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Anthropic's $2 Trillion IPO Raises Fears of an AI Investment Bubble · The Financial Exchange Show

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Speaker 1: with Paul Lane and Mark Vandetti.
1:11
Speaker 2: Welcome back to the Financial Exchange on a busy week
1:14
Speaker 2: here in the economy. Paul Lane, Mark Venditti, and Tucker
1:18
Speaker 2: Silva here with you. We have a lot of news
1:21
Speaker 2: to get into. We will have a Federal Reserve meeting
1:24
Speaker 2: that will kick off tomorrow afternoon. All indications that the
1:28
Speaker 2: Fed funds rates will stay where they are with the
1:32
Speaker 2: probabilities currently looking as if a 90% chance that we
1:36
Speaker 2: keep rates where they are. about a 10% chance that
1:39
Speaker 2: the Federal Reserve would hike a quarter of a percent.
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Speaker 2: The big news from yesterday was regarding the IPO market
1:47
Speaker 2: that had been a little bit dormant heading into the
1:49
Speaker 2: fall months here as there had been some economic pressure
1:52
Speaker 2: that had caused some companies to pull out. from the
1:55
Speaker 2: public market debuts, but Anthropic making it very clear here
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Speaker 2: that they are going to continue on their quest to
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Speaker 2: go public. Very likely, it would appear to be somewhere
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Speaker 2: in mid-November that Anthropic would begin to trade on the NASDAQ.
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Speaker 2: So we'll kick off our program talking about Anthropic. It
2:13
Speaker 2: was funny, I was having a conversation with a client
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Speaker 2: yesterday who's a fan of the show, and he said,
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Speaker 2: all you guys do is talk about AI. I said, unfortunately,
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Speaker 2: that is the biggest game in town. So it is
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Speaker 2: something that is top of mind and needs to be
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Speaker 2: focused on, in particular with Anthropic. Though it is a
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Speaker 2: private company, once it becomes public, it will command a
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Speaker 2: valuation in between, I've seen, $ 1. 5 to $ 2 trillion of
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Speaker 2: market cap. That would put it in the top 10
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Speaker 2: largest companies in the S & P 500 right off
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Speaker 2: the bat. Once it becomes public, they're seeking to raise
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Speaker 2: about $ 100 billion. There has been tons of money pumped
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Speaker 2: into this company over the course of its very short
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Speaker 2: life as a private company. I believe it's only been
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Speaker 2: in existence for about five or six years, but it
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Speaker 2: is Anthropic and OpenAI that sits on the frontier large
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Speaker 2: language models that are all of the further enthusiasm behind
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Speaker 2: artificial intelligence at the moment. It is really worth noting
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Speaker 2: that Anthropic spends a lot of money. They have a
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Speaker 2: tremendous amount of revenue growth, don't get me wrong, but
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Speaker 2: they also have a significant amount of commitments over the
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Speaker 2: course of the next decade or so. In fact, About
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Speaker 2: $ 807 billion they have earmarked to spend on AI data
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Speaker 2: centers over the course of this decade. They are growing
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Speaker 2: their revenue pretty substantially here, coming in at $ 17 billion
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Speaker 2: of revenue in Q3. That was 45% higher than Q2.
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Speaker 2: In general, Mark, this has really been the biggest focus
3:52
Speaker 2: for markets. You look at the Philadelphia Semiconductor Index and
3:57
Speaker 2: its gains year-to-date, which sit around 55%, but were as
4:00
Speaker 2: high as 80% at some point during the year. They
4:04
Speaker 2: are receiving– the companies within that Semiconductor Index– the trickle-down
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Speaker 2: impacts of Anthropic and its peers spending a lot of
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Speaker 2: money on this AI infrastructure all around the enthusiasm on
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Speaker 2: what artificial intelligence could do for businesses.
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Speaker 3: Yeah, if you read Anthropic's prospectus, which I didn't do,
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Speaker 3: but I asked... Claude to summarize.
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Speaker 2: It's services to summarize its own perspective.
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Speaker 3: I suspect a lot of people ask that. Yeah.
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Speaker 2: Particularly when you have 94 pages designated to the risks,
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Speaker 2: I believe.
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Speaker 3: The sucker's like 300 pages long. It's pretty dense. It's
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Speaker 3: not exactly like exciting prose. It is interesting in that
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Speaker 3: I could sum it up by saying either this is
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Speaker 3: going to be great or it's going to destroy humanity
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Speaker 3: and you're going to lose all your money if you
4:46
Speaker 3: invest in our firm at the same time. I mean,
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Speaker 3: the two outcomes are pretty far apart. I don't, You've
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Speaker 3: thought a lot about this, you and Chuck Zada in particular.
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Speaker 3: What you have to keep in mind is, even if
5:00
Speaker 3: it is transformative, to use a sort of modern term,
5:05
Speaker 3: it pervades everything. And there's evidence that it is. I
5:07
Speaker 3: use it all the time. You probably do as well.
5:10
Speaker 3: We use it to prep for the show. If we're
5:12
Speaker 3: going to have a lengthy article, hey, summarize this. Give
5:14
Speaker 3: me the salient points. And then, am I interpreting this correctly?
5:17
Speaker 3: It's a wonderful tool. It's great if you do quantitative work,
5:20
Speaker 3: which I do in my real job. It's a great
5:22
Speaker 3: It's like having a research assistant full-time that's totally competent
5:27
Speaker 3: and can direct you right to source work when you
5:29
Speaker 3: need it. It's nothing short of amazing. Is it going
5:33
Speaker 3: to boost economic growth? I honestly don't know. There are
5:36
Speaker 3: plenty of economists who say maybe a couple tenths of
5:39
Speaker 3: a percent. And the reason for that is weak links.
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Speaker 3: Me working with AI can only work as fast as
5:45
Speaker 3: I work. Me working with my current laptop, I'm no
5:49
Speaker 3: faster in word processing than I was 30 years ago.
5:51
Speaker 3: This laptop is like 10 million times faster. We are
5:55
Speaker 3: the weak link when it comes to AI. So you
5:57
Speaker 3: have to keep that in some of the models that
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Speaker 3: suggest that the potential may not be what some of
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Speaker 3: the more optimistic champions think it will, are compelling for
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Speaker 3: that reason. And again, the laptop is a good example
6:08
Speaker 3: because we can All relate. You're not more productive with
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Speaker 3: your current iPhone than you were 10 years ago necessarily,
6:15
Speaker 3: even though this is an order or two orders of magnitude,
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Speaker 3: a power of 10 that is faster. You have to
6:21
Speaker 3: keep that in mind. A million geniuses in a data center,
6:24
Speaker 3: as the anthropic guy, I think he came up with
6:29
Speaker 3: that analogy, is pretty compelling. But it can only work
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Speaker 3: as fast. Suppose they all propose, suppose a purported cure
6:37
Speaker 3: for cancer comes out of it. I'm oversimplifying, obviously, but
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Speaker 3: it still has to go through the regulatory process.
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Speaker 2: It still has to be tested.
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Speaker 3: It still takes years. Just keep that in mind. So, Anthropic,
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Speaker 3: are they going to be the winner in this process,
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Speaker 3: or are we all going to be using open models
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Speaker 3: that run on our local server in five years to
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Speaker 3: protect our proprietary stuff?
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Speaker 2: That is a key point to mention, is that When
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Speaker 2: all this frenzy began, and it really began when OpenAI
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Speaker 2: launched its ChatGPT model in November of 2022, all the
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Speaker 2: enthusiasm around the space and all of us have gotten
7:15
Speaker 2: more and more familiar with utilizing the chatbots. And to
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Speaker 2: Mark's point, they are great. There are some answers that
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Speaker 2: they can give or questions that they can tackle that
7:24
Speaker 2: make your life sufficiently easier than it was previously. It
7:29
Speaker 2: is so far better than what Google search was and
7:32
Speaker 2: had become over the course of the last five, 10
7:35
Speaker 2: years or so. But there is that business case use
7:39
Speaker 2: where has it changed your day-to-day mark? Yeah, it sounds
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Speaker 2: like a little bit. It's enhanced things. Same thing for me,
7:45
Speaker 2: but on the margins, right? As a whole, your day-to-day
7:48
Speaker 2: in your job and my day-to-day in my job hasn't
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Speaker 2: changed dramatically since these models have gotten more and more sophisticated.
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Speaker 2: And people could make the argument we're not on the
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Speaker 2: cutting edge of it. I'm sure there are people in
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Speaker 2: Silicon Valley who are using it, whether it's in the
8:02
Speaker 2: coding space. That's really where the low-hanging fruit has been
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Speaker 2: attacked the most, that it's helped create a lot more
8:08
Speaker 2: code for programmers, that it has leaps and bounds to
8:11
Speaker 2: increase their productivity. But from what I've heard from feedback
8:14
Speaker 2: from some of the people who do that stuff is
8:16
Speaker 2: that ultimately, to your point earlier... the human still needs
8:19
Speaker 2: to review the code that's produced. So yes, more code
8:22
Speaker 2: can be produced, but ultimately a human needs to check
8:26
Speaker 2: that work.
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Speaker 3: It gets you to a point that would have taken
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Speaker 3: you a month, at least me and my work, and
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Speaker 3: I do statistical programs different than the people that code software,
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Speaker 3: so I don't claim to understand what they do. But
8:41
Speaker 3: I did in a weekend what would have taken me
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Speaker 3: two months recently.
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Speaker 2: Mm-hmm.
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Speaker 3: Because I was, instead of having to write every line
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Speaker 3: of so-called code, which is just like telling a software
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Speaker 3: what to do.
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Speaker 2: The instructions, yeah.
8:51
Speaker 3: I mean, if you're familiar with Microsoft Excel, and a
8:53
Speaker 3: lot of people are, you know it can get hairy quickly.
8:56
Speaker 3: You need to write a complicated, their functions is what
8:58
Speaker 3: you write. You say it equals this, if this value
9:01
Speaker 3: is this, if not, I want it to. We all,
9:03
Speaker 3: a lot of people these days have spreadsheet experience, so
9:06
Speaker 3: you get what I mean. Think about how long it's
9:08
Speaker 3: taken you to write some of that. Stuff to get
9:10
Speaker 3: your spreadsheet into the format that you want it to.
9:13
Speaker 3: And imagine, and Copilot will do this. Like, this is
9:16
Speaker 3: what I want this spreadsheet to do. I want you
9:17
Speaker 3: to pivot this table because I want the rows to
9:19
Speaker 3: become columns, columns to become rows, or whatever. And then
9:21
Speaker 3: I want to transform the columns by doing this to
9:23
Speaker 3: one and that to the... It'll do all that for you.
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Speaker 3: It'll save you hours and hours. That's all I'm saying.
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Speaker 1: Right.
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Speaker 3: Has it made me more productive? Am I actually doing
9:30
Speaker 3: more work at the end of the day? It feels
9:33
Speaker 3: that way. But the jury's still out, I think. Or
9:37
Speaker 3: am I just using the remaining two hours that I
9:39
Speaker 3: saved by having Copilot do some of that for me?
9:42
Speaker 3: Am I using it to, say, catch up on my reading,
9:44
Speaker 3: which is important in finance? But maybe I would have
9:46
Speaker 3: been doing that on the weekend instead of watching TV.
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Speaker 3: It's just hard to say. I mean, this gets a
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Speaker 3: little convoluted, but you understand my point.
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Speaker 2: It does. And so to that point, intelligence has sort
9:56
Speaker 2: of been the common refrain that you'll hear is just
9:59
Speaker 2: it becomes more abundant. You have a research assistant or
10:02
Speaker 2: you have someone at your disposal that is well-versed on
10:05
Speaker 2: all the corpus of the entire internet. And so the
10:08
Speaker 2: question is, how do you ultimately monetize that? And to
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Speaker 2: Mark's point earlier, they're not the only ones that do this.
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Speaker 2: They are sitting... at the forefront commanding a ridiculously large
10:19
Speaker 2: valuation for good reason. There's been revenue growth behind it,
10:22
Speaker 2: but all eyes will be on this IPO that comes
10:26
Speaker 2: out in a few weeks here just because of how
10:27
Speaker 2: integral they are to the whole AI infrastructure build out.
10:31
Speaker 2: We're going to take a quick break here on the
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Speaker 2: financial exchange. When we come back, I want to talk
10:35
Speaker 2: about just the tentacles that Anthropic has and its impact
10:39
Speaker 2: on the whole AI trade right after this break here
10:41
Speaker 2: on the financial exchange.
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11:43
Speaker 2: We were talking about Anthropic, which is set to make
11:45
Speaker 2: their public market debut over the course of the next
11:49
Speaker 2: three weeks or so. The momentum has really propelled it
11:52
Speaker 2: to the point where this is certainly coming sooner rather
11:56
Speaker 2: than later. They will be trying to command, estimates have,
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Speaker 2: anywhere from $ 1. 5 trillion to $ 2 trillion of valuation when
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Speaker 2: they go public. They'll be looking to raise $ 100 billion.
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Speaker 2: And I mentioned prior to the break, Not only is
12:12
Speaker 2: this market debut significant because they are the forefront on
12:17
Speaker 2: the large language models and sort of on the AI
12:21
Speaker 2: trade in general, and they've been private for this whole
12:24
Speaker 2: duration of the time. Them and Anthropic are the two
12:26
Speaker 2: biggest players, but also because they are spending a boatload
12:31
Speaker 2: of money to invest in all of the infrastructure. And
12:35
Speaker 2: the reason why for market participants this year is you've
12:38
Speaker 2: seen strong growth in your portfolios this year and last
12:42
Speaker 2: year is because of companies like Anthropic that are spending
12:45
Speaker 2: a lot of money on the AI infrastructure. Just a
12:48
Speaker 2: couple pieces here from the Wall Street Journal. One is
12:52
Speaker 2: in particular to Broadcom that has gotten involved in this.
12:55
Speaker 2: And this is a common theme with all of this
12:58
Speaker 2: AI investment is that all of the players are so intertwined.
13:02
Speaker 2: You have a situation here with Broadcom specifically where where
13:06
Speaker 2: they recently were part of putting together a $ 63 billion
13:10
Speaker 2: debt deal for Anthropic. So Broadcom is basically taking its
13:16
Speaker 2: sterling credit rating in terms of its fortress of a
13:19
Speaker 2: balance sheet and using that as a backstop to provide
13:23
Speaker 2: a financing mechanism for Anthropic to be able to borrow
13:28
Speaker 2: money to lease chips that Broadcom is helping Google design.
13:33
Speaker 2: And so I know that's a bit... a lot to digest.
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Speaker 2: But first, think of it this way. Broadcom is working
13:39
Speaker 2: with Google to make chips that go into these data centers.
13:43
Speaker 2: Anthropic needs a lot of chips to run their models.
13:46
Speaker 2: If you've messed around with their cloud model, it requires
13:49
Speaker 2: a lot of said chips to be able to run those.
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Speaker 2: Anthropic is a private company and doesn't have the balance
13:55
Speaker 2: sheet that's something like Broadcom does, a publicly traded company.
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Speaker 2: So Broadcom basically goes to bat for Anthropic to raise
14:02
Speaker 2: all of this financing because on the back end of it,
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Speaker 2: Broadcom is getting a deal where Anthropic is committing $ 125
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Speaker 2: billion to lease the chips that Broadcom is working on
14:15
Speaker 2: with Google. And so it points to this larger, and
14:17
Speaker 2: this is just one highlighted example. There are numerous of
14:21
Speaker 2: these out there with all sorts of different arrangements. And oh,
14:25
Speaker 2: by the way, just to complicate things a little bit more,
14:28
Speaker 2: Broadcom and Google have invested money in Anthropic too, separately
14:33
Speaker 2: in form of an equity investment. So it points to
14:35
Speaker 2: this idea that if Anthropic is to fall apart, whether
14:40
Speaker 2: it's specific to this deal and $ 125 billion lease commitment
14:44
Speaker 2: for Broadcom chips or numerous of other deals out there,
14:48
Speaker 2: there could be a cascading effect. They are just omnipresent
14:52
Speaker 2: really in this AI market.
14:54
Speaker 3: Yeah, I can't think of a good analogy for this,
14:56
Speaker 3: but what I'm picturing is a bunch of people who
14:58
Speaker 3: are being forced to compete in a death race. At
15:01
Speaker 3: the end, you're going to get shot right in the temple,
15:04
Speaker 3: so you shouldn't feel it in theory. But you've got
15:08
Speaker 3: to run nevertheless because you're compelled to biologically or because
15:13
Speaker 3: somebody's forcing you to. These CEOs are responding to short-term
15:16
Speaker 3: market pressure and just piling, putting chip after chip after
15:20
Speaker 3: chip on top of the same bet or whatever analogy
15:23
Speaker 3: you want to use. and maybe hoping they personally get
15:26
Speaker 3: out before there's a reckoning. And there will be. There's overinvestment.
15:33
Speaker 3: Everybody says that, including these guys to an extent. Some
15:36
Speaker 3: of them. The NVIDIA guy is like the only one who...
15:41
Speaker 3: NVIDIA guy, Cathie Wood. They're sort of the.
15:45
Speaker 1: Diehards.
15:46
Speaker 3: But most people agree that there's either malinvestment, i.e. misdirected investment,
15:51
Speaker 3: or just plain overinvestment that always... in the end, causes
15:57
Speaker 3: profit margins to compress. You get this ruinous competition, compression
16:01
Speaker 3: in profit margins, bankruptcies starting with the weakest, but because
16:06
Speaker 3: credit markets can't distinguish the weak from the strong, they
16:08
Speaker 3: don't know who to trust, ultimately everybody's debt sells off.
16:12
Speaker 3: So this is gonna end poorly. Not AI. I think
16:15
Speaker 3: AI will contribute to economic growth, and it will change
16:19
Speaker 3: the way we live and work, just like the internet has.
16:21
Speaker 3: But this frenzy will end badly. And it doesn't look
16:25
Speaker 3: like there's going to be any place to hide when
16:27
Speaker 3: it does.
16:29
Speaker 2: When tech becomes 40% of the weighting of the S
16:32
Speaker 2: & P 500, and to be clear, not every single
16:34
Speaker 2: tech company is involved with AI, but certainly the majority
16:38
Speaker 2: of them are. It's a heavy amount of concentration that
16:41
Speaker 2: has accrued. There's no question about that here.
16:44
Speaker 3: I don't think there's going to be any sector. You
16:46
Speaker 3: could tilt toward more defensive sectors or utilities. They don't
16:49
Speaker 3: seem to be affected, but they are most definitely tied
16:54
Speaker 3: into this story. Financials, almost certainly. Behind all the debt issuance,
16:59
Speaker 3: the IPO market. And holding some of it themselves, I assume.
17:01
Speaker 3: Maybe a lot of it. I think 10% of investment-grade
17:04
Speaker 3: credit this year is AI-related, both hyperscaler and closely related companies.
17:13
Speaker 2: Microsoft is trying to shed a lot of workers. Just
17:16
Speaker 2: don't call it a layoff. This is some news that
17:18
Speaker 2: came out yesterday where Microsoft announced that they were offering
17:22
Speaker 2: buyouts to 60,000 employees. That's about a quarter of their staff.
17:26
Speaker 2: They have about 223,000 employees as of this past June.
17:31
Speaker 2: And it has been something that has been prevalent across
17:35
Speaker 2: A couple of larger organizations this year where we've seen,
17:38
Speaker 2: whether it be layoffs or this other sort of means
17:41
Speaker 2: of voluntarily buying employees out. Netflix had announced layoffs, Facebook
17:46
Speaker 2: as well, Oracle, Amazon. And really what the focus is,
17:51
Speaker 2: is one, a lot of these companies got bloated from
17:54
Speaker 2: the post-pandemic period where there was a tremendous amount of hiring.
17:58
Speaker 2: And now it seems as if there's been a shift
18:00
Speaker 2: in the labor market, particularly with these tech names that
18:03
Speaker 2: everybody wants to really flaunt their ability to generate as
18:06
Speaker 2: much revenue per employee as possible. And this idea of
18:10
Speaker 2: being bloated and having a large headcount just really isn't
18:13
Speaker 2: in vogue anymore. Also, you have some other conflicting factors
18:17
Speaker 2: that These employers are trying to look for other ways
18:21
Speaker 2: to invest in the technology that hopefully, in their mind,
18:24
Speaker 2: would replace some of these employees down the road. It
18:27
Speaker 2: is worth noting that the labor market as a whole
18:29
Speaker 2: still remains on solid footing, though you do tend to
18:33
Speaker 2: have these news stories pop up here and there between
18:36
Speaker 2: Microsoft and Amazon and others. We still sit at about 4.2% unemployment,
18:43
Speaker 2: but certainly a lot more pressure on these companies to
18:47
Speaker 2: trim headcount In April, Microsoft had done a similar sort
18:52
Speaker 2: of offer to 8,600 employees. 30% of them accepted the
18:57
Speaker 2: voluntary retirement package that was put out. At this point,
19:00
Speaker 2: we'll see of the 60,000 that are being offered this
19:04
Speaker 2: package here, who is really going to take this particular deal.
19:08
Speaker 3: Paul, this reverses all their hiring since 2020. They're up 60K.
19:10
Speaker 1: Wow.
19:12
Speaker 2: So just assuming everybody takes the buyout, which we're going
19:17
Speaker 2: to have to see. It's a voluntary buyout offer. But
19:20
Speaker 2: usually what is often followed after a voluntary buyout offer,
19:23
Speaker 2: if you don't get enough participation, is something that is mandatory.
19:26
Speaker 2: We're going to take a quick break here on the
19:27
Speaker 2: Financial Exchange. But when we come back, we'll have a
19:29
Speaker 2: full market update with Wall Street Watch.
19:39
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Speaker 1: Breaking business news is always first, right here on the
19:47
Speaker 1: Financial Exchange Radio Network. Time now for Wall Street Watch,
19:53
Speaker 1: tracking the stocks, the data, and the headlines driving markets
19:56
Speaker 1: so far today, right here on the Financial Exchange Radio Network.
20:00
Speaker 4: Markets are adding to their gains led by tech. One
20:03
Speaker 4: day after Anthropic filed to go public, the Federal Reserve
20:06
Speaker 4: Also kicks off its two-day meeting where a decision on
20:09
Speaker 4: interest rates will come tomorrow afternoon. Right now, the Dow
20:13
Speaker 4: is down two-tenths of 1% or 93 points lower. S
20:16
Speaker 4: & P 500 is up a third of a percent
20:18
Speaker 4: or 25 points up. NASDAQ up seven-tenths of a percent
20:22
Speaker 4: or 185 points higher. Russell 2000 is up about a
20:26
Speaker 4: quarter percent. Ten-year treasury yield is flat at 4.993%. Crude
20:30
Speaker 4: oil down two-thirds of a percent at $ 101 a barrel,
20:33
Speaker 4: while Brent is right below $ 115 a barrel. Broadcom is
20:41
Speaker 4: up 3% following reports that the chipmaker helped arrange a
20:45
Speaker 4: $ 63 billion deal with several major banks to finance the
20:48
Speaker 4: purchase of chips for Anthropic. Meanwhile, JetBlue rallying 20% after
20:53
Speaker 4: the airline reported earnings a day early in order to
20:55
Speaker 4: help ease investors' concerns. The company reported a third-quarter loss
20:59
Speaker 4: of $ 257 million but affirmed its pledge to turn an
21:04
Speaker 4: operating profit next year. saying its turnaround strategy is working
21:08
Speaker 4: even with higher fuel costs. Sticking with air sector, where
21:11
Speaker 4: Boeing beat revenue expectations, where defense sales rose. However, it
21:15
Speaker 4: posted a bigger loss per share than expected, Boeing down
21:18
Speaker 4: by 5%. And Coca-Cola beat third quarter earnings expectations and
21:24
Speaker 4: raised its full-year outlook for third straight quarter. Despite lackluster
21:29
Speaker 4: demand in its home market, Coke stock is off modestly.
21:35
Speaker 2: I'm Tucker Sullivan.
21:36
Speaker 4: That is Wall Street Watch.
21:38
Speaker 2: A little bit more on the job market here. There
21:41
Speaker 2: was some data that came out from a similar web
21:44
Speaker 2: in which they track the top 100 job search sites.
21:48
Speaker 2: And they found that the visits to those top 100
21:51
Speaker 2: job search sites jumped about 10% year over year for
21:55
Speaker 2: September of 2025 to September 2020. of 2026. In September
22:01
Speaker 2: of 2026, they saw 660 million website visits compared to
22:05
Speaker 2: 602 million in the year prior. There has just been
22:10
Speaker 2: a lot more traffic it seems like on a lot
22:12
Speaker 2: of these job search sites. The labor market, like I
22:15
Speaker 2: mentioned in the prior segment, still continues to be in
22:17
Speaker 2: a pretty good place. However, there have been those people
22:20
Speaker 2: who are outside the labor market looking in really for
22:24
Speaker 2: an extended period of time. You have a lot of
22:26
Speaker 2: continuing claims on people who have been looking for work
22:29
Speaker 2: for longer than usual. Certainly, if you compare it to
22:32
Speaker 2: the post-pandemic era where the labor market was really robust,
22:36
Speaker 2: It can feel like if you're searching for a job
22:38
Speaker 2: right now that conditions are very weak. However, from a
22:42
Speaker 2: historical standpoint, we're still in a pretty good place from
22:45
Speaker 2: the labor market. It does seem like some of this
22:48
Speaker 2: data on the website visits is tied to this idea
22:51
Speaker 2: that with our artificial intelligence, both on the supplier side,
22:55
Speaker 2: it just makes it easier for employers to post job
22:58
Speaker 2: listings and perhaps not keep a good job, a good
23:01
Speaker 2: track of which ones should be closed or which ones
23:04
Speaker 2: should be pulled off sites. And on the other end
23:06
Speaker 2: of things, on the employee side, there is, it seems
23:09
Speaker 2: to be anecdotally, a lot of spray and pray approach
23:12
Speaker 2: where people are just going online to LinkedIn or Indeed
23:15
Speaker 2: and just firing out a bunch of resumes all across
23:19
Speaker 2: the web.
23:19
Speaker 3: Yeah, those are exactly the reasons to think that metrics
23:22
Speaker 3: based on that type of activity just aren't indicative of
23:27
Speaker 3: And what we're trying to get at here is, is
23:29
Speaker 3: the labor market hot, neutral, or cold? The unemployment rate
23:35
Speaker 3: reveals that to an extent. It's low historically, but nobody
23:38
Speaker 3: feels like it's hot. So there's this big disconnect between
23:40
Speaker 3: the unemployment rate, what, 4.1 now?
23:43
Speaker 2: 4.2, something like that, yeah.
23:45
Speaker 3: I'm sorry. I should know that. But anyway, who cares?
23:48
Speaker 3: It's low. It's really low by historical standards, but people
23:51
Speaker 3: don't feel great about the economy. So maybe we need
23:54
Speaker 3: to look at vacancies. Well, they've come down a lot,
23:58
Speaker 3: the number of job openings, say, relative to the number
24:02
Speaker 3: of people looking for work. That ratio has come down
24:04
Speaker 3: a lot. But it's healthy. It's just a healthy job market.
24:08
Speaker 3: And so then you have to get creative to try
24:13
Speaker 3: to close this gap between how people say they're feeling
24:16
Speaker 3: and what the traditional metrics of slack in the labor
24:18
Speaker 3: market suggest. And that's why people resort to this type
24:22
Speaker 3: of stuff.
24:22
Speaker 2: Looking for sort of information to add to that.
24:25
Speaker 3: Ideally, you want to find this causation.
24:30
Speaker 2: Oh, this is the explanation.
24:32
Speaker 3: We haven't been looking at the right metrics of labor
24:35
Speaker 3: market health. This is what explains why people are so
24:38
Speaker 3: down on it. But to this point, we haven't found
24:41
Speaker 3: that hard data.
24:43
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25:48
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25:57
Speaker 2: People are ordering cords like never before. A headline here
26:01
Speaker 2: from the Boston Globe in which we are staring down
26:05
Speaker 2: the face of a winter in which Heating costs are
26:08
Speaker 2: going to be significantly higher than where they were last year.
26:11
Speaker 2: It's hard to believe it with the weather that we're
26:13
Speaker 2: having around New England this week, which is going to
26:16
Speaker 2: crest into the 70s. But we aren't too far away
26:19
Speaker 2: from the winter months. And what we're looking at on
26:22
Speaker 2: the heating oil side of things, how do you heat
26:25
Speaker 2: your home, Mark? What are you on, natural gas, heating oil,
26:28
Speaker 2: or electricity?
26:29
Speaker 3: Home heating.
26:30
Speaker 2: Home heating oil. Yeah, so do I. It's sitting, just
26:33
Speaker 2: looking at my particular plan, that right now you'd pay
26:37
Speaker 2: about $ 6. 20 a gallon for the home heating oil. There
26:42
Speaker 2: is a fixed plan where you can lock in at $ 6.
26:46
Speaker 2: This is up 75% from a year ago. I was
26:49
Speaker 2: looking at August of 25 where I was offered a
26:54
Speaker 2: lock-in rate, and that was around $ 3.
26:56
Speaker 3: 60 a gallon.
26:59
Speaker 2: Gallon. So certainly everyone is going to be feeling the
27:02
Speaker 2: pinch around the area, whether you're on electric or if
27:06
Speaker 2: you're on heating oil or if you're on natural gas,
27:09
Speaker 2: all of those things are up significantly. As a result
27:12
Speaker 2: of that, you've seen companies that are creating logs and
27:16
Speaker 2: firewood really see a tremendous amount of uptick and demand.
27:20
Speaker 2: There's really no great answer for this. This is something
27:23
Speaker 2: that we're all going to have to just deal with,
27:25
Speaker 2: but certainly it's part of the inflationary pressure that we're
27:28
Speaker 2: seeing here, Mark.
27:29
Speaker 3: Yeah, in the short term, it's hard to shift. I mean,
27:32
Speaker 3: you could put a wood stove in, but that's not
27:34
Speaker 3: something you do in a hurry. Where are we going
27:36
Speaker 3: to put it? We need a separate chimney. They're a
27:43
Speaker 3: lot cleaner, I think, than they used to be, but
27:46
Speaker 3: you still have to keep up with it.
27:47
Speaker 2: Yeah, it's work. It's definitely work. Exactly, it's work.
27:50
Speaker 4: Have you guys caved and turned on the heat yet
27:52
Speaker 4: at your home, Paul?
27:53
Speaker 3: Yes. It was like 28 the other night overnight. You
27:56
Speaker 3: have not turned on the heat?
27:58
Speaker 2: We put on the mini-split.
27:59
Speaker 3: I don't believe it. We put on the mini-split. Okay,
28:01
Speaker 3: let's turn on the heat.
28:03
Speaker 4: Because that's on our part of the house, but we
28:05
Speaker 4: have not turned on the heat heat, the natural gas heat.
28:10
Speaker 2: There are people who like to parade around about how
28:13
Speaker 2: long they hold on to heat, and our house is
28:16
Speaker 2: not one of them. It's a good stretch coming up here.
28:19
Speaker 2: We don't get into that game of puffing our chest
28:22
Speaker 2: out about how long we've held out for heat. I
28:24
Speaker 2: have three kids, and if it's cold, then we have to...
28:29
Speaker 2: I've done the split thing more so, but I may
28:32
Speaker 2: have put on the heat this morning when I went down.
28:34
Speaker 3: I think there are healthier ways to... To save money. Yes.
28:39
Speaker 3: Are there, Mark, and more?
28:41
Speaker 2: I always give this analogy specific to my dad, who is,
28:45
Speaker 2: you know, we fascinated about collecting the cans to get the,
28:47
Speaker 2: you know, whatever, 10% 10 cent rebate or the five cent.
28:51
Speaker 2: I think it's five. It depends on the state. Right.
28:53
Speaker 2: And that's Seinfeld episode. But yeah, five. And he would
28:56
Speaker 2: put all this effort into collecting. I was like, you know,
28:58
Speaker 2: if you just looked at the interest that you're getting
29:00
Speaker 2: paid in your bank account, you could probably make up
29:03
Speaker 2: all of the savings that you're putting together here with
29:06
Speaker 2: stacking these cans together. If you just did a little
29:08
Speaker 2: tweak here or there, like to that point, Mark, of
29:11
Speaker 2: there are other low hanging fruit that you could target
29:14
Speaker 2: that could make maybe a more substantial impact on, I
29:18
Speaker 2: can't speak for everyone's budget, but for some people's budgets
29:20
Speaker 2: out there.
29:21
Speaker 1: Yeah.
29:21
Speaker 3: I mean, I don't throw my cans away. I, Bring
29:24
Speaker 3: them to the local high school. They recycle for the fee.
29:29
Speaker 3: So I donate them. Because like you said, it's not
29:31
Speaker 3: worth my time to stand there at Shaw's.
29:33
Speaker 2: You donate your Budweiser's to the high school.
29:36
Speaker 3: Yeah, I give beer to teenagers so they can recycle
29:39
Speaker 3: the cans. Recycle these.
29:40
Speaker 2: I just deleted them. You can drink them and then
29:42
Speaker 2: you can recycle them. We're going to take a quick
29:45
Speaker 2: break here on the Financial Exchange. When we come back,
29:48
Speaker 2: talking a little bit about the debt market for private
29:52
Speaker 2: equity-backed companies and a little bit more on some ballot
29:55
Speaker 2: initiatives for Massachusetts right after this break.
29:58
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30:29
Speaker 4: This segment of the Financial Exchange is brought to you
30:31
Speaker 4: by Circle K, a proud partner of the Disabled American
30:36
Speaker 4: Veterans Department of Massachusetts and the official convenience store of
30:40
Speaker 4: the DAV 5K.
30:44
Speaker 2: Coming up in the Massachusetts elections next week, there are
30:49
Speaker 2: a series of ballot questions, and one in particular speaks
30:52
Speaker 2: to a broader issue that impacts the whole country, which
30:55
Speaker 2: is the housing market. In particular, just the limited amount
30:59
Speaker 2: of inventory that exists nationally as well as domestically, not domestically,
31:04
Speaker 2: locally in Massachusetts, where it has been very difficult for
31:08
Speaker 2: people to find a starter home. The question on the
31:11
Speaker 2: ballot is specific to zoning and the size of a
31:17
Speaker 2: lot that a home could be built on. So right
31:19
Speaker 2: now it varies by local community, but You need anywhere
31:23
Speaker 2: from an acre to two acres to develop a single
31:25
Speaker 2: family home. This ballot initiative, I believe it's question seven
31:29
Speaker 2: or eight on the Massachusetts ballot. Question seven has... condense
31:34
Speaker 2: that down in which, if this were to go through,
31:37
Speaker 2: that you could have a 5,500 square foot lot built on. Presumably,
31:41
Speaker 2: the idea behind this would be by enabling more land
31:46
Speaker 2: to be built on, that would incentivize builders to go
31:49
Speaker 2: out and build smaller homes to build out that starter
31:52
Speaker 2: home inventory, which is relatively non-existent. Mark, you're shaking your head.
31:56
Speaker 3: They're not going to do that. They're just going to
31:57
Speaker 3: build up. They're going to build a 3,000 square foot
32:01
Speaker 3: Rectangular monstrosity on a small lot. Builders can't make.
32:06
Speaker 2: That will be sort of impacted by the local community
32:09
Speaker 2: as to how high you can go, right? I'm sure that.
32:12
Speaker 3: Okay, three stories isn't obscene.
32:14
Speaker 1: Right.
32:14
Speaker 3: If I'm a builder, the margins are much higher if
32:17
Speaker 3: I go up.
32:18
Speaker 2: Sure.
32:18
Speaker 3: I'm at the frame, you know, I'm just, I think,
32:20
Speaker 3: and I'm not. A construction engineer.
32:23
Speaker 2: I'd be interested for feedback on this for any listeners
32:26
Speaker 2: out there. Texas at 617-362-1385 in terms of what impact
32:30
Speaker 2: it would have on the local housing market.
32:33
Speaker 3: They're not going to build bungalows.
32:36
Speaker 2: I tend to take this a little bit more optimistically.
32:39
Speaker 3: I'm saying builders are going to build the biggest, I
32:42
Speaker 3: certainly would, the biggest possible home on the smallest possible lot.
32:46
Speaker 3: People don't care about lot size these days.
32:47
Speaker 2: I completely understand that, but would your view on it be, oh,
32:50
Speaker 2: just keep the restrictions where they are at one to
32:53
Speaker 2: two acres and not have it down?
32:55
Speaker 3: Well, it varies with town, right?
32:56
Speaker 4: Right.
32:57
Speaker 3: So I would lobby at the local level if I
32:59
Speaker 3: felt strongly enough about it to reduce minimum building, minimum
33:02
Speaker 3: lot size for dwellings. But in general, it should bring
33:07
Speaker 3: on more supply. I don't like top-down. This is where
33:11
Speaker 3: the sort of analyst in me gives way to the
33:15
Speaker 3: ideologue in me. I believe as much as possible decisions
33:19
Speaker 3: should be made locally. I'm really uncomfortable, even if I
33:22
Speaker 3: think everybody's better off under my little scheme dictating solutions
33:26
Speaker 3: that every town has to comply with. I'd prefer to
33:29
Speaker 3: yield to town government here in true New England fashion.
33:33
Speaker 3: If some town thinks that, they need a minimum of 44,000
33:37
Speaker 3: or whatever an acre is, square feet, it's something in
33:40
Speaker 3: that ballpark, I believe, then so be it. You don't
33:43
Speaker 3: have to live there. If you do live there and
33:45
Speaker 3: you don't like it, you can run for the select board.
33:48
Speaker 3: I don't like the idea of the state dictating to
33:50
Speaker 3: towns and cities minimum building size. I just don't. And
33:54
Speaker 3: it prevents the type of experimentation we'd like to see, too,
33:57
Speaker 3: that would allow us to conclude what works and what doesn't.
33:59
Speaker 2: As a test case compared to some other town.
34:01
Speaker 3: So my town, Rentham, might decide, no, we want to
34:03
Speaker 3: keep minimum of one acre. Uh, whereas yours might, yours wouldn't,
34:09
Speaker 3: I don't think, but Quincy, Quincy, Quincy might say, Quincy
34:13
Speaker 3: might say 5,000 square feet is fine with us because
34:15
Speaker 3: it's denser.
34:15
Speaker 2: Yeah.
34:16
Speaker 3: Uh, but I, I can almost bet you that a
34:18
Speaker 3: builder is not going to suddenly start offering really economical
34:22
Speaker 3: 850 square foot, you know, passively heated homes. They're just
34:27
Speaker 3: going to say, yeah, we can put a 2,500 square
34:28
Speaker 3: foot home there. We're just going to, we're going to
34:30
Speaker 3: build up. All I have to do is go see
34:32
Speaker 3: my friend on the board.
34:34
Speaker 2: Uh, Better than some of the 5,000 or 6,000 square
34:38
Speaker 2: foot monstrosities that they're building in some communities.
34:40
Speaker 3: I say monstrosities. These are beautiful homes. I'm just envious, obviously. But, yeah,
34:45
Speaker 3: you see.
34:46
Speaker 2: That all the way.
34:46
Speaker 3: We drive into work through Needham.
34:48
Speaker 2: Exactly.
34:48
Speaker 3: And it's all you see. Right. These rectangular, vertical rectangles.
34:53
Speaker 3: They're something to behold. They're gigantic. And these lots can't
34:56
Speaker 3: be more than 10,000 to 15,000, some of them, square feet,
35:00
Speaker 3: which is not a small lot. It's like a quarter acre,
35:02
Speaker 3: I think, if I'm right about that. the size of
35:05
Speaker 3: an acre in square footage terms. But if I'm a builder,
35:09
Speaker 3: that's what I want to build up. I've already poured
35:12
Speaker 3: the foundation. It's easy for me to just stick frame
35:16
Speaker 3: it up, I think. Please, somebody correct me if I'm wrong.
35:18
Speaker 3: Who knows construction a lot better than I do, which
35:20
Speaker 3: would be just about anybody.
35:21
Speaker 2: 617-362-1385 for any feedback.
35:25
Speaker 3: Why would they build little cottages? And the margins might
35:27
Speaker 3: be the same, but 20% on 400K.
35:30
Speaker 2: Yeah, I get it. I get it.
35:32
Speaker 3: Obviously, you get it. But I wonder if.
35:35
Speaker 2: I tend to take the optimistic view that it's somewhere
35:36
Speaker 2: in between the 820 square foot versus 5,000 square foot.
35:40
Speaker 2: Like the 2,000 square foot home, if there were more
35:42
Speaker 2: of those made, that would be great.
35:43
Speaker 3: But Paul, to get 2,000 square feet on a 5,000
35:45
Speaker 3: square foot lot, you're still going up.
35:49
Speaker 4: Somebody in the text line says, agree with Mark. Local
35:51
Speaker 4: decisions in towns have height restrictions currently too. Pretty soon
35:56
Speaker 4: the state will get rid of those. Another texter said,
35:58
Speaker 4: no builder is ever going to build affordable houses in
36:02
Speaker 4: the state of Massachusetts.
36:03
Speaker 3: And why would they, by the way? This is the
36:05
Speaker 3: market economy at work.
36:07
Speaker 2: I'm not arguing that, oh, these are going to be
36:09
Speaker 2: affordable homes that are going to get built. I'm just
36:12
Speaker 2: saying to the techers specifically, I'm not sitting in here
36:15
Speaker 2: delusional that a builder isn't going to try to maximize
36:17
Speaker 2: their margins or what they're going to make. My hope
36:19
Speaker 2: is that there is more inventory as a result of this.
36:22
Speaker 2: Bottom line. However, it's high, low, underground, bunker, whatever it is,
36:26
Speaker 2: that more inventory would hopefully come from this.
36:28
Speaker 3: I hate to say it, but this problem is going
36:30
Speaker 3: to fix itself. If Massachusetts becomes unaffordable... That problem will
36:34
Speaker 3: in the long run fix itself. People will move out.
36:37
Speaker 3: Values will go down. Economic growth will slow and so forth.
36:40
Speaker 3: It'll be a long adjustment. Having the stake, I don't
36:44
Speaker 3: know who's behind this particular question. I can guess. And
36:48
Speaker 3: they're probably tinkerers. They're people who think government knows best.
36:52
Speaker 3: And this is where, again, I say the ideologue in
36:53
Speaker 3: me prevails over The analytical person in me was, yes,
36:57
Speaker 3: we need more supply. That'll all else equal bring down. Like, yeah, OK,
37:00
Speaker 3: I get all that.
37:01
Speaker 1: Yeah.
37:01
Speaker 3: But it deprives us at the local level of feeling
37:04
Speaker 3: like we're in control of our towns and cities.
37:06
Speaker 1: Sure.
37:07
Speaker 2: We'll have to see how it plays out next week
37:10
Speaker 2: as to whether or not that does get some momentum
37:14
Speaker 2: behind it. But some compelling cases there on both sides
37:17
Speaker 2: of it here. Taking a look around at markets, we've
37:20
Speaker 2: got the S & P 500 up about 0.5% today.
37:24
Speaker 2: The Dow Jones is off about 11 points, not a
37:27
Speaker 2: lot of activity there. The Nasdaq, though, is rallying again
37:31
Speaker 2: for the second straight day as chip stocks are continuing
37:33
Speaker 2: to gain with the Nasdaq up about 0.85%. The bond
37:37
Speaker 2: market has been relatively quiet as we head into a
37:40
Speaker 2: Federal Reserve meeting tomorrow with the U.S. 10-year Treasury sitting unchanged.
37:45
Speaker 2: at 4.98%. And on the oil side of things, oil
37:49
Speaker 2: prices have fallen just a little bit, but still sit
37:52
Speaker 2: at around $ 100 a barrel, down about 1% or so.
37:58
Speaker 2: And then on the gold front, we've got gold up
38:00
Speaker 2: about two-thirds of a percent in early trading here. That's
38:04
Speaker 2: all the time that we have for the first hour
38:05
Speaker 2: of the program, but we've got a lot more to cover,
38:07
Speaker 2: including previewing that Fed meeting tomorrow and much more right
38:11
Speaker 2: after this break.