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Why the AI Trade Finally Hit a Speed Bump · The Financial Exchange Show

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  Speaker 1: Zada and Mike Armstrong.
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  Speaker 2: Chuck, Mike and Tucker with you here, and as we
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  Speaker 2: continue through a week of pretty meanful economic data that
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  Speaker 2: we're getting, including a jobs report for May that is
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  Speaker 2: set to come out tomorrow Top Store. Today, one of
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  Speaker 2: the last remaining earnings reports from the Q one period,
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  Speaker 2: we had Broadcom report after the bell yesterday, and Broadcom
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  Speaker 2: not really pleasing investors as their stock is down north
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  Speaker 2: of fifteen percent today and dragging the entire semiconductor and
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  Speaker 2: computer hardware sector with it. To the tune of semis
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  Speaker 2: are off about almost six percent as a whole, and
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  Speaker 2: when we look at tech, it's down about three even
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  Speaker 2: with Microsoft and Apple in the green today and.
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  Speaker 3: Some of the quite honestly, Mike, most.
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  Speaker 2: Of this, in my opinion, is just the fact that
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  Speaker 2: these stocks have gone absolutely crazy in the last couple months,
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  Speaker 2: with each earnings report seemingly pushing the category higher. This
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  Speaker 2: is the first one that's kind of broken that trend,
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  Speaker 2: and so it's not surprising that there's a little bit
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  Speaker 2: of room to fall given just how explosive the move
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  Speaker 2: up has been.
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  Speaker 4: Yeah, I mean, I think the worst thing you can
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  Speaker 4: say about their outlook is they didn't further increase their Sorry,
• 2:31
  Speaker 4: the worst thing you can say about their earnings was
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  Speaker 4: that they didn't, you know, further increase their full your
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  Speaker 4: outlook on what their sales would look like, and investors
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  Speaker 4: didn't love it. I mean, from every other perspective, this company,
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  Speaker 4: like every other semi manufacturer right now that actually has
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  Speaker 4: a business for AI, is benefiting immensely and putting up
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  Speaker 4: some of the best earnings we've ever seen. But that
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  Speaker 4: is not good enough in a market where I mean,
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  Speaker 4: I know you look at this closer than I do, Chuck.
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  Speaker 4: The semiconductor indexes up how much over the course of
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  Speaker 4: the last two months.
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  Speaker 2: At the close of yesterday, it had more than doubled. Yeah,
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  Speaker 2: Which we've talked about this. Whether you like the AI trade,
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  Speaker 2: AI stocks, the AI economy or hate it, you're not
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  Speaker 2: gonna have semiconductor stocks double every two months forever. They're
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  Speaker 2: just not going to happen. There's very few certainties in
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  Speaker 2: this world. One of them is semiconductor stocks as a
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  Speaker 2: category will not double every two months forever.
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  Speaker 4: Yeah, that seems hyper unlikely. So we have this cooling
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  Speaker 4: off now in the space, I mean literally just for
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  Speaker 4: yesterday and today, that some of these stocks are hitting
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  Speaker 4: a bit of a cool off. I don't think any
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  Speaker 4: of this represents renewed doubts about the AI trade, but
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  Speaker 4: we did get some of that in the summer and
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  Speaker 4: fall of last year. And so we will see if
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  Speaker 4: the undying optimism about AI continues to push things forward
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  Speaker 4: or if we see a break on that trend line
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  Speaker 4: for some period of time.
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  Speaker 2: Yeah, I mean, quite honestly, like this is one that
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  Speaker 2: is is ripe for some consolidation. Even with this pullback
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  Speaker 2: MIC the Semiconductor index is still up eighty eight percent
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  Speaker 2: in the last two months. Yeah, it's just I'm not
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  Speaker 2: saying that you have to like give all that back,
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  Speaker 2: but you there, there are you know, sustainable trends in
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  Speaker 2: their unsustainable ones. The one that Semi's have been on
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  Speaker 2: for the last couple months is unsustainable. And it's not
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  Speaker 2: to say that they're going to collapse, but they just
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  Speaker 2: need to, you know, find their footing, consolidate a little bit,
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  Speaker 2: and we'll see where things go.
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  Speaker 3: And and by the way, the other thing I will.
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  Speaker 2: Point out this could be just to day where you
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  Speaker 2: see the like, oh yeah, it's just for example, you
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  Speaker 2: go back to May fourteenth and fifteenth May fifteenth, we
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  Speaker 2: saw about a four percent pullback in semis, and then
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  Speaker 2: the day after we saw another two and a half
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  Speaker 2: and then from there we rallied another another thirty three percent.
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  Speaker 2: So don't make what's going on today into something that
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  Speaker 2: it's not. It may be the start of a major
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  Speaker 2: period of consolidation, it may be a day or two
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  Speaker 2: of consolidation before these things take off again. But it
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  Speaker 2: is clear that what's been going on isn't sustainable. And
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  Speaker 2: again it's not to say these are bad companies are
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  Speaker 2: bad stocks. It's just they're not going to double every
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  Speaker 2: two months forever. And if you've built your strategy on
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  Speaker 2: assuming they do, yeah, you're on your own.
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  Speaker 4: Let's take a step back, then from the pure price
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  Speaker 4: movement of semiconductor stocks and talk a little bit more
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  Speaker 4: broadly about the AI trade as it exists today, because
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  Speaker 4: obviously it is the main thing that is driving not
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  Speaker 4: only the stock market but broad swaths of the economy forward.
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  Speaker 3: At this stage, it.
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  Speaker 4: Is crowding out spending on other areas such as real estate,
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  Speaker 4: and has become the major focus in spite of a
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  Speaker 4: war or in Iran that's closed the straight up Hoore moves.
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  Speaker 4: On one hand, we have Alphabets, Google's parent company, Alphabet
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  Speaker 4: raising some eighty billion dollars largely to spend on artificial
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  Speaker 4: intelligence infrastructure by selling stock. People are getting excited about
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  Speaker 4: three major IPOs this year, all of whom have some
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  Speaker 4: exposure to AI, and two of whom, Anthropic and Open AI,
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  Speaker 4: are pure play model builders. But at the same time,
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  Speaker 4: and this is where I'm trying to check my own
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  Speaker 4: biases at the door, I feel as though we're hearing
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  Speaker 4: a little bit just over the course of the last
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  Speaker 4: couple of weeks about companies narrowing in on the costs
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  Speaker 4: of utilizing these tools, and I'm wondering if I'm putting
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  Speaker 4: too much focus on that story because it's the one
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  Speaker 4: that I just am most interested in.
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  Speaker 3: And focused on, or if it's just a blip on.
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  Speaker 4: The radar and we're not really seeing any price sensitivity
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  Speaker 4: on the part of users.
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  Speaker 2: Well, I think, look, you clearly have had some companies
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  Speaker 2: that have come out and said, okay, like, what's what's
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  Speaker 2: been going on here? Has been kind of nuts from
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  Speaker 2: a pricing perspective, And part of this is a lot
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  Speaker 2: of companies in Q one of this year and this
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  Speaker 2: is something we heard about the time as well. They
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  Speaker 2: put up internal leaderboards to see who could use the
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  Speaker 2: most artificial intelligence tokens. A token is is basically it's
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  Speaker 2: a small unit of either input or output that's run
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  Speaker 2: through the system. And companies were ranking employees not on
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  Speaker 2: like the most efficient use of it, but just hey,
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  Speaker 2: who can use the most right And in all honesty,
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  Speaker 2: that's like ranking employees based on like, all right, we
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  Speaker 2: want to see whoever uses the most paper this quarter?
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  Speaker 2: You get a new car? And it's like, well, is
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  Speaker 2: that actually good for the business or no? And so
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  Speaker 2: what I do think is going on is companies are
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  Speaker 2: now saying, oh, this cost us, did it produce?
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  Speaker 3: Why?
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  Speaker 2: Obviously not, Because anytime that you create a metric that
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  Speaker 2: you're going to rank people on, you're you know, distorting
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  Speaker 2: the actual activity that you get out of it. And
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  Speaker 2: so some of this is very certainly a healthy correction
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  Speaker 2: from Hey, guys, whoever turns on their lights the most
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  Speaker 2: gets you know, ten grand this quarter? Right, Like okay, great,
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  Speaker 2: that thanks electricity. We know that you can make things brighter,
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  Speaker 2: but can you actually you know, make the business better?
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  Speaker 3: I want to give a first hand.
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  Speaker 4: It's so much of what we talk about here is
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  Speaker 4: tough to relate to, right when we talk about Uber
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  Speaker 4: setting cap usage caps on AI coding tools, that might
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  Speaker 4: not be terribly clear.
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  Speaker 3: But in our in on my.
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  Speaker 4: Own business where where you know, we work with individuals
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  Speaker 4: to open investment accounts and you know, focus on their finances,
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  Speaker 4: we interviewed a company who had built a tool. This
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  Speaker 4: was almost a year ago now, and the tool was
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  Speaker 4: designed to do one thing, which is basically take all
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  Speaker 4: the complicated account paperwork that we do and pre fill
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  Speaker 4: it using an AI tool. Pretty basic tool, right. It
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  Speaker 4: can pull data from these different sources, maybe a spreadsheet,
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  Speaker 4: and just do a good job of automating that account
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  Speaker 4: paperwork process. When we looked at it, it was going
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  Speaker 4: to be forty to sixty thousand dollars of cost per
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  Speaker 4: year plus a ten thousand dollars setup fee. And where
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  Speaker 4: we got to very quickly on this one very narrow
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  Speaker 4: piece of artificial intelligence was that doesn't quite seem worth
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  Speaker 4: the cost. I can allocate some human resources to this
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  Speaker 4: job for cheaper than I can employ the artificial intelligence resources.
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  Speaker 4: And what we're hearing occasionally here and there now is
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  Speaker 4: other companies are finding that and by the way, it's
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  Speaker 4: now been nine months since we even explored that, and
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  Speaker 4: the costs, instead of going down, have gone up. They
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  Speaker 4: can do more compelling stuff, but the costs have generally
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  Speaker 4: gone up in terms of tokens and what you use
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  Speaker 4: these tools for.
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  Speaker 2: And this is the tough piece that these companies are
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  Speaker 2: trying to reconcile now, is the cost of building the
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  Speaker 2: data centers to operate this stuff is going up. That
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  Speaker 2: cost is moving up because of the cost of memory
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  Speaker 2: and construction and everything else. But because these models are
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  Speaker 2: being commoditized, they are feeling pricing pressure from the other
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  Speaker 2: perspective saying, okay, like why do I need your model?
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  Speaker 2: I can like look at this one or that one,
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  Speaker 2: And so companies are trying it's this no one knows
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  Speaker 2: how much any of this is worth right now, because
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  Speaker 2: no one knows how much work it can actually do.
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  Speaker 2: And and that's the problem that you end up with then,
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  Speaker 2: because of the scale at which these companies are ipoing
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  Speaker 2: is it's a really big experiment that's taking place. But
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  Speaker 2: by the time all these companies ipo that are you know,
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  Speaker 2: AI adjacent, it's gonna be like five to six percent
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  Speaker 2: of the s and p five hundred's market cap. That
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  Speaker 2: is just a giant experiment where we don't know the
• 10:56
  Speaker 2: pricing or if it's gonna work. And this is the
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  Speaker 2: key difference from you know that the IPO IPO boom
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  Speaker 2: of you know ninety nine, you know, ninety seven through
• 11:05
  Speaker 2: two thousand is when those companies were ipoing. Like take
• 11:09
  Speaker 2: a look at the market cap of Amazon, when the
• 11:11
  Speaker 2: IPO you know, like Amazon today is.
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  Speaker 3: A two trillion dollar company. Okay, that's that's nice.
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  Speaker 2: Actually sorry almost three now two point seven to two.
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  Speaker 3: Uh, that's all well and good.
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  Speaker 2: When Amazon iPod if they went belly up, Okay, a
• 11:31
  Speaker 2: four hundred million dollar market cap company went off.
• 11:33
  Speaker 3: Not four hundred billion, four hundred million, Like it wouldn't matter.
• 11:38
  Speaker 2: Now you got to enough of these companies that went
• 11:40
  Speaker 2: public and the valuations got nutty that it's still created
• 11:43
  Speaker 2: some problems for the market for quite a while. I
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  Speaker 2: mean again, the Nasdaq was a barren wasteland for about
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  Speaker 2: a decade.
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  Speaker 3: But the issue here is concentration risk.
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  Speaker 2: It's okay, like you've got these couple, You've got you know,
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  Speaker 2: Open Ai, You've got Anthropic and even SpaceX, like a
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  Speaker 2: lot of their valuation is now tied up in this
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  Speaker 2: XAI play. Since they merged, you're gonna have like five
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  Speaker 2: to six percent of the S and P five hundred.
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  Speaker 2: That is pure play AI just about And no one
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  Speaker 2: knows if that pricing is accurate to support those valuations.
• 12:17
  Speaker 2: It might be, it might be that the valuations are low,
• 12:20
  Speaker 2: it might be that they're way too high. Like we
• 12:22
  Speaker 2: do you have any idea what valuations for AI companies
• 12:25
  Speaker 2: are gonna look like ten years from now, Mike, No, John,
• 12:28
  Speaker 2: No one does. And that's the risk that you have.
• 12:32
  Speaker 2: Here's take a quick break. When we return, let's talk
• 12:35
  Speaker 2: a little bit about the labor market. Some good news
• 12:38
  Speaker 2: the last couple months. Is the jobs market back.
• 12:41
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• 13:16
  Speaker 2: Mike, we got a piece in the Wall Street Journal.
• 13:19
  Speaker 3: It's titled is the Job's Market Back?
• 13:24
  Speaker 2: Well, the first question that we got to ask before then,
• 13:26
  Speaker 2: because this begs the question raises the question, begs the question, Well,
• 13:31
  Speaker 2: what does it mean for the job market to be back?
• 13:35
  Speaker 3: How would we define the job market being back?
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  Speaker 2: Because I think we can agree second half of last
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  Speaker 2: year labor market not good.
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  Speaker 3: How would we define the job market being back?
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  Speaker 4: I guess you couldn't do it in any number of
• 13:48
  Speaker 4: ways chock a yes, But we have to do it
• 13:50
  Speaker 4: some way. So let's talk about job creation numbers. What
• 13:54
  Speaker 4: do we need to see on a month to month
• 13:55
  Speaker 4: basis for us to consider the job market to be
• 13:58
  Speaker 4: trending in the right direction? Are basically what flat to know?
• 14:02
  Speaker 4: What was the total job creation for all of twenty
• 14:04
  Speaker 4: twenty five? It was in the single hundred thousands, was
• 14:07
  Speaker 4: it not?
• 14:07
  Speaker 3: Yeah? What wasn't very good? I don't have the exact
• 14:09
  Speaker 3: number with me. It was pretty rough.
• 14:10
  Speaker 4: So if, for instance, we are on pace this year
• 14:14
  Speaker 4: to see fifty two one hundred thousand jobs created per month, then,
• 14:19
  Speaker 4: given the size of the labor market right now, and
• 14:20
  Speaker 4: given the pace of boomers retiring plus lack of immigration,
• 14:26
  Speaker 4: I would consider that to be a pretty big reversal
• 14:29
  Speaker 4: from where we were in twenty twenty five.
• 14:31
  Speaker 3: I would too. So let's look at some different metrics here.
• 14:35
  Speaker 2: The first one that makes this, you know, challenging to
• 14:38
  Speaker 2: examine is the fact that the unemployment rate sits at
• 14:41
  Speaker 2: four point three percent right now. And when you look
• 14:44
  Speaker 2: at the US unemployment rate historically, what you find is
• 14:49
  Speaker 2: that the only times that we've been under four point
• 14:52
  Speaker 2: three percent for you know, more than like one reading
• 14:57
  Speaker 2: twenty one and twenty two U nineteen, late two thousand,
• 15:05
  Speaker 2: like just before the tech bubble burst yep, late nineteen
• 15:09
  Speaker 2: sixties and early nineteen fifties.
• 15:13
  Speaker 4: I gotta be honest, I don't find the labor market
• 15:15
  Speaker 4: in the fifties and sixties to have anything to do
• 15:17
  Speaker 4: with today's.
• 15:17
  Speaker 3: So like, even if right because even if you're a women's.
• 15:20
  Speaker 4: Anticipation wasn't there, the most women weren't even working, like
• 15:25
  Speaker 4: you know, it just doesn't have much to do with
• 15:27
  Speaker 4: today's labor market.
• 15:28
  Speaker 2: So really, your your set of samples that you're looking
• 15:32
  Speaker 2: at are peak tech bubble and peak economy just before
• 15:38
  Speaker 2: COVID hit. Yeah, so I don't really think there's much room.
• 15:43
  Speaker 2: I'm not someone who's gonna be like, well, the unemployment
• 15:44
  Speaker 2: rate needs to move down, because I don't think it does.
• 15:48
  Speaker 2: Four to three is a really low unemployment rate. I
• 15:53
  Speaker 2: think the pieces that we are missing right now. Number one,
• 15:57
  Speaker 2: there's not much turnover in the labor market. If you
• 16:00
  Speaker 2: look at the hiring rate from the Jolts report right now,
• 16:03
  Speaker 2: what we see it's running at about three point two percent
• 16:07
  Speaker 2: on a monthly basis. The other times that we've seen
• 16:10
  Speaker 2: the hiring rate in that range was like twenty ten
• 16:13
  Speaker 2: through twenty thirteen. That was a really bad labor market
• 16:17
  Speaker 2: and a really stagnant one.
• 16:18
  Speaker 4: But the quits rate's also below two percent, which is
• 16:22
  Speaker 4: not good, right.
• 16:23
  Speaker 2: Like that's that's what I'm saying, Like, it's just it's
• 16:25
  Speaker 2: really stagnant. So I want to see both the quits
• 16:29
  Speaker 2: rate and the hiring rate move up by about a
• 16:32
  Speaker 2: half percent on a monthly basis. I think I consider
• 16:35
  Speaker 2: that to be like a real success. Another one that
• 16:38
  Speaker 2: I have in there, when we take a look at
• 16:41
  Speaker 2: the prime age age twenty five to fifty four labor
• 16:45
  Speaker 2: force participation rate, it's at eighty three.
• 16:48
  Speaker 3: Point eight right now.
• 16:49
  Speaker 2: This is another one where the only times that we've
• 16:51
  Speaker 2: been higher, in fact, the only time we've been higher,
• 16:54
  Speaker 2: like peak tech bubble.
• 16:55
  Speaker 3: There's not much room.
• 16:56
  Speaker 2: In that twenty five to fifty four range to see
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  Speaker 2: things get to see like more activity in the labor market. Now,
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  Speaker 2: you might say, well, what about you know, just the
• 17:08
  Speaker 2: broad participation, right, Well, the problem is that we're getting older.
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  Speaker 2: I don't really consider it a success if we need
• 17:13
  Speaker 2: to have more of our eighty year olds working when
• 17:15
  Speaker 2: they don't want to write, like that's that's not really
• 17:18
  Speaker 2: a great thing. So I understand that we're going to
• 17:20
  Speaker 2: see a downward divergence there because of aging and things
• 17:24
  Speaker 2: like that.
• 17:25
  Speaker 3: So but I think the point, Chuck is.
• 17:28
  Speaker 4: There isn't really a context that I can think of
• 17:30
  Speaker 4: where this labor market.
• 17:33
  Speaker 3: Takes off from here, like no.
• 17:36
  Speaker 4: And that's important to recognize is if you want to
• 17:38
  Speaker 4: describe the jobs market as being back, you have to
• 17:41
  Speaker 4: start with the fact that the solid jobs market might
• 17:44
  Speaker 4: have deteriorated a little bit in twenty twenty five.
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  Speaker 3: But it never really left. Unemployment didn't spike.
• 17:50
  Speaker 4: All that we saw happen was some stagnation in the
• 17:53
  Speaker 4: pace of hiring and quitting because people were a little
• 17:55
  Speaker 4: bit less confident about what was to come, and businesses
• 17:57
  Speaker 4: were a little bit less confident about hiring that next person.
• 18:01
  Speaker 4: But the idea that we're going to see some surgeon
• 18:04
  Speaker 4: employment and the unemployment rate shoot down from here, there's
• 18:07
  Speaker 4: just not room for that without big additional inflation, which is.
• 18:12
  Speaker 2: Why I do think that the thing that you need
• 18:14
  Speaker 2: to watch for and be careful of if you start
• 18:17
  Speaker 2: see turnover increasing too much. Remember, one of the best
• 18:20
  Speaker 2: ways to increase your wages typically by job hopping. That's
• 18:24
  Speaker 2: something that potentially gets you into a place where the
• 18:27
  Speaker 2: FED starts looking at wage growth saying, hey, this might
• 18:30
  Speaker 2: not be great, and we need to pay attention to
• 18:32
  Speaker 2: this because the labor i'm force right now, it's tight,
• 18:35
  Speaker 2: Immigration is way down, you got more boomers retiring, the
• 18:39
  Speaker 2: gen zers that are coming into the workforce, and so
• 18:42
  Speaker 2: if companies do want to spool up, it's gonna have
• 18:46
  Speaker 2: to come through additional job hopping and with that potentially
• 18:49
  Speaker 2: higher wages.
• 18:50
  Speaker 3: So let's let's watch and see.
• 18:52
  Speaker 2: I think this is a really interesting thing, really interesting
• 18:57
  Speaker 2: labor market that we've never seen before, because we're through
• 18:59
  Speaker 2: the event horizon in terms of really low labor market growth,
• 19:04
  Speaker 2: and these are structural factors that aren't just going to
• 19:07
  Speaker 2: turn around on a dime. And so I think one
• 19:09
  Speaker 2: of the risks that you do have to watch for
• 19:12
  Speaker 2: is some renewed inflation if the labor market tries to
• 19:14
  Speaker 2: take off, because there just isn't the supply of workers
• 19:17
  Speaker 2: out there to fill a significantly higher number of jobs.
• 19:23
  Speaker 3: So we'll watch.
• 19:24
  Speaker 2: I think this labor market to answer the question, though,
• 19:26
  Speaker 2: I think it is absolutely in a better spot than
• 19:28
  Speaker 2: four or five months ago, and I think the next
• 19:31
  Speaker 2: three to six months should be pretty good there based
• 19:33
  Speaker 2: on what we're seeing. Let's take a quick break. When
• 19:36
  Speaker 2: we return, We've got Wall Street Watch next.
• 19:43
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:46
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:51
  Speaker 1: on the Financial Exchange Radio Network. Turn now full of
• 19:55
  Speaker 1: wool Street Watch tracking the stocks, the data, and the
• 19:58
  Speaker 1: headlines driving markets so far too many right here on
• 20:01
  Speaker 1: the Financial Exchange Radio Network.
• 20:04
  Speaker 5: Markets are mixed, with strong gains from the Dow and
• 20:06
  Speaker 5: a pullback for the NASDAK on the heels of disappointing
• 20:09
  Speaker 5: guidance front Broadcom. Right now, the Dow is up over
• 20:14
  Speaker 5: one and a third percent, or six hundred and ninety
• 20:17
  Speaker 5: four points higher. SMP five hundred is now flat, Nasdaq
• 20:22
  Speaker 5: is down by about two thirds of a percent, or
• 20:24
  Speaker 5: one hundred and sixty five points lower. RUSS two thousand
• 20:27
  Speaker 5: is up about seven cents of a percent ten Your
• 20:29
  Speaker 5: treasure yield down two basis points at four point four
• 20:33
  Speaker 5: to six percent. In Oil down nearly four percent lower,
• 20:37
  Speaker 5: trading right around ninety two dollars a barrel. Broadcom plunging
• 20:41
  Speaker 5: fifteen percent despite the chip maker reporting a higher revenue
• 20:44
  Speaker 5: in the previous quarter with solid demand for AI chips. However,
• 20:48
  Speaker 5: its outlook failed to impress investors. Other semiconductor stocks, including Micron,
• 20:54
  Speaker 5: Super Microcomputer, Intel, and AMD are also seeing sympathy losses. Meanwhile,
• 20:59
  Speaker 5: CrowdStrike seeing its stock sink nine percent after posting disappointing
• 21:04
  Speaker 5: second quarter guidance. Other cybersecurity stocks, including Palo Alto Networks,
• 21:08
  Speaker 5: also seeing sympathy losses. Elsewhere, Discount Retailer five below shedding
• 21:13
  Speaker 5: over thirteen percent despite offering a stronger than expected outlook,
• 21:17
  Speaker 5: pet coos sinking sixteen percent after the pet retailer's current
• 21:21
  Speaker 5: quarter forecast fell short of street expectations, and Tommy Hillfigure
• 21:26
  Speaker 5: and Calvin Klein parent company PBH dropping twenty four percent
• 21:30
  Speaker 5: after it reiterated its full year earnings guidance. The company's
• 21:34
  Speaker 5: first quarter earnings beat estimates, but its revenue was in
• 21:38
  Speaker 5: line with expectations. I'm Tucker Silva, and that is Wall
• 21:42
  Speaker 5: Street Watch, Mike.
• 21:44
  Speaker 2: We got daily panic Pece here from Bloomberg. US tech
• 21:49
  Speaker 2: sector announces most job cuts in nearly two years, So
• 21:52
  Speaker 2: that that is true. According to the employment firm challenging
• 21:57
  Speaker 2: Ray and Christmas, they they did see that they were
• 22:01
  Speaker 2: about thirty eight thousand planned layoffs in the tech sector
• 22:06
  Speaker 2: that were announced in May. It's the highest number since
• 22:09
  Speaker 2: August twenty twenty four. So file that under the category
• 22:13
  Speaker 2: of true. But I'm also gonna file it under the
• 22:15
  Speaker 2: category of incomplete information. That makes this story unnecessarily alarmist
• 22:22
  Speaker 2: because when you look at the overall level of job
• 22:28
  Speaker 2: openings specifically, I'll look at, you know, software development job postings,
• 22:34
  Speaker 2: those after spending most of the last two and a
• 22:38
  Speaker 2: half years in contraction, almost three years in contraction, including
• 22:42
  Speaker 2: like some pretty you know, bad years, where like software
• 22:45
  Speaker 2: developer postings were down like seventy eighty percent from admittedly
• 22:48
  Speaker 2: like a crazy peak in twenty twenty one. Did you know, actually, Mike,
• 22:54
  Speaker 2: that as of right now, they're about twenty percent more
• 22:57
  Speaker 2: software development job openings the United States than a year ago,
• 23:02
  Speaker 2: according to data from Indeed.
• 23:04
  Speaker 4: So what you're telling me is that tech companies seem
• 23:08
  Speaker 4: to be maybe laying off some of their employees, yes,
• 23:11
  Speaker 4: and hiring at a faster rate than they're laying them off.
• 23:15
  Speaker 3: Oh, this is interesting.
• 23:16
  Speaker 2: Is it possible that this is another example of exactly
• 23:19
  Speaker 2: what Mike and I have been talking about, where gee,
• 23:21
  Speaker 2: maybe they're trying to get rid of a bunch of
• 23:23
  Speaker 2: people that they feel that they overpaid three and four
• 23:26
  Speaker 2: years ago, or a bunch of older people that are
• 23:28
  Speaker 2: hier on the wage scale, and replace them with twenty
• 23:31
  Speaker 2: two year old who are desperate for a job because
• 23:33
  Speaker 2: they feel like their entire future is going to be automated,
• 23:36
  Speaker 2: and they're willing to take any money that they can
• 23:37
  Speaker 2: because they don't think.
• 23:38
  Speaker 3: They'll ever make any money.
• 23:39
  Speaker 4: That was my first job, fairly certain that when I
• 23:42
  Speaker 4: got hired, In fact, I was told by the surrounding
• 23:46
  Speaker 4: people that yeah, they had laid somebody off those making
• 23:49
  Speaker 4: six figures to be able to hire a recent college
• 23:51
  Speaker 4: grad who could do the same job at a much
• 23:53
  Speaker 4: lower cost.
• 23:54
  Speaker 3: So I've been there.
• 23:55
  Speaker 4: I don't think it like anybody that is a I
• 24:00
  Speaker 4: don't know forty eight year old coder who was assuming
• 24:05
  Speaker 4: that artificial intelligence would allow them to retain their job
• 24:10
  Speaker 4: and pay while teaching it how it does its job.
• 24:14
  Speaker 4: It seemed a little bit misguided to me from the
• 24:17
  Speaker 4: very start of it. And I would love, you know,
• 24:20
  Speaker 4: I would love nothing more than to see AI make
• 24:23
  Speaker 4: all of us more efficient in our jobs and be
• 24:25
  Speaker 4: able to demand a higher wage. But I think the
• 24:27
  Speaker 4: more likely outcome here is that AI is going to
• 24:30
  Speaker 4: miss disrupt and replace some skill sets that senior people
• 24:35
  Speaker 4: have and allow companies to hire people that are a
• 24:38
  Speaker 4: heck of a lot cheaper to do those same jobs
• 24:40
  Speaker 4: based on the knowledge base that AHI has created.
• 24:43
  Speaker 2: Mike, what if it can't even do those things? But
• 24:45
  Speaker 2: it's just a convenient excuse for companies to say, Yep,
• 24:48
  Speaker 2: we need to move on from you because of AI,
• 24:50
  Speaker 2: and oh, like sure, we're hiring this other person, but no,
• 24:53
  Speaker 2: it's something completely different.
• 24:54
  Speaker 4: Yeah, Like that example that I just gave is kind
• 24:57
  Speaker 4: of a best case scenario, right where AI used to
• 25:00
  Speaker 4: actually create value and reduce headcount, but you know, create
• 25:05
  Speaker 4: new jobs. It also could be that it can't do
• 25:07
  Speaker 4: any of those things, but is a great excuse to
• 25:09
  Speaker 4: fire expensive people.
• 25:11
  Speaker 2: And by the way, just in terms of AI and productivity, Mike,
• 25:18
  Speaker 2: did you happen to catch the Q one productivity numbers
• 25:21
  Speaker 2: that came out this morning?
• 25:22
  Speaker 4: No?
• 25:22
  Speaker 3: Chuck uh.
• 25:23
  Speaker 2: Q one productivity advanced an annualized rate of point three percent.
• 25:28
  Speaker 2: Does that seem like there's an AI productivity boom that
• 25:30
  Speaker 2: happened there?
• 25:31
  Speaker 3: No, it doesn't.
• 25:33
  Speaker 2: Now I'm not saying that AI is not going to
• 25:35
  Speaker 2: make us more productive, but what I'm saying is you
• 25:37
  Speaker 2: also have to look at the data that's here. And
• 25:39
  Speaker 2: we've talked about how productivity can be really volatile from
• 25:43
  Speaker 2: quarter to quarter. I still remember in Q three of
• 25:46
  Speaker 2: last year when productivity growth came in at five point
• 25:48
  Speaker 2: two percent annualized, it was, oh, look at like this,
• 25:51
  Speaker 2: this AI, you know, transforming how businesses are done, how
• 25:55
  Speaker 2: business is done. And then Q four came in at
• 25:59
  Speaker 2: one point six percent productivity growth, and now Q one
• 26:01
  Speaker 2: came in at point three These are really volatile series.
• 26:05
  Speaker 2: Just because one comes in hot or one comes in
• 26:08
  Speaker 2: cold doesn't really change the fact that ultimately, when you
• 26:12
  Speaker 2: look at long run productivity growth, it generally has been
• 26:16
  Speaker 2: running somewhere between one and two percent for a really
• 26:19
  Speaker 2: long time, and yes, you might see a quarter that
• 26:22
  Speaker 2: comes in hot like Q three of last year. You
• 26:24
  Speaker 2: might see a quarter that comes in cold like Q
• 26:26
  Speaker 2: one of this year. But what I do know is
• 26:29
  Speaker 2: that when you take point three percent, add it to
• 26:31
  Speaker 2: five two, and then you know, divide it by two
• 26:33
  Speaker 2: and or you know, even add to the one six
• 26:35
  Speaker 2: like the last three quarters, you're gonna about two percent
• 26:38
  Speaker 2: productivity growth, which would be at the high end of
• 26:40
  Speaker 2: the range. I'm not saying that it's not, but I
• 26:43
  Speaker 2: hear some of the like again, you can be optimistic
• 26:47
  Speaker 2: about AI without saying it's gonna increase GDP by like
• 26:50
  Speaker 2: ten percent a year.
• 26:52
  Speaker 3: Yeah, that's fair.
• 26:53
  Speaker 2: There's there's a middle ground where you're like, hey, maybe
• 26:55
  Speaker 2: this can bring long run productivity growth from one to
• 26:58
  Speaker 2: two percent up to like two to three percent, and
• 27:00
  Speaker 2: that'll help you know, grow GDP faster.
• 27:03
  Speaker 3: That to me is very very reasonable. So that's what
• 27:08
  Speaker 3: I've got on that one. Anything else to add, Mike.
• 27:10
  Speaker 4: No, I think we can just I hate to be
• 27:15
  Speaker 4: doing this, but I am reading these pieces that site Challenger,
• 27:17
  Speaker 4: Gray and Christmas, and it's not that they do bad work.
• 27:21
  Speaker 4: They are doing an excellent job of tracking layoffs but
• 27:25
  Speaker 4: over and over again, people are misrepresenting what the data
• 27:28
  Speaker 4: actually means. And I just kind of have to throw
• 27:31
  Speaker 4: it out at this point because it has signified, it's
• 27:34
  Speaker 4: been painted consistently for the last several years as bad news,
• 27:37
  Speaker 4: and it has signified absolutely nothing but relatively stable news
• 27:41
  Speaker 4: for the labor market.
• 27:42
  Speaker 3: Yeah.
• 27:42
  Speaker 2: The thing you got to remember, challenge your grand Christmas.
• 27:44
  Speaker 2: This morning, they reported ninety seven thousand layoffs for the
• 27:47
  Speaker 2: month of May. When we get the Joltz report for
• 27:50
  Speaker 2: May in a couple months, it'll probably show that about,
• 27:52
  Speaker 2: you know, somewhere in the range of a couple million
• 27:54
  Speaker 2: people separated from their jobs in that fashion. You know,
• 27:58
  Speaker 2: usually in terms of like total separations, you're looking at
• 28:00
  Speaker 2: like four million between quits and layoffs.
• 28:02
  Speaker 3: Yep. The ninety thousand that they're tracking is not even
• 28:06
  Speaker 3: a rounding era. It's it's just there's take a quick break.
• 28:10
  Speaker 3: When we come back.
• 28:11
  Speaker 2: We got a little bit more on SpaceX and we'll
• 28:13
  Speaker 2: do a little Horror Moves talk as well.
• 28:16
  Speaker 1: Find daily interviews and full shows of the Financial Exchange
• 28:19
  Speaker 1: on our YouTube page. Like us on YouTube and get
• 28:22
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• 28:25
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• 28:30
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• 28:32
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• 28:43
  Speaker 3: Mike, we got a piece here in barons say.
• 28:45
  Speaker 2: It's titled here be SpaceX Destroyer of Worlds.
• 28:52
  Speaker 4: I mean, I think you can narrate some audio books,
• 28:55
  Speaker 4: Jack me, Yeah, I mean with that one.
• 28:58
  Speaker 2: I would love if if anyone wants to, like, if
• 29:01
  Speaker 2: anyone's got all they want me to read, like mostly
• 29:04
  Speaker 2: the dictionary I'm in like, I would love to.
• 29:08
  Speaker 4: Well, we are closing in on the SPACEXIPO, and I
• 29:13
  Speaker 4: just in my limited circle, it's got a range of
• 29:16
  Speaker 4: reactions going on, from you know, blowout optimism to genuine
• 29:22
  Speaker 4: concern about how it's being structured and how it's going
• 29:25
  Speaker 4: to be included in the index. That frankly better and
• 29:29
  Speaker 4: more well thought out concerns than I would have necessarily anticipated.
• 29:36
  Speaker 4: But ultimately this thing is getting a lot of attention,
• 29:40
  Speaker 4: whether it whether it's good attention or bad attention, and
• 29:44
  Speaker 4: the market they are defining for that, I just I
• 29:47
  Speaker 4: have to read and quote it here. The goal of
• 29:50
  Speaker 4: SpaceX quote is to build the systems and technologies necessary
• 29:54
  Speaker 4: to make life multiplanetary, to understand the true nature of
• 29:59
  Speaker 4: the universe, and to extend the light of consciousness to
• 30:02
  Speaker 4: the stars. The largest total addressable market in human history
• 30:08
  Speaker 4: is what SpaceX sees here, which they pay at twenty
• 30:11
  Speaker 4: eight and a half trillion with a T dollars. And
• 30:14
  Speaker 4: don't get me wrong, I find those goals to be
• 30:17
  Speaker 4: interesting and I don't know, exciting. I'm just not sure
• 30:25
  Speaker 4: it's the successful role of a publicly traded stock to
• 30:30
  Speaker 4: address them and succeed in them. But that's what that's
• 30:33
  Speaker 4: what Elon Musk is setting for himself and what makes
• 30:37
  Speaker 4: him so good at I think drawing up hype and
• 30:39
  Speaker 4: attention to his companies.
• 30:41
  Speaker 2: Well, I have no problem with the publicly traded companies
• 30:43
  Speaker 2: saying that, like that's their goal, Like that's fine.
• 30:46
  Speaker 3: Yeah.
• 30:47
  Speaker 2: The question that I have is, okay, like what multiple
• 30:49
  Speaker 2: do I put on light of consciousness?
• 30:51
  Speaker 3: Like I can't get the math to figure out there.
• 30:55
  Speaker 2: And yesterday I was talking with Paul and I went through, Look,
• 31:01
  Speaker 2: we've got this list of like big IPOs historically hold
• 31:04
  Speaker 2: me on that, thank you, Paul, even ones that are
• 31:08
  Speaker 2: like really successful now. But Mike, these are the maximum
• 31:12
  Speaker 2: first year draw downs that they saw, not you know,
• 31:15
  Speaker 2: start of the year to finish. But here's the biggest
• 31:17
  Speaker 2: draw down they saw at any point in their first year.
• 31:20
  Speaker 2: Have you ever heard of a company called Facebook now Meta?
• 31:23
  Speaker 3: Yes?
• 31:23
  Speaker 2: I think a fifty four percent draw down in year one?
• 31:26
  Speaker 2: Twitter fifty eight percent, Ali Baba forty nine, Shopify fifty two,
• 31:30
  Speaker 2: Block forty four, Twilio sixty six, Lift seventy nine percent,
• 31:35
  Speaker 2: Spotify forty six, Zoom forty, Pinterest seventy percent.
• 31:39
  Speaker 3: Uber.
• 31:40
  Speaker 2: We talked about how Uber's bigger than McDonald's now Mike,
• 31:43
  Speaker 2: they had a sixty eight percent draw down in their
• 31:45
  Speaker 2: first year. Cloud Flair thirty two percent, Data Dog forty
• 31:49
  Speaker 2: two percent, Snowflake, who just went up thirty percent last
• 31:51
  Speaker 2: week fifty two percent. Pallenteer. Has there been a more
• 31:54
  Speaker 2: exciting stock than Palenteer in the last couple of years?
• 31:57
  Speaker 3: Maybe like one or two? Right? Yeah, hard to argue fifty.
• 32:00
  Speaker 2: Three percent draw down in its first year. DoorDash everyone,
• 32:03
  Speaker 2: doordashes everything you could DoorDash like a new nose to
• 32:06
  Speaker 2: yourself if you wanted to. Forty seven percent draw down
• 32:09
  Speaker 2: in first year. Airbnb down thirty nine percent at one
• 32:13
  Speaker 2: point in its first year.
• 32:14
  Speaker 4: So chuck like you've run through all these names and
• 32:17
  Speaker 4: my answers didn't really matter much to markets in the aggregate,
• 32:22
  Speaker 4: but paint the picture of why it could matter here.
• 32:25
  Speaker 4: Aside from the fact that we all know this is
• 32:26
  Speaker 4: gonna be a one in three quarters trillion dollar company,
• 32:30
  Speaker 4: why does it matter.
• 32:31
  Speaker 3: That it could have a massive draw down.
• 32:32
  Speaker 2: The reason why it could matter is that none of
• 32:35
  Speaker 2: these companies were in the major indices and so the
• 32:38
  Speaker 2: average because the major Indussey specifically, like when you the
• 32:42
  Speaker 2: SP five hundred, most broadly, when we look at the
• 32:45
  Speaker 2: S and P five hundred, it has a few requirements
• 32:49
  Speaker 2: for companies to pass in order for them to make
• 32:53
  Speaker 2: it into the index. UH number one, you have to
• 32:56
  Speaker 2: have a certain trading volume over the previous six months.
• 33:00
  Speaker 3: If you're not traded, that's tough to do.
• 33:02
  Speaker 2: You have to have a certain public float over fifty
• 33:04
  Speaker 2: percent of your shares have to be outstanding. SpaceX is
• 33:08
  Speaker 2: gonna have like five percent of their shares outstanding.
• 33:11
  Speaker 3: Profitability.
• 33:12
  Speaker 2: You have to have positive earnings in the most recent
• 33:14
  Speaker 2: quarter and over the foremost recent quarters combined. SpaceX does not.
• 33:19
  Speaker 2: So there are other requirements as well that SpaceX will meet.
• 33:22
  Speaker 2: They're a US domicile company, they'll be listed on a
• 33:24
  Speaker 2: major US stock exchange. Market cap will be no problem,
• 33:27
  Speaker 2: and I'm sure they'll have audited financials.
• 33:30
  Speaker 3: But what I am saying is those other companies.
• 33:33
  Speaker 2: If you bought the S and P five hundred when
• 33:35
  Speaker 2: Robinhood iPod, you did not own Robinhood during its ninety
• 33:41
  Speaker 2: percent draw down during year one. If you bought the
• 33:45
  Speaker 2: S and P five hundred when corewvipod, you didn't go
• 33:48
  Speaker 2: through that sixty five percent draw down in year one.
• 33:51
  Speaker 2: But now because the indices are changing, they're listing requirements
• 33:56
  Speaker 2: in order to get SpaceX in faster. Basically what you're
• 34:02
  Speaker 2: going to end up with, assuming that this is how
• 34:04
  Speaker 2: it actually ends up moving, which I think is probably
• 34:06
  Speaker 2: where we're going. The average investor that owns an S
• 34:11
  Speaker 2: and P five hundred ETF for mutual fund or any
• 34:13
  Speaker 2: other instrument that you know, tries to mimic the S
• 34:15
  Speaker 2: and P five hundred index, they're gonna get stuck with
• 34:19
  Speaker 2: about two percent of their portfolio in SpaceX, even if
• 34:22
  Speaker 2: they didn't ask for it. And so my messages today
• 34:25
  Speaker 2: was look, SpaceX wants to IPO and thinks they're worth
• 34:27
  Speaker 2: two trillion dollars.
• 34:28
  Speaker 3: Good go ahead, go get it from people who want
• 34:30
  Speaker 3: to own it right now.
• 34:32
  Speaker 2: But the major indices shouldn't be touching it until it
• 34:35
  Speaker 2: meets those requirements that have been long standing and in
• 34:39
  Speaker 2: place and have generally been pretty successful.
• 34:42
  Speaker 4: And nonetheless, regardless of what we think about it, it
• 34:45
  Speaker 4: looks like it's going that way.
• 34:47
  Speaker 3: Yeah, it does.
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  Speaker 2: Peace to the Wall Street Journal, it's a good one.
• 36:01
  Speaker 2: The straight of the horror move squeeze is redrawing the
• 36:03
  Speaker 2: oil map for good. And this is something that I've
• 36:06
  Speaker 2: talked about a couple months ago, which is that Iran
• 36:09
  Speaker 2: basically has one prime opportunity to use the straight of
• 36:12
  Speaker 2: horror moves to get what it wants, because what you
• 36:15
  Speaker 2: are seeing is that pretty much every golf country is saying, hey,
• 36:20
  Speaker 2: we don't want to be stuck in this position again,
• 36:23
  Speaker 2: and they are building massive or you know, planning to
• 36:27
  Speaker 2: be building massive pipeline bypasses like the ones that have
• 36:32
  Speaker 2: been successful for the Saudis and the UAE in order
• 36:35
  Speaker 2: to have alternative routes out of the golf should anything
• 36:40
  Speaker 2: like this happen again. So it's kind of a one
• 36:43
  Speaker 2: shot deal for the Iranians obviously, Look, they could you know,
• 36:47
  Speaker 2: always attack the pipelines as well. That's that's certainly possible.
• 36:50
  Speaker 2: But this is something where the straight of Horror Moves's
• 36:54
  Speaker 2: value is maximized right now, and at any point in
• 36:57
  Speaker 2: the future it will not be as valuable as a
• 37:01
  Speaker 2: bargaining chip as it is today, right.
• 37:05
  Speaker 4: I mean, if you are a producer of oil right now,
• 37:09
  Speaker 4: you are desperately dreaming up all sorts of crack pot
• 37:12
  Speaker 4: ways of getting it out of your country, You're figuring
• 37:15
  Speaker 4: out ways to store it better, you're figuring out ways
• 37:18
  Speaker 4: to transport it in other ways.
• 37:19
  Speaker 3: And the problem for us in the short term is
• 37:21
  Speaker 3: that these.
• 37:22
  Speaker 4: Are not going to be solutions that are usable likely
• 37:25
  Speaker 4: anytime in the next several months when we actually need them.
• 37:29
  Speaker 4: But even with the damage, you know, even with the
• 37:31
  Speaker 4: damage of where we are right now, it's hard for
• 37:34
  Speaker 4: me to believe that we will return to the level
• 37:37
  Speaker 4: of traffic through the strait that we were seeing prior
• 37:40
  Speaker 4: to this war anytime in the near future, because they
• 37:43
  Speaker 4: are going to build this infrastructure permanently and they're going
• 37:47
  Speaker 4: to want to use it.
• 37:48
  Speaker 3: Now.
• 37:48
  Speaker 2: Remember, most of the traffic through horm Moves is not
• 37:52
  Speaker 2: oil tankers. They only account for anywhere from like twenty
• 37:55
  Speaker 2: to forty percent oil in that gas of the traffic.
• 37:59
  Speaker 3: The rest is all the other stuff.
• 38:00
  Speaker 2: You can't build an aluminum pipeline, Unfortunately, I've tried.
• 38:04
  Speaker 3: It doesn't work. You can build the pipeline out.
• 38:07
  Speaker 2: Of aluminum, but you can't have the aluminum flow through
• 38:10
  Speaker 2: the pipeline.
• 38:11
  Speaker 3: It's not it's no go.
• 38:13
  Speaker 2: So this is like there's a lot at play here,
• 38:16
  Speaker 2: but uh yeah, this is something that is absolutely gonna
• 38:19
  Speaker 2: be different a year or two from now.
• 38:21
  Speaker 3: Quick Break Hour two coming up.