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Two simple ways to fix America's housing problem · The Financial Exchange Show

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Speaker 1: This is the Financial Exchange with Mike Armstrong and faull Lane.
1:11
Speaker 2: Good morning, Happy Tuesday, and welcome back to the Financial Exchange.
1:15
Speaker 2: It's the Jobs week here on the Financial Exchange, where
1:18
Speaker 2: we'll have the monthly jobs report coming out this Friday,
1:21
Speaker 2: the Joltz Report out tomorrow, and obviously all of that's
1:25
Speaker 2: been pushed to the side given the news over the
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Speaker 2: weekend in Venezuela, which we'll continue to discuss today. A
1:30
Speaker 2: lot of FED talk today as well, and then later
1:32
Speaker 2: in the program during the second hour, we're gonna be
1:34
Speaker 2: joined by Matt gangnon CEO of the Main Policy Institute,
1:37
Speaker 2: talking to us all about about all of the minimum
1:40
Speaker 2: wage changes across the nation this year and just where
1:43
Speaker 2: that policy of minimum wage fits into today's political climate.
1:48
Speaker 2: But now I think about, Paul, is this the first
1:50
Speaker 2: time you've seen Tucker in twenty twenty six?
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Speaker 3: Yes, it is.
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Speaker 2: Did you want to wish him a happy New.
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Speaker 3: Year or happy? Don't don't care? Happy new You look beautiful.
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Speaker 2: I'm finding a way to wish Tucker a happy New
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Speaker 2: Year every day until mid February.
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Speaker 3: I remember you, you hate this right.
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Speaker 2: Last Friday, one of the biggest pet peers.
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Speaker 3: And when when do you think so? You don't like it?
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Speaker 4: Being said at all, you don't have a great I'm
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Speaker 4: good on New Year's Day, New.
2:17
Speaker 5: Year's Eve, day after New Year's that's it. That's all
2:20
Speaker 5: you get for Happy New Year.
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Speaker 2: I'm very excited about finding ways to work this.
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Speaker 3: I was dropping it with clients yesterday. So maybe you
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Speaker 3: were saying that yesterday with people. We were no, no, no,
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Speaker 3: they were. We were saying that they might have said
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Speaker 3: it first.
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Speaker 2: So long as I haven't seen that person in the
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Speaker 2: new year, then I get the new Year. I get
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Speaker 2: to wish it to though, so if I see them
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Speaker 2: in July for the first time, Happy New Year. Uh.
2:48
Speaker 2: As we did head into the new year, we finished
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Speaker 2: up the period that defines the Santa Claus Rally time
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Speaker 2: period on yesterday. In fact, so the Santa Claus Rally
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Speaker 2: by death misson is the last five trading days of
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Speaker 2: the year, followed by the first two of the following year.
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Speaker 2: We got a Santa Claus Rally out of the Dow,
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Speaker 2: although the S and P and Nasdaq surprisingly missed out.
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Speaker 2: This is another one of those meaning I.
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Speaker 3: Hate this more than Tucker hates the New Year.
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Speaker 2: The Santa Claus Rally.
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Speaker 4: Yeah, I know, we have to talk about it every year,
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Speaker 4: But it's like, what do I do with this? Probably
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Speaker 4: just what Tucker thinks of what do I do with
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Speaker 4: Paul telling me, happpy New Year. He probably wants me
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Speaker 4: to go stick it somewhere, go shove it.
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Speaker 2: Yeah, So we did not get a SMP Santa Claus
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Speaker 2: rally or a Nasdaq when it's a third year in
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Speaker 2: a row that the S and P has not delivered
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Speaker 2: on that Santa Claus rally and the third year in
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Speaker 2: a row of fabulous stock market returns in spite of that.
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Speaker 2: So I think this is going to fall into the
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Speaker 2: category of statistics that we can just put in the
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Speaker 2: closet and not bring out anymore because it is useless
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Speaker 2: in terms of any sort of indication.
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Speaker 3: You know, I'm with you there, Yeah, So there you
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Speaker 3: have it.
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Speaker 2: On your Santa Claus rally. You did get one from
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Speaker 2: the Dow, but Santa did not come me delivered big
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Speaker 2: old lump of coal to SMP and Nasdaq investors. And frankly,
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Speaker 2: what the Dow Jones Industrial Average does is not relevant
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Speaker 2: to anyone's portfolio, So I don't think.
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Speaker 3: You shoud pay attention to it exactly exactly.
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Speaker 2: But nonetheless, we are seeing you know what drove that
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Speaker 2: Dow record, because the Dow did hit a record yesterday
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Speaker 2: with largely bank stocks pushing it up. Obviously, oil companies
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Speaker 2: on the on the cusp of the news of Venezuela
4:28
Speaker 2: over the weekend, which if you missed out market reactions yesterday,
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Speaker 2: you did have oil prices increasing. Where did we land
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Speaker 2: about a one and a half percent up. Prices are
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Speaker 2: down again today now we're sitting at fifty eight dollars
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Speaker 2: per barrel on the West Texas crude. And I think
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Speaker 2: will likely be continuing to talk about this story all
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Speaker 2: week and for the next several weeks. But there is still,
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Speaker 2: i think, just generally, a lot that is unknown about
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Speaker 2: this situation, Lots being talked about in political circles about
5:02
Speaker 2: the context of the trial, and you know what, we'll
5:06
Speaker 2: be seen in New York as Nicholas Madua faces Those
5:09
Speaker 2: trials are lots of being compared to Panama in the
5:12
Speaker 2: late nineteen eighties. But in terms of economic effects, here
5:18
Speaker 2: are the things that are going through my mind. One,
5:21
Speaker 2: we are still you know, basically doing a partial blockade
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Speaker 2: on any oil that is leaving Venezuela, so their entire
5:29
Speaker 2: funding mechanism has been destroyed recently in Venezuela, so there's
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Speaker 2: very little cash flow reaching citizens there, probably on the
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Speaker 2: verge of financial collapse, in addition to a power vacuum
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Speaker 2: going on there. Any promises of you know, future oil
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Speaker 2: being drilled out of Venezuela is years away from now.
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Speaker 2: It will take a long time to repair the infrastructure,
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Speaker 2: set up deals, set up access to where the oil
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Speaker 2: would need to be drilled and released from that country.
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Speaker 2: And then the other big question that I don't have
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Speaker 2: any answer to is are there retaliations meaningful retaliations from
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Speaker 2: other countries. Some tiny countries in Africa have revoked visas
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Speaker 2: and bards US citizens from entering. But are we going
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Speaker 2: to get a reaction from China in this Other than
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Speaker 2: you know, voicing concerns at the United Nations, are we
6:25
Speaker 2: going to get another battle over battery technology and magnets
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Speaker 2: because of all of this? These are the questions that
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Speaker 2: I think economically matter at the moment. And other than that,
6:36
Speaker 2: there's a ton of things that nobody knows. Who's going
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Speaker 2: to be leading the country. What influence is the United
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Speaker 2: States going to have? Are we going to need to
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Speaker 2: put boots on the ground in Venezuela, which I think
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Speaker 2: almost nobody wants to see. These are open questions that
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Speaker 2: I think are way too early to answer, and we're
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Speaker 2: going to have to wait on them. But the things
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Speaker 2: that matter to me, no real change the status quo
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Speaker 2: when it comes to oil markets in the interim YEP,
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Speaker 2: and questions about what sort of retaliatory measures you could
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Speaker 2: see from meaningful countries with big economic power.
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Speaker 3: Yeah, and then also just what does Venezuela do.
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Speaker 4: You mentioned they are kind of going to be on
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Speaker 4: the precipice of an economic collapse. It's estimated that oil
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Speaker 4: exports are about forty percent of Venezuela's public revenue by
7:20
Speaker 4: an expert out of University of dever So to have
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Speaker 4: that effectively cut off. So, just to further Mike's point
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Speaker 4: on the partial blockade, Chevron is still allowed to export
7:31
Speaker 4: oil out of Venezuela, but all of the other entities
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Speaker 4: within Venezuela that export oil are not able to at
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Speaker 4: this point, and Venezuela doesn't derive a tremendous I believe
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Speaker 4: Chevron's been told not to pay the Venezuelan government any
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Speaker 4: revenue on the exports. Specifically, they do pay them for
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Speaker 4: access to the oil fields, so long and short, they don't.
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Speaker 4: They've really been cut off at the pass in terms
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Speaker 4: of any real economic activity. That partial blockade has been
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Speaker 4: in there since December eleventh, so that in the near
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Speaker 4: term is something to shake out. You mentioned the bigger,
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Speaker 4: broader geopolitical issues. That's something that's certainly of tremendous concern
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Speaker 4: and focus, and then it comes down to on the
8:11
Speaker 4: oil story, which is a lot of focus for the
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Speaker 4: energy sector here domestically. To be clear, companies like Exxon
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Speaker 4: and Conical Phillips have been out of Venezuela since two
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Speaker 4: thousand and seven, so really the only big domestic player
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Speaker 4: you're talking about is Chevron that has stayed with it
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Speaker 4: since two thousand and seven when Venezuela had went in
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Speaker 4: and declared nationalization on the oil fields. For Exxon and
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Speaker 4: Conical Phillips, this is going to take a long time
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Speaker 4: to play out in terms of any economic development on
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Speaker 4: the energy side for Chevron if they were to benefit.
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Speaker 4: It's been mentioned that Venezuela has three hundred billion barrels
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Speaker 4: of oil within its reserves, but getting to that and
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Speaker 4: harvesting and producing it, that's a whole nother story that
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Speaker 4: doesn't just happen overnight over the course of a trading
8:59
Speaker 4: year to have.
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Speaker 2: In it doesn't happen at all until there is some
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Speaker 2: sort of filling of the power vacuum.
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Speaker 4: Yeah, that's the thing you keep reading when you go
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Speaker 4: through all of this is stability and security for companies
9:11
Speaker 4: to be willing to invest more before you get that progress.
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Speaker 2: Let's take a quick break when we come back, moving
9:17
Speaker 2: on from Venezuela to domestic issue, specifically the housing market
9:21
Speaker 2: in twenty twenty six. What we anticipate data from our
9:26
Speaker 2: favorite housing economist, Mike Simonson, as well as a opinion
9:30
Speaker 2: piece from Connor Sen. That's next here on the Financial Exchange.
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Speaker 2: There's that Peace and Bloomberg today. Two simple ways to
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Speaker 2: fix housing in America. I completely disagree with both of them,
10:36
Speaker 2: but we're going to jump into them anyway. But other
10:38
Speaker 2: housing is going to be a focus. In twenty twenty six,
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Speaker 2: inventory has increased fairly dramatically. To give you a sense
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Speaker 2: for that. According to realtor dot com, who tracks a
10:47
Speaker 2: lot of this, total active listing counts, in November of
10:50
Speaker 2: last year, was sitting at one point zero seven two
10:54
Speaker 2: million listings. Back in November of twenty nineteen, we were
10:58
Speaker 2: sitting at one point one for three million listings. So
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Speaker 2: we're within sniffing distance of pre COVID levels of housing inventory.
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Speaker 2: Mike Simonson, who cited in the article, believes that we're
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Speaker 2: going to hit twenty seventeen levels in calendar year twenty
11:14
Speaker 2: twenty six. I don't know what. I'm not sure if
11:16
Speaker 2: he means lows from twenty seventeen averages or a month
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Speaker 2: over month numbers.
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Speaker 4: But he had set a ten percent inventory increase. Yeah,
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Speaker 4: I don't know what the number was, but ten percent
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Speaker 4: growth of it this year. There's going to be more
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Speaker 4: supply coming on.
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Speaker 2: So in either case, we are getting to a housing
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Speaker 2: market where inventory levels, at least at a national level,
11:35
Speaker 2: are going to start appearing much more normal. In spite
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Speaker 2: of that, Connorson accurately points out that there is just
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Speaker 2: very little activity happening, and it's for the same reasons
11:45
Speaker 2: that everyone's aware of. People are feeling mortgage locked. They
11:47
Speaker 2: do not want to give up their three or four
11:49
Speaker 2: percent mortgage in favor of a six or seven percent one.
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Speaker 2: There's also some psychology behind this, where you know, sellers
11:56
Speaker 2: in Florida are really having their brains attuned to the
12:00
Speaker 2: that people sold two years ago in their same neighborhood,
12:03
Speaker 2: and it's just not the case anymore. And so Connorson
12:06
Speaker 2: throws out a couple of government actions that the government
12:10
Speaker 2: could take in order to make this.
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Speaker 3: More palatable, palatable to the seller of the buyer right.
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Speaker 2: So his two solutions are first offering tax credits to
12:24
Speaker 2: sellers of homes that would basically reward them for giving
12:30
Speaker 2: up a low mortgage rate. So, for example, homeowners could
12:33
Speaker 2: be offered a credit of up to twenty thousand dollars
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Speaker 2: for two years, depending on the gap between their old
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Speaker 2: mortgage and their new mortgage. I'm not gonna judge these yet,
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Speaker 2: I'm just gonna tell them what they he thinks they
12:46
Speaker 2: He anticipates that would be about sixty billion dollars for
12:49
Speaker 2: the tax credits if four million sellers use them in
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Speaker 2: twenty six and twenty seven.
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Speaker 4: So let me just dive into it, like the mechanics
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Speaker 4: of it. So let's say you have a six percent
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Speaker 4: mortgage for the new house that you're going to buy.
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Speaker 4: The monthly mortgage for a five hundred thousand dollars mortgage
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Speaker 4: would be four grand a month. Hypothetically, in the other instance,
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Speaker 4: you were sitting on a two point seventy five mortgage
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Speaker 4: for the same five hundred thousand dollars debt standing out there,
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Speaker 4: three thousand dollars a month is the monthly mortage Pang.
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Speaker 4: So what he's proposing is the differential between the three
13:17
Speaker 4: grand that you're paying today for your existing mortgage and
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Speaker 4: the four grand for the new house in the future.
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Speaker 4: That one thousand dollars difference extrapolated out over the course
13:25
Speaker 4: of the year twelve grand. That's what he's talking about
13:27
Speaker 4: there with the tax credits, two years of.
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Speaker 2: That, which I'm sure would be immensely popular for all
13:32
Speaker 2: of the people that do not own homes right now
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Speaker 2: and wouldn't be getting this tax credits. The other option
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Speaker 2: would be, or the other solution in his mind, would
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Speaker 2: be offering a time limited mortgage rate buydown for first
13:43
Speaker 2: time home buyers of new and existing homes. Basically the
13:47
Speaker 2: government is offering this buy down and allowing for a
13:50
Speaker 2: lower mortgage rate. That one would cost about thirty six
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Speaker 2: billion dollars, so between the two of them, approaching one
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Speaker 2: hundred billion dollars in tax which, to his point is
14:02
Speaker 2: a small fraction of the annual spending budget. But just
14:06
Speaker 2: as how we get into this place in the first
14:08
Speaker 2: place is well, i mean, look where we spend on defense,
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Speaker 2: So why not just give home buyers and sellers a
14:13
Speaker 2: bunch of tax credits? And this is exactly how we
14:18
Speaker 2: get into these deficit problems in the first place.
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Speaker 4: Just think about if you're running a business and every
14:24
Speaker 4: justification was you know, I say to Mike, I'd really
14:27
Speaker 4: like a slushy machine, you know, out in the lobby.
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Speaker 4: You don't think about it relative to our annual expenses.
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Speaker 4: It's a fraction of it. But it still comes down to,
14:34
Speaker 4: like Paul, that's an idiotic idea. You know, why would
14:37
Speaker 4: she's just that Just because it's a small percentage of
14:40
Speaker 4: what a business or a government may spend on an
14:42
Speaker 4: annual basis doesn't make it right or doesn't make it
14:45
Speaker 4: that you should just greenlight the approval for it.
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Speaker 2: Here's the other piece. The government is very heavily involved
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Speaker 2: in interfering with free markets when it comes to home
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Speaker 2: buying and home selling. Let's just acknowledge for a moment
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Speaker 2: the thirty year mortgage as an idea would not exist
15:04
Speaker 2: at the rates that you're able to get them without
15:06
Speaker 2: government intervention. Definitely, Yeah, it wouldn't exist because the only
15:10
Speaker 2: reason it does exist is because these government organizations Fanny May,
15:14
Speaker 2: Jenny May, they go in and buy the mortgages from
15:16
Speaker 2: the banks. Otherwise, there is no way any bank in
15:19
Speaker 2: the country or the world would be willing to offer
15:22
Speaker 2: Mike Armstrong a thirty year mortgage at three and a quarter.
15:25
Speaker 3: Who wants that risk?
15:26
Speaker 2: Yeah, nobody would. The government is willing to accept it.
15:29
Speaker 2: So I will acknowledge for a minute that this is
15:31
Speaker 2: not a free market system, but that doesn't mean that
15:34
Speaker 2: you can't just allow free markets to solve it. This
15:38
Speaker 2: will be solved by free markets. This problem that we
15:40
Speaker 2: are experiencing in housing right now, where there is very
15:42
Speaker 2: little transacting. Buyers and sellers are mismatched in their expectations
15:46
Speaker 2: on price and mortgage rates. That fixes itself. It takes time.
15:52
Speaker 2: I'm not saying it will be instantaneous, and it will
15:54
Speaker 2: be painful. My solutions on housing get the governments, local
15:59
Speaker 2: and federal out of housing more. If you want to
16:02
Speaker 2: propose free solutions, you could do things like passing national
16:08
Speaker 2: laws removing some of the zoning stuff from local municipalities. Ye,
16:12
Speaker 2: it would be vastly unpopular. I get that. Everybody listening
16:15
Speaker 2: right now is screaming at the radio saying no, I
16:17
Speaker 2: want local control of that. But if you want to
16:19
Speaker 2: free up housing solutions, then say nope. All of the
16:23
Speaker 2: housing zoning rules are now controlled by the federal government
16:26
Speaker 2: instead of local municipalities.
16:28
Speaker 3: It doesn't cost you anything to.
16:29
Speaker 2: Do, cost you nothing. Yeah, and then just.
16:31
Speaker 4: Let the free market forces dictate after that. It will
16:33
Speaker 4: piss off a lot of people.
16:35
Speaker 2: Yeah yeah. But in the absence of that, don't pass
16:37
Speaker 2: a bunch of tax credits on housing for a problem
16:39
Speaker 2: that we do not have, right Like if housing is
16:42
Speaker 2: in a free fall and suddenly we have a bunch
16:46
Speaker 2: of people losing their homes and becoming homeless like we
16:48
Speaker 2: saw back in two thousand and eight, Okay, great, I
16:51
Speaker 2: can see a reason why the government needs to step
16:53
Speaker 2: in and make it so that we don't have a
16:55
Speaker 2: bunch of homeless people that you're going to be more
16:58
Speaker 2: costly over the long term to get back into the
17:01
Speaker 2: workforce and prevent total catastrophe in the absence of an
17:05
Speaker 2: event like that which we are not experiencing right now,
17:08
Speaker 2: the government has no place in.
17:09
Speaker 4: This right And to further you know this point with
17:12
Speaker 4: the story here on these two proposed fixes, and this
17:16
Speaker 4: is just like the student loans story too, where it's like, oh,
17:18
Speaker 4: forgive ten grand for everybody for student loans. Well, what
17:21
Speaker 4: happens five years from now when the next tranch of
17:23
Speaker 4: people are screwed with stud loans. What happens ye, the
17:26
Speaker 4: same thing applies with these credits here. It's okay, that's
17:29
Speaker 4: great for now, But what happens when Mike's kids and
17:33
Speaker 4: Paul's kids go to buy houses and the housing market
17:36
Speaker 4: is still in a bad spot. You have to just
17:38
Speaker 4: keep repeating this so it's not one hundred billion dollar costs.
17:41
Speaker 4: It becomes one hundred billion dollar costs every three to
17:44
Speaker 4: five years if you don't get the proper amount of
17:47
Speaker 4: stimulus from this type of.
17:49
Speaker 2: You know, endeavor listener question from yesterday, Will future rate
17:52
Speaker 2: cuts by the FEDS eventually have an indirect effect on
17:55
Speaker 2: mortgage rates in a downward direction? Take into consideration that
17:58
Speaker 2: we'll have a new FED share person, and how will
18:00
Speaker 2: it impact home sales?
18:01
Speaker 1: So?
18:02
Speaker 2: I think, first things first, if mortgage rates come down,
18:04
Speaker 2: I would definitely expect home sales to increase, just all
18:08
Speaker 2: else equal. If mortage rates come down, I would expect
18:11
Speaker 2: that to happen. And if mortg rates come down for
18:13
Speaker 2: just about any reason, like the most likely reason in
18:16
Speaker 2: my mind for mortgage rates come down would be an
18:18
Speaker 2: economic crash or an economic downturn of some sort, I
18:21
Speaker 2: would still expect home sales to increase in volume. The
18:25
Speaker 2: question as whether the FED will have an impact on this,
18:29
Speaker 2: I'd say it's a coin flip. I'd say it's a
18:32
Speaker 2: coin flip because historically, when the Federal Reserve has cut
18:37
Speaker 2: interest rates in an economy where we are not in recession,
18:41
Speaker 2: it's about a fifty to fifty shot as to whether
18:43
Speaker 2: or not mortgage rates come down.
18:46
Speaker 4: Right, Well, I think it's further to It's important to
18:49
Speaker 4: note that because I think this is a big misconception
18:51
Speaker 4: out there, the Federal Reserve decreasing short term interest rates
18:55
Speaker 4: does not have one to one correlation on the longer
18:57
Speaker 4: end of the occurred. A lot of people at parties
18:59
Speaker 4: and get together think that.
19:01
Speaker 2: Yeah, this person doesn't they recognize that, Hey, it would
19:05
Speaker 2: be an indirect effect. And my answer is when you
19:07
Speaker 2: look at the data historically absent to recession, because in
19:11
Speaker 2: a recession, interest rates tend to come down, including mortgage rates.
19:14
Speaker 2: But absent that, it's about a coin flip whether or
19:17
Speaker 2: not mortgage rates decrease with FED action. And so my answers,
19:20
Speaker 2: I don't know. I have very little confidence in it,
19:23
Speaker 2: but if we get a recession, then I do anticipate
19:25
Speaker 2: mortgage rates coming down quick break when we come back.
19:28
Speaker 2: Wall Street Watch is up next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter. Act
19:43
Speaker 1: TFE show breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:52
Speaker 1: Street Watch. A complete look at what's moving markets so
19:55
Speaker 1: far today right here on the Financial Exchange Radio Network.
19:59
Speaker 5: Mark if it's again in positive territory. One day after
20:03
Speaker 5: the Dow closed at a record high yesterday, right now,
20:08
Speaker 5: the Dow is up four tenths of a percent or
20:11
Speaker 5: two hundred and three points higher. SMP five hundred is
20:14
Speaker 5: up over a third of a percent or twenty five
20:16
Speaker 5: points higher. NASDAC up nearly half a percent or one
20:19
Speaker 5: hundred and seven points. Rusted two thousand is up about
20:22
Speaker 5: a quarter percent. Tenure Treasure reeled is up two basis
20:25
Speaker 5: points at four point one point eight nine percent, and
20:28
Speaker 5: crude oil is dipping today, trading a fifty eight dollars
20:32
Speaker 5: and twenty one cents a barrel. Video shares are up
20:35
Speaker 5: over one percent after the AI and Chip Giant said
20:38
Speaker 5: it would begin shipping new and faster AI chips yesterday
20:42
Speaker 5: at the Consumer Electronics Show in Las Vegas. The reubenships
20:46
Speaker 5: are being manufactured and will be shipped to customers including
20:49
Speaker 5: Microsoft and Amazon in the second half of the year.
20:52
Speaker 5: The company also unveiled new autonomous vehicle software. Meanwhile, in
20:57
Speaker 5: video competitor AMD also announced a new at cees for
21:02
Speaker 5: use in smaller corporate data centers. However, AMD shares are
21:05
Speaker 5: down by two percent. Elsewhere, Vistra shares are climbing four
21:10
Speaker 5: percent after the power generation companies said it planned by
21:13
Speaker 5: Cogentrics Energy and a deal valued at about four billion dollars
21:17
Speaker 5: that will include natural gas generation facilities.
21:20
Speaker 3: Metas said this.
21:21
Speaker 5: Morning that it's delaying the international expansion of its ray
21:25
Speaker 5: band display glasses due to inventory constraints and unprecedented to demand.
21:31
Speaker 1: In the US.
21:32
Speaker 5: Meta shares are mostly flat, and Ford said this morning
21:35
Speaker 5: that it's US vehicle sales increase six percent last year,
21:39
Speaker 5: marking the automaker's best annual sales since twenty nineteen. Ford
21:44
Speaker 5: finished the year as the third largest automaker, behind Toyota
21:47
Speaker 5: and General Motors. Ford shares are flat today. I'm Tucker
21:52
Speaker 5: Silva and that is Wall Street Watch. And remember you
21:54
Speaker 5: can watch the show live every day on our YouTube page.
21:57
Speaker 5: Well of breaking business news and all of our content
22:00
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22:02
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22:06
Speaker 5: all there. With the click of a button. Just searts
22:09
Speaker 5: the Financial Exchange on YouTube and hit that subscribe button.
22:13
Speaker 2: We have a TV in the studio here and the
22:16
Speaker 2: President speaking right now, and it made me realize something
22:19
Speaker 2: that we have not mentioned as a upcoming major event.
22:22
Speaker 2: In January February this year, the Supreme Court is expected
22:26
Speaker 2: to rule on the President's tariffs. So that could be literally,
22:29
Speaker 2: I mean, I'm guessing it's towards the end of January
22:32
Speaker 2: and maybe into February, but that could be any day
22:34
Speaker 2: here that we have the Supreme Court ruling on the
22:36
Speaker 2: legality of the bulk of the White House tariffs on
22:40
Speaker 2: goods coming into the United States. So in terms of
22:44
Speaker 2: events on the calendar, I'm not expecting a huge market effect,
22:49
Speaker 2: but a huge political effect and a huge economic effect
22:53
Speaker 2: for a many businesses.
22:54
Speaker 3: You don't think it would move markets potentially.
22:57
Speaker 2: I don't think substantially, and compared to where we anticipated
23:02
Speaker 2: tariffs to be. And also based on what the White
23:05
Speaker 2: House has been saying about their backup plans should the
23:08
Speaker 2: Supreme Court rule against them, it's not as though they're
23:11
Speaker 2: just gonna let tariffs walk away. There'll be different types
23:14
Speaker 2: of tariffs. But yeah, that that ruling could come any
23:17
Speaker 2: day and we will keep you up, keep you updated
23:19
Speaker 2: on the financial exchange. Tucker mentioned in VideA, and they
23:22
Speaker 2: are detailing their new AI chips at the CEES Consumer
23:27
Speaker 2: Electronics Show, which, by the way, what does in Vidia
23:30
Speaker 2: have to do with the consumer electronics if we just
23:32
Speaker 2: call that out for a minute, CEES is not Yeah,
23:35
Speaker 2: they do have a five thousand dollars toilet that you
23:37
Speaker 2: can buy that will you do a year analysis for
23:40
Speaker 2: you on the spot. But you know, when in video
23:43
Speaker 2: is releasing their stuff at CES, I just don't really
23:45
Speaker 2: think it's much of a consumer show anymore. But here
23:48
Speaker 2: is what they've announced is they are developing these new
23:51
Speaker 2: Vera rubin chips. These are the latest, great and greatest
23:54
Speaker 2: after the most recent Blackwell release. According to Jensen Long,
24:00
Speaker 2: companies will be able to train AI models on these
24:03
Speaker 2: chips with one quarter as many compared to the predecessor.
24:07
Speaker 2: Given that it'll provide information for chatbots and other II
24:10
Speaker 2: products at one tenth the cost, as well as a
24:12
Speaker 2: fraction of the energy usage. We'll see how these actually
24:17
Speaker 2: test when they are released, and what applications they're put into.
24:21
Speaker 2: They announced a deal with Mercedes Benz, who's trying to
24:24
Speaker 2: use them to further develop their own self driving car technology.
24:29
Speaker 2: It leads me to one big question, though. I mean,
24:32
Speaker 2: if this proves out to be correct, that these are
24:35
Speaker 2: basically four hundred percent more efficient than the Blackwells or
24:38
Speaker 2: however you want to phrase it, what exactly does this
24:41
Speaker 2: mean for the depreciation schedule and these existing data centers
24:45
Speaker 2: that are being built with the Blackwells right like something
24:49
Speaker 2: I thought, I know this is boring, but for a moment,
24:52
Speaker 2: just entertain me. Here. Companies are raising tens in some
24:57
Speaker 2: cases hundreds of billions of dollars or borrowing that amount
25:00
Speaker 2: of money to develop these data centers to run AI
25:03
Speaker 2: models on old chips that can be purchased today, and
25:07
Speaker 2: they're assuming that they depreciated a schedule of five to
25:10
Speaker 2: ten years, at which point they're worthless, and the loans
25:13
Speaker 2: are being underwritten with that kind of standard. If these
25:19
Speaker 2: things are so much more efficient, then you're going to
25:21
Speaker 2: get three years from now and people are gonna say, like,
25:24
Speaker 2: why would I run my stuff on this old technology
25:27
Speaker 2: that doesn't actually do what I want it to. What
25:29
Speaker 2: if it all depreciates a lot faster than we are
25:32
Speaker 2: currently expecting. Great in terms of new technology development, I'm
25:36
Speaker 2: not sure what it means for the build out of
25:38
Speaker 2: data centers, and you know the loans that are being
25:41
Speaker 2: used to fund it all. So I'll just throw that
25:42
Speaker 2: piece out there.
25:43
Speaker 4: Yeah, I don't I don't know enough about the intricacies
25:46
Speaker 4: of are they able in existing data centers to add
25:51
Speaker 4: some of these newer chips in and gradually phase out
25:54
Speaker 4: some of the older chips. You know, how does that
25:56
Speaker 4: whole synergy work? And you know, an expert would be
26:00
Speaker 4: better at sort of outlining that. To me, it's interesting
26:03
Speaker 4: from the data centerpiece is whenever you're digging shovels into
26:07
Speaker 4: the ground and all the capital expenditures that you're talking
26:09
Speaker 4: about there with physical real estate, it's so different from
26:13
Speaker 4: many iterations of past maybe mos akin to the broadband
26:18
Speaker 4: stuff in the late nineties, where there's just a lot
26:20
Speaker 4: more cost in play, and as a result, there's more
26:22
Speaker 4: risks when you're dealing with that. But on the technology side,
26:26
Speaker 4: it's to me, from everything that I've heard about these rubenschips,
26:30
Speaker 4: they do seem to be in again. This could be
26:34
Speaker 4: self serving from Nvidio, but be very sophisticated chips, something
26:37
Speaker 4: that they've been working on for three years and sort
26:39
Speaker 4: of further emphasizes when you're talking about a company that
26:42
Speaker 4: was responsible for fifteen percent of the SMP's game last year.
26:46
Speaker 4: They continue to have it seems like the dominant position
26:50
Speaker 4: in this space, and with the recent deal that they
26:52
Speaker 4: did with Grock, which is a startup for twenty billion
26:55
Speaker 4: to license some of their technology, and chips that do
26:58
Speaker 4: more in inference need to have a very strong foothold,
27:02
Speaker 4: and it seems like they do have that top spot
27:05
Speaker 4: even though everyone's chasing them and they're seventy percent gross margins.
27:07
Speaker 4: This is another step in the direction of the least
27:10
Speaker 4: holding the line in their ninety percent market share that
27:13
Speaker 4: they command today.
27:14
Speaker 2: Tender gree. It also these questions about power demands. You know,
27:17
Speaker 2: we're all getting psyched about nuclear power. How much of
27:20
Speaker 2: it is actually needed given how efficient these chips are getting.
27:23
Speaker 4: Again, that was news, that was good news, but another
27:26
Speaker 4: thought that I had, geez imagine all this electricity story
27:30
Speaker 4: that we've covered intensely, because the chips innovated such a
27:34
Speaker 4: fast level and are able to potentially be more efficient,
27:37
Speaker 4: does that become something that's less of for concerned It's
27:39
Speaker 4: fascinating this stuff changes so quickly.
27:42
Speaker 2: So now that we're done with that discussion, can we
27:43
Speaker 2: talk about self driving cars? Because I've spent the last
27:45
Speaker 2: like three weeks figuring out self driving cars and it
27:48
Speaker 2: was one of the like the key buying decisions for
27:50
Speaker 2: my next new vehicle was does it have more self
27:53
Speaker 2: driving capabilities? Really?
27:55
Speaker 3: All right?
27:55
Speaker 5: Especially a question though, Mike, does anybody you have the
27:58
Speaker 5: shortest commute to the office, So why do you need
28:01
Speaker 5: self driving car? Can you not drive the eight miles yourself?
28:05
Speaker 2: It's pretty challenging for me, and it's not a drive
28:09
Speaker 2: closer to it's primarily my wife's car. She's starting a
28:14
Speaker 2: new commute to Rhode Island from Massachusetts. She's gonna be
28:17
Speaker 2: she's gonna be on the road a little bit more.
28:19
Speaker 2: So that was that was a big factor in it.
28:21
Speaker 2: But under if I'm being completely honest, I'm just a
28:24
Speaker 2: geek for this technology. I think it's really cool and
28:26
Speaker 2: im and I'm interested to see what's out there. So
28:28
Speaker 2: a level zero car is your traditional car from twenty
28:31
Speaker 2: years ago that does not have cruise control. It doesn't
28:33
Speaker 2: have any lean keeping technology. It's just you drive at
28:37
Speaker 2: a level one car comes with like today's standard cruise control,
28:41
Speaker 2: so adaptive cruise control, you know where it's going to
28:46
Speaker 2: control some of those things, but you're still driving the car.
28:51
Speaker 2: You're still responsible for keeping your hands on the wheel
28:54
Speaker 2: and everything like that. Level two is something like Chevy's
28:58
Speaker 2: Super Cruise or Test's full self driving or what I'm
29:03
Speaker 2: purchasing a Ford, the Ford Blue Crews, where they have
29:06
Speaker 2: some pre mapped highways and things like that, where yeah,
29:09
Speaker 2: you can take your hands off the wheel on occasion
29:13
Speaker 2: and really allow the car to change lanes for you
29:19
Speaker 2: and do a whole lot more than your traditional vehicle
29:21
Speaker 2: is capable of. Chevy Super Crews, Blue Cruise, Tesla, from
29:25
Speaker 2: what I understand, are all on this level.
29:27
Speaker 3: You have to be on call to jump back.
29:29
Speaker 2: In Ford's case, for example, it tracks your eyeballs. Your
29:32
Speaker 2: eyeballs must be on the road at all times or
29:35
Speaker 2: else it turns off. In Tesla's case, they make you
29:37
Speaker 2: shake the wheel a little bit every few minutes. The
29:41
Speaker 2: first Level three car in the US was released by Mercedes.
29:45
Speaker 2: Mercedes currently has cars for sale that you can fully
29:49
Speaker 2: take your eyes and hands off the eyes off the road,
29:51
Speaker 2: hands off the wheel. I say they've kind of done
29:55
Speaker 2: it because it's basically on a few highways in California
29:59
Speaker 2: and Nevada where is actually approved, and it's only under
30:02
Speaker 2: speeds of forty miles an hour.
30:04
Speaker 3: Doesn't that eliminate Yes.
30:06
Speaker 2: Okay, it's not terribly useful, but obviously what they're going
30:10
Speaker 2: for is they want to be able to increase that
30:12
Speaker 2: speed and increase the number of states that approve the
30:14
Speaker 2: technology to be used. But for the Mercedes technology, you know,
30:18
Speaker 2: you want to answer an email or just be playing
30:20
Speaker 2: on the display, you can do so, and they have
30:23
Speaker 2: full control of the vehicle. Level four, when you get
30:27
Speaker 2: to level four and level five it's basically Level five
30:29
Speaker 2: is just it can drive itself no matter where, no
30:31
Speaker 2: matter what the conditions. And level four we're not there,
30:35
Speaker 2: but it's you know, full control for the entire trip
30:38
Speaker 2: except for some specific conditions. So right now, oh is
30:42
Speaker 2: in weimo?
30:43
Speaker 3: I mean not that you could just buy those, but
30:45
Speaker 3: that yes.
30:46
Speaker 2: Yeah, like wayms are probably around a level four level
30:50
Speaker 2: five technology. What Mercedes is saying is that hey, with
30:53
Speaker 2: these new chips, what they need to be able to
30:57
Speaker 2: do is very quickly make computation on site. They can't
31:01
Speaker 2: do it at a data center. If you're driving across
31:04
Speaker 2: a highway at seventy miles an hour, they need to
31:05
Speaker 2: be able to do it inside the vehicle. And so
31:08
Speaker 2: obviously the smaller you can make these things with more
31:10
Speaker 2: computing power that are more efficient from a electricity perspective.
31:15
Speaker 2: That is the holy grail for things like self driving vehicles.
31:18
Speaker 4: Right, And you'd imagine it's just a specialized chip that
31:22
Speaker 4: only has functionality around self driving, and it doesn't have
31:25
Speaker 4: to have the wide array of services that like a
31:27
Speaker 4: traditional GPU chip would have in a data center.
31:31
Speaker 2: So we will say I tend to think, in spite
31:33
Speaker 2: of the fact that Elon Musk has been promising this
31:35
Speaker 2: for fifteen years, I tend to think with these semiconductor
31:38
Speaker 2: and AI developments that we've seen over the last five years,
31:42
Speaker 2: that we are getting much closer to very useful technology
31:47
Speaker 2: and cars that will be pretty close to handling a
31:51
Speaker 2: large portion of your trip without a whole lot of
31:53
Speaker 2: attention to the road. I think that's probably within cars
31:58
Speaker 2: in the next five to ten years, and I'm personal
32:00
Speaker 2: I'm pretty excited about it.
32:01
Speaker 4: I'm with you, and it brings up a question that
32:03
Speaker 4: my uncle had posted to me because he has a
32:04
Speaker 4: younger daughter, like, well they where our kids.
32:07
Speaker 2: Even need to know how to drive cars?
32:09
Speaker 3: Yeah, it was just interesting to think about.
32:12
Speaker 2: It's a great question. Yeah, great question. Let's say a
32:14
Speaker 2: quick break when we come back. I think I'm good
32:17
Speaker 2: with data centers, but let's stay on auto sales for
32:21
Speaker 2: a little bit. We've been getting some warnings from companies
32:24
Speaker 2: from a number of different areas of the auto market.
32:26
Speaker 2: What are we expecting for sales and new releases in
32:29
Speaker 2: twenty twenty six? That's next.
32:31
Speaker 1: The Financial Exchange streams live on YouTube. Subscribe to our
32:35
Speaker 1: page and stay up to date on breaking business news
32:38
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32:43
Speaker 1: Business and financial news affecting the markets and your wallet.
32:47
Speaker 1: We've got it all straight from Wall Street right here
32:50
Speaker 1: on the Financial Exchange Radio Network.
33:05
Speaker 2: Well, we've seen three solid years of sales growth for
33:10
Speaker 2: US vehicles, and frankly probably would have seen five years
33:14
Speaker 2: of it, but the supply chain issues during COVID made
33:19
Speaker 2: it so impossible to buy a car. I remember buying
33:21
Speaker 2: a car in twenty twenty two, just a very boring
33:24
Speaker 2: Honda Civic and how difficult it was to actually get
33:27
Speaker 2: my hands on new one, which I only wanted because
33:29
Speaker 2: there were no used ones available, and it would have
33:31
Speaker 2: been just as pricey to buy a used one as
33:33
Speaker 2: it was a new one. The probably vehicle sales would
33:38
Speaker 2: have increased in twenty and twenty one as well, had
33:41
Speaker 2: there been vehicles that were genuinely available and for sale.
33:44
Speaker 2: But gmtry that both hinting at tough year ahead. Four
33:48
Speaker 2: auto sales after again pretty solid numbers, but GM's sales
33:53
Speaker 2: fell seven percent in the fourth quarter of last year,
33:58
Speaker 2: with Honda, Hundai, and Mazda also porting declines at the
34:01
Speaker 2: end of the year. And frankly, I think this just
34:04
Speaker 2: follows in line with a bunch of other data that
34:07
Speaker 2: we are seeing about big expensive purchases, which is there's
34:11
Speaker 2: just a narrower and narrower group of people in the
34:15
Speaker 2: US that can actually afford them.
34:17
Speaker 3: Yeah, it's incredible.
34:18
Speaker 4: Just the average age of a vehicle has reached twelve
34:22
Speaker 4: point three years according to Standard and Poors in terms
34:26
Speaker 4: of what we see for vehicles on the road today,
34:29
Speaker 4: and it does seem like you have many consumers that
34:32
Speaker 4: are hesitant to make those bigger purchases they're projecting. Jdpower
34:36
Speaker 4: reported that we had sixteen point three million cars sold
34:39
Speaker 4: in twenty twenty five, that was a two percent increase
34:42
Speaker 4: from twenty four but projecting that we see a decline
34:45
Speaker 4: this year too. I believe they had quoted maybe fifteen
34:49
Speaker 4: point eight million, so the first time, like you were
34:52
Speaker 4: alluding to a slowdown in vehicle sales, and they have
34:57
Speaker 4: gotten just ridiculously expensive. I mean, there's finally some pushback
35:02
Speaker 4: from some of these consumers as to whether to buy
35:05
Speaker 4: them or not.
35:07
Speaker 2: It's tough. The other big challenge here that we can
35:10
Speaker 2: talk more about is tariffs are really confusing right now
35:14
Speaker 2: when it comes to cars. Right there's been all sorts
35:16
Speaker 2: of temporary waivers. Where can I manufacture a car? Can
35:19
Speaker 2: I do it in Canada? And Canada and Mexico. So
35:23
Speaker 2: a lot that I think automakers are still trying to
35:26
Speaker 2: ponder and figure out as we head into twenty twenty six.
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36:33
Speaker 2: Now heading to the world's most valuable car company, that
36:36
Speaker 2: would be Tesla, of course, sitting at one point three
36:38
Speaker 2: eight trillion dollars whose stock is down three and two
36:41
Speaker 2: thirds of percent Right now.
36:42
Speaker 4: Mike, I just need to get off my why if
36:45
Speaker 4: you're a testa shareholder, why you holding what is the
36:48
Speaker 4: optimism behind it? Okay, Robotaxis elon mus Baby, I totally
36:53
Speaker 4: understand his brilliance and just I'm not sure I do,
36:56
Speaker 4: but like well some I guess I laud his brilliant
37:00
Speaker 4: I mean, you have to SpaceX what he's been able
37:02
Speaker 4: to do with that company, PayPal, you go on on Tesla,
37:05
Speaker 4: just getting off the ground to where it is today.
37:07
Speaker 4: But in terms of the future, Bid is crushing them.
37:10
Speaker 4: In terms of EV sales, they don't really have a
37:12
Speaker 4: lot of new cars in the pipeline. And then robotaxis
37:16
Speaker 4: is a market that at least has other significant competitors
37:19
Speaker 4: in it. And you look at these valuations that I've
37:22
Speaker 4: never understood the stock for the last eight or nine years,
37:24
Speaker 4: and I've been dead wrong and maybe I will be again,
37:27
Speaker 4: But it's just it's a one and a half trillion
37:29
Speaker 4: dollar company, and I'm just it's hard to see sometimes
37:33
Speaker 4: the optimism.
37:34
Speaker 2: Yeah, there, they did see a spike in third quarter sales,
37:38
Speaker 2: but then those plummeted in the fourth quarter, So guess
37:41
Speaker 2: what happened in the third quarter of twenty twenty five.
37:43
Speaker 2: The ev federally TV tax credit disappeared. So what happened
37:46
Speaker 2: in the third quarter. A bunch of people that might
37:49
Speaker 2: have purchased a car in the fourth quarter decided to
37:50
Speaker 2: do so in the third quarter instead, And so Tesla
37:54
Speaker 2: is now facing a pace of sales that don't look good.
37:56
Speaker 2: He has managed, the leader of Tesla has managed to
37:59
Speaker 2: make a whole bunch of people on both sides of
38:01
Speaker 2: the aisle pretty upset. And I don't like you said.
38:05
Speaker 2: Something new needs to impress pretty soon on Tesla because
38:08
Speaker 2: a lot of their competitors have caught up pretty quickly.
38:12
Speaker 2: We got a lot more to cover in the second
38:13
Speaker 2: hour of the financial exchange. We'll be right back, folks,
38:16
Speaker 2: Stay tuned.