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Chinese AI Models Put the Profit Race Under Pressure · The Financial Exchange Show

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Speaker 2: Good morning, Welcome back to the Financial Exchange. We've got
1:15
Speaker 2: markets in rally mode here as Nasdaq is up two
1:19
Speaker 2: hundred and fifty four points a percentage point. S and
1:21
Speaker 2: P five hundred and forty four points, about two thirds
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Speaker 2: of a percent from the Dow Jones industrial average up
1:27
Speaker 2: about half a percent two hundred and seventy points in
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Speaker 2: early trading.
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Speaker 3: It's been a.
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Speaker 2: Interesting year for volatility, I guess is what I would describe.
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Speaker 2: The S and P five hundred itself has not been
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Speaker 2: terribly volatile, but the amount of volatility underneath the surface,
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Speaker 2: if you will, has been quite choppy. The number of
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Speaker 2: companies that have been trading up and down. The mag seven,
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Speaker 2: you know, had been pretty rough this year, and the
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Speaker 2: Volatility Index the VICS, in terms of choppiness, is coming
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Speaker 2: in at seventeen and a half, which.
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Speaker 3: Is below the long term average.
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Speaker 2: But the individual components all over the place, and when
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Speaker 2: you take a look at the divergence between individual stocks
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Speaker 2: and the index as a whole, it's reaching record levels
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Speaker 2: of volatility here in what is already one of the
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Speaker 2: priciest markets in history, which you know, again does not
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Speaker 2: necessarily mean bad things to come. Just means stock picking
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Speaker 2: has been quite different this year, and in some cases
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Speaker 2: quite successful and quite some other cases not so successful
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Speaker 2: at all.
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Speaker 4: Yeah, that better end up being the case every time
2:37
Speaker 4: this happens. Active managers active managers meaning those who wake
2:41
Speaker 4: their stocks differently than say, the S and P five
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Speaker 4: hundred index does. You probably have a selection of active
2:48
Speaker 4: in so called passive index managers in your four to
2:50
Speaker 4: one K for example. Active managers will claim, ah, this
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Speaker 4: is this is fertile. This is a fertile environment for
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Speaker 4: stock pickers like us, so they are able to exploit
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Speaker 4: it is a different matter, and they almost never are,
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Speaker 4: but they like to make these claims based on periods.
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Speaker 4: I haven't done the work myself because it's actually not
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Speaker 4: easy to do on correlations of stocks within the index.
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Speaker 4: But if it is indeed the case that they've declined,
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Speaker 4: and that's why indexes indices have been flat while stock
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Speaker 4: volatility is not, then it should in theory create a
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Speaker 4: friendly environment for active managers.
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Speaker 2: We'll see gasoline prices are back above four dollars a
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Speaker 2: gallon after spending a few weeks just slightly below. We
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Speaker 2: are sitting at four dollars and two cents per gallon
3:42
Speaker 2: at the national average according to Triple A. I'm arounding
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Speaker 2: a bit there. Oil prices West Texas crewed up about
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Speaker 2: two and three quarters of percent on once again renewed
3:52
Speaker 2: hostilities in the Middle East and fresh attacks on around
3:56
Speaker 2: by the United States. There's a peace out in the
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Speaker 2: Wall Street Journey today about Israel believing that Iran moved
4:02
Speaker 2: nuclear centrifuges to the Pickaxe Mountain Range, which I know
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Speaker 2: nothing about, but obviously we're reviewing that intel. And the
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Speaker 2: story for the last ten days, of course, has been
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Speaker 2: renewed hostilities, escalation in the Middle East, and once again
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Speaker 2: a place that we have you know, kind of gotten
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Speaker 2: used to at this point with how many March, April, May, June,
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Speaker 2: now most of July, five months into this conflict, where
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Speaker 2: we continue to sit here and have a very difficult time,
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Speaker 2: or at least I have a very difficult time understanding
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Speaker 2: how we get to a place of de escalation between
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Speaker 2: two countries that, you know, really we don't see eye
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Speaker 2: to eye on much of anything with the leadership of Iran,
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Speaker 2: and so it remains very difficult for me to see
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Speaker 2: a scenario where we come to some really long term
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Speaker 2: piece situation without prolonged and much more severe conflict than
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Speaker 2: what we're dealing with right now in Iran.
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Speaker 4: So yeah, so the upshot is continued volatility, and not
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Speaker 4: just oil but other commodity prices. It'll feed through into
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Speaker 4: food and other stuff and geopolitical uncertainty. Generally that should
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Speaker 4: in theory, although equity markets, once they recovered from the
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Speaker 4: initial swoon following the onset of hostilities, have done just fine.
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Speaker 2: Well in the short term. AI companies don't care about
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Speaker 2: oil prices, I think, you know, full stop, Like, yeah,
5:34
Speaker 2: higher interest rates, all sorts of things could get in
5:36
Speaker 2: the way, But when you have the craze over AI
5:40
Speaker 2: and the spending craze that we're seeing right now, there's
5:42
Speaker 2: very little that can disrupt that, including high gas and energy, higher.
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Speaker 4: Risk premia on And by that I mean the uncertainty,
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Speaker 4: the geopolitical uncertainty, and in part with respect to the
5:56
Speaker 4: price of oil, but more broadly with respect to say,
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Speaker 4: how much you're gonna have to borrow to finance this war.
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Speaker 4: It's going to cost hundreds of billions of dollars. All
6:04
Speaker 4: those people that should push up interest rates. The government
6:07
Speaker 4: is competing with hyperscalers for capital. So that's one example
6:12
Speaker 4: in which a premium could be imposed on a particular
6:16
Speaker 4: segment of the markets.
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Speaker 3: Go ahead, please, okay.
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Speaker 4: For some reason, I keep thinking it's the I can't
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Speaker 4: follow your lip movements anymore.
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Speaker 3: I hear you.
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Speaker 4: So there's that, Mike, there's the elevated energy prices and
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Speaker 4: upward pressure or volatile energy prices so periodic, I'll say,
6:34
Speaker 4: upward pressure on inflation. But inflation uncertainty is associated with
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Speaker 4: higher inflation because expectations aren't going to EBB and flow.
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Speaker 4: They're just gonna they're they're going to stay presumably stay
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Speaker 4: somewhat what higher. So I think the implications of this
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Speaker 4: ongoing conflict in the Middle East, sometimes hot, sometimes cold,
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Speaker 4: are exactly what we've experienced, higher inflation, volatile inflation, and
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Speaker 4: in very higher risk premia and more volatility. Consequently in
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Speaker 4: equity markets.
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Speaker 2: Top American AI executives are sounding the alarm on Chinese
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Speaker 2: AI models.
7:12
Speaker 3: This is after.
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Speaker 2: A new round of releases from I don't even I
7:18
Speaker 2: can't even remember the name of the latest model that
7:20
Speaker 2: was competitive with Anthropics, But yesterday Ali Baba displayed a
7:26
Speaker 2: new model that they intend to release very shortly, and
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Speaker 2: we are clearly in this leap frog type race and
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Speaker 2: an arms race between the US and China when it
7:35
Speaker 2: comes to AI, and the American executives are pointing out
7:39
Speaker 2: something that I think we've made a point of on
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Speaker 2: the show before, But it comes down to the differences
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Speaker 2: in the way the US system is being funded and
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Speaker 2: organized and how the Chinese system is being funded and organized.
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Speaker 2: And no big surprise here, they are pretty different. Here
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Speaker 2: in the United States, big deep pocketed tech firms are
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Speaker 2: funding a build out of their proprietary AI systems that
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Speaker 2: they hold very closely to the vest and are competing
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Speaker 2: with each other to race to get to the latest
8:08
Speaker 2: frontier on artificial intelligence. And for the moment it appears
8:13
Speaker 2: Anthropic is the leader there and they're attracting all sorts
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Speaker 2: of new customers to be part of their ecosystem and
8:19
Speaker 2: use their models that they own as intellectual property. On
8:23
Speaker 2: the Chinese side, for a few different reasons that I
8:27
Speaker 2: can think of, one would just be a shortage of
8:31
Speaker 2: resources when it comes to AI, they do not have
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Speaker 2: the latest and greatest chips. They arguably maybe don't have
8:39
Speaker 2: the same compute capacity as the United States is building
8:43
Speaker 2: and so their model has been very different. They have
8:46
Speaker 2: all these labs that are developing AI models. They release
8:49
Speaker 2: them open source, which means that you can go in there,
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Speaker 2: you can study how it was created, you can look
8:54
Speaker 2: at what factors they put in there, and then you
8:57
Speaker 2: can study the output. You can even take the model itself,
8:59
Speaker 2: down load it, put it behind your own server, and
9:01
Speaker 2: customize it. It's that open source, and there's a number
9:05
Speaker 2: of reasons they might have done that. One of them is, hey,
9:08
Speaker 2: we as a society, the Chinese want to develop the
9:11
Speaker 2: latest and greatest model, and the only way we can
9:13
Speaker 2: compete with the United States and do that is by
9:15
Speaker 2: pooling resources and allowing these different labs to you know,
9:20
Speaker 2: lean on each other in terms of understanding how they
9:22
Speaker 2: do these things. The other one might honestly just be
9:25
Speaker 2: that nobody would be willing to trust trust a closed
9:28
Speaker 2: source Chinese AI model. There might be all sorts of
9:31
Speaker 2: concerns about what's influencing it, how is data going to
9:35
Speaker 2: be used, et cetera, et cetera.
9:37
Speaker 3: I think it's probably both of those things.
9:40
Speaker 2: And then maybe some twinge of communism in there of hey,
9:43
Speaker 2: you know, we as a society or developing these models
9:46
Speaker 2: to compete with us rather than individual companies.
9:50
Speaker 3: You know, take your pick in terms of which one
9:52
Speaker 3: is which.
9:53
Speaker 2: The threat though to US companies why they care about this,
9:56
Speaker 2: so far as I can tell, I believe eve it
10:00
Speaker 2: is purely a profit threat. When we think about these
10:04
Speaker 2: latest and greatest AI companies here in the United States,
10:08
Speaker 2: their goal is to gain customers, paying customers mainly businesses,
10:12
Speaker 2: to use their products and pay them a whole bunch of.
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Speaker 3: Money and buy and large.
10:18
Speaker 2: They've been fairly successful at attracting customers and doing all
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Speaker 2: of this.
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Speaker 4: Is that not just the enterprise software model? By the way,
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Speaker 4: is that like, do what Microsoft did for Office, but
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Speaker 4: do it with AI, license it, improve it every year,
10:30
Speaker 4: so it sounds familiar.
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Speaker 2: And where I think the threat becomes is if Chinese
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Speaker 2: models remain open source. And I'm XYZ company, and let's
10:42
Speaker 2: say I want to use AI for some pretty basic tasks.
10:45
Speaker 2: I want it to be able to pre fill forms,
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Speaker 2: analyze customer data, but I don't need it to code
10:53
Speaker 2: at an incredibly fast paced or you know, come up
10:57
Speaker 2: with brand new drug formulas that I'm going to be
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Speaker 2: in a lab. I'm just using it for pretty basic functionality.
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Speaker 2: The question becomes, why do I need to pay anthropic
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Speaker 2: for this cutting edge model when I can go to
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Speaker 2: a Chinese tech company, take their model that is open source,
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Speaker 2: download it, customize it myself behind my own firewall, and
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Speaker 2: do it for one tenth or one twentieth the cost
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Speaker 2: of what it would pay what it would cost.
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Speaker 3: Me to do the same thing you're not going to have.
11:24
Speaker 4: You are a businessman. You do buy software, and you're
11:27
Speaker 4: not really going to have a choice. You're going to
11:29
Speaker 4: get whatever the vendor of your your customer relationship management
11:33
Speaker 4: database chooses to integrate into its software. Right Like, you're
11:37
Speaker 4: not buying AI, You're buying a word processor, You're buying
11:41
Speaker 4: a CRM.
11:42
Speaker 2: Today, I am, I'm not sure that twelve months from now,
11:44
Speaker 2: I am.
11:45
Speaker 4: You think you'll buy AI separately and then we're going
11:47
Speaker 4: to try to integrate it.
11:48
Speaker 3: I mean, that's the entire reason that a bunch of
11:51
Speaker 3: software to do that for you.
11:52
Speaker 2: Michael, Yeah, I know I don't either, but I think
11:56
Speaker 2: that's conversation. But I think that's the entire point of
11:58
Speaker 2: why all these software stocks sold off so dramatically over
12:01
Speaker 2: the course of this year, is that that is the
12:03
Speaker 2: literal threat, is why do I need a CRM when
12:07
Speaker 2: this large language model is going to do that for me?
12:09
Speaker 3: I'm not sure I buy it.
12:10
Speaker 2: But that's the threat, and so I'm sure that these
12:14
Speaker 2: American AI companies are going to shroud this in national
12:18
Speaker 2: security concerns, which they should.
12:20
Speaker 3: I don't think.
12:21
Speaker 2: I don't necessarily think that US domiciles companies should be
12:24
Speaker 2: using Chinese AI models.
12:26
Speaker 3: But the real threat I don't.
12:28
Speaker 2: Think comes from that, because you can look at an
12:31
Speaker 2: AI Chinese model and find out what's in there, and
12:35
Speaker 2: you can also today at least download it and make
12:38
Speaker 2: sure that there's no feedback going back to that Chinese
12:40
Speaker 2: AI company. The real threat, as far as I can tell,
12:42
Speaker 2: is a financial one. We won't have the profits if
12:45
Speaker 2: companies start using Chinese AI models. We need them to
12:48
Speaker 2: stay domestic. We need them to use big US AI
12:52
Speaker 2: developers and not the extraordinarily cheap Chinese government funded AI
12:57
Speaker 2: labs instead.
12:58
Speaker 3: Let's take a quick break.
12:59
Speaker 2: When we come back, let's talk a little bit more
13:03
Speaker 2: about this Chinese AI story. I actually I think it
13:06
Speaker 2: is a really compelling piece. And again, if there is
13:09
Speaker 2: any competition to the US system, it is the Chinese system.
13:14
Speaker 2: As has been the case with pretty much every big
13:16
Speaker 2: economic push we've seen in the last few decades, whether
13:19
Speaker 2: it's automotives or other new technology. Let's take quick break
13:22
Speaker 2: and I will talk a little bit more about the
13:24
Speaker 2: Chinese AI system and what they're considering next.
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Speaker 2: We were talking before the break about Chinese AI systems
14:33
Speaker 2: and models and their means of developing them them versus
14:37
Speaker 2: you know, the US model, which is closed source competitive
14:41
Speaker 2: versus Chinese model, which is open source.
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Speaker 3: What's the opposite of competitive.
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Speaker 2: I'm sure they are competitive, but kind of pushing all
14:53
Speaker 2: in the same direction in the in the Chinese AI labs.
14:57
Speaker 2: And the follow on story here from the Financial Times
15:00
Speaker 2: is that the Chinese government is considering some export controls
15:04
Speaker 2: and limitations on the transfer.
15:07
Speaker 3: Of their models to overseas companies.
15:10
Speaker 2: So we talked before about you know, my view would
15:13
Speaker 2: be the big threat that US companies in the AI
15:16
Speaker 2: space are detecting from China is that, hey, they're basically
15:20
Speaker 2: giving this stuff away for free, and we can't continue
15:22
Speaker 2: to produce it if we don't have customers. I think
15:26
Speaker 2: the Chinese are detecting that too, that hey, we are
15:28
Speaker 2: producing some pretty valuable stuff and we shouldn't just give
15:31
Speaker 2: it away. And so they are potentially talking about restricting
15:34
Speaker 2: who can download these models and use them behind closed doors.
15:38
Speaker 2: I just wonder, I do wonder how much of a
15:41
Speaker 2: real threat this is. Mark Because we were talking before
15:44
Speaker 2: the break. Like the average US consumer if you said, hey,
15:50
Speaker 2: you can now buy what are the big Chinese.
15:53
Speaker 3: Car brands that are out there? I kind of forget
15:55
Speaker 3: the BYD is a major only want to know. I
15:59
Speaker 3: get this ends that if.
16:01
Speaker 2: All of a sudden, you could purchase a bid vehicle
16:05
Speaker 2: here in the United States from a dealership with a
16:08
Speaker 2: warranty attached to it and actually get it registered, there's
16:11
Speaker 2: a wide swath of Americans who would be perfectly willing
16:14
Speaker 2: to do so because it'd be incredibly cheap, you know,
16:18
Speaker 2: reportedly quite reliable, and a good car. But we don't
16:23
Speaker 2: allow that for obvious reasons, all sorts of security risks
16:26
Speaker 2: that we think of here, including the ability to put
16:29
Speaker 2: US automakers out of business, so we don't allow that.
16:33
Speaker 2: I am not sure that a bunch of businesses would
16:37
Speaker 2: be willing to take the security risk of saying, yeah,
16:39
Speaker 2: I'm just going to start using a Chinese artificial intelligence model.
16:43
Speaker 2: Like it's one thing for it to go to a
16:44
Speaker 2: consumer and say, yeah, this consumer product is you know,
16:47
Speaker 2: seventy percent cheaper, and I mean Walmart's built an entire business.
16:51
Speaker 3: Model on it.
16:52
Speaker 2: When you talk about a financial services company or a
16:55
Speaker 2: healthcare company, or forget all of that. An architecture company
16:58
Speaker 2: that does not, you know, deal with customers on a
17:00
Speaker 2: regular basis. I don't know that any of them would
17:03
Speaker 2: be willing to withstand the reputational risk of allowing software.
17:07
Speaker 4: That's part of the market. We're talking about people that
17:09
Speaker 4: buy software as a service. They're gonna buy whatever version
17:12
Speaker 4: of a Nobody's going to ask what AI Microsoft is using.
17:17
Speaker 4: They trust Microsoft Sure or Salesforce or whoever your vendor
17:22
Speaker 4: for a particular type of software is. But when it
17:25
Speaker 4: comes to your refrigerator, you may not ask, you may
17:29
Speaker 4: not care. I want it to just one. I want that,
17:32
Speaker 4: and it's probably going to run some open source China
17:35
Speaker 4: just like it runs some Chinese programs. And I don't
17:38
Speaker 4: mean to say that demeaningly. It makes sense, I don't
17:41
Speaker 4: I don't know who programmed the chip in my microwave
17:44
Speaker 4: or my oven or what. I don't know why. I'm
17:46
Speaker 4: just giving appliance examples. Automobiles, same thing in China, because
17:51
Speaker 4: they're because they're all made Yeah right, No, it's true though,
17:54
Speaker 4: so there are plenty of consumer products that will run
17:57
Speaker 4: on the cheapest software, even going to know what's in it.
18:00
Speaker 4: You're not going to care. But if you're in a
18:03
Speaker 4: high profile position concerned about reputation risk or your whether
18:09
Speaker 4: it's your firm's public reputation or your own, Uh, you're
18:13
Speaker 4: going to buy from a vendor who has the good
18:16
Speaker 4: housekeeping seal of approval?
18:18
Speaker 2: Is that a US centric viewpoint?
18:21
Speaker 3: Right?
18:22
Speaker 2: Like if you're if you're a European tech company, do
18:24
Speaker 2: you feel the same way, right if you're in charge
18:27
Speaker 2: of it for something.
18:30
Speaker 4: In your example? Could you could you be more? I
18:32
Speaker 4: don't know. I don't even know why I'm asking.
18:34
Speaker 2: I don't have I'm an IT security provider in Germany
18:36
Speaker 2: and I provide IT solutions to major corporations.
18:40
Speaker 4: So you're recommending software.
18:41
Speaker 2: And I'm recommending software, and you know I have a
18:43
Speaker 2: business of building out customized AI models. Am I am
18:48
Speaker 2: I necessarily trusting the Chinese model?
18:53
Speaker 3: Maybe not in that example.
18:54
Speaker 4: Maybe not in that example, but there are plenty of examples.
18:56
Speaker 4: I can think of the headphones that we wear, which
18:59
Speaker 4: are increasing sophisticated, et cetera, that don't represent the same
19:05
Speaker 4: risks that you're talking about where it could easily be used.
19:09
Speaker 2: So we will see again this is pretty cutting edge
19:12
Speaker 2: areas and by all accounts, Chinese are not very far
19:16
Speaker 2: behind in terms of their model development. But will we
19:19
Speaker 2: see those in the US wood companies trust them or
19:22
Speaker 2: you know, even outside the US, would they trust them?
19:24
Speaker 3: Is big open question. Let's take a quick break when
19:28
Speaker 3: we talk.
19:28
Speaker 2: When we come back, I want to talk Wall Street
19:30
Speaker 2: Watch and then Jamie Diamond's latest thoughts on the market.
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Speaker 5: the Dow is up two thirds of a percent, SMP
20:09
Speaker 5: five hundred and now up over three quarters of a percent,
20:12
Speaker 5: NASDAC up one point two percent or three hundred and
20:15
Speaker 5: twenty four points higher. RUSS two thousand is up about
20:18
Speaker 5: one percent. Ten year treasureeled up two basis points at
20:21
Speaker 5: four point six two percent, and oil up two percent higher,
20:26
Speaker 5: trading at eighty five dollars a barrel. General Motors reported
20:29
Speaker 5: better than expected second quarter earnings and raised its full
20:33
Speaker 5: year profit outlook, driven by stronger margins on its largest
20:36
Speaker 5: vehicles and lower tariff costs. GYM shares are up by
20:40
Speaker 5: four percent. Meoil NorVa Nordis said it is suing Eli Lilly,
20:44
Speaker 5: claiming that Lily's advertising for its obesity shot in diabetes
20:47
Speaker 5: injection is misleading consumers. Novo stock is dipping, while Lily
20:53
Speaker 5: stock is up over one percent.
20:55
Speaker 3: Elsewhere.
20:55
Speaker 5: SpaceX rebounding seven percent at on pace to snap at
20:59
Speaker 5: seven days losing streak after the company announced August fourth
21:03
Speaker 5: for its debut earnings report. Three M jumping by nine
21:07
Speaker 5: percent after the manufacturing Conglomber beats second quarter earnings and
21:11
Speaker 5: revenue expectations, and shares in Taiwan TIMM Conductor up by
21:16
Speaker 5: four percent, fallowing report from Nike that the chip maker
21:19
Speaker 5: will raise prices for its services by up to ten
21:22
Speaker 5: percent next year. I'm Tucker Silva, that is Wall Street Watch.
21:28
Speaker 2: Fidelity is the bearer of bad news today for American
21:32
Speaker 2: retirees who now are going to likely see one hundred
21:38
Speaker 2: and eighty five thousand, five hundred dollars needed for their retirement.
21:43
Speaker 2: Healthcare costs for the average person turning sixty.
21:46
Speaker 3: Five this year.
21:47
Speaker 2: That's up from an estimate of one hundred and seventy
21:50
Speaker 2: two five hundred dollars last year, a seven and a
21:53
Speaker 2: half percent jump and the largest jump since at least
21:56
Speaker 2: twenty fifteen, when price is stored by eleven point four percent.
22:00
Speaker 3: According to Fidelity.
22:01
Speaker 2: What they are looking at here are some of the
22:06
Speaker 2: in my mind, most overlooked costs of retirement. But they're
22:10
Speaker 2: looking at your presumed Medicare premiums, which, for twenty twenty six,
22:15
Speaker 2: the cost of a Part B Medicare premium, the base
22:20
Speaker 2: cost assuming you're not subject to the income related monthly adjustment,
22:24
Speaker 2: comes in at two hundred and two dollars and ninety cents.
22:27
Speaker 2: Part D premiums all vary depending on the type of
22:30
Speaker 2: plan that you choose. But their point is that, hey,
22:33
Speaker 2: when you combine those Part B and Part D payments,
22:36
Speaker 2: that's only about half of the total estimated costs for
22:40
Speaker 2: healthcare in retirement. And the real kicker on all this
22:46
Speaker 2: this has nothing to do with long term care costs,
22:49
Speaker 2: So what they're really talking about is true health pharmaceutical,
22:53
Speaker 2: drug plan payments, hospital doctor visits, all of those things
22:58
Speaker 2: they're expecting to cost the average tiree one hundred and
23:01
Speaker 2: eighty five five hundred dollars during their lifetime.
23:05
Speaker 3: And then on.
23:06
Speaker 2: Top of that, if you need assistance because you fall
23:09
Speaker 2: or need to be in an independent or assisted or
23:12
Speaker 2: nursing home facility later in life, that is on top
23:15
Speaker 2: of the estimated one hundred and eighty five thousand, five
23:17
Speaker 2: hundred dollars that they are talking about. And the point
23:22
Speaker 2: that I would make about all of this, I guess
23:24
Speaker 2: is this has been a cost category that has risen
23:29
Speaker 2: dramatically over the course of the last couple of decades,
23:33
Speaker 2: and I see no reason why it would slow down. Unfortunately,
23:37
Speaker 2: you know, baby boomers, you are a huge population. You
23:43
Speaker 2: are going to need increasing levels of care at the
23:46
Speaker 2: same time that there are not enough people in that
23:49
Speaker 2: sector to provide that care. And so unless I'm completely
23:54
Speaker 2: missing something on robotics and automation that is going to
23:57
Speaker 2: make somehow healthcare pre nursing home way cheaper. I tend
24:03
Speaker 2: to think that we're going to continue to see healthcare
24:07
Speaker 2: related inflation for retirees at five percent plus for the
24:11
Speaker 2: next couple of decades as just more and more baby
24:13
Speaker 2: boomers retire and need elevated levels of care. I don't
24:17
Speaker 2: really see many ways around that. Plus, you know, we
24:20
Speaker 2: have all sorts of new innovation in the drug space,
24:23
Speaker 2: which is fantastic. The stuff that we're seeing with GLP
24:27
Speaker 2: ones is extraordinary, but really really expensive. And so where
24:32
Speaker 2: I see mistakes on this front. One, I don't think
24:35
Speaker 2: the average fifty five year old has much of an
24:39
Speaker 2: understanding of how medicare actually works, what the costs look
24:43
Speaker 2: like when it covers the different options that you have
24:45
Speaker 2: to select from, Like the average American I think has
24:48
Speaker 2: thirty plus choices when it comes to different you know,
24:52
Speaker 2: health insurance plans at sixty five, so it's really complicated.
24:56
Speaker 3: Two.
24:58
Speaker 2: I think a lot of people just take the headline
25:00
Speaker 2: inflation number and say, hey, this is what it's going
25:03
Speaker 2: to be. I'm going to need two percent more every
25:06
Speaker 2: year to cover my costs. That also has not been
25:09
Speaker 2: the case, especially if the majority of your costs are
25:12
Speaker 2: coming from health related expenses, and so understanding how to
25:16
Speaker 2: model that stuff out, understanding how to account for it,
25:19
Speaker 2: and ideally how to position your income and assets so
25:23
Speaker 2: that you're not only minimizing your taxes you have to pay,
25:26
Speaker 2: but also minimizing how much you have to pay in
25:29
Speaker 2: health insurance costs can make a huge difference to your
25:32
Speaker 2: retirement plan if you have questions along those lines. I
25:34
Speaker 2: know we've published guides about how Medicare works, how ERMA works,
25:38
Speaker 2: so security taxes, all of these things for retirement. But
25:41
Speaker 2: if you have personal questions about your situation, if you're
25:44
Speaker 2: heading to retirement and try to model out how much
25:46
Speaker 2: you need to have saved for unexpected costs like this,
25:50
Speaker 2: give us a call it Armstrong Advisor Group. The numbers
25:52
Speaker 2: eight hundred three nine three four zero one. You can
25:56
Speaker 2: book a time for us to call you back at
25:57
Speaker 2: Armstrong Advisory dot Com. That phone number once again, eight
26:01
Speaker 2: hundred three nine three four zero zero one.
26:04
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
26:07
Speaker 1: registered investment advisor. Nothing in the ad or in any
26:09
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
26:12
Speaker 1: your own financial tax into state planning advisors before making
26:15
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
26:18
Speaker 1: advisory services.
26:20
Speaker 2: It's another Tuesday, so Jamie Diamond is out with his
26:24
Speaker 2: latest doomsday scenario on markets.
26:27
Speaker 3: Quote.
26:28
Speaker 2: Jamie Diamond says markets underestimate risks and he wouldn't buy
26:31
Speaker 2: stocks or treasuries at current prices. So I'll, you know,
26:35
Speaker 2: back off by saying first reasonable position to have, right,
26:39
Speaker 2: I don't think that's a crazy position to have. When
26:43
Speaker 2: we were talking about this morning mark before we went
26:45
Speaker 2: on air. You know Cape Schiller Cape price. Sorry, Cape
26:51
Speaker 2: means price to earnings. But Cape ratios on the S
26:54
Speaker 2: and P five hundred are among the highest we've ever seen,
26:58
Speaker 2: only surpassed by the pre era. Other measurements of price
27:03
Speaker 2: in stock markets are quite high. We're facing really bad
27:07
Speaker 2: deficit issues and there's a path for interest rates to
27:10
Speaker 2: go a lot higher.
27:11
Speaker 3: I understand how Jamie Diamond.
27:13
Speaker 2: In particular in JP Morgan gets to this viewpoint, but gosh,
27:18
Speaker 2: it's got to be tough working for Imagine you do
27:21
Speaker 2: what we do as a you know, as a branch
27:25
Speaker 2: and financial manager at a Chase bank that works for
27:28
Speaker 2: JP Morgan. I'm going to sit across from a client
27:32
Speaker 2: and tell them, oh, yeah, I think that this balance
27:34
Speaker 2: portfolio of stocks and bonds is right for you. At
27:37
Speaker 2: the same time that our CEO, and by the way,
27:40
Speaker 2: one of the most famous people may be only surpassed
27:43
Speaker 2: by Warren Buffett in terms of financial circles today is
27:45
Speaker 2: telling you that he thinks it's a bad idea.
27:48
Speaker 4: Yeah, he's got a high profile. More people will read
27:51
Speaker 4: about this than see all the advertising JP Morgan is
27:54
Speaker 4: doing this week. Ques He's just they have a lot
27:57
Speaker 4: of equity managers on their payroll. Morgan in addition to
28:01
Speaker 4: being a bank in underwriting issues of stocks and bonds,
28:05
Speaker 4: they manage a small portfolio. Even post vocal role, they
28:09
Speaker 4: still have a They do still do a little bit
28:11
Speaker 4: of proprietary internal training for them, trading for themselves, and
28:16
Speaker 4: they have a lot of strategies that invest in stocks.
28:20
Speaker 4: So obviously it's.
28:23
Speaker 3: Not a company in a precarious position, right, Like.
28:25
Speaker 4: It puts their marketers in it.
28:27
Speaker 3: You're tough, not only the marketers.
28:29
Speaker 2: Like if I believe I'm doing a fiduciary I have
28:32
Speaker 2: a fiduciary duty to my client, and.
28:35
Speaker 4: Oh, you're talking about their advisors, I'm sorry, Well, their advisors,
28:37
Speaker 4: their their portfolio managers.
28:38
Speaker 3: Everyone throughout the think about their financial advisors.
28:42
Speaker 2: Like at the same I simultaneously have a fiduciary obligation
28:45
Speaker 2: to my client when I'm putting them in stocks and bonds,
28:50
Speaker 2: at the same time that the CEO of my company.
28:52
Speaker 3: Who.
28:54
Speaker 2: In a lot of ways injects and informs the opinion
28:57
Speaker 2: of the overall institution, is saying publicly that he doesn't
29:01
Speaker 2: think that stocks and bonds are a good investment.
29:02
Speaker 3: That's that's gotta be.
29:03
Speaker 4: Your some creative litigator may at some point if a
29:06
Speaker 4: client loses money, who a client who.
29:09
Speaker 3: Took don't do this? Why did you do it? Yeah?
29:13
Speaker 4: Right, I didn't even think about that angle. I was
29:16
Speaker 4: thinking about their equity managers, who have a We're in
29:20
Speaker 4: a similar position, but they're not necessarily fiduciar. His larger point, though, is,
29:25
Speaker 4: as you said, a reasonable one. Stocks by any measure
29:30
Speaker 4: are trading at extreme levels relative to recent and longer
29:35
Speaker 4: term earnings. And you could say the same about bonds.
29:38
Speaker 4: So the way you get there is a little bit different.
29:40
Speaker 3: So he makes a different measurement.
29:42
Speaker 4: Yeah, he makes a totally level headed point, yep.
29:46
Speaker 2: But a lot of it is probably just to grab
29:48
Speaker 2: media attention. And it worked, we're covering it, it was
29:50
Speaker 2: covered by the NBA.
29:51
Speaker 4: But to what ends him? And this is not good
29:53
Speaker 4: media attention. And if I'm Morgan Stanley or one of
29:55
Speaker 4: their competitors, Merrill Lynch, a big army of financial advisors
30:00
Speaker 4: of actively and other managed equity strategies. I could use
30:05
Speaker 4: this to sell against them this week. Hey, their CEO
30:07
Speaker 4: is down on America where not. It just complicates things
30:11
Speaker 4: for the people on the front line.
30:13
Speaker 3: No doubt.
30:13
Speaker 2: Let's take quick break when we come back for a
30:16
Speaker 2: little to stack roulette.
30:17
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30:22
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30:25
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30:28
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30:33
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30:51
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31:05
Speaker 2: It's time for a bit of stack. Re'll out to
31:07
Speaker 2: hear mark you mind if I kick things off. So,
31:10
Speaker 2: since we will not be voting on rent control here
31:13
Speaker 2: in the Commonwealth of Massachusetts this year, I wanted to
31:17
Speaker 2: highlight other dumb ideas in housing, because I do just
31:21
Speaker 2: love looking at dumb ideas and housing, and New York
31:24
Speaker 2: City has been chock full of them recently, with their
31:26
Speaker 2: new mayor exploring new ways to get rent down, including
31:31
Speaker 2: all sorts of new regulations for rent control departments and
31:35
Speaker 2: what they are what they're going to be doing there.
31:37
Speaker 2: But the proposal, which is part of Mum Donnie's twenty
31:40
Speaker 2: three point rental Ripoff Report, which I'm just learning about
31:44
Speaker 2: narrow now, would force landlords to only do one of
31:50
Speaker 2: two things to verify tenants credit worthiness. They can either
31:56
Speaker 2: require a credit report that the landlord themselves needs to
31:59
Speaker 2: pay for or or they can request a proof of
32:02
Speaker 2: income from the applicant, but not both. So you may not,
32:07
Speaker 2: under this new rule that he wants to impose as
32:11
Speaker 2: a landlord, get proof of income and a credit report.
32:14
Speaker 2: You can choose one or the other, but you cannot
32:16
Speaker 2: use both in your decision around whether or not to
32:18
Speaker 2: offer a lease to which I would just say that
32:23
Speaker 2: all that would do if I were a landlord in
32:25
Speaker 2: New York City, which I'm not. I'm not a landlord anywhere,
32:28
Speaker 2: but were I a landlord, I would increase my standards
32:32
Speaker 2: for whichever of those two reports that I'm going to
32:34
Speaker 2: get right if I can have less information about my
32:37
Speaker 2: potential tenant. And previously it was going to be I
32:41
Speaker 2: need to have income verification of two hundred thousand dollars
32:44
Speaker 2: because it's New York City and Manhattan and that's what
32:46
Speaker 2: I require, And now I also can't get your credit report.
32:50
Speaker 2: Then I'm going to say, you know what, it's got
32:51
Speaker 2: to be three hundred thousand dollars now in order to
32:53
Speaker 2: make this work. So this is just a silly new
32:58
Speaker 2: regulation that is going to probably make the.
33:00
Speaker 3: Problem worse rather than better.
33:03
Speaker 2: And if any mayor or governor or president wants to
33:08
Speaker 2: increase housing affordability, there is one really good way to
33:10
Speaker 2: do it, which is to create the conditions for more
33:15
Speaker 2: housing construction, which in areas like New York City, in
33:18
Speaker 2: Boston and San Francisco and pretty much everywhere is very costly,
33:23
Speaker 2: difficult to get permits for, and tough to actually do.
33:27
Speaker 2: So instead, we've got fun ideas like this one which
33:30
Speaker 2: are just going to kind of it's not going to
33:33
Speaker 2: backfire in spectacular fashion because it's not such a dramatic
33:36
Speaker 2: change that it's going to completely up end.
33:39
Speaker 3: The housing market.
33:39
Speaker 2: But it is only going to result in one thing,
33:42
Speaker 2: which is more empty apartments, higher standards for renters, and
33:47
Speaker 2: all sorts of things. I actually ran across the scenario
33:49
Speaker 2: the other day of somebody renting in It was either
33:55
Speaker 2: New York or New Jersey, I don't remember which, but
33:59
Speaker 2: they were able to provide income verification as a couple
34:02
Speaker 2: for income of over three hundred thousand dollars and the
34:05
Speaker 2: landlord required a parent to co sign the lease. I
34:10
Speaker 2: don't know how much this apartment costs, but three hundred
34:14
Speaker 2: thousand dollars of income and the landlord said, you know,
34:18
Speaker 2: that's not quite going to get the job done. I'm
34:20
Speaker 2: going to need one of your parents to get me
34:21
Speaker 2: some income verification as well.
34:23
Speaker 3: So that's don't get me wrong.
34:25
Speaker 2: It is a challenging place to rent an apartment in
34:27
Speaker 2: New York City, but this rule is not going to
34:30
Speaker 2: make it any easier.
34:31
Speaker 4: Well, yeah, it works to the detriment of people who
34:34
Speaker 4: are credit worthy, right, I want to share as much
34:38
Speaker 4: information as I can.
34:40
Speaker 2: Maybe you voluntarily can I don't know if that's the
34:42
Speaker 2: case here, but the landlord's can steman.
34:44
Speaker 4: Well then yeah, then in that case, you pull up
34:46
Speaker 4: credit karma and you show them what you're rating is
34:49
Speaker 4: the point on average, your rent should be lower security
34:53
Speaker 4: the risk is low. We talked about risk primeia earlier.
34:56
Speaker 4: That concept can apply to lots of different assets in transactions. Yeah,
35:01
Speaker 4: it's to your advantage to be totally forthcoming if you're
35:05
Speaker 4: a bankable credit.
35:06
Speaker 2: I don't think it ever passed, but in fact, in
35:08
Speaker 2: Massachusetts there was a bill to prohibit employers from allowing
35:13
Speaker 2: credit from reviewing credit reports on potential candidates for employment,
35:17
Speaker 2: which again like less information is going to make it
35:21
Speaker 2: more burdensome to hire and things like that.
35:23
Speaker 3: But nonetheless, that's where we're heading.
35:25
Speaker 4: Yeah, right, right, right, okay, Yeah, that's where we're This
35:28
Speaker 4: is the era of dumb economic ideas, tariffs and taking
35:32
Speaker 4: shares in public companies like the Republicans are now doing.
35:35
Speaker 4: And if that's a surprise to you, yes it's happening.
35:38
Speaker 4: They've owned Chares, We now own Chares and twenty five companies.
35:41
Speaker 4: Imagine what a president AOC will do with those. God
35:44
Speaker 4: forbid to other restrictions on the ability of people, consenting
35:53
Speaker 4: adults to transact for their mutual economic benefit. They all
35:56
Speaker 4: make us little by little worse off. Over time.
35:58
Speaker 3: Yeah, what do you have for us?
36:00
Speaker 4: I was I wanted to combine diamonds comments about well,
36:04
Speaker 4: his comments were extreme about not.
36:06
Speaker 3: Don't I think it's a good time to buy stocks orger?
36:08
Speaker 4: I think a better way to put that is stocks
36:10
Speaker 4: are expensive. Historically, in periods following run quick a quick
36:16
Speaker 4: run up in stock prices, returns have been lower than average.
36:19
Speaker 4: That's not controversial. So combine below average returns with medical
36:23
Speaker 4: inflation of six or seven percent a year, which means
36:27
Speaker 4: that two hundred I'm rounding up from one to eighty five.
36:29
Speaker 4: That's doubling every twelve ten let's just call it ten years.
36:33
Speaker 4: Use the old rule of seventy two. Where are you
36:36
Speaker 4: going to go to ensure that whatever you have set
36:39
Speaker 4: aside for those premiums that you talked about, Mike and
36:41
Speaker 4: other assets that will be used to defray medical costs,
36:45
Speaker 4: what are you going to invest in to ensure that
36:46
Speaker 4: those keep up with medical inflation? If indeed, stocks are
36:51
Speaker 4: set to return something lower than their long term historical average,
36:54
Speaker 4: I'm not saying negative, I'm just saying low to mid
36:56
Speaker 4: single digits. That may not even be enough to keep
36:59
Speaker 4: up with rising medical inflation.
37:01
Speaker 2: It very much calls into question the four percent rule
37:03
Speaker 2: that's used in financial circles when doing planning for retirement
37:06
Speaker 2: all the time. The four percent rule, if you're not
37:08
Speaker 2: familiar coined I think in the eighties fifty to fifty
37:11
Speaker 2: portfolio of stocks and bonds, Should you pull four percent
37:14
Speaker 2: of that balance out per year and plan on that
37:17
Speaker 2: for a length of retirement, then there should be no
37:19
Speaker 2: scenario that would run out of money in that case.
37:22
Speaker 3: But yeah, if you now.
37:24
Speaker 2: Have below sorry below average expected returns for a decade
37:29
Speaker 2: plus out of both stocks and bonds, then it does
37:32
Speaker 2: question call into question all sorts of strategies that have
37:35
Speaker 2: been previously used to support American spending habits. As we
37:41
Speaker 2: head towards the noon hour, markets are accelerating upwards.
37:45
Speaker 3: Here.
37:45
Speaker 2: We've got the NASDAC now up three hundred and twenty
37:47
Speaker 2: three points one and a quarter percent, SMP five hundred
37:51
Speaker 2: up fifty nine points eight tens percent, in the Dow
37:53
Speaker 2: Jones Industrial Average up three hundred and seventy four points
37:56
Speaker 2: three quarters of a percent. Interest rate on a ten
38:00
Speaker 2: year treasury now sitting at four point six two six,
38:03
Speaker 2: and that crucial barrel of oil up two point six
38:06
Speaker 2: percent today to eighty five dollars forty one cents per barrel.
38:10
Speaker 2: We will be back at it tomorrow for a heavy
38:12
Speaker 2: earnings day. Stay tuned, have a great rest of your day.
38:15
Speaker 2: We'll see you in twenty two hours