Latest / The Financial Exchange Show / Concerns about AI are not showing up in markets right now

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Concerns about AI are not showing up in markets right now · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike and Tucker with you, and as we continue through,
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Speaker 2: probably it's not the least important week in markets this year,
1:20
Speaker 2: but it's the you hold your tongue PEPSI reported. I
1:25
Speaker 2: changed my mind it's the least important week in markets
1:28
Speaker 2: this year because literally, like the most exciting thing that
1:32
Speaker 2: we had happened was Delta earnings yesterday. Yeah, aside from that,
1:37
Speaker 2: any of the government data is not coming out to
1:40
Speaker 2: a certain extent. I do have a little bit of
1:42
Speaker 2: an update on a couple items there. We have consumer
1:46
Speaker 2: sentiment data from the University of Michigan that came out today,
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Speaker 2: which has been useless for four years. I'm not sure
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Speaker 2: if there's any signal there at this point. There has
1:56
Speaker 2: been no other major data release on the private side
1:59
Speaker 2: of things this week, and so we're all left kind
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Speaker 2: of being like, okay, Like gotta be honest in a
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Speaker 2: in an industry where you're paid to evaluate what's going
2:13
Speaker 2: on and make decisions based on it. When nothing is
2:17
Speaker 2: going on, you kind of look at it and you're like,
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Speaker 2: why what am I doing here?
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Speaker 1: Like?
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Speaker 2: What is my purpose? These are the deep questions that
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Speaker 2: come to me when I look at a week like this.
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Speaker 3: Yeah, there's been a large absence of obviously data to
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Speaker 3: consume and information. We will be getting into earning season
2:35
Speaker 3: next week, so we'll have a little bit more of
2:37
Speaker 3: that and some important companies actually reporting on what they
2:40
Speaker 3: are doing.
2:42
Speaker 2: Do you.
2:44
Speaker 3: I feel as though this week I have seen more
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Speaker 3: of a sentiment shift when it comes to AI and
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Speaker 3: AI related transactions, not that that is manifested in any
2:56
Speaker 3: way into markets. But if I go and to into
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Speaker 3: this show, or if I, you know, go watch Bloomberg
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Speaker 3: for an hour and listen to interviews there or pull
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Speaker 3: open any paper, I sense that the sentiment on AI
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Speaker 3: and the concern about the bubblisious activity there has shifted
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Speaker 3: in the most significant way that I've seen so far,
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Speaker 3: and I feel like that has been more severe this
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Speaker 3: week than any point. Do you do you sense the
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Speaker 3: same thing or am I misreading the situation.
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Speaker 2: I don't sense the same thing, Okay, And the reason
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Speaker 2: that I don't sense the same thing is that it
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Speaker 2: hasn't affected price in any way, shape or form. It
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Speaker 2: is not like in video today is in a new
3:40
Speaker 2: all time hot yep, it's at one hundred and ninety
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Speaker 2: four dollars a share. It's never been there before ever
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Speaker 2: in its storied history.
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Speaker 3: Yeah, all right, then I'm just getting more concerned about
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Speaker 3: it this week.
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Speaker 2: I think there's a Michael thing. There are a bunch
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Speaker 2: of people out there that are talking about it, and
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Speaker 2: and the chorus is growing. It's not affecting the markets
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Speaker 2: in any way, shape or form. No, And I'm not
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Speaker 2: saying that it should or shouldn't, but it's not. And
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Speaker 2: that's what we can speak to on this. You know,
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Speaker 2: like you go through like your AI basket of you know,
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Speaker 2: names and everything. Okay, so you got Nvidia close to
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Speaker 2: a new you know, at anue all time high. Microsoft
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Speaker 2: broke out this week and you know is up, you know,
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Speaker 2: six seven percent since early September. Who else do we
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Speaker 2: put in that group of like publicly traded companies that
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Speaker 2: are AI interested. Broadcom, let's see what they have going on.
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Speaker 2: Broadcom is up another five percent this week. You look
4:39
Speaker 2: at AMD. Oh gee, did they have a little bit
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Speaker 2: of an announcement on Monday where the stock pop twenty
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Speaker 2: five percent? Yes, and then it went up further and
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Speaker 2: now it's come down a little bit from there, but
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Speaker 2: it's still up twenty five percent for the week. Despite
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Speaker 2: the fact that there are more people talking and writing
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Speaker 2: with concern about AI right now, it's not being reflected markets,
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Speaker 2: right It is not showing up there. Whether that's good
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Speaker 2: or bad is yet to be determined. The next couple
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Speaker 2: of years will write that story ultimately, but I'm not
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Speaker 2: sure there's there's much there. I personally, in the short term,
5:14
Speaker 2: am much more concerned about what we're starting to see
5:17
Speaker 2: bubbling up in the auto sector and other consumer related areas. Specifically,
5:22
Speaker 2: low end consumer consumption is bad in getting worse, and
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Speaker 2: there's nothing out there suggesting an improvement on that side
5:32
Speaker 2: of things, and so I think that's something that is
5:36
Speaker 2: concerning to me. But again, that is being reflected in markets.
5:42
Speaker 2: When you look at what's going on with you know,
5:45
Speaker 2: a lot of these big asset managers of you know,
5:47
Speaker 2: private equity, private credit and things like that, they're continuing
5:50
Speaker 2: to touch some pretty you know, dangerous areas. And I'm
5:56
Speaker 2: personally out there kind of being like, Okay, what's the
5:57
Speaker 2: next show that's going to drop on this stuff? Because
6:00
Speaker 2: you know, one, okay as a fluke, two's a coincidence.
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Speaker 2: Three it's like gollag Gee Walker's what's going on here?
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Speaker 3: And and that's the part that we're in. Now, let's
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Speaker 3: play that thought. Well, we can go elsewhere if you want,
6:12
Speaker 3: but let's play that thought through. At some point auto
6:15
Speaker 3: lenders to the subprime space where the first to be affected. Yes,
6:19
Speaker 3: there are certain credit card companies that issue in that
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Speaker 3: space that are probably going to tell us how things
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Speaker 3: are going. Yeah, and you can see other stuff is
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Speaker 3: going to be I mean, dollar stores, I would think
6:31
Speaker 3: would be another area that we would see to new weakness,
6:33
Speaker 3: you know, McDonald's, Wendy's, those types of areas. Do you
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Speaker 3: see it on that front? Like, those are the things
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Speaker 3: that that I'm I'm kind of looking for. But the
6:43
Speaker 3: other piece that you come back to is look for
6:46
Speaker 3: better for worse. And quite honestly, it's probably for worse.
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Speaker 2: Like when a whole when like half the US population
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Speaker 2: feels and quite honestly, because of the data is economically unimportant,
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Speaker 2: that's bad man. Yeah, Like that's not.
7:05
Speaker 3: Not necessarily for the stock market in the short term,
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Speaker 3: but just for like, but for society it's not great.
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Speaker 2: And and and look, when it's bad for society, eventually
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Speaker 2: it becomes bad for the stock market. You know, Like
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Speaker 2: it's it's not good to have half the population rightfully knowing, well,
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Speaker 2: whether I spend this money or not, it's not gonna
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Speaker 2: matter like that. That's bad on a lot of levels here,
7:27
Speaker 2: Like we're we're kind of doing it wrong. If if
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Speaker 2: we're in this situation of half Americans, you know, that's
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Speaker 2: that's not good. So I think that you know, again,
7:40
Speaker 2: when you have a week like this, this is the
7:41
Speaker 2: stuff that you have to like start getting into because
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Speaker 2: we have no economic data, but we will soon a
7:48
Speaker 2: couple of lights on the end at the end of
7:50
Speaker 2: the tunnel that may or may not be an oncoming
7:52
Speaker 2: train the first one. Uh. I still, honestly, I need to,
7:57
Speaker 2: like this, do a podcast with this guy because I haven't.
8:00
Speaker 2: His name's either Guy Berger, GhIE Burget, or some combination
8:03
Speaker 2: of the you.
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Speaker 3: You've talked about Gee or Guy in the past. Yeah,
8:07
Speaker 3: so Gee, Guy Burget, Burger yep.
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Speaker 2: Uh is. He works at the Burning Glass Institute and
8:12
Speaker 2: focuses on labor economics. And one of the things that
8:15
Speaker 2: he so nicely did this week is even though we
8:18
Speaker 2: don't get the DOL weekly unemployment claims data, the states
8:23
Speaker 2: do still publish it themselves. Oh so he put it
8:25
Speaker 2: off because he put it all together. Now, he didn't
8:28
Speaker 2: have data from Massachusetts, Hawaii and the Virgin Islands just
8:31
Speaker 2: because they weren't include like they didn't update theirs for
8:34
Speaker 2: whatever reason. So he just included the most recent values
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Speaker 2: and said, all else being equal, he stayed the same.
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Speaker 2: And his estimate is that initial claims moved up a
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Speaker 2: little bit to two hundred and thirty five thousand, and
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Speaker 2: continuing claims moved up a very modest amount to one
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Speaker 2: point nine twenty seven million. And this is again I
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Speaker 2: say estimate. This is the actual data that the states
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Speaker 2: provided that the federal government usually compiles into one piece, correct,
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Speaker 2: So he just compiled it. So we do kind of
9:03
Speaker 2: have like a backt into Hey, here's what we saw
9:06
Speaker 2: from initial and continuing claims. There's nothing overly concerning in those,
9:09
Speaker 2: so I don't think that there's too much of note
9:11
Speaker 2: on that front. But the other piece that is very
9:16
Speaker 2: exciting to me is that the Bureau of Labor Statistics,
9:20
Speaker 2: or the BLS as you may know them. Did you
9:24
Speaker 2: see what they announced yesterday? I did. They're recalling the
9:28
Speaker 2: CPI staff to put together the September CPI. All those
9:31
Speaker 2: furloughed workers are going to put this together. It's not
9:35
Speaker 2: because they want us to have something to talk about
9:37
Speaker 2: next Wednesday, but we we will have something to talk about.
9:40
Speaker 2: But it's not because of that. Rather, it's because the
9:43
Speaker 2: September CPI is critical to determining the cost of living
9:46
Speaker 2: adjustment for Social Security next year, and so without it
9:50
Speaker 2: you wouldn't be able to calculate that. And so most
9:53
Speaker 2: of the work had already been done because the data
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Speaker 2: collection process takes place in September, as you would expect,
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Speaker 2: and so now they just need to actually do the
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Speaker 2: compilation and computations and things along those lines and feed
10:05
Speaker 2: it into their computers. So we are going to be
10:08
Speaker 2: getting CPI data next week, which is really exciting to me.
10:11
Speaker 2: We're not gonna get PPI, but let's be honest, no
10:14
Speaker 2: one really cares about PPI anyways, aside from hey, how
10:16
Speaker 2: does this pass through into PCE?
10:18
Speaker 3: And the FED will have it ahead of their October
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Speaker 3: thirtieth meeting too, Yes, Halloween meeting twenty ninth ninth.
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Speaker 2: Okay, ooh, spooky FED meeting. I need to look at
10:28
Speaker 2: the calendar for future years and find out when we're
10:31
Speaker 2: going to have a Halloween FED meeting because I just
10:34
Speaker 2: love the idea of Jay Powell walking up to the
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Speaker 2: podium with J Powell would not be a vampire, no,
10:41
Speaker 2: J Powe wouldn't be no, Like, I don't think Jay
10:44
Speaker 2: Powell would go vampire. If if, why don't we take
10:48
Speaker 2: a quick break. When we come back, we'll discuss what
10:51
Speaker 2: Jay Powell's FED Halloween costume will be next and more.
10:56
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11:31
Speaker 2: All right, Mike, So the FED has a meeting coming
11:33
Speaker 2: up in two and a half weeks, not on Halloween.
11:37
Speaker 2: It's two days before Halloween, which, by the way, how
11:39
Speaker 2: great is it that Halloween is a Friday this year? Yeah?
11:42
Speaker 2: Top not stuff? And you know what's messed up?
11:44
Speaker 4: Do you know?
11:45
Speaker 2: There are some towns that still are not having Halloween
11:47
Speaker 2: on Halloween, which I think it's dumb that like a
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Speaker 2: town has to be like Hey, this is the night
11:51
Speaker 2: that you celebrate Halloween. Just go out on October thirty
11:54
Speaker 2: first and knock on people's doors for candy. I didn't
11:57
Speaker 2: know that tons did that.
11:58
Speaker 1: I didn't either.
11:59
Speaker 2: You've never heard of like towns being like, oh, Halloween's
12:01
Speaker 2: on this day. No, No, it's like every town does this,
12:05
Speaker 2: now what you're talking about? Oh, maybe it's just your
12:07
Speaker 2: towne No, Like I don't do Halloween.
12:10
Speaker 4: Yeah, he does Christmas in September. Yeah, Christmas is a
12:14
Speaker 4: three month event grocery stores. Yeah, so quite honestly, so
12:18
Speaker 4: funny segue, funny that you mentioned this, So funny for you.
12:22
Speaker 2: It's freaking hilarious. So every year, my wife and her
12:28
Speaker 2: college friends we do a friends Giving with all of
12:31
Speaker 2: our families and it's sometime in Thanksgiving and normally sometime
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Speaker 2: in November. And this year the only time people could
12:39
Speaker 2: do it was the Sunday right before Thanksgiving, and so
12:42
Speaker 2: everyone was like, do we really want to have turkey
12:45
Speaker 2: like twice in the week, Like, you know, once is enough?
12:48
Speaker 2: Like I love it, but I just after one turkey,
12:50
Speaker 2: I'm kind of like I'm good for a while. So
12:54
Speaker 2: this year the Friendsgiving is going to be a nineteen
12:58
Speaker 2: eighties Italian themed Christmas friends Giving. Oh, because it's on
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Speaker 2: a Sunday, It's on a Sunday Sunday supper. Yeah, exactly,
13:06
Speaker 2: So we're it's it's gonna be fantastic. Yeah, we're doing
13:10
Speaker 2: and stir the sauce nineteen eighties. Yeah, I'm basically going
13:13
Speaker 2: to recreate Good Fellows pretty much is what I'm gonna do.
13:16
Speaker 2: It'll be a razor out to slice the guards. It's
13:18
Speaker 2: a great system for it. So anyways, Jay Powell dresses
13:22
Speaker 2: up for Halloween. We suppose, and I asked the question
13:26
Speaker 2: at the end of the last segment, what would j
13:28
Speaker 2: Powell dress up as if if there were a FED
13:31
Speaker 2: meeting they concluded on Halloween and he had to give
13:33
Speaker 2: his press conference, what would his Halloween costume be? Dov,
13:41
Speaker 2: It's like a giant bird. He's dead pan, straight day.
13:47
Speaker 2: What do you what do you think about? You know
13:48
Speaker 2: where rates are gonna go? That's a pigeons. I imagine
13:56
Speaker 2: they're pretty similar, right, Yeah, that's that's just a white pitch.
14:00
Speaker 2: That's pretty good. I would have the one I came
14:03
Speaker 2: up with. He could have gone as a hiker, kind
14:05
Speaker 2: of the opposite approach that he could have taken there.
14:09
Speaker 3: Uh.
14:09
Speaker 2: The other one that I thought would have been interesting
14:12
Speaker 2: and this is Yeah, I think this would have been
14:15
Speaker 2: been good. He could have gone as any bond villain
14:20
Speaker 2: because J. Powell is a villain to the bond market,
14:23
Speaker 2: you know, right, so you know he could he could
14:25
Speaker 2: have gone as a bond villain. So I thought that
14:27
Speaker 2: would have been kind of good as well. And and
14:30
Speaker 2: finally I think he could have just worn like a
14:32
Speaker 2: tan suit. Again it could have been the ball.
14:36
Speaker 3: I would suggest that Jerome Powell, if you're listening, do
14:40
Speaker 3: not wear a costume to the next thing, but just
14:43
Speaker 3: have some Dracula teeth in and don't acknowledge it at all.
14:46
Speaker 3: Just to just give your entire speech a couple of
14:48
Speaker 3: drips of blood, some prosthetic like get good quality ones
14:53
Speaker 3: like not the ones that you can't talk. Get some
14:55
Speaker 3: good get you know, some costume designer. To just put
14:58
Speaker 3: in some traditional drag and do not acknowledge it, do
15:01
Speaker 3: not answer any questions about it.
15:05
Speaker 2: I like J. Powell as a dove instead of the
15:08
Speaker 2: dot plot. They should bring the whole board out there,
15:10
Speaker 2: just dressed up as either doves or hawks. Yeah, okay,
15:15
Speaker 2: I'm getting goosebumps just thinking about it. Speaking of the FED,
15:19
Speaker 2: a hawkish FED official is rethinking his stance on rate cuts.
15:23
Speaker 2: Doesn't matter. You can't vote oh redone, yep, toss it
15:28
Speaker 2: next one. Shut down. Pain ripples through US economy with
15:31
Speaker 2: no deal in sight. Here's the thing. I believe two
15:37
Speaker 2: things at the same time right now. The first is
15:39
Speaker 2: for anyone who is right next to the federal government
15:43
Speaker 2: metaphorically in an economic sense or you know, actually in
15:47
Speaker 2: the federal government, there's a lot of economic uncertainty right now,
15:51
Speaker 2: in potential pain. Sure for the vast majority of Americans,
15:55
Speaker 2: there is no rippling right now.
15:58
Speaker 3: Yeah, So where might you be able to see the
16:00
Speaker 3: rippling if you are anywhere in America? Certainly if you
16:02
Speaker 3: run any sort of services related business in DC, if
16:05
Speaker 3: you're a government contractor if you're a government contractor if
16:08
Speaker 3: you have a sub have a sub shop in DC,
16:12
Speaker 3: that's going to be problematic for you. If you fly
16:16
Speaker 3: out of a regional, smaller airport on a regular basis,
16:20
Speaker 3: probably problematic. They're going to experience issues before Logan or
16:24
Speaker 3: JFK do. As we've talked about, I view the lost
16:29
Speaker 3: economic We've talked about what did you estimate the hit
16:32
Speaker 3: to GDP was on a weekly.
16:33
Speaker 2: I didn't the estimates that I've seen from economists or
16:35
Speaker 2: anywhere from point one to point two percent a week.
16:38
Speaker 3: I would imagine that that escalates the longer it goes on,
16:41
Speaker 3: because we're not really seeing people don't know cancel flights.
16:44
Speaker 3: We don't, but just think about it logically, like, yeah,
16:48
Speaker 3: if it's going on for four weeks, you're going to
16:50
Speaker 3: be more likely to change your travel plans than you
16:53
Speaker 3: would be at this stage of the game. So I suspect,
16:57
Speaker 3: with very little evidence, that the longer a down goes on,
17:01
Speaker 3: the more significant hit two over the overall economy. But look,
17:06
Speaker 3: I mean, if we were gonna hear about it, you know,
17:08
Speaker 3: certainly Delta CEO ed Bastian would have been, you know,
17:14
Speaker 3: bring it up if you really thought it was a
17:15
Speaker 3: big problem, and he did acknowledge it that hey, you know,
17:18
Speaker 3: in seven to ten days, I expect it to be
17:20
Speaker 3: more problematic, but for the time being, he said, not
17:23
Speaker 3: at all an issue.
17:24
Speaker 2: And so I think the big thing that I say
17:27
Speaker 2: on this and the reason why, like, again, if this
17:29
Speaker 2: goes on for an extended period of time, we don't
17:30
Speaker 2: know the impact Remember, there have been twenty some odd shutdowns,
17:34
Speaker 2: maybe it's like twenty five since nineteen seventy two. There
17:39
Speaker 2: have been three that have been three weeks or longer.
17:41
Speaker 2: So like all of these estimates like, hey, here's how
17:43
Speaker 2: much a shutdown shaves off GDP each week. Most shutdowns
17:47
Speaker 2: are one to five days. Yeah, you know, sort of
17:49
Speaker 2: past that all. So the fact that we're into day
17:52
Speaker 2: ten is already like, huh, we'll see where this goes.
17:56
Speaker 2: And quite honestly, next week again on the fourteenth and fifteenth,
17:59
Speaker 2: that's where you got, you know, the next paycheck processing cycle.
18:02
Speaker 2: That's gonna be the first paycheck processing cycle that'll be
18:05
Speaker 2: missed for federal workers. And that's the one where you
18:08
Speaker 2: look at it and say, do we start seeing more
18:11
Speaker 2: people calling out of work in the public facing positions TSA,
18:15
Speaker 2: age and air traffic controllers and you know, how do
18:19
Speaker 2: you you know, how do you resolve that? Because once
18:22
Speaker 2: it becomes something that most of us do start noticing. Yeah,
18:26
Speaker 2: you know, when you've got two and a half million
18:28
Speaker 2: people flying a day and they're like, hey, my plane's delayed.
18:33
Speaker 2: You know, three hours are canceled. That's the kind of
18:36
Speaker 2: stuff where it starts making waves right now. Yes, like
18:39
Speaker 2: if you are a government employee or a government contractor
18:43
Speaker 2: anywhere close to those types of things, you're saying, yeah,
18:46
Speaker 2: this is scary for us, But the vast majority of
18:48
Speaker 2: Americans are not in those positions right now. I think
18:51
Speaker 2: a quarter million of federal workers have already missed a paycheck.
18:54
Speaker 2: Another two million will have by end of next week. Yeah,
18:57
Speaker 2: that's the big one. So we'll see kind of where
19:00
Speaker 2: things go on that front. But day ten and no
19:05
Speaker 2: end to shut down in sight, we'll see what happens there.
19:10
Speaker 2: Let's take a quick break here. When we return, we're
19:13
Speaker 2: gonna do Wall Street Watch, talk about some of the
19:15
Speaker 2: big moves in markets today, and then we're gonna be
19:18
Speaker 2: talking China. A couple moves being made by China to
19:23
Speaker 2: you know, kind of jab the US a little bit
19:26
Speaker 2: over the last twenty four hours. We'll talk about what
19:28
Speaker 2: they are and why. After this.
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Speaker 1: TFE show. Breaking business news is always first right here
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Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
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Speaker 1: Street Watch, a complete look at what's moving market so
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Speaker 1: far today, right here on the Financial Exchange Radio Network.
20:02
Speaker 4: Well after yesterday's pullback from record highs Marcus today I
20:05
Speaker 4: modestly hire as traders sift through the latest consumer sentiment
20:10
Speaker 4: data as the government shutdown continues. It's day ten right now.
20:14
Speaker 4: The Dow is up by a third of a percent,
20:17
Speaker 4: or one hundred and sixty two points, SMP five hundreds
20:20
Speaker 4: up two tenths of one percent or thirteen points, Nasdaq
20:23
Speaker 4: up two tenths of one percent as well. Russell two
20:26
Speaker 4: thousand is edging higher mostly flat, Tenure treasury yield down
20:30
Speaker 4: four basis points at four point one zero one percent,
20:35
Speaker 4: and crude oil down nearly two and a half percent
20:38
Speaker 4: today trading right at sixty dollars a barrel. Shares in
20:42
Speaker 4: Qualcom pulling back about one percent after China said it
20:45
Speaker 4: is conducting an anti monopoly probe into the chip maker
20:49
Speaker 4: over the purchase of Israeli startup Auto Talk, sticking with
20:52
Speaker 4: the chip sector when video shares are up nearly two
20:55
Speaker 4: percent after the Senate passed legislation yesterday aimed at ensuring
21:00
Speaker 4: the US companies get priority access to AI chips ahead
21:04
Speaker 4: of China. Meanwhile, Applied Digital stock soaring twenty six percent
21:09
Speaker 4: after the data center builder reported revenue in its fiscal
21:13
Speaker 4: first quarter was up eighty four percent from the same
21:16
Speaker 4: period a year ago. The company also said it finalized
21:20
Speaker 4: a new lease agreement with AI cloud computing company core Weave. Elsewhere,
21:25
Speaker 4: denim apparel maker Levi Strauss sinking ten percent after it
21:29
Speaker 4: posted weaker than expected earnings guidance for the current quarter,
21:33
Speaker 4: and jeep maker Stiliantas saw its shipment's climb about thirteen
21:37
Speaker 4: percent in the third quarter, driven by a strong rebound
21:41
Speaker 4: in North America. However, that stock is down over one
21:45
Speaker 4: percent at the moment. I'm Tucker Silva and that is
21:48
Speaker 4: Wall Street watch couple.
21:50
Speaker 2: Pieces discussing recent actions from China in the last day
21:55
Speaker 2: or two. Number one trying to put new restrictions on
21:59
Speaker 2: rare earth materi cials. This was on I think early
22:04
Speaker 2: Thursday is when we saw this. And the big thing
22:08
Speaker 2: is that effectively further export controls on products made with
22:13
Speaker 2: rare earth materials sourced from China, and also restrictions on
22:19
Speaker 2: export of intellectual property. And even workers who know about
22:24
Speaker 2: processes for refining, extracting, or anything related to rare earth
22:28
Speaker 2: will not be allowed to do work overseas except in
22:31
Speaker 2: certain circumstances.
22:32
Speaker 3: So Basically, if China determines that your company, wherever you
22:36
Speaker 3: are in the world, imports their rare earths in order
22:41
Speaker 3: to manufacture something where that rare earth accounts for zero
22:45
Speaker 3: point one percent or more of the product's value, then
22:49
Speaker 3: you need permission from the Chinese government.
22:51
Speaker 2: Which would seem to be problematic for lots of companies.
22:55
Speaker 2: The other piece China also raising fees on US ships
23:00
Speaker 2: that would be docking in China and putting an anti
23:04
Speaker 2: trust probe in place for on qualcomm. Here here's the deal.
23:09
Speaker 2: I don't know how much of this like China actually
23:11
Speaker 2: cares about. The answer is probably not much of it.
23:14
Speaker 2: But expectations are that President Trump president g are going
23:18
Speaker 2: to be meeting at a what is it the Asia
23:22
Speaker 2: Pacific Economic Cooperation Conference at the end of October. I
23:26
Speaker 2: think it's the twenty six through twenty eighth in Korea
23:28
Speaker 2: that it's taking place, and the two leaders are expected
23:31
Speaker 2: to chat on the sidelines there. And so you better
23:34
Speaker 2: believe that China is saying, all right, we want to
23:37
Speaker 2: have a little bit of leverage, and even though we
23:39
Speaker 2: might not really care about this, we're going to load
23:42
Speaker 2: these things on so that we can trade them away
23:43
Speaker 2: for something that we do want at that meeting ideal,
23:46
Speaker 2: which I think is telling right.
23:48
Speaker 3: If they're putting in these rare earth restrictions, which of
23:52
Speaker 3: everything here is the most important. In my opinion, at least,
23:56
Speaker 3: investigation to Qualcomm or anything else is a lot less
23:59
Speaker 3: important than that I'm completely shutting down rare earth from
24:02
Speaker 3: leaving the country.
24:02
Speaker 2: I mean, Qualcom's probably like the one US semiconductor company
24:06
Speaker 2: that I don't think has had a whole lot of
24:08
Speaker 2: interaction with the Trump administration at this point.
24:11
Speaker 3: So if they are targeting the rarest to me, it
24:15
Speaker 3: means they're willing to negotiate it. If you're announcing it
24:18
Speaker 3: fifteen days ahead of the meeting, it means that you
24:20
Speaker 3: are not serious about fully shutting down the access to it.
24:24
Speaker 3: And so the question then becomes, what does the United
24:27
Speaker 3: States need to give up to make sure that they
24:29
Speaker 3: maintain access to it? Most importantly, for this market moment,
24:35
Speaker 3: nobody's making semiconductors without access to Chinese rare earths.
24:40
Speaker 2: So here's the place that I think I land on this,
24:43
Speaker 2: And it's apparent to me over the last six months
24:47
Speaker 2: now that China not only is willing to use that
24:51
Speaker 2: rare earth card, you know, once, but use it repeatedly
24:56
Speaker 2: in order to try to get what they want from
24:57
Speaker 2: the US or from other countries. We know the Trump
25:00
Speaker 2: administration has already started to try to ramp up efforts
25:03
Speaker 2: to produce more of this stuff domestically. I don't know
25:07
Speaker 2: how you do it, but you got a turbocharge what
25:09
Speaker 2: you're already doing, because like China realizes, hey, this is
25:13
Speaker 2: like the one thing that we have that can really
25:15
Speaker 2: put pressure on other countries right now because of their
25:18
Speaker 2: dependence on us, and so I think, quite honestly, you
25:22
Speaker 2: need to break that near total supply control that they have,
25:27
Speaker 2: and when that goes away, you have all kinds of
25:30
Speaker 2: options as to how to deal with China on a
25:33
Speaker 2: range of economic issues. Yeah.
25:34
Speaker 3: I know that there's a lot of balls in the
25:36
Speaker 3: air right now, But doesn't this seem like it should
25:39
Speaker 3: be getting the attention that for instance, the Trump administration
25:42
Speaker 3: put towards vaccines back in twenty twenty.
25:44
Speaker 2: Well, they've made a couple deals here and there, but
25:46
Speaker 2: it's it really is. Yes, Like in a perfect world,
25:51
Speaker 2: you need an operation warp speed for rare earth production
25:54
Speaker 2: in the United States. Yeah, Like, how do we figure
25:57
Speaker 2: out how to produce as much of this stuff as
25:59
Speaker 2: possible domestically by the end of twenty twenty six, right,
26:02
Speaker 2: you know, not by the end of the decade. But
26:05
Speaker 2: this has to be like in the next twelve to
26:07
Speaker 2: eighteen months. And maybe they're you know, starting to you know,
26:10
Speaker 2: work on some plans. They're like, again, they've already done
26:12
Speaker 2: some things. I'm certainly cognizant of the fact that they've
26:16
Speaker 2: you know, made a few deals in order to try
26:18
Speaker 2: to facilitate this. But I think this is as critical
26:23
Speaker 2: an item as you can see, because it is something
26:26
Speaker 2: that quite honestly can bring the US economy to its
26:31
Speaker 2: knees at you know, the whims of whatever China wants
26:34
Speaker 2: to do on this, right, So I think it's it's
26:38
Speaker 2: a real problem the other stuff. You want to open
26:41
Speaker 2: an antitrust probe into Qualcomm, Sure, okay, like fine, I'm
26:47
Speaker 2: sure Qualcom doesn't like it, but you know, it doesn't
26:51
Speaker 2: move the needle. The rare move the needle. It's not
26:54
Speaker 2: mission critical to the United States that Qualcomm you know,
26:56
Speaker 2: operates how they need to. Within China, this is different.
27:01
Speaker 2: So that's again, this is all part of you know,
27:04
Speaker 2: the negotiation. As you head into that meeting at the
27:07
Speaker 2: end of the month about two weeks from now. But
27:10
Speaker 2: I guess it's a big deal.
27:11
Speaker 3: But the point that you make and that we should
27:14
Speaker 3: focus on is Okay, yes, I do think the Chinese
27:17
Speaker 3: are willing to negotiate on this, the rare earth export piece,
27:22
Speaker 3: but regardless, it's just not something that I think is
27:25
Speaker 3: sustainable to hang over our head and perpetuity.
27:28
Speaker 2: Right, and you're going to bring it back every three
27:30
Speaker 2: months like, hey, now we want this and we're going
27:33
Speaker 2: to do these rare earth export restrictions.
27:35
Speaker 3: Well, so it does need to be pushed, and it
27:37
Speaker 3: also needs to be acknowledged that it is very possibly
27:40
Speaker 3: an industry that will never be profitable because of the
27:43
Speaker 3: way that the Chinese will flood the market.
27:45
Speaker 2: Not only not profitable, but there's also quite honestly, one
27:47
Speaker 2: of the main reasons why you don't want this stuff
27:50
Speaker 2: produced in the United States is it's hugely toxic to
27:53
Speaker 2: do so.
27:53
Speaker 3: I mean, it's we've all starts of problems. We've talked
27:57
Speaker 3: a lot about how I would.
27:58
Speaker 2: Love to like put a nuclear power or plant in
28:00
Speaker 2: my basement, because look, if the worst case situation happens,
28:03
Speaker 2: like you, you don't know, like that that's it, like
28:05
Speaker 2: it's it is what it is. Under no circumstances would
28:09
Speaker 2: I want a rare earth mind in my basement because
28:13
Speaker 2: it's just it's just messy, like toxic. It just makes
28:18
Speaker 2: you like very sick for like long periods of time
28:21
Speaker 2: and stuff. So the question is, hey, how do we
28:24
Speaker 2: bring this back if it's not going to be profitable
28:26
Speaker 2: because of what China does, and where the heck do
28:31
Speaker 2: you actually do this at scale? Given the environmental concerns
28:35
Speaker 2: that are very real on this stuff, But you still
28:37
Speaker 2: have to do it domestically unless you just don't want
28:40
Speaker 2: to have a lot of the things that we currently have,
28:44
Speaker 2: you know, like windshield wipers. We're gonna have a real
28:47
Speaker 2: shortage of mining engineers in the next decade. Yeah, Colorado
28:51
Speaker 2: School Minds is going to be like the Avice to Go.
28:54
Speaker 3: Did I ever tell you that I have a my
28:56
Speaker 3: wife has a family member who went there and is
29:00
Speaker 3: one of like, was one of like three women in
29:03
Speaker 3: her graduating classes.
29:04
Speaker 2: Doesn't it feel like the whole I've never been there myself,
29:08
Speaker 2: but doesn't it feel like the whole school should be
29:10
Speaker 2: underground run by the dwarfs from the hobbit. Yeah, sure,
29:15
Speaker 2: does you know, like Gimli's there with his acts like,
29:17
Speaker 2: oh you want to make you know you want to
29:19
Speaker 2: find gems? No, like I want rare earths, oh, rare
29:22
Speaker 2: earth jet No.
29:23
Speaker 3: But perfect example this this young woman who you know
29:27
Speaker 3: has a career in uh in mining engineering, moved to
29:32
Speaker 3: Australia four years ago and has been living there since.
29:35
Speaker 2: It's just not jobs here in the United States.
29:37
Speaker 4: No.
29:37
Speaker 3: I mean there are some, but you know, there are
29:39
Speaker 3: not a ton of jobs to do this in the
29:40
Speaker 3: United and there's quite a few in Australia.
29:42
Speaker 1: Yeah.
29:42
Speaker 2: Yeah, Let's take a quick break here and when we
29:46
Speaker 2: come back, uh, do we want to talk about whether
29:49
Speaker 2: China is actually buying banned in video chips secretly? Let's
29:53
Speaker 2: do it. Okay, let's do that when we come back.
29:55
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30:57
Speaker 2: Mike, have you ever heard of Megaspeed?
31:01
Speaker 4: No?
31:02
Speaker 2: Tell me about you this morning? I did, yes. So.
31:06
Speaker 2: Megaspeed is a Singapore based data center company and they
31:11
Speaker 2: were going to buy two billion dollars of in Vidia
31:16
Speaker 2: chips over the next twelve months. Jensen Huang was in.
31:22
Speaker 1: Was this.
31:22
Speaker 2: It was in Taipei and he was talking to the
31:27
Speaker 2: CEO of Megaspeed about these chips that they wanted to buy.
31:33
Speaker 2: And it turns out that the e Commerce Department's actually
31:36
Speaker 2: been investigating whether Megaspeed is helping companies in China, has
31:41
Speaker 2: been helping companies in China export sidestep export restrictions on
31:47
Speaker 2: in Vidia chips. We don't know for sure, but I
31:51
Speaker 2: have no idea if Megaspeed's doing it.
31:52
Speaker 3: I'm pretty sure that some companies out there that are
31:55
Speaker 3: funneling in Vidia's latest and greatest chips to China.
31:58
Speaker 2: Yes, is that fair to say? Yes? Or at least
32:00
Speaker 2: have been, because now the question is, hey, China has
32:04
Speaker 2: now recently gone on the record saying we don't want
32:07
Speaker 2: in Vidio chips coming into China, which part of me
32:10
Speaker 2: also looks at and says, okay, like do I really
32:12
Speaker 2: believe that or are they still secretly funneling them in
32:14
Speaker 2: but just you know, want to have the appearance of no,
32:18
Speaker 2: we're not going to buy them directly, even though the
32:20
Speaker 2: US now allows them to at least in the tone
32:23
Speaker 2: down versions. Yeah. So this is a pretty big report here.
32:28
Speaker 2: I mean again, it's a four person byline that you
32:31
Speaker 2: have on this thing. So like, there's a lot of
32:33
Speaker 2: reporting that went into this, and you know, an awful
32:37
Speaker 2: lot of background and a lot of specifics on this
32:42
Speaker 2: that they dug up here, and ultimately it leaves more
32:48
Speaker 2: questions than answers other than it's pretty apparent that in
32:52
Speaker 2: Vidio chips have been making their way into China for
32:55
Speaker 2: the last couple of years, which is something that I
32:56
Speaker 2: think a lot of people suspected along the way. Anyways.
32:59
Speaker 3: Yeah, and if you want to talk about a key
33:01
Speaker 3: risk to the largest company in the US stock market,
33:05
Speaker 3: it's China's ability to reverse engineer things. Yeah, and then
33:09
Speaker 3: their willingness after they have successfully reversed, reverse engineered something,
33:14
Speaker 3: to flood the market with that product. This is a
33:18
Speaker 3: story that has been repeated over and over of the
33:22
Speaker 3: course the last thirty years. You are seeing with cars,
33:24
Speaker 3: You've seen it with solar panels. None of these are
33:26
Speaker 3: technologies that were developed in China. They are technologies that
33:31
Speaker 3: were sold to the Chinese market, and through a number
33:35
Speaker 3: of different methods, companies there learned how to engineer them
33:40
Speaker 3: on their own. And I really view that as one
33:43
Speaker 3: of the key risks to Invidia's future and any latest
33:47
Speaker 3: and greatest semiconductors future, is not their ability to innovate,
33:50
Speaker 3: but rather Chinese the Chinese company's ability to replicate and
33:55
Speaker 3: then flood markets with the product thereafter at a pretty
33:59
Speaker 3: quick folks. We did our live broadcast at the Financial
34:03
Speaker 3: Exchange down on the Cape yesterday. It was an awesome event.
34:08
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Speaker 3: the Showcase super Lucks. For anyone that missed it, we
34:22
Speaker 3: do a live broadcast at the show Following that, we
34:24
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34:27
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34:31
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34:34
Speaker 3: what one is to do as an investor in today's environment.
34:38
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35:18
Speaker 2: Yesterday, Treasury Secretary Scott Bessett announced an agreement on a
35:23
Speaker 2: twenty billion dollar Yes thank you swap arrangement with Argentina,
35:31
Speaker 2: and in addition to that, also announced that the US
35:33
Speaker 2: has already intervened to at least once by the Argentinian
35:38
Speaker 2: PESO in order to keep Argentinian markets functioning normally. A
35:44
Speaker 2: few thoughts on this. The first is, Argentina's markets don't
35:48
Speaker 2: function normally. They function your badly, and quite honestly, it's
35:53
Speaker 2: not to say that there's no chance this works out well,
35:55
Speaker 2: but it's a really slim chance this does just because
36:00
Speaker 2: the Argentinian economy is a mess, has been a mess,
36:03
Speaker 2: and is not guaranteed to stay a mess, but has
36:05
Speaker 2: you know, real uphill clime in order to get to
36:09
Speaker 2: something approaching respectability and stability. So what's on the line here,
36:14
Speaker 2: twenty billion dollars? Yeah, yeah, I mean, but it's twenty
36:18
Speaker 2: billion dollars to support an economy that doesn't matter to
36:21
Speaker 2: the United States, right, you know, Like it's like, quite honestly,
36:26
Speaker 2: Argentina is not in the top thirty most important trading
36:32
Speaker 2: partners of the US. It's probably somewhere in that thirty
36:36
Speaker 2: to fifty range, and that's you know, significantly less important
36:41
Speaker 2: than the ones above its.
36:42
Speaker 3: I'm just trying to think of what happens if this
36:44
Speaker 3: does Like, what is the big success if this does
36:47
Speaker 3: work out?
36:47
Speaker 2: What do you get if this works out? Beef love it,
36:53
Speaker 2: but not twenty billion dollars of it, you know, the
36:57
Speaker 2: Trump administration. If it doesn't work out, you lose.
36:59
Speaker 3: Twenty billion dollars that the US government will not in
37:02
Speaker 3: any meaningful way recapture.
37:03
Speaker 2: No. I mean, look, in the past week and a half,
37:06
Speaker 2: Argentina's treasury burned through one point eight billion dollars just
37:08
Speaker 2: to keep their currency afloat. That's no week and a half,
37:13
Speaker 2: I mean, quite honestly, at that pace, you're talking about
37:16
Speaker 2: like two months of liquidity that you're providing Argentina.
37:19
Speaker 3: The best argument that I can make for doing this,
37:22
Speaker 3: which hasn't really been made by the current administration, I
37:25
Speaker 3: don't know why, is you have some ability to counter
37:28
Speaker 3: Chinese influence in the region, because I do think that
37:32
Speaker 3: the Chinese would step in and do this instead, and
37:34
Speaker 3: so I think there's some legitimacy to that argument. But
37:37
Speaker 3: nobody's really talking about in that context.
37:40
Speaker 2: But why Argentina. Yeah, you know, like if you want
37:44
Speaker 2: to counter Chinese influence in South America, there are other
37:48
Speaker 2: places that you can look and probably get more bang
37:50
Speaker 2: for your boss, ell in Mexicano than Argentina. Yeah, like
37:53
Speaker 2: that's that's the case there. So I hope this works out.
37:57
Speaker 2: It's it's a gamble, you know, like you're going to
38:00
Speaker 2: have to see what happens here. But it's dodgy, it's
38:07
Speaker 2: not without risk, and we'll see what ends up happening.
38:10
Speaker 2: Quick Break Hour two coming up in a bit