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IBM Warning Shows the Cost of the AI Spending Boom · The Financial Exchange Show

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Speaker 1: a donation Today. Face is the Financial Exchange with Mike
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Speaker 1: Armstrong and Mark Vandetti.
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Speaker 2: Good morning, and welcome back to the Financial Exchange. After
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Speaker 2: a modest sell off yesterday in equity markets, we've got
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Speaker 2: all three major indices in the positive this morning, on
1:21
Speaker 2: a Tuesday morning where Kevin worsh is heading to Capitol
1:25
Speaker 2: Hill to testify in front of a House panel. You've
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Speaker 2: got the NASDAC up about a percentage point two hundred
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Speaker 2: and forty six points in early trading, the SMP up
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Speaker 2: about half a percent thirty five points, and the Dow
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Speaker 2: Jones Industrial Average up forty six points, basically flat, up
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Speaker 2: a tenth of a percent so far in early trading.
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Speaker 2: At eight thirty am this morning, Mark, we got a
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Speaker 2: report from the Bureau of Labor Statistics on the state
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Speaker 2: of prices here in the United States, and uh, this
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Speaker 2: is my first time saying this in a while.
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Speaker 3: It was actually pretty good report.
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Speaker 2: Prizingly, not only did energy prices fall, but overall in
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Speaker 2: the June to May timeframe you saw prices even excluding
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Speaker 2: food and energy that flatlined in the month of June
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Speaker 2: compared to May, and so specifically energy prices down. We
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Speaker 2: know gas prices have fallen since you know, since May,
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Speaker 2: with tensions that had dissipated in the month of June
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Speaker 2: between the US and Iran.
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Speaker 3: He's there, Tucker, Are you.
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Speaker 1: Just breaking something just fell out of my microphone?
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Speaker 2: Well, I wouldn't worry about It'll be fine. Nonetheless, you
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Speaker 2: had a overall price that fell by four tenths of
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Speaker 2: a percent June compared to May prices down four tenths
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Speaker 2: of a percent. When you strip out those pieces, the
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Speaker 2: flat price is basically flatlined June over May, which, given
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Speaker 2: the pace of price increases so far this year, would
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Speaker 2: be welcome news if we could get back to a
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Speaker 2: eventually a state of two percent ish price increases. This
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Speaker 2: one report does not indicate we will get there, but
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Speaker 2: was I think definitely a welcomed cooling off period. After again,
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Speaker 2: the concern that I had about prices in the January
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Speaker 2: through May time frame, which was probably yours two, was
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Speaker 2: not just about energy prices. Energy prices were significantly higher
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Speaker 2: that drove inflation higher, but even excluding that, you had
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Speaker 2: core prices.
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Speaker 3: You had prices moving everywhere.
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Speaker 2: And whether that was because of wealthy boomers who are
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Speaker 2: spending money like it's going out of style, whether it
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Speaker 2: was because of AI companies that are pouring money into
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Speaker 2: employment and.
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Speaker 3: Data center construction.
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Speaker 2: Whether it was oil prices that are seeping into everything
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Speaker 2: else and causing core prices to go up. It was
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Speaker 2: a concerning sign in the first half of the year
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Speaker 2: or the first five months of the year. And this
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Speaker 2: is the first sign we've gotten that, hey, maybe we
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Speaker 2: can move towards a cooling off per on prices.
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Speaker 4: Right, the question is always what's really going on with inflation.
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Speaker 4: The month to month figures are noisy, so you either
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Speaker 4: could take an average, but that's a slow process, or
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Speaker 4: you can trim extremes. Core is one way of removing
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Speaker 4: things that you suspect are distorting the real inflation picture.
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Speaker 4: And as you said, core was flat. There are other
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Speaker 4: ways you could trim extreme price movements. No matter what
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Speaker 4: component they come from. It's not necessarily food or energy
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Speaker 4: that will distort the trend in inflation. It could be insurance,
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Speaker 4: it could be cell phone bills. I use those two
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Speaker 4: his examples because in the past they have given false
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Speaker 4: signals or contributed to an overall picture which was which
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Speaker 4: was unrepresentative. We did get median inflation, which is a
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Speaker 4: trimmed measure, trims everything, but the category in the very middle,
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Speaker 4: the median and median inflation came in at point two
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Speaker 4: percent month over month, so lower than the previous month
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Speaker 4: which was point three, but on an ani zed basis
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Speaker 4: still an excess of the FEDS two percent target. Trimmed mean,
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Speaker 4: which is another is that name suggests trimming measure. I
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Speaker 4: think trim mean trims the top and bottom, or trims
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Speaker 4: like the top eight percent and the bottom twelve or
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Speaker 4: something that they arrived at through statistical techniques. Trimmed mean
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Speaker 4: came in at zero interestingly, so it could be that
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Speaker 4: the observation in the middle that results in median inflation
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Speaker 4: is not representative. Maybe trim is preferable, Maybe something in
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Speaker 4: between is the true story. When you look at core,
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Speaker 4: trimmed mean, and median, the overall picture points to some
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Speaker 4: disinflation yep falling prices, if not outright deflation, which headline
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Speaker 4: pointed to, which nobody thinks is sustainable.
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Speaker 2: So obviously, as we're seeing this week with oil prices,
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Speaker 2: all of this stuff can reverse rather rapidly. Should you
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Speaker 2: see oil prices shoot backup, you can see gas prices
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Speaker 2: shoot backup. We could be you know, back in the
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Speaker 2: four to five dollars gas range within.
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Speaker 3: Days should things continue.
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Speaker 2: So I think all in open question here in terms
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Speaker 2: of where prices go, but for the moment, a set
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Speaker 2: of good news from the BLS on inflation.
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Speaker 3: Here.
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Speaker 2: We also this morning before the bell, received earnings from
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Speaker 2: five major banks, City Group, Wells, Fargo, Bank of America, JP, Morgan, Chase,
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Speaker 2: and Goldman Sachs all reporting their earnings. Who's the last
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Speaker 2: player that's going tomorrow? Morgan Stanley will be reporting tomorrow,
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Speaker 2: if I'm not mistaken, among.
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Speaker 3: Others and across the board.
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Speaker 2: Unsurprisingly, but what you saw from bank earnings was pretty robust.
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Speaker 2: You're seeing them make a boatload of money on volatility.
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Speaker 2: Think of some of these banks as kind of toll
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Speaker 2: collectors when it comes to markets. If you are seeing
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Speaker 2: increased volatility and trading, they will make money on that
6:47
Speaker 2: from spreads and other areas of the market that they just.
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Speaker 3: Kind of collect tolls on.
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Speaker 2: And then also if you see markets appreciating, that's good
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Speaker 2: for their wealth management businesses and other sides of their
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Speaker 2: business that make.
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Speaker 3: Money on that.
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Speaker 2: Combine that with big IPOs, SpaceX and others heading into
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Speaker 2: markets or trying to issue new debt or issue new equity,
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Speaker 2: all of that spells great news for major banks that
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Speaker 2: participate in that stuff. Goldman Sachs probably the most impressive
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Speaker 2: of the quarter. Earlier, their stock was up about eight
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Speaker 2: percent in early trading. So good news from the banks,
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Speaker 2: Bad news though from IBM, as we were talking about before.
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Speaker 2: And I focus on this for a few reasons. One,
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Speaker 2: I've just long term been kind of entertained by the
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Speaker 2: I guess, just misstep after misstep of what was once
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Speaker 2: the most impressive technology company probably in the world, and
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Speaker 2: has fallen so dramatically from those heights of the nineteen eighties.
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Speaker 2: I suppose it would be when they were really the
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Speaker 2: you know, most front and forward company out there. But
7:53
Speaker 2: you know, this year their stock had been appreciating quite
7:56
Speaker 2: a bit. The Chips Act had granted them billion dollars
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Speaker 2: to build the first US quantum chip foundry in Albany,
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Speaker 2: New York. They were kind of talked about as this
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Speaker 2: central company. President Trump actually signed an executive order directing
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Speaker 2: the accelerated migration to post quantum cryptography and directing.
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Speaker 3: IBM to really lead a lot of that.
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Speaker 2: And this morning's earning, Sorry they didn't report earnings, they
8:23
Speaker 2: warned that their earnings were going to kind.
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Speaker 3: Of suck part of my language. That's pretty much what
8:27
Speaker 3: they did. And their stock is falling by a quarter.
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Speaker 2: They're wiping out a quarter of the value of their
8:32
Speaker 2: shares this morning on the news, and really the news
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Speaker 2: seems to be, Hey, we IBM, we're seeing the slow
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Speaker 2: bleed away of our core hardware business. So we spent
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Speaker 2: billions of dollars investing in software companies that were making
8:49
Speaker 2: a killing in the late twenty tens, in early twenty twenties,
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Speaker 2: attracting all sorts of customers who wanted to put their
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Speaker 2: business on the cloud and have their CRM system out there.
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Speaker 2: And you know, we can benefit from this at the
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Speaker 2: exact moment that AI is threatening that entire business model,
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Speaker 2: So I think it doesn't need to get much more
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Speaker 2: complicated in that, Hey, we bought a bunch of software companies,
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Speaker 2: and suddenly software companies are being.
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Speaker 3: Valued at a much lower level than they were before.
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Speaker 2: When you combine that with, Hey, if you are a
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Speaker 2: business and you're trying to decide where to spend money
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Speaker 2: right now, you're going to cut anywhere you can in
9:26
Speaker 2: order to afford as much investment as possible in AI,
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Speaker 2: which IBM just doesn't lead and so there. I'm sure
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Speaker 2: that their salespeople are out there grinding hard but unable
9:36
Speaker 2: to really attract massive investment in the products that they
9:39
Speaker 2: have to offer. Why because every company wants a contract
9:42
Speaker 2: with Anthropic to get access to cloud right now, not
9:46
Speaker 2: IBM to get access to whatever they have to offer.
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Speaker 4: Yeah, that would be software and consulting. Yeah, it's most
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Speaker 4: of their revenue.
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Speaker 2: So there you, Hey, you going to do Let's take
9:55
Speaker 2: a quick break. When we return, I want to talk
9:59
Speaker 2: about pro productivity, US productor US workers are. We're able
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Speaker 2: to measure productivity. We don't have to go ask you know,
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Speaker 2: Tucker if he feels like he's.
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Speaker 3: Getting more done during the day.
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Speaker 2: There's actually measurements of productivity and they are up pretty
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Speaker 2: significantly over the last few years. What's behind it is
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Speaker 2: next on the Financial Exchange.
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11:16
Speaker 2: We kind of think of the productivity as the holy
11:18
Speaker 2: grail of economic It is growth, it's everything. It's not
11:23
Speaker 2: even economic growth. It is no improvement of a society, no,
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Speaker 2: it is. It is like, if you want to make
11:30
Speaker 2: quality of life better, then humans need to become more
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Speaker 2: productive over time.
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Speaker 3: Yeah, otherwise you flat line.
11:37
Speaker 4: Yeah. The reason we had no economic growth up until
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Speaker 4: the Industrial Revolution, very very little, like tenths of a
11:42
Speaker 4: percent on average, is that people didn't get with the
11:45
Speaker 4: exception of a few bursts like the invention of a
11:47
Speaker 4: new plow or a new field rotation system, Like you
11:51
Speaker 4: can only invent the wheel once and fire you tame that,
11:54
Speaker 4: then what do you do? Every so often somebody invents
11:56
Speaker 4: a new way to put a to put a harness
11:58
Speaker 4: on a something pultiplow and animal sure or you know,
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Speaker 4: something like that, but they were few and far between. Yes,
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Speaker 4: since the Industrial Revolution, it's been like one thing after
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Speaker 4: another as you know.
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Speaker 3: What has well.
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Speaker 2: I don't know if it's surprised economists, but we have
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Speaker 2: seen a boost in productivity since COVID, and a pretty
12:16
Speaker 2: substantial one, if I'm not mistaken. Right market here in
12:19
Speaker 2: the United States, we measure productivity. It's a measurement of
12:21
Speaker 2: output over hours hours worked, right, Like plain and simple,
12:28
Speaker 2: how much are you producing for the number of hours
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Speaker 2: that you are working? And we've seen a big boost
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Speaker 2: in that productivity really since COVID, and it's been tempting
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Speaker 2: to blame that on new technology like artificial intelligence. There's
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Speaker 2: probably a bunch of other explanations too. But while productivity
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Speaker 2: can measure the degree to which productivity is increased, there's
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Speaker 2: no real way that it can measure where it's coming from,
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Speaker 2: if I'm not mistaken, So we're left theorizing about it.
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Speaker 2: But to what degree has this productivity increased been significant?
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Speaker 2: Like how much are we talking about here?
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Speaker 4: Well, year over year, let me just give you the facts,
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Speaker 4: and this comes from the BLS. Year over year. Output
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Speaker 4: per hour through the first quarter, the latest period for
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Speaker 4: which we have data grew at two point eight percent,
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Speaker 4: to put that, and it's been in the two to
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Speaker 4: mid three percent range since twenty twenty three. It rose
13:27
Speaker 4: a lot coming out of the last recession. It always
13:29
Speaker 4: does coming out of recessions because businesses do more with
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Speaker 4: fewer people coming out of recessions than they start to
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Speaker 4: hire as the economy as the recession, as the expansion
13:42
Speaker 4: excuse me, matures and hiring increases the number of hours worked,
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Speaker 4: which lowers productivity. According to the definition that you gave earlier,
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Speaker 4: so early on in the post COVID recession recovery period,
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Speaker 4: productivity behaved exactly as you would expect, spiked and then
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Speaker 4: sort of plunged. It was negative for a period of
14:04
Speaker 4: a few quarters in twenty twenty two into twenty twenty three,
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Speaker 4: and then it started to spike again. Looks a lot,
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Speaker 4: in fact, like the pattern in the nineteen nineties. We
14:13
Speaker 4: had a recession in the early nineteen nineties, very little hiring.
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Speaker 4: Coming out of that recession, productivity spiked, then it fell
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Speaker 4: as hiring started to improve, and then it started to climb,
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Speaker 4: which is again not an unusual post recession, so it's
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Speaker 4: too soon to say, Mike this to sum it all up. Sorry,
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Speaker 4: I'm just carrying on here. Let me just get to
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Speaker 4: the point. Productivity always rises dramatically coming out of recession,
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Speaker 4: then it falls as hiring picks up, and then in
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Speaker 4: a prolonged expansion think of the eighties or the nineties,
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Speaker 4: it tends to creep up again before repeating that same
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Speaker 4: pattern working up to the next recession, which is unfortunately inevitable.
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Speaker 4: But it's much higher over the past several quarters than
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Speaker 4: it was any time during the twenty tens, which is
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Speaker 4: why it's noteworthy. The twenty tens were also an exceptionally
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Speaker 4: low productivity period. It could be that most of the
15:07
Speaker 4: hiring was So we can get it where it's coming from.
15:11
Speaker 4: We know where it came from in the late nineties,
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Speaker 4: for example, I'll just say capital deepening, more people using
15:17
Speaker 4: computers and stuff like that, and in the manufacture of
15:20
Speaker 4: electronics specifically, is where a lot of that productivity increase
15:25
Speaker 4: came from. And I suspect it's coming from places like
15:29
Speaker 4: computer and electronic manufacturing. We actually know how many people
15:34
Speaker 4: are employed there versus their output. Higher employment in those
15:37
Speaker 4: industries computers and electronics has actually gone down over the
15:41
Speaker 4: past few years, while spending on computers and electronics has exploded.
15:46
Speaker 4: That translates in a higher productivity in that sector.
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Speaker 2: So, if you want to take the pessimistic view here,
15:53
Speaker 2: changes during COVID fewer people available for work remote work
15:58
Speaker 2: may have led to a big boost in productivity.
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Speaker 3: You know, we were all again totally characteristic, very much so.
16:04
Speaker 2: So pessimistic view would be that, hey, we got a
16:07
Speaker 2: boost in productivity because we came out of a crazy,
16:10
Speaker 2: weird recession during twenty twenty and productivity got a boost always.
16:15
Speaker 2: If you want an optimistic view, it would be that
16:18
Speaker 2: the technology that we're in the very early stages of
16:20
Speaker 2: implementing here with machine learning and artificial.
16:23
Speaker 3: Intelligence, is going to.
16:26
Speaker 2: Make people in some of the most expensive sectors of
16:29
Speaker 2: work so much more productive that we as a society,
16:32
Speaker 2: as a US society, can produce a bunch more stuff.
16:35
Speaker 2: And I don't think we have any evidence of that yet.
16:37
Speaker 4: The pattern is totally typical, a big rise and I'm
16:40
Speaker 4: sorry I repeat myself a little bit, but just for emphasis,
16:43
Speaker 4: big rise in productivity coming out of the recession always
16:46
Speaker 4: happens for obvious reasons. Then it plummets as hiring starts
16:49
Speaker 4: to recover again slower output growth, higher hours worked growth
16:53
Speaker 4: that means a slowing productivity rate, and then a graduate.
16:56
Speaker 4: You see this pattern in every single business cycle in
17:00
Speaker 4: the post war period. What makes the past several quarters
17:04
Speaker 4: noteworthy is that the year over year changes to quarter
17:09
Speaker 4: in productivity are a lot higher than they were in
17:11
Speaker 4: the last decade, not as high as in the late nineties, though.
17:14
Speaker 4: We're approaching that territory and many are inclined to attribute
17:17
Speaker 4: this to AI. To AI, but you have to be
17:21
Speaker 4: you know, Mike, you to be careful here. Is it
17:23
Speaker 4: spending on AI? And we all know that the defining
17:27
Speaker 4: characteristic of electronics and computer industries is that you do
17:30
Speaker 4: more with less More's laws, etc. That's not quite what
17:33
Speaker 4: Moore's law says, but similar advances drive higher productivity in
17:39
Speaker 4: those industries. Is it just that we're cranking out more
17:41
Speaker 4: data center equipment with the same number of people. Is
17:44
Speaker 4: that what's driving this? Or is it that you and
17:46
Speaker 4: I and others and people listening are using AI and
17:49
Speaker 4: becoming more productive. That's the big I think.
17:52
Speaker 3: That's the question. That's a big question for the payoff
17:55
Speaker 3: of the entire artificial.
17:57
Speaker 4: Does that make sense what I just said.
17:58
Speaker 3: I'm thinking it does to me.
18:01
Speaker 2: But maybe I'll maybe I'll rerun the tape and find
18:03
Speaker 2: out why young investors are betting it all. This is
18:09
Speaker 2: from Bloomberg Today, and my answer would be because this
18:13
Speaker 2: is what they do during bubbles.
18:16
Speaker 3: That's what everybody does during it.
18:17
Speaker 2: Like do you remember all the interviews that you probably
18:20
Speaker 2: read about in the you know, late nineties, about you know,
18:25
Speaker 2: in the Journal and the Times about twenty five year
18:28
Speaker 2: olds overnight becoming millionaires from you know, day trading stocks
18:32
Speaker 2: in the tech sector. Well, guess what it is happening
18:35
Speaker 2: again in stocks, cryptocurrencies, all sorts of different betting markets.
18:42
Speaker 2: And I don't think that this is some societal thing
18:46
Speaker 2: with gen Z becoming you know, loose and crazy with
18:51
Speaker 2: their money. I think it is indicative of a asset
18:55
Speaker 2: bubble that will eventually pop and then teach those people
18:57
Speaker 2: the hard lesson that we learned several times before. But
19:01
Speaker 2: too many of these pieces I think are quick to
19:03
Speaker 2: blame a younger generation that they want to gamble all
19:06
Speaker 2: their money away. And maybe I'm wrong, Like right, maybe
19:09
Speaker 2: gen Z because of how much exposure and interaction they
19:12
Speaker 2: have with gambling sites, is genuinely gambling their money away
19:15
Speaker 2: more than other generations. But I suspect it is purely
19:18
Speaker 2: indicative of what we've seen from all sorts of markets
19:21
Speaker 2: over the last five years that have just gone in
19:22
Speaker 2: a straight line.
19:25
Speaker 3: Upwards, parabolic. Let's take a quick break.
19:27
Speaker 2: When we come back speaking parabolic, we'll take a quick
19:29
Speaker 2: look at equity markets next with Wall Street.
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Speaker 5: Very busy damn Wall Street does traders react to bank
20:01
Speaker 5: earnings and inflation reading and ongoing testimony from FED Chairman
20:06
Speaker 5: Kevin Walsh. Furthermore, oil prices have eased after President Trump
20:10
Speaker 5: moments ago backed away from his plan to impose a
20:14
Speaker 5: twenty percent charge on cargo ships. Through the strait of
20:18
Speaker 5: horror moves. Right now, the Dow is flat, SMP five hundred,
20:22
Speaker 5: up over four tenths of one percent, NASDAC up over
20:25
Speaker 5: one percent, or two hundred and sixty two points higher,
20:29
Speaker 5: RUSS two thousands up four tenths of one percent, Tenure
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Speaker 5: Treasreeled is down four basis points at four point five
20:35
Speaker 5: six percent. In Oil down excuse me up nearly one percent,
20:41
Speaker 5: trading at seventy eight dollars.
20:43
Speaker 1: A barrel.
20:44
Speaker 5: Investor saw a softer than expected inflation reading that slowed
20:47
Speaker 5: to three point five percent in June, better than estimates
20:51
Speaker 5: of three point eight percent and down from the four
20:54
Speaker 5: point two percent reading in May. As for bank earnings,
20:58
Speaker 5: JP Morgan Chase, Spank of America, Goldman, Sachs, City Group,
21:01
Speaker 5: and Wells Fargo all reported better than expected results for
21:06
Speaker 5: the second quarter, and outside of bank earnings, IBM stock
21:11
Speaker 5: now plunging twenty six percent after the tech giant posted
21:15
Speaker 5: weaker than expected preliminary second quarter earnings, attributing the miss
21:20
Speaker 5: to customers spending their money on chips and servers amid
21:23
Speaker 5: AI driven shortages. This marks IBM's largest intra day percent
21:28
Speaker 5: is decreased for the company. On record, I'm Tucker Silvan,
21:32
Speaker 5: that is Wall Street watch Mark.
21:34
Speaker 2: I want to revisit our inflation conversation. So as we
21:38
Speaker 2: mentioned earlier today eight thirty am, the BLS released their
21:43
Speaker 2: inflation report.
21:44
Speaker 3: It was good news again.
21:45
Speaker 2: A price for all items in June fell four tenths
21:48
Speaker 2: of a percent, largely driven by gasoline prices, which moved
21:53
Speaker 2: lower compared to May. Still though inflation up three and
21:57
Speaker 2: a half percent over the last twelve months, and with
22:01
Speaker 2: what we've been seeing over the last few days and
22:03
Speaker 2: oil prices, we could get back there. Here is something
22:08
Speaker 2: that I find very very consistently across folks that are
22:14
Speaker 2: approaching retirement. Folks that are heading towards retirement are deathly
22:19
Speaker 2: afraid of a market crash, which is understandable. They've seen
22:22
Speaker 2: people go through the Owait crash, the twenty twenty crash,
22:25
Speaker 2: make bad decisions, pull money out, and you know, dramatically
22:28
Speaker 2: hurt themselves from that. They are almost never afraid of
22:32
Speaker 2: inflation because for the majority of their lives it hasn't
22:36
Speaker 2: really been a problem. And I will honestly say that
22:40
Speaker 2: for most people that I meet in that situation. Granted,
22:44
Speaker 2: I'm generally meeting with folks that have saved money for
22:47
Speaker 2: retirement and you have something to worry about when it
22:50
Speaker 2: comes to a market crash, they are actually more exposed
22:55
Speaker 2: to the high inflation scenario from a real problematic standpoint
22:59
Speaker 2: for their fewture then they are the market crash scenario. Right,
23:02
Speaker 2: Like when I look at the average person, you know
23:05
Speaker 2: they have enough stuff diversify that. Hey, a market crash
23:08
Speaker 2: isn't likely to be the thing that hurts them that badly.
23:12
Speaker 2: Whereas prolonged period of inflation, Yeah, that could be a killer.
23:16
Speaker 2: When we think about price changes, you know, rule of
23:18
Speaker 2: seventy two makes this kind of easier. Right, But two
23:21
Speaker 2: percent price increases, which is the FED stated goal, makes
23:24
Speaker 2: your basket of goods double in cost.
23:26
Speaker 3: Every thirty six years. Most retirees can live with that.
23:30
Speaker 2: Talk to me about just how dramatically that changes as
23:33
Speaker 2: price levels move up, right, Like, you can do the
23:36
Speaker 2: math yourself at home, I suppose. But if you run
23:40
Speaker 2: out a four percent rate of inflation, right, double the
23:43
Speaker 2: Fed's overall goal, then prices are doubling in how long
23:47
Speaker 2: is it?
23:48
Speaker 4: About eighteen years? You can again use the rule of
23:50
Speaker 4: seventy two that you cited. The rule, by the way,
23:52
Speaker 4: is just divide the interest rate, in this case, the
23:55
Speaker 4: inflation rate into the number seventy two. If you want
23:59
Speaker 4: to be really there are more rigorous ways to get
24:03
Speaker 4: at that. But that is perfectly fine for back of
24:04
Speaker 4: the envelope. To answer your question, prices double roughly roughly
24:09
Speaker 4: twice as quickly. Now, it's not always linear, so to speak.
24:12
Speaker 4: It's not always one for one like that, but prices
24:15
Speaker 4: are going to double every seventeen in a quarter, or
24:17
Speaker 4: if you use the rule of seventy two eighteen years
24:20
Speaker 4: like you.
24:20
Speaker 2: Said, here is the problem, folks, if you are approaching retirement,
24:24
Speaker 2: I can fully understand why a thirty percent market correction,
24:27
Speaker 2: which you know we tend to see whatevery decade or so,
24:32
Speaker 2: is top of mind and concerning, especially when you see
24:35
Speaker 2: stocks climbing to these levels. As I mentioned, what I
24:39
Speaker 2: find far more often is a higher period of inflation
24:43
Speaker 2: for retirees would be far more damning to them than
24:46
Speaker 2: a market crash. If you are finding yourself slowly getting
24:51
Speaker 2: more conservative when it comes to your investments, if you're
24:54
Speaker 2: sitting on large amounts of cash or money market CDs,
24:57
Speaker 2: these are the types of things that fortunately protect you
25:01
Speaker 2: and insulate you from a market crash, but leave you
25:03
Speaker 2: very susceptible to high periods of inflation. These are the
25:07
Speaker 2: exact types of assets that, while you might not lose
25:10
Speaker 2: money on them like you like you would a long
25:12
Speaker 2: term bond. If interest rates move up, you lose purchasing
25:16
Speaker 2: power over time. If you are approaching that period of
25:20
Speaker 2: time and wondering how your portfolio stacks up against different
25:23
Speaker 2: market conditions like high inflation, and how that could affect
25:27
Speaker 2: your retirement, please call the folks at Armstrong Advisory Group.
25:31
Speaker 3: Not only do we.
25:32
Speaker 2: Stress test things like Social Security being reduced or Medicare
25:37
Speaker 2: costs healthcare cost being higher, we do like to test out, Hey,
25:41
Speaker 2: what happens in the event of higher inflation, what happens
25:44
Speaker 2: in the event of an unexpected health situation or a
25:48
Speaker 2: market crash on your retirement, on your specific retirement, not
25:52
Speaker 2: your neighbors or your cousins or your nephews.
25:54
Speaker 3: Give the folks at Armstrong a call eight hundred three
25:57
Speaker 3: nine three four zero zero one.
26:00
Speaker 2: Offer free consultations where you can come in, kick the
26:03
Speaker 2: tires and ask us questions.
26:04
Speaker 3: Eight hundred three nine three four zero one.
26:08
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
26:11
Speaker 1: registered investment advisor. Nothing in the ad or in any
26:13
Speaker 1: Armstrong guide a specific financial, legal or tax advice. Consult
26:16
Speaker 1: your own financial tax into state planning advisors before making
26:19
Speaker 1: any investment decisions. Armstrong make contact you to offer investment
26:22
Speaker 1: advisory services.
26:24
Speaker 3: Mark.
26:24
Speaker 2: More of these stories about AI companies trying to cash
26:27
Speaker 2: in seem to come up every day. If you want
26:30
Speaker 2: to take the pessimistic view, you know, running for the exits.
26:34
Speaker 2: If you want to take the optimistic view, it's just, hey,
26:36
Speaker 2: we got to raise more money so we can continue
26:39
Speaker 2: to cache ean on this moment. But data center builders
26:42
Speaker 2: are racing to offload stakes worth billions. They're likely companies
26:45
Speaker 2: that you're not terribly familiar with, or at least I wasn't.
26:50
Speaker 2: But bankers are working to sell stakes in firms including netrality,
26:53
Speaker 2: data centers, data bank, edged edge Core digital infrastructure, and
26:57
Speaker 2: others with properties located all across the country. They're pitching
27:03
Speaker 2: private equity firms on you know, hot asset classes to
27:06
Speaker 2: invest in here. As everyone and their mother is trying
27:09
Speaker 2: to get a hold of compute power.
27:13
Speaker 3: I have no doubt that these companies.
27:14
Speaker 2: Will be able to sell their assets at quite high
27:16
Speaker 2: prices at this moment in time, considerably higher than what
27:19
Speaker 2: they built these things for for a you know, a
27:21
Speaker 2: decade ago. The thing that I am, well, I just
27:27
Speaker 2: suspect without.
27:28
Speaker 3: Any you know, real firm understanding of how all this works.
27:32
Speaker 2: I don't think that we have a good means of
27:34
Speaker 2: measuring what's a good versus bad data center. I'm just
27:39
Speaker 2: going to assume here that just because you were capable
27:41
Speaker 2: of building a data center doesn't necessarily mean that they're
27:43
Speaker 2: all created equal. I assume that there are companies that
27:46
Speaker 2: are really good at it and companies that are not
27:48
Speaker 2: so good at it. And I think in this moment
27:52
Speaker 2: in time, like we see during every bubble, you're going
27:55
Speaker 2: to have a bunch of companies that get acquired that
27:57
Speaker 2: turn out to have nothing that's terribly compelling here, and
28:00
Speaker 2: a bunch of things that are going to be acquired
28:01
Speaker 2: that are very compelling. And it's going to be really
28:04
Speaker 2: hard to tell the difference in the moment.
28:05
Speaker 4: Does this mean the optimal time to sell this stuff
28:08
Speaker 4: is now? Of course I think the answer is yes.
28:11
Speaker 4: It's kind of rhetorical for these companies.
28:13
Speaker 3: Yeah, that's what these companies are telling us.
28:15
Speaker 4: Right, If the optimal time is right now, it follows
28:18
Speaker 4: that you can get more now than you would in
28:22
Speaker 4: the future. Is that a safe statement? You know where
28:24
Speaker 4: I'm going with this?
28:25
Speaker 2: I do know where you're going with that. I guess
28:27
Speaker 2: I'm not comfortable going that far right that there. I
28:32
Speaker 2: need access to capital to keep building.
28:35
Speaker 4: Okay, but you built for revenue, which what hasn't materialized,
28:41
Speaker 4: So you're gonna sell instead? What does that say about
28:44
Speaker 4: prospects for the revenue generating.
28:46
Speaker 3: Projects of that pessimistic view?
28:49
Speaker 2: Yeah, I'm getting out because you know, prices are ludicrous.
28:52
Speaker 3: And I want to sell my business right now.
28:56
Speaker 2: Optimistic view, Hey, I can sell fifty percent of my
28:59
Speaker 2: company and build ten more data centers over the course
29:02
Speaker 2: of the next year rather than the five that I
29:04
Speaker 2: was going to be able to build otherwise.
29:05
Speaker 4: Okay, and is that forgive me if I missed it.
29:08
Speaker 4: But is that why they need money?
29:10
Speaker 3: They don't say why they need money.
29:12
Speaker 4: They just okay, that would be good to know.
29:14
Speaker 3: I sure.
29:15
Speaker 4: Yeah, the way if this is so this is so great, well,
29:18
Speaker 4: I guess we will after the fact.
29:20
Speaker 3: Yeah.
29:20
Speaker 4: Why are you trying to unload it on me if
29:21
Speaker 4: it's so great?
29:23
Speaker 3: Yeah? Look, I think this misreading.
29:26
Speaker 2: This plainly follows in the trend of many other companies
29:29
Speaker 2: SpaceX going public, Anthropic trying to go public, Open AI
29:32
Speaker 2: trying to go public. You can look at it in
29:35
Speaker 2: one way as boy, these guys are just trying to
29:39
Speaker 2: cash out because the prices are ludicrous. You can look
29:42
Speaker 2: at another way of hey, anthropic needs cash to continue
29:44
Speaker 2: to build this stuff out, and they truly believe in it,
29:46
Speaker 2: And you will have people lining up on either side
29:49
Speaker 2: of that argument.
29:50
Speaker 3: And I don't know.
29:52
Speaker 2: I think ultimately I get a sense of where this
29:55
Speaker 2: whole market's going, but I don't know what on what timeline,
29:57
Speaker 2: and we will only know, like you said, after the fact,
30:01
Speaker 2: Let's take a quick break when we return. Stack Roulette
30:05
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30:06
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31:09
Speaker 2: It is time for STACKERU let to hear Mark what
31:12
Speaker 2: do you have for us?
31:14
Speaker 3: On the Tuesday edition.
31:15
Speaker 4: Mike, last week we talked about chip maker memory chip
31:18
Speaker 4: maker sk Heinex listing on American markets their Korean company,
31:23
Speaker 4: but you can through some machinations raise capital on American markets,
31:29
Speaker 4: and their share price popped as was expected, up roughly
31:32
Speaker 4: twenty percent in the last week. Samsung wants to get
31:35
Speaker 4: in on the action now take advantage of frothy American markets.
31:39
Speaker 4: We generally are we don't think of them as at
31:41
Speaker 4: least I don't think of them as a memory chip
31:42
Speaker 4: maker in fact, but if you'd they are. It's like
31:45
Speaker 4: the biggest, one of the biggest contributors to their profit,
31:48
Speaker 4: not necessarily to their top line, but to their bottom line,
31:52
Speaker 4: so to speak. So they look at Heinex share prices
31:55
Speaker 4: roughly doubled this year. The Samsung's no which their share
32:00
Speaker 4: prices up. So Samsung's doubled, hyenex is tripled. Excuse me,
32:06
Speaker 4: So Samsung looks at that tripling. I guess with some envy.
32:09
Speaker 4: They're looking to list on US and a US exchange.
32:12
Speaker 4: Not clear how much capital they want to raise, maybe
32:15
Speaker 4: not even the primary motivation, which could just be a
32:19
Speaker 4: little bit cynically, but understandably get their share price up.
32:22
Speaker 4: American markets attach much higher valuations to companies that do
32:26
Speaker 4: the exact same thing.
32:27
Speaker 2: To be clear, just because they list here does not
32:30
Speaker 2: make them a component of the S and P five
32:31
Speaker 2: hundred or any of that. They are still Korean companies
32:35
Speaker 2: that are just listing their shares here.
32:37
Speaker 3: But to your point, it does make.
32:39
Speaker 2: It easier for the retail investor to grab shares if
32:42
Speaker 2: they are US listed.
32:43
Speaker 3: Otherwise it's complicated.
32:44
Speaker 2: You've got to do it currency exchange, you've got to
32:47
Speaker 2: actually go buy it. You can still do so, but
32:49
Speaker 2: it's much more complicated than saying, hey, we actually have
32:52
Speaker 2: US listed shares in US dollars on US markets and
32:56
Speaker 2: you can go buy the The American deposit is that
32:59
Speaker 2: what need as American depository receipt thinks right on US
33:04
Speaker 2: markets that the same trading costs as anything else that.
33:06
Speaker 3: You could buy.
33:07
Speaker 2: So yeah, they are all seemingly jumping in on the
33:10
Speaker 2: action and at less, at least in s k Heinez's case,
33:14
Speaker 2: for the short term, seeing a big benefit from doing so.
33:18
Speaker 4: Yeah, it's all about this, it seems, and this is obvious,
33:21
Speaker 4: but it's all about the share price bounce again. American
33:24
Speaker 4: investors or investors on American exchanges, they don't have to
33:27
Speaker 4: be American are willing to attach much higher multiples to
33:30
Speaker 4: companies that do the exact same thing but happen to
33:32
Speaker 4: be listed elsewhere.
33:34
Speaker 3: Seems to be the case.
33:36
Speaker 2: Gen Z has been facing a lot of blame for well,
33:39
Speaker 2: all sorts of fun things, because we always like to
33:41
Speaker 2: criticize the coming of age age get demo and blame
33:45
Speaker 2: them for being lazy and having weird social behaviors and
33:48
Speaker 2: not knowing how fax machines work, which they don't.
33:51
Speaker 3: Big idiots don't how fax machines work.
33:54
Speaker 2: But it turns out one of the things that we
33:57
Speaker 2: were blaming them for they may not act actually be
34:00
Speaker 2: guilty of, which is ruining the alcohol industry seventy four
34:06
Speaker 2: percent of Gen Z who are at the legal drinking
34:09
Speaker 2: age reported drinking in the past six months. That is
34:12
Speaker 2: up from sixty six percent just three years ago, which
34:15
Speaker 2: is a pretty huge jump. I suppose that does make
34:19
Speaker 2: sense if you are living in COVID times and unable
34:22
Speaker 2: to socialize, and suddenly you've been thrust into the first
34:25
Speaker 2: twenty one plus social life that you've ever had, then
34:28
Speaker 2: your drinking rates probably increases. The total adult population drinking
34:34
Speaker 2: rate is seventy six percent, but what I was surprised
34:37
Speaker 2: to see was that only seventy one percent of baby
34:41
Speaker 2: boomers consumed alcohol in the past six months, which is
34:45
Speaker 2: the lowest drinking rate of any generation and down by
34:49
Speaker 2: two percentage points from three years ago.
34:52
Speaker 4: So interferes with a lot of medications.
34:55
Speaker 2: Yeah, so screws up your medications. That could make a
34:57
Speaker 2: fair miense.
34:58
Speaker 4: Prey high correlation there. I would think between them, more
35:00
Speaker 4: stuff you go on, which is inevitable as we age
35:03
Speaker 4: what you can drink.
35:04
Speaker 3: Yeah.
35:05
Speaker 2: So the survey was among more than thirty two thousand
35:08
Speaker 2: people across the fifteen largest alcohol markets and has generally
35:14
Speaker 2: detected a decline in drinking.
35:16
Speaker 3: Overall over the last few years.
35:18
Speaker 2: So I think I think that's the overall Sorry, alcohol companies,
35:22
Speaker 2: but good news is that drinking rates have been slowly
35:25
Speaker 2: declining over time, at least here in the United States.
35:30
Speaker 2: In other parts of the world China, India, it's actually increasing.
35:33
Speaker 3: So we will see where this goes.
35:34
Speaker 4: Wine in there maybe a stupid question, but yeah, I.
35:36
Speaker 2: Think it includes anything beer, wine, anything with moonshine that
35:41
Speaker 2: you're brewing up in the backyard in.
35:44
Speaker 3: Rhode Island, know, anything that you can get your hands on.
35:47
Speaker 4: For thirty years.
35:48
Speaker 2: But okay, call you're my main source on Rhode Island news.
35:52
Speaker 2: Here where I need to go to get my moonshine
35:55
Speaker 2: as I crossed the state border? Is you know Mark
35:58
Speaker 2: Fandaddy tells me all the news?
36:00
Speaker 3: Uh? Can we talk about watering bands, drought?
36:04
Speaker 1: Yeah, go ahead, don'tay.
36:05
Speaker 3: This has been just kind of rubbing me their own.
36:09
Speaker 1: Yeah.
36:09
Speaker 3: Are you in a watering band my town right now?
36:12
Speaker 4: Signs's been posted for years, they never.
36:15
Speaker 3: Changed, haven't changed.
36:16
Speaker 2: So right now my town is in a full on
36:19
Speaker 2: watering band, meaning you cannot water any single day of
36:22
Speaker 2: the week.
36:22
Speaker 3: You can hand water only and hand water like watering
36:27
Speaker 3: can Well, what about a hose?
36:30
Speaker 1: You can watering can.
36:31
Speaker 2: Hose, you can do too, but you cannot have your
36:33
Speaker 2: sprinkler system uh irrigating your lawn, which I understand.
36:37
Speaker 3: Why then have no water?
36:40
Speaker 2: And that's my point is that there is no enforcement
36:43
Speaker 2: mechanism of this, and it is a stupid policy to have.
36:46
Speaker 2: If you want to make it so that people don't
36:49
Speaker 2: water their lawns, then come up with the easy economic solution.
36:53
Speaker 2: Charge more for water, Charge a boatload of money for water.
36:56
Speaker 2: No economics will fix this problem. And by the way,
36:59
Speaker 2: you don't have to do it. Makes a point, Well, no,
37:02
Speaker 2: you can do it in a way that people can
37:03
Speaker 2: still not die.
37:05
Speaker 4: After X number of gallons you get. Make it a progressive.
37:09
Speaker 2: Okay, this is what the average family of five consumes
37:13
Speaker 2: for water to bathe, drink, and cook. And then when
37:17
Speaker 2: we get beyond that in times of drought, we're gonna
37:20
Speaker 2: charge you outrageous amounts for water. And so what if
37:24
Speaker 2: you are welcome, Yeah, then great, water your lawn.
37:26
Speaker 4: Yeah, but the whole point is you're gonna run out.
37:29
Speaker 3: Well, but that's my point is that.
37:31
Speaker 4: Zuckerberg moves into town, he'll drain the resume.
37:33
Speaker 2: Yeah, but I don't think it's that dramatic and yes,
37:36
Speaker 2: it will create a situation where lawns in Weston and
37:39
Speaker 2: Wellesley look far nicer than the ones literally Westborough and Norfolk.
37:44
Speaker 2: But hey, like this will solve the problem. Stop trying
37:48
Speaker 2: to ban people from water in their lawns. They're not
37:50
Speaker 2: gonna listen, They're gonna do it at midnight, so nobody notices.
37:53
Speaker 3: Just charge more.
37:54
Speaker 4: I assume from I assume that town administrators, who are professionals.
37:59
Speaker 2: I think it's a really bad look would be my guess.
38:02
Speaker 2: You don't want the optics of Wellesley looking a lot
38:05
Speaker 2: nicer than Norfolk in terms of their lawns, and so
38:08
Speaker 2: we come up with a stupid solution instead. Sorry, that
38:11
Speaker 2: was my two minute vent of the day. Have a
38:12
Speaker 2: great rest of your afternoon. Equity markets mixed now now
38:15
Speaker 2: down a fifth of a percent, SMP and Nasdaq in
38:19
Speaker 2: the positive.
38:19
Speaker 3: Will be back at it tomorrow. Have a great rest
38:21
Speaker 3: of day, folks,