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Markets Are Ignoring a Potential Global Shock · The Financial Exchange Show

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Speaker 1: Zada and Mark Fandetti.
1:14
Speaker 2: It's Chuck and Mark an Tucker with you here, and
1:17
Speaker 2: how do we doodle a gang. We're getting set for
1:20
Speaker 2: a big week in markets. I gotta tell you again,
1:24
Speaker 2: those of you who are longtime listeners, occasionally you tune
1:27
Speaker 2: in at the start of the week and I say, guys,
1:31
Speaker 2: go touch some grass, play outside, have a little fun,
1:33
Speaker 2: go fishing, go surfing, do what you do, because there's
1:37
Speaker 2: nothing going on in markets this week. This is not
1:40
Speaker 2: that week. This week on with no further ado, here's
1:44
Speaker 2: what we're looking at. On Wednesday, you have Microsoft, Amazon
1:49
Speaker 2: Alphabet and Meta reporting earnings. That's almost ten trillion dollars
1:52
Speaker 2: in market cap. The next day you've got Apple. You've
1:54
Speaker 2: got a FED meeting on Wednesday. Building permits and housing
1:58
Speaker 2: starts on Wednesday. EIA energy data is out on Wednesday
2:03
Speaker 2: as well. Thursday, we've got PCE data, We've got Employment
2:07
Speaker 2: Cost Index, we've got jobless claims. Friday, we've got ism manufacturing.
2:12
Speaker 2: If you can't get excited for this, then, quite honestly,
2:15
Speaker 2: then you know you're listening to the wrong show. But
2:18
Speaker 2: I happen to think this is the right one, because
2:20
Speaker 2: this is a big week that, in my mind, is
2:22
Speaker 2: a really pivotal one for a couple of reasons. Notably,
2:27
Speaker 2: I know I gave you some big tech earnings. There's
2:28
Speaker 2: a bunch of other companies, more consumer facing ones that
2:31
Speaker 2: are reporting as well. Domino's Pizza already reported this week.
2:34
Speaker 2: You've got Coca Cola, Starbucks, General Motors, Ups, Sherwin Williams,
2:38
Speaker 2: Waste Management, Hilton Mandolez. I mean, like, the list goes
2:43
Speaker 2: on and on as far as what is reporting this week,
2:47
Speaker 2: and so I think it's a big one to hear
2:49
Speaker 2: from companies about hey, markets have recovered, basically saying that this,
2:55
Speaker 2: you know, the situation in the Middle East is not
2:57
Speaker 2: going to impact the world economy. Is that gonna actually
3:01
Speaker 2: be the case? Now, what do we start hearing from
3:03
Speaker 2: companies on this in terms of the real world impacts
3:07
Speaker 2: that they're experiencing. I also will remind people, I know,
3:10
Speaker 2: no one wants to hear this because again, it just
3:13
Speaker 2: it's not what markets have focused on as they've run
3:16
Speaker 2: back up. But every day that we go on, there's
3:18
Speaker 2: another twelve and a half million barrels of oil that
3:20
Speaker 2: is not produced from Middle Eastern countries that previously was
3:24
Speaker 2: and that is, you know, showing up in the fact that, hey,
3:27
Speaker 2: you've got the Australian Prime minister, you know, putting out
3:30
Speaker 2: a big public announcement that they secured a day worth
3:33
Speaker 2: of diesel fuel. You've got Japanese TV stations covering oil
3:38
Speaker 2: tankers coming into port because it's such a big deal there,
3:42
Speaker 2: European airlines canceling flights. You got fuel shortages that are
3:45
Speaker 2: popping up around the world in different places. So again,
3:49
Speaker 2: to this point, none of it has mattered to the
3:51
Speaker 2: broader economy and to the broader market. But I do
3:56
Speaker 2: wonder how long the market can just price this in
3:58
Speaker 2: as like a one to two month air pocket as
4:00
Speaker 2: opposed to a longer term thing. And so I think
4:03
Speaker 2: every day this goes on, it gets harder and harder
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Speaker 2: for the market to ignore, and the back building effects
4:08
Speaker 2: are going to be greater, and at some point that
4:11
Speaker 2: disconnect will be realized if there is not some kind
4:14
Speaker 2: of negotiated solution to open horror moves within the next
4:18
Speaker 2: week or so, Like we're down to that point now
4:21
Speaker 2: in my opinion.
4:22
Speaker 3: Yeah, markets are trading. I get well, you already explained
4:26
Speaker 3: the trading rationally.
4:27
Speaker 2: If you think that there's going to be yeah, like
4:30
Speaker 2: there's nothing irrational about what they're doing.
4:32
Speaker 3: And no, I wasn't gonna like it seems a little
4:34
Speaker 3: complacent to me. This is the biggest shock of our lifetimes.
4:37
Speaker 3: Most of us are adult lifetimes. Certainly, I was born
4:40
Speaker 3: in seventy two, so I don't I didn't live through
4:42
Speaker 3: the oil price. I did, but I didn't deal with
4:45
Speaker 3: its effects. I let my parents, I guess.
4:47
Speaker 2: Do that you weren't able to drive that young.
4:49
Speaker 3: But yeah, you know, in Rhode Island we did have
4:52
Speaker 3: a very.
4:52
Speaker 2: Young seventy three seventy four, you probably weren't, but by
4:55
Speaker 2: seventy nine you were probably drive in.
4:57
Speaker 3: Rhode Island, I think back back then at a or
5:00
Speaker 3: nine years old, because you had to go get him
5:01
Speaker 3: for your dad. So who's going to drive to get
5:03
Speaker 3: the cigarettes?
5:04
Speaker 2: Exactly have to be able to do if he was
5:05
Speaker 2: working the pedals, the other person you got.
5:07
Speaker 4: To be able to do.
5:07
Speaker 3: No, no, dad's at home. You gotta be able to do no.
5:09
Speaker 1: No.
5:09
Speaker 2: I mean multiple kids. You know you had to like
5:12
Speaker 2: you couldn't, you couldn't reach the pedals, yourself ins.
5:14
Speaker 3: Useless, So I didn't you know, where are we.
5:18
Speaker 2: Going with that don't know. But but okay, big I said, Oh.
5:21
Speaker 3: I said, biggest of my lifetime. I just wanted to
5:23
Speaker 3: give that context. Markets don't seem to approve I want to.
5:27
Speaker 2: I don't know.
5:28
Speaker 3: Maybe they are appreciating it. Maybe what we're seeing is
5:30
Speaker 3: an average. Maybe the very bad outcomes are priced in,
5:33
Speaker 3: the very good outcomes are priced in. What we're seeing
5:35
Speaker 3: is an average in non average investors expect this to
5:38
Speaker 3: be okay. The potential here is for a far more
5:42
Speaker 3: disruptive shock than anything anybody living today and participating in
5:46
Speaker 3: markets certainly has experienced. And I do, I admit, I
5:50
Speaker 3: do find it in light of that, And what do
5:53
Speaker 3: I mean by that? I mean a stagulationary shock. In turn,
5:56
Speaker 3: what do I mean by that something that slows growth
5:58
Speaker 3: and raises prices, increases the rate of increase in prices,
6:01
Speaker 3: increases inflation in the magnitude of the shot could be
6:06
Speaker 3: very big. We're talking worldwide recession or worse if it
6:09
Speaker 3: carries on.
6:11
Speaker 2: And look, I'll say, this market is not pricing in
6:15
Speaker 2: this really any probability of negative effects. And like again,
6:20
Speaker 2: I'm not saying that that's bad. What I'm saying is, hey,
6:23
Speaker 2: if there is some kind of resolution that we're able
6:26
Speaker 2: to see, you know, pushed across the finish line in
6:29
Speaker 2: the next week or two. Then here here's how markets
6:32
Speaker 2: can look through this. They'll say, Okay, things are gonna
6:34
Speaker 2: get really bad in Asia and the EU for the
6:40
Speaker 2: next two to three months, but after that things are
6:44
Speaker 2: going to start improving. That's second derivative. The rate of
6:46
Speaker 2: change of the rate of change is going to start improving.
6:49
Speaker 2: And great, you can buy that because things are going
6:53
Speaker 2: to be on that trajectory where they're not going to
6:55
Speaker 2: be going down as steeply steeply, and then the economy
6:57
Speaker 2: starts to inflect up eventually, and markets can buy that
7:00
Speaker 2: because they always move before the economy does. They're forward
7:03
Speaker 2: looking in that respect. We've talked about this very years.
7:06
Speaker 3: Yeah.
7:07
Speaker 2: The counter to this, okay, and we've talked about it
7:09
Speaker 2: just from a valuation perspective. If you are a believer
7:12
Speaker 2: that stocks were fairly priced, that the S and P
7:15
Speaker 2: five hundred was fairly priced last year trading at twenty
7:18
Speaker 2: two times forward earnings, well it's at twenty point nine
7:22
Speaker 2: right now, so it's a five percent discount. There is
7:25
Speaker 2: upside into the mid seven thousands on them. I'm not
7:28
Speaker 2: saying that that's right, Mark, No, I'm just saying, if
7:30
Speaker 2: you are a believer that that was a fairly priced
7:34
Speaker 2: market last year, then this one still has room to
7:37
Speaker 2: run based on that.
7:38
Speaker 3: I'm not saying no, I'm not saying I just don't
7:40
Speaker 3: get how someone could believe that given the change in
7:43
Speaker 3: the geopolitical situation. I mean, this closure of the strait
7:46
Speaker 3: could be replicated.
7:48
Speaker 2: It could be, but I'll also make the case. Let's
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Speaker 2: discuss that in a second. Let me just put a
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Speaker 2: note down just so that I can remember that replicate
7:56
Speaker 2: horror moves? How do you spell horror moves as it was?
8:00
Speaker 2: One B or two.
8:02
Speaker 5: B?
8:03
Speaker 2: Gotcha? Anyways, what I know? Okay?
8:07
Speaker 3: Uh So think about that, Tucker, Yeah, think about mister
8:11
Speaker 3: smart guy.
8:11
Speaker 2: I'm so confusing. So, if you are a believer in
8:15
Speaker 2: stocks were fairly valued last year at twenty two times
8:17
Speaker 2: forward earnings, they're only twenty one x right now, and
8:20
Speaker 2: so there's your path if you believe the earnings projections,
8:24
Speaker 2: there's your path to the S and P getting to
8:26
Speaker 2: seventy five to seventy seven hundred in the next three
8:28
Speaker 2: to four months. Not saying I do or don't I'm
8:31
Speaker 2: just saying, there's your path. If you are a believer
8:34
Speaker 2: that the strait is going to remain closed longer term
8:38
Speaker 2: and that those effects are not going to be able
8:41
Speaker 2: to be looked through by the market here, then your
8:45
Speaker 2: floor is well below where it is today. And like,
8:49
Speaker 2: how do I define well below? Not what we saw
8:53
Speaker 2: in March more than that? Okay, that that is how
8:57
Speaker 2: I would define well below. Uh, you know people are like, Chucklick,
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Speaker 2: do you mean I don't know what the number is
9:04
Speaker 2: because I don't know how bad the earnings destruction can
9:07
Speaker 2: get if Hormus remains closed for like nine months as
9:11
Speaker 2: an example. I'm not saying that that will or won't happen.
9:15
Speaker 2: I'm outlining the different cases that can be made. And
9:18
Speaker 2: the case for upside is, Okay, something gets squared away
9:22
Speaker 2: in the next week or two and then you go great,
9:24
Speaker 2: there's your upside in stocks. If you know your worst
9:28
Speaker 2: case scenario. We're still sitting here a year from now
9:30
Speaker 2: when horrmuz is closed. I don't know how low stocks
9:34
Speaker 2: can go. But you can't print oil, is what I know.
9:37
Speaker 2: You can't print fertilizer I've tried doesn't work. So this
9:44
Speaker 2: is kind of where we are right now, and then
9:46
Speaker 2: there's everything in between.
9:47
Speaker 3: Valuation should reflect risk premia, and risk premia have should
9:51
Speaker 3: have gone up as a result.
9:52
Speaker 2: They might in the long run. I'll still make the
9:54
Speaker 2: cases I made at the beginning of this. This market's
9:56
Speaker 2: fear gauge is broken because of so many people got
10:00
Speaker 2: left behind when the market ran last year, and no
10:03
Speaker 2: one wants to get left behind again in the same fashion.
10:06
Speaker 2: At least take a quick break when we return. Luke
10:09
Speaker 2: Kawa from Sherwood News joins us right after this.
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Speaker 2: We're still working just on getting Luke Cowell with us.
12:00
Speaker 2: We've got some technical difficulty, So in the interim we're
12:03
Speaker 2: gonna talk about cars. Piece from the Wall Street Journal.
12:05
Speaker 2: America's pandemic car bubble is now trapping buyers in debt
12:12
Speaker 2: and what we have, Oh, Luke's good, fantastic Luke, how
12:15
Speaker 2: you doing doing great?
12:17
Speaker 4: Doing great? Ham with the Delta setup.
12:19
Speaker 6: Here after a couple flights lost some AirPods, so we're
12:22
Speaker 6: working under difficult technical circumstances.
12:25
Speaker 4: Thanks for having me.
12:26
Speaker 2: You sound great to me, and it's always good to
12:28
Speaker 2: talk to you, Luke. I can't help but start by
12:31
Speaker 2: talking about what's been going on with semiconductors up until today.
12:36
Speaker 2: Eighteen straight days of positive momentum for semiconductors until today.
12:42
Speaker 2: Looks like we're down about two and a quarter percent
12:44
Speaker 2: on the Semiconductor index today. Is this all just a
12:48
Speaker 2: demand story on companies can't get enough computing power for
12:53
Speaker 2: their AI applications.
12:55
Speaker 6: Yeah, I think a very important thing that happened around
12:58
Speaker 6: the time the market bot. We go back to March thirtieth.
13:02
Speaker 6: We didn't just have that day, you know, in the
13:04
Speaker 6: day that foulwed. We didn't just have some kind of
13:07
Speaker 6: nice mood music around the potential for a ceasefire. What
13:10
Speaker 6: we also had that day was core Weave being able
13:13
Speaker 6: to close a debt deal that was allowing it to
13:16
Speaker 6: use its AI compute with Meta as effectively backstopping the
13:20
Speaker 6: debt and its chips with backstopping the debt. And soon
13:22
Speaker 6: thereafter you started to get a lot of complaints from
13:25
Speaker 6: anthropic claud users about running into their usage limits stealth
13:29
Speaker 6: token rationing. So I think two very important things have
13:32
Speaker 6: happened in the past, you know, let's call it month,
13:35
Speaker 6: that have kind of reinforced where the demand is and
13:38
Speaker 6: who it's helping.
13:39
Speaker 4: We found that some of.
13:40
Speaker 6: The more marginal players are able to be supported, so
13:43
Speaker 6: credit risk down I think that helps the entire ecosystem.
13:46
Speaker 6: And then on the other hand, we've kind of learned
13:48
Speaker 6: more and more that this AI demand is not just
13:51
Speaker 6: some kind of abstract hyperscaler race for compute make the
13:55
Speaker 6: newest and greatest model. It's people downstream that are really
13:59
Speaker 6: feeling more of a compute crunch.
14:01
Speaker 4: And ever since then, what have we seen.
14:02
Speaker 6: We've seen anthropic deal after deal that I was described
14:06
Speaker 6: as a complete and uttered frenzy scrambled for compute. So
14:09
Speaker 6: I would say this is the chip rally is a
14:11
Speaker 6: lot about the mainstreaming and the end user demand of
14:15
Speaker 6: f AI in a way that we haven't seen it
14:17
Speaker 6: so far in this boom.
14:19
Speaker 2: So here here's where I like, I struggle to wrap
14:23
Speaker 2: my head around the scale of all this to make
14:25
Speaker 2: the numbers work. Look, have you seen any numbers as
14:28
Speaker 2: to like, what we don't have any numbers in like
14:33
Speaker 2: what amount of work is actually being done by AI
14:36
Speaker 2: at this point?
14:37
Speaker 4: Correct, No, we don't.
14:40
Speaker 2: It's not much in the aggregate, right, I.
14:43
Speaker 6: Wouldn't say it's it's too too much in the aggregate.
14:45
Speaker 6: You do have a lot of examples of companies going like,
14:47
Speaker 6: you know, fifty to ninety percent of new code sense
14:51
Speaker 6: X date in which X is usually within the past
14:53
Speaker 6: six to nine months, has been has.
14:55
Speaker 4: Been written by AI.
14:57
Speaker 6: They don't tell you, however, you know effectively, you know
15:00
Speaker 6: if it's with the same number of engineers, et cetera,
15:03
Speaker 6: et cetera, you don't get a lot of the sense
15:04
Speaker 6: of the breath.
15:05
Speaker 4: However, in breadth.
15:06
Speaker 6: Terms, you are seeing more and more companies try and
15:09
Speaker 6: highlight this to show that it's a breadth not depth issue.
15:11
Speaker 6: Anthropic I think would stand out again and saying just
15:13
Speaker 6: the number of kind of million dollar enterprise deals it
15:17
Speaker 6: has has gone up quite a bit, and I believe
15:20
Speaker 6: it highlighted that in it's February series G and then
15:23
Speaker 6: after again when it announced its expanded deal with what
15:26
Speaker 6: with Broadcommon Google.
15:27
Speaker 4: But it's almost like you remember.
15:29
Speaker 6: Back in twenty twenty two there was this kind of
15:31
Speaker 6: great article Matt Zeitlin wrote about how it was always
15:34
Speaker 6: someone's first day on the job because we had, you know, effectively,
15:39
Speaker 6: labor turnover was very high. That was the period where
15:41
Speaker 6: job openings to unemployed, that ratio was extremely high. Right now,
15:45
Speaker 6: I feel like it's always someone's first day using Claude code,
15:49
Speaker 6: And if you know anything about productivity and the way
15:51
Speaker 6: that works, it does take a while for you to
15:53
Speaker 6: use something to be able to get good at it
15:55
Speaker 6: and have some fruits born of that.
15:57
Speaker 2: I guess where I'm going with this is it sure
16:00
Speaker 2: seems like the price of compute at the moment is
16:05
Speaker 2: moving up based on what I'm seeing in terms of
16:07
Speaker 2: like rental rates and things like that. Is that a
16:09
Speaker 2: fair statement, very fair statement, Yes, if that price is
16:13
Speaker 2: going up, and if it seems like we just need
16:16
Speaker 2: more and more compute in order to do the stuff
16:18
Speaker 2: that we want to do, which which we can do,
16:20
Speaker 2: like it's it's crazy the stuff people can do using AI. Now,
16:25
Speaker 2: how much cost savings is there actually going to be
16:28
Speaker 2: for companies moving to this, because isn't that the whole
16:31
Speaker 2: selling point eventually?
16:33
Speaker 6: Yeah, I think that's precisely the right question to be asked.
16:37
Speaker 6: But it's also a matter of like, if you're a
16:39
Speaker 6: lot of these companies providing compute, how much how much
16:42
Speaker 6: do you really want it to reflect the market price
16:45
Speaker 6: and the short term versus getting people very locked into
16:47
Speaker 6: this idea of hey, you can have compute solved all
16:50
Speaker 6: this problems and then you know, not realize that the
16:52
Speaker 6: cost savings have effectively, you know, crept to zero or nothing.
16:55
Speaker 6: By the time you've gotten you're fairly entrenched in that system.
16:58
Speaker 6: So I think that's a bit of the trade off.
17:00
Speaker 6: What I'd also say is that you know, there's definitely
17:03
Speaker 6: going to be something of a bifurcation between like the
17:06
Speaker 6: low end compute use and kind of you know, whether
17:09
Speaker 6: the consumers at the who are using unpaid or free
17:13
Speaker 6: versions that not really being able to move the needle
17:17
Speaker 6: much versus at the upper end. I think what enterprises
17:20
Speaker 6: are are willing to pay for for top end solutions.
17:22
Speaker 6: I think that's going to be you know, a pretty
17:24
Speaker 6: huge source of bifurcation going forward. And remember then again,
17:28
Speaker 6: I think we're still at the corporate level very much
17:30
Speaker 6: in the experimentation phase where people are trying to prove
17:34
Speaker 6: what they can do before trying to rationalize an economic
17:37
Speaker 6: return that's both the source of you know, upside and
17:40
Speaker 6: immense downside risk for everybody involved throughout the ecosystem.
17:43
Speaker 2: And I guess where I get to then is, Look,
17:45
Speaker 2: we've built you know, X amount of computing power right
17:49
Speaker 2: now if there's barely any being used, like in the
17:53
Speaker 2: broader corporate ecosystem still, like, if it doesn't have that
17:57
Speaker 2: deep penetration yet, how do we have get to the
18:00
Speaker 2: dollars where it makes sense to build all Like do
18:03
Speaker 2: we have the dollars to actually build all of the
18:05
Speaker 2: data centers we need given the potential demand that's out there?
18:10
Speaker 2: Like can the mass simultaneously be that there's more demand
18:13
Speaker 2: than we can fill and that it just like I
18:17
Speaker 2: just I can't get there on the numbers. I think,
18:19
Speaker 2: do you understand where I'm getting to?
18:21
Speaker 4: I totally understand where you're coming from. And I think,
18:24
Speaker 4: like the.
18:26
Speaker 2: We can't find it, but we know we need it.
18:28
Speaker 6: Well, I think the different part about this boom, especially
18:32
Speaker 6: relative to other ones, and you know, we have seen
18:33
Speaker 6: hyperscaler dead issuance be you know, quite up, but they
18:36
Speaker 6: still you know, are if they're not generating a massive
18:39
Speaker 6: amounts of cash. That's because of all the capacks are doing.
18:42
Speaker 6: But they're still able to sustain that quite a bit
18:45
Speaker 6: of time. So it is I again, a different part
18:47
Speaker 6: of this boom is I think the the cash richness
18:49
Speaker 6: of the people doing the spending and the fact that
18:52
Speaker 6: they are telling you they've been very fourth right. They
18:54
Speaker 6: think the Mark Zuckerberg, the the centderpikais they have told
18:58
Speaker 6: you that the risk is spending too So you know,
19:01
Speaker 6: they're telling you that the endpoint that they want to
19:03
Speaker 6: get to, or the endpoint that they see is rational
19:06
Speaker 6: given maintaining the competitive positions of their businesses, is for
19:10
Speaker 6: them to spend too much.
19:11
Speaker 4: So uh, is that.
19:13
Speaker 6: A world where the ROI is always very smooth and
19:17
Speaker 6: sloping up into the right.
19:18
Speaker 4: I don't necessarily think so.
19:19
Speaker 6: And to that point, a lot of these stocks before
19:23
Speaker 6: the recent run had gone nowhere for five six months.
19:25
Speaker 6: So the market does, I think, trade in and out
19:28
Speaker 6: of periods of exuberance about the end user demand for
19:31
Speaker 6: a time, periods of going what the heck are we?
19:34
Speaker 4: What the heck are we doing? When is there ever we.
19:36
Speaker 2: Got to run? Luke, I apologize. That's Luke Cowall from
19:38
Speaker 2: Sherwood News.
19:41
Speaker 1: Bringing the latest financial news straight to your radio. Every day.
19:46
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:51
Speaker 1: Turn out full Wall Street Watch tracking the stocks, the
19:55
Speaker 1: dato and the headlines driving markets so far today right
19:58
Speaker 1: here on the Financial Exchange Radium Network.
20:01
Speaker 5: Very busy week ahead for Wall Street where Drome Powell
20:04
Speaker 5: will hold his final monetary policy meeting as Chairman of
20:08
Speaker 5: the Fed with the decision on interest rates on Wednesday.
20:11
Speaker 2: We also have a huge batch.
20:12
Speaker 5: Of earnings, including from big tech from the likes of Alphabet, Microsoft, Amazon, Meta,
20:19
Speaker 5: and Apple. Right now, markets are modestly lower. Dow is
20:23
Speaker 5: down about a third of a percent or one hundred
20:25
Speaker 5: and sixty six points, SMP five hundred down nearly two
20:29
Speaker 5: tenths of a percent, Nasdaq down about a third of
20:31
Speaker 5: a percent, Russell two thousand is flat, Tenure Treasure reeled
20:35
Speaker 5: up two basis points at four point three three six percent,
20:38
Speaker 5: and Oil up nearly three percent, trading at ninety seven dollars.
20:43
Speaker 5: A barrel breaking news from Microsoft and open Ai after
20:46
Speaker 5: both companies agreed to a new deal that offers open
20:49
Speaker 5: Ai more freedom to partner with Microsoft's rivals and capping
20:53
Speaker 5: the revenue we must share through twenty thirty. Microsoft is flat.
20:57
Speaker 5: Meanwhile Qualcom shares a now down slightly after rallying in
21:00
Speaker 5: earlier trading following reports that the chip maker is partnering
21:04
Speaker 5: with open Ai to create smartphone and processing chips to
21:08
Speaker 5: advanced DEAI firms hardware ambitions. Elsewhere, the Wall Street Journal
21:12
Speaker 5: reported that a group of budget airlines, including Frontiers, seeking
21:15
Speaker 5: two and a half billion dollars in government assistance for
21:18
Speaker 5: equity warrants. Domino's Pizza reported a decline in first quarter profit,
21:23
Speaker 5: while its sales outlook fell short of expectations, sending shares
21:27
Speaker 5: down by nine percent and Verizon up by three percent
21:31
Speaker 5: after the telecommunications company reported higher growth in new customers
21:36
Speaker 5: as well as lower churn. I'm Tucker Silva and that
21:39
Speaker 5: is Wall Street Watching. In the previous segment, we asked
21:41
Speaker 5: you the trivia question. Aside from Pontiac, name one of
21:45
Speaker 5: the car brands discontinued in twenty ten, and that would
21:49
Speaker 5: be Saturn, SOB and Hummer. Tom from Hopkinton, Mass is
21:53
Speaker 5: our winner today, taking home the Financial Exchange Show T shirt.
21:57
Speaker 5: Congrats to Tom, and we've played trivia every day here
22:00
Speaker 5: on the Financial exchange ce complete contest rules at financial
22:03
Speaker 5: looks chainshow dot com.
22:05
Speaker 2: All right, let's talk cars a little bit piece from
22:07
Speaker 2: the Wall Street Journal America's pandemic car bubble is now
22:10
Speaker 2: trapping buyers in debt. Here's the thirty percent of car
22:14
Speaker 2: buyers trading in vehicles in Q one had negative equity.
22:18
Speaker 2: They owed an average of seventy two hundred dollars on
22:20
Speaker 2: their own old loans relative to the price. This piece
22:24
Speaker 2: also points out this example of this guy who came
22:26
Speaker 2: into a Mercedes dealer, and I'll just quote it just
22:29
Speaker 2: because the numbers are staggering. A prospective buyer recently sought
22:33
Speaker 2: to trade in a Ford F one to fifty Lightning
22:35
Speaker 2: for a Mercedes gl coop. The customer owed eighty seven
22:38
Speaker 2: thousand dollars on the pickup truck, and Horner estimates that
22:42
Speaker 2: the pickup truck was worth about forty seven thousand dollars,
22:44
Speaker 2: leaving the buyer well underwater. Yeah, about forty thousand dollars underwater.
22:49
Speaker 2: So here's what we've seen is in the last ten years,
22:52
Speaker 2: the amount of negative equity has gone from around forty
22:55
Speaker 2: five hundred dollars to that seventy two hundred dollars mark.
22:58
Speaker 2: It's not really crazy when you consider inflation. I don't
23:01
Speaker 2: know that there's a huge difference, given you know, the
23:03
Speaker 2: cumulative inflation for the last ten years. So that is
23:06
Speaker 2: what it is. What's wild to me? Uh data from
23:10
Speaker 2: Edmunds the share of underwater car buyers who opted for
23:13
Speaker 2: an eighty four month loan eighty four months. I did
23:16
Speaker 2: the math on it. Seven years, seven year car loan
23:20
Speaker 2: for a depreciating asset. I gotta tell you, here's the
23:23
Speaker 2: deal for taking out a seven year car loan to
23:28
Speaker 2: buy your car. You're buying too much car. I don't
23:33
Speaker 2: make the rules, but like, that's just how it is.
23:35
Speaker 2: Back in twenty fifteen, fifteen percent of underwater buyers had
23:39
Speaker 2: an eighty four month loan. Today it's forty two point
23:41
Speaker 2: six percent. Almost half of them have those loans. And
23:46
Speaker 2: look here, here's the deal. Everyone wants like the nicest
23:50
Speaker 2: car that they can have. I get it, I understand,
23:52
Speaker 2: But the fact is this, like these problems come about
23:57
Speaker 2: because people just buy too much car. I actually think
23:59
Speaker 2: that in general, most Americans are pretty good with like
24:03
Speaker 2: purchases like this. They generally, like most Americans generally don't
24:06
Speaker 2: get into trouble. Remember, when we do see problems building,
24:10
Speaker 2: it's not like we go to like fifty percent of
24:12
Speaker 2: Americans that start defaulting on car loans. We go from
24:15
Speaker 2: like three percent up to like nine Like that's where
24:19
Speaker 2: like the problem you know comes from. It's it's so
24:23
Speaker 2: I do think though that they're just you know again,
24:25
Speaker 2: if you have to take out a seven year car
24:28
Speaker 2: loan to buy a car, you shouldn't be buying that car.
24:34
Speaker 2: There are two frameworks that I've seen in order to
24:36
Speaker 2: make the car math, you know, easy to understand. And
24:39
Speaker 2: both of them like no one's gonna like when I
24:40
Speaker 2: say these, but like they are what they are. The
24:42
Speaker 2: first is the price of your vehicle shouldn't be more
24:47
Speaker 2: than ten percent of your income. Not the payment, but
24:49
Speaker 2: the price. So if you make fifty k, find a
24:53
Speaker 2: used vehicle worth five care less. If you make one
24:56
Speaker 2: hundred k, ten care less. Now, and again, I know
24:59
Speaker 2: that's like real aggressive. If you want to say, okay,
25:01
Speaker 2: make it twenty percent, fine, but like again, don't be
25:05
Speaker 2: too you know aggressive in terms of trying to buy
25:07
Speaker 2: too much car. It's a depreciating asset that ultimately, uh again,
25:13
Speaker 2: I understand people are in their cars a lot. You
25:15
Speaker 2: want to be comfortable, Like, I get that, But I've
25:19
Speaker 2: said this before. Look, my my personal pet peeve is
25:21
Speaker 2: not like the specific car people buy. It's the freaking
25:24
Speaker 2: panoramic moon roof. What a useless feature. What are you
25:30
Speaker 2: gonna be do driving around looking up through the back
25:33
Speaker 2: part of the roof? I can understand, like, oh, you
25:36
Speaker 2: want like the illusion of a convertible with like the
25:39
Speaker 2: little moonroof over your head. Fine, like the panoramic moonroof
25:42
Speaker 2: that costs like three grand for some reason. Why do
25:47
Speaker 2: you need to give your back seat on the kitants
25:49
Speaker 2: that you're almost never driving with a good view.
25:53
Speaker 3: It's part of a trim level, so someone would probably
25:56
Speaker 3: someone who had one would probably agree with you. But
25:58
Speaker 3: say I want a DSSE and it came with it.
26:01
Speaker 2: Sure, I get that. Yeah, it's still a dumb feature,
26:06
Speaker 2: and I'm sure car companies put in there for the
26:08
Speaker 2: exact reason that you mentioned. So again, like panoramic moonroof,
26:13
Speaker 2: what am I going to do? Just do I spend
26:15
Speaker 2: a lot of time sitting in my car just looking up? No,
26:20
Speaker 2: I don't, and we know from the data, by the way,
26:23
Speaker 2: most people most of the time aren't traveling with passengers
26:26
Speaker 2: in the back seat, so it's not really doing anything
26:28
Speaker 2: for them either, panoramic moonroof.
26:32
Speaker 3: But a lot of features. Yeah, I'm this is somewhat
26:36
Speaker 3: off point. We're talking about amenities, things like heated seats,
26:41
Speaker 3: heated side view mirrors. Yeah, these are former luxuries that
26:46
Speaker 3: are now becoming like standardize, which is how.
26:48
Speaker 2: It moves for all features at one point.
26:50
Speaker 3: Actually everything, right, you want to know the future. Look
26:52
Speaker 3: at how the rich lives somebody.
26:53
Speaker 2: Right, look at what Mercedes does. Those are the safety
26:55
Speaker 2: features and the comfort features that eventually make their way
26:58
Speaker 2: down to every other car.
27:00
Speaker 3: It's like, right, how did I live without volume controls
27:03
Speaker 3: on the steering wheel? To me, that's almost a safety feature.
27:06
Speaker 2: Just go back even further.
27:07
Speaker 3: Power windows, Yeah, I had a few cars without them.
27:10
Speaker 2: Sure, you know, like you just have to roll them
27:12
Speaker 2: up and down. I mean, you know, these were things
27:15
Speaker 2: that like, when's the last when's the last time you
27:17
Speaker 2: saw a new car that didn't have power windows. I
27:21
Speaker 2: don't even know if there are any models that make
27:23
Speaker 2: them with manual windows anymore.
27:24
Speaker 3: Yeah, it's cheaper to make them all the same than
27:27
Speaker 3: it is to differentiate. I think, so just in low
27:29
Speaker 3: power electric motors or something. They put these features in everything. Yeah,
27:33
Speaker 3: because it's cheaper for them to do it that way,
27:35
Speaker 3: I think. And like you said, the magnets are so
27:37
Speaker 3: small that the motors are really tiny. Yeah, so I
27:41
Speaker 3: but the panora. I can't defend a panoramic group. I
27:43
Speaker 3: think the first time I saw one, I thought it
27:45
Speaker 3: was awesome, and it might be good if you need
27:47
Speaker 3: like light therapy or something. You know, you get seasonal
27:50
Speaker 3: effected discar Chuck, I don't know. I'm just I'm reaching.
27:54
Speaker 2: But generally, guys, we got to stop taking out the sime.
27:58
Speaker 3: Okay, So if you've got negative equity, how do you
28:00
Speaker 3: get out of it? You just you just buy far
28:03
Speaker 3: less car than you like or couldn't theory afford for
28:06
Speaker 3: two or three cars. Not a somewhat of modest of
28:08
Speaker 3: average means get out of negative equity.
28:11
Speaker 2: You stop buying cars yeah that you use like you
28:13
Speaker 2: just stop yeah, for a long time, the one that
28:16
Speaker 2: you have until you get back to positive. You you
28:19
Speaker 2: don't sit there and say, well, I don't like this,
28:21
Speaker 2: let me trade it in for something new. That's how
28:23
Speaker 2: you probably got there to begin with. Because I'm guessing
28:26
Speaker 2: based on what I know about the f one fifty lightning.
28:29
Speaker 2: If you still own eighty seven thousand dollars a loan
28:32
Speaker 2: on one today, that means that you roll negative equity
28:35
Speaker 2: into that to begin with. Like that, that's what it means.
28:38
Speaker 3: You're right, that's pretty hard to accomplish.
28:40
Speaker 2: You know, you probably scene example. I know, but I
28:45
Speaker 2: know people that this is what happens to get bored. Yes, absolutely, yes,
28:49
Speaker 2: read a book. People like that new car fare.
28:53
Speaker 3: Hey, I love the car, it's great. I wish they
28:56
Speaker 3: just sold the fabrics.
28:57
Speaker 2: People do it every three years. Here's the thing. We
28:59
Speaker 2: all have our stuff that we spend money on. That's dumb.
29:02
Speaker 2: I get that. My problem isn't that because like we
29:05
Speaker 2: all have it, Like none of us make perfectly rational
29:08
Speaker 2: economic decisions every day. Occasionally it's like, oh, I could
29:13
Speaker 2: make my sandwich, but you know what, I'm just gonna
29:14
Speaker 2: go out and pick something up because I just want to.
29:18
Speaker 2: I get it. My problem is when we end up
29:23
Speaker 2: making financial decisions that are just playing bad because of
29:27
Speaker 2: that and make and have cascading effects that make it worse.
29:31
Speaker 2: Because everyone can find waste in their budget. Like the
29:33
Speaker 2: purpose of living is not just to reduce your budget
29:36
Speaker 2: waste that's not really like a great life, you know,
29:40
Speaker 2: like we all have things that we spend money on
29:41
Speaker 2: where we're like, yeah, it's done, but I like it.
29:44
Speaker 2: It could be a boat, it could be a cabin,
29:46
Speaker 2: it could be whatever. You know, like we all have
29:50
Speaker 2: stuff that we spend money on that ultimately is dumb mine.
29:54
Speaker 2: Guess what. I went to the Bruins game on Sunday. Yeah,
29:58
Speaker 2: had that work out for me? They give four goal
30:00
Speaker 2: in the first period. Talk about a waste of money,
30:03
Speaker 2: like just not a useful afternoon. But ultimately I did
30:07
Speaker 2: it and it doesn't affect my long term financial plan
30:10
Speaker 2: that I did that. The problem is when you do
30:14
Speaker 2: get into situations where you have these cascading effects because
30:17
Speaker 2: of them, and we see it more often than not
30:20
Speaker 2: on cars, especially like I mean you talk about like
30:23
Speaker 2: the run up to the housing crisis and what was
30:24
Speaker 2: going on there where people were buying cars on home
30:28
Speaker 2: equity lines, and then it's like, Okay, now you've got
30:31
Speaker 2: like real problems because you're combining like two wrongs did
30:36
Speaker 2: not make a right in any way, shape or form there, folks.
30:39
Speaker 2: The Armstrong Advisory Group has a retirement planning seminar it's
30:43
Speaker 2: this Thursday, April thirtieth. It's gonna be at the Crown
30:47
Speaker 2: Plosea in Woobert and it's talking about Social Security and
30:50
Speaker 2: Medicare Essentials. Starts at five pm. Again, it's about Social
30:55
Speaker 2: Security and Medicare Essentials, and it's gonna go through those
30:58
Speaker 2: two programs and key things to know about them as
31:00
Speaker 2: you approach retirement or if you're already in retirement. Once again,
31:04
Speaker 2: it's at April thirtieth, five pm at the Crown Plaza
31:07
Speaker 2: in Wuburn. Still a few spots available. How do you register?
31:11
Speaker 2: Call eight hundred three nine three for zero zero one
31:16
Speaker 2: or go to Armstrong Advisory dot com slash events. That
31:20
Speaker 2: phone number again is eight hundred three nine three for
31:24
Speaker 2: zero zero one, or go to Armstrong Advisory dot com
31:28
Speaker 2: slash events.
31:29
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
31:31
Speaker 1: registered investment advisor. Nothing in the ad or in any
31:34
Speaker 1: Armstrong guide a specific financial, legal, or tax advice. Consult
31:37
Speaker 1: your own financial, tax, and estate planning advisors before making
31:40
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
31:43
Speaker 1: advisory services.
31:44
Speaker 2: Take a quick break here. When we return, we're going
31:47
Speaker 2: to stack Roulette after this.
31:50
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32:01
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32:08
Speaker 1: Face is the Financial Exchange.
32:23
Speaker 2: All right? I got a quick one here for stack Roulette.
32:26
Speaker 2: United CEO Scott Kirby says that they have now finished
32:32
Speaker 2: conversations with American about a potential merger. Says it's not
32:36
Speaker 2: going to happen quote without a willing partner or something
32:39
Speaker 2: this big simply can't get done. I'm just going to
32:42
Speaker 2: leave a marker out there that I don't think Kirby
32:44
Speaker 2: ever wanted to actually buy American. I think that this
32:48
Speaker 2: is a stalking horse for a future smaller deal that
32:52
Speaker 2: otherwise would have been problematic still for them to acquire.
32:55
Speaker 2: And I think it would be entirely unsurprising to me
32:59
Speaker 2: if you wor to try to buy Jet Blue or
33:01
Speaker 2: some of its assets within the next six to twelve
33:04
Speaker 2: months of Tucker, can you put that on the prediction
33:06
Speaker 2: board for a United Jet Blue merger by call it?
33:11
Speaker 2: April of twenty seven, all right, Mark, what do you
33:14
Speaker 2: got for me?
33:15
Speaker 3: The one million dollar retirement myth? Here's what to save instead? Well,
33:20
Speaker 3: the article doesn't really answer This is from Bloomberg. It
33:24
Speaker 3: doesn't really answer the question what to save instead. It
33:26
Speaker 3: just counsels against using simple rule of thumbs, like the
33:29
Speaker 3: so called four percent rule, the idea that you can
33:32
Speaker 3: withdraw four percent of your balance, whatever that happens to be.
33:36
Speaker 3: There are some qualifiers on that, but you can safely
33:39
Speaker 3: withdraw four percent. It's been a rule of thumb for
33:41
Speaker 3: some time. The upshot of this article is that, well,
33:45
Speaker 3: it's different for everybody. Okay, we know that, which I
33:48
Speaker 3: guess underscores the importance of seeing a professional or using
33:52
Speaker 3: at least a suite of online calculators, and getting a
33:54
Speaker 3: sense of what you need in terms of a lump
33:57
Speaker 3: sum to finance whatever the gap is between you you're spending,
34:01
Speaker 3: which is variable. Sure, that's something you also have to estimating,
34:04
Speaker 3: if you think about inflation and stuff like that, and
34:06
Speaker 3: then what your benefits will provide. If any suppose you
34:09
Speaker 3: get social Security but nothing else, then the GAP's going
34:11
Speaker 3: to come from your four oh one k. So what
34:13
Speaker 3: does your four one k have to be? Worth to
34:14
Speaker 3: finance that gap over the remainder of your life. Another
34:17
Speaker 3: variable life expectancy. So there are a number of variables here.
34:22
Speaker 3: So one of the upshots, Chuck of this piece is
34:25
Speaker 3: that people typically underspend, and yes, so they they end
34:31
Speaker 3: up giving more to their beneficiaries maybe than they intended
34:35
Speaker 3: or then was optimal And I use optimal loosely here
34:37
Speaker 3: now technically, and I always wonder about that because you
34:40
Speaker 3: don't know what inflation's going to be, you don't know
34:42
Speaker 3: what your life expectancy is going to be, you don't
34:44
Speaker 3: know what one time expenses are going to come up
34:45
Speaker 3: between now and then. It always seemed more rational to
34:48
Speaker 3: me as long as you're not living in a state
34:51
Speaker 3: of like privation. It always seemed natural to me to
34:54
Speaker 3: spend a little bit less because you just you just
34:56
Speaker 3: don't know. Maybe I live to one hundred and two
34:58
Speaker 3: instead of maybe these benefits are as generous as i'd hoped.
35:01
Speaker 3: Maybe there are one time expenses for me or a
35:03
Speaker 3: family member that come up that I want to help
35:05
Speaker 3: out with. Would you counsel someone to be if their
35:08
Speaker 3: inclination was to be a little bit more conservative, would
35:10
Speaker 3: you try to walk them back from that and say no, no,
35:12
Speaker 3: treat yourself a little more.
35:14
Speaker 2: No. I think the way that I tend to approach
35:17
Speaker 2: it is much more. Hey, here is what you are doing. Generally,
35:24
Speaker 2: a safer withdrawal rate, you know, a safe withdrawal rate
35:27
Speaker 2: can allow you to take up to X. So if
35:30
Speaker 2: there's ever anything that you want to do, just know
35:32
Speaker 2: that you have more room to be able to take that.
35:35
Speaker 2: But you know, telling someone people spend what they spend
35:41
Speaker 2: because they're comfortable with where their life is. Like that
35:46
Speaker 2: cuts both ways. I generally find that it's really hard
35:50
Speaker 2: to get people to make meaningful spending cuts, and likewise,
35:55
Speaker 2: people generally won't spend more because it's like deeply grain
36:00
Speaker 2: psychology from you know, years of spending around a certain
36:03
Speaker 2: level or a certain you know, percentage of income that
36:07
Speaker 2: it's just hey, this is what I do, and ultimately
36:10
Speaker 2: like here's the thing. In most cases, it's gotten you
36:13
Speaker 2: to a point that has you know, worked a certain way,
36:15
Speaker 2: and so there's no real point in changing it. Like, Okay,
36:20
Speaker 2: if let's say someone spending two thousand dollars a month,
36:22
Speaker 2: then you think they can spend three thousand without trouble, Well,
36:25
Speaker 2: they might not want to spend like, why do they
36:28
Speaker 2: need to spend that extra money? If there's something they've
36:31
Speaker 2: been putting off. Sure, But a lot of times it's
36:33
Speaker 2: just no, like I'm comfortable with my life and this
36:35
Speaker 2: is what I want to spend, you know.
36:37
Speaker 3: Yeah, so it's lifestyle based. In most cases, you can
36:41
Speaker 3: you can't radic You're not going to radically change your
36:42
Speaker 3: lifestyle and suddenly become a spend thrift.
36:44
Speaker 2: The other thing that I will see in a lot
36:46
Speaker 2: of cases is someone gets older, like into seventies where
36:49
Speaker 2: there's a shorter retirement time frame than in fifties or sixties. Is, hey,
36:55
Speaker 2: you're going to outlive your assets most likely, do you
36:59
Speaker 2: want to consider starting gifting to that next generation so
37:02
Speaker 2: that they can enjoy the money sooner. And that's something
37:06
Speaker 2: that I do see more often than increasing spending is Yep,
37:11
Speaker 2: let me give it to my kids because they need
37:13
Speaker 2: it and they're just gonna get it fifteen or twenty
37:15
Speaker 2: years from now. Anyways, if I keep up this spending,
37:18
Speaker 2: that's something that I see more than yeah, let me
37:21
Speaker 2: increase my spending. Just a little more common peace in uh,
37:28
Speaker 2: money wise, I don't know where this came from, of
37:30
Speaker 2: not familiar with money wise, I'm not wise to them.
37:33
Speaker 2: But there's this guy in Omaha, Javier Trujillo, who owns
37:39
Speaker 2: Hovey's Tacos in Omaha and basically he owns a bunch
37:43
Speaker 2: of other restaurants, and said he's done with delivery apps
37:46
Speaker 2: because he paid one hundred and eighty eight thousand dollars
37:49
Speaker 2: in commissions to door dash and other apps last year,
37:53
Speaker 2: and basically saying, look, I don't need the extra hassle here.
37:57
Speaker 2: I can cut out these fees to maintain my staff.
37:59
Speaker 2: I don't have as much waste now because it used
38:02
Speaker 2: to be someone would order and maybe DoorDash wouldn't pick
38:04
Speaker 2: it up for some reason, and then they go and
38:07
Speaker 2: refund it. And so I don't know if this becomes
38:11
Speaker 2: a trend or not, but I can tell you I've
38:14
Speaker 2: heard a few of these stories anecdotally. We'll see if
38:17
Speaker 2: it turns into more quick break for the rest of
38:19
Speaker 2: the day. We'll see it tomorrow on the Financial Exchange