Latest / The Financial Exchange Show / Forget AI, it's robots who are coming for your job

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Forget AI, it's robots who are coming for your job · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Mark Fandetti.
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Speaker 2: Chuck, Mark and Tucker with you and Golly g Wilkers.
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Speaker 2: It is quite a busy day here. We got some
1:15
Speaker 2: economic data this morning that we can go through talking
1:19
Speaker 2: about weekly jobless claims and housing permits and starts. We've
1:25
Speaker 2: got the Fed announcing their interest rate decision at two pm,
1:30
Speaker 2: with J. Powell press conference scheduled for two thirty pm.
1:35
Speaker 2: We should open a poll somewhere as to what shade
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Speaker 2: of purple J. Powell's tie will be. I know we
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Speaker 2: talked about this earlier, but I'm very much in camp Mauve.
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Speaker 1: Mark.
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Speaker 2: I notice that you're wearing the Powell purple today, so
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Speaker 2: I appreciate that. And obviously we continue to keep our
1:50
Speaker 2: eyes on the Middle East and any shift there either
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Speaker 2: to the positive side or to the negative side in
1:56
Speaker 2: terms of how the conflict between Israel and Iran may
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Speaker 2: be progressing or you know, moving from here. So there's
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Speaker 2: a lot of stuff that is out there today, and
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Speaker 2: obviously markets trying to digest it all before we have
2:13
Speaker 2: a market holiday tomorrow where markets will be closed in
2:16
Speaker 2: observance of Juneteenth, so you have no trading that's going
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Speaker 2: to be happening tomorrow. So let's start first. I want
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Speaker 2: to talk about some of the economic data from this morning,
2:25
Speaker 2: because I think some of it's kind of notable. First,
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Speaker 2: weekly jobless claims initial claims two hundred and forty five
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Speaker 2: thousand last week was revised up slightly to two hundred
2:34
Speaker 2: and fifty Continuing claims coming in at one point nine
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Speaker 2: to four five million, basically unchanged from one point nine
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Speaker 2: to five million last week. So overall, the story on
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Speaker 2: claims I think is still the same as it's been,
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Speaker 2: which is, Hey, initial claims are showing a modest rise,
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Speaker 2: but we've seen that this time of year the last
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Speaker 2: two years. That seems to suggest they don't have the
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Speaker 2: seasonal adjustments quite right, So that could be what is
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Speaker 2: happening on on that front. On that side of things.
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Speaker 2: On the continuing claim side, still elevated numbers that suggest
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Speaker 2: maybe there's a bigger problem of foot not related to
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Speaker 2: increased layoffs, but just decreased hiring that still results in
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Speaker 2: more people being unemployed for longer periods of time.
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Speaker 3: Yes, yeah, I'm smirking at your use of the of
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Speaker 3: the word a foot. I don't hear that a.
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Speaker 2: Lot, so oh I use it all the time. Oh, yeah, sorry,
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Speaker 2: I guess.
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Speaker 3: I wasn't paying attention. So this is the Fed's dilemma.
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Speaker 3: Is the economy slowing enough to justify a cut in
3:33
Speaker 3: rates that could stoke inflation when inflation is already core inflation.
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Speaker 3: And I don't just mean ex food and energy. I
3:39
Speaker 3: mean the trend in inflation which we never see in
3:42
Speaker 3: real time, which is very frustrating. But there are proxies
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Speaker 3: for it, like median and trimmed mean you can remove
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Speaker 3: some of the outliers and get it what's really going on.
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Speaker 3: None of them are perfect. The dilemma for the FED
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Speaker 3: is is the economy slowing enough given that monetary policy
3:56
Speaker 3: what they do target the federal funds rate? That is
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Speaker 3: even that it works with a lag, sometimes a long lag.
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Speaker 3: Will we be waiting? Will we be too late if
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Speaker 3: we cut later when we have a clear picture of
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Speaker 3: both inflation and unemployment? This is the Fed's eternal dilemma,
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Speaker 3: So it is not a new predicament. The consequences those
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Speaker 3: seem especially a stark right now though, and that we
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Speaker 3: just came off a period of very high inflation. People
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Speaker 3: are sensitive to it. We don't want to get back
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Speaker 3: into a vicious cycle like we were in the nineteen
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Speaker 3: seventies where elevated inflation went met head on with a
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Speaker 3: series of supply shocks that further exacerbated it, and so
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Speaker 3: on and so forth, and ended in the worst recession
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Speaker 3: in nineteen eighty one to two since the Great Depression.
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Speaker 3: At the same time, we don't want to let the
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Speaker 3: economy dip unnecessarily into recession because recessions scar the economy.
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Speaker 3: They some of the effects persist, such as unemployment and
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Speaker 3: other adverse consequences. So it is a real lene. I
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Speaker 3: could see arguments for, frankly, both sides.
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Speaker 2: So I think on the jobless claim side of things,
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Speaker 2: my take is no meaningful shift from last week. Still
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Speaker 2: something to monitor, but not really signaling the aw clear
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Speaker 2: or hey there's you know, a giant problem here right now.
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Speaker 2: Just hey, let's watch this and if it gets worse,
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Speaker 2: we might have to do something. If it gets better, Okay, great,
5:21
Speaker 2: not really a thing. Fine. On the other data that
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Speaker 2: we got this morning, building permits and housing starts, the
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Speaker 2: permits were fine. They showed a small decline about two
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Speaker 2: percent on an annualized basis, from one point four to
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Speaker 2: two million down to one point thirty nine. The housing
5:39
Speaker 2: starts side of things. Very quite bad is the technical
5:45
Speaker 2: term that is used in the business. They declined from
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Speaker 2: an anualized pace of one point three nine million to
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Speaker 2: one point twenty five. I also looked the December number
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Speaker 2: that we had was one point five million, meaning that
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Speaker 2: over the first five months of this year, the pace
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Speaker 2: of housing construction for new units like brand new starts,
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Speaker 2: has declined by seventeen percent. That is a huge downshift
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Speaker 2: in the housing market, and based on what we're seeing
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Speaker 2: right now in the number of units under construction, which
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Speaker 2: ultimately that's what matters because that provides the employment and eventually,
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Speaker 2: you know, the sale that you know generates economic activity.
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Speaker 2: You're going to start seeing negative jobs numbers in the
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Speaker 2: construction sector in the second half of the year. There's
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Speaker 2: basically no way that you can avoid that. And this causes,
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Speaker 2: you know, some real problems because that's a lot of
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Speaker 2: marginal economic activity that starts being sucked out of the economy.
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Speaker 2: So you've got some issues with that piece. That's the
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Speaker 2: more concerning one. Today the job was claims numbers, Hey,
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Speaker 2: let's watch it. But that housing starts number is objectively
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Speaker 2: just a bad number, and the lowest one that we've
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Speaker 2: had since twenty twenty, when there was a you know,
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Speaker 2: raging pandemic going on in economic activity, a ground.
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Speaker 1: To a halt that.
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Speaker 2: All this, and yet still we have the S and
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Speaker 2: P five hundred today. I'm looking at the most recent numbers.
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Speaker 2: Get the S and P five hundred at sixy eleven
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Speaker 2: right now. And the all time high that we hit
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Speaker 2: was a few months ago, back in late I think
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Speaker 2: it was February, Yeah, late February when we got up
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Speaker 2: to sixty one forty seven, which means the SMP is
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Speaker 2: only two point three percent away from its all time
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Speaker 2: high right now. And on one hand, you look at
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Speaker 2: that and you're like, wow, this market is, you know,
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Speaker 2: pretty resilient and holding up great. The other question that
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Speaker 2: you then raise is, well, with all these other you know,
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Speaker 2: questions about the economy, should it be holding up that well?
7:44
Speaker 2: And the other counterpoint to this is, okay, it's holding
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Speaker 2: up great. But most of that rebound happened before the
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Speaker 2: middle of May, and since mid May the S and
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Speaker 2: P is up less than one percent, so it's kind
7:55
Speaker 2: of been flat over the last month or so of
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Speaker 2: trading and trying to figure out what comes next.
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Speaker 3: Well, the tariff news hasn't gotten any worse up until
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Speaker 3: the quasi war. I'm not diminishing it, but I don't
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Speaker 3: know what else to call it. In the Middle East
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Speaker 3: this week, there wasn't any real bad geopolitical news, so.
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Speaker 2: Absent an actual war like there.
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Speaker 3: Yeah, I guess it, okay, So I guess there are
8:18
Speaker 3: no troops on the ground yet, so that it's.
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Speaker 2: Not a land war, but their body each pretty heavy.
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Speaker 2: Cuty's okay, we'll call it what it is.
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Speaker 3: It's a war. So up until war broke out in
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Speaker 3: the Middle East, there was no real bad geopolitical news.
8:33
Speaker 3: It's useful to keep in mind that stocks do tend
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Speaker 3: to go up whether looked at over the frequency of days, months,
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Speaker 3: or years, with increasing probability, stocks go up with a
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Speaker 3: little over fifty percent chance just looking at the historical
8:46
Speaker 3: distribution of returns, stocks will go up on any given day,
8:49
Speaker 3: a little bit better than that that they'll go up
8:51
Speaker 3: over the course of any given month, and much better
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Speaker 3: than that nearly seventy percent that they'll go up with
8:55
Speaker 3: the course of any given years. So absent anything to
8:58
Speaker 3: hold them back. Because the economies growing, that translates into
9:01
Speaker 3: growing earnings for stocks, which in turn should translate all
9:05
Speaker 3: LSEQL into growing stock prices. There are other reasons why
9:08
Speaker 3: stock prices can grow, increasing multiples. I think we're going
9:10
Speaker 3: to talk about earnings and multiples a little bit later
9:13
Speaker 3: in the program this morning, but all LSEQL, it's not
9:15
Speaker 3: surprising that stocks would drift up unless something is holding
9:19
Speaker 3: them back.
9:20
Speaker 2: Take a quick break here. When we come back, we'll
9:22
Speaker 2: do a little bit of trivia, and then we'll talk
9:24
Speaker 2: about the trends we're seeing in hiring amongst the biggest
9:28
Speaker 2: companies in the country.
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Speaker 4: Time for trivia here on the Financial Exchange. On this
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11:01
Speaker 2: Piece in the Wall Street Journal, the biggest companies across
11:05
Speaker 2: America are cutting their workforces. What are we seeing here, Mark,
11:10
Speaker 2: in terms of this this trend that is talked about
11:15
Speaker 2: in this piece.
11:16
Speaker 3: Yeah, I don't know if it's a trend. I'm a
11:19
Speaker 3: little hesitant to call it that. There are a lot
11:21
Speaker 3: of anecdotes in this piece about companies doing more with less.
11:24
Speaker 3: An economist would say that's increased productivity. That's a good thing.
11:28
Speaker 3: That's the only way. That's the only way long run
11:30
Speaker 3: economic growth happens is if we can do more with
11:33
Speaker 3: either the same amount or ideally even with less. That
11:36
Speaker 3: may not sound great if you're on the worker side
11:38
Speaker 3: of the equation, but if you're keeping up with your skills,
11:42
Speaker 3: then in theory, everybody's better off good.
11:44
Speaker 2: Well, and ultimately this is how you end up with
11:46
Speaker 2: raised standards of living.
11:48
Speaker 3: That's the only way.
11:49
Speaker 2: It's When we talk about increasing productivity, we're talking about, hey,
11:55
Speaker 2: the you know invention of you know, the mass production
11:59
Speaker 2: of anything. Let me restart that, because that was horrible.
12:03
Speaker 2: When we talk about productivity, we're talking about going from hey,
12:07
Speaker 2: I'm making one pair of shoes a week to a
12:11
Speaker 2: factory being able to make hundreds of pairs in a
12:14
Speaker 2: single day. We're talking about it going from taking six
12:20
Speaker 2: months to go across the United States by covered wagon
12:23
Speaker 2: to being able to do it in a matter of
12:25
Speaker 2: weeks using railroads, and then a matter of hours using
12:28
Speaker 2: the airplane. That is productivity increasing, and yes it does
12:34
Speaker 2: cost jobs over time, but the way that we typically
12:40
Speaker 2: are able to manage that is through Hey, there are
12:42
Speaker 2: other newer jobs that then are created that people can
12:45
Speaker 2: move into because there are new problems to solve, and ultimately,
12:50
Speaker 2: I'm convinced that the problems that we have in society
12:54
Speaker 2: today stem from two things. The first is not doing
12:58
Speaker 2: a very good job of managing through the very rapid
13:03
Speaker 2: change in the US economy over the last thirty forty
13:05
Speaker 2: years that displaced a lot of manufacturing workers and we
13:08
Speaker 2: basically didn't take care of them.
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Speaker 3: Happened all over the world, by the way, not just here, correct.
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Speaker 2: So I think part of it is is that piece there.
13:16
Speaker 2: The other thing that I think, you know, we look
13:19
Speaker 2: at on this and this is one that is now
13:22
Speaker 2: kind of it's going to be, you know, how does
13:26
Speaker 2: this actually take shape over the next five to seven years.
13:30
Speaker 2: The more that I have actually read up on and
13:35
Speaker 2: looked at the potential for robotics technology to grow over
13:42
Speaker 2: the next five to seven years, the more convinced I
13:46
Speaker 2: am that we are finally getting to the point where
13:49
Speaker 2: this is something that is a real threat to an
13:52
Speaker 2: awful lot of jobs in a way that it hasn't
13:55
Speaker 2: been previously. And it's because of that fusion of newer,
14:02
Speaker 2: cheaper technologies to build more robust robots and some of
14:08
Speaker 2: the stuff that's been learned from the recent artificial intelligence
14:12
Speaker 2: boom that has us in a position where the combination
14:15
Speaker 2: of those factors can start to do a lot of
14:19
Speaker 2: things that previously we thought only humans could do, even
14:24
Speaker 2: in the physical world. And this potentially gets at displacing
14:30
Speaker 2: a number of people in blue collar trades that we've previously,
14:34
Speaker 2: you know, for the last fifteen years, said well, you
14:36
Speaker 2: can't outsource that job. You can't outsource that job. And
14:40
Speaker 2: it's true, but you may be able to have a
14:45
Speaker 2: robot do that job instead. And I'm not saying this
14:48
Speaker 2: is good, bad, or anything else. I'm just saying this
14:50
Speaker 2: is something that we need to be aware of as
14:52
Speaker 2: a possibility, because if I am being honest, six months ago,
14:58
Speaker 2: I would have said this is pure poppycock. It's not
15:01
Speaker 2: something that's gonna happen. It's just you know, a bunch
15:03
Speaker 2: of people. And the more I have read up on
15:06
Speaker 2: it and talk to people that are plugged into that ecosystem,
15:14
Speaker 2: the more I think that we are getting close to
15:16
Speaker 2: a point where real humanoid robots are going to be
15:22
Speaker 2: a thing in our lives sooner rather than later. And
15:26
Speaker 2: trust me, I think that sounds crazy. And there are
15:30
Speaker 2: times where I sit there and I'm like, I don't
15:32
Speaker 2: know what the heck the world is going to look
15:33
Speaker 2: like ten years from now, because I think this is
15:36
Speaker 2: so real. But this is something I think we need
15:39
Speaker 2: to be preparing for because this has the possibility of
15:44
Speaker 2: shifting the workforce in ways that we just cannot imagine
15:47
Speaker 2: that we've never seen before.
15:48
Speaker 3: And it's fine, it should be welcomed. Productivity literally output
15:52
Speaker 3: per hour, as you pointed out, it's the only way
15:55
Speaker 3: to increase and you put it perfectly living standards. You
15:58
Speaker 3: can grow the economy just by growing the labor force
16:01
Speaker 3: all LSEQL, but you can't make people better off. You
16:04
Speaker 3: just have more mouths to feed. In that instance, that's
16:07
Speaker 3: basically how civilization was up until the start of the
16:10
Speaker 3: Industrial Revolution. And then it was wave of mechanization after
16:14
Speaker 3: wave of mechanization, boosted by electrification and then air conditioning
16:17
Speaker 3: and all the great arguments laid out in the Rise
16:20
Speaker 3: of Economic Growth by Robert Gordon. If you're looking for
16:23
Speaker 3: a summer read, it's a great Uh.
16:26
Speaker 2: It's one of my favorites.
16:27
Speaker 3: Yeah it is. It's a ponderous book, but it's an
16:30
Speaker 3: awesome read. His conclusions aren't that uplifting because he points
16:35
Speaker 3: out that productivity growth starting in the seventies did slow.
16:39
Speaker 3: And if you don't think that's a big deal, if
16:41
Speaker 3: we had grown since nineteen seventy roughly three at the
16:45
Speaker 3: same rate we had in the half century, well forty
16:48
Speaker 3: years or so leading up to that, we'd be fifty
16:50
Speaker 3: percent richer than we are today. Well, you know, let
16:54
Speaker 3: that sink in.
16:55
Speaker 2: So you need.
16:55
Speaker 3: Productivity growth that famously slowed in the seventies and eighties,
16:58
Speaker 3: picked up a little in the nineties and has since
17:00
Speaker 3: slowed again. So their jobs will be displaced. And I
17:04
Speaker 3: don't mean to sound so clinical and cold about it,
17:06
Speaker 3: but we don't need to prepare where policy comes in.
17:09
Speaker 3: You retrain people, and you make sure that the support
17:12
Speaker 3: system can provide for them while they're being retrained. Much
17:16
Speaker 3: like free trade. Free trade does the exact same thing
17:19
Speaker 3: as technology. Technology has killed far more manufacturing jobs than
17:22
Speaker 3: free trade, as they do the exact thing. They allow
17:25
Speaker 3: you to purchase more or produce more with the same
17:28
Speaker 3: amount of resources. They are not to be feared, they're
17:31
Speaker 3: to be welcomed.
17:33
Speaker 2: And ultimately, I think of it this way. Let's say
17:37
Speaker 2: let's say me as an individual. Let's say that I
17:39
Speaker 2: am a Let's say I'm a I don't know, I'm
17:43
Speaker 2: a farmer, and I go out and I spend ten
17:48
Speaker 2: hours a day working on the farm for an entire
17:51
Speaker 2: year in order to produce the food that I need
17:53
Speaker 2: for my family. If I come up with some kind
17:56
Speaker 2: of you know, technological innovation that allows me to do
17:58
Speaker 2: it in half the time, an extra five hours a
18:01
Speaker 2: day that's available, now that is a rise in my
18:03
Speaker 2: standard in living. I can do other things, either make
18:05
Speaker 2: more money for myself with a second job, or have
18:08
Speaker 2: more leisure time with which I can just you know,
18:10
Speaker 2: not often read books and take naps and stuff like that.
18:13
Speaker 2: That sounds lovely when you extrapolate that to you know,
18:17
Speaker 2: large numbers of people, It's not just Okay, I, you know,
18:20
Speaker 2: pick up five hours a day, but hey, I don't
18:23
Speaker 2: need as much labor necessarily during that time, and so
18:27
Speaker 2: you don't need as many people working in one area,
18:30
Speaker 2: which you can then reflect in a couple different ways,
18:32
Speaker 2: and it gets you know, some of these philosophical questions
18:35
Speaker 2: of hey, does the work week shorten? Does it go
18:37
Speaker 2: from a forty hour work week to a thirty you know,
18:40
Speaker 2: or is it?
18:41
Speaker 5: Know?
18:41
Speaker 2: Those people are just gonna end up working somewhere else.
18:44
Speaker 2: Oftentimes it ends up being combinations of all these things.
18:46
Speaker 2: But I really think that we need to be aware
18:50
Speaker 2: that the landscape for labor has the potential to dramatically
18:55
Speaker 2: change in the next five years in a way I
18:58
Speaker 2: didn't believe was possible six months ago.
19:00
Speaker 3: I mean, it could be disruptive. I don't want to
19:02
Speaker 3: poop poo it. The shift from agriculture to manufacturing and
19:04
Speaker 3: then from manufacturing to services that took place over the
19:06
Speaker 3: course of a century. One hundred years ago, one hundred
19:09
Speaker 3: and thirty years ago, we were what like seventy percent
19:11
Speaker 3: agri fifty percent agriculture, seventy percentwhere in there. I should
19:14
Speaker 3: know that I don't, But it was a lot. Now
19:16
Speaker 3: it's like two but we still produce more food than
19:19
Speaker 3: we did. It was slow, so it wasn't that disruptive.
19:22
Speaker 3: That's the challenge.
19:22
Speaker 1: I guess.
19:23
Speaker 2: Let's take a quick break here. When we come back,
19:25
Speaker 2: we've got the trivia answer, and then we'll talk about
19:28
Speaker 2: stupid earnings after this.
19:40
Speaker 1: Bringing the latest financial news straight to your radio. Every day,
19:45
Speaker 1: it's the Financial Exchange on the Financial Exchange Radio Network
19:51
Speaker 1: time now for Wall Street. Watch a complete look at
19:54
Speaker 1: what's moving market so far today right here on the
19:57
Speaker 1: Financial Exchange Radio network.
20:00
Speaker 4: This are in positive territory with geopolitical tensions increasing as
20:03
Speaker 4: the US ways possible military action with Iran. Wall Street
20:07
Speaker 4: also waits to a conclusion to the FEDS meeting at
20:09
Speaker 4: two o'clock this afternoon, where rates are expected to remain steady.
20:14
Speaker 4: FED Chairman Jerome Paul will hold a press conference.
20:16
Speaker 2: At two point thirty to further elaborate.
20:18
Speaker 4: On the Central Bank's decision and economic outlook. Right now,
20:22
Speaker 4: the Dow is up by about a half a percent,
20:25
Speaker 4: SMP five hundred is up by four tenths of one percent,
20:28
Speaker 4: in the Nasdaq up about half a percent as well.
20:31
Speaker 4: Russell two thousand is up over one percent higher. Ten
20:34
Speaker 4: year treasury ten year treasure reel now down by three
20:37
Speaker 4: basis points at four point three five percent, and crude
20:40
Speaker 4: oil down one and a half percent. Lower training at
20:43
Speaker 4: seventy three dollars and sixty seven cents a barrel. Amazon
20:46
Speaker 4: set plants to cut its workforce in the coming years,
20:49
Speaker 4: where CEO Andy Jasse noted to employees that Generative AI
20:53
Speaker 4: should change the way its work is done, resulting in
20:56
Speaker 4: a reduction to its corporate workforce. Amazon is up by
20:59
Speaker 4: one percent more job cuts as toymaker has bro laid
21:03
Speaker 4: off three percent of its workforce, or about one hundred
21:07
Speaker 4: and fifty employees, as part of a multi year restructuring.
21:10
Speaker 4: That stock is up by one percent. Meanwhile, investigators believe
21:14
Speaker 4: Air India Flight one seventy one had an emergency power
21:18
Speaker 4: generator operating when a crash last week, raising questions if
21:22
Speaker 4: the plane's engines function properly during takeoff. Boeing shares are
21:26
Speaker 4: down about a third of a percent and US Steel
21:29
Speaker 4: shares stop trading on the New York Stock Exchange this
21:32
Speaker 4: morning after Japan's Nippon Steel officially completed its acquisition of
21:37
Speaker 4: the iconic American industrial name. I'm Tucker Silva, and that
21:42
Speaker 4: is Wall Street Watch. And the trivia question we asked
21:44
Speaker 4: in the previous question was what year did the War
21:47
Speaker 4: of eighteen twelve conclude? That would be eighteen fifteen. Now, Ultimately,
21:52
Speaker 4: the War of eighteen twelve ended in a draw on
21:55
Speaker 4: the battlefield, and the peace treaty reflected this. The Treaty
21:58
Speaker 4: of gent was signed in modern day Belgium on December
22:01
Speaker 4: twenty fourth, eighteen fourteen, but went into effect on February seventeenth,
22:05
Speaker 4: eighteen fifteen, after both sides had ratified it. Marlin from
22:10
Speaker 4: New Gloucester, Maine is our winner today, taking home a
22:13
Speaker 4: Financial Exchange Show t shirt. Congrats to Marlin, and we
22:16
Speaker 4: play trivia every day here on the Financial Exchange. See
22:19
Speaker 4: complete contest rules at Financial Exchange Show dot com.
22:23
Speaker 2: Mark what are Stupid Earnings?
22:27
Speaker 3: I take issue with the title. First of all, how
22:29
Speaker 3: about what are earnings? Is a company making a profit?
22:32
Speaker 3: Are they making a loss? It's not actually an easy
22:35
Speaker 3: question to answer. So we have these generally accepted accounting
22:39
Speaker 3: principles GAP, which is the topic of this article, that
22:42
Speaker 3: attempted to standardize financial statements. So when you look at
22:45
Speaker 3: financial statements and your say three year brokerage.
22:48
Speaker 2: Which I love that acronym by the way, yep, Well
22:50
Speaker 2: just because okay, so these are generally accepted accounting principles they.
22:54
Speaker 3: Were imposing on everybody.
22:55
Speaker 2: Yeah, but in what circumstances are they not accepted because
22:59
Speaker 2: they might not use it's not universally accepted accounting principles.
23:03
Speaker 2: It's generally so what are the situations where there I'm
23:07
Speaker 2: just like, okay, so they're generally accepted, but what about
23:12
Speaker 2: when they're not well.
23:13
Speaker 3: Suppose the company has a lot of deductions adjustments that
23:17
Speaker 3: could distort the picture of core profitability. It might make
23:21
Speaker 3: I mean, we were talking earlier about getting at the
23:22
Speaker 3: trend and inflation. What's really going on with this? And
23:24
Speaker 3: we talk a lot about trends here because we're dealing
23:27
Speaker 3: with variables that are easily measured but not exactly. They're
23:32
Speaker 3: really noisy and that's not just a casual term. That
23:35
Speaker 3: term noise means something. There's noise in in gap reported
23:39
Speaker 3: earnings non gap. The problem is that they can exclude
23:42
Speaker 3: the noisy stuff. But non gap is judgmental, meaning a
23:47
Speaker 3: firm can say, well, you know, we expense this or
23:50
Speaker 3: that that took away from our earnings, but we think
23:53
Speaker 3: that that's a good measure of core profitability. For example,
23:56
Speaker 3: we spent money on R and D, on branding, on
23:59
Speaker 3: human capital, which firms increasingly do. This can increase reported losses.
24:04
Speaker 3: So non gap or ProForma sometimes called performer earnings will
24:07
Speaker 3: adjust for those things because firms think this is a
24:10
Speaker 3: better measure of underlying profitability. So non gap earnings, like
24:14
Speaker 3: with gap earnings, they are they should be used with caution.
24:18
Speaker 3: They're not inherently bad. They are, however, chronically higher than
24:23
Speaker 3: gap earnings, which suggests that firms employ them only when
24:26
Speaker 3: it's favorable to do so. But like with any financial
24:32
Speaker 3: financial market of financial data, income statement, financial statement measure,
24:38
Speaker 3: it should be used with caution and probably with expert guidance.
24:42
Speaker 3: So I take issue with them with the sort of
24:45
Speaker 3: negative connotation attached to non gap. They can be useful
24:48
Speaker 3: if you know how to use them non gap earnings,
24:49
Speaker 3: that is.
24:50
Speaker 2: And they can also you have to again you say,
24:53
Speaker 2: if you know how to use them. They can also
24:55
Speaker 2: be used.
24:56
Speaker 5: For nefarious purposes quite quite often is probably the wrong word,
25:02
Speaker 5: but when they are used with bad intentions.
25:08
Speaker 2: The result can be kind of catastrophic, as we've seen
25:10
Speaker 2: in a number of.
25:11
Speaker 3: I'm look at what they're taking out and ask why
25:14
Speaker 3: should they have left it in? If there's a Oracle
25:17
Speaker 3: mentioned here, I'm sorry. I've read a couple of articles
25:19
Speaker 3: on this lately where Oracle has Yeah, Oracle is you
25:22
Speaker 3: know what. I'm not even to name them because lot
25:23
Speaker 3: of firms do it already. Do they consistently exclude Tucker
25:26
Speaker 3: Tucker will edit that, Chuck, this is sure, this is
25:30
Speaker 3: Tucker is gonna edit that.
25:32
Speaker 2: Yeah, yeah, too late.
25:33
Speaker 3: Could you all just could you all just forget I said.
25:36
Speaker 2: This oracle four letter word.
25:39
Speaker 3: When a company consistently excludes something that tells you, wait
25:43
Speaker 3: a minute, this isn't a one off by definition, so
25:45
Speaker 3: you should probably be suspicious of that. And a couple
25:48
Speaker 3: of examples are cited in the article. Like with anything,
25:50
Speaker 3: you don't know how to use it.
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26:56
Speaker 2: I want to talk about this piece from Bloomberg. We
26:59
Speaker 2: got retail sales data yesterday, and one of the things
27:01
Speaker 2: that we saw was that spending at restaurants and bars
27:04
Speaker 2: fell by point nine percent in May. This is the
27:07
Speaker 2: largest monthly decline in a couple of years. And unlike
27:12
Speaker 2: a lot of these other things where you could say,
27:14
Speaker 2: you know, okay, auto sales fell, but that's because people
27:18
Speaker 2: bought a ton of cars back in March and April.
27:22
Speaker 2: Or hey, you saw you know, sales of you know,
27:29
Speaker 2: at sales and gas stations were down two percent, but
27:31
Speaker 2: that's because gas prices fell over the month. Food services
27:35
Speaker 2: and drinking places, it's a not something where you're seeing
27:38
Speaker 2: any kind of meaningful deflation in price. If anything, there
27:41
Speaker 2: have been a number of pieces writing about prices moving
27:43
Speaker 2: up that way in that area, and you can't front
27:47
Speaker 2: load it, Like you can't go out to dinner in
27:51
Speaker 2: March and be like, well, I'm glad we bought this dinner.
27:55
Speaker 2: Let's go out to another dinner tonight so that we
27:57
Speaker 2: can eat it in May. You can't front load dinner.
28:04
Speaker 2: You have to eat it every day. And so what
28:07
Speaker 2: I get at in this is the interesting question of, hey,
28:12
Speaker 2: is this something that is going to become a trend?
28:16
Speaker 2: You know, you were just talking about trends, and if so,
28:19
Speaker 2: what does it indicate about the status of American households
28:23
Speaker 2: and their finances. And the answer is, hey, if you
28:25
Speaker 2: start to see things like this on a repeated basis,
28:28
Speaker 2: it indicates there's a real problem because one of the
28:31
Speaker 2: first places that people do start to cut when their
28:35
Speaker 2: budgets get tight is going out to dinner because it
28:38
Speaker 2: is prohibitively expensive in a number of cases. And so
28:42
Speaker 2: I do think this is an interesting one to watch.
28:45
Speaker 2: You can also occasionally can be like, okay, is this
28:47
Speaker 2: like weather related, because hey, if you have like bad
28:49
Speaker 2: hurricanes or bad snowstorms in the winter, yes, like that
28:54
Speaker 2: can affect these numbers as well. It was May, It's
28:58
Speaker 2: not hurricane season. It's not snowstorm season. Like you struggle
29:03
Speaker 2: to find something that would have dramatically altered consumer behavior
29:08
Speaker 2: aside from their own thoughts about their finances. And so
29:12
Speaker 2: I do think you can view this and say, yeah,
29:15
Speaker 2: as a one off, it's interesting. If you start getting
29:18
Speaker 2: this on a repeated basis, there's some real problems.
29:20
Speaker 3: So yeah, depending on what's going on in other categories,
29:22
Speaker 3: maybe there is a shift in preferences going on. I
29:24
Speaker 3: don't think that's plausible, But to your point, you have
29:27
Speaker 3: to wait and see and ask what is going on
29:29
Speaker 3: in the broader economy.
29:31
Speaker 2: The reason, and let's get it why you don't think
29:33
Speaker 2: it's plausible and why I wouldn't think it's plausible. If
29:36
Speaker 2: there is one trend that has been undeniable over the
29:40
Speaker 2: last fifty years, two trends, actually, I think they're kind
29:42
Speaker 2: of tied in. It is the trend of Americans choosing
29:46
Speaker 2: to eat out more and travel more. Like you have
29:50
Speaker 2: seen consistent upticks in both of those over the last
29:53
Speaker 2: fifty years, obviously interrupted by you know, briefer sessions and
29:56
Speaker 2: this and that. But I guess the question is, hey,
29:58
Speaker 2: if this is being interrupted is because of a brief recession.
30:03
Speaker 2: Am I like that? That's how I would interpret it,
30:05
Speaker 2: rather than Hey, twenty twenty five is the year when
30:08
Speaker 2: Americans decided not to go out to dinner anymore. I'm
30:12
Speaker 2: not I'm not buying that.
30:13
Speaker 3: Yeah, it could you know, measurement error. These are just samples,
30:16
Speaker 3: not measurement error, but a sample error. Again, these are
30:19
Speaker 3: not the most likely culprits if this persists.
30:23
Speaker 2: Especially since we're hearing from a whole bunch of restaurants
30:25
Speaker 2: about trouble drawing traffic in when restaurants went. When McDonald's
30:30
Speaker 2: and Wendy's and Chipotle are all telling you, yeah, traffic
30:33
Speaker 2: is slow, We're trying to figure out how to generate
30:35
Speaker 2: more traffic. That tells me it's not measurement error that
30:38
Speaker 2: that we're seeing.
30:39
Speaker 3: No, I'm sorry, measurement entir was the wrong term. I
30:41
Speaker 3: apologize a sample error, Like you just sample the restaurants
30:43
Speaker 3: that happen to have reduced traffic.
30:45
Speaker 2: Buy it might be like minus point seven or mine.
30:48
Speaker 3: They do give in on these categories, but like.
30:51
Speaker 2: There's something happening here is how long does it last?
30:54
Speaker 3: It's curious. I don't mean to diminish it.
30:56
Speaker 2: Let's take a quick break. When we come back, we'll
30:58
Speaker 2: do a little bit of stack Roulette.
31:00
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32:13
Speaker 2: Mark what do you got for me? For Stack?
32:14
Speaker 3: Roulette, Chuck, what do you think of this? So Tucker
32:16
Speaker 3: reported that nip On Steel has completed their purchase of
32:20
Speaker 3: US Steel, paid about fourteen billion dollars for the company.
32:23
Speaker 3: It's also been widely reported that the US government, as
32:27
Speaker 3: part of securing its approval for this deal, because the
32:30
Speaker 3: government had to approve of it a foreign company buying
32:32
Speaker 3: a US steel producer, US government gets a so called
32:35
Speaker 3: golden share that's not an equity share. They're not going
32:37
Speaker 3: to actually own any of the company, however.
32:40
Speaker 2: No, No, the deal is Nipon bought one hundred percent
32:43
Speaker 2: of US Steel.
32:44
Speaker 3: US right. Government doesn't get anything, but they do retain
32:48
Speaker 3: the right to appoint one independent director, require presidential approval
32:52
Speaker 3: for key decisions not defined, but which may include things
32:57
Speaker 3: like relocating their headquarters or big a big, big job,
33:01
Speaker 3: or headcount changes, moving production outside the United States, those
33:05
Speaker 3: types of things.
33:06
Speaker 1: I e.
33:06
Speaker 3: All the things a company might need to do, especially
33:08
Speaker 3: in a bad situation, to improve its financial prospects. This
33:13
Speaker 3: so called golden share concept not uncommon in I'll call
33:17
Speaker 3: them politely sclerotic European economies where politicians like to play
33:22
Speaker 3: businessman and to medle, but totally unheard of here. I
33:25
Speaker 3: can't imagine why a shareholder, I mean, good luck to you.
33:28
Speaker 3: I guess it's really not my funeral. But why would
33:31
Speaker 3: you find this acceptable? Why would the US government want
33:33
Speaker 3: to get involved in the decisions of a private company?
33:36
Speaker 3: Does this set a precedent for the our all mergers
33:39
Speaker 3: going to be subject to this very old anti free
33:42
Speaker 3: market To a free market fanatic like me, am I wrong.
33:48
Speaker 2: In viewing this as like one step removed from nationalizing
33:51
Speaker 2: the company.
33:52
Speaker 3: No, I think you're exactly right and characterizing it that way.
33:55
Speaker 3: How is it different? In fact, it's nationalizing it without
33:57
Speaker 3: having to get involved in all the messiness of actually buying.
34:00
Speaker 2: Correct, it's like you basically, so NIP and Steel gets
34:03
Speaker 2: to operate, It handle all of the actual dollars moving
34:07
Speaker 2: in and out, but any major decisions have to be
34:10
Speaker 2: run through the US.
34:12
Speaker 3: President specifically apparently, which is how is that?
34:17
Speaker 2: Again? Like you just look at this and you say,
34:19
Speaker 2: is this gonna set a precedent for future deals? And
34:23
Speaker 2: again I look at this and say, look, let's distance
34:25
Speaker 2: ourselves from whether you like President Trump or don't. And
34:31
Speaker 2: just I always tell everyone look forget about like who's
34:34
Speaker 2: there right now? Imagine the worst person that you could
34:37
Speaker 2: possibly put in office at any point in the future.
34:40
Speaker 2: And would you want them to have this power, in
34:44
Speaker 2: this control over a private company. The answer would be no,
34:47
Speaker 2: because then they wouldn't be a private company anymore.
34:50
Speaker 3: Yeah, So there's the dragon profitability because decisions become political,
34:55
Speaker 3: and there's a political question for the American people here too.
34:57
Speaker 3: Do I want the chief executive, who has substantial responsibilities,
35:02
Speaker 3: particularly in wartime, to get bogged down with the minutia
35:04
Speaker 3: of how an individual company is running. Part of this
35:07
Speaker 3: is about the president. He's a bit of a Buttenski.
35:09
Speaker 3: He likes to inject himself in things, especially once they've
35:11
Speaker 3: already evolved, as we're seeing with Israel and Iran this morning.
35:15
Speaker 3: So part of it is his nature, and that's a
35:17
Speaker 3: good quality when you're running a business, sir. Maybe not
35:19
Speaker 3: a great quality when you have to delegate as a
35:21
Speaker 3: president has to. Just set's a terrible example, Chuck, as
35:24
Speaker 3: you said.
35:25
Speaker 2: So we'll see if this is a one offer, if
35:28
Speaker 2: this becomes a trend.
35:30
Speaker 3: Shall we wait too, We shall we bet on that
35:32
Speaker 3: you want to bet the next the next merger is
35:33
Speaker 3: gonna Yeah, you know, he's gonna want a golden share
35:35
Speaker 3: of the next merger.
35:36
Speaker 2: Uh, probably not. I don't think so. No, I do
35:39
Speaker 2: think there is something just I think I think there
35:43
Speaker 2: are two things here that make this one interesting to him.
35:50
Speaker 2: The first it's got the name US right in the name.
35:52
Speaker 2: The second it's got the word steel in the name.
35:55
Speaker 3: Let's know, it's true, there's no no like it's There
35:58
Speaker 3: are plenty of other mergers being talked to right now
36:01
Speaker 3: when you're talking about US Steel, just like the name
36:05
Speaker 3: hits differently than if it were called like, I don't know,
36:08
Speaker 3: you know West Delaware, you know metals. Now he's he's
36:12
Speaker 3: infatuated with nineteen fifties industry too, So that does explain it.
36:15
Speaker 3: I hope you're right, Chuck. I feel a little better
36:17
Speaker 3: now that you put it that way.
36:18
Speaker 2: I want to talk about this piece that Tucker. Am
36:20
Speaker 2: I right that you underline the word Microsoft because this
36:22
Speaker 2: is from Microsoft. Yes, so they put out and obviously
36:27
Speaker 2: this is to promote like their own AI tools and everything,
36:30
Speaker 2: but basically talking about how the average white collar worker
36:34
Speaker 2: pretty much wakes up at six and is spending their
36:37
Speaker 2: entire day writing emails and in meetings, which and then
36:43
Speaker 2: of course you get too well the way to solve
36:45
Speaker 2: this is through like the use of Microsoft AI that
36:47
Speaker 2: can help streamline your processes.
36:49
Speaker 3: Oh, thank you.
36:50
Speaker 2: But I look at this and I don't know. Look,
36:53
Speaker 2: I'm not someone who I don't try to take pride
36:58
Speaker 2: in like being the person who works the longest. I
37:01
Speaker 2: have days when I work long hours. I have days
37:03
Speaker 2: where there's not much going on and I can kind
37:05
Speaker 2: of mentally check out a little bit. And I have
37:07
Speaker 2: no problem saying that, because we're all human and we
37:09
Speaker 2: all do it. I'm not. I don't try to make
37:12
Speaker 2: this cartoon of myself where it's like, oh, I'm the
37:14
Speaker 2: hardest working person ever. No, like there's a lot of
37:16
Speaker 2: people that work harder than me. There's a lot of
37:17
Speaker 2: people who don't. I'm probably somewhere in the middle. It's fine,
37:21
Speaker 2: But I look at this and I'm just trying to
37:25
Speaker 2: get in the head of this where they're saying, like, hey,
37:29
Speaker 2: you're having all these meetings like either before seven am
37:32
Speaker 2: or after eight pm. And the answer to this is
37:35
Speaker 2: Microsoft AI. Not because it'll help you not work during
37:38
Speaker 2: those times, but it'll just make you more productive. And
37:41
Speaker 2: I just look at it and I'm like, we're doing
37:42
Speaker 2: it wrong. We're doing it wrong.
37:47
Speaker 1: Just everything.
37:47
Speaker 2: Yeah, we're just doing it wrong, is what I get to.
37:51
Speaker 2: You know, the solution to this is not, hey, here's
37:54
Speaker 2: tools so that you can be more productive at eight pm.
37:56
Speaker 2: It's no. Maybe we need to ask ourselves why we're
37:58
Speaker 2: needing to work like fourteen and sixteen hour days and
38:02
Speaker 2: never turn off our emails and never be able to
38:04
Speaker 2: actually have dinner with our families. We're doing it wrong.
38:09
Speaker 2: Let's take a quick break for the entire rest of
38:11
Speaker 2: the day. We are markets are closed tomorrow, no economic
38:16
Speaker 2: data tomorrow, so really Friday is gonna be the interesting one.
38:19
Speaker 2: But we'll see us soon.