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Samsung’s AI Chip Warning Hits the Tech Rally · The Financial Exchange Show

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  Speaker 1: This is the Financial Exchange with Paul Lane and Mark Vandetti.
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  Speaker 2: Welcome back to this Tuesday edition of the Financial Exchange.
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  Speaker 2: Paul Lane, Mark Fandetti, and Tucker Silva here with you
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  Speaker 2: on a rainy Tuesday as we take a look around
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  Speaker 2: at what is a relatively quiet week for the economy
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  Speaker 2: and markets, coming off of the job support that we
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  Speaker 2: had last week. We will get the beginning of earning
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  Speaker 2: season later this week for Q two. It really will
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  Speaker 2: kick into high gear the following week when some of
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  Speaker 2: the banks report. We will also though, get some FED
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  Speaker 2: meeting minutes tomorrow at two o'clock, so investors will be
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  Speaker 2: keen to see if they can parse any information from
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  Speaker 2: those minutes releases. But we start our program today with
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  Speaker 2: a little bit of focus on the chip market, in
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  Speaker 2: particular Samsung, in terms of what has been going on
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  Speaker 2: with the tech sector and more specifically the memory market.
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  Speaker 2: There have been companies such as Samsung, Micron, sand Disk,
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  Speaker 2: and others that produce memory for a lot of electronic
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  Speaker 2: devices that previously were businesses that were not very exciting
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  Speaker 2: to follow. They create this memory technology that is a
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  Speaker 2: commodity and an analogy I would uses, you know, like
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  Speaker 2: hotel rooms or airline seats. It's really doesn't differentiate too
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  Speaker 2: much from player to player what Samsung produces in terms
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  Speaker 2: of memory and its capacity versus Micron. The differences are
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  Speaker 2: relatively minor, and I'm oversimplifying, but I think it's helpful
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  Speaker 2: to try and keep this as simple as possible when
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  Speaker 2: you're looking at the memory market, and previously, what would
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  Speaker 2: happen with memory chips is there would be these boom
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  Speaker 2: and bus cycles where a new device would come out,
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  Speaker 2: whether it's iPad, iPhones, you know, laptops, and there would
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  Speaker 2: be tremendous demand for memory, and then people would buy
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  Speaker 2: a lot of the hardware products and that demand would subside,
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  Speaker 2: and this cycle would just continue on and on, where
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  Speaker 2: Samsung and these others they'd build out these factories that
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  Speaker 2: are really expensive to put together to produce these memory chips.
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  Speaker 2: They'd flood the markets with supply, prices would crash back down,
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  Speaker 2: and their profits would just wipe away and disappear, and
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  Speaker 2: it would go over and over time and time again
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  Speaker 2: as new products were unveiled. We sit in a period
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  Speaker 2: now where the reason that these stocks have all done
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  Speaker 2: so well this year is because the dynamics are very different,
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  Speaker 2: and that is because of AI. Where now the memory
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  Speaker 2: demands for building out these data centers are just far
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  Speaker 2: greater than what the demand has been in previous cycles
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  Speaker 2: where it was kind of concentrated within smartphones and laptops
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  Speaker 2: and PCs, these AI data centers. It is another analogy
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  Speaker 2: I would make is ten years ago, putting together memory
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  Speaker 2: for these chips for laptops and PCs is like just
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  Speaker 2: putting gas in your family sedan. Now, if you're talking
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  Speaker 2: about putting the memory together for these AI data centers,
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  Speaker 2: you're talking about fueling a fleet of Boeing seven forty sevens.
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  Speaker 2: I mean, it's just really robust demand that's needed here.
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  Speaker 2: And so as a result of that, these companies like
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  Speaker 2: Sansung have been able to pay the same cost of
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  Speaker 2: goods for put in together these memory chips, but the
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  Speaker 2: prices that they're able to command are far higher. If
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  Speaker 2: they were charging one hundred bucks for a chip, and
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  Speaker 2: I know it's that's not the cost of it, the
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  Speaker 2: price of it, but if they were charging one hundred,
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  Speaker 2: they're now charging one hundred and eighty, and their cost
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  Speaker 2: of goods are are the same. So profits have just
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  Speaker 2: absolutely exploded in this space in general. That's what's been
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  Speaker 2: going on with the memory market. So Samsung did come
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  Speaker 2: out and had a profit that just exploded from where
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  Speaker 2: they were a year ago. However, contrary to what listeners
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  Speaker 2: may think, the stock is not trading upwards today. In fact,
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  Speaker 2: it's trading down ten or eleven percent and mark. The
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  Speaker 2: real debate is whether or not this is a shift
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  Speaker 2: from previous cycles, or is AI this new phenomenon that
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  Speaker 2: is going to continue to create robust demand for memory.
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  Speaker 3: Yeah, when you buy a stock, I don't care what
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  Speaker 3: last year's earnings were or what next year's earnings might be.
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  Speaker 3: I care about the next ten or twenty years. For
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  Speaker 3: the most part, some people, maybe more cynically, they just
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  Speaker 3: want to hand the stock off to a greater full
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  Speaker 3: hoping to pocket a short term gain. They don't care
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  Speaker 3: about long term prospects. But when a stock analyst evaluates prospects,
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  Speaker 3: when they bring a thesis as they call it in
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  Speaker 3: the business to the portfolio manager that head PM portfolio manager,
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  Speaker 3: they generally give them earnings projections based on their specialized
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  Speaker 3: knowledge of the industry. So the big question is the
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  Speaker 3: one that you've already laid out, which is is this
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  Speaker 3: just a one time blip? Is data center investment going
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  Speaker 3: to peter out. Yeah, just like demand for the things
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  Speaker 3: that chips. If you look at your computer or your smartphone,
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  Speaker 3: you'd be hard pressed to guess without looking at the
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  Speaker 3: computer or the smartphone what kind of chips in them.
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  Speaker 4: I don't really care.
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  Speaker 5: Does it work?
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  Speaker 3: As you said, they're interchangeable from a consumer's point of view.
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  Speaker 5: So in the.
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  Speaker 3: Past, as the business cycle started to turn, demand for
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  Speaker 3: stuff would fall. You only need so many computers. If
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  Speaker 3: you're a business, you can only upgrade so many personal electronics.
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  Speaker 3: If you're an individual consumer like us, demand would peter
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  Speaker 3: out and the industry would like collapse for a while.
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  Speaker 3: Semiconductor business, like you said, notorious or being boom bust.
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  Speaker 3: Anybody who works and it can tell you it used
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  Speaker 3: to be the case that they would be forced to
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  Speaker 3: take time off not infrequently as the business cycle started
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  Speaker 3: to turn. So the big question is is AI is
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  Speaker 3: it different this time?
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  Speaker 4: Yeah?
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  Speaker 2: Exactly exactly. I mean these numbers are eye popping. To
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  Speaker 2: be clear, it's Samsung's case. Their profit increased nineteen times
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  Speaker 2: a year over year. The stock had rallied one hundred
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  Speaker 2: and fifty percent this year. But I think that the
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  Speaker 2: market does an interesting job setting valuations for these companies.
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  Speaker 2: Mark to your point earlier, where we often talk about
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  Speaker 2: on this show, price to earnings ratio. That's just one
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  Speaker 2: of the ways that you can try and value a company.
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  Speaker 2: And there's a bunch of different ways that you can
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  Speaker 2: look at price to earnings ratios. But one of them
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  Speaker 2: can be forward looking, where you're saying, Okay, what is
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  Speaker 2: this company going to earn over the course of the
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  Speaker 2: next twelve months, and the valuation can be set that way.
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  Speaker 2: The other one can be backwards looking, where it's, hey,
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  Speaker 2: what has been the price to earnings of the company
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  Speaker 2: over the last twelve months. And these companies like a
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  Speaker 2: Micron or like some of these other ones, if you
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  Speaker 2: look at their forward price to earnings ratios, they're actually
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  Speaker 2: they're pretty low. And so the debate really comes in
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  Speaker 2: for all of these companies, for Sandsung and Microns and others,
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  Speaker 2: is oftentimes when the market is showing that this fodd
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  Speaker 2: price to earnings ratio is low, they're basically telegraphing to
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  Speaker 2: you what they feel is that the earnings are peaking,
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  Speaker 2: that they're not going to be able to continue to
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  Speaker 2: replicate these incredible numbers that they're putting up in the future.
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  Speaker 2: That is really what is at the crux of the
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  Speaker 2: debate and what we're seeing really going on in markets
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  Speaker 2: this morning where and really the last few weeks, I
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  Speaker 2: think we've seen it where the semiconductor trade or that
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  Speaker 2: index has just been very volatile because you're trying to
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  Speaker 2: gauge all of this spending is coming from concentrated players
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  Speaker 2: hyperscalers of Google and Microsoft and others. That when you
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  Speaker 2: have a few concentration of buyers, it's hard to know.
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  Speaker 2: All indications are that this will the spend will continue,
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  Speaker 2: but how.
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  Speaker 3: Long the next couple of years maybe, I mean, some
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  Speaker 3: of it's baked into the cake. We're going to have
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  Speaker 3: half a trillion dollars plus or minus pour it into
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  Speaker 3: data center infrastructure by the so called hyperscalers. What a word, salid,
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  Speaker 3: but that's what people are. That's like a common way
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  Speaker 3: to articulate it these days. So that's baked into the cake.
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  Speaker 3: Ground has been broken, stuff has been ordered, The trucks
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  Speaker 3: are coming. It's got to be put together. We can
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  Speaker 3: count on that this year. So this is one of
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  Speaker 3: the reasons why forward pees as they're reported in the
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  Speaker 3: media twelve month or are useless, Like I have every
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  Speaker 3: confidence that investment and earning is going to be spectacular
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  Speaker 3: for the next twelve almost every.
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  Speaker 4: Yes, maybe six months.
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  Speaker 3: Ye, I say every It's meant it to be tempered.
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  Speaker 3: But you know what's more interesting is what's going on
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  Speaker 3: three and five years from now.
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  Speaker 4: But it's a quarter to quarter market. That's that's how
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  Speaker 4: we operate.
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  Speaker 2: And while Samsung, like I mentioned, reporting record profit not
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  Speaker 2: enough to impress the the AI chip rally, So we'll
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  Speaker 2: continue to see how Samsung and some of these others fish.
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  Speaker 5: It's a good thing. By the way, I was encouraged
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  Speaker 5: by that reaction.
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  Speaker 4: That there was some sobriety kind of in the in
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  Speaker 4: the market.
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  Speaker 5: Yeah, that's an excellent way to put it.
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  Speaker 4: Yeah, just hey, this is this is great.
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  Speaker 2: But what the market continues to demand is that you
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  Speaker 2: continue to beat the bar that was set previously. Everyone
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  Speaker 2: knew that this was going to be a robust quarter
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  Speaker 2: in terms of their earnings, but you need to continue
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  Speaker 2: as a company to beat expectations.
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  Speaker 4: That's what the market is looking for by a lot.
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  Speaker 3: As we've been talking about, uh, we're not I'm not
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  Speaker 3: dumping on AI as a potentially revolutionary technology as potentially
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  Speaker 3: productivity boosting, et cetera. But as someone who lived through
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  Speaker 3: the Internet era, and I remember the spectacular promises being
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  Speaker 3: made by people who allegedly knew better, and they were
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  Speaker 3: both right and wrong. Right in the sense that the
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  Speaker 3: Internet did revolutionize the way we work and play and live.
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  Speaker 3: Wrong in the sense that it did not Chanmish. Yeah,
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  Speaker 3: it did not change the well even long term. It
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  Speaker 3: didn't change the long term growth potential of the US economy,
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  Speaker 3: which is kind of interesting. Maybe it's just like replaced
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  Speaker 3: other stuff, right, you know, and you have to be
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  Speaker 3: you have to keep those lessons. I mean, none of
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  Speaker 3: these technologies is now accumulatively, they all made a little contribution.
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  Speaker 3: But if you look at the long sweep of time,
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  Speaker 3: when you if you look at an economic statistic like GDP,
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  Speaker 3: our main measure of welfare, over the long sweep of time,
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  Speaker 3: there's no obvious change in the trend, certainly not from
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  Speaker 3: the Internet. If anything, the potential GDP has been lower
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  Speaker 3: since then, not because of I don't think the Internet,
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  Speaker 3: because of other factors. It maybe be even lower still
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  Speaker 3: without it, right, So I should be maybe a little
• 11:39
  Speaker 3: I should qualify that remark a little bit. Maybe the
• 11:40
  Speaker 3: Internet has made a huge impact and growth would have
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  Speaker 3: been even more lukewarm without it. I don't know, but
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  Speaker 3: it's just it's very hard to find changes in trend
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  Speaker 3: due to any technology, no matter how seemingly revolutionary. So
• 11:52
  Speaker 3: you've got to be cautious and never take the salesman's
• 11:55
  Speaker 3: I'll leave you with this thought, never take the salesman's
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  Speaker 3: word for it. When these tech titans get really excited
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  Speaker 3: about AI, they're just trying to push up their share.
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  Speaker 4: Price absolutely full.
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  Speaker 5: So they might believe in it.
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  Speaker 3: I'm not saying they don't also believe in it, but
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  Speaker 3: they're too conflicted to be relied upon.
• 12:09
  Speaker 2: Is it different this time? Always a big question. We're
• 12:12
  Speaker 2: going to take a quick break here on the Financial Exchange.
• 12:14
  Speaker 2: When we come back, we're we be talking a little
• 12:15
  Speaker 2: bit about SpaceX, as well as prices at gas stations.
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  Speaker 2: When are they going to start coming down? That's right
• 12:22
  Speaker 2: after this break here in the Financial Exchange.
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• 13:14
  Speaker 2: SpaceX joined the NASDAQ one hundred yesterday and now after
• 13:19
  Speaker 2: a bit of a moratorium where analysts could not give
• 13:23
  Speaker 2: their opinion after the IPO, the quiet period has subsided
• 13:27
  Speaker 2: and we have analysts from companies such as Morgan Stanley, Goldman,
• 13:31
  Speaker 2: Sachs and others starting their coverage with their ratings on SpaceX.
• 13:38
  Speaker 2: No surprise here, a lot of buys across the board
• 13:42
  Speaker 2: and interested mark just not your take specifically on SpaceX's
• 13:46
  Speaker 2: by ratings. But there was a piece of information here
• 13:49
  Speaker 2: in this Bloomberg article that caught my attention where early
• 13:53
  Speaker 2: on in my career, I feel like I did read
• 13:56
  Speaker 2: these reports and hold them in high regard. The analyst
• 13:59
  Speaker 2: rating not to say that they're not very sophisticated people
• 14:02
  Speaker 2: who have much more experience and ability to evalue companies
• 14:06
  Speaker 2: than I probably do, but I started to sort of
• 14:09
  Speaker 2: lessen my emphasis on them, just because this kind of
• 14:12
  Speaker 2: piece that's mentioned here in the Bloomberg article, or three
• 14:15
  Speaker 2: thousand of the biggest companies in the United States. If
• 14:18
  Speaker 2: you look at all the aggregate ratings that are out
• 14:21
  Speaker 2: there from analysts, about sixty three percent of analysts have
• 14:25
  Speaker 2: buy ratings on those three thousand biggest companies, and there's
• 14:28
  Speaker 2: only four point two percent of those ratings that are cells.
• 14:31
  Speaker 2: And it just seems like there is not really a
• 14:35
  Speaker 2: split or a perhaps equal approach on both sides of
• 14:41
  Speaker 2: buy and sell in terms of analyst coverage, at least
• 14:43
  Speaker 2: from what's been aggregated by Bloomberg here. And I feel
• 14:47
  Speaker 2: like I saw that as well just going through analysts
• 14:50
  Speaker 2: for posts. They tend to skew on the more positive
• 14:53
  Speaker 2: side of things in general.
• 14:54
  Speaker 5: Yah, That's always been the case.
• 14:55
  Speaker 3: Yeah, Various explanations have been offered for like there is
• 15:01
  Speaker 3: some there's just some pressure institutional pressure at the big
• 15:04
  Speaker 3: investment what used to be called investment banks to be
• 15:07
  Speaker 3: bullish on average, right, and they're optimistic people to begin with.
• 15:13
  Speaker 3: You don't really get into finance if you don't believe
• 15:15
  Speaker 3: in the future of capital markets. So there are biases,
• 15:19
  Speaker 3: and some maybe institutional like structural forces. I'll just call
• 15:25
  Speaker 3: them that. There's no, there's nothing perfidious. There's nothing dishonest
• 15:30
  Speaker 3: at work here.
• 15:30
  Speaker 4: Oh yeah, to be clear, I said.
• 15:32
  Speaker 3: No, I'm saying this to keep myself in check because
• 15:34
  Speaker 3: my tendency is to be cynical about finances.
• 15:37
  Speaker 5: I think you should be.
• 15:37
  Speaker 3: By the way, finance is always trying to sell you something,
• 15:40
  Speaker 3: and you should be skeptical, like, well, if it's so great.
• 15:42
  Speaker 5: Why aren't you hoarding it?
• 15:43
  Speaker 3: Chuck says that a lot, and I think it's a
• 15:45
  Speaker 3: good way to think about it. That said, uh, I'm
• 15:49
  Speaker 3: not sure anybody uses maybe retail investors use this to
• 15:55
  Speaker 3: inform decisions. And I'm not saying that's a bad thing,
• 15:57
  Speaker 3: because if analysts are positive, you may and as a
• 16:00
  Speaker 3: retail investor, well, I don't really know any better. But
• 16:03
  Speaker 3: if they're telling other people to buy it, on average,
• 16:05
  Speaker 3: people are going to listen. So I'm gonna buy it,
• 16:07
  Speaker 3: maybe not hold it for the long term. But that's
• 16:09
  Speaker 3: a perfectly, you know, rational way to approach speculation. It's
• 16:14
  Speaker 3: not really the type of investing that we do in
• 16:16
  Speaker 3: our day jobs, but it's it's one way I guess
• 16:18
  Speaker 3: to try to make money in the short term. But
• 16:20
  Speaker 3: serious like active managers don't use these ratings. They have
• 16:24
  Speaker 3: their own analysts. They come to their own conclusions. These
• 16:26
  Speaker 3: analysts recommendations do not become public. Ye never hear their names.
• 16:29
  Speaker 2: And also on the cell side, you know, the more
• 16:30
  Speaker 2: you think about it is, if you're running a long
• 16:33
  Speaker 2: short hedge fund, you're really not gonna want to telegraph
• 16:36
  Speaker 2: your views on companies that you're selling.
• 16:39
  Speaker 3: They're a black but you don't get looked through to
• 16:40
  Speaker 3: their positions.
• 16:41
  Speaker 5: Even if you're investing for the.
• 16:42
  Speaker 2: Rightst part right, it just seems like you'd be less
• 16:45
  Speaker 2: inclined to come out with real negative.
• 16:48
  Speaker 3: The really interesting stuff, whether in private markets and I'll
• 16:52
  Speaker 3: just group hedge funds in with other so called alternatives.
• 16:55
  Speaker 3: You have no idea what's going on, and they don't
• 16:56
  Speaker 3: want your money, right, and they're filthy, filthy rich, much
• 17:00
  Speaker 3: more successful in a proportional sense, say, relative to the
• 17:05
  Speaker 3: assets that they manage than some of the people you
• 17:07
  Speaker 3: see on TV a lot. If somebody's on TV a
• 17:09
  Speaker 3: lot or an analysts in the press a lot, you've
• 17:11
  Speaker 3: got to be wondering.
• 17:13
  Speaker 5: Who's mine in the store.
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  Speaker 2: Absolutely So just to close up the SpaceX piece here,
• 17:19
  Speaker 2: like I said, they have been added to the NASDAQ
• 17:21
  Speaker 2: one hundred. That was after fifteen trading days. Previously, to
• 17:24
  Speaker 2: get added to the NASDAQA hundred, it was a three
• 17:26
  Speaker 2: month waiting period. On May first, the Nasdaq changed it
• 17:29
  Speaker 2: basically to allow for the inclusion of SpaceX. That will
• 17:33
  Speaker 2: drive some additional buying this week as they add SpaceX
• 17:38
  Speaker 2: the NASDAKA hundred and any indices that that track it
• 17:41
  Speaker 2: out there that are passively managed that as they add
• 17:44
  Speaker 2: SpaceX into it. To be clear, it will have a
• 17:46
  Speaker 2: very small weighting within the NASDAQA hundred to start, just
• 17:51
  Speaker 2: given the limited amount of shares that are out there
• 17:55
  Speaker 2: for SpaceX. It's since its IPO has sort of fu actually.
• 18:00
  Speaker 4: Up and down.
• 18:00
  Speaker 2: It's sitting around right at one hundred and fifty one
• 18:04
  Speaker 2: dollars a share. Today it iPod at about one hundred
• 18:07
  Speaker 2: and thirty five bucks a share. Some news that we
• 18:11
  Speaker 2: had last night, oil is ticking up a bit as
• 18:14
  Speaker 2: there are some reports that there were two missiles, according
• 18:18
  Speaker 2: to Axios, that were launched at a commercial tanker in
• 18:23
  Speaker 2: the Strait of Hormuz, and as a result of that,
• 18:25
  Speaker 2: we have oil prices rising up to about seventy dollars
• 18:29
  Speaker 2: a barrel on West Texas Intermedia two percent spike there.
• 18:33
  Speaker 2: It just really points to the fragility that is present
• 18:38
  Speaker 2: with this continued sixty day you know, march to potentially
• 18:43
  Speaker 2: reaching an agreement with the US and Iran. They signed
• 18:47
  Speaker 2: that memorandum of understanding last month, but certainly there is
• 18:52
  Speaker 2: a long way to go, and this sort of incidant.
• 18:55
  Speaker 4: Just marks what could be a.
• 18:58
  Speaker 2: An up and down process and it could a very
• 19:01
  Speaker 2: long time before we have a resolution on that. And
• 19:07
  Speaker 2: energy markets are ticking up a little bit in response
• 19:11
  Speaker 2: to that. We have equity markets that are in relatively
• 19:15
  Speaker 2: mixed territory, the Nasdaq selling off a bit, about one
• 19:19
  Speaker 2: and a half percent down.
• 19:21
  Speaker 4: We'll have more on.
• 19:22
  Speaker 2: The markets right after this break here with Wall Street Watch,
• 19:25
  Speaker 2: and we'll also dive a little bit further into the
• 19:27
  Speaker 2: oil and gas market right after this break.
• 19:38
  Speaker 1: Like us on Facebook and follow us on Twitter at
• 19:41
  Speaker 1: TFE show. Breaking business news is always first right here
• 19:46
  Speaker 1: on the Financial Exchange Radio Network.
• 19:49
  Speaker 5: Turn out for.
• 19:50
  Speaker 1: Wall Street Watch, tracking the stocks, the data, and the
• 19:54
  Speaker 1: headlines driving markets so far today right here on the
• 19:57
  Speaker 1: Financial Exchange Radio Network.
• 19:59
  Speaker 6: We're seeing off in tech after blowout earnings from Samsung
• 20:03
  Speaker 6: still left investors wanting more, leading to volatility in the
• 20:06
  Speaker 6: chip sector and questions raised about high valuations. Right now,
• 20:11
  Speaker 6: the Dow is down about two tenths of one percent,
• 20:14
  Speaker 6: SMP five hundred down six tenths of one percent, Nasdaq
• 20:18
  Speaker 6: selling off one point four percent, RUSS two thousand selling
• 20:22
  Speaker 6: off over one percent. Ten Youre Treasure reeled up three
• 20:25
  Speaker 6: basis points at four point five to one percent. In oil,
• 20:29
  Speaker 6: jumping over two percent higher trading at seventy dollars barrel.
• 20:33
  Speaker 6: Samsung dropped more than ten percent and sold despite the
• 20:36
  Speaker 6: company's quarterly profits surging nineteen fold in the previous quarter
• 20:40
  Speaker 6: due to increasing AI chip demand. Other chip makers including Micron, ASML, Broadcom,
• 20:46
  Speaker 6: and Marvel also pulling back. Meanwhile, SpaceX shares falling over
• 20:51
  Speaker 6: five percent after the Elon Musk's rocket satellite and AI
• 20:55
  Speaker 6: company joined the Nasdaq one hundred. Elsewhere, five Served shares
• 21:00
  Speaker 6: are rising four percent after The Wall Street Journal reported
• 21:03
  Speaker 6: several large banks, including JP, Morgan Chase, and Bank of
• 21:06
  Speaker 6: America held preliminary discussions to acquire a network from five
• 21:12
  Speaker 6: Serve that could allow them to bypass federal debit debit
• 21:16
  Speaker 6: card fee caps and evmaker Rivian Automotive warned lower average
• 21:21
  Speaker 6: selling prices for its cars would dent its second quarter revenue.
• 21:25
  Speaker 6: Rivian also announced a public offering of seventy five million
• 21:28
  Speaker 6: shares of its Class A common stock that stock down
• 21:32
  Speaker 6: by thirteen percent. I'm Tucker Silva, and that is Wall
• 21:35
  Speaker 6: Street Watch.
• 21:37
  Speaker 2: As I mentioned in the prior segment, oil on the
• 21:40
  Speaker 2: West Texas intermediate side is up to seventy dollars a barrel,
• 21:43
  Speaker 2: or about a two and a half percent increase based
• 21:46
  Speaker 2: on the recent attack in the Straight Up Hormuz yesterday evening.
• 21:50
  Speaker 2: But what I want to talk about here in this
• 21:53
  Speaker 2: segment is specifically the impact on what we as consumers
• 21:57
  Speaker 2: likely care about the most. Certainly, obviously we want that
• 22:00
  Speaker 2: to be resolved from an economic perspective, but what we
• 22:03
  Speaker 2: pay at the pump has become under scrutiny again. President
• 22:07
  Speaker 2: Trump has been very critical about retailers of gas not
• 22:12
  Speaker 2: dropping their prices as quickly commensurate with the declines that
• 22:16
  Speaker 2: we've seen on West Texas ternmedia that it peaked at
• 22:19
  Speaker 2: somewhere around I believe we got over one hundred dollars
• 22:22
  Speaker 2: a barrel at one point, we're.
• 22:23
  Speaker 4: Now down at seventy.
• 22:24
  Speaker 2: Like I mentioned before, on the price per gallon, we
• 22:28
  Speaker 2: peaked at about four dollars and fifty cents a share
• 22:31
  Speaker 2: on the triple A national average. As of yesterday we
• 22:35
  Speaker 2: sit at about three dollars and eighty cents. But typically
• 22:38
  Speaker 2: what happens with gas prices is that you see that
• 22:43
  Speaker 2: as the prices are going up, the prices on the
• 22:47
  Speaker 2: West Texastern media or oil prices are going up, you
• 22:50
  Speaker 2: see gas prices rise like a rocket right with them. However,
• 22:54
  Speaker 2: on the downside, they typically tend to fall like a feather.
• 22:57
  Speaker 2: It's a very slow process because if you think about
• 23:00
  Speaker 2: at what's happening is these retailers of gasoline are buying wholesale,
• 23:05
  Speaker 2: and their prices are reflective of what oil was weeks ago,
• 23:09
  Speaker 2: four six weeks ago that you and I are putting
• 23:12
  Speaker 2: into our pump today. So they can't just drop prices
• 23:16
  Speaker 2: as rapidly as oil futures are going down because they
• 23:20
  Speaker 2: have underneath, you know, their gas station, they have storage
• 23:23
  Speaker 2: of fuel that was bought at higher prices. But this
• 23:26
  Speaker 2: piece here in the New York Times gets into this
• 23:29
  Speaker 2: idea of our gas stations utilizing the volatility that we've
• 23:35
  Speaker 2: seen in energy markets that really hit a high point
• 23:38
  Speaker 2: in twenty twenty two with the Russia and Ukraine conflict,
• 23:41
  Speaker 2: to perhaps gain larger margins on their profitability on since
• 23:48
  Speaker 2: per gallon and market's an area where I've always been
• 23:51
  Speaker 2: very skeptical because it's so competitive that this would be
• 23:56
  Speaker 2: potentially an issue of you know, price gouging or clue
• 24:00
  Speaker 2: being together to get a higher profit per gallon.
• 24:03
  Speaker 4: Curious your thoughts.
• 24:04
  Speaker 2: I think the New York Times LAIDs out a couple
• 24:07
  Speaker 2: potential reasons why maybe that has been the case. Algorithmic
• 24:13
  Speaker 2: pricing has led to perhaps these retailers getting stronger margins.
• 24:17
  Speaker 4: But curious your thoughts on the whole way.
• 24:19
  Speaker 3: This phenomenon of rockets and feathers is well known. A
• 24:22
  Speaker 3: British economists came up with this, like thirty years ago.
• 24:25
  Speaker 3: Why in the world do prices jump right away? Gas
• 24:28
  Speaker 3: prices jump right away? When oil prices jump, we all
• 24:30
  Speaker 3: see it. Yep, you could like you could see them
• 24:32
  Speaker 3: waiting to change the numbers on the sign. They do
• 24:35
  Speaker 3: it like same day, But so they go up like
• 24:38
  Speaker 3: a rocket. Thus the rockets are like you said this
• 24:40
  Speaker 3: already but they fall slowly like a feather. So I
• 24:43
  Speaker 3: don't love this analogy to rockets, Like what the hell?
• 24:46
  Speaker 3: Rockets and feathers not two things I normally use in
• 24:49
  Speaker 3: the same.
• 24:49
  Speaker 2: I butchered and did elevators and feathers on one morning,
• 24:52
  Speaker 2: cause I'm glad I've I've corrected myself.
• 24:54
  Speaker 3: I mean, it's an elevator like express elevator up.
• 24:57
  Speaker 5: I don't know, an elevators stopping on every fair frish
• 25:00
  Speaker 5: stairs down.
• 25:00
  Speaker 4: Yeah.
• 25:01
  Speaker 3: Yeah, they could have used that analogy. It makes more
• 25:03
  Speaker 3: sense anyway. So why is it you explain some of
• 25:06
  Speaker 3: the reasons why gas station competition is weird. Sometimes they're
• 25:09
  Speaker 3: all clustered together, so they like to lower their prices together.
• 25:12
  Speaker 3: It's like not a coincidence that they're all at three
• 25:14
  Speaker 3: ninety five right now within a block of each other.
• 25:17
  Speaker 3: Other cases, they're really far apart. Like you see a
• 25:19
  Speaker 3: gas station.
• 25:20
  Speaker 5: There's one.
• 25:20
  Speaker 3: I'm not gonna mention the town because the guy might
• 25:22
  Speaker 3: be listening. There's one on the way for me to
• 25:25
  Speaker 3: work my commute.
• 25:27
  Speaker 5: It's always like.
• 25:28
  Speaker 3: Thirty cents a gallon, more than everybody else in the
• 25:31
  Speaker 3: world would fill up there.
• 25:32
  Speaker 2: And it's not like a highway it's a town center.
• 25:35
  Speaker 4: OK.
• 25:36
  Speaker 3: Four way, gotta stop town center, and people are filling
• 25:39
  Speaker 3: up there, so he's got a little monopoly. And it's
• 25:42
  Speaker 3: a wealthy town so maybe people are indifferent. I had
• 25:44
  Speaker 3: something to do with it too. Point is these the
• 25:47
  Speaker 3: local markets are very audiosyncratic, very particular, a very peculiar,
• 25:51
  Speaker 3: all different, heterogeneous whatever like fancy research or term you
• 25:55
  Speaker 3: want to use. So you get this, I'll give you
• 25:57
  Speaker 3: one other fancy researcher term to impress your family with later.
• 26:00
  Speaker 3: Today you get this, you know you get this. This,
• 26:03
  Speaker 3: this phenomenon of asymmetric pass through. Oil prices when they
• 26:07
  Speaker 3: fall do translate into it passes through into lower gas prices,
• 26:11
  Speaker 3: but not as quickly. Thus asymmetric as rising oil prices
• 26:16
  Speaker 3: bring gas prices up. So everybody expected this to happen
• 26:19
  Speaker 3: because of the rockets and feathers effect aka asymmetric passed through.
• 26:24
  Speaker 3: And whenever this happens, politicians rant and they beerate gas
• 26:28
  Speaker 3: stations and tell them they better start lowering their prices.
• 26:32
  Speaker 3: And a gas station owner might respond with, well, maybe
• 26:35
  Speaker 3: if you had planned this little escapade better, like kept
• 26:39
  Speaker 3: the straight opened by consulting our allies first, maybe we
• 26:42
  Speaker 3: wouldn't be dealing with this situation, but I guess that
• 26:45
  Speaker 3: you know that's water under the bridge.
• 26:46
  Speaker 2: There was one piece yere where they mentioned that this
• 26:51
  Speaker 2: is from the Dow Jones Price Oil Price Information Services,
• 26:54
  Speaker 2: that the retailer's profit in terms of sense per gallon
• 26:58
  Speaker 2: has increased over the last dec gate from twenty cents
• 27:01
  Speaker 2: a gallon to forty cents. Perhaps that points to maybe
• 27:05
  Speaker 2: gas station taking higher margins. And they do mention that
• 27:07
  Speaker 2: there is a company out there that helps with algorithmic
• 27:11
  Speaker 2: pricing that perhaps that is used by a lot of
• 27:14
  Speaker 2: the major US retailers of gasoline. So perhaps that does
• 27:18
  Speaker 2: have an impact, but that's for the anticrust courts to
• 27:22
  Speaker 2: sort out. On the other side of it, we talked
• 27:24
  Speaker 2: about gas at the pump, on fuel prices, jet fuel
• 27:28
  Speaker 2: prices for airfare, the demand really has not been dented
• 27:33
  Speaker 2: at all. We still continue to see commentary from the
• 27:37
  Speaker 2: major airline CEOs and executives that there is robust demand
• 27:41
  Speaker 2: for airfare travel. We have seen that though jet fuel
• 27:45
  Speaker 2: prices are down forty percent from their April peak, that
• 27:49
  Speaker 2: people are still out there spending what is up to
• 27:52
  Speaker 2: now six hundred and twenty eight dollars for an average
• 27:55
  Speaker 2: domestic round trip ticket that is one hundred dollars greater
• 28:00
  Speaker 2: than it was last year, and airline executives are stating
• 28:03
  Speaker 2: that they have not shown anyone any sense that people
• 28:08
  Speaker 2: are slowing down.
• 28:09
  Speaker 4: And that's a market where it is not as.
• 28:12
  Speaker 2: Competitive, nearly as competitive as the gas retailer space. And
• 28:16
  Speaker 2: I would anticipate a perhaps even slower impact or slower
• 28:22
  Speaker 2: trickling down of prices because of the elimination of Spirit
• 28:25
  Speaker 2: that's a low cost carrier that them not being in
• 28:28
  Speaker 2: the market would allow for a lot of these domestic
• 28:32
  Speaker 2: airline providers to really keep their prices sustained, particularly if
• 28:36
  Speaker 2: there's demand here.
• 28:37
  Speaker 3: Yeah, the demand is there. Therefore there's no incentive to
• 28:39
  Speaker 3: lower price right period. Like, you don't really need to
• 28:42
  Speaker 3: think about it much more than that. People aren't going
• 28:44
  Speaker 3: to stop going on vacation or going to their brother's
• 28:47
  Speaker 3: wedding or yeah, whatever reason they might be traveling for.
• 28:51
  Speaker 3: It's not like they're not just wiling away the time
• 28:54
  Speaker 3: on an airplane. They want to get somewhere, and you
• 28:57
  Speaker 3: generally do that unless the cost is prohibitive.
• 28:59
  Speaker 2: I think the CPI increased Consumer Price index increases for
• 29:03
  Speaker 2: airfares from twenty nineteen to twenty twenty five, according to
• 29:07
  Speaker 2: this Wall Street Journal piece, have fallen three and a
• 29:09
  Speaker 2: half percent. That contrasts against overall consumer prices increasing twenty
• 29:14
  Speaker 2: six percent in that same span of time from twenty
• 29:17
  Speaker 2: nineteen to twenty twenty five. Doesn't really feel like that.
• 29:20
  Speaker 2: I do feel like airline prices have kept up to
• 29:23
  Speaker 2: a degree with some of the inflationary impacts.
• 29:26
  Speaker 4: But that is a statistic that stood out to me
• 29:28
  Speaker 4: a bit. So.
• 29:29
  Speaker 2: Of course, airline executives are pointing to that as to
• 29:32
  Speaker 2: an area where the airfares were due for increases to
• 29:36
  Speaker 2: keep up.
• 29:36
  Speaker 4: Closer look we've seen on price I.
• 29:38
  Speaker 3: Mean, I understand they're feeling the pressure. Gas station owners
• 29:42
  Speaker 3: are feeling the pressure. Hey, federal government, inflation.
• 29:44
  Speaker 5: Is your fault.
• 29:45
  Speaker 3: You could blame the You can blame fiscal policy. You
• 29:48
  Speaker 3: could blame the war for pushing up prices. Maybe it
• 29:50
  Speaker 3: should have been better planned. You can blame the Fed.
• 29:55
  Speaker 3: But my point is, we don't create inflation. Well, people can,
• 29:59
  Speaker 3: but it's short term.
• 30:00
  Speaker 5: We don't.
• 30:00
  Speaker 3: People can't create persistent inflation. I guess sentiment can spire
• 30:03
  Speaker 3: a lot of control, and demand can push inflation up
• 30:06
  Speaker 3: in the short term, but inflation is in the long run.
• 30:09
  Speaker 3: A famous economist once at a monetary phenomenon in the
• 30:13
  Speaker 3: short run fiscal policy or necessary military action. The President
• 30:19
  Speaker 3: himself said a couple months ago, I love the inflation.
• 30:22
  Speaker 3: He meant not that he loves inflation. He meant he
• 30:25
  Speaker 3: loves it as because it is a byproduct of what
• 30:28
  Speaker 3: he thought at the time as a good policy, even
• 30:30
  Speaker 3: though he's done on one to eighty cents. My point is,
• 30:32
  Speaker 3: inflation is not people's fault. It's the government's fault. So
• 30:35
  Speaker 3: rather than blame gas station owners for price gouging, or
• 30:37
  Speaker 3: Walmart for not lowering enough prices, or whoever the boogeyman
• 30:41
  Speaker 3: of the day is, look in the friggin mirror. You
• 30:44
  Speaker 3: control monetary policy. You appointed the FED chair, You control
• 30:47
  Speaker 3: fiscal policy. Like the fault is always with the government.
• 30:51
  Speaker 3: Gas Station owners don't create inflation. Walmart doesn't create inflation.
• 30:55
  Speaker 2: It goes back to all the printing money. Yet we
• 30:57
  Speaker 2: saw in COVID there's certainly the sumaries the.
• 31:00
  Speaker 3: Other I'm not putting blame solely on the Fed. Fiscal
• 31:02
  Speaker 3: policy plays a role, maybe a dominant role, in this
• 31:05
  Speaker 3: environment too. I'm just I'm generalizing and saying inflation is
• 31:09
  Speaker 3: always the government's fault.
• 31:11
  Speaker 2: We're going to take a quick break here on the
• 31:13
  Speaker 2: Financial Exchange. When we come back, Mark, I've got some
• 31:15
  Speaker 2: good news for you. Walmart is lowering prices.
• 31:17
  Speaker 4: Well, we'll have.
• 31:19
  Speaker 2: Some more on that, as well as some coverage on
• 31:22
  Speaker 2: the Federal Reserve right after this break here on the
• 31:25
  Speaker 2: Financial Exchange.
• 31:27
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• 31:41
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• 31:50
  Speaker 1: Face is the Financial Exchange.
• 32:03
  Speaker 2: Walmart is lowering prices on thousands of items, including.
• 32:09
  Speaker 4: Beef and Coca Cola.
• 32:11
  Speaker 2: Walmart coming out yesterday and announcing that they are going
• 32:15
  Speaker 2: to lower the price of ground beef by twelve percent.
• 32:19
  Speaker 2: I wonder if that's a little excess inventory from the
• 32:21
  Speaker 2: fourth of July. That was just some some speculation that
• 32:24
  Speaker 2: came across my mind.
• 32:25
  Speaker 5: Big Manager Special, that's it.
• 32:27
  Speaker 2: Maybe we'll see, but to be fair to them, they
• 32:30
  Speaker 2: also cut in half the price of cherries and a
• 32:35
  Speaker 2: twenty four pack of Coca Cola. Don't see the twenty
• 32:39
  Speaker 2: four packs to off. I feel like the twelve plaq
• 32:41
  Speaker 2: is far more common that you see with Cobby. Yeah,
• 32:46
  Speaker 2: but they're cutting that by a third, down two nine
• 32:48
  Speaker 2: dollars in ninety seven cents. And then they're also going
• 32:51
  Speaker 2: to be making some price cruts of costs household products, toys, apparel,
• 32:56
  Speaker 2: and other products here. So this was met with some
• 33:02
  Speaker 2: praise from President Trump, and certainly for the largest retailer
• 33:07
  Speaker 2: in the United States. This is an emphasis of Walmart
• 33:11
  Speaker 2: always is due to lower prices. It's part of their
• 33:14
  Speaker 2: their marketing and perhaps this direct Yeah.
• 33:18
  Speaker 3: Can I give some free economic advice to the president
• 33:21
  Speaker 3: and his administration. Stop micromanaging, stop buying companies and telling
• 33:25
  Speaker 3: them what to do. Stop browbeating gas stations and Walmart
• 33:29
  Speaker 3: just create? Did you did Ronald Reagan ever mention a company?
• 33:33
  Speaker 3: Bill Clinton even no is the and I, by the way,
• 33:36
  Speaker 3: rank Reagan way, even though historians disagree way above Clinton.
• 33:39
  Speaker 3: That's just my personal ideology. They understood that you create
• 33:45
  Speaker 3: economic growth, or that you create conditions for it by
• 33:49
  Speaker 3: letting the private sector do its thing and getting the
• 33:51
  Speaker 3: heck out of the way. This Biden Trump might and
• 33:55
  Speaker 3: they both did it, but in slightly different ways. I'll
• 33:57
  Speaker 3: just call it industrial policy. Biden had chipped at and
• 34:00
  Speaker 3: Gina Romundo like to run around vetting companies, deciding who
• 34:03
  Speaker 3: gets money, picking winners, favoring one over the other. We
• 34:06
  Speaker 3: were critical of it, then we should be equally critical
• 34:09
  Speaker 3: of this type of intervention, heavy handed government intervention that
• 34:13
  Speaker 3: does nothing but confuse us. Who's going to be in
• 34:15
  Speaker 3: favor next week? For example? Who needs to koutout of
• 34:20
  Speaker 3: the administration to get government money? Sam Altman wants to
• 34:22
  Speaker 3: give them five percent of his company? No, thank you,
• 34:26
  Speaker 3: no way, go out there, compete.
• 34:28
  Speaker 5: Best of luck to you.
• 34:30
  Speaker 3: I'm getting a little far field of the inflation point
• 34:32
  Speaker 3: here that I wanted to make mister President, your appointee
• 34:35
  Speaker 3: controls monetary policy. You made a good appointment. Let him
• 34:38
  Speaker 3: do his thing, and stop browbeating the private sector for
• 34:42
  Speaker 3: doing what it is you'd expect them to do, which
• 34:45
  Speaker 3: is maximize profits.
• 34:46
  Speaker 2: That's what it really comes down to is getting inflation under.
• 34:49
  Speaker 5: And they have the tools to do it.
• 34:52
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• 36:05
  Speaker 2: As I was mentioning, certainly inflation is of the utmost
• 36:07
  Speaker 2: focus for the economy and likely for politicians as well,
• 36:11
  Speaker 2: as we'll move into the midterm elections later in the fall.
• 36:15
  Speaker 2: And we have some commentary here from one of the
• 36:18
  Speaker 2: top Federal Reserve officials, Christopher Waller, who is backing Kevin Warsh,
• 36:24
  Speaker 2: the FED Chairman, on his view for future guidance. And
• 36:28
  Speaker 2: Warsh has been very critical about the previous FED regime
• 36:32
  Speaker 2: in terms of being too chatty and sort of too
• 36:35
  Speaker 2: communicative about their views on the economy, and Waller siding
• 36:40
  Speaker 2: with Warshed here to cut some of that back.
• 36:42
  Speaker 3: Yeah, this phrase forward guidance refers to jaw boning, effectively,
• 36:47
  Speaker 3: and it comes out of US models that deal with
• 36:50
  Speaker 3: what the Fed should do when interest rates are at
• 36:52
  Speaker 3: zero when it can't lower them anymore. The number that
• 36:56
  Speaker 3: matters for the economy is the real rate of interest,
• 36:58
  Speaker 3: which is the stated rate minus the rate of And
• 37:00
  Speaker 3: if we're running short here and you want to pick
• 37:02
  Speaker 3: this up on the other side, let me know. But
• 37:04
  Speaker 3: I'll just say, in a nutshell, forward guidance is one
• 37:07
  Speaker 3: of the things you can do when you can't lower
• 37:08
  Speaker 3: interest rates anymore. You can say to the markets, I'm
• 37:11
  Speaker 3: not just lowering rates today, I'm going to keep them
• 37:13
  Speaker 3: low like I'm going to keep them low for a
• 37:14
  Speaker 3: long time, Like I don't care if there's inflation, I'm
• 37:16
  Speaker 3: still keeping rates slow. What happens people's inflation expectations. Excuse me,
• 37:21
  Speaker 3: inflation expectations rise and that lowers real rates. Inflation expectations
• 37:26
  Speaker 3: going up result in lower real rates. Just take my
• 37:28
  Speaker 3: word for it. So forward guidance is a limited use tool.
• 37:32
  Speaker 3: It got out of hand. They started giving forward guidance
• 37:35
  Speaker 3: all the time, even when you weren't at the so
• 37:37
  Speaker 3: called zero lower bound, when rates were as low as
• 37:40
  Speaker 3: they could go. Worsh correctly in Waller, who gets it
• 37:43
  Speaker 3: because he's done a lot of research on this. Waller's
• 37:47
  Speaker 3: a very accomplished academic. Was a very accomplished academic. They
• 37:51
  Speaker 3: understand that forward guidance has its place, but it's not
• 37:54
  Speaker 3: an everyday tool.
• 37:55
  Speaker 2: Certainly, it sounds like less is more is the approach
• 37:59
  Speaker 2: that the new Federal Reserve is going to be taking
• 38:01
  Speaker 2: here going forward. That's all the time that we have
• 38:04
  Speaker 2: for the first hour of the program, markets are open
• 38:07
  Speaker 2: and in negative territory. We'll have much more on the
• 38:10
  Speaker 2: markets and the economy right after this break here on
• 38:13
  Speaker 2: the Financial Exchange