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Tech Volatility Tests the AI Trade Again · The Financial Exchange Show

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Speaker 2: It's Chuck, Mike and Tucker with you here, and as
1:13
Speaker 2: we kick things off, our top story focused on what's
1:17
Speaker 2: going on in technology as look, the last month and
1:22
Speaker 2: a half or so has seen semiconductor stocks getting bopped
1:26
Speaker 2: on the head pretty good after admittedly like one of
1:29
Speaker 2: the just most remarkable runs that we've seen in them
1:33
Speaker 2: in the last twenty five years, with the Philadelphia Semiconductor
1:37
Speaker 2: Index pretty much doubling over the month of April and
1:42
Speaker 2: into May, and then you know, giving back a decent
1:46
Speaker 2: chunk of those gains before bouncing yesterday after Microsoft reported
1:52
Speaker 2: earnings that were well received by the street and investors saying, hey,
1:56
Speaker 2: it's okay to pile back into these stocks that have
1:59
Speaker 2: been beaten up to the tune of, you know, Microsoft
2:02
Speaker 2: up fifteen percent, Micron up fifteen sixteen percent, AMD, Intel,
2:06
Speaker 2: all those guys rallying there, sk Henix. You know, you've
2:10
Speaker 2: got all these these companies that are seeing these huge bounces.
2:15
Speaker 2: And two thoughts that occurred to me and then were
2:19
Speaker 2: echoed by a trader that I follow on X by
2:23
Speaker 2: the name of Simon Ree. Generally, the big bounces that
2:29
Speaker 2: you see in single stocks and in markets, or even
2:32
Speaker 2: in sectors they tend to be during bear market action.
2:38
Speaker 2: Typically that's what you normally see. The counter to that is,
2:43
Speaker 2: this is basically exactly what we saw that kicked off
2:46
Speaker 2: that April rally, and so in the back of your head,
2:50
Speaker 2: I do think it's at least worth considering possibilities of Hey,
2:53
Speaker 2: normally this is kind of you know, bearish intermediate term action,
2:57
Speaker 2: because if investors really feel comfortable with the price of
3:01
Speaker 2: a stock, they're not bidding it up fifteen percent in
3:03
Speaker 2: one day, you know, that could be more just investors
3:05
Speaker 2: are you know, mispositioned in this and that. But hey,
3:09
Speaker 2: in April we saw kind of this you know, bounce
3:12
Speaker 2: in semis that just took off from there. The counter
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Speaker 2: on that then is, yeah, but so much of the
3:19
Speaker 2: positioning has been washed out now, and are people really
3:21
Speaker 2: gonna you know, employ the same leverage they did then,
3:24
Speaker 2: and are people going to be as excited? So I
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Speaker 2: think overall, what it continues to point to in my
3:30
Speaker 2: mind is there's just a ton of day to day
3:32
Speaker 2: volatility and rotation in this market that doesn't really feel
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Speaker 2: comfortable to me, and at some point that needs to
3:41
Speaker 2: calm down a little bit because it's not healthy to
3:45
Speaker 2: have Microsoft moving fifteen percent in a day, even if
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Speaker 2: it's to the upside.
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Speaker 3: Yeah, I was going to say. Check.
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Speaker 4: So we had Apple, Microsoft, Meta, and Amazon all report
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Speaker 4: earnings this week, and yes, I haven't tracked it down
3:59
Speaker 4: to the two the exact moment, but all of them
4:03
Speaker 4: have moved by nearly ten percent or more on their earnings,
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Speaker 4: at least early on here. So you know, Amazon, for instance,
4:11
Speaker 4: up nearly fourteen percent. Now, Apple stock down nine point
4:16
Speaker 4: three And the day that Meta and Microsoft release startings.
4:20
Speaker 4: You already mentioned Microsoft, but Meta was down? Was it
4:23
Speaker 4: over ten percent? Nine percent? Something in that general range?
4:26
Speaker 4: So that is not Yeah, that's not an indication of
4:28
Speaker 4: a healthy market to see. I mean, all four of
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Speaker 4: those companies are the ten of the ten largest companies
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Speaker 4: in the entire in the US market and probably top
4:39
Speaker 4: ten in the entire world as well, And to see
4:41
Speaker 4: that type of price volatility on single days is not
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Speaker 4: a great indication for a healthy stock market without a
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Speaker 4: bunch of leverage in it, not.
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Speaker 2: Even single days, like look at what it means for
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Speaker 2: the week. Like Micron I'll put out just as an example,
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Speaker 2: because they're front and center in this memory chip shortage.
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Speaker 2: So Micron bounced. I think it was either sixteen or
4:59
Speaker 2: seventeen perc yesterday. It's still down nine percent for the week.
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Speaker 2: But that's not healthy behavior. Thank you, thank you. What's
5:11
Speaker 2: another principal's name, profess principal Rooney? Rooney, that's right. I
5:15
Speaker 2: always get him confused with Dean Warmer from Animal House,
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Speaker 2: But I digress. Uh. So, like you, you look at
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Speaker 2: some of this stuff and you're like, it just doesn't
5:24
Speaker 2: feel healthy. And anytime that you get a market falling
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Speaker 2: almost two percent one day and then rallying to the next,
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Speaker 2: you're kind of like, well, that doesn't mean everything's fine.
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Speaker 2: It just means investors don't really know how to value
5:36
Speaker 2: any of this stuff, seems right, Yeah, yeah, so it
5:40
Speaker 2: and it also points to the fact that if you
5:43
Speaker 2: look at the S and P five hundred just as
5:45
Speaker 2: a whole, right now, we're at seventy four oh nine. Uh,
5:48
Speaker 2: we were at seventy four oh nine as far back
5:52
Speaker 2: as it looks like, looks like we were there on
5:56
Speaker 2: May tenth, no May elevens. Sorry, this market hasn't really
6:02
Speaker 2: moved in over two and a half months. It's chopped
6:06
Speaker 2: three percent to the upside, it's chopped four to the downside,
6:09
Speaker 2: but it's it's kind of the same situation as do
6:12
Speaker 2: you remember last fall, Starting in October, we kind of
6:16
Speaker 2: got to like the high sixes on the S and
6:18
Speaker 2: P and then just chopped there for like five months
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Speaker 2: before puking a bit in March. Yeah, it's giving similar
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Speaker 2: vibes to that, but with more violent undercurrents here. So
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Speaker 2: it's not to say that this market is going to
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Speaker 2: inherently blow up. What I do think it says is
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Speaker 2: no one's really confident in the valuations on these companies,
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Speaker 2: and it's just money slashing from one part of the
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Speaker 2: market to the next while investors try to figure out,
6:46
Speaker 2: you know, where the things are going to go. And
6:49
Speaker 2: I still don't think we have a great handle on it,
6:51
Speaker 2: because sure, we had a nice little bounce back yesterday
6:54
Speaker 2: today so far in trading. When I woke up, S
6:57
Speaker 2: and P futures were up about three quarters of a percent.
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Speaker 2: Now the S ANDP is down a third of a percent,
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Speaker 2: so we've had a one percent intra day reversal there
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Speaker 2: already today.
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Speaker 4: Another perfect example of this chuck. If there was one
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Speaker 4: company that was pointed at this year as the tech
7:11
Speaker 4: safe haven. Who would that be? Apple today stock down
7:17
Speaker 4: nine and a third percent in a single day. That
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Speaker 4: does not speak nine time safe haven status by any
7:24
Speaker 4: stretch of the imagination.
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Speaker 2: No, So it's it's very much still some uncertainty there. Again,
7:30
Speaker 2: that uncertainty can resolve to the upside. Remember when we
7:33
Speaker 2: talk about what happened, you know, in the fall through
7:37
Speaker 2: the winter, we kind of chopped around for five or
7:39
Speaker 2: six months. The Iran war kicked off, we had you know,
7:43
Speaker 2: a drop of round. I think we got down around
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Speaker 2: ten percent on the S and P from you know,
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Speaker 2: peak to trough, and then late March we got all
7:52
Speaker 2: the news that hey, like Anthropic has so much demand
7:55
Speaker 2: that they're throttling people, and semiconductors took off from there.
7:59
Speaker 2: So it's not definitively hey, this has to like get worse,
8:04
Speaker 2: but it very much is. This market is looking for
8:08
Speaker 2: a clear direction right now, just like it was for
8:11
Speaker 2: a five or six month period that clear direction appeared
8:14
Speaker 2: to be down until Semis took over in April. In
8:17
Speaker 2: this case, is it going to be there's an inflection
8:20
Speaker 2: up if there's positive news from the Middle East, or
8:23
Speaker 2: inflection up if you know, SEMIS can take that next
8:26
Speaker 2: leg higher. Maybe it could be inflection down if bond
8:30
Speaker 2: yields get away from the FED and that causes, you know,
8:34
Speaker 2: if we start to see a slow down in economic
8:36
Speaker 2: data as a result. So I think we'll see how
8:40
Speaker 2: things move here. But it's not the healthiest market that
8:44
Speaker 2: I've ever seen, and we'll just have to see how
8:47
Speaker 2: it navigates that. The other thing that I will point out, Mike,
8:50
Speaker 2: what's the date today.
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Speaker 3: July thirty.
8:52
Speaker 2: First, a lot of weird stuff happens on the last
8:55
Speaker 2: trading day of a month. Different people have to square
8:58
Speaker 2: their books up. There's you know, corporatest that happens. So
9:01
Speaker 2: part of me looks at like the last couple days
9:04
Speaker 2: and it's you know, FED coupled with month end, and
9:07
Speaker 2: it's just like, maybe I shouldn't take too much from
9:10
Speaker 2: this at all, because end of month tends to get
9:12
Speaker 2: a little bit wonky. Let's take a quick break here.
9:15
Speaker 2: When we return, let's talk a little bit about what
9:18
Speaker 2: we saw from Amazon and Apple in their earnings. Next.
9:21
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10:39
Speaker 2: Mike. Let's talk a little bit about the tech earnings
10:41
Speaker 2: we saw last night after the bell. Let's start first
10:44
Speaker 2: with Zigood News from Amazon.
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Speaker 4: Yeah, they so I raised the question yesterday. Hey, you
10:51
Speaker 4: had Meta and you had in Microsoft, who did two
10:57
Speaker 4: kind of different things. Microsoft showed some cost discipline by
11:00
Speaker 4: not expanding their CAPEX.
11:02
Speaker 3: Meta did not. They spent a boatload of money.
11:05
Speaker 4: And my question was, is market reacting to that singular
11:09
Speaker 4: question here of expansion of spending or is it, you know,
11:14
Speaker 4: more of the concern that Meta doesn't really seem to
11:16
Speaker 4: know what they're going to do with that finished product
11:19
Speaker 4: once they build it. The answer from Amazon seems to be,
11:23
Speaker 4: if you have a business model for your AI spend
11:26
Speaker 4: that's going to capitalize pretty quickly, then we're not concerned
11:28
Speaker 4: about how much you spend. Because Amazon blew through their
11:32
Speaker 4: CAPEX expenditures the assumptions there, but what they are finding
11:37
Speaker 4: is that there are customers lining up at the door
11:40
Speaker 4: to use their cloud services to run their AI models
11:45
Speaker 4: and serve their businesses.
11:46
Speaker 2: Now, despite that, they still now have their free cash
11:51
Speaker 2: flow negative for the last twelve months, meaning they do
11:54
Speaker 2: need to Again, remember, none of these companies operate with
11:57
Speaker 2: like nothing in the bank, so you know, but you
12:01
Speaker 2: gotta have, you know, cushions for inventory and this and that,
12:03
Speaker 2: like you don't want to be down to nothing in
12:05
Speaker 2: the bank. Amazon has about one hundred and twenty two
12:10
Speaker 2: billion dollars in cash on hand right now. That's down
12:14
Speaker 2: from one forty five at the end of Q one,
12:17
Speaker 2: so you know they're working through that. And what this
12:19
Speaker 2: indicates is, hey, you're going to have to do some
12:24
Speaker 2: kind of additional issuance if you want to continue moving
12:27
Speaker 2: in this fashion. Remember two years ago, if you look
12:30
Speaker 2: at the second quarter of twenty twenty four, Amazon's free
12:33
Speaker 2: cash flow at that point for the last twelve months
12:37
Speaker 2: forty eight billion dollars to the positive. Now you take
12:41
Speaker 2: a look at it and you're saying, actually, no, I'm sorry,
12:44
Speaker 2: was that just for the quarter that I'm looking at?
12:47
Speaker 2: Hang on, I want to make sure I get this
12:48
Speaker 2: right here, free cash flow trailing twelve months. Sorry I
12:54
Speaker 2: had that. Yes, that was correct. So they had positive,
12:57
Speaker 2: you know, forty eight billion dollars in free cash two
13:00
Speaker 2: years ago. It's now negative eleven. So this is you know,
13:05
Speaker 2: the trend that we are seeing from these companies. And
13:08
Speaker 2: by the way, the Amazon free cash flow is worsening
13:11
Speaker 2: because yes, they might have these commitments booked for you know,
13:15
Speaker 2: future leases in this and that, but it still isn't
13:18
Speaker 2: enough revenue to offset what they are spitting out on
13:22
Speaker 2: the cost side. And who knows what the what the
13:27
Speaker 2: uptake is on those leases depending on how pricing goes.
13:29
Speaker 2: I don't know if you saw, but did you see
13:31
Speaker 2: big pricing cuts? Did you have to notice the big
13:33
Speaker 2: pricing cuts from Open AI in a couple models yesterday
13:36
Speaker 2: eighty p price cuts? Did you happen to see what
13:39
Speaker 2: Deepseek did in response? Yep, additional price cuts. As we
13:45
Speaker 2: talked about last week, when China enters a room profits leave.
13:49
Speaker 2: This is something that I think bears watching on all
13:52
Speaker 2: of this as far as how these things end up
13:56
Speaker 2: paying off in the long term as companies start to
13:59
Speaker 2: shop around on price. Not just hey, can can we
14:03
Speaker 2: do AI like that? That's what every you know CEO
14:06
Speaker 2: has been asking for the last year. Can we do
14:08
Speaker 2: AI man like? That's that's the voice they use. They're
14:11
Speaker 2: from the metaverse. But eventually it's gonna be hey, is
14:15
Speaker 2: there any return from our use of AI? And the
14:20
Speaker 2: answer is going to be maybe, like you need you
14:23
Speaker 2: need to see how it actually ends up playing out.
14:26
Speaker 4: Yeah, look the last three years and not every company
14:31
Speaker 4: has been dabbling in AI for three years. Most of
14:33
Speaker 4: that has come this year, but the message from leadership
14:37
Speaker 4: on artificial intelligence has been we don't care how much
14:42
Speaker 4: you use, just learn how to use it. Yes, And
14:46
Speaker 4: now suddenly they're experiencing high token cost and uh, you know,
14:51
Speaker 4: generally high cost across the board and are trying to
14:54
Speaker 4: you know, sort through what that means and how to
14:56
Speaker 4: predict it. But ultimately right now, oh, that that transition,
15:02
Speaker 4: I don't think has really happened yet. Just here and
15:04
Speaker 4: there you're hearing stories of you know, companies like Uber
15:07
Speaker 4: pulling back and saying, oh, we blew through our entire
15:09
Speaker 4: AI budget. I don't see a lot of those stories
15:12
Speaker 4: yet of cost consciousness on the part of AI users.
15:19
Speaker 2: Are like when you say on the on the side
15:21
Speaker 2: of AI users, like.
15:22
Speaker 4: What do you mean on corporations who are either on
15:28
Speaker 4: corporations who are consuming tokens right now? What you just
15:31
Speaker 4: said that we have seen very limited cases. So like
15:36
Speaker 4: I do not see it on Mass. I see it
15:38
Speaker 4: once or twice with Uber, but I can't point to
15:41
Speaker 4: another big name story where I say, oh, yeah, this
15:44
Speaker 4: company finally realized that their ROI from AI spend isn't
15:47
Speaker 4: really there.
15:48
Speaker 2: Let's talk a little bit about Apple earnings then, So
15:50
Speaker 2: Apple reported after the bell as well, and they actually
15:54
Speaker 2: saw a pretty decent quarter when you look at, you know,
15:57
Speaker 2: the different segments that they operate. They had better than
16:00
Speaker 2: expected numbers in their iPhone segment, so that's, you know,
16:06
Speaker 2: always fun to see. But the big thing is their
16:10
Speaker 2: forecasts were a little bit disappointing, and Tim Cook pretty
16:15
Speaker 2: much saying, yeah, this is because we are dealing with
16:19
Speaker 2: supply constraints and specifically dealing with higher memory costs.
16:24
Speaker 4: So it's the higher memory cost. But what I found, like,
16:26
Speaker 4: I think that investors would have been willing to we
16:30
Speaker 4: knew about the higher memory costs, right, I think that
16:32
Speaker 4: was pretty baked in. What Tim Cook admitted to in
16:35
Speaker 4: this call was that they kind of he didn't use
16:40
Speaker 4: the words screwed up, but they kind of screwed up
16:42
Speaker 4: in terms of their orders their supply chain. Tim Cook
16:45
Speaker 4: has kind of defined himself by, you know, being the
16:49
Speaker 4: master of the Apple supply chain for decades now, avoiding
16:53
Speaker 4: all sorts of trade issues, navigating the Chinese supply chain
16:58
Speaker 4: quite well. And here he admitted to, you know, we
17:00
Speaker 4: just did not place enough orders early enough, and so
17:04
Speaker 4: we are supply constrained. Actually on the high end chips
17:08
Speaker 4: they need to go into our products, and I think
17:10
Speaker 4: that more than the cost itself was.
17:12
Speaker 3: What disappointed people here.
17:14
Speaker 4: It was also Tim Cook's last ever well, I shouldn't
17:18
Speaker 4: say ever because of the trend of older CEOs returning
17:22
Speaker 4: to their companies and taking back over, but it was
17:24
Speaker 4: his last earnings call and he's handing the reins over
17:26
Speaker 4: to somebody else. So it was interesting to me that
17:29
Speaker 4: it was both a cost issue as well as a
17:33
Speaker 4: slight misstep issue on you know, reading the market for
17:37
Speaker 4: their products and ordering enough of enough supply early enough.
17:41
Speaker 2: Apple continues to not really be doing anything in terms
17:44
Speaker 2: of any kind of data center build up, so there's
17:47
Speaker 2: no change in their posture on that side, which is notable. Again,
17:52
Speaker 2: this thing's been going on. Remember it all kicked off
17:55
Speaker 2: in late twenty twenty two heading into twenty three, So
17:58
Speaker 2: we're through three and a half years now of this
18:02
Speaker 2: generative AI cycle that we're in and Apple still saying no,
18:08
Speaker 2: we're not really interested in spending money on that, which
18:11
Speaker 2: is interesting. It doesn't mean that they never will, but
18:15
Speaker 2: it's a it's an approach that's fundamentally different from every
18:18
Speaker 2: other large tech company with the wallets or the ability
18:23
Speaker 2: to borrow money and how other how those other companies
18:26
Speaker 2: are approaching it. I mean, you go through the list
18:29
Speaker 2: of your other big tech companies. Microsoft, They're doing it,
18:33
Speaker 2: Google doing it, Meta, Amazon, Tesla, even Oracle. I mean,
18:38
Speaker 2: again a fraction of the size. Microsoft is the only
18:42
Speaker 2: one out there that's like, now, we're not really interested
18:45
Speaker 2: in doing not Microsoft. Apple is the only one that's like,
18:48
Speaker 2: we're not doing it. So it's who you know.
18:52
Speaker 4: What this reminds me of is how we are describing
18:54
Speaker 4: Toyota back. It's Toyota, yeah, and a much much bigger
18:59
Speaker 4: damble by correct.
19:01
Speaker 2: Toyota ended up being proven right when they said, no,
19:04
Speaker 2: we're not going to do all of this EV development now.
19:06
Speaker 2: And the interesting piece for Toyota is have you seen
19:09
Speaker 2: they've rolled out like three new EV models for next
19:12
Speaker 2: model year now? Yeah, So it's kind of like, Okay,
19:15
Speaker 2: what do they know because they they weren't trying to
19:19
Speaker 2: do that back in twenty one when everyone else was.
19:23
Speaker 2: I don't know. We'll see how this works for Apple
19:25
Speaker 2: to this point, it hasn't really been a huge problem.
19:29
Speaker 2: We'll see if they end up being a winner because
19:31
Speaker 2: of it or a loser. Quick break. We got Wall
19:34
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19:59
Speaker 5: I's seeing some ball utility on the final trading day
20:01
Speaker 5: of the month, as Wall Street digest earnings from Amazon
20:04
Speaker 5: and Apple. Overseas, South Korea's main index surge to wopping
20:08
Speaker 5: eighteen percent, led by gains.
20:11
Speaker 3: In chip stocks.
20:12
Speaker 5: Right now, the Dow is down only thirty two points,
20:15
Speaker 5: SMP five hundred down about tenth of percent, NASDAC is
20:20
Speaker 5: dipping only four points now, RUSS two thousand is off
20:23
Speaker 5: one and a half percent, Tenure treasureeled is up six
20:27
Speaker 5: basis points at four point seven two percent, and Oil
20:30
Speaker 5: up nearly two percent higher, trading right around eighty five
20:33
Speaker 5: dollars a barrel, Amazon jumping fifteen percent after it said
20:37
Speaker 5: cloud computing revenue jump thirty seven percent year on year.
20:41
Speaker 1: In the previous quarter.
20:42
Speaker 5: Amazon also forecasts its capex to hit two hundred and
20:46
Speaker 5: twenty billion dollars this year. As for Apple, that stock
20:50
Speaker 5: is down by nine percent despite its earnings, revenue and
20:52
Speaker 5: iPhone sales coming in above expectations. However, the tech giant
20:56
Speaker 5: issued weak guidance for the current quarter, citing supply constraints. Meanwhile,
21:01
Speaker 5: both Chevron and Exon Mobile reported solid second quarter profits
21:04
Speaker 5: due to rising oil prices amid the Iran War. However,
21:07
Speaker 5: Exon missed earnings forecasts due to difficulties in its refining business.
21:12
Speaker 5: Chevron down modestly, while Exon Mobile shares are down about
21:16
Speaker 5: three percent, and social media platform read It beats second
21:19
Speaker 5: quarter earnings expectations, but as CEO said, the company is
21:23
Speaker 5: reckoning with choppy search referral traffic sending shares tanking by
21:29
Speaker 5: twenty two percent on Tucker Silva and that is Wall
21:32
Speaker 5: Street Watch, Mike.
21:35
Speaker 2: So, yesterday we covered the blow up of the Situational
21:40
Speaker 2: Awareness hedge Fund. Again, you can't make this up from
21:44
Speaker 2: an irony perspective, and basically the.
21:49
Speaker 3: Company didn't seem to have a lot of situational awareness.
21:52
Speaker 2: No, so the apparently a letter was sent to investors
21:57
Speaker 2: on Thursday, and apparently the fund was down about sixty
22:02
Speaker 2: seven percent uh so far in July, which is not
22:07
Speaker 2: great now honestly kind of impressive, to be fair, it
22:13
Speaker 2: actually could have been a lot worse. What was that
22:15
Speaker 2: movie about the guy who had to rid himself of
22:18
Speaker 2: millions and millions of dollars?
22:20
Speaker 3: Good eighties movie with oh.
22:23
Speaker 4: Something million, Monty's millions, Brewster's millions, Brewster's millions. Yeah, it
22:27
Speaker 4: was kind of one of those types of stories.
22:29
Speaker 2: So here's the deal. This could have been worse if
22:31
Speaker 2: you take a look at the Philly Semiconductor Index from
22:34
Speaker 2: the start of July through the bottom uh that basically
22:39
Speaker 2: fell or really kind of like from end of June
22:42
Speaker 2: U you saw like a thirty percent draw down there,
22:45
Speaker 2: so that this could have been worse depending on you know,
22:48
Speaker 2: the exact leverage and everything. But this is a fund
22:51
Speaker 2: that was up. Again, the data that we have on
22:56
Speaker 2: this is limited because it's a hedge fund, so we
22:58
Speaker 2: don't know everything, so you have to go based on rumors.
23:01
Speaker 2: But at some points, the rumors were that this fund
23:03
Speaker 2: was up, you know, a couple thousand percent over like
23:07
Speaker 2: a couple of year periods. So early investors, even after
23:10
Speaker 2: this blowout here, still made money. So let's let's be
23:13
Speaker 2: clear on that if you investor might not have.
23:16
Speaker 4: Any liquidity, but they made money on paper, correct. So
23:20
Speaker 4: the story is Basically the only stuff that they still
23:24
Speaker 4: own is their private market stuff, which you obviously can't
23:26
Speaker 4: be forced to liquidate. A big chunk of that being
23:29
Speaker 4: a holding in Anthropic, which again you can't liquidate, but okay,
23:34
Speaker 4: it's still there and you still you know, own some
23:36
Speaker 4: of that. So a couple things again.
23:41
Speaker 2: First of all, you can't name your fund situational awareness
23:45
Speaker 2: and then blow up. I'm like, I don't make the rules,
23:48
Speaker 2: but that's that's one of them. You can't do that.
23:53
Speaker 2: Number Two, the person who ran this fund, Leopold as Brenner,
24:00
Speaker 2: you know, a twenty five year old, which is fine, Like,
24:03
Speaker 2: there're plenty of people in their twenties and thirties that
24:06
Speaker 2: end up managing like huge sums of money. There's nothing
24:09
Speaker 2: wrong with that.
24:10
Speaker 4: And by all accounts, a very smart dude entered Columbia University.
24:15
Speaker 3: At the age of fifteen.
24:17
Speaker 4: He's not great as validatory. It's not a dumb human being.
24:20
Speaker 4: That's not the allegation here.
24:22
Speaker 2: No, the issue that you have is he's now been
24:26
Speaker 2: very close to two different blowups. Everyone knows about this,
24:30
Speaker 2: but Aston Burner was also at FTX when it blew up,
24:34
Speaker 2: not you know, managing the portfolio or anything, but still
24:37
Speaker 2: was you know, working with the firm, and so you
24:40
Speaker 2: kind of look at and you're like, that's two pretty
24:43
Speaker 2: big blow ups in a four year period. Yeah, I'm
24:46
Speaker 2: just kind of wondering if maybe you should sit the
24:48
Speaker 2: next one out. And it's not to say, hey, don't
24:51
Speaker 2: manage money again. It is to say you've got to
24:55
Speaker 2: take some real time and learn some lessons, because look,
25:01
Speaker 2: anyone with leverage can make money when the getting's good,
25:05
Speaker 2: even without leverage. You remember back in the early to
25:08
Speaker 2: twenty twenties when everyone in their grandmother was you know,
25:11
Speaker 2: fawning all over Kathy Wood because the arc funds were
25:15
Speaker 2: doing well yep, and now they've just been terrible for
25:18
Speaker 2: like the last five years. Basically.
25:20
Speaker 4: Well, the point that I will make too is, you
25:23
Speaker 4: know where was risk management here? Because how how much
25:26
Speaker 4: did the stock market fall at most in July. I'm
25:29
Speaker 4: trying to think of the max draw down maybe two
25:32
Speaker 4: or three.
25:33
Speaker 2: Three percent, But the stuff that he owned was you know,
25:35
Speaker 2: moving a ton more. I know, But like, you can't
25:39
Speaker 2: blow up when the market's three percent of that.
25:41
Speaker 4: That's the point, and you need to have somebody in
25:44
Speaker 4: risk management that makes the point to you that, hey,
25:45
Speaker 4: if the market moves three percent away from where we
25:47
Speaker 4: are right now, our entire hedge fund ceased to exist.
25:51
Speaker 4: It didn't cease to exist. I know they've got private
25:53
Speaker 4: holdings that they couldn't legally leverage, so that's why they
25:56
Speaker 4: still exist. But like somebody needs to raise their hand
26:00
Speaker 4: and to be like, hey, you know, hey, if this
26:02
Speaker 4: just moves this many percentage points, then none of us
26:06
Speaker 4: have a job anymore, and we lose all of our
26:08
Speaker 4: investors' money.
26:09
Speaker 2: Other questions that I think are worth asking. Uh, I'm
26:12
Speaker 2: quoting it from the Wall Street Journal. Situationals gains early
26:14
Speaker 2: in the year were so large that even including July's losses,
26:17
Speaker 2: the fund remains up about eighty percent on the year.
26:19
Speaker 2: So again, like if you were not an investor who
26:21
Speaker 2: started like three months ago, you still have made good money.
26:25
Speaker 2: Through the end of May, Situational gained about two hundred
26:27
Speaker 2: and seventy percent. The Wall Street Journal previously reported. It's
26:31
Speaker 2: one of those things where you kind of look at it.
26:33
Speaker 2: You're like, you made two hundred and seventy percent in
26:34
Speaker 2: the first five months. Do you just like call it maybe.
26:41
Speaker 1: Yeah, that's enough.
26:42
Speaker 2: Two hundred and seventy percent in five months, you like more,
26:46
Speaker 2: you know, maybe we could just sit and cash the
26:48
Speaker 2: rest of the year, you know, like our investors are
26:53
Speaker 2: probably gonna be okay with that. Yeah, maybe we just
26:56
Speaker 2: sit in cash. So again, these are things that you
27:00
Speaker 2: think about ultimately. Look Ashen Berner's a smart dude. The
27:05
Speaker 2: the thing that you deal with is, hey, if you
27:08
Speaker 2: you know, are talking about how good you are at
27:10
Speaker 2: managing you know, the fund on the way up, when
27:13
Speaker 2: things blow up, like it's going to come back at
27:15
Speaker 2: you a little bit. It's kind of how it works.
27:18
Speaker 2: So he'll get another chance at some point. Uh, he's
27:21
Speaker 2: going to have to prove that this is the outlier,
27:24
Speaker 2: but probably needs a few years just to you know,
27:28
Speaker 2: sit back and learn some lessons from this and see
27:30
Speaker 2: how things go again.
27:32
Speaker 4: I don't I don't completely excuse any of this, but
27:37
Speaker 4: when you have no professional investing experience and you're given
27:41
Speaker 4: twenty billion dollars, I lay a lot of the blame
27:44
Speaker 4: on the investors.
27:46
Speaker 2: These are sophisticated investors too, Like that I was looking
27:49
Speaker 2: at like, you know, some of the people that actually
27:52
Speaker 2: were involved in you know, putting money into this thing,
27:56
Speaker 2: but like these were you know smart people who we
28:01
Speaker 2: were doing this, they were and again like it just
28:06
Speaker 2: ended up not working here. So I think where I
28:12
Speaker 2: land on this is anyone can make money if you
28:16
Speaker 2: catch a bull market and happen to be leverage to it.
28:21
Speaker 2: The big thing is, Okay, if you blow up once,
28:24
Speaker 2: it's almost kind of a rite of passage to a
28:26
Speaker 2: certain extent, maybe not quite to this scale, but you've
28:31
Speaker 2: got to prove that you can handle that leverage responsibly.
28:34
Speaker 2: And so the question that I do have, I'm sure
28:37
Speaker 2: there will be other investors that are clamoring for, you know,
28:42
Speaker 2: to invest with him, being like, well, you know, we
28:44
Speaker 2: had you know, one bad month, but everything else was great. Okay,
28:47
Speaker 2: I'll happily give him more money. The interesting question is
28:52
Speaker 2: how do the prime brokers feel about it? Yeah, you know,
28:55
Speaker 2: if you're in the business of lending money to a
28:57
Speaker 2: hedge fund, how much leverage do you want to give
29:00
Speaker 2: to him going forward?
29:02
Speaker 4: Yeah, Chuck, we got to take a quick break. But
29:04
Speaker 4: Todd Lusky from the law firm Cushing in Dolan joining
29:07
Speaker 4: us next year on the Financial Exchange.
29:09
Speaker 1: Smart Financial Talk. Whenever you want find the Financial Exchange
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29:30
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29:44
Speaker 4: Joining us now is Todd Lusky from the law firm
29:47
Speaker 4: of Cushing and Dolan. Happy Friday, Happy under the Month. Todd,
29:51
Speaker 4: thanks for joining us. Always a pleasure. Thanks for having
29:53
Speaker 4: us so.
29:54
Speaker 3: Kicking things off here.
29:55
Speaker 4: You've got a guide out in July all about the
29:59
Speaker 4: power of your revocable medicaid trusts. And I want to
30:03
Speaker 4: talk about these because there can be a lot of
30:06
Speaker 4: confusion about them. But I guess first things first, is
30:09
Speaker 4: there a demographic where you reach a certain wealth level,
30:14
Speaker 4: or maybe you've just got a bunch of money in
30:15
Speaker 4: four to one k's where this type of trust on
30:19
Speaker 4: average just doesn't work for somebody like I did.
30:21
Speaker 3: Do you have a threshold for that?
30:23
Speaker 2: I do?
30:23
Speaker 6: I think it's it's a great question because so many
30:25
Speaker 6: people will come in sometimes and say just that I
30:27
Speaker 6: just want to protect my asss. I mean, it's a
30:29
Speaker 6: common it's like knee jerk reaction.
30:32
Speaker 2: I get it.
30:33
Speaker 6: And so when I sit down with people and I'll say, okay,
30:36
Speaker 6: take a look, I've got four one k I got
30:38
Speaker 6: I right, I have investment portfolios.
30:40
Speaker 2: And you start adding it up.
30:41
Speaker 6: You got like four million dollars sitting there, and you
30:43
Speaker 6: hit that at you know, five percent. If you're stuck
30:46
Speaker 6: it in a five percent return, sure, right, it's generating
30:48
Speaker 6: too much income, right, So you start, you know, start
30:52
Speaker 6: generating two hundred thousand dollars of income. Well, the nursing
30:55
Speaker 6: home costs, you know, and then you've got to throw
30:58
Speaker 6: in pensions, social Security. You know, this kid, this spouse
31:01
Speaker 6: is getting thirty grand from social the other spouse is
31:03
Speaker 6: getting thirty grand from social Next thing, you know, you
31:06
Speaker 6: got sixty grand on top of the two, I got
31:08
Speaker 6: two hundred and sixty thousand dollars of income. I'm like, okay, well,
31:12
Speaker 6: the nursing home costs one hundred and forty so I'm
31:15
Speaker 6: pretty hopeful that the healthy spouse can live on the difference.
31:17
Speaker 6: If you're you know, you're older at the time when
31:19
Speaker 6: you get sick, and I'll say, sounds like you're kind
31:21
Speaker 6: of self insured. Yeah, you know, you don't really need it.
31:25
Speaker 4: So these are irrevocable trusts, and that is oftentimes what
31:30
Speaker 4: sparks some confusion. So talk to me about that, because
31:34
Speaker 4: every accountant that I speak to and say, oh, I've
31:37
Speaker 4: got an irrevocable trust, they go down this path of
31:41
Speaker 4: trying to dissuade somebody because they're worried about the tax
31:43
Speaker 4: implications and all sorts of different confusions. So talk to
31:47
Speaker 4: me about how these types of irrevocable medicaid trusts work,
31:50
Speaker 4: because from what I understand, they're a bit different than
31:53
Speaker 4: what the accountant's worried about.
31:55
Speaker 6: And they're a bit different than other irrevocable trusts that
31:57
Speaker 6: are out there. Some people say, oh my gosh, it's irrevocable,
32:00
Speaker 6: But there's, first of all, countless kinds of irrevocable trust,
32:03
Speaker 6: all designed to do different things. So but this particular
32:06
Speaker 6: one from you said from a tax standpoint, first of all,
32:09
Speaker 6: the count and say, oh my gosh, you got to
32:11
Speaker 6: file a seven h nine gift tax return. Was it
32:13
Speaker 6: a completed gift you gave it away? No, this is
32:16
Speaker 6: an incomplete gift for gift tax purposes. There is no
32:19
Speaker 6: gift tax return, So wipe your brow there. And secondly,
32:23
Speaker 6: they always come back and they say, oh my gosh,
32:25
Speaker 6: it's an irvocal trust, and trust pay such high tax rates.
32:29
Speaker 2: I mean, I hear.
32:29
Speaker 6: If you make more than like fourteen thousand dollars a
32:32
Speaker 6: year in the trust, you got to pay you know,
32:34
Speaker 6: thirty seven percent income tax rate. And that can be
32:37
Speaker 6: the case for some trust, but again not this one.
32:41
Speaker 6: So this one is designed as a grand tour trust.
32:43
Speaker 6: So that means all the income tax liability is picked
32:48
Speaker 6: up on your individual personal return of the donor whoever
32:52
Speaker 6: created it, so you don't have any gift tax or
32:54
Speaker 6: any adverse income tax. And I'll just leave it at this,
32:57
Speaker 6: that you also have because people worry a lot of
33:00
Speaker 6: control without explaining it, We've got a lot of control
33:03
Speaker 6: and no adverse tax consequences. Folks, if you've never known
33:07
Speaker 6: whether this irrevocable trust is right for you, this guide
33:10
Speaker 6: is unlocking the power of irrevocable trusts. And it's designed
33:14
Speaker 6: in a question and answer format. You know, who can
33:17
Speaker 6: be trustee? What are my tax ramifications? What assets can
33:20
Speaker 6: I put in? How can I access the money? You know,
33:23
Speaker 6: do I have to file an income tax return? Everything
33:25
Speaker 6: you think about in terms of how they operate day
33:28
Speaker 6: to day, and I keep adding questions as I get
33:31
Speaker 6: them from you listeners.
33:34
Speaker 2: As to how it works. So get the guide.
33:37
Speaker 6: It's the end of the month, it's going away. You
33:39
Speaker 6: will know when you're done reading it whether this trust
33:42
Speaker 6: is right for you or not. Once and for all
33:44
Speaker 6: eight six six eight four eight five six nine nine
33:49
Speaker 6: or Legal Exchange Show dot com again eight six six
33:53
Speaker 6: eight four eight five six nine nine or Legal Exchange
33:57
Speaker 6: Show dot com and you can download it right there.
33:59
Speaker 3: Thanks so much, I really appreciate it. Have a great
34:02
Speaker 3: weekend you too. Always a pleasure.
34:03
Speaker 1: The proceeding was paid for and the music expressed are
34:05
Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
34:08
Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
34:11
Speaker 1: Cushing and Armstrong did not endorse each other and are
34:13
Speaker 1: not affiliated.
34:15
Speaker 3: Mike.
34:15
Speaker 2: So, last week and into this week, we covered the
34:20
Speaker 2: uh open AI rogue agent hack of the coding website
34:25
Speaker 2: Hugging Face.
34:26
Speaker 3: I was hoping you would go here, Chuck. Yes, we did.
34:28
Speaker 2: Turns out that anthropic AI models hacked three companies during
34:33
Speaker 2: tests of their software, and Anthropics like, oh sorry, like
34:38
Speaker 2: this was a mistake, like some of our software that
34:41
Speaker 2: we were testing got onto the Internet and hacked three companies.
34:43
Speaker 4: The best part of it is the reason they found
34:46
Speaker 4: out about it is because they saw open Ai disclose
34:49
Speaker 4: it and they're like, you know what, we should go
34:51
Speaker 4: see if our models did that.
34:53
Speaker 2: Turns out they did. And this is why I keep
34:58
Speaker 2: coming back to. Now, if the smartest people in the
35:02
Speaker 2: AI room don't even know that this is happening, then
35:08
Speaker 2: what's gonna happen when you start letting people who aren't
35:12
Speaker 2: the smartest people in the AI room like me, like Mike,
35:16
Speaker 2: like Tucker use these models and these agents for their businesses.
35:23
Speaker 4: Which, by the way, from what I understand, if I
35:27
Speaker 4: wanted to, would be pretty easy to utilize one of
35:31
Speaker 4: the Chinese versions of these types of models that are
35:34
Speaker 4: quite powerful with really no safeguards in place.
35:39
Speaker 2: So like, I don't think we're all getting out of
35:41
Speaker 2: here alive.
35:44
Speaker 4: Another thing that I don't recall if I said on
35:46
Speaker 4: air or just privately to you, Chuck at the time,
35:49
Speaker 4: was you know, it sure does seem that anthropic, whether
35:54
Speaker 4: genuine or not, is at least attempting to be a
35:59
Speaker 4: better steward of this technology, and you know, be more
36:03
Speaker 4: cautious with it.
36:04
Speaker 2: And trying to appear that way.
36:06
Speaker 4: I agree there, Like, like I said, I don't know
36:08
Speaker 4: if it was appearances only your true beliefs, but it
36:10
Speaker 4: was kind of irrelevant at the time. This kind of
36:13
Speaker 4: runs right contradictory to that, like, Hey, our stuff did
36:16
Speaker 4: the exact same thing. It did it before open AI did,
36:20
Speaker 4: and we didn't even really know about it or even
36:23
Speaker 4: think to ask the question until our competitor had to,
36:27
Speaker 4: you know, do the walk of shame here with their
36:29
Speaker 4: own model.
36:30
Speaker 2: Yes, so yeah, not a great look. They checked through
36:36
Speaker 2: logs of one hundred and forty one thousand tests and
36:39
Speaker 2: figured out, oh, some of these agents actually made it
36:42
Speaker 2: out onto the internet when they weren't supposed to write.
36:45
Speaker 2: And it's again the disheartening piece is these are these
36:52
Speaker 2: smartest people using the dumbest models we'll ever have.
36:56
Speaker 1: Yeah.
36:57
Speaker 2: Now imagine the dumbest people using the smartest models we have.
37:01
Speaker 3: Yeah, this is uh.
37:03
Speaker 4: I don't even know what the legislative fix to any
37:06
Speaker 4: of this stuff would be. My sense is the cats
37:08
Speaker 4: out of the bag, but we are not going to
37:10
Speaker 4: attempt a legislative fix until something truly bad happens, is
37:15
Speaker 4: my general sense of this, And.
37:19
Speaker 3: Models.
37:19
Speaker 4: Breaking containment effectively is an indication that we're pretty close
37:24
Speaker 4: to something very bad happening.
37:27
Speaker 2: It sure feels like it. I mean, the answer might
37:29
Speaker 2: be that the Internet goes away. I'm not entirely kidding.
37:37
Speaker 2: I mean, what if we end up killing it by accident? Yeah,
37:41
Speaker 2: so can you just hit reset? Nope?
37:44
Speaker 3: Yeah.
37:44
Speaker 4: It just it lends me very little confidence that every
37:48
Speaker 4: bank in the country and every financial system in the country,
37:51
Speaker 4: for example, is hardened against this type of attack, or
37:54
Speaker 4: every utility system or every you know, these are systems
37:59
Speaker 4: that are apparently against hacking, but it seems to be
38:02
Speaker 4: that not.
38:03
Speaker 3: All of them will be successful in preventing this.
38:07
Speaker 2: Most of them won't be. Yeah, we got humans that
38:11
Speaker 2: can hack this stuff.
38:12
Speaker 5: You know.
38:12
Speaker 2: You think that these these agents are gonna be worse,
38:15
Speaker 2: They're gonna only gonna be getting better. Quick Break Hour
38:18
Speaker 2: two coming up in just a little bit.