Latest / The Financial Exchange Show / Elon Musk vs Sam Altman: Round 2

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Elon Musk vs Sam Altman: Round 2 · The Financial Exchange Show

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Speaker 4: But before we.
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Speaker 2: Get to any of them, we were going to kind
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Speaker 2: of start with the entertaining news of trouble and paradise
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Speaker 2: between the love triangle of Donald Trump, Elon Musk and
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Speaker 2: Sam Altman.
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Speaker 4: There's an image.
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Speaker 2: Sorry I didn't I didn't mean to go in that direction,
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Speaker 2: but Elon Musk has announced a ninety seven point four
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Speaker 2: billion dollar bid for open ai. And normally this might
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Speaker 2: be tossed to the side, but it's actually relevant within
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Speaker 2: open AI's business for a few reasons. And I want
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Speaker 2: to start right there. This this may all be overstated,
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Speaker 2: and I'll get to why, but here's what's going on
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Speaker 2: at open ai. For the course of the last three
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Speaker 2: to six months, they've been exploring how they could make
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Speaker 2: their non for profit artificial intelligence company into a for
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Speaker 2: profit company. And there's been a lot of explanations of why.
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Speaker 2: But the easiest one is they like money.
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Speaker 3: Would you say that's they need to get capital? You
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Speaker 3: need investors. Investors need to know how much ownership they're getting.
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Speaker 2: Right, And so they've been raising capital. As of October,
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Speaker 2: they raised another six point six billion dollars. But this
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Speaker 2: whole complexity around hey, what do we do to convert
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Speaker 2: this over to a for profit entity. There's a lot
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Speaker 2: of competing interest because they have raised much capital of
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Speaker 2: the course of the last ten years. There are all
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Speaker 2: sorts of interested parties that are trying to figure out, Okay,
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Speaker 2: well I have ownership in the nonprofit entity, how much
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Speaker 2: ownership am I going to have in this for profit
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Speaker 2: entity that runs Chat, GPT and open AIS products. So
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Speaker 2: the likes of Fidelity, among others, have been involved in
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Speaker 2: the cash raises. There's been all sorts of announcements between Oracle,
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Speaker 2: Microsoft and others in terms of investments in Chat GPT.
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Speaker 2: And what this ninety seven point four billion dollar bid
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Speaker 2: could do is throw a bit of a maybe a
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Speaker 2: benchmark or a wrench to how those bids get dealt with,
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Speaker 2: because this this sets a new price ground for how
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Speaker 2: you could possibly value, say, Fidelity's shares within the company. Right,
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Speaker 2: if there's an outside investor saying, no, I'll pick it
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Speaker 2: up for ninety seven billion dollars, then you can't seemingly
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Speaker 2: value let's I'm gonna pick on Fidelity here, Fidelity shares
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Speaker 2: at less than ninety seven point four billion, Well.
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Speaker 3: You couldn't want to total, but a party and interest
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Speaker 3: could sue you. Right, I don't know.
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Speaker 4: Breach of your fiduciary contract as the board member.
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Speaker 3: And this is where it gets opaque to me, who's
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Speaker 3: got an incentive to see it worth more? Who's got
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Speaker 3: an incentive to see it worthless? If I am Fidelity,
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Speaker 3: to use your example, and I've already given a billion
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Speaker 3: dollars to pull a number out of thin air. I
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Speaker 3: want the company valued it five billion, I own twenty
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Speaker 3: percent or ten, not one hundred, which is the mischievous
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Speaker 3: part of what Musk I think is doing.
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Speaker 2: So that seems to me to be the truth of
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Speaker 2: it too, because I don't know that Elon Musk actually
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Speaker 2: wants to come up one hundred billion dollars, although he
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Speaker 2: does have a pretty good history of buying companies for
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Speaker 2: more than they are worth. See Twitter, which he purchased
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Speaker 2: at forty four billion dollars and according to Fidelity's most
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Speaker 2: recent valuation, because remember Fidelity participated in this too, they
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Speaker 2: valued the company at I think nine point seven billion dollars,
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Speaker 2: so they're they're sorry, nine point four billion according to
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Speaker 2: the piece that I read.
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Speaker 3: The other piece of that was that was valuation as.
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Speaker 2: Fidelity's valuation of X back in September of last year. Okay,
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Speaker 2: nine point four billion dollars not relevant to any of
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Speaker 2: the open aiy style. No, No, I just find it
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Speaker 2: entertaining how much of a wash that Elon Musk took
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Speaker 2: on Twitter when he very obviously didn't actually want to
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Speaker 2: buy it, just got held to his word for once
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Speaker 2: the other piece of this that I'm not sure why
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Speaker 2: it is relevant is in October of last year, I
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Speaker 2: mentioned that open ai went through their latest fundraising round.
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Speaker 2: They raised six points six billion dollars that valued open
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Speaker 2: Ai at one hundred and fifty seven billion dollars in total.
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Speaker 2: I'm not sure why a bit at ninety seven billion
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Speaker 2: dollars throws under a wrench into anything if you just
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Speaker 2: had a valuation round that pegged you at one hundred
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Speaker 2: and fifty seven billion dollars. So I'm not sure that
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Speaker 2: this actually does anything. I think it is a bit
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Speaker 2: of a shot across the bow. If you're not familiar.
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Speaker 2: Elon Musk and Sam Altman have a little bit of
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Speaker 2: a history over the course of the last several years.
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Speaker 2: Elon Musk was one of the founders of open ai
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Speaker 2: before leaving on seemingly bad terms with Sam Altman, and
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Speaker 2: so I think they are taking digs at each other here,
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Speaker 2: but again, ultimately, open ai has several challenges ahead of
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Speaker 2: themselves in terms of converting this non for profit entity
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Speaker 2: into a for profit entity. They need to convince regulators
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Speaker 2: in California Delaware as well as all of their shareholders,
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Speaker 2: and frankly, I think that this might be getting made
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Speaker 2: a little bit bigger than it is actually is in
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Speaker 2: terms of a story.
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Speaker 3: Unless I'm missing I don't know. A Musk likes drama,
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Speaker 3: he likes attention. He's perfect for the current White House
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Speaker 3: for that reason. They like to dominate the news cycle.
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Speaker 3: So this is just part of what Elon Musk does.
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Speaker 3: Uh as a taxpayer, I'm wondering, I'm sorry, have you
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Speaker 3: cut that two trillion you said you would yet and
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Speaker 3: you can already move on to other Is that done
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Speaker 3: and filed? Or are we still working on that? Because
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Speaker 3: it seems to me that he's got a long roadd
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Speaker 3: hoe there and we're not making progress at a pace
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Speaker 3: that would suggest that two trillion, which is what he
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Speaker 3: claimed he could cut, he's.
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Speaker 4: Backtracked on that. Yeah.
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Speaker 3: Sorry, But there is a political angle here, Mike, because
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Speaker 3: he is now a government if not an employee and
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Speaker 3: a points tractor. I guess is that what he is
7:41
Speaker 3: that his status is a contract.
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Speaker 2: To get like a short term contractor status with the
7:45
Speaker 2: Treasury depart.
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Speaker 3: I guess, Mike, was you shouldn't we all have an
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Speaker 3: interest now? Is taxpayer someone who is actively rifling through
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Speaker 3: treasury and other government agency databases, apparently unilaterally snuffing out
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Speaker 3: agencies created by Congress. He also has time to put
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Speaker 3: together a consortium and one hundred billion dollar offer for
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Speaker 3: open AI. And moreover, if you're a Tesla's shareholder, aren't
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Speaker 3: you wondering who's minding the store over there these days?
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Speaker 3: My model whatever is looking a little long in the tooth.
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Speaker 3: He's he's spread really thin.
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Speaker 2: Yeah, I'm not out here saying that Sam Altman is
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Speaker 2: some sort of you know, do good or savior. By
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Speaker 2: the way, like I don't really like what Elon Musk
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Speaker 2: has been doing over the course of the last year,
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Speaker 2: but I don't think that, you know, for instance, him
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Speaker 2: taking a shot across the bout Sam Altman makes Sam
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Speaker 2: some sort of, you know, great individual who has everyone's
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Speaker 2: best interest at heart. I'm just merely saying that this
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Speaker 2: seems like a lot of noise to me that might
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Speaker 2: not actually signify anything. I don't know that it changes
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Speaker 2: anything for Sam Altman at open AI. I think it's
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Speaker 2: a little bit of a pissing match, if you will.
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Speaker 2: Altman immediately responded to this, by the way, from the
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Speaker 2: AI summon in Paris, saying, quote, I wish he would
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Speaker 2: just compete by building a better product. But I think
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Speaker 2: there's been a lot of tactics, many many lawsuits, all
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Speaker 2: sorts of other crazy stuf. Now this so again taking
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Speaker 2: digs addyelon Musk and his quite honestly somewhat failed AI
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Speaker 2: project through X and so this may be much ado
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Speaker 2: about nothing, I think is what I.
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Speaker 4: Conclude on all. This is just more fiasco out there.
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Speaker 3: It feels like a spat between a couple of gifted
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Speaker 3: and Musk is the guiltier party here, I think, because
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Speaker 3: he's so sensationalist, we so acid, but a couple of
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Speaker 3: gifted prima donnas.
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Speaker 4: Let's take a quick break when we come back.
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Speaker 2: We briefly discussed the newly announced steel tariffs and aluminum
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Speaker 2: tariffs yesterday. We're already talking about countermeasures from the likes
9:36
Speaker 2: of the EU, as well as new potential tariffs on
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Speaker 2: oil products that could go into place now in March.
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Speaker 2: Let's take quick break and cover what we know on
9:45
Speaker 2: tariffs this week next on the Financial Exchange.
9:48
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Speaker 2: We will get to oil tariffson Mint, but I want
10:54
Speaker 2: to start with yesterday's announcement on steal and aluminum imports.
10:57
Speaker 4: So for anyone unfamiliar.
11:00
Speaker 2: Donald Trump did this in the first administration as well,
11:02
Speaker 2: a twenty five percent tariff on steel, ten percent tariff
11:05
Speaker 2: on aluminum. I feel like there were a bunch of
11:07
Speaker 2: exceptions created to those, but I'm just going off memory
11:10
Speaker 2: here for a moment. We import a heck of a
11:14
Speaker 2: lot more aluminum than we do steel. It is a
11:18
Speaker 2: more complex, more energy intensive manufacturing process, and we just
11:23
Speaker 2: happened to import the majority of our aluminum, whereas steel,
11:26
Speaker 2: we actually make a fair bit of it here domestically.
11:29
Speaker 2: In terms of countries that would be most heavily impacted
11:32
Speaker 2: by all this, Canada once again is the neighbor to
11:36
Speaker 2: the north that would be feeling the brunt of this
11:38
Speaker 2: because they import I think half of the imported aluminum
11:43
Speaker 2: into the country comes from Canada, and a significant chunk
11:46
Speaker 2: of this steel as well. I bring up that we
11:48
Speaker 2: did this recently because we've actually got pretty decent history
11:52
Speaker 2: on what happened in the United States prices too. By
11:56
Speaker 2: the way prices on both of these products went up,
12:00
Speaker 2: they did seem more manufacturing of steel it done in
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Speaker 2: the United States, so our production domestically did rise and
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Speaker 2: certain industries benefited others.
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Speaker 4: But it's not quite that.
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Speaker 3: It's not like fifty to fifty, or there are some winners,
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Speaker 3: there are some overwhelmingly losers. We all lose except for
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Speaker 3: a small group of producers right down.
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Speaker 2: The winners are US deal al Co, few of exacts,
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Speaker 2: and the losers are anybody that uses the metal in
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Speaker 2: the manufacturing process. For instance, ninety percent of Boeing's jet
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Speaker 2: bodies made from aluminums.
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Speaker 4: Those are going to be more.
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Speaker 3: Anybody make endurable goods, and the job losses to job
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Speaker 3: gains are like seventy five to one. This is not like, well,
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Speaker 3: some winners some losers. You didn't say it that way, Mike.
12:42
Speaker 3: Sometimes the media presents it that way. It is not
12:44
Speaker 3: that way at all. Overwhelmingly consumers lose, downstream producers lose.
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Speaker 3: There are so called deadweight losses, the activity that doesn't
12:54
Speaker 3: take place that otherwise would have a little tough to measure,
12:57
Speaker 3: but you have to try to capture that. The evidence
12:59
Speaker 3: of tariffs could not be clearer.
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Speaker 2: So we again early days here, we're not seeing massive
13:08
Speaker 2: price movements even on aluminum or steel. As of yet,
13:12
Speaker 2: we have not yet heard any sort of retaliatory tariffs
13:15
Speaker 2: on these things yet, and quite frankly, just based on
13:18
Speaker 2: recent history, I'm also unconvinced that these are going to
13:21
Speaker 2: stay in place long term. I have no real evidence
13:25
Speaker 2: based on recent history that Donald Trump is more serious
13:28
Speaker 2: about these than he is about tariffs on Mexico and
13:30
Speaker 2: Canada more generally, if you did see them stay in place.
13:36
Speaker 2: I think there are some low hanging targets that the
13:39
Speaker 2: EU and Canada would probably go after. Alcohol is one
13:43
Speaker 2: of the first ones, but you know, other food stuff
13:46
Speaker 2: products as well are likely to be targeted. Iron, steel
13:51
Speaker 2: and aluminum products manufactured domestically might also be looked at.
13:56
Speaker 2: Beyond that, you start getting into other categories that aren't
13:59
Speaker 2: a large cosmetic appliances, glass products, all sorts of other
14:03
Speaker 2: things that get exported over to the EU. But I
14:07
Speaker 2: bring it up only because, look, these are low hanging
14:10
Speaker 2: areas that are likely to be targeted if Donald Trump
14:13
Speaker 2: is serious about this, and I again I'm just not
14:16
Speaker 2: sure how we should be looking at this, because I'm
14:18
Speaker 2: unsure how serious he is about the subject of territory.
14:21
Speaker 3: Yeah, these tit for tat situations, if they go on
14:25
Speaker 3: for a while, they raise uncertainty, and that should be
14:31
Speaker 3: at some point evident in capital markets and volatility.
14:34
Speaker 2: Let's be clear, Yeah, they're not really today, right, we
14:37
Speaker 2: do have markets selling off.
14:38
Speaker 3: That's actually what I just said.
14:39
Speaker 4: Yeah, yeah, OK.
14:41
Speaker 2: I want to make sure you said at some point
14:43
Speaker 2: they're going to be realized, which did imply that they're
14:45
Speaker 2: not being realized today. You've got the Dow, S and
14:48
Speaker 2: P and Nasdaq all off less than one fifth of
14:50
Speaker 2: a mind.
14:51
Speaker 3: Come on, it's a fraction of a person. This is
14:52
Speaker 3: nothing at Rates are moving a little bit, but that's
14:55
Speaker 3: probably in response to Powell not giving the the Congression
15:00
Speaker 3: Committee speaking in front of the Sugar High that they
15:04
Speaker 3: were hoping for, hoping for news on additional rate cuts,
15:08
Speaker 3: which he's being a little coy with respect to.
15:10
Speaker 2: But so I'll say something that I said yesterday again.
15:13
Speaker 2: Either investors have zero confidence whatsoever that these tariffs are
15:17
Speaker 2: going to remain in place and then spark a larger
15:19
Speaker 2: trade war.
15:21
Speaker 4: Or they're simply whistling past the graveyard.
15:24
Speaker 2: And I don't recent history would say no, they're accurately
15:28
Speaker 2: sniffing out the fact that this administration isn't as serious
15:31
Speaker 2: about tariffs as they claim to be. But I don't know,
15:35
Speaker 2: Flip the points want to tell me if this is
15:37
Speaker 2: going to be real or not.
15:39
Speaker 3: Yeah, the first order effects, the immediate effects will probably
15:42
Speaker 3: be modest. It's only something like fifty billion dollars in goods.
15:46
Speaker 3: The downstream effects are a little harder to We know
15:48
Speaker 3: they'll be adverse, we just don't know the magnitude of it.
15:52
Speaker 2: Really tough to know which country is going to retaliate
15:55
Speaker 2: on which products. And then Donald Trump has already said
15:58
Speaker 2: that if any other country retaliates again, it's my tariffs.
16:00
Speaker 2: I'm going to retaliate in kind as well. And so
16:03
Speaker 2: that is where you have the looming threat of an
16:05
Speaker 2: overall escalating trade war. I kind of wish we could
16:10
Speaker 2: all just slap fifty percent tariffs on China Chinese steeled
16:13
Speaker 2: aluminum and be done with this, because that's the only
16:16
Speaker 2: country in the world that you can really look at
16:18
Speaker 2: and say, yeah, they seem to be getting massive subsidies
16:21
Speaker 2: from the Chinese government and pushing and dumping that steel
16:24
Speaker 2: and aluminum onto global markets and sinking prices. Like show
16:28
Speaker 2: me one Canadian you know steel an aluminum maker that
16:33
Speaker 2: is really cheating the system today, and I'll be pretty surprised.
16:39
Speaker 3: There may be some instances of that. I think that
16:41
Speaker 3: The bigger picture to keep an eye on here is
16:45
Speaker 3: deterioration the world trade order, an order that evolved over
16:51
Speaker 3: seventy five eighty years the post war period roughly, and
16:55
Speaker 3: that allowed the US to experience miraculous levels of growth.
17:00
Speaker 4: Yep, but.
17:03
Speaker 2: Also coincided, I won't say led to, but I'll say
17:06
Speaker 2: coincided with the deterioration of middle income Americans. And I
17:10
Speaker 2: think that speaks to some of the frustration and changes
17:12
Speaker 2: that we've seen of the course of the last fifty years.
17:14
Speaker 4: We talked about it yesterday.
17:15
Speaker 3: Yeah, we haven't done a good job of compensating those.
17:17
Speaker 4: Who are displaced.
17:19
Speaker 3: Yeah, as a result of free or trade.
17:22
Speaker 2: The new tariff for the day, Canadian oil might be
17:27
Speaker 2: facing new tariffs in March. This could be a ten
17:30
Speaker 2: percent tariff on Canadian oil. And again Donald Trump has
17:36
Speaker 2: pointed out that this is not necessary. We produce more
17:38
Speaker 2: than enough oil in the United States to satiate consumption.
17:43
Speaker 2: Here he is not wrong. However, like anything else, winners
17:47
Speaker 2: and losers. There is a refinery, for example, in the
17:50
Speaker 2: Midwest that sits on the south shore of Lake Michigan.
17:53
Speaker 2: You can bet that that refinery that since eighteen eighty
17:58
Speaker 2: nine has been refining Canadian oil probably does not need
18:02
Speaker 2: to exist in the same way. If there is a
18:04
Speaker 2: ten percent tariff on Canadian oil coming into the United States,
18:08
Speaker 2: it is built specifically for the type of oil coming
18:11
Speaker 2: from the Canadian shale and probably doesn't need to exist.
18:15
Speaker 2: Why would you ship your oil from Texas up to
18:19
Speaker 2: Lake Michigan just to be refined rather than doing it
18:22
Speaker 2: down there in Texas. So again, when we speak to
18:24
Speaker 2: these winners and losers, one, I don't fully understand the
18:28
Speaker 2: purpose of having a tariff on Canadian oil. Maybe it
18:32
Speaker 2: is just, hey, we want to raise revenue. That has
18:34
Speaker 2: been one of the items that's been mentioned. Because I
18:36
Speaker 2: can't think of any other reason that the US oil
18:39
Speaker 2: industry needs this form of protection. But if that is
18:43
Speaker 2: the case, I want to get away from this assumption
18:46
Speaker 2: that we're all winners based on tariffs.
18:49
Speaker 3: Going into play that assumption. I haven't heard any serious
18:53
Speaker 3: person say that. I've heard some blow hard politicians make.
18:55
Speaker 2: The sase, Yeah, I'm gonna go after the blow hard
18:58
Speaker 2: politicians who say the tariffs so are going to make
19:00
Speaker 2: us all better.
19:03
Speaker 3: Yeah, Okay. I'm hopeful that this is just early theatrics
19:07
Speaker 3: from the new administration that they're going to get down
19:10
Speaker 3: to the work of cutting spending, building the border wall,
19:13
Speaker 3: serious stuff that requires the action of Congress. This is
19:16
Speaker 3: just the low hanging fruit that the administration can implement
19:18
Speaker 3: by executive order. You know, sign your name on a
19:21
Speaker 3: big placard and show it to the Fox News audience
19:24
Speaker 3: and everybody laps it up. But we got to get
19:26
Speaker 3: down to the serious business of cutting spending, building the
19:28
Speaker 3: border wall, and some of the other priorities that require
19:31
Speaker 3: actual work.
19:32
Speaker 2: Quick break Wall Street watches next Next.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch a complete look and what's moving market so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network
20:00
Speaker 1: work Well.
20:01
Speaker 5: Markets are down kind of across the board right now.
20:05
Speaker 5: The Dow Jones is down one a little over one
20:09
Speaker 5: tenth of a percent, the s to P five hundred
20:11
Speaker 5: the same about one tenth of a percent, and the
20:13
Speaker 5: Nasdaq is down about point zero five percent. They'd started
20:17
Speaker 5: the day down about two tenths of a percent, but
20:19
Speaker 5: they've been climbing back up. As Jerome Powell has been
20:22
Speaker 5: giving his speech in front of the Senate. Coca Cola
20:25
Speaker 5: popped three percent after beating Wall Street expectations on both lines.
20:29
Speaker 5: For the fourth quarter. Coca Cola earned fifty five cents
20:31
Speaker 5: adjusted per share on eleven point five to four billion
20:35
Speaker 5: in revenue, while analysts forecasted fifty two cents in earnings
20:39
Speaker 5: per share and ten point six eight billion in revenue.
20:42
Speaker 5: Auto Nation stock dropped about two percent despite the automotive
20:46
Speaker 5: retailers better than expected results for the fourth quarter. The
20:49
Speaker 5: company reported adjusting earnings of four point four dollars and
20:53
Speaker 5: ninety seven cents per share on seven point two to
20:56
Speaker 5: one billion in revenue, while analyst penciled in earnings of
20:59
Speaker 5: four dollars and twenty six cents per share and six
21:02
Speaker 5: point eight billion in revenue. Shopify stock is down one percent.
21:07
Speaker 5: That comes despite the company reporting two point eight one
21:10
Speaker 5: billion in revenue for the fourth quarter, exceeding the estimate
21:13
Speaker 5: of two point seven to three billion from analysts surveyed
21:15
Speaker 5: by Factset. Fluence Energy plunged forty six percent after the
21:20
Speaker 5: company reported a bigger than expected loss for the fiscal
21:23
Speaker 5: fourth quarter. The first quarter, Fluence said it lost thirty
21:26
Speaker 5: two cents per share, while analysts anticipated drop of just
21:30
Speaker 5: nineteen cents a share. The firm saw a revenue of
21:33
Speaker 5: one hundred and eighty six point eight million, well under
21:36
Speaker 5: the consensus forecast of three hundred and sixty two point
21:39
Speaker 5: five million.
21:40
Speaker 4: I am been kitchening. That was Wall Street Watch.
21:43
Speaker 2: As I mentioned earlier, we'll get a report on inflation
21:45
Speaker 2: tomorrow at eight thirty am. Expectations are for a zero
21:49
Speaker 2: point three percent month of a month increase, bringing the
21:51
Speaker 2: year over year numbers January to January up to two
21:54
Speaker 2: point eight percent three point one percent if you're willing
21:57
Speaker 2: to strip out the food and energy. But Jay Powell's
22:00
Speaker 2: on in front of Congress today testifying about the Central Bank,
22:04
Speaker 2: and last I saw you wasn't getting a whole lot
22:08
Speaker 2: of questions about interest rates and policy, but rather questions
22:11
Speaker 2: about the CFPP. But neither here nor there overall message
22:15
Speaker 2: that we seem to be hearing from j Powell has
22:17
Speaker 2: it shifted it all over the course of the last
22:19
Speaker 2: two months. To me, it's been pretty darn steady here.
22:22
Speaker 3: Yeah, they really like the phrase we don't have to
22:24
Speaker 3: be in a hurry to raise Andrew who's saying you do?
22:27
Speaker 3: I hate it when they pick this straw man and
22:30
Speaker 3: then constantly beat that topic or refute an argument that
22:37
Speaker 3: nobody's actually making. I wish they would frame I say
22:41
Speaker 3: this a lot, and I'm sorry, Well, no, I'm not sorry.
22:44
Speaker 3: I wish they would frame things in terms of the
22:46
Speaker 3: short term trade off between unemployment and inflation that everybody
22:49
Speaker 3: learns about if they bother to take a macroeconomics course
22:52
Speaker 3: at some point and just talk about the need to
22:55
Speaker 3: balance those two forces, and the fact that they think
22:58
Speaker 3: the short term interest rate that they have the influence
23:00
Speaker 3: over more or less control, is either just right to
23:05
Speaker 3: balance those two forces, or is a little bit contraction
23:09
Speaker 3: ay or a little bit stimulative, a little bit too stimulative.
23:13
Speaker 3: I love just to see a red light, yellow light,
23:16
Speaker 3: green light system that we can all readily understand so
23:19
Speaker 3: we don't have to constantly try to read tea leaves
23:27
Speaker 3: and peer through the fog of the verbiage that they use.
23:32
Speaker 2: Well, too bad, because you're gonna get speed. You got
23:35
Speaker 2: speeches from be Hammick spoke this morning Cleveland FED President
23:39
Speaker 2: at eight fifty am, New York Fed President Williams is
23:44
Speaker 2: speaking at three thirty, and then Michelle Bowman speaking also
23:47
Speaker 2: at three thirty, So yeah, you'll have plenty of tea
23:49
Speaker 2: leaves to digest. But I agree with you the the
23:52
Speaker 2: overall narrative here is very clear. We don't need to
23:55
Speaker 2: be in a rush to lower interest rates.
23:57
Speaker 4: And to your point, you're right Ian, What does that
24:00
Speaker 4: mean to you?
24:00
Speaker 3: Does that mean they're not going to or that they're
24:03
Speaker 3: leaning toward raising them? What does that phrase mean?
24:06
Speaker 2: No, I think that phrase means that we are still
24:08
Speaker 2: of the belief that rates need to move lower over
24:11
Speaker 2: the long term, but they are not going to do
24:14
Speaker 2: so immediately.
24:14
Speaker 3: So perhaps one of the senators right now interrogating him,
24:18
Speaker 3: could ask, so, what do you think the so called
24:22
Speaker 3: the phrase neutral rate is in has been out there
24:26
Speaker 3: in the ether for a while. We're all familiar with it.
24:30
Speaker 3: Maybe ask him more specifically, Are we at neutral? Is
24:33
Speaker 3: neutral slightly lower than where we are today? Do you
24:36
Speaker 3: think policy is contractionary? And how do you square that
24:39
Speaker 3: with an unemployment rate that's as low as it's been
24:42
Speaker 3: for as long as it's been for over sixty years,
24:44
Speaker 3: And you could pick whatever other measure of economic health
24:48
Speaker 3: you want to cite. Is evidence of the strength of
24:51
Speaker 3: the underlying economy?
24:52
Speaker 2: Can I tell you something, Mark, Sure, it doesn't play
24:55
Speaker 2: quite as well in a re election campaign video.
25:00
Speaker 3: I don't think that a lot of the masks they're
25:01
Speaker 3: asking good questions about Reggie. You're probably right, but a
25:04
Speaker 3: lot of that they ask good questions about regulation and
25:07
Speaker 3: other FED topics. I'm just surprised they aren't a little
25:10
Speaker 3: better prepared at this point to try to pin them
25:13
Speaker 3: down on rationale.
25:15
Speaker 2: The other thing that I think those who were not
25:17
Speaker 2: well trained on FED speak and markets got a good
25:21
Speaker 2: lesson on, and why you might not be seeing as
25:22
Speaker 2: much pressure on the FED recently is the recent experience
25:26
Speaker 2: of the late summer and fall of last year where
25:28
Speaker 2: the FED went on a rate cutting cycle that coincided
25:32
Speaker 2: with mortgage rates going up by a full percentage point YEP.
25:35
Speaker 2: So I think that's the more recent lesson here, and
25:38
Speaker 2: why you're probably not feeling as much heavy handed wording
25:42
Speaker 2: from the Trump administration here is because they recognize that
25:45
Speaker 2: we can put all the pressure that we want on
25:47
Speaker 2: the FED, it might not lead to them lowering interest rates.
25:51
Speaker 2: And in fact, most recent history says that they lowered
25:54
Speaker 2: interest rates and you actually got an uptick in longer
25:57
Speaker 2: term rates, which is what everyone actually care.
25:59
Speaker 3: You think you think administrations thinking that rationally about things.
26:02
Speaker 4: I think Bessent is, oh, sure, yeah, yeah, it's part
26:06
Speaker 4: of the administration.
26:07
Speaker 2: Part of the administration, So yeah, I think I think
26:09
Speaker 2: that's likely the case. There are three meetings between now
26:14
Speaker 2: and late June, so that over the first half of
26:16
Speaker 2: the year we will see three more Federal Reserve meetings.
26:19
Speaker 2: As of today, it's only a fifty to fifty shot
26:23
Speaker 2: that rates will be any lower than where they are
26:25
Speaker 2: right now by that June eighteenth meeting, according to the
26:27
Speaker 2: Chicago Mercantale Exchange FED Funds Future.
26:30
Speaker 4: So that's where things are being priced out right now.
26:33
Speaker 2: I still do genuinely believe that this Federal Reserve has
26:36
Speaker 2: a propensity for lower rates. They believe that rates need
26:39
Speaker 2: to come down long term, and they will use any
26:41
Speaker 2: excuse in the data they have that's justify that. But
26:45
Speaker 2: I do think there's very clearly not enough evidence to
26:48
Speaker 2: support that justification right now.
26:50
Speaker 3: That bias is understandable. You don't want to cause a
26:53
Speaker 3: recession if you don't have to. Generally speaking, you have
26:56
Speaker 3: to get demand down to slow inflation. Generally speaking, we
26:59
Speaker 3: get lucky in the most recent cycle. Demand didn't appear
27:01
Speaker 3: to slow at all, and special factors, the same ones
27:04
Speaker 3: that pushed inflation up during the early stages of COVID,
27:06
Speaker 3: helped push it down to where we are today. Not
27:09
Speaker 3: quite where the FED wants it, but pretty low and
27:11
Speaker 3: pretty stable. I think we'd all agree last thing the
27:15
Speaker 3: Fed wants is to hit the brakes too firmly slide
27:19
Speaker 3: into recession. Recessions have long lasting effects, so I understand
27:23
Speaker 3: they're so called bias.
27:25
Speaker 2: Yep, it's explainable and understandable. Let's take a quick break
27:29
Speaker 2: when we come back. I think actually a really excellent
27:32
Speaker 2: piece from the Wall Street Journal on China and just
27:36
Speaker 2: the They call it an economic fortress that they have
27:38
Speaker 2: been building over the course of the last decade, but
27:42
Speaker 2: a real economy that is focused inward, and the ramifications
27:46
Speaker 2: and tremors from that building have been getting felt worldwide.
27:52
Speaker 2: So I want to talk about that pace next on China.
27:54
Speaker 2: Here on the Financial Exchange.
27:57
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28:23
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28:39
Speaker 4: China. She is building an economic fortress.
28:42
Speaker 2: Against US pressure and this is I think a lesson
28:47
Speaker 2: that many countries have taken over the course of the
28:49
Speaker 2: last decade or two, and few are able to actually execute.
28:53
Speaker 4: It on it the way that China is.
28:55
Speaker 2: But you take a look at Russia and Iran, North Korea,
28:58
Speaker 2: other countries that have faced you sanctions have taken steps
29:01
Speaker 2: back and said, Okay, what does this mean for our future?
29:04
Speaker 2: Should we be participating in the same global payment systems
29:07
Speaker 2: that these countries are if we could face potential sanctions.
29:11
Speaker 2: The difference is when you are a what's the population
29:16
Speaker 2: of China these days and anybody able to confirm that
29:19
Speaker 2: for me, you know, billion plus population country with a
29:25
Speaker 2: authoritarian government with one person controlling it for over a decade,
29:29
Speaker 2: you're able to take steps that I would say Russia
29:31
Speaker 2: and Iran are not able to in terms of their economy,
29:34
Speaker 2: with their resources with their technology, just other steps that
29:37
Speaker 2: can't be taken elsewhere.
29:39
Speaker 4: It just.
29:41
Speaker 1: One.
29:41
Speaker 2: It's a really well written piece in the Wall Street
29:44
Speaker 2: Journal kind of explaining how we got.
29:45
Speaker 4: To this point and the history of where China developed.
29:49
Speaker 2: It brings up a piece that I've always just kind
29:53
Speaker 2: of wondered about, which is how much of what China
29:56
Speaker 2: has been, for instance, dumping on foreign market over the
30:00
Speaker 2: course of the last few years in particular, so whether
30:03
Speaker 2: it's steel, or vehicles or solar panels, how much of
30:07
Speaker 2: that is genuinely because there was this strategic initiative within
30:11
Speaker 2: China to say we are going to overproduce solar panels
30:14
Speaker 2: in order to put American solar panel manufacturers out of.
30:17
Speaker 4: Business, compared to.
30:21
Speaker 2: Just an accidental side effect of them saying, hey, this
30:25
Speaker 2: is a strategic initiative for China. We want to make
30:27
Speaker 2: sure that all of the solar panels that we put
30:30
Speaker 2: into homes and businesses in China are made in China,
30:34
Speaker 2: and oops, we accidentally overproduced by like sixty percent, and
30:37
Speaker 2: so we need to dump these somewhere. I genuinely don't
30:39
Speaker 2: have an answer to that.
30:41
Speaker 3: Maybe you do, Yeah, I don't think that the sole
30:44
Speaker 3: objective of the Chinese Communist Party over the past fifty
30:48
Speaker 3: years has been to put American companies out of business.
30:50
Speaker 3: It's been to industrialized, right, And when you industrialize rapidly
30:55
Speaker 3: and people don't consume a lot, you have to have
30:58
Speaker 3: a big trade surplus. As a matter of fact, we
31:02
Speaker 3: don't save enough. We have to, as a consequence, have
31:04
Speaker 3: a big trade deficit. And these two the result is
31:11
Speaker 3: inevitable and also complementary. Why sorry, I didn't do a
31:15
Speaker 3: good job of it.
31:15
Speaker 2: No, No, that that was a good explanation of it.
31:17
Speaker 2: I mean, it is a fundamental this is good good.
31:21
Speaker 3: And I was gonna say, this isn't the culmination of
31:23
Speaker 3: a long, sinister, long term plan.
31:25
Speaker 4: And that's the piece that I try and drive home
31:27
Speaker 4: over and over again.
31:28
Speaker 2: Is there's this I feel like there's this narrative in
31:32
Speaker 2: American society of lookout because the Chinese are so well organized,
31:37
Speaker 2: and you know, they've got this authoritarian government, and look
31:40
Speaker 2: how flexible that makes them. And most of what I
31:43
Speaker 2: see coming out of China is we kind of screwed up.
31:46
Speaker 2: And so now this is the side effect of that,
31:48
Speaker 2: whether it is their population issue that they have now
31:51
Speaker 2: because of severe restrictions around how many children you can have,
31:55
Speaker 2: whether it is the massive export of solar panels below cost.
32:01
Speaker 2: I don't think it was this sinister plan that they had.
32:03
Speaker 2: I think it was just a side effect of frankly,
32:06
Speaker 2: running your economy without free market capitalism.
32:09
Speaker 3: Yeah, and totalitarianism always has an appeal. There were people
32:12
Speaker 3: who admired this Soviet Union. They sure we came out
32:16
Speaker 3: of the depression unscathed. There was no depression there, And
32:19
Speaker 3: there were plenty of American intellectuals. There are a lot
32:22
Speaker 3: of famous examples. Google it if you'd like, who cited
32:26
Speaker 3: them as a model, who cited totalitarianism, much like people
32:30
Speaker 3: are turning toward, particularly young people here in the United
32:32
Speaker 3: States today, turning toward authoritarianism, or at least being open
32:36
Speaker 3: to it as a model, thinking just we've got all
32:39
Speaker 3: these problems, can't we just have a strong man who
32:42
Speaker 3: can just sort of fix them without all the legal
32:45
Speaker 3: niceties that were accustomed to, all the annoying checks and
32:49
Speaker 3: balances that bog real aggressive solutions down. The problem with
32:54
Speaker 3: the totalitarian or even authoritarian system or a one party system,
32:58
Speaker 3: I'm just moving from the spectrum of most of least extreme,
33:01
Speaker 3: is that there's no feedback there, right, nobody's there to
33:03
Speaker 3: tell the guy, Hey, you're an idiot and this is
33:05
Speaker 3: a big mistake, and at least in our system, for
33:08
Speaker 3: better or for worse, we throw the guy out in
33:09
Speaker 3: four years if we don't like the direction.
33:11
Speaker 2: And I think that you can see evidence of that
33:14
Speaker 2: in China everything. Oh yeah, that there is no feedback.
33:16
Speaker 2: There is no Hey, President, she maybe this isn't a
33:20
Speaker 2: great idea for us to subsidize this industry, because then
33:23
Speaker 2: we're permanently going to subsidize it forever if we want
33:26
Speaker 2: to be able to do it, and we're not going
33:27
Speaker 2: to innovate.
33:28
Speaker 4: In New and vad we've never.
33:29
Speaker 3: Been able to get consumption going. Their population growth is slowing.
33:34
Speaker 3: They're they're they're like, if an economy could get rapid
33:37
Speaker 3: aging disease, that horrible disease that one in every like
33:40
Speaker 3: twenty million humans gets, we've all seen examples of it
33:43
Speaker 3: on TV. Thank god, it's so rare. If there was
33:46
Speaker 3: such a thing. Economically, China's gut it and there's no
33:50
Speaker 3: one to tell him stop your being, no one to
33:53
Speaker 3: tell putin pull back. Ukraine is bleeding us to death.
33:58
Speaker 3: That's the problem with to tell terry and authority, darian
34:00
Speaker 3: or one party.
34:01
Speaker 2: And in terms of what comes next in China, what
34:04
Speaker 2: I I don't think anybody has the answer to, and
34:06
Speaker 2: I will find vastly and informative and interesting, is do
34:10
Speaker 2: they double down Because for right now they've been doubling
34:13
Speaker 2: down on the same policy of invest in industrial manufacturing
34:18
Speaker 2: and continue to lift ourselves out of that. And it's
34:21
Speaker 2: hitting some major roadblocks now with countries more and more
34:25
Speaker 2: taking the US approach of blocking exports from that country
34:29
Speaker 2: rather than saying, hey, we're going to invest in a
34:31
Speaker 2: social safety net and try and encourage more domestic consumption,
34:36
Speaker 2: which big questions as to whether or not that would
34:39
Speaker 2: be successful.
34:40
Speaker 4: Go look at Japan.
34:40
Speaker 2: It hasn't been terribly successful there in terms of creating more, but.
34:44
Speaker 3: They've already got a high standard of living comparable to ours.
34:47
Speaker 3: So they may have slowed down in terms of growth rate,
34:50
Speaker 3: but their growth level is very, very so thanks to
34:53
Speaker 3: the security umbrella that we provided them. By the way,
34:55
Speaker 3: for eighty years.
34:58
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35:58
Speaker 2: There is an AIS taking place in Paris right now
36:02
Speaker 2: and reporting from it. One author Kevin Ruse from New
36:05
Speaker 2: York Times has five major conclusions that I found really
36:08
Speaker 2: interesting about this one. Europe seems to be having some
36:11
Speaker 2: regulation regrets, whether it's from their early regulations of the
36:14
Speaker 2: Internet or their new European Union AI Act. Doomsayers about
36:19
Speaker 2: AI seem to be losing ground. Deep Seek is re
36:22
Speaker 2: energizing the other companies, lack of clarity around what Trump's
36:28
Speaker 2: policy on AI is going to be, and no one
36:30
Speaker 2: really grappling with short AI timelines.
36:33
Speaker 4: The first one is where I actually.
36:35
Speaker 2: Want to focus from it here market and just get
36:38
Speaker 2: your take, because when you take a look at Europe
36:41
Speaker 2: and productivity, GDP, growth equity markets there, whatever you want
36:45
Speaker 2: to look at, the last decade or two have really
36:49
Speaker 2: been defined by just severe lack of competition with the
36:53
Speaker 2: United States. And I wonder if there's a corollary here
36:58
Speaker 2: to what they are seeing in AI as well, because
37:00
Speaker 2: they are falling way behind in this new technology as well.
37:04
Speaker 3: Yeah, they don't have Palo Alto. I mean, we've got
37:07
Speaker 3: these hubs that started in the nineteen seventies when smart
37:12
Speaker 3: people decided they wanted to be around smart people. We
37:14
Speaker 3: have one here in Massachusetts too. We're blessed the one
37:17
Speaker 3: twenty eight corridor. Probably not coincidentally because We've got Harvard
37:21
Speaker 3: and MIT and great companies. Researchers call these agglomeration effects.
37:28
Speaker 3: Smart people and innovative companies want to be next to
37:31
Speaker 3: each other. Silicon Valley, I said Paul Alto. Silicon Valley
37:34
Speaker 3: is the best known example. Europe doesn't have the equivalent.
37:37
Speaker 4: Mike.
37:38
Speaker 3: I'm saying, partly it's luck, and partly it's you.
37:41
Speaker 4: Don't think there's a policy piece to it.
37:43
Speaker 2: I mean the regulations around Internet companies and things like
37:45
Speaker 2: that play in a role.
37:47
Speaker 3: Labor markets are a little more rigid still in Europe
37:49
Speaker 3: than here, but by and large, Western democracies forced their
37:53
Speaker 3: companies to play by similar sets of rules.
37:56
Speaker 2: Yeah, let's take a quick break here. But markets have
37:59
Speaker 2: turned very slightly positive for the day amidst Drome Palace
38:02
Speaker 2: testimony in front of Congress. We'll cover that and more
38:05
Speaker 2: next year on the Financial Exchange