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Andrew Ross Sorkin · The Financial Exchange Show

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1:10
Speaker 2: Good morning, Welcome back to the Financial Exchange. It's Mike,
1:13
Speaker 2: Mark and Tucker with you on a Tuesday where we've
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Speaker 2: got markets in mixed territory. The Dow strongly positive for
1:19
Speaker 2: the day, up nine tenths of a percent, the SMP
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Speaker 2: up about a fifth of a percent, and the Nasdaq
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Speaker 2: currently down thirty five points are a little bit more than
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Speaker 2: one tenth of a percent. We're in the midst of
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Speaker 2: earning season. Eighty nine S and P five hundred companies
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Speaker 2: reporting this week alone, Netflix, the biggest of today will
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Speaker 2: be going after the bell, but Ge Aerospace before Coca Cola,
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Speaker 2: Philip Morris, Raytheon, to name a few, all reported this morning. Tomorrow,
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Speaker 2: we'll be hearing from the likes of Tesla after the bell,
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Speaker 2: the one point four trillion dollar company and top still
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Speaker 2: in the top ten I believe, of yeah, obviously of
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Speaker 2: the S and P five hundred, SAP, IBM, Thermo Fisher
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Speaker 2: reporting tomorrow as well. Thursday, we'll hear from T Mobile, Intel, Union, Pacific, Honeywell,
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Speaker 2: and then Friday, is there anything big? Proctor Gamble, Actually,
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Speaker 2: Proctor Gamble will be reporting before the bell on Friday.
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Speaker 2: If also Friday, will get a report on the consumer
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Speaker 2: price index. All that ahead of next week's Federal Reserve
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Speaker 2: meeting as they tackle interest rates without government data. And
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Speaker 2: then finally later in the program, today we're gonna be
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Speaker 2: joined by Andrew Ross Sorkin, co host of Squakbox on
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Speaker 2: CNBC and New York Times best selling author, this time
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Speaker 2: for his book nineteen twenty nine, and talking about the
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Speaker 2: Great Depression and some of the comparison points between today
2:44
Speaker 2: and the Roaring twenties. If you will, let's go over
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Speaker 2: to this Wall Street Journal piece mark anything else in
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Speaker 2: terms of markets or data catching.
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Speaker 3: I was just thinking, it's been nice not having government data.
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Speaker 3: Nice to take a little break. And I don't mean
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Speaker 3: that sarcastic.
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Speaker 4: As the guy who doesn't host a financial data show.
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Speaker 3: Oh true, Well, you guys can change format.
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Speaker 2: I mean we're actually thinking about doing recipes and ukuleles.
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Speaker 3: Yeah, yeah, no, But honestly, it's so easy. We talked
3:13
Speaker 3: in the last hour about.
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Speaker 2: Tucker cantonies because he's got a mouthful apple right now,
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Speaker 2: but other screaming.
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Speaker 3: About how government data, how the big economic reports are
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Speaker 3: often just not up to the task that we expect
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Speaker 3: of them. People think about GDP, or at least maybe
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Speaker 3: I used to is some kind of measure of economic welfare.
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Speaker 3: It is and it isn't. It doesn't capture the average
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Speaker 3: Americans experience the value of the stock market. It's a
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Speaker 3: different type of of of of of data. It's a price,
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Speaker 3: but it's It can be equally misinterpreted. The gap between
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Speaker 3: high earners and low earners. The extent to which high
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Speaker 3: earners account for spending further cloud's relationships between or a
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Speaker 3: mon ung variables that make it really hard to draw
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Speaker 3: conclusions to whether or not the economy is is good
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Speaker 3: in some sense for the average American just looking at GDP,
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Speaker 3: stock prices or unemployment. That's what I mean when I
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Speaker 3: say it's nice to take a step back from government data.
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Speaker 3: Hope we don't get we don't get poor quality government
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Speaker 3: data as a result of the shutdown. This is not
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Speaker 3: the type of break from government data that I suppose
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Speaker 3: is ideal, But in some ways it's just nice to
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Speaker 3: not have to cope with all the noise that's attended
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Speaker 3: with data.
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Speaker 4: That's fair. Uh, and markets have not seemed to mind
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Speaker 4: one bit, as they have just continued to crazy roads.
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Speaker 2: Yes and no, I mean Morgan Stanley did a report that,
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Speaker 2: on average, over every government shutdown that they looked at,
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Speaker 2: the stock market was up.
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Speaker 4: I think an average we did.
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Speaker 3: Yeah, you could say that analysis. We've done it internally too.
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Speaker 3: The problem is the sample is very, very, very small, small.
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Speaker 3: You only have one I think that's of the duration
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Speaker 3: that this one's now projected to be and it happened
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Speaker 3: in the middle of a booming market and economy. I
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Speaker 3: imagine if this shut if shutdowns had happened under a
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Speaker 3: less favorable economic circumstances. I don't imagine it's definitely the case,
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Speaker 3: you'd come to a very different conclusion.
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Speaker 4: I guess there's probably some selection bias there.
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Speaker 2: Right, If the economy is in a tail spin, you're
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Speaker 2: not gonna be willing to shut down the government when
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Speaker 2: you are well.
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Speaker 4: You have to.
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Speaker 3: Control there's bias in that way when since we have
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Speaker 3: time to talk about it, since we have no data.
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Speaker 3: But bias means, as you said, you don't have a
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Speaker 3: truly random sample. Bias can come from measurement problems, it
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Speaker 3: can come from omitting a critical variable. I'm not sure
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Speaker 3: how you'd adjust for the state of the there's way
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Speaker 3: too many potential factors influencing the stock market that you
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Speaker 3: cannot control for in your low model, which is what
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Speaker 3: we researchers do. Give me enough data and I can
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Speaker 3: give you a definitive answer. The uncertainty grows though, with
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Speaker 3: either measurement problems or things that you might have left
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Speaker 3: out of your little model that you should have put
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Speaker 3: in there. So stock market's picking up on a lot
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Speaker 3: of things. It is a little surprising that stocks would
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Speaker 3: continue to plow ahead with very little economic.
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Speaker 2: Yeah, I guess my point would be, I would theorize
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Speaker 2: that lawmakers would be a lot less willing to shut
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Speaker 2: down the government in the event that the market was
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Speaker 2: dropping if we were in the middle of percentage point
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Speaker 2: of day or we were in the middle No, you're right,
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Speaker 2: everybody feels really het.
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Speaker 4: We're gonna get paid. You're right, we're gonna ask a
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Speaker 4: bunch of work and they're not gonna do that.
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Speaker 5: Right.
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Speaker 2: You know, when when stock markets hitting all time highs
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Speaker 2: and uh and things are looking pretty good, sure shut
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Speaker 2: it down and.
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Speaker 4: We'll we'll go to battle over this. Absolutely, that wouldn't
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Speaker 4: happen to nine now.
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Speaker 3: There's a very diverse little feedback from markets to policy.
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Speaker 3: Right now, interest rates are falling, right, long term interest
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Speaker 3: rates anyway are stable to falling. Markets are up.
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Speaker 2: So great news Mark the Wall Street Journal has the
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Speaker 2: solution to everyone's angst about whether or not we are
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Speaker 2: in an AI bubble with their guide to Cushioning your
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Speaker 2: Portfolio against an AI Bust. Should we do anything with
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Speaker 2: this other than throwing in the toilet? I I get
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Speaker 2: really worried when I see any news publication to tell
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Speaker 2: me that they've got a guide to cushioning your portfolio
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Speaker 2: from an AI bus. So I guess first things first,
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Speaker 2: I don't know if we are in an AI bubble.
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Speaker 2: I would venture to say that it is entirely possible
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Speaker 2: that it ends in a bust. And I'll also say
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Speaker 2: that every market cycle throughout our history has led to
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Speaker 2: a bust at some point, and so we will probably
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Speaker 2: see one at some point. Sure, But first thing, first
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Speaker 2: to acknowledge you know I'm talking right now, you're listening
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Speaker 2: to the program. I don't know anything about you. I
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Speaker 2: don't know how your portfolio is allocated today. I don't
7:35
Speaker 2: know how old you are, I don't know what your
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Speaker 2: goals are, and so I would personally never give you
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Speaker 2: investment advice about how to guard your portfolio against an
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Speaker 2: ai bus. But Wail Street Journal thought that they could
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Speaker 2: maybe do so, and so they have several categories in
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Speaker 2: this piece here one would be equal weighted funds, another
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Speaker 2: healthcare stocks, international shares, software stocks, and gold.
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Speaker 3: I think people tell you how that we did similar analysis,
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Speaker 3: So that's sort of top of mind for me, and
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Speaker 3: if you look at mine was in the context of
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Speaker 3: what happens. I think when regional banks pull back by
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Speaker 3: a lot, what sectors and alternative asset classes do best,
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Speaker 3: and it is dependably healthcare, staples, gold.
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Speaker 4: Historically when regional banks.
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Speaker 3: Yes, but yeah, there is. It's very easy to do
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Speaker 3: this analysis. You just filter by a big draw down
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Speaker 3: in the variable the dis of interest and in this case,
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Speaker 3: in my case it was regional banks. In your case
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Speaker 3: it's tech and tech held up okay too. And interestingly,
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Speaker 3: in the early stages of what could be a bigger
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Speaker 3: draw down in regional banks, there was only anyway for
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Speaker 3: what that's worth.
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Speaker 2: One of these that I figured some people might not
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Speaker 2: know about. What are equal weighted funds? Can you can
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Speaker 2: you describe them to people? And I guess just just
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Speaker 2: compared to the s and P five.
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Speaker 3: When, Yeah, that's the reference, natural reference point. When you
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Speaker 3: buy a stock index font typically it's market capitalization weighted.
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Speaker 3: The most valuable companies in terms of the total value
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Speaker 3: of their stock get the biggest weight. So Nvidia is
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Speaker 3: the biggest holding in the S and P five hundred
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Speaker 3: index of Leading US Companies, which is technically not market
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Speaker 3: cap weighted. So it might be better to use the
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Speaker 3: Russell one thousand in this example. But we're worry too
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Speaker 3: far down this road. Sure, so it's determined by market
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Speaker 3: cap weight. Yes, there are there are good theoretical reasons
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Speaker 3: for starting with a market cap weighted portfolio when you're
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Speaker 3: building your portfolio of stocks. It's a little harder to
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Speaker 3: do with bonds for reasons, we don't have to get
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Speaker 3: into and equal weighted portfolio. Says, I don't care what
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Speaker 3: the biggest companies are. If there are ten companies, if
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Speaker 3: they are five hundred companies in the index, one five
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Speaker 3: hundredth of every dollar I invest will go into so
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Speaker 3: you know, a fifth of a cent if you want
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Speaker 3: to think about it that way, fifth of one hundredth
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Speaker 3: we'll go into. Uh, We'll go into each company without
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Speaker 3: regard to what the overall value of the company is
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Speaker 3: why would they favor that? Well, if you think the
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Speaker 3: biggest companies are likely to teeter because they've and.
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Speaker 4: If you're worried about concentration risks.
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Speaker 3: Yeah, let's just wait it instead of putting, instead of
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Speaker 3: attaching market cap weights to each But that that gives
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Speaker 3: you biases too that you may not be away. You
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Speaker 3: got too much small and mid in that case.
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Speaker 4: Right.
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Speaker 2: I was going to bring up, like you, any decision
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Speaker 2: you make here, don't let yourself off as you're not
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Speaker 2: making it decision.
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Speaker 3: No, you're making an active management decision. You're betting you
10:20
Speaker 3: know better than the average investor, than the wisdom if
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Speaker 3: you like of the crowds that is represented by the
10:27
Speaker 3: market price of an asset. You might end up being right,
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Speaker 3: But be advised you're introducing new biases. And I don't
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Speaker 3: mean biases in a bad way. I just mean you've
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Speaker 3: got tilts now exposures in your portfolio you didn't have
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Speaker 3: before if you do it that way.
10:39
Speaker 4: Let's take a quick break.
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Speaker 2: When we come back, we're playing a little bit of
10:43
Speaker 2: trivia here next on the Financial Exchange.
10:46
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Speaker 6: k dot Boston. Time for trivia here in the Financial Exchange.
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Speaker 6: In On September third, nineteen twenty nine, the Dow Jones
12:07
Speaker 6: Industrial average hit a high of three hundred and eighty one.
12:11
Speaker 6: A month and a half later, the market crashed, taking
12:15
Speaker 6: the Dow down with it. It took many years for
12:18
Speaker 6: the Dow to climb back up and beat its previous
12:21
Speaker 6: high of three hundred and eighty one. So our trivia
12:24
Speaker 6: question today, how many years did it take for the
12:27
Speaker 6: Dow Jones to pass its record high in nineteen twenty nine?
12:31
Speaker 6: Once again, how many years did it take for the
12:34
Speaker 6: Dow Jones to pass its record high in nineteen twenty nine?
12:39
Speaker 6: Be the fourth person today to text us at six
12:41
Speaker 6: one seven thirty six two thirteen eighty five with the
12:44
Speaker 6: correct answer and win a Financial Exchange Show T shirt.
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Speaker 6: Once again. The fourth correct response to Texas to the
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Speaker 6: number six one seven three six two thirteen eighty five
12:54
Speaker 6: will win that T shirt. See complete contest rules at
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Speaker 6: Financial Looks, Change Show dot com mark.
13:00
Speaker 2: If there's been one reliable trend in markets so far
13:03
Speaker 2: this year, especially since the spring, it has been artificial intelligence. Obviously,
13:08
Speaker 2: beginning of this year was much more about trade and
13:09
Speaker 2: tariffs and the new Trade Order, but since then it's
13:13
Speaker 2: all been about artificial intelligence, and to that end, Apple
13:16
Speaker 2: has been sort of left behind in the discussion it's
13:19
Speaker 2: not as though their stock price has taken a giant head.
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Speaker 3: They're not making the massive investments.
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Speaker 2: They're not making these huge investments, and they're not seeing
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Speaker 2: the benefit from the lack of investment.
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Speaker 3: Trust me, I know you know this.
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Speaker 2: The the stock for Apple was down until about September
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Speaker 2: of this year, when it's just slightly turned positive now,
13:42
Speaker 2: but you know, far away from what you've seen from
13:44
Speaker 2: the giant AI stocks today up about a quarter of
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Speaker 2: a percent. Was it yesterday that it was that big?
13:49
Speaker 2: I think four percent or so on on some news,
13:53
Speaker 2: And so in spite of their lack of artificial intelligence investment,
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Speaker 2: which people can bringing up as though it's some weird thing,
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Speaker 2: my counterpoint would be this is always what Apple does.
14:05
Speaker 2: Apple is an expert at being the last to a
14:08
Speaker 2: new technology and then making it great for its users.
14:12
Speaker 2: But nonetheless, they've been criticized a fair bit this year
14:14
Speaker 2: on their lack of investment in aiither lack of progress
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Speaker 2: on any sort of built in artificial intelligence on their phones.
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Speaker 2: And yet they had a pretty big day yesterday on
14:25
Speaker 2: apparent early sales of the new iPhone seventeen, looking pretty
14:30
Speaker 2: good and outpacing last year's pace. Of sales in both
14:32
Speaker 2: in the US and China, according to one research firm, at.
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Speaker 3: Least well, look, from the point of view of a consumer,
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Speaker 3: is it obvious that Microsoft's big investments have paid off?
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Speaker 3: Are you using copilot on outlook or any No, it's
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Speaker 3: it doesn't do what you wanted to do half the
14:49
Speaker 3: time and the other time the other half of the time,
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Speaker 3: it doesn't do it. Well, look, I don't. That's more
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Speaker 3: critical than I meant for it to sound.
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Speaker 4: I guess my point is ask saying Microsoft sucks is
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Speaker 4: what you're trying.
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Speaker 3: I'm saying I'm not. I've not unlike in the early
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Speaker 3: stages of the Internet boom, which had had a tangible impact.
15:11
Speaker 3: I'm being a little bit sloppier, but I'm gonna say
15:13
Speaker 3: it had a tangible impact on not just on economic
15:15
Speaker 3: growth and productivity at the time, though there were many
15:18
Speaker 3: years of investments in it leading up to it. I've
15:22
Speaker 3: not seen anything as a consumer, and some of AI
15:25
Speaker 3: is operating behind the scenes making processes easier, but I've
15:28
Speaker 3: not seen anything life changing the way I felt it
15:31
Speaker 3: can experience the Internet as a as a life changing
15:35
Speaker 3: series of the culmination of a life series, a life
15:39
Speaker 3: changing series of innovations.
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Speaker 4: Yeah, so that's all.
15:42
Speaker 2: Nonetheless, Apple has taken a very slow approach to all this.
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Speaker 2: And again why I bring up that that seems normal
15:48
Speaker 2: to me. Apple was not the creator of the first
15:51
Speaker 2: MP three player. They weren't the creator of the first
15:54
Speaker 2: you know that was who created the first MP three player?
15:57
Speaker 2: I don't even know, but we don't talk about them anymore,
15:59
Speaker 2: maybe or something I think it was. They were not
16:02
Speaker 2: the first creator of a smartphone that was BlackBerry. They
16:06
Speaker 2: were not the first creator of wireless headphones. They just
16:11
Speaker 2: made them really easy to use, work within their network
16:15
Speaker 2: of existing customers, and therefore made a ton of money
16:20
Speaker 2: on those innovations. Years later, now they've gotten in trouble
16:24
Speaker 2: for some of that stuff, and on their Apple Watch
16:25
Speaker 2: they tried to rip off some technology when it came
16:27
Speaker 2: to oxygen sensors, and so, you know, this is not
16:30
Speaker 2: a universal strategy, and maybe it doesn't work at some
16:33
Speaker 2: point in the future. But all the criticisms that I've
16:35
Speaker 2: heard about Apple not jumping in with both feet when
16:38
Speaker 2: it comes to artificial intelligence, I've just I don't know,
16:41
Speaker 2: I've kind of quietly pumped the.
16:42
Speaker 4: Brakes on to say that's never been their strategy.
16:45
Speaker 3: What specifically is people's concern, what.
16:48
Speaker 2: Their concern would be that the progress that Google is
16:52
Speaker 2: making with their AI Virtual assistant on my phone, which
16:56
Speaker 2: is a Google.
16:56
Speaker 3: Fan, Okay, so it's phone based, it's phone software. This
16:59
Speaker 3: criticism is phone software based. They feel like Apple's lagging
17:01
Speaker 3: and if they had more horsepower they could run. Is
17:04
Speaker 3: there something that is there something on the pre Is
17:08
Speaker 3: there something that they're trying to engineer in Siri that
17:10
Speaker 3: could be done if they just had more processors. I'm
17:14
Speaker 3: more simplifying what a data center is, but I don't
17:17
Speaker 3: have any I'd love for that to be Okay, Well,
17:19
Speaker 3: neither one of us is a stock analyst. Maybe a
17:21
Speaker 3: stock analyst has more specific insight just where they are.
17:27
Speaker 3: They falling behind because they're on the precipice of something
17:29
Speaker 3: and they're not able to execute because they don't have
17:31
Speaker 3: the horsepower to do it.
17:33
Speaker 4: Here's what I am willing to say.
17:35
Speaker 2: Uh, I have a Android phone, a Google Pixel phone specifically,
17:41
Speaker 2: which has Gemini and and you know, an AI Virtual
17:44
Speaker 2: assistant built into it. My wife has an iPhone that
17:48
Speaker 2: has Siri, and when it comes to very basic things,
17:53
Speaker 2: the Google phone is significantly better at like a voice
17:56
Speaker 2: activated virtual assistant function than the Apple phone. I'm very
18:00
Speaker 2: confident saying that in my experience using the two of them,
18:03
Speaker 2: whether I'm driving and using it or whether I'm just
18:06
Speaker 2: asking it basic questions, giving it basic tasks, it is
18:09
Speaker 2: better at that. I will also say that it's always
18:12
Speaker 2: been better and that you know, it's increased a little
18:15
Speaker 2: bit since we've been talking about an artificial intelligence, but
18:17
Speaker 2: not significantly, and so that I think is the investor concern.
18:21
Speaker 2: But again I would shoot back at that and say
18:26
Speaker 2: that's all well and good. My wife ain't changing systems.
18:30
Speaker 2: She's not going from an iPhone to a Google phone
18:32
Speaker 2: because of her perceived, uh you know, difference in the
18:36
Speaker 2: usability of the virtual assistant on the two phones.
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Speaker 4: So I'm not sure that that matters.
18:40
Speaker 2: But I can confidently say that the progress that Google
18:43
Speaker 2: is making on my ability to assign an AI tool
18:46
Speaker 2: tasks and you know, have it be slightly convenient in
18:50
Speaker 2: my life is far and way better than what Apple
18:52
Speaker 2: has put out there on their devices so far. But again,
18:56
Speaker 2: if I'm Apple, I'm probably just going to wait until
18:59
Speaker 2: one of those companies will sell me their tool and
19:01
Speaker 2: then just put it onto my device anyway, and if
19:06
Speaker 2: history is a guide, it'll be easy to use, well integrated,
19:09
Speaker 2: and heck, the company might even pay me to do it.
19:12
Speaker 4: So that's where I land with it. Let's take a
19:16
Speaker 4: quick break.
19:16
Speaker 2: When we come back, we're gonna have a full market
19:19
Speaker 2: update next with Wall Street Watch.
19:38
Speaker 1: Bringing the latest financial news straight to your radio. Every day.
19:43
Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
19:48
Speaker 1: Time now for Wall Street Watch. A complete look at
19:52
Speaker 1: what's moving markets so far today right here on the
19:55
Speaker 1: Financial Exchange Radio Network.
19:57
Speaker 6: Markets and mixed territory as investors we sift through a
20:00
Speaker 6: new batch of third quarter earnings from major names including
20:04
Speaker 6: General Motors, GE Aerospace, Coca Cola, and many more. Right now,
20:09
Speaker 6: the Dow is up by seven tenths of one percent,
20:12
Speaker 6: or three hundred and thirty seven points higher. SMP five
20:15
Speaker 6: hundred is up eight points, are about a tenth of
20:17
Speaker 6: a percent, NASDAC down nearly a tenth of a percent
20:20
Speaker 6: or twenty points lower, Russell two thousand dipping into negative
20:24
Speaker 6: territory mostly flat at the moment. Tenure treasureel is down
20:28
Speaker 6: three basis points at three point nine to five five percent,
20:32
Speaker 6: and crude oil up about half a percent higher training
20:35
Speaker 6: a fifty seven dollars and eighty cents a barrel before
20:38
Speaker 6: we get into earnings. Some breaking news in the media
20:41
Speaker 6: space this morning. After several outlets of reporting that Warner
20:44
Speaker 6: Brothers Discovery initiated a review of strategic alternatives in response
20:50
Speaker 6: to acquisition interest it has received from multiple parties, CNBC
20:55
Speaker 6: is reporting that Netflix and Comcasts are among the interested parties.
21:00
Speaker 6: Warner Brothers stock is jumping eleven percent on that news. Meanwhile,
21:04
Speaker 6: shares in GM are surging fifteen percent now after the
21:07
Speaker 6: automaker posted a third quarter earnings and revenue beat and
21:12
Speaker 6: raised its full year guidance. The company's three point four
21:15
Speaker 6: billion dollars in operating income adjusted for certain items, exceeded
21:20
Speaker 6: analyst expectations of two point seven billion. Meanwhile, jet engine
21:24
Speaker 6: company GE Aerospace handily beat third quarter earnings and revenue
21:28
Speaker 6: forecasts and also hiked its full your outlook. Shares are
21:31
Speaker 6: about up or excuse me, or up about two percent elsewhere.
21:35
Speaker 6: Coca Cola now up three percent after the beverage and
21:39
Speaker 6: snack giant reported better than expected quarterly results as higher
21:43
Speaker 6: prices helped lift sales. Regional bank Zion's Ban Corp. Reported
21:47
Speaker 6: higher quarterly earnings despite the fifty million dollar charge off
21:51
Speaker 6: it disclosed last week. Shares are up about two percent.
21:55
Speaker 6: Philip Morris lifted its annual guidance as smokeless tobacco products
21:59
Speaker 6: continued to drive growth. However, shares are down about eight percent.
22:02
Speaker 6: And after today's closing bill, we'll see earnings from Netflix,
22:06
Speaker 6: Capital One, Mattel and Texas Instruments. I'm Tucker Silva and
22:11
Speaker 6: that is Wall Street Watch. And in the previous segment,
22:13
Speaker 6: we asked you the trivia question how many years did
22:16
Speaker 6: it take for the Dow Jones to pass its record
22:19
Speaker 6: high in nineteen twenty nine. That'll be twenty five years
22:22
Speaker 6: after the crash out of nineteen twenty nine. It wasn't
22:25
Speaker 6: until nineteen fifty four that the dowd Jones beat its
22:29
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22:32
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22:35
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22:41
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Speaker 2: A brand new guide out from the Armstrong Advisory Group
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24:42
Speaker 2: We have got to take a quick break. When we
24:44
Speaker 2: come back. Andrew Ross Sorkin, author of nineteen twenty nine
24:47
Speaker 2: co host of CNBC Squak Box, is joining us next
24:50
Speaker 2: for what I consider to be the interview of the year.
24:53
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25:38
Speaker 4: We are joined now by Andrew Ross Sorkin.
25:40
Speaker 2: He's a New York Times bestselling author, the co host
25:43
Speaker 2: of CNBC squawk Box, and joins us to discuss this
25:46
Speaker 2: brand new book, nineteen twenty nine, The Inside Story of
25:49
Speaker 2: the Greatest Crash in Wall Street History.
25:52
Speaker 4: Andrew, thanks so much for joining us. Appreciate it.
25:54
Speaker 7: Thanks for having me. Great to see it.
25:56
Speaker 1: So.
25:57
Speaker 2: You know, you wrote Too Big to Fail in two
25:59
Speaker 2: thousand and nine, and he only had like a year
26:01
Speaker 2: to prep that one. What took so long on this book, Andrew?
26:05
Speaker 5: Honestly, it was just a much longer process than I
26:09
Speaker 5: ever expected or imagined. This was a book really about
26:13
Speaker 5: going into the archives and finding transcripts and memos and
26:17
Speaker 5: diaries and letters and all sorts of material that I
26:20
Speaker 5: had to chase down frankly, all over the country.
26:22
Speaker 7: When I got involved in this.
26:23
Speaker 5: Project, probably close to a decade ago, I thought I
26:26
Speaker 5: could do it.
26:27
Speaker 7: In two or three years, max.
26:29
Speaker 5: And it just sort of took over every part of
26:32
Speaker 5: my life in the best way in some senses, because
26:34
Speaker 5: it just, you know, these characters were so fascinating, and
26:39
Speaker 5: I think getting underneath it being inside the room, which
26:42
Speaker 5: is what I was trying to do with this story,
26:43
Speaker 5: sort of like I did in Too Big to Fail,
26:47
Speaker 5: you know, just was all encompassing.
26:49
Speaker 4: Well, so anyways that part comes across.
26:52
Speaker 2: I mean, the details of those people's lives at the
26:55
Speaker 2: time was truly fascinating to me as somebody who's read
26:58
Speaker 2: the textbooks on the Great Depression.
27:00
Speaker 4: Obviously, this is a very different piece.
27:01
Speaker 2: You're right in the forward that you know the drama
27:05
Speaker 2: of nineteen twenty nine is misunderstood or unknown by the
27:08
Speaker 2: public today. But now that you've written this, and I'm
27:11
Speaker 2: sure you've done book tours and talked to all sorts
27:13
Speaker 2: of folks, what are the most common details or themes
27:16
Speaker 2: that you found the public just doesn't realize about the
27:19
Speaker 2: Great Depression.
27:21
Speaker 5: Oh goodness. I mean, I think there's so many aspects
27:23
Speaker 5: to it. I think, you know, when I went into
27:24
Speaker 5: this project, most people that I know would say, Hey,
27:27
Speaker 5: you know, I know that I know that there was
27:30
Speaker 5: a crash in nineteen twenty nine. I think people think
27:32
Speaker 5: it happened on one day. They think it was a
27:35
Speaker 5: direct line to the Great Depression, and.
27:37
Speaker 7: That therefore that the Great Depression just happened.
27:39
Speaker 5: Yeah, I think none of that's true, right, you know,
27:43
Speaker 5: the crash was actually a whole sequence of crash. Is
27:47
Speaker 5: oddly the market ot be came back afterwards in ways
27:51
Speaker 5: that you I think are just shocking, and.
27:54
Speaker 7: It really was yeah, and unrealized.
27:57
Speaker 5: And then I think it was the crash itself was
28:00
Speaker 5: really more of a domino. And the story is not
28:03
Speaker 5: just about ninet twenty nine. The book that I wrote
28:05
Speaker 5: really goes through nineteen thirty three. It was really a
28:09
Speaker 5: series of dominoes of then very bad policy choices that
28:13
Speaker 5: really led to the Great Depression. So when you think
28:15
Speaker 5: about unemployment reriching twenty five percent in nineteen thirty two
28:19
Speaker 5: or nine thousand, banks failing in nineteen thirty three, or
28:23
Speaker 5: tented camps like Hooverville's. All of that was a function
28:27
Speaker 5: of mistakes that President Hoover was making. He was trying
28:30
Speaker 5: to raise taxes at the time he was implementing tariffs,
28:33
Speaker 5: which obviously has a parallel to today in part by
28:36
Speaker 5: the way, because he was trying to make good on
28:38
Speaker 5: a pledge to farmers who had tried he tried to
28:42
Speaker 5: get to vote for him in nineteen twenty eight originally.
28:44
Speaker 5: So there were lots of just periods, moments in this
28:48
Speaker 5: that I think shifted the balance. The role of the
28:51
Speaker 5: Federal Reserve, which effectively sat on its hands during most
28:55
Speaker 5: of this period, did not flood the system with liquidity
28:57
Speaker 5: the way they should have, in part because of the
28:59
Speaker 5: political pressure.
29:00
Speaker 7: Again strange parallel.
29:02
Speaker 5: As we have conversations today about, you know, the independence
29:05
Speaker 5: of the Fed and what political pressure looks like, Well
29:07
Speaker 5: we saw what political pressure actually looks like in nineteen
29:09
Speaker 5: twenty nine. So I think those are so money of
29:12
Speaker 5: the sort of systematic pieces of it, but it really
29:15
Speaker 5: is about the people.
29:16
Speaker 7: And their own motivations and incentives. And I think when
29:18
Speaker 7: you see.
29:19
Speaker 5: What the decision makers were actually thinking and what they
29:22
Speaker 5: were saying and the conversations they're having with their wives.
29:25
Speaker 2: It changes everything, you know, Andrew, one piece that really
29:28
Speaker 2: stood out to me was, you know, all the discussion
29:30
Speaker 2: about the FED and Congress at the time, in the
29:33
Speaker 2: nineteen twenties through the early thirties, how do you view
29:36
Speaker 2: I mean, you conduct interviews with all of these people
29:39
Speaker 2: and business leaders and others.
29:41
Speaker 4: How do you view changes in those.
29:44
Speaker 2: Institutions over the course of the last century, like the
29:46
Speaker 2: FED and their attitude towards markets and downturns, and Congress too.
29:50
Speaker 2: I mean, in my mind when reading your book, it
29:52
Speaker 2: seemed vastly different, at least the attitudes towards these types
29:57
Speaker 2: of events in those institutions.
30:00
Speaker 5: Well, I think it's you know, there's so many similarities
30:02
Speaker 5: in so many differences. One of the similarities is actually
30:04
Speaker 5: that you know, famously, there was a senator named Carter
30:07
Speaker 5: Glass who ultimately puts his name on a bill called
30:10
Speaker 5: the Glass Tingle Bill, which breaks up the banks in
30:12
Speaker 5: nineteen thirty three, quite famously, but you know, he was
30:15
Speaker 5: the Elizabeth Warren of his time, and he was railing
30:19
Speaker 5: about Wall Street and actually guy Naed Charles Mitchell, who's
30:21
Speaker 5: another main character in the book who he believed was
30:24
Speaker 5: going to, you know, up end America because of all
30:26
Speaker 5: the leverage in the system. So there were these people
30:28
Speaker 5: who do have these sort of parallels to today. At
30:32
Speaker 5: the same time, I think politically there was a view
30:35
Speaker 5: you don't flood.
30:36
Speaker 7: The system, for example, with money.
30:39
Speaker 5: After a crash, you hold back, you know, you raise taxes,
30:43
Speaker 5: you do all sorts of thing. You know, you get
30:44
Speaker 5: into an austerity period. But the lesson, and by the way,
30:47
Speaker 5: we saw that lesson actually get learned in two thousand
30:51
Speaker 5: and eight by Ben Bernanke who had written his thesis
30:55
Speaker 5: is phg Thesis at Princeton on the Great Depression. So
30:58
Speaker 5: he saw this firsthand in terms of just you know,
31:01
Speaker 5: the mistakes are unfortunately oftentimes when there is a crisis,
31:06
Speaker 5: you have to reward the arsonists. I mean, it's a
31:08
Speaker 5: it's a it's a very it's sort of a hard
31:09
Speaker 5: pill to swallow.
31:11
Speaker 2: Andrew leverage was of course a huge piece of your
31:14
Speaker 2: story margin Low and all the speculation that accompanied it,
31:18
Speaker 2: and seemingly part of every stock market crisis that we see. Yes,
31:23
Speaker 2: I wonder, you know, from your standpoint, where is the
31:28
Speaker 2: leverage in today's market. Where are there worrying degrees and
31:31
Speaker 2: leverage in today's market? If you if you do see that,
31:33
Speaker 2: I'm sure there are areas where we can go find that.
31:37
Speaker 2: And what are the differences between then and now?
31:40
Speaker 7: So a couple of things.
31:41
Speaker 5: First of all, I do believe that leverage really is
31:43
Speaker 5: the match that lights the fire of every financial crisis.
31:46
Speaker 5: It really is that you can have a lot of
31:48
Speaker 5: you can make a lot of mistakes without enough leverage,
31:50
Speaker 5: doesn't it doesn't boil over to a demonstrable crisis. You know,
31:54
Speaker 5: back then, there were no there was no sec there
31:57
Speaker 5: was no insider trading laws. There was nothing to you know,
32:00
Speaker 5: stop you from hump and dump schemes. There were no
32:04
Speaker 5: capital requirements that the banks had. The good news is
32:07
Speaker 5: a lot of that has been solved or at least
32:09
Speaker 5: resolved to some degree. Having said that, there's still a
32:12
Speaker 5: lot of leverage in the system. You go look at
32:14
Speaker 5: margin loans today, they exist. You look at what's happening
32:18
Speaker 5: in the AI boom, maybe bubble. You know, there's a
32:21
Speaker 5: lot of leverage not you know, people look and say, oh,
32:24
Speaker 5: there's cash coming out of you know, Meta and Google
32:27
Speaker 5: are paying for all of these data centers.
32:29
Speaker 7: Yes, but you go look at how.
32:31
Speaker 5: Some of the data centers are being created in terms of,
32:33
Speaker 5: you know, who's funding the real estate piece of it,
32:36
Speaker 5: who's funding all the energy and.
32:38
Speaker 7: Electricity that's required. There is serious leverage there.
32:41
Speaker 5: And the other piece of it is it's in the
32:42
Speaker 5: private credit space, which you know, people talk about as
32:45
Speaker 5: the shadow banking system.
32:47
Speaker 7: So I don't think we have a full sense of
32:49
Speaker 7: what it is.
32:49
Speaker 5: There's part of it should be better off in some
32:51
Speaker 5: ways because it's not on the balance sheets of the banks.
32:53
Speaker 5: It's in these private credit funds. But those private credit
32:56
Speaker 5: funds are sometimes leveraged and extended to the banks.
32:59
Speaker 7: So I think we have to do a little bit
33:01
Speaker 7: more work to really.
33:02
Speaker 5: Understand all of that, and I would actually urge people
33:05
Speaker 5: to focus on that.
33:06
Speaker 2: Yeah, I know a lot of our focus frankly, over
33:08
Speaker 2: the course the last few years has been the expansion
33:10
Speaker 2: of private credit and just I think just over the
33:12
Speaker 2: course the last few weeks with some bankruptcies, we're starting
33:15
Speaker 2: to see under the covers there of where that can
33:17
Speaker 2: seek its It's.
33:19
Speaker 5: Jamie Dimond, a cockroach in the cockroaches exactly, the cockroaches.
33:24
Speaker 2: Andrew, what would you know you've spent the last few
33:28
Speaker 2: years living in these people's diaries and personal writings about
33:32
Speaker 2: the Great Depression. What would the Wall Street and political
33:34
Speaker 2: leaders of the nineteen twenties and thirties think of some
33:37
Speaker 2: of the gambling like products of today, Like I think
33:39
Speaker 2: of zero day expiration options, prediction markets, even sports gambling
33:43
Speaker 2: today is more prevalent. Where How do you think people
33:48
Speaker 2: of that age would reflect on where we've come today.
33:51
Speaker 5: Well, I think those who went through the crash would
33:53
Speaker 5: think it's slightly insane that some of this is happening.
33:56
Speaker 5: I think they would argue, you know, you want look,
33:59
Speaker 5: you want some kind of speculation of the system.
34:01
Speaker 7: You do.
34:02
Speaker 5: Actually, it's it's the twin of innovation. So you want
34:05
Speaker 5: new products, but you need to do it responsibly. And
34:08
Speaker 5: I think there's question mark about what that looks like.
34:10
Speaker 5: You know, you haven't mentioned where I think actually the
34:12
Speaker 5: biggest amount of leverage exists, which is in crypto right now.
34:15
Speaker 5: I mean there are some of these products that have
34:17
Speaker 5: you know, twenty times fifty times leverage.
34:19
Speaker 7: I don't think it's a huge part of the cryptos space.
34:21
Speaker 5: I think it's maybe five or ten percent of the
34:23
Speaker 5: crypto space, but it's still meaningful. And I think that's
34:26
Speaker 5: you know, meme stocks, that's where we you know, places
34:29
Speaker 5: where there are where there isn't regulation is where I
34:32
Speaker 5: would I would argue we should probably be more focused
34:37
Speaker 5: than some of the other places in the markets today.
34:40
Speaker 4: Yeah, I tend to agree.
34:40
Speaker 2: I mean, I live and breathe in the stock market
34:42
Speaker 2: every day, and I don't see that same relentless optimism
34:46
Speaker 2: about you know, the lack of possibility ever for a crash,
34:49
Speaker 2: as you wrote about leading up to the nineteen twenty
34:52
Speaker 2: nine crash. But I will say I can see that
34:55
Speaker 2: echoed in some parts of other markets. And so you
34:58
Speaker 2: mentioned crypto. Is there is there anywhere else that you
35:00
Speaker 2: you just see this relentless push towards optimism in markets
35:04
Speaker 2: in twenty twenty five or over the course of the
35:06
Speaker 2: last few years.
35:07
Speaker 5: Look, Ai, I mean I just think in video is
35:09
Speaker 5: the You know, there was a stock called RCA.
35:13
Speaker 7: It was a ticker symbole radio in nineteen twenty nine.
35:15
Speaker 7: It was the future.
35:16
Speaker 5: It was radio and Babe had patents for television and
35:18
Speaker 5: people said this is going to change the world, and
35:20
Speaker 5: it was going to change the right world. It was
35:23
Speaker 5: the video of its time. It was the meme stock
35:25
Speaker 5: of its time, and that stock, you know, I think
35:27
Speaker 5: it was got up as highs I think something like
35:29
Speaker 5: three hundred or five hundred dollars split adjusted, and then
35:32
Speaker 5: fell down a couple years later to two or three dollars.
35:36
Speaker 5: So things can happen, and we just need to be
35:38
Speaker 5: aware that those things can happen. I think some of
35:40
Speaker 5: these round trip deals that in VideA and others are making,
35:43
Speaker 5: you know, by by default, should be red flags.
35:47
Speaker 7: That doesn't mean that it's going to fall or that
35:49
Speaker 7: it's you know, going to be a crash or anything else.
35:51
Speaker 5: This could all work out and be great. It just
35:54
Speaker 5: requires more vigilance.
35:56
Speaker 2: Andrew, excellent book. Really appreciated it. I appreciate you joining
35:59
Speaker 2: us today. Andrew will also be at the back Bay
36:02
Speaker 2: Events Center this Friday, October twenty fourth for a discussion
36:07
Speaker 2: sponsored by the Boston Book Festival. You can check it
36:10
Speaker 2: out online and again. The book is nineteen twenty nine
36:13
Speaker 2: by Andrew Ross, Ork and Andrew, thanks so much for
36:15
Speaker 2: joining us.
36:15
Speaker 4: Appreciate it, Tanke you coverage.
36:17
Speaker 7: Appreciate it. See in Boston.
36:18
Speaker 4: Yeah, thank you, Ben.
36:21
Speaker 2: Yeah, it is one piece stuck with me throughout the
36:25
Speaker 2: entire book, which is we do not have a full
36:28
Speaker 2: appreciation for how those things played out. And frankly, the
36:33
Speaker 2: generation that had a real knowledge of the Great Depression
36:37
Speaker 2: and what led up to it and the feelings behind it, frankly,
36:41
Speaker 2: they're not with us anymore, and so we're now in
36:43
Speaker 2: a generation that does not remember the Great Depression.
36:46
Speaker 3: Yeah, it's one of the parallels. Is the financial kindling
36:50
Speaker 3: and the FED is response. Of course, my usual rant,
36:52
Speaker 3: The FED is responsible for, broadly speaking, financial conditions. The
36:56
Speaker 3: kindling mike is certainly there, and when the kindling is excited,
37:00
Speaker 3: if any spark could result in a big conflagration, the
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Speaker 3: feding courage is too much risk taking, which I feel
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Speaker 3: other analysts feel like it's doing right now. The stage
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Speaker 3: is set. The question is what, if anything, will provide
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Speaker 3: the spark to ignite the gainlink. Maybe nothing.
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Speaker 2: Markets again, you said, markets have turned slightly positive for
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Speaker 2: the day. The Dow currently up three hundred and twenty
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Speaker 2: one points, seven tenths of a percent, the S and
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Speaker 2: P five hundred up about ten points, a little bit
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Speaker 2: more than a tenth of a percent. The Nasdak is
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Speaker 2: almost exactly flat for the day. Taking a look around
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Speaker 2: gold and silver were both taking a hit earlier. They've
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Speaker 2: recovered some of their losses, but gold still down two
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Speaker 2: hundred dollars an ounce four point seven percent on the day,
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Speaker 2: Silver off three dollars announce off over six percent for
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Speaker 2: the day. That's all the time that we have for
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Speaker 2: today's Financial Exchange, but the earnings are going to continue.
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Speaker 2: We've got Netflix reporting after the bell today and Tesla
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Speaker 2: coming later this week, so tune in all folks, have
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Speaker 2: a great rest of your day, and we'll be back
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Speaker 2: on the Financial Exchange tomorrow.