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Why This AI-Fueled Bull Market Is So Unpopular · The Financial Exchange Show

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Speaker 1: is The Financial Exchange with Mike Armstrong and Paul Lane.
1:15
Speaker 2: Good morning and welcome back to The Financial Exchange. It's Mike, Paul,
1:20
Speaker 2: and Tucker with you on Tuesday with some good news
1:23
Speaker 2: out there in markets after Friday's sell-off and yesterday's gain.
1:27
Speaker 2: We've got The Dow Jones Industrial Average up 600 plus points, 1.2%.
1:32
Speaker 2: The S & P up 45, six tenths of a percent.
1:35
Speaker 2: And the NASDAQ up half a percent. We've been keeping
1:38
Speaker 2: a close eye on the bond market where yields have
1:41
Speaker 2: been stretching out on the longer end of the curve
1:43
Speaker 2: over the last month. But today we've got things moving
1:46
Speaker 2: further down below 5.1% on the U.S.
1:49
Speaker 3: 10-year treasury yield. We will see.
1:52
Speaker 2: Like I said, we saw some cyclically high rates on
1:57
Speaker 2: there over the course of September and really into the
2:01
Speaker 2: beginning of October, but I've been on a decline since then.
2:03
Speaker 3: I think.
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Speaker 2: Probably just paired with these concerns about the AI trade
2:09
Speaker 2: is my only conclusion on this. Obviously, if energy prices
2:12
Speaker 2: don't come back down, it's going to be tough to
2:14
Speaker 2: bring down the yields. Too much, but some good news
2:18
Speaker 2: there for bond investors. And then as we take a
2:21
Speaker 2: look around at other important markets, obviously energy markets have
2:24
Speaker 2: been in focus for quite some time. Today we've got
2:27
Speaker 2: oil prices down across the board after a spike over
2:30
Speaker 2: the last few days. But, excuse me, West Texas crude
2:35
Speaker 2: down below $ 102 a barrel and Brent crude again, quite
2:40
Speaker 2: high at $ 106. 50, but down about 2.7% in early trading.
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Speaker 3: What else catching your eyes in markets, Paul?
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Speaker 4: We had the news that Salesforce had acquired Braze, so
2:53
Speaker 4: their shares are up 50% in early trading here. And
2:57
Speaker 4: then you've got the U.S. 10-year treasury sitting at that 5.11%
3:03
Speaker 4: down off of the 5.3% highs that it hit over
3:07
Speaker 4: the course of the last month or so. Also, that
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Speaker 4: hometown Housing data that we got earlier on this morning
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Speaker 4: pointing to a real weak housing market certainly stands out. Granted,
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Speaker 4: going into a seasonal slump that is typical in these
3:22
Speaker 4: future months, but the data that we got from August
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Speaker 4: to September, not great.
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Speaker 3: Yeah, I'm going to try and look for some data.
3:28
Speaker 3: I'm curious.
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Speaker 2: So the headline there was that pending home sales were
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Speaker 2: down 7% month over month and 11% year over year.
3:36
Speaker 2: And I'd be curious to know, just how frequently we've
3:39
Speaker 2: seen pending home sales decline by over 10% on a
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Speaker 2: year-over-year basis. That seems maybe possible on a single-month basis,
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Speaker 2: but not frequent would be my guess. So interested to
3:50
Speaker 2: take a closer look at that data point. A piece
3:55
Speaker 2: here from Bloomberg about what we've described as the most
4:01
Speaker 2: hated bull market that has been seen in modern history.
4:05
Speaker 2: And Nir Kassir compares it to the dot-com area in
4:09
Speaker 2: a lot of ways. And I think one thing that
4:12
Speaker 2: he accurately points out is during the dot-com boom, while
4:16
Speaker 2: there were some who were concerned about valuations, it was
4:19
Speaker 2: largely defined by general excitement about what the internet was
4:23
Speaker 2: going to bring. It's going to be productive. It's going
4:27
Speaker 2: to lift up the lower class. It's going to allow
4:30
Speaker 2: the education of millions and billions of people. It's going
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Speaker 2: to modernize societies in ways that we haven't seen.
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Speaker 3: A lot of excitement about emerging markets because of it.
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Speaker 2: I think we can have a quality debate as to
4:44
Speaker 2: whether any of those promises ever came true. But the
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Speaker 2: defining factor here was excitement about what this is to bring. Sure.
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Speaker 2: I agree with him on the sentiment piece of it. People,
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Speaker 2: I think, are generally accepting of the fact that we're
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Speaker 2: going to use a lot more artificial intelligence a decade
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Speaker 2: from now than... previously, but I don't think anybody's excited
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Speaker 2: about the prospects of doing so.
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Speaker 4: No, there's certainly more fear that has crept in this
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Speaker 4: time around. You also have a fiscal backdrop that's different too.
5:15
Speaker 4: To be clear, in the 90s, we were at a surplus. Today,
5:18
Speaker 4: we sit with 6% of GDP on a physical deficit basis.
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Speaker 4: So that certainly has changed and I think is part
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Speaker 4: of maybe some of the the market concerns here. But
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Speaker 4: there is certainly a lot more concern from investors and U.S.
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Speaker 4: citizens in general as to what AI is going to
5:37
Speaker 4: look like going forward. The AI leaders haven't done themselves
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Speaker 4: any favors, Mike, with delivering the message on how it
5:43
Speaker 4: is going to shape the world. There were numerous missteps
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Speaker 4: strategically by Sam Altman and Dario Mode, the CEOs of
5:53
Speaker 4: two of the largest private companies of the AI trade
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Speaker 4: in OpenAI. an anthropic writing different pieces about the potential
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Speaker 4: for AI first to steal a lot of people's jobs.
6:05
Speaker 4: And now there are more ominous reports of cybersecurity concerns.
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Speaker 4: So the backdrop is a lot more, a lot different
6:14
Speaker 4: on the sentiment front. He is absolutely right in this piece.
6:17
Speaker 4: What is probably not spoken about enough in this piece
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Speaker 4: is the valuations one. Certainly in the late 90s, there
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Speaker 4: was just irrational exuberance on valuations. This one here, this
6:30
Speaker 4: period of time here that we find ourselves in, there
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Speaker 4: has just been such a sustained bull market for a
6:36
Speaker 4: really substantial period of time. And valuations have gone to
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Speaker 4: a point where they are elevated. And the companies that
6:43
Speaker 4: have elevated the valuations of the S & P 500
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Speaker 4: are just such a heavier weighting than they were in
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Speaker 4: the past, those smaller names of pets.com and other ones
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Speaker 4: that were symptomatic of that period of time, Amazon, it's
6:58
Speaker 4: different now, and it's always going to be different, where
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Speaker 4: it has a lot larger weighting on its impact in markets.
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Speaker 4: But interesting parallels that he draws.
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Speaker 2: Everything about this moment does seem bigger than every other
7:11
Speaker 2: technological boom we've seen.
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Speaker 3: I mean, the concentration of the market.
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Speaker 5: Look at the dollars that are going into it, right?
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Speaker 2: And, you know, it's tough to compare dollars over time,
7:19
Speaker 2: of course. But if you take a look, for instance,
7:21
Speaker 2: I remember seeing a chart recently, probably Fandetti found it.
7:25
Speaker 4: It was on investing on real estate versus investment in
7:28
Speaker 4: AI data centers.
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Speaker 3: It might have been that.
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Speaker 2: I think what it came down to is it looked
7:34
Speaker 2: at the spend on data centers, which is projected over
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Speaker 2: the next few years, right? It's not the spend that's
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Speaker 2: already come. It's what's supposed to come in the future.
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Speaker 2: And it was as a percentage of GDP compared to internet, railroads,
7:49
Speaker 2: the automobile. And again, we don't know if this spending
7:54
Speaker 2: is going to come to pass. And I think part
7:55
Speaker 2: of the chart was arguing that it's not going to
7:57
Speaker 2: because it would just be ridiculous to assume that it
8:00
Speaker 2: would based on these previous things. But as a percentage
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Speaker 2: of GDP, it far surpasses any of the investments that
8:06
Speaker 2: you saw on those revolutionary technologies as well.
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Speaker 3: And so.
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Speaker 2: Yeah, there's a lot about this that has people calling
8:14
Speaker 2: things into question. But one thing that I am in
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Speaker 2: agreement with, I really have no doubt that we will
8:20
Speaker 2: be using a heck of a lot more artificial intelligence
8:22
Speaker 2: a decade from now than we are now.
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Speaker 5: Absolutely.
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Speaker 2: The question is not, is this a life-changing technology? It's...
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Speaker 2: I guess, first and foremost, will we have any control
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Speaker 2: over it? And are these breakouts and scary stories that
8:38
Speaker 2: we're seeing going to be the dominant story?
8:40
Speaker 1: Or are we.
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Speaker 2: Going to exercise some degree of control over the AI
8:45
Speaker 2: systems that we are creating?
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Speaker 3: That's probably most important in my mind.
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Speaker 2: But the most important for the market is, will that
8:53
Speaker 2: rush for use of artificial intelligence come rapidly enough to
8:57
Speaker 2: justify the expansion that these companies are planning?
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Speaker 4: Yeah, that's what it comes down to is matching all
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Speaker 4: the significant expenses that are being attributed to this build-out,
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Speaker 4: whether it's the trillion dollars that's earmarked next year to
9:09
Speaker 4: be spent on CapEx, do you get the requisite revenues?
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Speaker 4: That has been the continued focus. And the challenge that
9:17
Speaker 4: has always been the case with technological revolutions is that
9:21
Speaker 4: usually there is a lag in time between investment versus
9:26
Speaker 4: revenues being generated. And when you exhaust so many financial
9:30
Speaker 4: resources of spending all of your free cash flow as
9:33
Speaker 4: a company, going out to the bond market and borrowing
9:36
Speaker 4: more and more debt, and you start to run dry
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Speaker 4: on dry powder or capital to build it, it puts
9:42
Speaker 4: a lot more pressure on you to execute. And that
9:45
Speaker 4: really is what is at the forefront of investors' minds
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Speaker 4: right now is, can that be done? No one seems
9:53
Speaker 4: to question, like you said, the usage. It's just for market,
9:57
Speaker 4: do you get the timing right?
9:58
Speaker 3: Let's take a quick break.
9:59
Speaker 2: When we return, more concerns about the debt being issued
10:04
Speaker 2: by these companies and some interesting kind of technical stuff
10:10
Speaker 2: when it comes to how people insure against possible losses
10:15
Speaker 2: in debt markets. Let's take a quick break. I want
10:16
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11:24
Speaker 2: All right, Paul, one final piece on the AI Data
11:27
Speaker 2: Center build-out, and then we can move on because Netflix.
11:31
Speaker 3: and their struggles is just a little bit more entertaining
11:33
Speaker 3: to talk about in my view.
11:34
Speaker 2: But I do think it's important that we talk a
11:38
Speaker 2: little bit about debt markets further. And everyone's focus is
11:42
Speaker 2: always on equity markets, because that's where the majority of
11:46
Speaker 2: their wealth gets created if they are an investor. But
11:49
Speaker 2: the bond market oftentimes sends very interesting signals that need
11:53
Speaker 2: to be paid attention to. And we talk about this
11:57
Speaker 2: in terms of big aggregate data, such as inverted yield curve, which,
12:02
Speaker 2: you know, the inverted yield curve is when the interest
12:06
Speaker 2: rate on longer term debt ends up being lower than
12:09
Speaker 2: the interest rate on shorter term debt, which, you know,
12:12
Speaker 2: is a signifier that people lack confidence in the near future.
12:15
Speaker 2: And it's a recession indicator. We're talking about something different
12:19
Speaker 2: here when we're talking about corporate bonds. But what the
12:22
Speaker 2: Financial Times points out is that in spite of equity
12:25
Speaker 2: markets continuing to rally, and especially since October continuing to climb,
12:30
Speaker 2: AI hype has also caused some bond investors to be
12:37
Speaker 2: quite concerned about not only the core weaves of the world.
12:40
Speaker 2: So credit default swaps is a term that we've all
12:45
Speaker 2: become familiar with post great financial crisis, where a lot
12:49
Speaker 2: of big investors were buying them against mortgage bonds and
12:53
Speaker 2: insuring themselves against those losses and then able to sell them.
12:56
Speaker 2: That's a just amazing profit. It's Michael Burry's entire story.
13:03
Speaker 2: And the pricing for credit default swaps for borrowers such
13:07
Speaker 2: as Meta, Google, Microsoft have been kind of quietly rising
13:13
Speaker 2: over the course of the last few weeks, jumping more
13:15
Speaker 2: substantially for companies like Core, Weave, and Oracle. But really
13:19
Speaker 2: across the board, these concerns about these major tech companies'
13:23
Speaker 2: borrowing costs are sparking some to buy insurance against their defaults.
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Speaker 4: Yeah, so I think it's worth giving an example just
13:30
Speaker 4: for listeners to have a sense of it because sometimes
13:33
Speaker 4: it can get fuzzy, your memory on the credit default
13:36
Speaker 4: swaps from.
13:37
Speaker 5: The 08 era.
13:38
Speaker 4: But basically, if you look at something like Facebook or Meta,
13:42
Speaker 4: their credit default swaps have climbed about a little over
13:46
Speaker 4: a percent over the course of the last month or so.
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Speaker 4: So meaning from a dollars perspective, let's say you had
13:52
Speaker 4: $ 10 million of debt that you had bought from Meta.
13:56
Speaker 4: So Meta does a raise for corporate bonds. They have
14:00
Speaker 4: a debt offering where they say they will give you
14:02
Speaker 4: a certain percentage in interest on their debt. So what
14:06
Speaker 4: a credit default swap does is you have that $ 10
14:09
Speaker 4: million of debt on Meta. They continue to pay you
14:12
Speaker 4: interest every six months until the mature date when they
14:15
Speaker 4: give you your $ 10 million back. The credit default swaps,
14:18
Speaker 4: you have to pay $ 108, 000 per year to insure against
14:22
Speaker 4: Meta paying you back that $ 10 million. So that really
14:26
Speaker 4: is what it is, is a backstop in insurance that
14:29
Speaker 4: you get your principal back. And oftentimes with these companies
14:34
Speaker 4: like a Meta or Microsoft or some of these other ones,
14:37
Speaker 4: their credit ratings, basically what they were attributed as a lender,
14:42
Speaker 4: were at the highest levels, AA, AAA. And as a result,
14:46
Speaker 4: they could issue debt very cheaply. But we have seen
14:49
Speaker 4: activity percolate under the surface here where there has been
14:52
Speaker 4: a lot more speculation to have investors try and backstop
14:56
Speaker 4: themselves against this type of debt. So it is interesting
15:00
Speaker 4: because the debt markets can often provide some really strong
15:05
Speaker 4: signaling on what investors are concerned about. And that has
15:09
Speaker 4: rung true over the course of the last month or
15:11
Speaker 4: so on anything that is touching AI.
15:14
Speaker 6: Yeah.
15:15
Speaker 2: So, again, I think we could be here two weeks
15:19
Speaker 2: from now shrugging this stuff off as no big deal.
15:23
Speaker 3: But the Oracle story has been pretty.
15:24
Speaker 2: Persistent over the last couple of months. The core we've
15:27
Speaker 2: won relatively new, but also front-focused right now. So if
15:31
Speaker 2: there's going to be something that's going to turn it around,
15:33
Speaker 2: I do think it's the Anthropic IPO. It could be
15:36
Speaker 2: something during earnings season over the course of the next
15:38
Speaker 2: few weeks as well. We've got Meta going this week. Tesla,
15:42
Speaker 2: both Tesla and SpaceX this week, Tucker?
15:44
Speaker 3: Correct.
15:44
Speaker 5: Back to back.
15:45
Speaker 7: SpaceX after the bell today.
15:46
Speaker 2: So again, any of these things potentially could change sentiment
15:49
Speaker 2: a little bit, but I am definitely detecting more skepticism
15:52
Speaker 2: about the AI build out right now than we've seen
15:54
Speaker 2: over the course of the last few months. And I
15:56
Speaker 2: think that's worth monitoring given that's pretty much the only
15:58
Speaker 2: thing that matters to the stock market right now.
16:01
Speaker 1: Right.
16:02
Speaker 3: Let's talk about Netflix.
16:03
Speaker 2: All right.
16:04
Speaker 5: Let's do it.
16:05
Speaker 3: Two executives out.
16:08
Speaker 2: No net user growth over the course, no net subscriber
16:11
Speaker 2: growth over the course of the last year. I don't
16:14
Speaker 2: feel terribly well qualified to account for this because I've
16:18
Speaker 2: never paid for Netflix. What? Occasionally when my father visits,
16:22
Speaker 2: I'll have it for a week or two after he
16:23
Speaker 2: leaves and then they boot me out again. My kids
16:27
Speaker 2: just consume a massive amount of Netflix every time my
16:29
Speaker 2: father's there and then, you know, then he's gone and
16:32
Speaker 2: they can't slog anymore and they get sad, which is,
16:35
Speaker 2: I shouldn't get entertained by that, but it's.
16:37
Speaker 3: A little bit, you know.
16:38
Speaker 2: When they get upset about minor things like access to Netflix,
16:41
Speaker 2: I laugh a little bit.
16:42
Speaker 7: What do they watch on Netflix?
16:46
Speaker 3: I'm not there when it happens.
16:46
Speaker 7: Because the kid's offering a Netflix. It's not that great.
16:51
Speaker 1: Yeah.
16:52
Speaker 3: I'm not saying that my children consume quality television, Tucker.
16:56
Speaker 5: No, no.
16:56
Speaker 3: Most of their time is spent on YouTube.
16:59
Speaker 4: Well, that's what I think Tucker and I were getting
17:01
Speaker 4: at with that. It's YouTube dominates our kids' demo big time.
17:05
Speaker 4: And there seems to be less inventory on Netflix, but
17:08
Speaker 4: it's probably for them the scarcity aspect.
17:10
Speaker 5: So you've never had Netflix?
17:13
Speaker 3: Never paid for Netflix, yeah.
17:14
Speaker 1: Wow.
17:15
Speaker 3: Again, I've lived with people who did.
17:16
Speaker 2: Have it, but I've never had Netflix. I'd never watched
17:21
Speaker 2: House of Cards or the awesome shows that were on there.
17:24
Speaker 2: And at some point, I think my wife and I
17:26
Speaker 2: are going to cave and just go through a binge
17:27
Speaker 2: of only watching old Netflix shows. But we haven't gotten
17:30
Speaker 2: there yet. Just canceled our HBO subscription, too.
17:33
Speaker 4: That one comes and goes for me based on shows
17:36
Speaker 4: a lot, too, it feels like.
17:38
Speaker 2: Yeah, I've just been in the midst of a bunch
17:39
Speaker 2: of Apple TV shows and said, you know what?
17:41
Speaker 3: Screw this.
17:41
Speaker 2: I don't need it until hockey season comes. And then
17:44
Speaker 2: I will need it because I don't get TNT. But
17:48
Speaker 2: I don't know what the real turnaround story is for
17:49
Speaker 2: Netflix here. They lost out on their bid for Time Warner.
17:53
Speaker 2: for Warner Media. I can't keep these mergers straight.
17:57
Speaker 5: Warner Brothers, yeah.
17:59
Speaker 3: And I don't know.
18:01
Speaker 2: I mean, I know their growth story has been called
18:03
Speaker 2: into doubt many times in the past, and they've overcome it, but.
18:07
Speaker 2: I just don't really see where the area of expansion is.
18:10
Speaker 2: We've talked about gaming. We've talked about live sports. They're
18:12
Speaker 2: doing all of those, and it's not really adding much
18:15
Speaker 2: to subscribers.
18:16
Speaker 4: They need some hits. That's probably part of it. They
18:19
Speaker 4: need some hits on the content side of things.
18:21
Speaker 7: They whiffed on, I think at least, I can't back
18:25
Speaker 7: it up with any ratings, but they whiffed, I think,
18:27
Speaker 7: on The Hawk with Will Ferrell.
18:29
Speaker 5: Right.
18:29
Speaker 7: I know a bunch of people who are like, that's
18:32
Speaker 7: not a very funny show.
18:33
Speaker 2: Mm-hmm.
18:34
Speaker 5: It feels like.
18:35
Speaker 7: And they marketed the hell out of that show.
18:37
Speaker 5: They did.
18:38
Speaker 4: I'm a big Will Ferrell fan. He shaped our... Yeah,
18:42
Speaker 4: of course. But has he really done anything in the
18:45
Speaker 4: last 10 years that you could really point to that
18:49
Speaker 4: is his best work or rivaling his best work? I
18:54
Speaker 4: feel like it's been... a it's hard to stay relevant and.
18:59
Speaker 7: Yeah but my point is ultimately with.
19:01
Speaker 4: They backed the wrong horse yeah absolutely uh no it
19:04
Speaker 4: just seems like they could use a couple more hits
19:06
Speaker 4: but it's hard to be on that treadmill cycle of
19:09
Speaker 4: churning out members all the time they had the biggest
19:12
Speaker 4: lead when it came to this but now they're facing
19:14
Speaker 4: tremendous amount of competition and it's unbelievable what youtube has
19:18
Speaker 4: done i think we're evidence of that where there's just
19:21
Speaker 4: a lot of younger kids who spend a lot of
19:24
Speaker 4: time on youtube.
19:26
Speaker 3: Let's take a quick break.
19:27
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19:50
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 6: Markets in positive territory, but tech's a little bumpy today
20:03
Speaker 6: as AI concerns swirl. After data center startup Elise plunged
20:07
Speaker 6: 30% on their trading debut in Seoul, right now the
20:11
Speaker 6: Dow is up nearly nine-tenths of a percent or 451
20:15
Speaker 6: points up. S & P 500 is up about a
20:18
Speaker 6: third of a percent or 22 points higher. NASDAQ is
20:21
Speaker 6: now up only 16 points. Russell 2000 is up 1.8%.
20:26
Speaker 6: Ten-year treasury yield down three basis points at 5.106%. Crude
20:29
Speaker 6: oil down 10%. 6.7% trading at $ 103 a barrel. Brent
20:38
Speaker 6: is down 1.3% trading at $ 108 a barrel. Also hit
20:42
Speaker 6: a five-month high. General Motors down 5% despite being third
20:47
Speaker 6: quarter expectations where the automaker raised its free cash flow
20:51
Speaker 6: expectations and narrowed its 2026 full-year guidance. GM's board also
20:55
Speaker 6: approved a $ 20 billion stock buyback program. Meanwhile, GE Aerospace
20:59
Speaker 6: down 3% after the company's free cash flow came in
21:02
Speaker 6: lower than estimates. Elsewhere, Salesforce announced an agreement to buy
21:07
Speaker 6: customer engagement platform Blaze for $ 5. 6 billion. Blaze surging 50%
21:12
Speaker 6: while Salesforce is down 1%. Steel Dynamics posted mixed third
21:17
Speaker 6: quarter results, beating on revenue and earnings per share, but
21:19
Speaker 6: fell short on profit margin expectations. Stock is down nearly 1%.
21:25
Speaker 6: And after today's closing bell, we'll see earnings drop. from
21:28
Speaker 6: Netflix and SpaceX. I'm Tucker Silva and that is Wall
21:33
Speaker 6: Street Watch.
21:33
Speaker 2: Paul, we were talking earlier in the show about the
21:36
Speaker 2: pending home sales data that was out this morning from
21:38
Speaker 2: the National Association of Realtors. And I was just curious, like,
21:42
Speaker 2: by the way, we saw a 11 plus percent decline
21:46
Speaker 2: in pending home sales in September compared to September of 2025.
21:49
Speaker 2: And so I was curious, how frequently does that happen?
21:53
Speaker 2: And The answer is more frequently than I would have guessed.
21:56
Speaker 2: So back in 2022 and early 2023, we saw several
22:00
Speaker 2: months with the massive surge in mortgage rates where pending
22:03
Speaker 2: home sales were down 20%, 30% even. Certainly during COVID,
22:08
Speaker 2: during shutdowns, right? Nobody's selling homes in April of 2020.
22:13
Speaker 2: Before that, though, you did not see this during the
22:16
Speaker 2: 2010s decade by and large. There was early 2010s when
22:19
Speaker 2: you saw an expiration of some tax credits for home purchases,
22:22
Speaker 2: that you saw some big declines. And then, of course,
22:24
Speaker 2: during the Great Recession, you saw massive declines in home sales.
22:28
Speaker 2: But yeah, this is outside of the COVID era and
22:32
Speaker 2: outside of massive swings in interest rates. Because again, this
22:36
Speaker 2: time last year, September of Uh, 2025, I want to
22:41
Speaker 2: see where we were on the 10 year, sorry, 30
22:46
Speaker 2: year fixed rate mortgage. Yeah, I guess it's a pretty
22:48
Speaker 2: big swing, right? We were in the six to 6.2
22:52
Speaker 2: range back in September of last year. Now we've been
22:55
Speaker 2: up over seven and a half. And so that's a
22:56
Speaker 2: big enough swing, I think, to cause this type of
22:58
Speaker 2: decline in demand.
22:59
Speaker 1: Certainly.
23:00
Speaker 2: Um, It's not to say it's not concerning. It's just
23:02
Speaker 2: to say it's more frequent than I had realized. SpaceX
23:05
Speaker 2: will be reporting earnings after the bell. I don't think
23:07
Speaker 2: anybody's got a real firm grasp on what to look
23:10
Speaker 2: for out of this company. So I'm glad somebody from
23:12
Speaker 2: the Wall Street Journal took a stab at it. Again,
23:15
Speaker 2: newly trading company, first time, second time reporting earnings?
23:19
Speaker 1: Second time.
23:19
Speaker 2: Second time reporting earnings as a public company, but I
23:21
Speaker 2: don't think the first time really mattered much. The questions
23:25
Speaker 2: that are out there, Aside from your core business of
23:30
Speaker 2: sending rockets into orbit, hey, your profitable business, Starlink, what's
23:35
Speaker 2: going on there? Obviously, Musk himself has faced questions over
23:40
Speaker 2: the accusations from Ukraine about the access of Starlink for
23:44
Speaker 2: Ukrainian military. But there's big promises here on AI growth,
23:50
Speaker 2: capital spending, and the build-out of all of those different
23:53
Speaker 2: pieces in one of the most capitally intensive businesses in
23:56
Speaker 2: the world. And I think that's really where investors are
23:59
Speaker 2: going to try and judge. But I don't even know
24:02
Speaker 2: what expectations are for an earnings release like this.
24:05
Speaker 4: Yeah, the three areas that I would focus on, and
24:08
Speaker 4: you touched upon them a little bit, Starlink is their
24:10
Speaker 4: biggest revenue generator. It had shown 66% year-over-year revenue growth
24:17
Speaker 4: last quarter. So just what the growth in lies on
24:21
Speaker 4: Starlink is certainly an area of focus. The second one
24:23
Speaker 4: is how much they're spending. They had come out with
24:26
Speaker 4: Expense numbers of about $ 15. 8 billion last quarter, which was
24:32
Speaker 4: double its previous quarterly outlay. So any more significant increase
24:37
Speaker 4: there certainly will be scrutinized by markets. And then third,
24:40
Speaker 4: it's going to be all the scuttlebutt has been as
24:43
Speaker 4: to whether or not SpaceX and Tesla merge. So any
24:46
Speaker 4: sort of clues or if that is telegraphed in any way,
24:50
Speaker 4: that is certainly something that will be on investors' minds.
24:53
Speaker 4: They also had had the news that come out that
24:55
Speaker 4: they had bought up significant amount of wireless spectrum. So
24:58
Speaker 4: there's sort of the idea out there that perhaps they
25:02
Speaker 4: would go at U.S. telecom and offer a cellular phone service.
25:06
Speaker 4: So I think those are the three or four areas
25:08
Speaker 4: that I would focus on. But I have trouble, if
25:10
Speaker 4: I was an analyst, pointing to which one you should
25:14
Speaker 4: really hang to make the stock go up or down aftermarket.
25:19
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26:34
Speaker 2: Well, Paul, I'm going to be drinking my tea with
26:38
Speaker 2: a lifted pinky, and I'm going to have some Grey
26:40
Speaker 2: Poupon for lunch this afternoon because the thing that distinguishes
26:45
Speaker 2: the 1% from the merely affluent... is a third child,
26:49
Speaker 2: which both you and I have. So we are breaking
26:53
Speaker 2: the mold and clearly are part of the 1% given
26:55
Speaker 2: our three children.
26:56
Speaker 7: What do you think you're better than me or something?
26:59
Speaker 2: I will argue that I am better than you. I
27:04
Speaker 2: get some economies of scale on this. Cause I had
27:06
Speaker 2: twins for my first set. And so, you know, for instance,
27:12
Speaker 2: they play on the same hockey teams and, So I
27:15
Speaker 2: only drive to one practice instead of two. But yeah,
27:17
Speaker 2: I still need two pair of skates. We share one
27:19
Speaker 2: set of Goldie equipment. So, you know, that goes a
27:22
Speaker 2: long way. So, you know, there's some economies of scale there.
27:26
Speaker 2: We only feed them half a lunch, for example. We
27:28
Speaker 2: give them the full meal. But the data behind this
27:32
Speaker 2: is actually fairly wild. What was the actual statistic here?
27:39
Speaker 2: So wasn't it that like a massively larger portion of Yeah,
27:44
Speaker 2: families with three plus kids are most common in the
27:47
Speaker 2: top 1% of households.
27:50
Speaker 5: For income earners.
27:51
Speaker 2: Yeah, for income earners. And the ratios dramatically drop when
27:55
Speaker 2: you get below that 1%. And so I would imagine
27:59
Speaker 2: there's also a tail end here where there are plenty
28:02
Speaker 2: of families with more than two children that are not
28:05
Speaker 2: middle class and are on the.
28:06
Speaker 3: Lower end of the income spectrum as well.
28:08
Speaker 2: But this is pretty wild data to look at and
28:12
Speaker 2: is- actually a pretty sound economic reaction to the realities
28:18
Speaker 2: of child raising these days and the cost behind it.
28:21
Speaker 2: But pretty interesting that it actually does follow these trend lines.
28:26
Speaker 5: No, there's a couple interesting tidbits. You hit on one
28:28
Speaker 5: of them.
28:29
Speaker 4: Just if you rank by wealth, the top 1% just
28:32
Speaker 4: have more children on average. That's another statistic that comes
28:36
Speaker 4: out of this. And then the third being that families
28:38
Speaker 4: with three kids or more have gotten rare since the 1990s,
28:41
Speaker 4: except for those people in that 1%.
28:44
Speaker 5: Income threshold.
28:45
Speaker 4: So clearly, to me, this backs some of the inflationary
28:51
Speaker 4: data around child care costs, I think certainly is a
28:54
Speaker 4: big concern.
28:55
Speaker 5: Now, we've had this debate before.
28:56
Speaker 4: I don't think it is purely that people make this
28:59
Speaker 4: decision on child care costs alone, whether or not to
29:02
Speaker 4: have kids. But if you have more financial resources, it
29:06
Speaker 4: makes sense that you're more willing to.
29:07
Speaker 2: This is also why I love statistics, because the bad
29:10
Speaker 2: statistical interpretation here would be, hey, if I have three
29:13
Speaker 2: plus kids, I'm going to be a frigging millionaire. No,
29:17
Speaker 2: you have to start with the money in order to
29:19
Speaker 2: have the three kids.
29:21
Speaker 3: But I would love the interpretation of the more children
29:24
Speaker 3: I have, the more income I will earn.
29:27
Speaker 5: It definitely makes you motivated to work. That's for sure.
29:29
Speaker 3: That's true.
29:31
Speaker 4: Staring down college tuition costs when you do some of
29:33
Speaker 4: the financial planning with clients, it definitely sobers you up
29:37
Speaker 4: quite a bit.
29:37
Speaker 3: Oh, I thought you were just talking about because you
29:38
Speaker 3: want to be away from your home.
29:40
Speaker 5: More often. That too.
29:43
Speaker 3: Paul's actually looking for a job with travel. I don't understand.
29:48
Speaker 3: Keeps asking me to go to Singapore.
29:50
Speaker 5: Quote me on that.
29:52
Speaker 1: 100% travel, please.
29:53
Speaker 3: Let's take a quick break. When we return, Stack Roulette
29:56
Speaker 3: is coming next.
29:57
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30:48
Speaker 3: Time for a bit of stack roulette. What do you
30:49
Speaker 3: have for us this morning, Paul?
30:51
Speaker 4: This is a piece, Mike, from Bloomberg titled ESPN is
30:54
Speaker 4: gambling with its credibility. So there is a former employee
31:00
Speaker 4: of ESPN, Nicole Noreen, who had been there for 24
31:03
Speaker 4: years producing investigative material. journalism on many difficult topics, but
31:09
Speaker 4: she ended up quitting in 2024 as she had wanted
31:12
Speaker 4: to do an expose on gambling. She had had some
31:16
Speaker 4: family members who had had issues with gambling addiction, but
31:19
Speaker 4: ESPN had licensed a sports betting app in 2023, so
31:23
Speaker 4: obviously those investigative efforts didn't get to the cutting room floor.
31:28
Speaker 2: I have a question for the bigger sports fans out
31:31
Speaker 2: there like you two. Was ESPN critical in the you know,
31:35
Speaker 2: NFL concussion.
31:36
Speaker 3: Stories and the, you know.
31:39
Speaker 2: Sexual abuse in different athletics like gymnastics and running and
31:43
Speaker 2: stuff like that.
31:44
Speaker 3: I mean, like, I don't... My view would be.
31:47
Speaker 7: They've never not covered something.
31:48
Speaker 4: My view that they would have much... 10, 15 years ago,
31:52
Speaker 4: they had much more of an investigative journalism leg to
31:55
Speaker 4: stand on. There was sort of that archetype of a
31:58
Speaker 4: lot of the talent that they hired came out of Syracuse,
32:02
Speaker 4: you know, really well-respected broadcasting schools that had the general
32:07
Speaker 4: journalist sort of, you know, principles that were held out
32:13
Speaker 4: in terms of their coverage, but it has shifted dramatically
32:17
Speaker 4: and it all falls back to where's the money going.
32:20
Speaker 4: I mean, that's usually how you can track these stories.
32:22
Speaker 4: You now have The NFL has a 10% ownership stake
32:26
Speaker 4: in ESPN. You have betting that has become critical for
32:31
Speaker 4: ad partners and just the influence of the game as well,
32:34
Speaker 4: where the investigative journalism pieces coming out of ESPN are
32:38
Speaker 4: far fewer than they were previously. And this is not
32:43
Speaker 4: to say it's good or bad. It is just different.
32:46
Speaker 4: I did happen to enjoy some of the investigative efforts
32:49
Speaker 4: that ESPN would put together. They really would spend a
32:52
Speaker 4: lot of time and effort in putting together good investigative
32:54
Speaker 4: journalism in yesteryear, but is something now that they really
32:59
Speaker 4: are just not focused on nearly as much. And the
33:03
Speaker 4: gambling stuff, it gets complicated because they are.
33:06
Speaker 3: Making a boatload of money from it.
33:08
Speaker 5: Exactly, exactly.
33:09
Speaker 2: Mickey Mouse ain't too happy about that investigative journalist report.
33:13
Speaker 5: It's a lot harder to do that.
33:14
Speaker 4: I mean, even back in 2019, you had Bob Iger
33:17
Speaker 4: coming out and saying that they didn't really foresee that
33:19
Speaker 4: they would partner with gambling companies. And obviously, like I
33:24
Speaker 4: said before, you just follow the money. And particularly when
33:28
Speaker 4: ESPN fell on hard times, you got to just take
33:30
Speaker 4: the cash when you can get it.
33:33
Speaker 1: Yeah, I....
33:35
Speaker 2: Again, I don't think this is a great look for ESPN.
33:39
Speaker 3: We will see.
33:39
Speaker 2: I mean, I know they've already been struggling, but the
33:42
Speaker 2: more and more I come across this, the more I conclude,
33:46
Speaker 2: I don't know where else it belongs, but ESPN just
33:48
Speaker 2: does not belong under the Disney brand. It's just, I
33:52
Speaker 2: know it's an entertainment outlet, but it just, the stuff
33:57
Speaker 2: that they need to cover, the stuff that they need
33:59
Speaker 2: to do there just does not seem to me to
34:00
Speaker 2: fit under that umbrella terribly well.
34:02
Speaker 4: The bundling of the games with the Disney Plus service,
34:06
Speaker 4: it gives them more arms in the content race, but
34:10
Speaker 4: I agree with you. It's something that was the best
34:14
Speaker 4: part of its business back in the 2010s and 2015 era.
34:20
Speaker 4: The amount of revenue that it generated from the cable
34:22
Speaker 4: bundle for Disney was incredible if you look at the
34:25
Speaker 4: profit numbers, but it's a far different story nowadays, that's
34:28
Speaker 4: for sure.
34:29
Speaker 2: Wall Street Journal reporting the immigration crackdown is making it
34:33
Speaker 2: much harder to build houses. We've been warned about this
34:36
Speaker 2: by homebuilders early on during the Trump administration with their
34:41
Speaker 2: focus on deportations and ICE crackdowns. And the data, obviously,
34:47
Speaker 2: I think took a little while for one homebuilders to
34:49
Speaker 2: be even willing to talk about the subject. But I
34:52
Speaker 2: think the labor situation there has gotten worse. enough that
34:56
Speaker 2: they are speaking out now in a more meaningful way.
34:59
Speaker 2: I don't think calling for change insofar, but certainly calling
35:04
Speaker 2: out the additional costs and a few pieces that I
35:07
Speaker 2: would bring up. So one, nearly two-thirds of homebuilders said
35:10
Speaker 2: immigration enforcement is affecting their labor force. That's up from
35:14
Speaker 2: 23% in March of this year and 13% a year ago.
35:17
Speaker 2: So there's some polling on that piece of it. The
35:20
Speaker 2: cost of labor, according to the National Association of Homebuilders,
35:24
Speaker 2: found that The costs had increased a median of four
35:27
Speaker 2: point two percent from just a year prior. And, you know,
35:32
Speaker 2: in some areas, right, like builders in Jacksonville, Florida area,
35:37
Speaker 2: for example, said some subcontractors are estimating 70 percent of
35:41
Speaker 2: their workforce had been lost earlier this year. And then
35:44
Speaker 2: you have a bunch of different stories right from Florida,
35:46
Speaker 2: where I think a lot of the early crackdowns were
35:49
Speaker 2: starting to, you know, all across the Midwest. you're talking
35:54
Speaker 2: about dramatic increases. For instance, the Indiana Builders Association estimated
35:59
Speaker 2: that immigration enforcement had taken out about a quarter of
36:03
Speaker 2: their residential construction workforce.
36:06
Speaker 3: I think a few things are true.
36:07
Speaker 2: One, you know, you shouldn't, well, I wouldn't necessarily say
36:14
Speaker 2: that you should refine your policy for deportations because of
36:17
Speaker 2: one sector lacking labor. And that's the point that Matthew O'Brien,
36:20
Speaker 2: the Deputy Executive Director of the Federation for American Immigration
36:24
Speaker 2: Reform makes, quote, it's an absurd contention that we should
36:27
Speaker 2: stop deporting immigration lawbreakers simply because construction companies.
36:31
Speaker 3: Want to employ them.
36:32
Speaker 2: I agree there, but I think you're rapidly getting to
36:35
Speaker 2: a place now where if you don't set up some
36:38
Speaker 2: alternative means for labor to enter this market, then the
36:44
Speaker 2: idea of building homes combined with high mortgage costs is
36:47
Speaker 2: going to be pretty untenable in a lot of places.
36:49
Speaker 4: No, that would be my ideal hope is that there
36:52
Speaker 4: is some sort of policy that could be struck that
36:54
Speaker 4: enables legal immigration to provide more supply to a sector
37:01
Speaker 4: of the labor market that's hard to staff. Those are
37:04
Speaker 4: difficult jobs that are really physically arduous. And as a
37:07
Speaker 4: result of that, if you have a shortage on them,
37:10
Speaker 4: That just puts a lot more pressure on home building costs,
37:13
Speaker 4: which already have had to counter lumber that's gone up,
37:19
Speaker 4: all sorts of material increases over the course of the
37:22
Speaker 4: last five or six years or so to have another
37:24
Speaker 4: piece of the puzzle being a drag on the affordability
37:28
Speaker 4: cost of construction. is tough in a time that has
37:31
Speaker 4: been really bleak for the housing market.
37:34
Speaker 3: Over the last few years.
37:34
Speaker 2: Yeah, the same Jacksonville, Florida builder who was interviewed for
37:37
Speaker 2: the piece said that the average cost for him to
37:40
Speaker 2: frame a 2,500-square-foot house used to be around $ 10, 000, is
37:45
Speaker 2: now running $ 25, 000 to $ 28, 000.
37:46
Speaker 3: That's it right there.
37:47
Speaker 5: I mean, that's how... That's it.
37:50
Speaker 3: That's the story. That's not the lumber piece. That's just
37:53
Speaker 3: bare-bones framing. And so, yeah, these costs are getting.
37:59
Speaker 2: finally pushed up, and by all accounts, not a whole
38:02
Speaker 2: lot of American workers who are qualified or willing to
38:05
Speaker 2: do that work right now. Quick break for the rest
38:08
Speaker 2: of the day, but we will be back at it
38:10
Speaker 2: at 10 a.m.
38:10
Speaker 3: Tomorrow. Tune in and have a great rest of your day, folks.