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AI Profit Forecasts Raise the Bar for Wall Street · The Financial Exchange Show

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Speaker 1: donation today. This is the Financial Exchange with Paul Lane
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Speaker 1: and Mark Vandetti.
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Speaker 2: Hoping everyone enjoyed a great fourth July weekend. Markets have
1:17
Speaker 2: been opened for about an hour and a half since
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Speaker 2: the long weekend where there was no trading action on
1:23
Speaker 2: Friday in observance of the July fourth holiday, and today
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Speaker 2: we've opened up in mixed territory. DW Jones off about
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Speaker 2: forty points, the S and P five hundreds up over
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Speaker 2: a little half percent, of the nastas rallying over one percent,
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Speaker 2: and what is a relatively quiet week for markets. We
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Speaker 2: will have earning seasons kickoff later this week with Pepsi
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Speaker 2: and Delta and some other names, but it really won't
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Speaker 2: get into high gear until the following week when the
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Speaker 2: banks will kick off their earnings on July fourteenth. We
1:51
Speaker 2: will have on Wednesday of this week the release of
1:55
Speaker 2: the Federal Reserve meeting minutes that will be at Wednesday
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Speaker 2: at two o'clock, So it'll be interesting to see any
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Speaker 2: commentary that can come out of those meeting minutes in
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Speaker 2: terms of what the Fed thinks in terms of their
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Speaker 2: interest rate policy decisions going forward. They won't have another
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Speaker 2: meeting the Federal Reserve until the end of June. Here
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Speaker 2: and SpaceX has been added to the Nasdaq one hundred
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Speaker 2: after fifteen days of trading. They will be participants in
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Speaker 2: any passively managed funds out there that do track the
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Speaker 2: Nasdaq one hundred. But we're going to start the program
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Speaker 2: here by talking about the surge and profit forecast that
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Speaker 2: we've seen from a lot of analyst expectations out there.
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Speaker 2: Stocks have continued to do quite well this year, coming
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Speaker 2: off of what was a great year last year. Part
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Speaker 2: of the concern heading into this year is that valuations
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Speaker 2: were really high. There's a bunch of different ways that
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Speaker 2: you can measure the valuation of the market. The S
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Speaker 2: and P five hundred is the most talked about in
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Speaker 2: tracked benchmark out there, and a concern heading into this
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Speaker 2: year is a very typical valuation metrics that's used is
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Speaker 2: price to earnings. What is the price of the market
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Speaker 2: relative to what all the five hundred companies underneath it
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Speaker 2: are earning? And from a forward looking perspective on earnings,
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Speaker 2: heading into this year, we were sitting at multiples that
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Speaker 2: were around twenty three times future earnings. For context standpoint,
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Speaker 2: the last decade, you were typically seeing that number in the
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Speaker 2: high teens, so that twenty three was far greater than
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Speaker 2: the eighteen to nineteen that it had been in the
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Speaker 2: decade prior, so there were concerns that typically when you
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Speaker 2: are investors are willing to pay that higher valuation, there
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Speaker 2: is more room for correction, and usually the way that
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Speaker 2: the market corrects most quickly and efficiently is prices go
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Speaker 2: down or the market goes down. The good news on
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Speaker 2: that front heading into now the second half of the
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Speaker 2: year is that this first half of the year has
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Speaker 2: been met with significant earnings growth from where numbers were
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Speaker 2: last year. In the Q one of twenty six we
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Speaker 2: saw twenty five plus percent earnings growth year over year
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Speaker 2: for those companies in the S and P five hundred,
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Speaker 2: and it's projected that we will do another twenty percent
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Speaker 2: plus in Q two of this year. However, with the
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Speaker 2: backdrop on all of that earnings growth, a lot of
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Speaker 2: it does stem from the significant amount of spend from
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Speaker 2: hyperscalers to build out artificial intelligence capabilities through data centers.
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Speaker 2: To be clear, it's not just the tech sector that
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Speaker 2: is reporting earnings growth, but they are a big contributing factor.
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Speaker 2: And anytime you see a significant increase in estimates for
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Speaker 2: profit growth. We have seen consensus estimate for profit growth
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Speaker 2: that have risen about twenty percent in the last six months.
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Speaker 2: That's the biggest since twenty twenty one. Anytime you see that,
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Speaker 2: you're putting a high bar for a lot of the
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Speaker 2: companies in the market, and that can be very fickle.
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Speaker 2: It can quickly change estimates and earnings projections on a
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Speaker 2: drop of a hat. If there's any sort of shift
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Speaker 2: in macro economic sentiment, whether in becomes a runaway problem
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Speaker 2: that could thwart some of the earnings growth that we've seen,
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Speaker 2: or if there's any dent to AI sentiment and spend
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Speaker 2: it all that could make it more difficult for a
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Speaker 2: lot of these companies to hit mark. What's now a
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Speaker 2: higher benchmark for them out there.
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Speaker 3: Yeah, earnings are very pro cyclical. They move with the
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Speaker 3: business cycle. They tend to grow as the economic expansion matures,
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Speaker 3: and then they collapse when the economy starts to contract.
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Speaker 3: You can rely on that. It's just the nature of earnings.
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Speaker 3: They're highly geared toward the economy, which is why you
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Speaker 3: shouldn't just look at the past twelve months of earnings
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Speaker 3: and compare that to current price or even the expected
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Speaker 3: earnings over the next twelve That doesn't really give you
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Speaker 3: a good sense of sustainable earnings growth. That's one. I
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Speaker 3: phrase that a little awkwardly, but you get the picture.
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Speaker 3: So measures that smooth out the effects of the business cycle,
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Speaker 3: like the so called cyclical adjusted which is a fancy
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Speaker 3: way of saying it's smoothing out the effects cyclically adjusted
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Speaker 3: price to earnings, also known as the Shiller pe after
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Speaker 3: one of the financial economists who popularized the measure. That's
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Speaker 3: at just about where it was it at the top
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Speaker 3: of the dot com boom. Is that a terrifying thing?
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Speaker 3: Well a little bit. Now, maybe AI is different. Maybe
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Speaker 3: the dot dot com investment frenzy did not translate into
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Speaker 3: higher economic growth there was. The economy in fact contracted,
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Speaker 3: not coincidentally at the same time the boom was peaking.
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Speaker 3: So you know, if there's a recession around the corner,
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Speaker 3: could be for any number of reasons. It doesn't appear
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Speaker 3: to be possible right now with all the investment by
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Speaker 3: data center so called hyperscalers that people that are building
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Speaker 3: out these data centers to support AI software. If that
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Speaker 3: investment frenzy continues, fine, If it reverses for some reason,
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Speaker 3: and it will eventually, the economy is in trouble in
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Speaker 3: source stocks.
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Speaker 2: It when we talk about these valuation metrics worth noting
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Speaker 2: that long term they're good predictors from a trend perspective,
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Speaker 2: but short term you really can't glean much from them
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Speaker 2: at all in terms of their impact on how markets trade.
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Speaker 4: One area that has been a.
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Speaker 2: Huge, sort of fulcrum for the S and P five
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Speaker 2: hundred increases that we've seen year to date has been
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Speaker 2: these sort of lesser known companies. Oftentimes, when we talk
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Speaker 2: about the tech sector, it's the big ones that many
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Speaker 2: listeners would be familiar with. It's the Microsofts, it's the
7:34
Speaker 2: in videos now recently it's the Apples of the worlds
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Speaker 2: that have been big contributors to gains in the market.
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Speaker 2: But this year and really the last twelve months plus,
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Speaker 2: Micron and SanDisk, which our memory chick companies, have really
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Speaker 2: seen just meteoric rises in their stocks. Sandys is up
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Speaker 2: thirty seven hundred percent over the course of the last
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Speaker 2: twelve months. Micron has served or upwards of hundreds of
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Speaker 2: percent too, I believe somewhere seven hundred to eight hundred
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Speaker 2: percent over the last maybe even year to date. They've
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Speaker 2: increased significantly. They're responsible for one sixth of the S
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Speaker 2: and P five hundreds gains. Micron specifically, and those memory
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Speaker 2: chip providers usually why they are not talked about as
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Speaker 2: much as it's a commodity. They produce chips that go
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Speaker 2: into your PCs at work as well as different servers
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Speaker 2: that allow for your devices to store memory. It could
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Speaker 2: be short term for usage on a day to day basis,
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Speaker 2: or it could be longer term memory for all the
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Speaker 2: files and photos and storage that you may have in
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Speaker 2: a device or that a server has in it in
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Speaker 2: its devices. But what has happened is because of this
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Speaker 2: AI Data center bill out there has just been tremendous demand,
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Speaker 2: unprecedented demand for these memory chips, and typically they can
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Speaker 2: only grow their supply at twenty or thirty percent a year.
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Speaker 2: The demand far that and so as a result of that,
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Speaker 2: businesses that typically ran under tighter profit margins are commanding
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Speaker 2: huge margins of earnings profit from Micron and sandis because
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Speaker 2: they're basically able to charge crazy high prices for their
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Speaker 2: memory chips because they've got some companies that have a
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Speaker 2: lot of cash in the bank that are willing to
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Speaker 2: pay for them to sort of move along their AI endeavors.
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Speaker 2: So those are the positives that Micron and Sandics have provided.
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Speaker 2: But the negative to that is that usually the memory
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Speaker 2: chip business has been a cyclical one, and as much
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Speaker 2: as there is robust demand and there is a scarcity
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Speaker 2: of supply, that can often reverse where the demand sort
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Speaker 2: of gets stripped away, And that sort of points to
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Speaker 2: what Mark and I were speaking about before that it
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Speaker 2: is a risk that looms out there that if there's
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Speaker 2: any dent to the demand side, then very quickly you
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Speaker 2: have to adjust your earnings expectations and you lead to
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Speaker 2: market corrections. After that, we're going to take a quick
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Speaker 2: break here on.
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Speaker 4: The Financial Exchange.
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Speaker 5: Time for trivia here on the Financial Exchange. In today's
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Speaker 5: Sylvester Stallone's eightieth birthday. The creator and star of the
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Speaker 5: In the early nineties, Stallone teamed up with Bruce Willis
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Speaker 5: and Arnold Schwarzenegger in a restaurant venture. So our trivia
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Speaker 5: question today, what was the restaurant chain Stallone, Willis and
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Speaker 5: Schwarzenegger were part owners of?
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11:49
Speaker 2: There has been a ongoing study that's done by has
11:53
Speaker 2: been done by Hendrik Besseenberbinder, a finance professor at Arizona
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Speaker 2: State University, where he has been tried sucking the gains
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Speaker 2: and losses of the stock market for over one hundred years.
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Speaker 2: And in particular, what he had discovered is basically very few,
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Speaker 2: a handful of very few companies were responsible for the
12:16
Speaker 2: line's share of the significant return that any investor would
12:19
Speaker 2: have had investing in some index out there like the
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Speaker 2: S and P five hundred. In his recent findings, he
12:27
Speaker 2: demonstrated that a handful of elite stocks such as Apple, Nvidia,
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Speaker 2: and Microsoft had churned out spectacular turns that had accounted
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Speaker 2: for mostly all of investors profits for the entire century
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Speaker 2: here from two thousand on, but ninety six percent of
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Speaker 2: the stock market had done nothing during that same period
12:48
Speaker 2: of time. There's a piece here in the New York
12:50
Speaker 2: Times that kind of flips that finding on its head,
12:53
Speaker 2: and rather than scrutinizing the companies that had provided the
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Speaker 2: best returns over the best hundred years, this piece went
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Speaker 2: to focus on some of the ones that had found
13:05
Speaker 2: the worst returns over the last one hundred years and
13:08
Speaker 2: the findings that they came up with. Here are the
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Speaker 2: following names, World com Loosent Technologies, Jacovia, and Rivian. These
13:18
Speaker 2: are the companies that are members of the dubious group
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Speaker 2: of the worst stock market investments of the last century.
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Speaker 2: And it's just interesting to point out not these four
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Speaker 2: names specifically Mark, but I have been sort of intrigued
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Speaker 2: by the findings of Bessenbinder in terms of a concentration
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Speaker 2: of a few companies that have really been responsible for
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Speaker 2: a significant amount of the performance. And I guess that's
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Speaker 2: why U Index invest is to get that diversified approach,
13:47
Speaker 2: because finding those three or four it's really easy to say,
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Speaker 2: hide sight being twenty twenty. Gee, if I had just
13:53
Speaker 2: invested in Vidia, Microsoft, and Apple, I'd be in pretty
13:57
Speaker 2: good shape. But finding those is far harder than just
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Speaker 2: having a basket of five hundred companies, for example, that
14:04
Speaker 2: are diversified through many industries.
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Speaker 3: Now you wouldn't think that you'd think it would be
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Speaker 3: easier to identify winners in advance good companies, well run companies.
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Speaker 3: But it's more complicated than that. Yeah, is all I
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Speaker 3: can say. I mean, metrics don't do all the analysis
14:19
Speaker 3: in the world, and we have a lot of data
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Speaker 3: at our fingertips, no matter how transparent reporting becomes, and
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Speaker 3: it's pretty transparent right now at a company level, I mean,
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Speaker 3: it's just not enough information to predict winners, probably because
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Speaker 3: consumer preferences change the structure of the economy changes for
14:40
Speaker 3: the same reasons. I guess it's hard to predict. Predicting
14:45
Speaker 3: economic growth is it's year over year is very difficult. Obviously,
14:49
Speaker 3: your best guess is just what it did last year,
14:51
Speaker 3: and of course you're going to miss turning points. A
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Speaker 3: long term. You know, we've got labor force growth to
14:56
Speaker 3: go by, and that's largely baked into the cake. But
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Speaker 3: productivity is the missing all. We don't know what that's
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Speaker 3: going to be because we don't know what technology how
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Speaker 3: technology is going to evolve, and that, I guess brings
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Speaker 3: us back to this. I don't know quite where I
15:09
Speaker 3: was going with my little digression there, but I guess
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Speaker 3: it's that the evolution of technology is unpredictable. Therefore you
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Speaker 3: don't know, as you said, who the winners are going
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Speaker 3: to be. Therefore, if you need stock market like returns,
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Speaker 3: because you need x growth percent a year to get
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Speaker 3: your portfolio to the point where when you annuitize it,
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Speaker 3: I don't mean literally, so maybe you just do it yourself.
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Speaker 3: In retirement, you need X number of dollars a year
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Speaker 3: to finance the lifestyle you want to live. That means
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Speaker 3: you need x percent growth. It's not the same X here,
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Speaker 3: I'm just X means unknown. You need x percent between
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Speaker 3: now and then, your best bet is just to spread
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Speaker 3: your capital out.
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Speaker 4: Yeah, that really is the case.
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Speaker 3: Like you said, for anyone two seconds, it took me
15:50
Speaker 3: three minutes there.
15:51
Speaker 4: For anyone who's interested.
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Speaker 2: Hendrik Besenbinder is the finance professor, and I just encourage
15:56
Speaker 2: you to google him. His findings are are interesting for
15:59
Speaker 2: anyone who just you know, enjoys following the market and
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Speaker 2: its history, particularly on the winner side. I know this
16:05
Speaker 2: New York Times piece focus on the losers, but for
16:08
Speaker 2: any client or friend that you've talked to, you don't
16:11
Speaker 2: often hear about their biggest losers. You hear about their
16:14
Speaker 2: biggest winners when it comes to individual stock picks. So
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Speaker 2: some good findings in there. Another piece from the New
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Speaker 2: York Times here is six things that drive us crazy
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Speaker 2: about money in America. The US celebrated its two hundred
16:27
Speaker 2: and fiftieth birthday over the weekend, and the New York
16:32
Speaker 2: Times decided to assemble it's six things that drive it
16:35
Speaker 2: the craziest in terms of the way the United States
16:39
Speaker 2: goes about handling money tipping. This one, I know, has
16:42
Speaker 2: been a very popular feature on the Financial Exchange complaints
16:45
Speaker 2: about the tipping culture in the United States. It's far
16:48
Speaker 2: different from many other countries. If you go to Europe,
16:52
Speaker 2: the idea of tipping like we tip here in the
16:55
Speaker 2: United States is completely foreign and sometimes frowned upon. But
17:00
Speaker 2: what has really driven the ire of the Financial exchange
17:04
Speaker 2: hosts and producers is the prevalence of tipping for a
17:09
Speaker 2: service in ahead of time. Door dass is an example
17:12
Speaker 2: of that, where you're asked to tip your driver before
17:14
Speaker 2: they've actually completed the endeavor of delivering you your food.
17:19
Speaker 2: You now see it abundantly at Kiosk where you go
17:23
Speaker 2: to pick up your coffee, or wherever you may be
17:26
Speaker 2: going where it's not an overly complicated service that they're providing,
17:30
Speaker 2: but you're asked at the end if you want to
17:32
Speaker 2: add a tip, so that one I definitely can get
17:35
Speaker 2: behind here as an area that is probably a little
17:38
Speaker 2: ridiculous that the United States does some of the other
17:42
Speaker 2: ones they mentioned. Moving money is one that I think
17:46
Speaker 2: that there's been improvements on this front, where for the
17:49
Speaker 2: most part, unless you're trying to get money out same
17:53
Speaker 2: day and you run into having to do a wire transfer,
17:56
Speaker 2: which can certainly be a pain in the neck and
17:59
Speaker 2: could have a feisociated with it. Most often, through all
18:02
Speaker 2: these different financial service platforms, you could do it within
18:05
Speaker 2: twenty four hours. I agree with the argument perhaps that
18:10
Speaker 2: it should be maybe more seamless to that. I think
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Speaker 2: we'll get to that point, but less of a pain
18:16
Speaker 2: point for me. Paper checks are another one that's pointing
18:20
Speaker 2: out here that waiting for a check in the mail
18:23
Speaker 2: or waiting for checks the clearer does feel a little
18:25
Speaker 2: bit outdated with all the tech updates that we've had.
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Speaker 3: Where from peer here, I would add getting money out
18:30
Speaker 3: of your four oh one K electronic transfer. Some record
18:34
Speaker 3: keepers will do electronic transfers, but as many of you
18:36
Speaker 3: have experienced, when you do a rollover something for some reason,
18:40
Speaker 3: I get the rollover check payable to new record keeper
18:43
Speaker 3: or Charles Schwab or whomever, yep, and then I have
18:46
Speaker 3: to send it to them. Some will send it directly,
18:49
Speaker 3: others do. There's no uniform there's like clearinghouse for tax
18:52
Speaker 3: deferred money. Is that process has not changed in thirty years.
18:57
Speaker 3: Other things have come a long way.
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Speaker 4: Yeah, they range.
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Speaker 2: The other ones that they mentioned here are filing taxes
19:03
Speaker 2: and college costs. I don't think there's a single person
19:05
Speaker 2: in this country who would disagree with.
19:07
Speaker 4: The college cost piece.
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Speaker 2: Pretty much everyone is in alignment there that those have
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Speaker 2: been out of control for a really long time. Here,
19:15
Speaker 2: we're going to take a quick break here on the
19:18
Speaker 2: Finished Exchange. Markets are in mixed territory of the S
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Speaker 2: and P five hundred up two thirds of a percent,
19:23
Speaker 2: and the Dow Jones off only sixty points. We'll be
19:26
Speaker 2: right back with the trivia Winner and Wall Street Rots
19:29
Speaker 2: right after this break.
19:38
Speaker 1: Bringing the latest financial news straight to your radio. Every day,
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Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network,
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Speaker 1: tight out full world Street Watch treking the stocks, the data,
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Speaker 1: on the Financial Exchange Radio Network.
19:58
Speaker 5: All Street's back from the July fourth holiday and seeing
20:01
Speaker 5: a tech rally to begin the week. Right now, the
20:04
Speaker 5: Dow is down about a tenth of a percent, SMP
20:07
Speaker 5: five hundred is up seven tenths of a percent, NASDAK
20:11
Speaker 5: now up one point three percent, or three hundred and
20:14
Speaker 5: thirty three points higher. RUSS two thousand is up just
20:16
Speaker 5: over three quarters of a percent, Tenure Treasure real is
20:20
Speaker 5: flat at four point four to eight percent, and oil
20:23
Speaker 5: is flat as well, trading at sixty eight dollars. A
20:26
Speaker 5: barrel breaking news from Microsoft's Xbox division this morning, after
20:31
Speaker 5: the tech giant said it plans to eliminate thirty two
20:34
Speaker 5: hundred jobs, or around twenty percent of its staff, as
20:38
Speaker 5: part of a massive reorganization to spur growth in the
20:41
Speaker 5: struggling gaming division. Sixteen hundred jobs will be eliminated today
20:47
Speaker 5: and the rest will be executed over the next twelve months.
20:52
Speaker 5: Microsoft shares are down by one percent. Sticking with tech
20:55
Speaker 5: where Broadcom announced this morning it will provide custom chips
20:58
Speaker 5: for Apple in an expanded deal that runs through twenty
21:02
Speaker 5: thirty one, Broadcon jumping nearly four percent, while Apple shares
21:06
Speaker 5: are up by one percent. Meanwhile, budget UK airline easy
21:11
Speaker 5: Jet agreed in principle to a takeover offer by US
21:14
Speaker 5: investment firm Castle Lake and a deal that could exceed
21:17
Speaker 5: seven billion dollars. In Bank of America upgraded Tea Mobile
21:20
Speaker 5: to buy from neutral, citing peak bearishness in the telecommunications sector.
21:26
Speaker 5: T Mobile stock up nearly two percent today. I'm Tucker
21:32
Speaker 5: Silva and that is Wall Street Watch. And in the
21:34
Speaker 5: previous segment, we asked you the trivia question what was
21:38
Speaker 5: the restaurant chain Sylvester Stallone, Bruce Willis and Arnold Schwarzenegger
21:43
Speaker 5: were part owners of that would be Planet Hollywood and
21:47
Speaker 5: Martin and Hyenas Mass is our winner today taking on
21:50
Speaker 5: the Financial Exchange Show t shirt. Congrats to Martin and
21:53
Speaker 5: we play trivia every day here on the Financial Exchange.
21:57
Speaker 5: See complete contest rules at Financial excas chin show dot com.
22:01
Speaker 2: Private credit was an area of markets that was not
22:05
Speaker 2: often spoken about until the course of the last six
22:08
Speaker 2: to twelve months or so. It's an area of private
22:12
Speaker 2: markets that had seen tremendous growth over the last decade
22:15
Speaker 2: plus or so. As banks came out of the Great
22:19
Speaker 2: Financial Crisis, they were less likely to lend to some
22:24
Speaker 2: of these more middle market businesses or smaller businesses that
22:28
Speaker 2: might need capital for any type of endeavors, expanding their business,
22:33
Speaker 2: financing purchase orders, many different uses out there, and as
22:37
Speaker 2: a result, the private equity space had really picked up
22:41
Speaker 2: the slack from a lending perspective by lending money to
22:45
Speaker 2: these institutions to allow them to borrow to fund their growth.
22:50
Speaker 2: And the reason it got into the headlines was because
22:53
Speaker 2: we did see a couple of high profile bankruptcies within
22:58
Speaker 2: the space, not of significantly well known companies, but there
23:02
Speaker 2: was concerns that perhaps this was cracks in the private
23:06
Speaker 2: credit lending market. What we've seen more recently now is
23:10
Speaker 2: that there was initially a rush to the door for
23:14
Speaker 2: retail investors to flee.
23:16
Speaker 4: Fled.
23:16
Speaker 2: They wanted to flee the fleet. Is that even right, fled? Yeah,
23:21
Speaker 2: these products flooded it.
23:23
Speaker 4: Maybe we're gonna check this up to the three day weekend.
23:27
Speaker 4: They left.
23:28
Speaker 2: They wanted their money back, as retail money typically does.
23:31
Speaker 2: They're the dumb money, oftentimes quoted as no offense to
23:35
Speaker 2: anyone out there. I'm not saying our listeners are like that,
23:38
Speaker 2: but there are retail investors.
23:40
Speaker 4: Out there we have.
23:42
Speaker 2: Yeah, those are the ones who typically run for the
23:45
Speaker 2: door first when they see signs of trouble. What we've
23:47
Speaker 2: seen is that institutional investors have put money in. Institutional
23:52
Speaker 2: clients in the second quarter have raised about sixteen billion
23:56
Speaker 2: dollars in these private credit funds. And so I tried
24:00
Speaker 2: to give the best backdrop I could mark, but perhaps
24:03
Speaker 2: you can fill in some of the gaps minus my
24:06
Speaker 2: wrong word choices on well.
24:07
Speaker 3: When there's indiscriminate selling, savvy buyers can sift through the wreckage.
24:11
Speaker 3: And that's what institutional investors are. They're sophisticated, savvy buyers.
24:15
Speaker 3: They are. Their moneies are mediated by consultants who have
24:20
Speaker 3: huge staffs devoted just to analyzing private markets. They've got
24:24
Speaker 3: public market people too, but specialists, which is what this
24:28
Speaker 3: asset class, this area of the markets requires, and it's
24:31
Speaker 3: a discriminate selling is a great opportunity because retail investors
24:36
Speaker 3: us the dumb money might be throwing the baby out
24:38
Speaker 3: with the bathwater, and some of that might be valuable,
24:42
Speaker 3: so they can again sift through that which was indiscriminately
24:46
Speaker 3: sold and by solid stuff that's likely to stuff backed
24:55
Speaker 3: by companies debt backed by companies that are likely to
24:57
Speaker 3: be able to repay the debt that they that they heard.
25:01
Speaker 3: That's what institutional investors do. Oh nine was a huge
25:04
Speaker 3: opportunity in credit, not necessarily. Private credit was a newish
25:08
Speaker 3: asset class then, but public credit got hammered savvy investors
25:13
Speaker 3: who had dry powder, who kept cash on the sideline.
25:17
Speaker 3: Souce I don't love that expression, but you know what
25:18
Speaker 3: I mean. We're able to back up the truck.
25:22
Speaker 4: If it's an example of that.
25:23
Speaker 3: Pennies on the You got good value for pennies on
25:26
Speaker 3: the dollar.
25:26
Speaker 2: How about the private credit bubble? Is that something I
25:29
Speaker 2: haven't been super attuned too recently? Is that something that
25:32
Speaker 2: fears are still exists out there? It seems like it's
25:35
Speaker 2: not been talked about as much recently than it was earlier.
25:38
Speaker 4: This year.
25:39
Speaker 2: Anything that you've seen within economic data or coverage that
25:44
Speaker 2: points to those concerns other than the retail investor EXOSI class.
25:48
Speaker 3: Has gotten bigger. So if there was a bubble before,
25:50
Speaker 3: it's worse. Right, It's very possible there's a bubble related
25:55
Speaker 3: to everything's in an AI bubble right now. We know
25:57
Speaker 3: how this is going to end for AI and how oversupply,
26:01
Speaker 3: how boombust these businesses supplying AI data center hyperscalers are.
26:07
Speaker 3: It's going to end tiers. We all know it. There
26:10
Speaker 3: are managers who are well positioned for that. There are
26:12
Speaker 3: managers who are not. So No, I haven't heard anything
26:16
Speaker 3: like new. But when AI takes the economy down, and
26:19
Speaker 3: forgive me, but it will eventually, AI could still be revolutionary.
26:22
Speaker 4: That's a good point to distinction to make. It could
26:24
Speaker 4: still be.
26:26
Speaker 3: The world is very different today than it was in
26:28
Speaker 3: nineteen ninety two.
26:29
Speaker 4: I like to point that out.
26:30
Speaker 3: Yeah, no, no, the internet changed. I mean when I
26:32
Speaker 3: went to college, I worked on a word processor and
26:35
Speaker 3: my first job email was sort of new. It was internal.
26:37
Speaker 3: Nobody even thought about accessing it from home. World is
26:40
Speaker 3: very different now and better and better period. Healthcare alone,
26:45
Speaker 3: the electronic transmission of records between your GP and very
26:50
Speaker 3: special and it's amazing. So it did change the world
26:53
Speaker 3: for the better. Did it change the trend and economic growth?
26:56
Speaker 1: Though?
26:56
Speaker 3: If you look at for example, GDP, No doesn't it
26:58
Speaker 3: appear to.
26:59
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28:14
Speaker 2: Many of you may remember on the sitcom Seinfeld that
28:18
Speaker 2: George Costanzo was faced with the doom and gloom that
28:22
Speaker 2: comes with moving back into his parents' home. However, the
28:26
Speaker 2: Wall Street Journal argues that George was actually granted this
28:31
Speaker 2: is probably twenty or thirty years ago. He was doing it.
28:34
Speaker 2: He was making a smart move. Moving back home now,
28:37
Speaker 2: according to the Wall Street Journal, is not a sign
28:40
Speaker 2: of failure, it is actually showing financial savvy. Nearly half
28:45
Speaker 2: of American adults under the age of thirty have been
28:48
Speaker 2: pinched by the cost of high housing or high housing
28:51
Speaker 2: costs rather and they're living with a parent. It can
28:55
Speaker 2: certainly be an adjustment. And this Wall Street Journal piece
28:58
Speaker 2: goes into that I do here often meeting with clients
29:02
Speaker 2: that it is more prevalent to have Mark, someone in
29:07
Speaker 2: their twenties who's post college living with some clients that
29:12
Speaker 2: we deal. So I'm not exactly shocked by this piece
29:15
Speaker 2: in terms of the prevalence of it. Housing costs are
29:20
Speaker 2: very high from an affordability standpoint. There may be some
29:23
Speaker 2: listeners out there that are moaning, complaining that ge the
29:25
Speaker 2: interest rates on mortgages now are far lower than where
29:29
Speaker 2: they were when we were borrowing to buy our homes,
29:32
Speaker 2: you know, thirty forty years ago. But what has also
29:36
Speaker 2: occurred is prices have gone up fifty percent over the
29:39
Speaker 2: last five or six years. So those two things, combined,
29:41
Speaker 2: interest rates basically doubling and the prices going fifty percent
29:45
Speaker 2: have led led to a lot of people in their
29:49
Speaker 2: twenties and thirties living at home with mom and dad.
29:53
Speaker 3: Yeah, it makes financial sense.
29:55
Speaker 2: It does, that's obvious, but there are, of course the
30:00
Speaker 2: drawbacks that come with it.
30:01
Speaker 4: I think all of us can can understand what.
30:04
Speaker 3: Yeah, when your parents come home late after partying. Yeah,
30:09
Speaker 3: it's smoking pot parents.
30:12
Speaker 2: I did it for about a year and change right
30:15
Speaker 2: out of college, and very helpful financially, try to attack
30:18
Speaker 2: some of the student loans. But eventually you want to
30:23
Speaker 2: move out and it runs its course. But hopefully for
30:26
Speaker 2: those people who find themselves in that camp where forty
30:30
Speaker 2: nine percent of adults under the age of thirty lived
30:34
Speaker 2: with their parents according to the Federal Reserve. That's up
30:36
Speaker 2: twelve percent from twenty nineteen, hopefully those people can find
30:40
Speaker 2: themselves flying the nest sometime soon here in the fall months,
30:45
Speaker 2: or perhaps towards the end of the year. We're going
30:47
Speaker 2: to take a quick break here on the Financial Exchange
30:49
Speaker 2: when we come back, a little.
30:50
Speaker 4: Bit of stack Roulette right after this.
30:53
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30:56
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31:00
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31:27
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31:45
Speaker 2: All right, it's time for a little bit of stack roulette. Mark,
31:48
Speaker 2: I will let you got lead off here. What do
31:51
Speaker 2: you got for us?
31:51
Speaker 3: Bloomberg headline anti Musk Retail investors scramble to keep SpaceX
31:55
Speaker 3: out of their portfolios, and they interview a few retail investors.
32:00
Speaker 3: They don't They have a good amount some of them,
32:03
Speaker 3: but not big fortunes, and they're spending enormous amounts of
32:07
Speaker 3: time to try to make sure that funds that they own,
32:09
Speaker 3: some of which might be actively managed, some of which
32:12
Speaker 3: which you can't do anything about. You never know where
32:14
Speaker 3: an active manager is going to go. So no active
32:16
Speaker 3: manager is going to tell you I will never buy
32:17
Speaker 3: that stock. That would be crazy. Indo seas, like we
32:20
Speaker 3: talked about earlier, there's the so called NASDAQ one hundred,
32:22
Speaker 3: which is a sort of rule based I wouldn't quite
32:24
Speaker 3: call it an index, but anyway we know that's going
32:26
Speaker 3: to have it s and P five hundred will not
32:28
Speaker 3: for some time, they have listing requirements and other criteria,
32:33
Speaker 3: they rule it out. My reaction for what it's worth.
32:37
Speaker 3: My reaction is my god, what a waste of time. Yeah,
32:39
Speaker 3: and they're all politically they all have sort of a
32:41
Speaker 3: political action grind. I get that. I mean, Musk says
32:43
Speaker 3: some things that are going to offend. He's a brilliant guy.
32:46
Speaker 3: He's built great businesses. How can you deny that? What
32:48
Speaker 3: a great American story. Yes, his blood and soil nationalism
32:51
Speaker 3: sort of annoys me. He's really obsessed with like immigration
32:54
Speaker 3: and where people come from, and like that's not America, pal.
32:58
Speaker 3: But maybe if he's here another twenty five years, he'll
33:00
Speaker 3: learn what's made America great from those of us who
33:02
Speaker 3: are descended from immigrants who came from undesirable places Southern Europe.
33:06
Speaker 3: In my case, Muscle learned that eventually we'll let that go.
33:10
Speaker 3: These built tremendous businesses. Now I'm not saying you have
33:12
Speaker 3: to buy it, but don't make investment decisions based on
33:15
Speaker 3: politics or you're mad at who the president is. Stocks
33:17
Speaker 3: tend to go up either way. You hear supporters of
33:20
Speaker 3: You heard supporters of Obama in the twenty tens saying, well,
33:24
Speaker 3: I just look at my four.
33:24
Speaker 1: Oh one k.
33:25
Speaker 3: Look at how that's doing. Yeah, well, that's called a
33:27
Speaker 3: trend line, buddy, And it's very hard to get stocks
33:29
Speaker 3: to go down. Trump managed to do it with his tariffs,
33:32
Speaker 3: which were poorly designed, poorly rolled out, but he recovered,
33:35
Speaker 3: He pulled back on all of it, and stocks ended up.
33:37
Speaker 3: Stocks are like a helium balloon. You got to really
33:39
Speaker 3: tug down to keep it front. You gotta really screw up.
33:42
Speaker 3: If your actions are the instigator of a stock market declined,
33:47
Speaker 3: you got to really try hard. It's hard to screw
33:49
Speaker 3: up that trend line. So why you wouldn't want to
33:52
Speaker 3: take advantage of that as an investor because of some
33:54
Speaker 3: political nitpicking. Maybe it's not, maybe like their life revolves
33:59
Speaker 3: around it, but it's just it's a silly use of
34:01
Speaker 3: your time.
34:02
Speaker 2: I had similar takeaways reading that piece this morning, where
34:06
Speaker 2: it's so hard to do. The amount of effort that
34:08
Speaker 2: you have to expend to avoid having the exposure to Tesla,
34:11
Speaker 2: in particular, because it is a pretty significant part of
34:14
Speaker 2: the s and P. Five hundred is far you know,
34:19
Speaker 2: you're far worse off doing that to try and you know,
34:23
Speaker 2: pour money into European equities or however they mentioned trying
34:27
Speaker 2: to get around this issue. It just feels like far
34:30
Speaker 2: more effort than it's really worth at the end of
34:33
Speaker 2: the day.
34:34
Speaker 3: Plus you could never be sure that the rules won't
34:36
Speaker 3: hit You're constantly scrammed.
34:38
Speaker 4: It's hard. It's very hard to do.
34:39
Speaker 3: If you've got an active manager, forget about it. They
34:41
Speaker 3: could always buy the stock unless they tell you they're
34:43
Speaker 3: not going to. But they could change their policy too.
34:47
Speaker 3: It's just it would become a part I don't mean
34:49
Speaker 3: to diminish principled investing. So I was a little too stringent,
34:53
Speaker 3: a little too strident. I don't mean to diminish that.
34:56
Speaker 3: Like some people feel like they don't want to own tobacco, firearms,
34:58
Speaker 3: I get those. Alcohol. I don't mean to diminish social
35:03
Speaker 3: considerations driven disting.
35:05
Speaker 4: I understand those.
35:05
Speaker 3: But at the same time, you're spending a lot of time.
35:08
Speaker 3: You're going to be spending your wheels at some point
35:10
Speaker 3: because you can never keep the U'SE never any assurance you.
35:13
Speaker 4: Can keep it out. Yeah.
35:15
Speaker 2: US sales of non alcoholic beer have soared there, up
35:20
Speaker 2: sixteen percent from a year before. We had covered a
35:23
Speaker 2: story on the program where around the Greater Boston area
35:27
Speaker 2: we've actually seen blowout numbers in terms of alcohol sales.
35:31
Speaker 2: A lot of that is due to the Scottish who
35:35
Speaker 2: visited here for the World Cup. The numbers that the
35:39
Speaker 2: Boston area did in terms of bar sales year over year,
35:42
Speaker 2: I forget, was twenty five percent. It was just some
35:44
Speaker 2: crazy record number, maybe ten fifteen percent increase from the
35:49
Speaker 2: prior year. But over the course of the July fourth weekend,
35:52
Speaker 2: I'm sure there was a lot of consumption of beer two.
35:56
Speaker 2: But the non alcoholic one has become the area where
35:59
Speaker 2: these these companies like Amheuser, Bush and Constellation Brands are
36:03
Speaker 2: focusing a little.
36:04
Speaker 4: Bit more on that.
36:05
Speaker 2: It's still only about one billion for all non alcoholic beer,
36:10
Speaker 2: wine and spirits. That made up one percent of the
36:14
Speaker 2: overall alcohol beverage market, which is about one hundred billion
36:18
Speaker 2: dollar industry, but that is the new area of focus.
36:22
Speaker 2: Drinks is such a hard business. I feel like the
36:26
Speaker 2: you know, preferences changed rapidly, and you're always just tracing
36:30
Speaker 2: a trend that seems like it's impossible to keep on
36:33
Speaker 2: top of it. I mean, that's their job to do it,
36:35
Speaker 2: and I'm just an armchair, lowly financial exchange host who's
36:39
Speaker 2: trying to keep up with it, but it just feels
36:40
Speaker 2: like it's always shifting preferences and it's hard to keep
36:43
Speaker 2: up with it. And drinks business is a really hard
36:45
Speaker 2: one to be in.
36:46
Speaker 3: Yeah, thankfully, it's not. You just change your you know
36:51
Speaker 3: you you if you're a purchaser, you just change.
36:53
Speaker 4: The order a little bit, right, Yeah, Yeah.
36:56
Speaker 3: I imagine they don't keep like big inventories.
36:58
Speaker 2: The Athletic Brewing Company is probably the most prevalent one
37:02
Speaker 2: that you'll see in the non alcoholic space. They've got
37:04
Speaker 2: about twenty three percent market share. They've really tried to
37:08
Speaker 2: make a push to bring their non alcoholic beard.
37:11
Speaker 3: Also from a manufacturer's point of view, Yeah, like we
37:14
Speaker 3: how how how what's the change over time? Like on
37:18
Speaker 3: a what do you you know?
37:20
Speaker 4: What do you call the excuse? Thank yeah?
37:23
Speaker 3: Like can they they have to drain it all? Like
37:26
Speaker 3: could they do that in a day? Does it take
37:28
Speaker 3: a week? Like we want to go from an alcoholic alcoholic?
37:30
Speaker 2: I don't know how sam As build it. Yeah, you
37:35
Speaker 2: would think they would be able to pivot it pretty quickly.
37:38
Speaker 3: God forbid, I look this up rather than just ask
37:40
Speaker 3: the question. It's probably a very clean, straightforward answer.
37:42
Speaker 2: It will be interesting to see if that trend continues.
37:45
Speaker 2: Certainly it's been a focus on Americans drinking less, whether
37:49
Speaker 2: that health consciousness I think is a big part of that,
37:53
Speaker 2: but how much market share that grabs. Personally, for me,
37:57
Speaker 2: not not really a fan of going in that direction,
38:00
Speaker 2: but I guess I'll never say never.
38:02
Speaker 3: It's like decaf coffee, all you get her?
38:04
Speaker 4: Stained Yeah, I don't. I don't get them right now,
38:07
Speaker 4: but I do. I don't know what I don't get.
38:08
Speaker 4: I don't get it either.
38:09
Speaker 2: That's all the time that we have for this episode
38:11
Speaker 2: of the Financial Exchange, but will be back out tomorrow
38:13
Speaker 2: at ten a m.
38:14
Speaker 4: Thanks so much for joining us.