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AI Optimism Faces a Reality Check · The Financial Exchange Show

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Speaker 1: and Mark vandetty.
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Speaker 2: Hope everyone's staying cool out there on this scorching July
1:16
Speaker 2: first day here, and happy July first to Bobby Bonia,
1:21
Speaker 2: who gets paid a million dollars from the Mets every
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Speaker 2: year until I believe twenty thirty five or twenty thirty six,
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Speaker 2: that dates back to the Madoff days where they paid
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Speaker 2: him I believe twenty nine million over the course of
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Speaker 2: a sustained payout period that has been going on and
1:40
Speaker 2: on forever. So good job for Bobby Bonia for another
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Speaker 2: million coming his way. Taking a look at market's far
1:47
Speaker 2: more pertinent to what I'm qualified to discuss. We've got
1:51
Speaker 2: the Dow Jones up about one hundred and fifty points,
1:53
Speaker 2: the S and P five hundred is up about six points,
1:56
Speaker 2: and we've got West Texas at Intermediate still down again,
2:00
Speaker 2: even though there hasn't been too much traffic going through
2:03
Speaker 2: the straight of her moves. But we sit at West
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Speaker 2: Texas Intermedia around sixty eight dollars a barrel. That's down
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Speaker 2: about one point seven percent today. Meta is popping about
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Speaker 2: ten percent today as they announce that they're going to
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Speaker 2: make a push into the cloud to sell some of
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Speaker 2: their excess AI compute power capacity. And we also have
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Speaker 2: gold and silver rallying a bit each up about one
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Speaker 2: and a half percent or more. We also have the
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Speaker 2: FED Chairman Kevin Walsh. I went to say Jerome Powell
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Speaker 2: by habit, but Fedchairman Kevin Walsh is in Portugal and
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Speaker 2: currently giving his thoughts on the economy and is part
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Speaker 2: of a panel discussion with other central bankers. Some of
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Speaker 2: the quotes that he's had from the panel here is
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Speaker 2: that inflation is too high, and we'll get into that
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Speaker 2: in just a second. Here his job and where we
2:57
Speaker 2: sit on the interest rate front. But we'll kick off
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Speaker 2: this hour of the program by talking about a recent
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Speaker 2: piece that came out here from the Bank for International
3:07
Speaker 2: Settlements that just goes over an annual economic report with
3:11
Speaker 2: the title are we in vulnerable or just playing lucky?
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Speaker 2: There has been a tremendous amount of different economic conditions
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Speaker 2: that we have had to face over the course of
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Speaker 2: the last year or so. Around this time last year,
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Speaker 2: in April of twenty five, the tariff announcements came out
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Speaker 2: and that took over headlines and the majority of economic
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Speaker 2: focus for the months that followed it.
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Speaker 3: That is now in the rear.
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Speaker 2: View mirror and much more of the focuses on inflation
3:38
Speaker 2: and the war between US and Iran, and then artificial
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Speaker 2: intellence continues to be a major theme here. Mark curious
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Speaker 2: your takeaways from this piece. It sort of reiterates kind
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Speaker 2: of what the biggest threats that loom on the economy,
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Speaker 2: but also paints the picture of an economy that's been
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Speaker 2: quite resilient over the last year or so.
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Speaker 4: Some of these points are pretty well known and widely
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Speaker 4: talked about. I think most relevant for US because it
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Speaker 4: has implications for capital markets is the inflation story. A
4:17
Speaker 4: year ago. Let's just go to January twenty twenty five.
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Speaker 4: Inflation was a little under three percent year over year,
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Speaker 4: So Biden handed over to Trump elevated inflation. He also
4:28
Speaker 4: handed over to Trump an economy that was growing fast
4:31
Speaker 4: TDP growth if you believe that this is a good
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Speaker 4: measure of welfare. GDP growth was two point eight percent
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Speaker 4: ish in twenty twenty four and two point nine three
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Speaker 4: or so percent I know, I just looked it up
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Speaker 4: in twenty twenty three. In twenty twenty five, growth slowed
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Speaker 4: a lot to two point one percent. That's partly due
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Speaker 4: to erratic tariffs and business uncertainty. There's no denying that.
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Speaker 4: You can say I think the tariffs were necessary. I
4:55
Speaker 4: like this combative policy stance trade wise, but you can't
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Speaker 4: deny that it freaked out businesses and it probably slowed
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Speaker 4: growth in job creation. So growth is now slower and
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Speaker 4: inflation is higher than it was a little over a
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Speaker 4: year ago, largely due to policy changes. You could say
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Speaker 4: you like them, you don't care. You can say you
5:14
Speaker 4: don't like them, and I blame the president. The facts
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Speaker 4: are undeniable. Those are short term considerations. They're not affecting
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Speaker 4: investors' perception of the return potential of AI, and that's
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Speaker 4: kept stocks aloft. This article tries to get at things
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Speaker 4: I think that could change the trend of long term
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Speaker 4: growth and that should be factored into investors' estimates of
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Speaker 4: whether or not into what extent these AI investments will
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Speaker 4: pay off. They point out that inflation could become embedded,
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Speaker 4: and that's on warsh who we're going to talk about.
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Speaker 4: Worsh and other central bankers, because the inflation phenomenon is
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Speaker 4: once again global. They talk about AI optimism maybe not lasting.
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Speaker 4: That's connected with some of these other themes. So it's
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Speaker 4: hard to I mean investors sentiment could turn on AI, right.
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Speaker 3: I think it could. Yeah. Of course if some of.
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Speaker 4: The if hyperscalers, these these these these big providers, like
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Speaker 4: these big cloud computing operators who are who are opening
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Speaker 4: these large data centers we call them, I guess hyperscalers
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Speaker 4: is the Yeah, is that fair? Okay? People may sour
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Speaker 4: on that.
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Speaker 2: So yeah, if they're to trim their capex forecast for
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Speaker 2: twenty seven or further down the road, that I think
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Speaker 2: that would be a significant sentiment hit to investors in
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Speaker 2: the tech sector.
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Speaker 4: So elevated valuations plus a change in sentiment around just
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Speaker 4: a few of the so called hyperscalers could be the
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Speaker 4: catalyst for a market pullback and thus an economic slow down,
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Speaker 4: because markets are an important when when when stock prices appreciate,
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Speaker 4: people spend part of that, the so called wealth effect.
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Speaker 4: Maybe that's the easiest way to think about it. The BIS,
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Speaker 4: which is the author of the study that Martin Wolf
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Speaker 4: writes about in Today's Financial Times, also points out financial
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Speaker 4: vulnerabilities markets being stretched as they all at valuations however
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Speaker 4: you want to slice it, being I we talk about
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Speaker 4: that a lot. And then finally, fiscal pressures right here
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Speaker 4: and abroad. We got no room to fight recession. We're
7:09
Speaker 4: already running deficits.
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Speaker 3: Six percent of GDP, which is.
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Speaker 4: Like recession level.
7:13
Speaker 3: That's what you run a deficit at.
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Speaker 4: That's what you spend at when relative to what you're
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Speaker 4: taking in, which is what creates a deficit. That's what
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Speaker 4: you that's what you borrow to spend when the economy
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Speaker 4: is in trouble. Now, some of that is interest. That
7:26
Speaker 4: sound entirely fair, but interest is the result of past profligacy,
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Speaker 4: so it is somewhat fair. So the BIS goes through
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Speaker 4: this sort of litany. It's hard for me to you know,
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Speaker 4: some of this. Some of these are threats to long
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Speaker 4: term growth, some of them are threats to the stock
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Speaker 4: market in the short term.
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Speaker 2: Yeah, I would say that inflation and AI sentiment are
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Speaker 2: probably the short term ones. Physical policy, like you mentioned,
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Speaker 2: is something from a longer term perspective that that could
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Speaker 2: play out negatively potentially, and it does a good job
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Speaker 2: sort of outlining I would say the main points heading
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Speaker 2: into the second half this year that you'd be most
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Speaker 2: focused on inflation as one of them, and then any
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Speaker 2: dent to AI sentiment, and also just what type of
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Speaker 2: sort of might could use the word cost control and
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Speaker 2: focus on just what the spend is going to be
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Speaker 2: related to AI. It will be interesting if we get
8:21
Speaker 2: any more feedback right now that would would dent that
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Speaker 2: trend at all. Really, what we've seen is companies are
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Speaker 2: willing to spend and I'm not speaking so much about
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Speaker 2: the hyperscalers, but I'm speaking of the enterprises who are
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Speaker 2: going to be the consumers of this technology. They've been
8:37
Speaker 2: willing to spend significantly to try and learn how it
8:42
Speaker 2: can improve their business. If there's any sort of questioning
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Speaker 2: on how much spend they're allocating to AI or the
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Speaker 2: productivity gains that they're getting from it, I think that
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Speaker 2: could lead to weakening and sentiment. But from all indications,
8:57
Speaker 2: whether you look at some of the earnings numbers on
9:00
Speaker 2: anyone within the AA infrastructure trade, they've continued to be
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Speaker 2: quite strong and we have seen really robust earnings growth
9:07
Speaker 2: from Q one. We'll see what we get from Q
9:09
Speaker 2: two when those earnings reports start to trickle out here
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Speaker 2: over the next year.
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Speaker 4: I would expect continued gangbusters as long as hyperscalers keep
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Speaker 4: buying everything in sight YEP with indiscriminately, I would expect
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Speaker 4: earnings growth to be good eventually.
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Speaker 3: Of course that shows the seeds of it.
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Speaker 2: Yeah, we're projecting twenty percent for Q two in terms
9:30
Speaker 2: of earnings growth, So yeah, I don't I'm not questioning
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Speaker 2: that's sustaining. It would be more so a market sell
9:35
Speaker 2: off on pieces of information that we're pointing to. Any
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Speaker 2: sort of negative sentiment on this AI productivity is overblown,
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Speaker 2: or these models are starting to plateau in their efficacy.
9:52
Speaker 3: Those types of stories that I'm.
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Speaker 2: Mentioning that I could potentially loom as a as a
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Speaker 2: corrective force, or.
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Speaker 4: The FED has to titan unexpectedly like right now, energy
10:03
Speaker 4: and we're going to talk about worsh I know, energy
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Speaker 4: prices have come down that should be disinflationary in the
10:07
Speaker 4: short term, but you've got inflation pressures elsewhere.
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Speaker 3: Absolutely, food, the cookout, Your cookout.
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Speaker 4: Is drive and everybody's price is up. Yep. And the
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Speaker 4: fact that the economy may be growing faster than its potential.
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Speaker 4: I don't know that you can make a strong case
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Speaker 4: for that, but that in essence is what the FED
10:28
Speaker 4: has to be concerned with. This other stuff the FED thinks,
10:31
Speaker 4: probably correctly that it should look through.
10:34
Speaker 2: We're going to take a quick break here on the
10:36
Speaker 2: Financial Exchange. When we come back, we will be talking
10:38
Speaker 2: about the Federal Reserve. Kevin Warris's in Portugal with a
10:42
Speaker 2: panel of Central Baker's. We're going to talk about Fed
10:45
Speaker 2: interest rate policy and much more right after this break
10:47
Speaker 2: here on the Financial Exchange.
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Speaker 2: Talking a little bit about the Federal Reserve almost as
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Speaker 2: exciting as our trivia discussion today, Just as exciting for
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Speaker 2: Mark because I know he's always ready. Why would you
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Speaker 2: do feder reserve chatter, feeder reserve chatter.
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Speaker 4: Anything more important than monetary policy for asset prices.
12:24
Speaker 3: It's right up there, and that's why we have you here.
12:28
Speaker 2: So we have Kevin Warsh again, as I mentioned, is
12:32
Speaker 2: meeting with having a panel discussion in Portugal with other
12:36
Speaker 2: top central bankers talking about economic issues. Certainly, what is
12:40
Speaker 2: the focus here domestically is what interest rate policy is
12:43
Speaker 2: going to look like over the course of the second
12:46
Speaker 2: half of the year. Warsh has acknowledged that inflation is
12:49
Speaker 2: too high and it needs to be addressed. However, he
12:52
Speaker 2: has mentioned that he is or he has been critical
12:56
Speaker 2: rather of the Federal Reserve stance on being perhaps overly
13:00
Speaker 2: communicative in his mind and is perhaps wanting to strike
13:05
Speaker 2: a more silenced tone as he takes over. So just
13:09
Speaker 2: curious your thoughts mark on some of his initial comments
13:13
Speaker 2: and just where you see military posse.
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Speaker 4: The FED has an inflation problem, it's not necessarily of
13:19
Speaker 4: their making. It's certainly not of warshes making. Oh I
13:21
Speaker 4: think is Shruck exactly the right tone. So far, inflation
13:26
Speaker 4: is over four percent year over year, and if you annualize,
13:29
Speaker 4: say the most recent three months, it's much higher. We've
13:32
Speaker 4: already exceeded the fed's two percent goals so far in
13:35
Speaker 4: twenty twenty six. If we had zero percent inflation month
13:38
Speaker 4: over month, if there was no change in the average
13:40
Speaker 4: price of goods and services generally the way inflation is defined,
13:43
Speaker 4: we would still FED would still fail this year, which
13:46
Speaker 4: is pretty remarkable if you think about it. We've had
13:47
Speaker 4: like two point three percent cumulative price growth through.
13:51
Speaker 3: May.
13:52
Speaker 4: We get June in a couple of weeks. We may
13:55
Speaker 4: have some disinflation due to following energy prices, but that's perspective.
13:59
Speaker 4: We don't know what other prices in the economy are
14:02
Speaker 4: are doing. CPIPCE others. They are averages, so he's got
14:07
Speaker 4: a problem. Let's start there. How's he going to handle it?
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Speaker 4: Do you tighten policy at the risk of slowing economic growth.
14:14
Speaker 4: I mentioned in the last segment that economic growth slowed
14:17
Speaker 4: from twenty twenty three to twenty twenty four, when it
14:19
Speaker 4: was nearly three percent, to just over two percent last year,
14:23
Speaker 4: probably partly due to erratic tariffs and policy freaking out businesses.
14:29
Speaker 4: Maybe due to natural forces, though it didn't necessarily happen
14:32
Speaker 4: elsewhere in the world. So you have to cite, try
14:34
Speaker 4: to cite something domestic, and yeah, maybe you think maybe
14:38
Speaker 4: you think that's a good thing. We needed the tariffs.
14:39
Speaker 4: I don't really care what does for economic growth. Maybe
14:41
Speaker 4: you think it's a bad thing. It's undeniable though that
14:43
Speaker 4: something sort of broke last year job creation too. So
14:47
Speaker 4: the Fed's got this sort of dilemma. It's always got
14:49
Speaker 4: a dilemma, but it's especially acute right now. We've got
14:52
Speaker 4: elevated inflation, and we've got an economy that slowed a
14:55
Speaker 4: lot from twenty twenty three and four to twenty twenty five.
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Speaker 4: You can kill inflation at any time if you're willing
15:04
Speaker 4: to inflict economic pain. Is warsh willing to do that.
15:09
Speaker 3: Does he need to do that.
15:10
Speaker 4: He understands this, by the way, which is why he
15:11
Speaker 4: keeps talking about price stability. When he says those two words,
15:14
Speaker 4: he's trying to convince me and you and everybody that
15:17
Speaker 4: he means it that he will inflict economic pain if
15:20
Speaker 4: necessary to squash inflation. We'll find out if people find
15:24
Speaker 4: him credible by trou inflation surveys and ultimately inflation itself.
15:28
Speaker 3: It's just too.
15:29
Speaker 4: Soon to say. But you asked, you know, for my
15:31
Speaker 4: two cents for what they're worth on his performance so far,
15:35
Speaker 4: and it is a performance, and he knows this. He's
15:37
Speaker 4: got an excellent I think read on he's gonna he
15:41
Speaker 4: understands the the theatrical component of what a FED chairman
15:45
Speaker 4: needs to do. You got to appear like a tough guy.
15:47
Speaker 4: I'm gonna kill inflation, no matter the cost. Vulgar did
15:50
Speaker 4: that well. Greenspan had credibility to worsh knows this and
15:57
Speaker 4: is trying to I think Pick is trying to imitate
15:59
Speaker 4: the best of those two. In particular examples.
16:02
Speaker 2: The CME Probabilities Market semi futures assesses that likely at
16:08
Speaker 2: the end of the month. Here in the upcoming meeting
16:11
Speaker 2: for the Federal Reserve that they will hold pat that's
16:14
Speaker 2: the most likely probability that they would stay where rates
16:18
Speaker 2: are currently. However, in the month of September here it
16:24
Speaker 2: does appear that the highest probability would be only slightly
16:29
Speaker 2: though a quarter percent of a rate hike.
16:33
Speaker 4: And one of the problems with that just real. Briefly,
16:35
Speaker 4: I mentioned inflation has gone up a little over four
16:37
Speaker 4: percent year over year, which is backward looking, but I'll
16:39
Speaker 4: use it. FED hasn't done anything to this point. So
16:42
Speaker 4: what's happening. Well, real rates, the stated rate minus the
16:46
Speaker 4: inflation rate, have actually gone down, so real rates are
16:49
Speaker 4: now negative. If you think inflation is somewhere in the
16:51
Speaker 4: four percent ballpark, because the state of Fed funds rate
16:54
Speaker 4: is three point five, inflation is running at about four.
16:57
Speaker 4: You sum those two, you get minus point five expansionary.
17:01
Speaker 4: You don't necessarily want that right now, because then inflation
17:04
Speaker 4: starts to feed on itself. Again, Warsh knows this, He's
17:07
Speaker 4: walking a tightrope. The tightrope is thinner in terms of cage,
17:11
Speaker 4: I guess, and higher than it's been for a few
17:15
Speaker 4: years now. Because we got inflation down to roughly three.
17:17
Speaker 4: Still elevated, but a lot lower obviously than it's post
17:20
Speaker 4: COVID peak. Now Warsh is faced with this dilemma.
17:24
Speaker 2: Yeah, and certainly you'll he'll have to gauge sort of
17:28
Speaker 2: the disinflation impacts, though I know the Federal Reserve focuses
17:31
Speaker 2: on core inflation data that strips out the impact of
17:36
Speaker 2: energy and food, but still is something that he's going
17:39
Speaker 2: to have to contend with. Like I mentioned, we've seen
17:43
Speaker 2: a significant decline in oil prices, obviously a significant run
17:47
Speaker 2: up early in the year, and there a significant decline recently,
17:50
Speaker 2: where we sit at sixty eight dollars a barrel on
17:53
Speaker 2: West Texas Intermediate as of trading today. So it's always
17:57
Speaker 2: a difficult job to balance all that. The one thing
18:01
Speaker 2: that is working in their favor or perhaps not, I
18:03
Speaker 2: guess you could argue from an inflationary impact is the
18:05
Speaker 2: labor market continues to be quite strong, and it looks
18:08
Speaker 2: like those concerns have alleviated to some degree and inflationary
18:13
Speaker 2: pressure becomes of greater focus.
18:15
Speaker 3: That really is the.
18:16
Speaker 4: Yeah, that means the Fed's got a little bit of
18:17
Speaker 4: room arguably to titan policy if they have to, at
18:23
Speaker 4: the cost of some economic growth.
18:26
Speaker 3: That is what is going to be in focus.
18:28
Speaker 2: So we'll keep you up to date if there's any
18:31
Speaker 2: other commentary that comes out of that panel discussion in
18:34
Speaker 2: Portugal from Kevin Worrish, but so far limited feedback from
18:39
Speaker 2: that particular conference here. Like I mentioned, taking a look
18:42
Speaker 2: around at markets, we're up about one hundred and seventy
18:46
Speaker 2: points on the Dow Jones, so a little bit of
18:48
Speaker 2: a rally starting to take place here. The S and
18:51
Speaker 2: P five hundred now up a quarter of a percent,
18:54
Speaker 2: and then Nasdaq has shaken off some earlier losses in
18:57
Speaker 2: the day to be relatively on the US ten year treasury,
19:02
Speaker 2: we have seen yields rise. They're in conjunction with FED
19:07
Speaker 2: Chairman war saying that prices are too high. The US
19:10
Speaker 2: ten year treasury now sits up for basis points today
19:13
Speaker 2: at four point four to six percent. Oil, like I mentioned,
19:18
Speaker 2: also down about one point six percent at sixty eight
19:20
Speaker 2: dollars a barrow. We're going to take a quick break here,
19:23
Speaker 2: but when we come back on the Financial Exchange, we're
19:26
Speaker 2: going to have a great interview here with Bob Hasani
19:29
Speaker 2: about the Museum of Finance in Boston.
19:32
Speaker 3: That's right after this break, and Wall Street Rauch.
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19:58
Speaker 5: Well, markets have turned positive here as we hit eleven
20:02
Speaker 5: thirty four. The Dow Jones is up two hundred and
20:04
Speaker 5: fifteen points, or four tenths of a percent, the S
20:07
Speaker 5: and B five hundreds up sixteen points or just over
20:09
Speaker 5: two tents of percent, and the Nasdaq is flat at
20:12
Speaker 5: zero point zero percent. Now we're looking at things. Meta
20:17
Speaker 5: has popped ten percent as the company makes cloud push
20:20
Speaker 5: to sell excess AI compute capacity that was just announced
20:24
Speaker 5: this morning. Looking around here, we also got Nikes up
20:27
Speaker 5: four and a half percent after reported a sales decline
20:30
Speaker 5: of twelve percent in the Greater China market. Despite the
20:32
Speaker 5: significant decline in a key market, and I gets, Nike
20:35
Speaker 5: still reported in earnings and revenue beat in its fiscal
20:38
Speaker 5: fourth quarter financial report. Bloom Energy is up more than
20:42
Speaker 5: one point eight percent after it announced in an expanded
20:45
Speaker 5: partnership with investment firm Brookfield to finance power for artificial
20:49
Speaker 5: intelligence infrastructure projects. Bloom set in a press release the
20:53
Speaker 5: expansion shows sustained demand from AI infrastructure developers. Kroger shares
20:58
Speaker 5: are off just about one percent after the company announced
21:00
Speaker 5: it will acquire Giant Eagle, a food and pharmacy retailer,
21:04
Speaker 5: for one point sixty five billion dollars. Kroger CEO Greg
21:08
Speaker 5: Forren said in a press release that the acquisition expands
21:11
Speaker 5: the company's reach into attractive adjacent markets. And Shutterstock and
21:16
Speaker 5: Getty images are tumbling after Getty called off a proposed
21:19
Speaker 5: merger with Shutterstock due to demands from a UK regulator.
21:23
Speaker 5: Shutterstock shares have fallen sharply over twenty eight percent, while
21:26
Speaker 5: Getty has declined seven percent. I am Ben Kitchen and
21:31
Speaker 5: that was Wall Street Watch as promised.
21:34
Speaker 2: We are joined by Bob Pisani. He had spent thirty
21:38
Speaker 2: five years working at CNBC. For many listeners out there
21:41
Speaker 2: who have watched the CNBC, I'm sure you've seen him
21:44
Speaker 2: over the years. He recently stepped away from his role
21:46
Speaker 2: as senior Markets correspondence on the floor of the New
21:49
Speaker 2: York Shock Exchange, but he joins us today to talk
21:52
Speaker 2: a little bit about the Museum of American Finance, which
21:55
Speaker 2: is going to be opened up in the Boston Seaport
21:58
Speaker 2: area on July third. Thanks so much for joining us, Hey.
22:01
Speaker 6: Paul, it's a pleasure to be with you, and pleasure
22:04
Speaker 6: to be in Boston, one of the cradles of American democracy,
22:07
Speaker 6: and what are the cradles of American finance as well.
22:10
Speaker 2: Absolutely, we appreciate that. Not and nice and warm for
22:13
Speaker 2: you too. We made sure that we took care of
22:15
Speaker 2: that with temperatures reaching close to one hundred degrees. But
22:18
Speaker 2: before we get into the Museum of American Finance, just
22:21
Speaker 2: want to get your thoughts on the markets in general.
22:24
Speaker 2: We closed out the first half of the year here
22:27
Speaker 2: with some tremendous quarters for the S and P five
22:29
Speaker 2: hundred in and then NASDAC. From the second half perspective,
22:33
Speaker 2: what are some of the areas that you're most acutely
22:36
Speaker 2: focused on heading into the second half of twenty twenty
22:39
Speaker 2: six here.
22:40
Speaker 6: Well, you know, people always are a bit astonished at
22:44
Speaker 6: the volatility in world events and sometimes even the volatility
22:49
Speaker 6: in market events, and are amazed why the stock market
22:53
Speaker 6: doesn't react more negatively, for example, to the Iran war,
22:57
Speaker 6: And well, it did certainly on commodity front. I always
23:00
Speaker 6: tell people what exactly is a stock and what you
23:03
Speaker 6: are getting with stock, And what you're getting with stocks
23:06
Speaker 6: is a promise to participate in the future stream of
23:09
Speaker 6: potential earnings, whether that earnings is in the form of
23:12
Speaker 6: a dividend, whether it's in the form of a buyback,
23:15
Speaker 6: whether it's a form of paying down debt. But you
23:18
Speaker 6: are participating in some ownership in the company and the
23:21
Speaker 6: future stream of earnings. Literally, that is the definition of
23:24
Speaker 6: the stock. And the fact is the earnings picture of
23:27
Speaker 6: the US stocks are excellent, are particularly good in the
23:31
Speaker 6: technology sector. So look at the SMP this year. We're
23:34
Speaker 6: talking about twenty percent earnings growth overall. That's really an
23:37
Speaker 6: unusually large number, and in technology thirty to thirty five percent.
23:42
Speaker 6: And you can argue about concentration risk all that you want.
23:46
Speaker 6: But as a guy who believes in market cap weighted indexes,
23:49
Speaker 6: and I'm a Jack Bogel guy and the Vanguard the
23:52
Speaker 6: guy believes in indexing, I am not that worried about
23:56
Speaker 6: the concentration. I participate in. My biggest holding is the
23:59
Speaker 6: S and P five hunddex funds, and I participate in
24:03
Speaker 6: the growth of tech funds, but I also own a
24:05
Speaker 6: lot of other things in there as well. So it's
24:08
Speaker 6: the earnings that matter, the future stream, and those future
24:11
Speaker 6: stream of earnings look very good right now, and that's
24:14
Speaker 6: why the market's holding up.
24:16
Speaker 2: Yeah, like you mentioned Q one, I believe we were
24:18
Speaker 2: twenty eight percent year over year, and Q two is
24:20
Speaker 2: anticipated to be, like you said, plus twenty percent for
24:25
Speaker 2: the second quarter as well. So important color to provide
24:29
Speaker 2: there now pivoting gears here to.
24:31
Speaker 6: The Le'll be throwing one other thing on this show.
24:34
Speaker 6: In terms of things that I worry about, I've gotten
24:37
Speaker 6: a little more concerned over the years about the dead
24:39
Speaker 6: situation of the United States and the dollar position. Sure,
24:42
Speaker 6: you generally want a strong dollar. Strong dollar helps support
24:46
Speaker 6: global commodities, help support strength and gold, and to the
24:50
Speaker 6: extent of the dollar weekends you have and you saw
24:52
Speaker 6: this earlier in the year what I call the devaluation trade.
24:56
Speaker 6: Devaluation trade is essentially the idea that fiat currencies are
24:59
Speaker 6: the continued to be extremely inflationary, the dollar is going
25:04
Speaker 6: to weaken, and the position of trust in the United
25:07
Speaker 6: States is going to decline globally. Because of that, we
25:09
Speaker 6: saw this unusual moving gold earlier in the year, and
25:13
Speaker 6: we can debate gold all you want, it's not the
25:16
Speaker 6: time to do that. But the evaluation trade came into
25:19
Speaker 6: play very earlier this year. That is now starting to
25:23
Speaker 6: decline a little bit. But there are legitimate questions about
25:28
Speaker 6: the debt situation and about the ability to keep printing
25:31
Speaker 6: money to finance the debt situation. When I left CNBC
25:35
Speaker 6: last year, I was turning seventy, which is why I
25:36
Speaker 6: left the NBC. There were viewers who had some very
25:40
Speaker 6: interesting questions about whether it'd be a good time to
25:42
Speaker 6: own gold or even inflation protected bonds tips. And there's
25:48
Speaker 6: a tell when the viewers and the NBC viewers are
25:50
Speaker 6: like your viewers, your listeners, same group of people with sophisticated,
25:56
Speaker 6: somewhat older people with money in the markets who may
25:59
Speaker 6: not be day traders, but they're they just watching their
26:01
Speaker 6: money and they're very aware of what's going on. And
26:04
Speaker 6: when you get viewers saying, Bob, I'm a little worried
26:07
Speaker 6: about this. Should I own tips? Should I own gold?
26:10
Speaker 6: That's a tell right there. And I generally don't don't
26:14
Speaker 6: make moves in my portfolio. I did, I did hear slightly,
26:18
Speaker 6: and I did not play gold, but I don't tips.
26:22
Speaker 6: So there's a tell right there. The viewers start worrying,
26:25
Speaker 6: we'll pay attention.
26:26
Speaker 2: Yeah, certainly, we had peaked around fifty three hundred dollars
26:29
Speaker 2: announced for gold and had seen a significant run up
26:33
Speaker 2: in the commodity market, and we sit, you know, with
26:36
Speaker 2: a fiscal deficit of six percent of GDP. So here
26:39
Speaker 2: you on all those concerns. Shifting gears a bit to
26:42
Speaker 2: talk about the Museum of American Finance, like I mentioned,
26:45
Speaker 2: that's going to be opening up to the public on
26:47
Speaker 2: July third in the wonderful Boston Seaport. Bob, can you
26:51
Speaker 2: give us a little bit of a taste for what
26:54
Speaker 2: listeners could expect if they were to drop in, maybe
26:57
Speaker 2: perhaps highlighting some of the exhibits, or just give some
27:00
Speaker 2: background on your involvement in this project.
27:03
Speaker 6: Well, I've always been interested in financial history because it's
27:05
Speaker 6: very simply, financial literacy is key to understanding where the
27:10
Speaker 6: country has been where it's going. The country was founded
27:14
Speaker 6: on financial innovation. Alexander Hamilton, the first Secretary of the
27:18
Speaker 6: Treasury in seventeen eighty nine, was one of the great
27:21
Speaker 6: financial innovators of all time. He had this brilliant idea
27:24
Speaker 6: that he sold to George Washington and John Adams to
27:28
Speaker 6: assume the debts of all the states. The states were
27:32
Speaker 6: ruined by the war. They had issued bonds that they
27:36
Speaker 6: were ready to default on them. The US government had
27:39
Speaker 6: almost no money. They were going to default. And Hamilton
27:43
Speaker 6: came in and said, we should establish full state and
27:45
Speaker 6: credit in the new government. Let's take on the debts
27:47
Speaker 6: of all the states. Let's take on the depths of
27:49
Speaker 6: the United States. Issued a strong Let's create a strong
27:52
Speaker 6: central bank, Let's issue new currency. And there were people
27:55
Speaker 6: opposed to this. Jefferson was opposed to it, the idea
27:58
Speaker 6: of a strong federal government. The States wanted power, they
28:03
Speaker 6: distrusted a strong central government, including Tom Jefferson. Madison was
28:07
Speaker 6: persuaded in a historic deal that they made James Madison
28:12
Speaker 6: in exchange for supporting the first Bank of the United States,
28:14
Speaker 6: first central bank, they would move the capital to Washington,
28:19
Speaker 6: d c. Which then didn't even exist. It was talking
28:21
Speaker 6: to seventeen eighty nine here and essentially there. It's called
28:25
Speaker 6: the Great Compromise.
28:27
Speaker 1: And so.
28:29
Speaker 6: Alexander Hamilton, with this tremendous financial innovation of a strong
28:36
Speaker 6: central bank, helped put the United States on a very
28:38
Speaker 6: sound footing for a whole time, and that's been the
28:41
Speaker 6: story of this country. Financial innovation, mutual funds as a
28:46
Speaker 6: financial innovation, ETF's securitization, anything related to these ideas in
28:54
Speaker 6: the last fifty years that have helped advanced financial innovation.
28:58
Speaker 6: And now we have new forms of financial innovation like
29:00
Speaker 6: blockchain and bitcoin. You can debate how much you want
29:04
Speaker 6: to be involved in these things, or even prediction markets,
29:06
Speaker 6: but the country is founded on financial innovation, and that's
29:09
Speaker 6: what the museum is all about. So you'll walk around
29:11
Speaker 6: through this. You'll have a little history of US currencies.
29:15
Speaker 6: Where did the dollar come from, how it was related
29:18
Speaker 6: to gold. There's an interact with Alexander Hamilton. You can
29:21
Speaker 6: talk to Alexander Hamilton and ask him questions and he
29:24
Speaker 6: will talk back to you. It's really something we were
29:26
Speaker 6: just playing with it today. There's a whole little interactive
29:30
Speaker 6: timeline of financial history. If you want to know about
29:34
Speaker 6: the Civil War, how the US government issued its first
29:36
Speaker 6: paper currency in the eighteen sixties to pay for the
29:40
Speaker 6: Civil War. There's a whole section on the future of finance.
29:44
Speaker 6: They're talking about blockchain and tokenization and then there's a
29:48
Speaker 6: whole section on personal finance on you know, the federal
29:51
Speaker 6: government is just a little big, a big part of
29:54
Speaker 6: individual's little budget. So your personal budget and the government's
29:57
Speaker 6: budget are somewhat related in a lot of ways, and
30:00
Speaker 6: it talks about how you can get control of your
30:02
Speaker 6: own personal finances of controlling your household spending is just
30:06
Speaker 6: as important as the federal government controlling its own household spending.
30:11
Speaker 6: So the point is the country is founded on money
30:14
Speaker 6: and financial innovation, and to the extent that people don't
30:18
Speaker 6: understand that, it's the problem. And if you ask me, Paul,
30:21
Speaker 6: about the one thing I worry about, I do not
30:23
Speaker 6: worry about the s and P. Five hundred or where
30:25
Speaker 6: it's going to be at the end of the year.
30:27
Speaker 6: That's the most common question I'm asked, and it's the
30:29
Speaker 6: one that least interests me. I am worried about about
30:33
Speaker 6: people not understanding what the country's based on. I'm worried
30:36
Speaker 6: about wealth inequality. I'm worried about the fact that ten
30:39
Speaker 6: percent of the households own, you know, roughly eighty six
30:43
Speaker 6: percent of the stock market value, and then the other
30:45
Speaker 6: ninety percent owns very little. That's not a good deal
30:48
Speaker 6: to me. I'd like to see a little bit more
30:50
Speaker 6: of the wealth pie spread around. I want to spread
30:53
Speaker 6: investing culture. And I know you've talked about this all
30:56
Speaker 6: the time about how to increase the pie, how to
30:58
Speaker 6: get more people interested in investing cultural long term investing culture.
31:03
Speaker 6: I don't mean let's go to the race track and
31:05
Speaker 6: bet it all on bitcoin or anything else, you know
31:08
Speaker 6: what I mean. Yes, let's get rich slow, not get
31:11
Speaker 6: rich quick. That's what the museum is about.
31:14
Speaker 2: Absolutely, financial literacy is critical. I certainly agree with you there.
31:19
Speaker 2: For any of listeners out there that want to come
31:21
Speaker 2: check out the Museum of American Finance, Like I mentioned,
31:24
Speaker 2: it is opening up on July third to the public
31:27
Speaker 2: in the Boston Seaport at the Commonwealth Peer Bob Pisani,
31:31
Speaker 2: thanks so much for joining us, and have a great
31:33
Speaker 2: time in Boston, and best of luck with the opening
31:35
Speaker 2: on the museum on the third here.
31:38
Speaker 6: Thanks for having me on. Paul really enjoyed it.
31:41
Speaker 3: We're going to take a quick break here on the
31:43
Speaker 3: Financial Exchange, but when we come back a little bit
31:46
Speaker 3: stack Roulette right after this.
31:49
Speaker 1: Remember you can watch the show live every day on
31:52
Speaker 1: our YouTube page. We've got market updates and breaking business
31:55
Speaker 1: news all morning long, plus a full archive of all
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32:05
Speaker 1: breaking business and financial news first throughout the day, only
32:10
Speaker 1: here on the Financial Exchange Radio Network.
32:22
Speaker 3: All right, let's pay off a little trivia here.
32:24
Speaker 5: Our question today was which in nineties Sitcom gave Pam
32:28
Speaker 5: Anderson her first big break I'd be Home Improvement when
32:32
Speaker 5: she played the first toolgirl on that show. Today's winner
32:37
Speaker 5: is Suzanne from West Yarmouth. She will be taking home
32:40
Speaker 5: a Financial Exchange.
32:41
Speaker 3: Show T shirt. We played trivia every day here.
32:43
Speaker 5: On the Financial Exchange. See complete conscious rules at Financial
32:47
Speaker 5: Exchange Show dot com.
32:48
Speaker 2: All right, I promised time for a little bit of
32:51
Speaker 2: stack roulette.
32:51
Speaker 3: What do you got for us? Mister Fandez.
32:53
Speaker 4: Did you guys see that we didn't renew the USMCA,
32:56
Speaker 4: the Mexico Canada Trade Act that replaced NAFTA did not
33:00
Speaker 4: so the President I guess well, I know he scrapped
33:03
Speaker 4: NAFTA in his first term. Telegraph that no big surprise.
33:06
Speaker 4: He replaced it with this USMC A lot of fanfare,
33:10
Speaker 4: lauded at the time by anti free traders, as you know,
33:14
Speaker 4: a better deal and so forth, scrapping that now in
33:17
Speaker 4: exchange for an ongoing talks, which the president likes to do.
33:20
Speaker 4: He could say they're going great, and every month he
33:23
Speaker 4: can do his great theatrical thing, which he's very good at.
33:27
Speaker 4: But so it, I guess plays to his stagecraft instincts.
33:32
Speaker 3: But if you're a business and.
33:34
Speaker 4: You've set up cross border supply chains, which we know
33:36
Speaker 4: auto manufacturers have, cars can go back and forth dozens
33:40
Speaker 4: of times, right, airplanes.
33:41
Speaker 2: Go back to That was a big takeaway from all
33:44
Speaker 2: the terrifies. I didn't realize how much the cars go back.
33:46
Speaker 4: And forth, literally like dozens of times potentially, So manufacturers
33:52
Speaker 4: have geared their entire business model to trade. Still trade.
33:58
Speaker 4: I'll just say some certainty sits bit of a probably
34:00
Speaker 4: too strong a word, some stability. We have the exact
34:03
Speaker 4: opposite now. So if you want to know why we
34:06
Speaker 4: got lower growth last year, much lower than the previous
34:09
Speaker 4: two years, it's this type of erratic I'm not saying, don't.
34:13
Speaker 4: This is a political question, not an economic question. The
34:15
Speaker 4: economics of free trade versus trade barriers are clear. You're
34:20
Speaker 4: better off without trade barriers. But there are political costs,
34:23
Speaker 4: so it's as much a political as maybe an economic question.
34:26
Speaker 4: But you can't deny that uncertainty is a killer, and
34:30
Speaker 4: we keep screwing up a free lunch here, which is
34:33
Speaker 4: all the AI investment and the big boost to growth
34:36
Speaker 4: that happened in the last two years of Biden's term
34:38
Speaker 4: that is still ongoing that you could be the beneficiary
34:41
Speaker 4: of if.
34:41
Speaker 3: You just sat back and did nothing.
34:42
Speaker 4: All these self inflicted chaotic policy reversals and the drama,
34:49
Speaker 4: it just hurts growth, makes it very difficult for investors
34:51
Speaker 4: and businesses to make decisions.
34:53
Speaker 2: No question, the FDA is letting Philip Morris market zin
34:58
Speaker 2: nicotine pouches as less harmful than cigarettes. This is a
35:03
Speaker 2: major win for Philip Morris from a marketing perspective because
35:07
Speaker 2: they can, you know, espouse that though certainly the nicotine
35:12
Speaker 2: pouches aren't great, they're not as bad as cigarettes. I'm
35:15
Speaker 2: not really jumping in on the story with an edict
35:18
Speaker 2: one way or another on you know, the market in general.
35:23
Speaker 2: It's it does seem like this is something that is
35:27
Speaker 2: just the the next pivot. I mean, I know that
35:29
Speaker 2: vaping was was something that took over for for cigarettes,
35:33
Speaker 2: and now it seems like you see these zimp pouches
35:35
Speaker 2: a little bit more more frequently than you do cigarette consumption.
35:40
Speaker 2: And so, from Philip Morre's perspective, certainly positive news here
35:45
Speaker 2: on that you're addicted.
35:47
Speaker 4: To nicotine, you look for the least harmful way to
35:51
Speaker 4: wean yourself off of it.
35:52
Speaker 2: Sure, sure, but it's yeah, it's yeah, no, no, not
35:56
Speaker 2: much to say other than that, but just interesting to
35:59
Speaker 2: note that, Yeah, that is a good way of looking
36:02
Speaker 2: at it.
36:02
Speaker 3: Marcus. Perhaps these are.
36:03
Speaker 4: Two very powerful industries too, tobacco as we know as
36:06
Speaker 4: a strand, I mean, those things should probably be I
36:11
Speaker 4: don't want to offend smokers, but if it's going to
36:13
Speaker 4: kill you, the government should make it illegal.
36:14
Speaker 1: Right.
36:14
Speaker 4: We do that with alcohol, We we restrict, we restrict alcohol,
36:17
Speaker 4: and we well we do the same with cigarettes.
36:19
Speaker 3: I can don't you take away my guns?
36:21
Speaker 4: Yeah? I mean again, as a sort of libertarianish person,
36:24
Speaker 4: I hesitate to say, well, don't you know, if somebody
36:27
Speaker 4: wants to kill themselves, I shouldn't say I shouldn't put
36:29
Speaker 4: it that way either, because.
36:30
Speaker 3: It is addictive.
36:32
Speaker 4: Yeah, I tend to come back, what am I trying
36:34
Speaker 4: to say?
36:34
Speaker 2: I would say I land on that side with you know,
36:37
Speaker 2: gambling and cigarettes and alcohol and weed. It's like, hey,
36:41
Speaker 2: you can do what you want with it.
36:44
Speaker 4: But I guess as a as a libertarian, I should
36:46
Speaker 4: be saying, yeah, but don't come to me to pay
36:48
Speaker 4: your health care costs when you're sixty and you get
36:50
Speaker 4: lung cancer. You made the choice.
36:53
Speaker 3: Is that fair?
36:53
Speaker 4: Or might they respond with, well, it wasn't a choice.
36:57
Speaker 4: I was addicted. The industry addicted, which is of course
36:59
Speaker 4: the source of a lot of litigation. Yeah, the industry
37:02
Speaker 4: addicted me. I have no choice.
37:04
Speaker 2: It certainly is a tricky subject for us, particularly.
37:10
Speaker 4: This last morning, when I don't know what I'm talking about.
37:13
Speaker 2: I do want to reiterate something we talked about a
37:15
Speaker 2: little bit earlier in the show we were on previously
37:19
Speaker 2: with Bob Pisani talking about the Museum of American Finance.
37:22
Speaker 3: We think this is a.
37:23
Speaker 2: Great exhibit that is set up at the Commonwealth Pier
37:27
Speaker 2: in the Boston Seaport district that will be opening on Friday,
37:31
Speaker 2: July third. It's a fifty four hundred square foot museum
37:34
Speaker 2: that has seven different exhibits ranging from you know, the earliest.
37:39
Speaker 3: On just the creation of the dollar, to more of
37:42
Speaker 3: the future of.
37:43
Speaker 2: Finance, discussing blockchain and crypto, all the whole gamut of
37:48
Speaker 2: sort of the evolving nature of the financial industry across
37:52
Speaker 2: the United States.
37:53
Speaker 3: So check that out.
37:54
Speaker 2: Museumom American Finance and affiliate of the Smithsonian Institution that
37:58
Speaker 2: will open up on Friday, July third in the Boston
38:01
Speaker 2: Seaport area. Thanks so much for the time today. That's
38:04
Speaker 2: all that we have here on the Financial Exchange. For
38:08
Speaker 2: those of you out there, I hope you have a
38:09
Speaker 2: fantastic fourth and stay cool.