Latest / The Financial Exchange Show / Private Credit Strain Returns as Oil Risks Build

Transcript

Private Credit Strain Returns as Oil Risks Build · The Financial Exchange Show

0:00
Speaker 1: The Financial Exchange is produced by Money Matters Radio and
0:02
Speaker 1: is hosted by employees of the Armstrong Advisory Group, a
0:05
Speaker 1: registered investment advisor. All opinions expressed are solely those of
0:08
Speaker 1: the hosts. Do not reflect the opinions of Armstrong Advisory
0:11
Speaker 1: or anyone else. Investments can lose money. This program does
0:14
Speaker 1: not offer any specific financial or investment advice. Please consult
0:17
Speaker 1: your own financial, tax, and estate planning advisors before making
0:20
Speaker 1: any investment decisions. Armstrong Advisory and the advertisers heard on
0:23
Speaker 1: this program do not endorse each other or their services.
0:25
Speaker 1: Armstrong and Money Matters Radio do not compensate each other
0:28
Speaker 1: for referrals and are not affiliated. This is the Financial
0:34
Speaker 1: Exchange with Chuck Zada and Mike Armstrong, Your exclusive look
0:38
Speaker 1: at business and financial news affecting your day, your city,
0:42
Speaker 1: your world. Stay informed and up to date about economic
0:46
Speaker 1: and market trends, plus breaking business news every day. The
0:50
Speaker 1: Financial Exchange is a proud partner of the Disabled American
0:53
Speaker 1: Veterans Department of Massachusetts. Help us support our great American
0:57
Speaker 1: heroes by visiting dav five k dot com Boston and
1:00
Speaker 1: making a donation today. This is the Financial Exchange with
1:05
Speaker 1: Chuck Zada and Mike Armstrong.
1:13
Speaker 2: Well, it's Chuck, Mike and Ben with you here today,
1:16
Speaker 2: and I hope you all had a fantastic weekend. I
1:20
Speaker 2: certainly did. It was it was hot, it was a
1:24
Speaker 2: little sticky, it was a bit of a scorture. Yeah,
1:27
Speaker 2: but hey, you know, it was still out there, grilled
1:29
Speaker 2: up a few sausages, had a nice little time. And
1:33
Speaker 2: I can't complain, all things considered, because at least I
1:38
Speaker 2: wasn't in the straight of hooor moves, which the interesting thing.
1:43
Speaker 2: And this is our top story today. President Trump indicating
1:47
Speaker 2: to Barack Revive from Axios yesterday that he doesn't really
1:55
Speaker 2: have many plans for, you know, any additional action either
1:59
Speaker 2: way in the Middle East going forward. His quote here,
2:03
Speaker 2: we're just watching around with its huge inflation and the
2:06
Speaker 2: fact that they have no money. We're low keying it.
2:09
Speaker 2: And basically it doesn't sound like the US wants to
2:13
Speaker 2: get back to any meaningful type of military strikes on
2:18
Speaker 2: Iran at this point. There are still quite a few
2:23
Speaker 2: actions that are taking place in the region, and I
2:26
Speaker 2: find it interesting that no one's talking about what's actually
2:31
Speaker 2: going on there right now. Maybe we're just numb to it.
2:34
Speaker 3: Sure, but yeah, I mean it's not it's not selling newspapers,
2:39
Speaker 3: not that there's a lot that's actually happening right now.
2:42
Speaker 3: So basically, on a nightly basis, the US is running
2:47
Speaker 3: convoys out through the Omani Lane in the Strait of Hormuz.
2:52
Speaker 3: Also on a nightly basis, the Iranians are launching things
2:57
Speaker 3: at them, and anywhere from one to two ships night
3:00
Speaker 3: are getting hit and being either disabled or you know,
3:04
Speaker 3: being forced to change course.
3:07
Speaker 2: And because of that, you don't have much flow going
3:11
Speaker 2: back in the The flow going in is about a
3:14
Speaker 2: quarter of the flow going out in terms of volume
3:16
Speaker 2: of oil transportation capacity, and so there's like there's a
3:21
Speaker 2: looming problem where even the meager amount that is getting
3:24
Speaker 2: out right now, which is about a third of the
3:28
Speaker 2: peak that we saw in late June early July and
3:31
Speaker 2: about a quarter of the pre war volumes of oil
3:34
Speaker 2: getting out, even that's not going to be able to
3:37
Speaker 2: be maintained based on what's going back in through the
3:40
Speaker 2: Iranian side at the moment. And so you've got, you know,
3:44
Speaker 2: some action that's taking place there where. Look every night,
3:48
Speaker 2: if you go and take a look, you have US
3:50
Speaker 2: refueling planes that are circling the area, probably refueling you know,
3:54
Speaker 2: different aircraft in order to you know, try to provide
3:57
Speaker 2: cover for these convoys. And so there still is, you know,
4:00
Speaker 2: quite a bit of military action in that area. On
4:04
Speaker 2: top of that, you've got the Saudis who are embroiled
4:08
Speaker 2: in a battle with the Houthis now and Yemen. The Houthis, remember,
4:12
Speaker 2: control the western part of Yemen that borders the Red Sea,
4:16
Speaker 2: and the Houthis have been targeting Saudi oil refineries and
4:20
Speaker 2: oil infrastructure over the last couple of weeks and have
4:23
Speaker 2: damaged a few of the facilities to the point where
4:25
Speaker 2: it looks like loadings in the Red Sea are slowing
4:29
Speaker 2: down a little bit, and so you've got oil prices
4:31
Speaker 2: moving back up on this news or lack of news again,
4:35
Speaker 2: like no one's covering this, partly because all of the
4:39
Speaker 2: countries in the region are now pretty much locking down
4:43
Speaker 2: any kind of video or photographic evidence of what's going on.
4:47
Speaker 2: There were a couple people in Dubai last week that
4:51
Speaker 2: took pictures of something on fire in Dubai. They were
4:53
Speaker 2: arrested and like because ultimately, like the the regimes that
4:59
Speaker 2: are in place in that part part of the world
5:00
Speaker 2: are not friendly to the idea of free speech, and
5:05
Speaker 2: you know, dissemination of pictures of something on fire, like
5:09
Speaker 2: no one even knew what it was. It was just, oh,
5:11
Speaker 2: there's smoke on the horizon of Dubai, Like what could
5:13
Speaker 2: this be? Yeah, So you got oil prices back up
5:16
Speaker 2: another three percent today, West Text Intermediate back above eighty
5:20
Speaker 2: You've got Brent back above eighty six. And look, I
5:25
Speaker 2: don't know where this ends up going. There clearly is
5:29
Speaker 2: you know, quite a bit of economic pressure on Iran
5:32
Speaker 2: in terms of, hey, if you've blockaded you know, one
5:35
Speaker 2: of the main not one of the main waterway by
5:38
Speaker 2: which maritime commerce is you know, conducted heading into Iran,
5:43
Speaker 2: it's gonna be problematic for them. Obviously, they are land
5:45
Speaker 2: routes that they can use to you know, avoid that.
5:49
Speaker 2: But I don't think anyone's sitting here being like, hey,
5:53
Speaker 2: the Iranian economy is great, Like none of us are
5:55
Speaker 2: sitting here like pining to like spend you know, a
5:58
Speaker 2: week in like the markets of Tran right now. It's
6:00
Speaker 2: probably not a very good economy. We don't we don't know,
6:06
Speaker 2: we don't really have any insight like into exactly what's
6:09
Speaker 2: going on.
6:10
Speaker 3: There now exactly a ton of social media posts coming
6:12
Speaker 3: out of Turan at the moment.
6:13
Speaker 2: No, there are not.
6:14
Speaker 1: Uh.
6:15
Speaker 2: Likewise, I think that when you look at the concerns
6:18
Speaker 2: that we have for the US and worldwide economy, it's
6:22
Speaker 2: not that, you know, the US economy is slowing meaningfully
6:25
Speaker 2: as a result of what's going on. We've covered this
6:27
Speaker 2: lent over the last six months. It's much more the
6:30
Speaker 2: concern that, hey, based on what you're seeing with global
6:34
Speaker 2: oil inventories, most of the buffers have been eaten through
6:38
Speaker 2: at this point, and if you don't see an uptick
6:41
Speaker 2: in oil, you know, really moving, there's going to be
6:44
Speaker 2: a problem at some point. When that problem is, I
6:47
Speaker 2: don't know, I have no idea. And so it could
6:52
Speaker 2: be that Iran is forced to come to the table
6:55
Speaker 2: and say, okay, like we're gonna, you know, give up
6:58
Speaker 2: these designs on whatever we want to do. It might
7:00
Speaker 2: be that, you know, oil prices go crazy high in
7:03
Speaker 2: the US as okay, like we can't do this anymore.
7:05
Speaker 2: Like I don't know exactly how this plays out here,
7:08
Speaker 2: I'll tell you that, but there still is no resolution.
7:10
Speaker 3: Yeah, I mean, all of it seems to be following
7:12
Speaker 3: a I don't want to say predictable path, but I mean,
7:16
Speaker 3: we've been saying for the last few months now it
7:18
Speaker 3: does not seem as though either side has experienced quite
7:22
Speaker 3: enough economic or political pressure to force a real, a
7:29
Speaker 3: real change here with two negotiating parties that see eye
7:33
Speaker 3: to eye on just about nothing. The you know, the
7:38
Speaker 3: US is clearly cognizant of fuel shortages and there's therefore
7:43
Speaker 3: trying to find ways to get ships out of the
7:45
Speaker 3: strait and prevent those absolute worst case scenarios. The Iranians are,
7:52
Speaker 3: you know, continuing to leverage this new tool that they've
7:55
Speaker 3: discovered that they have. And then even the you know,
8:00
Speaker 3: neighboring countries there, I think are kind of operating in
8:04
Speaker 3: a predictable fashion themselves. They have spent the last couple
8:08
Speaker 3: of decades trying to convince the world that they are
8:11
Speaker 3: a developed, safe place to visit, invest and transit through,
8:17
Speaker 3: and that reputation is being called into question, and so
8:20
Speaker 3: what are they doing. They are stamping out any form
8:23
Speaker 3: of freedom of expression in order to at least maintain
8:26
Speaker 3: a visage of stability in the region. And so I
8:31
Speaker 3: don't know, I've said for the last few months now,
8:33
Speaker 3: it just does not seem as though there's been enough
8:35
Speaker 3: pain inflicted on the US, Iranian or global economy to
8:40
Speaker 3: force a change out of all of this, and you
8:43
Speaker 3: might need to get to a much more catastrophic price
8:46
Speaker 3: and supply before that type of thing happens.
8:49
Speaker 2: Right, It's one thing to say, Look, four dollar gasoline.
8:52
Speaker 2: As much as we can complain about it, it's pretty clear,
8:55
Speaker 2: like we've been here for like four or five months now,
8:58
Speaker 2: has not impacted the broader US economy fair you know,
9:04
Speaker 2: like points little things here and there. But I'm not
9:06
Speaker 2: saying that we're comfortable with it. I'm not saying like
9:08
Speaker 2: you go to the pump and you're like, hey, like
9:10
Speaker 2: this is great. What I am saying is, if you
9:12
Speaker 2: look at the broader economic data, it has not changed
9:15
Speaker 2: things since as far as you like, consumer spending on
9:17
Speaker 2: other stuff has not been reduced. We are not seeing
9:20
Speaker 2: any weakness in the job market because of you know,
9:23
Speaker 2: concerns about margins eating into hiring and things like that.
9:26
Speaker 3: The the way that I was speaking with Matt Daniell,
9:29
Speaker 3: the host of the Morning Show up in Portland, Maine
9:31
Speaker 3: this morning, and he had the exact I think it
9:34
Speaker 3: was the exact right description for it, which is uncomfortable
9:38
Speaker 3: stability and gas prices. Right, like, nobody's happy about it,
9:41
Speaker 3: but it's not been extraordinarily up and down swinging all
9:43
Speaker 3: over the place.
9:44
Speaker 2: Now, having said that, if the price of gas were
9:49
Speaker 2: to rise to six seven dollars a gallon, I don't
9:53
Speaker 2: know that you would say that you can have, you know,
9:56
Speaker 2: the same comfort in that would that move also have
9:59
Speaker 2: no imp packed? No, that was economy.
10:01
Speaker 3: I think that would be the type of pressure that
10:03
Speaker 3: would force a negotiation, you think, right, But I think
10:07
Speaker 3: I have no idea, But I don't know, Like I
10:10
Speaker 3: I look at it and and I think that's where
10:13
Speaker 3: we would be.
10:14
Speaker 2: But if we're being completely honest, and if we're being
10:16
Speaker 2: a little bit humble about like our like thoughts on
10:20
Speaker 2: these things, Man, haven't we seen some stuff in the
10:23
Speaker 2: last five or six years where you're like, oh, that
10:26
Speaker 2: should cause a problem and it didn't or no, this
10:29
Speaker 2: will be fine, And it's like, oh, not actually fine, Like.
10:33
Speaker 3: Chuck, it's been an exhausting six or seven years of
10:36
Speaker 3: unprecedented times, right, Like it nice, it'd be very nice
10:41
Speaker 3: to have some precedented.
10:42
Speaker 2: Exactly Like people ask me like, oh, like, what's what's
10:44
Speaker 2: your wish for the future. I'm like, I just want
10:45
Speaker 2: to live in precedented times many just precedented times, you
10:49
Speaker 2: know that. That's what I would like, is something with
10:53
Speaker 2: with precedent. And I don't I don't think I'm gonna
10:56
Speaker 2: get that. I think that uh, maybe unprecedented, the new precedented,
11:01
Speaker 2: if you will. But hey, a boy can dream, I guess.
11:05
Speaker 2: So this is where we stand as it relates to
11:07
Speaker 2: the strait of horror moves. Let's take a quick break.
11:11
Speaker 2: When we come back, talk a little bit about private credit.
11:13
Speaker 2: We haven't covered it a ton in the last five
11:15
Speaker 2: or six months. That's a good thing because private credit
11:19
Speaker 2: is kind of like offensive lineman. You're only talking about
11:22
Speaker 2: them when your quarterback's getting sacked. So it's discussed in
11:25
Speaker 2: private credit next.
11:27
Speaker 1: Subscribe now to our YouTube page, where you'll find daily
11:30
Speaker 1: interviews and full shows of The Financial Exchange. We'll get
11:33
Speaker 1: you caught up on anything and everything you might have
11:35
Speaker 1: missed right here on the Financial Exchange, from breaking news
11:40
Speaker 1: to market analysis. Follow the Financial Exchange Show on x
11:44
Speaker 1: and watch the show live every day. Face is the
11:47
Speaker 1: Financial Exchange Radio Network.
11:52
Speaker 4: The Financial Exchange is a proud partner of the Disabled
11:55
Speaker 4: American Veterans Department of Massachusetts. Register today and join more
11:58
Speaker 4: than eight hundred runners who have already registered for this
12:01
Speaker 4: year's DAV five k on Saturday, November seventh at Fort
12:05
Speaker 4: Independence on Castle Island. Registrations are on a record pace,
12:09
Speaker 4: so if you want to participate, head to DAV five
12:12
Speaker 4: k dot Boston and sign up today, or please consider
12:15
Speaker 4: making a donation. Your gifts help provide vital services like
12:18
Speaker 4: free transportation to medical appointments and safe housing for single
12:22
Speaker 4: veterans and their families. Donate today at DAV fivek dot Boston.
12:26
Speaker 4: It's DAV five k dot Boston.
12:30
Speaker 2: You know, before the break, I made the comment that
12:33
Speaker 2: private credits it's like offensive linemen. You know, you're only
12:36
Speaker 2: talking about them when your quarterbacks are getting sacked. And
12:38
Speaker 2: I actually like the idea of like a football team
12:41
Speaker 2: as like different asset classes, you know, like your stocks
12:45
Speaker 2: or your wide receivers. They're the ones that are flashy
12:47
Speaker 2: and that are getting all the notoriety your investment managers.
12:51
Speaker 2: The quarterbacks say no, you want to do a little here,
12:54
Speaker 2: a little there. Private credit in and of itself is
12:57
Speaker 2: probably not your offensive lineman. It's more like your left
12:59
Speaker 2: guard in the offensive, the offensive. No, it's not exciting
13:03
Speaker 2: that like it's it's still it's it's again, it's it's boring.
13:07
Speaker 2: It's supposed to be boring. That's the whole point of
13:09
Speaker 2: private credit. It doesn't do anything exciting, but it's been
13:13
Speaker 2: pretty exciting for the last few years, which is why
13:16
Speaker 2: it's it's like not great, like it's You don't want
13:19
Speaker 2: your credit to be exciting, you want it to be boring.
13:22
Speaker 3: As you mentioned, we haven't talked about private credit in
13:24
Speaker 3: five or six months. It is not an everyday subject
13:27
Speaker 3: that every day investors invest in, so probably need to
13:30
Speaker 3: back up a moment and talk about just what it is.
13:34
Speaker 3: So for those listening, many of you have likely heard
13:37
Speaker 3: of private equity. You know, private companies that have been
13:41
Speaker 3: going and buying privately owned companies. Oftentimes their goal is
13:45
Speaker 3: to smash them together with a bunch of other similar
13:48
Speaker 3: companies and then sell it to somebody else. You've seen
13:52
Speaker 3: this take place in well all sorts of areas. Uh.
13:56
Speaker 3: I've seen it heavily in dental practices, in primary care
14:01
Speaker 3: physicians in I don't know why I'm so focused on medical,
14:05
Speaker 3: but that's been a big area of private equity. Investment.
14:08
Speaker 3: This is kind of the stepchild to that, which is, okay,
14:12
Speaker 3: we're going to make loans to some of those other
14:15
Speaker 3: small businesses that aren't able to readily access the bond market.
14:20
Speaker 2: And so.
14:22
Speaker 3: You're mid size company with one hundred million dollars a
14:26
Speaker 3: year in revenue going to Goldman Sachs and having them
14:30
Speaker 3: raise a bond issues for you would be troubling. You're
14:33
Speaker 3: not a well known company, It might be really expensive
14:35
Speaker 3: or impossible to do. These companies KKR, Blue Owl to
14:39
Speaker 3: name a few of them, will come in, they'll lend
14:42
Speaker 3: you some money. It's usually not on a fixed interest
14:44
Speaker 3: rate basis, but it can be, and they will go
14:48
Speaker 3: and lend you the money when a bank or a
14:52
Speaker 3: public investor might not be willing or able to.
14:54
Speaker 2: So is that a reasonable description of private credit? Yeah? Okay, good,
14:58
Speaker 2: Now we can go on. So here's the thing. We
15:01
Speaker 2: got a piece here from the Wall Street Journal quote
15:03
Speaker 2: private credit is undergrowing strain despite industry's upbeat tones. Okay,
15:10
Speaker 2: tell me more. Subhetter default rates are hitting our default rates,
15:14
Speaker 2: I guess it is are hitting recent highs, and internal
15:18
Speaker 2: reviews of loan health point towards tougher times ahead. A
15:21
Speaker 2: Wall Street Journal analysis shows does it actually show that, Michael?
15:26
Speaker 3: It does show that default rates are, you know, ticking
15:30
Speaker 3: up again. The stock prices are not doing terribly well,
15:34
Speaker 3: and so it's hard to say if this is going
15:38
Speaker 3: to be an issue that actually affects anyone other than
15:42
Speaker 3: private credit investors. You know, that's been a constant issue
15:45
Speaker 3: we've talked about. But think about the troubles that these
15:47
Speaker 3: companies have faced. So I mentioned most of these loans
15:51
Speaker 3: are not made on a fixed rate basis.
15:53
Speaker 2: So let's say you took out.
15:54
Speaker 3: A loan back in twenty twenty from a private credit lender,
15:59
Speaker 3: your interest rate could have gone up by now four
16:01
Speaker 3: to five percentage points. On interest rates moving up, you
16:04
Speaker 3: might have thought at the time that you know, back
16:06
Speaker 3: in twenty twenty two, that those rates were going to
16:08
Speaker 3: come back down.
16:09
Speaker 2: Guess what, they haven't.
16:10
Speaker 3: So you've now spent several years with higher interest rates
16:13
Speaker 3: that you probably didn't bake into your business plan when
16:16
Speaker 3: you took the loan.
16:17
Speaker 2: Is that fair to say?
16:18
Speaker 3: Like most most companies do not take into account a
16:22
Speaker 3: tripling of the interest rate when they take out a loan. Furthermore,
16:26
Speaker 3: a lot of these companies that Private Credit chose to
16:29
Speaker 3: loan to appear to be in the software space, which,
16:33
Speaker 3: as we've talked about, is twenty yeah, which is you know,
16:38
Speaker 3: a fair bit more than the overall stock market, for example,
16:41
Speaker 3: And so you know, renewed questions about how AI is
16:44
Speaker 3: going to affect those future business models. And then finally,
16:50
Speaker 3: and this is more unique to twenty twenty six, but
16:53
Speaker 3: there are now a whole bunch of really big players,
16:57
Speaker 3: huge companies that are issuing rec amounts of debts twenty
17:01
Speaker 3: five billion dollars around right. We've been hearing about Google, Microsoft,
17:05
Speaker 3: all these guys, and you're in direct competition with that.
17:09
Speaker 3: So you know, I think all of these things are
17:13
Speaker 3: likely contributing to some of the issues that Private Credit
17:16
Speaker 3: is facing. The question that we raised last time this
17:21
Speaker 3: was an issue which was you know, largely we were
17:23
Speaker 3: talking about it last year when it was making headlines,
17:26
Speaker 3: and I'll raise it again is who's actually holding the
17:29
Speaker 3: bag on this stuff? And we'll get bad enough that
17:31
Speaker 3: it creates a real problem.
17:33
Speaker 2: Yeah, And we kind of put a timeline on this
17:36
Speaker 2: in that, hey, if you don't really see something bad happening,
17:40
Speaker 2: you know, probably by the end of next year. I
17:42
Speaker 2: think is what we said. Well, then you can kind
17:44
Speaker 2: of shut the door on this. Yeah, you know, it's
17:45
Speaker 2: like it's not part of this cycle. It might be
17:47
Speaker 2: part of like something future, but we'll see. I think
17:51
Speaker 2: David Gobb who runs gallob Capital, who's one of these
17:55
Speaker 2: funds that does this, he's got a quote in this piece.
17:58
Speaker 2: So some of the press have been saying, oh, no,
18:00
Speaker 2: the sky is falling, and some of my peers and
18:01
Speaker 2: other firms have been saying that's nonsense, there's no problem.
18:04
Speaker 2: Neither of those is accurate. We're clearly in a credit cycle.
18:07
Speaker 2: It's not a particularly bad one, but there will be
18:10
Speaker 2: winners and losers. So again, none of us know full disclosure.
18:18
Speaker 2: Like I don't like have any access to be able
18:22
Speaker 2: to see like any of the loans that these companies
18:24
Speaker 2: are investing in, So like I don't know what the
18:27
Speaker 2: broader portfolios look like. I know that there were certainly
18:31
Speaker 2: a few bad eggs last year, and we talked about those.
18:35
Speaker 2: I know that there have been some significant redemption requests
18:39
Speaker 2: from people who investors who own these portfolios saying hey,
18:44
Speaker 2: I want to get out before like there's a problem.
18:47
Speaker 2: But is this going to develop into something bigger? Don't know. Remember,
18:52
Speaker 2: and I'm not comparing this to the scale because scale wise,
18:57
Speaker 2: this isn't the same as what we saw leading into
19:00
Speaker 2: the financial crisis. But remember the financial crisis. People knew
19:05
Speaker 2: that subprime was a problem back in like the spring
19:08
Speaker 2: of seven, and it didn't fully blow up until the
19:12
Speaker 2: fall of o wait, so it took almost two years there,
19:16
Speaker 2: and even before then there were people sounding the alarms
19:18
Speaker 2: like more privately, you know, in two thousand and six.
19:22
Speaker 2: So let's give this a couple of years to play out.
19:25
Speaker 2: If we get through next year and there are no problems,
19:27
Speaker 2: we could probably put it to bed. But we got
19:29
Speaker 2: some time here, and let's see what happens quick break.
19:31
Speaker 2: We got Wall Street Watch next.
19:38
Speaker 1: Like us on Facebook and follow us on Twitter at
19:41
Speaker 1: TFE show. Breaking business news is always first right here
19:45
Speaker 1: on the Financial Exchange Radio Network. Time now full of
19:50
Speaker 1: Wall Street Watch tracking the stocks, the data, and the
19:53
Speaker 1: headlines driving markets. So far today right here on the
19:56
Speaker 1: Financial Exchange Radio Network.
20:00
Speaker 4: Oh, markets are a mixed at the sour Dow Jones
20:03
Speaker 4: is off forty eight points, or just under a tenth percent.
20:05
Speaker 4: The SMP five hundred is up a little over a
20:08
Speaker 4: tenth of percent. While the NASDAK is just a little
20:12
Speaker 4: up mostly flat eighty excuse me, Oil has surpassed eighty
20:17
Speaker 4: dollars again, rising two dollars and eighteen cents or two
20:19
Speaker 4: point seventy nine percent. Today. Gold is going back from
20:24
Speaker 4: its recent rally, down two dollars and seventy cents or
20:26
Speaker 4: point zero six percent. Meanwhile, silver is up over a
20:30
Speaker 4: dollar or one point six nine percent. Apple is down
20:33
Speaker 4: nearly two percent after Jeffrey's downgraded the stock to underperform
20:37
Speaker 4: from hold. According to the bank's supply chain checks. Analysts
20:40
Speaker 4: have concluded that in all glass iPhone by Apple, something
20:44
Speaker 4: the company has never publicly announced, appears to be canceled.
20:47
Speaker 4: That puts pressure on Apple, which is trying to create
20:49
Speaker 4: more expensive devices to combat the rise and cost of memory.
20:53
Speaker 4: Berkshire Hathaway stock is up almost two and a half
20:55
Speaker 4: percent after the company announced on Saturday it saw operating
20:59
Speaker 4: earnings growth of s sixteen percent in the second quarter. Manufacturing,
21:02
Speaker 4: service and retailing earnings saw strong growth, as did the
21:07
Speaker 4: company's energy profits. However, insurance was weaker, where investment income
21:11
Speaker 4: declined nine percent. Intel dropped over four percent after announce
21:16
Speaker 4: that it'll be offering fifteen billion dollars in common stock.
21:19
Speaker 4: Intel said it plans to use the funds for general
21:21
Speaker 4: corporate purposes, which may include capital expenditures and working capital.
21:26
Speaker 4: The offering will allow the company to keep growing while
21:29
Speaker 4: maintaining a strong balance sheet, Intel said. And finally, game
21:33
Speaker 4: Stop shares rose one percent after Bloomberg reported that the
21:36
Speaker 4: company is weighing abandoning its fifty six billion dollar bid
21:39
Speaker 4: for eBay. Gamestop's unsolicited bid was originally rejected by eBay
21:44
Speaker 4: in May, where the online retailer called it quote neither
21:47
Speaker 4: credible nor attractive. I am ben Kitchen and that was
21:51
Speaker 4: Wall Street Watch.
21:53
Speaker 2: Let's see, let's talk about this piece. Do we wanna
21:56
Speaker 2: talk private equity? I don't know. Okay, here's the deal.
22:02
Speaker 2: As of June thirtieth, private equity firms had thirty three,
22:05
Speaker 2: five hundred and seventy five unsold companies in their portfolios,
22:08
Speaker 2: according to Pitchbook, up from thirty two, four hundred and
22:12
Speaker 2: fifty one at the end of last year and fifteen
22:14
Speaker 2: nine hundred and twenty three companies.
22:16
Speaker 3: A decade ago. Okay, so why should I care? Could
22:19
Speaker 3: be that you can't sell your companies. Could be that
22:21
Speaker 3: private equity is substantially larger than it was a decade
22:24
Speaker 3: ago and larger than it was twelve months ago. Yes,
22:29
Speaker 3: I mean probably some of both if I were betting.
22:32
Speaker 3: But I'm you know what, a decade ago, private equity
22:35
Speaker 3: was a lot smaller than it is now. It's getting
22:37
Speaker 3: a lot more cash, a lot more funding, and a
22:39
Speaker 3: lot more new entrants to be able to, you know,
22:42
Speaker 3: spend that cash as they will. Could you also convince
22:45
Speaker 3: me that today's market environment, where you have a lot
22:48
Speaker 3: of companies talking about going public, issuing new shares, issuing
22:52
Speaker 3: new debt, is sopping up some of the extra money
22:56
Speaker 3: that would normally be around to go to private equity. Also, yes,
22:59
Speaker 3: So I don't know that it means it's a problem
23:02
Speaker 3: unless I work in private equity.
23:03
Speaker 2: So I want to just put put one fact out there.
23:07
Speaker 2: So they said that there were fifteen nine hundred and
23:10
Speaker 2: twenty three companies held by private equity firms a decade
23:13
Speaker 2: ago fifteen thousand. From twenty seventeen to twenty twenty one,
23:18
Speaker 2: four hundred and twenty four private equity back to companies
23:21
Speaker 2: went public. So the primary exit for private like even
23:25
Speaker 2: during if we're considering like the twenty ten's the golden
23:28
Speaker 2: age of part of you know, private equity, which I
23:30
Speaker 2: don't think anyone does, but let's just say it's let's
23:32
Speaker 2: say it's better than this.
23:34
Speaker 1: Right.
23:35
Speaker 2: Out of fifteen of sixteen thousand companies that were held,
23:39
Speaker 2: four hundred something went public. Four hundred went public during
23:42
Speaker 2: a four year period. So, like the main form of
23:45
Speaker 2: exit is not going public. Sure, right, yeah, at least
23:52
Speaker 2: like maybe you sell to a publicly traded company, but
23:54
Speaker 2: you're not like doing an ipoe. In the last four years,
23:59
Speaker 2: only seven many private equity backed firms have gone public, Okay,
24:02
Speaker 2: So like, clearly there's a decline because since twenty twenty two,
24:05
Speaker 2: the IPO market just hasn't been as robust. We get that,
24:08
Speaker 2: I understand that, but it's not like that makes a
24:11
Speaker 2: material difference when you're talking about sixteen thousand companies to
24:14
Speaker 2: begin with, it's a fraction of a percentage. It's one
24:17
Speaker 2: if you're like, hey, sixteen thousand companies were held by
24:20
Speaker 2: private firms and eight thousand of them went public. Oh
24:23
Speaker 2: and now there's only forty two, Like, yes, that would
24:25
Speaker 2: be a story. This I'm just not sure is like
24:28
Speaker 2: a major sign of anything. Now I do think back
24:33
Speaker 2: in twenty one and twenty two there were a bunch
24:35
Speaker 2: of firms that got picked up by private equity firms
24:37
Speaker 2: because hey, like this is like there was just cash
24:42
Speaker 2: slashing around for everything. Then like we know this, Do
24:45
Speaker 2: I think that maybe some private equity companies from that
24:49
Speaker 2: vintage are you know, not worth the money that they
24:53
Speaker 2: were paid, that their sponsor paid for them. Sure, I
24:58
Speaker 2: could see that being the case. But again, I'm just
25:01
Speaker 2: not sure that this matters. Because if they're thirty two thousand,
25:06
Speaker 2: you know, firms owned by private equity, and five thousand
25:11
Speaker 2: of them turn out to be bad, well, I don't
25:14
Speaker 2: know if that affects the US economy. What if they
25:15
Speaker 2: all have like one employee named herb and they're not
25:18
Speaker 2: selling anything meaningful? Yeah, like who cares. On the other hand,
25:22
Speaker 2: if one of the private you know firms that's now
25:25
Speaker 2: being held you know, privately, is I don't know, what's
25:32
Speaker 2: a giant private firm the Coke brother right, Sure, Like
25:36
Speaker 2: if the Koch Brothers in finelity investments are like those
25:39
Speaker 2: companies and they go under, then yeah there's a problem.
25:42
Speaker 2: But like, first of all, those companies aren't owned by
25:45
Speaker 2: private equity and second, if those go under, we've got
25:48
Speaker 2: bigger problems than just what's going on in private equity,
25:50
Speaker 2: no doubt.
25:51
Speaker 3: Folks want to remind you of an upcoming event from
25:53
Speaker 3: the Armstrong Advisory Group. It's next Thursday, August twentieth out
25:58
Speaker 3: in Framing Him, and it's about the two most commonly
26:02
Speaker 3: asked subjects we get of pre retirees, UH Social Security Medicare.
26:07
Speaker 3: We're going to answer your essential questions that you have
26:10
Speaker 3: on just how these programs work depending on your specific situation,
26:16
Speaker 3: going through how it works on second marriages, what happens
26:20
Speaker 3: if you predecease your spouse, and how those benefits are
26:23
Speaker 3: going to continue, the taxation of your Social Security benefits,
26:27
Speaker 3: as well as the state of Social Security program funding
26:32
Speaker 3: and Medicare. Again, we designed this event around the most
26:37
Speaker 3: commonly asked questions we get from our pre retiree clients,
26:41
Speaker 3: and we know you've got them too. If you have
26:43
Speaker 3: time to attend, it's in Framingham on Thursday August twentieth
26:49
Speaker 3: at five pm the Renaissance framing Ham Hotel. We're going
26:53
Speaker 3: to have two different speakers on these two subjects, so
26:56
Speaker 3: Security and medicare, and we've done two of these before
26:59
Speaker 3: great feedback, you know, great questions from the crowd on
27:03
Speaker 3: people that have genuine questions about their specific scenarios that
27:06
Speaker 3: we're able to get into lives. So, if you'd like
27:08
Speaker 3: to attend, the phone number to registers eight hundred three
27:12
Speaker 3: nine three four zero zero one. It's free to attend,
27:15
Speaker 3: but you must reserve your spot. All the details are
27:18
Speaker 3: available at Armstrong Advisory dot com slash events, but the
27:23
Speaker 3: phone number once again eight hundred three nine three four
27:26
Speaker 3: zero zero one. Space is limited. Call now to reserve
27:29
Speaker 3: your seat.
27:29
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
27:32
Speaker 1: registered investment advisor. Nothing in the ad or in any
27:34
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
27:37
Speaker 1: your own financial, tax into state planning advisors before making
27:40
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
27:43
Speaker 1: advisory services.
27:45
Speaker 2: China unleash just twenty eight trillion dollar capital markets to
27:48
Speaker 2: challenge us in AI. So anytime that you see twenty
27:52
Speaker 2: eight trillion dollars in a headline, you're like, Ooh, what's
27:56
Speaker 2: what's that? Like? What are what are they doing?
27:59
Speaker 4: Much?
28:00
Speaker 3: They are doing the same thing that they've been doing,
28:03
Speaker 3: which is allowing companies to access capital markets in China
28:08
Speaker 3: that clearly are getting some attention right now because they
28:12
Speaker 3: do AI related things.
28:14
Speaker 2: Is there anything new? There's not anything interesting.
28:17
Speaker 3: I don't think they are telling their banks explicitly to
28:20
Speaker 3: give extra favor to this industry. I'm sure they might
28:24
Speaker 3: be underneath the hood, but I don't really note anything
28:29
Speaker 3: that's changed other than one Chinese company went public and
28:32
Speaker 3: the stock popped what was it like three hundred percent
28:34
Speaker 3: on the first day or something.
28:35
Speaker 2: Yeah, this was the chip maker.
28:38
Speaker 3: So anything unique for us to say about what China's
28:41
Speaker 3: doing in AI that hasn't already been said.
28:44
Speaker 2: No, it's uh. Look again, I think there's a great
28:48
Speaker 2: phrase when it comes to China getting involved in any business.
28:52
Speaker 2: It's not my own. I don't know where it came
28:54
Speaker 2: from originally, but I can't take credit for it. It's hey,
28:57
Speaker 2: when China enters a room, profits, profits leave, And it
29:01
Speaker 2: does raise the question of okay, like, so you have
29:03
Speaker 2: this chip maker that focuses on memory chips that went public.
29:07
Speaker 2: It's a commoditized business anyways, and now China is trying
29:11
Speaker 2: to get more involved there. Why are you buying a
29:15
Speaker 2: Chinese memory chip maker? If that's the case, like, where
29:19
Speaker 2: do you think those profits are going to come from?
29:22
Speaker 2: So we talk a lot.
29:22
Speaker 3: About the advantages that Chinese AI industry has, and one
29:28
Speaker 3: of them I guess that we haven't really dove into
29:31
Speaker 3: is that if the Chinese government decides that it wants
29:34
Speaker 3: to prioritize a specific industry, then what they do is
29:39
Speaker 3: they tell their banks to lend to that industry and
29:42
Speaker 3: do so at discounted rates. And you're seeing that already
29:46
Speaker 3: major Chinese tech companies are borrowing in an average bond
29:50
Speaker 3: interest rate of one point nine percent this year. So
29:54
Speaker 3: you know that's not really being driven by market Chinese rates.
29:58
Speaker 3: That's being driven by the government telling banks to lend
30:02
Speaker 3: money to a specific industry.
30:04
Speaker 1: It is.
30:04
Speaker 2: But here's the problem. I'll quote here from this piece,
30:08
Speaker 2: and I'm actually going to quote the person quoted in
30:10
Speaker 2: the piece, so it's a quote inside of a quote. See.
30:13
Speaker 2: Over the past few years, US firms have had greater
30:16
Speaker 2: access to capital, but financing costs are rising, said Chris Miller,
30:19
Speaker 2: professor at Tuftsy University and author of Chip War, The
30:21
Speaker 2: Fight for the World's most Critical Technology. If Chinese firms
30:25
Speaker 2: secure a durable advantage in capital access, that would provide
30:28
Speaker 2: an advantage, though Chinese domestic compute is still substantially more
30:32
Speaker 2: expensive because of the lower quality of Chinese AI chips.
30:35
Speaker 2: So there's one word in there that's doing a huge
30:40
Speaker 2: amount of lifting, like world's Strongest Man type stuff, and
30:44
Speaker 2: that word is if if Chinese firms secure a durable
30:48
Speaker 2: advantage in capital access, Michael, when it comes to capital markets,
30:53
Speaker 2: how far do you trust the Chinese government? Because I
30:57
Speaker 2: wouldn't trust them as far as I can throw them,
30:59
Speaker 2: and I shouldn't be throwing anything with my back the
31:01
Speaker 2: way it is.
31:02
Speaker 3: Yeah, I was gonna make a reference about being able
31:04
Speaker 3: to throw one of the people in this room. So
31:06
Speaker 3: do you know so, like probably the tall guy behind
31:08
Speaker 3: the board over there, Hi Ben. So I just think, look,
31:13
Speaker 3: if you really think that you can trust the Chinese
31:15
Speaker 3: government to be able to give you access to your
31:18
Speaker 3: capital when you want it back from investing in a
31:20
Speaker 3: Chinese company, then sure, of course, like this makes sense
31:25
Speaker 3: having seen this Dog and Pony show a few times.
31:29
Speaker 2: The problem is that you can't. And it's not to
31:33
Speaker 2: say that like you'll just be told like no, you
31:35
Speaker 2: can't get your money out, But it's much more Hey,
31:38
Speaker 2: like We've seen the things where you know, Jack Mob
31:40
Speaker 2: becomes critical of the Chinese Communist Party and next thing
31:44
Speaker 2: you know, there's an investigation into Ali Baba and Jack's
31:47
Speaker 2: not you know, saying anything for three years.
31:49
Speaker 3: Yeah, or US investment company staff starts getting investigated for this,
31:53
Speaker 3: that or the other and decides that they need to
31:56
Speaker 3: basically in China the country.
31:58
Speaker 2: Yes, so let's take it quick break on that note,
32:01
Speaker 2: and when we return, well, actually, I do want to
32:06
Speaker 2: talk about this Ford's new electric truck. I want to
32:09
Speaker 2: discuss next.
32:11
Speaker 1: Smart Financial Talk. Whenever you want, find The Financial Exchange
32:15
Speaker 1: on YouTube, hit that subscribe button and keep up to
32:18
Speaker 1: date on daily business news from New England and around
32:21
Speaker 1: the country. This is the Financial Exchange Radio Network. From
32:26
Speaker 1: market moves to retirement planning strategy, Follow the Financial Exchange
32:30
Speaker 1: on Instagram and stay up to date on the business
32:32
Speaker 1: news of the day. This is the Financial Exchange Radio Network.
32:49
Speaker 2: Ford is a car company that makes no cars, only
32:54
Speaker 2: trucks SUVs two but no cars. Trucks you know, like
32:58
Speaker 2: an su Visa truck. Yeah, they make no cars, but
33:02
Speaker 2: they have a new electric pickup truck they're gonna be
33:05
Speaker 2: releasing next year. This is from there skunkworks. Remember Jim Farley,
33:11
Speaker 2: not Chris, went to China and came out also Chris's cousin,
33:15
Speaker 2: Yes it is Chris's cousin, but went to China. Don't
33:20
Speaker 2: you wish that you could have Chris Farley going to
33:22
Speaker 2: China and coming back and telling us about EV's. They like,
33:25
Speaker 2: what an SNL bit that would be if he just
33:29
Speaker 2: played his cousin on SNL. But obviously can't lost one
33:34
Speaker 2: of the greats in any case. So Jim Farley went
33:37
Speaker 2: to China a few years back, came back and was
33:39
Speaker 2: just like shaking in his boots. He's like, these guys
33:40
Speaker 2: are gonna eat us alive. And so about two years
33:44
Speaker 2: ago decided to launch a skunk works set up for
33:49
Speaker 2: Ford where they had like this secret development team that
33:52
Speaker 2: was going to from the ground up build a new
33:56
Speaker 2: electric vehicle because he was terrified of these Chinese evs
33:59
Speaker 2: that are gonna come in and just eat everyone's lunch.
34:01
Speaker 2: So Ford announced late last week that their new mid
34:04
Speaker 2: size electric pickup. So mid size you're talking Ford Ranger,
34:08
Speaker 2: not Ford f Series. It's gonna be called the Ford Fathom,
34:13
Speaker 2: So it's gonna be a separate model it's not like
34:15
Speaker 2: the F one to fifty Lightning, where they tried to
34:16
Speaker 2: go with an established name and they said it's gonna
34:19
Speaker 2: have a starting price of twenty eight three point fifty uh,
34:22
Speaker 2: and so it's gonna be under thirty thousand dollars. Is
34:26
Speaker 2: going to begin taking pre orders for the truck in
34:30
Speaker 2: early twenty seven and deliveries in late twenty seven. We
34:34
Speaker 2: don't have any pictures of it yet, we don't know
34:36
Speaker 2: what it looks like. But Farley's thrown a bunch of,
34:40
Speaker 2: you know, a bunch of weight behind this, and I
34:43
Speaker 2: think the piece that's interesting to me is the form
34:47
Speaker 2: factor that they're choosing for the first vehicle to come
34:50
Speaker 2: out of this skunk works facility, because the one thing
34:56
Speaker 2: that we have seen is that electric pick ups haven't
35:01
Speaker 2: really sold well in the United States and there's only
35:06
Speaker 2: been a few that have that you've been able to
35:08
Speaker 2: choose from. But the F one fifty Lightning, remember, at
35:11
Speaker 2: one point had like seven hundred and fifty thousand pre
35:13
Speaker 2: orders or whatever. The capacity is running in the tens
35:17
Speaker 2: of thousands a year now they're actually producing because that's
35:19
Speaker 2: where demand is. Uh. The cyber truck they're selling like
35:24
Speaker 2: ten thousand a year. It's not many. Rivian's got there
35:28
Speaker 2: R one T that they sell. Remember, they've got two
35:30
Speaker 2: versions of that vehicle. The R one S is the SUV.
35:35
Speaker 2: Out of like the fifty sixty thousand units that Rivian
35:37
Speaker 2: sells each year, like ten grand of them are from
35:40
Speaker 2: the R one T, which is the electric pickup truck.
35:43
Speaker 2: So here's my guy, you can finish. So I struggle
35:47
Speaker 2: with the desire to make an electric pickup truck because
35:52
Speaker 2: you look at it and you're just like, Okay, who
35:53
Speaker 2: is the natural buyer of this? The people that need
35:56
Speaker 2: a heavy duty work truck need a heavy, dirty work truck.
35:59
Speaker 2: They're not buying that.
36:01
Speaker 3: And the people who don't need a heavy duty work
36:04
Speaker 3: truck but want something that looks cool.
36:06
Speaker 2: Are fine with the SUV format that's what they've historically bought.
36:10
Speaker 3: Or they just still buy the expensive truck or maybe
36:14
Speaker 3: the electric F series truck because it's cool.
36:17
Speaker 2: It looks cool now.
36:18
Speaker 3: But those like I think about the person who needs
36:23
Speaker 3: a pickup truck but has a small budget, they usually
36:26
Speaker 3: need it because they actually need to do work right.
36:29
Speaker 3: And I don't know that any electric truck is going
36:32
Speaker 3: to really check the box on that.
36:35
Speaker 2: I'm just not sure this is a great entrant from
36:39
Speaker 2: Ford because it's unclear that there's a natural buyer for these,
36:44
Speaker 2: whereas with you know, small mid sized SUVs, even electric ones,
36:49
Speaker 2: there is We've seen this with the Tesla model. Why yeah,
36:52
Speaker 2: like you you've seen it. It's there, there are there's
36:55
Speaker 2: a large number of people that are willing to spend
36:57
Speaker 2: fifty grand to go and buy an electric suv. But
37:01
Speaker 2: to your point, that's not what Ford does. You know,
37:03
Speaker 2: like they.
37:04
Speaker 3: Don't have like so they do they still have the Yeah,
37:09
Speaker 3: but that's a big suv. Like I wonder does the
37:12
Speaker 3: Escape even sell in the top ten of small SUVs?
37:17
Speaker 2: I have doubts.
37:18
Speaker 3: Right, yeah, probably it might take the top ten, but
37:24
Speaker 3: it's just not good at that space. And so yeah,
37:28
Speaker 3: I think it might be a missed up. But I
37:29
Speaker 3: also don't know what else they could possibly do because
37:31
Speaker 3: Ford is pickup trucks.
37:33
Speaker 2: Taylor farms pulling salt and guacamole over salmonella concerns. What
37:40
Speaker 2: exactly can you eat from tailor farms these days? I
37:43
Speaker 2: don't know.
37:44
Speaker 3: But I was having people over for burgers and a
37:47
Speaker 3: swim in our pool.
37:48
Speaker 2: Yet did you offer them let us I jokingly did.
37:52
Speaker 3: I had it out and I was like, hey, if
37:53
Speaker 3: anybody needs a quick weight loss plan, like, there's some
37:56
Speaker 3: you know, Lettuce sitting over on the cutting board over there.
38:00
Speaker 3: And that's the state we've gotten into these days. Everybody
38:04
Speaker 3: knew what I was talking about.
38:05
Speaker 2: It it's not great. Let's take a quick break for
38:10
Speaker 2: just a bit, and when we come back, we got
38:12
Speaker 2: our two coming up.