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Semiconductor Surge Is Starting to Look Unsustainable · The Financial Exchange Show

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Speaker 1: and Mark Fandetti.
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Speaker 2: It's Chuck, Mark and Tucker with you here on a Friday,
1:15
Speaker 2: and as we kick things off, the top story in
1:18
Speaker 2: markets continues to be semiconductors. I gotta be honest, like,
1:22
Speaker 2: I know that everyone's focused on the Middle East, and
1:24
Speaker 2: it's not like the Middle East doesn't matter. It does,
1:27
Speaker 2: but quite honestly, the Middle East doesn't really matter to
1:30
Speaker 2: markets right now. What matters to markets right now are semiconductors.
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Speaker 2: And the Semiconductor Index is about to again assuming that
1:38
Speaker 2: like things hold up for the next five hours, about
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Speaker 2: to have its nineteenth consecutive day in positive territory, which
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Speaker 2: is just kind of wild here again, like you look
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Speaker 2: at it, the Philadelphia Semiconductor Index. The last day that
1:56
Speaker 2: it went down was March thirtieth, and it closed that
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Speaker 2: day at seventy one forty two. Again, this is Philly
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Speaker 2: Semiconductor Index. So just I know that no one really
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Speaker 2: follows this that closely, but bear with me. Seventy one
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Speaker 2: forty two sitting here today at ten thousand, four hundred
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Speaker 2: and seventy three. So again it's it's one where just
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Speaker 2: close to where it is today. It's a forty six
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Speaker 2: percent run in nineteen sessions, which is insane. Now it's
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Speaker 2: also happening on the back of the realization that hey,
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Speaker 2: there's not enough computing power out there for all the
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Speaker 2: people that want to use AI right now, specifically companies,
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Speaker 2: that this is not being caused by you making pictures
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Speaker 2: of hamsters, you know, doing backflips that uses a very
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Speaker 2: small portion of the AI power because the hamster is
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Speaker 2: very small. Instead, it's the elephant pictures. No, I'm kidding,
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Speaker 2: that's not the problem. It's just all of these, you know,
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Speaker 2: companies trying to use AI agents to actually automate workflows
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Speaker 2: and things like that, which uses a lot more computing
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Speaker 2: power than pictures. So I think where we are right
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Speaker 2: now is a place where semiconductors are just ripping. At
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Speaker 2: some point, this is going to end in tears for
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Speaker 2: semiconductor companies because it always does. Like if you look
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Speaker 2: at the I'm trying to just pull a Philadelphia how
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Speaker 2: do we spell that?
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Speaker 3: There?
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Speaker 2: It is if we look at you know, kind of
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Speaker 2: the long term history of semiconductors and just like take
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Speaker 2: a look at the Philly Semiconductor Index, which I wonder
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Speaker 2: how far back the data goes on it. Okay, good,
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Speaker 2: it goes back to nineteen ninety four, So just to
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Speaker 2: give you a sense of like some of the pullbacks
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Speaker 2: that we've seen here in the late nineties, even before
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Speaker 2: the tech bubble burst, Philly Semiconductor Index went through a
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Speaker 2: fifty five percent pullback from late ninety seven through late
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Speaker 2: ninety eight. It then, after the tech bubble peaked, went
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Speaker 2: through a looks like about an eighty percent pullback from
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Speaker 2: mid two thousand through mid two thousand and two, mid
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Speaker 2: to late two thousand and two. Uh in two thousand
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Speaker 2: and three. It then went through another like thirty percent
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Speaker 2: pullback from two thousand and seven through the financial crisis.
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Speaker 2: It went through a seventy percent pullback in twenty fifteen
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Speaker 2: and sixteen, and went through a thirty percent pullback. Like
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Speaker 2: It's just dotted by like thirty percent pullbacks on a
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Speaker 2: regular basis, because this is how semiconductor manufacturing works. So
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Speaker 2: it's not to say that this will happen tomorrow, Like
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Speaker 2: I don't know, Like this could run for years based
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Speaker 2: on some of the AI stuff. It could be done
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Speaker 2: in months, Like I really don't know, But I'm just
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Speaker 2: remarking that it's really impressive to have nineteen sessions in
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Speaker 2: a row where semiconductors have gone up. So on the
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Speaker 2: back of that, you've got the Dow, which doesn't have
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Speaker 2: much in the way of semiconductors, down point three eight percent.
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Speaker 2: The S and P five hundred, which has some is
5:10
Speaker 2: up point four to four percent. In the Nasdaq composit's
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Speaker 2: about one point zho five percent. So all three major
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Speaker 2: US in disees, well two of them are in positive territory.
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Speaker 2: The Dow obviously not. Other things that we're looking at
5:23
Speaker 2: in markets ten, your treasury down nine tenths of a
5:25
Speaker 2: basis point. Who cares not much movement? Uh, The dollar
5:29
Speaker 2: index down point one two percent to ninety eight four
5:32
Speaker 2: to seventy five. Gold is up seventeen eighty an ounced
5:35
Speaker 2: to forty seven to forty one, and crude oil West
5:38
Speaker 2: Text Intermediate down fifty nine cents a barrel to ninety
5:40
Speaker 2: five twenty six, triple a national average for gas prices
5:43
Speaker 2: on the rebound the last couple of days back up
5:45
Speaker 2: another two point eight cents overnight to four oh five
5:48
Speaker 2: and nine tenths, so rising about one percent in the
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Speaker 2: last couple of days. Here, I want to kick things
5:53
Speaker 2: off this hour talking about oh, actually before I go further,
5:57
Speaker 2: uh an announcement that on Monday, Financial Exchange is gonna
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Speaker 2: new places around the country. Market not you here, you
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Speaker 2: you got a big head, but you know, thank you.
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Speaker 2: I know it's where the idea is.
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Speaker 4: I'll take that.
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Speaker 2: That's where the ideas come from. Thank you. That's it's great.
7:09
Speaker 2: So I want to talk a little bit about housing
7:12
Speaker 2: and there's a pc here from CNBC how the Iran
7:15
Speaker 2: war is hitting home builders, and it talks about how,
7:18
Speaker 2: you know, homebuilder sentiment dropped in April, not surprising because
7:22
Speaker 2: mortgage rates have gone up and people are concerned about
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Speaker 2: the war, so they're not, you know, looking at houses
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Speaker 2: as much. And I get that.
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Speaker 4: Uh.
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Speaker 2: I am of the opinion that housing uh is. I
7:34
Speaker 2: don't want to say about to enter into a renaissance
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Speaker 2: because that's like the wrong it's the wrong phrase. But
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Speaker 2: like people have been really concerned about housing for the
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Speaker 2: last couple of years. I think we are getting close
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Speaker 2: to turning the corner on this. And my evidence on
7:47
Speaker 2: this is twofold number one. You will get the southeast
7:51
Speaker 2: and southwest part of the country. I guess together that
7:53
Speaker 2: makes the south if you will. And what you're seeing
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Speaker 2: is in a lot of those markets now, inventory which
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Speaker 2: had been growing rapidly for the last couple of years,
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Speaker 2: is now starting to shrink again, which means home builders
8:06
Speaker 2: in those areas are gonna say ooh, or can we
8:09
Speaker 2: get can I get a fandetti? Ooh? They're gonna say.
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Speaker 4: Ooh, I can do a lot.
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Speaker 2: No no, no, I like the I like the Cannes, fandetti
8:17
Speaker 2: as opposed to the fresh good indispensable. Uh So, in
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Speaker 2: any case, you're starting to see inventory contraction in a
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Speaker 2: lot of southern markets. And this is good because the
8:28
Speaker 2: southern markets are where a lot of the home building
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Speaker 2: actually takes place. You go through you know, the Northeast
8:33
Speaker 2: where our show is based, a big you know, home
8:36
Speaker 2: construction community, a big new construction is like two hundred
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Speaker 2: and fifty units. You go to Florida and it's like, yeah,
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Speaker 2: the first phase, this is gonna be five thousand units.
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Speaker 2: Then we're gonna do another five thousand, and like you
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Speaker 2: just keep layering them on. Pretty soon you got a
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Speaker 2: new city. So this is good from a construction volume
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Speaker 2: perspective that inventories are starting to contract year over year
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Speaker 2: in the southern part of the country. The other piece
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Speaker 2: that you are seeing is that when you look at
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Speaker 2: the amount of uncompleted inventory that's outstanding. Dr Horton had
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Speaker 2: their earnings call earlier this week, and over the last
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Speaker 2: three quarters, the amount of inventory Dr Horton has had
9:17
Speaker 2: outstanding that's been completed but unsold. So, hey, we spent
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Speaker 2: all the money to build it, but we haven't been
9:22
Speaker 2: able to sell it. Yet that has declined from around
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Speaker 2: nine thousand units to fifty five hundred, meaning, hey, guys,
9:29
Speaker 2: guess what the number of years we have outstanding is declining.
9:33
Speaker 2: I guess we're gonna have to build some more homes
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Speaker 2: in order to replenish that. These are good things, just
9:40
Speaker 2: to give you a sense, by the way, this DR
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Speaker 2: Horton chart is fascinating. So their unsold inventory peaked at
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Speaker 2: around ten thousand, five hundred year and a half ago.
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Speaker 2: At its bottom during the aftermath of the pandemic, when
9:54
Speaker 2: everyone was going out and buying houses like crazy, they
9:58
Speaker 2: only had six hundred homes that were completed but not
10:02
Speaker 2: yet sold, six hundred. The national levels, by the way,
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Speaker 2: not just for them, but for for like all companies,
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Speaker 2: and this is data from the US Census Bureau. Right now,
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Speaker 2: we're at about one hundred and twenty six thousand units
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Speaker 2: that are completed but not yet sold. That is the
10:20
Speaker 2: highest level that we have seen since July two thousand
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Speaker 2: and nine. It's not really a great complic you don't
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Speaker 2: want to be compared to them, but the number is
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Speaker 2: starting to maybe roll over even you know, not just D. R. Horton,
10:35
Speaker 2: you know, rolling over, but you're starting to see some
10:37
Speaker 2: downward pressure on that. We've had two readings in a
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Speaker 2: row at that one twenty six number, and even going
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Speaker 2: back to October we were at one twenty five. So
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Speaker 2: it's like five months now where it basically hasn't moved.
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Speaker 2: So I think that when we look at housing, yes,
10:53
Speaker 2: I get that home builders are kind of nervous right
10:54
Speaker 2: now because this spring housing season. Gotta be honest, it's
10:58
Speaker 2: it's not great, it's not awful, but it's just it's
11:01
Speaker 2: it's not great failure, not quite mark but close. Where
11:07
Speaker 2: we are heading is toward a place where I think
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Speaker 2: twenty seven and twenty eight are going to be great
11:14
Speaker 2: years for home builders. The obvious caveat is like, okay,
11:18
Speaker 2: hormones needs to be opened, and like no other additional
11:20
Speaker 2: shocks around the world, and YadA YadA again. Know you
11:23
Speaker 2: got a yadayada way a lot you know in geopolitics
11:27
Speaker 2: these days. But I think twenty seven and twenty eight
11:30
Speaker 2: could be great years for housing construction because we're finally
11:34
Speaker 2: seeing in the places where it happens inventory coming in,
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Speaker 2: and that makes me optimistic. Let's take a quick break,
11:41
Speaker 2: and when we return, let's talk a little bit about
11:45
Speaker 2: what's going on with tariff refunds? After this?
11:47
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Speaker 3: All right, it's trivia here on the Financial Exchange, and
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Speaker 3: on this day. Back in eighteen eighty four BC, the
12:29
Speaker 3: Greeks enter Troy using the Trojan Horse. The plan was
12:33
Speaker 3: devised by Odysseus, the king of Ithaca. Homer's follow up
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13:19
Speaker 2: You guys think the Trojan horse actually happened?
13:22
Speaker 4: Probably not? Did the trojan in? What war was that used?
13:28
Speaker 2: What do you mean there's the Trojan War?
13:31
Speaker 1: Yeah?
13:31
Speaker 4: Did that actually happen?
13:32
Speaker 2: Yes? That did?
13:33
Speaker 4: It did?
13:34
Speaker 1: Yes?
13:34
Speaker 2: Okay, well did it some version of it? Probably did?
13:38
Speaker 2: It Probably wasn't anything close to like what is said.
13:42
Speaker 2: It's it's it's clear that something happened, but no one
13:48
Speaker 2: really knows what. Let's leave it there. The Trojan horse, though,
13:53
Speaker 2: did it happen or not? I'm gonna go with no,
13:56
Speaker 2: what was it?
13:56
Speaker 4: Well, if the war didn't happen, then it's kind of mood. Well,
13:59
Speaker 4: let's suppose it did. It's at some point in ancient
14:03
Speaker 4: times did somebody think to stuff.
14:06
Speaker 2: I'm gonna go with a trojan horse of any kind
14:09
Speaker 2: of a horse filled with people. I'm going with a
14:14
Speaker 2: hard no. You think that you're just gonna like think
14:18
Speaker 2: of the the levels of disbelief that you have to
14:21
Speaker 2: suspend to get there first. Okay, so you're fighting a
14:25
Speaker 2: battle against someone and you wake up one morning and
14:28
Speaker 2: their army's just gone, and there's this wooden something there
14:31
Speaker 2: could be a horse and elephant, whatever it is. You're
14:35
Speaker 2: not just gonna light the thing on fire just to
14:37
Speaker 2: be sure. Number two, So you're gonna have all these
14:42
Speaker 2: men in, you know, with with swords and armor and
14:46
Speaker 2: all this stuff inside of there, and you're gonna tell
14:50
Speaker 2: me that it doesn't either smell or it doesn't like
14:55
Speaker 2: you don't hear you know, a couple of swords banging
14:57
Speaker 2: around inside there or something, or some one sneezes or
15:01
Speaker 2: gets stung by a bee, stung by a bee, like
15:05
Speaker 2: this stuff happens. Yes, So I'm just saying, mosquito, I
15:13
Speaker 2: exactly Like it gets under the armor and then you
15:16
Speaker 2: gotta stab yourself accidentally to get rid. I'm telling you,
15:19
Speaker 2: like didn't happen the Trojan War. Something probably did, we
15:23
Speaker 2: don't know exactly what, but Trojan horse. I'm going with
15:26
Speaker 2: a hard pass on any historical veracity to that one.
15:30
Speaker 4: Yeah, why would you open? So there was like a
15:32
Speaker 4: siege taking place outside of the story the city of Troy.
15:36
Speaker 2: Yes, and then the Spartans left or to hang on?
15:40
Speaker 2: Let me make sure I get this right the yes, No,
15:45
Speaker 2: the Trojans left and the Spartans just let the Trojan
15:50
Speaker 2: horse in.
15:51
Speaker 4: Doesn't sound like the Spartans. They weren't stupid, right, Yeah, like.
15:55
Speaker 2: A, I don't think they're dumb and b Okay, So
15:58
Speaker 2: you see this giant wooden horse, Why are you going
16:00
Speaker 2: to bring it into your city? Like they just they
16:05
Speaker 2: just left it on wheels. What do you got ben, Well,
16:07
Speaker 2: it was a.
16:08
Speaker 5: Ten year war, don't forget that. So they were desperately
16:10
Speaker 5: trying to figure out how to end this tenure war.
16:12
Speaker 5: It wasn't the Spartans. It was a Greek coalition before
16:14
Speaker 5: there were real Spartans.
16:16
Speaker 2: Okay, fine, but they leave it in there, they leave.
16:19
Speaker 5: It right outside the city walls. That they bring it
16:21
Speaker 5: in wheel it in. It's one of the stupidest things
16:23
Speaker 5: you could possibly.
16:25
Speaker 2: No one would do that, Like you've been fighting for
16:29
Speaker 2: ten years and then like the army's just gone and
16:31
Speaker 2: there's this horse there. Yeah, let's just bring it in, eh,
16:36
Speaker 2: I don't know, you've been fighting for ten years. You
16:40
Speaker 2: think you just want to give from them? No, you're
16:41
Speaker 2: gonna light the thing on fire Anyways's it.
16:44
Speaker 4: To be a lot of work too to build? I mean,
16:46
Speaker 4: and when was that decided? Like nothing else worked? So
16:49
Speaker 4: let's build a horse and hope they roll it in.
16:51
Speaker 2: Yeah, I mean, I don't know how much does one
16:55
Speaker 2: of those even cost from raytheon? You know, companies not
17:00
Speaker 2: consumers to cash in big from tariff refunds. So here,
17:04
Speaker 2: here's the deal is. You've got companies that are now
17:07
Speaker 2: going and requesting these tariff refunds from the Trump administration.
17:12
Speaker 2: In many cases, individuals paid higher prices based on companies
17:17
Speaker 2: raising them because of tariffs. And so what is the
17:21
Speaker 2: mechanism for consumers to request refunds from companies who might
17:27
Speaker 2: not have specified how much of the increase was actually
17:30
Speaker 2: from tariffs or not. And so this is one where
17:36
Speaker 2: a lot of companies may end up just reaping kind
17:38
Speaker 2: of I don't know what I'm gonna say, like a windfall,
17:41
Speaker 2: but all of this money back and they don't necessarily
17:44
Speaker 2: have to share it with consumers, nor do they have
17:46
Speaker 2: an accurate way, in my opinion, to actually determine who
17:50
Speaker 2: gets the money back, because in a lot of cases,
17:53
Speaker 2: I'll be honest, companies raise prices not directly because of
17:57
Speaker 2: tariffs on each product. There are pricing strategies that they
18:01
Speaker 2: may have used to say, Okay, we need to pay
18:03
Speaker 2: a billion in tariffs, let's spread that throughout all these
18:07
Speaker 2: different products in order to cover it, but not necessarily. Hey,
18:10
Speaker 2: the billion was going to be just on TVs, and
18:12
Speaker 2: so we just applied the increases on TVs.
18:16
Speaker 4: Uh yeah, I mean there's evidence that it showed up
18:19
Speaker 4: in inflation. Yes goods, yes, goods that are either made
18:23
Speaker 4: here using imported inputs or imported directly.
18:27
Speaker 2: But like, if you're Costco who's applying for these refunds
18:31
Speaker 2: and they're saying that they're going to pass the refunds
18:32
Speaker 2: onto customers, how don't know?
18:35
Speaker 4: Yeah, nobody, Like.
18:36
Speaker 2: Does Costco have you know, does Costco know? Okay, you know,
18:41
Speaker 2: Costco notes they know. Here's the thing. Let's say that
18:46
Speaker 2: TVs you know, had a twenty percent tariff applied to them.
18:49
Speaker 2: Just as an example. My guess is Costco probably didn't
18:52
Speaker 2: just say we're raising prices on TVs. They probably said, okay,
18:55
Speaker 2: we'll do you know, fifteen percent hike on TVs and
18:57
Speaker 2: then additional one percent on these categories of and that'll
19:00
Speaker 2: get us there. Well, are you refunding the tariffs based
19:04
Speaker 2: on what was tariff or based on what was charged?
19:08
Speaker 2: Because those could be different things. It's complicated, and again
19:13
Speaker 2: I don't know exactly how this is going to end
19:16
Speaker 2: up working. Let's take a quick break here. When we return,
19:21
Speaker 2: we've got the trivia answer, We've got Wall Street Watch
19:24
Speaker 2: and is there something else Tucker here? Is that it?
19:27
Speaker 2: More stuff?
19:28
Speaker 6: Oh?
19:28
Speaker 2: Yeah, more stuff after this?
19:40
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20:00
Speaker 3: After yesterday's tech sell off, markets today are mixed and
20:03
Speaker 3: mid reports that Iranian negotiators are heading to Pakistan, lifting
20:07
Speaker 3: hopes that Pea stocks might resume Right now, the Dow
20:10
Speaker 3: is down about a third of a percent to one
20:13
Speaker 3: hundred and eighty one points, SMP five hundred, up about
20:16
Speaker 3: half a percent, Tech heavy Nasdaq rallying one point two percent,
20:20
Speaker 3: RUSS two thousand is up nearly two tenths of a percent,
20:23
Speaker 3: Tenure Treasure reeled flat at the moment at four point
20:25
Speaker 3: three one six percent, and Oil down about half a
20:29
Speaker 3: percent at ninety five dollars. A barrel breaking news this
20:32
Speaker 3: morning from the Justice Department after it said it would
20:35
Speaker 3: end its criminal investigation of FED Reserve chair Jerome Powell,
20:39
Speaker 3: clearing the way for Kevin Warsh's confirmation as his successor. Meanwhile,
20:44
Speaker 3: Intel the big tech story on the day after the
20:47
Speaker 3: chip maker posted first quarter earnings that beat expectations, leading
20:51
Speaker 3: to more optimism that the chip maker is finally starting
20:54
Speaker 3: to turn around. Intel's revenue grew seven percent from a
20:57
Speaker 3: year ago. Intel stock is rallying twenty three percent. Elsewhere,
21:02
Speaker 3: Meta said it will cut about ten percent of its
21:04
Speaker 3: workforce to boost efficiency and offset AI investments. Separately, Microsoft
21:10
Speaker 3: announced it is offering voluntary buyouts to about seven percent
21:14
Speaker 3: of its employees, marking a first for the tech giant.
21:18
Speaker 3: Meta up by nearly two percent, while Microsoft shares are
21:21
Speaker 3: up by one percent, and consumer goods giant Procter and
21:24
Speaker 3: Gamble beat earnings and revenue estimates as its products volume
21:28
Speaker 3: grew for the first time in a year that stock
21:31
Speaker 3: is up by over three percent. I'm Tucker Silvan. That
21:35
Speaker 3: is Wallstreet Watch. On the previous segment, we asked you
21:37
Speaker 3: the trivia question who is starring as Odysseus in the
21:40
Speaker 3: upcoming Christopher Nolan epic The Odyssey? That will be Matt
21:44
Speaker 3: Damon and Mark from Tingsboro, Mass is our winner today,
21:48
Speaker 3: taking home a Financial Exchange Show T shirt. Congrats to Mark,
21:51
Speaker 3: and we play trivia every day here on the Financial
21:54
Speaker 3: Exchange See complete contest rules at Financial Exchange Show dot com.
21:59
Speaker 2: So the next couple of pieces in here all AI related.
22:04
Speaker 2: I can't do any more AI today. Mark? Is that cool?
22:07
Speaker 4: Absolutely?
22:08
Speaker 2: I'm just I've had enough there. Instead, I want to
22:11
Speaker 2: talk about a piece that I completely disagree with, which
22:14
Speaker 2: is from Bloomberg opinion. More corporate power can SELT can
22:18
Speaker 2: help solve the affordability crisis. And basically what it's saying
22:25
Speaker 2: is that if you get bigger companies, they'll be able
22:29
Speaker 2: to have more economies of scale and so they can
22:31
Speaker 2: make things cheaper, which I just don't buy as a thing.
22:36
Speaker 2: Like it's basically saying we should do less anti trust
22:41
Speaker 2: like enforcement, not that we do any the opinion piece,
22:44
Speaker 2: not that we do any to begin with, but it's
22:47
Speaker 2: basically saying like, hey, don't worry about anti trust and
22:52
Speaker 2: instead we should allow bigger companies because in the airline industry,
22:57
Speaker 2: bigger companies have made for lower fares. So a couple
23:02
Speaker 2: things can be true. Number One, airfares in general, I
23:05
Speaker 2: happen to think, aside from you know, recent price increases
23:07
Speaker 2: because a fuel, they're fine. I still think it's amazing
23:11
Speaker 2: that in general you can pay like three hundred dollars
23:14
Speaker 2: to fly three thousand miles across the country and the
23:17
Speaker 2: worst thing that usually happens is that you're like an
23:19
Speaker 2: hour and a half late. It's pretty remarkable. But here's
23:24
Speaker 2: the thing. Raise your hand. Don't do it if you're driving,
23:27
Speaker 2: just raise your mental hand. Raise your hand if you
23:30
Speaker 2: actually like airlines. I'm not hearing any hands going up,
23:36
Speaker 2: and part of that's because I can't hear you, but
23:37
Speaker 2: it's also because I don't think anyone's raising their hands.
23:40
Speaker 2: And the reason why is that generally, I think most
23:43
Speaker 2: of us think that the level of customer service that
23:45
Speaker 2: we get from airlines not from like the people that
23:49
Speaker 2: are there, but just from like, hey, here's what airlines
23:52
Speaker 2: say is an acceptable level of service. I think we
23:55
Speaker 2: generally think it sucks it, Tucker, like, is that a
23:59
Speaker 2: fair assessment? Sure, I would say that, you know, it's
24:03
Speaker 2: like okay, like they lost my bag again and oh
24:07
Speaker 2: I couldn't make my connecting flight and then we sat
24:11
Speaker 2: there for hours, like. I don't think we find it
24:14
Speaker 2: an enjoyable experience. And I do believe that this is
24:17
Speaker 2: because of the lack of competition, because if you only
24:19
Speaker 2: have like two companies competing on a route, they can
24:22
Speaker 2: basically collude for the pricing. They don't necessarily call each
24:25
Speaker 2: other up and say, hey, where are you gonna charge?
24:27
Speaker 2: It's more okay, if you charge this, I'll charge that too.
24:30
Speaker 2: And they don't really have any incentive to operate better
24:33
Speaker 2: than the other guys because there's no competition on the
24:36
Speaker 2: routes and so they don't have to provide better service
24:39
Speaker 2: or better performance. Now, I think that if you extend
24:44
Speaker 2: this to like a lot of businesses, it's kind of
24:46
Speaker 2: getting there. I'll be honest, like, talk about the ride
24:49
Speaker 2: share space. Just as an example, I had a case
24:53
Speaker 2: last year where I had a ride that was scheduled
24:57
Speaker 2: from Forget, which one of it was, but guy didn't
25:02
Speaker 2: show up. Okay, Like this kind of a problem have
25:06
Speaker 2: to have to be getting somewhere. Trying to deal with
25:09
Speaker 2: customer service at these ride share companies is nonexistent. It
25:14
Speaker 2: absolutely sucks, like they have a stripped down, bare bones
25:17
Speaker 2: thing and cues basically or like hey, talk with our chatbot,
25:23
Speaker 2: to which it ended up with like okay, like do
25:26
Speaker 2: you understand all the four letter words that I'm sending
25:28
Speaker 2: to you? And basically like no one could help. And
25:32
Speaker 2: it was not in an area that had taxi availability,
25:34
Speaker 2: was not in an area that had any other kinds
25:36
Speaker 2: of transit options, and so it was just like, oh,
25:40
Speaker 2: we didn't come. Sorry. I guess that happened sometimes. And
25:44
Speaker 2: so I'm not a believer that consolidation is the answer. Yeah,
25:48
Speaker 2: it might make somethings cheaper, but the overall experience sucks
25:52
Speaker 2: and gets worse. And this isn't even talking about the
25:54
Speaker 2: other piece of this, which is, hey, if there's no
25:57
Speaker 2: competition in a certain industry, then employ who work in
26:01
Speaker 2: that industry have to work for that company, regardless of
26:04
Speaker 2: how bad working conditions are, as opposed to having other
26:07
Speaker 2: companies that they can hop to. If the company is
26:09
Speaker 2: treating them badly. So I am not a believer in
26:14
Speaker 2: let companies get as big as they want, and we
26:16
Speaker 2: need more corporate power. I think that sucks.
26:20
Speaker 4: Well, airlines would deregulated in seventy eight. They were a few.
26:23
Speaker 2: Which airline deregulation you can point.
26:25
Speaker 4: To was a huge ssuit, is Yeah, one of the
26:28
Speaker 4: bigger policy successes of the second half of the twentieth century. So,
26:34
Speaker 4: and the result was more competition, lower airfares, correct, more
26:38
Speaker 4: competition routes. So we're living in a post pan AM world.
26:44
Speaker 4: Pan AM like was the dominant or one of the
26:47
Speaker 4: twa pan M. They were creatures of the Civil Areanautics Board,
26:51
Speaker 4: I guess. So we're living in a post irregulation world.
26:55
Speaker 4: What are the barriers to competition and airlines? And maybe
26:58
Speaker 4: a more interesting question is what do we think the
27:03
Speaker 4: problem is with airlines? Is it just service?
27:05
Speaker 2: Well, it's a horrible business.
27:07
Speaker 4: Yeah, okay, so yeah, inherently really capital intention you need
27:11
Speaker 4: a lot of money even if sorry, yeah, and maybe
27:14
Speaker 4: you'll make it work over time. And even if only
27:16
Speaker 4: one person buys a ticket, you're probably you have to
27:18
Speaker 4: fly the plane, so we don't have to. Well, I'm
27:21
Speaker 4: exaggerating a little, but it's it's capital. The fixed costs
27:24
Speaker 4: are quite high. So in an industry like that, yeah,
27:28
Speaker 4: bigger is probably better. But I don't think she's making
27:32
Speaker 4: that argument generally though, Unless I'm misreading the thrust.
27:35
Speaker 2: Of her I don't know. It seems like it because
27:39
Speaker 2: you know, like the A quote here, competition is still
27:43
Speaker 2: vital to the economy. Of course, big companies that face
27:45
Speaker 2: no competition can use their power to overcharge customers, and
27:48
Speaker 2: they are at risk of becoming less innovative and wasteful.
27:51
Speaker 2: There's an undeniable tension in the economy between allowing scale
27:55
Speaker 2: and promoting competition. And at least in the airline industry,
27:57
Speaker 2: a little more scale for budget carriers and a little
27:59
Speaker 2: less common petition might have been just what consumers needed.
28:01
Speaker 2: But this gets it the wrong side of the problem.
28:05
Speaker 2: This is saying This is also saying, hey, we should
28:08
Speaker 2: have let Spirit and Jet Blue merge, because then they
28:10
Speaker 2: would have been big enough to compete. I get that
28:14
Speaker 2: the real problem was that we allowed Delta in Northwest
28:17
Speaker 2: to merge, and that we allowed United and Continental to merge,
28:19
Speaker 2: and that we allowed American and US to merge, and
28:23
Speaker 2: so we made these giant companies that then you can't
28:26
Speaker 2: compete with. If you instead have actual competition in the space,
28:34
Speaker 2: then you've got like something that you can something real
28:36
Speaker 2: that you can do there. Otherwise Okay, yeah, like there
28:41
Speaker 2: is no way that new upstarts can get into the
28:44
Speaker 2: business right now.
28:46
Speaker 4: You know, it's good to to think about these things
28:51
Speaker 4: in a perfect competition framework. When when economists say a
28:56
Speaker 4: market economy generates the best possible outcomes and planner couldn't
29:00
Speaker 4: improve on them, they're making certain assumptions about competition. Sure,
29:05
Speaker 4: so yeah, to your point, more is better, the more companies,
29:10
Speaker 4: the more control a company has over prices to the
29:13
Speaker 4: extent they're not price takers, they're price makers. That comes
29:17
Speaker 4: out of consumer welfare. So unless unless you're willing to
29:22
Speaker 4: say regulate profit margins, I don't see how this or
29:25
Speaker 4: little prescription here if that's not overstating it would be
29:29
Speaker 4: socially acceptable.
29:30
Speaker 2: Let's take a quick break right now when we return
29:33
Speaker 2: Paul Monica from Baron's joins us after this.
29:36
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29:57
Speaker 6: Ladies and gentlemen the.
30:03
Speaker 3: If you missed any of our shows from this week,
30:05
Speaker 3: you can find them on our YouTube page. We stream
30:08
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30:11
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30:15
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30:20
Speaker 3: as promised.
30:21
Speaker 2: We're now joined by Paul Lmonica from Barons. Paul, how
30:25
Speaker 2: are you doing today?
30:26
Speaker 6: Good?
30:26
Speaker 2: Thanks guys doing doing well? Like what your gemn are
30:30
Speaker 2: doing in the draft yesterday? Exciting day for you.
30:33
Speaker 6: Yeah, yeah, I am pretty happy with what they've done.
30:38
Speaker 6: I was hoping Jeremiah lov mightas slipped a five, would
30:42
Speaker 6: have made it for more intriguing. But you know, we'll see.
30:45
Speaker 2: I think you're building the right way, so I think
30:49
Speaker 2: it's gonna be exciting and Giants could be a team
30:52
Speaker 2: that makes it. Dare I say, Patriots like run with
30:56
Speaker 2: you know, some improvement this year. We'll see, we will
31:00
Speaker 2: we'll see, we will see. Well. You got a piece
31:02
Speaker 2: out this week. It's titled Don't Fret the War? Why
31:05
Speaker 2: big money investors are bullish and where they're investing right now.
31:11
Speaker 2: Talk to me a little bit about this.
31:12
Speaker 6: Yeah. This is our semi annual Big Money poll where we,
31:17
Speaker 6: along with research firm art Us Media Research, contact in
31:23
Speaker 6: this case one hundred and five money managers to get
31:26
Speaker 6: their thoughts on the markets, both big picture as well
31:30
Speaker 6: as stocks they like and don't like. And what's interesting
31:34
Speaker 6: is that they are more bullish, these money managers now
31:37
Speaker 6: than they were the last time we did the poll
31:40
Speaker 6: in the fall, and much more bullish than they were
31:44
Speaker 6: this time a year ago when the Liberation Day sell
31:47
Speaker 6: off was happening. But what's interesting, I think is that Tesla,
31:52
Speaker 6: which just reported earnings a couple of days ago, stock
31:55
Speaker 6: fell on that that remains the least favorite stock by
32:01
Speaker 6: far in the poll. I think it was twenty five
32:05
Speaker 6: of the one hundred and five responders, so that they
32:08
Speaker 6: thought that Tesla the spite following this year was still
32:12
Speaker 6: the most overvalued stock.
32:15
Speaker 2: When we look at other messages that you take from this,
32:18
Speaker 2: what were other things that stood out that may be
32:20
Speaker 2: different from kind of the conventional wisdom at this point.
32:24
Speaker 6: Yeah, I think that, you know, I don't know if
32:28
Speaker 6: I would say it's you know, a contrarian view necessarily,
32:32
Speaker 6: but you know, the investors are definitely in the big
32:35
Speaker 6: money pole, expecting that the broadening of the rally will
32:40
Speaker 6: resume and that it's not going to be just the
32:42
Speaker 6: mag seven and the big tech companies that have rebounded
32:46
Speaker 6: pretty sharply, maybe with the exception of Tesla in April.
32:52
Speaker 6: You know, I think that there are expectations that small
32:55
Speaker 6: caps will do well, especially if the FED does resume
32:59
Speaker 6: its rate cutting later this year with Kevin Walsh, you know,
33:03
Speaker 6: should be taking over for Jerome Powell once the Senate,
33:08
Speaker 6: you know, assuming you know, they confirm him, which seems likely,
33:11
Speaker 6: you know. And then the international trade, A lot of
33:14
Speaker 6: the respondents felt that there are more values overseas, both
33:20
Speaker 6: in developed markets like Europe and Japan, but also emerging
33:24
Speaker 6: markets maybe not as much China, but South Korea and
33:28
Speaker 6: Taiwan and you know, Latin America and Eastern Europe as well.
33:33
Speaker 2: In terms of that that international thought, how does that
33:38
Speaker 2: mesh with the idea that international markets right now are
33:41
Speaker 2: more at risk of short term energy disruptions because of
33:46
Speaker 2: the Middle East conflicts.
33:47
Speaker 6: Yeah, that is a great question, obviously, because the US
33:51
Speaker 6: has you know, a much greater reserve of oil than
33:55
Speaker 6: it did, you know, in the seventies and you know
33:59
Speaker 6: even the ninety these during the Gulf Wars. There are
34:03
Speaker 6: many more worries about European consumers and businesses getting hit
34:10
Speaker 6: by an oil crunch in a way that you know,
34:13
Speaker 6: US stocks may not, but that valuations may reflect that.
34:18
Speaker 6: So that that's why there there could be still some
34:21
Speaker 6: compelling bargains in Europe even though economically they are more
34:26
Speaker 6: exposed probably to higher oil than you know, US consumers
34:29
Speaker 6: and businesses are.
34:30
Speaker 2: What about the bond market, what what kinds of things
34:32
Speaker 2: we're hearing on that side.
34:34
Speaker 6: Yeah, the bond market, you know, is interesting with regards
34:38
Speaker 6: to the Fed. You are you know, expecting that there
34:43
Speaker 6: will be uh, you know, uh, you know, maybe some
34:48
Speaker 6: more rate cuts later this year, but you know, bonds
34:52
Speaker 6: are you know, expected to be you know, still a
34:55
Speaker 6: good income producing part of many of our part Spence portfolios.
35:01
Speaker 6: But they're far more bullish on stocks and even other
35:04
Speaker 6: assets than bonds right now.
35:07
Speaker 2: Very good, Paul, appreciate you joining us today, and I
35:10
Speaker 2: hope you have a fantastic weekend.
35:13
Speaker 6: Great, Thank you so much, really appreciate it.
35:15
Speaker 2: That is Paul Monica from Barons talking about what he's
35:19
Speaker 2: been seeing in the market recently. Mark, you got anything
35:24
Speaker 2: catching your eye that we didn't cover yet.
35:26
Speaker 4: Today, University of Michigan surveys consumers monthly, asks them about
35:30
Speaker 4: their feelings about the economy, so called sentiment, asks them
35:33
Speaker 4: what they think prices will do over the next year.
35:35
Speaker 4: They don't use the word inflation, but that's what they
35:38
Speaker 4: are trying to get at with the question. Consumer inflation
35:40
Speaker 4: expectations jumped last month preliminarily to four point seven percent.
35:45
Speaker 4: That's year ahead expectations, taking the tariff spike in expectations
35:51
Speaker 4: out of recent history. That's their largest reading since early
35:56
Speaker 4: twenty mid twenty twenty two. And this is a problem, Chuck,
36:00
Speaker 4: as we've been talking about for the FED. Expectations make
36:02
Speaker 4: their way into actual inflation because firms set prices based
36:07
Speaker 4: on them, people make wage demands in theory based on them.
36:12
Speaker 4: So they're an important part of the inflation process, and
36:15
Speaker 4: it just it complicates the fed's job even more.
36:19
Speaker 2: And the interesting piece, so like when we look at this,
36:22
Speaker 2: we normally talk Mark, correct me if I'm wrong. You
36:25
Speaker 2: got three pieces that play into inflation expectations are one
36:28
Speaker 2: of them. Supply shocks can be another one that we
36:32
Speaker 2: end up with, and the demand side, like do you
36:34
Speaker 2: have like any kind of increase in demand. The piece
36:38
Speaker 2: that is interesting to me is again we're starting to
36:41
Speaker 2: maybe see some signs that the labor market's perking up
36:44
Speaker 2: a little bit. Claims remain low in terms of initial ones,
36:47
Speaker 2: Continuing claims are falling on a year over year basis
36:50
Speaker 2: now Atlanta Fed wage trackers starting to tick up a
36:55
Speaker 2: little bit as well. We've had a couple of good
36:58
Speaker 2: jobs reports recently, the one Sam much to the middle
37:00
Speaker 2: that was not. But you look at it and you say, Okay,
37:04
Speaker 2: if you've got expectations ticking up, and you've got a
37:08
Speaker 2: supply shock, and maybe you've got demand you know, ratcheting
37:11
Speaker 2: up a little as job growth picks up and wage
37:14
Speaker 2: growth picks up, you potentially do have this convergence of
37:18
Speaker 2: those three factors that could point to not necessarily a
37:21
Speaker 2: return to what you saw in you know, twenty one
37:23
Speaker 2: and twenty two for inflation, but it could be something
37:26
Speaker 2: that the Fed does have to deal with in the
37:29
Speaker 2: second half of this year that is not so transitory,
37:31
Speaker 2: even depending on what happens with Horror moves.
37:33
Speaker 4: Yeah, the Fed's going to manage expectations. It's going to
37:35
Speaker 4: manage the gap between what the economy can do and
37:38
Speaker 4: what it's doing. I'm not sure if that gap is positive, negative,
37:41
Speaker 4: or zero right now. The supply shock component of the
37:44
Speaker 4: model you mentioned is undoubtedly pushing up prices and pushing
37:49
Speaker 4: down demand, so possibly working against that excess demand component.
37:55
Speaker 4: That's a little technical, But the long and the short
37:56
Speaker 4: of it is the picture is exceptionally cloudy, and the
38:00
Speaker 4: Fed's job is always hard. It's always trying to balance
38:02
Speaker 4: inflation and unemployment. It's really hard.
38:04
Speaker 2: Right now, we're gonna take a quick break for the
38:08
Speaker 2: entire weekend. We hope you don't mind, but yeah, we're
38:11
Speaker 2: gonna try to take it easy and get ready for
38:14
Speaker 2: a big week next week, a lot of earnings, including
38:17
Speaker 2: circular your calendars for Wednesday, the twenty ninth. It's a
38:21
Speaker 2: big one. We'll see you back here on Monday.
38:24
Speaker 4: Oh,