 2: independence in different ways, and ultimately it tends to end
25:33
Speaker 2: the same way, with borrowing costs and inflation both being
25:36
Speaker 2: very high as they try to grasp for any kind
25:40
Speaker 2: of credibility that the central bank may have.
25:43
Speaker 4: So sorry, go ahead, yeah, well, I think also to
25:47
Speaker 4: add to that point, really the crux of the US
25:50
Speaker 4: financial system is predicated on this idea that there is
25:54
Speaker 4: stability and there is this sort of independence that the
25:58
Speaker 4: FED has. The ability that we have to have the
26:03
Speaker 4: top currency in terms of trade and transaction and being
26:06
Speaker 4: stored as well as the treasury market, which is a
26:10
Speaker 4: bellweather for global economic lending rates, is based on sort
26:15
Speaker 4: of the stability that's in place or this independence that
26:18
Speaker 4: the FED has. So the privilege that the US has
26:23
Speaker 4: had for decades, last fifty significant period of time is
26:29
Speaker 4: because of this this structure. That's what's benefited US for
26:32
Speaker 4: a long period of time and allowed barring costs to
26:35
Speaker 4: be relatively low because of the demand and stability that
26:39
Speaker 4: comes with the US Treasury.
26:40
Speaker 2: And if it were as simple as, hey, we're going
26:43
Speaker 2: to cut interest rates and then issue a bunch of
26:44
Speaker 2: short term debt guys, I'm pretty sure that Argentina would
26:49
Speaker 2: have figured that out at some point, Like they've been
26:51
Speaker 2: through enough that they would have tried it, you know,
26:55
Speaker 2: I know that Brazil would have tried it, So this
26:58
Speaker 2: Italy would have tried it. Italy has tried it. Like
27:00
Speaker 2: you look at the history of Italy, it's basically like
27:03
Speaker 2: thousands of years of hey, can we figure out a
27:06
Speaker 2: way to make it cheaper to borrow? And the answer
27:07
Speaker 2: is usually not really, Like we gave it our best
27:10
Speaker 2: shot and it ends up being just horribly financially mismanaged.
27:15
Speaker 2: So I think that when it comes to Jerome Powell
27:21
Speaker 2: hasn't done a perfect job. If if you had me
27:23
Speaker 2: grade his like twenty twenty one and twenty two, probably
27:27
Speaker 2: gave him like a D. If you have me grade
27:31
Speaker 2: his you know, last two years, like late twenty three
27:33
Speaker 2: through where we are now, probably give him like a
27:36
Speaker 2: B plus a minus I think he's been really good
27:38
Speaker 2: since then. And by the way, it's not just him,
27:40
Speaker 2: it's the entire committee.
27:41
Speaker 1: Like J.
27:41
Speaker 2: Powell doesn't wake up and set interest rates, the entire
27:44
Speaker 2: voting block of twelve people at any given point in time,
27:47
Speaker 2: they're the ones who end up doing it. So I
27:51
Speaker 2: don't know where this is going to go, but I
27:53
Speaker 2: can tell you what financial markets are saying, which is,
27:56
Speaker 2: if you fire J. Powell, and again this is my
28:00
Speaker 2: READI just based on how markets have performed in the
28:02
Speaker 2: last half hour, if you fire J. Powell, borrowing costs
28:07
Speaker 2: are actually going to end up going up, the dollars
28:09
Speaker 2: going to end up going down. In equities, which are
28:12
Speaker 2: dependent on both of those things, have the potential to
28:16
Speaker 2: get rinsed. Let's talk about that briefly.
28:18
Speaker 4: The Federal Reserve, just for listeners out there, has influence
28:22
Speaker 4: on shorter term interest rates. So when you look at
28:25
Speaker 4: money markets or any variable line of debt, that usually
28:28
Speaker 4: is heavily tied to what goes on with the Federal
28:31
Speaker 4: Reserve and their decisions on interest rate policy. What Chuck
28:34
Speaker 4: is alluding to with this idea of hey, there's going
28:36
Speaker 4: to be higher borrowing costs, it might sound counterintuitive, right,
28:39
Speaker 4: because the new FED chair would come in and cut
28:43
Speaker 4: that's on the shorter end of the curve. The longer
28:45
Speaker 4: end of the curve when you look at mortgages and
28:47
Speaker 4: corporate borrowing things like that, it's more heavily influenced by
28:50
Speaker 4: the ten year Treasury, which acts separate from what goes
28:55
Speaker 4: on with the Federal Reserve.
28:56
Speaker 2: By the way, the New York Times now reporting that
29:00
Speaker 2: President Trump has drafted a letter to fire the FED chair.
29:04
Speaker 2: So this is going beyond earlier reporting from Bloomberg. Apparently
29:07
Speaker 2: the letter is there and he's just waiting to decide
29:11
Speaker 2: whether or not he should use it. I mean, look,
29:14
Speaker 2: when you're seeing this kind of reporting, it's it's kind
29:16
Speaker 2: of it's either imminent in the next couple days or
29:20
Speaker 2: it's never going to happen. Is basically where this is like,
29:23
Speaker 2: you don't get to this level of reporting and then
29:26
Speaker 2: have it be like, well, we decided to do it
29:28
Speaker 2: in November. You know, you either get here and you're
29:32
Speaker 2: following through with it, or it's not going to happen.
29:34
Speaker 2: And we're we're rapidly approaching that point. But markets are
29:37
Speaker 2: telling you they don't like this. Let's take a quick
29:41
Speaker 2: break here. When we come back, we'll do a little
29:44
Speaker 2: bit of stack Roulette.
29:46
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Speaker 2: Paul, what do you got for me for stack Roulette.
30:57
Speaker 4: Today, Chuck, I want to talk a little bit about
31:00
Speaker 4: the Trump accounts for kids. This is the offering here
31:05
Speaker 4: that politicians wanted to give for newborns between a period
31:10
Speaker 4: of January first, twenty twenty five and December thirty first,
31:14
Speaker 4: twenty twenty eight, one thousand bucks to start an investment
31:17
Speaker 4: account for them. Little bummed that my daughter was born
31:21
Speaker 4: on October thirty first, so she will not be eligible
31:24
Speaker 4: for Sorry to hear that this this plan. I have
31:26
Speaker 4: some friends who who fall in there. But the idea
31:29
Speaker 4: behind it is to put a thousand bucks into this
31:32
Speaker 4: account with the Treasury Department and then have low cost
31:35
Speaker 4: mutual funds be available.
31:37
Speaker 5: But the details.
31:38
Speaker 4: Regarding it now, it seems like it's a little more
31:41
Speaker 4: convoluted than once was understood. It's going to be similar
31:45
Speaker 4: to that of a custodial account. UTMA is an account
31:49
Speaker 4: name that you'll thrown out there. That is a custodial
31:52
Speaker 4: account uniform transferred to minors acts, which basically becomes the
31:55
Speaker 4: child at age eighteen. The taxation on this is a
31:59
Speaker 4: little bit different than what you'd see with a five
32:02
Speaker 4: to twenty nine plan that's a college savings plan where
32:05
Speaker 4: the growth on that one thousand dollars in that case
32:07
Speaker 4: would be tax free if it went to a qualified
32:10
Speaker 4: tuition expense. This one here with this account would be
32:14
Speaker 4: taxable to the child at that point in time, whatever
32:17
Speaker 4: growth you saw on the fund going forward. It just
32:21
Speaker 4: seems like something that still needs a lot of work
32:26
Speaker 4: in terms of it being rolled out. I mean, we've
32:28
Speaker 4: talked about the societal stuff before. This is one thousand
32:31
Speaker 4: bucks says we can all attest as parents of young children.
32:34
Speaker 4: Isn't going to make a huge dent in the overall
32:37
Speaker 4: cost of raising a kid. But it's interesting. It seems
32:40
Speaker 4: like next July that or July that you'd be able
32:45
Speaker 4: to start contributing to these plans in twenty twenty six,
32:50
Speaker 4: that's when they're anticipated to be rolled out.
32:53
Speaker 2: Here, and there's still some details I think that they're
32:56
Speaker 2: sorting out on exactly how some of this is going
32:59
Speaker 2: to work as far as the taxation eventually, Like there's
33:03
Speaker 2: still because a bunch of stuff changed from the original
33:05
Speaker 2: draft to what was signed, and some of it was
33:08
Speaker 2: kind of left up to the irs I believe as
33:10
Speaker 2: far as final implementation.
33:12
Speaker 4: Yeah, and so they're thinking that it would grow taxible.
33:14
Speaker 4: So it's almost a little bit like a retirement account
33:17
Speaker 4: for the kids, because it's going to be subject to
33:19
Speaker 4: income taxes upon withdrawal the contribution limits. So you start
33:25
Speaker 4: off with that that a thousand bucks from the Treasury Department.
33:28
Speaker 4: Parents and relatives and friends could theoretically contribute five thousand
33:32
Speaker 4: bucks a year into this with after tax dollars, And
33:36
Speaker 4: that's a little confusing too, in a sense you're putting
33:39
Speaker 4: in money that's after tax, that's gonna grow tax deferred,
33:43
Speaker 4: but then eventually become taxable. So a lot to be
33:47
Speaker 4: worked out here. Employers could also theoretically match some of
33:51
Speaker 4: these contributions as well, but there's always, of course, you know,
33:56
Speaker 4: other options out there. But an interesting new account that
33:59
Speaker 4: has spawned by this this recent bill something to keep.
34:02
Speaker 3: An eye on.
34:03
Speaker 2: I want to talk a little bit about home insurance cost. Obviously,
34:05
Speaker 2: we've seen, you know, some of the more dramatic increases
34:08
Speaker 2: in places like Florida and California in the last couple
34:11
Speaker 2: of years, but according to Insurify, insurance premiums expected to
34:16
Speaker 2: go up in an additional eight percent in twenty twenty five.
34:20
Speaker 2: That would be another two hundred and sixty one dollars
34:23
Speaker 2: on insurance premiums, and obviously in expensive markets that can
34:26
Speaker 2: be significantly more. And this continues, I think, in my
34:31
Speaker 2: mind to be an underappreciated story as far as how
34:33
Speaker 2: it affects the housing market, just because you know, in particular,
34:37
Speaker 2: I look at what's going on in Florida right now
34:39
Speaker 2: with the number of properties for sale, which is about
34:42
Speaker 2: thirty percent above twenty nineteen levels, And the big thing
34:47
Speaker 2: that I hear just from anyone who's down there is, hey,
34:50
Speaker 2: when we move down, cost of living was great. Our
34:53
Speaker 2: insurance premiums. You know, we're three thousand a year. Now
34:56
Speaker 2: the cost of living has gone up, and our insurance
34:57
Speaker 2: premiums are twelve thousand a year, and we're just not
35:02
Speaker 2: sure if the financial side of things makes sense the
35:04
Speaker 2: way that it used to. And again that's the extreme example.
35:09
Speaker 2: But even if you look at the Northeast or the Midwest,
35:12
Speaker 2: or like the Pacific Northwest, insurance premiums are still rising quickly,
35:18
Speaker 2: and it's getting to the point where the magnitude is
35:21
Speaker 2: big enough that I think it starts impacting home prices
35:24
Speaker 2: in order for buyers to be able to afford their
35:27
Speaker 2: monthly payments.
35:28
Speaker 4: It used to be a line item that you would
35:30
Speaker 4: escrow that wasn't significant to the overall cost of a house.
35:33
Speaker 4: That's becoming more and more significant in terms of its impact,
35:36
Speaker 4: and particular, you know, in particular with California and Florida,
35:40
Speaker 4: what we've seen with the natural disasters over the course
35:42
Speaker 4: of the last couple of years. If you're looking at
35:44
Speaker 4: sort of the blame pie or what is causing a
35:48
Speaker 4: significant impact to the Florida housing market, I would rank Chuck,
35:52
Speaker 4: this has got to be number one or number two.
35:54
Speaker 4: If you're pointing to a reason is why is there
35:56
Speaker 4: so much glut of inventory in Florida? First was perhaps
36:00
Speaker 4: and overbuild from some of the demand post pandemic, but
36:03
Speaker 4: also the reason why you're seeing I've talked with clients
36:06
Speaker 4: about this these properties being listed for such a long
36:09
Speaker 4: period of time, is I don't want to purchase a
36:12
Speaker 4: house that you were mentioning that hey, maybe has seen
36:15
Speaker 4: an increase in Homerge insurance cost of six or seven thousand.
36:18
Speaker 4: What does the next ten years look like in terms
36:21
Speaker 4: of these increases because these hurricanes are not going anywhere.
36:25
Speaker 4: And also, what's what's not talked about besides the cost
36:28
Speaker 4: aspect is just the headaches that I've had heard from
36:31
Speaker 4: clients dealing with getting claims on their existing home merge
36:35
Speaker 4: insurance currents policies when a hurricane has come through. They've
36:40
Speaker 4: had to fight with them legally. There's been a lot
36:42
Speaker 4: of hesitancy on the insurance part to you know, deploy
36:45
Speaker 4: a certain amount for a claim. It's that's the other
36:49
Speaker 4: issue that you fight there too, in the Florida park property.
36:51
Speaker 2: Market, and then you just see what happens to your
36:53
Speaker 2: premiums the next year after you file that claim, and
36:56
Speaker 2: you're like, oh, how did this happen? The only solution
37:01
Speaker 2: that I'm seeing for a lot of people is to
37:06
Speaker 2: jack up deductibles significantly, but that doesn't necessarily make sense
37:10
Speaker 2: in a lot of cases either, because if you can't
37:13
Speaker 2: end up paying at deductible and covering that cost, then
37:15
Speaker 2: you're out of luck anyways. So it's a really messy,
37:20
Speaker 2: really challenging situation. But I'm not really sure how to
37:25
Speaker 2: resolve this, and I don't know what the fix is
37:29
Speaker 2: at this point. Taking a look at markets, we remain
37:33
Speaker 2: choppy in trading with the S and P now reversing
37:38
Speaker 2: what had been about a forty point sellof this in
37:42
Speaker 2: the last fifteen to twenty minutes now and now is
37:45
Speaker 2: down two points, the Nasdaq is off forty eight points,
37:51
Speaker 2: and the Dow is actually still up fifty one points.
37:55
Speaker 2: The long end of the yield curve, which had been
37:57
Speaker 2: selling off, is now back to seeing money flowing into it,
38:03
Speaker 2: and the dollar has stableized. So I'm guessing this means
38:05
Speaker 2: that in the last minute while I was talking, we
38:08
Speaker 2: must have heard something from the White House indicating that
38:12
Speaker 2: they are not going to fire J. Powell. Because half
38:16
Speaker 2: an hour ago, when rumors not rumors, when reporting on
38:19
Speaker 2: the letter that was drafted came out, this was all
38:22
Speaker 2: moving in a different direction, so very choppy, very messy.
38:26
Speaker 2: We'll see you tomorrow and let you know what happened
38:28
Speaker 2: then