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The AI Bubble May Be Running Out of Time · The Financial Exchange Show

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Speaker 2: It's Chuck, Mike and Tucker with you. We're gonna get
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Speaker 2: right to it. Because Scott Bessant, following up on yesterday's
1:15
Speaker 2: announcement from the US Treasury that they were expanding their
1:20
Speaker 2: buyback program of long term US debt from a maximum
1:25
Speaker 2: of two billion dollars per offering up to four billion,
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Speaker 2: Besson now saying, quote, buybacks could be bigger than the
1:31
Speaker 2: four billion that we announced, and US yields don't reflect
1:34
Speaker 2: underlying fundamentals. So here's the problem that we now have.
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Speaker 2: And this is what's ultimately going to paint Besson and
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Speaker 2: Worsh into a corner. Worsh, who runs the FED, is saying, hey,
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Speaker 2: we don't want to be influencing what markets think. We
1:56
Speaker 2: want to let markets do the work and understand what's
1:59
Speaker 2: going on.
2:00
Speaker 3: Great, that's fine. They want to sit back and read
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Speaker 3: what markets say.
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Speaker 2: Besson is saying, Hey, I don't like where the bond
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Speaker 2: market is going on the long end, and I'm going
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Speaker 2: to change my issuance in order to change that. These
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Speaker 2: are two completely different messages, yep.
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Speaker 3: And look, which is fine because they're different people in
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Speaker 3: charge of different organizations. They are they can't co exist.
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Speaker 3: The problem is that if you are a buyer of
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Speaker 3: US debt, who do you listen to?
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Speaker 2: Who do you trust? You know who I trust? I
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Speaker 2: trust Worsh. He's got the bigger bazuka.
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Speaker 3: Yeah.
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Speaker 2: The Fed can print money and the Treasury cannot. And
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Speaker 2: so this is like the problem is that the showdown
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Speaker 2: that people are missing, Like the showdown that's happening is
2:44
Speaker 2: not the bond market versus Bessent. It's inadvertently become Bessent
2:50
Speaker 2: versus Worsh. That they're not trying to do it. I
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Speaker 2: don't think, because I don't understand why you would try
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Speaker 2: to do that. Yeah, but that's what the market is
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Speaker 2: going to look at. The bond market's gonna say, Okay,
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Speaker 2: we see you, Scott. You're saying that you could, you know,
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Speaker 2: do more buybacks. Great, where are you gonna get the money?
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Speaker 2: Whereas they look at worse and they're like, okay, you've
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Speaker 2: got the money. Who are you gonna listen to? I'm
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Speaker 2: not gonna listen to when push comes to shove, as
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Speaker 2: long as Worsh proves to be credible on what he
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Speaker 2: is saying, which is big question in light of this,
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Speaker 2: I'm gonna listen to worsh if I'm the bond market.
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Speaker 3: What I find confounding? Uh? The what just.
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Speaker 2: Happened on this? By the way, ten year treasury yield
3:34
Speaker 2: came back down one basis point, Gold up another one
3:36
Speaker 2: percent on this?
3:37
Speaker 3: Yeah, what's the dollar doing?
3:39
Speaker 2: Uh? Dollar is hold? Please flat? Not moving?
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Speaker 3: I find it a bit confounding that the so for
3:48
Speaker 3: a few weeks now, the odds of a rate hike
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Speaker 3: at the next meeting have come down since the inflation
3:53
Speaker 3: report last week. Me personally, Treasury's actions right here bring
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Speaker 3: up the probability of a rate hi at the next meeting,
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Speaker 3: and markets aren't picking that up in any meaningful way.
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Speaker 2: Can we talk about what happened? So here's the other
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Speaker 2: problem then that you run into if Besont wants to
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Speaker 2: dramatically shift the issuance from Remember, most bonds that are issued,
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Speaker 2: most debt that's issued by the United States is short
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Speaker 2: term debt anyways. But here's the thing. If Besont wants
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Speaker 2: to shift the profile towards shorter maturities. The issue that
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Speaker 2: you run into then is if the Fed hikes now,
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Speaker 2: it's gonna cost you more interest because of those hikes you.
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Speaker 3: Just said I don't want to issue thirty year debt
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Speaker 3: because it's costing too much. I'm gonna issue whatever two
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Speaker 3: five ten year debt instead. Sure, if worsh has to
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Speaker 3: hike because of that, then your formula is all screwed up.
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Speaker 3: Now it's gonna cost you more to issue that shorter
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Speaker 3: term debt.
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Speaker 2: By the way, everyone I'm seeing it now. Brent Donnelly,
4:49
Speaker 2: who is uh one of my dudes. I like Brent.
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Speaker 2: I quote him a lot. Brent's got the Jaws meme
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Speaker 2: going now too. Two minutes ago on Twitter, we're gonna
4:58
Speaker 2: need bigger buybacks. I just want everyone to know that
5:02
Speaker 2: we had it first. Yeah, we had it first.
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Speaker 3: Oh man, this is uh. I did not think we
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Speaker 3: were going to get this excited in August, you know.
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Speaker 2: I gotta be honest. The last like month and a
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Speaker 2: half is just been like sleepy markets, like on autopilot,
5:19
Speaker 2: Like not much has been that interesting. Quite honestly, this
5:22
Speaker 2: it's like I feel like I have new life breathed
5:25
Speaker 2: into me. Like it's I I feel like a new man.
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Speaker 3: Chuck is experiencing economic awakening.
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Speaker 2: I just I get excited when things happen in markets,
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Speaker 2: not because they're inherently good or bad?
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Speaker 3: What was that? What was that that's excited?
5:43
Speaker 2: I make?
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Speaker 1: That?
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Speaker 4: Was that?
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Speaker 2: Actually me? Did I make that noise once?
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Speaker 3: Yeah?
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Speaker 2: Apparently why are you asking that? I didn't know? I
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Speaker 2: sounded like that kind of embarrassed now, but also proud
5:55
Speaker 2: at the same time. So in any case, you got
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Speaker 2: stocks off very much, honestly today about a third of
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Speaker 2: a percent on the S and p half percent on
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Speaker 2: the now three quarters on the NASDAK ten. Your treasuries
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Speaker 2: now up four basis points. It's fully reversed any gains
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Speaker 2: that it had early yesterday morning dollars flat on the day.
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Speaker 2: Gold is now up twenty eight dollars announced to forty
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Speaker 2: five seventy three. You got crude oil up a bucks
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Speaker 2: sixty seven a barrel to eighty seven point fifty and
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Speaker 2: triple a national avatur gas prices back up another two
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Speaker 2: cents a gallon to four ten, diesel up another four
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Speaker 2: cents a gallon to five p fifty four. Diesels now
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Speaker 2: twenty seven cents away from an all time high decent
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Speaker 2: chance that you're getting there in the next two to
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Speaker 2: three weeks.
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Speaker 3: So I think SINT just made this next FED meeting
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Speaker 3: so interesting I know he's gonna be He's gonna be
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Speaker 3: speaking what next week in Jackson Hold, Jackson Hole. Yeah,
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Speaker 3: like that'll be interesting too. But that September sixteenth FED
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Speaker 3: meeting is now, I mean fascinating, Like the worst could
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Speaker 3: lose the committee, he might be forced to raise rates,
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Speaker 3: he might lose credibility. Like there's a lot of potential
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Speaker 3: outcomes here.
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Speaker 2: Can they hike and cut in the same meeting. No,
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Speaker 2: they can't do that possible. Yeah, it's uh. I gotta
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Speaker 2: say the next month or two is going to be
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Speaker 2: just really interesting in markets. I don't know how this
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Speaker 2: is going to resolve.
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Speaker 3: I'm expecting a dubbish hike, a dubbish So you're saying
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Speaker 3: for the FED, your fan is going to do a
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Speaker 3: dubbish hike there. They're going to hike interest rates because
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Speaker 3: worsh won't be able to stop them, and he's going
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Speaker 3: to paint it as a duvish hike. He's going to
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Speaker 3: come out with very dubish commentary in spite of the
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Speaker 3: committee hiking rates. So a quarter Yeah, I don't think
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Speaker 3: they're going to hike markets are with you, and the
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Speaker 3: reason I don't think they're gonna hike.
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Speaker 4: Is J.
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Speaker 2: Powell, who still is on the Board of Governors, still
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Speaker 2: a voting member as a member of the Board of Governors.
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Speaker 2: And if there's one thing that I know about Jay Powell,
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Speaker 2: and if there's one thing I've criticized J. Powell for,
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Speaker 2: it's for when ever presented with the question of with
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Speaker 2: the legitimate question of hey, I have the opportunity to
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Speaker 2: actually do something hawkish or I could do the other thing,
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Speaker 2: He's done the other thing. True, Well find out how
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Speaker 2: much power is Again, Powell was not one of the
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Speaker 2: Descent's last meeting.
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Speaker 3: No, how many did we get? Three?
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Speaker 2: Three? And Powell was not one of them. And I
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Speaker 2: have to believe if let's let's consider the premise that
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Speaker 2: maybe the committee is not a fan of Warsh Right now,
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Speaker 2: I'm not saying they are aren't because I don't know,
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Speaker 2: Like like I don't know what these people's relationships with
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Speaker 2: each other are, like I have no idea. But assuming
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Speaker 2: that they are not fans of Worsh, they probably have
8:45
Speaker 2: decent working relationships with Powell from the last ten years.
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Speaker 2: I can't imagine them simultaneously defying Worsh and defying Powell
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Speaker 2: in large enough not like what does that even look
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Speaker 2: like this, Why I asked, can they hike and cut
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Speaker 2: at the same time.
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Speaker 3: Yeah, again, it's gonna be a really interesting meeting.
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Speaker 2: So there's a lot of intrigue here. Again, we set
9:10
Speaker 2: this up heading into the summer. We said this was
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Speaker 2: going to be the most dramatic season of the FED ever,
9:16
Speaker 2: and we're not wrong so far. By the way, you know,
9:20
Speaker 2: we haven't even gotten to you know, FED Island yet
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Speaker 2: and the shenanigans that happened there in Jackson Hole.
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Speaker 3: Yeah, maybe I'm just reading too much into the drama,
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Speaker 3: but my read was that worsh convinced a bunch of
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Speaker 3: FED members that they didn't need to act because of
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Speaker 3: longer term rates. And now that argument is tossed out
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Speaker 3: the window. It's tossed out the window. It's gone.
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Speaker 2: It's kind of wild where we are right now.
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Speaker 3: Let's take a quick break.
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Speaker 2: When we come back, let's talk about bubbles and AI.
9:53
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11:03
Speaker 2: Mike, we got a piece in the Bloomy Berg from
11:06
Speaker 2: Bill Dudley, former president of the Federal Reserve Bank of
11:08
Speaker 2: New York. He says, quote, it won't take much to
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Speaker 2: burst the stock market bubble.
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Speaker 3: So Chuck, I uh, I love this piece, not because
11:17
Speaker 3: I think it's right.
11:18
Speaker 2: Can I just add one other item here before we
11:20
Speaker 2: do that.
11:20
Speaker 3: Just that caught my eye.
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Speaker 2: I just have to read like Bill Dudley's little one
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Speaker 2: sentence profile. Bill Dudley is a Bloomberg opinion columnist, a
11:29
Speaker 2: former president of the Federal Reserve Bank of New York.
11:31
Speaker 2: He's a member of Coinbase Globals Advisory Council.
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Speaker 3: One of those things is unimportant. What so we frequently
11:41
Speaker 3: read and cover articles that we complain about for telling
11:45
Speaker 3: us useless information. We're in a bubble. It's gonna pop someday.
11:50
Speaker 3: Stocks are too highly valued, and that is not useful
11:54
Speaker 3: information in any way. Bill Dudley went out on a
11:57
Speaker 3: limb here. I have no idea if he's gonna be
11:59
Speaker 3: right around. But here's what he said. The bubble will
12:01
Speaker 3: likely burst before the end of twenty twenty seven. And
12:03
Speaker 3: then he lays out three concise arguments. Why yes, I
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Speaker 3: love it. What are the arguments? So there's three main
12:09
Speaker 3: things that he is talking about. One, we're seeing a
12:12
Speaker 3: big favorable impact to markets in twenty twenty six because
12:16
Speaker 3: of the massive increase in spend year over year on AI.
12:22
Speaker 3: His point is that by twenty twenty seven you're not
12:24
Speaker 3: going to see such a massive increase, And so the
12:26
Speaker 3: impact is going to start slowing down. As that growth slows.
12:32
Speaker 3: Then his second argument is that those growth and earnings
12:35
Speaker 3: stories that we've been seeing from everyone who supplies hyperscalers
12:39
Speaker 3: with stuff, yep, that's going to slow down, and so
12:42
Speaker 3: those profit expectations come in. And then finally, as all
12:46
Speaker 3: of that stuff is maturing, the focus is going to
12:49
Speaker 3: go from how quickly are you boosting sales to hey, hyperscalers,
12:54
Speaker 3: where's the ROI And he expects all of that to
12:57
Speaker 3: happen before the end of twenty twenty seven, which is
12:59
Speaker 3: a poll prediction. I just got to he could be
13:01
Speaker 3: completely wrong, but I like having something to be able
13:04
Speaker 3: to judge somebody on.
13:05
Speaker 2: Well, here's the thing. I think that Bill's actually been
13:07
Speaker 2: listening to our show. Oh, I think Bill's been listening
13:10
Speaker 2: to our show. And I gotta say, I gotta say,
13:13
Speaker 2: I understand. I just want to read that. His third
13:17
Speaker 2: paragraph on this third is the investment cycle matures, the
13:20
Speaker 2: focus will shift to the returns of the hyper scalers are
13:22
Speaker 2: expected to earn on their massive investments. I suspect it
13:25
Speaker 2: will be difficult for the AI hyperscalers to generate sufficient revenue.
13:30
Speaker 2: Two trillion dollars or more per year to generate the
13:33
Speaker 2: returns needed to justify an AI capital base that's likely
13:36
Speaker 2: to reach five trillion. It's exactly what we've talked about. Yep,
13:39
Speaker 2: that's exactly what we've talked about.
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Speaker 3: Where you've got he did is he put a timeline
13:42
Speaker 3: on it. Well, we have two. I put an egg.
13:44
Speaker 2: I said, twenty twenty seven to twenty twenty eight is
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Speaker 2: going to be when this matters, and Bill and Iron
13:50
Speaker 2: full alignment on this.
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Speaker 3: I just really appreciate somebody's stake in their or their
13:54
Speaker 3: own reputation on a prediction. Yeah, Like, good for him.
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Speaker 2: What I will say, like interesting, I won't go so
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Speaker 2: far as to be like, hey, this is going to
14:03
Speaker 2: like pop the market. Yeah, but the next two years
14:05
Speaker 2: are going to be the years in which, hey, this
14:08
Speaker 2: either pays off and these companies can make the money
14:11
Speaker 2: that they need to off this, or you're going to
14:14
Speaker 2: see the AI bubble pop.
14:16
Speaker 3: Yeah. Putting it plainly, companies like alphabet, Google's parent company
14:20
Speaker 3: can't go from spending two hundred billion dollars on AI
14:24
Speaker 3: this year to four hundred billion dollars next year. It's
14:27
Speaker 3: just not no possible. There's not enough money to go
14:29
Speaker 3: around to do it, so they are they might still
14:33
Speaker 3: spend another two hundred billion dollars and a little bit
14:35
Speaker 3: more than inflation next year, but it can't grow as
14:39
Speaker 3: much as it did over the last twelve months, and
14:41
Speaker 3: so that puts you in a very different position with
14:44
Speaker 3: this market and economy. It does again, no idea if
14:47
Speaker 3: this bubble is a bubble that pops, No idea if
14:50
Speaker 3: it's gonna happen by the end of twenty twenty seven.
14:52
Speaker 3: But Bill Dudley, I gotta take my hat off, like,
14:54
Speaker 3: good for you for putting yourself out there and saying
14:56
Speaker 3: this is my outlook.
14:59
Speaker 2: Then we have this Wall Street Journal piece quote the
15:01
Speaker 2: AI bubble made deflate, not burst.
15:04
Speaker 3: Don't know what that means. What does that mean? Clue?
15:06
Speaker 2: Is that like when you let a balloon out slowly
15:08
Speaker 2: instead of popping it. I guess like it makes the
15:11
Speaker 2: farting noise instead of the yeah.
15:13
Speaker 3: Or maybe it's the one where, like you know, you
15:15
Speaker 3: have the New Year's party the day after there's still
15:18
Speaker 3: a balloon on the ceiling, and then a month later
15:22
Speaker 3: it's shriveled in the corner.
15:23
Speaker 5: But it still has air in it and not popped technically.
15:28
Speaker 2: You can still.
15:31
Speaker 3: Yeah, yeah, I have no idea what this argument means.
15:34
Speaker 2: I don't either, but it was published in the Wall
15:36
Speaker 2: Street Journal.
15:37
Speaker 3: Yeah, so should we know what it means.
15:41
Speaker 2: I think it's more saying like, okay, here, here's what
15:45
Speaker 2: it might be saying, is that rather than causing like
15:48
Speaker 2: giant problems in the economy and markets, it could just
15:52
Speaker 2: slowly fade away. I don't think that's possible with the
15:55
Speaker 2: scale of build out that we've we've gone through the
15:58
Speaker 2: scale and peace.
15:59
Speaker 3: Yeah, it would seem unlikely to me, you know it,
16:03
Speaker 3: It would seem to be challenging. Yeah, so we'll.
16:07
Speaker 2: See what happens on that front. But again, the next
16:10
Speaker 2: two years I think are where the rubber meets the
16:12
Speaker 2: road in terms of, Hey, once that depreciation starts really
16:16
Speaker 2: coming through earnings and starts impacting them, you got to
16:19
Speaker 2: prove that you got the revenue in order to make that.
16:22
Speaker 2: May you know, to make that work, because if you don't,
16:25
Speaker 2: then you got problems. And do you take a look
16:28
Speaker 2: at the uh open AI revenue news.
16:32
Speaker 3: I did see the headlines. Basically the story is not
16:37
Speaker 3: improving a whole lot, which is problematic for them given
16:40
Speaker 3: their main competitors News.
16:41
Speaker 2: Yeah, it looks like again like their their revenue went
16:47
Speaker 2: up to what was it, like six and a half
16:49
Speaker 2: billion dollars or like I think like seven billion dollars
16:51
Speaker 2: in the first half of the year, but their losses
16:55
Speaker 2: continue to widen and so it's like, okay, like what
16:58
Speaker 2: are we really doing here? And even Anthropic, who went
17:01
Speaker 2: through that huge you know, growth burst back in Q one,
17:05
Speaker 2: there's signs that their revenue is starting to level off
17:08
Speaker 2: as well. And so this is the thing. It's like,
17:11
Speaker 2: I just don't know that there's like another two trillion
17:14
Speaker 2: dollars in spending from corporate America that's going to be
17:17
Speaker 2: able to go into this because they don't just have
17:19
Speaker 2: that money lying around, And I don't think that you're
17:24
Speaker 2: going to be able to get there selling it to
17:27
Speaker 2: average users at like twenty dollars a month. Like the
17:30
Speaker 2: math just doesn't math.
17:31
Speaker 3: No, I don't think it comes from there, And there's
17:33
Speaker 3: not enough had budget budget, and just to put it plainly,
17:39
Speaker 3: not everyone as a software engineer. But you know, again,
17:45
Speaker 3: where we could be missing the boat, Chuck, is that
17:47
Speaker 3: the technology itself becomes as useful to the other.
17:51
Speaker 2: Open airs with six point seven billion in the set
17:53
Speaker 2: in Q two, not in first half, but that was
17:56
Speaker 2: only up eighteen percent sequentially from Q one.
17:59
Speaker 3: Yeah, the argument would be that these AI tools become
18:03
Speaker 3: as useful to everybody else in the workforce as they
18:06
Speaker 3: are to coders and software engineers. But right now they're not.
18:10
Speaker 3: And I don't see a whole lot of promise that
18:12
Speaker 3: it's going to be.
18:13
Speaker 2: No, And here's the other thing, coding and software engineers like, Okay,
18:18
Speaker 2: that's one. Like the reason why that's the first frontier
18:21
Speaker 2: is because you get instant proof of whether it worked
18:24
Speaker 2: or not.
18:25
Speaker 3: And the processes are especially well equipped to handle AI.
18:28
Speaker 3: It's implement test standard protocol. Sure, like it's a very
18:35
Speaker 3: process and detailed oriented task that AIS are good at.
18:39
Speaker 3: I can see why that was the first adapt adaptation.
18:42
Speaker 3: But like, if we're being one hundred percent honest, no
18:46
Speaker 3: one likes AI writing, yeah, No one likes AI images,
18:55
Speaker 3: No one likes the other outputs from AI. Yeah. In fact,
18:59
Speaker 3: I sent an aich to somebody the other day and
19:01
Speaker 3: apologized for it, right, Like, I know this is AI.
19:05
Speaker 3: It was useful in helping me get my thoughts together.
19:07
Speaker 3: I'm sorry.
19:08
Speaker 2: I remember three years ago and it was like, Hey,
19:10
Speaker 2: write me a poem in you know Chuck Norris's voice
19:13
Speaker 2: about cats. Yeah, And like everyone was like, oh, this
19:16
Speaker 2: is so funny. And I was like, it's basically like
19:19
Speaker 2: talking about like the one bad hand that you had
19:22
Speaker 2: the blackjack table, or while your fantasy team lost this weekend.
19:24
Speaker 2: It's like, no one wants to see that. Yeah, let's
19:27
Speaker 2: take a quick break. When we come back. We got
19:29
Speaker 2: Wall Street Watch next.
19:38
Speaker 4: Bringing the latest financial news straight to your radio. Every day,
19:42
Speaker 4: It's the Financial Exchange on the Financial Exchange Radio Network.
19:48
Speaker 3: Tell you out full, whoa.
19:49
Speaker 1: Street Watch, treking, the stocks, fandato, and the headlines driving
19:53
Speaker 1: markets So far today right here on the Financial Exchange
19:57
Speaker 1: Radio Network.
19:57
Speaker 5: Markets are negative Territory, one day after for the Treasury's
20:00
Speaker 5: bond buyback surprise. Earlier this hour, Treasury Secretary Scott Besson
20:05
Speaker 5: said buybacks could be bigger than four billion dollars. Right now,
20:09
Speaker 5: the Dow is down three quarters of a percent or
20:11
Speaker 5: three hundred and eighty six points lower, SMP five hundred
20:14
Speaker 5: down about four tenths of a percent or twenty nine
20:16
Speaker 5: points lower, Nasdaq down nearly one percent or two hundred
20:20
Speaker 5: and forty six points off. RUSS two thousand is down
20:23
Speaker 5: nine tenths of a percent. Ten Your Treasure reeled up
20:26
Speaker 5: five basis points at four point seven zero percent, and
20:29
Speaker 5: Oil up two and a half percent, trading right below
20:32
Speaker 5: eighty eight dollars a barrel. Walmart dropping nine percent after
20:36
Speaker 5: the retail giant posted its slowest quarter for US sales
20:39
Speaker 5: growth in six years, leading to concerns of cautious consumer spending.
20:43
Speaker 5: Despite the slower quarterly growth, Walmart raised its full year's
20:47
Speaker 5: estimates for both net sales in operating income. Meanwhile, beauty
20:51
Speaker 5: company Cody reported a bigger loss than expected and guided
20:55
Speaker 5: for a drop in sales in the current quarter, sending
20:57
Speaker 5: shares down by nine percent after where it's massive one
21:01
Speaker 5: hundred and seventy seven percent rally yesterday, Moderna is retreating
21:05
Speaker 5: seventeen percent today. Yesterday's rally was driven by encouraging study
21:09
Speaker 5: results for its vaccine and high risk mellanium of patients
21:12
Speaker 5: and mark the largest rally for any s and P
21:14
Speaker 5: five hundred stock in the past twenty five years. And
21:18
Speaker 5: Ali Baba down about two percent after the Chinese company
21:21
Speaker 5: reported a steep drop in net profit and increase investments
21:25
Speaker 5: in a I I'm Tucker Silvan.
21:28
Speaker 2: That is Wall Street Watch.
21:31
Speaker 3: Mike, we got excuse me, excuse you talked for a second.
21:35
Speaker 2: Hang on.
21:36
Speaker 3: We've got a piece from the Wall Street Journal covering
21:38
Speaker 3: some news from the Federal Trade Commission, and what they
21:45
Speaker 3: had to cover is kind of dystopian and frustrating. And
21:50
Speaker 3: I'm really glad they're doing something about it. I don't
21:52
Speaker 3: know how effective it will be. I'm not but you're
21:56
Speaker 3: not confident that it's going to do anything. I'm not
21:57
Speaker 3: glad they're doing something about it. Really, I have two
22:01
Speaker 3: conflicting thoughts that I hold in my head. Got it?
22:03
Speaker 2: So what does it talk about? My goodness? I can't talk.
22:06
Speaker 2: Hang on, I gotta go get some water.
22:07
Speaker 3: What this is talking about is the use of metadata
22:12
Speaker 3: on individual on you uh to determine so using a
22:17
Speaker 3: piece of software to read your online shopping habits, smartphone
22:22
Speaker 3: use and effectively using all that data to calculate and
22:26
Speaker 3: estimate in individual's tolerance for higher prices. This exists if
22:30
Speaker 3: you want to go to Google or Facebook. You can
22:33
Speaker 3: target advertisements today for instance, to say I want this demographic. Uh,
22:38
Speaker 3: you know, I don't think you can target age can
22:42
Speaker 3: come in this weld and come homeowners, or you can
22:46
Speaker 3: target other things that estimate age based on you know,
22:50
Speaker 3: search habits and history. And so it's taking that thing
22:53
Speaker 3: that has existed in targeted advertising for quite some time
22:56
Speaker 3: to use it to build pricing models on and internet websites.
23:01
Speaker 2: So like not even just internet websites. The idea eventually
23:04
Speaker 2: is to even have this in retail. One like your
23:05
Speaker 2: phone walks by an aisle and the price changes for you, like.
23:08
Speaker 3: Hypothetically that yeah, so git there.
23:11
Speaker 2: Think of it this way, like you're going and you're
23:13
Speaker 2: trying to buy a hot dog costume for Halloween, and
23:18
Speaker 2: you're able to buy it for twenty dollars. The person
23:21
Speaker 2: next to you is offered ten dollars for is you know,
23:24
Speaker 2: is able to buy it for ten because the website
23:27
Speaker 2: knows that's the most they'll pay for it. So I
23:30
Speaker 2: despise the practice because it's not fundamentally about delivering a
23:33
Speaker 2: better product, service, or experience. It's just about trying to
23:38
Speaker 2: suck up any kind of consumer surplus that exists out there, which,
23:42
Speaker 2: by the way, might be why we all think the
23:44
Speaker 2: world sucks right now from a financial perspective. Is it's
23:47
Speaker 2: just like all of that extra consumer surplus all of
23:50
Speaker 2: the good that you felt about anything that you like
23:53
Speaker 2: previously were able to buy and be like, oh that
23:55
Speaker 2: was fun. Now you've got these like little pe firms
23:58
Speaker 2: running around being like, oh, we can just to raise
24:00
Speaker 2: the price by two cents on that, and we can
24:02
Speaker 2: get rid of one customer service person and then they'll
24:05
Speaker 2: be able.
24:06
Speaker 3: To constantly feel like you're getting scammed.
24:08
Speaker 2: Yes, like you just feel like you're getting screwed over
24:10
Speaker 2: all the time. So I despise this as a practice,
24:15
Speaker 2: but I also don't think that the FTC should be
24:19
Speaker 2: getting involved in. Like okay, so describe to me the
24:23
Speaker 2: difference between this and airlines having different fare classes that
24:28
Speaker 2: they offer that are available just based on, hey, the
24:32
Speaker 2: inventory and what people are able to pay for those.
24:35
Speaker 2: As an example, when you buy a ticket for Economy class,
24:38
Speaker 2: you'll see that there's a little letter that shows up
24:40
Speaker 2: on your ticket, like ten different letters for economy class.
24:44
Speaker 2: What that is each different one is a different fare
24:47
Speaker 2: class in economy And once the cheapest ones are sold out,
24:50
Speaker 2: then the next ones go, and the next ones and
24:51
Speaker 2: the next ones. So it's not personalized to you, but
24:55
Speaker 2: it's the same product that you are buying, just based
24:58
Speaker 2: on a different available it's a different price.
25:01
Speaker 3: Yeah, I do think it's different. Why, uh, this is
25:06
Speaker 3: targeting my specific willingness and ability to pay, And yes,
25:11
Speaker 3: so unless I am going to.
25:14
Speaker 2: Why do companies need to disclose if they're doing that though,
25:16
Speaker 2: Like what is disclosure going to do?
25:20
Speaker 3: Nothing? So my problem is that the FTC doesn't have
25:23
Speaker 3: enough authority to do this. I think this should be banned.
25:27
Speaker 2: Yes, if you want to have Congress come in and
25:29
Speaker 2: be like we are not going to allow this.
25:32
Speaker 3: Yeah, I'm in totally fine, all on board with that. Again,
25:35
Speaker 3: this is where this is leading to is a website knowing,
25:40
Speaker 3: based on your browsing history that you are rich and
25:44
Speaker 3: so you are going to pay a higher price for
25:47
Speaker 3: that hot dog costume than your neighbor who can't afford it.
25:51
Speaker 2: Which I think sucks. Which but I also don't think
25:53
Speaker 2: the FTC is saying, oh, you have to disclose when
25:55
Speaker 2: you're doing this, Like, I think that's stupid too.
25:58
Speaker 3: Eh. What So let's say that I go to.
26:03
Speaker 2: A random website like website to buy chairs and I
26:08
Speaker 2: see this disclosure, like, hey, we use personalized pricing, Okay,
26:13
Speaker 2: Like if the chairs are still the price that I want.
26:16
Speaker 2: Am I gonna buy them?
26:17
Speaker 3: Yeah?
26:17
Speaker 2: If they're not, then I'm not.
26:20
Speaker 3: If enough is made about this issue and people start
26:23
Speaker 3: to realize what it really is, then my hope would
26:25
Speaker 3: be the disclosure would be enough to shame companies from
26:28
Speaker 3: not doing it and actually have people today. I don't know.
26:32
Speaker 3: If I go to a website, I have no idea
26:34
Speaker 3: if they're using this type of data to customize pricing.
26:37
Speaker 1: To me.
26:37
Speaker 3: If I know, I can at least say screw this,
26:39
Speaker 3: I'm not shopping on this website.
26:41
Speaker 2: Fair. I just don't know that people in mass will
26:43
Speaker 2: do anything about that, because if there's one thing I've seen,
26:45
Speaker 2: it's like people hate when they're privacy is invaded, but
26:49
Speaker 2: they don't do anything about it. We saw this with
26:51
Speaker 2: all the Facebook stuff a few years back. No one
26:54
Speaker 2: did anything about it. Everyone's just like, oh, I hate Zuckerberg.
26:57
Speaker 2: Let me go on Instagram and tell people about how
26:58
Speaker 2: much I don't like it.
27:00
Speaker 3: The reality here, Instacart, a grocery delivery company, was using
27:04
Speaker 3: this stuff to customize the grocery prices that you face
27:07
Speaker 3: food like.
27:10
Speaker 2: It sucks.
27:11
Speaker 3: I know, terrible, And so to your point, we have
27:16
Speaker 3: a history of not getting outraged over the abuse of
27:19
Speaker 3: our personal data. So will anything happen? Probably not, But
27:23
Speaker 3: I'm strongly in favor of in more disclosure around this
27:27
Speaker 3: than less, so FTC. My only complaint about you is
27:30
Speaker 3: that you don't have the authority to do anything. That's all.
27:34
Speaker 2: Let's take a quick break. When we come back, let's
27:36
Speaker 2: do a little bit of stack Roulette.
27:39
Speaker 1: Okay, real time financial insight as news breaks. The Financial
27:43
Speaker 1: Exchange is live on x Watch the show and follow
27:46
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27:48
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27:52
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28:00
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28:02
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28:06
Speaker 1: Radio Network.
28:17
Speaker 2: Mike, I'm gonna kick things off for stack Rulette with
28:19
Speaker 2: a twenty dollars burrito discussion. We already covered last week
28:24
Speaker 2: that in my burrito purchases over the past year, I
28:27
Speaker 2: have not had a single instance of a twenty dollars barrita,
28:30
Speaker 2: when in fact, they have generally hovered between thirteen and
28:32
Speaker 2: fifteen dollars per burrito.
28:34
Speaker 3: Yeah, you gotta get some delivery and extra guak in
28:36
Speaker 3: there to be hitting the twenty dollars mark tip.
28:39
Speaker 2: I had guak on my I'm very pro guak. I
28:42
Speaker 2: love a good avocado mashed up inside of a burrito.
28:46
Speaker 2: But we got a piece here from what's plot ofpus
28:50
Speaker 2: economics justin Wolfer's Yeah, Wolfers does that. Now, that's right now,
28:54
Speaker 2: so I forget that's what he called it. So it's
28:57
Speaker 2: what the twenty dollars burrito debate gets wrong about affordability,
29:00
Speaker 2: and what Wolfers is basically mentioning here is something that
29:03
Speaker 2: we talked about, which is, look, if you adjust this
29:06
Speaker 2: in real terms in terms of either inflation but also
29:09
Speaker 2: in terms of wage data, you end up in a
29:12
Speaker 2: situation where the price of a burrito hasn't really changed
29:16
Speaker 2: much in the last twenty years relative to wages. And
29:20
Speaker 2: this gets it one of the things that I think
29:21
Speaker 2: we do feel when it comes to inflation, which is
29:24
Speaker 2: like economists have spent years, like decades, like being like,
29:27
Speaker 2: why do people hate inflation? And they basically have come
29:29
Speaker 2: to the conclusion that people hate inflation because they hate inflation.
29:33
Speaker 2: I know that's circular, but that's pretty much it. It's
29:36
Speaker 2: like Oh okay, my wages went up, I should be
29:39
Speaker 2: able to buy more. No, you can get the same amount. Well,
29:41
Speaker 2: you don't just feel the same. You feel worse because
29:43
Speaker 2: you thought you were getting something and then it turned
29:46
Speaker 2: out you weren't.
29:47
Speaker 3: Can anyone explain it better to me?
29:49
Speaker 2: No, It's basically people thought they were getting a reward
29:52
Speaker 2: and it turns out they got no benefit, and people
29:54
Speaker 2: don't like that. Yeah, that's why people hate inflation. Other
29:58
Speaker 2: than that, like inflation in it of itself is not
30:02
Speaker 2: inherently harmful because inflation generally happens because wages are going up.
30:06
Speaker 2: And so if wages are going up at the same
30:08
Speaker 2: pace that prices are, you're not better or worse off.
30:12
Speaker 3: Or faster like again, like the government's own data says
30:14
Speaker 3: that they have since the COVID recession. Right, I've corrensied
30:18
Speaker 3: that during a previous segment, But you can go chart
30:20
Speaker 3: this out. Average hourly earnings from February of twenty twenty
30:25
Speaker 3: to now are higher than inflation. Yeah, and that applies,
30:31
Speaker 3: you know, if you're on Social Security and not working.
30:34
Speaker 3: It applies to a number of different categories. And yeah,
30:37
Speaker 3: people don't like inflation because they don't like seeing prices
30:41
Speaker 3: get more expensive.
30:42
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31:42
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Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
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31:51
Speaker 3: Chuck Talker, You guys familiar with companies like Blue Apron, Yeah, yes,
31:55
Speaker 3: remember having their heyday back in But when was their
31:58
Speaker 3: real heyday? Late twenty ten's early.
31:59
Speaker 2: Twenty twenty sixteen to twenty nineteen.
32:02
Speaker 3: If you're not familiar, meal delivery kit. We send you
32:05
Speaker 3: all the ingredients, instructions on the meal and you cook
32:08
Speaker 3: it yourself in the home. Not exactly a cheap offering
32:11
Speaker 3: as you can imagine. But we talk about Blue Apron
32:14
Speaker 3: for a second though. The stock Yeah, do you know
32:17
Speaker 3: that at one time in twenty seventeen when an iPod
32:20
Speaker 3: it was worth twenty billion dollars where we're at now
32:22
Speaker 3: less than ability.
32:23
Speaker 2: It's delisted, it's not got it, it's gone, so the
32:28
Speaker 2: company itself.
32:30
Speaker 3: So I tried it. I don't know if you guys
32:32
Speaker 3: tried it. What I liked about it was, you know,
32:35
Speaker 3: it was having me cook things that I would never
32:37
Speaker 3: otherwise cook, Like, you know, I'm not going to typically
32:40
Speaker 3: go to the grocery store and buy some Rozelle hanut
32:44
Speaker 3: and know how to use that spice blend. You know,
32:47
Speaker 3: I never heard Rozel hanut.
32:48
Speaker 5: No, I haven't heard of Rozel Sanut.
32:50
Speaker 2: Wasn't he the bad guy in Batman begins? That's what
32:53
Speaker 2: I wanted to make sure I didn't mix up, was
32:54
Speaker 2: the Batman versus the spice blend. But in any case,
32:58
Speaker 2: it made you try out some different things. But yeah,
33:00
Speaker 2: I mean, like quickly, it was impractical. It wasn't enough food.
33:03
Speaker 3: It was just costly, and so we took a few
33:06
Speaker 3: of the recipe cards and occasionally cook them every once
33:09
Speaker 3: in a while, but it was not a long term
33:10
Speaker 3: thing that we were interested in doing. And turns out
33:13
Speaker 3: the rest of the world feels the same way. But
33:18
Speaker 3: in just kind of a I guess signal of where
33:21
Speaker 3: these companies are now, one of their major suppliers went
33:25
Speaker 3: belly up, and customers of these companies that you know
33:29
Speaker 3: again kind of forgot that they still exist. But they're
33:33
Speaker 3: getting orders shipped to their home with pretty much empty
33:36
Speaker 3: boxes and missing ingredients, when again, the only offering you
33:40
Speaker 3: have here is that we ship you all the supplies
33:44
Speaker 3: to cook your meal. And because their business models are
33:48
Speaker 3: such a mess and their suppliers are such a mess,
33:50
Speaker 3: they're they're basically shipping empty boxes or half filled boxes
33:54
Speaker 3: to their customers at this stage, so not exactly something
33:58
Speaker 3: that I'd be looking to sign up for right now.
34:00
Speaker 2: You know they they say that, know that.
34:03
Speaker 3: You know what is it that.
34:07
Speaker 2: Bad publicity?
34:08
Speaker 1: Is?
34:08
Speaker 3: Any publicity is good publicity? Yes?
34:10
Speaker 2: Yeah, in this case, any food would be good food,
34:13
Speaker 2: and instead they're delivering nothing.
34:16
Speaker 5: He does that to make a peanut butter and jelly.
34:22
Speaker 2: Here's here's a goldfish. Put it in water and see
34:24
Speaker 2: if it flows. A box of cereal, can of toda Jaramyannes,
34:28
Speaker 2: good luck pal. Speaking of food, Costco's latest deal get
34:32
Speaker 2: Medicare at the dollar fifty hot dog in soda.
34:35
Speaker 3: It's gonna be some expensive medicare. Okay, let me let
34:39
Speaker 3: me walk through this. So here's the deal. I'll quote
34:42
Speaker 3: here the waresse retail or routine with nonprofit issuer Scan
34:45
Speaker 3: Group to offer private Medicare plans to customers in a
34:49
Speaker 3: limited number of states like two. Costco and Scan will
34:53
Speaker 3: offer jointly branded Medicare advantage plans in two states and
34:56
Speaker 3: a Medicare supplemental plan in a third state.
35:00
Speaker 2: And I'm just trying to understand the reason for this, Like.
35:07
Speaker 3: It was it Costco included in that group of companies
35:11
Speaker 3: that started was JP Morgan. Remember when they were gonna
35:15
Speaker 3: study it was Berkshire, Hathaway, JP, Morgan and Amazon Amazon. Yeah,
35:20
Speaker 3: and they were gonna, you know, try and come out
35:21
Speaker 3: with some and Genie and they gave up after you.
35:24
Speaker 2: They're like, yeah, this business isn't good.
35:26
Speaker 3: Yeah, this sucks. We gotta get out of here.
35:28
Speaker 2: No, thank you.
35:29
Speaker 3: I don't think Costco is gonna have any different experience here.
35:32
Speaker 2: I just don't understand. Yeah. So I go to I'm
35:38
Speaker 2: a BJ's member, and I go there, and every time
35:42
Speaker 2: I go there's a guy standing at like the third
35:45
Speaker 2: aisle trying to with you know, a T Mobile shirt
35:48
Speaker 2: on or like with like a utility plan.
35:51
Speaker 3: A man who's your carrier face?
35:53
Speaker 2: And every time I'm just like no, thank you, like
35:55
Speaker 2: I'm good, No, I'm polite, like he's doing a job,
35:57
Speaker 2: Like I'm not gonna be.
36:00
Speaker 3: My face. How close is.
36:04
Speaker 2: Maybe you're in his face? One guy was really close,
36:07
Speaker 2: like that was a target. Well it was just a
36:09
Speaker 2: close talker, yeah, you know in any case, So like
36:12
Speaker 2: every time, like I go past that guy, like I'm
36:14
Speaker 2: sure maybe the cell plans are fine, but I'm not
36:18
Speaker 2: there to negotiate a cell plan, like.
36:22
Speaker 3: To buy fifteen pounds of beef.
36:24
Speaker 2: Right when I go to Costco to get thirty two tires,
36:29
Speaker 2: so I'm good for the rest of my car's life.
36:32
Speaker 2: I don't need to go and figure out my Medicare situation.
36:36
Speaker 3: I do kind of like the challenge though, of a
36:40
Speaker 3: Medicare salesman sitting in Costco trying to figure out which
36:43
Speaker 3: people are sixty five like m graying, but no wrinkles
36:51
Speaker 3: around the eyes. I'm not Yeah, let's go Okay. I
36:55
Speaker 3: don't think that's how they're going to do it. I
36:56
Speaker 3: mean Costco cells, cars, Costco cells.
37:00
Speaker 2: Does that make sense?
37:01
Speaker 3: Does it? Yeah?
37:02
Speaker 2: Because again you're going in. You don't buy a car
37:05
Speaker 2: just by accident at Costco. You don't go in for
37:07
Speaker 2: beef and come out with a car. Well, you go
37:09
Speaker 2: there because like they're selling cars, and you're like, hey,
37:12
Speaker 2: I could probably get a good deal here. I'm not
37:15
Speaker 2: sure that you can get a better deal on a
37:17
Speaker 2: Medicare plan by going to Costco. The insurer is gonna
37:20
Speaker 2: underwrite it the same way.
37:22
Speaker 3: Well, if they don't offer a better plan, then yeah,
37:24
Speaker 3: this is a missed opportunity. Like either you offer a
37:28
Speaker 3: Costco priced plan that is cheaper somehow, what's what's it?
37:31
Speaker 2: What are you gonna get?
37:32
Speaker 3: I don't know.
37:34
Speaker 2: You get half a doctor's.
37:35
Speaker 3: Visit, like for a Costco membership with your check out,
37:38
Speaker 3: but we'll give you the diagnostics, but we won't tell
37:40
Speaker 3: you the results.
37:42
Speaker 2: Like I don't know, I don't know.
37:44
Speaker 3: It's a healthcare if all accounts is a really tough business.
37:51
Speaker 3: I'm not sure this is gonna be Costco.
37:52
Speaker 2: I guess it's like, if you want to offer a
37:54
Speaker 2: cheaper plan, why are you just doing it at Costco?
37:56
Speaker 2: Why don't you just offer a cheaper plan. M the
38:01
Speaker 2: side of hot dog, you know, one stops shopping. We're
38:06
Speaker 2: gonna take a quick break and uh, maybe have a
38:10
Speaker 2: couple of hot dogs and we'll see you tomorrow. On
38:12
Speaker 2: the Financial Exchange