Latest / The Financial Exchange Show / AI spending is boosting the economy, but many companies are in survival mode

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AI spending is boosting the economy, but many companies are in survival mode · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
1:06
Speaker 1: Zada and Mike Armstrong.
1:10
Speaker 2: Chuck, Mike and Tucker with you, and we got stocks rallying,
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Speaker 2: though I relatively narrow rally. Sm P five hundred is
1:18
Speaker 2: up almost one percent, but basically has an equivalent number
1:22
Speaker 2: of stocks up and down today. It's just the bigger
1:24
Speaker 2: ones happen to be the ones that are really chucking ahead.
1:27
Speaker 2: You look at some of your big movers. Tesselas up
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Speaker 2: three percent and Videos up two and a half. Google's
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Speaker 2: up two and a half, Microsoft Meta both up one
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Speaker 2: point eight. So that's kind of driving things where. Yeah,
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Speaker 2: that kind of overpowers the fact that hey Ford's down
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Speaker 2: three and Eli Lilly's down one and home Depots down one. Again,
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Speaker 2: not saying this is good, bad, or anything else, but
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Speaker 2: just that, yeah, it's kind of the story that we
1:49
Speaker 2: saw for much of twenty three, in the first half
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Speaker 2: of twenty four, and I was kind of returned in
1:54
Speaker 2: the second half of twenty five, which is tech is
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Speaker 2: leading the way and that's driving the index higher even
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Speaker 2: as you have other equities you know, that are kind
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Speaker 2: of lagging a bit. It's not necessarily bad for equity performance.
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Speaker 2: It's been a great three years for stocks now, but
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Speaker 2: it's something where you know, you do look at it
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Speaker 2: and say, hey, if that leadership ever falters, yeah, you
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Speaker 2: might have some concerns at that point, but that leadership
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Speaker 2: has just not faulted for any extended period of time
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Speaker 2: in the last three years. Other things that are moving
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Speaker 2: today tenure US treasury up three point one basis points
2:28
Speaker 2: to four point h two eight percent, still hanging out
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Speaker 2: in that low four range, so no major movement on
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Speaker 2: that front. We've got gold continuing its recent selloff after
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Speaker 2: breaking out to all new all time highs about a
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Speaker 2: week and a half ago. Has not been easy sledding
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Speaker 2: for gold since then, down one hundred and thirty six
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Speaker 2: dollars and sixty cents an ounce to four thousand and
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Speaker 2: one dollars per ounce right now. It's about a ten
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Speaker 2: percent pullback on gold over the last week and a
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Speaker 2: half or so. We've got crude oil West Texas Intermediate
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Speaker 2: a forty four cents a barrel to sixty one one
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Speaker 2: ninety four TRIPAA National Avagur gas prices coming down a
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Speaker 2: tenth of ascent, though this as a major refinery gets
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Speaker 2: back up and running in the Midwest. That should hopefully
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Speaker 2: quell some of the higher prices that have been moving
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Speaker 2: through Michigan, Indiana, and Ohio over the last several weeks there.
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Speaker 2: So that is what is moving in markets. I want
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Speaker 2: to just highlight something for a moment here.
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Speaker 3: So it was a few weeks ago now, but Tuesday,
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Speaker 3: October seventh was when the new Chinese rare earth restrictions
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Speaker 3: were announced. Really, you know, late Tuesday our time, Wednesday
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Speaker 3: into Wednesday. Wednesday was the first trading day that this
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Speaker 3: stuff was known. Friday, President Trump, so that's Friday October, Yeah, Friday,
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Speaker 3: October tenth, or maybe it was Thursday, October ninth. He
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Speaker 3: announced one hundred percent tariffs on China. And at the time,
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Speaker 3: both of us looked at this stuff and said, doesn't
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Speaker 3: this just feel like posturing a few weeks ahead of
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Speaker 3: a big negotiation between.
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Speaker 2: The US and China.
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Speaker 3: Big We did say that US and China, and at
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Speaker 3: the time they canceled the meeting and said it's not
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Speaker 3: going to happen.
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Speaker 2: Lo and behold, three.
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Speaker 3: Weeks later, we sit here and markets have more than
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Speaker 3: made up all the losses that they incurred on that
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Speaker 3: Friday October tenth, where markets were down by three percent.
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Speaker 3: But Lo and behold, we're still having a meeting between
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Speaker 3: President Trump and President She. We're not realistically talking about
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Speaker 3: one hundred percent tariffs. We are, in fact talking about
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Speaker 3: potential slight trade deals. And yeah, lo and behold. Things
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Speaker 3: look exactly like they did in my opinion, at least
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Speaker 3: prior to the announcement that China made on rare earth restrictions.
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Speaker 3: We think again, we gonna have this meeting Thursday. That
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Speaker 3: kind of throws all that into question again. But for
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Speaker 3: the time being, that's a lot like what it's looking.
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Speaker 3: I mean, hasn't the rare earth thing come up three
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Speaker 3: or four times this year? Like don't you don't you
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Speaker 3: kind of feel like we're just going to be back
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Speaker 3: here again in like January or February.
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Speaker 2: Yes, And it's because China knows they have something that
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Speaker 2: no one else can deal with right now, zi, oh,
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Speaker 2: you want us to do this? Okay, here, We're gonna
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Speaker 2: throw this rareer thing at you again. And that's the
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Speaker 2: result of you know, twenty five to thirty five years
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Speaker 2: of mismanagement of these resources, thinking that you can depend
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Speaker 2: on China and not responding to their anti competitive pushes
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Speaker 2: when you know they start dumping rare earths at you know,
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Speaker 2: below cost in order to maintain their market share. Yeah,
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Speaker 2: like we're paying for it now. It cames back. It
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Speaker 2: comes back to the same thing.
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Speaker 3: The economic ties between the United States and China run
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Speaker 3: very deep, and you can have this debate over who
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Speaker 3: has more leverage than the other person, but ultimately I'm
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Speaker 3: just not sure it matters. Because both countries have leverage
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Speaker 3: over one another, they both have the ability to cripple
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Speaker 3: the other's economy, and so what's likely to happen. Well,
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Speaker 3: the likely outcome, in my mind, is probably the status quo,
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Speaker 3: because both countries recognize that there's this uncomfortable fragility between
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Speaker 3: the relationship, and both countries realize that the other one
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Speaker 3: could decimate the other's economy.
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Speaker 2: Let's talk about this piece from CNBC AI spending is
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Speaker 2: boosting the economy, but many businesses are in survival mode.
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Speaker 2: And look, it's whenever you talk about the economy now,
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Speaker 2: like you say the economy is good, and someone who
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Speaker 2: like is struggling is like, no, it's not. And then
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Speaker 2: you say, like, the economy is bad, and someone who's
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Speaker 2: business is booming is like, no, it's not. And the
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Speaker 2: fact is, like the economy even good ones or bad
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Speaker 2: ones like not everything is always moving in one direction.
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Speaker 2: You know, if you go back to twenty ten, which
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Speaker 2: was a horrible economy by just about any metric out there,
6:41
Speaker 2: you could still find, you know, certain businesses where it's like, hey,
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Speaker 2: Uber's going through like one hundred percent growth, like everything's
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Speaker 2: great for us, and it's like, okay, well, you guys
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Speaker 2: aren't the whole economy.
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Speaker 3: For Michael Armstrong, it was the best economy that he
6:52
Speaker 3: had ever experienced because it was the first time he
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Speaker 3: had paid compensation in any real, meaningful way.
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Speaker 1: Right.
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Speaker 2: You could talk to some people in twenty eighteen who
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Speaker 2: are saying, oh, no, like this economy isn't good because
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Speaker 2: I work in the you know, washing machine repair business,
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Speaker 2: and all my costs have gone up because of washing
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Speaker 2: machine tariffs, and everyone else is in there like, no,
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Speaker 2: this economy is humming along. It's great. So what I
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Speaker 2: want everyone listening to like realize is like what I'm
7:18
Speaker 2: about to say here isn't like personal. I don't know
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Speaker 2: all of you, and it's okay if the economy isn't
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Speaker 2: quite you know, doing what you're personally experiencing, except for Jeff,
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Speaker 2: because everyone takes it personally like this personally, Jeff, but
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Speaker 2: you literally say like the economy is bad, and it's like, oh,
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Speaker 2: the economy's not bad. You say it's good, and it's like, oh,
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Speaker 2: the economy's not good. It's like, guys, like not everything's
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Speaker 2: even Like even the title of this piece tells you
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Speaker 2: that AI spending is boost in the economy, but many
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Speaker 2: businesses are in survival mode. That is a tale of
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Speaker 2: two Cities, and even it says many businesses, not all businesses,
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Speaker 2: because I'm sorry, but we get these like texts in
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Speaker 2: and it's just like, guys, I can't I can't respond
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Speaker 2: to all three hundred and thirty million of you because
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Speaker 2: I'm just one person.
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Speaker 3: I think what it comes back to for me is
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Speaker 3: we started this year off with an idea that we
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Speaker 3: have to have a way of measuring what success actually
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Speaker 3: means for this economy and what failure means. And you know,
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Speaker 3: it's really difficult to measure something like some businesses being
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Speaker 3: in survival mode and others not. So I think it's
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Speaker 3: important for us to maintain those measurements and say, yeah, objectively,
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Speaker 3: where did inflation start the year, where is it now?
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Speaker 3: Where did unemployment start the year? Where is it now?
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Speaker 3: Where was GDP? Where is it now?
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Speaker 2: I don't know any of these things because the government
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Speaker 2: shut down, agreed, But.
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Speaker 3: Like, you have to have some way of measuring this,
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Speaker 3: and we you know, we we asked the audience, like, hey,
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Speaker 3: come up with other measurements. Somebody came up with, you know,
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Speaker 3: how many regulations are in whatever federal register maintains all
8:48
Speaker 3: the federal regulations, like.
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Speaker 2: Whatever your government's shut down, whatever.
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Speaker 3: Your confines are, whatever your measurement stick is, you have
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Speaker 3: to have a consistent way of measuring it, because if
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Speaker 3: you don't, then you're just gonna let your own biases.
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Speaker 2: Then when economy feelings and feelings are they're not helpful.
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Speaker 2: They could be useful in certain situations. Trying to figure
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Speaker 2: out how good the economy is is not one of them.
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Speaker 2: So here's what we do know. Let's talk about just
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Speaker 2: like places that are doing well. Let's let's just build
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Speaker 2: a list of bis like industries and sub industries that
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Speaker 2: are doing well and ones that are doing badly. Let's
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Speaker 2: start first on the good side. AI obviously human.
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Speaker 3: Anything that is marginally attached to the AI, whether that
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Speaker 3: is the construction of data centers and electricity.
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Speaker 2: Generatity construction, utility, generation, distribution, all that stuff is humming
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Speaker 2: right along. Uh if you are, let's see if we're
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Speaker 2: talking like other things that are like really strong right now,
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Speaker 2: what else do you have, Like, let's let's be honest
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Speaker 2: about this, because I'll go through the stuff that's not doing.
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Speaker 3: Financial services is doing well. Yes, it's a broad statement.
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Speaker 3: I think I'm willing to say financial services is cranking.
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Speaker 3: High net worth people are are still spending and which helps.
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Speaker 2: High end travel is cranking absolutely, like through the roof
10:06
Speaker 2: right now. You can even say real estate in the
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Speaker 2: Northeast and Midwest still moving pretty well. I actually, again,
10:17
Speaker 2: when you think about the sectors ata though, and it's
10:20
Speaker 2: it's fine, yeah, But again, if you talk about the
10:23
Speaker 2: sectors that rely on the real estate market, there's no volume.
10:27
Speaker 2: So I'm not sure that you can say real estate
10:29
Speaker 2: is good for the economy right now. Well, nothing selling
10:32
Speaker 2: and nobody's hiring people to you know, fix up their
10:35
Speaker 2: houses right now. So I'm not sure that I would
10:37
Speaker 2: be willing to say real estate in the Northeast good.
10:39
Speaker 2: But you talk to like real estate agents in the
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Speaker 2: Northeast and they're like, yeah, like I'm able to like
10:42
Speaker 2: move the units that are out there, like you know,
10:45
Speaker 2: it's it's generally fine. Things that aren't good right now.
10:48
Speaker 2: Real estate everywhere else gener in the Midwest right aside
10:53
Speaker 2: from the northeastern Midwest generally bad sure uh. Low end
10:56
Speaker 2: travel bad uh. And athing related to importing yep, not
11:03
Speaker 2: even logistics. Trucking freight volumes right now are done seventeen
11:07
Speaker 2: percent year over year. If you talk to anyone in
11:09
Speaker 2: the trucking business, not good.
11:11
Speaker 3: Really anything manufacturing or you know, retail generally, I think
11:18
Speaker 3: you can broadly say it's struggling. And if you know retail,
11:22
Speaker 3: retail's like another retail's fine. Like you look at the
11:27
Speaker 3: retail data, either aggregate or company level, it's hard to
11:31
Speaker 3: find retailers other than like Target and Macy's that you're like, oh,
11:35
Speaker 3: things are bad there.
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Speaker 2: Yeah, you know, I know that. You know so and
11:40
Speaker 2: so who's listening is like, well, I run this shop
11:42
Speaker 2: and we're not doing well. I get that. Again, we
11:44
Speaker 2: can't talk about every specific but the retail data generally
11:48
Speaker 2: has been fine. Credit Card data has been good on
11:50
Speaker 2: that side, so like retail, I think has actually been
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Speaker 2: a net positive this year. So again, it's kind of
11:56
Speaker 2: this mixed economy where there's some good, some bad, and
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Speaker 2: there's no clear trend. I think is what we have here,
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Speaker 2: and the trend is something way together. Actually, I don't
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Speaker 2: know how to define. Would you define auto is good
12:09
Speaker 2: or bad? Right now? It's more nuanced than that, right,
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Speaker 2: you can't New vehicle production and sale is good, fantastic.
12:17
Speaker 2: In fact, used vehicle sale and financing is bad and
12:21
Speaker 2: really ugly.
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Speaker 3: Yeah, it's just so nuanced to try and answer the
12:24
Speaker 3: question is the economy good?
12:27
Speaker 2: Right now? I have to say yes, which is why
12:29
Speaker 2: I think that you get to the point where you
12:31
Speaker 2: just say yeah, like absent any of these things that
12:34
Speaker 2: are actually dragging the economy, you know, pulling it apart. Yeah,
12:39
Speaker 2: you have to say that it's good, even though you say,
12:41
Speaker 2: I'm watching these areas. Yeah, it's kind of where I
12:44
Speaker 2: get to as well. Let's take a quick break. When
12:46
Speaker 2: we come back, We've got trivia next.
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Speaker 4: It's time for trivia here on the Financial Exchange. In
13:28
Speaker 4: in honor of the spookiest day of the year, we
13:31
Speaker 4: will do a week's worth of Halloween trivia here on
13:36
Speaker 4: the show. So let's get started here on this Monday.
13:41
Speaker 4: Before pumpkins, that's just ah, this is great. Before pumpkins,
13:47
Speaker 4: which root vegetable did the Irish and Scottish carve on Halloween?
13:51
Speaker 4: Once again? Before pumpkins, which root vegetable did the Irish
13:56
Speaker 4: and Scottish carve on Halloween? Be the third person today
14:02
Speaker 4: the Texas at six one seven three six two thirteen
14:04
Speaker 4: eighty five with the correct answer, and you win a
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Speaker 4: Financial Exchange Showed T shirt once again. The third correct
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Speaker 4: response to Texas to the number six one seven three
14:13
Speaker 4: six two thirteen eighty five, we'll win that T shirt.
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14:19
Speaker 2: Can we talk about the pumpkin situation a little bit?
14:22
Speaker 2: What's the situation, Chuck, I got a real problem right now.
14:27
Speaker 2: Did you buy one? Not one like a whole bit.
14:30
Speaker 4: You probably got twenty eight or something.
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Speaker 2: Not twenty eight. It's probably like fifteen to twenty eight,
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Speaker 2: two dozen, you know, most not big ones like little
14:39
Speaker 2: ones and stuff, the little guys. Yeah, no, we have
14:42
Speaker 2: like sure, we have two big ones that we carved,
14:44
Speaker 2: and then the rest are you know, all six inches
14:46
Speaker 2: or smaller in diameter. Okay, the squirrels this year have
14:51
Speaker 2: been eating them in a fashion that I have never
14:54
Speaker 2: seen before. I'm coming back from mois Is Nod in
14:56
Speaker 2: her heads, come Ois the the truth. I'm coming back
15:01
Speaker 2: from a run the other day and my neighbor, my
15:04
Speaker 2: neighbor's fence. I know a good time too, do youv?
15:08
Speaker 2: Five k's in two weeks? So I got to put
15:11
Speaker 2: up the times. But in any case, this squirrel is
15:14
Speaker 2: running along my neighbor's fence carrying the top half of
15:17
Speaker 2: a pumpkin in its mouth back to its nest or whatever.
15:21
Speaker 2: And I'm sitting there and I'm just like, yours not mine,
15:24
Speaker 2: like theirs have all been eaten too, So they're not discriminating.
15:27
Speaker 2: They're going after all of them. But to be fair.
15:29
Speaker 2: So we have maybe a dozen pumpkins outside, maybe maybe eighteen,
15:35
Speaker 2: and we kind of alternate typical orange one, a white one,
15:39
Speaker 2: and then like a Gordy you know, gross kind of one. Right. Yeah,
15:44
Speaker 2: there's maybe like fifteen of them. All five of the
15:46
Speaker 2: orange pumpkins have been eaten. The squirrels have decided they
15:49
Speaker 2: love the orange ones. The white ones they're working through
15:52
Speaker 2: right now. They have not touched the ones with the
15:55
Speaker 2: little warts and stuff on them. Chuck.
15:57
Speaker 3: I feel as though a dog or a BB gun
16:02
Speaker 3: would put a real quick end to this.
16:04
Speaker 2: There are like eight dogs in the neighborhood, and I
16:07
Speaker 2: don't think you're allowed to shoot squirrels technically.
16:10
Speaker 1: Yeah allowed. I mean.
16:14
Speaker 2: All I'm saying, I'm trying to maintain good relations with
16:16
Speaker 2: the neighbors, you know.
16:18
Speaker 3: Yeah, well saying I got solutions, you know, but in
16:24
Speaker 3: any case, they beyond that.
16:27
Speaker 2: Even I got a couple of mums I put out front.
16:31
Speaker 2: The deer ate the front half off of one of
16:35
Speaker 2: my moms, so there are no I had to turn
16:38
Speaker 2: the thing around and I'm waiting for the deer to
16:39
Speaker 2: eat the other half again. Same solution with you, Mike.
16:45
Speaker 2: Michael's just like Hey, a.
16:47
Speaker 3: Bb gun is not going to in any meaningful way
16:50
Speaker 3: harm a deer.
16:50
Speaker 2: Which is why it's like even useless to even do
16:53
Speaker 2: the squirrel. But I think that I think the bb
16:56
Speaker 2: gun might scare the deer away.
16:58
Speaker 3: But again, legal, I'd say it's a great area that
17:03
Speaker 3: implies that it's happening when I'm awake.
17:05
Speaker 2: Austin's housing bust is just what America needs. Interesting title
17:09
Speaker 2: and interesting piece from Connorson in Bloomberg Opinion, and basically
17:12
Speaker 2: what he argues is, look, with all the pandemic era construction,
17:17
Speaker 2: you had a ton of housing that was built in
17:19
Speaker 2: Austin that has opened up one of the two channels
17:22
Speaker 2: to people buying more houses, increasing affordability. The problem in
17:26
Speaker 2: Austin is that prices are still falling, and so A
17:30
Speaker 2: investors and B homeowners are kind of like, no, I
17:33
Speaker 2: don't want to either list or buy right now because
17:36
Speaker 2: it doesn't feel like an opportune time to do so.
17:39
Speaker 2: But on the affordability side, you're starting to get there.
17:42
Speaker 2: The problem is it basically requires a localized housing bust
17:46
Speaker 2: in order to do so, which is not good for
17:48
Speaker 2: the surrounding housing adjacent businesses. Right.
17:51
Speaker 3: But again to Connor's point, I think that is extraordinarily
17:55
Speaker 3: healthy so long as it does not right, so long
17:59
Speaker 3: as it doesn't take down a system. And I think
18:00
Speaker 3: very clearly at this stage, I'm fairly comfortable saying that
18:04
Speaker 3: a housing bust in Austin with prices still falling, is
18:08
Speaker 3: not likely to sink a national bank, or not likely
18:11
Speaker 3: to sink a national lender because of underwater.
18:14
Speaker 2: Homes or anything along those lines. I could be wrong
18:17
Speaker 2: about all of the say, but it hasn't been very long.
18:20
Speaker 3: It is not so. I know that there's been a
18:25
Speaker 3: lot of development in these areas. I'm sure that there's
18:27
Speaker 3: a lot of you know, corporate owned single family How
18:31
Speaker 3: many companies did we talk about over the last five
18:33
Speaker 3: years who were buying real estate for the express purpose
18:37
Speaker 3: of renting it back out, specifically in the single family space.
18:39
Speaker 3: I'd be willing to bet a lot of those purchases
18:41
Speaker 3: happened in Austin, and some of those are underwater now.
18:44
Speaker 3: But again, I'm always worried about the contagent or contagion
18:48
Speaker 3: or spillover effect, and I'm honestly not all that concerned
18:51
Speaker 3: about that.
18:51
Speaker 2: Here we say that now, and I'm not saying that
18:55
Speaker 2: there is isn't. But home prices started going down in
19:00
Speaker 2: a lot of metros in like five and oh six,
19:02
Speaker 2: and it wasn't until like two three years later that
19:04
Speaker 2: was like, oh, like this is a problem. Now, very
19:07
Speaker 2: different situation. I'm not saying this is going to lead
19:09
Speaker 2: to a housing crisis. Again, show me the leverage in
19:12
Speaker 2: the housing market. But what I am saying is I like,
19:16
Speaker 2: if you haven't seen a go full cycle, it's tough
19:19
Speaker 2: for me to be like, yes, this is good. Yeah,
19:24
Speaker 2: but I guess that's why I'm not buying a house
19:25
Speaker 2: in Austin. Right now, let's take a quick break. When
19:28
Speaker 2: we come back, we got the trivia answer in Wall Street.
19:30
Speaker 1: Watch, bringing the latest financial news straight to your radio.
19:42
Speaker 1: Every day, It's the Financial Exchange on the Financial Exchange
19:45
Speaker 1: Radio Network. Time now for Wall Street Watch a complete
19:51
Speaker 1: look at what's moving markets so far today. Right here
19:54
Speaker 1: on the Financial Exchange Radio Network.
19:56
Speaker 4: Markets are in rally mode to begin the big week ahead.
20:01
Speaker 4: This investors away to flurry of big tech earnings, a
20:05
Speaker 4: FED meeting, and a pivotal meeting between President Trump and
20:08
Speaker 4: Chinese President g on Thursday. Right now, the Dow is
20:12
Speaker 4: up about a half a percent or two hundred and
20:14
Speaker 4: forty five points, SMP five hundred up nearly one percenter
20:18
Speaker 4: sixty five points, Nasdaq up one point six percent or
20:22
Speaker 4: three hundred and seventy three points. Russell two thousand is
20:25
Speaker 4: up a quarter percent. Tenure Treasure Reeled is up two
20:29
Speaker 4: basis points at four point zero two percent, to Incrude
20:32
Speaker 4: Oil up about a half a percent, rating at sixty
20:35
Speaker 4: one dollars and eighty one cents a barrel. Rare Earth stalks,
20:39
Speaker 4: including MP Materials, Critical Medals and USA Rare Earth are
20:43
Speaker 4: seeing losses on the day after US officials said they
20:46
Speaker 4: expect China to delay introducing export controls on critical minerals
20:51
Speaker 4: as part of a broader trade deal. Chip stocks including Nvidia,
20:55
Speaker 4: AMD and others are also seeing gains following optimistic comments
20:59
Speaker 4: from both the US USC and China following trade talks
21:01
Speaker 4: over the weekend, and VideA up about two percent, while
21:04
Speaker 4: AMD shares are up modestly. Some breaking news from Qualcom
21:08
Speaker 4: this morning after the chip maker announced that it will
21:11
Speaker 4: release new AI accelerator chips. Qualcom shares are jumping twelve
21:16
Speaker 4: percent on that news. Meanwhile, shares in curic doctor Pepper
21:20
Speaker 4: climbing over seven percent after the beverage company beat third
21:23
Speaker 4: quarter revenue forecast and also raised its full year guidance.
21:26
Speaker 4: Lululemon up by about three percent after the athletic apparel
21:30
Speaker 4: maker said it was partnering with the NFL and Fanatics
21:33
Speaker 4: to launch an apparel collection for all NFL teams. And
21:37
Speaker 4: for the earnings calendar this week, Visa United Health will
21:41
Speaker 4: report tomorrow. Wednesday, Microsoft, Alphabet, Meta and Caterpillar will report Thursday.
21:47
Speaker 4: We have Apple, Amazon and MasterCard. And on Friday we'll
21:50
Speaker 4: see earnings from Exon Mobile and Chevron. I'm Tucker Silva
21:55
Speaker 4: and that is Wall Street Watch. And in the previous
21:57
Speaker 4: segment we asked you the trivia question before pumpkins, which
22:01
Speaker 4: root vegetable did the Irish in Scottish carve on Halloween?
22:05
Speaker 2: That would be turnips.
22:06
Speaker 4: John from New Bedford, Mass is our winner today taking
22:09
Speaker 4: home a Financial Exchange Show T shirt. Congrats John. We
22:12
Speaker 4: play trivia every day here in the Financial Exchange. See
22:14
Speaker 4: complete contest rules at Financial exchine Show dot com. Ray
22:18
Speaker 4: Dalio says America is developing a dependency on the top
22:22
Speaker 4: one percent of workers, while the bottom sixty percent are
22:25
Speaker 4: struggling and unproductive. I'm gonna tie this also to a
22:29
Speaker 4: piece that's titled affluent Retirees.
22:31
Speaker 2: Are affluent you can take your pick. Are spending more
22:35
Speaker 2: because of rising markets? What's the common thread here?
22:38
Speaker 3: Man?
22:38
Speaker 2: So let's talk about that wealth effect first.
22:40
Speaker 3: There have been dozens of economic studies over the years
22:44
Speaker 3: to try and sort out, like how much do people
22:46
Speaker 3: actually increase their spending when they get wealthier? And quite honestly,
22:51
Speaker 3: I'm not sure that there is a consensus other than
22:54
Speaker 3: studies have indicated anywhere from two to fifteen one studies
22:57
Speaker 3: have indicated that it does exist. Right, people do spend
23:00
Speaker 3: more when they feel wealthier when they are wealthier on paper, sure,
23:03
Speaker 3: And two the estimates run anyway from two cents of
23:06
Speaker 3: additional spending for every dollar of wealth all the way
23:09
Speaker 3: up to like fifteen cents of additional spending per dollar
23:11
Speaker 3: of wealth. And I would guess that it varies based
23:13
Speaker 3: on your home price versus your crypto wallet versus your
23:16
Speaker 3: four oh one k.
23:18
Speaker 2: But the effect does exist.
23:20
Speaker 3: And there's a claim here that for you know, retirees,
23:23
Speaker 3: in particular folks over the age of sixty, that increases
23:28
Speaker 3: in spending come along by about eleven cents for every
23:31
Speaker 3: dollar of wealth, which again falls into that range that
23:34
Speaker 3: we had outlined. Sure, the point that Raydalio is making
23:38
Speaker 3: is watch out because if that wealth effect reverses, then
23:41
Speaker 3: it could dramatically sink the economy because that's where all
23:44
Speaker 3: of the increased spending is coming from. You have this
23:46
Speaker 3: baseline for the ninety nine percent, and then the growth
23:50
Speaker 3: is coming from that top one percent, or we've talked
23:53
Speaker 3: about the top ten percent, and you can kind of
23:54
Speaker 3: take your pick there.
23:56
Speaker 2: It gets kind of it. You know, in business, you
23:58
Speaker 2: hear about the idea of the eighty twenty rule that
24:00
Speaker 2: you know, eighty percent of your sales happened from twenty
24:02
Speaker 2: percent of your customers, and the question that you run
24:06
Speaker 2: into is, look, depending on how concentrated your businesses, Hey,
24:09
Speaker 2: if one of those big customers walks away, you know,
24:12
Speaker 2: how impacted is your business to a certain extent. It's
24:15
Speaker 2: kind of the same argument being made about the economy,
24:18
Speaker 2: which is, yeah, like you can technically grow an economy
24:21
Speaker 2: with a smaller portion of people driving the gains, but
24:25
Speaker 2: it creates two different problems. The first is, hey, if
24:28
Speaker 2: that smaller group falters, which it's it's easier if it's
24:32
Speaker 2: a smaller group or you know, something to uniformly affect
24:35
Speaker 2: that group. Think just think of it this way. If
24:37
Speaker 2: you have a thousand different people driving gains as opposed
24:40
Speaker 2: to two. Hey, if if one of those two ends up,
24:43
Speaker 2: you know, having something happen to them, it's a bigger
24:45
Speaker 2: impact than one out of a thousand. The other piece is, hey,
24:49
Speaker 2: as you concentrate more and more wealth, unfortunately, the thing
24:51
Speaker 2: that you do tend to see is social unre Generally
24:54
Speaker 2: people are like, hey, why are all those rich guys
24:56
Speaker 2: doing whatever they can? And I'm you know, buying burritos
25:00
Speaker 2: on you know credit.
25:02
Speaker 3: See the Massachusetts millionaire millionaire's tax correct? Right, that is
25:06
Speaker 3: a common you know backlash to that sense of unfairness.
25:13
Speaker 2: Well that's the again, that's even before you get to like, no,
25:16
Speaker 2: I'm going to vote all you people out right and like,
25:18
Speaker 2: you know, change things even further. So I think that
25:22
Speaker 2: when we look at this, there are some real risks there,
25:25
Speaker 2: but it's also fair to say, look, they're just risks
25:28
Speaker 2: right now. They haven't actually materialized to this point because
25:33
Speaker 2: stocks have continued to move up, and generally when you
25:37
Speaker 2: talk about you know, how the economy is behaving, right,
25:39
Speaker 2: now it has not seen a real drop off in
25:44
Speaker 2: consumer spending because of that.
25:46
Speaker 3: Yeah, the other piece to me that is just I
25:49
Speaker 3: think distorted our view of this wealth effect is the
25:54
Speaker 3: recent history. The S and P five hundred has returned
25:58
Speaker 3: six hundred and seventy six percent from twenty ten through
26:02
Speaker 3: September of twenty twenty five. That's a fourteen percent annualized
26:05
Speaker 3: gain and one of the best fifteen year time periods
26:08
Speaker 3: we've ever seen in the stock market.
26:10
Speaker 2: Right, You're talking like top one percent returns ever.
26:13
Speaker 3: And so for anyone that you know was retiring close
26:16
Speaker 3: to this, they have this distorted view of how the
26:19
Speaker 3: next fifteen years I think is likely to play out.
26:23
Speaker 3: And that's a real focus that I work on with
26:26
Speaker 3: you know, people that I'm working with in our day job.
26:28
Speaker 3: It's it's resetting those expectations because people need to understand
26:34
Speaker 3: just how miraculously the stock market has performed over the
26:37
Speaker 3: course of.
26:38
Speaker 2: The last decade and a half.
26:40
Speaker 3: Right, there are so many investors today that have not
26:43
Speaker 3: been through what I would deem a real deep procession
26:47
Speaker 3: like eight or one or one of those other big,
26:49
Speaker 3: you know, prolonged periods of time. Sure, if you are
26:52
Speaker 3: approaching retirement and unsure of how to model out these scenarios. Right,
26:57
Speaker 3: we're performing in the top one percent of fifteen year
27:01
Speaker 3: stock market returns.
27:02
Speaker 2: How do I model out for the next.
27:04
Speaker 3: Fifteen years if I'm heading to retirement or heading to
27:07
Speaker 3: that period of time where I'm going to start pulling
27:08
Speaker 3: more money out of my portfolio, or maybe helping a
27:11
Speaker 3: kid or a grand kid out with their first home purchase.
27:14
Speaker 3: Give the folks at Armstrong Advisory Group a call. We
27:17
Speaker 3: will put numbers to paper to help you map this
27:19
Speaker 3: stuff out and make sure the decisions that you are
27:22
Speaker 3: making are sustainable for your future. I know it's easy
27:26
Speaker 3: to kind of set it and forget it when markets
27:28
Speaker 3: are doing what they have done recently, but I'm here
27:31
Speaker 3: to tell you that that will not always be the case.
27:34
Speaker 3: The numbers eight hundred three to nine three for zero
27:36
Speaker 3: zero one. We have offices scattered throughout New England, happy
27:39
Speaker 3: to sit down close to you, but take the first
27:41
Speaker 3: step and call at eight hundred three nine three for
27:44
Speaker 3: zero zero one.
27:45
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
27:48
Speaker 1: registered investment advisor. Nothing in the ad or in any
27:50
Speaker 1: Armstrong guide a specific financial legal or tax advice. Consult
27:53
Speaker 1: your own financial tax into state planning advisors before making
27:56
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
27:59
Speaker 1: advice reservices.
28:01
Speaker 2: Piece here from the Washington Post, as I see underlined
28:05
Speaker 2: twice by Tucker, just to make sure I got it
28:07
Speaker 2: this time, there's a reason electricity prices are rising, and
28:11
Speaker 2: it's not data centers. And basically what this piece makes
28:15
Speaker 2: the argument of is that the reason why electricity costs
28:19
Speaker 2: are rising are because of the prices of electricity, like
28:25
Speaker 2: electrical equipment like poles, wires and stuff like that, and
28:29
Speaker 2: it's not actually data centers driving it. And I have
28:32
Speaker 2: two points on this. The first is, the amount of
28:37
Speaker 2: data center construction that's coming in the next three years
28:40
Speaker 2: is going to dwarf what has already come online, So
28:43
Speaker 2: I don't know that the past is necessarily predictive. The
28:47
Speaker 2: second piece is that to this point, most of the
28:50
Speaker 2: data center construction has been in areas that we're increasing
28:53
Speaker 2: power already quite dramatically. You talk about Texas and places
28:57
Speaker 2: like that. That's not necessarily the case going forward, and
29:01
Speaker 2: so yes, this might have potentially been true. Again, they
29:04
Speaker 2: even acknowledged a look in some cases, this is not
29:06
Speaker 2: you know what we're seeing.
29:07
Speaker 3: I think it's a fair thought exercise to go through
29:09
Speaker 3: and say, hey, how much would power rates be up
29:11
Speaker 3: in the absence of all this data center construction, And
29:13
Speaker 3: you obviously can't prove that out, but.
29:16
Speaker 2: You can run some estimates.
29:18
Speaker 3: My main thing has been it's really difficult to see
29:21
Speaker 3: a scenario where prices moderate over the next five.
29:24
Speaker 2: Years because more data is going to be huge.
29:28
Speaker 3: I think they also make a fair point that, hey,
29:31
Speaker 3: you know, when researchers looked at a period of twenty
29:34
Speaker 3: nineteen to twenty twenty four, you know, states that saw
29:37
Speaker 3: much larger demand growth ended up seeing lower power prices
29:41
Speaker 3: than the rest of the country. And I think that's
29:43
Speaker 3: a fair perspective that if we get out seven years
29:45
Speaker 3: from now and successfully build out these data centers and
29:48
Speaker 3: the capacity of the electricity to deliver it, then I
29:51
Speaker 3: think we might actually see those areas have moderating electricity costs.
29:56
Speaker 2: But it's going to take a long time to get there.
29:58
Speaker 2: But in the piece SiGe just keep coming back to
30:01
Speaker 2: is if you look at the total amount spent on
30:06
Speaker 2: data centers in the US from twenty nineteen through twenty
30:10
Speaker 2: twenty three, it's basically equivalent to what we're going to
30:14
Speaker 2: spend next year.
30:15
Speaker 3: Yeah, I think one piece that I'll acknowledge, AI data
30:19
Speaker 3: centers are a really easy scapegoat for all of us,
30:24
Speaker 3: having cumulatively voted to not reinforce our power infrastructure for
30:28
Speaker 3: the last thirty years. Like, Yes, the part of the
30:31
Speaker 3: reason that this is so expensive is because we have
30:33
Speaker 3: done a bad job of maintaining infrastructure in this nation.
30:38
Speaker 3: And you know, power generation is just one of those things.
30:41
Speaker 3: But you know, every single winter around here, for example,
30:44
Speaker 3: you have power lines go down that should very easily
30:47
Speaker 3: be buried and not do that. You have Texas every
30:50
Speaker 3: summer there grid fails and you can't and some winter
30:53
Speaker 3: homes and some winters like that is a big piece
30:58
Speaker 3: of this story that has not been talked about right
31:00
Speaker 3: now because AI data centers are a very easy scapegoat.
31:04
Speaker 2: Two things can be true. Yep, we've done a bad
31:06
Speaker 2: job of maintaining and properly growing our electrical grid over
31:10
Speaker 2: the last thirty years. And I don't want to spend
31:14
Speaker 2: an extra couple cents to kill a wide hour because
31:16
Speaker 2: Tucker needs to make a video of a duck wearing
31:18
Speaker 2: a snorkel eating a flamingo. Hey, what's wrong with that? Yeah,
31:23
Speaker 2: send you a bill. Let's take a quick break. When
31:25
Speaker 2: I come back, carving a turn up into a picture
31:29
Speaker 2: of Jimmy Hoffa. Let's take a quick break, and when
31:32
Speaker 2: we return stack roulette.
31:35
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32:44
Speaker 2: Mike, what do you got for stack roulettes?
32:46
Speaker 3: One of those that I'm willing to laugh at only
32:47
Speaker 3: because nobody died. Twenty hikers were rescued after getting stuck
32:51
Speaker 3: in snowy conditions on Mount Washington in New Hampshire. For once,
32:55
Speaker 3: I can take some pride in that it's not all
32:58
Speaker 3: about Massachusetts residence doing stupid things. But there was at
33:01
Speaker 3: least one group of Canadian hikers that was at the
33:03
Speaker 3: summit trying to get into the summit building in sweatpants
33:07
Speaker 3: and sneakers. There were several more who had symptoms of hypothermia.
33:12
Speaker 3: And I just cannot imagine trying to hike the highest
33:17
Speaker 3: peak on the East Coast.
33:19
Speaker 2: That is, I mean, correct me if I'm wrong.
33:21
Speaker 3: Doesn't everybody know that the weather at the top of
33:22
Speaker 3: Mount Washington is consistently some of the worst in the
33:25
Speaker 3: country and can change in like three minutes, So you know,
33:29
Speaker 3: there was you know, two degrees with the wind chill,
33:32
Speaker 3: just a bunch of conditions that people.
33:34
Speaker 2: Were apparently not prepared for.
33:36
Speaker 3: And I just reiterate, like, if you do not spend
33:39
Speaker 3: a ton of time in the mountains, which I'll raise
33:41
Speaker 3: my hand, I do not anymore, then spend a lot
33:44
Speaker 3: of time preparing for your next hike that you go
33:47
Speaker 3: on because the fact that you know, these folks needed
33:51
Speaker 3: to be fortunately they were able to be rescued via
33:52
Speaker 3: the COG Railway, that it needed to actually send rescue
33:54
Speaker 3: teams out there and fly them out or anything like that.
33:57
Speaker 2: So it was a relatively low cost option. But don't
34:02
Speaker 2: be one.
34:03
Speaker 3: Of those people that gets printed up in the Boston
34:05
Speaker 3: Globe and you know, it gets and it makes a
34:08
Speaker 3: bad name for all the rest of us for going
34:09
Speaker 3: into the mountains completely unprepared and ends up needing to
34:12
Speaker 3: be rescued or worse, dying like many have. Yeah, so
34:16
Speaker 3: there's my public service announcement of the day.
34:18
Speaker 2: I got another debt problem from this one from Friday,
34:23
Speaker 2: Bloomberg publishing this one. Equipment share Bond Sync is ousted
34:27
Speaker 2: board member alleges fraud. Now, it's never good when you're
34:30
Speaker 2: ousted board members alleging fraud because board members usually have
34:34
Speaker 2: some insight. They tend to know things. And so here's
34:37
Speaker 2: the deal. A company has about a billion dollars in
34:40
Speaker 2: debt that's outstanding equipment share. They rent construction equipment that
34:45
Speaker 2: has tracking technology in it. And apparently the one of
34:52
Speaker 2: the board members who has a twenty three percent stake
34:56
Speaker 2: is now accusing the family that owns the the majority
35:00
Speaker 2: share of using company cash for personal perkson insider deals.
35:05
Speaker 2: And so basically you have, you know, these privately held
35:10
Speaker 2: bonds that apparently are falling in value on the secondary market.
35:13
Speaker 2: And all I can think of, like, it's not the
35:14
Speaker 2: auto business, but does it just seem like there's a
35:18
Speaker 2: lot of fraud. We don't know anything about this yet, sure,
35:22
Speaker 2: but it just seems like that, like with these private
35:25
Speaker 2: debt obligations that are like sitting out there, the thing
35:29
Speaker 2: that's bringing down a lot of them is fraud. And like,
35:34
Speaker 2: what what gives here? Man?
35:36
Speaker 3: Is?
35:36
Speaker 2: I guess my question like, do you think it's uniquely
35:39
Speaker 2: different than any other point in time? To me, doesn't
35:41
Speaker 2: it feel more fraudy? I don't know. Before I'm not,
35:44
Speaker 2: I'm not sure.
35:46
Speaker 3: To me, it feels like every moment where there is
35:49
Speaker 3: a ready stream of cash waiting to be invested there's
35:52
Speaker 3: always a bunch of fraudsters that take advantage of that,
35:55
Speaker 3: whether that's twenty twenty when we approve a bunch of
35:58
Speaker 3: stimulus and you know, paycheck Protection program loans without a
36:02
Speaker 3: whole bunch of checks, like, there's always whenever the money
36:06
Speaker 3: is flowing easily, there's always corrupt individuals who are more
36:11
Speaker 3: than willing to take advantage of that. And that's what
36:14
Speaker 3: you can say about private credit and private equity is
36:16
Speaker 3: that there have been a lot of companies to write
36:20
Speaker 3: the check, and so whenever there is, there's usually a
36:24
Speaker 3: bunch of fraud attached to it. And I'm just I'm
36:27
Speaker 3: not sure that this situation now is any uniquely different
36:32
Speaker 3: than other periods of time where we've seen the cash flow.
36:34
Speaker 2: And like in I guess what, Okay, what does make
36:38
Speaker 2: it different and potentially more dangerous than some of the
36:40
Speaker 2: other ones. Scale is different. It's the scale and that
36:43
Speaker 2: it's in debt markets, Like if there I'm not saying
36:47
Speaker 2: this is good or bad, but if there was fraud
36:49
Speaker 2: on like paycheck protection program, okay, company collected a whole
36:53
Speaker 2: bunch of extra money, yep. If there's fraud in lending,
36:59
Speaker 2: the debt can't be paid back and then you don't
37:01
Speaker 2: know who's hurting on the back end. Right, Like we
37:03
Speaker 2: all as taxpayers ended up paying for the extra you know,
37:06
Speaker 2: money that was destroyed the paycheck protection program. Yep, I'm
37:09
Speaker 2: not saying it was costless. I'm saying like we ended
37:11
Speaker 2: up paying for it, but ultimately like it didn't become
37:16
Speaker 2: anything else. Right, you didn't have it boil over to
37:19
Speaker 2: banks because banks weren't involved. This is like you're looking
37:21
Speaker 2: at It's like, Okay, if there's enough problems in private credit,
37:23
Speaker 2: then you've got like the holders of that debt that
37:26
Speaker 2: are then sitting there saying I have obligations I need
37:28
Speaker 2: to pay for and I might not be able to. Yeah.
37:30
Speaker 3: I go back to what we talked about recently, which
37:32
Speaker 3: is we don't yet know if this is an issue.
37:35
Speaker 3: It rings pretty similar to other the bank failure of
37:40
Speaker 3: Spring twenty twenty is that four or three three twenty
37:44
Speaker 3: twenty three, And I think we just have to wait
37:47
Speaker 3: a few weeks or months before, probably months before we
37:49
Speaker 3: find out if there is actually something systemically problematic.
37:52
Speaker 2: I just saw on Bloomberg that BTS is going to
37:54
Speaker 2: be doing its biggest world tour ever next year. Well,
37:57
Speaker 2: that's how we'll have to close it out. Then little
37:59
Speaker 2: KP to finish things up. Yeah, honestly, it looked pretty fun.
38:04
Speaker 2: Might have to go.
38:05
Speaker 4: I didn't even know what you're talking about.
38:07
Speaker 2: BTS. They're the Korean boy band, I don't know. Sounds
38:10
Speaker 2: great to me. Let's take a quick break and when
38:13
Speaker 2: we return tomorrow we'll have a whole bunch of earnings
38:16
Speaker 2: to discuss, getting ready for some of the big ones
38:19
Speaker 2: later in the week.