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Tariff Chaos: Who Pays the Price Now? · The Financial Exchange Show

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  Speaker 1: and Paul.
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  Speaker 2: Lane, Good morning, Happy Tuesday, Welcome back to the Financial
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  Speaker 2: Exchange man.
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  Speaker 3: Yesterday was a doozy.
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  Speaker 2: If you are anywhere south of Boston, I hope that
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  Speaker 2: well within New England south of Boston, I hope that
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  Speaker 2: you have recovered.
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  Speaker 3: Tucker. How much did you end up with?
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  Speaker 4: Three feet over two feet? And where you are without
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  Speaker 4: power for three to five days.
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  Speaker 3: We're told. So it's great, that's love.
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  Speaker 4: How you said a month ago, Mike, that you love
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  Speaker 4: winter so much. Isn't this just great?
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  Speaker 5: I was thinking of you shoveling yesterday and to how
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  Speaker 5: some lunatics in this office, like yourself, like winter, and
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  Speaker 5: I just don't understand.
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  Speaker 2: Even I started to get up fed up yesterday when
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  Speaker 2: I was digging out the path to the loyal tank.
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  Speaker 3: It's a good time.
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  Speaker 4: I was here till five yesterday, by the way, because
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  Speaker 4: I could not leave here because and I just stay
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  Speaker 4: in a hotel again last night.
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  Speaker 3: Oh did you?
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  Speaker 4: Oh yeah, it's great.
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  Speaker 5: That's good marriage holding up, it's really good, really good.
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  Speaker 3: Oh yeah, okay, that.
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  Speaker 4: Is you love winter?
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  Speaker 3: I do. The The snowblower got a lot of use yesterday.
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  Speaker 3: Ours broke.
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  Speaker 2: Ours got a lot of use still in good even
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  Speaker 2: two years old extra season and yeah, so anyway, I
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  Speaker 2: hope that everyone out there is doing okay. Sounds like
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  Speaker 2: not not the case that their marriages are survivors.
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  Speaker 4: Literally Jack Nicholson. Yesterday in the shining in this office
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  Speaker 4: until five o'clock, the only one here. Can we just
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  Speaker 4: like eyebrows, can we get took her to bed or
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  Speaker 4: something to put by the studio? The slow zoom in
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  Speaker 4: on me, My eyebrow is just becoming angry, going nuts here.
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  Speaker 2: He was the only person in the building, was the
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  Speaker 2: only person here. It wasn't the office. This is an
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  Speaker 2: office comprised of several different offices.
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  Speaker 4: Walked there on the parking garage by myself, had some
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  Speaker 4: granola bars.
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  Speaker 3: So now we don't have any machine in.
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  Speaker 2: Any case, as I mentioned, for those without power, I
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  Speaker 2: hope everyone is safe.
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  Speaker 3: I hope you're doing all right.
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  Speaker 2: I hope that nobody tackled too much snow shoveling yesterday.
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  Speaker 2: And the rest of the world is moving on with
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  Speaker 2: life as Tucker build tries to rebuild his marriage and
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  Speaker 2: dig out for the storm. Hasn't seen his wife or
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  Speaker 2: kids in three days. Uh want to jump into some
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  Speaker 2: of the bigger breaking news though over the course of
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  Speaker 2: the last two days, and there's been a few pieces
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  Speaker 2: of breaking news, So I'm not going to focus on
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  Speaker 2: the tariffs today, even though we will be getting to
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  Speaker 2: them later in the program.
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  Speaker 3: But we had home Depot report earnings.
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  Speaker 2: We had this research report that came out I don't
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  Speaker 2: know if it was yesterday or over the weekend from
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  Speaker 2: Sactrini Research that markets into a tizzy.
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  Speaker 3: Once again.
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  Speaker 2: By the way, everyone's talking about this thing as some
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  Speaker 2: sort of prediction of the future, It is not. They
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  Speaker 2: just you know, they talked about it as a scenario,
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  Speaker 2: not a prediction. Nonetheless, it paints a pretty bleak picture
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  Speaker 2: of the world economy based on AI. But first, we
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  Speaker 2: have news that is sending a few stocks in positive directions.
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  Speaker 2: One would be Advanced micro Devices AMD if you have
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  Speaker 2: heard them referred to before, competitor to Nvidia, produce semiconductors,
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  Speaker 2: and inked a very large deal with Meta that broke today.
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  Speaker 2: AMD stock at one point was up more than ten percent.
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  Speaker 2: They are now up about six and two thirds percent
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  Speaker 2: as investors calmed down a bit. But what did we
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  Speaker 2: learn about Meta and AMD here? And then we can
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  Speaker 2: get into what might be some of the concerning stuff
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  Speaker 2: for what it indicates about the industry as a whole.
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  Speaker 5: Yeah, So first to just go with the headlines, Mike,
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  Speaker 5: Meta into deal with AMD, as you were mentioning before,
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  Speaker 5: to pay for six gigawatts of AI computing from AMD,
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  Speaker 5: a deal that's worth over one hundred billion dollars over
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  Speaker 5: the course of the next five years.
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  Speaker 3: So what the focus is.
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  Speaker 5: For companies like AMD and in Nvidio, who design many
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  Speaker 5: of the chips that go into these AI data centers,
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  Speaker 5: is there are only a few companies out there that
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  Speaker 5: buy these chips in significant quantity and significant bulk. So
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  Speaker 5: locking in someone like Meta who is one of those
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  Speaker 5: big time buyers is important because so much investment goes
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  Speaker 5: in to designing these sophisticated chips. There's a lot of
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  Speaker 5: R and D and research that goes into it. You
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  Speaker 5: want to make sure you're going to have some customers
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  Speaker 5: who are going to pay for those chips. So this
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  Speaker 5: deal is trying to make sure that they get buy
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  Speaker 5: in from a big buyer over the course of the next
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  Speaker 5: five years. That's why it's a creative to AMD. However,
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  Speaker 5: the other side of it, though, is Meta's not doing
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  Speaker 5: this just because they want to be nice and keep
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  Speaker 5: AMD afloat. They're also getting the option to potentially acquire
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  Speaker 5: up to ten percent of AMD stock over this period
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  Speaker 5: of time. Now it's performance based, so it's not as
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  Speaker 5: if they get ten percent today. These are warrants to
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  Speaker 5: buy additional shares of the company. So those are the
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  Speaker 5: two major components of this deal. Yes, Meta is committing
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  Speaker 5: to buy a significant amount of computing power from advanced
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  Speaker 5: micro devices. But also they're not doing this for free.
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  Speaker 5: They're doing it because they could potentially get a stake
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  Speaker 5: of the company going forward. And then we can go
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  Speaker 5: into the strategic aspect and some of the circular financing
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  Speaker 5: that is rampant in this space.
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  Speaker 2: Well, let's get there in a second, but before we do,
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  Speaker 2: we keep talking around these terms. Six gigawatts of AI
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  Speaker 2: computing powder. What the hell does that mean? A single
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  Speaker 2: gigawatt can power roughly three quarters of a million homes,
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  Speaker 2: So six gigawats gets you four point five million homes
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  Speaker 2: power the citywide demand, so the six gigawatts is roughly
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  Speaker 2: six times the peak electricity demand from the city of
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  Speaker 2: San Francisco. Just the scale of this stuff needs some explaining.
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  Speaker 2: Every once in a while so I think that is important.
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  Speaker 2: San Francisco, the entire city peaks out in terms of
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  Speaker 2: citywide electricity demand at about a gigawatt. We're talking about
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  Speaker 2: six times that the computing power needed here for it.
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  Speaker 2: So just again some sort of explanation here for what
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  Speaker 2: we're talking about. Six gigawatts is roughly equivalent to nearly
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  Speaker 2: one percent of the total power capacity of the United States.
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  Speaker 2: So this is scales that we can't really fathom today.
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  Speaker 2: And just buying the chips obviously will not be enough
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  Speaker 2: because you have to power the chips. But nonetheless, let's
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  Speaker 2: get into the weeds here because, as you mentioned, we
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  Speaker 2: are talking about this deal and you do have META
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  Speaker 2: that will eventually be exchanging cash for these chips, but
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  Speaker 2: at the same time, you also now have this warrant
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  Speaker 2: that's put in place. So a warrant is basically a
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  Speaker 2: contract that allows you to buy shares at a future date,
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  Speaker 2: and AMD as part of this deal, they're taking cash,
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  Speaker 2: they're giving chips, and in exchange, they are also giving
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  Speaker 2: one hundred and sixty million shares if this all performs
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  Speaker 2: correctly at a warrant cost of a penny per share.
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  Speaker 3: If you needed to know AMD.
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  Speaker 2: Stock trades at a heck of a lot more than
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  Speaker 2: a penny per share. It's basically free shares in exchange
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  Speaker 2: for the cash and the promise of all of this.
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  Speaker 2: I mean, on the surface, the circular concerns about this are, Okay, AMD,
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  Speaker 2: are you basically bribing Meta to buy your chips instead
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  Speaker 2: of in videas. It's not a bribe, it's above board.
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  Speaker 2: Everybody knows that it's happening. But it's a sweetener of
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  Speaker 2: some sort, right, it is a sweetener. Hey, Meta, buy
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  Speaker 2: these chips. Not only will we give you the chips,
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  Speaker 2: but will also give you a whole bunch of our stock.
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  Speaker 2: So ultimately, if it all goes according to plan, you
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  Speaker 2: own one tenth of our company.
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  Speaker 3: Yeah, a small percentage, you know.
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  Speaker 2: It's not like, hey, we're giving you these warrants and
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  Speaker 2: you might one day own a percentage of the company. No,
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  Speaker 2: you will own one tenth of this company if we
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  Speaker 2: execute this full deal over the next five years. To
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  Speaker 2: apply you with the chips that you're asking for, you
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  Speaker 2: give us the cash, et cetera. So this is not
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  Speaker 2: the first time we've seen this. Open AI and AMD
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  Speaker 2: in a similar deal back last year. Not that long
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  Speaker 2: ago for these similar types of chips. But it's starting
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  Speaker 2: to raise the question of Okay, so you know, ultimately
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  Speaker 2: now AMD stock is only up six and two thirds
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  Speaker 2: of percent. It was up something like sixteen percent in
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  Speaker 2: pre market trading. I think investors are treating this with
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  Speaker 2: appropriate skepticism. But where is the and when is the
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  Speaker 2: real cash going to change hands? Because ultimately, if you're
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  Speaker 2: buying AMD stock today, you are doing so under the
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  Speaker 2: assumption that hey, they execute this stuff perfectly, Meta actually
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  Speaker 2: pays for it, and today there is no cash changing hand.
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  Speaker 2: This is a handshake agreement to liver a whole bunch
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  Speaker 2: of stuff. Yes there's a contract behind it, Yes there
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  Speaker 2: will be payments in the future, but boy, do you
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  Speaker 2: really have to buy into the theory that this is
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  Speaker 2: actually going to be executed.
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  Speaker 5: On for AMD Clearly they're really with telegraphing with this
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  Speaker 5: move that this is an existential risk to the company
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  Speaker 5: if they can't execute this transition properly to AI data centers,
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  Speaker 5: where they're basically saying, we're willing to give away ten
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  Speaker 5: percent of our company if we're able to act perform,
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  Speaker 5: but if we don't, that equity is worth nothing. They're
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  Speaker 5: basically betting on that they need this, They need the
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  Speaker 5: commitment from Meta and others. They've done this deal, like
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  Speaker 5: you've mentioned with open Ai two, that they have to
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  Speaker 5: get buy in and they have to get market share.
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  Speaker 5: This is a market that is dominated by Nvidia at
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  Speaker 5: this point, and AMD is a far more insignificant player
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  Speaker 5: in this chip space and of these high performance chips
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  Speaker 5: for AI. So it is a it's a huge bet
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  Speaker 5: of the company and that's the direction, and they've trended
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  Speaker 5: over the last six months or so.
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  Speaker 2: So again, all comes down to execution here. Meta will
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  Speaker 2: not be using cash to do this. They'll be raising
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  Speaker 2: a whole bunch of debt in order to finance all
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  Speaker 2: of this stuff. They combined with Amazon, Microsoft and Alphabet,
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  Speaker 2: Google's parent company, have committed to spending six hundred and
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  Speaker 2: fifty billion dollars just next year. This is one hundred
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  Speaker 2: billion dollars over five years. These four companies have committed
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  Speaker 2: to spending six hundred and fifty billion dollars in twenty
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  Speaker 2: twenty six on AI development. And this is a piece
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  Speaker 2: of that. But there's a lot of execution that has
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  Speaker 2: to go right here. And the piece of it that
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  Speaker 2: again continues to just draw my attention. Is not the
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  Speaker 2: inking of the deals in the stocks being bit up
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  Speaker 2: because of it. I can understand that piece. The piece
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  Speaker 2: that leads me to be concerned is Okay, you're paying cash,
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  Speaker 2: but you're also getting shares. It very much muddies the
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  Speaker 2: waters in terms of why are these deals actually being executed?
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  Speaker 2: Is AMD best in class or are they just willing
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  Speaker 2: to give Meta a whole bunch of additional st incentive
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  Speaker 2: to buy their stuff instead of in videos?
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  Speaker 5: And the further intertwined all these circular deals become, the
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  Speaker 5: more unstable, not for imminent you know, concern, but the
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  Speaker 5: more unstable the whole sector could become.
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  Speaker 2: It ties all these companies us together exactly and so
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  Speaker 2: and failure together failure.
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  Speaker 5: Yeah, so if one of them fails, it has a
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  Speaker 5: bigger ripple effect than just being a alien alone.
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  Speaker 2: Again, if you're evaluating Meta's company now, you are evaluating
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  Speaker 2: it in part based on the fact that it has
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  Speaker 2: warrants to own ten percent of AMD. And if that
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  Speaker 2: company does not do terribly well, then Meta stock is
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  Speaker 2: worth less than it was previously because you now have
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  Speaker 2: this as part of their assets.
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  Speaker 3: Right, we got to take a quick break.
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  Speaker 2: When we come back, we're going to talk about that
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  Speaker 2: reports that from Satrini that sent markets tumbling yesterday. That's
• 12:50
  Speaker 2: next on the Financial Exchange.
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• 14:00
  Speaker 2: Satrini Research published a thought experiment yesterday. I don't want
• 14:06
  Speaker 2: to give it more credit than a thought experiment, and
• 14:09
  Speaker 2: I'm not sure that the author of it would either,
• 14:11
  Speaker 2: but it follows several of these different types of thought
• 14:16
  Speaker 2: experiments views into the future regarding AI over the course
• 14:21
  Speaker 2: of the last month or so that have been catching
• 14:23
  Speaker 2: investors' attention. I go back to the Twitter post from
• 14:27
  Speaker 2: do you remember the guy's name, Tucker Matthew?
• 14:31
  Speaker 4: It was like two weeks ago, but yeah, that went
• 14:33
  Speaker 4: viral and X and then this yesterday also viral an X.
• 14:38
  Speaker 2: And some of the pleas to panic and some of
• 14:40
  Speaker 2: these are perhaps more serious than others. But you know,
• 14:43
  Speaker 2: there's been other things in there too. Just two weeks ago,
• 14:46
  Speaker 2: I think it was we had the former karaoke software
• 14:50
  Speaker 2: company that rolled out this whole thing on how they're
• 14:53
  Speaker 2: going to completely reshape logistics that sent a bunch of
• 14:56
  Speaker 2: companies tumbling. Let's go through this latest one, and again,
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  Speaker 2: I think there's a lot of gut reaction, shoot first,
• 15:06
  Speaker 2: ask questions later on the part of investors right now.
• 15:09
  Speaker 2: So I don't want to give more credit than is
• 15:11
  Speaker 2: necessary here, But you know, this is a serious researcher.
• 15:15
  Speaker 2: He's been publishing macro and thematic stock research since at
• 15:19
  Speaker 2: least twenty twenty three, been investing and you know, putting
• 15:24
  Speaker 2: these things together.
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  Speaker 3: But this is not.
• 15:26
  Speaker 2: An economic research paper. It is not looking at data.
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  Speaker 2: It is really just painting a potential view of the
• 15:36
  Speaker 2: future of the United States economy or the world economy
• 15:38
  Speaker 2: really when it comes to AI. And it managed to
• 15:43
  Speaker 2: you know, crush a bunch of stocks, including IBM and CrowdStrike,
• 15:48
  Speaker 2: Data Dog, a whole bunch of different companies that were
• 15:51
  Speaker 2: either called out directly or implied by this research paper.
• 15:55
  Speaker 2: So what did you find of interest in it? And
• 16:00
  Speaker 2: then we can kind of talk through potential areas. I mean,
• 16:03
  Speaker 2: it prants a pretty dour picture of the world economy.
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  Speaker 5: It's not too dissimilar from sort of other theories that
• 16:11
  Speaker 5: get sort of bantered about with people who are pretty
• 16:14
  Speaker 5: heavy in the AI space. I can't think of, you know,
• 16:17
  Speaker 5: explicit examples, but the people who are employed at companies
• 16:21
  Speaker 5: like open Ai and others that are real trumpeters of
• 16:24
  Speaker 5: the technology seem to have said similar sentiments where basically
• 16:28
  Speaker 5: you would commoditize just all of the white collar knowledge
• 16:33
  Speaker 5: and all of the human intellect that has been powering
• 16:37
  Speaker 5: businesses for years, that would sort of get commoditized away,
• 16:41
  Speaker 5: so that in this worst case scenario, again to reiterate
• 16:44
  Speaker 5: this is just a scenario that's been mentioned about that
• 16:47
  Speaker 5: it would have dramatically negative impacts to the workforce because
• 16:52
  Speaker 5: you would have white collar workers that would lose their
• 16:54
  Speaker 5: jobs because artificial intelligence would be so tremendous at replacing
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  Speaker 5: many of the intuitive knowledge that many employees have in
• 17:03
  Speaker 5: this white collar space.
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  Speaker 2: So items that are mentioned ten percent unemployment in the
• 17:08
  Speaker 2: United States mainly because of white collar hiring collapsing because
• 17:12
  Speaker 2: of that white collar hiring collapse, in consumer spending plummeting
• 17:16
  Speaker 2: because where's the money going to come from. Real estate values,
• 17:20
  Speaker 2: especially in tech cubs like San Francisco getting hammered because
• 17:23
  Speaker 2: of the people losing their jobs unable to make payments
• 17:26
  Speaker 2: on their real estate. The other sector specific warnings he
• 17:31
  Speaker 2: comes up with are not terribly new. One would be
• 17:33
  Speaker 2: software as a service. He calls that out again as
• 17:36
  Speaker 2: you know, hey, this would be destroyed in this scenario potentially. No,
• 17:41
  Speaker 2: I've heard this one mentioned before. But the entire Indian economy,
• 17:46
  Speaker 2: a lot of it based on service and support for
• 17:50
  Speaker 2: software and tech companies. How much of that can be
• 17:53
  Speaker 2: done by artificial intelligence?
• 17:55
  Speaker 3: Why?
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  Speaker 2: Why does that economy need to exist in the same
• 17:58
  Speaker 2: structure that it does right now? Payments and delivery, Hey,
• 18:03
  Speaker 2: you know Visa MasterCard, These high fees that they charge
• 18:06
  Speaker 2: potentially disrupted by this technology as well, and then reiterates
• 18:10
  Speaker 2: the concerns about private credit given how much lending they
• 18:13
  Speaker 2: have done to these sectors that are likely to be
• 18:17
  Speaker 2: affected by AI.
• 18:18
  Speaker 3: So what do I buy? What do I not buy?
• 18:23
  Speaker 2: I do buy that software as a service is going
• 18:26
  Speaker 2: to have a challenging.
• 18:27
  Speaker 3: Environment over the next few years. I don't see how.
• 18:30
  Speaker 2: I don't know which companies within there, but as the
• 18:33
  Speaker 2: sector as a whole, it seems to me that you're
• 18:35
  Speaker 2: going to be able to develop really compelling software a
• 18:38
  Speaker 2: lot faster and cheaper than you were able to previously.
• 18:41
  Speaker 2: And so those motes that those companies have built, maybe
• 18:43
  Speaker 2: they're not as valuable as you previously thought. The Indian economy,
• 18:47
  Speaker 2: I'm not detailed enough to know it, but I can
• 18:48
  Speaker 2: understand how that would be concerning. You know, if a
• 18:52
  Speaker 2: large portion of customer service can be done by artificial intelligence,
• 18:55
  Speaker 2: for example, the stuff about ten percent unemployment and consumer
• 19:00
  Speaker 2: spending dropping. I will admit that anything is possible, but
• 19:06
  Speaker 2: show me a single technology throughout history that has caused
• 19:10
  Speaker 2: something like that. And I recognize AI is different, But
• 19:14
  Speaker 2: you're really going to tell me that the computer and
• 19:16
  Speaker 2: electricity and the steam engine, and radio and television and
• 19:20
  Speaker 2: the printing press are not going to have that effects
• 19:23
  Speaker 2: and AI is. I just I'm going to call myself
• 19:27
  Speaker 2: suspicious about the conclusion there.
• 19:29
  Speaker 3: Quick break, Wall Street Watch is coming up.
• 19:31
  Speaker 1: Next to you. Like us on Facebook and follow us
• 19:41
  Speaker 1: on Twitter at TFE show. Breaking business news is always
• 19:46
  Speaker 1: first right here on the Financial Exchange Radio Network. Time
• 19:51
  Speaker 1: now for Wall Street Watch, a complete look at what's
• 19:54
  Speaker 1: moving market so far today right here on the Financial
• 19:58
  Speaker 1: Exchange Radio Network.
• 20:00
  Speaker 4: All markets are rebounding following yesterday's sell off, which was
• 20:03
  Speaker 4: driven by a viral report by Satrini Research highlighting AI's
• 20:07
  Speaker 4: potential disruption on several fronts. Traders also continue to navigate
• 20:12
  Speaker 4: tariff uncertainty amid the Supreme Court's recent decision to overturn
• 20:16
  Speaker 4: President Trump's tariffs. Right now, the Dow is up eight
• 20:20
  Speaker 4: tenths of one percent, or three hundred and ninety three points.
• 20:23
  Speaker 4: SMP five hundred is up over half a percent or
• 20:27
  Speaker 4: thirty eight points higher. NASDAC up nearly nine tenths of
• 20:30
  Speaker 4: one percent, or one hundred and ninety six points. Russell
• 20:33
  Speaker 4: two thousand is up eight tenths of one percent. Tenure
• 20:36
  Speaker 4: Treasure reeled up one basis point of four point zero
• 20:39
  Speaker 4: four percent to crewde Oil up about a quarter percent higher,
• 20:43
  Speaker 4: Training and sixty six dollars and forty six cents a
• 20:45
  Speaker 4: barrel more AI spending to report this morning after Meta
• 20:50
  Speaker 4: and AMD agreed to a deal worth over one hundred
• 20:53
  Speaker 4: billion dollars where Meta will buy six gigawatts of AI
• 20:57
  Speaker 4: computing power from AMD. The deal could also result in
• 21:01
  Speaker 4: Meta owning as much as ten percent of AMD stock.
• 21:05
  Speaker 4: AMD shares are rallying eight percent, while MetaStock is dipping. Meanwhile,
• 21:10
  Speaker 4: Home deep Over reported better than expected fourth quarter results
• 21:14
  Speaker 4: despite profit falling. The home improvement retailers said it isn't
• 21:18
  Speaker 4: planning more price hikes after raising them last year two
• 21:21
  Speaker 4: offset tariffs. Home Depot shares are rising by three percent.
• 21:25
  Speaker 4: Elsewhere Novo Nordisk plans to cut US list prices for
• 21:29
  Speaker 4: its weight loss and diabetes drugs we Govi and Ozepic
• 21:33
  Speaker 4: by up to half beginning next year. Novo stock is
• 21:37
  Speaker 4: down by two percent. Telehealth company Hemps and Hers disappointed
• 21:41
  Speaker 4: with its fourth quarter sales and guidance for the current quarter,
• 21:45
  Speaker 4: sending shares down by seven percent, and Warner Brothers Discovery
• 21:49
  Speaker 4: set this morning it has received a revised offer from
• 21:52
  Speaker 4: Paramount to buy its entire company, but didn't provide details
• 21:57
  Speaker 4: of what the offer included. Warner stock is up over
• 22:00
  Speaker 4: half or percent, while Paramount shares are up by about
• 22:04
  Speaker 4: one percent. I'm Tucker Silva, and that is Wall Street Watch, Paul.
• 22:10
  Speaker 2: The narrative around AI and disruption continues to evolve. Last fall, again,
• 22:18
  Speaker 2: I'm just interpreting my own, I guess view of the
• 22:23
  Speaker 2: narrative was that investors were very much questioning the amount
• 22:27
  Speaker 2: of spend coming from major tech players and whether or
• 22:31
  Speaker 2: not it could ever pay off and continue.
• 22:33
  Speaker 3: There's a lot being written.
• 22:34
  Speaker 2: About the depreciation schedules on these data centers, the chips
• 22:37
  Speaker 2: going into them, the massive spending twenty twenty six. I
• 22:42
  Speaker 2: think those concerns have largely been put to the side
• 22:44
  Speaker 2: for the time being those companies that were under pressure.
• 22:47
  Speaker 2: If not, I mean Microsoft stock is down still double
• 22:50
  Speaker 2: digits and so, but that hasn't been the key focus.
• 22:53
  Speaker 2: I don't think the key focus now has seemingly evolved
• 22:56
  Speaker 2: to Okay, if these tools really are as impressive as
• 23:00
  Speaker 2: they seem to be, then what industries need to be
• 23:04
  Speaker 2: reevaluated for their growth and profitability prospects for the future,
• 23:08
  Speaker 2: And that's included transportation, logistics, financial services, but none more
• 23:13
  Speaker 2: than software.
• 23:14
  Speaker 3: Right.
• 23:14
  Speaker 2: Software has clearly been the low hanging fruit, and some
• 23:18
  Speaker 2: major companies out there have seen their stock price get
• 23:21
  Speaker 2: hit and really largely not recover. If we take a
• 23:25
  Speaker 2: look at, for instance, Salesforce, one of the largest software
• 23:28
  Speaker 2: companies out there, down twenty six percent year to date.
• 23:33
  Speaker 2: Service Now is mentioned in a piece from the Financial
• 23:35
  Speaker 2: Times today. So I'll take a look at them. Stock down,
• 23:44
  Speaker 2: stock is down, No chart available, So I'll get back.
• 23:47
  Speaker 4: I've seen service Now is up by three percent today.
• 23:51
  Speaker 4: Oh now it says no chart available.
• 23:53
  Speaker 1: What's going on?
• 23:53
  Speaker 3: So storm?
• 23:56
  Speaker 4: No, No, it's up three percent, up three percent today?
• 24:00
  Speaker 1: Confirmed?
• 24:00
  Speaker 2: Yeah, yeah, I'm talking about year to date. So in
• 24:02
  Speaker 2: any case, many of these have taken. Very few of
• 24:06
  Speaker 2: them have fully recovered in terms of that initial hit
• 24:09
  Speaker 2: that they felt a few weeks ago. And within those organizations,
• 24:13
  Speaker 2: I think we're starting to get a sense that obviously,
• 24:16
  Speaker 2: if you're the CEO of any of these companies, your
• 24:17
  Speaker 2: job is to put on a pretty face and you know,
• 24:20
  Speaker 2: say that everything's going to be.
• 24:21
  Speaker 3: All right and try and reassure investors.
• 24:24
  Speaker 2: But I think internally the organization they are looking at
• 24:27
  Speaker 2: this as a bit of it no serious in many
• 24:30
  Speaker 2: cases adapter dive moment.
• 24:32
  Speaker 5: Yeah, when we were previewing twenty twenty six, it was
• 24:35
  Speaker 5: the year of sort of show me for artificial intelligence.
• 24:38
  Speaker 5: The concerns in the fall of twenty twenty five, as
• 24:40
  Speaker 5: you were alluding to before, was overspend. Is this going
• 24:43
  Speaker 5: to marketly change businesses in terms of increased productivity or
• 24:47
  Speaker 5: increase revenue. From what we've seen now, there has been
• 24:51
  Speaker 5: that shift where an anthropic has been behind a lot
• 24:55
  Speaker 5: of this, which is an extremely large private company that
• 24:58
  Speaker 5: competes had to have with open Ai, but more so
• 25:02
  Speaker 5: on the enterprise side of things. They have announced several
• 25:05
  Speaker 5: different updates with their cloud cloud code tooling. It always
• 25:11
  Speaker 5: gets me every single time that have potentially the promise
• 25:16
  Speaker 5: to disrupt, like you mentioned, the software industry, and so
• 25:20
  Speaker 5: it's just been incredible to see sort of the shoot
• 25:24
  Speaker 5: first mentality that you have mentioned previously, that on a
• 25:27
  Speaker 5: given day, any stock can get beaten up ten or
• 25:30
  Speaker 5: fifteen percent if there is some sort of announcement for
• 25:35
  Speaker 5: a new product from Anthroduct or others out there that
• 25:39
  Speaker 5: sort of questions the long term viability of the business.
• 25:41
  Speaker 5: And specific to software, what we've really been seeing is
• 25:44
  Speaker 5: that specifically SaaS, which is software as a subscription service,
• 25:48
  Speaker 5: So you might have Salesforce at your company or any
• 25:51
  Speaker 5: other CRM system, they usually pay per suit for the
• 25:55
  Speaker 5: company does for that software to be on the platform. Now,
• 25:58
  Speaker 5: as Mike alluded to, with some of the new technology
• 26:01
  Speaker 5: that we've seen from our official intelligence, creating that same
• 26:04
  Speaker 5: type of software is a lot more efficient and a
• 26:07
  Speaker 5: lot easier process. Does this mean that Salesforce gets uprooted
• 26:11
  Speaker 5: and their business gets drived to zero tomorrow. No, it doesn't,
• 26:14
  Speaker 5: but it certainly could damper some of their future growth projections.
• 26:18
  Speaker 3: And that's all.
• 26:20
  Speaker 5: What's at debate here is does this artificial intelligence? Is
• 26:23
  Speaker 5: it an add on to existing softwares like Salesforce or
• 26:27
  Speaker 5: does it dramatically upheave their business.
• 26:30
  Speaker 2: And into it is another one. They're the maker of
• 26:33
  Speaker 2: quick books. Also TurboTax software stocks down forty one percent
• 26:37
  Speaker 2: this year. I think to the point of shooting, shooting
• 26:43
  Speaker 2: first and asking questions later. There is a difference between
• 26:47
  Speaker 2: a lot of these companies. None of them operate in
• 26:49
  Speaker 2: the same space. They're all over the place. But I
• 26:52
  Speaker 2: think of a company like Salesforce compared to Expedia. So
• 26:57
  Speaker 2: both software companies saw where is CRM? You know, Salesforce
• 27:02
  Speaker 2: more of a subscription service, whereas Expedia is being paid
• 27:05
  Speaker 2: by all sorts of travel industry components. But you know,
• 27:08
  Speaker 2: Salesforce stock down twenty six percent, Expedia stock down thirty
• 27:13
  Speaker 2: one percent. Very different companies, very different moats. And on
• 27:16
  Speaker 2: the surface, right I think about the two of them,
• 27:20
  Speaker 2: I think, what is going to matter a lot here? Obviously?
• 27:23
  Speaker 2: How do the companies adapt? How much you know cheaper?
• 27:25
  Speaker 2: Can they develop their own future software? Because if you've
• 27:29
  Speaker 2: ever used any of them, what you know is that
• 27:31
  Speaker 2: they don't stand still. The number of changes that we've seen.
• 27:34
  Speaker 2: We use Salesforce right than our own organization. The thing
• 27:37
  Speaker 2: changes every three months in terms of its capabilities. So
• 27:41
  Speaker 2: how quickly can you develop those things internally and how
• 27:44
  Speaker 2: much cheaper can you do it with this new technology
• 27:46
  Speaker 2: is relevant. The other thing that's relevant is just how
• 27:50
  Speaker 2: far do your tentacles reach? And Salesforce is one of
• 27:52
  Speaker 2: those companies where there's tentacles reach pretty far. Yeah, they
• 27:55
  Speaker 2: have a lot of data stored on your business and
• 27:58
  Speaker 2: all of the interconnection. The way these things work is
• 28:02
  Speaker 2: they try to connect to every other piece of data
• 28:04
  Speaker 2: you might be interested in. And that's where this stuff
• 28:07
  Speaker 2: gets complicated, right Developing now a pretty website that a
• 28:13
  Speaker 2: user can click through and you know, learn about your
• 28:17
  Speaker 2: company today, that can be done at probably a thirtieth
• 28:21
  Speaker 2: the cost that it could have been done a few
• 28:23
  Speaker 2: years ago. Developing a website that is going to connect
• 28:27
  Speaker 2: with a bunch of other secure databases and deliver information
• 28:30
  Speaker 2: to your business securely is a lot different than building
• 28:34
  Speaker 2: a website for a I don't know furniture sales company,
• 28:40
  Speaker 2: right Like, they're just different business models, and I think
• 28:43
  Speaker 2: right now they're all being treated similarly, and I don't
• 28:46
  Speaker 2: think they should. But again, far be it from me
• 28:49
  Speaker 2: to understand which one is truly going to get completely
• 28:52
  Speaker 2: disrupted compared to the others. Let's say quick break. When
• 28:56
  Speaker 2: we come back, time to turn to tear us. Now,
• 28:59
  Speaker 2: there's been a lot of change over the course of
• 29:02
  Speaker 2: the last just five days here, so tariff talk is
• 29:06
  Speaker 2: next on the Financial Exchange.
• 29:08
  Speaker 1: Daily financial content in your feed when you want it.
• 29:11
  Speaker 1: Follow the Financial Exchange on Instagram. Face is the Financial Exchange.
• 29:17
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• 29:20
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• 29:23
  Speaker 1: here on the Financial Exchange Radio Network.
• 29:39
  Speaker 2: All right, Time to revisit the tariff timeline. So April
• 29:42
  Speaker 2: of twenty twenty five, we had the reciprocal tariffs put
• 29:45
  Speaker 2: into place. Friday of last week, this US Supreme Court
• 29:48
  Speaker 2: struck them down in a six to three vote, not
• 29:51
  Speaker 2: terribly close vote on the power that the President's exercised
• 29:55
  Speaker 2: in order to implement those tariffs. A lot of questions
• 29:58
  Speaker 2: to be answered in terms of reimburse We will talk
• 30:00
  Speaker 2: about that later. But first things first, the ten percent
• 30:04
  Speaker 2: tariffs that were announced by the President almost immediately following
• 30:08
  Speaker 2: the US Supreme Court case are now in effect for
• 30:12
  Speaker 2: one hundred and fifty days. That is when they will
• 30:14
  Speaker 2: cap out a few just you know, pieces of information here.
• 30:18
  Speaker 2: Bloomberg Estimates estimates that prior to the Supreme Court shutting
• 30:23
  Speaker 2: these down, the average effective tariff rate was that thirteen
• 30:25
  Speaker 2: point six percent. Now, with the new tariff rate, we're
• 30:28
  Speaker 2: going to settle in around ten point two percent.
• 30:30
  Speaker 3: Remember that there are all sorts of exemptions in here.
• 30:34
  Speaker 2: Should the rate get up to fifteen percent, as the
• 30:37
  Speaker 2: President has spoken about, then the new effective rate would
• 30:41
  Speaker 2: be around twelve percent, so still lower than the thirteen
• 30:43
  Speaker 2: point six percent where we were before. The White House
• 30:48
  Speaker 2: is now doing a whole song and dance scramble to
• 30:52
  Speaker 2: try and figure out are their additional tariffs we want
• 30:55
  Speaker 2: to implement, where do we have the most leverage, Using
• 30:59
  Speaker 2: a whole bunch of different rules around national security to
• 31:02
  Speaker 2: identify areas such as batteries, cast iron, iron fittings, electrical
• 31:06
  Speaker 2: grid and telecom equipment, plastic piping, and some chemicals to
• 31:10
  Speaker 2: potentially add terraffs onto those spaces as well. I think
• 31:15
  Speaker 2: my only conclusion right now, Paul, can be that this
• 31:18
  Speaker 2: is a mess cluster.
• 31:21
  Speaker 3: Yeah.
• 31:22
  Speaker 2: Yeah, I was trying to figure out how to say
• 31:24
  Speaker 2: without you know, saying something that the FCC would have
• 31:26
  Speaker 2: a problem with. But it is a mess now, and
• 31:29
  Speaker 2: we talked about this leading up to it. You know,
• 31:32
  Speaker 2: like or dislike tariffs, think they're a good strategy or
• 31:34
  Speaker 2: bad strategy. What we acknowledge is if the Supreme Court
• 31:37
  Speaker 2: takes the power away, which you know, personally I think
• 31:41
  Speaker 2: is the right move, because I think it was an
• 31:43
  Speaker 2: over extension of executive power, much like the Biden administration's
• 31:46
  Speaker 2: attempt to wipe out a whole bunch of.
• 31:48
  Speaker 3: Student loan debt. But that's not really relevant.
• 31:51
  Speaker 2: What is relevant is it is a mess now, and
• 31:54
  Speaker 2: the administration, Congress, everybody else is going to be left
• 31:58
  Speaker 2: picking up the bag. All the porters are going to
• 32:00
  Speaker 2: be left picking up the bags here. And the only
• 32:03
  Speaker 2: possible short term outcome I can think of is that
• 32:07
  Speaker 2: companies affected by tariffs, many of which operate in our economy,
• 32:12
  Speaker 2: are going to delay, right, They're going to do nothing,
• 32:16
  Speaker 2: just like they did in twenty twenty five. They are
• 32:17
  Speaker 2: going to delay hiring, they're going to delay manufacturing, they're
• 32:20
  Speaker 2: going to delay construction of new facilities because there is
• 32:25
  Speaker 2: no certainty around what business model is going to be
• 32:28
  Speaker 2: a good fit for twenty twenty six.
• 32:29
  Speaker 5: That's what's most problematic about this ruling is whether whatever
• 32:34
  Speaker 5: side you sit on as to whether or not it
• 32:36
  Speaker 5: was a good economic policy, is that the way that
• 32:39
  Speaker 5: these were implemented. We all agreed that it wasn't the
• 32:42
  Speaker 5: smoothest implementation period. From April through the course of last year.
• 32:46
  Speaker 2: Yeah, we had the big whiteboard and not the big whiteboard,
• 32:48
  Speaker 2: but the big chart with all.
• 32:49
  Speaker 3: The different teriffs exactly didn't really make any sense. Those
• 32:52
  Speaker 3: got walked back.
• 32:53
  Speaker 5: And there was all these exceptions and carve outs, and
• 32:55
  Speaker 5: for months it was this. The common refrain that you
• 32:58
  Speaker 5: hearn from business leaders is we just want to know
• 32:59
  Speaker 5: what the place field is. We just want to know
• 33:02
  Speaker 5: so that we can make decisions going forward. And unfortunately
• 33:05
  Speaker 5: for this from this decision on Friday, that is still
• 33:08
  Speaker 5: going to be the case for a lot longer period
• 33:11
  Speaker 5: of time where we're not going business leaders are not
• 33:13
  Speaker 5: really going to know what the playing field is. And
• 33:16
  Speaker 5: if you spin back to what is the impetus behind
• 33:19
  Speaker 5: some of these tariffs in the first place, which is
• 33:21
  Speaker 5: to try and encourage more manufacturing domestically, because of the
• 33:26
  Speaker 5: drawn out and the striking down of these terrats, and
• 33:29
  Speaker 5: how long it's going to take to get any clarity
• 33:31
  Speaker 5: as to where this goes, I don't think that you
• 33:33
  Speaker 5: probably have as many companies on the US side saying Okay,
• 33:37
  Speaker 5: we should invest a lot Domestica. I think it hurts
• 33:40
  Speaker 5: that case.
• 33:41
  Speaker 3: Unfortunately, now the good news.
• 33:42
  Speaker 2: In my mind, I'm not sure I buy this argument.
• 33:45
  Speaker 2: In fact, I'm pretty sure I don't. But if you
• 33:47
  Speaker 2: believe the tariffs are going to lead to more domestic
• 33:50
  Speaker 2: manufacturing in the long term, if they're implemented permanently, and
• 33:55
  Speaker 2: you believe that that's good for the growth of our
• 33:57
  Speaker 2: economy and good for our society as a whole, and
• 34:00
  Speaker 2: this Supreme Court shutdown actually makes it more likely that
• 34:04
  Speaker 2: whatever goes through now is going to be permanent.
• 34:07
  Speaker 3: Congress will have to vote.
• 34:08
  Speaker 2: On it, right right, the previous ones that were talking
• 34:11
  Speaker 2: about they were all executive order. What that means is
• 34:13
  Speaker 2: the next president that's sitting there, if they disagree with
• 34:15
  Speaker 2: the format of the tariffs, they just yank them and
• 34:17
  Speaker 2: they change them. And so even had those stayed in place,
• 34:20
  Speaker 2: I think there are a lot of businesses that would
• 34:22
  Speaker 2: have said, I'm not going to build one hundred million
• 34:25
  Speaker 2: dollar manufacturing facility in the United States because I think
• 34:28
  Speaker 2: that I can the next administration to wipe them out Now.
• 34:34
  Speaker 2: If the President really believes in this stuff and he
• 34:36
  Speaker 2: wants it to go forward, it seems to me that
• 34:39
  Speaker 2: it's very likely they will need Congress to vote on
• 34:41
  Speaker 2: it and pass it as a law. I don't know
• 34:44
  Speaker 2: if that will happen or not, but it would make
• 34:46
  Speaker 2: whatever happens next a lot more permanent than what we've
• 34:48
  Speaker 2: been dealing with most recently.
• 34:50
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• 35:51
  Speaker 2: Adding to complexity is the refund process now of the
• 35:54
  Speaker 2: one hundred and seventy five billion dollars that's been estimated
• 35:58
  Speaker 2: to have been collected, the US US Customers and Border
• 36:00
  Speaker 2: Protections say there was one hundred and thirty three and
• 36:02
  Speaker 2: a half billion collected as of December fourteenth. U PEN
• 36:06
  Speaker 2: estimates that has grown to one hundred and seventy five
• 36:08
  Speaker 2: billion as of last week. In either case, a whole
• 36:11
  Speaker 2: bunch of money that is going to work its way
• 36:13
  Speaker 2: through the courts. In terms of the refund process, don't
• 36:15
  Speaker 2: forget if it does take a whole lot of time,
• 36:18
  Speaker 2: it probably accrues interest as well, would be the expert
• 36:22
  Speaker 2: opinion from most out there. Like when you overpay on
• 36:25
  Speaker 2: your taxes, they owe your interest, and when you underpay
• 36:28
  Speaker 2: on your taxes, you owe interest. Same thing likely to
• 36:31
  Speaker 2: apply here. So I hope it doesn't take five years,
• 36:33
  Speaker 2: because that's just coming right out of deficit spending. The
• 36:38
  Speaker 2: complexities here are immens, though, because not only do companies
• 36:42
  Speaker 2: want their money back, and you have this long, confusing,
• 36:45
  Speaker 2: drawn out process as to how the administration is going
• 36:49
  Speaker 2: to process those requests lawsuits unclear right, unclear how that's
• 36:54
  Speaker 2: all going to play out. Presumably the government will want
• 36:56
  Speaker 2: to set up a system to do so. US Customs
• 37:00
  Speaker 2: and Border Protection seems like the organization to handle it,
• 37:03
  Speaker 2: given that they collected it. But questions out there. The
• 37:07
  Speaker 2: other questions I have though. Obviously there were some tariffs
• 37:11
  Speaker 2: paid directly by consumers. You know, they bought stuff via
• 37:14
  Speaker 2: FedEx and they had to pay a tariff and they
• 37:16
  Speaker 2: That's not a big piece though. But let's say you
• 37:19
  Speaker 2: went and bought a car part from Advanced Autoparts and
• 37:23
  Speaker 2: you were told when you bought it, yeah, because the tariff,
• 37:25
  Speaker 2: this is going to be a lot more expensive than
• 37:27
  Speaker 2: it was a year ago. I'm going back to Advance
• 37:29
  Speaker 2: Autoparts and saying, hey, I just saw you got a
• 37:31
  Speaker 2: tariff refund.
• 37:32
  Speaker 3: I want my money back.
• 37:33
  Speaker 2: Good luck, right, But like you're going to have consumers
• 37:38
  Speaker 2: going to big companies that get this tariff refund and saying, yay,
• 37:43
  Speaker 2: you know, here's my receipt.
• 37:45
  Speaker 3: I want my money back now too.
• 37:46
  Speaker 2: How much of a markup did you put on me
• 37:48
  Speaker 2: for that tariff that you had to pay that you
• 37:49
  Speaker 2: just got paid back. Why wouldn't you, right, if you're
• 37:53
  Speaker 2: a loyal customer and I'm thinking about small things, imagine.
• 37:56
  Speaker 3: If you paid business to business. Yeah, that's a big
• 38:00
  Speaker 3: business to business.
• 38:01
  Speaker 2: Like, there's all sorts of added complexities here that go
• 38:04
  Speaker 2: all the way down to the end consumer that are
• 38:06
  Speaker 2: going to take a long time to figure out.
• 38:09
  Speaker 3: Quick break.
• 38:09
  Speaker 2: A lot more to cover in the second hour of
• 38:11
  Speaker 2: the Financial Exchange, including home Depot's earnings out this morning.
• 38:14
  Speaker 3: We'll be right back