Latest / The Financial Exchange Show / Apple’s CEO Exit, Fed Confusion, and the Real Impact of AI

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Apple’s CEO Exit, Fed Confusion, and the Real Impact of AI · The Financial Exchange Show

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  Speaker 1: and Mark Vandetti.
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  Speaker 2: Welcome to this Tuesday edition of the Financial Exchange. For
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  Speaker 2: those people in the Boston area, I hope they enjoyed
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  Speaker 2: markets are in positive territory today as we have the
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  Speaker 2: expiration of the ceasefire between and Iran, and so we'll
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  Speaker 2: agreements that are made between the US and Iran as
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  Speaker 2: they continue to presumably negotiate, though the information on that
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  Speaker 2: is always hard to decipher. But we'll kick off the
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  Speaker 2: show here deviating from the typical coverage on the agreements
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  Speaker 2: or potential agreements between the US and Iran, and talk
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  Speaker 2: about a little known company called Apple. Apple has had
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  Speaker 2: the same CEO for the last fifteen years. You may
• 2:31
  Speaker 2: have heard of him, Tim Cook. He took over for
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  Speaker 2: Steve Jaws on August twenty fourth of twenty eleven, and
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  Speaker 2: as of September first, he will be stepping down from
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  Speaker 2: his position as CEO. Apple has announced that they will
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  Speaker 2: have a new CEO, John Terroness, who will start on
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  Speaker 2: September first. He has been with the company for about
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  Speaker 2: twenty five years and has background in the hardware space
• 2:55
  Speaker 2: of things. And so we'll take a little time to
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  Speaker 2: start the program to just sort of look back at
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  Speaker 2: what was by all accounts, and you could poke some
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  Speaker 2: holes in it, but an extremely successful tenure for Tim
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  Speaker 2: Cook over the course of the last fifteen years, particularly
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  Speaker 2: for those listeners out there that may have been shareholders
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  Speaker 2: during that period of time, they certainly greatly benefited, as
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  Speaker 2: all shareholders did. Apple stock climbed nearly two thousand percent
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  Speaker 2: since Cook took over back in twenty eleven, compared to
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  Speaker 2: the S and P five hundred's growth of about five
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  Speaker 2: hundred percent. Over that span of time. Apple sits today
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  Speaker 2: with a market cap of over about four trillion dollars,
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  Speaker 2: which is about the size of Britain's economy. So certainly,
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  Speaker 2: over the course of the last fifteen years, Mark Cook
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  Speaker 2: has done a tremendous job, it seems like, as a
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  Speaker 2: operations expert and expanding Apple's footprints. He didn't have presumably,
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  Speaker 2: you know, the same sort of hits that Jobs was
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  Speaker 2: known for him in terms of product innovation, though, to
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  Speaker 2: be fair, it is worth pointing out that he was
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  Speaker 2: at CEO when the iPad was released, the Apple Watch,
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  Speaker 2: and AirPods. Those three were extremely if it happens on
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  Speaker 2: your only successful devices. The argument has been made in
• 4:10
  Speaker 2: some financial presses here doing kind of the recap of
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  Speaker 2: his tenure, that some of Job's predecessors were key members
• 4:17
  Speaker 2: were still there as those new products came out. To
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  Speaker 2: be fair, there also have been some flops as well.
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  Speaker 2: The Vision pro headset was something that they spent a
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  Speaker 2: decade working on and spent billions of dollars developing that
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  Speaker 2: really hasn't taken off at all. And also they had
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  Speaker 2: spent over ten billion dollars trying to develop an autonomous
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  Speaker 2: car and that project has been totally scrapped, and that
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  Speaker 2: was a decades plus work worth of work. But in general,
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  Speaker 2: as a steward of the company and delivering for shareholders,
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  Speaker 2: you can make all the fuss you want about perhaps
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  Speaker 2: not the same pace of innovation that Jobs brought about,
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  Speaker 2: but if you were a shareholder, you should be pretty
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  Speaker 2: damn happy that he served over this fifteen years to
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  Speaker 2: your great benefit in terms of the growth that they.
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  Speaker 4: If they've watched their approach to AI, though, Turnas is
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  Speaker 4: holding the bag right, it's largely Cook's fault.
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  Speaker 3: Yeah, but no one will.
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  Speaker 2: We'll talk about that, and that it duve pails him
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  Speaker 2: to the point that Turnus will be under a significant
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  Speaker 2: amount of pressure to focus on this strategic pivot that's
• 5:18
  Speaker 2: going to need to think.
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  Speaker 4: About Jack Well, think about Sandy Wild at City Group.
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  Speaker 4: These guys were acclaimed, lauded, worshiped. They left kind of
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  Speaker 4: a mess. Their predecessors were much maligned. There was not
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  Speaker 4: it's like a very successful If you like history, you
• 5:34
  Speaker 4: read about I don't know, the Emperor Augustus something we
• 5:38
  Speaker 4: all spent a lot of time thinking about left kind
• 5:41
  Speaker 4: of a mess, or his successors so very successive or
• 5:44
  Speaker 4: very successful presidents that leave thorny situations and their predecessor
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  Speaker 4: ends up, you know, inheriting an economy, going anniversary or whatever.
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  Speaker 4: I can't help but wonder if they haven't managed what
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  Speaker 4: I'll just call very high level, at a very high
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  Speaker 4: level of the transition, if they haven't pivoted in the
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  Speaker 4: right way, turnus is gonna get he will.
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  Speaker 2: I think the ge comparison is a good one because
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  Speaker 2: they cycled through several CEOs before they landed on it.
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  Speaker 4: It happens so often that it's almost like not even noteworthy.
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  Speaker 4: It's sort of like a regression to mean effect, you're
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  Speaker 4: not going to get spectacular performance like Sandy Wild, Generated
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  Speaker 4: City Group, and Jack Welsh. Those are just two names
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  Speaker 4: from the nineties that immediately pop into my head because
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  Speaker 4: they were so celebrated at the time, but in their
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  Speaker 4: wake there were a lot of complications and nobody could
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  Speaker 4: make it entirely write or do or replicate their stock
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  Speaker 4: market performance and anyway.
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  Speaker 2: Yeah, there's some statistic that's rallying around my head that
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  Speaker 2: I had heard from some fund manager out there that
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  Speaker 2: if you look at broadly speaking, let's say there's four
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  Speaker 2: thousand public companies out there and the number of them
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  Speaker 2: that are able to grow at a compound rate of
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  Speaker 2: annual return of I believe it was twenty percent, it
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  Speaker 2: was about one percent, And so I'm sure Apple, not
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  Speaker 2: looking at the numbers, falls into that category over this
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  Speaker 2: span of time.
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  Speaker 5: Sure that survived have to have fallen in.
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  Speaker 3: But to replicate that performance again, if you.
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  Speaker 4: Can't, you can't do it because if you grow at
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  Speaker 4: that rate, because the stock market grows at less than that.
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  Speaker 4: So if you extend that out, you're the whole stock.
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  Speaker 4: Like if I grow at five and you grow at seven,
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  Speaker 4: you're not just going to overtake me, but you're gonna
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  Speaker 4: overtag me and everybody else.
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  Speaker 2: It's just not Yeah, all of a sudden, Apple will
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  Speaker 2: be worth more than six percent.
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  Speaker 4: We're actually you started the segment with the observation that,
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  Speaker 4: like the market capitalization of Apple's stock is more than
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  Speaker 4: the gross domestic product of the UK. Those are odd
• 7:42
  Speaker 4: things to compare, but people do it all the time.
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  Speaker 5: Yeah, No one is a flow. GDP is a flow,
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  Speaker 5: it's spending capitalization. Market cap is a stock concept. It's
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  Speaker 5: it's static.
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  Speaker 4: But anyway you could say it's like probably bigger than
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  Speaker 4: the stock market of ninety eight percent of companies that
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  Speaker 4: have a stock market exactly.
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  Speaker 2: And so as we turn the page and kind of
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  Speaker 2: look at what TURNUS is facing, as you mentioned, they
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  Speaker 2: are a bit behind the eight ball, it seems, at
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  Speaker 2: least in the early goings of the AI pivot, there
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  Speaker 2: has been really very little development on a Apple side
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  Speaker 2: of things in terms of product releases in the AI
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  Speaker 2: space their strategy now and quite frankly, I didn't even
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  Speaker 2: realize that they were focusing on this. Maybe that speaks
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  Speaker 2: to my head being in the sand, but also maybe
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  Speaker 2: it speaks to the fact that Apple really hasn't made
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  Speaker 2: tremendous inroads on this. It's you know, AI powered smart
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  Speaker 2: home products and wearable devices, wearable devices, I get that piece,
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  Speaker 2: but the AI powered smart home products, that was news
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  Speaker 2: to me that they're even in the midst of developing.
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  Speaker 2: And to be clear, none of the stuff has been released,
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  Speaker 2: and a lot of it has been delayed quite a bit.
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  Speaker 2: And mark to your earlier point, it's hey, these things
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  Speaker 2: that they have sort of in the background that they're
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  Speaker 2: working on, there's been there's been delays, They've run into
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  Speaker 2: all sorts of issues with their internal art artificial intelligence
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  Speaker 2: capabilities not being up to stuff compared to it's now
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  Speaker 2: biggest competitors of whether it's Anthropic or others out there,
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  Speaker 2: it's it's certainly yeah.
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  Speaker 4: You know, you could make a playful prediction here and
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  Speaker 4: say Cook's tenure was more successful maybe than people would
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  Speaker 4: have expected at the start.
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  Speaker 5: Given his background. He's a boring guy.
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  Speaker 4: He's an operations guy. Right, you could make a playful,
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  Speaker 4: kind of mischievous prediction and say turnuses. I don't want
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  Speaker 4: to say it's going to be a failure because I'm
• 9:30
  Speaker 4: going to save failure for Kevin Walsh. I want to
• 9:32
  Speaker 4: save that word for something really special this morning. If
• 9:34
  Speaker 4: you're ail me to Paul is the as the lead
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  Speaker 4: host here, I don't want to say failure, but people
• 9:39
  Speaker 4: will probably be set yourself up to be disappointed because
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  Speaker 4: it would just be so hard following in the footsteps
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  Speaker 4: of Jobs and then Cook. Because of the point you
• 9:47
  Speaker 4: just made about nobody grows at twenty percent forever, there's
• 9:51
  Speaker 4: a sort of a reversion to the mean. Isn't quite
• 9:53
  Speaker 4: the right concept, but if you get what I mean
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  Speaker 4: by that, he's probably going to disappoint.
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  Speaker 5: No fault of his own.
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  Speaker 3: It's a tough space.
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  Speaker 5: To you know, pour water on the apple parade. Well,
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  Speaker 5: actually I don't.
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  Speaker 3: It's it's fun, but no, I think you know.
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  Speaker 2: What you have to acknowledge is that Tim Took did
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  Speaker 2: a tremendous job. His fifteen year legacy should be remembered
• 10:11
  Speaker 2: of a great steward of the company and a really
• 10:14
  Speaker 2: successful tenure. For CEOs to be at the Helm for
• 10:16
  Speaker 2: fifteen years and have this amount of success is very
• 10:19
  Speaker 2: rare in a public company of its size, Like.
• 10:23
  Speaker 4: Is there is there a case to be made that
• 10:24
  Speaker 4: looking back in ten years, we will view his term
• 10:30
  Speaker 4: less rosalie in a less rosy fashion.
• 10:32
  Speaker 3: That sounds better because of what's I mean, I don't
• 10:36
  Speaker 3: know what.
• 10:36
  Speaker 4: We obviously don't know what's He continues to grow at
• 10:40
  Speaker 4: a heated sort of clip, then I guess nobody will.
• 10:44
  Speaker 4: But will people say, oh, he definitely should have pivoted
• 10:47
  Speaker 4: more aggressively into generative AI and integrated it. I'm just
• 10:52
  Speaker 4: putting together a word salad here because I'm not a
• 10:55
  Speaker 4: stock analyst.
• 10:56
  Speaker 5: I don't follow it, but that seems to be sort of.
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  Speaker 2: I feel like that's a little picky to pick on.
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  Speaker 2: Lets let's call it like the last two years of
• 11:02
  Speaker 2: his tenure. So chat TBT gets released in November of
• 11:05
  Speaker 2: twenty twenty two, and that from that point on it's
• 11:07
  Speaker 2: sort of everyone's guns blazing in terms of trying to
• 11:10
  Speaker 2: shift their strategy around of a fifteen year tenor you
• 11:13
  Speaker 2: could argue maybe perhaps in the last two to three
• 11:15
  Speaker 2: that there wasn't enough moving in that direction. Is that
• 11:19
  Speaker 2: fair to look back and say that he did a
• 11:21
  Speaker 2: poor job because he didn't jump quickly enough there.
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  Speaker 6: So chat GBT is twenty twenty two, right. Apple Intelligence
• 11:28
  Speaker 6: came out in twenty four mm h two years later,
• 11:31
  Speaker 6: still real no major developments on AI in terms of Apple.
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  Speaker 3: You're definitely right, You're definitely right.
• 11:38
  Speaker 2: Two years Yeah, my, I'm not disagreeing that they've been
• 11:42
  Speaker 2: behind the eight ball and they've been slow to a
• 11:43
  Speaker 2: depth there. But if you're looking back at a fifty
• 11:46
  Speaker 2: or tenure, fifteen year tenure as a CEO, I don't
• 11:49
  Speaker 2: know if that's enough to mar the legacy in general
• 11:53
  Speaker 2: of a fifteen year span of time that was quite successful.
• 11:56
  Speaker 3: Tough critics here, but by.
• 11:57
  Speaker 4: The way, sizing Tim Cook the terrific But you keep
• 12:00
  Speaker 4: using the word steward, which to me says, you know.
• 12:03
  Speaker 5: I don't you know, serviceable. That's a great word. I
• 12:05
  Speaker 5: love it. It's because it's not offensive, but it also says.
• 12:08
  Speaker 3: Meh, well, following that's following jobs.
• 12:12
  Speaker 2: That's kind of why I've used that term, because you
• 12:15
  Speaker 2: have someone who is one of the most innovative product
• 12:18
  Speaker 2: designers in history, and it seems like he sort of
• 12:23
  Speaker 2: just was an executor, is how he would be described.
• 12:26
  Speaker 3: That cook would be was very strong.
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  Speaker 6: Yeah, I'll just add this. The last major like product
• 12:31
  Speaker 6: update news we got from Bloomberg about Apple was back
• 12:36
  Speaker 6: in February and has said that they are accelerating development
• 12:39
  Speaker 6: of three new wearable devices smart glasses. We've been hearing
• 12:43
  Speaker 6: that for years, whether it's from Google or anybody else,
• 12:46
  Speaker 6: but smart glasses, appendant in AirPods, with expanded AI capabilities,
• 12:51
  Speaker 6: all built around series. So that's like the last major
• 12:55
  Speaker 6: news report we have surrounding Apple's next steps for smart glasses.
• 13:02
  Speaker 3: Yeah, well, we'll see on those.
• 13:04
  Speaker 2: It's fair to levy some criticism there, so sometimes you
• 13:07
  Speaker 2: got to know maybe he's getting out at the right
• 13:09
  Speaker 2: time from what it seems like.
• 13:11
  Speaker 3: So we're gonna take a quick break here on the
• 13:13
  Speaker 3: Financial Exchange.
• 13:14
  Speaker 2: When we come back We're we're coming covering a retail
• 13:16
  Speaker 2: sales report that gives us a little bit of a
• 13:18
  Speaker 2: status on the health of the US consumer, as well
• 13:21
  Speaker 2: as some chatter on Kevin Warsh the new Fred chair.
• 13:24
  Speaker 3: Right after this break market.
• 13:27
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• 14:19
  Speaker 2: Retail sales data came out this morning. We saw the
• 14:22
  Speaker 2: biggest increase in retail sales since March of twenty twenty four.
• 14:26
  Speaker 2: A lot of that significant portion of I should say,
• 14:29
  Speaker 2: is a tribuale to the significant surge that we saw
• 14:33
  Speaker 2: in gas station receipts, fifteen and a half percent of
• 14:37
  Speaker 2: the surge that we saw, as you know, accounting for
• 14:41
  Speaker 2: that big increase in what people are paying for at
• 14:45
  Speaker 2: the pump, we saw the month over month number for
• 14:47
  Speaker 2: retail sales in general rise about one point seven percent.
• 14:50
  Speaker 2: That was higher than analyst estimates of about one point
• 14:54
  Speaker 2: four percent for a month over month growth. So while
• 14:58
  Speaker 2: certainly the reason that we see such a large headline
• 15:02
  Speaker 2: number is a tribute to the fact that gas prices
• 15:04
  Speaker 2: were up significantly and this report doesn't adjust for inflation,
• 15:09
  Speaker 2: we also did see though, in other categories across the
• 15:13
  Speaker 2: sphere of this retail sales report, whether it be furniture, electronics,
• 15:17
  Speaker 2: general merchandise, all of those categories did see jumps in
• 15:20
  Speaker 2: terms of increase in consumption and increase in spending in
• 15:24
  Speaker 2: those areas. So certainly that was helpful to see that
• 15:28
  Speaker 2: the consumer still remains resilient in the face of higher
• 15:31
  Speaker 2: gas prices. If you look at core retail sales, which
• 15:35
  Speaker 2: excludes food service, auto dealers, building materials, and gasoline stations,
• 15:39
  Speaker 2: we still saw an increase there, stripping out some of
• 15:42
  Speaker 2: the impacts from what we saw at gas stations. It
• 15:46
  Speaker 2: will continue to be a big focus. Is this a
• 15:49
  Speaker 2: one month blip that can be somewhat attributal to tax refunds?
• 15:53
  Speaker 2: That the average tax refund that we're seeing for most
• 15:55
  Speaker 2: folks is up from three hundred and fifty dollars last
• 15:58
  Speaker 2: year to thirty five hundred dollars this year. Is that
• 16:01
  Speaker 2: sort of trickling into some of this March retail sales data.
• 16:04
  Speaker 2: Perhaps this is just a one off, but certainly seeing
• 16:08
  Speaker 2: the impact from the increasing gas prices here, but also
• 16:12
  Speaker 2: I would say that it is nice to see that
• 16:14
  Speaker 2: we are seeing increases in other areas there on the
• 16:17
  Speaker 2: retail sales side of things. Switching gears to Kevin worsh
• 16:22
  Speaker 2: who is right at the moment testifying in front of
• 16:24
  Speaker 2: the Senate Panel, the Senate Banking Committee as we speak.
• 16:28
  Speaker 2: He is going to be speaking with them today as
• 16:32
  Speaker 2: he tries to navigate his appointment to fed Share, and
• 16:36
  Speaker 2: there is a lot for him to talk about and
• 16:40
  Speaker 2: to give sort of his input on. And so for
• 16:43
  Speaker 2: most of the segment, I know we've got my co
• 16:46
  Speaker 2: host here rearing up and ready to go, so I'm.
• 16:48
  Speaker 3: Just goin another hour and a half, I'm going myself,
• 16:51
  Speaker 3: so I'm just going.
• 16:52
  Speaker 4: To this is going to be the gift that keeps
• 16:54
  Speaker 4: on giving for as long as this disaster rolls on.
• 16:57
  Speaker 4: I will we have at least five years ago.
• 16:59
  Speaker 2: I will briefly at the stage here where Kevin Wars
• 17:04
  Speaker 2: has been hired, has been appointed with certainly the pretense
• 17:07
  Speaker 2: that he is going to come in and want to
• 17:10
  Speaker 2: lower interest rates. He has had commentary in the past
• 17:14
  Speaker 2: from a monetary policy standpoint that was perhaps not as
• 17:18
  Speaker 2: as dubbish that he is stating today. But that is
• 17:23
  Speaker 2: really going to be the big focus is in the
• 17:24
  Speaker 2: face of higher inflation, what is the FED chair going
• 17:28
  Speaker 2: to do?
• 17:28
  Speaker 3: So Mark take it away, because.
• 17:30
  Speaker 4: Why would we just start Let's just' seeze into it,
• 17:32
  Speaker 4: because again there's gonna be a lot of yammering over
• 17:34
  Speaker 4: the next hour and a half, the next couple of days.
• 17:36
  Speaker 4: I guess the Fed's job is to in the short
• 17:39
  Speaker 4: term anyway, balance inflation and unemployment. They're both influenced by
• 17:45
  Speaker 4: forces that push one or the other in different directions.
• 17:49
  Speaker 4: Said more simply, if the FED creates too much demand
• 17:52
  Speaker 4: by printing too much money, and that's a pretty good
• 17:55
  Speaker 4: explanation of what the FED does. That's how it influences
• 17:58
  Speaker 4: the economy. It notices that demand might be flagging, and
• 18:02
  Speaker 4: it gooses it by effectively printing money, crediting banks with
• 18:05
  Speaker 4: reserved lowering the FED funds rate, and stimulating demand. The
• 18:10
  Speaker 4: problem is the economy's productive capacity. The supply side might
• 18:14
  Speaker 4: not be able to keep up with that, so you
• 18:16
  Speaker 4: might get inflation as a result, and then the Fed
• 18:18
  Speaker 4: has to moderate change course by tightening monetary policy. And
• 18:24
  Speaker 4: this is the way business cycles.
• 18:25
  Speaker 2: And think of post COVID for everybody out there, that's
• 18:28
  Speaker 2: basically what we saw is a huge period of stimulus
• 18:31
  Speaker 2: and too pivoting away from Yeah, they had.
• 18:33
  Speaker 5: To very quickly backtrack.
• 18:35
  Speaker 4: They recognize that policy had been too accommodative. So that's
• 18:39
  Speaker 4: the challenge for the Fed and the short term and
• 18:42
  Speaker 4: why don't we just get right into very quickly something
• 18:45
  Speaker 4: Warsh is saying that's flat out that wrong and dangerous.
• 18:48
  Speaker 4: He wants to cut interest rates because he is assuming
• 18:50
  Speaker 4: that AI will have productivity enhancing effects, that nothing else
• 18:54
  Speaker 4: in the economy changes, and therefore that justifies lower interest rates.
• 18:58
  Speaker 4: We don't have enough time right now to talk of
• 19:00
  Speaker 4: all the problems with that reasoning. And I'm putting reasoning
• 19:03
  Speaker 4: in quotes here because it's not really well thought out,
• 19:06
  Speaker 4: but it the expectation is by his political masters that
• 19:09
  Speaker 4: he will cut rates at a time when interest rates
• 19:11
  Speaker 4: are arguably already too low in and after inflation. Sense,
• 19:15
  Speaker 4: we're in a perilous time here in terms of monetary
• 19:18
  Speaker 4: policy and inflation.
• 19:19
  Speaker 2: Paul, we're running up again. Say break here, but when
• 19:22
  Speaker 2: we come back, we want to talk more as to
• 19:24
  Speaker 2: why that presumption by Kevin Walsh is perhaps the failure
• 19:28
  Speaker 2: in Mark's words, and why there are significant issues there.
• 19:31
  Speaker 2: We're going to cover that right after break here on
• 19:33
  Speaker 2: the Financial Exchange.
• 19:39
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:42
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• 19:47
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• 19:56
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• 19:59
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• 20:00
  Speaker 6: Busy Dan Wall Street, and as traders continue to monitor
• 20:03
  Speaker 6: developments out of the Middle East. Regarding peace talks between
• 20:06
  Speaker 6: the US and Iran, President Trump told CNBC this morning
• 20:09
  Speaker 6: he expects the two countries to make a great deal
• 20:12
  Speaker 6: ahead of a ceasefire that's set to expire tomorrow. Right now,
• 20:16
  Speaker 6: the Dow is up about a half a percent, s
• 20:18
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• 20:21
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• 20:24
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• 20:28
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• 20:31
  Speaker 6: eight percent, and Oil up about one percent, trading right
• 20:36
  Speaker 6: around ninety dollars at barrel. The big news on the
• 20:38
  Speaker 6: day comes out of the tech sector, after Apple announced
• 20:41
  Speaker 6: longtime CEO Tim Cook will step down and hand the
• 20:45
  Speaker 6: reins over to veteran engineered John Turnas on September first.
• 20:49
  Speaker 6: Cook will remain Apple as executive chairman. Apple shares are
• 20:53
  Speaker 6: down about one percent. Meanwhile, Amazon said it would invest
• 20:56
  Speaker 6: another five billion dollars in Anthropic and its total investment
• 21:01
  Speaker 6: to as high as twenty five billion dollars. Amazon stock
• 21:04
  Speaker 6: is up nearly two percent. Elsewhere, United Health stock rallying
• 21:08
  Speaker 6: over nine percent after the health insurance company handily beat
• 21:11
  Speaker 6: first quarter earnings and revenue expectations. United also hiked its
• 21:16
  Speaker 6: full year earnings outlook. Ge Aerospace shares down four percent
• 21:20
  Speaker 6: despite it beating first quarter earnings in revenue, forecasts. RTX
• 21:24
  Speaker 6: posted a strong quarter for its defense business and hiked
• 21:27
  Speaker 6: its full year earnings and sales outlooked for twenty twenty six.
• 21:31
  Speaker 6: That stock down by three percent. In Alaska Airlines pulled
• 21:35
  Speaker 6: its twenty twenty six forecast due to uncertainty around fuel costs,
• 21:40
  Speaker 6: sending shares down by one percent. I'm Tucker Silva, and
• 21:44
  Speaker 6: that is while you watch as.
• 21:46
  Speaker 2: We speak, Kevin warsh is testifying in front of the
• 21:49
  Speaker 2: Senate Banking Committee, And in the prior second we had
• 21:52
  Speaker 2: discussed just sort of the issues that some of his
• 21:58
  Speaker 2: policy contention have have created. One of the tenets of
• 22:03
  Speaker 2: some of his commentary and monetary policy has been this
• 22:06
  Speaker 2: idea that artificial intelligence. And it's important to note that
• 22:10
  Speaker 2: he is very intertwined into the Silicon Valley community, has
• 22:13
  Speaker 2: deep relationships with a lot of the prominent tech entrepreneurs
• 22:17
  Speaker 2: out there over history, so he certainly is someone that
• 22:21
  Speaker 2: is technology focused first. And he has stated that productivity
• 22:26
  Speaker 2: gains that will presumably come from artificial intelligence will not
• 22:32
  Speaker 2: will justify the Federal reserve to lower interest rates, and
• 22:35
  Speaker 2: has sort of poo pooed or distanced himself from this
• 22:38
  Speaker 2: idea that the federal reserve needs to be so backward
• 22:41
  Speaker 2: looking in terms of its approach to economic data.
• 22:45
  Speaker 5: That's nuts.
• 22:46
  Speaker 4: He's assuming productivity will go up. Let's assume that's right.
• 22:50
  Speaker 4: But what's happening elsewhere in the economy. How much what's
• 22:53
  Speaker 4: required to sustain that productivity increase? Investment is required. Investment
• 22:57
  Speaker 4: soaks up capital. That requires high higher interest rates. That
• 23:01
  Speaker 4: means a high or so called neutral rate, that magic
• 23:04
  Speaker 4: unobservable but in theory useful number that keeps the economy
• 23:09
  Speaker 4: growing at potential and keeps inflation constant. That's what the
• 23:12
  Speaker 4: that's the holy grail of central banking. You want to
• 23:15
  Speaker 4: keep rates when the economy is chugging along. You don't
• 23:18
  Speaker 4: want to constrain it, you don't want to slow it down.
• 23:22
  Speaker 4: But at the same time you're keeping an eye on inflation.
• 23:26
  Speaker 4: He's presuming that he knows what's going to happen with AI.
• 23:29
  Speaker 4: Think about how nuts this is for just and forgive me.
• 23:31
  Speaker 4: I can't think of any other word to describe it.
• 23:33
  Speaker 4: And I can only assume that he's twisting himself because
• 23:35
  Speaker 4: he's not a stupid guy. He may not be an economist,
• 23:37
  Speaker 4: which a fed cheer should be. Just like the head
• 23:39
  Speaker 4: of HHS should be a doctor. Head of CDC should
• 23:42
  Speaker 4: be a doctor. Monetary policy is complicated. There are people
• 23:45
  Speaker 4: who specialize just in that get their PhDs in it,
• 23:47
  Speaker 4: spend their whole lives researching it. He's not one of
• 23:50
  Speaker 4: those guys. And it's painfully obvious. Right now, he's assuming
• 23:53
  Speaker 4: he knows that AI will boost productivity, that he knows
• 23:56
  Speaker 4: what's happening elsewhere in the economy at the same time,
• 24:00
  Speaker 4: and that he knows what the effects of lowering interest
• 24:03
  Speaker 4: rates will be without any data. And then on the
• 24:06
  Speaker 4: other side of his mouth and his statement and whatever
• 24:08
  Speaker 4: he's saying now presumably he's echoing it. He says, well,
• 24:11
  Speaker 4: we're going to be data dependent when we, you know,
• 24:14
  Speaker 4: make decisions with respect to inflation. Yeah, but you just
• 24:16
  Speaker 4: said you're pre committed to a path based on what
• 24:20
  Speaker 4: you think productivity will be over the next five years.
• 24:23
  Speaker 4: It's hard to It's like a weather man giving you
• 24:26
  Speaker 4: the forecast for the next two years and saying, I'll
• 24:28
  Speaker 4: see you know this summer if you know need to
• 24:30
  Speaker 4: tweak it. We're not going to do anything else. It's
• 24:33
  Speaker 4: it's it's mind bogglingly nuts.
• 24:36
  Speaker 2: He is in this position where it's a high wire
• 24:40
  Speaker 2: act where you have to clearly sort of appease President
• 24:44
  Speaker 2: Trump with this idea that there's a need to lower
• 24:47
  Speaker 2: interest rates. That's for certain. It seems like some of
• 24:50
  Speaker 2: the sentiments that he's coming out with or to try and.
• 24:53
  Speaker 4: Yeah, he's twisting himself into a pressil to justify his
• 24:57
  Speaker 4: preordained conclusion, which is we need to cut rates. You
• 25:00
  Speaker 4: can always make an edge case sort of argument for
• 25:04
  Speaker 4: like anything. But at the same time, he's saying, now,
• 25:06
  Speaker 4: we're going to be data dependent, we're going to keep
• 25:08
  Speaker 4: an eye on it. How can you say you're going
• 25:09
  Speaker 4: to be an independent central banker if you're crafting explanations
• 25:16
  Speaker 4: based on what your political puppet masters. Forgive me, but
• 25:18
  Speaker 4: that's what they are. Trump wouldn't have appointed him if
• 25:20
  Speaker 4: he didn't think he was going to be pliable. And
• 25:22
  Speaker 4: by the way, that sounds like a criticism, but it isn't.
• 25:24
  Speaker 4: Maybe you think it's great that the president wants to
• 25:25
  Speaker 4: control the money supply. Historically that's never worked out well
• 25:28
  Speaker 4: anywhere it's been tried, but hey, let's give that a shot.
• 25:32
  Speaker 4: Warsh is the guy Trump has chosen to implement his
• 25:35
  Speaker 4: desired monetary policy, which is lower rates at a time,
• 25:38
  Speaker 4: by the way, when we had headline inflation increase at
• 25:40
  Speaker 4: almost one full percentage point. That is a twelve percent
• 25:42
  Speaker 4: annualized rate everybody last month. Now, that's not that's obviously
• 25:46
  Speaker 4: going to come down. That was gasoline and energy generally.
• 25:50
  Speaker 4: But that's still not a time when a serious person
• 25:54
  Speaker 4: should be thinking about lowering interest rates, unless you know,
• 25:58
  Speaker 4: we happen to be heading into depression or a serious recession.
• 26:01
  Speaker 2: Just some live updates on his testimony as he's in
• 26:04
  Speaker 2: front of the Senate Banking Committee as we broadcast here live,
• 26:07
  Speaker 2: and Elizabeth Warren's on the screen. I have no doubt
• 26:10
  Speaker 2: she's probably asking about how rich he is. That's kind
• 26:12
  Speaker 2: of sort of herm. But that's me taking a shout
• 26:14
  Speaker 2: out Elizabeth Warren.
• 26:15
  Speaker 3: Aside.
• 26:16
  Speaker 2: Some of the updates from what he said is that
• 26:19
  Speaker 2: today's inflation is a residual of the Fed's past mistakes,
• 26:23
  Speaker 2: and I quote, the FED miss the mark and we
• 26:25
  Speaker 2: are still dealing with the legacy of policy errors in
• 26:28
  Speaker 2: twenty one and twenty two. Once you let inflation. These
• 26:31
  Speaker 2: are all quotes from him from my producer, So if
• 26:33
  Speaker 2: they're wrong, blame Tucker Silva. Once you let inflation take
• 26:37
  Speaker 2: hold in the economy, it's more expensive and harder to
• 26:41
  Speaker 2: bring it down. And the last one, and then Mark,
• 26:43
  Speaker 2: I'll get your feedback on these. The fatal policy error
• 26:47
  Speaker 2: is still a legacy that we are dealing with today.
• 26:49
  Speaker 2: Today inflation is less problematic.
• 26:54
  Speaker 5: I'm sorry there was so much there.
• 26:56
  Speaker 2: Well, let's go with the first one. The Fed missed
• 26:57
  Speaker 2: its mark, and we're still dealing with the legacy of Paul.
• 27:01
  Speaker 2: Do you feel as if we are still dealing with
• 27:03
  Speaker 2: the legacy of policy errors from twenty on?
• 27:06
  Speaker 4: The relationship between the supply of money and inflation is
• 27:08
  Speaker 4: the long term one. You can't just look at the
• 27:10
  Speaker 4: recent money supply growth and say up, inflation's gonna perk up.
• 27:13
  Speaker 4: Sometimes it works that way, but the demand for money
• 27:16
  Speaker 4: is such there are other things changing in the economy
• 27:19
  Speaker 4: at the same time, which makes the relationship unreliable. So
• 27:22
  Speaker 4: it is true that in the long run he's got
• 27:25
  Speaker 4: a point. What he should have said is what Milton
• 27:27
  Speaker 4: Friedman said, and I'm gonna i'll paraphrase, because what Milton
• 27:32
  Speaker 4: Friedman meant to say was inflation in the long run
• 27:36
  Speaker 4: is a monetary is always in everywhere. He said something
• 27:39
  Speaker 4: to that effect a monetary phenomenon, meaning the FED inflation
• 27:43
  Speaker 4: is a choice. Warsh is right about that, But then
• 27:46
  Speaker 4: in the very next like breath nearly, he says, but
• 27:48
  Speaker 4: we got to cut rates because AI is.
• 27:50
  Speaker 5: Going to be terrific.
• 27:53
  Speaker 4: Once one, it's a jackal hide thing. On one statement
• 27:57
  Speaker 4: sounds totally sensible. Oh good, we've got someone recognizes the
• 28:01
  Speaker 4: buck does stop with the Fed. And Powell recognizes that too,
• 28:03
  Speaker 4: by the way, but it's nice to see it stated plainly,
• 28:06
  Speaker 4: but in the very next sentence, and we need to
• 28:09
  Speaker 4: cut rights now despite the fact that the real Fed
• 28:11
  Speaker 4: funds rate might be close to zero, that is where
• 28:13
  Speaker 4: Fed funds is today, less inflation, and inflation is ticked up.
• 28:17
  Speaker 4: I don't think anybody thinks real Fed funds is restrictive
• 28:21
  Speaker 4: right now, unless again, you're twisting yourself into some sort
• 28:24
  Speaker 4: of logical pretzel to try to satisfy your political paymass.
• 28:27
  Speaker 2: I feel like I feel like it's it's that it's
• 28:30
  Speaker 2: really trying to find a justification to cater to the
• 28:33
  Speaker 2: people who appointed him. Is the reason why you would
• 28:36
  Speaker 2: throw something that basically you really can't pinpoint the impacts
• 28:40
  Speaker 2: from which is AI and its productivity gains like that
• 28:43
  Speaker 2: is just something to throw out there and to try
• 28:46
  Speaker 2: to add to your case. But I agree with you,
• 28:48
  Speaker 2: there's just no way that you can sit back and
• 28:50
  Speaker 2: have any idea what the enhancements are going to be.
• 28:53
  Speaker 2: But it's an easy thing to kind of throw and
• 28:55
  Speaker 2: couple with this idea.
• 28:56
  Speaker 4: If this is the real Kevin, if he really believes
• 28:59
  Speaker 4: what he served up today, we are in for a
• 29:03
  Speaker 4: long period of ineffective monetary policy, high and unpredictable, relatively high.
• 29:11
  Speaker 4: Maybe I'm not going to make a prediction as to what.
• 29:13
  Speaker 4: It's hard to say unstable inflation.
• 29:17
  Speaker 3: Yeah, for me, it's you know, let's see what you
• 29:19
  Speaker 3: do and not what you say. And right now it's.
• 29:22
  Speaker 5: Yeah, I hear you know.
• 29:23
  Speaker 4: But he's saying really stupid things. So is this just
• 29:27
  Speaker 4: because he really wants the job that badly? And if so,
• 29:29
  Speaker 4: what does that say about his character? He's doing us
• 29:32
  Speaker 4: a disservice. You should be educating the public about monetary policy.
• 29:37
  Speaker 4: He's failing in that regard. A big job of any
• 29:40
  Speaker 4: Fed official is to manage inflation expectations, and he's off
• 29:44
  Speaker 4: to a really bad start.
• 29:45
  Speaker 2: A text from our listener here, maybe we should get
• 29:49
  Speaker 2: rid of the Central Bank. But doesn't it allow interest
• 29:54
  Speaker 2: rates lower?
• 29:57
  Speaker 1: Yeah?
• 29:57
  Speaker 3: Okay, so I.
• 29:59
  Speaker 6: Think you're meant to say, doesn't it allow interest rates
• 30:02
  Speaker 6: lower to lower debt payment relief? If we're paying a
• 30:07
  Speaker 6: lower interestrate on our debt, we're saving money that way
• 30:11
  Speaker 6: as well. This is not nineteen twenty and nineteen fifty anymore.
• 30:14
  Speaker 2: Okay, So I think the sentiment there was that the
• 30:17
  Speaker 2: US has thirty six trillion dollars in debt wherever we're at,
• 30:21
  Speaker 2: and by lowering interest rates on that, in effect, you're
• 30:23
  Speaker 2: lowering the debt service.
• 30:24
  Speaker 4: That's actually not how it works the FED. The FED
• 30:26
  Speaker 4: controls short, not.
• 30:27
  Speaker 3: Long term interest rates. These are longer.
• 30:30
  Speaker 4: The FEDS could the Treasury could finance its debt using
• 30:33
  Speaker 4: shorter maturity.
• 30:34
  Speaker 3: Debt, particularly it's on the longer end of the car.
• 30:37
  Speaker 4: Once the but we had this problem. Interesting he cites
• 30:40
  Speaker 4: nineteen fifty. I don't maybe that was just because it
• 30:43
  Speaker 4: sounds like a long time ago. But in nineteen fifty
• 30:46
  Speaker 4: nineteen fifty one, the Treasury in the FED said, you
• 30:48
  Speaker 4: know what, this whole business of the FED acting effectively
• 30:51
  Speaker 4: is the financing arm of the US government captive of
• 30:54
  Speaker 4: the US Treasury.
• 30:55
  Speaker 5: It's not working.
• 30:56
  Speaker 4: We had very high inflation, and you had something called
• 30:58
  Speaker 4: the FED Accord. I'm not qualified to give a lecture
• 31:02
  Speaker 4: on it. You can google it. The FED has a
• 31:03
  Speaker 4: nice summary on their website of the Fed Accord. I
• 31:06
  Speaker 4: think it was of nineteen fifty one, which resulted exactly
• 31:09
  Speaker 4: from the out of control inflation that resulted from the
• 31:12
  Speaker 4: Treasury and the FED acting exactly as that texter suggests.
• 31:16
  Speaker 4: So no, that would be really Trump talks like this
• 31:18
  Speaker 4: a lot. If we just had lower interest rates, the
• 31:21
  Speaker 4: dead wouldn't even be an issue. But mister President, you've
• 31:23
  Speaker 4: got to print a lot of money to do that.
• 31:25
  Speaker 4: And anyone who bothers to acquaint themselves, even like superficially
• 31:29
  Speaker 4: with monetary policy, history knows that always works out disastrously
• 31:33
  Speaker 4: wherever it's tried.
• 31:35
  Speaker 2: We're going to take a quick break here on the
• 31:37
  Speaker 2: Financial Exchange, but when we come back, we'll do a
• 31:40
  Speaker 2: little bit more on the FED and then shift gears
• 31:42
  Speaker 2: and talk about our official intelligence and how it could
• 31:44
  Speaker 2: potentially throw thousands of people in the Boston area out
• 31:47
  Speaker 2: of work. That's right after this break here in the
• 31:49
  Speaker 2: Financial Exchange.
• 31:50
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• 32:19
  Speaker 2: The rise of AI in Boston could throw thousands of
• 32:23
  Speaker 2: people out of work and not sure a few listeners
• 32:26
  Speaker 2: have heard, but there's this.
• 32:27
  Speaker 3: Thing called artificial intelligence since coming to take all of
• 32:30
  Speaker 3: our jobs ope for the course of.
• 32:33
  Speaker 2: The next five years. According to a new starting study
• 32:37
  Speaker 2: published by Tufts University, apparently two hundred and seven thousand
• 32:41
  Speaker 2: Boston area workers and over two hundred and sixty thousand
• 32:44
  Speaker 2: statewide people are likely to lose their jobs to AI
• 32:48
  Speaker 2: systems over the next five years, resulting in twenty five
• 32:52
  Speaker 2: point six billion in lost wages, a major blow to
• 32:55
  Speaker 2: the local economy.
• 32:56
  Speaker 3: I get it.
• 32:57
  Speaker 2: That headline is startling, and I'm not going to sit
• 32:59
  Speaker 2: here and tell you that I don't think that there
• 33:01
  Speaker 2: won't be job disruption as a result of new technology.
• 33:05
  Speaker 2: We have seen that historically that that does occur, that
• 33:08
  Speaker 2: typists and other roles eventually get tool workers or whatever
• 33:12
  Speaker 2: you want to use, they get replaced because new technology
• 33:14
  Speaker 2: comes about that makes them obsolete. Oftentimes, what's happened historically
• 33:18
  Speaker 2: over the labor market is they've been retrained in other skills.
• 33:22
  Speaker 2: Perhaps arguments made for those who are pro AI and
• 33:26
  Speaker 2: its development that there just will be very few areas
• 33:30
  Speaker 2: left in the economy for people to retrain their skills
• 33:34
  Speaker 2: and to be able to pivot to new jobs. But
• 33:36
  Speaker 2: what this article at least does point out a key
• 33:39
  Speaker 2: caveat to all this really is the pace of adoption
• 33:42
  Speaker 2: of new technology. There's not something that you can just
• 33:46
  Speaker 2: predict as to how governments or institutions, financial institutions, whatever
• 33:51
  Speaker 2: types of business you're looking at, how quick quickly they
• 33:54
  Speaker 2: are going to adopt this new technology. So it's hard
• 33:57
  Speaker 2: for me to put a lot of weight into these
• 34:00
  Speaker 2: predictions that they're running in these studies. It's good that
• 34:02
  Speaker 2: they're running them because we are all trying to get
• 34:05
  Speaker 2: a sense for how safe are different industries of work,
• 34:09
  Speaker 2: But ultimately it's just a very hard exercise to go
• 34:13
  Speaker 2: through to project how quickly this technology is going to
• 34:17
  Speaker 2: be adopted. I'm not saying that there won't be job disruption,
• 34:20
  Speaker 2: but the pace of it. I think pinning down a
• 34:23
  Speaker 2: five year timeframe is what makes it tougher for me
• 34:26
  Speaker 2: to get behind on these numbers.
• 34:28
  Speaker 4: There will be winners and losers geographically speaking, because of
• 34:31
  Speaker 4: the way industries are concentrated where heavy and services here, healthcare, technology,
• 34:38
  Speaker 4: things like that, and many of those jobs could be
• 34:40
  Speaker 4: automated and AI will do that. It's a little like
• 34:44
  Speaker 4: when industrial robots came on the scene in the fifties
• 34:47
  Speaker 4: and sixties. That didn't hurt Massachusetts, it hurt Ohio, it
• 34:52
  Speaker 4: hurt Detroit. Overall, productivity went up, wages went up, but
• 35:00
  Speaker 4: it was uneven, right. So it's interesting to look at
• 35:06
  Speaker 4: the per capita per head income in Massachusetts in Ohio.
• 35:10
  Speaker 4: They were the same in nineteen seventy, but technological trends,
• 35:15
  Speaker 4: maybe a little bit of trade, other changes in the
• 35:18
  Speaker 4: economy have resulted in Massachusetts pulling way way ahead of Ohio.
• 35:23
  Speaker 4: And at first it seems to raise the question, well,
• 35:26
  Speaker 4: what did Ohio do wrong? And the answer is probably nothing.
• 35:29
  Speaker 4: Maybe from a policy point of view, probably nothing. It's
• 35:32
  Speaker 4: just that jobs were concentrated there that were adversely more
• 35:37
  Speaker 4: adversely affected by technology and trade, which have similar effects
• 35:42
  Speaker 4: overall on the labor force and on the economy, we
• 35:46
  Speaker 4: were better positioned that that may not be the case
• 35:48
  Speaker 4: for the next wave of technological revolution.
• 35:51
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  Speaker 1: The proceeding was paid for and the views expressed are
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  Speaker 1: solely those of Cushing and Dolan. Cushing and Dolan and
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  Speaker 1: or Armstrong Advisory may contact you offering legal or investment services.
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• 37:03
  Speaker 2: Amazon is going to invest an additional five billion dollars
• 37:06
  Speaker 2: in Anthropic, and potentially that could escalate up to as
• 37:10
  Speaker 2: much as twenty five billion if certain commercial landmarks are
• 37:13
  Speaker 2: hit over the time frame. Anthropic has also agreed to
• 37:16
  Speaker 2: purchase over one hundred billion of Amazon's cloud services, including
• 37:21
  Speaker 2: five gigawatts of capacity of its AI chips. And what
• 37:24
  Speaker 2: we continue to see in this space is the intertwined
• 37:27
  Speaker 2: relationships between these hyperscalers and these companies that are behind
• 37:31
  Speaker 2: some of the largest and most productive large language models
• 37:34
  Speaker 2: out there. Amazon, for its Amazon Web Services business, needs
• 37:39
  Speaker 2: Anthropic to be a customer because they're the one who
• 37:41
  Speaker 2: buys up five gigawatts of capacity. The financial exchange doesn't
• 37:45
  Speaker 2: buy up that much capacity like there are only a
• 37:47
  Speaker 2: few companies out there that will spend that much to
• 37:49
  Speaker 2: build out gigawatts of capacity and spend so much on
• 37:53
  Speaker 2: Amazon's chips that It's develops calls tranium chips, and so
• 37:56
  Speaker 2: as a result, this investment in Anthropic of five Alion
• 38:00
  Speaker 2: by Amazon is kind of keeping its biggest customer not afloat,
• 38:04
  Speaker 2: but keeping them in a stable position. That's all the
• 38:07
  Speaker 2: time that we have for the first hour of the program. Here,
• 38:09
  Speaker 2: we're going to take a quick break. We have a
• 38:10
  Speaker 2: ton more information to cover on the FED and much
• 38:13
  Speaker 2: more right after this break on the financial exchange.
• 38:15
  Speaker 3: Stick with us.