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Hurricane Risk, Oil Prices, and AI’s Worst-Case Scenario · The Financial Exchange Show

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Speaker 1: is The Financial Exchange with Chuck Zotta and Mike Armstrong.
1:11
Speaker 2: All right, it's Chuck, Mike, and Tucker with you today.
1:15
Speaker 3: And yesterday, Michael... Well, actually, we've got a couple things
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Speaker 3: to talk about. Let's start with a discussion here about
1:27
Speaker 3: what we're seeing with energy as it relates to this
1:32
Speaker 3: hurricane that's making its way through the Gulf right now
1:36
Speaker 3: and up to the Gulf Coast of the U.S. Where
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Speaker 3: it stands right now, and again, I am not a meteorologist.
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Speaker 3: I do have an interest in meteorology. I find it
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Speaker 3: fascinating trying to figure out where these things are going
1:52
Speaker 3: to go.
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Speaker 4: Can you place bets on that on Calche yet? Probably, right?
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Speaker 3: I have no doubt that you can, which is very
2:03
Speaker 3: quite gross. I mean, again, there's a, let's see what
2:05
Speaker 3: we have here. No, where will it rain today? They
2:09
Speaker 3: have a whole natural disaster section, Michael.
2:12
Speaker 4: Of course they do.
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Speaker 3: How many Atlantic hurricanes will there be this year? Will
2:17
Speaker 3: there be an eight magnitude earthquake in California before the
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Speaker 3: end of the year?
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Speaker 2: Number of tornadoes in the month?
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Speaker 5: I am El Nino.
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Speaker 2: I don't see an El Nino one.
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Speaker 4: That is so disgusting. Can we just agree that there's
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Speaker 4: some things that you should not gamble on?
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Speaker 1: No.
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Speaker 4: No, we can't apparently.
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Speaker 3: So this is one place where I do think there's
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Speaker 3: some nuance in a certain respect. If Kelsey wants to
2:52
Speaker 3: make the case that these are futures contracts, the things
2:55
Speaker 3: that you actually do see, if we're being honest, you
2:57
Speaker 3: do have catastrophe bonds and things along those lines that
3:00
Speaker 3: insurers use to price risk.
3:02
Speaker 4: If you're a farmer, you should be able to buy insurance,
3:06
Speaker 4: which is effectively futures contracts on what will happen with
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Speaker 4: the El Nino season. I don't think that's who Kalshi's
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Speaker 4: catering to.
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Speaker 2: No, I don't either.
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Speaker 3: But this is one area where, unlike the sports stuff
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Speaker 3: where it's like, hey, is it gambling or a futures contract?
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Speaker 2: It's like, no, it's gambling there.
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Speaker 3: This, at least, you can make a case of, hey,
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Speaker 3: there are professional financial instruments that act in similar respects,
3:31
Speaker 3: but are still very different from what Kalshi's doing. So, yes,
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Speaker 3: what Kalshi's doing, again, those of you who have listened
3:38
Speaker 3: to our show, there's no love lost between me and Kelsey,
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Speaker 3: but this is one area where I'm like, okay, there's
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Speaker 3: at least like, I could see a hypothetical reason for
3:47
Speaker 3: a business or someone to use something similar to this
3:50
Speaker 3: in a more institutional setting.
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Speaker 4: We can agree there, but yeah, most of it's just
3:55
Speaker 4: kind of gross.
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Speaker 3: In any case, we've got this hurricane that is a
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Speaker 3: bearing down on, it looks like Pensacola is going to
4:01
Speaker 3: be where this thing makes landfall somewhere in between Mobile,
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Speaker 3: Alabama and Pensacola. And yeah, the impact to the region
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Speaker 3: is going to be significant because this thing is now
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Speaker 3: up to a category three hurricane. The, uh, hurricane hunters
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Speaker 3: just made a flight through, which I got to tell you,
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Speaker 3: if they're not the bravest people in the world, they're
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Speaker 3: close to it. The fact that you literally just fly
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Speaker 3: into a hurricane, like think about how insane that is.
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Speaker 4: It's those guys who, what are the, uh, the, the
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Speaker 4: firefighters that, uh, Actually, a bunch of them died recently.
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Speaker 2: The ones who, like, jump into the fires?
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Speaker 4: The ones that, yeah, they're fighting fires in, like, really
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Speaker 4: rural areas, and a bunch of them died in that
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Speaker 4: fire in the mountains a few years ago.
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Speaker 3: Yeah, those guys, like, the pararescue jumpers who rescue people
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Speaker 3: off boats that have capsized and things like that, like, it's, like,
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Speaker 3: there's a long list, but it's, you know, like, basically
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Speaker 3: anyone who jumps out of.
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Speaker 2: A plane to save someone.
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Speaker 4: Yeah.
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Speaker 3: You know, like, those are basically, like, in my opinion, like,
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Speaker 3: The gnarliest civilian jobs you can have.
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Speaker 5: Sure.
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Speaker 2: So you've got this thing.
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Speaker 3: It's up to a category three, which is sustained winds
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Speaker 3: of north of 120 miles an hour. It's going to
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Speaker 3: hit in that Mobile to Pensacola range, which is going
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Speaker 3: to produce storm surges in the range of like seven
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Speaker 3: to eight feet, which is, again, pretty gnarly stuff. Like
5:25
Speaker 3: this is not, you know, this is not a nothing storm.
5:29
Speaker 3: From an energy perspective, the concern that we had earlier
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Speaker 3: this week for U.S. gas and diesel prices was that
5:36
Speaker 3: this thing might hit more directly towards New Orleans, where
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Speaker 3: you have about 3 million barrels of refining capacity that's
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Speaker 3: centered there. The area that it's going to hit still
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Speaker 3: does have like 300,000 to 400,000 barrels that are there.
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Speaker 3: So if this is something that knocks out power for
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Speaker 3: that region for a few days, it's going to have
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Speaker 3: significant regional impacts on diesel and gas prices because inventories
6:00
Speaker 3: are so tight. So this is, I think, what is
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Speaker 3: worth watching from an energy price perspective is, hey, what
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Speaker 3: kind of power loss do you see in the region
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Speaker 3: and how quickly is it restored? There are reports a
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Speaker 3: bunch of Gulf oil production has come offline. They shut
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Speaker 3: down just so that, you know, like if something breaks,
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Speaker 3: you don't have an oil spill in the Gulf.
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Speaker 2: And so a bunch of that is shut down for
6:25
Speaker 2: the next 48 to 72 hours.
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Speaker 3: It's not a significant amount of oil in the broad
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Speaker 3: scheme of things. The estimate that I saw from Tom Closer,
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Speaker 3: who we had on the show a couple weeks ago,
6:35
Speaker 3: he is a big energy analyst with Gulf Oil. He's
6:39
Speaker 3: thought that there might be like between four and five
6:41
Speaker 3: million barrels total that isn't produced during that time period.
6:45
Speaker 3: It's not going to have a huge impact on crude
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Speaker 3: prices simply because it's.
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Speaker 2: Not a huge amount of oil produced.
6:53
Speaker 3: In the broad scheme of things, and the return to
6:55
Speaker 3: production is basically guaranteed afterwards.
6:58
Speaker 2: So I think we'll see exactly how this plays.
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Speaker 3: Out in the next 12 to 18 hours, because it's
7:04
Speaker 3: going to make landfall later tonight, I believe. And so
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Speaker 3: this is something where there are probably going to be
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Speaker 3: regional impacts for gas and oil prices, but not a
7:15
Speaker 3: broader national move that you would have seen if this
7:19
Speaker 3: had hit towards the New Orleans or Houston areas.
7:23
Speaker 1: Right.
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Speaker 4: So, yeah, worst-case scenario seems to be, again, going to
7:27
Speaker 4: hit in a few hours, or 12 to 18 hours
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Speaker 4: from now, so we will see where the true damage
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Speaker 4: is done, but it's seemingly not the worst-case scenario for
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Speaker 4: diesel markets, as we had been concerned about.
7:38
Speaker 3: Yesterday, though, you did have crude prices moving up about
7:41
Speaker 3: 3% to 5%, depending on the point in the day
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Speaker 3: that you were looking at things.
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Speaker 2: They're basically flat today.
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Speaker 3: The move yesterday, Barron just saying it's because of new
7:50
Speaker 3: attacks in the Gulf.
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Speaker 2: Could be.
7:54
Speaker 3: Again, you have seen an uptick in tanker attacks in
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Speaker 3: the Persian Gulf. Mike, did you see the statistic now
8:00
Speaker 3: that this is a wild one? Do you know that
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Speaker 3: it is now more expensive to send a very large
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Speaker 3: crew carrier, which carries 2 million barrels of oil, it's
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Speaker 3: more expensive to send a VLCC from the U.S. Gulf
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Speaker 3: Coast to China than it is to send a SpaceX
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Speaker 3: rocket into space.
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Speaker 4: Wow. Say that again?
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Speaker 2: More just for the audience? Yes. So here's the thing.
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Speaker 4: That's wild.
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Speaker 3: To send a 2 million barrel tanker from, call it,
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Speaker 3: New Orleans to China right now is $ 76 million. The
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Speaker 3: cost of a, whatever the main SpaceX rocket is, I
8:43
Speaker 3: think it's the Falcon 9, The cost of a SpaceX
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Speaker 3: rocket launch today is.
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Speaker 2: $ 74 million.
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Speaker 3: It is $ 2 million more expensive to send a bunch
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Speaker 3: of crude to China than it is to send a
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Speaker 3: rocket into space.
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Speaker 4: By the way, that includes the actual sale price of
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Speaker 4: the crude on the ship, right?
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Speaker 2: Yes.
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Speaker 3: It's not just transportation. No, that is transportation. Oh, so
9:06
Speaker 3: you've got to toss this out.
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Speaker 2: No, that is transportation. Mike, the crude on the ship
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Speaker 2: is $ 200 million. Right. You're way more after that. So
9:14
Speaker 2: we should be launching new oil into space. Right. How
9:17
Speaker 2: do we get.
9:18
Speaker 3: We've talked about data centers in space. How do we
9:22
Speaker 3: get oil rigs in space? And where's Bruce Willis when
9:25
Speaker 3: you need him?
9:25
Speaker 4: Yeah.
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Speaker 2: We found the best deep water driller on the planet.
9:30
Speaker 3: Yeah. He's just got to go recruit... By the way,
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Speaker 3: speaking of Ben Affleck, did you guys see his interview
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Speaker 3: from this week?
9:39
Speaker 5: No.
9:40
Speaker 2: Do you know that Ben Affleck is fluent in AI?
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Speaker 5: I know he's been anti-AI because of Hollywood.
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Speaker 2: He gave an interview.
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Speaker 3: I don't know who it was to, but you listen
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Speaker 3: to him talk, and he's basically a huge AI nerd now. And...
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Speaker 3: I know that we always think of Ben Affleck, and
10:02
Speaker 3: of course you think of the picture of him smoking
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Speaker 3: a cigarette outside, the classic.
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Speaker 3: He comes off as just one of us, like a
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Speaker 3: Bostonian who's just an average.
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Speaker 2: Cup of Dunkin' Donuts coffee. Sure. Exactly.
10:17
Speaker 3: Like you see him in like the Dunkin's commercials and stuff.
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Speaker 3: Ben Affleck's a lot closer to a genius than an
10:25
Speaker 3: average person.
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Speaker 4: Yeah, I think South Park did something on this, by
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Speaker 4: the way. They got like really frustrated with him because
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Speaker 4: he's so good at both directing and acting and now
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Speaker 4: apparently quite intelligent on AI as well.
10:38
Speaker 3: He's talking about, like, oh, like, you know, this is, like,
10:40
Speaker 3: the type of, like, inference that you use on this
10:43
Speaker 3: type of chip, and I decided to do this, and, like,
10:46
Speaker 3: I set this up this way, and you're.
10:47
Speaker 2: Like, my dude. I thought Matt Damon was the smart
10:52
Speaker 2: one in Good Will Hunting.
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Speaker 4: This just seems unfair. You get to be good looking,
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Speaker 4: good at acting, directing, and you just happen to be
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Speaker 4: an AI genius. That's not reasonable. You get one or
11:05
Speaker 4: two of those things.
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Speaker 2: Leave something for the rest of us, Ben. Yeah, that's
11:08
Speaker 2: not fair. I digress.
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Speaker 3: Let's take a quick break here. When we return, let's see.
11:16
Speaker 3: Enough about energy. I want to talk a little bit
11:17
Speaker 3: about what Delta showed from their earnings reports next.
11:24
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11:53
Speaker 3: All right, let's talk a little bit about Delta's earnings.
11:57
Speaker 3: They reported them.
11:59
Speaker 2: Was it after the bell yesterday?
12:00
Speaker 4: Yeah.
12:01
Speaker 2: No. Two days?
12:02
Speaker 1: This morning.
12:03
Speaker 2: It was this morning.
12:03
Speaker 3: Oh.
12:05
Speaker 2: No, it said. Was it this morning?
12:07
Speaker 5: Yeah.
12:07
Speaker 4: I think it was last night, man.
12:08
Speaker 2: Nope, it was this morning.
12:10
Speaker 4: Tucker's always right. Why do you question me? Don't question me. Well,
12:13
Speaker 4: you're frequently wrong. Okay. Michael. Michael.
12:16
Speaker 2: What's that got to do with this? Not as much
12:18
Speaker 2: as me, but you know. Michael.
12:21
Speaker 4: Yes.
12:22
Speaker 2: It's not going to go well for you.
12:23
Speaker 4: Yeah, I'll just turn off my mic.
12:24
Speaker 2: Yeah, don't do it.
12:25
Speaker 4: Yeah, I shouldn't do that.
12:26
Speaker 3: So, Delta, they reported earnings, and they said that their
12:30
Speaker 3: adjusted earnings will be between $ 510 and $ 560 a share
12:34
Speaker 3: in 2026, well below the $ 650 to $ 750 range that
12:37
Speaker 3: they reaffirmed in July. So what changed in the last
12:40
Speaker 3: three months? Fuel prices didn't come down.
12:43
Speaker 4: Yes.
12:44
Speaker 3: So fuel prices basically went up instead of down. And
12:50
Speaker 3: so Delta stock is off only a few percent here.
12:52
Speaker 3: The big reason being people say like, well, they reduce
12:55
Speaker 3: their earnings projections by like anywhere from like 20 to
12:59
Speaker 3: 35 percent.
13:00
Speaker 2: Like what gives.
13:01
Speaker 3: And the reason is, hey, analyst projections had come down
13:04
Speaker 3: into the 544 per share range. And so analysts had
13:08
Speaker 3: basically said, yeah, these prices went up, and so here's
13:11
Speaker 3: what we expect to happen. And Delta gave guidance where
13:13
Speaker 3: that was right in the middle of the range. And so, yeah,
13:17
Speaker 3: you see a little bit of a pullback because clearly
13:19
Speaker 3: they're not going to hit their previous earnings projections, but
13:23
Speaker 3: analysts had already been factoring this in. And so if
13:27
Speaker 3: you look, just as an example, at Delta stock, it
13:30
Speaker 3: was at $ 95 a share in July. Heading into this,
13:34
Speaker 3: it was at $ 82. So it had already done the
13:36
Speaker 3: work of correcting because.
13:38
Speaker 2: the market's not dumb.
13:41
Speaker 4: They know what the inputs are to Delta's profit margin.
13:44
Speaker 2: Yes.
13:45
Speaker 3: If you're sitting there the day before Delta earnings and
13:47
Speaker 3: you're like, hey, fuel costs have gone up, their earnings
13:49
Speaker 3: are going to be bad, you're too late already.
13:52
Speaker 2: The market already priced that in.
13:54
Speaker 4: I just want to voice something, though. If you had
13:57
Speaker 4: put together a projection for me back in April and
14:00
Speaker 4: said that your earnings were going to be between $ 6. 50
14:01
Speaker 4: and $ 7. 50 a share, and then you have to revise
14:06
Speaker 4: it this way, Okay, I got it. Yeah, like, you know,
14:09
Speaker 4: who knew where the war was going to go in April?
14:11
Speaker 4: In July, you're telling me that you were expecting, you know,
14:14
Speaker 4: energy prices to come down that quickly, that you were
14:17
Speaker 4: able to, you know, put together a 650 to 750 range?
14:20
Speaker 4: That just seems.
14:21
Speaker 2: Well, let's be honest.
14:23
Speaker 3: In July, we were right in that memorandum of understanding
14:27
Speaker 3: period where things seemed to be moving in the right direction.
14:31
Speaker 3: And then subsequently, they fell apart. I think there's two
14:35
Speaker 3: things that are worth paying attention to here.
14:38
Speaker 2: The first is, I.
14:40
Speaker 3: Think if you're an investor in airlines, you probably have
14:44
Speaker 3: a pretty wide tolerance for what those earnings are going
14:50
Speaker 3: to look like in any particular quarter or year right
14:53
Speaker 3: now because of how dependent it is on fuel prices.
14:57
Speaker 3: But the other thing that I'll say is, look, you
15:00
Speaker 3: look at the numbers that Delta put out there as
15:03
Speaker 3: far as the earnings numbers and just what they're seeing
15:09
Speaker 3: from a sales growth perspective.
15:12
Speaker 4: Yep.
15:12
Speaker 3: It's a freaking monster quarter from a revenue perspective. And
15:17
Speaker 3: I think this is the thing that, again, it's going
15:22
Speaker 3: to bother people, but the fact is, Delta is raising
15:26
Speaker 3: its prices very, very rapidly. And they're still able to
15:32
Speaker 3: fill more seats in premium seating than they were before.
15:37
Speaker 4: Yeah, there's a whole bunch of Delta customers that do
15:39
Speaker 4: not seem terribly concerned about these higher ticket prices. They
15:42
Speaker 4: want to do their traveling and they're going to do it. So, yeah,
15:46
Speaker 4: I didn't take much of this as bad news for Delta.
15:48
Speaker 4: Everybody already knew that their earnings were going to get
15:50
Speaker 4: hit by this. I guess longer term questions I have,
15:53
Speaker 4: you know, these airlines have largely, not entirely, but gotten
15:57
Speaker 4: away from a lot of their jet fuel hedging. It
16:01
Speaker 4: just seems to me that we are in a much
16:04
Speaker 4: different world when it comes to energy costs going forward
16:08
Speaker 4: than we were back in February of this year. And
16:10
Speaker 4: so I wonder if that starts to change and that
16:12
Speaker 4: could be, you know, an additional drag on you know,
16:16
Speaker 4: future margins for all the airlines going forward. He also,
16:20
Speaker 4: in his interview, I think said something pretty interesting, which
16:23
Speaker 4: we all kind of knew, but he acknowledged that, you know,
16:28
Speaker 4: should energy prices not come back down, there's really only
16:31
Speaker 4: three airlines in the United States making any money. I
16:35
Speaker 4: assume that's his company, American and United. So will there
16:40
Speaker 4: be more fallout? And his answer was pretty much Yes.
16:43
Speaker 4: Not just U.S. airlines. He was talking globally, but his answer,
16:47
Speaker 4: at least, was depending on how long this lasts, the
16:50
Speaker 4: answer is probably yes.
16:52
Speaker 2: So it's interesting.
16:53
Speaker 3: You talk about the fuel cost hedging. Most airlines stopped
16:59
Speaker 3: their hedging programs back in the mid-2010s. If you recall,
17:03
Speaker 3: back in 2015-16, it's when oil prices cratered, when Russia
17:06
Speaker 3: decided just to put a bunch of U.S.
17:08
Speaker 2: Frackers out of business. Yep.
17:10
Speaker 3: And... The airlines took a bath on it because they
17:13
Speaker 3: had hedged by locking in longer-term contracts, and they said, okay,
17:16
Speaker 3: we don't want to do this anymore because we're not
17:22
Speaker 3: good at it.
17:22
Speaker 2: It's not working.
17:26
Speaker 3: I feel like if you're trying to start a hedging
17:28
Speaker 3: program now... Oh, it's going to be outrageously expensive. A,
17:32
Speaker 3: it's going to be really expensive, and B, you have
17:34
Speaker 3: the possibility of the same thing happening.
17:36
Speaker 2: Not that oil.
17:38
Speaker 3: Again, I don't think you're going back to $ 50 oil
17:39
Speaker 3: anytime soon. But if you look out over the next
17:45
Speaker 3: couple of years, again, I'm not talking about trying to
17:48
Speaker 3: hedge for a month or whatever.
17:50
Speaker 2: You look at the.
17:51
Speaker 3: Situation and you're like, okay, how am I going to
17:56
Speaker 3: handle this? Is there any benefit to me doing it?
17:59
Speaker 3: You could potentially get hurt the same way.
18:02
Speaker 4: Yeah, I can't imagine the airlines ever being really good
18:06
Speaker 4: at hedging. I think, you know. I'm applying the same
18:10
Speaker 4: kind of logic to investment management, right? You just, you
18:13
Speaker 4: don't know where energy prices are going to go on
18:15
Speaker 4: a year to year basis. So you hedge a certain
18:17
Speaker 4: percentage of your business and you just stick with it
18:20
Speaker 4: or don't stick with it and just accept the risk. Like,
18:23
Speaker 4: I don't think you try and vary that year to
18:26
Speaker 4: year because who knows when the next war in the
18:28
Speaker 4: Middle East is going to be.
18:29
Speaker 2: Yeah, that's fair.
18:31
Speaker 3: But, uh, the big thing, like you look at some
18:33
Speaker 3: of these numbers from Delta and they're, uh, Again, their
18:39
Speaker 3: premium cabin was up 18% from a revenue perspective and
18:43
Speaker 3: 6% capacity growth.
18:46
Speaker 2: Yeah.
18:47
Speaker 3: So it's like, hey, we raised prices by double digits,
18:51
Speaker 3: and people still wanted to pay for first-class seats.
18:53
Speaker 4: There's a lot of old... More of them. There's a
18:55
Speaker 4: lot of old, rich Americans who are just not comfortable
18:58
Speaker 4: in small coach seats anymore.
18:59
Speaker 2: Yes.
19:00
Speaker 4: And they're paying up.
19:01
Speaker 1: Yes.
19:01
Speaker 4: A lot of gray hair in that first-class cabin.
19:05
Speaker 2: This is absolutely what we're seeing. And overall.
19:09
Speaker 3: Passenger revenue was up, I think, 14%. 15% passenger revenue
19:13
Speaker 3: per available seat mile. Just a monster number for revenue.
19:20
Speaker 2: Quick break here. We've got Wall Street Watch next.
19:33
Speaker 1: Like us on Facebook and follow us on Twitter at
19:36
Speaker 1: TFE Show. Breaking business news is always first, right here
19:41
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:46
Speaker 1: Street Watch. Tracking the stocks, the data, and the headlines
19:49
Speaker 1: driving markets so far today. Right here on the Financial
19:52
Speaker 1: Exchange Radio Network.
19:54
Speaker 5: Markets in positive territory with a modest rebound in tech
19:57
Speaker 5: as Wall Street keeps a close eye on rising oil
19:59
Speaker 5: prices and the looming energy impact from Hurricane Isaiah. Right
20:03
Speaker 5: now the Dow is up a quarter percent or 131
20:05
Speaker 5: points upward. S & P 500 is trading a third
20:10
Speaker 5: of a percent higher, 24 points up. NASDAQ is up
20:15
Speaker 5: about four-tenths of a percent or 119 points higher. Russell
20:18
Speaker 5: 2000 is up a third of a percent. Ten-year treasury
20:21
Speaker 5: yield is up four basis points at 5.274%. Crude oil
20:23
Speaker 5: is mostly flat, trading at $ 91 a barrel. Brent also
20:25
Speaker 5: flat at $ 104 a barrel. Delta reported third quarter earnings
20:33
Speaker 5: that missed expectations for the first time in two years
20:36
Speaker 5: and cut its 2026 profit forecast as a result of
20:40
Speaker 5: elevated fuel costs. However, CEO Ed Bastian said demand remains
20:44
Speaker 5: strong despite higher fares. Delta is down by 2%. Meanwhile,
20:48
Speaker 5: SpaceX is up over 1% after it reached a deal
20:51
Speaker 5: to buy cellular spectrum licenses from grain management companies. To
20:55
Speaker 5: help build a Starlink mobile network, other telecom carriers, including Verizon, T-Mobile,
21:00
Speaker 5: AT & T, are all down 5%.
21:02
Speaker 2: On the news.
21:03
Speaker 5: Humana rallying 11% after the U.S. government improved its rating
21:06
Speaker 5: for the company's Medicare Advantage plans, putting it in line
21:10
Speaker 5: for more bonus payments. And Apple is down over 2%
21:13
Speaker 5: after Nikkei Asia reported that the tech giant told some
21:17
Speaker 5: of its suppliers to cut production of parts for its
21:20
Speaker 5: new iPhone 18 lineup due to softer demand. I'm Tucker Silva,
21:26
Speaker 5: and that is Wall Street Watch.
21:29
Speaker 3: Mike, I've got a new contender for my favorite piece
21:35
Speaker 3: of the year. Because there's just so many. It's the
21:41
Speaker 3: onion of financial journalism in terms of not like the
21:46
Speaker 3: Onion the Satire website, but there's so many layers to
21:51
Speaker 3: this piece. I'll start right from the top. Kent Kovac
21:54
Speaker 3: and his wife of 11 years were thrilled when the
21:57
Speaker 3: cap was raised on deductions for state and local taxes.
22:00
Speaker 3: The federal tax savings helped them buy a $ 12, 000 tractor
22:04
Speaker 3: for her nascent vegetable and flower farm in Michigan. So
22:07
Speaker 3: what this is getting at is last year, as part
22:10
Speaker 3: of the tax package that the president pushed through, the
22:14
Speaker 3: state and local tax deduction, which had previously, because of
22:19
Speaker 3: the 2017 tax law, been capped at $ 10, 000... was raised
22:23
Speaker 3: to a $ 40, 000 maximum deduction. So basically the Kovacs said, okay,
22:28
Speaker 3: we have this extra money because we don't have to
22:30
Speaker 3: pay as much in tax, and that can go to
22:32
Speaker 3: help us buy this tractor. And there's this great picture.
22:35
Speaker 2: I got to be honest. I don't think I've ever
22:38
Speaker 2: seen a happier person in my life.
22:40
Speaker 4: Oh, he looks so content with his tractor.
22:42
Speaker 3: The guy is just sitting on his tractor, both hands
22:44
Speaker 3: on the wheel, and just looks like he's, like, it's
22:48
Speaker 3: just like you can tell he's just internally happy. so
22:52
Speaker 3: content it's it's it's honestly just a beautiful picture but
22:56
Speaker 3: then we get to this uh this part of it
23:00
Speaker 3: the catch is that the salt cap is the same
23:03
Speaker 3: for a single filer or a married couple an aspect
23:06
Speaker 3: of the law that critics refer to as a marriage
23:07
Speaker 3: penalty quote do you do the awkward thing of prioritizing
23:11
Speaker 3: money said kovac a 41 year old technology manager you
23:14
Speaker 3: put that cash aside into an account for children or
23:16
Speaker 3: college or financing Kovac and his wife, who have a
23:19
Speaker 3: two-year-old daughter, this is the best sentence in journalism this year.
23:25
Speaker 3: Kovac and his wife, who have a two-year-old daughter, had the, quote,
23:29
Speaker 3: uncomfortable conversation about getting divorced, but she's not fully persuaded yet,
23:34
Speaker 3: he said. His argument, why not just get divorced on paper,
23:37
Speaker 3: but continue to live their lives the same way as before,
23:40
Speaker 3: just with more money in their pockets?
23:42
Speaker 4: Ah, what a romantic.
23:44
Speaker 3: So this is where, unfortunately, this moves from being like
23:47
Speaker 3: this happy picture to something that I think is not great.
23:50
Speaker 3: And it's not because I think that Kent is a
23:53
Speaker 3: bad guy or anything.
23:54
Speaker 4: I don't.
23:55
Speaker 3: What I think the problem is here is if there's
23:58
Speaker 3: one thing I know about the tax code, it can
24:00
Speaker 3: change quite a bit, often rather rapidly. And so if
24:04
Speaker 3: you get divorced today because of a loophole that's in
24:07
Speaker 3: the tax code, you might not feel the best when two, three, four,
24:11
Speaker 3: five years from now, hey, the tax code changes and
24:15
Speaker 3: now you're divorced and not getting the same benefit that
24:17
Speaker 3: you previously were. And then, you know, your ex-wife says, hey,
24:22
Speaker 3: can I become your wife again? And now you've got
24:24
Speaker 3: to have another wedding.
24:25
Speaker 4: Well, may I also bring something up that we might
24:28
Speaker 4: not be aware of? The increase from $ 10, 000 to $ 40, 000
24:33
Speaker 4: was not permanent. It sunsets at the end of 2029
24:37
Speaker 4: and then permanently reverts back to $ 10, 000. Forgot about that
24:40
Speaker 4: as well.
24:41
Speaker 2: Yes.
24:42
Speaker 4: Furthermore, You also, I mean, think about this here. While
24:47
Speaker 4: the SALT cap is higher for two individuals combined, the
24:53
Speaker 4: income tax rates are not.
24:55
Speaker 2: No, you get an income tax penalty there in some cases.
24:58
Speaker 4: Those are cut in half. Furthermore, this actually could make
25:02
Speaker 4: some sense if you both earn an equal amount, and
25:05
Speaker 4: so maybe... Maybe you do operate a farm together and
25:09
Speaker 4: you can split that income in half, but are you
25:11
Speaker 4: going to now need to incorporate in order to manage that?
25:15
Speaker 4: That's going to be an added cost on top. And
25:18
Speaker 4: by the way, most importantly here, all of this additional
25:23
Speaker 4: salt cap, I can see this being really impactful. If
25:27
Speaker 4: you're truly very high income and you're talking about a
25:31
Speaker 4: million bucks a year of income, you know, an extra,
25:34
Speaker 4: an extra $ 40, 000 deduction can have some real serious dollar amounts.
25:39
Speaker 2: However, I don't think you can claim the higher. You can't.
25:43
Speaker 4: It phases out after $ 600, 000. So even there, it's not
25:46
Speaker 4: going to be impactful. So, um, yeah, look, I see
25:53
Speaker 4: this all the time where people really love to try
25:56
Speaker 4: and gamify the system. And it's not just with taxes.
26:00
Speaker 4: I've seen it with financial aid. I've seen it with
26:03
Speaker 4: All sorts of stuff. Like someone presented to me that, hey,
26:06
Speaker 4: maybe I can get financial aid if I can figure
26:09
Speaker 4: out this tax loophole of actively managing an Airbnb. And
26:14
Speaker 4: I'm just looking at them like, if you just put
26:17
Speaker 4: as much effort into saving and planning for your retirement
26:20
Speaker 4: as you do trying to take advantage of loopholes, you'd
26:23
Speaker 4: already be retired. Here is the reality of it. These
26:30
Speaker 4: things are immensely complicated. And look, I am personally, Chuck,
26:35
Speaker 4: you've probably heard me off air talk about how excited
26:37
Speaker 4: I get when I find a new loophole that we
26:39
Speaker 4: might be able to take advantage of and work through
26:42
Speaker 4: because I love it. People do love it. Like it
26:45
Speaker 4: is kind of a fun puzzle to me, but far
26:50
Speaker 4: too often people try and drive a dump truck through
26:52
Speaker 4: the loophole and they get caught on the edges here
26:56
Speaker 4: and it doesn't make any sense whatsoever. Before you're considering
27:01
Speaker 4: some financial maneuver that could have lasting consequences, I encourage
27:07
Speaker 4: you to talk to professionals. The Armstrong Advisory Group are
27:09
Speaker 4: not CPAs. We're not tax accountants. What we are is
27:13
Speaker 4: a group of very experienced financial planners that have seen
27:19
Speaker 4: most every investment tax and estate planning strategy out there
27:23
Speaker 4: be attempted and implemented at different points in time. And
27:26
Speaker 4: our real job, our real core offering to our clients is, hey,
27:30
Speaker 4: We're going to help you coordinate all of these different
27:33
Speaker 4: things with those other professionals so that you aren't doing
27:36
Speaker 4: something that will have lasting bad consequences. Because as much
27:40
Speaker 4: as people think that, hey, I might be able to
27:42
Speaker 4: leapfrog by taking advantage of one of these things, one
27:44
Speaker 4: of the biggest things a financial advisor helps you do
27:47
Speaker 4: is avoid the stupid mistakes that set you back a
27:49
Speaker 4: number of years. If you want to take advantage of
27:52
Speaker 4: some of that, if you want to research some of
27:54
Speaker 4: these items and better understand how they work for your scenario,
27:57
Speaker 4: give the folks at Armstrong a call. The number is
27:59
Speaker 4: 800- 393-4001. You can check us out, book a time
28:03
Speaker 4: for us to call you back at armstrongadvisory.com. But that
28:06
Speaker 4: phone number again, 800-393-4001.
28:08
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
28:13
Speaker 1: registered investment advisor. Nothing in the ad or in any
28:16
Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
28:19
Speaker 1: your own financial, tax, and estate planning advisors before making
28:22
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
28:25
Speaker 1: advisory services.
28:27
Speaker 4: You know.
28:29
Speaker 3: I just got to read like the last couple sentences
28:31
Speaker 3: of this piece as well. To him, divorce would be
28:34
Speaker 3: a legal and financial restructuring, not the end of the relationship.
28:38
Speaker 3: They could remarry later in life when they discuss it. His,
28:42
Speaker 3: he says his wife will point out things like the
28:44
Speaker 3: logistical challenges with kids and school. Kent will respond about
28:47
Speaker 3: how divorced parents navigate this stuff all the time. And
28:50
Speaker 3: she's like, well, true, but we would be getting divorced.
28:52
Speaker 3: It sounds like he just wants to get divorced. Like,
28:56
Speaker 3: It sounds like the plot to it. I keep having
28:58
Speaker 3: the Meatloaf song playing in my head, and I'm like,
29:00
Speaker 3: would Meatloaf do this for love?
29:04
Speaker 2: Or is this the limit of what he would do?
29:08
Speaker 4: It's like the plot to a 90s Tom Hanks movie.
29:13
Speaker 2: No, it's like... My tractor and me.
29:18
Speaker 3: I'm trying to think of who the star of this
29:20
Speaker 3: movie would be, but this is more like a.
29:23
Speaker 2: John Goodman?
29:24
Speaker 1: I don't know.
29:25
Speaker 2: I don't know. This is like the rom-com of like...
29:27
Speaker 2: It's like the opposite of the ones.
29:29
Speaker 3: What's the one with the guy from Top Gun and
29:34
Speaker 3: Sidney Sweeney?
29:35
Speaker 2: Oh, jeez. Where they have to pretend to like each other?
29:39
Speaker 2: Glenn Powell. Powell.
29:40
Speaker 3: They pretend to like each other and then they actually do.
29:43
Speaker 3: This would be the opposite of that. You have to
29:45
Speaker 3: pretend to not like each other, but then you actually don't.
29:49
Speaker 3: What if that happens? There's lots of reasons why you
29:54
Speaker 3: can be like, hey, we should get married for financial reasons.
29:58
Speaker 3: I'm not really sure that you should ever say we
30:00
Speaker 3: should get divorced for financial reasons. It just opens the
30:04
Speaker 3: door to bad things happening.
30:08
Speaker 4: It's more and more just sounding like this guy wants
30:10
Speaker 4: to get divorced, and he's looking for weird reasons to
30:12
Speaker 4: do it.
30:13
Speaker 3: No, I don't know, Kent, so I'm not going to
30:15
Speaker 3: say that. But I'm just saying, like, if you open
30:18
Speaker 3: the door like this, well, now that you're divorced, like,
30:21
Speaker 3: what happens if one of you decides to date someone else?
30:25
Speaker 2: You've already divorced.
30:29
Speaker 4: This is Tom.
30:32
Speaker 2: We're married, not married.
30:33
Speaker 3: I'm telling you, I don't think this is a road
30:39
Speaker 3: you want to go down. Let's take a quick break,
30:43
Speaker 3: and when we return, let's talk a little bit about
30:48
Speaker 3: something that AI companies are now planning for that's a
30:52
Speaker 3: little spooky.
30:54
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31:31
Speaker 3: Piece from Axios titled scoop AI companies plot quote the
31:35
Speaker 3: day after top executives at anthropic open AI and other
31:40
Speaker 3: AI companies are privately gaming out scenarios for a public
31:43
Speaker 3: and political revolt after a catastrophic AI event. These officials
31:49
Speaker 3: anticipate a large scale event, most likely a cyber attack
31:52
Speaker 3: that shuts down access to financial services, internet connectivity, or
31:55
Speaker 3: even power and water. Also further down, Many AI industry
31:59
Speaker 3: insiders told Axios they believe a major event will occur
32:03
Speaker 3: in the next 6 to 12 months.
32:05
Speaker 5: Cool.
32:07
Speaker 3: I'm beginning to think these companies aren't going to be
32:10
Speaker 3: able to IPO. Like, how do you price these risks
32:16
Speaker 3: as an investor? You have the risk, A, that just
32:19
Speaker 3: the technology's not profitable long term. B, you have the
32:23
Speaker 3: risk of the liability of, like, Shutting down the global
32:27
Speaker 3: financial system. And see, nobody likes these companies. How do
32:32
Speaker 3: you privately raise funds? This is why all these companies
32:37
Speaker 3: are crying for some type of government.
32:40
Speaker 2: Protection right now.
32:41
Speaker 4: Yeah.
32:43
Speaker 2: This more than anything else.
32:44
Speaker 3: I know I've said that the anthropic guys are a
32:47
Speaker 3: little weird with their predictions of doom and this and that.
32:50
Speaker 3: I think it's just their way of trying to get
32:52
Speaker 3: government protection. Sam Altman has his way of being like, oh,
32:56
Speaker 3: we want a government backstop for this. These guys know
33:00
Speaker 3: that something bad is going to happen. They're looking to
33:04
Speaker 3: negotiate in, hey, regulate us, but also.
33:07
Speaker 4: Provide us with a liability shield at the same time.
33:09
Speaker 2: They want a bailout before the bad thing happens.
33:15
Speaker 4: Yeah, I mean, every AI story we read, we're going
33:18
Speaker 4: to see a little silly version of this later in
33:20
Speaker 4: the program, but like every single one we read is
33:24
Speaker 4: about how the AI agents that people are creating, they
33:27
Speaker 4: have seemingly little to no control over.
33:32
Speaker 5: Yep.
33:33
Speaker 4: And so, and again, this is with relatively good actors
33:39
Speaker 4: attempting to use them.
33:42
Speaker 1: Right.
33:42
Speaker 4: I mean, yeah, I don't, I don't understand how this
33:45
Speaker 4: doesn't lead to catastrophe of some sort. It's... It's just
33:48
Speaker 4: on what scale will it be?
33:50
Speaker 2: No, it's... Again, like, something... None of this feels good.
33:56
Speaker 3: Like, my spidey sense is very much tingling on this,
33:59
Speaker 3: that they know something that they don't want to... Like,
34:03
Speaker 3: they're kind of dancing around it, it feels like, but
34:07
Speaker 3: they won't tell us any specifics.
34:09
Speaker 4: Yeah.
34:10
Speaker 3: And so it's like, what do you guys know about
34:13
Speaker 3: how you're, like, really advanced models that you still have internal...
34:18
Speaker 3: What do you know about what they're doing and how
34:20
Speaker 3: they're acting that's causing you this concern?
34:22
Speaker 2: Yeah, don't worry about it.
34:24
Speaker 4: It's fine.
34:26
Speaker 3: And if it's really just, oh, it's not going to happen,
34:29
Speaker 3: but we're just angling for a government backstop, why do
34:33
Speaker 3: you guys get a government backstop?
34:35
Speaker 4: The world does not need AI. No government backstop. We
34:44
Speaker 4: do not need this technology in any meaningful way. The
34:47
Speaker 4: only way we need it is if you believe that
34:49
Speaker 4: we are an arms race that is similar to what
34:54
Speaker 4: we were doing during the Cold War. Everything about it
34:59
Speaker 4: rubs me the wrong way.
35:01
Speaker 3: Tucker did pass along a couple nice texts that we
35:05
Speaker 3: got from the last story. The The one about the
35:09
Speaker 3: guy who wants to get divorced to get the tax breaks.
35:13
Speaker 2: Quote, we were on a break. From friends, yes.
35:17
Speaker 4: Yep.
35:18
Speaker 3: I think that one's pretty good. And then also some
35:20
Speaker 3: good feedback here. Quote, you guys rock. Great team, great info,
35:24
Speaker 3: great scenarios. Thanks so much. So, yeah, it's always good
35:26
Speaker 3: to get a little bit of good feedback, you know.
35:30
Speaker 3: Occasionally we get the other ones, but, hey.
35:32
Speaker 2: Subscribe on YouTube, by the way. Financial Exchange Show.
35:37
Speaker 4: So in addition, yesterday, AI-related, Chuck, we saw some pretty
35:40
Speaker 4: steep sell-offs among AMD, NVIDIA, and others on this revenue release. Well,
35:47
Speaker 4: two things, right? There was the revenue release from OpenAI
35:50
Speaker 4: that today is being dismissed. And then you also had
35:53
Speaker 4: another IPO getting shelved, this time for an Australian data
35:57
Speaker 4: center company. I mean, all of them lead me to
36:00
Speaker 4: the question, hey, are there a bunch of companies that
36:02
Speaker 4: are building data centers who are re-questioning what they'll be
36:05
Speaker 4: able to sell the compute power for. Is it a
36:09
Speaker 4: real story, or was it just a single-day spook that is, again,
36:13
Speaker 4: markets are making up most of those losses today?
36:16
Speaker 3: Yeah, today markets are kind of saying, okay, we're going
36:18
Speaker 3: to put this in the background. I do think, look,
36:25
Speaker 3: at some point, I really do think 2027 is going
36:29
Speaker 3: to be when markets are going to have their reckoning
36:31
Speaker 3: about hey, is this going to actually be a profitable
36:34
Speaker 3: business on the other side of this CapEx, or is
36:38
Speaker 3: it not? You say, okay, now we've spent, if you're Microsoft,
36:43
Speaker 3: it's like, okay, we've spent $ 400 or $ 500 billion on
36:46
Speaker 3: our own. Is this going to be profitable or not?
36:49
Speaker 3: Because the depreciation is starting to hit, and we need
36:53
Speaker 3: to know because otherwise we're going to have another $ 400
36:55
Speaker 3: to $ 500 billion and build out the next couple of years.
36:59
Speaker 3: And when that depreciation hits, we need the revenue to
37:02
Speaker 3: be able to cover it. So it's the next 12
37:04
Speaker 3: to 18 months are going to be. I don't know
37:09
Speaker 3: that you necessarily get a trend in either direction, but
37:11
Speaker 3: like it wouldn't surprise me to see like larger ping
37:14
Speaker 3: ponging back and forth between like this is going to work.
37:16
Speaker 3: This isn't depending on like whatever the news cycle is.
37:19
Speaker 3: But I got to tell you, these these AI only
37:22
Speaker 3: companies like OpenAI and Anthropic. I, I really wonder if
37:26
Speaker 3: they're going to be able to IPO successfully.
37:29
Speaker 4: I mean, if Anthropic's going to do it, we might know.
37:31
Speaker 4: If they're going to pull their IPO, we will know
37:33
Speaker 4: very soon. And if they're going to go public, they
37:35
Speaker 4: had promised November. So you're not going to do that
37:38
Speaker 4: after Thanksgiving. So we'll see. OpenAI has already pushed theirs back.
37:44
Speaker 4: Anthropic could just say, okay, we need more time.
37:46
Speaker 3: But I don't know what things look like 3, 6,
37:50
Speaker 3: 12 months from now. There's real questions about whether these
37:54
Speaker 3: companies are going to be able to IPO, in my opinion.
37:59
Speaker 3: And I think Elon might have screwed them, which we
38:03
Speaker 3: speculated at the time. Like, he does not like Sam Altman.
38:06
Speaker 3: If he can get SpaceX out first, maybe he can,
38:09
Speaker 3: you know, make things a little painful for these guys.
38:11
Speaker 2: Maybe that's what happened. Let's take a quick break. Hour
38:14
Speaker 2: two coming up in a bit.