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Why is Apple avoiding the massive tech sell off? · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck Zada,
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1:10
Speaker 2: Kicking off hour two of the Financial Exchange.
1:12
Speaker 3: It's Chuck, Mike and Tucker with you today and taking
1:17
Speaker 3: ak a where equity market stam Right now, the dows
1:19
Speaker 3: off fifty four points about I don't know an eighth
1:22
Speaker 3: of a percent. SMP though is down one hundred and
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Speaker 3: five points about one point seventy five percent, and the
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Speaker 3: cute little Nasdak composite it's down five hundred and sixty
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Speaker 3: seven points two point eight three percent at the moment.
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Speaker 4: In videos in the process right now of shedding about
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Speaker 4: eighty three. AT and T's of market capitalization down four
1:41
Speaker 4: hundred and sixty five billion dollars in market cap this.
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Speaker 2: Morning for AT and t's Is that right? Three?
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Speaker 1: Yeah?
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Speaker 4: Our market cap of AT and T is about one
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Speaker 4: sixty okay, so two home depots?
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Speaker 2: Yeah yeah, let's see how else can we phrase this?
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Speaker 2: A Berkshire Hathaway? Yeah? Is it? Actually? No?
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Speaker 3: Briksher is a little bigger anyways, Big reason in video
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Speaker 3: is down along with Microsoft, Broadcom and Google AMD also
2:04
Speaker 3: getting hit hard. Oracle also down, so a lot of
2:07
Speaker 3: big tech is Last week there was a new version
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Speaker 3: of deep Sea, who is a Chinese AI company unveiled
2:15
Speaker 3: a new version of their AI platform called the R
2:19
Speaker 3: one platform. It supposedly was built very cheaply in China
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Speaker 3: and costs very little relative to US alternatives, and as
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Speaker 3: a result, there's concern if this can be replicated by
2:32
Speaker 3: other companies that hey, maybe you don't need to just
2:35
Speaker 3: buy up as many in Nvidia chips as you can
2:38
Speaker 3: in order to make the next latest and greatest. Maybe
2:41
Speaker 3: you can figure out ways to program more efficiently for AI.
2:45
Speaker 3: And that kind of up ends the entire AI CAPEX
2:47
Speaker 3: structure that's been dominating US equity.
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Speaker 4: Markets for you, and the entirety of everything that you
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Speaker 4: know open AI has done to this point, or that
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Speaker 4: the American system of Artificial Intelligence expansion and development has
3:01
Speaker 4: has been doing things, so it would up end all
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Speaker 4: of that if this turns out to be true. My
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Speaker 4: question for you specifically this, it's not that they built
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Speaker 4: the platform. The platform is legit, and it's the text
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Speaker 4: stuff on it from people that know more about this
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Speaker 4: than I do. It's not a bunch of the platform
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Speaker 4: is legit. It's not a bunch of people behind computer screens.
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Speaker 4: Answering your question.
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Speaker 3: No, the question is, hey, they say they built this
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Speaker 3: for one percent of the cost of what it cost
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Speaker 3: to bilities in the US, and the operating costs are
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Speaker 3: you know, one to three percent of US based models.
3:34
Speaker 3: That is where hey, if no one else can do this,
3:37
Speaker 3: and it becomes apparent that there actually was a whole
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Speaker 3: bunch of computing power that was just held like off
3:43
Speaker 3: the books at some other Chinese entity that was responsible
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Speaker 3: for this, Okay, then it's not really the kind of
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Speaker 3: competition we think it is.
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Speaker 4: Can we go down that path for a minute, So
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Speaker 4: let's assume the worst out of this, that it is
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Speaker 4: a bunch of hints.
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Speaker 2: What's the worst?
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Speaker 4: So sorry, the worst for this Chinese company, and then
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Speaker 4: it's all fabricated on some lies so that it actually
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Speaker 4: does still cost like a billion dollars to trade a
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Speaker 4: model that they in fact had to use the latest
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Speaker 4: and greatest in video chips that they got on the
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Speaker 4: black market through some company in Vietnam that they were
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Speaker 4: able to, you know, put a shell game there and
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Speaker 4: acquire a bunch of these chips somehow that they had
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Speaker 4: to use the latest and greatest How soon would we know?
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Speaker 3: The company claims that they did the training on this
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Speaker 3: model in two months. As such, if someone starts right now,
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Speaker 3: and again there's we'll know by July fourth. Right, if
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Speaker 3: someone else can do this right, we'll know by July fourth.
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Speaker 4: Because again they're not exactly keeping this close to their vest.
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Speaker 4: They made this an open source model. Everyone can see here.
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Speaker 4: Here's the thing. This still does kind of up end
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Speaker 4: the entire thing anyways. By making this open source with
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Speaker 4: this level of power held in this small of a
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Speaker 4: kind of in this small of a rapper in that look,
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Speaker 4: this thing is nimble enough that you can run this
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Speaker 4: on it a high end gaming computer.
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Speaker 1: Right.
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Speaker 3: You don't need to have some giant data center running this.
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Speaker 3: So even if you say, okay, maybe the training still
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Speaker 3: needs to be done on a high end data center
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Speaker 3: that is running the latest and greatest, there now is
5:14
Speaker 3: proof of concept that you can actually run the model
5:18
Speaker 3: built from the.
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Speaker 2: Training on a PC sitting in your house.
5:22
Speaker 4: And I think that's a big takeaway for today is
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Speaker 4: even if you assume the worst out of this entity,
5:28
Speaker 4: that they hit a bunch of costs, that they didn't
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Speaker 4: train it the way they say that did, the stuff
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Speaker 4: that we know already would still up end a large
5:35
Speaker 4: portion of the industry because ultimately they were able to
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Speaker 4: generate a model that seems capable of massive computing power
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Speaker 4: sorry sorry, of massive response generation and intelligence without the
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Speaker 4: computing power that previous up until frankly today thought was necessary.
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Speaker 3: On a tangent, you know how we always talk about
5:59
Speaker 3: like people hold up their iPhones and granted, I'm one
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Speaker 3: of these idiots who does this, so I'm talking about
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Speaker 3: myself and I'll go, hey, isn't it amazing that this
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Speaker 3: computer has more power than the Space Shuttle did?
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Speaker 2: Sure? And I use it to like send memes to
6:13
Speaker 2: my friends. Ye.
6:15
Speaker 3: Wouldn't it be like fascinating if what this ends up
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Speaker 3: touching off is a real push towards efficiency where it's hey,
6:22
Speaker 3: because it's become so cheap to build like memory chips
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Speaker 3: and stuff like that and data storage in the last
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Speaker 3: twenty years. If you talk to anyone who programs now,
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Speaker 3: it's totally different the constraints in the nineteen nineties, where Okay,
6:34
Speaker 3: I've got limited bandwidth, i've got limited storage, i've got
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Speaker 3: limited memory.
6:39
Speaker 2: I've really got to.
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Speaker 3: Be efficient with how I code this, and things have
6:42
Speaker 3: gotten pretty bloated in recent years.
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Speaker 2: Wouldn't it be fascinating if.
6:46
Speaker 3: One of the things that comes out of this is
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Speaker 3: everyone starts prioritizing efficiency in developing tech again, like not
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Speaker 3: just for AI, but for everything. And I'm not sure
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Speaker 3: it gets there because look, it still is really cheap
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Speaker 3: to build storage for iPhones. There's a reason why, like
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Speaker 3: the margins on them are forty percent and they still cost,
7:03
Speaker 3: you know, a thousand bucks. But I think that this
7:07
Speaker 3: has the potential just to be a seismic shift in
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Speaker 3: how computing is thought of, just because again I say
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Speaker 3: this over and over, scarcity forces innovation in anything. And
7:19
Speaker 3: what China is claiming is, hey, we had a scarcity
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Speaker 3: of chips and computing power, and so that's how we
7:23
Speaker 3: had to develop things this way. What if this becomes
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Speaker 3: something where hey, we might not have a scarcity in
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Speaker 3: the US, but we might need to force ourselves into
7:34
Speaker 3: a scarcity mindset as far as resources because it helps
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Speaker 3: us develop more efficiently. And by the way, this is
7:41
Speaker 3: exactly what happened with US energy companies back in the
7:44
Speaker 3: mid twenty tens. Russia turned on the taps for their
7:47
Speaker 3: oil and US fraker said, hey, we can't make money.
7:51
Speaker 3: You know, it's seventy dollars a barrel. And when price
7:54
Speaker 3: went down to twenty nine. They said, Okay, we got
7:56
Speaker 3: to figure out how to make money at fifty a barrel.
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Speaker 3: And they did because they said, we can't use as
8:01
Speaker 3: many inputs and they got more efficient.
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Speaker 4: And so if you are the if I development company
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Speaker 4: right now, you're sold on the most high end in
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Speaker 4: vidio chip, and now you have to do it for
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Speaker 4: one one hundredth of the cost in order to compete
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Speaker 4: with this new Chinese startup or wherever it's going to
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Speaker 4: be next, then you're going to be forced innovate.
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Speaker 3: If you are Sotny Innadella, you have your AI team
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Speaker 3: in your office today and you're saying, pull off twenty
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Speaker 3: percent of your team and try to replicate this over
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Speaker 3: the next three months. And if you can't replicate it,
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Speaker 3: I'm going to find someone who will, because it's that
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Speaker 3: kind of existential threat for them.
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Speaker 2: Yeah. Why is Apple up two and a half percent today?
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Speaker 3: So I was thinking about this actually because Apple's been
8:52
Speaker 3: getting trashed for the last few weeks because of concerns
8:54
Speaker 3: about declining phone sales in China and things like that.
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Speaker 2: I have a theory too. You want to go first,
8:58
Speaker 2: You want me to go first? Oh, you go first,
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Speaker 2: But don't take my idea.
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Speaker 4: Apple's approach to AI has been the same as their
9:05
Speaker 4: approach to many new emerging technologies. We're not going to
9:08
Speaker 4: touch it. We're gonna see what comes to the top,
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Speaker 4: what floats to the top, and will adapt whatever that is.
9:12
Speaker 4: They've started to make some inroads there when they thought
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Speaker 4: that open AI's chat GPT was going to be the
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Speaker 4: best in class, and they started announcing new phones that
9:20
Speaker 4: we're going to be preloaded with it, but it was
9:24
Speaker 4: still going to be problematic because they wanted everything to
9:26
Speaker 4: run on that device.
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Speaker 2: This would allow them to do it in some new meaningful.
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Speaker 4: Way, and they haven't made giant investments like all of
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Speaker 4: their competitors the tech space have an AI.
9:34
Speaker 3: The AI reportedly is very bad, to the point where
9:37
Speaker 3: like news agencies asked to like, can we find a
9:39
Speaker 3: way to opt out of this because you're making our
9:41
Speaker 3: headlines incorrect?
9:43
Speaker 2: That's Apple?
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Speaker 3: You mean, yes, Yeah, So it's it's been a problem there.
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Speaker 3: My guess on this is it's probably a bunch of
9:53
Speaker 3: institutional traders where hey, we have exposure to the tech
9:57
Speaker 3: sector by virtual of you know, how our fund is
10:01
Speaker 3: restricted from trading, and how we need to manage risk
10:03
Speaker 3: across sectors. We need to maintain it somewhere. Okay, it's
10:06
Speaker 3: gonna go to Apple because they're at least.
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Speaker 2: At risk on this that's exciting than my example. It
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Speaker 2: is it is. Let's take a quick break here.
10:13
Speaker 3: When we come back, we do have a FED meeting
10:16
Speaker 3: on Wednesday, the first one of twenty twenty five, the
10:20
Speaker 3: first one of President Trump's second term. Gosh, I can't
10:23
Speaker 3: wait for Wednesday. We'll talk FED right after this.
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11:43
Speaker 3: Mike, We've got a FED meeting on Wednesday, and the
11:47
Speaker 3: expectations are not for much in the way of policy.
11:52
Speaker 3: Right now, FED Fund's futures market is pricing in a
11:55
Speaker 3: ninety nine point five percent chance that the FED does nothing,
11:59
Speaker 3: So again that's pretty clear. We even a little bit
12:02
Speaker 3: of room, but basically, no, they're not going to do anything.
12:05
Speaker 4: So given that they're not going to do anything, what
12:06
Speaker 4: is of interest to you between the release as well
12:09
Speaker 4: as the press conference?
12:10
Speaker 2: Because my over under, I.
12:12
Speaker 3: Guess we'll be honest, I have no interest in this.
12:14
Speaker 3: This is going to be the most boring, annoying FED
12:16
Speaker 3: meeting that we've ever had.
12:17
Speaker 2: To cover.
12:18
Speaker 4: It's going to be annoying because I bet that J.
12:20
Speaker 4: Powell gets at least five questions related to Donald.
12:24
Speaker 3: Five, and like every question is going to be about
12:26
Speaker 3: Donald Trump. Every question is going to be hey, with
12:29
Speaker 3: the new administration, how is this affecting your approach? And
12:32
Speaker 3: every answer is going to be we don't speculate on policy.
12:36
Speaker 3: We leave that up to Congress ultimately, depending on what's
12:38
Speaker 3: actually you know, past, we will just our approach as needed.
12:43
Speaker 4: Interestingly, though, higher thing interestingly though, at the last meeting,
12:47
Speaker 4: they kind of sort of acknowledge that they are taking
12:49
Speaker 4: into consideration potential policy changes. They effectively I don't remember
12:54
Speaker 4: what it was, but it had to do with tax
12:56
Speaker 4: rates and their prior models. I think had assumed tax
13:00
Speaker 4: rates up in twenty twenty six, and I think they
13:01
Speaker 4: begin to adjust those based on the again pure speculation
13:06
Speaker 4: at this point that tax rates will be locked in
13:08
Speaker 4: under a Donald Trump administration.
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Speaker 2: So I think this is going to be again.
13:14
Speaker 3: I'm going to watch the press conference just because in
13:18
Speaker 3: this profession you kind of have to, but it's going
13:22
Speaker 3: to be a real hate watch because I.
13:24
Speaker 2: Just think I'm gonna get nothing useful out of it.
13:27
Speaker 4: I do think it's well put here that like, if
13:29
Speaker 4: there's one goal of this for the Federal Reserve and J. Powell,
13:33
Speaker 4: it's to not give Donald Trump any ammunition. Be eloquent,
13:37
Speaker 4: be clear, don't go back and forth on things, because
13:42
Speaker 4: you know you're already going to be getting hammered from
13:44
Speaker 4: the White House. You don't need to give the guy
13:47
Speaker 4: any ammunition to throw more stuff at you by being
13:50
Speaker 4: I mean sure guilty of some of the things that
13:52
Speaker 4: you've been guilty of over the last few years. Let's
13:54
Speaker 4: be honest. He has not been the clearest about why
13:57
Speaker 4: their policy is shifting in one direction or another when
13:59
Speaker 4: it's come to the moments in time.
14:01
Speaker 2: Yeah, I don't know. I can't wait for this one
14:04
Speaker 2: to be like there's nothing that's actually gonna happen. Now.
14:07
Speaker 3: If we get to like the March meeting and hey,
14:10
Speaker 3: Congress has passed x Y or z or tariffs have
14:13
Speaker 3: been placed on x Y or z, and okay, like
14:16
Speaker 3: now we this is going to be just.
14:22
Speaker 2: Bah.
14:23
Speaker 3: Sure, it's not going to be exciting for any not
14:27
Speaker 3: that I want the Fed meetings to be exciting, but
14:29
Speaker 3: I don't think we're gonna get any useful nuggets because
14:31
Speaker 3: all the focus of the questions is gonna be on
14:33
Speaker 3: stuff that Powell's going to refuse to.
14:34
Speaker 4: Answer, and quite frankly, that's exactly what he needs to do,
14:38
Speaker 4: because if you can tell me probably best for him,
14:41
Speaker 4: Like if you can give me some sort of explanation
14:43
Speaker 4: of which countries are going to face tariffs, what tax
14:47
Speaker 4: rates are going to look like, and which regulations are.
14:49
Speaker 2: Going to go away over the next twelve months.
14:51
Speaker 4: Then you have a crystal ball that nobody else does
14:53
Speaker 4: because nobody has any clue. Right, If so, acting at
14:56
Speaker 4: the stage would be horribly irresponsible by Drome Powell.
14:59
Speaker 3: Yes, I I really think you know, Powell should answer
15:02
Speaker 3: every question with a question. Okay, which policies would you
15:05
Speaker 3: like me to address this?
15:07
Speaker 1: This?
15:07
Speaker 2: And this? Is that on the books? Yet?
15:08
Speaker 3: No, then I can't address it right. Well, that's how
15:11
Speaker 3: I would handle it. But that's also why I'm not
15:14
Speaker 3: fed chair. Well, no, it's there are a lot of
15:16
Speaker 3: reasons why I'm not fed chair.
15:17
Speaker 4: Yeah, I think at the most interesting what you're likely
15:21
Speaker 4: to get is some form of comment that the Board
15:25
Speaker 4: generally believes taxes would be lower than otherwise thought and
15:29
Speaker 4: tariffs will be higher than otherwise thought. That that's the
15:31
Speaker 4: most that you're going to get. Like I guess, best
15:37
Speaker 4: case scenario in terms of something predictive in nature.
15:40
Speaker 3: Let's talk about this piece in the Wall Street Journal.
15:42
Speaker 3: Really good piece, I think. Actually it's titled one House,
15:45
Speaker 3: three Owners, The Balloon and Costs of the American Dream,
15:47
Speaker 3: and it talks about a home in Chapel Hill, North Carolina,
15:52
Speaker 3: and basically says, look, right now, it's listed for five
15:54
Speaker 3: hundred and twenty thousand dollars back in twenty eleven.
15:58
Speaker 2: It's sold for less than half.
15:59
Speaker 4: Of that as a new bill quarter million dollars back
16:02
Speaker 4: in twenty eleven as brand new construction, so a new home.
16:04
Speaker 3: And especially with the change in interest rates, the mortgage
16:09
Speaker 3: payment would be nearly twenty eight hundred dollars, which would
16:13
Speaker 3: be triple or almost triple the monthly cost in twenty eleven.
16:16
Speaker 3: And that's not even factoring in property taxes and insurance,
16:19
Speaker 3: both of which have gone up quite a bit.
16:21
Speaker 2: By the way.
16:21
Speaker 4: That's assuming you can get a mortgage rate under seven,
16:24
Speaker 4: which is no guarantee right now.
16:25
Speaker 2: Correct.
16:26
Speaker 3: So ultimately, what you end up with is a situation where, hey,
16:31
Speaker 3: if you are seeing home prices moving in this fashion
16:34
Speaker 3: where incomes have not. Have incomes tripled since twenty eleven
16:36
Speaker 3: in the Chapel Hill area, not to my knowledge they
16:38
Speaker 3: have not. Not a huge Chapel Hill, North Carolina expert,
16:41
Speaker 3: but I would guess now I'm relatively plugged in.
16:43
Speaker 2: Yeah, you know, and the answers.
16:45
Speaker 3: My parents spent quite a bit of time living down
16:47
Speaker 3: in Durham, so I know Chapel Hill well.
16:48
Speaker 4: The previous owner of this home bought in twenty twenty,
16:51
Speaker 4: so it was built in twenty eleven, sold in twenty twenty.
16:54
Speaker 4: Previous owners bought it in twenty twenty for three hundred
16:56
Speaker 4: and fifteen thousand dollars, so they made a cool two
16:58
Speaker 4: hundred grand in five years, as I think many people
17:02
Speaker 4: have across the country on their homes. They bought it
17:04
Speaker 4: with a three point seventy five percent mortgage rate now
17:07
Speaker 4: for sale five twenty, who knows if they actually get
17:09
Speaker 4: five to twenty, but for sale for five to twenty
17:11
Speaker 4: at seven percent mortgage rates, property taxes higher, insurance costs
17:15
Speaker 4: substantially higher. And I think everybody listening who owns a
17:19
Speaker 4: home has probably experienced this pretty recently, because maybe you
17:24
Speaker 4: didn't buy a home in twenty twenty. But what portion
17:27
Speaker 4: of homes were refinanced within the last ten years.
17:31
Speaker 2: It's gotta be the vast majority of them, hey, Like, it's.
17:34
Speaker 4: Got to be a huge portion of homes that were
17:37
Speaker 4: refinanced sometimes sometime in the last decade. And so we're
17:40
Speaker 4: all intimately familiar with this math.
17:42
Speaker 3: And so it gets to a point where, hey, for
17:45
Speaker 3: someone to go and buy that home just a couple
17:47
Speaker 3: it becomes more impractical. And this is why you start
17:49
Speaker 3: seeing these, you know, different things that pop up with
17:52
Speaker 3: you know, different people who end up, you know, trying
17:54
Speaker 3: to buy homes in different setups and stuff like that.
17:56
Speaker 2: But ultimately the math is not going to work.
18:00
Speaker 4: To Redfinn back in January of twenty twelve, which I
18:02
Speaker 4: think now in hindsight, we can all describe January of
18:04
Speaker 4: twenty twelve as one of the best times to buy
18:07
Speaker 4: a home in American history. But January of twenty twelve,
18:10
Speaker 4: the income required to buy the typical home in the
18:13
Speaker 4: United States was thirty nine thousand dollars two hundred and
18:16
Speaker 4: twenty three thirty two hundred twenty three dollars. As of
18:19
Speaker 4: November twenty twenty four, home buyers needed to earn one
18:23
Speaker 4: hundred twenty six thousand, seven hundred and sixty four dollars
18:26
Speaker 4: to afford the typical home in the United States, which
18:29
Speaker 4: is a two hundred twenty three percent increase in income,
18:31
Speaker 4: which has not been the lived experience.
18:34
Speaker 3: Now, the counter to this, it's kind of a counter,
18:38
Speaker 3: is we're comparing one of again arguably the best times
18:41
Speaker 3: to purchase a home in American history.
18:43
Speaker 2: Like we knew that after the fact at the time.
18:46
Speaker 3: I remember even in twenty thirteen a it was terrifying,
18:48
Speaker 3: but as you got to like thirteen and fourteen, people
18:50
Speaker 3: were like, oh, these prices have run up so much,
18:52
Speaker 3: and in HEINTSD You're like, that's not really.
18:54
Speaker 2: Let me show you twenty twenty one.
18:55
Speaker 3: But I think that in looking at this part to
19:00
Speaker 3: me would like a comparison in terms of the average
19:02
Speaker 3: income needed to buy a place in like two thousand
19:04
Speaker 3: and six right to now, just because remember, home prices
19:07
Speaker 3: fell like thirty percent nationally peaked to trough and again
19:11
Speaker 3: maybe that's part of the reason why we should be
19:13
Speaker 3: a little bit more nervous about home prices today. Not
19:16
Speaker 3: so much you know, defaults, because they're they're kind of
19:19
Speaker 3: non existent, but hey, how much do prices have to
19:22
Speaker 3: come down in order to get the volume moving again.
19:25
Speaker 2: I think that's a fair question. Quick break here.
19:27
Speaker 3: When we come back, we've got the trivia answer, and
19:31
Speaker 3: then we're talking stocks and bonds.
19:42
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20:03
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20:08
Speaker 5: The tribute question today was to name one of the
20:10
Speaker 5: original Magnificent Seven companies in the US from the nineteen thirties, forties,
20:15
Speaker 5: and fifties. It will be AT and T, General Electric, IBM,
20:19
Speaker 5: General Motors, Standard Oil, DuPont and US Steel. Winner today
20:24
Speaker 5: of the Financial Exchange Show t shirt? Where's Roger from
20:26
Speaker 5: assen at Mass Congrats to Roger. We played trivia every
20:30
Speaker 5: day here on the Financial Exchamee. See complete contest rules
20:34
Speaker 5: at Financial Exchange Show dot com.
20:36
Speaker 3: Mike, there's a piece in the Wall Street Journal. It's
20:39
Speaker 3: titled the extra Reward for owning stocks over bonds have
20:42
Speaker 3: has disappeared. What are they talking about and how do
20:46
Speaker 3: they know?
20:46
Speaker 2: So we talk.
20:48
Speaker 4: A lot about the priciness of this market, and as
20:51
Speaker 4: we point out, it's useless to just say, oh, well,
20:54
Speaker 4: the Dow is at forty four thousand, so it's expensive.
20:56
Speaker 4: That's not a useful piece of information because you're not comparing.
20:59
Speaker 2: It to any thing.
21:00
Speaker 4: So we've talked about price to earnings ratios, for example,
21:03
Speaker 4: and you know, levels that we haven't seen since the
21:07
Speaker 4: dot com bubble, and this talks about another version of
21:11
Speaker 4: those same measurements, which is, hey, let's take a look
21:15
Speaker 4: at the expected earnings of the S and P five
21:17
Speaker 4: hundred companies, turn that into a yield, and then compare
21:20
Speaker 4: that to what's generally considered to be the risk free asset.
21:23
Speaker 4: What's the risk free asset? Chuck, treasuries?
21:25
Speaker 2: Yep.
21:26
Speaker 4: And for most of history, not terribly surprisingly, you've been
21:31
Speaker 4: paid more for the risk you undertake in something that's
21:37
Speaker 4: not the risk free asset right when comparing you would
21:39
Speaker 4: expect it. Hey, there's some of these companies that aren't
21:42
Speaker 4: going to exist in a few decades. You know, take
21:45
Speaker 4: a look at S and P five hundred companies and
21:47
Speaker 4: how many of them have gone bankrupt on a year
21:48
Speaker 4: to year basis, And so you get rewarded for that
21:51
Speaker 4: extra risk that you take. Today that difference has turned
21:56
Speaker 4: to negative. The yield that you can expect on a
21:58
Speaker 4: ten year treasury compared to the earnings of the S
22:01
Speaker 4: and P five hundred is now higher than the S
22:05
Speaker 4: and P five hundred, and therefore as an indication that, hey,
22:08
Speaker 4: one more indication at least that in comparison to a
22:12
Speaker 4: whole bunch of different benchmarks, this stock market is quite expensive.
22:15
Speaker 2: It is now.
22:16
Speaker 3: None of this is to say that it's going to
22:18
Speaker 3: definitively perform this way that way over the next one, three,
22:21
Speaker 3: five or ten year period, but much more that, Hey,
22:25
Speaker 3: the risk reward, which again you could make a case
22:29
Speaker 3: like ten years ago in particular, that the risk reward
22:32
Speaker 3: was kind of asymmetrically skewed towards equities. Bonds were yielding,
22:37
Speaker 3: you know, even long term bonds were like two percent.
22:40
Speaker 3: Short term you were getting quite literally almost zero.
22:44
Speaker 2: Inflation was nothing.
22:46
Speaker 3: And so that there's a case to be made then yeah,
22:48
Speaker 3: this is exactly when you would want to be backing
22:50
Speaker 3: up the truck on stocks. Obviously, hindsight's twenty twenty, like
22:54
Speaker 3: how many people actually bought the bottom in March of nine,
22:56
Speaker 3: like not many.
22:58
Speaker 2: But today where you sit here and you say, Okay, I've.
23:01
Speaker 3: Got long term bonds that are yielding in the mid furs,
23:04
Speaker 3: I've got short term bonds in the high threes to
23:07
Speaker 3: low furs, and equities are priced, you know, twenty two
23:11
Speaker 3: to twenty three times earnings over the next year. Yeah,
23:15
Speaker 3: the risk reward is one where there's not a clear
23:19
Speaker 3: sign that this can continue to move in this fashion.
23:22
Speaker 3: But hey, we are aware that over short time periods
23:26
Speaker 3: and short time periods in the stock mark, you can
23:27
Speaker 3: still be a year or two. Yeah, there's a case
23:30
Speaker 3: to be made that things could still get more exuberant
23:33
Speaker 3: before you run into trouble. It's just the numbers don't
23:38
Speaker 3: indicate the same risk reward that you had over the
23:41
Speaker 3: last decade.
23:42
Speaker 4: The timing of this piece is just kind of fantastic too,
23:45
Speaker 4: given the massive selloff we're seeing if you haven't been
23:48
Speaker 4: tuning in.
23:49
Speaker 2: Led by Tech specifically.
23:50
Speaker 4: Tech specifically is selling off, the Nasdaq off over three percent,
23:53
Speaker 4: the SMP down close to two, and the article goes
23:56
Speaker 4: on to interview a Mike Yo. He's a seventy three
23:59
Speaker 4: year old retired surgeon from Columbia, South Carolina, who puts
24:03
Speaker 4: together an argument which is I think no worse than
24:06
Speaker 4: many others that I've seen before, that look, the old
24:08
Speaker 4: sixty forty rule is dead, and I keep This individual
24:13
Speaker 4: keeps more than eighty percent of his portfolio and equities
24:16
Speaker 4: believes that tech companies like Tesla and Meta can keep
24:19
Speaker 4: powering double digit percentage gains, basically just doing away with
24:25
Speaker 4: the idea of the sixty forty and quote, you want
24:28
Speaker 4: to make sure you're invested with these companies that are
24:30
Speaker 4: proven winners. You don't want to bet against these guys.
24:33
Speaker 4: You don't want to bet against Elon Musk. Can we
24:37
Speaker 4: stop right there please? That's really it's got wrench to me.
24:44
Speaker 4: It's troubling to me, and well.
24:46
Speaker 2: Because it all falls into the category of it's different
24:48
Speaker 2: this time. Well, here's the thing.
24:50
Speaker 3: A year and a half ago, this is in twenty
24:52
Speaker 3: twenty three, right, It's like AI was like really taken off.
24:56
Speaker 3: If you look at the top ten companies from a
24:59
Speaker 3: year and a half ago, Apple, Microsoft, this is globally,
25:02
Speaker 3: by the way, Saudi, Ramco, Alphabet, Amazon and Vidia, Tesla, Berkshire, Hathaway, Meta,
25:06
Speaker 3: and Taiwan Semiconductor. This is probably pretty similar today. Here
25:09
Speaker 3: are the top ten in two thousand, twenty five years ago. Microsoft, okay,
25:14
Speaker 3: we got one that's still on the list. Ge is
25:17
Speaker 3: that on the list? No, Cisco is that on the list?
25:19
Speaker 3: Walmart no, Exons, no Intel, no NTT, DoCoMo no, I
25:28
Speaker 3: don't know, Royal, Dutch, Shell, Pfizer, no, Nokia.
25:33
Speaker 2: No. Let's go back to nineteen eighty. Maybe this was
25:36
Speaker 2: just like a one time thing. Nineteen eighty.
25:38
Speaker 3: Here are the big ten top ten companies. IBM okay,
25:41
Speaker 3: that was oh no, it was not any of them.
25:43
Speaker 3: At and T oh no, that was not any of them.
25:46
Speaker 3: Exon great, that was on in two thousand.
25:48
Speaker 2: Yep.
25:49
Speaker 3: Standard Oil, well, it ended up being bought by Xon
25:52
Speaker 3: Shell okay, we got two Mobile Okay, like that, General
25:55
Speaker 3: Motors with nope, Texico nope, DuPont nope, Golf Oil nope.
26:01
Speaker 2: So the idea shifting, the idea.
26:04
Speaker 3: Of proven winners in the stock market not a real thing.
26:10
Speaker 3: It's not to say that companies can't do well over five, ten, fifteen, twenty,
26:13
Speaker 3: even thirty years or longer like occasionally they do, but
26:17
Speaker 3: more often than not, what worked for the last decade
26:21
Speaker 3: or two has not been what worked for the next
26:24
Speaker 3: decade or two.
26:25
Speaker 4: I think there's a lot of folks out there who
26:27
Speaker 4: have been tempted by well, the likes of the stock
26:31
Speaker 4: market that we've seen for the last five hard not
26:33
Speaker 4: to be really, really difficult to not be tempted by it.
26:36
Speaker 4: And I'm not here sitting here saying that the sixty
26:39
Speaker 4: to forty portfolio is the holy grail that everybody needs
26:42
Speaker 4: to adhere to. But I think today is a pretty
26:45
Speaker 4: good wake up call for folks out there of just
26:48
Speaker 4: how quickly and dramatically the ongoing narrative of what's going
26:52
Speaker 4: to drive markets forward can be entirely flipped on its head.
26:55
Speaker 4: That is what happened today. I have no idea if
26:58
Speaker 4: it's going to flip back in the other direction.
26:59
Speaker 2: It might.
27:00
Speaker 4: I don't really trust any of the information that's coming
27:02
Speaker 4: out of China about this new AI company. However, it
27:07
Speaker 4: is a really good fresh reminder that telling me that
27:12
Speaker 4: it's different this time almost always gets proven incorrectly. And
27:17
Speaker 4: I think that's the message that I take away from this. Yes,
27:20
Speaker 4: stocks are expensive right now. We've been talking about this
27:22
Speaker 4: all the time. What scared the living Craik's out of
27:25
Speaker 4: me was this interview with this individual who said, no,
27:28
Speaker 4: I'm doing away with the old way of managing my portfolio,
27:32
Speaker 4: and you know, today was probably a pretty rough wake
27:34
Speaker 4: up call. If you are waking up today and finding
27:38
Speaker 4: yourself in some form of similar boat, bought into some
27:42
Speaker 4: of these ideas of hype and what's going to drive
27:45
Speaker 4: markets forward from here, and getting a refresher on just
27:49
Speaker 4: how quickly that narrative can change, I would encourage you to,
27:52
Speaker 4: at the very least take a second look. Make sure
27:55
Speaker 4: you understand what you own and how that's changed over
27:58
Speaker 4: the last few years. Maybe you've been really intentional about it,
28:01
Speaker 4: maybe it's been an accident. But getting a good understanding
28:05
Speaker 4: of where you sit now, where your risks are in
28:08
Speaker 4: your portfolio in case that what we learned today ends
28:11
Speaker 4: up being a true game changer for the markets, would
28:16
Speaker 4: be a good first step. Give the folks at Armstrong
28:18
Speaker 4: Advisory Group a call. You can reach us at eight
28:20
Speaker 4: hundred three nine three four zero zero one. We'll sit
28:23
Speaker 4: down with you to analyze your investment holdings see how
28:26
Speaker 4: they line up with your own personal financial situation. Nobody
28:30
Speaker 4: is the same. Give us a call eight hundred three
28:33
Speaker 4: nine three four zero zero one.
28:35
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
28:38
Speaker 1: registered investment advisor. Nothing in the ad or in any
28:40
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
28:43
Speaker 1: your own financial tax into state planning advisors before making
28:46
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
28:49
Speaker 1: advisory services.
28:51
Speaker 3: CNBC's got a piece talking about twenty twenty five changes
28:54
Speaker 3: that could impact your finances. First, we now have the
29:00
Speaker 3: super Ketchup for your four oh one K, So if
29:03
Speaker 3: you're between ages sixty to sixty three, you get an
29:06
Speaker 3: extra special Ketchup contribution that is eleven two hundred and
29:12
Speaker 3: fifty dollars for this year, as opposed to the seventy
29:15
Speaker 3: five hundred dollars normal Ketchup contribution. Remember that's just for
29:18
Speaker 3: ages sixty two sixty three. Mike, do you do you
29:23
Speaker 3: have to be those ages at any I have year.
29:26
Speaker 4: I have not figured out if you have to end
29:28
Speaker 4: the year at that age, be at that age at
29:31
Speaker 4: any point in the year.
29:31
Speaker 2: I'll have to get back to you.
29:33
Speaker 4: I also have no oh yeah, I also have no
29:35
Speaker 4: evidence that the four oh one K companies are prepared
29:37
Speaker 4: to deal with these extra catchup contributions.
29:39
Speaker 2: I just genuinely don't know yet.
29:41
Speaker 3: So you've got that that is supposed to be happening
29:44
Speaker 3: this year, also in twenty twenty five. If you are
29:46
Speaker 3: a if you're someone who has inherited a non spousal ira,
29:51
Speaker 3: so from a brother's, sister, aunt, uncle, friend, anyone other
29:55
Speaker 3: than a husband and wife, if you've inherited one of
29:58
Speaker 3: those since twenty twenty, you now, in addition to having
30:02
Speaker 3: to exhaust that account in ten years, you've got to
30:05
Speaker 3: take an R and D out this year.
30:06
Speaker 4: In almost all case, there's a feusitive. In small chances
30:09
Speaker 4: where that's not the case. And I bring this up
30:11
Speaker 4: because my mother in law is one of them, but
30:13
Speaker 4: generally speaking, you're going to be faced by this and
30:16
Speaker 4: there's a whole new set of rules and then you know,
30:19
Speaker 4: final one here, especially for folks listening in uh Massachusetts
30:23
Speaker 4: who work for the state at any point in time,
30:25
Speaker 4: there's a whole new set of rules when it comes
30:26
Speaker 4: to Social Security and the web and the GPO. So yeah,
30:32
Speaker 4: in addition to an interesting market to start January, you've
30:35
Speaker 4: got some pretty significant tax rule changes going into place
30:39
Speaker 4: in twenty twenty five as well.
30:40
Speaker 2: Just take a quick break here when we come back,
30:41
Speaker 2: we'll do some stack roulette.
30:44
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30:47
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31:55
Speaker 2: Mike, what do you got for me? For stack roulette?
31:57
Speaker 4: The growing industry of financial advice on social media? If
32:01
Speaker 4: you're not familiar, there's all sorts of TikTokers YouTubers out
32:04
Speaker 4: there who provide financial advice via social media, which by
32:08
Speaker 4: its very nature obviously can't be customized. And I'm not
32:11
Speaker 4: gonna sit here and say that I'm surprised, as somebody
32:14
Speaker 4: in the financial services industry that this exists. People search
32:16
Speaker 4: online for all sorts of medical advice and other sorts
32:20
Speaker 4: of things, but I think most people agree that it's
32:22
Speaker 4: not a terribly Is there any medical professional you know
32:26
Speaker 4: that says it's a great idea to get medical advice
32:28
Speaker 4: over the internet.
32:28
Speaker 2: No, every time I put something into WebMD, I think
32:30
Speaker 2: I'm gonna die. So why would you expect different results
32:33
Speaker 2: with financial services?
32:34
Speaker 3: You wouldn't every time you put something in there, you
32:36
Speaker 3: think you're gonna go broke or make a trillion dollars.
32:38
Speaker 4: Yeah, so I'm sure. Look, I know for certainty that
32:43
Speaker 4: There is plenty of good financial advice out there on
32:48
Speaker 4: the Internet and via social media, but trying to comb
32:52
Speaker 4: through what is actually good advice and what is actually
32:55
Speaker 4: somebody pushing a pump and dump scheme and getting paid
32:59
Speaker 4: on the other side that you don't know about because
33:01
Speaker 4: there's no adequate disclosure, it's really really difficult to figure out.
33:05
Speaker 2: And so I.
33:06
Speaker 4: Would treat it the same way that I would medical
33:08
Speaker 4: advice or anything else that's serious over the internet, is
33:11
Speaker 4: with a high degree of skepticism.
33:13
Speaker 2: I want to talk about meat sticks.
33:15
Speaker 3: I was pretty certain you would. I. There's a piece
33:18
Speaker 3: from the Wall Street Journal. It's titled Americans three billion
33:21
Speaker 3: dollars habit meat sticks. And apparently I didn't realize that
33:28
Speaker 3: this category saw sales expand ten point four percent last
33:34
Speaker 3: year to three point twenty nine billion dollars. And so
33:38
Speaker 3: apparently beef jerky is just becoming.
33:43
Speaker 2: Jerkier.
33:45
Speaker 4: Yeah, this one caught me by surprise. So here's the
33:48
Speaker 4: thing that this was a big trend.
33:50
Speaker 2: What's being rolled out is a whole new line.
33:54
Speaker 3: Of meat sticks that basically claim to be like healthier
33:58
Speaker 3: than the originals.
34:00
Speaker 2: And look, here's the thing.
34:02
Speaker 3: Here's some things that they can definitively say about probably.
34:07
Speaker 2: I don't know. Here. Here's the thing about these.
34:08
Speaker 3: Number one, they are really high in protein and pretty
34:12
Speaker 3: low in just about everything else.
34:14
Speaker 2: How about salt, They're very high in that generally.
34:16
Speaker 3: Yeah, so they have like lower sodium versions and less
34:19
Speaker 3: processed versions in this and that. But ultimately, I think
34:23
Speaker 3: my advice on meat sticks, and again as someone who's
34:26
Speaker 3: not a doctor, my advice on meat sticks boils down
34:30
Speaker 3: to something pretty simple, which is, if you're relying on
34:34
Speaker 3: them to be a health food.
34:36
Speaker 2: You're probably doing it wrong.
34:39
Speaker 1: Boy.
34:39
Speaker 2: It's not to poop poo them like.
34:41
Speaker 3: I like a good slim gym just as much as anyone,
34:44
Speaker 3: but I understand where that fits.
34:45
Speaker 2: In my general life pyramid, you know.
34:49
Speaker 3: And so as such, again it's not to say like
34:54
Speaker 3: don't eat these or any like.
34:55
Speaker 2: I eat them like it. I think they're great.
34:57
Speaker 4: But am I likely to find a meat stick on
34:59
Speaker 4: the menu at a high restaurant anytime soon?
35:01
Speaker 2: I bet you will.
35:02
Speaker 3: I bet there has to be some Michelin starred chef
35:05
Speaker 3: out there who's.
35:06
Speaker 2: Like, all right, we're gonna repurpose this, Jim, I have
35:08
Speaker 2: to do.
35:09
Speaker 3: The slim gym's that's how we talk se I don't know,
35:13
Speaker 3: but I don't know why the Missilan starred chefs are French.
35:15
Speaker 3: There's plenty in like New York that are not French.
35:18
Speaker 3: So anyways, this is one of the fastest growing snack segments.
35:22
Speaker 3: And I had no idea until I read this piece
35:25
Speaker 3: that meat sticks were on the up and up.
35:28
Speaker 2: Yeah, didn't know.
35:30
Speaker 4: I have an irrelevant story of the day published on
35:33
Speaker 4: January twenty fourth, which was Friday. If I'm not mistaken, Yes,
35:37
Speaker 4: from Bloomberg, AI driven power boom will drive demand thirty
35:40
Speaker 4: eight percent higher on top US grid. The electricity demand
35:44
Speaker 4: and the largest US grid is poised to rise so
35:46
Speaker 4: fast thanks to a boat I boom that'll be the
35:49
Speaker 4: equivalent of installing two new England networks in the coming decade. Well,
35:53
Speaker 4: according to today's news, maybe maybe not.
35:57
Speaker 2: Can we can we stop calling AI AI and just
36:01
Speaker 2: pronounce you know how like VRBO wants to be Verbo,
36:04
Speaker 2: Like I, Can we just.
36:05
Speaker 4: Go I No, No, that's just much more confusing.
36:10
Speaker 2: Okay, Yeah, In any case, Yeah, that this entire story.
36:14
Speaker 4: And potent to this whole industry completely flipped on its
36:17
Speaker 4: head this morning. Not to say it won't be powerful
36:19
Speaker 4: and still usable, and many companies will still make huge
36:23
Speaker 4: amounts of money on artificial intelligence, but it could completely
36:28
Speaker 4: upend which companies those are.
36:29
Speaker 3: I'd like to talk about parlays in sports betting.
36:34
Speaker 2: Tucker knows way more about this than I do.
36:36
Speaker 3: But Tucker, the general rule of thumb on parlays, as
36:39
Speaker 3: I understand them, is don't yes that.
36:43
Speaker 5: The old school gamblers are like, no, if you're if
36:46
Speaker 5: you're doing parlays, you're a chump if you're going to lose.
36:48
Speaker 2: Here's why.
36:49
Speaker 3: Just as an example, there's this this piece is perfect
36:52
Speaker 3: for this. So this sports fan made a fourteen leg parlay,
36:56
Speaker 3: which means if all of these happens, she gets to
36:58
Speaker 3: turn her ten dollars into twenty two thousand. Thirteen of
37:02
Speaker 3: them hit and the last one didn't, and so she
37:05
Speaker 3: lost everything. Now here's the thing. If she had bet
37:07
Speaker 3: one dollar on all of the ones that and every
37:11
Speaker 3: single one of these, on each of these fourteen legs,
37:13
Speaker 3: she would have made a boatload of money. It wouldn't
37:15
Speaker 3: have been twenty two thousand, because it's not compounding or anything,
37:18
Speaker 3: but she.
37:18
Speaker 2: Would have made a boatload of money.
37:19
Speaker 3: So here's the problem with parlays is Hey, they actually
37:24
Speaker 3: end up giving you worse odds than doing all of
37:25
Speaker 3: the bets separately from what I understand, and b you
37:29
Speaker 3: could be ninety percent correct and get nothing.
37:33
Speaker 2: I ward you no points and may God have mercy
37:35
Speaker 2: on yourself. Now. I do not bet on sports. It's
37:39
Speaker 2: something that I'm very bad at.
37:41
Speaker 3: The furthest I go is a March madness bracket that
37:43
Speaker 3: I participated, and so I'm not someone who can tell
37:46
Speaker 3: you like all the ins and outs, but these long
37:49
Speaker 3: shot parlays and things like that Reek of financial nihilism, nihilism.
37:54
Speaker 5: And whatever heavily heavily promoted there everywhere books, well.
37:58
Speaker 4: Yeah, it looks no dumber to me than playing powerball,
38:01
Speaker 4: but it seems perceived differently than yes, powerball.
38:04
Speaker 3: Yes, And I can tell you from talking to people
38:07
Speaker 3: in their early twenties the number of young males who
38:11
Speaker 3: are in debt to sportsbooks right now is through the
38:14
Speaker 3: roof and it.
38:15
Speaker 2: Is very sad. So this is a huge problem that
38:20
Speaker 2: we have here. Quick break for the rest of the day.
38:22
Speaker 3: We'll see you tomorrow on the Financial Exchange