Latest / The Financial Exchange Show / Companies are pouring billions in AI. It has yet to pay off.

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Companies are pouring billions in AI. It has yet to pay off. · The Financial Exchange Show

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  Speaker 1: and Mark Fandetti.
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  Speaker 2: Chuck Mark and not Tucker with you today, and stocks
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  Speaker 2: are kind of reversing what they've done for the last
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  Speaker 2: few months, not in terms of the overall trend, but
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  Speaker 2: what's driving this markt we got the Dow up two
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  Speaker 2: hundred and ninety four points, are about two thirds of
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  Speaker 2: a percent, smp is up eight points, are about an
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  Speaker 2: eighth of a percent, NASDAG up seventeen points, or less
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  Speaker 2: than a tenth of a percent. So what I mean is, look,
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  Speaker 2: the major driver for this market in particular in the
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  Speaker 2: last six weeks, but really over the last three months,
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  Speaker 2: has been the resurgence of big tech. After struggling in
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  Speaker 2: the second half last year, in the first quarter this year,
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  Speaker 2: big tech is back in its back big but today
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  Speaker 2: not really so much. You take a look at some
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  Speaker 2: of the names that are moving and in videos down
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  Speaker 2: one and a quarter percent, Pallunteers down zero point four percent,
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  Speaker 2: Microsoft down a quarter percent, Google floating around zero, just
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  Speaker 2: not really moving anywhere. And so you end up in
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  Speaker 2: a situation where the S and P five hundreds up
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  Speaker 2: a tenth of a percent, but you've actually got almost
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  Speaker 2: two hundred stocks, two hundred more stocks in positive territory
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  Speaker 2: than negative, so kind of more breadth, but lackluster performance
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  Speaker 2: for the index today. We'll see how this evolves over,
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  Speaker 2: you know, the next little bit, whether this is just
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  Speaker 2: a one or two day weird happenstance, or if this
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  Speaker 2: is something that develops into you know, kind of a
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  Speaker 2: new trend over the next month or two tenure. Treasury
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  Speaker 2: is seeing yields moving down significantly, down six point six
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  Speaker 2: basis point state a four point two two seven percent.
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  Speaker 2: And we've also got in response to that, gold is
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  Speaker 2: up thirteen fifty an ounce er about four tenths of
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  Speaker 2: a percent, and for oil West Texas Intermediate down eighty
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  Speaker 2: seven cents of barrel to sixty six to thirty. And
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  Speaker 2: so you've got oil prices falling into the low sixties
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  Speaker 2: and despite that TRIPAA national averagur gas prices. Forgive me
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  Speaker 2: if you've heard this story before. It's at three fifteen
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  Speaker 2: and five tents. We've been between three ten and three
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  Speaker 2: twenty for the last five months now with no definitive
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  Speaker 2: move in either direction. I want to kick things off
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  Speaker 2: this hour talking a little bit about it's something called
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  Speaker 2: artificial intelligence or AI, is how people are referring to
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  Speaker 2: it and I've never heard of it before, but it
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  Speaker 2: sounds fascinating. Artificial intelligence. I mean, man, so piece in
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  Speaker 2: the New York Times companies are pouring billions into AI.
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  Speaker 2: It has yet to pay off. And I think that
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  Speaker 2: by and large this is fair in that companies are
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  Speaker 2: spending a bunch of money rolling out data centers and models.
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  Speaker 2: And yeah, there's been some incremental revenue increase here and there,
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  Speaker 2: but certainly not to the extent of what they've poured
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  Speaker 2: into this. And so you're certainly seeing something where there's
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  Speaker 2: this need for businesses to continue to ramp up this
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  Speaker 2: capex on these AI data centers. Meta is now indicating
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  Speaker 2: they're going to spend one hundred plus billion dollars on
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  Speaker 2: capex next year, which is just kind of mind blowing
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  Speaker 2: when you think that, Hey, you know, five six years
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  Speaker 2: ago they were spending like three billion dollars a year
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  Speaker 2: in capex and now they're going to spend one hundred billion.
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  Speaker 2: That tells you just, you know, how things have ramped
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  Speaker 2: up for them. Granted about you know, a decent chunk
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  Speaker 2: of that is still their Metaverse project that they are doing.
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  Speaker 2: I think that's about ten billion a year that they're
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  Speaker 2: trying to make meta happen. But uh, in any case,
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  Speaker 2: the question that is out there is, look, at some
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  Speaker 2: point you have to prove that you can actually monetize
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  Speaker 2: this stuff and make money off of it. And I
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  Speaker 2: have a lot of friends that are way smarter than me,
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  Speaker 2: is I think the best way of putting it, specifically
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  Speaker 2: when it comes to tech, and a lot of them
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  Speaker 2: work in tech and programming and different adjacent areas, and
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  Speaker 2: they are reporting that, Hey, for you know, programming and stuff,
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  Speaker 2: it can take a ton of time out of the process.
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  Speaker 2: You still have to you know, supervise the code and
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  Speaker 2: basically make sure that you know you're checking for things
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  Speaker 2: that would be security breaches or you know, potential problems
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  Speaker 2: and all that stuff. But it can streamline the code
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  Speaker 2: making process such that you're able to do a lot
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  Speaker 2: more than you used to, which I totally buy because
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  Speaker 2: a large language model, as long as you train it
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  Speaker 2: on the language of the code, it should be able
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  Speaker 2: to spit out exactly those things. The question that I
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  Speaker 2: think is out there for a lot of other businesses
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  Speaker 2: is okay, we don't do any coding beyond you know
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  Speaker 2: that kind of stuff, or hey, in law, you know,
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  Speaker 2: document review and stuff like that, which you can use
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  Speaker 2: it for beyond those types of things, How does this
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  Speaker 2: have a bigger impact on our business? And so is
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  Speaker 2: the amount of money being poured into this justified? Or
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  Speaker 2: are we gonna be sitting here five years from now saying, wow,
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  Speaker 2: can't believe we did that. Let's let's move on and
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  Speaker 2: you know, see what actually is next.
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  Speaker 3: I don't mean a snicker experimentation is necessary. I don't
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  Speaker 3: mean a snicker at Meta spending ten billion a year
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  Speaker 3: on the metaverse because something may come of that that
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  Speaker 3: we can't foresee now.
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  Speaker 2: No, I think we can say the metaverse nothing's gonna happen.
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  Speaker 3: Yeah, well, you might be right. I'm just trying to
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  Speaker 3: be a little bit charitable and maybe a little bit
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  Speaker 3: humble because we make fun of them for the metapalay,
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  Speaker 3: we redo, that's fair game.
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  Speaker 2: The metaverse is Mark Zuckerberg trying to make meta happen.
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  Speaker 2: And look, here's the thing. On the metaverse. We've said this,
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  Speaker 2: you know time and time again. If you're spending ten
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  Speaker 2: billion dollars a year and you've got like one hundred
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  Speaker 2: thousand people using it, it's never going to happen. The
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  Speaker 2: stuff that's actually cool people move to organically. The stuff
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  Speaker 2: that's useful people move to. Look no further, by the
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  Speaker 2: way than generative AI. There's a reason why chat gpt
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  Speaker 2: has seven hundred million users. It's because people can actually
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  Speaker 2: find ways to like use it in their life. It
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  Speaker 2: may not be perfect. I'm not saying it is, and
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  Speaker 2: I'm not saying this is a good thing either. But
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  Speaker 2: what I am saying is Microsoft and open Ai didn't
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  Speaker 2: have to spend billions of dollars getting people convinced to
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  Speaker 2: use it.
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  Speaker 3: For the marketing part of it could be a waste.
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  Speaker 2: Yeah, met is not spending any money on marketing the metaverse.
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  Speaker 3: Like I said, they're not spending any money.
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  Speaker 2: It's it's just it's it's dead. Meta will not happen.
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  Speaker 2: But all this other stuff with generative AI, the question is, hey,
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  Speaker 2: how do you turn people who want to make, you know,
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  Speaker 2: videos of cat surfing into actual revenue. This is the
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  Speaker 2: place where I keep coming back to is Hey, they
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  Speaker 2: don't want your twenty dollars a month subscription for chat
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  Speaker 2: gpt Pro. They want your company to spend twenty thousand
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  Speaker 2: dollars a year instead of having to pay a person
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  Speaker 2: sixty thousand dollars plus benefits, and that's.
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  Speaker 3: The trade off companies they're going to make. There's an
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  Speaker 3: anecdote in the article about Johnson Controls. Their field techs
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  Speaker 3: can get recommendation repairs from their new software, and it's
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  Speaker 3: cutting down on repair time anywhere from like sixteen percent
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  Speaker 3: to twenty five percent according to the anecdote. That's a miraculum,
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  Speaker 3: which is huge. That's life changing for the yes guys
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  Speaker 3: and for the company too. How representative is that, I
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  Speaker 3: don't know. We need to think of our own experience
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  Speaker 3: with Microsoft Office. Those of us of a certain age
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  Speaker 3: remember when when MS office replaced separate excels separate spreadsheets.
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  Speaker 3: It wasn't it wasn't Excel obviously, but word perfect Lotus notes.
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  Speaker 3: And yeah, look I was on Lotus notes initially. I
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  Speaker 3: don't really notice, to be honest, from notes and what
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  Speaker 3: that was their spreadsheet?
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  Speaker 2: One? Two three? Was that a spreadsheet?
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  Speaker 1: Ye?
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  Speaker 3: I don't really notice the difference. There aren't many more
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  Speaker 3: functions for a user at my level and Excel now
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  Speaker 3: versus old spreadsheets. I guess my point is I would
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  Speaker 3: be shocked if AI, which is a very broad term
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  Speaker 3: and means a lot of different things to different people
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  Speaker 3: made us as product just And this is going to
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  Speaker 3: sound naive because it's contrary to what others, like at
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  Speaker 3: Goldman If predicted, AI will boost GDP by economic growth
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  Speaker 3: by we need to think we can all think about
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  Speaker 3: go through this little mental exercise. Do you think using
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  Speaker 3: office a little bit more productively will make you more
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  Speaker 3: productive than the shift from whatever you were doing pre office?
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  Speaker 3: Like a word processor with a line readout. People of
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  Speaker 3: a certain age will also remember those memory typewriters. That's
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  Speaker 3: what we use before word processors on a run on
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  Speaker 3: a hard drive of a computer. Do you think the
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  Speaker 3: leap will be as big as it was from a
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  Speaker 3: computer with a typewriter with a memory excuse me as
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  Speaker 3: to office? The leap from office to AI enhanced office
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  Speaker 3: will be as big as that initial leap I'm describing
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  Speaker 3: the PLA in the eighties and early nineties. I personally
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  Speaker 3: have my doubts, but I don't claim to be an expert.
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  Speaker 2: The place that I continue to think and I guess
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  Speaker 2: here's where I'm at. After using these platforms quite a bit.
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  Speaker 2: I think there's an awful lot of use that generative
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  Speaker 2: AI can provide. I think a lot of times we
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  Speaker 2: might also use it in the wrong way, but we're
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  Speaker 2: humans and that's what we do. Like, I mean, we're
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  Speaker 2: we're we're the people that eat tied pods because someone
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  Speaker 2: told us not.
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  Speaker 3: To because they're delicious.
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  Speaker 2: They're not delicious, Mark, Oh sorry, But you know, like
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  Speaker 2: we're like people do dumb things because they're people, like
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  Speaker 2: all of us do, like all of a sudden, all
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  Speaker 2: walks of life, Like we've all done stupid things just
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  Speaker 2: because we're human, and it's gonna be no different with AI.
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  Speaker 2: But at this point, I'll be honest, I think there's
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  Speaker 2: almost a little too much skepticism that's creeping in with
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  Speaker 2: regards to AI. Like every time that it produces a
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  Speaker 2: dumb response, someone posted on the internet is like, oh see,
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  Speaker 2: generative AI can't and I'm like.
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  Speaker 3: No, that's not fair.
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  Speaker 2: I'm like, yeah, I think it does some dumb stuff too,
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  Speaker 2: and I've done this as well. But ultimately I've also
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  Speaker 2: found that it can be really useful for some things
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  Speaker 2: and save me a ton of time. So I think
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  Speaker 2: that we might be starting to underestimate some of the
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  Speaker 2: time savings in the white collar world. But the other
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  Speaker 2: piece that I think is being dramatically underpriced. Is the
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  Speaker 2: rise of real, functional, useful robotics in the next three
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  Speaker 2: to five years. And I think this is a major
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  Speaker 2: theme that is coming. And the danger in this is
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  Speaker 2: that I do think for the people that are in
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  Speaker 2: the jobs that we've always said can never be outsourced
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  Speaker 2: trades things like that, you know, agriculture, hospitality, I think
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  Speaker 2: there's some stuff coming on that side that has the
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  Speaker 2: potential to be hugely disruptive, and I don't think it's
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  Speaker 2: being priced into how we look at this over the
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  Speaker 2: next three to five years. And the implications that I
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  Speaker 2: have then are, Hey, the reason a business is willing
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  Speaker 2: to pay for a cheaper head in the form of
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  Speaker 2: a robot or an AI is because they still can
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  Speaker 2: sell the same amount of stuff. If we end up
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  Speaker 2: with AI actually starting to replace some employment, what do
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  Speaker 2: you think happens on the demand side of things? And
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  Speaker 2: what you know is it kind of this spiral where hey,
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  Speaker 2: there's no demand for these services in the same quantities
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  Speaker 2: because the dollars aren't there in the rest of the economy.
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  Speaker 2: How do we manage that? That's more of a societal
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  Speaker 2: question than anything else. But these are ones that I
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  Speaker 2: think we may have to reckon with in the next
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  Speaker 2: five to seven years. Let's take a quick break. When
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  Speaker 2: we return, we're gonna do a little bit of trivia
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  Speaker 2: and then let's see. Now that's enough AI for now.
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  Speaker 2: Let's talk a little bit about social security when we return.
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  Speaker 4: Well, it's time now for trivia here on the Financial Exchange,
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  Speaker 4: and I think it's time for a new little trivia theme.
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  Speaker 2: So we'll do a little bit of World War two.
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  Speaker 4: For the remaining few days here in August, and we'll
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  Speaker 4: kick it off with on this day in nineteen forty two,
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  Speaker 4: The Manhattan Project began under the direction of US General
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  Speaker 4: Leslie Groves with the aim of developing an atomic bomb.
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  Speaker 4: Spoiler alert it worked. The question today is which actor
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  Speaker 4: portrayed General Leslie Groves in twenty twenty three's Oppenheimer? Which
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  Speaker 4: actor portrayed General Leslie Groves in twenty twenty threes Oppenheimer.
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  Speaker 2: Mark we got a piece here from CNBC social Security
• 14:34
  Speaker 2: cost of living adjustment maybe two point seven percent in
• 14:37
  Speaker 2: twenty twenty six, new estimates fined. And it's that time
• 14:41
  Speaker 2: of year when we start to look at the projections
• 14:43
  Speaker 2: for next year's cost of living adjustment for Social Security.
• 14:47
  Speaker 2: The way that it is done effectively, what they do
• 14:51
  Speaker 2: is they take the government inflation data from July, August
• 14:56
  Speaker 2: and September, so we just got July and the average,
• 15:00
  Speaker 2: and then they compare it with those three months from
• 15:02
  Speaker 2: the prior year, and the difference in the percentage rate,
• 15:07
  Speaker 2: difference in the numbers is the percentage difference for the
• 15:10
  Speaker 2: cost of living adjustment, and specifically they look at the
• 15:14
  Speaker 2: consumer Price Index for urban wage earners and clerical workers,
• 15:17
  Speaker 2: the CPIW. And this is across a couple different projections now,
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  Speaker 2: one from Mary Johnson who is a social security policy analyst,
• 15:30
  Speaker 2: another from the Senior Citizens League. They're both expecting the
• 15:34
  Speaker 2: cost of living adjustment to be two point seven percent
• 15:36
  Speaker 2: next year compared to this year's two point five percent
• 15:40
  Speaker 2: cost of living adjustment.
• 15:41
  Speaker 3: Your thoughts, my thoughts on I was just trying to
• 15:48
  Speaker 3: freshen up on CPI W and get a sense for
• 15:51
  Speaker 3: I don't have an answer. I'm sorry for how much
• 15:53
  Speaker 3: it deviates from CPIU, the traditional measure.
• 15:56
  Speaker 2: There runs a touch under historically, I believe correct. Are
• 16:00
  Speaker 2: you not looking at it right now?
• 16:01
  Speaker 3: I can't get the two series from the same data
• 16:04
  Speaker 3: source to compare them now, I'm sorry. Look, this is
• 16:08
  Speaker 3: a good I know it'll disappoint beneficiaries to get a smaller.
• 16:12
  Speaker 2: Increase, but this is bigger than last year.
• 16:14
  Speaker 3: You get well smaller than they've gotten over the past
• 16:16
  Speaker 3: few I think people might be anchored to three or
• 16:19
  Speaker 3: four or five, but yeah, slight, what a couple of
• 16:21
  Speaker 3: tenths greater than last year. Sure, if present trends hold,
• 16:26
  Speaker 3: but you know, the lower the better. For I suppose
• 16:29
  Speaker 3: economic stability, like we were talking about in the last hour,
• 16:32
  Speaker 3: because inflation is disruptive. It's disruptive to everybody. It's disruptive
• 16:37
  Speaker 3: and jarring for seniors. It disruptive excuse me for retirement savers,
• 16:42
  Speaker 3: for investors, it throws everybody's calculations off, which is why,
• 16:45
  Speaker 3: as you put it in the last hour, people just
• 16:47
  Speaker 3: hate it, each one of us for different reasons.
• 16:50
  Speaker 2: I suppose, And according to the Senior Citizens League, the
• 16:53
  Speaker 2: average cost of living adjustment over the last twenty years
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  Speaker 2: is two point six percent, so this is in line
• 16:58
  Speaker 2: to slightly above that when you look at it, folks,
• 17:03
  Speaker 2: If you are trying to figure out what the picture
• 17:08
  Speaker 2: looks like for you in retirement including social security, the
• 17:12
  Speaker 2: Armstrong Advisory Group has offices all throughout New England and
• 17:16
  Speaker 2: can help give you some ideas about what your retirement
• 17:20
  Speaker 2: can look like and discuss some different social security claiming
• 17:23
  Speaker 2: strategies and how they could potentially impact your retirement. To
• 17:27
  Speaker 2: schedule time to speak with a member of our team,
• 17:30
  Speaker 2: call eight hundred three nine three for zero zero one.
• 17:35
  Speaker 2: That number again is eight hundred three nine three for
• 17:39
  Speaker 2: zero zero one. Again, whether you're retiring this year, trying
• 17:42
  Speaker 2: to plan for a retirement five years from now, or
• 17:44
  Speaker 2: maybe you're already retired in trying to sort through some
• 17:47
  Speaker 2: of these questions, Armstrong Advisory Group can give you a
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  Speaker 2: sounding board to help you make more informed retirement decisions.
• 17:53
  Speaker 2: That number again is eight hundred three nine three for
• 17:57
  Speaker 2: zero zero one.
• 17:59
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
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  Speaker 2: PCE and CNBC, and this is not exclusive to that.
• 18:19
  Speaker 2: I don't know where this was originally reported, but the
• 18:23
  Speaker 2: headline is Trump considering eleven candidates for FED chair, including
• 18:26
  Speaker 2: David Zervos and Rick Reader to quote here. The new
• 18:30
  Speaker 2: names include Jeffers, Chief Chief market Strategist, David Zervos, former
• 18:33
  Speaker 2: FED Governor, Larry Lindsay, Rick Reader, the chief investment officer
• 18:36
  Speaker 2: for black Rock. Also on the list are vice CHAIRFIRS
• 18:40
  Speaker 2: FED Supervision Michelle Bowman, Chris Waller, FED Vice Chair Philip Jefferson,
• 18:45
  Speaker 2: Mark Summerlin, and economic advisors to the Bush administration Dallas
• 18:48
  Speaker 2: FED President Laurie Logan and former Saint Louis Fred President
• 18:52
  Speaker 2: James Bullard. Are there any names on this list that
• 18:55
  Speaker 2: you think are actually legitimately on this list?
• 18:58
  Speaker 3: I hope Zerbos is on it. He's an original and
• 19:00
  Speaker 3: interesting thinker, a legit researcher, a respect and you know
• 19:06
  Speaker 3: I should. The reason I'm emphasizing these terms is that
• 19:08
  Speaker 3: there's been some controversy over the President's BLS Commissioner nominee
• 19:13
  Speaker 3: for not having any publications, for not being a heavyweight.
• 19:17
  Speaker 3: Zerbos is, by distinction or by contrast, a heavyweight. He'd
• 19:21
  Speaker 3: be great reader is not heavyweight. He's a market's heavyweight.
• 19:26
  Speaker 3: So I think it depends you. Look. All these names
• 19:28
  Speaker 3: are reassuring because these guys are their own men.
• 19:31
  Speaker 2: Let's take a quick break. When we return, we've got
• 19:35
  Speaker 2: the trivia answer in Wall Street.
• 19:36
  Speaker 5: Watch, bringing the latest financial news straight to your radio.
• 19:47
  Speaker 5: Every day. It's the Financial Exchange on the Financial Exchange
• 19:50
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• 19:56
  Speaker 5: look and what's moving markets so far today right here
• 19:59
  Speaker 5: on the Financial Exchange Radio network.
• 20:02
  Speaker 4: That's eleven thirty four, and your major markets are in
• 20:05
  Speaker 4: the green right now. The Dow Jones is up three
• 20:07
  Speaker 4: hundred and fifty points, or eight tenths of a percent,
• 20:10
  Speaker 4: the S and P five hundreds up twelve points or
• 20:12
  Speaker 4: two tenths of a percent, and the Nasdaq is up
• 20:15
  Speaker 4: twenty three points, or one tenth of a percent. Fast
• 20:18
  Speaker 4: casual restaurant chained Cava is down sixteen percent after revenue
• 20:22
  Speaker 4: came in at two hundred and eighty point six million
• 20:24
  Speaker 4: dollars for the second quarter, missing the consensus forecast of
• 20:28
  Speaker 4: two hundred eighty five point six million dollars. The company
• 20:31
  Speaker 4: also missed expectations for same store sales and lowered its forecast. However,
• 20:36
  Speaker 4: Kava earned sixteen cents per share in the quarter, exceeding
• 20:39
  Speaker 4: Wall Street's estimate of thirteen cents. Artificial intelligence infrastructure provider
• 20:44
  Speaker 4: core Weave is down over twenty percent despite a posting
• 20:47
  Speaker 4: better than expected revenue for the second quarter. During an
• 20:51
  Speaker 4: earnings call with analysts, the CFO said that revenue growth
• 20:54
  Speaker 4: remains capacity constrained as demand outstrips supply. Circle Shares of
• 21:00
  Speaker 4: the stable coin issuer are down four percent. Circle said
• 21:03
  Speaker 4: it would offer ten million Class A shares to the public,
• 21:06
  Speaker 4: including two million of which would come from the company itself.
• 21:10
  Speaker 4: Chile's parent Brinker International, is up seven tens of percent
• 21:14
  Speaker 4: on better than expected earnings beat. For the fiscal fourth quarter,
• 21:17
  Speaker 4: Brinker earned two dollars and forty nine cents per share
• 21:20
  Speaker 4: excluding items, on revenue of one point four three billion dollars.
• 21:25
  Speaker 4: Haynes Brand shares are up five and a half percent
• 21:28
  Speaker 4: after surging around twenty eight percent in yesterday's session. Haynes
• 21:31
  Speaker 4: Brand said it agreed to a four point four billion
• 21:34
  Speaker 4: dollar takeover deal by Canada based Guild and Activewear. Palo
• 21:38
  Speaker 4: Alto Network stock is up one percent on the heels
• 21:41
  Speaker 4: of Deutsche Bank's upgrade to buy from hold. Deutsche said
• 21:44
  Speaker 4: Palo Alto has sold core business as solid core business
• 21:49
  Speaker 4: and management. I am ben Kitchen and that is Wall
• 21:52
  Speaker 4: Street Watch. And in our trivia question today which actor
• 21:57
  Speaker 4: portrayed General Leslie Groves in twenty twenty three Oppenheimer, Well,
• 22:01
  Speaker 4: that would be none other than Matt Damon Matt and
• 22:04
  Speaker 4: conquered New Hampshire is taking home our financial exchange show
• 22:08
  Speaker 4: t shirt. We play trivia every day here on the
• 22:11
  Speaker 4: Financial Exchange. See complete contest rules at Financial Exchange show
• 22:14
  Speaker 4: dot com. Mark.
• 22:16
  Speaker 2: We got a bunch of stories in here on housing,
• 22:20
  Speaker 2: one talking about how mortgage refi activity is picking up
• 22:23
  Speaker 2: as rates went towards the mid sixes from the high sixes.
• 22:27
  Speaker 2: Another one, do you need to own a house? Many
• 22:29
  Speaker 2: older Americans decide they don't, Another one from Bloomberg Americans
• 22:33
  Speaker 2: are getting priced out of home ownership at record rates.
• 22:37
  Speaker 2: And another one here from Boston globes so out of reach.
• 22:39
  Speaker 2: Massachusetts has amongst the lowest young adult home ownership rates.
• 22:45
  Speaker 2: I think all of these have one thing in common,
• 22:48
  Speaker 2: which is ultimately that the cost of buying a house
• 22:53
  Speaker 2: right now, especially when you factor in property taxes and
• 22:57
  Speaker 2: insurance and utilities, is cost prohibitive for a huge chunk
• 23:03
  Speaker 2: of Americans, and we don't have any way to fix that.
• 23:08
  Speaker 3: Well, I do, but it's not a pleasant solution.
• 23:11
  Speaker 2: I'm interested in hearing because I'm on the recession.
• 23:14
  Speaker 3: Sorry, I shouldn't even that was your way. Yeah, it's
• 23:17
  Speaker 3: a recession. That's the only way I can come up with, Chuck,
• 23:19
  Speaker 3: I'm not convinced it's a supply as opposed to a
• 23:21
  Speaker 3: demand problem. These superficial explanations that only look at one
• 23:24
  Speaker 3: side of the market, the supply side.
• 23:26
  Speaker 2: But you're just looking at one side of the market.
• 23:28
  Speaker 3: No, no, I'm suggesting it could be both. I did, Okay,
• 23:31
  Speaker 3: I did just say it's a demand problem.
• 23:33
  Speaker 2: Chuck full stop.
• 23:34
  Speaker 3: Forgive me. You are correct. Don't look at don't do
• 23:37
  Speaker 3: what I just did. Don't look at just one side
• 23:39
  Speaker 3: of the market. I think it's probably a combination. Look
• 23:41
  Speaker 3: no saying good.
• 23:42
  Speaker 2: Sorry, no, no, I didn't say anything.
• 23:45
  Speaker 3: I'm sorry. I saw something percolating up. I didn't want
• 23:47
  Speaker 3: to not.
• 23:48
  Speaker 2: Be You interrupted yourself.
• 23:50
  Speaker 3: Is that a first I can do that? Yeah, well
• 23:53
  Speaker 3: I'm on medication for that. Apparently it hasn't kicked in
• 23:55
  Speaker 3: yet today. The you're gotta look at both sides of
• 23:59
  Speaker 3: the market. I'm not denied. So many people have chronicled
• 24:02
  Speaker 3: inanely restrictive zoning regulations that are curbing supply. LA For example,
• 24:08
  Speaker 3: scrawl is not natural. It's been dictated by in retrospect
• 24:12
  Speaker 3: ill advised regulations. But there's a demand part to this.
• 24:17
  Speaker 3: I'll call it equation too, And namely, had a lot
• 24:22
  Speaker 3: of stimulus, have had easy monetary policy. I would argue
• 24:26
  Speaker 3: we still have monetary policy that may be too easy,
• 24:28
  Speaker 3: though a recession would obviously override that for reasons we
• 24:31
  Speaker 3: shore about in the first hour. So I'll say simply,
• 24:34
  Speaker 3: and there's some research to back this up. I got
• 24:36
  Speaker 3: scooped on this, not that I have the data to
• 24:39
  Speaker 3: flesh it out rigorously. Other researchers in the past year
• 24:42
  Speaker 3: have noticed that it is likely when you control for
• 24:46
  Speaker 3: supply demand as measured by factors that could stoke demand,
• 24:51
  Speaker 3: rising equity prices, for example, robustly rising incomes for certain
• 24:55
  Speaker 3: income cohorts, something else we talk about a lot on
• 24:58
  Speaker 3: the show can explain a lot of the price rise
• 25:00
  Speaker 3: in housing to the price increases in housing, which have
• 25:03
  Speaker 3: been considerable, like fifty percent increase in the case Shiller
• 25:06
  Speaker 3: Home price index in the past since twenty twenty one.
• 25:10
  Speaker 3: I'm probably off a little bit on that timeframe, but
• 25:12
  Speaker 3: it's it's close enough, the largest increase since the so
• 25:15
  Speaker 3: called housing bubble. So I suspect demands played a part
• 25:18
  Speaker 3: two and the next recession will wash out a lot
• 25:22
  Speaker 3: of these excesses.
• 25:24
  Speaker 2: I guess my question on this because that obviously look
• 25:28
  Speaker 2: it solves the demand side of the equation if that happens,
• 25:31
  Speaker 2: but obviously through something that's pretty ugly and uncomfortable. It's
• 25:34
  Speaker 2: not a pleasant way to solve Now there's probably not
• 25:38
  Speaker 2: a pleasant way to solve this on the supply side either.
• 25:41
  Speaker 2: But what we do know is that the answer cannot
• 25:47
  Speaker 2: simply be, hey, here's more money to buy houses, because
• 25:50
  Speaker 2: then you have more money chasing after the same number
• 25:52
  Speaker 2: of houses. And I know what I would do if
• 25:54
  Speaker 2: if I were in the market to sell a place
• 25:57
  Speaker 2: and all of a sudden there were something on board
• 26:00
  Speaker 2: that is either hey, here's you know, we're giving home buyer,
• 26:04
  Speaker 2: you know, first time home buyers twenty thousand dollars more
• 26:07
  Speaker 2: to you know, free twenty thousand dollars to buy a home,
• 26:09
  Speaker 2: or hey, here's you know a way that you can
• 26:11
  Speaker 2: decrease your interest rate by you know, two percent if
• 26:14
  Speaker 2: you're a first time home buyer. I know the first
• 26:17
  Speaker 2: thing I would do if that were the cases, I'd say, Great,
• 26:20
  Speaker 2: I'm gonna raise how much I'm I'm gonna you know,
• 26:22
  Speaker 2: put my place up for because I know that I
• 26:25
  Speaker 2: have people coming in with either more money or lower
• 26:27
  Speaker 2: rates than they do. Now, Like that's that's what I
• 26:30
  Speaker 2: would do. I would raise the cost of selling my place.
• 26:35
  Speaker 2: It's the smart logical thing to do. Is okay, great,
• 26:39
  Speaker 2: you're gonna give everyone another twenty thousand dollars. Fine, I'm
• 26:41
  Speaker 2: gonna raise my price by twenty thousand dollars in order
• 26:44
  Speaker 2: to sell perfectly reasonable. So it can't just be let's
• 26:48
  Speaker 2: give people more money, right building more? This is something
• 26:53
  Speaker 2: that takes a long time to actually get to fruition,
• 26:58
  Speaker 2: but it's probably part of the equation. Sure, sure, but
• 27:02
  Speaker 2: it also has to be Okay, if I'm going to
• 27:04
  Speaker 2: be building more, how do I lower the costs associated
• 27:09
  Speaker 2: with building? Because all else being equal, If I make
• 27:12
  Speaker 2: it easier to build but don't increase the supplies of lumber, steel, garage, doors, labor,
• 27:20
  Speaker 2: like all the things that go into a house, all
• 27:22
  Speaker 2: that's gonna happen. Is Okay, we might get ten percent
• 27:26
  Speaker 2: more homes built, but at ten percent higher cost. And
• 27:30
  Speaker 2: now I haven't really helped anyone either in the short term,
• 27:33
  Speaker 2: because there's still is enough demand to fill at those prices.
• 27:37
  Speaker 2: So I think that ultimately we probably need a combination
• 27:42
  Speaker 2: of a number of different things that we can do.
• 27:45
  Speaker 2: But the answer is not going it certainly is not
• 27:47
  Speaker 2: going to be Hey, here's money, so you can make
• 27:50
  Speaker 2: a down payment, because all that's going to do is
• 27:52
  Speaker 2: get absorbed into higher prices.
• 27:54
  Speaker 3: Yeah, that'll move the demand curve if you want to
• 27:56
  Speaker 3: think about it in a supply demand frame.
• 27:57
  Speaker 2: Which is bad. We don't want that in the supply.
• 27:59
  Speaker 3: Curve doesn't move, I say, curb, you know what I mean.
• 28:02
  Speaker 3: It's you just said it. It's tough to increase supply.
• 28:04
  Speaker 3: It takes time. So the easier thing to do. And
• 28:07
  Speaker 3: I'm not is there any way to reduce demand that's humane?
• 28:11
  Speaker 3: What we do, like more government housing. Nobody wants to
• 28:13
  Speaker 3: live in government housing.
• 28:14
  Speaker 2: That doesn't really reduce demand. Well, if no one lives
• 28:17
  Speaker 2: in the government housing, then you've kept demand the same
• 28:19
  Speaker 2: for everything else.
• 28:22
  Speaker 3: I don't know, it's just I'm being a little silly,
• 28:25
  Speaker 3: but sorry, sorry.
• 28:27
  Speaker 2: Like when you say reduced demand humanly, like without like
• 28:30
  Speaker 2: killing people and stuff.
• 28:31
  Speaker 3: Without you know, without euthanizing the economy.
• 28:33
  Speaker 2: Yes or people either one like, it's it's not good.
• 28:36
  Speaker 2: Like So here here's the thing. When you talk about
• 28:40
  Speaker 2: reducing demand for housing for buying homes, one thing that
• 28:46
  Speaker 2: you could do is make it cheaper to rent homes.
• 28:51
  Speaker 2: If you think of it like kind of on, it's
• 28:53
  Speaker 2: part of the supply. It's part of the housing supply.
• 28:56
  Speaker 2: So how do we make it cheaper to rent versus.
• 28:59
  Speaker 3: Tax crispy rental for multi family, but building.
• 29:02
  Speaker 2: Whether it's for building or for rent. I mean, I
• 29:04
  Speaker 2: think of it this way. You have a mortgage right now,
• 29:06
  Speaker 2: you can write off your interest up to you know,
• 29:09
  Speaker 2: a certain percentage. You can't do that for renting. And
• 29:12
  Speaker 2: the reason why is we want to incentivize home ownership. Yea,
• 29:16
  Speaker 2: rather okay, here's the humane way to reduce demand. Get
• 29:23
  Speaker 2: rid of the mortgage interest deduction. Yep, get rid of
• 29:27
  Speaker 2: the mortgage interest deduction.
• 29:28
  Speaker 3: Yeah, never gonna happen.
• 29:29
  Speaker 2: But yeah, the counter to that, I'm not sure that
• 29:32
  Speaker 2: there's a big percentage of people that actually use it
• 29:34
  Speaker 2: today because the standard deductions are so big and so
• 29:39
  Speaker 2: many people still have relatively low mortgage Like there are
• 29:43
  Speaker 2: plenty of people that don't have enough mortgage interest to
• 29:46
  Speaker 2: clear the standard deduction. But in theory, kill the standard deduction, and.
• 29:53
  Speaker 3: Can you imagine proposing that.
• 29:55
  Speaker 2: They already reduced it. I mean, and not kill the standarduction,
• 29:57
  Speaker 2: I mean kill the mortgage interest deduction. I mean, look
• 30:00
  Speaker 2: they already put the cap in in the twenty seventeen law.
• 30:03
  Speaker 2: Lower the cap further, take the cap from what is
• 30:06
  Speaker 2: it now, like seven hundred and fifty thousand interests that
• 30:08
  Speaker 2: you can deduct, take it down to five hundred you know,
• 30:12
  Speaker 2: like I don't know, like things along those lines that
• 30:14
  Speaker 2: that's probably the way that you can go about it.
• 30:17
  Speaker 2: The problem is home owners is not going to be
• 30:19
  Speaker 2: happy because it reduces, you know, the value of their homes.
• 30:21
  Speaker 2: But ultimately, I don't think that the federal government should
• 30:25
  Speaker 2: be in the business of trying to turn everyone's house
• 30:27
  Speaker 2: into a savings vehicle.
• 30:29
  Speaker 3: They don't have your thart well these days, which.
• 30:31
  Speaker 2: Is kind of what we've done.
• 30:32
  Speaker 3: Yeah, yeah, And Plus these decisions would have anything to
• 30:35
  Speaker 3: increase supply would have to be coordinated among a lot
• 30:38
  Speaker 3: of different jurisdictions. So it just ain't gonna happen.
• 30:41
  Speaker 2: It's all local. You can't have national alla you.
• 30:43
  Speaker 3: Most can't have national housing policy.
• 30:44
  Speaker 2: You can't, but you can make better decisions locally. And generally,
• 30:49
  Speaker 2: most people don't make great housing decisions locally, at least
• 30:52
  Speaker 2: in terms of increasing supply, because we want to maintain
• 30:55
  Speaker 2: our home values. We don't want more kids coming into
• 30:57
  Speaker 2: our schools. We don't want more traffic like you hear
• 30:58
  Speaker 2: the litany of reasons. Yeah, and it's really understandable why
• 31:02
  Speaker 2: we generally don't build enough houses today. Quick break here.
• 31:07
  Speaker 2: When we come back, we got what do we call it?
• 31:10
  Speaker 2: Stack rule att that's it. Right after this.
• 31:13
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• 32:14
  Speaker 2: Mark what you got for stack Roulette.
• 32:15
  Speaker 3: Bloomberg's top story right now is the Treasury Secretary urging
• 32:20
  Speaker 3: the Federal Reserve to cut interest rates immediately by at
• 32:23
  Speaker 3: least one point five percentage points. The point I want
• 32:28
  Speaker 3: to make about this, because it's not something we talked
• 32:29
  Speaker 3: about during the show, is that the haranguing of the
• 32:32
  Speaker 3: FED is really unproductive. It makes their job harder because
• 32:34
  Speaker 3: it confuses all of us as to what the FED
• 32:36
  Speaker 3: subjective should be. You talked in the first hour about
• 32:39
  Speaker 3: the two percent inflation target, which I think we all
• 32:41
  Speaker 3: know now because of the recent inflation episode. I think
• 32:44
  Speaker 3: if you ask the average person is the FED targeting two,
• 32:46
  Speaker 3: three or four percent inflation? I think the majority would
• 32:49
  Speaker 3: say two. Again, because we were still shell shocked by
• 32:53
  Speaker 3: COVID inflation, We're now a bit confused. We don't know
• 32:57
  Speaker 3: what the inflation fighting credentials predisposition commitment of the next
• 33:04
  Speaker 3: FED chair will be because the administration doesn't seem to
• 33:08
  Speaker 3: prioritize inflation over things like financing the deficit. This is
• 33:13
  Speaker 3: what makes the current situation especially dangerous and precarious in
• 33:17
  Speaker 3: terms of potential foreign inflation breakout. Should we have another
• 33:21
  Speaker 3: external shock of some kind, or should current underlying inflation
• 33:26
  Speaker 3: remain elevated politicians, As we learned at great pain during
• 33:33
  Speaker 3: the seventies and early eighties, politicians need to shut up
• 33:36
  Speaker 3: let the FED do its job. And unfortunately we're getting
• 33:38
  Speaker 3: the exact opposite right now, which could mean more pain
• 33:42
  Speaker 3: down the road.
• 33:42
  Speaker 2: Can we talk about just an interesting thought that I
• 33:44
  Speaker 2: had pop into my head yesterday as I was heading home.
• 33:48
  Speaker 2: It might not be useful, but what better group to
• 33:52
  Speaker 2: talk about this in front of?
• 33:53
  Speaker 4: Then?
• 33:54
  Speaker 2: Like everyone listening all across the country, like it's a
• 33:57
  Speaker 2: great place to work, shop this and like see if
• 33:59
  Speaker 2: it makes sense?
• 34:00
  Speaker 1: Vents.
• 34:01
  Speaker 2: We talked in the first hour about how we've seen
• 34:05
  Speaker 2: in the last few months a modest uptick in the
• 34:09
  Speaker 2: inflation trend. Course, CPI is now running three to one.
• 34:13
  Speaker 2: A few months ago it was running two eight mark
• 34:16
  Speaker 2: is the I feel like I always ask you questions
• 34:19
  Speaker 2: like this you've said before, is the generally accepted wisdom
• 34:23
  Speaker 2: when we talk about the shifts in inflation. It's not
• 34:27
  Speaker 2: necessarily because of any one or two items, but it's
• 34:30
  Speaker 2: a rise in the aggregate price level caused by a
• 34:33
  Speaker 2: number of different five.
• 34:35
  Speaker 3: Month over a month, that could be an extreme. When
• 34:36
  Speaker 3: we see headline inflation jump, it usually is attributable to
• 34:39
  Speaker 3: one thing. The problem is you can't you can't reason
• 34:43
  Speaker 3: from that to say, well, if we just get this
• 34:44
  Speaker 3: one thing under control, inflation will be fine. That gets
• 34:47
  Speaker 3: you into trouble because it ignores the demand, the excess
• 34:50
  Speaker 3: demand that ultimately drives inflation higher.
• 34:53
  Speaker 2: So let me ask you this then, because this is
• 34:56
  Speaker 2: just something that again started rattling around in my head.
• 34:58
  Speaker 2: And if it's really dumb, then that that's great. We
• 35:00
  Speaker 2: can all learn that it's really dumb. Live right now.
• 35:04
  Speaker 2: Is it possible that that uptick in inflation that we've
• 35:09
  Speaker 2: seen in the last couple months, despite showing up in
• 35:13
  Speaker 2: teriff related categories audio visual equipment, you know, things like that,
• 35:19
  Speaker 2: is it possible that that rise in inflation would have
• 35:22
  Speaker 2: shown up anyways, but just distributed differently if the tariffs
• 35:27
  Speaker 2: were not in place.
• 35:31
  Speaker 3: The rise and core over the last few ye yeah,
• 35:33
  Speaker 3: I have to say it's. My short answer would be, yeah,
• 35:36
  Speaker 3: I could probably think of ways to get there, like mathematically.
• 35:38
  Speaker 3: What worries me is the trend in inflation, which we
• 35:41
  Speaker 3: talked about in the last hour. It has been and
• 35:43
  Speaker 3: remains elevated.
• 35:45
  Speaker 2: I want to dig in on this a little bit
• 35:47
  Speaker 2: more though, because when we talk about that core inflation piece, yeah, yeah, yeah,
• 35:52
  Speaker 2: is it possible then that we're all being headfaked by
• 35:57
  Speaker 2: the idea that, oh, this is teriff related when it's
• 36:01
  Speaker 2: actually not, and it's just being drawn to those tariff
• 36:04
  Speaker 2: categories now, but it's actually reflective of a broader inflation
• 36:09
  Speaker 2: problem that wasn't completely vanquished in the last couple of years.
• 36:12
  Speaker 3: I think the evidence from measures that do a good
• 36:14
  Speaker 3: job of filtering out outliers from month to month and
• 36:16
  Speaker 3: therefore better reflect the trend and inflation supports your second explanation,
• 36:21
  Speaker 3: And so it.
• 36:23
  Speaker 2: Could it then be true again, I'm I'm working, I'm
• 36:26
  Speaker 2: workshopping this very much as we go here. Could it
• 36:29
  Speaker 2: then be true that, hey, maybe we do see just
• 36:33
  Speaker 2: a one time impact as a result of tariffs in
• 36:35
  Speaker 2: some areas, but that overall trend inflation still continues to
• 36:40
  Speaker 2: rise and be problematic because of underlying conditions there.
• 36:43
  Speaker 3: Well, if those one if those price level changes so
• 36:46
  Speaker 3: quick inflation, no more inflation if those feedback into expectations.
• 36:49
  Speaker 3: Expectations are a part of the trend, and inflation part
• 36:52
  Speaker 3: of core. And I use core meaning the true core,
• 36:54
  Speaker 3: not ex food and energy like BLS calls it. Then sure, yeah,
• 36:58
  Speaker 3: I could think of a scenario in which tariffs feed
• 37:02
  Speaker 3: the inflation process because the FED, the FED always, by
• 37:05
  Speaker 3: the way, can tamp down on it. Just a question
• 37:07
  Speaker 3: of do they want to sacrifice growth of course. So yeah, Chuck,
• 37:10
  Speaker 3: I think everything you just outlined is plausible.
• 37:12
  Speaker 2: I don't know what to do with that, but I
• 37:14
  Speaker 2: was just thinking.
• 37:15
  Speaker 3: About humility, I think is the lesson.
• 37:17
  Speaker 2: I was thinking about it. A recent college grad asks,
• 37:21
  Speaker 2: how do I compete with AI to get a job
• 37:23
  Speaker 2: in finance? Gotta be honest, don't know, don't know.
• 37:30
  Speaker 3: Sorry, kid.
• 37:31
  Speaker 2: The AI is cheaper than you, The AI is faster
• 37:35
  Speaker 2: than you. As a recent college grad, it's probably at
• 37:40
  Speaker 2: least as accurate as you. I don't know how you
• 37:44
  Speaker 2: beat it. And like, that's kind of disturbing to me
• 37:47
  Speaker 2: and something that I hear from a lot of people
• 37:51
  Speaker 2: in their early to mid twenties. Hey, I'm competing against
• 37:55
  Speaker 2: companies that are trying to use AI that is pricing
• 37:58
  Speaker 2: me out of the job market. Why did I just
• 38:00
  Speaker 2: go to college for four years majoring in finance when
• 38:05
  Speaker 2: there's no path to me being in that business. I
• 38:08
  Speaker 2: don't have a great answer. I don't ben Are we done?
• 38:14
  Speaker 2: I normally we hear there we go. That's the one.
• 38:19
  Speaker 2: We are done, and we're gonna be back tomorrow. So
• 38:23
  Speaker 2: don't worry. Tomorrow. We do get some economic data. We
• 38:25
  Speaker 2: got producer price index, we get weekly jobless claims, and
• 38:29
  Speaker 2: so we'll be talking about those, plus deer earnings as
• 38:32
  Speaker 2: well of all that more tomorrow on the show.