Latest / The Financial Exchange Show / Consumer sentiment falls again in May. Tariffs the top concern.

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Consumer sentiment falls again in May. Tariffs the top concern. · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: Chuck, Mike, and talker with you here as we look
1:12
Speaker 2: to wrap up the week here on the Financial Exchange,
1:16
Speaker 2: and I want to start things off just talking a
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Speaker 2: little bit about some of the data that we got
1:22
Speaker 2: this morning.
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Speaker 3: Couple pieces that came out.
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Speaker 2: At eight thirty we got housing starts and building permits,
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Speaker 2: and at ten am we got the latest iteration of
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Speaker 2: the University of Michigan Consumer Sentiment data also typically just
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Speaker 2: known as consumer sentiment. And Mike, which one of those
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Speaker 2: two pieces do you want to start with?
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Speaker 4: Uh, you can get the first one out of out
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Speaker 4: of the way, the builders stuff, because the sentiment one
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Speaker 4: is fairly big news.
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Speaker 2: So you want to just leave me with the crap. Yeah, yeah,
1:52
Speaker 2: I respect that.
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Speaker 3: Yeah.
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Speaker 2: So, building permits came in at an annualized pace of
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Speaker 2: one point four one two million. The previous was one
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Speaker 2: point four were eight one million, So it was about
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Speaker 2: a like five percent annualized decline in permits that were pulled.
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Speaker 3: Not entirely surprising.
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Speaker 2: This is data for the month of April, and certainly
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Speaker 2: there was some uncertainty in the month of April. So
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Speaker 2: I think this is another one that I kind of
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Speaker 2: file in as like, hey, great, we got.
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Speaker 3: This, but I don't know what it means.
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Speaker 2: So let's wait until next month and housing starts kind
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Speaker 2: of in the same boat. One point three six to
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Speaker 2: one million on an annualized basis versus one point three
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Speaker 2: three nine slight improvement but a little bit under expectations
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Speaker 2: of one point three seven. So I think overall, again,
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Speaker 2: you're gonna hear us unfortunately saying this quite a bit,
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Speaker 2: just because the policy evolved on April second, and then
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Speaker 2: again meaningfully on May twelfth, and so I think April
2:50
Speaker 2: data you can kind of take and say, Okay, let's
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Speaker 2: put this to the side, and it doesn't necessarily represent
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Speaker 2: the way the world works now, So.
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Speaker 4: Anything else to say on that MiCT No, housing market
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Speaker 4: is continuing to be weird and ugly this year, with
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Speaker 4: whide divergence place to place, and so we're gonna talk
3:13
Speaker 4: about things in the housing market. I feel like this
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Speaker 4: year that don't make a ton of sense to people
3:17
Speaker 4: living here in the Northeast until they, you know, take
3:20
Speaker 4: a trip down to Florida and see all the four
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Speaker 4: sale signs.
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Speaker 2: There's nothing, you know, particularly great or bad in the
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Speaker 2: housing market right now. It's kind of just it's very
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Speaker 2: men It's a very slight drag on the US economy
3:33
Speaker 2: right now in my opinion.
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Speaker 3: Yep.
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Speaker 2: It's not something that's really contributing or detracting in either way.
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Speaker 3: It has the potential.
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Speaker 2: Here's the remarkable thing about the housing market though right now,
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Speaker 2: and this is I guess you could say this about
3:46
Speaker 2: the entire economy, but the housing market is kind of
3:48
Speaker 2: a microcosm for this. Like, if for some reason interest
3:52
Speaker 2: rates go down by half a percent and you get
3:55
Speaker 2: you know, thirty or fixed rate mortgages at six and
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Speaker 2: a half, housing's got potentially be a significant tail went
4:01
Speaker 2: from there.
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Speaker 3: Yeah, I gets ripping.
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Speaker 2: For housing to rip, you gotta get mortgages into the
4:05
Speaker 2: low sixes.
4:06
Speaker 3: But here's happening.
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Speaker 5: You need to have unemployment at right five verse six percent.
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Speaker 2: Here's the rub is the only way you get mortgages
4:12
Speaker 2: that low is if the US economy does end up
4:15
Speaker 2: going into recession. And if it does, that's typically not
4:18
Speaker 2: a great time for housing. Uh. And so you kind
4:22
Speaker 2: of look at it and you're like, okay, like that
4:23
Speaker 2: could be you know, potentially bad news there.
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Speaker 3: So this is one of those rare instances.
4:28
Speaker 2: Normally we talk about how housing in the US historically,
4:31
Speaker 2: for the last like seventy eighty years, housing is the
4:33
Speaker 2: business cycle. It leads both into and out of recessions.
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Speaker 2: This is one time where I think you could make
4:41
Speaker 2: a case housing might not be the primary driver of
4:45
Speaker 2: the business cycle.
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Speaker 4: Yeah, I mentioned this yesterday, Chuck, But I feel like
4:51
Speaker 4: I would be willing to guess that if you looked
4:53
Speaker 4: back over the last forty years, there has never been
4:56
Speaker 4: a time where housing prices could fall by twenty percent
4:59
Speaker 4: and fewer people would be underwater on their homes.
5:02
Speaker 3: Yeah.
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Speaker 2: Yeah, I mean it's look when you talk about yeah,
5:06
Speaker 2: it's because prices have gone up so much since most
5:09
Speaker 2: people bought their homes.
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Speaker 3: It's something where.
5:13
Speaker 2: You've got a ton of equity and even if someone
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Speaker 2: needed to you know, let's say someone lost a job
5:18
Speaker 2: and had to sell a place, in most of the country,
5:20
Speaker 2: you can do that without a short sale right now.
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Speaker 2: That the parts of the country that are concerning are
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Speaker 2: the ones that have been you know, hottest in twenty
5:26
Speaker 2: twenty one, twenty two, twenty three, and those are the
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Speaker 2: areas where inventory is building for a number of different reasons.
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Speaker 2: And so I think in those areas, especially if you
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Speaker 2: were someone who did buy at that peak in twenty one,
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Speaker 2: twenty two, twenty three. Hey, if you were in Austin,
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Speaker 2: Texas buyer in twenty twenty three, like late twenty two,
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Speaker 2: early twenty three, and you got to sell your place,
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Speaker 2: you know, I don't know, call it like basically anytime
5:53
Speaker 2: now you're you're taking a short sale in order to
5:55
Speaker 2: get out of it. Most likely if you had a
5:58
Speaker 2: standard twenty percent down, because in the Austin Texas market,
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Speaker 2: you're already about fifteen percent off the peak. Then you
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Speaker 2: factor in your agent commission. Now you're down twenty and
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Speaker 2: you're like, Okay, I've eaten through my entire down payment
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Speaker 2: and I might have to do a short sale when
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Speaker 2: anything else is accounted for, as far as any other
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Speaker 2: fees and stuff that I might need to pay there.
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Speaker 3: So that's the.
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Speaker 2: Only market in the country right now that has that issue.
6:22
Speaker 2: In Austin, Texas is not going to be the driver
6:24
Speaker 2: for the US economy, likely not. So let's go now
6:28
Speaker 2: and talk a little bit about this consumer sentiment data
6:32
Speaker 2: that we saw.
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Speaker 3: What did the number show, Michael.
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Speaker 4: The numbers showed the second worst print that we have
6:37
Speaker 4: ever seen on consumer sentiment from the University of Michigan,
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Speaker 4: which has been taking this data since the nineteen sixties.
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Speaker 4: The number dropped to fifty point eight from fifty two
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Speaker 4: point two. This is a survey done in the month
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Speaker 4: of May, so we are getting closer to current data.
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Speaker 4: The expectations for inflation increased as well, So you had
6:58
Speaker 4: a inflation expectations, which again are important to models, so
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Speaker 4: we bring them up, but they never actually end up
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Speaker 4: resulting in the type of inflation that people are expecting.
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Speaker 3: You're ahead.
7:09
Speaker 4: Inflation expectations surged from six and a half percent last
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Speaker 4: month to seven point three percent in this month. This
7:18
Speaker 4: month's rise was seen both among Democrats and Republicans. Interestingly,
7:22
Speaker 4: so this is a highly political survey and you see
7:27
Speaker 4: the results in that way. They did a whole study
7:29
Speaker 4: on this, the University of Michigan did, and it's been
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Speaker 4: more partisan over the last few years compared to previously.
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Speaker 4: But in this case, both Republicans and Democrats said, yeah,
7:38
Speaker 4: in inflation expectations moving upward. Here's the thirty trillion dollar question.
7:46
Speaker 4: Does it mean anything? Yeah, I don't have an answer
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Speaker 4: to that. It means that people are less optimistic. It
7:54
Speaker 4: means that people might be anticipating higher inflation, but I
7:59
Speaker 4: don't know that it means they're going to go buy
8:01
Speaker 4: things now and drive those prices higher.
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Speaker 5: I So I can't conclude that.
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Speaker 2: Yeah, I I just don't know what this what this
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Speaker 2: means at this point. And look, it's a worthwhile question, Hey,
8:14
Speaker 2: is this even something that we should be paying attention
8:18
Speaker 2: to because it's reliability in recent history has not been good,
8:24
Speaker 2: and it's its long term reliability is not really you know,
8:27
Speaker 2: the most useful either. So I think, like, yes, Like
8:30
Speaker 2: it's it's clear that we're getting these indications that in
8:33
Speaker 2: this is the main numbers. Now, so this was done
8:35
Speaker 2: you know, over the first you know, part of this month.
8:38
Speaker 2: It's clear that Americans are pretty nervous and pretty downbeat
8:43
Speaker 2: on the economy right now.
8:46
Speaker 3: Does that tell us anything about.
8:48
Speaker 2: Where it's going to be going over the you know,
8:50
Speaker 2: the next year or two, And is the inflation expectations
8:53
Speaker 2: component in here is it reliable enough to tell us,
8:56
Speaker 2: you know, anything about how Americans may actually behave there
9:00
Speaker 2: simply because we get other measures of this that that
9:04
Speaker 2: are out there as well. The New York Fed captures
9:07
Speaker 2: a whole bunch of inflation expectations data. Even if you
9:10
Speaker 2: look at financial markets and there's a tool that you
9:13
Speaker 2: can use forward inflation swaps that basically you know you're
9:17
Speaker 2: betting pretty much on what you think inflation is going
9:20
Speaker 2: to be over different time periods. These all do not
9:23
Speaker 2: necessarily give the same picture, and none of them are
9:25
Speaker 2: right all the time either. So I think it's it's
9:29
Speaker 2: kind of like I tend to say this a lot,
9:32
Speaker 2: but hey, throw it on the pile.
9:34
Speaker 3: You know, at it as you know, one data point.
9:37
Speaker 2: But if you're making if you're making investment or you know,
9:41
Speaker 2: economic or financial decisions based on the University of Michigan
9:45
Speaker 2: consumer sentiment data, good luck. Not really sure that's going
9:49
Speaker 2: to work out for you. That's true of most single
9:51
Speaker 2: data points.
9:52
Speaker 4: By the way, the record low ever on this index
9:55
Speaker 4: was reached back in June of twenty twenty two, just
9:57
Speaker 4: to give you a frame of reference for this, and
9:59
Speaker 4: it was only eight tenths of a eight tents of
10:03
Speaker 4: a point worse than it is right now. So this
10:05
Speaker 4: is very close to the all time lows. And I
10:07
Speaker 4: don't think I need to remind folks what the economy
10:09
Speaker 4: was feeling like back in June of twenty twenty two.
10:13
Speaker 4: It was bad. Stock market was down, economy was slowing.
10:18
Speaker 4: We did not get a recession, we did not result
10:21
Speaker 4: in job loss. Inflation kind of peaked at that point
10:25
Speaker 4: in time. I think June actually twenty twenty two, inflation
10:27
Speaker 4: did peak.
10:28
Speaker 3: So it did.
10:29
Speaker 4: Yeah, it's not a perfect indicator of what's to come
10:32
Speaker 4: in the future.
10:33
Speaker 5: But that one.
10:35
Speaker 4: Piece inflation expectations, why they matter is because if those
10:40
Speaker 4: expectations actually convince people that prices are going to go
10:44
Speaker 4: up and I'm going to go now and load up
10:46
Speaker 4: on items early, because I'm worried about prices increasing, then
10:51
Speaker 4: that matters. It just didn't matter last time around.
10:54
Speaker 2: The other thing that I'll point out on the University
10:59
Speaker 2: of Michigan Consumer Sentiment survey. But do you guys know
11:01
Speaker 2: why Michigan, like the university University of Michigan even does this.
11:07
Speaker 4: Only because they've been doing it since sixties. I don't
11:09
Speaker 4: know why they initially since the forties actually forties. Do
11:13
Speaker 4: you know why they got board.
11:15
Speaker 5: Manufacturing hub Michigan, I don't know on.
11:19
Speaker 3: The right track.
11:19
Speaker 2: So World War two, US government wanted some way to
11:23
Speaker 2: figure out, Hey, what's going on in the US economy,
11:25
Speaker 2: So we can mobilize for war effectively and direct resources
11:29
Speaker 2: you know, within the country. University of Michigan, given where
11:32
Speaker 2: the automakers were and given you know, how integral they
11:35
Speaker 2: were in being able to ramp up, you know, production
11:37
Speaker 2: of basically anything related to the war effort, University of
11:41
Speaker 2: Michigan became that hub for economic data. And that's why,
11:44
Speaker 2: to this day has one of the best economics departments
11:47
Speaker 2: out of any school in the country. Is it's a
11:50
Speaker 2: legacy that dates back to World War Two. So there
11:54
Speaker 2: you go, and now we're questioning whether or not it matters.
11:56
Speaker 1: Huh.
11:57
Speaker 2: So here's the thing. They interview the University of Michigan
12:01
Speaker 2: Consumer Sentiment Server. They interview I think it's six hundred
12:03
Speaker 2: people on a monthly basis. Ye, And like here's I
12:08
Speaker 2: guess the question that I ask, Like, they've always had
12:10
Speaker 2: six hundred people.
12:10
Speaker 3: They don't change it up or down.
12:13
Speaker 2: There's a one of the things that they note is
12:16
Speaker 2: and they note this, you know, consistently, how many people
12:20
Speaker 2: are you know, providing unsolicited positive or negative comments on
12:25
Speaker 2: government economic policy? Just one Like they basically like track
12:29
Speaker 2: like they give you a section to put in, you know,
12:31
Speaker 2: any other comments and they say you know, say what
12:34
Speaker 2: you want to say. And here here's the piece that's
12:37
Speaker 2: interesting is that historically there have not been you know,
12:45
Speaker 2: dramatic swings either way in terms of the percentage of
12:47
Speaker 2: people that have been making positive or negative comments. But
12:51
Speaker 2: these swings in terms of the percentage that have been
12:53
Speaker 2: making comments in that direction, have they've expanded over the
12:58
Speaker 2: last twenty years.
13:00
Speaker 3: And part of.
13:01
Speaker 2: Me looks at this because again, this was remarkably consistent
13:04
Speaker 2: dating back to you know, like you look all the
13:08
Speaker 2: way through like the mid two thousands, and generally there
13:11
Speaker 2: wasn't much skew in terms of you know, the comments
13:14
Speaker 2: that people we were making. All of a sudden in
13:18
Speaker 2: the mid two thousands, like right around two thousand and seven,
13:20
Speaker 2: two thousand and eight, you started seeing the percentage of
13:23
Speaker 2: people making you know, comments about specifically negative comments about
13:26
Speaker 2: the economy ratcheting up. And part of me wonders, did
13:31
Speaker 2: smartphones break this again? Like is this another thing that
13:35
Speaker 2: smartphones broke? Because now we all just have to express
13:38
Speaker 2: our opinion, and is our opinion actually worth anything? Right, Like,
13:45
Speaker 2: it's just something I wonder about. I have nothing to
13:47
Speaker 2: back it up. But you never really used to see
13:49
Speaker 2: anything meaningful, and now it's you're getting all these you know,
13:51
Speaker 2: sky high readings for the last decade or so, and
13:54
Speaker 2: you're kind of like, well, this is another thing that
13:57
Speaker 2: you can like overlay smartphone growth on, and this is
14:00
Speaker 2: other factor in it. I don't really know. Let's take
14:03
Speaker 2: a quick break here. When we come back, let's talk
14:06
Speaker 2: a little bit more about what Walmart said yesterday about
14:09
Speaker 2: price increases.
14:11
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15:11
Speaker 2: Mike a piece of the Wall Street Journal here. It
15:13
Speaker 2: touches a little bit on what we covered yesterday. It's
15:16
Speaker 2: it's titled Walmart's price hikes open doors increases from everyone
15:21
Speaker 2: from everybody else, And we talked about this that Look,
15:24
Speaker 2: if Walmart is signaling, hey, we're going to raise prices,
15:27
Speaker 2: you better believe everyone else has covered to do so
15:30
Speaker 2: as well.
15:31
Speaker 3: Yeah.
15:31
Speaker 5: I don't want to overblow this though.
15:33
Speaker 4: You know, when we talk about Walmart rising prices, you know,
15:36
Speaker 4: on average across their entire basket of goods, we might
15:40
Speaker 4: be talking about a couple percentage point increases here and there.
15:45
Speaker 4: It would be my total guest, because remember, you know,
15:48
Speaker 4: they are not paying tariffs on every product they get
15:52
Speaker 4: into their store. The tariff rates that they are paying
15:55
Speaker 4: differ place by place, and usually the strategy that companies
15:59
Speaker 4: like this deploy as they say, Okay, you know, we
16:02
Speaker 4: are seeing pretty high price increases on shoe wear, for example,
16:07
Speaker 4: but we can spread that cost out across multiple items
16:10
Speaker 4: to make it not quite felt in the same way
16:12
Speaker 4: on just one specific item that you know, could drive
16:15
Speaker 4: our customers elsewhere. And so I do expect that they
16:18
Speaker 4: are going to, you know, raise prices on things that
16:20
Speaker 4: aren't even affected by tariffs with the goal of.
16:23
Speaker 5: Maintaining margins across the store.
16:25
Speaker 4: But yeah, absolutely if you are Target or you know, TJX,
16:31
Speaker 4: or really any company across the board. Here you're saying, okay, well,
16:34
Speaker 4: if Walmart's doing it, I certainly think I can too
16:37
Speaker 4: without too much blowback.
16:39
Speaker 2: And and by the way, they have to like, let's
16:43
Speaker 2: let's make this clear when it comes to these companies
16:46
Speaker 2: you mentioned. TJX is another one. Walmart we covered a
16:48
Speaker 2: little bit yesterday. TJX probably the best operator in the
16:54
Speaker 2: consumer space. They have one of the widest margins that
16:57
Speaker 2: you have out of anyone, and they're running, you know,
16:59
Speaker 2: eleven percent in that space. Walmart, we said yesterday, I
17:02
Speaker 2: think they're like four and a half if you go
17:05
Speaker 2: when you take a look again, I haven't looked at this,
17:07
Speaker 2: but I'm just pulling it up, and I suspect I'll
17:09
Speaker 2: find something similar. Target five and a quarter percent margins,
17:12
Speaker 2: and Target is one of the most exposed companies to
17:15
Speaker 2: China as far as where their inventory comes from.
17:19
Speaker 3: Five below.
17:20
Speaker 2: Another one that we've touched on previously eight percent margins.
17:23
Speaker 2: So if you're seeing your you know, your your input
17:27
Speaker 2: cost rising by you know, ten, fifteen to twenty percent,
17:32
Speaker 2: whatever it might be, you got to deal with that.
17:34
Speaker 2: And remember the cost is not just the increase in
17:36
Speaker 2: costs in the tariff.
17:38
Speaker 3: Have either of you guys seen.
17:39
Speaker 2: All the stuff going on in terms of the number
17:42
Speaker 2: of bookings coming out of China now for cargo space
17:46
Speaker 2: on ships.
17:47
Speaker 5: No, but that's going to add cost as well.
17:49
Speaker 2: The bookings have rebounded like three hundred percent, so that
17:52
Speaker 2: there's not enough room on all the ships, and so
17:55
Speaker 2: obviously shipping costs end up going up. Now, is that
17:58
Speaker 2: something that you know doubles your cost? No, it's not,
18:01
Speaker 2: but it's still something else that you need to factor in.
18:04
Speaker 2: And so these are things that these companies that they
18:07
Speaker 2: don't have room to simply absorb a ten percent increase
18:11
Speaker 2: and just say yeah, like everything will be fine. It
18:14
Speaker 2: each through a huge percentage of their profits. And so
18:16
Speaker 2: this is the one where I think I'm really interested
18:20
Speaker 2: to see what we get over the next couple quarters
18:23
Speaker 2: is how do they manage this as far as trying
18:25
Speaker 2: to maintain margins versus you know, what they can pass
18:29
Speaker 2: through without alienating customers. It's a big one for all
18:32
Speaker 2: these goods related companies and even service related companies.
18:36
Speaker 3: Hey, you got costs that go up as well.
18:38
Speaker 2: You run a restaurant and you got to replace ah,
18:41
Speaker 2: you know, you got to replace a stove or something
18:44
Speaker 2: three months from now right, it is the cost higher
18:47
Speaker 2: or lower than it was before. And how do you
18:50
Speaker 2: you know, factor that into what you're actually making in
18:53
Speaker 2: your services business?
18:54
Speaker 4: Yeah. The other piece that you know, this is reminiscent
18:57
Speaker 4: of what we saw during COVID too, And I just
18:58
Speaker 4: do want totally what do we hear from executives during
19:01
Speaker 4: conference calls?
19:02
Speaker 5: Are we hearing them? I used the word bragging yesterday.
19:05
Speaker 4: Maybe bragging is not the right word, but you know,
19:07
Speaker 4: patting their profit margins on these expectations around tariff's is
19:11
Speaker 4: a huge question for where inflation goes.
19:14
Speaker 2: Yeah, it's and I have no idea exactly what we're
19:18
Speaker 2: going to see. There a million different permutations and this
19:20
Speaker 2: is before again we even get into the question of
19:24
Speaker 2: where are tariff's going to be three, six, nine, twelve
19:26
Speaker 2: months from now right? Quick break here when we return,
19:30
Speaker 2: We've got Wall Street Watch, and then we're talking in
19:33
Speaker 2: video after this.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch. A complete look at what's moving market so
19:56
Speaker 1: far today, right here on the Financial Exchange Radio Network.
20:00
Speaker 6: Well, at the moment, markets are pretty much flat as
20:03
Speaker 6: the SMP five hundred attempts to extend its winning streak
20:06
Speaker 6: to five. Wall Street this morning is reacting to the
20:09
Speaker 6: latest Michigan consumer sentiment index as well as inflation expectations.
20:16
Speaker 6: Right now, the Dow is up by four points, that's right,
20:19
Speaker 6: just four points, SMP five hundred up by one point,
20:22
Speaker 6: and the NASDAC now actually down by eight points. RUSS
20:26
Speaker 6: thousand is up by two tenths of a percent, ten
20:28
Speaker 6: year treasure yield down by three basis points now at
20:31
Speaker 6: four point four to two percent, and crude oil is
20:34
Speaker 6: up about a quarter percent higher, trading just below sixty
20:38
Speaker 6: two dollars. A barrel big news in the media world
20:40
Speaker 6: this morning after two of the largest cable companies in
20:43
Speaker 6: the country, Charter and Cox Communications, have greed to merge
20:48
Speaker 6: in a twenty one point nine billion dollar deal. Charter
20:52
Speaker 6: Communication stock is up by about two percent on that news. Meanwhile,
20:57
Speaker 6: we Go via nozempic maker Novo Norda announced its CEO
21:02
Speaker 6: is stepping down, citing recent market challenges, a pullback in
21:06
Speaker 6: the pharmaceutical company's stock price, and increasing competition. That stock
21:11
Speaker 6: is retreating by about three percent Elsewhere, Applied Material shares
21:16
Speaker 6: down seven percent after the chip equipment makers quarterly results
21:20
Speaker 6: narrowly missed expectations and said the trade war has not
21:24
Speaker 6: significantly changed demand. Video game maker Take two Interactive said
21:30
Speaker 6: it would report a full year loss in lower than
21:32
Speaker 6: expected sales after a delay to the highly anticipated video
21:37
Speaker 6: game Grand Theft Auto six has been multiple delays on
21:40
Speaker 6: that one. Take two Interactive shares are down by about
21:43
Speaker 6: a third of a percent. Constellation Brands up by about
21:47
Speaker 6: half a percent after Warren Buffett's Berkshire Halfway disclosed it
21:51
Speaker 6: doubled its stake in the beer importer, bringing its total
21:55
Speaker 6: position in the company to about two point two billion
21:58
Speaker 6: dollars in share in Mediterranean restaurant chain Caba down by
22:02
Speaker 6: five percent after it said it expected same restaurant sales
22:06
Speaker 6: growth to moderate during the year. I'm Tucker Silvan. That's
22:11
Speaker 6: Wall Street Watch, Mike.
22:12
Speaker 2: Let's talk a little bit about in Vidia h simply
22:16
Speaker 2: because this year twenty twenty five has been quite the
22:19
Speaker 2: roller coaster for them. So the shares of Nvidia opened
22:24
Speaker 2: on January second at one hundred and thirty five bucks
22:27
Speaker 2: a share and promptly went up over ten percent, getting
22:31
Speaker 2: into the mid one fifties. I call one fifty three
22:34
Speaker 2: the mid one fifties. They then promptly, for a couple
22:38
Speaker 2: different reasons, puked down to one sixteen on January twenty seventh.
22:43
Speaker 3: That was right after the Deep Seak announcement where.
22:46
Speaker 2: Everyone got nervous that hey, maybe you know, you don't
22:49
Speaker 2: need as many chips are as much firepower in order
22:52
Speaker 2: to you know, ratchet up these models for artificial intelligence.
22:56
Speaker 3: As you previously thought.
22:59
Speaker 2: It rebounded from that and went back up to one
23:01
Speaker 2: hundred and forty three, so it rallied, you know, more
23:03
Speaker 2: than twenty percent. Then into early March, it puked another
23:08
Speaker 2: almost thirty percent, heading down to about one hundred and
23:11
Speaker 2: four dollars a share. This on the first tariff concerns
23:15
Speaker 2: that came up. Then it rebounded almost twenty percent to
23:19
Speaker 2: one hundred and twenty two dollars. Then it fell about
23:22
Speaker 2: thirty percent from there down to eighty six, and now
23:25
Speaker 2: it's rallied about fifty percent from that bottom up to
23:27
Speaker 2: one hundred and thirty four. So it's been freaking wild,
23:31
Speaker 2: especially like here. Here's the thing that you got to
23:33
Speaker 2: say about like a company like this and its price movements.
23:38
Speaker 2: It's one thing when you see, you know, weekly ten
23:42
Speaker 2: to fifteen percent price movements on a company that has
23:45
Speaker 2: a market cap of you know, five billion dollars. This
23:49
Speaker 2: is a three point three trillion dollar company that's seeing these,
23:52
Speaker 2: and it just speaks to the amount of money that
23:57
Speaker 2: is moving on both sides of these trades, to on
24:00
Speaker 2: which way things are flowing.
24:01
Speaker 4: And infects all of you because it's trading places with
24:05
Speaker 4: Microsoft for the first or second largest company in the
24:08
Speaker 4: world every couple of weeks. So you know, when you
24:11
Speaker 4: talk about any index that fund that you could possibly own,
24:15
Speaker 4: it's driving the volatility there as well.
24:17
Speaker 2: Yeah, it's it's like six plus percent of the S
24:20
Speaker 2: and P five hundred. The only companies that are in
24:22
Speaker 2: the same ballpark are Apple and Microsoft. So you get
24:25
Speaker 2: this piece from Bloomberg here in video Shares roarback is
24:30
Speaker 2: clouds hanging over chip maker fades.
24:32
Speaker 3: So couple things that we have here. Obviously, look just about.
24:35
Speaker 2: Every stock, I don't want to say I want to
24:38
Speaker 2: say every stock, but I haven't looked at every stock,
24:40
Speaker 2: so I don't know, but just about every stock has
24:42
Speaker 2: bounced off of that April seventh, April eighth bottom. So
24:46
Speaker 2: clearly you had that going on, you know, prior to
24:49
Speaker 2: this week. This week, then you have President Trump visiting
24:54
Speaker 2: number of different Middle Eastern countries and one of the
24:56
Speaker 2: big things that has been touted it just about every
24:59
Speaker 2: stop is hey, we're gonna be you know, supplying uh,
25:03
Speaker 2: you know, in Vidia signing a deal to supply x
25:06
Speaker 2: thousand number of chips to develop AI data centers in
25:11
Speaker 2: these different countries. And so here's I guess one of
25:15
Speaker 2: the things that this potentially does, depending on, you know,
25:17
Speaker 2: how much these actually scale up and what actually happens here.
25:20
Speaker 2: But if these actually come to fruition, what it does is,
25:26
Speaker 2: you know, one of the questions out there foreign video is, hey,
25:29
Speaker 2: you basically have had like four or five companies that
25:32
Speaker 2: have been the primary buyer of their chips, like you
25:35
Speaker 2: and I don't go out and say hey, Like, should
25:37
Speaker 2: we buy an Nvidia AI chip?
25:39
Speaker 4: Like you can't do it any time with one of
25:40
Speaker 4: them anyways, coster.
25:45
Speaker 2: Little pricey little price, you know, turn it upside down
25:49
Speaker 2: just so it doesn't get you know, soaked. We've been wondering, okay,
25:54
Speaker 2: like if these companies stop buying, not stop, but if
25:58
Speaker 2: they slow down their their pace of buying from how
26:00
Speaker 2: quickly it's been ratcheting up, where are the next people
26:04
Speaker 2: to buy? And the answer can potentially be provided by
26:08
Speaker 2: the governments of various different Middle Eastern countries, so it
26:14
Speaker 2: potentially solves that problem for them. We'll still have to
26:16
Speaker 2: see how this ends up going. And the other thing
26:20
Speaker 2: that I will say is if there's one thing that
26:23
Speaker 2: I do think you can kind of consistently point to
26:28
Speaker 2: the money that comes from sovereign wealth funds in the
26:30
Speaker 2: Middle East. Two things actually that you can say, hey,
26:33
Speaker 2: probably comes with a bunch of strings attached to it.
26:36
Speaker 3: Yep.
26:37
Speaker 2: B historically not great at timing when the best time
26:41
Speaker 2: to invest in various things are. As an example of this,
26:45
Speaker 2: the Saudi's decided to pour a bunch of money into
26:48
Speaker 2: Lucid Motors back in twenty twenty one. Has it worked
26:52
Speaker 2: out great for them, stocks down like ninety seven percent
26:55
Speaker 2: since ipoing, and they're you know, they make fantastic cars apparently,
27:00
Speaker 2: but they're just not you know, like it was a
27:04
Speaker 2: poorly timed investment if you actually care about the return.
27:06
Speaker 4: Yeah, like these sales likely witch sorry, which raises the
27:11
Speaker 4: question do they care about the return? And Michael, I
27:16
Speaker 4: have a whole new thesis that's been developing over the
27:18
Speaker 4: course of this week. Now, Okay, Mike, what's one of
27:21
Speaker 4: the big problems that we've been talking about in US
27:26
Speaker 4: markets over the last month.
27:29
Speaker 3: I know there's a lot of them, and that's kind
27:30
Speaker 3: of a big question.
27:32
Speaker 5: Why did you answer your own question?
27:33
Speaker 2: What's one of the underlying questions that we've been wondering
27:36
Speaker 2: about in US markets over the past month as it
27:39
Speaker 2: relates to stability.
27:44
Speaker 4: Foreign buyers of a sovereign is foreign owners of dollars
27:48
Speaker 4: that may or may not continue to pour them into
27:50
Speaker 4: the market.
27:51
Speaker 5: Yeah, know, what are you getting at?
27:52
Speaker 2: Yeah, I'm getting to bond two things, bond yields and
27:54
Speaker 2: and by you know, default then you know dollar strength. Sure,
27:59
Speaker 2: and so he like, here's the thought that just kind
28:01
Speaker 2: of passed through my head as as I'm looking at
28:04
Speaker 2: what's going on this week. The Middle East obviously wants,
28:08
Speaker 2: you know, to be able to diversify long term away
28:11
Speaker 2: from you know, only relying on oil revenue.
28:13
Speaker 3: They've they've told this.
28:15
Speaker 2: They also want access to all the latest and greatest stuff,
28:18
Speaker 2: which to this point the US has been kind of, Hey,
28:20
Speaker 2: we're not sure we really want to give you, you know,
28:23
Speaker 2: the latest and greatest in Vidia chips, and even when
28:26
Speaker 2: we send you military technology, it might be one level
28:29
Speaker 2: removed from what we keep for ourselves and you know,
28:31
Speaker 2: like stuff like that.
28:32
Speaker 4: Yeah, this deal appears to have opened some floodgates on
28:35
Speaker 4: that front.
28:36
Speaker 2: So I guess the question that I have is, Okay,
28:40
Speaker 2: if Saudi Arabia or the UAE or Qatar is receiving,
28:45
Speaker 2: you know, the ability to purchase tens of thousands of
28:48
Speaker 2: chips from in Vidia, what's the US ask coming back, Hey,
28:54
Speaker 2: we we got some some deficit.
28:56
Speaker 3: Issues over here.
28:57
Speaker 5: Keep those rates low for.
28:58
Speaker 3: Toss a couple bones to us.
28:59
Speaker 2: And by the way, it is not the first time
29:01
Speaker 2: that the Middle East has been used in this fashion.
29:04
Speaker 2: The whole concept of you know, the petro dollar and
29:06
Speaker 2: that oil can only be bought and traded in dollars
29:08
Speaker 2: comes from deals that the US made back in the
29:10
Speaker 2: nineteen seventies to basically link the price.
29:13
Speaker 3: Of oil to the US dollars.
29:15
Speaker 2: Why the US and the Saudi in the Saudis basically
29:17
Speaker 2: have the relationship that we do. So I think the
29:21
Speaker 2: the interesting thing to me on this is when you
29:24
Speaker 2: hear about, you know, these countries talking about, oh, we're
29:26
Speaker 2: agreeing to invest you know, X dollars in the US.
29:28
Speaker 2: First of all, the actual totals are pure poppycock.
29:33
Speaker 5: Poppingcock.
29:33
Speaker 2: You say, Mike, do you know what Quitar's GDP is now?
29:38
Speaker 2: Two hundred and twenty billion dollars? Yeah, How are they
29:41
Speaker 2: going to invest one point two trillion dollars in the
29:43
Speaker 2: United States?
29:44
Speaker 3: What are they going to do? Take their entire GDP
29:46
Speaker 3: for six years and throw it to us?
29:48
Speaker 5: No lever it up?
29:50
Speaker 2: Right, Who's going to lend a trillion? Who's got a
29:52
Speaker 2: trillion dollars? They're just waiting to lend out, you know.
29:55
Speaker 2: So here's where I kind of get to is, Hey,
29:58
Speaker 2: these might not come in the form of an investments
30:00
Speaker 2: into the US to like build stuff in the US.
30:03
Speaker 2: Investing in the US could be as simple as buying
30:05
Speaker 2: US bonds, and I kind of look at this and
30:11
Speaker 2: I wonder, okay, is that where this is going in
30:14
Speaker 2: terms of something that a lot of these Middle Eastern
30:16
Speaker 2: countries want, something that the US wants. Hey, here's how
30:19
Speaker 2: you end up, you know, kind of meeting in the
30:20
Speaker 2: middle on this. It's the thought that's been rattling around
30:23
Speaker 2: in my head as I've watched you know, what's gone
30:25
Speaker 2: on over the course of this week, anything else on
30:29
Speaker 2: this before we move on.
30:31
Speaker 4: No, I do wonder how Israel is going to feel
30:35
Speaker 4: about US selling a lot of these chips out.
30:37
Speaker 3: To sounds like based on the early indications.
30:41
Speaker 4: But yeah, probably not terribly happy about these negotiations.
30:45
Speaker 2: Well, I don't think Israel and the Saudi's necessarily have
30:48
Speaker 2: a whole space between them. You know, they were pretty
30:52
Speaker 2: close to normalizing relations before the October seventh attacks a
30:57
Speaker 2: couple of years ago. The one that the israelis you're
31:01
Speaker 2: gonna have a problem with his Katar, given Qatar's relations
31:03
Speaker 2: with Iran, And that's one where they're gonna be like, oh, hey,
31:08
Speaker 2: like this is not really you know, we're not feeling this,
31:11
Speaker 2: and you know, we'll see how this ends up playing out.
31:13
Speaker 2: Just take a quick break. We'll stick with a little
31:15
Speaker 2: bit of AI chatter after this. We'll talk about what's
31:18
Speaker 2: going on with Meta in the AI universe when we return.
31:23
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31:27
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32:22
Speaker 2: Mike, we got some news from Meta that when they
32:26
Speaker 2: announced it yesterday, the stock fell a couple percentage points
32:29
Speaker 2: immediately after the headline in the Wall Street Journal is
32:33
Speaker 2: Meta is delaying the rollout of its flagship AI model.
32:37
Speaker 3: This is titled Behemoth.
32:41
Speaker 2: I mean, gosh, with a name like that, Like, who
32:44
Speaker 2: couldn't get excited?
32:45
Speaker 4: If you're listening right now and you're by a computer
32:48
Speaker 4: or have your phone with you and you're not driving,
32:50
Speaker 4: can you just image search Lama for Behemoth and the
32:56
Speaker 4: photo that they have of the chief product officer standing
32:59
Speaker 4: in front of the develop a conference, because I just
33:03
Speaker 4: don't really agree with the stylistic choices for the Lama
33:07
Speaker 4: avatar that they created for this thing, which.
33:11
Speaker 3: Yeah, nightmare. Here's the thing.
33:14
Speaker 2: It's it's kind of this, You're playing into every fear
33:18
Speaker 2: that everyone has about artificial intelligence. It's this gothic lamahead
33:23
Speaker 2: with horns on top of kind of a jacked looking human.
33:26
Speaker 3: Body and kind of jacked what. I'm pretty ripped these days.
33:34
Speaker 5: I just I drew an arrow and I just said,
33:37
Speaker 5: why why would you do this?
33:40
Speaker 3: Everyone?
33:41
Speaker 5: I don't.
33:42
Speaker 4: I just I know you're looking to take on the competition,
33:45
Speaker 4: and you're trying to, you know, get people excited about
33:49
Speaker 4: this Lama that's apparently going to go fight in the
33:52
Speaker 4: Chronicles of Narnia, But like, what are we doing here?
33:56
Speaker 2: I think you know, there's something interesting that's happening, Mike,
33:59
Speaker 2: with these large language models. So I'm gonna quote also
34:04
Speaker 2: here chat. GPT five, one of open AI's next big
34:07
Speaker 2: technological leaps forward, was initially expected around mid twenty twenty four.
34:11
Speaker 2: In December, the journal report development on the model was
34:13
Speaker 2: running behind schedule, obviously if it was December and it
34:16
Speaker 2: was supposed to be done halfway through last year. In
34:18
Speaker 2: February they said it would be released as as GPT
34:20
Speaker 2: four point five, and GPT five was still months away.
34:25
Speaker 2: Anthropic has been running behind on new model updates. I
34:28
Speaker 2: don't know if you guys saw what happened with GROC
34:31
Speaker 2: over the last couple of days that they actually had
34:33
Speaker 2: to issue a public apology for Yeah you told me
34:36
Speaker 2: about it, yeah, where it was basically answering every question
34:39
Speaker 2: in relation to like white genocide from South Africa. And
34:43
Speaker 2: so what's kind of interesting to me right now is
34:48
Speaker 2: that it seems like the incremental gains on these models
34:53
Speaker 2: are becoming harder and harder to achieve, which is not surprising,
34:56
Speaker 2: by the way, if you are a sprinters trying to
35:00
Speaker 2: run the one hundred yard dash.
35:02
Speaker 3: It's a lot easier to go.
35:03
Speaker 2: From running nineteen seconds to eighteen seconds than it is
35:06
Speaker 2: to go from eleven to ten. True, Like, the incremental
35:09
Speaker 2: improvement is much easier.
35:10
Speaker 3: It's the same thing. Think about when you're driving on
35:12
Speaker 3: the highway.
35:13
Speaker 2: It's a lot easier to go from sixty to seventy
35:15
Speaker 2: miles an hour than eighty to ninety.
35:17
Speaker 5: This is what I was gonna say, zero to sixty
35:19
Speaker 5: than sixty to one hundred twenty. I don't know how
35:21
Speaker 5: you're driving.
35:22
Speaker 2: I haven't been to one hundred and twenty in a
35:24
Speaker 2: long long time, Michael. It's I'm the guy who does
35:27
Speaker 2: sixty three in the right lane, trying to maximize fuel
35:30
Speaker 2: economy at this point, so I know my place.
35:33
Speaker 4: Well, they turned into Barry, we know exactly, and then
35:36
Speaker 4: I accelerate off the off ramp just you know, for
35:39
Speaker 4: the fun of that one.
35:40
Speaker 3: Curve that you hit.
35:41
Speaker 2: So I think that what we're seeing here is that
35:44
Speaker 2: there's some limitations on this as to how far they
35:47
Speaker 2: can actually go. And it does get back to that
35:50
Speaker 2: question with in video, which is, hey, like, our company's
35:53
Speaker 2: going to continue increasing capex in this fashion because this
35:56
Speaker 2: is kind of the whole thing that powers the entire
35:58
Speaker 2: ecosystem to this point. And ultimately, I think we're getting
36:03
Speaker 2: to the point now where the incremental drive has to
36:08
Speaker 2: come from companies actually committing to more spend on AI
36:14
Speaker 2: products from AI providers. Yeah, it's not just going to
36:17
Speaker 2: come from more high school students using chat GPT to
36:20
Speaker 2: answer their their you know, homework. It has to come
36:24
Speaker 2: from companies that say, yes, we are willing to pay
36:27
Speaker 2: you x thousand dollars for X license for why licenses
36:31
Speaker 2: so that we can either a make our current employees
36:34
Speaker 2: more you know, profitable, or be reduce headcount but maintain
36:38
Speaker 2: the same productivity.
36:40
Speaker 4: Yeah, that's what you are looking for, and you haven't
36:44
Speaker 4: been getting a lot of it recently.
36:46
Speaker 5: But I'll also say that.
36:49
Speaker 4: The deep seek News, for example, was a giant leap
36:52
Speaker 4: in seeming productivity, and they can come all at once
36:56
Speaker 4: without happening for a while.
36:58
Speaker 2: Can we speed run a couple stories here? Of course,
37:02
Speaker 2: this HBO rebrand is just great. I forgot so we
37:06
Speaker 2: didn't just go from HBO Max to Max and now back.
37:09
Speaker 3: To HBO Max. No, we also had HBO.
37:12
Speaker 2: Now at one point we had HBO go like it's
37:14
Speaker 2: been through five or six different brands in the last
37:17
Speaker 2: you know, seven or eight years, and I'm telling you,
37:21
Speaker 2: Tucker put it on the board. By the end of
37:23
Speaker 2: twenty twenty eight, No, end of twenty seven, it's gonna
37:26
Speaker 2: be just HBO again.
37:29
Speaker 4: Are they struggling so much with success here that they've
37:32
Speaker 4: needed to change the name? I mean, I know they
37:34
Speaker 4: went through the whole ownership change, and I get that
37:36
Speaker 4: they were a mismanaged for a period of time, but
37:39
Speaker 4: I'm just not sensing that they were having such a
37:43
Speaker 4: problem with the Max brand that they had to change
37:45
Speaker 4: it back to HBO Max.
37:48
Speaker 5: I just don't get it.
37:49
Speaker 3: Yeah, I don't really know. The other one that I
37:52
Speaker 3: just want to touch on.
37:54
Speaker 2: Uber has basically reinvented the bus YEP they had, and
37:58
Speaker 2: like They're big thing is, oh, like this is cheaper
38:01
Speaker 2: than taking a regular Uber, but you're gonna have to
38:03
Speaker 2: like walk to you in from some spots and hey,
38:05
Speaker 2: we'll give you a discount if you buy like a
38:07
Speaker 2: month's worth of fairs.
38:08
Speaker 3: Oh, just like a regular bus does.
38:11
Speaker 2: Yes, but this is a Uber but this is more
38:15
Speaker 2: expensive than a bus.
38:17
Speaker 3: So I'm still struggling to figure out what this solves.
38:21
Speaker 2: Yeah, well, maybe something quick break here hour two coming
38:25
Speaker 2: up in just a bit.
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Speaker 4: Cardiovascular disease is the number one killer of women.
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Speaker 1: Taking the lives of one in three.
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Speaker 2: That's more than all forms of cancer combined.
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Speaker 1: For too long, heart disease and stroke have taken the
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Speaker 1: lives of the women we love.
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Speaker 3: But we're not giving up because we have something better.
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Speaker 1: Stronger, more powerful.
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Speaker 2: We have each other.
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Speaker 3: When we come together and go read, the more power
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Speaker 3: we have against our greatest health threat.
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Speaker 1: Visit go Red for Women dot org today to learn more.
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Speaker 1: As a busy mom to four kids, my to do
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Speaker 1: list is full.
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Speaker 2: Trying to fit in exercise, eating right, and prioritizing self
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Speaker 2: care can feel next to impossible. While we can't add
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Speaker 2: more hours to the day, we do have a great
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Speaker 2: resource to help. Go Red for Women has easy tips,
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Speaker 2: tools and information to help you and your family live
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Speaker 2: a healthier life.
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Speaker 1: So to all the moms, aunts, grandmothers, and amazing women
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Speaker 1: out there doing it.
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Speaker 4: All, visit goreadfowomen dot org slash momlife today.
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Speaker 1: You take care of them. Go Red for Women will
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Speaker 1: take care of you.