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Why the Labor Market Still Isn’t Breaking · The Financial Exchange Show

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Speaker 2: It is Chuck and Mike and Ben with you here,
1:14
Speaker 2: and we're gonna start today with a discussion of the
1:18
Speaker 2: jobs report, because quite honestly, we can't start every show
1:23
Speaker 2: talking about energy prices.
1:25
Speaker 3: We'll get there.
1:28
Speaker 2: We haven't started with AI in a while. We spend
1:31
Speaker 2: like a third of the show covering it usually, but
1:35
Speaker 2: it's it's unusual that we start with it because we
1:38
Speaker 2: have to maintain control over the robots. We can't if
1:42
Speaker 2: we give them the open mic, Yeah, the whole show.
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Speaker 4: Yeah, they take next.
1:47
Speaker 2: If you give a robot a cookie, it's gonna want
1:51
Speaker 2: a cup of milk to fry its circuits.
1:53
Speaker 4: Got it.
1:54
Speaker 2: So we had a job report this morning, and here's
1:57
Speaker 2: what we saw. One hundred and fifteen thousand jobs created
2:00
Speaker 2: versus estimate of sixty two. The prior month was I'm sorry,
2:05
Speaker 2: February was revised down by twenty three thousand, March revised
2:08
Speaker 2: up by seven.
2:09
Speaker 3: It's no meaningful change about.
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Speaker 2: Sixteen thousand jobs difference, but that's just not a meaningful number.
2:16
Speaker 2: And ultimately the unemployment rate stayed at four point three percent.
2:20
Speaker 2: If you'll get the unrounded number, it did move up
2:22
Speaker 2: from four point two six to four point three four.
2:25
Speaker 2: We could talk about why that's the case as we
2:27
Speaker 2: go through here, and so I think you will get
2:30
Speaker 2: the headline numbers and you say, pretty good. You know,
2:35
Speaker 2: right now, the break even estimate for the unemployment rate
2:38
Speaker 2: to not move up is somewhere in the ballpark of
2:42
Speaker 2: probably twenty to sixty thousand jobs needed each month because
2:46
Speaker 2: the baby boomers are retiring and there's not enough gen
2:49
Speaker 2: zers to replace them, and immigration is probably close to
2:53
Speaker 2: net zero on an annual basis, we don't know exactly where,
2:57
Speaker 2: and so there's just not much labor force growth, if any,
3:00
Speaker 2: right now.
3:01
Speaker 5: So we came into this report kind of guessing that
3:05
Speaker 5: we wouldn't get any alarm bells. I think it's fair
3:08
Speaker 5: to say that this report showed no alarm, no alarms,
3:13
Speaker 5: no big surprises here compared to you know, what we've
3:17
Speaker 5: been getting from weekly jobless claims numbers, what we've been
3:19
Speaker 5: getting from jolts and other surveys of the labor market,
3:22
Speaker 5: which again good news, but unsurprising in terms of what
3:26
Speaker 5: we got reported here.
3:27
Speaker 2: I think if you're looking for some stories that you
3:30
Speaker 2: know as you dig through the data in terms of okay,
3:32
Speaker 2: so like what do we get underneath the surface. The
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Speaker 2: participation rate in the labor force dropped again from sixty
3:40
Speaker 2: one point nine down to sixty one point eight percent,
3:43
Speaker 2: which again not entirely unsurprising because you have more baby
3:48
Speaker 2: boomers retiring and that is included.
3:51
Speaker 4: This is not like a discouragement story.
3:52
Speaker 5: This is a total labor force participation rate, which measures
3:57
Speaker 5: you know, every living person, and so as we as
4:00
Speaker 5: saiety age, we anticipate that coming down.
4:02
Speaker 2: The age twenty five to fifty four stayed level at
4:05
Speaker 2: eighty three point eight percent.
4:06
Speaker 3: So no change there.
4:08
Speaker 2: So again it's it's demographics that are explaining that drop
4:11
Speaker 2: in the labor force participation rate. Now, the interesting thing
4:14
Speaker 2: I mentioned that the unemployment rate on an unrounded basis
4:18
Speaker 2: went from four to two six to four three four,
4:21
Speaker 2: So it just missed rising from you know, four point
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Speaker 2: three percent to four point four. You might say, well,
4:27
Speaker 2: how could the unemployment rate rise when there were one
4:30
Speaker 2: hundred and fifteen thousand jobs added and that's above the
4:32
Speaker 2: supposed break even number. The answer once again comes back
4:36
Speaker 2: to the fact that the jobs report we receive it's
4:38
Speaker 2: two surveys. The unemployment rate comes from a survey of households.
4:42
Speaker 2: The jobs created number comes from a survey of businesses.
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Speaker 2: The household survey showed a net reduction actually of two
4:52
Speaker 2: hundred and twenty six thousand jobs. Now this is neither
4:54
Speaker 2: right nor wrong. Again, these are both surveys. So generally
4:58
Speaker 2: what you want to see is the surveys pointing in
5:01
Speaker 2: the same direction. Occasionally for a month, a quarter, or
5:04
Speaker 2: sometimes even longer, they might give you different views because
5:07
Speaker 2: of how the numbers are imputed through the models. Remember
5:12
Speaker 2: how many of you listening raise your hands, even if
5:14
Speaker 2: you're driving, you can raise one because none of you
5:17
Speaker 2: are going to raise one hand. No, because none of
5:19
Speaker 2: you are going to raise it. Okay, how many of
5:21
Speaker 2: you have ever been surveyed by the Bureau of Labor Statistics.
5:25
Speaker 4: No one in Here's right, I don't know a single.
5:27
Speaker 3: Person that actually has.
5:29
Speaker 2: Now I know that they do it, but again they
5:31
Speaker 2: ask like, you know, fifty thousand Americans a month. There
5:34
Speaker 2: are a lot of Americans, and that's not you know
5:36
Speaker 2: many that they actually survey. So this is why you
5:41
Speaker 2: have this you know, short term thing where hey, hundred
5:44
Speaker 2: and fifteen thousand jobs created, but the unrounded unemployment rate
5:47
Speaker 2: went up. It's because of differences in the survey methodology.
5:51
Speaker 2: Neither one's right, neither one's wrong. Don't read too much
5:54
Speaker 2: into any one particular month, so I'm not overly concerned
5:57
Speaker 2: about that. We'll see how things go here other data
6:01
Speaker 2: points when we dig into some of the underlying information.
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Speaker 2: Manufacturing consistent with what we've been seeing from the This
6:11
Speaker 2: is actually wild. The ism manufacturing is showing that manufacturing
6:16
Speaker 2: output is jumping right now, but that employment is dragging.
6:20
Speaker 2: This match that two thousand manufacturing jobs lost for the
6:22
Speaker 2: month not entirely surprising.
6:26
Speaker 3: It's just kind of what we've been seeing.
6:27
Speaker 4: The big gains.
6:29
Speaker 5: Healthcare continues to be the big gainer year after year now,
6:33
Speaker 5: and then transportation and warehousing also some big gains, followed
6:36
Speaker 5: by retail. So thirty plus thousand both transportation and healthcare.
6:40
Speaker 2: I want to talk about the transportation housing. This is
6:41
Speaker 2: back to back months now that transportation and warehousing has
6:45
Speaker 2: been ripping.
6:46
Speaker 3: And if you happen to follow.
6:48
Speaker 2: Craig Fuller, who we had on our show a bunch
6:51
Speaker 2: last year during the pul tariff Kerfluffel, Craig runs a
6:55
Speaker 2: a data service. He does a bunch of stuff, but
6:57
Speaker 2: one of the things he does is he runs a
6:59
Speaker 2: data service that shows a bunch of freight information, and
7:04
Speaker 2: basically he's been saying, look, since the start of the year, like,
7:06
Speaker 2: freight's been going absolutely nuts. There's this huge manufacturing restocking
7:10
Speaker 2: cycle that's going on, and so freight's been crazy. This
7:14
Speaker 2: data is matching what we are seeing in terms of
7:16
Speaker 2: freight activity around the United States. So it's absolutely a
7:21
Speaker 2: real thing that is matching up with some of the
7:23
Speaker 2: other data. Other pieces that we saw, one of my
7:27
Speaker 2: favorite ones that I use as a proxy for consumer
7:29
Speaker 2: demand is what's known.
7:30
Speaker 3: As aggregate payroll growth.
7:33
Speaker 2: Aggregate payroll growth is this you only get half the
7:36
Speaker 2: picture if you're looking at how many jobs were added.
7:38
Speaker 2: You only get half the picture. If you're looking at
7:40
Speaker 2: wage growth. If you want to see how much more
7:42
Speaker 2: money is going into Americans pockets overall, you will get
7:46
Speaker 2: aggregate payrolls, which is wage growth times payroll growth. And
7:50
Speaker 2: so what we see here is for the last twelve months. Again,
7:53
Speaker 2: this is really it's a volatile series month to month,
7:55
Speaker 2: So the month to month is not useful, but the
7:57
Speaker 2: twelve month number is, in my opinion, aggregate payroll growth
8:02
Speaker 2: over the last twelve months. Uh is now running at
8:08
Speaker 2: a pace of three point nine percent, which is not great. Generally,
8:14
Speaker 2: we like to see that running somewhere between four and
8:17
Speaker 2: a half and five and a half percent. That gives you,
8:20
Speaker 2: you know, enough spending growth from actual payrolls that you
8:25
Speaker 2: know you can you can you know, have some meaningful
8:27
Speaker 2: growth there. You get to this point, and historically it's
8:31
Speaker 2: been a little bit iffy. You can, you know, at
8:35
Speaker 2: a caveat that Hey, generally we haven't seen the same
8:38
Speaker 2: kind of labor supply issues that we've had the last
8:43
Speaker 2: year or so, So maybe three to nine is a
8:45
Speaker 2: level which the economy can still sustain itself.
8:48
Speaker 5: I think it's pretty clear though, at that pace, consumers
8:51
Speaker 5: cannot afford the inflation that's being passed.
8:54
Speaker 2: This is why when you look at it Q two,
8:56
Speaker 2: GDP is probably going to be somewhere close to zero.
8:59
Speaker 2: If inflation's running four percent and nominal GDP ends up
9:03
Speaker 2: running somewhere around four, inflation's going to eat up all
9:06
Speaker 2: of the GDP there for the quarter. Okay, Like this
9:10
Speaker 2: is I just don't think that you're going to have
9:13
Speaker 2: much in the way of GDP for Q two. I'm
9:16
Speaker 2: not saying that that's like a permanent thing or you
9:18
Speaker 2: know something that's that's going to be a huge problem.
9:21
Speaker 2: I'm just telling you it's where I think you're probably
9:25
Speaker 2: going to end up is with not much in the
9:27
Speaker 2: way of real GDP growth because inflation is likely to
9:30
Speaker 2: eat through most of it. Yeah, that's just kind of
9:32
Speaker 2: where we're going for the quarter. Beyond that, it's going
9:35
Speaker 2: to depend on the horror moves reopening. See we got
9:37
Speaker 2: through fourteen minutes of a show without mentioning it once.
9:39
Speaker 5: The last just observation that I want to continue to
9:42
Speaker 5: make about our aging population is the healthcare and social
9:46
Speaker 5: services sector of the labor force, because it has been
9:51
Speaker 5: a major driver of employment for the last frankly decade.
9:55
Speaker 4: And in terms of where we were, we were.
9:58
Speaker 5: At about nineteen million people working in those sectors a
10:04
Speaker 5: decade ago. We're now at about twenty three point eight.
10:08
Speaker 5: And when you chart it against the population of Americans
10:13
Speaker 5: over the age of sixty five, it's just a perfect
10:18
Speaker 5: one for one. And we know where that population of
10:20
Speaker 5: folks over the age of sixty five is going higher
10:23
Speaker 5: for the next several decades. And it's tough for me
10:27
Speaker 5: to envision a scenario given just where we are with automation, robotics,
10:31
Speaker 5: et cetera, where this does not follow a straight line higher.
10:34
Speaker 5: I think the demand for nurses, social workers of different
10:38
Speaker 5: sorts is just going to be on a straight line upwards.
10:41
Speaker 5: And unfortunately for those aging folks you know, turning sixty
10:45
Speaker 5: five now and looking forward at the cost of healthcare
10:48
Speaker 5: over the next few decades, and specifically the cost of
10:50
Speaker 5: long term care, I really struggle to envision a scenario
10:54
Speaker 5: where it's not straight line upwards further.
10:56
Speaker 3: Yeah, let's be honest.
10:58
Speaker 2: Also, if you believe like I do, that artificial intelligence
11:03
Speaker 2: is going to be able to take over more and
11:05
Speaker 2: more of the thinking and through robotics, more and more
11:09
Speaker 2: of the doing.
11:10
Speaker 3: Yep.
11:11
Speaker 2: The place that you land in terms of like where
11:13
Speaker 2: the majority of people will actually have jobs in the
11:16
Speaker 2: future is people taking care of people. Yeah, Like, that's
11:21
Speaker 2: where it points to. I'm not saying this is good
11:24
Speaker 2: or bad. I'm just saying it probably is. Let's take
11:28
Speaker 2: a quick break. When we return. Let's see, we're gonna
11:33
Speaker 2: talk to AA.
11:34
Speaker 3: We gotta come.
11:35
Speaker 4: Yeah, a distortion baby.
11:36
Speaker 3: All right.
11:37
Speaker 2: If you don't like artificial intelligence, you'll hate what comes next.
11:42
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Speaker 2: Before we go further into talking about AI, can we
12:51
Speaker 2: talk about the other data point that we just got
12:54
Speaker 2: a couple minutes ago, which was the Michigan consumer sentiment data.
12:58
Speaker 4: So long as you know the actual report.
13:01
Speaker 3: Yeah, what do you mean.
13:02
Speaker 4: I didn't look at it yet. So as long as
13:04
Speaker 4: you're ready to come.
13:05
Speaker 2: To guys, I gotta be honest. This report is broken.
13:09
Speaker 2: We can't use it anymore. Yeah, and it consistently gets
13:13
Speaker 2: cited as like a good report. The data coming out
13:17
Speaker 2: of it is hot garbage. So what I mean by
13:22
Speaker 2: this is one of the questions that gets asked. They
13:26
Speaker 2: asked to a bunch of you know, inflation expectations one
13:28
Speaker 2: and one of the questions they ask is what is
13:32
Speaker 2: your expected price change? Not just this year, but they
13:37
Speaker 2: ask in the future in the next five to ten years.
13:40
Speaker 2: And Mike, last year, when tariff Mania was gripping the nation,
13:44
Speaker 2: which was the biggest mania since Beatlemania, the you mish
13:50
Speaker 2: five to ten year inflation expectation came in at four
13:53
Speaker 2: point four percent in April. Okay, okay, expecting inflation to
13:58
Speaker 2: average four point four percent when you look.
14:00
Speaker 3: That five to ten year period.
14:01
Speaker 2: Okay, this year, with gas prices ripping and you know,
14:08
Speaker 2: all kinds of changes to other pricing that's happening now,
14:12
Speaker 2: it's at three four. I'm sorry, but we're just too
14:18
Speaker 2: stupid to answer this survey.
14:22
Speaker 4: Okay, I'll take it more broadly.
14:25
Speaker 5: No, No, I recognize, Mike, this is a complex I'm
14:28
Speaker 5: not defending the survey, so.
14:30
Speaker 2: I know, but like, let me just put into perspective
14:33
Speaker 2: what we just got as a result here. A year
14:36
Speaker 2: ago exactly, household said, Hey, because we're nervous about tariffs,
14:42
Speaker 2: which has never been implemented in their lifetime and most
14:45
Speaker 2: of which have since been called back, we expect inflation
14:49
Speaker 2: to be four and a half percent for the five
14:51
Speaker 2: to ten year period. Yeah, and today, with actual gas
14:54
Speaker 2: prices fifty percent higher than they were three months ago,
15:00
Speaker 2: people are saying that's only gonna be three point four percent, Like,
15:04
Speaker 2: we're just not capable of understanding prices.
15:07
Speaker 4: I'll take it. You know.
15:09
Speaker 5: Again, there's the prices piece of all of this, which
15:13
Speaker 5: I think people are confused about. But I'm just gonna
15:15
Speaker 5: take overall sentiment which they measure here. Yes, it's giving
15:19
Speaker 5: you readings now that are as bad or occasionally worse,
15:23
Speaker 5: worse than two thousand and eight, right in two thousand
15:26
Speaker 5: and nine when unemployment was like eleven percent. This is
15:30
Speaker 5: fundamentally not a usable survey for that reason.
15:33
Speaker 3: A lot it's broken.
15:34
Speaker 2: It is like something I know they changed the methodology
15:37
Speaker 2: a couple of years ago to move to online only,
15:39
Speaker 2: and maybe that's what did it, because the people.
15:42
Speaker 3: Who hang out online are trolls.
15:46
Speaker 2: I don't know, Like it just very emotionally edgy, like
15:51
Speaker 2: what's the right way to phrase, just like, quite honestly,
15:55
Speaker 2: you spend too much time time online, like it affects
15:58
Speaker 2: how you think about things.
16:00
Speaker 5: Yeah, I don't know what to make of this survey.
16:02
Speaker 5: I don't even know if it's terribly useful on a
16:04
Speaker 5: month of a month basis, but very clearly using it
16:08
Speaker 5: to indicate anything about today's economy compared to times over
16:13
Speaker 5: the last few decades is contextually useless.
16:16
Speaker 3: I don't think we can use it anymore.
16:17
Speaker 5: Quite honestly, it's which is a shame because it's one
16:20
Speaker 5: of the longest running surveys that we have right.
16:22
Speaker 2: This is like the gold standard of sentiment surveys historically,
16:26
Speaker 2: and I'm pretty sure it's completely useless right now, because
16:29
Speaker 2: how do you reconcile this consumer sentiment like current conditions,
16:34
Speaker 2: consumer sentiment is basically printing as bad as it's ever printed,
16:39
Speaker 2: right at the same time that you have consumer spending
16:43
Speaker 2: continuing to run four to seven percent.
16:45
Speaker 4: Year over year growth unimpeded. Yeah, you can't square those
16:50
Speaker 4: two other than.
16:53
Speaker 2: Even if you want to say, hey, consumer spending is
16:55
Speaker 2: being driven by the wealthy, so people can feel bad
16:57
Speaker 2: but they're fine. That still makes this a useless sur right, Like,
17:01
Speaker 2: either way, it's not giving me anything useful at this point.
17:05
Speaker 5: Yeah, I don't know what the cause. I don't know
17:06
Speaker 5: if it's because of a bunch of people online not
17:08
Speaker 5: being unhappy.
17:09
Speaker 4: I don't know if it's.
17:10
Speaker 5: Because people are increasingly responding to these surveys in a
17:13
Speaker 5: political fashion, which they clearly are, because we can measure
17:18
Speaker 5: the democrat versus Republican response to these surveys and tell
17:21
Speaker 5: you how dramatically they flip every time there's a new president.
17:25
Speaker 5: But some combination of things makes it so that these
17:29
Speaker 5: surveys do not indicate anything. So if you see it
17:33
Speaker 5: flashing against your screen that new Michigan Consumer Sentiment did X,
17:36
Speaker 5: Y or Z, I would really encourage you to throw
17:39
Speaker 5: it out, because it's just maybe it'll tell us again
17:42
Speaker 5: something again in the future. But right now, again, there's
17:45
Speaker 5: no useful context for me to be telling you that
17:48
Speaker 5: the consumer Sentiment survey right now is giving you a
17:51
Speaker 5: reading that's worse than it was in May of two
17:54
Speaker 5: thousand and nine.
17:56
Speaker 2: Which is, Look, you can think whatever you want about
18:01
Speaker 2: the economy.
18:02
Speaker 5: It's better than it was in May of two thousand.
18:03
Speaker 5: It's better than it was in May of two thousand
18:05
Speaker 5: and nine.
18:05
Speaker 4: Yep, just full stop.
18:08
Speaker 3: You can have your own feelings, but you don't have
18:10
Speaker 3: to share them.
18:10
Speaker 2: Yeah.
18:11
Speaker 4: Yeah, it's definitively better than it was in May of
18:16
Speaker 4: two thousand and nine.
18:17
Speaker 1: You can be a.
18:17
Speaker 2: Title to your own opinion, but you're not entitled to
18:20
Speaker 2: that opinion being right. And the economy is better than
18:22
Speaker 2: it was in May of two thousand and nine.
18:24
Speaker 4: Yeah, yeah, we can agree on that.
18:26
Speaker 2: You know. It's like that's that's just where it is,
18:29
Speaker 2: speaking of you know, economic statistics that don't make sense
18:33
Speaker 2: peace in the Wall Street Journal. AI is distorting practically
18:36
Speaker 2: everything about the economy, is it.
18:41
Speaker 5: It depends on your definition of distorting. I think it's
18:45
Speaker 5: fair to say that GDP and other things are being
18:49
Speaker 5: influenced by capital expenditis from giant companies more than they
18:53
Speaker 5: in other times. You might be able to blame a
18:58
Speaker 5: you know, investment drop in places like housing and office
19:02
Speaker 5: buildings and factories partly on the crowding out effect of
19:05
Speaker 5: the AI spend. I think that's an interesting story. I
19:11
Speaker 5: don't know if any of that's distortion though, right Like
19:13
Speaker 5: you know that's saying like, oh, like when the automobile
19:16
Speaker 5: was invented, it totally distorted the horse based economy.
19:22
Speaker 4: It's changing things.
19:23
Speaker 5: Yes, we gotta talk a little bit more about this.
19:26
Speaker 5: Let's say quick break. Wall Street Watch is coming up next.
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Speaker 6: Markets are reacting positively to this morning's job support that
20:05
Speaker 6: came in better than expected. The Dow Jones is curry
20:08
Speaker 6: currently up seventy five points or zero point one five percent.
20:11
Speaker 6: The S and P five hundreds up fifty points or
20:13
Speaker 6: just under seven tenths of a percent. The Nasdaq is
20:16
Speaker 6: up just under three hundred points or one point one
20:18
Speaker 6: five percent. Gold continuing its rally, up twenty three points
20:22
Speaker 6: or half a percent, Silver up a percent and a half.
20:27
Speaker 6: Cloud infrastructure company Core Weave is seeing a share price
20:30
Speaker 6: drop ten percent as its second quarter revenue guidance disappointed
20:34
Speaker 6: Wall Street. Core We've sees revenue ranging from two point
20:38
Speaker 6: four five billion dollars to two point six billion dollars.
20:40
Speaker 6: The midpoint of a two point five to three billion
20:43
Speaker 6: fell short of the two point sixty nine billion consensus call.
20:47
Speaker 6: Upwork shares tumbling nineteen percent after the company announced a
20:50
Speaker 6: restructuring plan that includes reducing its workforce by twenty four percent.
20:55
Speaker 6: Upwork said that it is doing this to make sure
20:57
Speaker 6: the company remains profitable as work evolved. It also reported
21:01
Speaker 6: first quarter earnings and revenue that came in slightly lower
21:03
Speaker 6: than expected. Expedia shares are down eight and a half
21:06
Speaker 6: percent after the online travel agency called for second quarter
21:09
Speaker 6: revenue of four point one to one billion of four
21:11
Speaker 6: point one to nine billion, compared to the four point
21:14
Speaker 6: one two anticipated by analysts. Booked room nights in the
21:17
Speaker 6: first quarter missed expectations, landing at one hundred and thirteen
21:21
Speaker 6: point nine billion dollars versus the consensus of one hundred
21:24
Speaker 6: and seventeen. Wendy's Company stock is up five point seven
21:29
Speaker 6: percent after reporting better than expected revenue of five hundred
21:32
Speaker 6: and forty point six million dollars in its first quarter
21:34
Speaker 6: financial report. Analysts polled estimated revenue would be five hundred
21:39
Speaker 6: and eighteen million dollars. Earnings also came in above estimates,
21:43
Speaker 6: and the company also announced the plan to build up
21:45
Speaker 6: to one thousand restaurants in China over the next decade.
21:49
Speaker 3: I am Ben Kitchen and that was Wall Street Watch Mike.
21:52
Speaker 2: During the last segment, we were covering a piece from
21:54
Speaker 2: the Wall Street Journal titled AI's distorting practically everything about
21:59
Speaker 2: the economy.
22:00
Speaker 4: So we agreed that distortions not really the right term.
22:04
Speaker 2: It's impacting the economy in ways that you know, we're
22:09
Speaker 2: not the economy would look different. But I mean that's
22:12
Speaker 2: like saying, well, if you know, Applebee's didn't have, you know,
22:16
Speaker 2: the burger on their menu, then you wouldn't be able
22:18
Speaker 2: to order it. Like, it's not really a useful counterfactual.
22:22
Speaker 4: Yeah, it's not.
22:24
Speaker 5: I think what we can say is, you know, most
22:27
Speaker 5: of the time through the last when would you argue
22:31
Speaker 5: that we turned more from a manufacturing to a consumer
22:34
Speaker 5: based economy eighties. Yeah, in the last forty years or so,
22:38
Speaker 5: it's been getting driven by the consumer and housing as
22:44
Speaker 5: a major investment area, and neither of those two are
22:48
Speaker 5: currently the growth engine of the economy. The growth engine
22:52
Speaker 5: of the economy. To be really clear about this, I
22:56
Speaker 5: know plenty of people don't use it day to day,
22:58
Speaker 5: but the growth engine of the economy is seven hundred
23:00
Speaker 5: billion dollars that the four major tech companies that are
23:03
Speaker 5: spending on AI are spending this year and the one
23:05
Speaker 5: point one trillion dollars that's estimated to be spent next year.
23:09
Speaker 4: And it is not to say that.
23:12
Speaker 5: It's either good or bad, but it is crowding out
23:16
Speaker 5: other areas of investment. It is leading to employment in
23:20
Speaker 5: new areas of the economy, and it is leaned to
23:26
Speaker 5: higher prices and other things that we are all starting
23:29
Speaker 5: just starting now to feel right like, you know, the
23:32
Speaker 5: higher spending and AI is inarguably driving up the cost
23:35
Speaker 5: of computers, iPhones and other technology that we hold on to,
23:39
Speaker 5: and we will feel that for a few years now.
23:41
Speaker 5: Is that a good thing or a bad thing?
23:43
Speaker 4: Is it distortion? You know, what would the economy look
23:45
Speaker 4: like without it?
23:46
Speaker 5: I don't find those to be useful exercises, but you know,
23:51
Speaker 5: I could certainly make an argument that housing would be
23:54
Speaker 5: stronger if AI investments didn't exist the way that it
23:57
Speaker 5: does today.
24:00
Speaker 3: Yeah.
24:01
Speaker 2: Yeah, Look, I don't know why we look at like
24:06
Speaker 2: AI spending an AI investment like it's this foreign thing
24:11
Speaker 2: that it's like, oh, like this is making the economy
24:14
Speaker 2: look different from how it would be otherwise.
24:16
Speaker 5: Well, we do it with everything, but we don't though. Well,
24:20
Speaker 5: I compare it to when we build lots of houses.
24:22
Speaker 2: We don't go, oh, these houses are making the economy
24:26
Speaker 2: look different. No, we're like, hey, there's like a housing
24:29
Speaker 2: boom going like we just call it like a boom
24:31
Speaker 2: and we accept that there's more economic activity there.
24:34
Speaker 5: So I compare it to, for instance, all the talk
24:37
Speaker 5: of the healthcare workers over the course of the last
24:40
Speaker 5: decade and all these people who are saying, well, the
24:43
Speaker 5: labor market would look like crap if we didn't hire
24:45
Speaker 5: all these nurses over the last ten years. My point is, yeah,
24:49
Speaker 5: but we did and we're going to continue to do so,
24:51
Speaker 5: so it's not distorting things. You can't just remove it
24:54
Speaker 5: from the employment. We do it inflation too. Oh, you know,
24:57
Speaker 5: inflation would be so much better if it just wasn't
25:02
Speaker 5: Shelter costs increasing by six percent year over years, then
25:07
Speaker 5: spent the money somewhere else, Like, you can't just remove
25:10
Speaker 5: the impact of an economic phenomenon and say, look at
25:12
Speaker 5: what the economy would look like otherwise, this is the.
25:15
Speaker 4: Reality that we're in.
25:17
Speaker 5: And if you want to point out that, hey, an
25:20
Speaker 5: increasing percentage of GDP and stock market growth is being
25:24
Speaker 5: attributed to a boom in a new technology, and the
25:29
Speaker 5: risk is that it turns out to be a bust
25:32
Speaker 5: in some way and that spending disappears. Sure, that's true,
25:36
Speaker 5: but you've got you've got to prove it out to
25:39
Speaker 5: me that that's actually what's going to be happening, and
25:42
Speaker 5: that that's an actual reason for concern.
25:45
Speaker 4: And also, I'm just done.
25:47
Speaker 5: With all of these stories like the one that we've
25:49
Speaker 5: got from MarketWatch here about AI coming for your job.
25:51
Speaker 5: After all the announcements that have been made, there.
25:57
Speaker 2: Are companies that over hired during the pandemic and are
26:01
Speaker 2: now correcting that using AIS cover because they may also
26:04
Speaker 2: be getting some productivity increases from AI.
26:07
Speaker 5: But AI is coming for your job if you work
26:10
Speaker 5: in like three to six industries, and not even industries,
26:14
Speaker 5: like specific roles within those industries.
26:17
Speaker 4: Let's let's not go too far in that direction. It's
26:19
Speaker 4: coming for every job on what time frame is the
26:22
Speaker 4: relevant question?
26:23
Speaker 3: Not right now.
26:25
Speaker 5: And if you're a web designer, and if you are
26:27
Speaker 5: a paralegal, I think that they're coming for your job
26:32
Speaker 5: very quickly.
26:32
Speaker 4: Yes, in just about every other area. I just don't
26:35
Speaker 4: see it.
26:35
Speaker 1: Right.
26:36
Speaker 2: If you're a shrimp o captain, you're good for a while.
26:41
Speaker 2: If you are the one of.
26:43
Speaker 4: The guys who's shrimp.
26:45
Speaker 2: If you sit on the back of the truck putting
26:47
Speaker 2: the cones down on the highway, you're probably.
26:51
Speaker 3: Good for a while.
26:52
Speaker 4: Yeah.
26:52
Speaker 2: But if you are someone who makes your living, you know,
26:58
Speaker 2: if you're a technical writer okay for those of you
27:01
Speaker 2: who don't know what a technical writer is, they're the
27:03
Speaker 2: ones that take what the engineers at Microsoft give you
27:06
Speaker 2: and translate it into the manual that all of us
27:08
Speaker 2: can understand. Yeah, you probably are gonna have a tough
27:12
Speaker 2: time because AI is literally built to be like, hey,
27:14
Speaker 2: take this information and turn it into this right. But
27:18
Speaker 2: for everyone else right now, it's not really a threat.
27:23
Speaker 2: What is a threat, okay, is for companies that have
27:27
Speaker 2: over hired in the last five years, they're absolutely gonna
27:31
Speaker 2: use it as an excuse to cut headcount. Doesn't mean
27:34
Speaker 2: that every job is gonna go away.
27:35
Speaker 3: Sure, you know.
27:37
Speaker 2: Mark Andresen wrote yesterday that companies have overstaffed by two
27:42
Speaker 2: to four x for the last twenty years, which fundamentally
27:46
Speaker 2: doesn't make sense because ultimately you need it. It's like, Okay, yeah,
27:49
Speaker 2: if we had AI twenty years ago, I guess we
27:52
Speaker 2: might have been overstaffed if we could make it do
27:54
Speaker 2: all this stuff. But talk to anyone who's worked in
27:57
Speaker 2: a business in the last twenty years, and they're not
27:59
Speaker 2: gonna be like, yeah, we could have done this with
28:01
Speaker 2: eighty percent fewer people. That statement is just fundamentally dishonest. Yeah,
28:09
Speaker 2: I guess, so it just doesn't make sense what I
28:11
Speaker 2: will say. Do you remember back about a month ago
28:15
Speaker 2: when Anthropic rolled out It's Mythos platform, Yes, and people
28:22
Speaker 2: were like Even on our show, we were like, hey,
28:26
Speaker 2: because they rolled what happened.
28:27
Speaker 5: They rolled it out, and then they had a meeting
28:29
Speaker 5: with Scott Bessent and J Powell came to a meeting
28:34
Speaker 5: with a bunch of bank executives and we were like, huh,
28:35
Speaker 5: that doesn't happen very often. They warned a bunch of
28:39
Speaker 5: tech executives that they needed to do something and we
28:42
Speaker 5: were less scratching our heads, like this is a pretty
28:44
Speaker 5: good pr move, but it does look like there's something
28:47
Speaker 5: fundamentally serious about this too, So it was.
28:50
Speaker 2: Kind of like, hey, are they just you know, hiding
28:54
Speaker 2: this from us to say how powerful it is? Or
28:56
Speaker 2: is this like a real thing, And here's the first
29:02
Speaker 2: example that we've seen that it's real. Mozilla who still exists.
29:07
Speaker 4: They may have to look that up.
29:09
Speaker 5: I chucked on me that this morning, and I was
29:10
Speaker 5: not aware that Mozilla, who operates Firefox is still around.
29:13
Speaker 2: They make the Firefox web browser, which back in the
29:15
Speaker 2: twenty and twenty tens was huge. I don't think it's
29:18
Speaker 2: very big anymore, but it still is around on the
29:20
Speaker 2: edges last year on average, because every month they roll
29:24
Speaker 2: out a list of Hey, here are the bugs that
29:26
Speaker 2: we fixed in order to improve our product security bugs specifically,
29:32
Speaker 2: last year in twenty twenty five, they averaged twenty one
29:35
Speaker 2: point five fixes per month for security issues, which for
29:41
Speaker 2: the full year makes two hundred and fifty eight. In
29:45
Speaker 2: April they fixed four hundred and twenty three security bugs,
29:49
Speaker 2: which is one and a half times what they did
29:52
Speaker 2: all of last year, and this was after they had
29:55
Speaker 2: access to meat miffs. Now, the other thing that they
29:58
Speaker 2: said is they provided list of like twenty of the
30:01
Speaker 2: things that they fixed, and a bunch of them were like, oh,
30:05
Speaker 2: this was, you know, from production that we put into
30:07
Speaker 2: effect back in you know, two thousand and six, and
30:10
Speaker 2: like this was just identified as a problem. So they're
30:14
Speaker 2: literally fixing things that have been present in their code
30:17
Speaker 2: for fifteen to twenty years that no one knew was
30:20
Speaker 2: a problem before this.
30:23
Speaker 5: This makes me immensely concerned about antiquated industries like the
30:28
Speaker 5: banking industry and like the healthcare industry. These are industries
30:33
Speaker 5: that are famous for having antiquated systems that are full
30:38
Speaker 5: of bugs. They are constantly the targets of cyber attacks.
30:42
Speaker 5: Education systems would be a third one here.
30:44
Speaker 2: Did you see that Canvas got hacked yesterday? So again
30:50
Speaker 2: I don't know, you know, I don't have kids that
30:54
Speaker 2: use it, but Canvas is a learning management system. Yeah,
30:57
Speaker 2: and basically it got hacked yesterday, and so throughout like
31:02
Speaker 2: a bunch.
31:03
Speaker 3: Of colleges and school systems and everything.
31:06
Speaker 2: It's basically like not usable in a lot of cases
31:08
Speaker 2: right now for teachers and students to manage their workloads,
31:11
Speaker 2: because this is how it's managed today.
31:13
Speaker 5: All indications are that this is going to get way
31:16
Speaker 5: worse before it gets better in terms of the breaches
31:19
Speaker 5: and cyber attacks that are going to be out there
31:21
Speaker 5: using these new tools.
31:22
Speaker 2: Yeah, let's take a quick break here. When we return,
31:28
Speaker 2: let's talk SpaceX right after this.
31:31
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32:04
Speaker 2: So SpaceX has an IPO that's coming up sometime in
32:09
Speaker 2: the next probably four to six weeks. We don't have
32:12
Speaker 2: exact dates yet. But here's the deal. SpaceX had bought
32:18
Speaker 2: or merged with or whatever XAI, which is Elon Musk's
32:23
Speaker 2: artificial intelligence company, which is now renting out data center
32:26
Speaker 2: space to Anthropic because basically they didn't have enough demand
32:29
Speaker 2: to do anything with.
32:31
Speaker 5: Do you know if XAI actually owned Grock because I
32:33
Speaker 5: know it lived on Twitter, which is X Mike.
32:36
Speaker 2: I can't make sense. I have no idea. I didn't either,
32:41
Speaker 2: I just did. Yeah, but here's the deal, so pretty
32:43
Speaker 2: much shut it down. XAI in and of itself is
32:46
Speaker 2: a standalone entity, is now fully shut down. So even
32:48
Speaker 2: within SpaceX's it's not an official unit anymore. And basically
32:55
Speaker 2: the company now is going to be space XAI and.
33:01
Speaker 3: That's what it's gonna be.
33:04
Speaker 4: You gotta stop.
33:05
Speaker 5: Changing these names if you're gonna be a publicly traded company.
33:08
Speaker 5: It's listen, it can't be once every six months. This
33:12
Speaker 5: is what everyone does now. Man, it used to be Facebook,
33:14
Speaker 5: now it's Meta. Used to be Google, now it's alphabets.
33:18
Speaker 5: I am still waiting for Mark Zuckerberg to change Meta's
33:21
Speaker 5: name again now that the metaverse is not central to their.
33:24
Speaker 4: Kind of think, they'd have to write, but we'll see.
33:27
Speaker 3: I mean, isn't it kind of a joke?
33:29
Speaker 2: I mean, that would be like if we were still
33:31
Speaker 2: sitting here, you know, in twenty twenty six, being like, man,
33:34
Speaker 2: it's amazing how many cars Edsel sold. You know, like
33:39
Speaker 2: you don't keep the name of your flopped product as
33:42
Speaker 2: your company name.
33:43
Speaker 5: Yeah, yeah, that would be surprising. The IPO itself. You know,
33:46
Speaker 5: when we talk about this thing, we are talking about
33:49
Speaker 5: one that we have never seen before. The company's targeting
33:53
Speaker 5: evaluation of two trillion dollars. That puts them with only
33:57
Speaker 5: like six companies that are publicly traded today that are
34:00
Speaker 5: larger than SpaceX. If it actually goes off of that
34:03
Speaker 5: value be a seventy five billion dollar raise.
34:07
Speaker 4: A lot of complexities here.
34:09
Speaker 5: There's been talks of favoring some early Tesla customers and
34:13
Speaker 5: other brand loyalists to Elon Musk's other brands. So really
34:17
Speaker 5: confusing to me as to how this IPO is all
34:19
Speaker 5: going to go off. But if it does and does successfully,
34:23
Speaker 5: I mean, I'm just trying to brains from off the
34:24
Speaker 5: top of my head here, Chuck Apple, Amazon, No, Amazon's
34:28
Speaker 5: not two trillion, are they? Amazon might be like one
34:31
Speaker 5: nine there, they're in the Microsoft, Nvidia, Apple, Amazon, Apple, Goo, Meta, Google. No,
34:38
Speaker 5: Meta's not there, So yeah, it's Google. There's the only
34:41
Speaker 5: companies that would be exceeding the size of this.
34:46
Speaker 4: Giant space company.
34:47
Speaker 5: So it will be fascinating to see if it does
34:50
Speaker 5: go off this year.
34:52
Speaker 3: Yeah, there are some things that are.
34:57
Speaker 2: A little dodgy about how this is all going going
35:00
Speaker 2: down in terms of what some of the indices and
35:03
Speaker 2: exchanges are doing to try to encourage listings. Yes, none
35:08
Speaker 2: of it really gives me the warm and fuzzies.
35:13
Speaker 5: And well, I can tell you firsthand the number of
35:16
Speaker 5: advertisements that I see both in my email box and
35:20
Speaker 5: on social media about hey, invest in this fund to
35:24
Speaker 5: get pre IPO access to these x y Z companies.
35:27
Speaker 5: And I'm sitting here saying, boy, something seems just off
35:33
Speaker 5: about all of this.
35:34
Speaker 2: I'm gonna there's a piece from a guy by the
35:37
Speaker 2: name of Dave Natig. He he's a big ETF guy,
35:41
Speaker 2: like he basically knows more about ETFs and trading in
35:44
Speaker 2: general than anyone like out there, in my opinion, just
35:47
Speaker 2: like the the mechanics of how they work. It's not
35:50
Speaker 2: like he's not like a great trader or anything. He
35:52
Speaker 2: understands like, Hey, this is what this all means. I'm
35:55
Speaker 2: just gonna quote from him.
35:56
Speaker 4: First.
35:56
Speaker 2: Under the new rules, simply because an IPO is big
35:58
Speaker 2: enough to crack the top four, the company can skip
36:01
Speaker 2: the three month aging window and be included in the
36:03
Speaker 2: Nasdaq one hundred and just fifteen days. Used to be,
36:06
Speaker 2: you had to you know, have a certain time period
36:08
Speaker 2: before you could be included in there.
36:10
Speaker 3: Uh.
36:11
Speaker 2: Second, because SpaceX is floating such a minuscule amount of
36:14
Speaker 2: the firm they abandon the old floor of how small
36:18
Speaker 2: the float could be and just added any megacap at
36:20
Speaker 2: three x there implied float, so basically SpaceX. When they
36:24
Speaker 2: first list, not all the shares are available to be sold.
36:27
Speaker 2: Most of them aren't because company insiders are not allowed
36:29
Speaker 2: to sell during a certain lock up period at first,
36:32
Speaker 2: and they're doing just a tiny, tiny little float in
36:36
Speaker 2: order to seventy five billion. I was talking right, it's
36:38
Speaker 2: seventy five billion, so ninety five percent is not going
36:41
Speaker 2: to be tradable, and typically, like the Nasdaq's like no, like,
36:45
Speaker 2: we don't allow low float shares to be like included
36:48
Speaker 2: in the Nasdaq one hundred because they don't represent adequate
36:52
Speaker 2: price discovery. Native here is basically like, yeah, you're not
36:55
Speaker 2: going to get adequate price discovery because if all these
36:58
Speaker 2: index funds have to go and buy from that pool
37:01
Speaker 2: of seventy five billion that's outstanding, the price is gonna
37:04
Speaker 2: get jacked up until everyone else has the ability to sell.
37:08
Speaker 2: So pretty much he's looking at this, and that's just
37:11
Speaker 2: the Nasdaq. The S and P five hundred typically has
37:15
Speaker 2: to have companies wait a year to be considered for inclusion.
37:18
Speaker 2: They have to have a ten percent free float and
37:20
Speaker 2: need to have, you know, financial viability. The SMP is
37:25
Speaker 2: thinking about abandoning that in order to get SpaceX listed
37:27
Speaker 2: into the S and P, and so again it's kind
37:31
Speaker 2: of like, what are we actually doing here and how
37:36
Speaker 2: is this going to work out? We'll see, I don't know,
37:39
Speaker 2: but he just points out that these are things that mechanically,
37:43
Speaker 2: mechanically are not going to give you a good sense
37:45
Speaker 2: of how SpaceX is worth at the beginning because of
37:48
Speaker 2: forced bids that ultimately will end up disappearing and then
37:52
Speaker 2: the real price discovery can take place.
37:55
Speaker 3: So there's that. Let's take a quick break here.
37:58
Speaker 2: When we return, we got our two coming up, and
38:03
Speaker 2: we'll talk a little bit about the Middle East, talk
38:05
Speaker 2: about China, President Trump heading to China next week, what
38:07
Speaker 2: kind of expectations do we have, and a whole lot
38:10
Speaker 2: more in our two