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Diesel Prices Could Be the Next Big Inflation Problem · The Financial Exchange Show

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  Speaker 1: is the Financial Exchange with Chuck Zada and Mark Vandetti.
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  Speaker 2: It's Chuck, it's Mark, it's Tucker with you here. And
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  Speaker 2: as we kick things off, we've got stocks in positive territory,
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  Speaker 2: which is a nice little change from the last few
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  Speaker 2: days of trading. The S & P 500 is up
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  Speaker 2: 41 points to 76.62. Dow is up 378 and NASDAQ
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  Speaker 2: composite up 95. So anywhere from a third to a
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  Speaker 2: three quarters percent rise on your major U.S.
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  Speaker 1: Indices.
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  Speaker 2: Ten-year Treasury, not doing too much of anything today. It
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  Speaker 2: is up another eight tenths of a basis point to 4.804%.
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  Speaker 2: So it is crossing that 4.8% threshold for the first
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  Speaker 2: time in a little bit. We've got the dollar, though,
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  Speaker 2: selling off down 0.14% to 99.50. This on the back
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  Speaker 2: of traders focused on the potential for another intervention in
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  Speaker 2: the dollar-yen exchange market. So the yen is strengthening to
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  Speaker 2: the tune of almost 1% versus the dollar today. And
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  Speaker 2: so that's what's driving things in foreign exchange. Oil, West
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  Speaker 2: Texas Intermediate, up 23 cents a barrel to 90.45 on
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  Speaker 2: West Texas Intermediate. AAA National Average for gas prices up
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  Speaker 2: another 3 cents overnight to 4.12. Diesel up 5 cents
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  Speaker 2: to 5.68. Diesel is now 13 cents away from an
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  Speaker 2: all-time high. And we're going to touch on diesel for
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  Speaker 2: a little bit here, just because there's some stuff that
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  Speaker 2: we need to cover as it relates to that. So
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  Speaker 2: that is what is moving in markets. And top story
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  Speaker 2: this hour. is going to be energy. And honestly, there's
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  Speaker 2: a lot that we can dig into here. But we'll
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  Speaker 2: start with this piece from the Wall Street Journal. President
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  Speaker 2: Trump wants big oil to build more refineries. That's a
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  Speaker 2: tough sell. And here's the deal. The United States right
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  Speaker 2: now has about 130 operating refineries in the United States.
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  Speaker 2: It's not a tiny number by any means, but it
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  Speaker 2: is half the number that we had. If you look
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  Speaker 2: back historically, we had about 250, 260 refineries back in
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  Speaker 2: the early 1980s. So what gives? Well, here's the big thing.
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  Speaker 2: Most of the refineries that are in place now are
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  Speaker 2: simply larger than the ones that previously existed. They've consolidated
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  Speaker 2: because you get economies of scale. in doing so, and
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  Speaker 2: it becomes cheaper to refine. And so if you can
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  Speaker 2: operate one producing 400,000 barrels of product a day instead
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  Speaker 2: of 200,000, in theory, all else being equal, you can
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  Speaker 2: make more profit doing so because your input costs are lower.
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  Speaker 2: Got it. So here's the deal. The Last new refinery
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  Speaker 2: that was built in the United States as a greenfield refinery,
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  Speaker 2: meaning not a retrofit or upgrade of a previous one,
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  Speaker 2: you've got to go back 50 years to 1976, which
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  Speaker 2: was in Garyville, Louisiana. So we just don't build straight-up
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  Speaker 2: new refineries anymore. in the United States these days. And
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  Speaker 2: there are a couple of reasons for that. One is
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  Speaker 2: the economies of scale piece that I talk about. It's
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  Speaker 2: generally more advantageous to scale up the existing ones. Other reasons, Mark,
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  Speaker 2: if someone offered you the opportunity to live next to
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  Speaker 2: an oil refinery.
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  Speaker 3: Sorry, I could tell by your tone this was going
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  Speaker 3: to be an unfavorable proposition.
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  Speaker 2: So you wouldn't want a billion dollars... No, that wasn't
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  Speaker 2: what I was asking. So, look, no one wants to
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  Speaker 2: live next to oil refineries. If you want evidence of this.
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  Speaker 3: No, I don't think so, because I want to live
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  Speaker 3: past 55.
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  Speaker 2: Right, and if you want evidence of this, think about
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  Speaker 2: how people talk about New Jersey. New Jersey, by and large,
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  Speaker 2: is a really nice state to live in. But the
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  Speaker 2: part that people actually see in New Jersey is a
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  Speaker 2: whole bunch of oil refineries, and people say, eww.
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  Speaker 1: Gross.
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  Speaker 2: I don't want to live next to that. And I
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  Speaker 2: get it. I don't want to live next to that.
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  Speaker 2: Oil refineries, I actually think, are one of the few
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  Speaker 2: things that I do put on my list in terms of, no,
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  Speaker 2: like I am a NIMBY when it comes to that.
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  Speaker 2: I don't want that in my backyard. I would happily
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  Speaker 2: take a nuclear reactor in my basement. There's all kinds
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  Speaker 2: of stuff where I kind of buck the trend and
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  Speaker 2: I'm like, here's the thing with a nuclear reactor in
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  Speaker 2: your basement, Mark. If it goes bad, you're not going
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  Speaker 2: to know. You might. Call it a day. Like, it's over. Whereas,
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  Speaker 2: you know, you're living next to an oil refinery. A, like,
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  Speaker 2: it smells. B, it's unsightly. C, it's not good for
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  Speaker 2: your health. And it's a slow, like, painful death, not
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  Speaker 2: just like, you know, a quick one if it goes badly. So,
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  Speaker 2: I digress. No one wants to live next to oil refineries,
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  Speaker 2: which is why we don't build any new ones. So
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  Speaker 2: the president is saying, hey, I want you to, you know,
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  Speaker 2: build or expand, you know, refineries further. And the problem
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  Speaker 2: with this is, okay, if you're building a refinery in general,
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  Speaker 2: the thing that you have to remember is, like, the
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  Speaker 2: margins in the refining business are not, like, great long term. Like,
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  Speaker 2: because it's, again, it's a commoditized business. Like, yeah, you
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  Speaker 2: have years like this where they go crazy. But there's
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  Speaker 2: a reason why there's been this consolidation amongst the refiners
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  Speaker 2: is because it's generally not like a great business to
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  Speaker 2: operate in. And so if you're building a refinery, the
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  Speaker 2: dollars of it are kind of like, OK, we're going
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  Speaker 2: to spend like a lot of money up front to
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  Speaker 2: build this and hopefully make pennies on the dollar back
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  Speaker 2: over the next 15 or 20 years. And you don't
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  Speaker 2: know what that looks like now over the next 15
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  Speaker 2: or 20 years.
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  Speaker 3: It's amusing that somebody would forgive me for criticizing the suggestion.
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  Speaker 3: I'm sure the president's just trying to be helpful. But,
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  Speaker 3: you know, there's there's a reason I think you probably
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  Speaker 3: said this, that we haven't built one. These are big,
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  Speaker 3: complex systems with enormous externalities. Yeah. You know, so no,
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  Speaker 3: that's not going to happen. Moreover, even if we started...
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  Speaker 3: Is it like a nuclear plant or is it like
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  Speaker 3: 10 years start to finish? Probably.
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  Speaker 2: To build a new one?
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  Speaker 3: Huge complex system. I assume it's several years.
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  Speaker 2: I'm guessing it's probably like one to two years. So
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  Speaker 2: it is a process. But even like you talk about
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  Speaker 2: like the most complex stuff in petroleum and it's the
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  Speaker 2: big LNG trains that take natural gas and turn it
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  Speaker 2: into LNG. And those are like three to five year
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  Speaker 2: build out processes. Oil refineries, the sense I get is like,
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  Speaker 2: 14 to 20 months is kind of doable if you
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  Speaker 2: want to move in that fashion, just because it's not
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  Speaker 2: as complex as taking a gas and turning it into
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  Speaker 2: a liquid.
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  Speaker 3: Moreover, the war's not going to go on forever, I assume.
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  Speaker 3: At some point, Well, that's the thing.
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  Speaker 2: This is a short-term disruption to what's going on. And
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  Speaker 2: you don't make long-term plans for your business based on
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  Speaker 2: short-term disruptions. See what happened in 2020 and 2021. Remember,
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  Speaker 2: we were all going to be running Pelotons in our
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  Speaker 2: basement while ordering Blue Apron and Zooming. And if you
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  Speaker 2: look at any of those stocks right now, they've kind
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  Speaker 2: of sucked over the last five years. So don't extrapolate.
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  Speaker 3: What's going on short-term. Yeah, it seems very reactive.
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  Speaker 2: Now, I do want to take a quick break here,
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  Speaker 2: but when we come back, we do have to talk
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  Speaker 2: about what's going on with energy because there's some notable
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  Speaker 2: stuff happening on the product side, specifically with diesel. And
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  Speaker 2: I know that most of you listening, you're like, okay,
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  Speaker 2: why should I care about diesel? The answer is that
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  Speaker 2: diesel is basically the fuel that powers everything that you buy, build,
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  Speaker 2: or otherwise send across the country. And so we need
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  Speaker 2: to talk about where diesel is today, where it's going
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  Speaker 2: over the rest of the fall. And this has big
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  Speaker 2: implications for inflation in the next two to three months.
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  Speaker 2: Alright, y'all. We're going to talk about diesel here. Diesel
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  Speaker 2: is a fuel. It fuels diesel engines. And most of
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  Speaker 2: you don't have one. Mark, you used to have one
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  Speaker 2: of the old VW turbo diesels, right? No, I didn't.
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  Speaker 2: You didn't want one where they were fudging the.
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  Speaker 3: I almost got a great deal on one right after
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  Speaker 3: the news broke, though, but I decided.
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  Speaker 2: But decided not to?
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  Speaker 1: Yeah.
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  Speaker 2: Okay. So, in any case, here's the deal with diesel.
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  Speaker 2: Diesel prices, wholesale diesel prices the last three days now,
• 10:23
  Speaker 2: including what we've seen so far today, are up 55 cents,
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  Speaker 2: which is insane. I have not seen a move like
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  Speaker 2: this in diesel. The only other time I can remember
• 10:35
  Speaker 2: seeing ones like this... There was a brief period in
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  Speaker 2: 2022 with the Ukraine-Russia conflict and the first couple days
• 10:44
  Speaker 2: of the Iran war earlier this year. Those are the
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  Speaker 2: only times that I recall seeing a move like this
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  Speaker 2: in diesel futures for wholesale diesel. What we're seeing right
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  Speaker 2: now in the last day, the last two days, diesel
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  Speaker 2: prices have moved up $ 0. 08 nationally on the AAA national average.
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  Speaker 2: But based on where wholesale prices are moving... you're probably
• 11:04
  Speaker 2: going to take out the all-time high for diesel prices
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  Speaker 2: sometime in the next three to four days of $ 5. 81
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  Speaker 2: a gallon. That was set back in 2022 during the
• 11:13
  Speaker 2: outbreak of the war in Ukraine. And there's a realistic
• 11:18
  Speaker 2: chance that in the next week and a half, you
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  Speaker 2: have diesel prices over $ 6 a gallon. A year ago,
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  Speaker 2: they were at $ 3. 69. So almost doubling is what we're
• 11:27
  Speaker 2: talking about. And Here's why this matters. Number one, it's
• 11:32
  Speaker 2: the fall harvest season coming up. And so you don't
• 11:36
  Speaker 2: fuel those big combines with gas. You fuel them with
• 11:39
  Speaker 2: diesel because you need the torque in order to operate them. Likewise, Mark,
• 11:45
  Speaker 2: you ever....
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  Speaker 1: No.
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  Speaker 2: This was going to be a yes. This was going
• 11:50
  Speaker 2: to be a yes one. I was going to ask
• 11:52
  Speaker 2: if you ever like.
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  Speaker 3: Normally you set me up for a preposterous proposition.
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  Speaker 2: Mark, you ever buy a gift for someone?
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  Speaker 3: Reluctant, grudgingly, yes. Yes.
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  Speaker 1: Okay.
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  Speaker 2: Lots of people do heading into the end of the year.
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  Speaker 2: You know, you got like Christmas and Hanukkah and like
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  Speaker 2: everything's lined up there. It's like, okay, like people are
• 12:09
  Speaker 2: buying gifts heading into the end of the year. Well,
• 12:11
  Speaker 2: that stuff gets shipped to stores in September and October.
• 12:14
  Speaker 2: I don't know if either of you have been to
• 12:17
  Speaker 2: a store in the last week or so. But the
• 12:20
  Speaker 2: Halloween stuff is already up and the Christmas stuff is
• 12:23
  Speaker 2: about a month or so behind, which means it is
• 12:26
  Speaker 2: transiting as we speak over this month and October. And
• 12:31
  Speaker 2: so that stuff all has to be shipped using big
• 12:35
  Speaker 2: old 18 wheelers, which they don't take gasoline. They take
• 12:38
  Speaker 2: say it with me. diesel and so you got oh
• 12:43
  Speaker 2: sorry yes yes mark and so the the the heaviest
• 12:47
  Speaker 2: season for diesel usage uh comes right as the summer
• 12:50
  Speaker 2: driving season for gasoline is winding down it is september
• 12:54
  Speaker 2: october and early november for diesel like that is diesel
• 12:57
  Speaker 2: season so Here's the deal, is right now, if you
• 13:01
  Speaker 2: look at, and the EIA publishes this data every week,
• 13:04
  Speaker 2: which is where we get it from. Distillate inventories, which
• 13:07
  Speaker 2: distillates are diesel, heating oil, heavy fuel oils like that.
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  Speaker 2: Right now they sit at about 105 million barrels, which
• 13:14
  Speaker 2: you say, great, we got like plenty left over. Well,
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  Speaker 2: here's the thing. Because a lot of that is either
• 13:20
  Speaker 2: in tanks where you can't actually use the bottom because
• 13:23
  Speaker 2: there's a bunch of sediment and so the supply lines
• 13:26
  Speaker 2: don't actually go all the way to the bottom of
• 13:28
  Speaker 2: the tank. and some of this is also in pipelines,
• 13:30
  Speaker 2: being piped through product pipelines and things like that, the
• 13:35
  Speaker 2: estimates that we have for tank bottoms on distillate inventories
• 13:39
  Speaker 2: is somewhere in the ballpark of 95 million to 100
• 13:43
  Speaker 2: million barrels, meaning you have a 5 to 10 million
• 13:46
  Speaker 2: barrel gap between where we are now and tank bottoms
• 13:49
  Speaker 2: for distillates. What we normally see, starting in about three weeks,
• 13:55
  Speaker 2: is usually a 10 to.
• 13:59
  Speaker 2: Usually it's anywhere from like a 10 to 20 million
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  Speaker 2: barrel draw in distillate inventories as you go through the
• 14:06
  Speaker 2: fall season. You can look at the EIA data going
• 14:09
  Speaker 2: back for the last five years, and this is what
• 14:11
  Speaker 2: it shows. So the problem is we normally go through
• 14:14
  Speaker 2: a 10 to 20 million barrel draw, and we might
• 14:17
  Speaker 2: be 5 to 10 million barrels away from tank bottoms
• 14:21
  Speaker 2: on distillates, meaning that price has to rise in order
• 14:25
  Speaker 2: to kill demand enough such that supply and demand are matched.
• 14:30
  Speaker 2: This is why diesel's up 55 cents on the wholesale
• 14:33
  Speaker 2: market in the last three days, because it's the October
• 14:37
  Speaker 2: contract that's being traded, and markets are looking at it saying, oh,
• 14:42
  Speaker 2: this is going to get a little bit tight here.
• 14:44
  Speaker 2: So the problem is that a 50 cent rise in
• 14:47
  Speaker 2: the price of diesel is not enough to kill enough
• 14:50
  Speaker 2: demand to make this make sense. Based on, again, this
• 14:53
  Speaker 2: is talking with people who know more about the energy
• 14:56
  Speaker 2: industry than I do, this might have to go up
• 15:01
  Speaker 2: like another couple dollars in order to get there. Because
• 15:05
  Speaker 2: think of it this way. Mark, if you are.
• 15:08
  Speaker 3: Lots of questions this hour.
• 15:09
  Speaker 2: I know. I'm kind of a pain.
• 15:11
  Speaker 3: It's okay.
• 15:12
  Speaker 2: I understand. If you are no longer Mark Fandetti, but
• 15:16
  Speaker 2: now you're Walmart, okay, competitor to Walmart. Oh.
• 15:22
  Speaker 4: Yeah.
• 15:22
  Speaker 1: Yeah. All right.
• 15:24
  Speaker 2: You've got Christmas orders that you need in your stores.
• 15:28
  Speaker 2: Do you care if diesel goes up a dollar or two?
• 15:32
  Speaker 2: You say, no, I've got to get my product to
• 15:34
  Speaker 2: my stores. I'm going to pay that no matter what.
• 15:39
  Speaker 3: Yeah, that's a Walmart guarantee. Everybody knows that.
• 15:42
  Speaker 2: TJX is saying that. Lowe's is saying that. Home Depot
• 15:45
  Speaker 2: is saying that. All the big retailers are saying, I've
• 15:48
  Speaker 2: got to get my product in store no matter what.
• 15:53
  Speaker 2: So they're going to pay the higher diesel cost like
• 15:55
  Speaker 2: they are. They hate it, but they have to pay
• 15:58
  Speaker 2: it because otherwise they don't have the stuff in stores
• 16:01
  Speaker 2: for people to buy on Black Friday. That's a problem.
• 16:05
  Speaker 2: And so it's not just like a 50 cent move
• 16:07
  Speaker 2: in diesel is going to do it. It might have
• 16:10
  Speaker 2: to be a couple dollars in diesel in order to
• 16:13
  Speaker 2: do it. So it's not crazy to think. And I
• 16:16
  Speaker 2: know this sounds insane. And again, like hopefully we can
• 16:18
  Speaker 2: laugh about this. there's a possibility that you see like
• 16:21
  Speaker 2: $ 750 to $ 9 diesel later this fall if this is
• 16:26
  Speaker 2: the path that things need to take. I don't know
• 16:28
  Speaker 2: that it's the most likely path, so I'm not going
• 16:30
  Speaker 2: to say that that will happen, but let's acknowledge it
• 16:34
  Speaker 2: as a possibility. Because the other thing that we're seeing
• 16:37
  Speaker 2: right now, in order to get here, by the way.
• 16:41
  Speaker 2: The United States in World War II, in order to
• 16:45
  Speaker 2: help with the war effort, they divided the country into
• 16:47
  Speaker 2: five what they called Petroleum Administration Defense Districts, PADs. And
• 16:52
  Speaker 2: basically it was to help make sure that you had
• 16:54
  Speaker 2: fuel in the parts of the country that needed it
• 16:56
  Speaker 2: so that you could make the stuff and transport the
• 16:59
  Speaker 2: stuff that you needed in order to win the war.
• 17:02
  Speaker 2: So PAD II is the Midwest. And PAD II operates
• 17:07
  Speaker 2: a number of large refineries. Those refineries for the last
• 17:10
  Speaker 2: week were running at 103.5% of stated capacity. So they're
• 17:15
  Speaker 2: basically overproducing. You can get there if you basically push
• 17:18
  Speaker 2: the thing. It's kind of like, you know, Captain Kirk
• 17:21
  Speaker 2: calling down to Scotty like, hey, I need more power.
• 17:23
  Speaker 2: And he's like, well, I can do it for five minutes,
• 17:25
  Speaker 2: but not for that long. That's kind of what we're
• 17:28
  Speaker 2: doing right now in order to produce even the diesel
• 17:31
  Speaker 2: that we have on hand. That can't continue forever because
• 17:35
  Speaker 2: if you run, like we all know this, if you
• 17:37
  Speaker 2: redline an engine, like you're going to wear it out faster.
• 17:41
  Speaker 2: So how do we actually fix this? There are three
• 17:44
  Speaker 2: levers that can potentially be pulled to manage the situation.
• 17:47
  Speaker 2: Number one, part of this is because Ukraine has been
• 17:51
  Speaker 2: attacking Russian refineries with drone strikes pretty heavily for the
• 17:54
  Speaker 2: last few months. If that stops, you get some diesel
• 17:58
  Speaker 2: coming back online in Russia and they get rid of
• 18:00
  Speaker 2: their diesel export ban. It's possibility one. Possibility two, conflict
• 18:04
  Speaker 2: in the Middle East winds down and you get more
• 18:07
  Speaker 2: exports from refineries in that region. That's possibility two. Possibility three,
• 18:13
  Speaker 2: China has had significant run cuts at their refineries for
• 18:17
  Speaker 2: the last three or four months. They keep looking like
• 18:20
  Speaker 2: they're going to spool up, but they haven't yet. If
• 18:22
  Speaker 2: China spools up its refineries, they can potentially fill the
• 18:27
  Speaker 2: gap worldwide as well. Because remember, this is a worldwide market.
• 18:30
  Speaker 2: I'm not saying China is going to export it directly
• 18:32
  Speaker 2: to us, but it means that we don't have to
• 18:34
  Speaker 2: necessarily export finished product and stuff like that as well.
• 18:38
  Speaker 2: So ultimately, where this lands is the diesel situation is
• 18:44
  Speaker 2: pretty dire over the next month or two. Everything else,
• 18:47
  Speaker 2: even though it's tight, is fine-ish. Like, yes, I know
• 18:50
  Speaker 2: gas at 412 a gallon isn't ideal. But there's no
• 18:54
  Speaker 2: immediate risk there right now. There's no immediate crude oil
• 18:57
  Speaker 2: risk like we potentially had heading into midsummer if there
• 19:01
  Speaker 2: was no deal in the Middle East. But the diesel
• 19:04
  Speaker 2: situation is a mess right now. And I'm not sure
• 19:10
  Speaker 2: what's actually feasible to deal with it. So again, diesel
• 19:13
  Speaker 2: futures up $ 0. 50, $ 0. 55 actually. Sorry, now as of right now, $ 0. 56
• 19:18
  Speaker 2: in the last three days. That's going to eventually make
• 19:23
  Speaker 2: its way into the market that we see as retail buyers.
• 19:27
  Speaker 2: But this is what's been happening that I've been paying
• 19:30
  Speaker 2: attention to this week. Quick break. Wall Street Watch is next.
• 19:39
  Speaker 1: Bringing the latest financial news straight to your radio every day.
• 19:44
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:49
  Speaker 1: Time now for Wall Street Watch. Tracking the stocks, the data,
• 19:54
  Speaker 1: and the headlines driving markets so far today. Right here
• 19:57
  Speaker 1: on the Financial Exchange Radio Network.
• 19:59
  Speaker 4: Bond market continues to garner much attention after the 10-year
• 20:03
  Speaker 4: treasury hit its highest level. since November of 2023. Right now,
• 20:09
  Speaker 4: markets are in positive territory, though. Dow is up by
• 20:12
  Speaker 4: six tenths of one percent or 312 points higher. S
• 20:16
  Speaker 4: & P 500 up about two thirds of percent to
• 20:18
  Speaker 4: 48 points higher. NASDAQ up over half a percent, up
• 20:22
  Speaker 4: by 135 points. Russell 2000 is up over eight tenths
• 20:27
  Speaker 4: of one percent. Ten-year treasury yield is flat today. at 4.796%,
• 20:34
  Speaker 4: and oil is trading right around $ 90 a barrel now.
• 20:39
  Speaker 4: Uber announced it will cut about 3,300 jobs or 10%
• 20:43
  Speaker 4: of its staff globally in a massive restructuring with the
• 20:46
  Speaker 4: intent of reducing management layers and reallocating spending. Uber is
• 20:50
  Speaker 4: up nearly 2%. Meanwhile, shares in Dell Technologies are up
• 20:54
  Speaker 4: by 6% after the computer maker beat expectations for the
• 20:58
  Speaker 4: second quarter and also lifted expectations its forecast for fiscal
• 21:02
  Speaker 4: 2027 citing strength in its AI services business. Elsewhere, software
• 21:07
  Speaker 4: development tools firm GitLab is rallying 13% after posting better-than-expected
• 21:13
  Speaker 4: second-quarter earnings and revenue. Palo Alto Networks retreating 8% despite
• 21:18
  Speaker 4: beating quarterly earnings expectations. And after today's closing bell, we'll
• 21:23
  Speaker 4: see anticipated chipmaker earnings from Broadcom. I'm Tucker Silva, and
• 21:28
  Speaker 4: that is Wall Street Watch.
• 21:31
  Speaker 2: Following up on that report on Uber, it's going to
• 21:34
  Speaker 2: be cutting again about 10% of its staff. Again, their
• 21:40
  Speaker 2: staff is global, so this is not in the United States.
• 21:43
  Speaker 2: In any sense as to, again, I haven't seen any
• 21:48
  Speaker 2: trend as it relates to AI being able to impact
• 21:53
  Speaker 2: the labor market more broadly. Have you seen any data
• 21:55
  Speaker 2: yet that suggests AI influencing hiring and firing decisions broadly
• 22:01
  Speaker 2: in the economy at this point?
• 22:02
  Speaker 3: No, all we get is data on, and some academics
• 22:08
  Speaker 3: have compiled a series on, People who say they use
• 22:11
  Speaker 3: it at work, the number of hours it's saving them,
• 22:13
  Speaker 3: stuff like that, that doesn't translate into productivity. Of course,
• 22:16
  Speaker 3: they actually have to do more over the course of
• 22:18
  Speaker 3: a period of time. But no, Chuck, not to my knowledge.
• 22:22
  Speaker 3: That's one of the vexing things about it to this
• 22:25
  Speaker 3: point is that AI has not shown up in the data,
• 22:29
  Speaker 3: the broader economic data, nor would you necessarily expect it to.
• 22:33
  Speaker 2: No. I know we've got Broadcom coming up this evening
• 22:39
  Speaker 2: as well for earnings. Broadcom, if you're not familiar with them,
• 22:42
  Speaker 2: they're actually a $ 2. 2 trillion company. And so that's pretty big.
• 22:47
  Speaker 2: And they have lost about $ 520 billion in market cap.
• 22:53
  Speaker 2: since hitting their high in early June. And so I
• 22:56
  Speaker 2: think this is going to be one that people watch closely,
• 22:58
  Speaker 2: much like NVIDIA last week, to see what they're saying
• 23:01
  Speaker 2: about their future earnings and how things look for their pipeline.
• 23:07
  Speaker 2: My expectation is, much like NVIDIA, we're probably not seeing
• 23:10
  Speaker 2: too much of a shift that would be cause for
• 23:12
  Speaker 2: concern simply because we'd be hearing it from the hyperscalers
• 23:16
  Speaker 2: if they were changing their CapEx plans, and we're not
• 23:18
  Speaker 2: hearing that from them.
• 23:20
  Speaker 3: Assuming this slows down, and it will... Where would you
• 23:24
  Speaker 3: expect the first... The hyperscalers would tell us first. Okay,
• 23:29
  Speaker 3: so a canceled project, something like that.
• 23:33
  Speaker 2: Yeah, that's where I think you would see it. And
• 23:34
  Speaker 2: then it just cascades. Yeah, it would... Again, I think
• 23:37
  Speaker 2: the most vulnerable ones are the models themselves just because, again,
• 23:42
  Speaker 2: if they're commoditized, which I think that they are largely
• 23:44
  Speaker 2: going to be, I don't know how you have any
• 23:47
  Speaker 2: moat to protect those products.
• 23:52
  Speaker 3: Yeah, so why make the investment?
• 23:54
  Speaker 2: The only thing that you could say maybe is that
• 23:56
  Speaker 2: if you make the switching costs high enough that you
• 23:58
  Speaker 2: can have a kind of moat that way. But even
• 24:01
  Speaker 2: that is more of a bet on just enterprises moving
• 24:03
  Speaker 2: slowly than anything else.
• 24:05
  Speaker 3: Are we past that? Microsoft got an early lead there,
• 24:08
  Speaker 3: an early mover, not the first, but they had early
• 24:11
  Speaker 3: mover advantage. They figured out how to package software as
• 24:15
  Speaker 3: a service. Yeah. They hooked us all on Office. and
• 24:20
  Speaker 3: it displaced the Lotus alternative and probably others that I'm
• 24:23
  Speaker 3: not familiar with. Are we past that point with AI yet?
• 24:28
  Speaker 2: From what perspective?
• 24:29
  Speaker 3: Okay, yeah. I'm sorry. I didn't really complete the thought.
• 24:34
  Speaker 3: For someone to get into an office-like position and just
• 24:37
  Speaker 3: sort of dominate the business tools market, do they have
• 24:42
  Speaker 3: to package it with something like an office, something we
• 24:44
  Speaker 3: all use already? Does it give co-pilots And the type
• 24:48
  Speaker 3: of advantage that allowed Microsoft to become so entrenched?
• 24:52
  Speaker 2: No, I don't think we're there yet. I think it
• 24:54
  Speaker 2: still is very much early innings. I think this is
• 24:58
  Speaker 2: Yahoo and Lycos and Ask Jeeves in 1996. That's a
• 25:01
  Speaker 2: good analogy. I think it's that where there are leaders
• 25:04
  Speaker 2: in the clubhouse. Are those leaders going to be the
• 25:06
  Speaker 2: ones that five years from now are the winners? I
• 25:10
  Speaker 2: don't know, like, is it going to be OpenAI? Is
• 25:11
  Speaker 2: it going to be Microsoft? Is it going to be,
• 25:14
  Speaker 2: you know, Anthropic? Is it going to be SpaceX? Like,
• 25:17
  Speaker 2: I don't know who it's going to be. So I'm
• 25:21
  Speaker 2: keeping an open mind on this in terms of what
• 25:23
  Speaker 2: it looks like, because we just don't know, you know,
• 25:27
  Speaker 2: at this particular point in time. Folks, the Armstrong Advisory
• 25:31
  Speaker 2: Group has a guide available this month. It's titled the
• 25:33
  Speaker 2: five hidden costs of saving too much for retirement. And
• 25:39
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• 25:40
  Speaker 2: for retirement, most people, the big concern is, hey, what
• 25:43
  Speaker 2: if I haven't saved enough? Sometimes, though, you need to
• 25:46
  Speaker 2: look at the other side of that. Hey, what if
• 25:48
  Speaker 2: I've saved too much in terms of how does that
• 25:50
  Speaker 2: affect my taxes? How does that potentially affect Medicare premiums?
• 25:54
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• 25:57
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• 26:00
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• 26:04
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• 26:07
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• 26:10
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• 26:17
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• 26:21
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• 26:23
  Speaker 2: You can request it right there. That number again is
• 26:25
  Speaker 2: 800-393-4001 or request the guide online at armstrongadvisory.com.
• 26:34
  Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
• 26:36
  Speaker 1: registered investment advisor. Nothing in the ad or in any
• 26:38
  Speaker 1: Armstrong guide is specific financial, legal, or tax advice. Consult
• 26:42
  Speaker 1: your own financial, tax, and estate planning advisors before making
• 26:44
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• 26:48
  Speaker 1: advisory services.
• 26:49
  Speaker 2: We've got a piece here from Wall Street Journal opinion
• 26:53
  Speaker 2: section titled, How Reagan Saved Social Security. Well, how did
• 26:57
  Speaker 2: Reagan save Social Security? I know you're a big Reagan guy,
• 27:00
  Speaker 2: so this should be right in the wheelhouse.
• 27:01
  Speaker 3: They're talking about the 83. I'm sorry, I didn't make
• 27:03
  Speaker 3: it that far. And I saw this yesterday and I thought, yeah,
• 27:05
  Speaker 3: I agree with that. I stopped at the headline. Sorry,
• 27:10
  Speaker 3: I know, not very deep on my part. So there
• 27:13
  Speaker 3: was this Greenspan, it was the Greenspan Commission, right? Some
• 27:16
  Speaker 3: of this is from memory. They raised... They made the
• 27:20
  Speaker 3: types of choices, reducing the accrual rate of benefits stuff.
• 27:25
  Speaker 3: They didn't cut benefits for existing beneficiaries. They slowed the
• 27:30
  Speaker 3: rate at which benefits accumulate, raised the retirement age, all
• 27:33
  Speaker 3: the knobs that people talk about.
• 27:34
  Speaker 2: And they raised the retirement age like 20 years out,
• 27:36
  Speaker 2: so it didn't start anywhere near immediately.
• 27:39
  Speaker 3: Yeah. So it made some tough choices at the time,
• 27:43
  Speaker 3: but when done in a bipartisan and forward-looking way, it
• 27:46
  Speaker 3: can be successful, I think, is the The lesson of
• 27:49
  Speaker 3: the 83, I forget what the legislation was called. It's
• 27:53
  Speaker 3: called the Social Security Reform of 1983. But again, our
• 27:57
  Speaker 3: politicians today lack the interest and backbone to do the
• 28:00
  Speaker 3: same thing. We haven't even appointed a commission. Like the
• 28:03
  Speaker 3: Greenspan Commission was, you know.
• 28:05
  Speaker 2: No, we're talking about appointing a commission.
• 28:06
  Speaker 3: Oh my God, which we have a commission to.
• 28:08
  Speaker 2: We have a commission to establish a commission.
• 28:10
  Speaker 1: Yes.
• 28:11
  Speaker 3: It just shows it can be done, right, Chuck?
• 28:14
  Speaker 2: Look, all of this is doable. The problem is we
• 28:17
  Speaker 2: don't want to make hard choices. You look at the
• 28:20
  Speaker 2: trends the last 25 years, and this is across parties.
• 28:23
  Speaker 2: It doesn't matter who it is. We're happy to spend more,
• 28:28
  Speaker 2: and we're happy to continue to cut taxes. And that's
• 28:32
  Speaker 2: basically where we land. By the way, the interesting thing
• 28:34
  Speaker 2: on the revenue side, on the tax side, we basically
• 28:38
  Speaker 2: have been in this range. If you look as a
• 28:40
  Speaker 2: percentage of, uh, you know, GDP, we're pretty consistently like
• 28:45
  Speaker 2: 16 to 19% of GDP is, is where you end
• 28:49
  Speaker 2: up from a, uh, on the revenue side, on the
• 28:51
  Speaker 2: revenue side. The problem is the spending side is just completely,
• 28:54
  Speaker 2: you know, asinine. It's just like off the chart. So it's,
• 28:57
  Speaker 2: we just keep giving people more and more and more
• 28:59
  Speaker 2: and not paying for it. And eventually that becomes a problem.
• 29:03
  Speaker 2: And maybe we're, we're getting there, but, uh, Look, we'll
• 29:07
  Speaker 2: see what happens on any of this. I know that
• 29:10
  Speaker 2: every time bond yields go up, people love to be like, oh,
• 29:12
  Speaker 2: it's because of the deficit. But then when they go
• 29:14
  Speaker 2: back down, no one's like, well, it's because of the
• 29:16
  Speaker 2: deficit because it's not. So I look at it and
• 29:21
  Speaker 2: we continue just to punt on these big issues that
• 29:23
  Speaker 2: are eventually going to matter. And the problem is the
• 29:25
  Speaker 2: closer you get to the mattering, hey, the bigger the
• 29:27
  Speaker 2: changes are and the sooner the changes are that you
• 29:29
  Speaker 2: need to implement. You can't delay something 20 years. If
• 29:33
  Speaker 2: you're fixing it, you know, a week before it becomes
• 29:35
  Speaker 2: a problem.
• 29:36
  Speaker 3: Surely they have some view, like our current leadership, the
• 29:39
  Speaker 3: president and Congress. don't they have a view on it?
• 29:41
  Speaker 3: I mean, don't they think we should either, you may think,
• 29:44
  Speaker 3: you may hear privatization, it may make the hair.
• 29:46
  Speaker 2: On the back of your neck. No one talks about
• 29:47
  Speaker 2: this stuff.
• 29:48
  Speaker 3: George W. went out on a bush, you know, George W.
• 29:50
  Speaker 3: Bush went out on a limb. I guess a bush
• 29:54
  Speaker 3: could have a limb. But that's not what my mind was.
• 29:57
  Speaker 2: Not as big of a limb as a tree.
• 29:58
  Speaker 3: Yeah, not where I intended to go.
• 30:00
  Speaker 2: Trees have bigger limbs than bushes generally.
• 30:01
  Speaker 3: He proposed, I don't think it ever congealed, but he
• 30:08
  Speaker 3: wanted effectively to allow people to invest some of their
• 30:10
  Speaker 3: contributions in capital markets and was skewered. So badly that
• 30:17
  Speaker 3: he backed off, and he was not one to back off.
• 30:20
  Speaker 3: That's the last serious attempt at a conversation, even, about
• 30:24
  Speaker 3: major reform. Outside of the halls of academia and some
• 30:29
  Speaker 3: think tanks, nobody talks about it. Don't people think about this?
• 30:33
  Speaker 3: Our leaders, I mean. Doesn't it make them curious? Well,
• 30:36
  Speaker 3: we could privatize it. That's a little extreme. We could
• 30:39
  Speaker 3: raise taxes. I personally... I'm averse to that, but maybe
• 30:43
  Speaker 3: that's got to be on the table. Let's, you know,
• 30:47
  Speaker 3: let's compromise here like grown-ups used to do before the
• 30:50
  Speaker 3: objective was getting attention on social media or MSNBC or
• 30:54
  Speaker 3: Fox News and then moving on. We don't seem capable
• 30:57
  Speaker 3: of solving any big problems anymore. And I don't know
• 31:00
  Speaker 3: if it's social media, cable news.
• 31:02
  Speaker 2: It's social media.
• 31:03
  Speaker 3: It is, right? I'm convinced.
• 31:07
  Speaker 2: It's the phones and social media.
• 31:09
  Speaker 3: Because we have a shorter attention span? Because we're all grandstanding? Both?
• 31:13
  Speaker 2: So I think I lean more towards the latter in that, Mark,
• 31:18
  Speaker 2: it used to be you and I as human beings
• 31:21
  Speaker 2: would sit down and we'd talk things out in private. Today,
• 31:27
  Speaker 2: we get more dopamine. We get a better feeling from
• 31:29
  Speaker 2: posting something on social media and everyone can see it
• 31:33
  Speaker 2: and we get the response of, oh, like 43 people
• 31:35
  Speaker 2: liked your post and this and that and that makes
• 31:38
  Speaker 2: you feel good. We're not doing one-to-one conversation. We're performing
• 31:41
  Speaker 2: for a crowd.
• 31:42
  Speaker 3: Yeah.
• 31:42
  Speaker 2: And it's different communication. Even this show right now, Mark
• 31:46
  Speaker 2: and I are talking, but y'all are listening.
• 31:48
  Speaker 1: And.
• 31:50
  Speaker 2: Until we can actually... Sorry. It prevents you from actually
• 31:53
  Speaker 2: having an honest opinion.
• 31:54
  Speaker 3: But we're having... I mean, people might be listening, and
• 31:57
  Speaker 3: I'm glad they are, but we're having a pretty.
• 31:58
  Speaker 2: We are, but it prevents you from having an honest
• 32:02
  Speaker 2: conversation because you are performing for the crowd rather than
• 32:08
  Speaker 2: having a one-on-one conversation. And so I honestly... If you
• 32:14
  Speaker 2: could just nuke social media from orbit, I think it
• 32:17
  Speaker 2: would be the best thing for us. If you could
• 32:21
  Speaker 2: nuke it from orbit, it would be the best thing
• 32:23
  Speaker 2: for us. You wouldn't actually nuke it from orbit. I
• 32:26
  Speaker 2: don't want anyone to get hurt.
• 32:27
  Speaker 3: Let's give it a try.
• 32:28
  Speaker 2: But if we could just turn the power off at
• 32:31
  Speaker 2: Meta and turn the power off at TikTok and turn
• 32:36
  Speaker 2: the power off at... Honestly, LinkedIn's not even just like.
• 32:39
  Speaker 3: We're worth... Sorry, go ahead.
• 32:40
  Speaker 2: I don't even know what you do there except post
• 32:43
  Speaker 2: AI written stuff that sounds corporate-y. It's just makes me
• 32:47
  Speaker 2: want to throw up.
• 32:47
  Speaker 3: Is social media worthless? Some people get utility from it.
• 32:51
  Speaker 3: So an economist would say, no, no, stupid. It makes
• 32:53
  Speaker 3: you happy. You derive utility from it. It's not worthless.
• 32:57
  Speaker 3: But looking back at the other great innovations historically, you're
• 33:00
  Speaker 3: going to put social media in the pantheon with steam, electricity,
• 33:05
  Speaker 3: the toilet for Pete's sake. The toilet's got to rank
• 33:09
  Speaker 3: way above that.
• 33:09
  Speaker 2: Can you imagine going out to the outhouse? You can
• 33:11
  Speaker 2: flush social media down the toilet. You can't post a
• 33:16
  Speaker 2: toilet on social media.
• 33:17
  Speaker 1: You could.
• 33:18
  Speaker 2: Why would you watch it? You wouldn't get many likes,
• 33:20
  Speaker 2: you know?
• 33:21
  Speaker 1: Yeah.
• 33:22
  Speaker 2: You wouldn't.
• 33:23
  Speaker 3: Yeah.
• 33:23
  Speaker 2: You would just get silence. Let's take a quick break.
• 33:27
  Speaker 2: When we return, well, we'll finish up the show with
• 33:32
  Speaker 2: a little bit of Stack Roulette next.
• 33:34
  Speaker 1: The Financial Exchange streams every day live on YouTube. Subscribe
• 33:37
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• 33:40
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• 33:44
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• 33:47
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• 34:06
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• 34:13
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• 34:27
  Speaker 2: Mark, what do you got for me for Stock Roulette?
• 34:29
  Speaker 3: Can I mention... Tucker's brilliant formulation when we broke.
• 34:34
  Speaker 2: You can mention anything.
• 34:35
  Speaker 3: So, Tucker, I asked in the last segment, is social media, like, worthless?
• 34:39
  Speaker 3: I know an economist would say, no, that's not the
• 34:42
  Speaker 3: right way to think about it. People derive utility from
• 34:44
  Speaker 3: it just because it doesn't generate anything concrete. Or you
• 34:48
  Speaker 3: view it as having no, you know, obvious merit or
• 34:51
  Speaker 3: that it's hard to measure its value added in terms
• 34:54
  Speaker 3: of to people's utility. No, that doesn't make it worthless. But,
• 34:58
  Speaker 3: and Tucker, you phrased it how? Because this is a
• 35:01
  Speaker 3: squishy question.
• 35:03
  Speaker 4: If social media went away, I don't think anybody would
• 35:06
  Speaker 4: miss it.
• 35:07
  Speaker 1: No.
• 35:08
  Speaker 3: That's a pretty profound way to put it to me. No.
• 35:10
  Speaker 4: Like today, if you ask somebody, like, do you want
• 35:13
  Speaker 4: social media to go away? Most people probably say, no,
• 35:15
  Speaker 4: I like it. I like to keep in touch with
• 35:17
  Speaker 4: my friends and family. But if it, like, went away,
• 35:21
  Speaker 4: like executive order went away, over time, people are like, eh,
• 35:25
  Speaker 4: I don't really miss it at all.
• 35:27
  Speaker 3: I just thought that was a great way to frame it.
• 35:30
  Speaker 1: Thanks.
• 35:30
  Speaker 2: I think it would just be lovely if it was
• 35:31
  Speaker 2: relegated to the dustbin of history.
• 35:33
  Speaker 3: If we all agree, and imagine if everybody listening agreed
• 35:36
  Speaker 3: and our politicians did what we thought was right. It just,
• 35:41
  Speaker 3: it stokes division. It's a vehicle for misinformation on Olympian-like scale.
• 35:47
  Speaker 4: Misinformation and combative human nature.
• 35:49
  Speaker 3: It could tear us apart. If somebody sends out an
• 35:51
  Speaker 3: AI image of the president getting a Senate, God, I
• 35:53
  Speaker 3: don't even want to finish that Senate. God forbid.
• 35:55
  Speaker 2: Well, no, we've already seen, like, with the Google Maps
• 35:58
  Speaker 2: or Google Earth a couple weeks ago, they put out
• 36:01
  Speaker 2: an AI image generator, and people started, like, nuking, like,
• 36:06
  Speaker 2: buildings on it and stuff. And it's like, what are
• 36:08
  Speaker 2: you guys doing?
• 36:09
  Speaker 3: People could get riled up in response to that. You
• 36:12
  Speaker 3: could have... Maybe this has to happen for a politician
• 36:15
  Speaker 3: to recognize, hey, this is actually a.
• 36:17
  Speaker 2: Go ahead.
• 36:18
  Speaker 4: I mean, that's different. I would say that's a separate
• 36:21
  Speaker 4: AI conversation. I'm talking more of just the combative nature
• 36:24
  Speaker 4: people have, especially on these forums on Facebook with your
• 36:28
  Speaker 4: given town, and people just argue with each other.
• 36:31
  Speaker 2: It's like, oh, cool. I've heard they're great. This is awesome.
• 36:35
  Speaker 2: I haven't been on Facebook in five years.
• 36:37
  Speaker 1: Oh, it's awful. It's awful.
• 36:39
  Speaker 4: Everybody just can't agree, and they just argue with each other,
• 36:42
  Speaker 4: and it just... It's just terrible. It's just terrible.
• 36:47
  Speaker 2: Speaking of terrible, Wall Street Journal exclusive, can Evan Spiegel
• 36:51
  Speaker 2: sell the world on $ 2, 195 smart glasses? You want first
• 36:56
  Speaker 2: thing that I would do? Not first thing I would do.
• 36:59
  Speaker 2: I don't know what the first thing I would do.
• 37:01
  Speaker 2: If I were king of the world for a day,
• 37:05
  Speaker 2: which y'all are very lucky that I'm not, I would
• 37:10
  Speaker 2: not allow any cameras hidden in clothing as, like, devices.
• 37:19
  Speaker 2: Like the lack of privacy that this stuff gives you
• 37:21
  Speaker 2: is just shocking. And I can't believe that we're just
• 37:24
  Speaker 2: like cool with like, oh, you're going to wear glasses
• 37:26
  Speaker 2: that have a camera in them. No, like I don't
• 37:30
  Speaker 2: like I don't want that. I don't need you like
• 37:33
  Speaker 2: secretly recording me while I'm like talking to you thinking
• 37:37
  Speaker 2: we're just having a conversation. Hey, Mark, thanks. I see you.
• 37:40
  Speaker 2: I know I'm not. I know you're not.
• 37:42
  Speaker 1: I know.
• 37:43
  Speaker 3: I mean, we're on TV. There's not much privacy up here.
• 37:46
  Speaker 2: Why do we think that having cameras in glasses or
• 37:49
  Speaker 2: in anything that can be concealed as to whether or
• 37:52
  Speaker 2: not it's operating, why do we think this is a
• 37:54
  Speaker 2: good idea?
• 37:54
  Speaker 3: Who thought that that was cool, clever, necessary, useful?
• 37:58
  Speaker 2: What does that mean? I don't know. The world was
• 38:01
  Speaker 2: a better place when you could actually just be yourself, man.
• 38:07
  Speaker 4: Strap a GoPro to your head and everybody knows that's
• 38:10
  Speaker 4: a camera at least.
• 38:10
  Speaker 2: Right, we would do that in college. And people would
• 38:12
  Speaker 2: be like, oh, great, I'm going to stay away from you.
• 38:14
  Speaker 2: And we did that for like an hour and then
• 38:15
  Speaker 2: it was like, okay, night's over. Let's take a quick
• 38:19
  Speaker 2: break for the rest of the day. We're going to
• 38:20
  Speaker 2: be back tomorrow and we won't be recording you using
• 38:23
  Speaker 2: creepy glasses.