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AI Hype Is Outpacing Real Growth · The Financial Exchange Show

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  Speaker 1: Armstrong and Mark Vandetti.
• 1:10
  Speaker 2: Good morning, Welcome back to the Financial Exchange. It's my
• 1:14
  Speaker 2: first day back on the show in a little bit
• 1:17
  Speaker 2: over a week, and I don't know when we'll get
• 1:19
  Speaker 2: next quarter's Disney earnings, but based on my spending there
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  Speaker 2: in the most recent quarter.
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  Speaker 3: Should be pretty good.
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  Speaker 2: I just did my hopefully only you know, round trip
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  Speaker 2: down to Disney World and back with my three children,
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  Speaker 2: so they're tired, I'm tired, and.
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  Speaker 3: We're all a lot broker than we.
• 1:38
  Speaker 4: Were a little pricey that Disney hut.
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  Speaker 3: Week and a half ago.
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  Speaker 2: H So, yeah, back at it and right into the
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  Speaker 2: thick of things, because tomorrow, after the bell, we're gonna
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  Speaker 2: be getting earnings to digest from really the major there's
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  Speaker 2: a few other major companies out there that we'll be
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  Speaker 2: hearing from. Alphabet, Microsoft, Amazon, and Meta all report after
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  Speaker 2: the bell tomorrow. With that, you'll get a combined ten
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  Speaker 2: plus trillion with a t dollars of market capitalization reporting.
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  Speaker 2: This comes as we yesterday bounced off of all time
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  Speaker 2: highs again on the S and P five hundred. For
• 2:15
  Speaker 2: those not paying attention, we're up over seventy one hundred
• 2:18
  Speaker 2: on the S and P five hundred down a little bit. Today,
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  Speaker 2: we'll talk about why the FED is entering their two
• 2:23
  Speaker 2: day meeting, the last meeting that Jay Powell will likely
• 2:27
  Speaker 2: preside over as Chhare, given the news last week that
• 2:30
  Speaker 2: I'm sure you guys covered with Tillis removing his final
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  Speaker 2: concerns about worsh being confirmed. And then next week we'll
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  Speaker 2: be heading into a jobs report and a whole bunch more. So, Yeah,
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  Speaker 2: a lot to cover this week, and the earnings continue
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  Speaker 2: as we get into that mark you and I this morning,
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  Speaker 2: you know, just internally we're talking a bit about earnings
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  Speaker 2: and just the trend that has reshaped things, I guess
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  Speaker 2: really since COVID since twenty twenty, and the new trend
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  Speaker 2: line that we are that we are sitting upon. Now,
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  Speaker 2: can you talk a little bit about earnings expectations for
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  Speaker 2: you know, for year over year and what we've experienced
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  Speaker 2: long term compared to what we're experiencing most recently.
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  Speaker 5: Yeah, it has been exceptional year over year. So March
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  Speaker 5: thirtieth or thirty first of this year relative to last
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  Speaker 5: it's been an exceptional year over year period for earnings.
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  Speaker 6: Fact set, the data aggregator, call.
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  Speaker 5: Them like a data provider they expect earnings to increase.
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  Speaker 5: And when we say earnings, we mean earnings on the
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  Speaker 5: S and P five hundred. Yeah, currently about two hundred
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  Speaker 5: and eighty dollars. That's relative to the index value. That
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  Speaker 5: doesn't really mean a lot to most people, myself included,
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  Speaker 5: So it's more helpful to think about it in percentage
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  Speaker 5: James terms percentage excuse me, change terms year over year
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  Speaker 5: somewhere in the fifteen percent range, which is excellent.
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  Speaker 6: The averages.
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  Speaker 5: The average for calendar year changes is eleven percent.
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  Speaker 3: Okay.
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  Speaker 2: So, and we've been on this trend line for a
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  Speaker 2: few years now, right of exceptionally good earnings, I mean
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  Speaker 2: twenty twenty two would be an exception here, but for
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  Speaker 2: the last few years it has been higher than average.
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  Speaker 3: Earnings beats very much.
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  Speaker 5: So if you had if you transported yourself back five
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  Speaker 5: years and made a reasonable forecast of earnings at that point,
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  Speaker 5: earnings today sit about again the level now. The earnings
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  Speaker 5: today are about fifty percent more than a simple time
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  Speaker 5: trend based forecast would have suggested right after COVID. So, yeah,
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  Speaker 5: arning growth has been strong, to say the least, past
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  Speaker 5: several years.
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  Speaker 2: And so I think you know contextualizing something. People if
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  Speaker 2: they're listening to this program, or if they watch the
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  Speaker 2: NBC or really any you know, financial news program, might
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  Speaker 2: hear a lot about valuations being high, among the highest
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  Speaker 2: they've ever been, and quite you know, quite exorbitant, and
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  Speaker 2: that remains true. You know, valuations on the the S
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  Speaker 2: and P five hundred are among the highest they've ever been.
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  Speaker 2: Only real exceptions to that were the last couple of
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  Speaker 2: years twenty twenty one and pre dot com era. But
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  Speaker 2: I don't want to contextualize that without acknowledging for a
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  Speaker 2: moment that, yeah, the earnings themselves have been exceptional. It's
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  Speaker 2: resulting in some pretty crazy multiples on yeah presumed you know,
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  Speaker 2: presumed future continuation of that just exceptional growth. But you
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  Speaker 2: can't ignore for the time being at least that those
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  Speaker 2: earnings themselves have been exceptional by historical standards, and exceptional
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  Speaker 2: by really any way you could define them for beating
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  Speaker 2: not only history, but the expectations that investors had going
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  Speaker 2: into them.
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  Speaker 5: Right, price to earnings is exactly what it sounds like.
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  Speaker 6: It's a ratio.
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  Speaker 5: You're dividing price by earnings. And when that, when we
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  Speaker 5: say valuations go up, we mean some variation on pegos up,
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  Speaker 5: which means the P is growing faster than the E.
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  Speaker 5: So while earnings growth has been spectacular, price growth has
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  Speaker 5: been astonishing.
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  Speaker 2: Yeah, I guess my point would be you could get
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  Speaker 2: there in a couple different ways. You could get price
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  Speaker 2: stayed the same, where while earnings are getting crappy and
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  Speaker 2: we're not going that direction.
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  Speaker 6: You could get to you could get to high valuation.
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  Speaker 6: Ye mean, yeah, it.
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  Speaker 2: Never happened, but like, yeah, it's important thing to consider
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  Speaker 2: the context here that, yeah, the multiples are growing faster
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  Speaker 2: than the earnings themselves, but the earnings themselves are also
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  Speaker 2: growing a lot faster than history. So anyway, a little
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  Speaker 2: bit of context there as we head into again important
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  Speaker 2: to consider because we are heading into a week where
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  Speaker 2: now looking at it, I mean just with these five
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  Speaker 2: companies Apples reporting by the way, on Thursday after the
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  Speaker 2: bell Alphabet, Microsoft, Amazon Meta right there, you know, those
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  Speaker 2: two days. But just between those five companies, you're talking
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  Speaker 2: about some fifteen odd trillion dollars worth of market capitalization,
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  Speaker 2: probably close to thirty percent of the overalls and P
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  Speaker 2: five hundred index, so quite a possible to move things
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  Speaker 2: around there. Taking a shift over to non s and
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  Speaker 2: p five hundred companies open ai. This morning, they're announcing
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  Speaker 2: that they missed their key revenue and user targets in
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  Speaker 2: their high stake sprint towards an IPO. So contextualizing things here,
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  Speaker 2: open ai doesn't really at this stage need to disclose
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  Speaker 2: much of anything. They are a privately held company. Their
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  Speaker 2: whole structure, to me is still pretty kind of tough
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  Speaker 2: to understand, given that they're founded as a non for
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  Speaker 2: profit and are now morphing into this for profit organization
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  Speaker 2: that is planning to try and go public this year.
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  Speaker 2: But what I think is notable about this is open Ai.
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  Speaker 2: If you're not familiar, created chat GPT, and I don't
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  Speaker 2: think there is any more name brand recognizable name in
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  Speaker 2: the AI space than chat GPT in terms of like
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  Speaker 2: a user product. They're more brand recognizable than just about
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  Speaker 2: anybody out there. And what they're telling you is now
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  Speaker 2: not surprising to anybody that uses AI tools, but that
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  Speaker 2: their user growth and their revenue targets are falling behind
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  Speaker 2: at the same time that they are trying to dramatically
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  Speaker 2: raise money to again spend more and more on data
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  Speaker 2: center and compute power buildout.
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  Speaker 5: Yeah, I think they're probably suffering or in danger of
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  Speaker 5: suffering the same fate as predecessor tech pioneers. You know,
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  Speaker 5: nobody associates personal computers with IBM or Texas Instruments or
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  Speaker 5: I don't know, if you were home computer using the
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  Speaker 5: early nineteen eighties, Commodore or even Atari if you remember
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  Speaker 5: some of those names, there were lots of them.
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  Speaker 6: They're all extinct.
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  Speaker 5: Open AI is synonymous with AI for casual use, we say,
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  Speaker 5: I'm going to chat GPT that, but in reality, most
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  Speaker 5: of us are now using Gemini or Copilot if we're
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  Speaker 5: in a Microsoft application class, or something embedded. If you're
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  Speaker 5: a coder, maybe you use Claude or something embedded in
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  Speaker 5: whatever application you're using.
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  Speaker 6: MIC.
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  Speaker 2: Yeah, it does make me wonder, you know, if they
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  Speaker 2: are going to go the way of it's almost reminding
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  Speaker 2: me of you know, Facebook without the revenue and profits.
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  Speaker 3: You know, like.
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  Speaker 2: Today you go ask a nineteen year old what social
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  Speaker 2: media platform they're on, and most of them are not
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  Speaker 2: going to list Facebook up there as the top listening.
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  Speaker 2: It might be TikTok, it might be Instagram, it might
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  Speaker 2: be a number of others, and you know, jet GPT.
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  Speaker 2: I won't write it off as dead. It's nowhere near dead.
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  Speaker 2: They're still growing at a incredibly fast pace. But the
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  Speaker 2: question that I can't seem to get a firm answer
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  Speaker 2: on because I won't claim to be at the forefront
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  Speaker 2: of how these models are used and how you know,
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  Speaker 2: paid subscribers are using them versus just everyday users, But
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  Speaker 2: there doesn't seem to be a whole lot of loyalty
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  Speaker 2: to the model. In fact, when I go to conferences
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  Speaker 2: and hear about up and coming tech platforms and how
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  Speaker 2: they are designing things, they're intentionally designing things so that
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  Speaker 2: you can pretty easily swap out one model for the
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  Speaker 2: other based on what is producing the best results. And
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  Speaker 2: so I'm just unsure where the brand loyalty is going
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  Speaker 2: to come in, because if I type the same question
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  Speaker 2: into chat, GPT, Gemini, Claude, and Copilot, I'm not going
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  Speaker 2: to get the same answer, but I am going to
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  Speaker 2: get a similarly structured answer to the same question. And
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  Speaker 2: the only thing that might keep me in one platform
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  Speaker 2: versus the other is that they do get to know
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  Speaker 2: me a little bit as time goes on. So we
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  Speaker 2: will see if that head start that they got, because
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  Speaker 2: it was a pretty substantial headstart i'd be. I'd have
• 10:40
  Speaker 2: to look at the timeline, but right they rolled out
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  Speaker 2: at the end of twenty twenty or beginning of twenty
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  Speaker 2: twenty two. I don't think anybody else had a real
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  Speaker 2: usable model until a good year later. But that head
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  Speaker 2: start in today's environment just might not matter. By the way,
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  Speaker 2: this news about open a eyes miss on revenue is
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  Speaker 2: bringing down other areas of the market. This morning, we've
• 11:03
  Speaker 2: got the NASDAC off about three quarters percent, SMP off
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  Speaker 2: half percent, just to name a name, in Vidia, which
• 11:10
  Speaker 2: was up a good four percent yesterday, down about one
• 11:13
  Speaker 2: and two thirds of a percent in early trading today.
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  Speaker 2: And the only real news I can see or think
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  Speaker 2: of is this announcement from open ai and their concerns
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  Speaker 2: about their growth or pace of growth.
• 11:23
  Speaker 3: Let's take a quick break.
• 11:25
  Speaker 2: When we come back a little bit more about the
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  Speaker 2: ongoing AI trade, how it's morphing into different areas than market,
• 11:33
  Speaker 2: and then more on just what markets are doing today,
• 11:36
  Speaker 2: sitting around all time highs.
• 11:38
  Speaker 3: That's next on the Financial Exchange.
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• 12:45
  Speaker 2: There's a column piece in Bloomberg today from a Dairy Etherson. Yeah,
• 12:53
  Speaker 2: we're gonna go with that. It's an interesting spelling quote.
• 12:56
  Speaker 2: I built an AI trading platform in six days. That's terrifying.
• 13:00
  Speaker 2: That's the title of the piece here, and it's very
• 13:04
  Speaker 2: reminiscent Tucker.
• 13:05
  Speaker 3: Do you remember that it wasn't even an article in
• 13:08
  Speaker 3: a major publication.
• 13:09
  Speaker 2: It was like a Reddit post that got picked up
• 13:10
  Speaker 2: all over a few months ago by some nobody software
• 13:15
  Speaker 2: guy who wrote about how powerful claud is and how
• 13:18
  Speaker 2: good it is at the state at building software, which
• 13:22
  Speaker 2: then sent software stock down, you know, anywhere from five
• 13:26
  Speaker 2: to forty percent in a few days, a big, big
• 13:30
  Speaker 2: companies with big profit margins, big user bases, just getting
• 13:32
  Speaker 2: absolutely crushed. I don't remember the author's name, but it was,
• 13:35
  Speaker 2: you know, a week of just decimation in the software space,
• 13:38
  Speaker 2: and that trend has only continued. This piece today, you know, again,
• 13:43
  Speaker 2: is just another person who just wrote about, you know,
• 13:49
  Speaker 2: how these tools work and just how significantly easy they
• 13:52
  Speaker 2: are to use. And he he kind of buries the
• 13:56
  Speaker 2: lead here. But what he does for a living, he's
• 13:58
  Speaker 2: his computational hydraulic Just anybody know what that is?
• 14:01
  Speaker 3: I didn't.
• 14:02
  Speaker 2: He studies river snow melt and glacier mass balance. He
• 14:04
  Speaker 2: has a PhD in Arctic environmental science. He jumped on
• 14:08
  Speaker 2: using one of Claude's models and spent six days building
• 14:12
  Speaker 2: a trading platform connecting to three different financial exchanging and
• 14:16
  Speaker 2: financial exchanges ingesting news from RSS feeds, web searches, Reddit, Twitter,
• 14:22
  Speaker 2: using large language models to analyze markets, estimate probabilities, and
• 14:27
  Speaker 2: actually like build trading models. So it's more than what
• 14:30
  Speaker 2: I would describe as a trading platform. It seems to
• 14:32
  Speaker 2: be a investment platform.
• 14:35
  Speaker 5: Trading platform is like the brokerage you use.
• 14:37
  Speaker 3: Draw Fidelity, Robin Hood, et cetera. He built like a.
• 14:42
  Speaker 2: Strategy, a strategy valuation model that also allows you to
• 14:46
  Speaker 2: do what some of those places also do. It also
• 14:50
  Speaker 2: connected to prediction markets like polymarket and Calshi, which we
• 14:54
  Speaker 2: will talk about more later. And I think his point
• 14:58
  Speaker 2: to selling one, which is this guy who has a
• 15:02
  Speaker 2: PhD in Arctic environmental sciences built something that can actually seemingly,
• 15:08
  Speaker 2: at least or according to his claim, allow you to
• 15:10
  Speaker 2: place trades on it and send them to market and
• 15:14
  Speaker 2: build a model that includes a bunch of probabilities in it.
• 15:19
  Speaker 2: The questions that I have are a fewfold on this one.
• 15:22
  Speaker 2: It confirms a number of things that we've already talked
• 15:24
  Speaker 2: about at length, which is, if somebody knows what they're doing,
• 15:29
  Speaker 2: it's seemingly a lot easier to build software today than
• 15:31
  Speaker 2: it was only six months ago, a lot easier the
• 15:36
  Speaker 2: other question that I have, though, is how many of
• 15:39
  Speaker 2: these things are going to crop up over the course
• 15:42
  Speaker 2: of the next few years that are complete and absolute garbage. Like,
• 15:48
  Speaker 2: let's be clear, this guy with the PhD in Arctic
• 15:51
  Speaker 2: environmental science may have built a functioning software platform that
• 15:55
  Speaker 2: allows you to trade. He has no means of testing it,
• 15:59
  Speaker 2: or no knowledge whatsoever of the space to be able
• 16:01
  Speaker 2: to see if it does a good job. He has
• 16:03
  Speaker 2: no ability whatsoever to determine if the AI agent that's
• 16:06
  Speaker 2: built into this thing is just going to go off
• 16:09
  Speaker 2: the rails and start roaguely trading things all over the
• 16:12
  Speaker 2: place and decimating somebody's portfolio. And there have been stories
• 16:18
  Speaker 2: like that, right, there was a report from a company
• 16:20
  Speaker 2: last year who built an AI agent to do all
• 16:23
  Speaker 2: sorts of processes and oops, it just deleted an entire
• 16:25
  Speaker 2: database with all of our customer information, and the company's
• 16:28
  Speaker 2: basically out of business.
• 16:29
  Speaker 5: This is for his own First of all, this guy
• 16:31
  Speaker 5: he knows more than most people in finance do about
• 16:34
  Speaker 5: probability and statistics. Sure, so he's very well qualified to
• 16:37
  Speaker 5: do it. He probably probably codes himself. He probably codes
• 16:40
  Speaker 5: in Python or are which your statistical language is a
• 16:43
  Speaker 5: little bit different. For example, that's what I use, but
• 16:46
  Speaker 5: I don't claim to be a coder. So he gets it,
• 16:49
  Speaker 5: that's what I'm saying, and he gets it way more
• 16:50
  Speaker 5: than your typical NBA does no disrespect to your typical sure,
• 16:53
  Speaker 5: and well, I guess I do mean a little bit
• 16:54
  Speaker 5: of distressid sorry, but you know it's just and they
• 16:57
  Speaker 5: would admit that, by the way, I think. So he's qualified,
• 17:01
  Speaker 5: he's not producing it for so he's not trying to
• 17:03
  Speaker 5: sell it.
• 17:04
  Speaker 3: He's not.
• 17:04
  Speaker 5: He's doing it kind of for his own amusement. And
• 17:06
  Speaker 5: maybe it's the same.
• 17:07
  Speaker 3: Way a Bloomberg piece.
• 17:08
  Speaker 5: You know, it's like the person who clips newspaper articles
• 17:11
  Speaker 5: and then watches CNBC and then listens to some company
• 17:14
  Speaker 5: earnings calls. Right, this just does that for you.
• 17:17
  Speaker 3: One hundred percent agreed, that is not his intent.
• 17:20
  Speaker 2: But plenty of people want to make money off of this,
• 17:23
  Speaker 2: and maybe it's not in training, but like you know,
• 17:26
  Speaker 2: in all sorts of other tools. I'm just curious, you know,
• 17:29
  Speaker 2: how many tools are going to be out there in
• 17:31
  Speaker 2: a few months that say, hey, you know, this new
• 17:34
  Speaker 2: online site is going to allow you to find the
• 17:37
  Speaker 2: highest yielding savings account by routing everything through our new
• 17:42
  Speaker 2: savings account routing platform and just deposit your money here
• 17:46
  Speaker 2: and then oh oops, we lost all of it, and
• 17:49
  Speaker 2: uh it's gone now because these things don't exist anymore.
• 17:53
  Speaker 2: Or we're going to file your taxes and it's going
• 17:55
  Speaker 2: to be five bucks and it turns out, yeah, they
• 17:58
  Speaker 2: built the software right, but they didn't tecked any of
• 18:00
  Speaker 2: the data properly.
• 18:01
  Speaker 3: And so it's just so like.
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  Speaker 5: Somebody could do that now, somebody could hang out a
• 18:04
  Speaker 5: shingle and be an incompetent idiot.
• 18:07
  Speaker 3: Agreed.
• 18:07
  Speaker 2: Yeah, the difference is it just became a lot easier
• 18:11
  Speaker 2: to appear legitimate.
• 18:13
  Speaker 6: I don't know.
• 18:14
  Speaker 5: I mean, if you're not delivering services or goods promised,
• 18:17
  Speaker 5: you could be found guilty of fraud, you could be sued.
• 18:20
  Speaker 5: I just don't I'm not saying yes, it's easier. Yeah,
• 18:23
  Speaker 5: but this does this dramatically change the principle of like
• 18:26
  Speaker 5: buyer beware.
• 18:28
  Speaker 3: No, but I think it makes it more challenging.
• 18:30
  Speaker 2: And we're seeing this in other areas too, right, we're
• 18:32
  Speaker 2: seeing this in areas of fraud. Right, three years ago,
• 18:36
  Speaker 2: somebody sent me a fraudulent email. You know, they could
• 18:41
  Speaker 2: barely spell properly. The grammar was all screwed up, and
• 18:44
  Speaker 2: they would drive me to a website that.
• 18:47
  Speaker 3: It was clearly pretty fishy.
• 18:48
  Speaker 2: Today, no, the AI has made it so that they
• 18:52
  Speaker 2: can write a grammatically accurate email easily, make it look
• 18:56
  Speaker 2: like it's actually coming from a major data provider like
• 18:59
  Speaker 2: Microsoft docu signed, and drive me to it. And so yeah,
• 19:02
  Speaker 2: I do think it's just more of the same. But
• 19:06
  Speaker 2: in the same way, it legitimizes a bunch of stuff
• 19:09
  Speaker 2: that today probably you wouldn't go anywhere near because it
• 19:12
  Speaker 2: looks like garbage. So I think, yeah, that's the piece
• 19:15
  Speaker 2: that's interesting to me. I do think there will be
• 19:18
  Speaker 2: major disruptions, and I don't think that the equity markets
• 19:21
  Speaker 2: are necessarily mispricing the risk to those software companies, but
• 19:25
  Speaker 2: I do think there are some areas that might be
• 19:27
  Speaker 2: overblown because of all this. Let's say a quick break
• 19:29
  Speaker 2: when we come back. Wall Street Watches next.
• 19:41
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:44
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:48
  Speaker 1: on the Financial Exchange Radio Network. Time out full Wall
• 19:53
  Speaker 1: Street Watch tracking the stocks FANDATO in the headlines driving
• 19:57
  Speaker 1: markets so far today. Right here on the Financial Exchange
• 20:00
  Speaker 1: Radio Network.
• 20:01
  Speaker 4: Markets are pulling back, with oil and tech making headlines
• 20:04
  Speaker 4: this morning. The UAE announced it will leave Opek on
• 20:08
  Speaker 4: May first, and a major blow to the group. As
• 20:10
  Speaker 4: for the tech sector, the Wall Street Journal reported open
• 20:13
  Speaker 4: Ai recently missed its own targets for new users and revenue,
• 20:17
  Speaker 4: raising concerns among leaders about funding massive new data center spending.
• 20:22
  Speaker 4: Right now, the Dow is off thirty nine points, SMP
• 20:25
  Speaker 4: five hundred down nearly six tenths of a percent, Nasdack
• 20:28
  Speaker 4: down over nine tenths of a percent, RUSS two thousand
• 20:31
  Speaker 4: also down nine tenths of a percent. Ten You're Treasure
• 20:34
  Speaker 4: reeled up three basis points at four point three six
• 20:37
  Speaker 4: eight percent, and Oil back at one hundred dollars a
• 20:40
  Speaker 4: barrel up three percent today, Oracle taking ahead of three
• 20:45
  Speaker 4: percent on the heels of that open Ai report, as
• 20:47
  Speaker 4: the software company has a data center deal worth three
• 20:51
  Speaker 4: hundred billion dollars. Court Weave, another open Ai infrastructure partner,
• 20:55
  Speaker 4: also seeing a loss of three percent on the day.
• 20:58
  Speaker 4: Mean Weill Spotify ten thanking ten percent after the music
• 21:02
  Speaker 4: and podcast streamer posted a smaller than expected projection for
• 21:06
  Speaker 4: premium subscriber growth, increasing worries that customers may be put
• 21:10
  Speaker 4: off by a recent price increase. Elsewhere, General Motors reported
• 21:15
  Speaker 4: better than expected first quarter profit this morning. GM also
• 21:18
  Speaker 4: raised its full year earnings forecast. After the Supreme Court
• 21:22
  Speaker 4: rejected President Trump's emergency tariffs. However, GM stocked down by
• 21:26
  Speaker 4: two percent. Coca Cola beat first quarter earning sand revenue estimates,
• 21:30
  Speaker 4: fueled by higher demand for its beverages. Shares are up
• 21:33
  Speaker 4: by five percent, and after today's closing bell, Visa, Starbucks,
• 21:38
  Speaker 4: and Robinhood will report their results. I'm Tucker Silva, and
• 21:42
  Speaker 4: that is Wall Street Watch.
• 21:43
  Speaker 2: Well, we are entering the two day meeting now for
• 21:47
  Speaker 2: the Federal Reserve rate setting meeting starts today, press conference
• 21:52
  Speaker 2: tomorrow at two thirty pm. Always, yeah, two thirty pm.
• 21:57
  Speaker 2: We'll be getting that alongside all of these earnings. So
• 21:59
  Speaker 2: don't think the Fed meeting will be what drives a
• 22:02
  Speaker 2: whole lot of volatility, but you know, as always, there
• 22:06
  Speaker 2: will be plenty to discuss J. Powell's last meeting, presumably
• 22:11
  Speaker 2: as FED chair. It seems very likely now that Worsha's
• 22:14
  Speaker 2: nomination goes through and his appointment is confirmed, given the
• 22:20
  Speaker 2: announcement on was it Tucker Friday?
• 22:24
  Speaker 3: Mid morning?
• 22:24
  Speaker 1: Yeah?
• 22:25
  Speaker 2: Yeah, So as we sit here now Fed Funds target rate.
• 22:31
  Speaker 6: Now, yeah, three and a half right.
• 22:35
  Speaker 2: Yeah, we're sitting at three and a half to three
• 22:37
  Speaker 2: seven five on the target rate from FED Funds. And
• 22:42
  Speaker 2: you know, at this meeting there is currently a one
• 22:44
  Speaker 2: hundred percent probability that it has not moved by the time.
• 22:48
  Speaker 3: Never seen that before. It's always like ninety nine possible.
• 22:51
  Speaker 2: But okay, fine, yep, this is all dat according to
• 22:54
  Speaker 2: Chicago Mercantile Exchange. And by the way, when we look
• 22:57
  Speaker 2: forward at December now, there's an eighty one point four
• 23:00
  Speaker 2: percent chance that rates do not move by that point
• 23:03
  Speaker 2: in time. This has shifted quite a bit obviously since
• 23:06
  Speaker 2: the oil price shock and the actions in Iran, and
• 23:10
  Speaker 2: I just wonder, you know, worsh has been silent now
• 23:15
  Speaker 2: for the last since his nomination was confirmed by President Trumpt,
• 23:22
  Speaker 2: which has included basically the entire time that we've had
• 23:24
  Speaker 2: actions ongoing in Iran, and so we are getting, you know,
• 23:30
  Speaker 2: opinions from people that were also in contention, and their
• 23:34
  Speaker 2: opinions have changed pretty dramatically. Waller, for example, who was
• 23:39
  Speaker 2: you know, one of those contending for the job. It
• 23:43
  Speaker 2: came out and said like, hey, you know, while last fall,
• 23:46
  Speaker 2: I was pretty on board with the idea of rate cuts.
• 23:49
  Speaker 2: I had some concerns about the labor market. I'm now
• 23:52
  Speaker 2: growing concerned about price shocks and repeating the time period
• 23:55
  Speaker 2: of the nineteen seventies. And I again, nothing I have
• 24:01
  Speaker 2: seen from Worsh makes me believe that he is going
• 24:04
  Speaker 2: to orchestrate that type of pivot too. But you're seeing
• 24:08
  Speaker 2: it from some of those who were very public about,
• 24:10
  Speaker 2: you know, pounding the desk for rate cuts last year,
• 24:12
  Speaker 2: who are now turning around and saying, yeah, never mind.
• 24:15
  Speaker 2: And we will have to see what we get from
• 24:17
  Speaker 2: Kevin Worsh, who, by the way, historically prior to this administration,
• 24:22
  Speaker 2: prior to this administration for Trump and the prior administration
• 24:25
  Speaker 2: for Trump, was all about, Hey, rates need to be
• 24:28
  Speaker 2: higher longer, we have massive debt problems, we have potential
• 24:31
  Speaker 2: for higher inflation. He was wrong about it POSTGFC and
• 24:34
  Speaker 2: was pounding the desk for higher rates. Then he was
• 24:37
  Speaker 2: loud about it during the Biden administration. And I'll be
• 24:40
  Speaker 2: very interested to see when you're actually in power and
• 24:43
  Speaker 2: not running for the position, what your position is on
• 24:47
  Speaker 2: rate cuts.
• 24:48
  Speaker 6: What's vital is it?
• 24:49
  Speaker 5: The FED maintained credibility, and it's probably already lost it
• 24:52
  Speaker 5: because Trump has compromised the FED. You could say, you
• 24:54
  Speaker 5: think that's great. You want Trump to control the money supply,
• 24:56
  Speaker 5: which is the main determinant of inflation in the medium
• 24:59
  Speaker 5: to long term yep. Or you could say you think
• 25:00
  Speaker 5: it's horrible. I obviously think it's horrible. Nothing against the president.
• 25:05
  Speaker 5: Any president, any politician should stay as far away from
• 25:08
  Speaker 5: monetary policy day to day. Obviously they've got to oversee it,
• 25:12
  Speaker 5: but should stay as far away from it as possible
• 25:14
  Speaker 5: for obvious reasons, Well, maybe they're not obvious.
• 25:16
  Speaker 6: Politicians will always want lower rates.
• 25:18
  Speaker 5: Warsh said that in his testimony, and he's right. Unfortunately
• 25:21
  Speaker 5: he's tainted. He's got to earn credibility. He's got to
• 25:25
  Speaker 5: earn back the credibility that Vulgar earned, that green Span earned,
• 25:29
  Speaker 5: that Bernanki didn't squander. So it took the Fed fifty
• 25:34
  Speaker 5: I'm going to say fifty years the mistakes of the
• 25:36
  Speaker 5: nineteen seventies when it thought it could exploit a trade
• 25:39
  Speaker 5: off between unemployment and inflation favorably.
• 25:42
  Speaker 6: It couldn't.
• 25:42
  Speaker 5: I'm oversimplifying a little bit, but that's sort of the
• 25:44
  Speaker 5: consensus right up until COVID, when Powell and the other
• 25:49
  Speaker 5: members of the fomc relate to act like it takes.
• 25:52
  Speaker 5: It took decades for the FED to establish itself as
• 25:55
  Speaker 5: having the credibility to squash inflation when the circumstances called
• 25:59
  Speaker 5: for it to impose economic sacrifice. Vulgar earned that credibility.
• 26:04
  Speaker 5: Warsh needs to earn it back because Trump has compromised
• 26:08
  Speaker 5: the independence of the FED.
• 26:10
  Speaker 2: Let's talk about that credibility for a moment and why
• 26:12
  Speaker 2: it's so important, because I don't think it's necessarily obvious, right,
• 26:16
  Speaker 2: Like in the nineteen seventies, for example, when they were
• 26:19
  Speaker 2: trying to fight back that credibility, they were not public.
• 26:21
  Speaker 2: The FED was not public about what they were doing.
• 26:23
  Speaker 2: They were just saying, hey, set rates. They'll learn, you know,
• 26:26
  Speaker 2: people will learn about it later. There was no press conference, but.
• 26:29
  Speaker 3: There was no press conference in that way that has
• 26:32
  Speaker 3: been then.
• 26:32
  Speaker 5: They were vocal, though, I mean they said, we don't think.
• 26:34
  Speaker 5: In the seventies, the prevailing view was inflation was non
• 26:37
  Speaker 5: monetary in cause Burns, chairman at the time, said there's
• 26:42
  Speaker 5: not much monetary policy can do about it. We need
• 26:45
  Speaker 5: price controls, we need incomes policies. They were obviously mistaken, So.
• 26:50
  Speaker 2: That credibility piece, let's just explain or yeah, sure, think
• 26:54
  Speaker 2: through logically how you would behave if you didn't believe
• 26:58
  Speaker 2: the FED was going to cut.
• 27:00
  Speaker 5: If you want your kids to do what you want
• 27:02
  Speaker 5: them to do, and a threat to punish them is credible,
• 27:05
  Speaker 5: the punishment is either none you don't have to invoke it,
• 27:09
  Speaker 5: or it's less severe if the FED is credible, if
• 27:12
  Speaker 5: you believe they're gonna want to squash inflation and they're
• 27:14
  Speaker 5: willing to impose economic hardship on the country to do it. Mike,
• 27:19
  Speaker 5: the adjustment is quicker. Why Because people's expectations change. That
• 27:25
  Speaker 5: is your The why is the key question. What's the
• 27:28
  Speaker 5: mechanism there? Is it magic? No, it's expectations. Expectations can
• 27:32
  Speaker 5: cause prices to change quickly and bring it up or
• 27:36
  Speaker 5: down and cause inflation to go down.
• 27:38
  Speaker 2: If I made out business and the FED telling me, hey,
• 27:43
  Speaker 2: you know they are going to hike rates and slow
• 27:46
  Speaker 2: the economy down, you believe it, you believe it, they're.
• 27:49
  Speaker 5: Going to reduce your rate of price growth. If you
• 27:51
  Speaker 5: don't believe it, you're going to keep increasing prices at
• 27:53
  Speaker 5: the same rate you want to.
• 27:54
  Speaker 3: Keep hiring people. You're going to keep just giving.
• 27:56
  Speaker 5: You don't want to keep raising prices to keep up
• 27:58
  Speaker 5: with what you think is the growth and the money supply.
• 28:01
  Speaker 5: But if you think that, and I keep saying the
• 28:02
  Speaker 5: money supply, you can substitute in short term interest rates.
• 28:05
  Speaker 5: The FED funds rate for that, because that's their policy
• 28:07
  Speaker 5: tool now.
• 28:08
  Speaker 6: But if you believe that the Fed.
• 28:10
  Speaker 5: Because Volkar was perceived as credible, he said, we're gonna
• 28:13
  Speaker 5: get this inflation under control. Monetary policy can do it.
• 28:17
  Speaker 5: And there was a famous paper written by a guy
• 28:20
  Speaker 5: named Tom Sargent, and he's sort of associated with this.
• 28:23
  Speaker 6: School of thought.
• 28:24
  Speaker 5: Monetary the sacrifice required to reduce inflation is mitigated by
• 28:30
  Speaker 5: credible policy because people's expectations adjust. The problem for the
• 28:35
  Speaker 5: FED right now, in addition to facing the biggest shock.
• 28:38
  Speaker 5: And when we say shock, we just don't mean like
• 28:40
  Speaker 5: we're shocked or it's.
• 28:42
  Speaker 3: Dramatic followed by an oil shock.
• 28:45
  Speaker 5: A shock specifically means when headline inflation jumps and say
• 28:50
  Speaker 5: underlying inflation doesn't, at least not initially. That's generally called
• 28:55
  Speaker 5: a supply shock. It can be oil, it could be food,
• 28:58
  Speaker 5: and we're going to get a food supply shock by
• 28:59
  Speaker 5: the way, top of the oil price shock that we're
• 29:02
  Speaker 5: living with, and there will be other shocks, knock on
• 29:05
  Speaker 5: effects from the oil price shock, from the situation in
• 29:10
  Speaker 5: the Gulf. So the FED is faced with a possible
• 29:14
  Speaker 5: series of adverse shocks at verse in the sense that
• 29:16
  Speaker 5: they're going to push prices up and push de man down,
• 29:19
  Speaker 5: stagflationary at the worst time in the modern era, because
• 29:24
  Speaker 5: its credibility has been called into question because the President
• 29:27
  Speaker 5: has unfortunately gotten maybe bad advice or just decided to
• 29:31
  Speaker 5: compromise it.
• 29:31
  Speaker 3: The question of credibility, I think is perfectly defined by
• 29:37
  Speaker 3: Waller's own quote.
• 29:37
  Speaker 1: Here.
• 29:38
  Speaker 2: He's talking about the two percent inflation target, which is
• 29:41
  Speaker 2: the FED stated objective when it comes to inflation, and
• 29:43
  Speaker 2: he says, quote, we keep saying two. We're five years in,
• 29:46
  Speaker 2: it has never gotten back to two. At what point
• 29:49
  Speaker 2: do people start doubting your promises? And mean to me
• 29:53
  Speaker 2: that that's a perfect summary of why he and others
• 29:56
  Speaker 2: are concerned.
• 29:58
  Speaker 5: I'm glad he read he's covered his manhood recently. I'm
• 30:02
  Speaker 5: glad because we were a little concerned. It was touch
• 30:04
  Speaker 5: and go there while he was angling for the job.
• 30:06
  Speaker 5: Forgive me, but that's what it seemed like. Of course,
• 30:08
  Speaker 5: he's a PA. He used to head the econ department
• 30:10
  Speaker 5: at Notre Dame. He is an accomplished researchers like he's
• 30:16
  Speaker 5: one of the pioneers in modern monetary theory. So he
• 30:20
  Speaker 5: Waller gets I'm not like, I don't out overly obsequious.
• 30:24
  Speaker 5: But you know, the guy gets it, and he's right.
• 30:26
  Speaker 5: He knows that's the main issue, and he understands that
• 30:30
  Speaker 5: FED funds might be three and a half, but as
• 30:32
  Speaker 5: inflation expectations creep up and they have, they've jumped, Mike.
• 30:36
  Speaker 5: Real FED funds is coming down. Monetary policy is getting
• 30:39
  Speaker 5: easier without the FED doing a thing.
• 30:43
  Speaker 3: Let's say a quick break.
• 30:44
  Speaker 2: When we come back with oil prices topping again one
• 30:47
  Speaker 2: hundred bucks a barrel, it let me just creep down
• 30:50
  Speaker 2: to ninety nine to ninety seven.
• 30:51
  Speaker 3: Good news. We're gonna talk a little bit more about
• 30:53
  Speaker 3: Iran and the auto market. Next, on the Financial Exchange.
• 30:56
  Speaker 1: The Financial Exchange streams live on x staying on top
• 31:00
  Speaker 1: of the markets and get live reaction as it happens.
• 31:04
  Speaker 1: Is the Financial Exchange text US six one seven three
• 31:08
  Speaker 1: six two thirteen eighty five with your comments and questions
• 31:11
  Speaker 1: about today's show and let us know what you think
• 31:13
  Speaker 1: about the stories we are covering. This is the Financial
• 31:17
  Speaker 1: Exchange Radio Network.
• 31:30
  Speaker 2: Mark, As we sit here with gas prices at four
• 31:33
  Speaker 2: dollars eighteen a gallon at the national average with I
• 31:39
  Speaker 2: always like to laugh at California, California sitting at five
• 31:42
  Speaker 2: dollars in ninety seven, So they're just happy to be
• 31:44
  Speaker 2: under six dollars a gallon again. But at the same time,
• 31:46
  Speaker 2: GM boosting their profit outlook as truck sales buck the
• 31:50
  Speaker 2: rising gas prices. Yeah, for the time being, at least,
• 31:54
  Speaker 2: people are not reacting to high gas prices, which I
• 31:56
  Speaker 2: do find interesting because I distinctly remember during the seven
• 32:01
  Speaker 2: period when gas prices spiked, and maybe this was also
• 32:04
  Speaker 2: due to some recession concerns. I'm not sure, but I
• 32:07
  Speaker 2: distinctly remember like Prius and every hybrid sales out there
• 32:11
  Speaker 2: just absolutely taking off at that point in time, and
• 32:14
  Speaker 2: people were selling their two year old Priuses for above
• 32:19
  Speaker 2: NU Prius MSRP because people were so intent on getting
• 32:24
  Speaker 2: those those those you know, non gas gus, those fuel
• 32:28
  Speaker 2: efficient vehicles. Maybe this is just an expectations piece.
• 32:31
  Speaker 3: Here go ahead more.
• 32:32
  Speaker 5: Well, Michael, this is going to be helpful for the audience.
• 32:35
  Speaker 5: But when you think about how long it takes behavior
• 32:38
  Speaker 5: to change, look at this chart of the gas price,
• 32:40
  Speaker 5: and for those of you who can't see it, picture
• 32:42
  Speaker 5: a line going more or less straight up for five years.
• 32:45
  Speaker 5: Commodity prices rose from the early stages of the recovery.
• 32:50
  Speaker 5: I'm being us centric here, but in O three the
• 32:53
  Speaker 5: economy started from the costs, thank you. In O three
• 32:57
  Speaker 5: the economy started to go like gangbusters again. We were
• 32:59
  Speaker 5: mission to accomplished in Iraq in the first third.
• 33:02
  Speaker 6: Of that year.
• 33:04
  Speaker 5: Obviously there was more to play out there, But my
• 33:06
  Speaker 5: point is gas and another twenty years or so worth.
• 33:13
  Speaker 5: But gas prices, I'll stay on track here. Gas prices
• 33:17
  Speaker 5: went up for like four or five years, with a
• 33:21
  Speaker 5: few interruptions. So people were wondering, is it now that
• 33:24
  Speaker 5: we didn't know the gfs. We didn't know the great
• 33:26
  Speaker 5: recession was coming and that would send oil plummeting. But
• 33:28
  Speaker 5: people were wondering. There were books being written Twilight in
• 33:32
  Speaker 5: the desert, the end of that these I forget it.
• 33:37
  Speaker 3: Peak oil all that.
• 33:39
  Speaker 6: That's a better way to put it. Peak oil, thank you.
• 33:42
  Speaker 5: So yeah, this peak oil means, oh god, we could
• 33:45
  Speaker 5: be paying ten bucks a gallon.
• 33:46
  Speaker 3: Yeah, yeah, this does seem very momentary.
• 33:48
  Speaker 6: We just don't know yet.
• 33:49
  Speaker 5: It makes perfect sense that people aren't yet making big changes.
• 33:52
  Speaker 2: The other pace on cars that we haven't been paying
• 33:56
  Speaker 2: much attention to is the USMCA, which is under threat
• 33:59
  Speaker 2: foreign makers basically threatening to pull all of their cheapest
• 34:03
  Speaker 2: models from the United States without a trade deal in place. Honda, Toyota, Nissan, Hyundai,
• 34:09
  Speaker 2: all basically telling the administration, hey, you know, if we
• 34:14
  Speaker 2: do not get a new deal, we can't sell these
• 34:18
  Speaker 2: cars in the United States without massive tariffs on them,
• 34:22
  Speaker 2: and these cheaper models will come under threat, to which
• 34:25
  Speaker 2: I say, yeah, that is pretty much the entire purpose
• 34:30
  Speaker 2: of tariffs. Like, I want to be really clear that
• 34:32
  Speaker 2: this is not an accident, right, Like the reason that
• 34:36
  Speaker 2: these car companies are selling this is because the tariffs
• 34:38
  Speaker 2: are real. They are significant, and if they exist, then
• 34:42
  Speaker 2: they will need to move massive supply chains into the
• 34:45
  Speaker 2: United States, which is just not doable in the short term.
• 34:48
  Speaker 2: And so their answer is, Okay, we'll just sell these
• 34:50
  Speaker 2: cars somewhere else where they are more affordable due to
• 34:53
  Speaker 2: tariffs in the short term. In the long term, yeah,
• 34:55
  Speaker 2: maybe it incentivizes them to actually bring those supply chains
• 34:58
  Speaker 2: into the US. But I don't think those companies are
• 35:01
  Speaker 2: willing to make that bet on a policy that Congress
• 35:04
  Speaker 2: hasn't authorized at the next president could just wipe out.
• 35:07
  Speaker 5: I'm trying to think of what aspect of policy right
• 35:09
  Speaker 5: now at the federal level is not stagflationary. We're taking
• 35:15
  Speaker 5: supply out of the low end of the auto market
• 35:17
  Speaker 5: through tariffs.
• 35:18
  Speaker 6: As you said, it's deliberate.
• 35:20
  Speaker 3: Sure.
• 35:22
  Speaker 5: Foreign policy, the conflict in Iran is stagflationary. You could say,
• 35:26
  Speaker 5: you think it's great, you want to ran wiped off
• 35:28
  Speaker 5: the face of the earth or something, But unavoidably it's
• 35:32
  Speaker 5: it's stagflationary. It's going to slow growth and increase prices.
• 35:35
  Speaker 3: AI. It's the only way I wouldn't call it.
• 35:39
  Speaker 5: Yeah, right, No, you're right, but we'll give you know,
• 35:41
  Speaker 5: give policy. Yeah, but policy makers are encouraging it, like
• 35:46
  Speaker 5: we're telling the States, hands off, AI, let's let them
• 35:49
  Speaker 5: build a data center in your backyard if they want to.
• 35:51
  Speaker 5: This is good for growth, or YadA, YadA.
• 35:54
  Speaker 6: You know, when it.
• 35:56
  Speaker 4: Comes to leaving assets to your family, simplicity isn't always
• 35:59
  Speaker 4: the best approach. Cushing and Dolan are experts in the
• 36:02
  Speaker 4: elder law, and their new guide is called How to
• 36:05
  Speaker 4: Leave Assets to Beneficiaries. Adding children as joint owners on
• 36:08
  Speaker 4: accounts or property doesn't guarantee you can avoid probate, and
• 36:12
  Speaker 4: it may create serious unintended consequences. In this guide you'll
• 36:17
  Speaker 4: learn why leaving assets to your children may not always
• 36:20
  Speaker 4: be the best plan. The guide also explains how trust
• 36:23
  Speaker 4: can be used to stagger distributions over time, help protect
• 36:26
  Speaker 4: assets from creditors or divorce, and ensure your family receives
• 36:30
  Speaker 4: your inheritance in a way that makes sense for your
• 36:33
  Speaker 4: personal situation. Call eight six six eight four eight five
• 36:37
  Speaker 4: six nine nine right now and ask for your free
• 36:40
  Speaker 4: guide How to Leave Assets to Beneficiaries once again the
• 36:44
  Speaker 4: phone number eight six six eight four eight five six
• 36:48
  Speaker 4: nine nine, or you can request it online at their
• 36:51
  Speaker 4: website Legal exchange show dot com.
• 36:55
  Speaker 1: The proceeding was paid for and the views expressed are
• 36:57
  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
• 36:59
  Speaker 1: or Armstrong ad as remay contact you offering legal or
• 37:01
  Speaker 1: investment services. Christian Armstrong did not endorse each other and
• 37:04
  Speaker 1: are not affiliated.
• 37:05
  Speaker 3: By the way.
• 37:06
  Speaker 2: I wanted to point out so I don't get called
• 37:07
  Speaker 2: out the Hantera, Civi, Victoryta Corilla. Many of these cars
• 37:10
  Speaker 2: are manufactured in the United States today. The problem is
• 37:14
  Speaker 2: that the parts that go into them, significant portions of them,
• 37:17
  Speaker 2: are not manufacturing right, and those are the pieces that
• 37:20
  Speaker 2: are compounding the price on these you know, lower end
• 37:24
  Speaker 2: vehicles where you know, apparently they had the supply chain
• 37:27
  Speaker 2: worked out pretty well. So it's not that these things
• 37:29
  Speaker 2: are all manufactured in Mexico and then shipped over. No,
• 37:31
  Speaker 2: they're put together in the US, which again is problematic
• 37:35
  Speaker 2: because those are American jobs. I suspect that there is
• 37:38
  Speaker 2: going to be more action on auto tariffs because there
• 37:41
  Speaker 2: already have been from the administration that have pivoted things away.
• 37:44
  Speaker 5: Yeah, North American car manufacturing by foreign owned companies doesn't
• 37:48
  Speaker 5: work without North American free trade, right because stuff goes
• 37:51
  Speaker 5: back right over the border Canada to Michigan, Canada, to
• 37:54
  Speaker 5: over in Michigan, Mexico to you know wherever, Alabama and
• 37:57
  Speaker 5: back and forth, and yeah, it doesn't work.
• 38:00
  Speaker 2: As we close in on the eleven o'clock hour, markets
• 38:03
  Speaker 2: largely in Positive Territory being dragged down by the NASDAC,
• 38:07
  Speaker 2: We're gonna take a quick break when we come back,
• 38:09
  Speaker 2: full market update, and a lot more here from the
• 38:12
  Speaker 2: Financial Exchange