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What Happens If Taiwan’s Chip Factories Go Dark? · The Financial Exchange Show

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Speaker 2: Good morning, Happy Thursday, welcome back to the Financial Exchange, and.
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Speaker 3: Thinking about all of you.
1:20
Speaker 2: Still without power out there, Tucker, congratulations, I know you.
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Speaker 3: Got power back midnight. Midnight.
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Speaker 2: Still speaking to a lot of folks down south of
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Speaker 2: Boston on Cape Cod and throughout Rhode Island without power
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Speaker 2: at this stage. So yeah, I'm sorry. I guess is
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Speaker 2: all I have to say. We're thinking about you and
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Speaker 2: stay safe. In Nvidia reported earnings yesterday after the bell,
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Speaker 2: investors not loving it and sinking shares in Nvidia at
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Speaker 2: this stage about four and a half percent now on
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Speaker 2: in Vidia shares in spite of nothing but good news
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Speaker 2: from the company, quite honestly that there was really nothing
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Speaker 2: to dislike in this earnings report. They blew out revenue
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Speaker 2: expectations by nearly two billion dollars. They blew out earnings
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Speaker 2: expectations by eight to ten cents per share. Their roast
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Speaker 2: margins were better than expectations, their data set of revenue
2:14
Speaker 2: were better than expectations. So all this is in my
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Speaker 2: mind is investors who are still nervous about the AI
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Speaker 2: industry as a whole, targeting its biggest beneficiary, which is
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Speaker 2: the world's largest company in video four point What did
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Speaker 2: I say? Four point six trillion dollar company?
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Speaker 3: Now?
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Speaker 2: So I don't think that there was anything that you
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Speaker 2: can look at in terms of if you're looking for
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Speaker 2: some confirmation of your anti AI concerns and the you know,
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Speaker 2: the the end is nigh for the AI industry. I
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Speaker 2: don't think in video gave it to you. But nonetheless,
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Speaker 2: we do have investors, investors selling off shares, and I honestly,
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Speaker 2: I'm just not sure if there would have been a
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Speaker 2: number that in video could have come through with that
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Speaker 2: would have been big enough, a realistic, big enough number to.
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Speaker 3: Calm investors.
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Speaker 2: At this stage of the game, people are just looking
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Speaker 2: for any sign that they can find of AI being overvalued,
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Speaker 2: and there's plenty of that within video, even with these
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Speaker 2: blockbuster earnings. Anything else to highlight within video specifically, No.
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Speaker 4: I think you've hit all the major points there. I
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Speaker 4: really couldn't think of a way this morning that they
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Speaker 4: could have appease investors, because these numbers would have done
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Speaker 4: it in normal circumstances.
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Speaker 5: It feels like.
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Speaker 2: The conversations that I'm having around AI, I mean, I
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Speaker 2: try and drive the conversation to what we actually know
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Speaker 2: today versus what we don't know, but a lot of
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Speaker 2: what we are hearing about it and seeing out there
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Speaker 2: is more science fiction these days than it is real
3:43
Speaker 2: investor analysis. I think about the Satrini research report, which,
3:47
Speaker 2: by the way, was not a research report. It was
3:49
Speaker 2: a futuristic, fictional report about the previous economic collapse that
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Speaker 2: had already happened, written as though somebody was writing in
4:00
Speaker 2: twenty twenty eight, so like it was taken as this
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Speaker 2: serious piece of information.
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Speaker 3: It wasn't. Really.
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Speaker 2: It was a fake research report written two years in
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Speaker 2: the future. We had the ex post from somebody talking
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Speaker 2: about how fat fantastic AI is and investors leading to collapse.
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Speaker 2: The stories that I keep hearing people really latching onto
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Speaker 2: are as always the horror stories. You know, the world
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Speaker 2: as we know it is going to collapse. Society isn't
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Speaker 2: going to be useful anymore because unemployment is going to
4:33
Speaker 2: be over ten percent, and unless you know how to
4:38
Speaker 2: you know, be an electrician or a plumber, you know
4:41
Speaker 2: you're not going to have a job in twenty twenty eight.
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Speaker 2: And I will always take a step back and say
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Speaker 2: that I'm not certain of anything in life. But I
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Speaker 2: keep going back to is AI genuinely that much different
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Speaker 2: than the invention of electricity, then the invention of the
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Speaker 2: printing press, or the automobile, or trains or the Internet.
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Speaker 2: That's to me what I have to ask myself and
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Speaker 2: remind myself, because this stuff can be scary, right, the
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Speaker 2: idea that Gemini, I can plug in here and have
5:13
Speaker 2: it summarize earnings in a way that a junior analyst
5:16
Speaker 2: would have had to previously. The fact that I can
5:19
Speaker 2: build an app as somebody who can barely open an
5:23
Speaker 2: app on my phone using some of these tools is
5:26
Speaker 2: scary on the surface. But I keep reading these pieces
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Speaker 2: about how the world is going to come to an
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Speaker 2: end in society as we know it is going to
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Speaker 2: fall apart because of AI, and I just I continue
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Speaker 2: to not be able to get there.
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Speaker 4: No, I can't either. There is a good piece here
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Speaker 4: in Barons that sort of lays out some of the
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Speaker 4: other existential crisis that have preceded us over the last
5:51
Speaker 4: fifty sixty seventy years here, including one about this idea.
5:56
Speaker 4: Back in nineteen fifty six, Shell geophysicist was claiming that
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Speaker 4: by twenty two hundred we would have no more oil production,
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Speaker 4: and in fact predicting that we would peak an output
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Speaker 4: of oil production at twelve and a half billion barrels.
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Speaker 4: We sit right now between thirty seven to thirty eight
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Speaker 4: billion barrels of production. And it's a good reminder reading
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Speaker 4: some of these others. The Y two K one is
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Speaker 4: also quite funny to look back at and sort of
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Speaker 4: look that there was concern that for certain computers the
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Speaker 4: changing from ninety nine to read zero would mess them
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Speaker 4: up and make it assume that the year was nineteen
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Speaker 4: hundred rather than two thousand, causing an industrial collapse. It
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Speaker 4: is funny to read that back, remembering that that was
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Speaker 4: a major concern of the time. It always seems to
6:45
Speaker 4: be not nearly as significant as it does in the
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Speaker 4: heat of the moment, and this is probably an instance
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Speaker 4: of that too.
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Speaker 3: Here's what I do believe.
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Speaker 2: Entire industries of workers with specialized skill sets today will
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Speaker 2: become irrel due to AI totally by it one hundred
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Speaker 2: and by the way, that has been the experience of
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Speaker 2: every technology. Candlemakers did not have a great future after
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Speaker 2: the invention of electricity. Couriers around New York City did
7:17
Speaker 2: not have a ton to do after the invention of email,
7:20
Speaker 2: whalers you know, it goes on and on. You can
7:23
Speaker 2: point to our entire industries that have been wiped out.
7:26
Speaker 2: Go look at the rust belt across the United States,
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Speaker 2: and that wasn't directly the invention of a technology, but
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Speaker 2: moreover the invention of globalization of manufacturing and things like that.
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Speaker 2: But that is the part that concerns me is what
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Speaker 2: will be the industries that no longer exist? And will
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Speaker 2: we have any ability to retrain the skill set of
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Speaker 2: those people to get them new jobs?
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Speaker 3: Open question. I'm not really sure we're going to be
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Speaker 3: get any good at that.
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Speaker 2: But the idea that society as we know it is
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Speaker 2: going to collapse and housing prices will fall apart, in
7:54
Speaker 2: consumer consumption and spending will fall apart because they don't
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Speaker 2: have jobs, that does not seem to me to be
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Speaker 2: a likely outcome of all of this, at least not
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Speaker 2: in the long term.
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Speaker 1: I'm with you.
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Speaker 2: Let's stay a quick break when we come back. As
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Speaker 2: Paul mentioned, Tripmicel from New York Times has a piece
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Speaker 2: today about the looming Taiwan hip disaster that frankly has
8:15
Speaker 2: been talked about in the past, but is not really
8:18
Speaker 2: on the Bingo card of risks of most investors Right now,
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Speaker 2: trip joins us next here on the Financial Exchange.
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Speaker 2: Joining us now is Trip Michel from the New York Times.
9:47
Speaker 2: Is piece two days ago in the New York Times
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Speaker 2: the looming Taiwan chip disaster that Silicon Valley has long ignored. Trip,
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Speaker 2: Thanks for joining us. Appreciate it.
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Speaker 7: Thanks tropping me so, Trip.
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Speaker 2: For decades, as you point out the ties between the
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Speaker 2: US and Taiwan, too, many have looked a little bit
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Speaker 2: lopsided in favor of Taiwan. This defense pact, if you will,
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Speaker 2: of the United States supporting Taiwan against China has been
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Speaker 2: important to the United States, but not economically until pretty recently.
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Speaker 2: How to what degree, I guess, has that reliance shifted
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Speaker 2: over the course of just the last few years now.
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Speaker 7: I mean it really it really changed within the past decade,
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Speaker 7: probably almost like seven, seven to eight years ago. TSMC
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Speaker 7: made a strategic choice to buy ASML, which makes the
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Speaker 7: machines to make to make semiconductors their latest machine, and
10:49
Speaker 7: in doing so they made a choice that Intel the
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Speaker 7: US ship manufacturer chose not to make and TSMC leapfrog
10:59
Speaker 7: Intel and really consolidated its leadership position as the preferred
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Speaker 7: manufacturer of semiconductors and now has more than a ninety
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Speaker 7: percent share of making the leading edge semiconductors around the world.
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Speaker 7: And as a result, it is the one company that
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Speaker 7: makes the latest chip for the newest iPhones that come
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Speaker 7: out every year. It is the company that is making
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Speaker 7: all of the chips for Nvidia that are going in
11:28
Speaker 7: all the data centers that are driving the economy, and
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Speaker 7: it is the company that's really, I guess, the foundation
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Speaker 7: for something on the order of about twenty three trillion
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Speaker 7: dollars in market cap when you add up all the
11:41
Speaker 7: big tech companies that rely on it to provide the
11:44
Speaker 7: data center, semiconductors and everything else that we have come
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Speaker 7: to take it take for granted when we sit down
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Speaker 7: to even watch like Netflix, so that that's what's changed
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Speaker 7: the dynamic.
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Speaker 2: So I guess spell it out plainly for US. I mean,
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Speaker 2: even taking off the table a worst case scenario of
12:03
Speaker 2: a full invasion of Taiwan, but like, what is the
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Speaker 2: economic hit that's estimated by even a slowdown in production
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Speaker 2: or a partial blockade of semiconductors coming from the island
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Speaker 2: of Taiwan. How significant would this be to the US economy?
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Speaker 7: Catastrophic? And you know, I think it's easy to get
12:23
Speaker 7: lost in As you said, the China risk here, I mean,
12:26
Speaker 7: the risk is also just like if there were a
12:29
Speaker 7: huge colossal earthquake. I mean, you know, these factories do
12:33
Speaker 7: sit on a fault line, and that also is a risk.
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Speaker 7: So when this has been studied, people have tried to
12:39
Speaker 7: set aside the geopolitical tensions between China and Taiwan and
12:44
Speaker 7: just ask what happens if Taiwan is lost if semiconductive
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Speaker 7: plants are knocked offline? And the results are alarming, to
12:55
Speaker 7: say the least. We're talking about a you know, a
12:59
Speaker 7: recession that would be twice as great as the Great
13:02
Speaker 7: Recession of two thousand and eight for the United States
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Speaker 7: economy and could be deeper or worse than the Great Depression.
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Speaker 7: And that's analysis that was done by the semiconductor industry
13:15
Speaker 7: itself when it tried to get smart on what the
13:18
Speaker 7: risks were.
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Speaker 4: Trip up, Paul Lane here, you had mentioned that the
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Speaker 4: United States is trying to make in roads to reshore
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Speaker 4: some of the domestic manufacturing, but obviously we're decades behind
13:29
Speaker 4: where Taiwan is. How much do you feel it's a
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Speaker 4: responsibility of these semiconductor companies like Nvidia to back this initiative,
13:38
Speaker 4: and they have to some degree, I'm not saying that
13:39
Speaker 4: they haven't, But what sort of responsibility do you place
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Speaker 4: on these companies to try and commit purchase orders to
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Speaker 4: the United States manufacturing facilities to de emphasize some of
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Speaker 4: their reliance on Taiwan going forward, And how much do
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Speaker 4: you place on the government to kind of resolve this
13:54
Speaker 4: issue that is a big strategic.
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Speaker 7: Risks if you were if you were on a board,
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Speaker 7: let's say hypothetically, and you're looking at like the risk
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Speaker 7: in your fiduciary responsibilities, and you looked at what percentage
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Speaker 7: your chips come from Taiwan, you would argue to the
14:17
Speaker 7: executive team that they need to rebalance that risk because
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Speaker 7: if something were to happen to the island, it would
14:25
Speaker 7: be incredibly disruptive to the stock price into the company's business.
14:29
Speaker 7: So the risk is there. Why boards have not stepped
14:33
Speaker 7: in to do something about it? And the conversations that
14:36
Speaker 7: I had with people who've been involved in this is
14:39
Speaker 7: something that's really surprised them. McKenzie, which did a study
14:44
Speaker 7: on behalf of the semiconductor industry brief boards on this,
14:49
Speaker 7: and in the wake of those briefings, the boards really
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Speaker 7: didn't take much action. There's kind of been a decision
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Speaker 7: among semiconductor buyers that well, it's like almost too big
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Speaker 7: of a problem to fix, and if nobody else does it,
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Speaker 7: Like we're all in the same boat. We're all you know,
15:12
Speaker 7: we're all up the creek with that of paddle. Yeah,
15:14
Speaker 7: you know, so, you know, so we'll we'll all be
15:17
Speaker 7: we'll all be stuck there together. But you're also hitting
15:21
Speaker 7: on the catch twenty two here. I mean, the government
15:23
Speaker 7: really focused under the Biden administration, and really, you know,
15:26
Speaker 7: President Trump also kickstarted this by getting TSMC to build
15:30
Speaker 7: a single fab in Arizona or commit to building a
15:33
Speaker 7: single fab in Arizona in twenty twenty. They focused on
15:37
Speaker 7: the supply side, but you know, it wasn't until Trump
15:41
Speaker 7: returned to office.
15:43
Speaker 2: Uh.
15:43
Speaker 7: And when I say they focus on the supply side,
15:45
Speaker 7: they you know, the Biden administration passed the Chips Act.
15:48
Speaker 7: They gave fifty billion dollars to subsidize the construction of
15:52
Speaker 7: semiconductor plants in Arizona and Texas, but the chip buyers.
15:58
Speaker 7: The catch twenty two here is that the chip buyers
16:01
Speaker 7: were staring at higher prices for semiconductors coming out of
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Speaker 7: those plants, and they didn't want to commit in large
16:09
Speaker 7: numbers to buying from them. And as a result, there's
16:12
Speaker 7: been kind of this lag where you know, supply has
16:15
Speaker 7: been built, but the demand hasn't been there to drive
16:20
Speaker 7: these companies to build more plants to even you know,
16:24
Speaker 7: in the case of some of these companies too, you know,
16:27
Speaker 7: to get to get their plants active and you know,
16:30
Speaker 7: have customers. Intel is still looking for customers for its
16:34
Speaker 7: operations in Arizona after it made a big commitment to build,
16:38
Speaker 7: build out and expand what it was doing there.
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Speaker 3: Trip.
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Speaker 2: Obviously, a lot of the focus of your article is
16:42
Speaker 2: on the US side of this. Do you have a
16:46
Speaker 2: sense for how the Taiwanese you view all this, because
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Speaker 2: obviously they've committed to you know, for instance, the Arizona
16:52
Speaker 2: fab and some other projects. But I would also think
16:56
Speaker 2: that their cornering of the semiconductor market is of not
17:00
Speaker 2: only strategic economic importance, but national security importance for the
17:05
Speaker 2: island of Taiwan and their future independence. Is it not
17:08
Speaker 2: like how willing are they going to be to give
17:10
Speaker 2: up that control?
17:13
Speaker 7: I mean, it's it's actually the fulfillment of a decade's
17:16
Speaker 7: old strategy from Taiwan. When Taiwan embarked on an effort
17:23
Speaker 7: to develop semiconductor industry in the in the nineteen seventies
17:27
Speaker 7: by building a research center to focus on semiconductors and
17:32
Speaker 7: semiconductor manufacturing, it was aspiring to develop you know, you know,
17:39
Speaker 7: and I guess an economy around that, and also some
17:44
Speaker 7: national security defenses that today it caused the Silicon Shield.
17:48
Speaker 7: And this is just the assumption that because semiconductors are
17:53
Speaker 7: so central to the economy and the US is so
17:56
Speaker 7: dependent on it, that the US would step in to
17:58
Speaker 7: defend Taiwan if it did act.
18:02
Speaker 5: You know.
18:03
Speaker 7: I mean, there are all kinds of war games that
18:05
Speaker 7: I'm sure have been played around this, and there's been
18:07
Speaker 7: commentary about, you know, the possibility that you know, the
18:11
Speaker 7: US would would strike those semiconductor plants, would would destroy
18:15
Speaker 7: them before letting them fall into China's hands. So I'm
18:18
Speaker 7: not sure like if the if the Silicon Shield fully
18:21
Speaker 7: works out, maybe the way that the Taiwanese hope, but
18:24
Speaker 7: at this juncture, it's it's certainly created a predicament that
18:27
Speaker 7: forces the US to think differently about its approach to
18:31
Speaker 7: the island than it would otherwise.
18:33
Speaker 2: Trip mikel from The New York Times his peace out
18:35
Speaker 2: two days ago, the looming Taiwan chip disaster that Silicon
18:38
Speaker 2: Valley has long ignored. Trip, fantastic piece that explores a
18:42
Speaker 2: lot of different parts of this of this conflict and
18:46
Speaker 2: hypothetically the potential downsides should it go in the negative direction. Trip,
18:52
Speaker 2: thanks so much for joining us. Appreciate it and we
18:54
Speaker 2: will talk again soon.
18:57
Speaker 5: Thanks for having me again.
18:58
Speaker 2: You can check his piece out. It's the looming Taiwan
19:01
Speaker 2: chip disaster that Silicon really nice piece has long ignored.
19:04
Speaker 2: It's a very detailed piece on how this industry has
19:07
Speaker 2: come about and just the position that we find ourselves
19:09
Speaker 2: in in spite of having, you know, the most valuable
19:12
Speaker 2: companies in the Ai trade, they are entirely.
19:15
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Speaker 6: it's fiscal twenty twenty seven revenue outlook underwhelmed. Wall Street
21:23
Speaker 6: and eBay announced it is cutting about eight hundred rolls,
21:26
Speaker 6: or six percent of its workforce in the latest round
21:29
Speaker 6: of layoffs at the e commerce company.
21:32
Speaker 5: eBay.
21:32
Speaker 6: Stock is climbing about three percent on that news. I'm
21:37
Speaker 6: Tucker Silva and that is Wall Street Watch and we
21:39
Speaker 6: still have to do trivia, so let's get to it
21:41
Speaker 6: on this day. In twenty seventeen, the eighty ninth Academy
21:44
Speaker 6: Awards experience a bit of drama when the wrong movie
21:47
Speaker 6: was announced as Best Picture. Presenters Warren Batty and Fade Dunaway,
21:52
Speaker 6: We're handed the wrong envelope, leading to an on stage correction.
21:56
Speaker 6: So our trivia question today, what is the name of
21:59
Speaker 6: the movie that I was incorrectly announced as Best Picture
22:02
Speaker 6: once again? What is the name of the movie that
22:05
Speaker 6: was incorrectly announced as Best Picture again? That was in
22:09
Speaker 6: twenty seventeen. Uh, be the fifth person today to textas
22:13
Speaker 6: at six one seven three six two thirteen eighty five
22:16
Speaker 6: with the correct answer along with the keyword trivia, and
22:19
Speaker 6: you win a Financial Exchange Show T shirt once again.
22:21
Speaker 6: The fifth correct response to textas to the number six
22:25
Speaker 6: one seven three six two thirteen eighty five with the
22:27
Speaker 6: correct answer along with keyword trivia will win that T shirt.
22:31
Speaker 6: See complete contest rules at Financial Exchange Show dot com.
22:35
Speaker 2: Piece from Barons today, Paul retirees, bonds aren't a sure bet.
22:39
Speaker 2: Consider these alternatives. By the way, there alternatives are not
22:43
Speaker 2: sure bets either, So beware if you're reading this piece.
22:46
Speaker 2: But uh, they're talking about annuities in this article. Paul
22:50
Speaker 2: as an alternative two bonds, and I don't on the
22:53
Speaker 2: surface think that that is a across the board terrible
22:57
Speaker 2: piece of advice. But there's some pretty critical things that
22:59
Speaker 2: you have to understand. So first things first, why does
23:01
Speaker 2: she talk about bonds not being a sure bet, because
23:04
Speaker 2: a lot of bonds are about as sure as you
23:07
Speaker 2: can get to a shore bed. Right, if you're loaning
23:09
Speaker 2: money to our United States government in the investment world,
23:13
Speaker 2: that is considered as risk free as you can get
23:16
Speaker 2: it right, wrong, you're right when you look at what
23:18
Speaker 2: a potential investment is going to return for you, often
23:21
Speaker 2: you compare that against the risk free rate, which is
23:24
Speaker 2: US treasures, the loan to the US government. How can
23:26
Speaker 2: you do better versus that at the baseline downside, because
23:29
Speaker 2: those bonds can lose money, right, So talk about what
23:32
Speaker 2: happened in twenty twenty two for an example.
23:34
Speaker 4: Twenty twenty two, great example of where there's an inverse
23:37
Speaker 4: relationship between the price of bonds versus where interest rates go.
23:41
Speaker 4: If interest rates go up, Let's say you're holding a
23:43
Speaker 4: two percent CD hypothetically and interest rates go up, and
23:46
Speaker 4: all of a sudden, a four percent one is newly available.
23:49
Speaker 4: If you go in to turn your two percent CD,
23:52
Speaker 4: the bank or whoever buys it from you is not
23:54
Speaker 4: going to give you one hundred cent of dollar. They're
23:56
Speaker 4: going to make you sell it a discount. Because people
23:59
Speaker 4: out there who buy new CDs can get a higher
24:01
Speaker 4: rate of interest at four percent rates. So that is
24:03
Speaker 4: the risk that loans out there with bull bonds where
24:06
Speaker 4: they're not bulletproof. Interest rates go up and you hold
24:08
Speaker 4: a bond that's at a lower interest rate, it's not
24:10
Speaker 4: gonna fare as.
24:11
Speaker 2: Well correct, And if you try and sell it in
24:13
Speaker 2: the interim, you know you'll likely so long as the
24:16
Speaker 2: issuer doesn't belly up and go default on you, you
24:19
Speaker 2: will get your money back. But if you try and
24:20
Speaker 2: sell them in the meantime in the interim, you could
24:22
Speaker 2: take a.
24:23
Speaker 3: Wash on that.
24:24
Speaker 2: Now, annuities behave differently, and you know, unfortunately you can't
24:28
Speaker 2: really say annuities and use it as a blanket term.
24:32
Speaker 2: But I think the types of annuities that the author
24:35
Speaker 2: is talking about here are the simplest kind, which would
24:39
Speaker 2: be a multi year guarantee or just a fixed type
24:43
Speaker 2: of annuity. And to paint it plainly here, it's you
24:46
Speaker 2: going to an insurance company and saying, here is my money,
24:48
Speaker 2: what's the best interest rate you will give me.
24:51
Speaker 4: Yes, she quotes an immediate annuity here, which is basically
24:54
Speaker 4: like a pension, where it's like here's my here's my
24:56
Speaker 4: lump sum of money, what will you pay me for
25:00
Speaker 4: lifetime payment on that, and the risk that you run
25:04
Speaker 4: there is it's just an income payment. You don't have
25:06
Speaker 4: access to the capital that you invest. You are foregoing
25:09
Speaker 4: that to give it to the insurance company. There are
25:12
Speaker 4: other annuities out there, as you alluded to, that just
25:15
Speaker 4: provide a fixed rate of interest, but often they have
25:18
Speaker 4: an expiration on them in terms of their term. This
25:21
Speaker 4: immediate one is a payment for life. What I feel
25:25
Speaker 4: was an error in this article was not mentioning that, hey,
25:27
Speaker 4: when you make a loan to the US government, they
25:29
Speaker 4: are the ones that back it.
25:30
Speaker 5: They are the ones that are supposed to pay you back.
25:32
Speaker 4: The reason that we say risk free is that they've
25:34
Speaker 4: always paid back with an annuity payment. You're betting on
25:37
Speaker 4: the insurer to make sure that they pay you for
25:40
Speaker 4: the rest of their life.
25:41
Speaker 5: So there is a risk.
25:42
Speaker 2: Giant companies, these are not Apple or Microsoft, that right
25:45
Speaker 2: issuing these annuities, and I think that's a really important
25:49
Speaker 2: miss with all of this. In fact, one of the
25:52
Speaker 2: areas that we have talked about of greatest concern in
25:55
Speaker 2: the markets over the last year well private credit. Three
26:00
Speaker 2: companies that I was able to find have had their
26:02
Speaker 2: credit quality downgraded over the course of the last year,
26:05
Speaker 2: specifically because the rating agencies cited their exposure to private
26:10
Speaker 2: credit as or risk to that to that company. You're
26:15
Speaker 2: when you when you buy anything, there is always counterparty risk,
26:20
Speaker 2: and your risk with the US government is if the
26:22
Speaker 2: US government says I'm not going to pay you back,
26:24
Speaker 2: It's never happened before and hopefully will never happen. If
26:28
Speaker 2: you are buying an annuity, your counterparty risk is that
26:32
Speaker 2: the insurance company goes belly up, and I would personally
26:35
Speaker 2: deem that as far more likely than the US government
26:37
Speaker 2: going belly up.
26:38
Speaker 4: You minimally, I am in agreement with you, but you
26:40
Speaker 4: minimally if you're going to write a piece here in
26:42
Speaker 4: Barns and say that you're concerned about the fiscal situation
26:46
Speaker 4: in the United States government and its ability to pay
26:50
Speaker 4: back its obligations, then you better in the same breath
26:52
Speaker 4: mention an insurance company and the risk that it doesn't
26:56
Speaker 4: does or doesn't pay you back. As a client for
26:59
Speaker 4: buying an annuity, you have to present both sides of
27:02
Speaker 4: the coin there.
27:03
Speaker 2: Bonds are a tricky asset class, annuities even trickier. An
27:08
Speaker 2: insurance product, not an investment asset. Class, but both come
27:13
Speaker 2: with all sorts of ins and outs and complexities. And
27:16
Speaker 2: while I personally find that the average person has a
27:19
Speaker 2: fairly good understanding of the stock market and has paid
27:23
Speaker 2: attention to how that operates and the potential risks associated
27:27
Speaker 2: with it, my finding is that the same does not
27:30
Speaker 2: apply to the bond market, and certainly does not apply.
27:32
Speaker 3: To the annuity market.
27:36
Speaker 2: That doesn't mean they are not necessary parts of a portfolio,
27:39
Speaker 2: by the way, right, for many many people, bonds are
27:44
Speaker 2: considered to be a vital piece of a diversified portfolio,
27:48
Speaker 2: but they do come with risks. If you're trying to
27:50
Speaker 2: assess maybe you have an annuity, maybe you have a
27:55
Speaker 2: bond fund or an individual bond, and you're just not
27:57
Speaker 2: sure what role it plays in your diverse, suified asset allocation,
28:01
Speaker 2: and you have questions, I'd encourage you to talk to
28:04
Speaker 2: a professional about it and help them understand how this
28:07
Speaker 2: all fits into your personal scenario. Annuities, in my mind,
28:11
Speaker 2: are among the most complicated financial products out there. If
28:14
Speaker 2: you're on the cusp of buying one, if you already
28:16
Speaker 2: own one and you're trying to better understand it, give
28:18
Speaker 2: the folks at Armstrong Advisory Group a call and let
28:21
Speaker 2: us talk about how these types of complex products can
28:25
Speaker 2: work for or against you in your retirement strategy.
28:29
Speaker 3: The numbers eight hundred three nine three for zero zero one.
28:34
Speaker 2: That's the phone number for the Armstrong Advisory Group again,
28:37
Speaker 2: eight hundred three nine three for zero zero one.
28:40
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
28:43
Speaker 1: registered investment advisor. Nothing in the ad or in any
28:45
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
28:48
Speaker 1: your own financial tax into state planning advisors before making
28:51
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
28:54
Speaker 1: advisory services.
28:56
Speaker 2: One eight under the state of the union that I
28:57
Speaker 2: have not at least covered yet. If President wants to
29:00
Speaker 2: expand access to four oh one K plans, and I'm
29:03
Speaker 2: going to tootor on horn here, this is a fantastic
29:05
Speaker 2: idea that I hope goes forward.
29:07
Speaker 3: I don't know how.
29:08
Speaker 2: They're going to implement it, but here is the landscape
29:11
Speaker 2: right now. And I've talked about this at length. If
29:14
Speaker 2: your employer does not offer a four oh one K
29:16
Speaker 2: and you're a W two employee, the only thing you
29:18
Speaker 2: can do is contribute to an IRA and your limit
29:21
Speaker 2: is seventy five hundred bucks if your employer chooses to
29:25
Speaker 2: offer a four oh one K plan, or if you
29:26
Speaker 2: live in a state that it's required, such as the
29:28
Speaker 2: state of Maine, where they toss you onto the state
29:31
Speaker 2: of main plan instead, twenty four five hundred is what
29:35
Speaker 2: you can put away. Either the IRS rules need to
29:39
Speaker 2: change around how this works. That would be one great
29:41
Speaker 2: solution is just say, yep, the IRA contribution limits are
29:44
Speaker 2: going to match the four to one K contribution limits.
29:46
Speaker 2: I'm in favor of that, or as a backup, I
29:49
Speaker 2: love the idea of employees that don't have access to
29:52
Speaker 2: a traditional four to one K being automatically provide access
29:54
Speaker 2: to the TSP as a solution there. I do believe
29:59
Speaker 2: it would most certainly reques iron Act of Congress, and
30:01
Speaker 2: I hope they take it seriously, because this is one
30:03
Speaker 2: of the strangest parts of our tax code that has
30:07
Speaker 2: never made any sense to me, and the only way
30:10
Speaker 2: I've been able to explain it is that for when
30:11
Speaker 2: K providers are good at lobbying their lawmakers and making
30:14
Speaker 2: it so the contribution limits are higher.
30:16
Speaker 4: It's fantastic an idea. It's something that all of us
30:21
Speaker 4: can really get behind this idea of expanding the access
30:24
Speaker 4: to all employees, getting to retirem plants. I have a
30:28
Speaker 4: client actually that falls in that bucket of sort of
30:31
Speaker 4: capped out at just making the IRI contribution, So we've
30:34
Speaker 4: built another investment account for them to save additional regular
30:37
Speaker 4: dollars on top of the eight thousand.
30:39
Speaker 3: Disadvantage to the average person.
30:41
Speaker 4: Yeah, and he's a that's a unique example. Many of
30:44
Speaker 4: the employees don't take that step to go that far.
30:47
Speaker 3: Quick break.
30:47
Speaker 2: When we come back, we have the trivia answer and
30:49
Speaker 2: a bit of Stacker Roulette is next.
30:52
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31:19
Speaker 6: The trivia question today was what is the name of
31:22
Speaker 6: the movie that was incorrectly announced as Beck's Best Picture
31:26
Speaker 6: at the twenty seventeen Academy Awards. Well, that would be
31:29
Speaker 6: La La Land Scott from Wakefield, mass is our winner today,
31:32
Speaker 6: taking home a Financial Exchange show t shirt. Congrats to
31:35
Speaker 6: Scott and we play trivia every day here on the
31:38
Speaker 6: Financial Exchange. See complete contest rules at Financial Exchange Show
31:43
Speaker 6: dot com.
31:43
Speaker 2: Missed opportunity there, Tucker, Yeah, for what might drop your
31:50
Speaker 2: awesome powers?
31:51
Speaker 6: Yeah, I didn't have it.
31:52
Speaker 3: Yeah, I know. Let's just move along.
31:54
Speaker 1: Then.
31:54
Speaker 2: I guess as electric bills rise, President Trump says tech
31:57
Speaker 2: companies should pay more.
31:59
Speaker 3: So we talked about the State of the Union being
32:02
Speaker 3: a lot.
32:06
Speaker 2: What's her name, Oh, I forget, Yeah, the State of
32:14
Speaker 2: the Union had a lot to do with affordability, and
32:16
Speaker 2: I think electricity bills. If you want the story of
32:21
Speaker 2: the last few years, I think it's was general food
32:24
Speaker 2: price affordability. I think the next few years is going
32:27
Speaker 2: to be about insurance and electricity costs being the main
32:30
Speaker 2: driver of affordability discussions. And there's all this talk about
32:35
Speaker 2: how how are we going to make AI companies pay
32:41
Speaker 2: more for electricity? And I just don't have any solution
32:44
Speaker 2: for you. I think the closest thing you can get
32:47
Speaker 2: to is a market based solution with price escalators. So
32:52
Speaker 2: here's my thinking on it. And plenty of regional utilities
32:57
Speaker 2: do electricity this way. If the average home uses between
33:01
Speaker 2: eight nine hundred kilowad hours per month. So you provide
33:06
Speaker 2: a base rate for some level of electricity, and then
33:10
Speaker 2: every time you go over that, you hit a new waterfall,
33:14
Speaker 2: and your price per kilowad hour goes up the more
33:17
Speaker 2: you use. If you want to punish the giant AI companies,
33:21
Speaker 2: this is I think the only way to do it
33:23
Speaker 2: without creating specific carve outs and saying, Okay, if you
33:26
Speaker 2: operate in this industry specifically, you're going to pay more,
33:29
Speaker 2: which just doesn't make sense to me. If we're trying
33:31
Speaker 2: to build a bigger grid. The obvious problem here is, yeah,
33:35
Speaker 2: if you do this, you're going to hurt other manufacturers. Right,
33:38
Speaker 2: so if you are a steel and aluminum manufacturer that
33:41
Speaker 2: uses a boatload of electricity, you're going to be competing
33:44
Speaker 2: with AI companies for the rate of the cost of electricity.
33:47
Speaker 2: And I think that this method makes the most sense
33:49
Speaker 2: because the base load power that we all use today
33:54
Speaker 2: is not the incremental increase in expenses. Right when we
33:57
Speaker 2: talk about the need for more electricity, The new cost
34:00
Speaker 2: is going to come from all of the new power
34:02
Speaker 2: that we have to build, and so charging that last
34:06
Speaker 2: kill a what hour of usage, a higher rate is
34:09
Speaker 2: I think what's going to cause all this stuff to
34:11
Speaker 2: be built. But the obvious downside, like I said, if
34:14
Speaker 2: you're a car manufacturer, if you're any of these companies
34:16
Speaker 2: that right now just pay flat electricity costs, you would
34:20
Speaker 2: get murdered under my scenario.
34:22
Speaker 5: Wouldn't that increase the base rate? Though?
34:25
Speaker 4: For the eight hundred kill a watt to nine hundred
34:28
Speaker 4: kilo an hour? So like I'm in Let's say I'm
34:30
Speaker 4: in northern Virginia where the data center alley is, and
34:33
Speaker 4: you know Amazon's there, and they're just sucking up a
34:36
Speaker 4: ton of electricity.
34:37
Speaker 5: Based on the grid bidding system.
34:39
Speaker 4: Wouldn't that have a trickle down impact to my base
34:42
Speaker 4: rate of electricity just because there's so much more conception
34:45
Speaker 4: in the area, even though they're paying on the higher end,
34:48
Speaker 4: Does that drive up my lower end? Well?
34:50
Speaker 2: But my thinking is that you you, basically, if you
34:54
Speaker 2: want to subsidize the low cost of electricity users, right,
34:58
Speaker 2: just make it so that hey, you know what your
35:00
Speaker 2: price for using the.
35:02
Speaker 5: Edge like search pricing wither.
35:04
Speaker 2: Yeah, just like, hey, we're going to charge a lot
35:07
Speaker 2: more if you use way more than the.
35:09
Speaker 3: Average household, but the average household, Yeah.
35:11
Speaker 2: We're going to set these prices at a lower rate,
35:13
Speaker 2: and it's just going to be those very high users.
35:16
Speaker 2: And so yeah, if you have a ten thousand square
35:18
Speaker 2: foot mansion with you know, three electric cars plugged in
35:21
Speaker 2: all the time, Yeah, you're gonna you're gonna pay a
35:23
Speaker 2: heck of a lot more than you would for a three.
35:25
Speaker 3: I just I don't know how you do it any
35:27
Speaker 3: other way.
35:28
Speaker 4: Yeah, that this the whole grid system in general, is
35:31
Speaker 4: gonna be a significant amount of issues that are need
35:34
Speaker 4: going to be fixed.
35:35
Speaker 3: And but there's no way in my mind.
35:38
Speaker 2: I know the President talked about this, but I don't
35:40
Speaker 2: see how you force AI companies specifically to pay more
35:45
Speaker 2: for electricity than anybody else. It just it seems like
35:49
Speaker 2: it's going to be fraught with all sorts of issues. Instead,
35:53
Speaker 2: I think you charge big users of electricity market rates
35:57
Speaker 2: across the board and keep driving those prices up. And
36:00
Speaker 2: you know, by doing so, you will incentivize those AI
36:05
Speaker 2: data centers too. Yeah, build their own utilities and be
36:08
Speaker 2: as efficient, independent as fision as possible. But this market
36:13
Speaker 2: based solution, otherwise, what's going to happen is all of
36:16
Speaker 2: our electricity rates go up substantially across the board. If
36:20
Speaker 2: you tear it, there's at least some hope that it
36:22
Speaker 2: stays relatively controlled for individual households.
36:26
Speaker 4: Loyalty programs are all the rays between Starbucks, McDonald's, and Chipotle.
36:31
Speaker 4: They these three companies have seen tremendous success in really
36:35
Speaker 4: pushing customers to become repeat customers. McDonald's has seen a
36:39
Speaker 4: tremendous amount of growth where they have really unrolled their
36:45
Speaker 4: loyalty program and seen a significant jump in their sales.
36:48
Speaker 4: A little scary some of the frequency of visitors. They
36:51
Speaker 4: found that those people who are part of their rewards
36:54
Speaker 4: program doubled their visits once they joined the program, and
36:59
Speaker 4: as a resis result, they are now seeing more and
37:02
Speaker 4: more gain of traffic from those customers visiting four or
37:05
Speaker 4: more times a month. High frequency diners those are visiting
37:09
Speaker 4: eight or more times a month, accounted for thirty three
37:12
Speaker 4: percent of sales in the second half of twenty twenty five.
37:15
Speaker 4: That was up from twenty five percent back in twenty nineteen,
37:19
Speaker 4: so over the last six years a third of their sales.
37:23
Speaker 4: This is again to the change over has been from
37:26
Speaker 4: those people going a significant amount of times a month,
37:28
Speaker 4: which is a lot of.
37:30
Speaker 2: McDonald's beware of it. I mean, if you're okay with it,
37:34
Speaker 2: you're okay with it. But like these apps, when you
37:36
Speaker 2: install them on their phone, precise geolocation, they know exactly
37:40
Speaker 2: where you are. They try and predict when you're going
37:42
Speaker 2: to be hungry, using weather, time of the day.
37:46
Speaker 5: Sometimes they get a paycheck knowledge.
37:48
Speaker 2: They can get some information like your income, your marital
37:51
Speaker 2: status when you get paid, to try and feed your
37:53
Speaker 2: deals like right around. Like I specifically do not allow.
37:59
Speaker 2: I have these apps on my phone and I use them,
38:02
Speaker 2: but I have to type in the zip code. I
38:03
Speaker 2: have to, you know, do specific stuff. They collect a
38:06
Speaker 2: lot of creepy data. I don't think anybody cares, but
38:10
Speaker 2: just pee wait, give me. The coffee markets are down
38:13
Speaker 2: across the board with the NASDAC off one point seven percent.
38:16
Speaker 2: Now we'll have a full recap for you tomorrow here
38:19
Speaker 2: on the Financial Exchange