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Did Jensen Huang just pop the AI bubble? · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zadath
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Speaker 1: and Mike Armstraw.
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Speaker 2: Chuck Mike Tucker with you here today. And as we
1:13
Speaker 2: continue through the first week of November, we are now
1:16
Speaker 2: into day thirty six of actually technically day thirty seven
1:21
Speaker 2: of the government shut down, and no end in sight
1:26
Speaker 2: at this point. Betting Market's actually at this point Calci
1:30
Speaker 2: now is saying, hey, we're betting not where. But you know,
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Speaker 2: Calci Markets saying forty eight point three days, which you
1:37
Speaker 2: do the math out that gets you to like the
1:40
Speaker 2: Tuesday before Thanksgiving, and that's cutting it pretty close to
1:44
Speaker 2: be able to say you're gonna have everything all, you know,
1:46
Speaker 2: hunky dory on that side for you know, people trying
1:50
Speaker 2: to get places at that time. But this is where
1:53
Speaker 2: we are. We're gonna get to more on the flight
1:55
Speaker 2: side of things and what's going on with airlines. But
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Speaker 2: I want to things off talking a little bit about
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Speaker 2: artificial intelligence. And forgive me if you know, it feels
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Speaker 2: like we've talked about this before, because what do you mean, Jack, Look,
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Speaker 2: quite honestly, quite honestly, for about seven hundred and ten
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Speaker 2: out of the last seven hundred and fifty trading days,
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Speaker 2: we've covered something AI related on our show.
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Speaker 3: Probably, so I get it.
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Speaker 2: If you're like, oh, boy, like here it goes again,
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Speaker 2: blah blah blah blah blah blah. No, I'm here to
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Speaker 2: tell you that November fifth, twenty twenty five is a
2:31
Speaker 2: day that will go down in history because I think
2:37
Speaker 2: this is the popping mic.
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Speaker 3: Really, yes, yesterday was the popping of the bubble. Yes,
2:43
Speaker 3: here's what we had yesterday.
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Speaker 2: Jensen Wang does an interview with The Financial Times and
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Speaker 2: he says China's gonna win the AI race. He then
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Speaker 2: issued a correction, you know, shortly after like being like, oh, well,
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Speaker 2: what I meant is, you know, we're running really fast,
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Speaker 2: but we've got to keep it up.
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Speaker 3: By the way, if China wins the AI race, which
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Speaker 3: they are not using any Nvidia chips, we are talking
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Speaker 3: about the leader of the largest company in the world,
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Speaker 3: and definitely his stuff doesn't matter, right, So, like, it's
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Speaker 3: the exact.
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Speaker 2: Thing I was gonna say. It's like, okay, so you're
3:15
Speaker 2: saying China's gonna win the AI race, Let's unpack what
3:18
Speaker 2: this means. They're not using your technology and you think
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Speaker 2: they're going to win, why should we buy your technology then?
3:27
Speaker 2: And there's no answer to that. Question, there is no answer. Now,
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Speaker 2: I'm not saying that in video chips are bad like
3:32
Speaker 2: there again, like by all accounts, and again I'm not
3:36
Speaker 2: the expert here, but by all accounts, they are the
3:38
Speaker 2: cream of the crop. They are the best technology in
3:40
Speaker 2: the AI space. But if you don't need the best
3:43
Speaker 2: technology to win the AI race, then why would you
3:45
Speaker 2: buy the best technology to win the AI race? That's
3:49
Speaker 2: like the question that you ask. He then tries to,
3:51
Speaker 2: you know, walk it back and say his quote is,
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Speaker 2: as I've long said, China is nanoseconds behind America and AI.
3:56
Speaker 2: It's vital that America wins by racing ahead and winning
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Speaker 2: developers world war? What does it mean to win AI? Like,
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Speaker 2: it doesn't just end. It's like fashion, like you always
4:07
Speaker 2: have like something new. It's like no one ever looked
4:10
Speaker 2: at you know, technology is like, oh gee, we got
4:12
Speaker 2: to Windows ninety five. I guess it's over.
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Speaker 3: Yeah. I feel like people were probably asking the same
4:18
Speaker 3: question during the nuclear arms race, what's it mean to
4:21
Speaker 3: win this? And then we got to mutually assured destruction
4:24
Speaker 3: and that's what kind of got there.
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Speaker 2: Right, So here's like, hey, guys are going to destroy
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Speaker 2: each other.
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Speaker 3: I don't know, I'm unclear about what that means.
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Speaker 2: Yeah, so you got you got Jensen saying this, which
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Speaker 2: basically also comes off as like kind of begging, like hey,
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Speaker 2: like someone's got to help me out, and it's kind
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Speaker 2: of quite honestly, I'm starting to get kind of sick
4:45
Speaker 2: of it. It's like I can't deal with this every week,
4:48
Speaker 2: like him asking for more help and more money in
4:52
Speaker 2: this Like, dude, you run a semiconductor company. It's not
4:55
Speaker 2: my responsibility to make sure that you're a copasthetic.
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Speaker 3: Well, and the comment itself, if we take it, let's
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Speaker 3: not take it as off the cuff remark that he
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Speaker 3: honestly believes. Let's take it as CEO of a company
5:10
Speaker 3: is trying to achieve something with a comment like that,
5:13
Speaker 3: what you are trying to achieve is the US government
5:17
Speaker 3: getting more involved in your business and opening up either
5:22
Speaker 3: faster ways to produce the chips or I guess getting
5:29
Speaker 3: away to get them into China, because his comment was
5:31
Speaker 3: basically that we are selling no chips in China now.
5:34
Speaker 2: And this is where we get to the part that
5:36
Speaker 2: I find really problematic from yesterday. Mike, do you know
5:41
Speaker 2: who Sarah Fryar is?
5:42
Speaker 3: The name sounds familiar.
5:45
Speaker 2: I didn't before yesterday at full disclosure, she's the CFO
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Speaker 2: of open AI.
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Speaker 3: Oh yes, okay, that's where it came from.
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Speaker 2: Yep, she's the CFO of open AI, so she runs
5:54
Speaker 2: the business side and make sure the numbers add up.
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Speaker 2: And she was at a Wall Street conference yesterday and said,
6:03
Speaker 2: in no uncertain terms, this is her direct quote. I'll
6:08
Speaker 2: read the piece from Bloomberg. Speaking of a Wall Street
6:10
Speaker 2: Journal business conference, Open AIICFO Sarah Fryar explained that government
6:13
Speaker 2: backing could help attract the enormous investment needed for a
6:16
Speaker 2: computing and infrastructure given the uncertain life span of AI
6:19
Speaker 2: data centers. This is where we're looking for. An ecosystem
6:22
Speaker 2: of banks, private equity, maybe even governmental federal loan guarantees
6:26
Speaker 2: would really drop the cost of financing, she explained. And
6:29
Speaker 2: this is where I gotta go full stop. Quite honestly,
6:33
Speaker 2: I am livid at these freaking people that think that
6:38
Speaker 2: you and me and everyone else living in the country
6:43
Speaker 2: should preemptively, not even because of like something you know,
6:47
Speaker 2: financial crissy or anything, preemptively be like, oh, yeah, let's
6:52
Speaker 2: have the federal government backstop loans to artificial intelligence companies.
6:57
Speaker 2: Because yeah, let's backstop the owns for the companies that
7:01
Speaker 2: are trying to take all of the jobs. What what
7:05
Speaker 2: a what a rich comment? Like what a load of crap?
7:09
Speaker 2: What a load of crap. I hope that this never happens.
7:14
Speaker 2: It should Like I am so upset, I can't.
7:16
Speaker 1: Like.
7:16
Speaker 2: I read this and I was just like, you're so
7:18
Speaker 2: you're you're asking for taxpayers to be on the hook
7:22
Speaker 2: proactively if loans to buy your magic machine data center.
7:28
Speaker 2: Woo who whippy could do? Like, I'm so cool, I
7:31
Speaker 2: built a seal surfing video flops. Give me a freaking break.
7:39
Speaker 2: They know there's nothing there. I feel like, quite honestly,
7:46
Speaker 2: after yesterday, I feel like they're all just carnival barkers.
7:51
Speaker 2: It feels like all they want is all of the money.
7:54
Speaker 2: And I'm tired of it now. I am tired of it.
7:58
Speaker 3: It doesn't buy the mean that they want all of
8:00
Speaker 3: the money. It bothers me that they want the federal
8:02
Speaker 3: government to backstop their loans.
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Speaker 2: Well that's what I mean. It's it's like, what why
8:06
Speaker 2: do you need that? Why do you need a federal
8:09
Speaker 2: government backstop for AI loans? Do you think the loans
8:11
Speaker 2: are gonna go bad, because if you think the loans
8:15
Speaker 2: are gonna go bad, then there's absolutely no reason to
8:17
Speaker 2: do it. So like, I saw this yesterday and I
8:20
Speaker 2: gotta tell you, like, I mean again, It's it's like
8:24
Speaker 2: twenty four hours later, and I'm still coming down from this,
8:27
Speaker 2: you know, like the audacity to be like, yeah, we
8:31
Speaker 2: could really use a federal government backstop. And of course
8:34
Speaker 2: she backtrackedor is like, oh, like that's not what I meant.
8:36
Speaker 2: It's like, well, these are your words.
8:38
Speaker 3: Man, lady.
8:42
Speaker 2: You know, like what are we doing here? So I
8:46
Speaker 2: just look at this and it's like, I don't know,
8:51
Speaker 2: Like when the CFO of the company that's committed to
8:55
Speaker 2: spend a one point five trillion dollars says, yeah, a
9:00
Speaker 2: government guarantee could really drop the cost of financing. No kidding,
9:05
Speaker 2: you don't have the money. You don't have the money,
9:09
Speaker 2: is what you're telling us. So I'm with you there.
9:12
Speaker 2: Can we go back to the Nvidia comments here for
9:14
Speaker 2: a moment. You and I have talked about this at
9:18
Speaker 2: length and maybe not enough on the show itself, about
9:22
Speaker 2: the US versus China and artificial intelligence, and I feel
9:26
Speaker 2: like one of the biggest stories of the year has
9:29
Speaker 2: been completely now forgotten and swept under the rug. What
9:33
Speaker 2: was the name of the company earlier this year out
9:34
Speaker 2: of China that produced PEP Seek Deep Seek.
9:38
Speaker 3: Go check your records on It was back earlier this year,
9:41
Speaker 3: and effectively, this company came out and produced an incredibly
9:45
Speaker 3: compelling generative AI. They claimed to do it on no
9:51
Speaker 3: in Nvidia chips. It was probably done on some Nvidia chips.
9:55
Speaker 3: But here I think is genuinely Jensen Wang's concern China
10:01
Speaker 3: seems to be well, he knows that they're not buying
10:04
Speaker 3: any of his chips, at least directly. Maybe they're getting
10:07
Speaker 3: around some of the export restrictions. He knows that the
10:10
Speaker 3: Chinese government is preventing them from being sold domestically in
10:14
Speaker 3: the country out of security concerns, but other concerns. And
10:19
Speaker 3: he's seeing that domestic companies there are able to produce
10:21
Speaker 3: really compelling tools using artificial intelligence. And finally he's looking
10:29
Speaker 3: at the US situation and saying it's going to take
10:33
Speaker 3: a decade to get power plants on board. Everything moves
10:35
Speaker 3: much slower here, and so yeah, maybe it was an
10:39
Speaker 3: intentional comment to get the government motivated to get in
10:43
Speaker 3: the fight with artificial intelligence in some way kind of
10:46
Speaker 3: like open AI asked for more directly. But maybe it's
10:49
Speaker 3: coming out of genuine concern that, yeah, China is going
10:51
Speaker 3: to win this race. And I don't know what that
10:54
Speaker 3: means practically speaking, but one thing it might mean is
10:57
Speaker 3: that China floods the market with cheap semiconductors do seventy
11:01
Speaker 3: five to eighty percent or more sure of what Invidia
11:03
Speaker 3: chips do. And if that happens again today, Chuck, you
11:08
Speaker 3: tell me what portion of the S and P five
11:10
Speaker 3: hundred is comprised of Nvidia alone eight and a half? Okay,
11:18
Speaker 3: shot across the bow of that business model, right, If
11:21
Speaker 3: China chooses to flood the market with cheap semiconductors that
11:23
Speaker 3: can do most of what in videos can, then there
11:26
Speaker 3: isn't a great business model there.
11:28
Speaker 2: And look again, it's all kind of coalescing this week.
11:31
Speaker 2: Like I'm sorry if I'm just like pulling things like together,
11:34
Speaker 2: you know all you know that don't go together. But
11:37
Speaker 2: you add Satya Nadella saying, hey, the bottleneck is no
11:41
Speaker 2: longer in compute, it's in power. Okay, Like that's another
11:46
Speaker 2: Like again, it's fitting into this whole story. You've got Oracle.
11:49
Speaker 2: Do you remember Oracle a month and a half ago,
11:51
Speaker 2: stock popped from I want to get the numbers right
11:54
Speaker 2: just so that I have it square stock pop from
11:56
Speaker 2: two hundred and forty bucks a share to three hundred
11:59
Speaker 2: and four five when they reported earnings because magically, like
12:03
Speaker 2: three hundred billion in additional revenue commitments appeared on their
12:07
Speaker 2: you know, projections. Oracle as of today has given all
12:11
Speaker 2: of that pop back two months later. Yeah, and so
12:16
Speaker 2: this is all like kind of coalescing for me where
12:19
Speaker 2: I'm looking at it, and you know, again, in the
12:23
Speaker 2: last like week or two, you've got open AI being like, yeah,
12:25
Speaker 2: we're gonna allow adult users to get into erotica, and
12:29
Speaker 2: it's it's just, is any of this pointing towards like
12:33
Speaker 2: truly transformational stuff like that? The And again, I'm I'm
12:39
Speaker 2: not trying to like poo poo the whole thing. I
12:42
Speaker 2: use artificial intelligence. I think it's useful. I think there
12:45
Speaker 2: are huge use cases. And I think that you can
12:48
Speaker 2: hold two views, one of which is I think we'll
12:50
Speaker 2: be using a lot more AI five years from now,
12:53
Speaker 2: and that this like something about this last couple of
12:56
Speaker 2: weeks doesn't feel good for the AI story right, yep,
13:00
Speaker 2: you're asking for loan guarantees. You're saying China's winning without
13:03
Speaker 2: your technology. You got stocks falling. Another CEO of one
13:07
Speaker 2: of the major companies saying, it's not about compute anymore.
13:09
Speaker 2: It's about electricity, like the something feels broken there and granted,
13:16
Speaker 2: maybe they can get it back together. I mean, we
13:18
Speaker 2: were saying the same thing in March of this year,
13:20
Speaker 2: in February, and what we saw was in May, June, July,
13:25
Speaker 2: this whole like line of a new partnerships and oh
13:28
Speaker 2: you can sell to these countries and that, and that
13:30
Speaker 2: kind of led the next leg up. So maybe there
13:33
Speaker 2: is like you know, this is just maybe this is
13:35
Speaker 2: just a pause and six to nine months from now
13:38
Speaker 2: we're like, oh, this is what the new models can do,
13:40
Speaker 2: and here's you know, the transformation. But man, like, I
13:44
Speaker 2: don't like being sold by the company saying yeah, we're
13:47
Speaker 2: gonna spend a trillion and a half dollars the idea
13:50
Speaker 2: of hey, how about a government backstop for us. Oh,
13:53
Speaker 2: give me a break, go out and take the risk,
13:54
Speaker 2: like you know every other business has to.
13:57
Speaker 3: But that's just me.
14:00
Speaker 2: Take a quick break. When we come back, we'll wrap
14:02
Speaker 2: up some thoughts there, and then we'll talk about the
14:04
Speaker 2: situation in US air travel.
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14:58
Speaker 2: My Transportation Secretary Duffy announced yesterday that the FAA was
15:04
Speaker 2: going to begin ordering air traffic to be reduced by
15:07
Speaker 2: ten at forty major airports UH starting this Friday. This
15:12
Speaker 2: as air traffic controllers work without pay due to the
15:16
Speaker 2: government shutdown. And look, we're now into unprecedented territory. We
15:20
Speaker 2: have never had a government shutdown that has lasted this long,
15:24
Speaker 2: and so you know, you start getting into things that
15:27
Speaker 2: you know, we haven't necessarily seen before, this being one
15:32
Speaker 2: of them. Obviously, we've had you know, localized issues where
15:35
Speaker 2: for short periods of time there's been ground stops issued
15:39
Speaker 2: because of a lack of staffing, but this will be
15:40
Speaker 2: the first broad based one that we've seen. And it
15:43
Speaker 2: comes as we are three weeks to the day out
15:45
Speaker 2: from Thanksgiving and about two and a half weeks out
15:47
Speaker 2: from Thanksgiving travel really kicking off, and so you've got
15:51
Speaker 2: you know, again taking cock out there to say, hey,
15:54
Speaker 2: are you going to be able to get something done
15:56
Speaker 2: before Thanksgiving? Betting markets are saying it's going to be
15:59
Speaker 2: another week and a half of this before something gets done.
16:02
Speaker 2: I don't think there's any unique insight there. I don't
16:04
Speaker 2: think they have, you know, any edge because if you
16:07
Speaker 2: look at betting markets, you know, a month ago they
16:09
Speaker 2: were saying it was gonna be twenty days. So it's
16:11
Speaker 2: it's just kind of nobody knows anything, and it doesn't
16:14
Speaker 2: seem like any progress is being made. But this is
16:16
Speaker 2: something where hey, if you start having three million passengers
16:20
Speaker 2: a day where three hundred thousand of them are being disrupted, Eh,
16:25
Speaker 2: that's not really great heading into Thanksgiving, people are gonna
16:27
Speaker 2: talk about that at the dinner table. Yeah, and you
16:29
Speaker 2: do wonder how this all works, right, So if they
16:31
Speaker 2: start canceling flights, we're talking about forty five between thirty
16:35
Speaker 2: five and forty five hundred flights a day, depending on
16:37
Speaker 2: which day you're measuring. But that's about the flight volume
16:41
Speaker 2: that we see across the US. I would assume you
16:45
Speaker 2: only start with canceling the immediate upcoming flights, but you know,
16:49
Speaker 2: the airlines need to maintain their schedules here and if
16:53
Speaker 2: we're not, I just wonder how far in advance you
16:56
Speaker 2: cancel something, right, because I mean you're being told, hey,
17:00
Speaker 2: this plane is not going to fly the government still
17:02
Speaker 2: shut down, then you probably want to notify those passengers
17:06
Speaker 2: sooner than later. Well, it very much this could easily
17:10
Speaker 2: turn into a cascading issue for airlines because again, it's
17:14
Speaker 2: being able to get your flight crews and equipment to
17:16
Speaker 2: the locations that you need. And like part of me
17:20
Speaker 2: looks at this, and I'm like, are the schedules for
17:22
Speaker 2: the major airlines? Is the overtime that they make going
17:25
Speaker 2: to offset the lack of pay for air traffic controllers?
17:28
Speaker 2: Because if you're working for United or Delta, like any
17:31
Speaker 2: of the airlines, and you're trying to figure this out
17:34
Speaker 2: over the next week or so, I don't even know
17:38
Speaker 2: where you start. Yeah, I mean, I'm sure they have,
17:41
Speaker 2: you know, computer systems that can help with this. But
17:43
Speaker 2: remember when Southwest had their big problems a couple of
17:46
Speaker 2: years ago. The problem was that the system that was
17:48
Speaker 2: used in order to reschedule pilots was phone in only,
17:54
Speaker 2: you know, like airlines for all of like the technological
17:58
Speaker 2: prowess in this and that in order like old airplanes
18:00
Speaker 2: and get from point A to point B. The system
18:02
Speaker 2: for getting Southwest pilots to the right place was, Hey,
18:06
Speaker 2: call this number and we'll tell you where you're supposed
18:08
Speaker 2: to be.
18:10
Speaker 3: Movie phone from Seinfeld.
18:11
Speaker 2: It's it's it's kind of wild. So now, so you know,
18:17
Speaker 2: don't you just tell me the name of the movie.
18:22
Speaker 2: It's fantastic. So I think ultimately we're getting to the
18:27
Speaker 2: point now where there's a lot of publicly facing stuff
18:29
Speaker 2: that people are gonna start noticing about the shutdown and
18:34
Speaker 2: this it's ten percent. Now, I mean this could get worse.
18:36
Speaker 2: And again, how do you know this doesn't lead to
18:38
Speaker 2: cascading issues where okay, sure ten percent of flights are canceled,
18:43
Speaker 2: but forty percent of flights are delayed by an hour
18:45
Speaker 2: or more.
18:45
Speaker 3: Now you know, Tucker Chuck either be flying for Thanksgiving?
18:49
Speaker 2: No, no, nope either, not a chance.
18:53
Speaker 3: I am. I am excited. We broke a record though
18:55
Speaker 3: for the armstrong or the armstrong Elie. That's just say
19:00
Speaker 3: I'm the name one hundred and one people attending this
19:02
Speaker 3: year's Thanksgiving. What do you having a four hundred pound turkey?
19:06
Speaker 3: I think we've got four or five twenty pounders.
19:09
Speaker 2: Do you get one of those giant pumpkins from like
19:11
Speaker 2: a state fair that you're gonna do for pumpkin pie? Oh?
19:13
Speaker 3: I like that idea, Like that idea. We have not.
19:16
Speaker 2: But it's a big table, by the way.
19:18
Speaker 3: Yeah yeah, well.
19:19
Speaker 2: It's a good person table. I think there might be
19:20
Speaker 2: a tent in. It's a punk table. That's the potatos
19:24
Speaker 2: Jamie over here. All right, let's take a quick break.
19:28
Speaker 2: When we come back. We've got Wall Street watch and
19:30
Speaker 2: then we're talking tariffs.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:53
Speaker 1: Watch a complete look and what's moving markets so far
19:56
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 4: It's in negative territory this morning as traders continue to
20:03
Speaker 4: keep a close eye on AI stocks, which have seen
20:06
Speaker 4: some volatility this week over high valuation concerns. Wall Street's
20:10
Speaker 4: also awaiting developments from the Supreme Court's hearing on tariffs.
20:14
Speaker 4: Right now, the Dow is down about half a percent,
20:17
Speaker 4: or two hundred and nineteen points. SMP five hundred is
20:21
Speaker 4: down six tenths of one percent or forty one points.
20:24
Speaker 4: Nasdaq selling off over one percent now or two hundred
20:27
Speaker 4: and fifty one points lower. Russell two thousand down eight
20:30
Speaker 4: tenths of one percent. Ten year Treasure Reel down six
20:33
Speaker 4: basis points at four point zero nine five percent, in
20:37
Speaker 4: crude oil down about seven tenths of one percent, trading
20:40
Speaker 4: right above fifty nine dollars a barrel. Qualcom shares down
20:45
Speaker 4: two percent after the semiconductor maker reported stronger than projected earnings. However,
20:49
Speaker 4: the company took a five point seven billion dollar non
20:53
Speaker 4: cash charge linked to the One Big Beautiful Bill. Sticking
20:57
Speaker 4: with the chip sector, where Marvel technology as are jumping
21:01
Speaker 4: nearly three percent after Bloomberg reported that japan SoftBank has
21:05
Speaker 4: explored a potential takeover of the chip maker. Meanwhile, Carmac
21:10
Speaker 4: shares a sinking twelve percent after the used car retailer
21:12
Speaker 4: announced a weak preliminary outlook for its current fiscal quarter
21:17
Speaker 4: and said CEO Bill Nash would be unexpectedly stepping down. Elsewhere,
21:21
Speaker 4: door Dash posted mixed third quarter results. The food delivery
21:24
Speaker 4: company also said it expects to send several hundred million
21:28
Speaker 4: dollars a new initiatives in development in twenty twenty six.
21:32
Speaker 4: That stock is down by thirteen percent. App Love and
21:35
Speaker 4: stock is up one percent after the advertising platform form
21:39
Speaker 4: posted stronger than expected quarterly results. In issued an optimistic
21:43
Speaker 4: fourth quarter outlook, and Peloton is recalling its original Bike
21:48
Speaker 4: Plus after receiving reports that the seat post broke and
21:51
Speaker 4: detached from the equipment during use, leading to two injuries
21:55
Speaker 4: that according to the Consumer Product Safety Commission. In a
21:58
Speaker 4: news release earlier, the Sad Morning, Peloton down by three percent.
22:03
Speaker 4: I'm Tucker Silva and that is Wall Street Watch.
22:06
Speaker 3: Can we check in on how much a Peloton bike costs? Sure,
22:10
Speaker 3: So I'm looking at the most expensive one, which is
22:13
Speaker 3: the bike plus, because again, if you're charging me, yeah,
22:16
Speaker 3: twenty seven hundred dollars and the thing is falling.
22:19
Speaker 2: Apart in front of me, it's not great. Bob.
22:22
Speaker 3: By the way, I was looking because my wife's a
22:25
Speaker 3: runner and we've been talking about, you know, getting a treadmill,
22:27
Speaker 3: which I'm not going to do for Christmas because you know,
22:30
Speaker 3: that seems like a bad Christmas gift. It seems like
22:33
Speaker 3: a Peloton commercial. Yeah, it seems like a Peloton commercial.
22:36
Speaker 3: The treadmills sixty seven hundred dollars?
22:41
Speaker 2: What, like, what's a normal treadmill cost? Like, I don't
22:44
Speaker 2: have a point of comparison.
22:45
Speaker 3: I went to Wirecutter to go look at like, hey,
22:48
Speaker 3: what's what do you think is the best ranked treadmill
22:51
Speaker 3: out there? And it was like two grand Yeah, so.
22:53
Speaker 2: Like a third of it. Look, and this is why
22:56
Speaker 2: I've said for a while, if there was every like
22:59
Speaker 2: a marriage that you could have, it would be Apple
23:01
Speaker 2: buying Peloton because Apple commands a premium price point even
23:05
Speaker 2: though they don't have the best product. Peloton's trying to
23:09
Speaker 2: do the same thing. But it's just, yeah, I'm.
23:16
Speaker 4: Seeing a couple of treadmills for like three hundred bucks.
23:19
Speaker 2: By the way, Yeah, I'm sure.
23:21
Speaker 3: I'm sure you can go on Facebook find a cheap
23:23
Speaker 3: treadmill or at Walmart. But like, yeah, I just I
23:29
Speaker 3: don't don't get it. Don't get it.
23:31
Speaker 2: I'm very anti treadmill personally too, like as someone who.
23:36
Speaker 3: I'm anti exercising in general.
23:38
Speaker 2: No, Like I so listen, Mike, we got this, We
23:40
Speaker 2: get this dav five k race on Saturday, right, and
23:45
Speaker 2: you know last Saturday Sunday I did back to back
23:48
Speaker 2: seven mile runs getting ready for it, and it was great.
23:51
Speaker 2: Like I just basically I'm like, okay, I'm gonna go
23:52
Speaker 2: run for you know, almost.
23:53
Speaker 3: An hour, and do you not know how to calculate,
23:57
Speaker 3: you know, do the formula for kilometers to miles? Is
23:59
Speaker 3: that why we're doing seven miles on a five k, Michael?
24:03
Speaker 3: When you're competing again, okay, one has to go above
24:09
Speaker 3: and beyond. Oh I see, And so like no problem
24:12
Speaker 3: at all, Like I'll be running for like fifty sixty.
24:15
Speaker 2: Minutes and I'm like, this is cool, this is fine.
24:18
Speaker 2: I get on a treadmill three minutes, and I'm like,
24:21
Speaker 2: what do I do? I'm like moving the incline up
24:24
Speaker 2: and down every thirty seconds.
24:26
Speaker 3: I'm like, cause you don't have a peloton instructor screaming
24:29
Speaker 3: at you in the in the display.
24:31
Speaker 2: I want anyone to scream at me. I work out
24:33
Speaker 2: and there's no noise. That's like the nice thing, you know.
24:36
Speaker 2: It's just like it's it's me just being there with
24:40
Speaker 2: my feet.
24:41
Speaker 3: I see.
24:42
Speaker 2: And when I get on a treadmill, it's like, Nope,
24:46
Speaker 2: don't like this board already, so take it for what
24:49
Speaker 2: it is. Let's talk a little bit about tariffs. Yesterday
24:53
Speaker 2: was oral arguments at the Supreme Court on the case
24:57
Speaker 2: two whether or not to throw out the tariffs imposed
25:02
Speaker 2: by the Trump administration using the nineteen seventy seven International
25:06
Speaker 2: Emergency Economic Powers Act. And I know that this is
25:10
Speaker 2: not all of the tariffs that the President has imposed,
25:13
Speaker 2: but it's a broad swath of them. It's it's the
25:16
Speaker 2: ones for different countries. It's not the ones for specific industries.
25:21
Speaker 2: Those have used different approaches in order to manage those
25:25
Speaker 2: in some cases. But the question is, hey, does the
25:29
Speaker 2: executive branch have the authority to impose these tariffs based
25:34
Speaker 2: on you know, just saying it's an emergency is pretty
25:37
Speaker 2: much the question that's out there. And again during the
25:41
Speaker 2: show yesterday, like I said, look, we're not listening to
25:43
Speaker 2: the arguments, we're not watching them because we can't. We
25:46
Speaker 2: don't know what's going to happen. What I can tell
25:49
Speaker 2: you is that betting markets we're following and watching this
25:52
Speaker 2: or at least participants on betting markets, and during these arguments,
25:56
Speaker 2: the probability of the tariffs fell from a thirty forty
26:00
Speaker 2: percent chance to a twenty five twenty eight percent chance,
26:04
Speaker 2: and so the probability of the tariffs.
26:06
Speaker 3: Being upheld being upheld, got it.
26:08
Speaker 2: And so basically the sense that you get in reading
26:11
Speaker 2: articles about what happened yesterday is that many of the
26:15
Speaker 2: justices were asking questions with skeptical tones. And so obviously
26:19
Speaker 2: you get people you know, reading into well, they're they're
26:22
Speaker 2: skeptical about this, and so we think it's going to
26:25
Speaker 2: be struck down. That still maybe the case, but we
26:28
Speaker 2: don't know. Again, a twenty five percent chance one in
26:30
Speaker 2: four if I told you, hey, you wake up today
26:33
Speaker 2: and there's a one in four chance that you're gonna
26:34
Speaker 2: get hit by a bus when you're going to work.
26:36
Speaker 2: You'd be like, I think I'll call in sick for
26:38
Speaker 2: the day, you know, Like it's how still.
26:40
Speaker 3: A bet like that exists because there's not just a
26:43
Speaker 3: yes no on these terraffs, right. They could they could
26:47
Speaker 3: hypothetically come out there and say, hey, you need to
26:49
Speaker 3: define the emergency and put a time limit on it.
26:52
Speaker 3: You They could pause the tariffs until Congress has time
26:55
Speaker 3: to look at that. Like, there's not just a yes
26:57
Speaker 3: no there. I'm sorry. Markets are here.
27:00
Speaker 2: This is the rule. I'm just gonna read from the page.
27:02
Speaker 2: This is from poly market. This market will resolve to
27:05
Speaker 2: yes if the Supreme Court of the United States issued
27:08
Speaker 2: a decision that reverses, vacates, or otherwise overturns the US
27:11
Speaker 2: Court of Appeals for the Federal Circuits August twenty ninth
27:14
Speaker 2: decision in Vos Selections versus Trump, in which the Federal
27:17
Speaker 2: Circuit held that the tariffs imposed by executive orders blah
27:20
Speaker 2: blah blah exceeded the authority under the International Emergency Powers Act. Otherwise,
27:24
Speaker 2: this will resolve to know if the Supreme Court dismisses
27:27
Speaker 2: the case as improvidently granted, denies cert grant's vacates remand
27:32
Speaker 2: without deciding the merits of the IEEPA authorization, it will
27:36
Speaker 2: resolve to know for purposes of this market. If the
27:41
Speaker 2: government prevails. The government prevails if the Supreme Court rules
27:45
Speaker 2: on the merits that the tariffs are authorized or otherwise
27:49
Speaker 2: reverses or vacates the federal circuits holding that they are unauthorized,
27:52
Speaker 2: regardless of whether the Court romanks for further proceedings or
27:56
Speaker 2: scope of relief.
27:57
Speaker 3: Got it.
27:57
Speaker 2: The government does not prevail if the Supreme Court affirms
28:00
Speaker 2: the decision, even if the Court modifieser vacates portions of
28:04
Speaker 2: the judgment relating only to remedy or injunctive relief.
28:07
Speaker 3: How many people betting on this thing do you think
28:09
Speaker 3: actually read that?
28:11
Speaker 2: Six?
28:12
Speaker 3: Yeah, so, okay, we've been seeing a healthy dose of
28:18
Speaker 3: skepticism from the Supreme Court judges. A lot of that
28:20
Speaker 3: is framed by the media that reports it, but I
28:22
Speaker 3: think both from left leaning and right leaning media, I've
28:25
Speaker 3: heard it reported that. Yeah, there's a healthy dose of
28:29
Speaker 3: skepticism from the judges that the president has these powers.
28:32
Speaker 3: In terms of what it could mean. Well, let's lay
28:37
Speaker 3: out the options, right, One, option is that it's the
28:39
Speaker 3: status quo. The terrorists are in place now, remain in place,
28:42
Speaker 3: and we've been living with that for the last several months.
28:45
Speaker 3: In terms of alternatives, there there's a lot of them.
28:48
Speaker 3: They could be forced to reimburse tariffs. They could be
28:51
Speaker 3: forced to reimburse tariffs, but only to specific industries or companies.
28:54
Speaker 3: They could just rule that this is not viable going forward,
29:00
Speaker 3: they don't have to reimburse. They could basically they can
29:06
Speaker 3: go in a number of different directions.
29:07
Speaker 2: And even there you get into the questions then of okay,
29:10
Speaker 2: let's say that it is reversed. How many class action
29:13
Speaker 2: suits do you see from individuals who bought products at
29:16
Speaker 2: XYZ saying okay, I want my piece of you know,
29:19
Speaker 2: the tariff revenue that was reversed. Right, Like, it could
29:22
Speaker 2: get quite complicated, but this is one of the things
29:25
Speaker 2: where you say, okay, does the federal government have to
29:29
Speaker 2: refund a couple hundred billion dollars of tariff revenue that,
29:34
Speaker 2: by the way, they don't have because surprise, federal government
29:38
Speaker 2: has spent it, you know, like it's it's not like
29:40
Speaker 2: it's just sitting there. So it's one where you say, okay,
29:44
Speaker 2: does the federal government have to issue additional debt and
29:46
Speaker 2: in order to do so, what does that do? Because
29:49
Speaker 2: the projections were that, you know, over the next ten
29:51
Speaker 2: years this would bring in like three trillion dollars in revenue.
29:54
Speaker 2: If that's not coming in, deficits become large or do
29:58
Speaker 2: the bond vigilantes show up again being hey, pay us more,
30:01
Speaker 2: you know.
30:02
Speaker 3: So there's a lot of downstream impact. Yesterday equity markets
30:05
Speaker 3: were up on maybe that was part of the news.
30:08
Speaker 3: Maybe it was just a reversal of Tuesday sell off
30:11
Speaker 3: as well. But yeah, I think the only thing I'm
30:14
Speaker 3: comfortable saying right now is that many are looking at
30:19
Speaker 3: this and thinking that the justices are leaning in the
30:24
Speaker 3: throw it out direction.
30:25
Speaker 2: Yeah, I'd say that's where the vast majority of opinion
30:28
Speaker 2: is now. In terms of the timeline, the estimates that
30:32
Speaker 2: I've seen late December to early January, so we're probably
30:35
Speaker 2: two to three months away from a ruling on this.
30:39
Speaker 2: That's kind of the called two months away from a
30:42
Speaker 2: ruling on this. Again, I don't personally have any idea
30:46
Speaker 2: what's going to happen. I know so little about law
30:51
Speaker 2: that I just don't have an informed decision here or
30:55
Speaker 2: an informed take on this, and I think that's fine, Like,
30:58
Speaker 2: we don't all have to pretend to be constitutional law
31:03
Speaker 2: scholars for the day. Sometimes it's okay to just be like, hey,
31:06
Speaker 2: there are other people that spend their lives researching this,
31:09
Speaker 2: and yeah, let's take a quick break here, and when
31:14
Speaker 2: we return, let's see, do we want to talk about
31:19
Speaker 2: automakers looking for chips? We already covered that a little
31:21
Speaker 2: bit earlier this week. I don't know that I have
31:23
Speaker 2: much new stuff. There's talk about builders, talk about home builders.
31:26
Speaker 2: I think there's a little bit of meat on that bone.
31:28
Speaker 2: And we'll discuss when we come back.
31:30
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31:34
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31:40
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31:42
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31:46
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31:55
Speaker 2: Wall Street Journal. Builders are offering alders are offering mortgage
32:02
Speaker 2: rate discounts. Home buyers aren't biting what are we seeing?
32:07
Speaker 3: Pretty low mortgage rates being offered by these buyer builders.
32:10
Speaker 3: So they're they're, you know, buying up discounts for their customers.
32:15
Speaker 3: Some of them, the largest ones out there, have their
32:17
Speaker 3: own mortgage originations and so they're able to do this.
32:20
Speaker 3: But Dr Horton France, for instance, is offering mortgages as
32:24
Speaker 3: low as three point nine to nine percent through their
32:26
Speaker 3: financing arms. Others such as Lenar offering buyers incentives worth
32:30
Speaker 3: sixty four thousand dollars on the average home sales. What
32:33
Speaker 3: I'm hearing reported also is that even with these discounts,
32:39
Speaker 3: it's not quite attracting. You know, for years we've been
32:42
Speaker 3: talking about institutional buyers of single family homes, right, and
32:46
Speaker 3: you have not seen the corporate buyers come out yet.
32:48
Speaker 3: You have not clearly seen the individual buyers come out yet.
32:53
Speaker 3: But wow, a three point nine nine percent mortgage in
32:55
Speaker 3: this market is pretty darn attractive.
32:58
Speaker 2: I'd say beyond pretty an't attractive. Yeah, And so this
33:03
Speaker 2: gets at the question of why is this the case?
33:07
Speaker 2: Right like it's it's it's The reasonable question answer to
33:11
Speaker 2: ask is, hey, if you're getting mortgage rates that are
33:14
Speaker 2: being offered that low, why are people not snapping them up?
33:19
Speaker 2: And the place I come back to is, look, the
33:21
Speaker 2: place that a lot of these developers are offering this
33:23
Speaker 2: stuff is in place where home prices are falling and
33:27
Speaker 2: home prices falling is usually a signal to most people
33:29
Speaker 2: that it's not a great time to start buying real estate.
33:32
Speaker 3: Yet, in my opinion, yeah, I don't think it's all
33:36
Speaker 3: that complicated. Supplies outstripping demand and there's a lot of
33:40
Speaker 3: buyer skepticism about this market right now in those areas
33:45
Speaker 3: where new homes have actually been built over the last
33:47
Speaker 3: few years. So it's not an amazingly complicated question. But
33:50
Speaker 3: it's definitely a bad sign when home builders have well
33:55
Speaker 3: a lot of sitting on a lot of inventory. Wasn't
33:56
Speaker 3: it the largest amount of inventory, since.
33:59
Speaker 2: It's the highest inventory level since June of two thousand
34:01
Speaker 2: and nine, which is not really the copy want no,
34:06
Speaker 2: not only economically you don't want to hear last time
34:09
Speaker 2: since two thousand and nine. Yeah, yeah, any comparison to
34:12
Speaker 2: that point of time when it comes to business or
34:16
Speaker 2: economics is not a great comparison point.
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35:29
Speaker 2: Peace in the Wall Street Journal, this famous method of
35:31
Speaker 2: valuing stocks is pointing towards some rough years ahead. The
35:35
Speaker 2: valuation method that they're talking about is what's known as
35:37
Speaker 2: the CAPE, the cyclically adjusted pe ratio. This was popularized
35:42
Speaker 2: by Robert Shiller. It's often known also as the Shiller
35:45
Speaker 2: PE ratio, and basically what it does it looks at
35:48
Speaker 2: ten years of earnings and adjusts them for inflation, so
35:50
Speaker 2: you get a whole business cycle of earnings adjusted for inflation, Like,
35:55
Speaker 2: how much is actually companies growing their earnings? How much
35:58
Speaker 2: is inflation? And then say, okay, what's the pe ratio
36:01
Speaker 2: based on that?
36:02
Speaker 3: Right?
36:03
Speaker 2: And pretty much what you're seeing right now is that
36:05
Speaker 2: the Shiller pe is at the Again, you don't want
36:08
Speaker 2: to compare things to two thousand and nine. You don't
36:10
Speaker 2: really like, you know, nineteen ninety nine two thousand is
36:11
Speaker 2: a comp for valuations, but we're basically at the highest
36:14
Speaker 2: level of valuation that we've seen since September of two thousand.
36:17
Speaker 3: Yeah, and we've talked about this a few times because
36:19
Speaker 3: we've been hitting these milestones throughout this year. Right, one
36:23
Speaker 3: of them was the price to revenue ratio on the
36:27
Speaker 3: S and P five hundred. Hadn't seen that since the
36:29
Speaker 3: late nineties. Now we've got the cape price to earnings ratio.
36:34
Speaker 3: What are we comfortable saying about this then? Right, like, yeah,
36:37
Speaker 3: you're not in great company when when stocks hit the
36:41
Speaker 3: price point that you've only once seen in US history,
36:44
Speaker 3: which was during the lead up to the dot com bubble.
36:48
Speaker 3: Not great company. But what are we actually comfortable saying
36:50
Speaker 3: about this? Because I don't think it's a story of timing. No,
36:53
Speaker 3: it's a horrible timing mechanism. The first time that we
36:56
Speaker 3: hit this level was December of nineteen ninety eight. The
37:00
Speaker 3: party continued for two more years and valuations went even higher.
37:04
Speaker 3: So this is not something and valuations, I say this
37:08
Speaker 3: quite often, valuations are not useful in any way, shape
37:11
Speaker 3: or form as a timing signal as to like should
37:13
Speaker 3: I do this or should I do that? They can
37:15
Speaker 3: give you some rough guidance, and even there it's this
37:18
Speaker 3: is not physics, like this is not this happens, and
37:22
Speaker 3: then this happens. It's here's what we've observed observed previously,
37:26
Speaker 3: but unlike physics, where those relationships are stable relationships, and
37:30
Speaker 3: markets can evolve over time based on different conditions and
37:33
Speaker 3: different sets of circumstances. So I think you can incorporate
37:36
Speaker 3: this into any you know, mosaic and any matrix that
37:40
Speaker 3: you're using to figure out, hey, how should I personally
37:43
Speaker 3: be investing?
37:44
Speaker 2: But the idea that this should be used is like,
37:46
Speaker 2: oh no, like we've reached this level, now you have
37:48
Speaker 2: to sell. Well, that's just you know, useless as saying well,
37:52
Speaker 2: things have gotten really cheap, now I need to buy. Well,
37:53
Speaker 2: sometimes they're cheap for a reason see Emerging markets for
37:56
Speaker 2: the last fifteen years. So I think, yes, this is
38:00
Speaker 2: signaling some potential issues, but I keep coming back to
38:04
Speaker 2: it's a horrible timing mechanism, and relationships can change over time.
38:08
Speaker 2: They're not always stable in markets. Quick Break Hour two
38:12
Speaker 2: coming up in a little bit.