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Is OpenAI becoming too big to fail? · The Financial Exchange Show

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Speaker 1: Zada and Mike Armstraw.
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Speaker 2: Chuck Mike Tucker with you here, and as we kick
1:13
Speaker 2: off November, we've got stocks very much mixed. The S
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Speaker 2: and P right now is up five points, has been
1:19
Speaker 2: up as many as forty today and down as many
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Speaker 2: as eighteen, so still seeing a considerable amount of intraday
1:27
Speaker 2: volatility at the moment. The SB also right now has
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Speaker 2: two hundred and thirty five more stocks down than up,
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Speaker 2: to a very narrow rally taking place there, led mostly
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Speaker 2: by Amazon up about four and a half percent, Tesla
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Speaker 2: up two point seven percent, and Nvidia up two point
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Speaker 2: seven percent. When we take a look at the Dow,
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Speaker 2: it's down two hundred and three points about half a percent,
1:48
Speaker 2: and the NASDAK composite is up ninety one points, or
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Speaker 2: about point three eight percent. Bonds continuing to sell off
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Speaker 2: very modestly today, Tenure Treasury up eight ten of a
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Speaker 2: basis point, so not too much movement, but a little
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Speaker 2: bit there. So we're continuing to see, you know, interest
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Speaker 2: rates on bonds moving up very very modestly. Dollar Index
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Speaker 2: a point zero seven percent, so dollar firming up just
2:14
Speaker 2: a touch there. And we've got gold up twenty three
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Speaker 2: seventy one ounce to four twenty dollars and twenty cents,
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Speaker 2: so back above four thousand. We'll see if it ends
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Speaker 2: up holding that level over the course of the day.
2:26
Speaker 2: Crude oil down four cents a barrel to sixty dollars
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Speaker 2: and ninety four cents triple A national averageur gas price
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Speaker 2: is flat today at three oh three and six tenths
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Speaker 2: of a cent. Tucker, can you dial up the old
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Speaker 2: time machine. We gotta go back about four years or so.
2:45
Speaker 2: We're heading back to twenty twenty one if you could,
2:50
Speaker 2: thank you always good to get the fux capacitor fired
2:53
Speaker 2: up on a Monday. Scarce chips are just the tip
2:56
Speaker 2: of big autos disruption. Yes that's right, talking computer chips
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Speaker 2: for cars again. And oh yeah, it's it's it's the
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Speaker 2: summer of twenty twenty one. There's no cars and you
3:11
Speaker 2: got to hop on the bus with four thousand other
3:13
Speaker 2: people piled on top of each other. It's kind of sweaty,
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Speaker 2: and there's not even any ac because there's chips needed
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Speaker 2: for that too.
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Speaker 3: And use cars.
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Speaker 2: The salami is melting and kind of gross ew Use
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Speaker 2: cars twenty one, the new ones. So here's the deal.
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Speaker 2: There is a company by the name of Nextperia Holdings.
3:33
Speaker 2: You've never heard of them. They're based out of the Netherlands,
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Speaker 2: and they are a semiconductor manufacturer that doesn't make you know,
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Speaker 2: cutting edge and video chips. They make really boring, really
3:44
Speaker 2: cheap ones.
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Speaker 3: That make your windshield wipers go.
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Speaker 2: Yes, they make your windshield wipers go. They make you know,
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Speaker 2: your sound go on and off in your car, and
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Speaker 2: like bait, really basic simple stuff and it's like it's
3:57
Speaker 2: not high end stuff, but someone has to it. It's
4:00
Speaker 2: kind of like there's a company that makes paper clips
4:04
Speaker 2: and it's not complicated, but you need the paper clips
4:07
Speaker 2: if you're in office. So here's the deal. Back in
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Speaker 2: twenty twenty one and twenty two, we obviously, you know,
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Speaker 2: had long stories about you know, semiconductor problems with production
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Speaker 2: because of the pandemic in this and that, and it
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Speaker 2: was something where car companies went through a couple of
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Speaker 2: years of you know, really just trying to get their
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Speaker 2: act together on this stuff, and it finally seemed like
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Speaker 2: they had gotten there. Well, here's the deal with next Baria.
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Speaker 2: They've got a little bit of a dispute that's going
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Speaker 2: on between them and the EU specific well, specifically the Dutch.
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Speaker 2: And here's the thing. The Dutch about a month ago,
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Speaker 2: UH decided basically to take over the EU subsidiary of
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Speaker 2: this company that was it's run by a group of
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Speaker 2: Chinese companies, and pretty much they said, look, we think
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Speaker 2: there is a real problem here with potential industrial espionage
5:09
Speaker 2: going on. We think there's a problem that could potentially
5:11
Speaker 2: lead to chips not being able to be produced as well.
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Speaker 2: And this is a whole thing to which Knicks Barry
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Speaker 2: is basically like, okay, fine, We're just not going to
5:19
Speaker 2: produce the chips anyways. Then, and quite honestly, when you
5:23
Speaker 2: hear China and industrial espionage mentioned in the same sentence,
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Speaker 2: my mind usually goes to, oh g you think. And
5:31
Speaker 2: so ultimately it gets to a point now where you've
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Speaker 2: got these disruptions that are taking place. It's starting to
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Speaker 2: disrupt production predominantly in Europe but also into the US.
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Speaker 2: And it seems like maybe things are thawing a little
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Speaker 2: bit this weekend, but we're on the verge of potentially
5:53
Speaker 2: semiconductors for cars being a thing again.
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Speaker 4: Yep, And again these are not immensely complicated, So could
5:59
Speaker 4: a carmaker eventually switch over to something else. Yes, but
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Speaker 4: it just doesn't happen overnight. These things get tested for
6:07
Speaker 4: years before autoregulators get comfortable with them controlling important systems
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Speaker 4: for vehicles, and so there is no backup plan like
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Speaker 4: much of the fragile supply chains that we learned about
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Speaker 4: during COVID, And when you're talking about something as complicated
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Speaker 4: to manufacture as a car with thousands of individual components,
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Speaker 4: anyone disruption, as we're seeing again can throw it all
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Speaker 4: into a question mark.
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Speaker 2: So we'll see where this develops again. Over the weekend,
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Speaker 2: it seemed like there was some progress being made on
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Speaker 2: the issue, so maybe some of those worst case scenarios
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Speaker 2: can be taken off the table. But yes, we are
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Speaker 2: now talking auto related semiconductors again, and I hope that
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Speaker 2: the next time we're talking about this there's more than
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Speaker 2: a four year gap between this and that.
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Speaker 4: Can we go back then to what you mentioned about
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Speaker 4: Amazon this morning?
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Speaker 2: Amazon, Yes, they're up five percent because they agreed to
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Speaker 2: a deal with open Ai to sell them thirty eight
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Speaker 2: billion dollars worth of computing power powered by Nvidio chips.
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Speaker 4: So again, keeping all this straight becomes a lot. But
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Speaker 4: open Ai has a pretty deep partnership with Microsoft so
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Speaker 4: far as I know, for the exact same purpose.
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Speaker 2: They've got deep partnerships with everyone because they're trying to
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Speaker 2: integrate themselves so deeply into the system that they can't
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Speaker 2: like blow up.
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Speaker 4: So in any case, we have more of the Midas touch,
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Speaker 4: you know, whatever, whatever effect you want to call it,
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Speaker 4: the Halo effect, the Midas touch. When it comes to
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Speaker 4: this privately held company, open Ai, where they announce a
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Speaker 4: deal with one of the largest companies in the world
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Speaker 4: and it's enough to move their stock up four and
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Speaker 4: a half percent in early trading. I continue to see
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Speaker 4: these deals, and it's not to say that this, you know,
7:54
Speaker 4: is a bad deal for either company, or a deal
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Speaker 4: that won't come to fruition, or a deal that won't
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Speaker 4: be trans formative to Amazon's business. I don't think it
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Speaker 4: would really be transformative to their business. But I am
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Speaker 4: unclear about how Amazon signing some small deal with open Ai,
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Speaker 4: it's not a small thirty eight billion dollars with a
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Speaker 4: company that may or may not ever be able to
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Speaker 4: actually pay them for it, actually moves the stock price.
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Speaker 2: And look, here's the thing, because like no one wants
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Speaker 2: to say it, so I'm just gonna say it, this
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Speaker 2: is bull loney. Do you know how much money open
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Speaker 2: aiye is on the hook for over the next seven
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Speaker 2: years now in terms of cut No, what's the right
8:38
Speaker 2: I say contracts because I don't believe any of these
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Speaker 2: are real. It's one point five trillion dollars. It's one
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Speaker 2: point five trillion freaking dollars.
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Speaker 4: Man, That is the point tount of dollars that open
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Speaker 4: ai a privately held company with really no checks and
8:56
Speaker 4: balances on thirteen billion dollars in.
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Speaker 2: For the last twelve months, where you're gonna get one
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Speaker 2: point five trillion dollars? Do you know how much Microsoft? Microsoft?
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Speaker 2: I'll say it again Microsoft, Do you know what Microsoft's
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Speaker 2: expenses were? Okay? Just like again, I'm just trying to
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Speaker 2: like contextualize this when when we look at it Microsoft,
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Speaker 2: do you know what their expenses were over Do you
9:27
Speaker 2: want to do like twelve months?
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Speaker 4: Like, yeah, let's give me a twelve months and I'm
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Speaker 4: gonna go, uh, let's see another Capex was there.
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Speaker 2: Let's call it two hundred billion, two hundred billion. You're saying, okay,
9:38
Speaker 2: hang on, I'm looking at quarterly. Give me just a second.
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Speaker 2: Carry the one we gotta get to just annualize the quarter.
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Speaker 2: I'm getting there, sixty five billion dollars total expenses. Sixty
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Speaker 2: five billion dollars. Actually, no, sorry, that's operating expenses. If
9:54
Speaker 2: we get through the rest of it, it's like another
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Speaker 2: it's basically double that. Okay, okay, So like one, where
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Speaker 2: the heck is open AI going to find two hundred
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Speaker 2: and fifty billion dollars a year for the next six
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Speaker 2: seven years to pay for this stuff? The answer I
10:16
Speaker 2: have the answer, By the way, I want everybody to
10:20
Speaker 2: write this down off balance sheet special purpose vehicles specifically
10:26
Speaker 2: designed to get the money off the balance sheet of
10:29
Speaker 2: the companies so it doesn't look like they have a
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Speaker 2: lot of debt, even though they have a boatload of debt.
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Speaker 2: Because this is where we're going, Michael, and you know
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Speaker 2: it's serious. When I say, Michael, like there is no
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Speaker 2: way for open AI sound like my mother. I might be.
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Speaker 2: I'm not. But in any case, so there's no way
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Speaker 2: for open AI to pay for this. They don't have
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Speaker 2: the money, so they're going to have to borrow it
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Speaker 2: or someone is is you cannot finance this through cash
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Speaker 2: flow if your open AI, because they don't have any
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Speaker 2: cash flow. Their cash flow is negative, their profit is negative,
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Speaker 2: their revenue growing, but still not big enough to support
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Speaker 2: one point five trillion dollars in spending the next six
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Speaker 2: to seven years.
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Speaker 4: So when does it matter it we're getting to this,
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Speaker 4: It hasn't mattered. It's enough to move this stock price
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Speaker 4: four and a half percent. On how big is Amazon
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Speaker 4: at two trillion dollar company today.
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Speaker 2: I think we're getting to the point where its nearly
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Speaker 2: three trillion dollars. I think we're getting to the point
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Speaker 2: where it does. And my evidence on this, because again
11:37
Speaker 2: one must produce evidence to substantiate their claims, is if
11:42
Speaker 2: we look at some of the debt that was issued
11:46
Speaker 2: last week. Just as an example, Meta who put out
11:51
Speaker 2: a bond that is a forty year bond. It comes due,
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Speaker 2: It comes due November fifth, teenth of twenty sixty five.
12:02
Speaker 2: That bond is down one percent today.
12:04
Speaker 3: Okay.
12:05
Speaker 2: Now you can say, okay, like, is this just because
12:08
Speaker 2: you know treasury rates are up in this and that
12:10
Speaker 2: in a small you know, relatively small move means that
12:13
Speaker 2: you know the bond trades down that much. You could.
12:15
Speaker 2: But the other question asks is, okay, like why why
12:18
Speaker 2: are you seeing this funding pressure in this place Oracle bonds.
12:23
Speaker 2: Oracle issued a thirty year bond back in May to
12:27
Speaker 2: try to pay for some of this stuff. It's now
12:30
Speaker 2: down six percent in the last week and a half. Like,
12:35
Speaker 2: I think we're getting to the point now where at
12:38
Speaker 2: least the bond market is starting to look at this
12:40
Speaker 2: and say, I don't know about that one. And does it,
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Speaker 2: you know ever matter inequities? Maybe maybe not. I have
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Speaker 2: no idea, But what I can tell you Open AI
12:54
Speaker 2: committing to one point five trillion dollars in shrewd buck
12:59
Speaker 2: eye over the next six seven years. Like, what are
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Speaker 2: we doing here at this point? And there is a
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Speaker 2: whole piece that we can talk about from the Wall
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Speaker 2: Street Journal on this is open AI becoming too big
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Speaker 2: to fail. I don't know how you're gonna be too
13:14
Speaker 2: big to fail if you're that small.
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Speaker 4: Do we give that more of a conversation. Yes, let's
13:20
Speaker 4: say quick break, we got to do trivia. But when
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Speaker 4: we come back, is open AI becoming too big to fail?
13:27
Speaker 4: And what does that even mean?
13:28
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Speaker 5: Time for sure, here on the Financial Exchange and on
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Speaker 2: We got this piece from the Wall Street Journal that
15:02
Speaker 2: we wanted to dig into more. Is open AI becoming
15:05
Speaker 2: too big to fail? I made the quote last segment,
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Speaker 2: they're too small to be too big to fail.
15:11
Speaker 3: But let's talk.
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Speaker 4: About the context of too big to fail in the
15:14
Speaker 4: first place, and the main context we all have is
15:16
Speaker 4: the banks. Why were they too big to fail? It
15:19
Speaker 4: wasn't because they were integral to the stock market. They were,
15:22
Speaker 4: but that was not the crux of the issue. The
15:24
Speaker 4: crux of the issue was that without America's largest lending
15:27
Speaker 4: institutions one, there'd be a massive loss of deposits on
15:32
Speaker 4: the consumer side of things, and there would be no
15:35
Speaker 4: real ability to I guess fund anything that happens in
15:40
Speaker 4: the United States. So from a real structural part of
15:44
Speaker 4: the economy, they were deemed too big to fail. My
15:46
Speaker 4: missing some key components there. To me, it had everything
15:48
Speaker 4: to do with customer deposits and lending facilities.
15:55
Speaker 2: Yeah, I mean, look, it's basically, Hey, if the credit
15:59
Speaker 2: system of the United States dries up and it's facilitated
16:01
Speaker 2: by these banks, then you can't let them fail. Okay,
16:03
Speaker 2: And we don't.
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Speaker 4: Right, So how on earth would that apply to I
16:08
Speaker 4: guess forget about that. What would be the ramifications today
16:12
Speaker 4: of open AI coming out and saying we don't have
16:15
Speaker 4: funding to continue, we are declaring bankruptcy and canceling all
16:19
Speaker 4: outstanding contracts.
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Speaker 2: So if open A let's let's and let's say it's
16:25
Speaker 2: much hypothetical if open AI today said you know what,
16:30
Speaker 2: we're not gonna make it like we can't get financing
16:32
Speaker 2: to continue operations, like we're gonna have to close up shop.
16:37
Speaker 2: I mean, first of all, you're not gonna get it just.
16:38
Speaker 3: Out of nowhere.
16:39
Speaker 2: Like, but if it happened today, SMP right now is
16:43
Speaker 2: it's sixty eight forty five, SMP's back to five thousand
16:48
Speaker 2: by end a day.
16:49
Speaker 3: It'd be a massive Well we'd hit circuit breakers before
16:51
Speaker 3: it happened, but.
16:52
Speaker 2: SMP's down twenty percent in one day. Yeah, because like
16:57
Speaker 2: quite literally, you're going to end up shaving probably a
17:02
Speaker 2: third of the value off of your big tech companies.
17:06
Speaker 2: And with that, I mean again just like you look
17:08
Speaker 2: at the math and do it out and you're like, okay,
17:10
Speaker 2: that's like fifteen sixteen percent for the SMP on its
17:13
Speaker 2: own and everything else getting dragged five six percent along
17:17
Speaker 2: with it, wouldn't be surprised because here's the thing. If
17:21
Speaker 2: an open AI announcement can be enough to rally Amazon
17:25
Speaker 2: by five percent.
17:27
Speaker 3: It can certainly be enough.
17:28
Speaker 2: The lack like the revocation of said announcement has to
17:32
Speaker 2: be able to drop the stock by five Otherwise, quite honestly,
17:36
Speaker 2: then we're just not really playing with real numbers.
17:39
Speaker 4: And so therefore, yes, you have all sorts of funds
17:42
Speaker 4: and institutions going belly up that are betting on this
17:46
Speaker 4: thing in one direction or another. But it gets me
17:48
Speaker 4: back to your question, which does that mean that the
17:51
Speaker 4: government steps in to support it?
17:53
Speaker 3: I don't think so.
17:54
Speaker 4: It means that the stock market loses a tremendous amount
17:56
Speaker 4: of value. But is it too big to fail? I
18:00
Speaker 4: deem it a national security risk if it fails. I
18:03
Speaker 4: don't believe that funding for people's home purchases and bank
18:07
Speaker 4: accounts would just disappear overnight. Four rowin k's would take
18:11
Speaker 4: a massive hit, Pensions funds would take a massive hit,
18:14
Speaker 4: Insurance companies might take a massive hit. But I don't
18:17
Speaker 4: know that you would go after the company the source
18:20
Speaker 4: of all of it.
18:22
Speaker 2: Here here's the the case for doing it. And I'm
18:26
Speaker 2: not saying that I'm in favor of this or not,
18:29
Speaker 2: but in any economy that's based on consumer spending where
18:32
Speaker 2: you know, wage growth has been not great, you could
18:36
Speaker 2: make a case that if you saw, you know, a
18:39
Speaker 2: bear market in that situation, consumer spending probably gets hit
18:43
Speaker 2: pretty hard and the US economy goes into recession. Does
18:47
Speaker 2: that mean that you like bail them out? No, but
18:51
Speaker 2: I could see see the case being made that, well,
18:54
Speaker 2: if we don't you know, support this, like, it's gonna
18:56
Speaker 2: be really bad stuff for you know, the economy. And
18:59
Speaker 2: I think that's a crappy argument because ultimately, look, you
19:05
Speaker 2: could pay every single American one thousand dollars a day
19:09
Speaker 2: to go and dig holes, and then you could pay
19:11
Speaker 2: them a thousand dollars a day next week to go
19:12
Speaker 2: and fill all those holes in that doesn't mean that
19:15
Speaker 2: you've built anything productive, and throwing bad money after good
19:18
Speaker 2: is malinvestment and not something that represents any kind of
19:22
Speaker 2: meaningful long term improvement and living standards. And so yeah,
19:27
Speaker 2: open A is trying to build itself into that. I
19:31
Speaker 2: really hope it doesn't work. Quick Break, we got the
19:35
Speaker 2: trivia answer.
19:36
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20:33
Speaker 5: dollars in forty one cents a barrel. Major news in
20:36
Speaker 5: the tech space this morning after open Ai signed a
20:39
Speaker 5: thirty eight billion dollar deal with Amazon where Amazon Web
20:42
Speaker 5: Services will provide the chat GPT maker with access to
20:46
Speaker 5: hundreds of thousands of videographics processor units as part of
20:50
Speaker 5: a seven year deal. Amazon up over four percent. Meanwhile,
20:54
Speaker 5: Kimberly Clark announced this morning it's reached an agreement with
20:58
Speaker 5: talent on maker Kenview in a deal value at forty
21:01
Speaker 5: eight point seven billion dollars, which would create a consumer
21:05
Speaker 5: staples giant. Kimberlee Clark shares a down twelve percent, while
21:09
Speaker 5: ken Bustock is up about fifteen percent. Elsewhere, Ford, Kia,
21:13
Speaker 5: and Hundai reported moments ago that they saw substantial declines
21:17
Speaker 5: in electric vehicle sales last month after the EV tax
21:21
Speaker 5: credit expired. Year over year, Ford saw a twenty five
21:25
Speaker 5: percent drop in EV sales in October, while Kia and
21:28
Speaker 5: Hyundai said their EV sales sank between fifty two and
21:31
Speaker 5: seventy one percent from a year ago. Ford is down
21:35
Speaker 5: by one percent. The stock that is in recent memestock
21:39
Speaker 5: in alternative meat producer Beyond Meat delayed its earnings results,
21:43
Speaker 5: saying it needs more time to calculate a material, non
21:47
Speaker 5: cash impairment charge related to certain long lived assets. Beyond
21:51
Speaker 5: Stock is now plunging over sixteen percent. I'm Tucker Silvan,
21:56
Speaker 5: that is Wall Street Watch, and in the previous segment,
21:58
Speaker 5: we asked you the trivia question, what was the first
22:01
Speaker 5: widely used credit card in the US, that would be
22:04
Speaker 5: diners Club. Martin from Berkeley, Mass is our winner today,
22:07
Speaker 5: tinghm a Financial Looks Change Show t shirt. Congrats to
22:10
Speaker 5: Martin and we play trivia every day here in the
22:13
Speaker 5: Financials Change See complete contest rules at financialoks Change Show
22:17
Speaker 5: dot com.
22:19
Speaker 2: Risky loan from Housing bust Era is making a comeback.
22:22
Speaker 2: I can file this one under the category of technically
22:26
Speaker 2: true but also not problematic. So this is like, you know,
22:30
Speaker 2: this is one of those pieces where oh, like, you know,
22:34
Speaker 2: supposed to scare you because hey, adjustable rate mortgages were
22:38
Speaker 2: you know, used heavily during the housing bust, and so
22:41
Speaker 2: this could be a problem.
22:42
Speaker 4: The problem wasn't alone that people got adjustable rate mortgages.
22:48
Speaker 4: The problem in the housing market ahead of the Great
22:51
Speaker 4: Financial Crisis was they got many of them and there
22:56
Speaker 4: was no income or asset verification being done by the broker,
23:00
Speaker 4: and then banks that bought the loans.
23:02
Speaker 2: And then the loan rates adjusted upward and they got
23:04
Speaker 2: at that point as well.
23:05
Speaker 4: So it was a contributing factor. But the root cause
23:10
Speaker 4: of the big problems here.
23:11
Speaker 2: Was about underwriting.
23:12
Speaker 4: Was terrible underwriting, and then securitization and leverage and all
23:17
Speaker 4: the things that come with a financial crisis. But the
23:21
Speaker 4: root cause, you know, going and taking the story and saying, oh,
23:24
Speaker 4: look out because people are getting adjustable rate mortgage. Adjustable
23:27
Speaker 4: rate mortgages are fine if you have the ability to
23:31
Speaker 4: pay them. If the rate goes up, that's not really
23:34
Speaker 4: an issue. Now, are there people today who are buying
23:36
Speaker 4: armed who are buying homes with arms and are not
23:39
Speaker 4: prepared for the rate to shoot up five years from now. Absolutely,
23:43
Speaker 4: But again we're talking about a very different situation.
23:46
Speaker 2: And the other thing that's different is just the scale.
23:49
Speaker 2: I'll quote here about ten percent of purchase mortgage applications
23:52
Speaker 2: were for arms in the week ending on October third,
23:54
Speaker 2: the highest rate since twenty twenty three. In early twenty one,
23:58
Speaker 2: when rates from your historic lows less than three three
24:00
Speaker 2: percent of applications were for arms. Well, if you go
24:03
Speaker 2: and actually look at the data, what you find is
24:05
Speaker 2: that during like that five through seven period, our usage
24:10
Speaker 2: peaked at like north of forty percent in some weeks.
24:13
Speaker 2: So we're still very low in terms of usage. Even
24:16
Speaker 2: even if you believed that arms are the problem, right,
24:20
Speaker 2: it still is something that you would say, well, we're
24:24
Speaker 2: no like we're less than a quarter of the peak
24:26
Speaker 2: you know that we saw back during the housing crisis.
24:29
Speaker 2: And when you look at actual transaction volume, remember back
24:35
Speaker 2: during the build up to the housing crisis the United
24:38
Speaker 2: States at one point, like if you look at new
24:40
Speaker 2: home construction and say, say, like, ge, how many homes
24:45
Speaker 2: were being built? You know at the peak, you get
24:49
Speaker 2: amazed by what you find because you realize, gee, we
24:52
Speaker 2: were building like north of two million homes a year
24:56
Speaker 2: in two thousand and five. Today housing starf to running
25:00
Speaker 2: it like one point three million, and the population is
25:03
Speaker 2: way bigger than it was then. Right, So it wasn't
25:06
Speaker 2: just you know, the underwriting and everything. It was also hey,
25:08
Speaker 2: there was a bunch of debt being used by builders,
25:12
Speaker 2: construction loans and things like that in order to build properties,
25:15
Speaker 2: and those went bad also, and that caused a huge
25:17
Speaker 2: bunch of a whole bunch of problems that's not present
25:21
Speaker 2: today either.
25:22
Speaker 3: Yeah.
25:23
Speaker 4: Again, these stories keep getting written about the housing market
25:26
Speaker 4: because prices are high and so it's fun to write
25:29
Speaker 4: stories about it. The lending standards being used by banks
25:34
Speaker 4: and the loans being taken out by individuals in other
25:38
Speaker 4: than a few rare instances is not a problem today.
25:41
Speaker 2: Now, if you want to talk about some of the
25:44
Speaker 2: nasty stuff that we are seeing in housing, there's stuff
25:48
Speaker 2: to talk about. All you put to gorder. Listeners out
25:51
Speaker 2: there raise your hands. Not if you're driving, sure, but
25:53
Speaker 2: if you're just raised one hand raised, Yeah, as long
25:57
Speaker 2: as the other one's on the wheel and in two Mike, Well,
25:59
Speaker 2: you know, sometimes you just gotta go at midnight or noon,
26:02
Speaker 2: depending on you know, what side of the world you're
26:04
Speaker 2: on at a in particular point in time, put to
26:07
Speaker 2: Gorda price is now twenty point five percent off their peak.
26:11
Speaker 3: Wow.
26:12
Speaker 2: So this does start to present some problems if you
26:15
Speaker 2: are trying to sell a property and put to Gorda
26:17
Speaker 2: and you bought in twenty one or twenty two, because
26:20
Speaker 2: you say, okay, you know, maybe I put a twenty
26:23
Speaker 2: percent down payment in.
26:24
Speaker 3: Maybe I didn't.
26:26
Speaker 2: I've eaten through that down five Well, even let's work
26:28
Speaker 2: through twenty Okay, I've eaten through that. But hey, it's
26:31
Speaker 2: been three years. And even though I'm paying mostly you
26:34
Speaker 2: know interest at this point, Okay, I've picked up you know,
26:38
Speaker 2: five six percent in equity, but then I gotta pay
26:41
Speaker 2: five six percent to a broker in order to sell
26:42
Speaker 2: the place. So if I put a twenty percent down
26:45
Speaker 2: payment in and I'm trying to sell three years after
26:48
Speaker 2: buying a punt A Gorda, odds are that down payment's gone. Yeah,
26:52
Speaker 2: And so what you end up with theirs are people
26:54
Speaker 2: who say, you know what, can't list right now, and
26:57
Speaker 2: so you're not even getting all the inventory on that
27:00
Speaker 2: you would. But you also then have the people who
27:03
Speaker 2: are looking at put To Gorda who might have been
27:04
Speaker 2: watching for the last year or so saying, well, a
27:07
Speaker 2: year ago that place was listed for six hundred thousand,
27:11
Speaker 2: and now it's five point fifty. Honey, why don't we
27:14
Speaker 2: give it one more year and we'll see if it
27:16
Speaker 2: gets down to five hundred. And this is the problem
27:19
Speaker 2: with falling home prices is that action of falling home prices,
27:22
Speaker 2: it dissuades both buyers like for you know, their use
27:26
Speaker 2: and investors from buying into that market. And put To
27:29
Speaker 2: Gorda is not the only place that's seeing this. Austin
27:32
Speaker 2: prices down about sixteen percent, Cape Coral down about fifteen, Bradenton,
27:37
Speaker 2: Sarasota down about ten. You go through you know, the
27:40
Speaker 2: thirty worst performing housing markets from you know since the
27:44
Speaker 2: peak it's predominantly Farda in Texas, but it's starting to
27:48
Speaker 2: be broaden out as well. California's got a few names
27:50
Speaker 2: on the list, Arizona's got a couple on the list. Colorado.
27:54
Speaker 2: So you kind of look at this and this is
27:57
Speaker 2: what we've been saying. The inventory has been building, and
28:00
Speaker 2: in order for pricing to get to where it needs
28:02
Speaker 2: to be to clear this inventory, it's going to have
28:05
Speaker 2: to get worse before it gets better.
28:06
Speaker 3: Check.
28:06
Speaker 4: This is a great segue into our actual brand new
28:10
Speaker 4: guide from Armstrong for the month of November, which is
28:13
Speaker 4: all about owning real estate and retirement.
28:16
Speaker 3: And I want to ask you, I mean, there's some.
28:18
Speaker 4: Rules of thumb out there that I think are pretty useless,
28:19
Speaker 4: but one that I like is maintenance costs on a home.
28:23
Speaker 4: I generally think it's safe to say that, depending on
28:26
Speaker 4: the age of your home and the state of your home,
28:28
Speaker 4: you can expect to spend what do you think, between
28:31
Speaker 4: one and three percent of its value annually maintaining that home.
28:34
Speaker 2: I think one is a pretty good benchmark for most folks.
28:37
Speaker 2: As you get into retirement and do less, it gets
28:39
Speaker 2: close to that two or three. I mean, do less
28:41
Speaker 2: of the workers yeah, when it's like, oh, like, I
28:44
Speaker 2: don't you know, I'm seventy six, I don't want to
28:46
Speaker 2: mow the lawn anymore. When I mean, I'm seventy eight
28:48
Speaker 2: and I'm tired of dealing with plowing the driveway.
28:52
Speaker 3: You know, other pieces to all of this.
28:55
Speaker 4: You know, there's always this desire or oftentimes a desire
29:00
Speaker 4: to go south during the winter, and the question comes
29:03
Speaker 4: up all the time of do I buy or do
29:06
Speaker 4: I rent? Obviously some people are learning a lesson about
29:09
Speaker 4: that right now with home prices in some of those
29:11
Speaker 4: Sun Belt areas, but just generally, how do you assess
29:14
Speaker 4: a decision like that, whether to buy or rent?
29:17
Speaker 2: Well, I think, quite honestly, the first thing is assessing, Hey,
29:21
Speaker 2: do I want one property your multiple ones? And generally
29:23
Speaker 2: as people get older, the answer is one sure, And
29:26
Speaker 2: so then it becomes Okay, how much time do I
29:29
Speaker 2: want to spend in this place? What do the financials
29:32
Speaker 2: look like compared to renting and versus buying? Do I want?
29:36
Speaker 2: You know, is it cheaper for me to rent in
29:38
Speaker 2: one location than the other? Like, you've got this whole
29:41
Speaker 2: series of calculations that you need to look into.
29:43
Speaker 3: It's before you even get to questions like residency, and
29:46
Speaker 3: it can.
29:46
Speaker 2: Get pretty like complicated as you try to navigate this.
29:49
Speaker 4: We've got a brand new guide all on this one
29:52
Speaker 4: subject owning redial estate in retirement. How to make that
29:55
Speaker 4: assessment for yourself as your headed to that stage. Maybe
29:59
Speaker 4: you've already owned two homes. Maybe you're considering relocating or
30:02
Speaker 4: buying a vacation home in retirement. Get our guide before
30:06
Speaker 4: you do it. The phone number is eight hundred three
30:08
Speaker 4: nine three four zero zero one. You can also request
30:10
Speaker 4: your free copy online at Armstrong Advisory dot com, but
30:13
Speaker 4: that number again is eight hundred three nine three four
30:16
Speaker 4: zero zero one.
30:18
Speaker 1: The proceeding was paid for by Armstrong Advisory Group, a
30:20
Speaker 1: registered investment advisor. Nothing in the ad or in any
30:23
Speaker 1: Armstrong Guide a specific financial, legal, or tax advice. Consult
30:26
Speaker 1: your own financial, tax, and estate planning advisors before making
30:28
Speaker 1: any investment decisions. Armstrong may contact you to offer investment
30:32
Speaker 1: advisory services.
30:34
Speaker 2: Piece from CNBC. Trump tariffs could add forty billion to
30:36
Speaker 2: holiday shoppers and sellers costs. Lending Tree warns First lending Tree,
30:41
Speaker 2: thank you for reminding me that you exist, cause quite
30:45
Speaker 2: honestly didn't know they were still around. Do you remember
30:47
Speaker 2: when that whole peer to peer finance thing was, you know,
30:49
Speaker 2: getting really big back in the twenty tens.
30:52
Speaker 3: Yeah, must we heard from them.
30:54
Speaker 2: It's been a little while. Second, I think that when
31:00
Speaker 2: doing this, they're trying to say, Okay, based on like
31:02
Speaker 2: the spending data that we saw last year, and let's
31:05
Speaker 2: extrapolate this based on like average tariff rates. Guys, Like,
31:10
Speaker 2: I don't think this is your wheelhouse. I'm not saying
31:13
Speaker 2: it will or won't be this, but like they're saying, Okay,
31:17
Speaker 2: it's gonna be like one hundred and thirty two dollars
31:19
Speaker 2: per American family in tariff costs. Okay, Well, it kind
31:23
Speaker 2: of depends what you buy. And quite honestly, I don't
31:28
Speaker 2: know about you, guys. I'm seeing some pretty good deals
31:31
Speaker 2: out there this year, because I get the sense that
31:33
Speaker 2: even though consumer spending has been no, consumer spending has
31:36
Speaker 2: been good. But I like, I'm seeing some kind of
31:40
Speaker 2: wild deals that make me wonder how some of these
31:42
Speaker 2: companies are staying profitable. Like I've basically finished my Christmas
31:46
Speaker 2: shopping at this point, I can't tell you how many
31:51
Speaker 2: legitimate like because again, you got to kind of look
31:53
Speaker 2: at you know, Okay, what would this normally be priced at?
31:56
Speaker 2: But legitimate like things I've been watching for like six
31:58
Speaker 2: months or so, forty to fifty percent offers I've been
32:02
Speaker 2: seeing on stuff, and I don't know, Like I don't
32:07
Speaker 2: remember seeing a ton of those last year, but that's
32:10
Speaker 2: just me, so I don't know, Like people have just
32:16
Speaker 2: been predicting doom and gloom on consumer spending for too long,
32:20
Speaker 2: and the trend is still robust like it is. And
32:24
Speaker 2: I'm not saying that everyone's feeling good about the economy.
32:26
Speaker 2: I'm not saying that like everyone has to. But what
32:29
Speaker 2: I am saying is, across the board, we're seeing consistent
32:32
Speaker 2: four to six percent increases in spending year over year.
32:35
Speaker 2: Inflation's running about three, which means one to three percent
32:38
Speaker 2: real gains in spending. I've seen nothing to dissuade me
32:42
Speaker 2: that that's happening. Agreed to take a quick break when
32:45
Speaker 2: we come back stack Roulette after this.
32:50
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34:07
Speaker 2: Mike, what do you got for stack roulettes?
34:09
Speaker 3: Starbucks?
34:10
Speaker 4: Whilst your journal Why the future of coffee doesn't belong
34:12
Speaker 4: to Starbucks? Younger drinkers love it icy, sweet and made
34:15
Speaker 4: for a drive through selfie. Specifically, they're talking about a competitor,
34:20
Speaker 4: Dutch Bros. Who really focuses on a different segment of
34:23
Speaker 4: the coffee market. But it made me kind of think
34:26
Speaker 4: about the non alcoholic but like the drink segment generally,
34:32
Speaker 4: and the fact that it's growing really rapidly.
34:36
Speaker 3: So in a small.
34:37
Speaker 4: Town that we live in, they have a Starbucks, we've
34:42
Speaker 4: got a couple other coffee shops. We also have, you know,
34:46
Speaker 4: a smoothie bar. And then what just opened a few
34:51
Speaker 4: months ago was like a boba.
34:54
Speaker 3: Tea type place.
34:55
Speaker 2: What is that exactly?
34:57
Speaker 4: It's it's like milk tea with a little tapioca balls
35:01
Speaker 4: in it.
35:01
Speaker 2: What's milk tea? Tea out of milk?
35:04
Speaker 3: I don't know, but it's sweet. It's got a bunch
35:06
Speaker 3: of different flavors.
35:08
Speaker 4: The kids like it because it's like these little tapioca
35:10
Speaker 4: balls that pop in your mouth. And you know, my
35:14
Speaker 4: kids don't drink caffeinated beverages at Starbucks, but they would
35:18
Speaker 4: oftentimes like, oh, can we go to Starbucks and get
35:21
Speaker 4: some sort of pink drink And instead there's this new
35:24
Speaker 4: competition from this place.
35:25
Speaker 3: That I don't I don't know.
35:26
Speaker 4: My simpleness is that it probably my senses that it
35:28
Speaker 4: probably wouldn't have existed a decade ago.
35:31
Speaker 3: I don't think there was the demand. I think it
35:33
Speaker 3: was too unknown.
35:34
Speaker 4: And today we're all kind of there's a huge segment
35:37
Speaker 4: now of these different types of beverages that you can
35:41
Speaker 4: go get and it's direct competition for Starbucks.
35:46
Speaker 2: When we talk about the human body, do you think
35:50
Speaker 2: we're close to reaching peak liquid?
35:54
Speaker 3: You know?
35:54
Speaker 2: Because it's like all we hear about is, oh, there's.
35:58
Speaker 4: Taiwanese drink made of a eat milky tea bass mixed
36:02
Speaker 4: with chewy tapioca pearls.
36:03
Speaker 2: Like all we're hearing about is who was the restaurant?
36:07
Speaker 2: Was a McDonald's that came out with their own like
36:11
Speaker 2: drink only restaurant, And like all these companies are trying
36:15
Speaker 2: to pour money into drinks and there's only so much
36:21
Speaker 2: liquid that I want to consume. And look, I'm kind
36:26
Speaker 2: of a weirdo on this because I get it, like
36:29
Speaker 2: if I'm not drinking alcohol, I'm only drinking water. Like
36:34
Speaker 2: that's just I've never been like, oh, like let me
36:38
Speaker 2: get like a fun drink to cheer me up, Like no,
36:42
Speaker 2: I just it's not me so I get that I'm
36:44
Speaker 2: not that person, but like the human body just has
36:49
Speaker 2: limitations on how much liquid you can take in.
36:52
Speaker 4: I think the real issue for Starbucks is that there
36:55
Speaker 4: were always there was always plenty of coffee shop competition.
36:59
Speaker 3: That was never going to change, but they manage that.
37:02
Speaker 3: Where they grew was the non coffee stuff.
37:06
Speaker 4: And now there's other kids going to get their pink
37:09
Speaker 4: drinks that, you know, all the crazy stuff that they
37:12
Speaker 4: can get on their menu, and now because of Starbucks
37:15
Speaker 4: there's a lot more competition.
37:16
Speaker 2: There can that competition survive? I guess is what I'm
37:19
Speaker 2: asking though, is I.
37:22
Speaker 4: Think that each individual brand is probably a fad because
37:25
Speaker 4: like this, it doesn't matter.
37:26
Speaker 2: The twenty tens, we're all about, hey, look at all
37:28
Speaker 2: these microbreweries that popped up, yea, and now we're seeing
37:31
Speaker 2: the stories well like you know, changed and like a
37:34
Speaker 2: lot of them are struggling. And so I guess I
37:37
Speaker 2: kind of wonder is the same thing happening here? Because
37:40
Speaker 2: liquid is a zero sum game. The human body will
37:43
Speaker 2: not suddenly become ninety percent water just because we like
37:47
Speaker 2: all these actual shops open, you know, like there's there's
37:50
Speaker 2: there's a physical limitation on how much of this you
37:52
Speaker 2: can do.
37:54
Speaker 4: I don't think we're approaching the physical limitation. I do
37:56
Speaker 4: think some of these things are probably too fatty. And
37:59
Speaker 4: I don't mean fat yeah, I mean they are a
38:01
Speaker 4: fad and they won't.
38:02
Speaker 2: It's like exercise machines, you know. It's if I had
38:07
Speaker 2: a dime for every bowflex or peloton in an attic
38:10
Speaker 2: collecting dust, I'd be able to buy all the bobats.
38:15
Speaker 2: Let's take a quick break for the rest of the day.
38:17
Speaker 2: We'll see you tomorrow on the Financial Exchange