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Fed Hike Odds Rise as Diesel Prices Keep Climbing · The Financial Exchange Show

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  Speaker 1: This is the Financial Exchange with Chuck Zada and Mark Vandetti.
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  Speaker 2: Chuck, Mark, and Tucker with you here, and we are
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  Speaker 2: eagerly awaiting the 2 p.m. Eastern release of the Federal
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  Speaker 2: Reserve's Open Market Committee, their decision on what to do
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  Speaker 2: with monetary policy. If you want to know where the
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  Speaker 2: lay of the land is as far as what the
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  Speaker 2: market is pricing in, The CME's FedWatch tool currently has
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  Speaker 2: a 25 basis point hike priced in at a 92.7%
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  Speaker 2: chance of happening, which means only a 7.3% chance that
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  Speaker 2: nothing occurs. There's nothing else on the board there. So again,
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  Speaker 2: it's not to say that you can't get something different,
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  Speaker 2: but just that, hey, if you got a rate cut
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  Speaker 2: or a 50 basis point hike, those would be things
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  Speaker 2: that the market would be genuinely surprised about. I think
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  Speaker 2: it would still be, you know, surprising if, uh, we,
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  Speaker 2: we saw no action, obviously with, you know, north of
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  Speaker 2: a 90% chance of a hike. Now, uh, the market
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  Speaker 2: is basically giving Kevin Warsh a, uh, get out of
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  Speaker 2: jail free card when it comes to hiking, it's already
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  Speaker 2: priced in. He doesn't have to do any of the
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  Speaker 2: work because the market's done it for him. And so, uh,
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  Speaker 2: this is what is expected by the market heading into
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  Speaker 2: this afternoon's meeting. Uh, In terms of what markets are doing,
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  Speaker 2: the S & P 500 is up 30 points, about 0.4%.
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  Speaker 2: The Dow Jones is down 3 points. Not 3%, but
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  Speaker 2: 3 points. So we just wasted more time on it
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  Speaker 2: than it deserved. The Nasdaq Composite up 209 points, about
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  Speaker 2: three quarters of a percent. So mixed markets as we
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  Speaker 2: go through the day. 10-year Treasury finding a bit of
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  Speaker 2: a bid after getting up to almost 5.02% yesterday. It's
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  Speaker 2: at 4.955, down 4.1 basis points today. Gold catching a
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  Speaker 2: bid on that news up 59.20 to 43.92. So a
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  Speaker 2: little bit of a relief rally there on gold, which
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  Speaker 2: has struggled to find its footing after a really good August.
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  Speaker 2: September just been choppy and slightly downward movement for the
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  Speaker 2: month there. So Gold seeing if it can get itself
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  Speaker 2: in gear. We've got crude oil giving back some of
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  Speaker 2: yesterday's gains. Now down 315 a barrel on West Texas
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  Speaker 2: Intermediate at 102.66. However, the numbers that matter are still
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  Speaker 2: moving in the wrong direction. Diesel crack spreads, meaning the
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  Speaker 2: difference between what a refinery has to pay for crude
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  Speaker 2: and what they receive for diesel. North American one now
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  Speaker 2: at 117 a barrel, meaning that if you add the
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  Speaker 2: total cost together, You're now up to $ 2. 20 a barrel
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  Speaker 2: for diesel at this point. Last Friday, by comparison, it
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  Speaker 2: was $ 2. 10. Diesel futures currently off $ 0. 05, but this is
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  Speaker 2: after they were up $ 0. 30 yesterday. So, you know, kind
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  Speaker 2: of two steps forward, half a step back is what
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  Speaker 2: you're seeing on that side of things. And when you
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  Speaker 2: look at retail prices that we're seeing, AAA national average
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  Speaker 2: for gas prices up another $ 0. 04 overnight to $ 4.
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  Speaker 1: 36.
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  Speaker 2: Diesel up $ 0. 05 to $ 6.
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  Speaker 1: 31.
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  Speaker 2: And I got to tell you, a couple of the
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  Speaker 2: guys that I follow on social media for gas prices
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  Speaker 2: are basically warning about, in particular, if you're listening to
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  Speaker 2: us from the Midwest, warning about some massive moves that
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  Speaker 2: are coming there as well as in the Rockies, where
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  Speaker 2: Tom Closa, who we interviewed a couple weeks ago on
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  Speaker 2: the show, he's with Gulf Oil and Patrick DeHaan, who
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  Speaker 2: runs Gas Buddy. They're both indicating that the Midwest and
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  Speaker 2: Rockies are could potentially see $ 0. 60 to $ 0. 70 rises in
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  Speaker 2: diesel prices over the next week, based on what they're
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  Speaker 2: seeing from wholesale data. And nationally, it's a pretty good
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  Speaker 2: chance that we end up with another $ 0. 30 to $ 0. 40
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  Speaker 2: bump in diesel prices with that leading the charge. So $ 6. 60
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  Speaker 2: to $ 6. 70 diesel nationally is not out of the question
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  Speaker 2: by next week or the end of next week. Gas prices,
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  Speaker 2: the change is they're a little bit more muted. But
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  Speaker 2: we're still probably heading towards $ 4. 45 in the next week
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  Speaker 2: or so as well. So unfortunately, just no good news
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  Speaker 2: as it relates to fuel prices in the United States
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  Speaker 2: right now. Still some continued upward pressure that's going to
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  Speaker 2: work its way through the system in the next week.
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  Speaker 2: And then from there, it's going to be, hey, what's
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  Speaker 2: going on in the Middle East? What's going on in Ukraine?
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  Speaker 2: And do we see any improvement in any of those
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  Speaker 2: areas that could lead to some lower prices coming through?
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  Speaker 2: Right now, the answer throughout the early part of the
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  Speaker 2: fall has been no. Let's talk about this piece in
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  Speaker 2: the Wall Street Journal, I'm sorry, in the New York Times.
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  Speaker 2: The world economy is becoming wary of the United States,
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  Speaker 2: the subheader. America's position of global economic stability is starting
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  Speaker 2: to look shakier as the Trump administration piles on debt
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  Speaker 2: and doubles down on sanctions. And so there's a few
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  Speaker 2: different things to sort through in this piece, some of
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  Speaker 2: which I think are, you know, legitimate criticisms and some
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  Speaker 2: of which are, I don't think necessarily a result of
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  Speaker 2: anything that this administration has done, but more just, okay,
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  Speaker 2: here's how things have evolved over the last 25 to
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  Speaker 2: 30 years. So a couple different things that I think
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  Speaker 2: are worth talking about here. Number one, the $ 40 trillion
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  Speaker 2: debt that we have right now, is that impacting how U.S.
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  Speaker 2: creditors see the prospect of continuing to act as a
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  Speaker 2: creditor to the United States? I come away saying no,
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  Speaker 2: not really, simply because these questions always come up every
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  Speaker 2: time we see a rise in yields. Mm-hmm. But when
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  Speaker 2: yields go back down because of an inevitable soft patch
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  Speaker 2: of the economy hits, no one says, well, U.S. creditors
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  Speaker 2: trust the U.S. much more now, and so that's why
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  Speaker 2: yields have gone down. So I don't really buy that
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  Speaker 2: because we crossed the $ 40 trillion threshold for debt. Again,
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  Speaker 2: I'm not someone who's like pile on the debt, but
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  Speaker 2: I don't think that we've reached this unique tipping point
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  Speaker 2: and that there's anything special that's going on there. Your thoughts, Mark?
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  Speaker 3: There probably is, just to add another metaphor, an event
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  Speaker 3: horizon beyond which, look, there's been a lot of empirical,
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  Speaker 3: that is statistical work done on the question of is
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  Speaker 3: the U.S. government's debt still the world's safe asset? Safe
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  Speaker 3: asset is not a term I made up. It's one
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  Speaker 3: that's used by researchers to denote something that's money good.
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  Speaker 3: People hold it because they believe others will honor its
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  Speaker 3: face value. That's why central banks, part of the reason
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  Speaker 3: why central banks hold dollars is uh treasuries usually you
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  Speaker 3: don't hold dollars but you could just substitute dollars for
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  Speaker 3: treasuries here uh so an example of this that we
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  Speaker 3: all know is that when you see like a shady
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  Speaker 3: deal being done in a movie they don't open up
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  Speaker 3: a suitcase of euros they open up a suitcase of
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  Speaker 3: dollars most dollars.
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  Speaker 2: It's true they've never seen a suitcase i mean i.
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  Speaker 3: Wouldn't know not that i would know if i like
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  Speaker 3: saw one i'm not sure who's on the uh front
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  Speaker 3: face of it but You know, my point is people
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  Speaker 3: trust dollars. They use them all over the world. Something
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  Speaker 3: like 80, 90% of $ 100 bills are circulated outside of
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  Speaker 3: the United States. Like, let that sink in. So are
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  Speaker 3: we squandering that by running up too much debt? My
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  Speaker 3: answer is maybe slightly different than whatever they concluded in
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  Speaker 3: the article, is yes, there's empirical evidence that U.S. bonds
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  Speaker 3: are no longer viewed as the safe asset they once were.
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  Speaker 3: They don't earn a premium over... synthetic versions of u.s.
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  Speaker 3: bonds that is uh... another country's bonds the but the
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  Speaker 3: foreign exchange which is converted in the u.s. dollar short
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  Speaker 3: and triple a corporate bonds the credit risk of which
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  Speaker 3: is hedged away so there is there's there's there's evidence
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  Speaker 3: strong evidence that something's changed I don't know what the
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  Speaker 3: tipping point is.
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  Speaker 2: I can't get behind the idea that, oh, yields going
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  Speaker 2: up are reflecting this, simply because we saw this story
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  Speaker 2: in 2023. In October of 23, when the U.S. 10-year
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  Speaker 2: almost hit 5%, this paragraph that's in this piece could
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  Speaker 2: be right from there. The most glaring example has been
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  Speaker 2: the bond market. Yields have been soaring as investors nervous
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  Speaker 2: about the mounting national debt demand a higher rate of
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  Speaker 2: return for buying treasury bonds. I if you pulled up
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  Speaker 2: pieces from September and October of 23, you'd see this.
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  Speaker 2: And then in the next three months, the tenure went
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  Speaker 2: back to almost 4% because the economy slowed. So I just,
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  Speaker 2: I can't, anytime I see stuff like this, it just
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  Speaker 2: comes off as very chicken little.
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  Speaker 3: It's true. The explanation feels recycled. And just like, not
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  Speaker 3: accurate historically. I don't know if it's accurate or not.
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  Speaker 3: oh well historically okay there's no question we haven't blown
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  Speaker 3: up yet therefore predictions of a blow-up have not been
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  Speaker 3: true i certainly can't argue with that uh but i
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  Speaker 3: wouldn't go so far as to say this isn't the
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  Speaker 3: massive the beginning of either a gradual ratcheting up or
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  Speaker 3: a step like uh... increase in inside in in government
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  Speaker 3: bond yields it's not just here it's all over the
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  Speaker 3: world uh... because we have reached we have crossed some
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  Speaker 3: sort of boundary beyond which investors are gonna say enough
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  Speaker 3: is enough i will buy a triple-a corporate i will
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  Speaker 3: hedge the default risk there are instruments widely available for
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  Speaker 3: doing that now i trust them more than i do u.s
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  Speaker 3: treasuries if you believe that there is a point beyond
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  Speaker 3: which that is true you can't rule out that it's
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  Speaker 3: not happening now Other.
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  Speaker 2: Items that I don't think paint the full picture here,
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  Speaker 2: this piece I'll quote, nearly 90% of global foreign exchange
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  Speaker 2: transactions are in dollars, given, you know, you mentioned that
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  Speaker 2: as well.
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  Speaker 3: Similar point, yeah.
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  Speaker 2: But the share of dollars being held in central bank
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  Speaker 2: reserves has been steadily declining over the past decade, falling
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  Speaker 2: to 56% at the end of 2025 from 64% in 2015.
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  Speaker 2: This can by and large be explained by two countries,
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  Speaker 2: one of which is Russia, which currently holds basically no
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  Speaker 2: dollars because of, you know, Well, a whole bunch of
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  Speaker 2: sanctions over the last decade related to Russian military aggression.
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  Speaker 2: And China, which has basically said, look, we're going to
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  Speaker 2: stop accumulating new dollar assets and still just maintain the
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  Speaker 2: ones that we have. If you take those two countries away,
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  Speaker 2: the picture basically looks the same as it was before.
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  Speaker 3: Researchers don't like that measure, by the way. It's problematic.
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  Speaker 2: The other statement here that I just find, if I'm
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  Speaker 2: being entirely honest, laughable. Last year, Christine Lagarde, president of
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  Speaker 2: the European Central Bank, said erratic policymaking in the U.S.
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  Speaker 2: was setting the stage for, quote, a global euro moment. No,
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  Speaker 2: it's not. The euro is not going to have its
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  Speaker 2: moment as the world's reserve currency for a wide, wide
• 12:04
  Speaker 2: number of reasons, namely that, well, there are two big ones.
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  Speaker 2: Number one, European economies do not run large enough deficits
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  Speaker 2: to be able to supply the world with the amount
• 12:16
  Speaker 2: of euros that they would need to circulate worldwide. Number two,
• 12:22
  Speaker 2: the European Union uses a single currency without any standardized
• 12:29
  Speaker 2: fiscal control over its member states. And so as such,
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  Speaker 2: it's completely inappropriate to use as a global reserve currency.
• 12:36
  Speaker 3: It's a currency without a country.
• 12:37
  Speaker 2: So I don't think we're setting up for a global
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  Speaker 2: euro moment. Look, I've been hearing these dollar demise stories for,
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  Speaker 2: I don't know, since I started in this business 17
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  Speaker 2: years ago. It's not to say that the dollar won't
• 12:50
  Speaker 2: eventually sunset. Every currency eventually does at some point in history.
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  Speaker 2: But I do like to remind people that the fall
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  Speaker 2: of Rome took 400 years. And so, you know, even
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  Speaker 2: if you do believe that the dollar's demise is coming
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  Speaker 2: at some point, do you have 400 years to wait?
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  Speaker 2: I don't personally. It's not to say that something can't
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  Speaker 2: happen sooner, maybe five years from now, maybe 25, maybe 100.
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  Speaker 2: I don't know. But let's just pump the brakes a
• 13:18
  Speaker 2: little bit on some of the hysterics as it relates
• 13:21
  Speaker 2: to the U.S. dollar. It's possible to have a reasoned
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  Speaker 2: discussion about debt levels and things like that without saying
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  Speaker 2: that something's changed and no one wants the dollar anymore.
• 13:31
  Speaker 2: I just can't do that. Let's take a quick break.
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  Speaker 2: When we return, we'll talk about how American businesses are
• 13:38
  Speaker 2: setting prices in today's environment.
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• 14:00
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• 14:03
  Speaker 1: This is The Financial Exchange Radio Network.
• 14:25
  Speaker 2: Peace in the Wall Street Journal. American businesses have no
• 14:28
  Speaker 2: idea how to set prices right now.
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  Speaker 3: It's true.
• 14:32
  Speaker 2: Here's the deal. You've got diesel prices that have hit
• 14:36
  Speaker 2: all-time highs. They haven't even hit all-time. Guys, let's be honest.
• 14:40
  Speaker 2: The all-time high for diesel before last week was $ 5.
• 14:43
  Speaker 1: 61.
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  Speaker 2: It's at $ 6.
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  Speaker 3: 31 now.
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  Speaker 2: So we are almost 15% above the previous all-time high
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  Speaker 2: for diesel. And so you've got companies now that have
• 14:55
  Speaker 2: to ship a bunch of stuff. It might be food.
• 14:58
  Speaker 2: It might be computers. It might be, you know, cat towers. Like,
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  Speaker 2: it could be anything that you can, you know, set
• 15:06
  Speaker 2: your mind to. It has to get shipped on big
• 15:08
  Speaker 2: 18-wheelers that use a lot of diesel. And so the
• 15:13
  Speaker 2: thing that companies are reckoning with is, okay, if we're
• 15:16
  Speaker 2: setting our pricing, whether it's for the holiday season that's
• 15:19
  Speaker 2: coming up or for, you know, after that, hey, the
• 15:22
  Speaker 2: stuff that we're stocking right now is being shipped using
• 15:25
  Speaker 2: these costs. How do we price this? Do we assume
• 15:29
  Speaker 2: that these prices come back down and we can absorb
• 15:31
  Speaker 2: it later on? Do we set prices higher because we
• 15:35
  Speaker 2: need to absorb them now if we think these are
• 15:36
  Speaker 2: going to be higher for longer? And so it's a
• 15:40
  Speaker 2: major question facing companies of all types, from grocery stores
• 15:44
  Speaker 2: to pet stores to restaurants. You go down the list.
• 15:49
  Speaker 2: They don't know how to price things in this environment
• 15:52
  Speaker 2: because energy has been so volatile to the top side
• 15:55
  Speaker 2: this year. They don't know whether to price it as
• 15:58
  Speaker 2: if it's going to keep going up, stay the same,
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  Speaker 2: or go back down.
• 16:01
  Speaker 3: Monetary policy, what the Fed does, what Warsh is going
• 16:03
  Speaker 3: to do today, is most effective when inflation expectations are stable,
• 16:07
  Speaker 3: well anchored, to use the jargon that Fed people use.
• 16:12
  Speaker 3: Well anchored just means we think inflation, if it's above 2%,
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  Speaker 3: we think it's going to come back to 2%. If
• 16:17
  Speaker 3: it's below, we think it's going to rise to 2%.
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  Speaker 3: And there's evidence that for a couple of decades, expectations
• 16:21
  Speaker 3: were pretty well anchored. And that's consistent with everybody listening's experience.
• 16:25
  Speaker 3: Nobody was worried too much about inflation outside of 06,
• 16:28
  Speaker 3: 07 in the 20 years up to COVID, really. The
• 16:32
  Speaker 3: problem with stories like this, if you're responsible for monetary policy,
• 16:38
  Speaker 3: is that If businesses don't know where prices are going,
• 16:41
  Speaker 3: consumers almost certainly can't know. And so when expectations become unanchored,
• 16:48
  Speaker 3: people start to expect that anything could happen, good or bad,
• 16:51
  Speaker 3: mainly bad in this environment. And it makes it all
• 16:55
  Speaker 3: the more difficult for monetary policy to affect the economy
• 16:58
  Speaker 3: the way you want it to.
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  Speaker 2: And you've got businesses reacting differently to what they're seeing.
• 17:02
  Speaker 2: This piece in the Wall Street Journal gives one example.
• 17:06
  Speaker 2: of a company by the name of Ambix Manufacturing. They
• 17:09
  Speaker 2: sell plastic components to power distribution companies. So you've never
• 17:13
  Speaker 2: heard of this company because none of us interact with them.
• 17:16
  Speaker 2: And in the spring and summer, she basically said, the
• 17:20
  Speaker 2: owner said, look, I'm not changing my pricing because I
• 17:24
  Speaker 2: expect that, you know, things can settle down and I
• 17:27
  Speaker 2: won't have to pass these costs through. But in the
• 17:30
  Speaker 2: last couple months, the resins that they use to basically make...
• 17:36
  Speaker 2: part of their product, those prices have continued to increase.
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  Speaker 2: And so the owners basically said, look, we've had to
• 17:42
  Speaker 2: pass higher costs along to customers, increasing prices on all
• 17:46
  Speaker 2: products by anywhere from 10 to 21% over the course
• 17:49
  Speaker 2: of the summer. On the other hand, you've got a
• 17:52
  Speaker 2: farmer who's out in Pennsylvania, who thinks, hey, despite the
• 17:57
  Speaker 2: fact that I'm paying more for shipments of hay in
• 18:00
  Speaker 2: order to feed my cows and pigs, hey, yes, the
• 18:06
  Speaker 2: cost of that has gone up by 15% in the
• 18:09
  Speaker 2: past couple months, but I think it's going to come
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  Speaker 2: back down, and so he's not raising prices right now,
• 18:15
  Speaker 2: instead choosing to eat the cost at this point. But
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  Speaker 2: the point that I think is made in this piece
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  Speaker 2: is there still are very different ideas as to how
• 18:25
  Speaker 2: companies are trying to handle this, and Not everyone is
• 18:29
  Speaker 2: fully passing through these costs right now, which means there
• 18:32
  Speaker 2: is the potential for inflation to more broadly eke its
• 18:35
  Speaker 2: way into the data sets over the coming months if
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  Speaker 2: this turns out to be something that lasts longer. And
• 18:42
  Speaker 2: so this is, you know, the thing that you have
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  Speaker 2: to remember is, look, just because the headline for diesel
• 18:48
  Speaker 2: or gas goes up, it doesn't necessarily affect all those
• 18:51
  Speaker 2: other products right away. You might have long-term contracts that
• 18:54
  Speaker 2: you've already signed on these things that don't expire immediately.
• 18:56
  Speaker 2: for six months or until the next calendar year. So
• 18:59
  Speaker 2: you need to wait to see how these things turn
• 19:01
  Speaker 2: over before you can definitively say that it hasn't had
• 19:04
  Speaker 2: an impact in areas that aren't just energy and food related.
• 19:13
  Speaker 2: You can't say you're out of the woods the second
• 19:16
  Speaker 2: prices start going down for gas is the point that
• 19:18
  Speaker 2: I'll make, just because in some cases, those costs have
• 19:21
  Speaker 2: not yet been passed through and might need to be
• 19:23
  Speaker 2: by businesses. Let's take a quick break. When we return,
• 19:28
  Speaker 2: we've got Wall Street Watch next.
• 19:40
  Speaker 1: Bringing the latest financial news straight to your radio every day.
• 19:44
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:50
  Speaker 1: Time now for Wall Street Watch. Tracking the stocks, the data,
• 19:54
  Speaker 1: and the headlines driving markets so far today. Right here
• 19:57
  Speaker 1: on the Financial Exchange Radio Network.
• 19:59
  Speaker 4: An all-important rate decision from the Fed is on the
• 20:02
  Speaker 4: way at 2 o'clock this afternoon where odds have the
• 20:05
  Speaker 4: central bank down. Hiking interest rates for the first time
• 20:08
  Speaker 4: in three years by a quarter of a percentage point.
• 20:11
  Speaker 4: Fed Chairman Kevin Warsh will hold a press conference at 2.30
• 20:15
  Speaker 4: soon after that decision. Right now, the Dow is mostly flat,
• 20:18
  Speaker 4: only down 28 points. S & P 500 is up
• 20:21
  Speaker 4: a third of a percent or 25 points higher. NASDAQ
• 20:24
  Speaker 4: up about three quarters of a percent or 189 points higher.
• 20:27
  Speaker 4: Russell 2000 is up about half a percent. 10-year treasury
• 20:32
  Speaker 4: yield is down three basis points at 4.961%. Crude oil
• 20:37
  Speaker 4: down nearly 4% now, or $ 101 a barrel, while Brent
• 20:41
  Speaker 4: is at $ 105. According to Reuters, SK Hynix was in
• 20:46
  Speaker 4: talks with Intel to manufacture memory chips in the U.S.
• 20:49
  Speaker 4: for the first time. However, no decisions have been made
• 20:53
  Speaker 4: regarding any potential partnership. Intel is up by 5%. while
• 20:57
  Speaker 4: shares in SK Hynix are climbing 3%. Meanwhile, transportation and
• 21:02
  Speaker 4: logistics company JB Hunt is seeing its stock sink 13%
• 21:07
  Speaker 4: after the company cautioned that its earnings may decline in
• 21:10
  Speaker 4: the third quarter between 5% and 10% due to internal
• 21:14
  Speaker 4: adjustments to account for rising rates of purchase transportation. And
• 21:19
  Speaker 4: Amazon announced it is raising the minimum starting wage for
• 21:22
  Speaker 4: its U.S. full-time customers core operations employees to $ 20 an hour,
• 21:28
  Speaker 4: alongside several new benefits like discounts on groceries. I'm Tucker Silva,
• 21:34
  Speaker 4: and that is Wall Street Watch.
• 21:37
  Speaker 2: We got a piece here in Bloomberg. It's titled, Boomers
• 21:43
  Speaker 2: are Sacrificing Retirement Savings to Support Their Grandkids. And like
• 21:49
  Speaker 2: most things, I think that it is a topic that,
• 21:54
  Speaker 2: you know, is neither good nor bad. It's much more
• 21:56
  Speaker 2: on a case by case basis in terms of, okay, like,
• 22:00
  Speaker 2: is this, you know, something that makes sense or not?
• 22:06
  Speaker 2: So here's the deal. I'll quote here. Nearly two in
• 22:09
  Speaker 2: five parents of young children expect to receive financial help
• 22:11
  Speaker 2: or ask for it from their own parents or grandparents
• 22:14
  Speaker 2: in the next year. Among them, 47% say they receive
• 22:18
  Speaker 2: cash for day-to-day basics from relatives. So, get it. Things
• 22:24
  Speaker 2: have gotten expensive, wages have not kept up in a
• 22:26
  Speaker 2: lot of cases, and so parents of young children are
• 22:30
  Speaker 2: feeling it because, here's the rub, young children, they're not free.
• 22:35
  Speaker 2: They're very expensive, very cute money pits. It's just the
• 22:41
  Speaker 2: nature of the beast these days. you know, 100 years
• 22:44
  Speaker 2: ago was, hey, let's have more kids so they can
• 22:45
  Speaker 2: all work on the farm. Today it's, hey, let's have
• 22:48
  Speaker 2: more kids so that we can all, you know, pay
• 22:50
  Speaker 2: like $ 1, 000 to have them play like travel sports. Like
• 22:53
  Speaker 2: it's just fundamentally different. So I think that when you
• 22:57
  Speaker 2: look at this, if it's something where the withdrawals that a...
• 23:06
  Speaker 2: baby boomer is making in order to help out with
• 23:10
  Speaker 2: the cost of raising a child from, you know, their kids,
• 23:14
  Speaker 2: if those are not affecting the boomers own retirement plans,
• 23:19
  Speaker 2: I think it's 100% fine. There's no issue there. I
• 23:24
  Speaker 2: think the problem comes when you have boomers who are
• 23:28
  Speaker 2: working through their retirement savings very quickly and and it
• 23:31
  Speaker 2: becomes increasingly likely that they exhaust those retirement savings during
• 23:35
  Speaker 2: their lifespan, that this becomes problematic because all you've done
• 23:39
  Speaker 2: then is you've said, okay, I'm going to help support
• 23:42
  Speaker 2: my child in raising this grandkid. But then, by the
• 23:48
  Speaker 2: time I run out of money, now I'm going to
• 23:49
  Speaker 2: need my child's help to take care of myself because
• 23:52
  Speaker 2: I'm going to have to move in with them.
• 23:54
  Speaker 3: Chickens are coming home to roost.
• 23:56
  Speaker 2: It's not really doing anyone any favors because now that child.
• 24:00
  Speaker 2: A, loses the extra money that you were giving them
• 24:04
  Speaker 2: in order to support the grandkid. And B, they've got
• 24:07
  Speaker 2: to pay for you now, too. So you've got the
• 24:09
  Speaker 2: whole thing making kind of a big problem there. And
• 24:14
  Speaker 2: so this is why I think fundamentally my point of
• 24:17
  Speaker 2: view is, look, if you want, it's no different from
• 24:20
  Speaker 2: being on an airplane, Mark. They tell you, hey, secure
• 24:24
  Speaker 2: your own oxygen mask first and then take care of
• 24:27
  Speaker 2: the person in front next to you. It's the same thing.
• 24:30
  Speaker 2: You've got to take care of yourself to be able
• 24:32
  Speaker 2: to take care of other people, and if you're just
• 24:34
  Speaker 2: bankrupting yourself in order to take care of your kids,
• 24:38
  Speaker 2: adult kids, not your 40-year-old kids and helping to raise
• 24:42
  Speaker 2: their kids, well, eventually you're just going to become someone
• 24:46
  Speaker 2: that they need to take care of, and that doesn't
• 24:47
  Speaker 2: do anyone any favors.
• 24:48
  Speaker 3: Yeah, my dad always used to say, no problem. I'm
• 24:51
  Speaker 3: not sure what he meant by that.
• 24:54
  Speaker 2: No problem for what?
• 24:55
  Speaker 3: In response to that message.
• 24:56
  Speaker 2: Oh, gotcha, gotcha, yeah.
• 24:58
  Speaker 3: So, I mean, ultimately, who cares? This is a matter
• 25:01
  Speaker 3: between parents and children. I assume there's some sort of
• 25:04
  Speaker 3: implicit agreement. I support you today, you will support me
• 25:08
  Speaker 3: in the future.
• 25:09
  Speaker 2: Most families don't talk about money that well.
• 25:12
  Speaker 3: Yeah, well, you don't have to mention the M word.
• 25:14
  Speaker 3: You just say, maybe, I don't know, I'm scratching your
• 25:16
  Speaker 3: back now, you scratch mine in 25 years, wink, wink,
• 25:19
  Speaker 3: you know what I mean, adult diapers.
• 25:21
  Speaker 2: Most families don't. think about things that way, especially because
• 25:24
  Speaker 2: then it ends up becoming, okay, now I've got to
• 25:28
  Speaker 2: move in with one of my kids. Oh, it turns
• 25:30
  Speaker 2: out they didn't talk about it with their spouse, and
• 25:33
  Speaker 2: so now I can't... Yes, if we actually talked about
• 25:37
  Speaker 2: these things and had adult conversations, it's one thing.
• 25:41
  Speaker 3: Did I say implicit? If I didn't, I should have.
• 25:43
  Speaker 3: You did.
• 25:44
  Speaker 2: Okay. I think it's the... The boomer thinks that it's, oh,
• 25:49
  Speaker 2: I'll take care of you and then you'll take care
• 25:51
  Speaker 2: of me, when oftentimes the reality of that understanding is
• 25:54
  Speaker 2: not fully understood.
• 25:55
  Speaker 3: Yeah, I mean, subtle things like start bringing luggage when
• 25:57
  Speaker 3: you visit and just sort of work them into the idea.
• 25:59
  Speaker 2: Right, like you leave a small purse at first and
• 26:02
  Speaker 2: then a bigger and bigger suitcase.
• 26:02
  Speaker 3: You slowly start decorating one of the spaces. Yeah, make
• 26:05
  Speaker 3: it a slow evolution of one of the kids' guest
• 26:08
  Speaker 3: rooms into your bedroom.
• 26:09
  Speaker 2: Yeah, eventually you just start bringing all of the joists
• 26:13
  Speaker 2: from your old house over and you're like, oh, I'm
• 26:15
  Speaker 2: building my own in-law apartment here.
• 26:17
  Speaker 3: Start taking showers there once or twice a week. And
• 26:20
  Speaker 3: then by the time you're 85, they have to surrender.
• 26:24
  Speaker 2: Folks, the Armstrong Advisory Group has offices all throughout New
• 26:27
  Speaker 2: England if you're looking for someone to chat with about
• 26:30
  Speaker 2: your financial situation. These are the kinds of situations that
• 26:34
  Speaker 2: we help people to deal with on a regular basis,
• 26:37
  Speaker 2: sorting through, hey, how can I support my kids without
• 26:41
  Speaker 2: needing them to take care of me later on? Phone
• 26:45
  Speaker 2: number to call to schedule an appointment is 800-393-4001. Whether
• 26:51
  Speaker 2: it is trying to figure out what your retirement looks like,
• 26:54
  Speaker 2: trying to figure out where you might live in retirement,
• 26:56
  Speaker 2: trying to sort through, you know, different choices for, hey,
• 26:59
  Speaker 2: how can I support my children as they are raising
• 27:03
  Speaker 2: their own kids? These are all different topics that the
• 27:06
  Speaker 2: Armstrong Advisory Group can help you out with. Again, that
• 27:09
  Speaker 2: phone number is 800-393-4001, or you can go to armstrongadvisory.com.
• 27:17
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 27:19
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 27:22
  Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
• 27:25
  Speaker 1: your own financial, tax, and estate planning advisors before making
• 27:27
  Speaker 1: any investment decisions. Armstrong may contact you to offer investment
• 27:31
  Speaker 1: advisory services.
• 27:33
  Speaker 2: A lot of chatter in the last couple weeks, really
• 27:35
  Speaker 2: even in the last month, has been the question of, hey,
• 27:39
  Speaker 2: does there need to be some type of coordinated slowdown
• 27:44
  Speaker 2: in the development of artificial intelligence platforms in order to
• 27:48
  Speaker 2: maintain their safety? We've got a piece in the Bloomberg
• 27:54
  Speaker 2: opinion section titled The U.S. Can Slow Down AI and
• 27:59
  Speaker 2: Stay Ahead of China. And I think in a lot
• 28:01
  Speaker 2: of discussions, these are two ideas that are held to
• 28:04
  Speaker 2: be mutually exclusive, that they can't exist at the same time.
• 28:08
  Speaker 2: But this piece trying to argue that they can, Mark.
• 28:12
  Speaker 3: I mean, Hal Brands, he's the author, and his area
• 28:16
  Speaker 3: is foreign policy. I'm not sure. The reason I only
• 28:20
  Speaker 3: skimmed it, and I usually read everything Brands writes because
• 28:22
  Speaker 3: he's excellent, is that I'm not sure people other than
• 28:26
  Speaker 3: coders really understand what's going on. So when I hear
• 28:29
  Speaker 3: a warning from or what's meant to be comforting, words
• 28:34
  Speaker 3: of comfort from a politician, I don't take it that
• 28:36
  Speaker 3: seriously because they don't understand what AI is and is
• 28:39
  Speaker 3: capable of, and I certainly don't claim to. So I
• 28:42
  Speaker 3: trust the experts. As to the up or down on
• 28:47
  Speaker 3: this question, I mean, okay, if he says so, it's
• 28:51
  Speaker 3: one guy's opinion. Stay ahead of China, what does that
• 28:54
  Speaker 3: even mean? Like define stay ahead of China. What is
• 28:58
  Speaker 3: your impression of what people mean when they say that?
• 29:00
  Speaker 2: So this is part of what I've struggled with, which is,
• 29:03
  Speaker 2: you know, this idea that we have to win the
• 29:05
  Speaker 2: AI race. Like no one's really defined what winning it
• 29:07
  Speaker 2: even looks like. Like what... Okay, when's the race over
• 29:13
  Speaker 2: and what do you get when you win it? Now,
• 29:15
  Speaker 2: the piece that I will say, generally with any type
• 29:18
  Speaker 2: of emerging technology, if you are first past the post
• 29:22
  Speaker 2: in terms of certain areas, you get to set the
• 29:25
  Speaker 2: ground rules for that technology on the world stage. We've
• 29:29
  Speaker 2: seen this with the United States over the course of
• 29:31
  Speaker 2: the 20th century. So if you want to make that
• 29:34
  Speaker 2: case of, hey, we need to be at the forefront
• 29:36
  Speaker 2: of this so that we can set standards that the
• 29:38
  Speaker 2: world will follow, Okay, like I can at least understand
• 29:42
  Speaker 2: that explanation. But people say, well, we just need to
• 29:45
  Speaker 2: win the AI race so that China doesn't. Well, it's like, Well,
• 29:48
  Speaker 2: what happens if we don't, and what happens if we do?
• 29:51
  Speaker 2: No one's defined that clearly.
• 29:52
  Speaker 3: I don't know if I'm persuaded by the first argument.
• 29:54
  Speaker 3: You ever try to plug something in in Europe? Like, no,
• 29:57
  Speaker 3: we're not the standard. You need an adapter. So there
• 30:00
  Speaker 3: is some precedent for two tracks.
• 30:03
  Speaker 2: Yes, but even there, that's more related to physical infrastructure build-out.
• 30:10
  Speaker 2: Just as an example, if you talk about... The internet,
• 30:14
  Speaker 2: just as, you know, like the key technological development of
• 30:19
  Speaker 2: the last 50 years, the U.S. by and large got
• 30:22
  Speaker 2: to set the rules for, okay, here's how the internet
• 30:25
  Speaker 2: operates and here's how it will, you know, operate going forward.
• 30:29
  Speaker 2: You have the potential for, you know, parallel internets that
• 30:31
  Speaker 2: eventually happen because of China's, you know, great firewall of
• 30:34
  Speaker 2: China and things like that. But by and large, the U.S.
• 30:36
  Speaker 2: has been in the driver's seat, not exclusively, but largely
• 30:40
  Speaker 2: being able to push Internet development and related technology to
• 30:44
  Speaker 2: the standards that it wants things to be held to.
• 30:48
  Speaker 2: I think that maybe that's, you know, one of the
• 30:50
  Speaker 2: views here, but I think so much of this is like, well,
• 30:52
  Speaker 2: if we can just get to artificial general intelligence, you know,
• 30:55
  Speaker 2: not just for, you know, words, but like something that
• 30:58
  Speaker 2: can truly think, oh, then it'll solve all of our problems.
• 31:01
  Speaker 2: And if, if we're the ones that have that, then
• 31:03
  Speaker 2: we'll get the problem solved, but no one else else will.
• 31:05
  Speaker 2: And it's like, well, now we're just talking kind of crazy. Like,
• 31:09
  Speaker 2: I don't know what to make of that.
• 31:10
  Speaker 3: And that finish line may have a cliff in front
• 31:13
  Speaker 3: of it too. So it's like, it's the biggest booby
• 31:15
  Speaker 3: prize in history. Like, that's the worry. That's it, we're
• 31:19
  Speaker 3: going to get there.
• 31:19
  Speaker 2: The other piece is, you know, that this piece goes
• 31:22
  Speaker 2: through is, it's like, oh, how would you, like, get
• 31:24
  Speaker 2: China to, you know, abide by anything that you, it says, look,
• 31:28
  Speaker 2: you'd have to slow down your own frontier development and
• 31:31
  Speaker 2: then get China to, you know, play along. Quote, the
• 31:34
  Speaker 2: second option is harder edged. You have to have a
• 31:36
  Speaker 2: concerted export control offensive where the U.S. would close loopholes
• 31:39
  Speaker 2: that allow Chinese labs to access high-end chips through the
• 31:41
  Speaker 2: cloud or oversee subsidiaries, blah, and it goes on like
• 31:44
  Speaker 2: a whole bunch of things. And it's like, okay, good
• 31:47
  Speaker 2: luck with that. You think that we're going to go
• 31:50
  Speaker 2: do that?
• 31:51
  Speaker 3: We can't even get them to buy soybeans.
• 31:54
  Speaker 2: Beyond that, it's okay. If they want access to chips,
• 31:58
  Speaker 2: there are plenty of countries that will funnel chips to
• 32:00
  Speaker 2: China without us knowing. You're not going to be able
• 32:05
  Speaker 2: to do this. And if you did, even if you
• 32:08
  Speaker 2: hypothetically did, you think China's not going to say, okay, great,
• 32:11
  Speaker 2: no more rare earths for you. while we still have
• 32:13
  Speaker 2: a gap in terms of what we need to do
• 32:15
  Speaker 2: in terms of domestic development.
• 32:17
  Speaker 3: It does seem kind of hopeless.
• 32:18
  Speaker 2: So I'm not convinced that there's anything that would bring
• 32:22
  Speaker 2: China into alignment on these policies, simply because we haven't
• 32:27
  Speaker 2: really seen that.
• 32:27
  Speaker 3: Well, look at chemical weapons. We tried to ban them,
• 32:30
  Speaker 3: and countries that said they wouldn't work on them, including us,
• 32:33
  Speaker 3: possibly worked on them anyway. I know this is different, somewhat.
• 32:38
  Speaker 1: Sure.
• 32:38
  Speaker 3: Because you know somebody else is cheating, so you've got
• 32:40
  Speaker 3: to cheat.
• 32:41
  Speaker 2: Right, I mean, the game theory tells you that.
• 32:43
  Speaker 3: It does.
• 32:44
  Speaker 2: Let's take a quick break. When we return, we've got
• 32:46
  Speaker 2: Stack Roulette next.
• 32:48
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• 32:52
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• 32:56
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• 32:59
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• 33:05
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• 33:08
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• 33:32
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• 33:53
  Speaker 2: Mark, what do you got for me for Stack Roulette?
• 33:55
  Speaker 3: Briefly, keeping up with the theme of pointless calls for
• 33:57
  Speaker 3: AI regulation, Bloomberg's headline United Nations chief calls for coordinating
• 34:02
  Speaker 3: global AI regulation.
• 34:04
  Speaker 2: That should go well. That's just it.
• 34:06
  Speaker 3: Antonio Guterres, who apparently is the Secretary General, nobody... knows anymore.
• 34:11
  Speaker 3: Probably very few people care. Sadly, maybe, but that's just
• 34:14
  Speaker 3: the way it is. We cannot ignore, Guterres says, to
• 34:18
  Speaker 3: afford concerns. Sorry, I broke that sentence up awkwardly. We
• 34:21
  Speaker 3: cannot afford to ignore concerns that have been raised, especially
• 34:27
  Speaker 3: by those on the frontiers of the development of AI, etc., etc.
• 34:30
  Speaker 3: I'm aware of the geopolitical divides, but the world cannot
• 34:33
  Speaker 3: afford a race to the bottom on AI safety. So
• 34:37
  Speaker 3: almost guaranteeing nothing gets done. The UN throws its its
• 34:40
  Speaker 3: hat in the panic ring.
• 34:44
  Speaker 2: I want to talk a little bit about space and
• 34:49
  Speaker 2: specifically untangling what's possible from what's impossible as it relates
• 34:56
  Speaker 2: to space. So with SpaceX's IPO this spring, there was
• 35:01
  Speaker 2: a bunch of hype about it. And again, some of
• 35:05
  Speaker 2: that hype might be warranted, some of it might not be.
• 35:08
  Speaker 2: What I do want to talk about is just when
• 35:12
  Speaker 2: you start getting into numbers that I think are fundamentally
• 35:16
  Speaker 2: challenging to see as being realistic in any way, shape,
• 35:21
  Speaker 2: or form. Mark, do you know how many days there
• 35:24
  Speaker 2: are in a year?
• 35:24
  Speaker 3: I'm going to have to get back to you.
• 35:27
  Speaker 2: Tucker, any— 365. Not every year.
• 35:30
  Speaker 3: Yes, it is.
• 35:31
  Speaker 2: Occasionally 366.
• 35:32
  Speaker 3: 28 or something. It doesn't count. It's 365 points.
• 35:34
  Speaker 2: Occasionally 366.
• 35:35
  Speaker 3: Yeah, that's why we have a leap year.
• 35:36
  Speaker 2: Yeah. I love a good leap year. It's one of
• 35:39
  Speaker 2: my favorite years, every one of them. So, Kathy Wood,
• 35:43
  Speaker 2: who is the founder and CEO of ARK Investments, and
• 35:50
  Speaker 2: yesterday had a post on X that she put out
• 35:53
  Speaker 2: that says, quote, each Starship launch could generate a billion
• 35:57
  Speaker 2: dollars in revenue. Elon is aiming for 10,000 flights a year,
• 36:00
  Speaker 2: $ 10 trillion in Starship revenues by 2030. Remember, 2030 is
• 36:04
  Speaker 2: four years away now. If SpaceX achieves this goal, its $ 1. 5
• 36:08
  Speaker 2: trillion IPO will be considered, in hindsight, a deep value opportunity.
• 36:13
  Speaker 2: All of which is true. If you say all of
• 36:15
  Speaker 2: those things, yes, if this happens, that's true. Here's the
• 36:19
  Speaker 2: thing about 10,000 flights a year. 10,000 flights a year,
• 36:22
  Speaker 2: I did the math on it. It's 27 flights a
• 36:25
  Speaker 2: day if you're launching every single day. Now, when it
• 36:31
  Speaker 2: comes to space, again, I know enough to be dangerous
• 36:34
  Speaker 2: as it relates to space. I was a pretty big
• 36:36
  Speaker 2: nerd for a while, still a decent-sized nerd. Yeah, still
• 36:41
  Speaker 2: got to listen. Don't at me, Tucker, okay? So here's
• 36:47
  Speaker 2: the deal. When it comes to space launches, what most
• 36:51
  Speaker 2: people don't realize is that even the best sites that
• 36:56
  Speaker 2: we have for launches, Cape Canaveral, you know, the Texas coast,
• 37:00
  Speaker 2: you only actually accomplish... 65, 70% of those launches. Another
• 37:06
  Speaker 2: 30% or so, you've got to scrub because the weather
• 37:09
  Speaker 2: doesn't work, there's something wrong on the spaceship, blah, blah, blah,
• 37:12
  Speaker 2: all this stuff. So you don't actually have 365 days
• 37:17
  Speaker 2: a year with which you can launch these things. You
• 37:20
  Speaker 2: probably have, at any particular site, somewhere in the ballpark
• 37:25
  Speaker 2: of Call it 230 days that you can launch these things,
• 37:28
  Speaker 2: which now means that you would have to have 43
• 37:32
  Speaker 2: launches per day in order to accomplish this. So 43
• 37:37
  Speaker 2: launches a day. The big thing, remember, from a launch site,
• 37:40
  Speaker 2: you can't just reuse the thing the next day. It
• 37:43
  Speaker 2: goes through all kinds of extreme force, like stuff gets broken,
• 37:46
  Speaker 2: stuff gets bent. You just can't do it. So your
• 37:49
  Speaker 2: launch sites, some of them aren't going to work all
• 37:51
  Speaker 2: the time. The point I make is in order to
• 37:53
  Speaker 2: actually launch 43 things a day, you need hundreds of
• 37:58
  Speaker 2: launch sites in order to be able to do it.
• 38:00
  Speaker 2: And even the new Starbase site that they have in,
• 38:03
  Speaker 2: is it Texas? I think it's Louisiana where they're doing
• 38:05
  Speaker 2: the new development there. You're talking about like 10 to
• 38:08
  Speaker 2: 12 launch pads. So there's fundamentally, if you want to
• 38:13
  Speaker 2: get there, you just need way more CapEx to do
• 38:15
  Speaker 2: so is the point that I'll make. And that is
• 38:18
  Speaker 2: going to have to be financed by someone. Let's take
• 38:20
  Speaker 2: a quick break for the rest of the day. We're
• 38:21
  Speaker 2: back tomorrow recapping whatever the Fed does this afternoon.