Latest / The Financial Exchange Show / A better way of thinking about the AI bubble

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A better way of thinking about the AI bubble · The Financial Exchange Show

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  Speaker 2: A happy Veterans Day to all of our listeners out there,
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  Speaker 2: and a big thanks to all those who have served
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  Speaker 2: and protected our country. Here we kick off the second
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  Speaker 2: hour of the program here taking a look around at
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  Speaker 2: markets in relatively mixed territory. The Veterans Day holiday only
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  Speaker 2: impacts the bond markets. They are close today. However, the
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  Speaker 2: stock market is open and the S and P five
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  Speaker 2: hundred off about a quarter percent. The Dow Jones up
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  Speaker 2: about one hundred and eighty points, so not too big
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  Speaker 2: of movement there. We'll kick off our start here with
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  Speaker 2: a subject that we've covered probably add nauseum, but it
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  Speaker 2: is the most important story when you're talking about the
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  Speaker 2: stock market and the growth that we've seen this year,
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  Speaker 2: is the idea of the AI bubble. I'm not the
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  Speaker 2: first to bring it up, I won't be the last
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  Speaker 2: to bring up the subject, but over the course of
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  Speaker 2: the last probably six months or so, there has been
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  Speaker 2: a lot more scrutiny on the amount of expense that
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  Speaker 2: has been lined up to build out the infrastructure to
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  Speaker 2: develop artificial intelligence in this country. The cycle sort of
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  Speaker 2: kicked off with the release in November of twenty twenty
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  Speaker 2: two were coming up on three years now when chat
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  Speaker 2: chpt or a version of it was unveiled, that just
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  Speaker 2: got mass popularity and adoption. I believe chatchpt sits around
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  Speaker 2: seven hundred million plus weekly users at this point, so
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  Speaker 2: it has become much more part of many people's day
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  Speaker 2: to day usage. Now, what you had as a result
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  Speaker 2: is many companies out there scrambling to become the dominant
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  Speaker 2: player in the space. And as a result of that,
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  Speaker 2: it takes billions and billions of dollars to build out
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  Speaker 2: the infrastructure that is required to harness and sort of
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  Speaker 2: materialize the computing power that's required here to make these
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  Speaker 2: large language models or anything else on the software side
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  Speaker 2: that deals with our official intelligence effective. And there's a
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  Speaker 2: piece here that was done by Russell Brandham that sort
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  Speaker 2: of reframes the way that you should think about the
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  Speaker 2: AI bubble, that a bubble doesn't have to be something
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  Speaker 2: that we talk about as an apocalypse, the sort of
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  Speaker 2: the end of the world, that if this bubble is
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  Speaker 2: to pop, that it would be some huge problem. What
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  Speaker 2: we saw to make the parallel comparison to the Internet
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  Speaker 2: age in the late nineties, there were some companies that
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  Speaker 2: came out of that very successful and were built on
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  Speaker 2: the backs of all that infrastructure investment. Think the Googles
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  Speaker 2: and Amazons of the world, But there were many others
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  Speaker 2: that crashed and burned and never really saw a material
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  Speaker 2: gain from that build out. But also note that it
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  Speaker 2: took time before everyone had laptops on their desk and
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  Speaker 2: the Wi Fi connectivity was as widespread as is this country.
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  Speaker 2: It's taken a long time to get there. The same
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  Speaker 2: thing could be said here out of artificial intelligence and
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  Speaker 2: it's built out. The question is just going to be
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  Speaker 2: how long are investors going to willing to be patient
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  Speaker 2: to see any sort of material development on the revenue
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  Speaker 2: growth side of things for all of the money that's
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  Speaker 2: going to be invested in building this thing out and
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  Speaker 2: will profits.
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  Speaker 3: The most interesting take on this, I think is by
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  Speaker 3: Michael Burry and other famous speculators, people who are known
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  Speaker 3: for their short selling acumen, meaning they make a bet
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  Speaker 3: at a share price or a market will will fall.
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  Speaker 3: We don't have to get into the specifics of that,
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  Speaker 3: but there are people who made a lot of money
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  Speaker 3: in the financial crisis of two thousand and eight and
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  Speaker 3: nine who are now sounding warnings about the way companies
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  Speaker 3: are doing their accounting for the stuff they're buying. All
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  Speaker 3: these hundreds of billions three trillion dollars will be needed
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  Speaker 3: to invest, will be needed by the so called hyper scalers,
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  Speaker 3: these people building these big data centers over the next
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  Speaker 3: several years. That's ten percent of one year's worth of
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  Speaker 3: GDP so on. An enormous amount of money is going to
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  Speaker 3: go into this. How are they going to account for that?
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  Speaker 3: And there's this interesting take by some of these short
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  Speaker 3: prominent short sellers that excuse me, earnings will of Meta
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  Speaker 3: and others will be overstated significantly because they've extended the
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  Speaker 3: depreciation schedule, if you will. It's watching the terminology a
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  Speaker 3: little bit here. They've extended the estimated useful life for
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  Speaker 3: accounting purposes of some of these assets. Chips become obsolete
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  Speaker 3: really fast, right.
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  Speaker 2: Three to five years, maybe on some of these new ones.
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  Speaker 3: Like at Best. I think Nvidia makes the joke now
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  Speaker 3: that they can't give away last year's chip. Yes, so
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  Speaker 3: is that worthless if you bought them? And if so,
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  Speaker 3: should that count against your earnings? Companies like Meta and
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  Speaker 3: others are saying no. Some have made the point that
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  Speaker 3: their earnings may be overstated significantly. Twenty thirty percent of
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  Speaker 3: these are short sellers who may be talking up their
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  Speaker 3: own book, but earnings may be significantly overstated for the
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  Speaker 3: next several years. All l sequel is a result of
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  Speaker 3: this accounting. I'll call it a sleight of hand that
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  Speaker 3: may not be fair.
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  Speaker 2: What we've seen is valuations have soared in most any
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  Speaker 2: company that is touching this space, but there is a
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  Speaker 2: huge fork in the road of software continues to be
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  Speaker 2: developed and iterate very quickly. When you look at artificial intelligence,
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  Speaker 2: there's a lot of work done there. But on the
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  Speaker 2: computing side of things, when you're building out computing capacity,
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  Speaker 2: it is much more the traditional slow crawl of construction
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  Speaker 2: and you know power and utility use that takes a
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  Speaker 2: long period of time to get online. So you have
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  Speaker 2: hundreds of billions of dollars committed to building out these
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  Speaker 2: data centers that are faced with the challenges that the
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  Speaker 2: technology sector typically doesn't have to deal with as much.
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  Speaker 2: That they're able to develop and innovate a lot quicker.
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  Speaker 2: But when you're waiting on a data center down Louisiana
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  Speaker 2: that's you know, ten home depots long, there are a
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  Speaker 2: lot of pitfalls that you can bump into on the
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  Speaker 2: construction side on the amount of resources that are dedicated
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  Speaker 2: for that type of plan.
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  Speaker 3: So they're not exaggerating either, these enormous completed data centers
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  Speaker 3: that don't have juice exactly.
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  Speaker 2: Yeah, and you have to be electrical demand for to
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  Speaker 2: get hooked up to the grid. That can take time,
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  Speaker 2: and there's a lot of money be invested in the
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  Speaker 2: other pieces that I have had trouble. And I don't
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  Speaker 2: know if you've ever found a story that indicates this,
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  Speaker 2: that one company adopting artificial intelligence and transforming its business.
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  Speaker 2: And I listen to a lot of material that is
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  Speaker 2: pro this technology, whether it be podcasts or things of
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  Speaker 2: that nature that are on the cutting edge of technology
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  Speaker 2: that in their own best interests really hype up its
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  Speaker 2: potential benefit. But I just wish I had a concrete
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  Speaker 2: example of and I'm talking about the newer artificial intelligence,
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  Speaker 2: because to be clear, Google and Facebook have already cashed
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  Speaker 2: big checks from it. This in a different way. Machine
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  Speaker 2: learning that kind of thing our official in towns, but
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  Speaker 2: the newer iterations of it, I just have not heard.
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  Speaker 3: Machine learning is definitely not new.
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  Speaker 2: Yeah, they are the algorithms and what you see when
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  Speaker 2: you log into your Instagram account or YouTube. Those are
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  Speaker 2: things that were built out from machine learning and algorithms
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  Speaker 2: that are of yesteryear. But so I just want to
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  Speaker 2: be clear that I know that they've benefited from that.
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  Speaker 2: But on the newer side of things, where companies have
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  Speaker 2: said this has been transformative and it has shifted our business,
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  Speaker 2: I just haven't heard enough of those stories yet. McKinsey
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  Speaker 2: and others have done a lot of hot analysis where
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  Speaker 2: there has been cost cutting that has been done as
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  Speaker 2: a result of the use of our official in talents,
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  Speaker 2: but nothing that has transformed the business. So that's where
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  Speaker 2: I have the most trouble. I'm not downplaying the technology,
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  Speaker 2: but I just wish I had some more conc.
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  Speaker 3: We should be skeptical. I mean, in our jay day jobs,
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  Speaker 3: we're fiduciaries. We safeguard people's money. It's our job to
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  Speaker 3: be skeptical and not jump on every bandwagon. So that's
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  Speaker 3: just that's in our nature. But MIT, a group of
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  Speaker 3: researchers at MIT early in the year did a study
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  Speaker 3: and they concluded that just five percent of integrated I'm
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  Speaker 3: reading directly from it from the executive summary, just five
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  Speaker 3: percent of integrated aipilots are extracting value, while the vast
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  Speaker 3: majority remain stuck with no measurable P and L impact
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  Speaker 3: ie they can't figure out how to deploy this stuff profitably.
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  Speaker 3: Ask yourself, have you used Microsoft Office lately? Of course
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  Speaker 3: you have PowerPoint, Excel, Word. We all use the suite.
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  Speaker 3: It is my experience using Office is not materially different.
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  Speaker 3: And I'll throw out Look in there too, And some
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  Speaker 3: of these programs had different names in the nineties. Is
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  Speaker 3: not materially different than it was in the nineteen nineties,
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  Speaker 3: and I would defend that statement. Excel does not do
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  Speaker 3: much more functionally if you don't know how to do
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  Speaker 3: data analytics yourself. It's got some helpers in there now.
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  Speaker 3: But other than that, Excel experience is the same. The
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  Speaker 3: word experience is mostly the same, other than those annoying
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  Speaker 3: prompts about how to finish a freaking sentence like I
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  Speaker 3: don't know what's in my head when I'm writing, when
• 9:54
  Speaker 3: I'm midstream writing, and I don't, and I need them
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  Speaker 3: to distract me a with a prompt so called co pilot.
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  Speaker 3: I'm going to be a little cruel here, but blunt
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  Speaker 3: and say it's useless right now. That is not additive
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  Speaker 3: to mine or anybody's productivity. I would welcome people pointing
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  Speaker 3: out cases of it being productive and additive to helping
• 10:14
  Speaker 3: them do their job more quickly. But to this point
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  Speaker 3: I have not experienced that, and I'm a pretty intense
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  Speaker 3: user of it. I like exploring new features. I'd welcome
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  Speaker 3: it largely. You ask excels, Chat, GPT, copilot add on
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  Speaker 3: to build you a table. It struggles with very basic
• 10:30
  Speaker 3: instructions when you're very specific. I've heard some coders say, well,
• 10:34
  Speaker 3: chat GPT is good for coding, you tell it what
• 10:36
  Speaker 3: you but you have to spend all this time cleaning
• 10:38
  Speaker 3: up their crap code. In my experience that, I mean,
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  Speaker 3: maybe it's better than a newbie right out of college
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  Speaker 3: helping you, but it's not going to replace anybody anytime soon.
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  Speaker 3: My point here, sorry for rambling, is that think about
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  Speaker 3: your own experience now versus the nineties and the nineties.
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  Speaker 3: This stuff was life changing. We went from primitive word
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  Speaker 3: processors to Microsoft World to being able to use Office
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  Speaker 3: from Home and video com All this happened within a
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  Speaker 3: few years. In the nineteen nineties. Sending attachments by email,
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  Speaker 3: they got bigger and better. We've been stalled since then.
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  Speaker 3: In my view, someone who's used the word the office
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  Speaker 3: suite consistently for thirty years, which I think is where
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  Speaker 3: the bulk of the life changing experiences for those of
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  Speaker 3: us in desk jobs has been.
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  Speaker 2: I think that's fair. We're going to take a quick
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  Speaker 2: break here on the Financial Exchange. When we come back,
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  Speaker 2: when we be talking with Corey Adams from Robert haf
• 11:30
  Speaker 2: going over some of the talking points on their recent
• 11:34
  Speaker 2: survey on year end bonuses. We're also going to have
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  Speaker 2: trivia here too right after this break here on the
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  Speaker 2: Financial Exchange. Stick with us.
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  Speaker 2: As promised, we are joined by Corey Adams from Robert
• 12:38
  Speaker 2: Half to talk a little bit about year end bonuses. Corey,
• 12:43
  Speaker 2: thank you so much for joining us today.
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  Speaker 5: Good morning, Paul, Thanks for having me.
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  Speaker 1: Corey.
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  Speaker 2: So, you guys did a survey of two thousand US
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  Speaker 2: professionals and got feedback regarding what they anticipated that their
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  Speaker 2: bonuses would be for this upcoming year. What were some
• 13:02
  Speaker 2: of the major takeaways that you had And another question
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  Speaker 2: there is was a significant percentage of these that were
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  Speaker 2: surveyed with companies that do give your end bonuses, Like
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  Speaker 2: how prevalent is that within the workspace in the country here?
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  Speaker 5: Sure so, according to research let's start here, nearly half
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  Speaker 5: of workers, about forty six percent said that they received
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  Speaker 5: a small bonus and they expected or no bonus at
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  Speaker 5: all in twenty twenty four. Now, the other side of
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  Speaker 5: this is a separate Robert Half research and story that
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  Speaker 5: we conducted. It found that fifty three percent of workers
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  Speaker 5: said that they'd be willing to switch employers for one
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  Speaker 5: offering stronger bonuses incentives And so to answer the second
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  Speaker 5: part of the question, Yes, the dataset that we use
• 13:46
  Speaker 5: was tailored towards employees across the domestic us who as
• 13:50
  Speaker 5: part of their compensation package we received some form of
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  Speaker 5: bonus option.
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  Speaker 2: Gotcha for heading into twenty twenty six, what is sort
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  Speaker 2: of the the year end bonuses? What does that mean
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  Speaker 2: for business confidence going forward? Are you seeing that employers
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  Speaker 2: are a little more hesitant to give as big bonuses
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  Speaker 2: as they did previously in twenty four and sort of
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  Speaker 2: what does that mean for the labor market and perhaps
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  Speaker 2: consumption going into twenty twenty six year?
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  Speaker 5: Sure, so a little bit of both on this, So
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  Speaker 5: I mean thinking about last year. Last year truly was
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  Speaker 5: kind of a mixed bag for bonuses. As I just
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  Speaker 5: stated from our research, nearly half said that their bonus
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  Speaker 5: was significantly smaller or was non existent. So clearly it's
• 14:35
  Speaker 5: a sign that some employers are being a bit more
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  Speaker 5: cautious with variable compensation. Now that being said, many companies
• 14:41
  Speaker 5: still rewarded their top performers, signaling that retention remains a
• 14:45
  Speaker 5: top priority even when their budgets are tight. So we
• 14:48
  Speaker 5: all know that ultimately, bonuses are often a clear indicator
• 14:51
  Speaker 5: of how companies feel about their financial position, their financial performance,
• 14:54
  Speaker 5: as well as their future prospects. So anytime you see
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  Speaker 5: that that gets scaled back, it can certainly suggests some
• 15:02
  Speaker 5: level of uncertainty or tighter margins. But you know, here's
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  Speaker 5: the other thing. We're also seeing some signs of optimism.
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  Speaker 5: Our recent twenty twenty six SAUR guide shows that some
• 15:11
  Speaker 5: companies are actually focusing on total compensation. This is a
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  Speaker 5: big theme here, so it's not about just pay. It's
• 15:16
  Speaker 5: also about offering flexibility, career development, and recognition, and all
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  Speaker 5: of this is being done in an attempt and a
• 15:22
  Speaker 5: design to keep morale high as companies are heading into
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  Speaker 5: twenty twenty six.
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  Speaker 2: What would be some of those example there with flexibility,
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  Speaker 2: career development, and recognition. You know, those are kind of
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  Speaker 2: words that are throw around, but is it more remote work,
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  Speaker 2: Like what does that actually materialize into on the employer
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  Speaker 2: side of things? Do you think?
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  Speaker 5: Sure? I'll give you a few examples. So obviously, around
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  Speaker 5: this time of the year, a number of conversations are
• 15:42
  Speaker 5: going to play out, and some of them might not
• 15:44
  Speaker 5: go as well as some employees would like just the
• 15:47
  Speaker 5: reality of the kind of the market and the climate
• 15:49
  Speaker 5: that we're in. So smart companies are taking a little
• 15:52
  Speaker 5: bit more of a holistic approach in this area, particularly
• 15:54
  Speaker 5: as it pertains to retention. So when cash bonuses are
• 15:58
  Speaker 5: not feasible, they're not an option out in play. There's
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  Speaker 5: a few things that we're seeing that many companies and
• 16:03
  Speaker 5: organizations are offering instead. So the first one to your
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  Speaker 5: question is additional paid time off and flexible schedules, which
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  Speaker 5: we know with flexible schedules that's certainly important more nowadays,
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  Speaker 5: particularly those with families and young kids. The second thing
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  Speaker 5: that we're seeing is professional development stipends, and by the way,
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  Speaker 5: this has come in the form of online certification and
• 16:24
  Speaker 5: online class and this is sort of a double win
• 16:26
  Speaker 5: because if you think about it, if you're paying for
• 16:28
  Speaker 5: your employee develop a new skill set and you're upscaling them,
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  Speaker 5: they're going to have the opportunity to sort of bring
• 16:33
  Speaker 5: that back and pour that into the organization. So it's
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  Speaker 5: a win win for both sides there. And then the
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  Speaker 5: last thing that we're seeing in the absence of cash
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  Speaker 5: bonuses is expanded benefits like wellness incentives or even remote
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  Speaker 5: work options, and so obviously the remote work we've talked
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  Speaker 5: about for a number of years here, and this could
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  Speaker 5: be an incentive that could be offered to an employee
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  Speaker 5: and the absence of a bonus that might not have
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  Speaker 5: been affwarded the option to do any sort of remote
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  Speaker 5: work in the past.
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  Speaker 2: Great information there, Corey Adams from Robert Haff, Thanks so
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  Speaker 2: much for the time today, Corey, Thanks ball, every good day.
• 17:04
  Speaker 4: All right, time for trivia here on the Financial Exchange
• 17:06
  Speaker 4: and on this day. Back in twenty twenty two, cryptocurrency FTX,
• 17:11
  Speaker 4: founded by Sam Bankmanfreed filed for bankruptcy amid accusations of
• 17:16
  Speaker 4: financial mismanagement and criminal misconduct. Bankmanfreed was convicted of fraud
• 17:21
  Speaker 4: and conspiracy and sentenced to prison in November of twenty
• 17:25
  Speaker 4: twenty three. So our cheer of your question today, how
• 17:28
  Speaker 4: long is Sam break Bankman Freed's prison sentence? Once again,
• 17:32
  Speaker 4: how long is Sam Bankman Freed's prison sentence? Be the
• 17:36
  Speaker 4: fourth person today to text us at six one, seven three,
• 17:40
  Speaker 4: six two thirteen eighty five with the correct answer, and
• 17:43
  Speaker 4: you win a Financial Exchange show t shirt once again.
• 17:46
  Speaker 4: The fourth correct response to textas to the number six
• 17:49
  Speaker 4: one seven, three, six, two, thirteen eighty five will win
• 17:52
  Speaker 4: that T shirt. See complete contest rules at Financial Exchange
• 17:55
  Speaker 4: Show dot com.
• 17:57
  Speaker 2: Apple's restraint finds fans as AI faces scrutiny. Here a
• 18:01
  Speaker 2: piece from Bloomberg. Apple is one of the companies of
• 18:04
  Speaker 2: sort of these magnificent seven that we talk about so
• 18:07
  Speaker 2: frequently on the show that hasn't spent a significant amount
• 18:11
  Speaker 2: on developing artificial intelligence. I think perhaps speaking for them,
• 18:15
  Speaker 2: they could be the beneficiary of its development, as they
• 18:19
  Speaker 2: are a huge player on the hardware side of things.
• 18:22
  Speaker 2: Many of us walk around with their iPhones every single day,
• 18:25
  Speaker 2: so if these apps continue to develop and are successful,
• 18:28
  Speaker 2: you'd think that Apple benefits from being the host on
• 18:31
  Speaker 2: the platform. But their capital expenditures this year are fourteen billion,
• 18:36
  Speaker 2: compared to its peers such as Microsoft that will spend
• 18:39
  Speaker 2: up to ninety four billion, and Meta, which is half
• 18:42
  Speaker 2: the size of Apple, is set to have expenditures of
• 18:45
  Speaker 2: more than seventy billion in twenty twenty five. So as
• 18:49
  Speaker 2: a result of that, Apple has sort of sat on
• 18:52
  Speaker 2: the sidelines of this trade that hurt them earlier in
• 18:55
  Speaker 2: the year, where a lot of the companies that were
• 18:57
  Speaker 2: heavy in our official intelligence got a significant run oot
• 19:00
  Speaker 2: up in their stock price, but more recently it's benefited
• 19:03
  Speaker 2: them a bit as there's been some concerns that have
• 19:06
  Speaker 2: arisen regarding all of those capital expenditures that I alluded
• 19:10
  Speaker 2: to there. So we'll be interesting to see if Apple
• 19:13
  Speaker 2: makes more investment in our official intelligence. But sort of
• 19:15
  Speaker 2: taking a wait and see approach here at the moment,
• 19:19
  Speaker 2: we're going to take a quick break here on the
• 19:22
  Speaker 2: Financial Exchange. When we come back, we're gonna have the
• 19:24
  Speaker 2: answer to our trivia question and Wall Street watching much
• 19:28
  Speaker 2: much more right after this break.
• 19:39
  Speaker 1: Bringing the latest financial news straight to your radio. Every day.
• 19:44
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:49
  Speaker 1: Time now for Wall Street Watch a complete look at
• 19:53
  Speaker 1: what's moving market so far today right here on the
• 19:56
  Speaker 1: Financial Exchange Radio Network.
• 19:58
  Speaker 4: After yesterday' strong rebound markets, today our mixed territory after
• 20:03
  Speaker 4: the Senate officially passed a bill to envy historic government shutdown,
• 20:07
  Speaker 4: sending it to the House. Right now, the Dow is
• 20:11
  Speaker 4: up by nearly half a percent or two hundred and
• 20:13
  Speaker 4: seventeen points, SMP five hundreds down about a quarter percent
• 20:17
  Speaker 4: or eighteen points, NASDAC down about three quarters of a percent.
• 20:21
  Speaker 4: Or one hundred and eighty four points rusted two thousands,
• 20:24
  Speaker 4: down about a quarter of a percent. Bond market closed
• 20:26
  Speaker 4: today in an observance of the Veterans Day holiday, and
• 20:30
  Speaker 4: crew to Oil up nearly two percent higher, trading at
• 20:33
  Speaker 4: sixty one dollars in seventeen cents a barrel. In Nvidia
• 20:37
  Speaker 4: retreating three percent after soft Bank disclosed it sold its
• 20:41
  Speaker 4: entire five point eight billion dollar stake in the chip
• 20:44
  Speaker 4: maker and AI giant, where the firm set it looks
• 20:47
  Speaker 4: to capitalize on its all in bet on chat GPT
• 20:50
  Speaker 4: maker Open Ai, sticking with AI, where Core Weave stock
• 20:54
  Speaker 4: is plunging thirteen percent after the company posted a disappointing
• 20:58
  Speaker 4: full year guidance and cited a delay by a third
• 21:01
  Speaker 4: party data center developer. Core We've saw its revenue more
• 21:05
  Speaker 4: than double in the previous quarter, driven by the AI boom,
• 21:08
  Speaker 4: while its net loss narrowed. Meanwhile, Plant based protein company
• 21:13
  Speaker 4: in recent meme stock Beyond Meat, saw it's loss widen
• 21:16
  Speaker 4: and sales declined last quarter as demand from customers and
• 21:20
  Speaker 4: restaurants fell beyond Now down eight percent. Elsewhere, Paramount reported
• 21:25
  Speaker 4: growth from its streaming division in its first quarterly report
• 21:28
  Speaker 4: since its merger with sky Dance. Paramount also raised its
• 21:32
  Speaker 4: cost cutting target to at least three billion dollars. That
• 21:36
  Speaker 4: stock is jumping ten percent, and Occidental Petroleum reported mixed
• 21:40
  Speaker 4: third quarter results, beating on adjusted earnings but missing on
• 21:43
  Speaker 4: revenue estimates. However, the shares are up over two percent.
• 21:48
  Speaker 4: I'm Tucker Silva and that is Wall Street Watch. And
• 21:50
  Speaker 4: in the previous segment we asked you the trivia question
• 21:52
  Speaker 4: how long is Sam Bankman Freed's prison sentence? That will
• 21:56
  Speaker 4: be twenty five years. Chris from Wakefield Masses are winner
• 22:00
  Speaker 4: today taking them a Financial Exchange Show t shirt. Congrats
• 22:03
  Speaker 4: to Chris, and we play trivia every day here in
• 22:05
  Speaker 4: the Financial Exchange See complete contest rules at Financial Exchange
• 22:09
  Speaker 4: Show dot com.
• 22:10
  Speaker 2: In the previous segment, we were talking a little bit
• 22:12
  Speaker 2: about Apple's positioning as it comes to the artificial intelligence wave,
• 22:17
  Speaker 2: how they perhaps have not invested or they haven't invested
• 22:21
  Speaker 2: as significantly as some of their megacap peers. But Mark,
• 22:25
  Speaker 2: you had a follow up question for me.
• 22:27
  Speaker 3: You follow these stories closely, so where do its critics
• 22:30
  Speaker 3: think Apple should be spending more? Because these articles when
• 22:34
  Speaker 3: I come across them, are always very vague. Is there
• 22:36
  Speaker 3: a particular area where they think they're falling behind their competitors.
• 22:40
  Speaker 2: One would be on You could say that perhaps that
• 22:45
  Speaker 2: they should be developing their own large language model and
• 22:48
  Speaker 2: they that should be incorporated with Siri, which is just
• 22:51
  Speaker 2: useless in my view at this point on their devices.
• 22:55
  Speaker 3: So Siri inferior to the Google operating software operating systems
• 23:01
  Speaker 3: version of an aisyst.
• 23:03
  Speaker 2: The general feedback and Siri from personal experience and also
• 23:07
  Speaker 2: I believe for many other users out there, is that
• 23:10
  Speaker 2: it lags behind the large language model capabilities of our
• 23:14
  Speaker 2: I mean the speaking aspect different is differentiated from chat,
• 23:18
  Speaker 2: Gibt or Gemini or some of these others, but it
• 23:20
  Speaker 2: pales in comparison the user experience using that versus some
• 23:25
  Speaker 2: of these other large lengths.
• 23:26
  Speaker 3: And is that moving people to somebody else's operating system though?
• 23:29
  Speaker 3: Or is it just kind of a nice thing to.
• 23:31
  Speaker 2: Have or nice thing to have, you know?
• 23:32
  Speaker 3: I think that, well then why would they?
• 23:34
  Speaker 2: Yeah that that's one the benefit the reason that they
• 23:38
  Speaker 2: could be a beneficiary, and perhaps that your skepticism is
• 23:41
  Speaker 2: right by saying do they really have to do they
• 23:44
  Speaker 2: really have to invest the significant amount? Ultimately they could
• 23:47
  Speaker 2: create what is the walled garden here of any type
• 23:51
  Speaker 2: of app innovation that comes about through our official intelligence
• 23:54
  Speaker 2: is going to have to be hosted on one of
• 23:55
  Speaker 2: Apple's platforms, whether it's the iPhone or any of the
• 23:59
  Speaker 2: other hardware devices that you use. So ultimately, their services division,
• 24:04
  Speaker 2: which is going to take that twenty five percent revenue
• 24:07
  Speaker 2: cut of anything that's launched on their system, on their
• 24:12
  Speaker 2: io system for applications download, you could argue that, hey,
• 24:15
  Speaker 2: they're going to sit right there as sort of the
• 24:19
  Speaker 2: entry way into where all of these innovative apps would
• 24:22
  Speaker 2: be posted in the first place, So why do they
• 24:24
  Speaker 2: need to spend the billions of dollars to do it?
• 24:27
  Speaker 2: The counter argument would be the reason that open ai
• 24:31
  Speaker 2: went out and hired It's Bonnie, what's the developed the
• 24:35
  Speaker 2: one who designed jony I Thank you, is because they
• 24:39
  Speaker 2: want to create their own hardware system that would supplement
• 24:43
  Speaker 2: or not would supplant the iPhone there. So that's sort
• 24:47
  Speaker 2: of the pros and cons of the position that they
• 24:52
  Speaker 2: sit in at the moment. But other than the seri front,
• 24:55
  Speaker 2: I can't really think of anything. Also, it's design of
• 24:58
  Speaker 2: its own chips, you know, that's another aspect here that
• 25:03
  Speaker 2: if they could utilize that to sort of further enhance
• 25:08
  Speaker 2: their position with the custom chifts that they have in place.
• 25:10
  Speaker 2: Maybe that that's their play there.
• 25:12
  Speaker 3: Yeah, okay, I think you've done a great job of
• 25:14
  Speaker 3: explaining it. It's just still very non specific criticisms, not
• 25:17
  Speaker 3: based on what you just told me, but based on
• 25:19
  Speaker 3: the articles that I occasionally read on this subject. They
• 25:21
  Speaker 3: seem very non specific. Well, yeah, Apple hasn't jumped on
• 25:25
  Speaker 3: the bandwagon and they're being punished. Well, what do you
• 25:28
  Speaker 3: think they're missing out on specifically and how is that
• 25:31
  Speaker 3: likely to hurt them in two, three or five years?
• 25:35
  Speaker 2: And to be fair, in their history, a lot of
• 25:37
  Speaker 2: times they have come in late to the party on
• 25:40
  Speaker 2: technology trends, but come out with the best product after
• 25:43
  Speaker 2: the fact. The iPhone is an example of that. The PCs,
• 25:46
  Speaker 2: the mac pieces that they develop at some points of
• 25:49
  Speaker 2: time were better than the competitors out there, and then
• 25:52
  Speaker 2: they took a foothold after the fact. They weren't the first,
• 25:54
  Speaker 2: but they became the best. Okay, we'll see, that's.
• 25:57
  Speaker 3: Helpful, thank you.
• 25:58
  Speaker 4: The US Virgin Islands isn't just a postcard. It's alive
• 26:01
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• 26:12
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• 27:05
  Speaker 2: First Brands a little known company that has got a
• 27:08
  Speaker 2: lot of negative notoriety over the course of the last
• 27:11
  Speaker 2: few months. Here regarding its business practices and sort of
• 27:16
  Speaker 2: shining a further spotlight on the private credit market. The
• 27:20
  Speaker 2: new CEO who's taken over for First Brands for listeners
• 27:24
  Speaker 2: out there, that it's an auto parts store that got
• 27:27
  Speaker 2: all tied up in a massive scandal with over leveraging
• 27:33
  Speaker 2: themselves to many different creditors out there. The new CEO
• 27:38
  Speaker 2: who's taken on the First Brand's role, Charles Moore, testified
• 27:42
  Speaker 2: that the founder of First Brands Or did the transfer
• 27:45
  Speaker 2: of hundreds of millions of dollars of corporate cash to
• 27:47
  Speaker 2: his personal bank account and businesses that he controlled. He
• 27:50
  Speaker 2: also testified more this is that he uncovered evidence of
• 27:54
  Speaker 2: massive financial fraud at the company, including fake invoices and
• 27:59
  Speaker 2: double pledging of collateral, so basically taking an asset and
• 28:02
  Speaker 2: pledging it for two different loans out there. Three members
• 28:05
  Speaker 2: of the management team have admitted to doctoring invoices to
• 28:09
  Speaker 2: the new chief executive, Charles Moore, in order to secure financing.
• 28:14
  Speaker 2: So mark clearly a significant amount of fraud it appears
• 28:17
  Speaker 2: under the hood here at First Brands, and that would
• 28:20
  Speaker 2: be the argument that you could have if you are
• 28:23
  Speaker 2: not concerned about the glut of private credit out there
• 28:26
  Speaker 2: that perhaps this is just one bad actor and an
• 28:28
  Speaker 2: example of financial fraud, just a one off. But others
• 28:33
  Speaker 2: have just raised concern that perhaps this is more prevalent
• 28:36
  Speaker 2: in the space because of the just explosion of the
• 28:39
  Speaker 2: private credit market over the last five to ten years.
• 28:42
  Speaker 3: Yeah, I think it's the latter. There will be other
• 28:45
  Speaker 3: end Jamie Diamond used the cockroach analogy. I think he's
• 28:47
  Speaker 3: probably right financial conditions. We don't know if this, if
• 28:52
  Speaker 3: this James Fellow is guilty. The anecdotes are a little
• 28:58
  Speaker 3: comical because they're they're so uh, they're so audacious and
• 29:03
  Speaker 3: and and and flavorant, and it was it seems like
• 29:06
  Speaker 3: he wanted to get caught doubleching of invoices, using them
• 29:10
  Speaker 3: as collateral to get loans, using multiple getting multiple loans
• 29:13
  Speaker 3: on the same collateral, but like gett multiple mortgages on
• 29:16
  Speaker 3: the same house.
• 29:16
  Speaker 5: Yeah, on these can actually do.
• 29:18
  Speaker 3: Maybe that's not a great example, but lying lying to
• 29:20
  Speaker 3: you're just lenders of it.
• 29:21
  Speaker 2: If you're doing if you were going through these business practices,
• 29:24
  Speaker 2: you're just waiting for it to blow, You're waiting for
• 29:26
  Speaker 2: it to catch up.
• 29:27
  Speaker 3: We're definitely getting bolder, it seems like. But I think
• 29:30
  Speaker 3: that the the The key point others have made this
• 29:33
  Speaker 3: point is that financial conditions are quite loose. I naturally
• 29:36
  Speaker 3: blame the FED for that, because they're responsible for financial conditions,
• 29:39
  Speaker 3: and when you create frothy conditions, and they almost certainly have.
• 29:44
  Speaker 3: We spent the first hour talking part of it anyway
• 29:46
  Speaker 3: about a potential bubble in AI and elsewhere. Invariably that
• 29:51
  Speaker 3: attracts bad actors and you get stuff like this. What's
• 29:57
  Speaker 3: equally puzzling is how U big institutions that lent them
• 30:02
  Speaker 3: money or otherwise pronounced on the credit worthiness of these
• 30:06
  Speaker 3: loans missed all this stuff. So there's always that aspect
• 30:09
  Speaker 3: of stories like this too. Who was doing the due
• 30:11
  Speaker 3: diligence on this stuff, meaning who was making sure that
• 30:14
  Speaker 3: in this case First Brands collateral was actually existed, which
• 30:20
  Speaker 3: apparently it didn't.
• 30:22
  Speaker 2: Yeah, whenever you have froth, there are a lot of
• 30:25
  Speaker 2: demand in a market. It always seems like you're able
• 30:28
  Speaker 2: to companies are able to manipulate that demand and start
• 30:32
  Speaker 2: to get a little less scrupulous with some of their business.
• 30:34
  Speaker 3: Yeah, the accounting scannels of late nineties happened during a boom.
• 30:37
  Speaker 3: You would think, well, times are good, you don't need
• 30:39
  Speaker 3: to cut corners. No, for some reason, these people who
• 30:43
  Speaker 3: are kind of sociopathic, I guess to begin with, the
• 30:45
  Speaker 3: temptation just becomes too great greed.
• 30:48
  Speaker 2: Yeah, that's the story. We're going to take a quick
• 30:51
  Speaker 2: break here on the Financial ex Scenes. When we come
• 30:53
  Speaker 2: back room, you're doing a little bit of stack roulette
• 30:55
  Speaker 2: right after this.
• 30:58
  Speaker 1: Here the Financial Exchange every day from eleven to noon
• 31:01
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• 31:04
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• 31:52
  Speaker 2: All right, we are back for a little bit of
• 31:55
  Speaker 2: stack roulette, Mark, I will let you bad lead off.
• 31:58
  Speaker 2: I know you've got some zin kooky story for us,
• 32:02
  Speaker 2: or perhaps some more shatter about the FED.
• 32:07
  Speaker 3: Now, a story about reverse mortgages in the Financial Times
• 32:11
  Speaker 3: caught my eye. For what it's worth, not something we
• 32:13
  Speaker 3: talk about a lot, not something I know much about. Frankly,
• 32:19
  Speaker 3: so I found this interesting for what it is worth
• 32:21
  Speaker 3: cash strapped American seniors. The Financial Times reports are turning
• 32:24
  Speaker 3: to reverse mortgages a controversial type of loan. Do you
• 32:28
  Speaker 3: agree with that statement? Are they controversial?
• 32:29
  Speaker 2: Yes, They've been sold under manipulative pretenses in the past.
• 32:34
  Speaker 3: Okay, so people not knowing what they were getting into,
• 32:37
  Speaker 3: not understanding what is the biggest oak. So the point
• 32:40
  Speaker 3: of this story is that demand for these suckers ticked
• 32:43
  Speaker 3: up rose more than six percent the number of federally
• 32:46
  Speaker 3: insured mortgages did, the Financial Time says in the last
• 32:49
  Speaker 3: in the twelve months ending September thirtieth, It doesn't appear,
• 32:53
  Speaker 3: by the way. That's the number of reverse mortgages is
• 32:56
  Speaker 3: well below it's all time high, which was hit in
• 32:59
  Speaker 3: the late two thousands. Maybe that was when the oldest
• 33:03
  Speaker 3: of the baby boomers just began to enter retirement and
• 33:09
  Speaker 3: needed that additional income, and the use of these has
• 33:12
  Speaker 3: just been trending. That's not too strong a word, trending
• 33:15
  Speaker 3: down way down. It's just a fraction of what it
• 33:17
  Speaker 3: was now, of what it was in the late two
• 33:19
  Speaker 3: thousands today. But manipulative practices, you mean people are getting
• 33:27
  Speaker 3: people were goaded into getting into these things, not realizing
• 33:29
  Speaker 3: that what they lose their house at the end of
• 33:31
  Speaker 3: the term, like when you die, the house goes to
• 33:33
  Speaker 3: the lender.
• 33:34
  Speaker 2: Yeah, there's a lot of costs regarding the setup of
• 33:38
  Speaker 2: these these loans, so closing costs, origination fees, mortgage and
• 33:43
  Speaker 2: mortgage insurance premiums. So there was manipulation historically by those
• 33:47
  Speaker 2: who were preying on seniors and selling them by perhaps
• 33:51
  Speaker 2: not disclosing some of the higher than normal closing costs
• 33:55
  Speaker 2: and some of the other issues that went in with closing.
• 33:58
  Speaker 3: Like any mortgage, there are fees.
• 34:00
  Speaker 2: There are a lot of fees that are associated with it.
• 34:03
  Speaker 2: It's complex in terms of the age, the ocimcies, some
• 34:06
  Speaker 2: of the rules surrounding it. There's some complexities there that
• 34:09
  Speaker 2: just people would have to be aware of. You also
• 34:12
  Speaker 2: have just the general financial principles that interest continues to snowball, right,
• 34:16
  Speaker 2: You're borrowing against your equity at a interest rate in
• 34:20
  Speaker 2: the house, and so you're not making payments on that
• 34:24
  Speaker 2: interest that accrues, and so as a result, you're eroding
• 34:27
  Speaker 2: way at your equity. That that should be understandable for
• 34:30
  Speaker 2: anyone who's taking that out. That's not a new concept,
• 34:32
  Speaker 2: but that is certainly an issue that people just have
• 34:36
  Speaker 2: to be aware of. And of course the risk of
• 34:40
  Speaker 2: the impact it has on your state or your heirs,
• 34:43
  Speaker 2: but all those things are you would think that they
• 34:45
  Speaker 2: would be understood. Just something that there's been instances of,
• 34:51
  Speaker 2: you know, problems within the past, just and how it's sold.
• 34:53
  Speaker 2: Not to say it can't work for some folks, but
• 34:56
  Speaker 2: every everyone's situation is different. But usually it does have
• 35:00
  Speaker 2: a bad name that makes advisors of people's you know,
• 35:05
  Speaker 2: kind of recoil a little bit. It should be often
• 35:08
  Speaker 2: an area of last resort. You don't want to typically
• 35:11
  Speaker 2: leverage your home, your equity in your home because you
• 35:14
  Speaker 2: always need a place to sleep. So you don't want
• 35:16
  Speaker 2: to put yourself in jef brave if you don't have to.
• 35:19
  Speaker 2: There updated news on credit cards, and I'm starting to
• 35:24
  Speaker 2: get a little nervous about this Visa and MasterCards settlement here.
• 35:29
  Speaker 2: So there's been a long battle regarding interchange, which is basically,
• 35:34
  Speaker 2: if you or I go to swipe our card at
• 35:36
  Speaker 2: the local gas station, there is a fee that is
• 35:40
  Speaker 2: assessed to that gas station for me using a Visa
• 35:43
  Speaker 2: or MasterCard, can be anywhere from two and a half
• 35:45
  Speaker 2: to three percent, depending on what card you're talking about. Now,
• 35:48
  Speaker 2: Visa or MasterCard, they don't net that whole two and
• 35:51
  Speaker 2: a half or three percent. They take a very small
• 35:53
  Speaker 2: percentage of that called interchange. There has been a lot
• 35:57
  Speaker 2: of push by merchants for years to lower that fee,
• 36:01
  Speaker 2: and now it appears that there is a settlement that
• 36:03
  Speaker 2: still needs cort approval that could have negative implications to
• 36:10
  Speaker 2: what different merchants accept in terms of Visa credit cards.
• 36:13
  Speaker 2: Now typically is somewhere like Costco says we accept Visa
• 36:17
  Speaker 2: credit cards. That means they accept all Visa credit cards.
• 36:20
  Speaker 2: But there's the possibility that you, if I have a
• 36:25
  Speaker 2: Chase Sapphire rewards card, would pay a higher cost for
• 36:29
  Speaker 2: an item mark than you would with a lower version
• 36:32
  Speaker 2: of that card. For example, basically they would break out
• 36:35
  Speaker 2: tears of charge based on rewards card versus a more
• 36:39
  Speaker 2: basic version of a credit card, and that would just
• 36:42
  Speaker 2: drive me insane to have to worry about do I
• 36:45
  Speaker 2: have the right type of card that.
• 36:46
  Speaker 5: Works not here.
• 36:47
  Speaker 2: But the downside to the merchant doing that is I say,
• 36:51
  Speaker 2: all right, Costco's not going to accept my you know,
• 36:54
  Speaker 2: Chase rewards card, then I'm less likely to shop there
• 36:58
  Speaker 2: because they're going to nickel and dye me every single time.
• 37:01
  Speaker 2: So there would be counter forces in place if this
• 37:03
  Speaker 2: were to be the ripple effects of this settlement in place.
• 37:08
  Speaker 2: So there's still a lot to be sorted out here,
• 37:12
  Speaker 2: but that plus potential for rewards to be clawed back
• 37:16
  Speaker 2: a little bit, because this settlement does require a point
• 37:19
  Speaker 2: one percent reduction and Interchase fees paid over five years,
• 37:24
  Speaker 2: So that would mean that you know, some of these
• 37:26
  Speaker 2: rewards program maybe they'd have to peel back some of
• 37:28
  Speaker 2: their offerings a little bit, depending on what the card
• 37:32
  Speaker 2: issuer looks like. So I just hope it doesn't get
• 37:34
  Speaker 2: to that complexity of you know, certain cards you can't
• 37:38
  Speaker 2: use at certain places, or you're charge more for using
• 37:41
  Speaker 2: certain cards. It's much easier to just be you accept Visa,
• 37:44
  Speaker 2: or you accept MasterCard, or you don't, rather than breaking
• 37:47
  Speaker 2: out each different tier of card and charging differently for those.
• 37:51
  Speaker 3: So yeah, I feel like it's a pretty good racket
• 37:53
  Speaker 3: right now for some of us. I'd hate to have
• 37:55
  Speaker 3: that disrupted.
• 37:56
  Speaker 1: Yeah.
• 37:56
  Speaker 2: I'll never forget when I was almost too good to
• 37:58
  Speaker 2: be true, that out on a date and I at
• 38:00
  Speaker 2: a place that I didn't expect American Express. That really
• 38:03
  Speaker 2: left me in a bad spot. That's all the time
• 38:06
  Speaker 2: that we have for this edition of the Financial Exchange,
• 38:09
  Speaker 2: but we'll be right back at it tomorrow at ten am.
• 38:12
  Speaker 2: A happy Terands Day to all our listeners out there.
• 38:15
  Speaker 2: Thank you so much for your service and for joining us.
• 38:17
  Speaker 2: We appreciate it.