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Has Trump's tariffs doomed US automakers? · The Financial Exchange Show

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Speaker 2: Chuck Mike Tucker with you here on a Thursday. And
1:13
Speaker 2: the store that we are going to kick things off
1:15
Speaker 2: with is the Trump administration yesterday a little bit after
1:18
Speaker 2: four pm, announcing that they are imposing a twenty five
1:22
Speaker 2: percent tariff on all imported vehicles. This is going to
1:26
Speaker 2: take effect on April third, which is a week from today,
1:30
Speaker 2: so next Thursday. And at this point, the indication is
1:35
Speaker 2: that that is going to be purely just for imported
1:38
Speaker 2: completed vehicles, with the idea that this will be expanding
1:41
Speaker 2: to imported auto parts in May. Mike, yesterday, the market,
1:47
Speaker 2: which earlier this week based on a Wall Street Journal
1:50
Speaker 2: report over the weekend that had said, hey, there are
1:54
Speaker 2: not going to be any sector specific tariffs imposed, the
1:56
Speaker 2: market said, hey, we rallied you know, a couple percentage points,
2:00
Speaker 2: and we're going to give most of that back on
2:01
Speaker 2: Wednesday because that Wall Street Journal report turned out to
2:04
Speaker 2: be factually inaccurate.
2:06
Speaker 3: Yeah, look, people keep trading. I think on the end,
2:09
Speaker 3: you can't trade the headlines. Yeah, they keep trading the headlines,
2:12
Speaker 3: and be they keep trading this consistent idea that I
2:14
Speaker 3: keep hearing from folks, which is take the president seriously,
2:17
Speaker 3: but not literally, like can we just start doing both?
2:21
Speaker 3: I think, is my response to all of this. Now,
2:24
Speaker 3: do I know that these terrifts won't be waved or
2:26
Speaker 3: suspended thirty days from No, No, I have no idea.
2:29
Speaker 3: But this whipsaw fact in infect in markets is I'm
2:35
Speaker 3: sure just frustrating some people out there who are buying
2:39
Speaker 3: on the headline and I'm sure selling on the headline
2:41
Speaker 3: again today.
2:42
Speaker 2: Yeah, this is a market where if you are paying
2:47
Speaker 2: attention to the daily headlines, you're gonna be exhausted. You're
2:53
Speaker 2: not going to be able to function as a human being.
2:56
Speaker 2: Because again, earlier this week, it was it was literally
2:59
Speaker 2: Sunday at four pm that we had the Wall Street
3:02
Speaker 2: Journal piece that was published citing, you know, a couple
3:05
Speaker 2: unnamed sources from the Trump administration saying yeah, there aren't
3:09
Speaker 2: gonna be sector based tariffs imposed, and three days later
3:12
Speaker 2: there were. So I don't think it is a viable
3:17
Speaker 2: strategy unless you are you know, some kind of supercomputer
3:20
Speaker 2: yourself to be able to be like, yeah, I'm gonna
3:23
Speaker 2: you know, trade these markets and headlines like you don't
3:27
Speaker 2: know how long they're going to last. It could be
3:29
Speaker 2: a day a week, it could be permanent. And so
3:32
Speaker 2: I think that by and large that's the that's an
3:36
Speaker 2: easy way just to get chewed up and spit out
3:38
Speaker 2: by these markets is hey, markets are up on Monday,
3:40
Speaker 2: I'm gonna buy that. Oh no, they're down on Wednesday.
3:42
Speaker 2: Now I need to sell it like That's That's how
3:44
Speaker 2: you lose money, is getting just whipsod like that. So
3:48
Speaker 2: I think that when we look at this, let's talk
3:50
Speaker 2: about the actual you know, economic impact here. Now that
3:53
Speaker 2: these have actually been you know, announced, I think it's
3:56
Speaker 2: it's fair to talk about what the the economic impact is.
3:59
Speaker 2: Of course, if they're rescinded on you know, Monday of
4:02
Speaker 2: next week, then we'll have wasted you know, twenty thirty
4:06
Speaker 2: minutes of your time today talking about the economic impact
4:08
Speaker 2: of something that hasn't happened. But that's the cost of
4:12
Speaker 2: doing business for US. So here's what We've got twenty
4:15
Speaker 2: five percent tariffs on imported US vehicles right now. As
4:19
Speaker 2: it stands, almost fifty percent of cars that are sold
4:22
Speaker 2: in the US are imported, but.
4:25
Speaker 4: Not across the board by brand obviously correct.
4:28
Speaker 2: The vast majority of those imports in terms of where
4:31
Speaker 2: they come from. For cars is Canada and Mexico. Yes,
4:37
Speaker 2: and it can be US automakers that have set up
4:40
Speaker 2: shop there. It can be European automakers that have set
4:43
Speaker 2: up shop there. I haven't done the exact you know,
4:46
Speaker 2: numbers to see like what we have as far as
4:47
Speaker 2: like you know, Toyota or Hyundai or you know other
4:50
Speaker 2: you know Asian manufacturers. But look, it's it's there. Are
4:55
Speaker 2: not great you know, there's no great history of Canadian
4:57
Speaker 2: car companies exporting cars to the US. Mostly, you know,
5:01
Speaker 2: they're kind of a third party place of construction that
5:04
Speaker 2: you know, is cheaper to produce than in the US,
5:07
Speaker 2: but still very close to it. So it makes it
5:09
Speaker 2: easy from an import export perspective.
5:11
Speaker 3: Reuters has some data that they put out yesterday or today.
5:15
Speaker 3: Just again, this is not perfect from country by country,
5:18
Speaker 3: but rather brand by brand, which which car companies represent
5:23
Speaker 3: the highest percentage of their vehicles that are imported into
5:27
Speaker 3: the United States. So Jaguar land Rover one hundred percent
5:30
Speaker 3: of the vehicles sold in the US are imported from
5:33
Speaker 3: another country.
5:34
Speaker 2: Not a great not a great thing. If you're trying
5:35
Speaker 2: to buy a new land Rover prices going up pretty quickly, then.
5:39
Speaker 3: Volvo ninety percent, Mazda eighty one percent, Volkswagen eighty These
5:44
Speaker 3: are all, you know, especially on the Volkswagen side, that's
5:47
Speaker 3: a huge, a huge brand in the US and a
5:49
Speaker 3: huge number of cars. Hyundaikias sixty five percent. That one
5:53
Speaker 3: is particularly impactful just based on the massive increase in
5:56
Speaker 3: sales that those two companies have seen in the United States.
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Speaker 3: I can, I mean think through just like how many
6:02
Speaker 3: Hyundais and ky As you saw in the car on
6:04
Speaker 3: the roads ten years ago compared to today, it's far
6:06
Speaker 3: more significant Mercedes Benz.
6:09
Speaker 2: Let's let me just talk about in twenty twenty four
6:11
Speaker 2: in terms of the you know, the auto sales by
6:15
Speaker 2: brand in the United States. Like if you're wondering, like
6:19
Speaker 2: who are the biggest manufacturers in the US? Again, it's
6:25
Speaker 2: it's these companies that we are naming like that. They're
6:28
Speaker 2: all I mean again, there's there's only so many brands
6:30
Speaker 2: that you actually have out there. Uh, but ultimately like
6:36
Speaker 2: these these are all major manufacturers in terms of how
6:40
Speaker 2: many ve excuse me, how many vehicles they are selling.
6:44
Speaker 2: I mean, your biggest ones are Toyota and four they
6:47
Speaker 2: represent a huge chunk, but Honda, Kia, Hyundai are your
6:50
Speaker 2: next three, So like you got a huge number of those,
6:53
Speaker 2: you know, kind of wrapped up in there. As far
6:55
Speaker 2: as your major US manufacturers.
6:57
Speaker 3: Rounding out this list, Mercedes Benz sixty three per cent
7:00
Speaker 3: of vehicles are imported, BMW about half, fifty two percent,
7:04
Speaker 3: Toyota fifty one, General Motors forty six to Lantis forty five,
7:09
Speaker 3: Subru forty five, Honda thirty five, Ford only twenty one
7:13
Speaker 3: percent of vehicles sold in the United States are imported
7:16
Speaker 3: from another country. And finally Tesla at zero percent. As
7:19
Speaker 3: we know, they've been making big headlines in stock, at
7:22
Speaker 3: least in earlier trading was moving up. Let's see if
7:25
Speaker 3: it is still yes, Tesla stock up about one point
7:29
Speaker 3: nine percent. But then you go look at you know,
7:31
Speaker 3: General Motors off seven, Ford off three and a quarter
7:34
Speaker 3: in early trading today, purely on reaction to these tariffs.
7:37
Speaker 2: So in terms of the estimates that I've seen, if
7:41
Speaker 2: these tariffs are actually enacted, you're talking anywhere from the
7:46
Speaker 2: average vehicle costing. Again, it's it's going to depend on
7:48
Speaker 2: the model the manufacturer, Like this is not you know,
7:51
Speaker 2: going to be in across the board. Here's how much
7:53
Speaker 2: things go up. But when you're talking about the average
7:55
Speaker 2: cost of a new vehicle, you're talking somewhere in the
7:57
Speaker 2: ballpark of six to eight thousand dollars in additional cost.
8:01
Speaker 2: And this is again even if you're talking, Hey, Ford
8:06
Speaker 2: makes I think you said it was like almost eighty
8:08
Speaker 2: percent of their vehicles in the US.
8:10
Speaker 3: Yeah, so they're not gonna simply say to the twenty
8:13
Speaker 3: percent of vehicles that aren't made in the US, you're
8:16
Speaker 3: gonna get You're gonna become more expensive, and everything else
8:18
Speaker 3: is gonna stay the same, because again, then those models
8:23
Speaker 3: are like why would you even make those models?
8:25
Speaker 2: They're just not gonna end up getting sold. So instead
8:28
Speaker 2: you end up being something. It's gonna be something where Okay,
8:31
Speaker 2: maybe those absorb most of the cost, but they also
8:33
Speaker 2: pass some of those additional costs through onto other vehicles.
8:37
Speaker 2: It's not just you know, if again I don't know
8:41
Speaker 2: which vehicles Ford makes in Mexico at this point, I
8:45
Speaker 2: could probably try to figure it out. So if I'm
8:50
Speaker 2: just trying to pull it up right now, just so
8:51
Speaker 2: I can give you know, some kind of example here,
8:55
Speaker 2: let's see, Okay, here we go, thirty four cars built
8:58
Speaker 2: in Mexico for the United States. Great. So if we're
9:02
Speaker 2: looking at the I'm just trying to find a Ford
9:05
Speaker 2: one here. There's gotta be one somewhere, GM, Volkswagen, Hundai, Nissan,
9:10
Speaker 2: and Nissan, Nissan, Toyota, BMWGMC.
9:12
Speaker 3: Here we go Ford Fusion. They still make that or
9:14
Speaker 3: they get rid of all their sedans if it's on
9:18
Speaker 3: the list. It's twenty twenty, so don't I don't know.
9:21
Speaker 2: Okay, Anyways, the Ford Fusion it cost at the time,
9:26
Speaker 2: I don't know, call it thirty thousand dollars. They're not
9:28
Speaker 2: just gonna go and say, okay, Ford Fusion, now you're
9:30
Speaker 2: gonna be thirty six thousand. They might say, okay, Ford
9:34
Speaker 2: Fusion is gonna go up to thirty four and f
9:36
Speaker 2: one fifties are gonna have a five hundred dollars surcharge
9:39
Speaker 2: on it, because otherwise they're not gonna be able to
9:41
Speaker 2: sell any of the Ford Fusions, and then why would
9:42
Speaker 2: you produce them at all? So again, it's it's going
9:47
Speaker 2: to be varied. It's going to be something that is
9:49
Speaker 2: not uniform. You're gonna have to see how the numbers
9:52
Speaker 2: end up working out. And again, there there is always
9:55
Speaker 2: a chance that we're sitting here a week from now saying, hey,
9:58
Speaker 2: this this didn't go into a because of reasons X,
10:01
Speaker 2: Y and Z, and so this is not actually a thing.
10:05
Speaker 3: I know we need to take a break, Chuck. But
10:07
Speaker 3: so I think the very clear answer is short term
10:10
Speaker 3: expect price increases on vehicles? Should this stay in place?
10:13
Speaker 3: And each CEO will be talking about this separately. I
10:15
Speaker 3: heard a BMW CEO out there recently saying they're going
10:19
Speaker 3: to basically wait until May and then assess pricing of
10:21
Speaker 3: their vehicles in the US. And as I mentioned, BMW
10:24
Speaker 3: imports most of these. But each CEO is going to
10:28
Speaker 3: be having these types of conversations, how long do we wait?
10:31
Speaker 2: What do we do on existing pricing?
10:33
Speaker 3: Let's take a quick break, and then let's start on
10:36
Speaker 3: the employment side of this equation as well, because ultimately
10:39
Speaker 3: that's what the president is attempting to accomplish. Here is
10:42
Speaker 3: jobs back in the United States. Where might those jobs go?
10:46
Speaker 3: And what's the UAW saying about all this? That's next
10:49
Speaker 3: here on the Financial Exchange.
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Speaker 2: Mike, what else do you want to touch on as
11:53
Speaker 2: it relates to tariffs and cars?
11:57
Speaker 3: I thought we'd talk a little bit about the employment
12:00
Speaker 3: side of things, and just you know, we tend to
12:04
Speaker 3: get pigeonholed in our stuff up here in the Northeast,
12:07
Speaker 3: and in the Northeast, what you're likely to experience is
12:10
Speaker 3: no real change to the employment scenario because we don't
12:13
Speaker 3: manufacture any vehicles here in the Northeast, but probably higher
12:18
Speaker 3: prices and that is the likely trade off if these
12:21
Speaker 3: tariffs remain in place for a long period of time.
12:24
Speaker 3: UAW chief Sean Fain was out this morning talking about,
12:28
Speaker 3: you know, the positive effect this will have unemployment in
12:31
Speaker 3: the United States and specifically for the UAW. So I
12:33
Speaker 3: thought it was worth exploring, like where does this manufacturing happen?
12:37
Speaker 3: And it's you know, obvious states that you're all aware of.
12:41
Speaker 3: The number one state for auto manufacturing employment was Michigan.
12:45
Speaker 3: That was data as of twenty twenty two. There's about
12:47
Speaker 3: one hundred and sixty seven thousand jobs there, followed by Indiana, Ohio, Kentucky,
12:53
Speaker 3: and Alabama.
12:53
Speaker 4: Those are the five.
12:56
Speaker 3: States where the most auto manufacturing jobs exist. And I
12:59
Speaker 3: bring the because if you're talking about changes that these
13:03
Speaker 3: terrifts are likely to make, it's not that they're you know,
13:06
Speaker 3: it's not that Toyota is going to turn around tomorrow
13:09
Speaker 3: and start construction of a brand new manufacturing facility in
13:13
Speaker 3: Detroit or in Kentucky. They are going to be looking
13:17
Speaker 3: at their existing facilities and saying, how can we move
13:19
Speaker 3: more manufacturing capabilities there? So those top five states also
13:25
Speaker 3: have pretty I was kind of curious, like what's the
13:29
Speaker 3: unemployment situation of those states? Do they have the capacity
13:32
Speaker 3: to absorb more jobs, and the answer seems to be yes.
13:35
Speaker 3: As of January, Michigan had the third highest unemployment rate
13:39
Speaker 3: in the country at five point three percent. Kentucky was
13:42
Speaker 3: up there as well at five point three percent. Indiana
13:45
Speaker 3: was sitting with an unemployment rate of four point four percent.
13:49
Speaker 2: What other states did? I mention?
13:51
Speaker 3: Ohio was sitting there at four point six percent. And
13:54
Speaker 3: so the question that we've talked about on part two is, hey,
13:59
Speaker 3: do we actually have the workers to absorb these additional
14:03
Speaker 3: jobs if they come through? How inflationary will that be?
14:07
Speaker 3: How much more expensive is it to manufacture cars in
14:09
Speaker 3: the US compared to elsewhere?
14:11
Speaker 4: The answer is it's more.
14:13
Speaker 3: But I was at least encouraged to see that, Hey,
14:16
Speaker 3: there seems to be some slack in the labor force
14:18
Speaker 3: in those states that are most likely to be affected
14:20
Speaker 3: by increasing jobs. If they end up coming back and
14:23
Speaker 3: if these terrafs remained in place for a long period
14:25
Speaker 3: of time, I'm not sure it's that encouraging. I am
14:29
Speaker 3: not trying to find one.
14:30
Speaker 2: And a half percent unemployment is really low. It is, Yeah,
14:34
Speaker 2: like it's four and a half percent of employment. Normally,
14:36
Speaker 2: you've got employers saying I can't find anyone qualified to hire.
14:39
Speaker 2: And that's not for something like auto manufacturing Michigan at
14:42
Speaker 2: five' three though that's fairly. High not, REALLY i, Mean,
14:46
Speaker 2: mike aside from the last few. Years the only periods
14:51
Speaker 2: like you go look at the historical trends on the
14:53
Speaker 2: unemployment rate and you look at, like what what where
14:57
Speaker 2: we normally bottom when it comes to to the unemployment.
15:01
Speaker 2: Rate and, again Like i'm just looking back at like
15:04
Speaker 2: the the trend historically that we've seen and in previous good,
15:10
Speaker 2: economies typically you get down to around, again you've got
15:17
Speaker 2: two instances where we've gotten down to around four percent
15:21
Speaker 2: in the last seventy. Years. Yeap other than, that you
15:25
Speaker 2: normally bottom around five. Percent you, know oh, seven you
15:31
Speaker 2: got to four point six. Percent that's the lowest that you.
15:34
Speaker 2: Got AND i don't think there was anyone in two
15:37
Speaker 2: thousand and, seven you, know before the financial bubble, burst
15:40
Speaker 2: who was, saying, man unemployment's still you know high at
15:43
Speaker 2: four to Six thank, goodness we can hire.
15:44
Speaker 3: Workers, yeah what a terrible job market, now you, KNOW
15:47
Speaker 3: i Guess i'm looking for silver linings, here and the answer, Is,
15:50
Speaker 3: hey these are going to be increased demand for labor
15:53
Speaker 3: in a labor market as we've touched on across The
15:56
Speaker 3: United states that remains very. Tight there has been signed
16:00
Speaker 3: of slack here and, there and, yes states Like michigan
16:03
Speaker 3: And kentucky have a slightly higher unemployment rate than, others
16:06
Speaker 3: but all in it remains a very tight labor market
16:09
Speaker 3: at a time where More americans are going to be
16:11
Speaker 3: demanded for that.
16:12
Speaker 2: Labor, also when we're talking cars and, tariffs there's a
16:16
Speaker 2: little bit of news From ferrari if anyone's. Interested oh,
16:19
Speaker 2: yes for those who, were you, know considering making a
16:22
Speaker 2: purchase of a New. Ferrari this is at six forty
16:27
Speaker 2: five am they put this. Out ferrari announces that it
16:31
Speaker 2: will update its commercial policy based on the preliminary information
16:34
Speaker 2: currently available regarding the introduction of import tariffs into THE,
16:38
Speaker 2: usa while reaffirming its commitment to maximum client attention and
16:42
Speaker 2: protection with the goal to provide certainty to. Them the
16:45
Speaker 2: commercial terms will remain unchanged for orders of all models
16:48
Speaker 2: imported Before april, second twenty twenty, five so if you've
16:53
Speaker 2: imported Your ferrari before Next, tuesday you're still paying the same,
16:56
Speaker 2: price and for orders of the following three, families The
16:59
Speaker 2: Ferrari too ninety, six S f ninety And roma regardless
17:02
Speaker 2: of the import date for the current remaining, models new
17:05
Speaker 2: import conditions will be partially reflected on pricing up to
17:09
Speaker 2: a maximum ten percent increase in coordination with our dealer.
17:12
Speaker 2: Network on such, Basis ferrari confirms its financial targets for
17:15
Speaker 2: twenty twenty five with a potential risk of fifty basis
17:18
Speaker 2: point reduction on profitability.
17:19
Speaker 3: Margins, well forget, That i'll just buy A civic. Instead
17:22
Speaker 3: and never, MIND i mean you, could you. Could you
17:25
Speaker 3: could buy a Few, Civics, mike here's the. Thing you
17:27
Speaker 3: could get a few of. Them but and, again, look
17:30
Speaker 3: this Is ferrari who occupies a unique. Space you, know
17:34
Speaker 3: the buyer of The ferrari is not buying it to
17:38
Speaker 3: commute in one twenty eight.
17:40
Speaker 2: Traffic, no that's. Not and quite, honestly the buyer of
17:44
Speaker 2: A ferrari probably doesn't care about. Price they probably have
17:48
Speaker 2: a lot of flexibility in terms of what they can
17:51
Speaker 2: pay if it's a classic case of, hey if you,
17:54
Speaker 2: can if you have to, ask you can't afford. It,
17:56
Speaker 2: Yeah but WHAT i will say on this is again
18:02
Speaker 2: What ferrari is saying is we are going to raise
18:05
Speaker 2: prices in order to try to our hit our financial
18:08
Speaker 2: guidance not we are going to absorb the tariff. Ourselves,
18:15
Speaker 2: now different companies with different customers are going to find
18:19
Speaker 2: that they can do some variations of. This if you
18:22
Speaker 2: are trying to sell you, know new vehicles in the you,
18:27
Speaker 2: know the lowest price point, range you, know trying to
18:29
Speaker 2: hit you, know twenty thousand dollars per, vehicle you might, say,
18:34
Speaker 2: okay we're gonna take a little bit more of a hit,
18:35
Speaker 2: There but that's not where we make our margins. Anyways
18:38
Speaker 2: we make them selling the seventy eighty thousand dollars, SUVs
18:42
Speaker 2: and so maybe the if you, know, again let's let's
18:45
Speaker 2: Take honda just as an. Example if you're looking At,
18:48
Speaker 2: honda they might, say, okay The Honda. Civic, sure right,
18:54
Speaker 2: now the base version of it is priced, it you,
18:57
Speaker 2: know twenty four to two. Fifty, okay we're not gonna
19:00
Speaker 2: that by you, know ten to fifteen. Percent maybe we'll
19:03
Speaker 2: raise that by five to you, know twenty four, seven you,
19:05
Speaker 2: know twenty five to fifty or something like. That but
19:09
Speaker 2: when you take a look at what we're doing on you,
19:14
Speaker 2: know the The honda prologue or something like, that or
19:16
Speaker 2: you know THE crv that you know the average price
19:19
Speaker 2: point on those is closer to forty and fifty thousand then. Twenty,
19:23
Speaker 2: okay you're gonna see ten percent bumps on those because
19:26
Speaker 2: that's where we need to figure out how to make the.
19:27
Speaker 2: Money quick break. Here when we, return we've Got Wall
19:31
Speaker 2: Street watch after.
19:32
Speaker 1: This like us On facebook and follow us On twitter
19:42
Speaker 1: AT tfe. Show breaking business news is always first right
19:47
Speaker 1: here on The Financial Exchange Radio. Network time now For
19:52
Speaker 1: Wall Street. Watch a complete look at what's moving market
19:55
Speaker 1: so far, today right here on The Financial Exchange Radio.
19:59
Speaker 5: Network well after yesterday's sell, off markets today are trading
20:04
Speaker 5: in shoppy fashion and are currently edging, higher actually one
20:09
Speaker 5: day After President trump announced plans to impose a twenty
20:12
Speaker 5: five percent teriff on imported, autos slated to begin On april.
20:16
Speaker 5: Third at the, moment The dow is edging twenty four points.
20:21
Speaker 5: Higher s AND p five hundred is up by a
20:24
Speaker 5: tenth of a percent or six points in The, nasdaq
20:27
Speaker 5: also up a tenth of a percent or nineteen points.
20:31
Speaker 5: Points rustle two thousand dipping by one. POINT a ten
20:35
Speaker 5: year treasure reeled is up by three basis points at
20:37
Speaker 5: four point three seven, percent and crude oil edging, higher
20:41
Speaker 5: trading just below seventy dollars a. Barrel several auto stocks
20:45
Speaker 5: are seeing losses on the tariff. Announcement General motors down
20:48
Speaker 5: by eight, Percent stalantis down by two. Percent, Overseas, Portia, Mercedes, Benz,
20:54
Speaker 5: toyota And hanna also traded lower on the news four
20:57
Speaker 5: down by four, Percent tesla up by over three. Percent,
21:01
Speaker 5: meanwhile after it's near twelve percent jump, yesterday shares in
21:05
Speaker 5: video game retailer game stock stop down twelve percent. Today
21:09
Speaker 5: the popular meme stock has seen increased volatility after the
21:13
Speaker 5: company's board approved a plan to buy bitcoin with its corporate,
21:16
Speaker 5: cash echoing a move made famous by Micro. Strategy, Elsewhere
21:21
Speaker 5: investment Bank jeffries missed expectations were its quarterly results due
21:25
Speaker 5: to declining returns in asset. Management that stock down by eight,
21:28
Speaker 5: percent according To. REUTERS h THREE, c one of the
21:32
Speaker 5: largest server makers In, china warned of possible shortages Of
21:36
Speaker 5: nvidia's eight twenty chip in a notes to clients and,
21:40
Speaker 5: video pulling back by about one. Percent Ali baba up
21:43
Speaker 5: by three percent after The chinese tech giant launched a
21:46
Speaker 5: new open SOURCE ai model that can be used on
21:49
Speaker 5: edge devices such as mobile. PHONES amd down by three
21:53
Speaker 5: percent After jeffries downgraded the chip maker to hold from,
21:56
Speaker 5: buy citing increased competition and competition is one reason for.
22:01
Speaker 5: Concern and after today's, Closing Bell wolsey earnings From lulu
22:06
Speaker 5: Lemon On Tucker. Silvan That's wallstree Watch.
22:09
Speaker 2: MIKE i want to talk a little bit about a
22:12
Speaker 2: company by the name of Core. Weave now this is
22:15
Speaker 2: probably not a household name to many people. Listening, uh
22:19
Speaker 2: they are effectively a CLOUD ai. Provider, basically what they
22:25
Speaker 2: do is they buy up a bunch of chips From
22:28
Speaker 2: nvidia and then they license out the capacity to third
22:31
Speaker 2: parties who want to be able to use. Them and
22:35
Speaker 2: they had quite a nice twenty twenty four there their.
22:37
Speaker 2: Sales their revenue was up more than seven hundred percent
22:40
Speaker 2: to almost two billion, Dollars so revenue grew. Quickly. Uh
22:44
Speaker 2: seventy seven percent of that revenue came from two, customers
22:46
Speaker 2: With microsoft being the biggest, one accounting for sixty two
22:49
Speaker 2: percent of. Revenue so few things on. This number one
22:53
Speaker 2: is look when one, company when when one buyer makes
22:56
Speaker 2: up you, know two thirds of your. Revenue if that
22:59
Speaker 2: buyers sites to make changes in how they are, operating
23:02
Speaker 2: you're obviously at a significant. Risk the second is they're
23:08
Speaker 2: trying TO ipo tomorrow and it's going really really, badly
23:14
Speaker 2: really really. Badly so here here's the. Deal they were
23:17
Speaker 2: trying to raise two point seven billion dollars in an.
23:21
Speaker 2: Ipo they were trying to price between forty seven and
23:24
Speaker 2: fifty five dollars per, share selling forty nine million. Shares
23:28
Speaker 2: this morning they announced that they were cutting the size
23:30
Speaker 2: of the offering by almost twenty, percent from forty nine
23:33
Speaker 2: million shares down to forty and also cutting the expected
23:36
Speaker 2: price range down to forty dollars per share as. Well in,
23:40
Speaker 2: effect they're trying to raise about one and a half
23:42
Speaker 2: billion dollars. Now and it went so badly even after
23:46
Speaker 2: that that In, vidia who remember In vidia is the
23:50
Speaker 2: person that the company that they buy their chips. From
23:55
Speaker 2: In vidia decided to go full snake eating its tail
23:58
Speaker 2: on this and, say, hey we're going to back THIS
24:01
Speaker 2: ipo with a two hundred and fifty million dollar. Investment
24:05
Speaker 2: so investing two hundred and fifty million dollars in the
24:08
Speaker 2: company buying your products, Now NOW i don't know a
24:15
Speaker 2: lot about a lot of, things BUT i do know
24:18
Speaker 2: a lot about the tech. Bubble AND i got to tell,
24:21
Speaker 2: you this is the crap that was happening. Then, yeah
24:25
Speaker 2: except the except guys were going, off, well this is
24:28
Speaker 2: the crap that was, no but like when it was
24:29
Speaker 2: starting to, pop this is the stuff that was. Happening.
24:32
Speaker 2: Yeah AND i can't tell you how many he BEGBS
24:36
Speaker 2: i have today just being, like, oh this is not.
24:40
Speaker 2: Good so you've got. This you, KNOW ai has been
24:42
Speaker 2: one of the this this hype train that's just been
24:45
Speaker 2: rolling through for the last two, years taking everything in its.
24:48
Speaker 2: Wake and now you've gotten to the point, where you,
24:52
Speaker 2: know one of the the, bigger you, know third PARTY
24:55
Speaker 2: ai providers out there is trying TO ipo and it
24:58
Speaker 2: has to cut ITS ipo size by forty five percent
25:01
Speaker 2: and then give a sixth of THAT ipo to the
25:05
Speaker 2: company that it's buying most of the stuff from in
25:08
Speaker 2: order to support THE. IPO i got to tell you
25:12
Speaker 2: that doesn't feel good to. Me and this also comes
25:15
Speaker 2: on the back of yesterday two confirmed reports That microsoft
25:20
Speaker 2: is walking away from potential data center buildouts because they
25:24
Speaker 2: don't have enough customers to fill, them.
25:29
Speaker 4: You've Got apple walking back some of THEIR ai.
25:31
Speaker 2: Plans.
25:32
Speaker 4: Yeah, look if you really, dodgy you never know until
25:35
Speaker 4: it's in the rear view.
25:36
Speaker 3: Mirror but, yeah when you HAVE i, mean what other
25:41
Speaker 3: IPOs in THE ai space have we had of the
25:43
Speaker 3: last couple Of Snowflake Palanteer, like there are not MANY
25:49
Speaker 3: ai IPOs that have actually gone through and to see
25:53
Speaker 3: one of the few that has a very legitimate business
25:56
Speaker 3: model that has grown substantially over the course of the
25:58
Speaker 3: last few years fizzle and. Die it's not fizzling and,
26:02
Speaker 3: dying it's fizzling and needing to rely on significant partners
26:07
Speaker 3: to lift it back. UP i agree with you that
26:09
Speaker 3: that is definitely signs of. Weakness very it gives.
26:13
Speaker 2: ME i often say that you can tell kind of
26:18
Speaker 2: where you are in a cycle of a certain industry
26:21
Speaker 2: by kind of what's what's happening in the ipo market.
26:24
Speaker 2: There and oftentimes a lot of the big hyped IPOs
26:27
Speaker 2: tend to represent like a short term peak in those,
26:30
Speaker 2: markets and you go back the ones THAT i come
26:33
Speaker 2: back to, Recently coinbase and Robin hood both, represented you,
26:39
Speaker 2: know kind of the peak of short term hype around
26:43
Speaker 2: both crypto and like retail. Trading you, know there was
26:47
Speaker 2: so much hype around those in twenty twenty. TWO i
26:49
Speaker 2: think it was when they iPod and that you, know
26:52
Speaker 2: ended up kind of being, okay like this is you,
26:54
Speaker 2: know as good as the, gooding as good as the getting,
26:57
Speaker 2: is you, know going to Get. Robinhood just you, know
27:01
Speaker 2: to follow up on this and let you know kind
27:03
Speaker 2: of where it stands right. Now Robin hood got up
27:05
Speaker 2: TO i don't know exactly, where but it looks like
27:08
Speaker 2: seventy eighty bucks to share it's at forty four right.
27:10
Speaker 2: Now coinbase went up to bah bah. Bah let's, see
27:15
Speaker 2: it looks like it was like three fifty and changes
27:17
Speaker 2: at one to ninety three right. Now the problem is
27:19
Speaker 2: check that if this is a representation of overall revaluations
27:25
Speaker 2: and reassessments of WHAT ai companies are, worth then it
27:28
Speaker 2: represents a much more significant portion of the market than
27:31
Speaker 2: crypto did. Exactly you, know like that there weren't a
27:34
Speaker 2: ton of the stock market in twenty twenty one was
27:39
Speaker 2: not powered By, hey look at all of these crypto,
27:42
Speaker 2: exchanges you know surging.
27:44
Speaker 4: Forward, no they were surging, forward it just wasn't driving
27:46
Speaker 4: THE s AND p five hundred.
27:47
Speaker 2: Higher, well there weren't any of the crypto exchanges that
27:50
Speaker 2: were publicly traded like was a non, factor and so
27:55
Speaker 2: this if there's an actual issue, here, yeah it's it's
27:57
Speaker 2: a key difference in that there's some real repe presentation
28:01
Speaker 2: in the market for these types of. Companies we'll see
28:05
Speaker 2: if this ends up. Mattering but, look a lot of
28:07
Speaker 2: THE ai darlings have not exactly been in a great
28:12
Speaker 2: spot over the last year or. SO i, mean like
28:17
Speaker 2: you look at the one year charts on a lot
28:19
Speaker 2: of these. Companies i'm just pulling up in video just
28:21
Speaker 2: because it's the biggest name out there in video right.
28:24
Speaker 2: Now by the if it's still in this spot at
28:28
Speaker 2: the end Of, may it'll have been flat over the
28:30
Speaker 2: prior twelve, months which means it's been flat for the
28:33
Speaker 2: past ten right now, now not exactly, flat because it's,
28:36
Speaker 2: gone you, know down twenty percent from, here up twenty
28:38
Speaker 2: percent from, here but ultimately you've gotten, nowhere and so
28:43
Speaker 2: you've got some things here that are pointing towards some
28:48
Speaker 2: concern about WHERE ai is going to go from a growth,
28:51
Speaker 2: perspective and that's not something it's had to answer for
28:54
Speaker 2: in the last twenty seven months since the Since december
28:59
Speaker 2: of twenty twenty three or twenty two, rather it's been
29:03
Speaker 2: all systems go, there and THIS ipo is showing some
29:08
Speaker 2: signs that are really quite concerning to me for the
29:12
Speaker 2: overall health of that as a growth engine in THE us.
29:15
Speaker 2: Economy we'll see where it. Goes but, again not getting
29:21
Speaker 2: the warm and fuzzies from from this one right. Now
29:23
Speaker 2: anything else that you want to, Add, no let's. See
29:27
Speaker 2: let's take a quick, Break. Mike when we come, back
29:30
Speaker 2: can we talk about something so obscure but also just
29:34
Speaker 2: so repulsive that we have to talk about, that and
29:36
Speaker 2: that is basis.
29:38
Speaker 4: Trades, yeah we can go to the basis. Trade, Okay i'm.
29:42
Speaker 2: Sorry this is just the hour of repulsion that we
29:44
Speaker 2: are doing here on The Financial exchange and we're talking
29:48
Speaker 2: basis trades. Next so stick.
29:50
Speaker 1: Around thanks to us six, one, seven, three six two
29:54
Speaker 1: thirteen eighty five with your comments and questions about today's,
29:57
Speaker 1: show and let us know what you think about. This
30:00
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30:03
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30:19
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30:20
Speaker 2: Network all, Right so there's a really obscure headline In bloomberg's.
30:30
Speaker 2: Days it's TITLED fed urge to explore hedge fund bailout
30:33
Speaker 2: tool for basis. Trade so a few things on. This
30:37
Speaker 2: the first is a hedge fund should never, ever, ever, ever,
30:42
Speaker 2: ever ever ever be bailed. Out. No i'm, like we
30:49
Speaker 2: have to really make a point of. This if you
30:51
Speaker 2: are taking so much risk in running your book that
30:56
Speaker 2: you blow yourself up in the, process, ry that's on.
31:01
Speaker 2: You that's not on, me one hundred. Percent that's not on.
31:05
Speaker 2: Me if THE fed or anyone else thinks there is
31:09
Speaker 2: so much concentration in these trades that it could risk
31:13
Speaker 2: the broader financial, markets then they need to go To
31:16
Speaker 2: congress and say you need to LEGISLATE xyz out of
31:21
Speaker 2: existence so that it can no longer blow the entire
31:25
Speaker 2: financial system.
31:26
Speaker 4: Up so do you buy the? Premise?
31:28
Speaker 3: Right and the premise here, Is look this this obscure
31:30
Speaker 3: trade that involves treasury, bonds the futures that are on those,
31:34
Speaker 3: treasuries and this leveraged trade that has become quite popular
31:37
Speaker 3: with hedge funds that takes advantage of this tiny profit
31:41
Speaker 3: that you can, make but they basically borrow a whole
31:43
Speaker 3: bunch of money to expand that profit and office.
31:46
Speaker 2: Space but with, leverage it's fractions of a, penny, yes
31:50
Speaker 2: over and over and over that no one. Notices but
31:53
Speaker 2: then when you combine it with like one hundred x,
31:55
Speaker 2: leverage you get to some pretty nasty.
31:57
Speaker 3: Places and so if it moves in the wrong, direction
32:00
Speaker 3: problem is that these hedge funds would suddenly have to
32:02
Speaker 3: dump a whole bunch of treasuries onto the, market creating
32:06
Speaker 3: all sorts of liquidity. Issues do you buy the premise
32:08
Speaker 3: THAT i do because it happened in twenty. Twenty, basically
32:12
Speaker 3: then it can completely blow up the system and could
32:15
Speaker 3: lead to things like money market funds blowing out and
32:18
Speaker 3: other financial systems breaking. Down, yes then the premise then
32:22
Speaker 3: these companies are too big to fail and they need
32:24
Speaker 3: to be. Regulated, yes you are participating in activity that
32:28
Speaker 3: makes you systemically, important Like bank Of, AMERICA, Jp, Morgan,
32:31
Speaker 3: Chase Wells, fargo those banks that we designated that aren't
32:34
Speaker 3: allowed to do this sort of thing, anymore and so
32:37
Speaker 3: nobody as much as it sucked to bail out those,
32:39
Speaker 3: guys at least those ones served retail. Customers if the
32:43
Speaker 3: government has to go and bail out a hedge fund
32:46
Speaker 3: that only serves massive high net worth, investors then we
32:50
Speaker 3: have really lost sight of what the purpose of all this.
32:53
Speaker 2: Is, right this is the kind of thing that everyone, hates,
32:59
Speaker 2: Right it's just it's it's, stupid and and people be, like, oh, well,
33:04
Speaker 2: no like you can't regulate. Them, No like we have
33:06
Speaker 2: plenty of. Regulation that is way dumber than, saying, hey
33:09
Speaker 2: you can't blow up the financial. System, okay you, know
33:13
Speaker 2: like we regulate overdraft. FEES i think we can like, regulate,
33:18
Speaker 2: hey don't hold so much leverage treasury stuff that you
33:22
Speaker 2: can blow up the financial. System like that seems to
33:26
Speaker 2: be a reasonable place to, be, Yeah and if it's,
33:29
Speaker 2: not then what are we even doing?
33:31
Speaker 3: Here it goes back to a theme that we've kind
33:34
Speaker 3: of seen play out over the last few, decades where
33:37
Speaker 3: the financial system just continually tries to remove the downside
33:42
Speaker 3: risk to markets here through these backstops that they have
33:45
Speaker 3: to put in. Place and the problem is those backstops
33:47
Speaker 3: largely benefit oftentimes companies like hedge funds who serve a
33:51
Speaker 3: very narrow customer.
33:53
Speaker 2: Base, right if you blow yourself up from borrowing too much,
33:56
Speaker 2: money the federal government does not come to help.
33:58
Speaker 3: You and the federal government needs to do a better
34:00
Speaker 3: job of ensuring that when you blow yourself, up you
34:03
Speaker 3: only blow yourself.
34:04
Speaker 2: Up, yes like if if you want the premise to Be,
34:07
Speaker 2: hey if you borrow too much money and can't pay it,
34:09
Speaker 2: back that's on. You, fine let's apply that to. Everyone
34:12
Speaker 2: don't be, like, well you're a hedge fund who is
34:15
Speaker 2: so big that you would ruin the financial, system so
34:19
Speaker 2: you're gonna have your losses socialized across you, know. Everyone
34:22
Speaker 2: but if You're jimmy who just bought a house and
34:25
Speaker 2: lost his, job, sorry you're out of. Luck i'm. Sorry
34:28
Speaker 2: that's why everyone hates what happened in two thousand and.
34:30
Speaker 2: Eight so let's not do that. Again and, gosh, LIKE
34:38
Speaker 2: i can't believe that we're even having this discussion.
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35:47
Speaker 2: Five, mike do you want to talk, Copper robinhood or?
35:51
Speaker 2: Electricity let's Go? Robinhood? Okay peace And Wall Street Journal
35:58
Speaker 2: robinhood customers are growing up and the brokerage wants to keep.
36:02
Speaker 2: Them it's talking about how their medium age of their
36:04
Speaker 2: customers has climbed from thirty one to thirty five, years
36:08
Speaker 2: which you would expect over the past five. Years like,
36:10
Speaker 2: okay if you keep most of your customers and it's
36:12
Speaker 2: been five, years they should be almost five years.
36:14
Speaker 3: Older like, well, yes BUT i, mean does it not
36:18
Speaker 3: surprise you that that seemingly means that new eighteen year
36:21
Speaker 3: olds are not signing up for the platform at the
36:22
Speaker 3: same rate that that they're older millennial in GEN x
36:26
Speaker 3: GEN z counterparts.
36:27
Speaker 2: Did not really they build themselves as the cool. Brokerage
36:32
Speaker 2: and when you do, that, okay someone else comes along who's,
36:34
Speaker 2: cooler and you, know it makes a way those you,
36:37
Speaker 2: know that's why cool is not a good defining characteristic
36:40
Speaker 2: as a. Broker you, know things that you want are,
36:43
Speaker 2: hey we execute well and we have a wide range of,
36:46
Speaker 2: services and these are the good news is Like Robin
36:48
Speaker 2: hood's like, okay like we're starting to have to lean
36:51
Speaker 2: into being someone who can provide other services and do
36:53
Speaker 2: stuff beyond what we originally.
36:55
Speaker 3: Did why because thirty five year olds on average are
36:58
Speaker 3: wealthier than thirty one.
36:59
Speaker 2: Year olds have different things that they want or need
37:03
Speaker 2: as a, result and so it's something where you, know
37:08
Speaker 2: they're trying to figure, out, hey how can we you,
37:10
Speaker 2: know attract, it how can we keep those thirty five
37:14
Speaker 2: year olds and prevent them from going to the places
37:16
Speaker 2: that otherwise offer you, know these other. Things so, again
37:20
Speaker 2: things like you, know different managed accounts that they're putting out.
37:23
Speaker 2: There they are trying to build a hybrid program where
37:27
Speaker 2: they have financial advisors but most of the stuff is
37:30
Speaker 2: done automatically through an, algorithm so you, know those types of.
37:33
Speaker 2: Things so they have some interesting things that they're working.
37:36
Speaker 2: ON i don't, know you know how big of a
37:40
Speaker 2: difference it's going to, make you, know for the company.
37:42
Speaker 2: OVERALL i don't know what kind of uptake they're going
37:44
Speaker 2: to get on these. Things BUT i do think it's
37:46
Speaker 2: the sign of a more mature company that they're they're
37:49
Speaker 2: talking about doing this instead of just like more confetti
37:52
Speaker 2: when you make a, trade.
37:53
Speaker 3: Yeah or sports patting within Your brokens. Account i'll be
37:55
Speaker 3: interested to see what they're able to do on the
37:57
Speaker 3: banking side of. THINGS i JUST i don't know THAT
38:00
Speaker 3: i would have full confidence in putting my bank accounts
38:03
Speaker 3: with a company like Robin, Hood but we'll see what
38:05
Speaker 3: they were able to do, there because that's something they
38:07
Speaker 3: want to roll out later this year or.
38:08
Speaker 2: Next we're going to take a quick break, here but
38:11
Speaker 2: we still got our two coming up in just a little.
38:14
Speaker 2: Bit we're talking some, housing a little bit MORE, ai and,
38:19
Speaker 2: yeah a whole bunch more coming in our two on
38:21
Speaker 2: The Financial, exchange