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Will Powell remain at the Fed after his term as chair? · The Financial Exchange Show

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  Speaker 2: Chuck, Mike, and Tucker with you here on a funnel
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  Speaker 2: Thursday that we're gonna have with you. We've got a
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  Speaker 2: lot to recap from yesterday. We had a FED meeting,
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  Speaker 2: we had Microsoft earnings, we had Meta earnings, we had
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  Speaker 2: Tesla earnings. Today we've got initial jobless claims that already happened.
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  Speaker 2: We have MasterCard earnings that already happened. We've got Apple
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  Speaker 2: and Visa earnings to preview, and so no more Ado,
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  Speaker 2: We're gonna get right into it, starting with talk about
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  Speaker 2: the FED meeting yesterday, which, arguably, Michael the Commist in
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  Speaker 2: a while, the single biggest waste of my personal time
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  Speaker 2: in a long long time.
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  Speaker 3: Yeah, I didn't even watch this one because I knew
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  Speaker 3: that Chuck would be there with his handy dandy notebook,
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  Speaker 3: taken all of his notes down on the lack of
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  Speaker 3: interesting and about this FED meeting, The most interesting thing
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  Speaker 3: is that almost everybody was in complete agreement about what
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  Speaker 3: to do.
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  Speaker 2: Yeah, it's look there. Basically you had two descents to
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  Speaker 2: the downside, Stephen Brron and Chris Waller, who both said, hey,
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  Speaker 2: you no, another quarter percent cut would be nice? Uh,
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  Speaker 2: but ultimately everything else was pretty much in line.
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  Speaker 4: Here.
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  Speaker 2: Uh, the actual press conference. Again, I watched the thing.
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  Speaker 2: Quite honestly, I turned it off at three fifteen just
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  Speaker 2: because I was like, I just I can't do it anymore.
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  Speaker 2: And and that was the right decision, because nothing happened afterwards.
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  Speaker 2: Here's what happened. The first five or six questions were
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  Speaker 2: all some variation of this, Jerome, you posted a video,
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  Speaker 2: You're not you, but the FED posted a video, you know,
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  Speaker 2: a couple of weeks ago. Can you elaborate on, you know,
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  Speaker 2: kind of what you're thinking as a result of it. No,
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  Speaker 2: I can't. And then that repeated. It got to the
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  Speaker 2: point where Jay Powell was literally just smirking at reporters
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  Speaker 2: who were were like, Jay, I know you might not
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  Speaker 2: be able to ask this, and they'd be like really,
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  Speaker 2: and like raise his eyebrows and just be like really,
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  Speaker 2: So now you're still gonna ask it. And so that
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  Speaker 2: was the first five to ten minutes of the meeting.
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  Speaker 4: Huh.
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  Speaker 2: Then we got into, you know, some chatter about what
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  Speaker 2: the FED thinks about the economy, which I at least
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  Speaker 2: thought was interesting just to hear an updated, you know,
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  Speaker 2: version of how they're thinking, And I gotta say, Michael,
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  Speaker 2: the more I think about, the more I think that
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  Speaker 2: I should throw my hair, my my hat in the
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  Speaker 2: ring for FED chair. Uh huh yeah, not because I'm qualified,
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  Speaker 2: Because I'm not. I'm horribly unqualified to be FED chair.
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  Speaker 2: So first and foremost like I'm not. But they started,
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  Speaker 2: Jay Powell started talking about you know what he's seeing,
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  Speaker 2: and he's like, yeah, you know, the labor market is
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  Speaker 2: starting to pick up a little bit, you know, talking
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  Speaker 2: about jobbles claims, and like, hey, Jay, have you been
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  Speaker 2: listening to the program. You've been tuning in man, Like
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  Speaker 2: we've been picking that up too, Like maybe we're st
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  Speaker 2: Patty go, we got that a little bit. So he's
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  Speaker 2: talking about that base this book and other day to
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  Speaker 2: suggest we begin the year with a solid outlook for growth.
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  Speaker 2: That was a quote that I thought was, you know,
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  Speaker 2: kind of encapsulating where they are right now. Other quotes
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  Speaker 2: that I think are useful here. It's hard to look
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  Speaker 2: at the incoming data and think policy is clearly restrictive
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  Speaker 2: at this point in time. So basically saying yeah, you know, look,
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  Speaker 2: it's it's something where we may be like in the
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  Speaker 2: range of you know, where we need to be, but
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  Speaker 2: we're not restrictive anymore, like clearly saying that other things,
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  Speaker 2: A lot of the tariff effects have already moved through
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  Speaker 2: the economy. Most of the overrunning goods prices is from tariffs.
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  Speaker 2: We're seeing ongoing disinflation in all categories of services. So
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  Speaker 2: basically saying, yeah, once that tariff inflation passes through, we
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  Speaker 2: don't really see a huge inflation problem at the moment. Okay,
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  Speaker 2: likes that's good. Someone asked him about, hey, do you
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  Speaker 2: see the US turning into Japan because of you know,
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  Speaker 2: deficits and things like that. He did say, we are
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  Speaker 2: running fairly large deficits at full employment, and at some
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  Speaker 2: point we will need to deal with that. But this
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  Speaker 2: is not you know, what we're seeing with anything at
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  Speaker 2: the moment. Let's see what else was asked about the
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  Speaker 2: labor market, said, growth in the labor supply has essentially
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  Speaker 2: come to a halt after a fairly fast clip of growth,
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  Speaker 2: largely driven by immigration changes. It turns out that demand
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  Speaker 2: for labor came down as well, maybe a little more,
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  Speaker 2: and that's why the unemployment rate went up. So basically
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  Speaker 2: what he's he's saying is, hey, the labor market right now,
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  Speaker 2: the supply of labor is not growing. Combination of big
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  Speaker 2: boomer retirements and changes in immigration policy over the last year,
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  Speaker 2: demand for labor has come down a little bit. And
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  Speaker 2: so that's why you have an unemployment rate that's moved up.
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  Speaker 2: And basically so he's saying like, this is why we
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  Speaker 2: are where we are right now. Other things that he
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  Speaker 2: talked about he was asked about, you know, consumption and
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  Speaker 2: the state of growth right now, and this I thought
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  Speaker 2: was the the other is interesting point that really makes
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  Speaker 2: me think that he listens to us and really enjoys
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  Speaker 2: us too, like not just listens, but is.
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  Speaker 4: Like passionate financial exchange.
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  Speaker 2: But it's like, hey, I would buy one of those shirts,
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  Speaker 2: Mike you missed yesterday. We've got my new favorite Mark
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  Speaker 2: Fandetti quote that I'm gonna see if we can get
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  Speaker 2: Tucker to print up on a shirt. You can't have
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  Speaker 2: a dime without a penny. Sure, sure you can, noo,
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  Speaker 2: because a dime is ten pennies. And it like we're
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  Speaker 2: getting like very you know, it's this is the stuff
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  Speaker 2: that's down in your belly that you think but don't say.
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  Speaker 2: But thank you Mark. But again, this was Jay Powell
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  Speaker 2: saying this now, financial conditions and fiscal policy for twenty
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  Speaker 2: twenty six are helping, but strong consumption is continuing to
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  Speaker 2: happen to drive growth, and was happening even before the
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  Speaker 2: fiscal effects of the Big Beautiful Bill were shown to
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  Speaker 2: start kicking in. Higher income households tend to own real
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  Speaker 2: estate and stocks. An increase in well do support spending
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  Speaker 2: over time. And we've also been hearing from customers that
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  Speaker 2: serve lower income, from retailers that serve lower income customers
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  Speaker 2: saying that their customers are looking to trade down further
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  Speaker 2: as well, talking about that CA shaped economy. So Jay's
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  Speaker 2: basically he took forty five minutes to tell you what
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  Speaker 2: we've been saying for the last three to six months.
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  Speaker 2: So thank you all for listening. But I think look again,
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  Speaker 2: my message is, if you've been listening to our show
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  Speaker 2: for any period of time, now you know what the
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  Speaker 2: Fed's thinking, because it's exactly what we've been talking about.
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  Speaker 3: Other pieces that I found interesting here, Chuck, December was
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  Speaker 3: a for a FED meeting, pretty volatile, right, That was
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  Speaker 3: the one where we had one FED member dissenting saying, hey,
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  Speaker 3: I don't think we should be cutting rates at all.
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  Speaker 3: We had two saying you need to cut more, and
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  Speaker 3: we had Steven Meyron, who's basically been looked at as
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  Speaker 3: you know, a puppet for the Trump administration, saying that
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  Speaker 3: we need to cut rates by three quarters of a percent.
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  Speaker 3: So again, you know, he lost some credibility at that meeting.
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  Speaker 3: At this meeting, you had everyone saying we shouldn't cut rates,
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  Speaker 3: except for Waller and Myron, who again are competing for
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  Speaker 3: that Federal Reserve chair world they need to be seen
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  Speaker 3: as favoring lower interest rates. But even Stephen Myron said
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  Speaker 3: that we need to cut rates by one quarter of
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  Speaker 3: one percent. It's basically a nothing. Even Stephen Myron is
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  Speaker 3: tacitly acknowledging that rates are around in the right the
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  Speaker 3: correct place right now. And that piece I found fairly
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  Speaker 3: interesting after quite honestly a bunch of votes and statements
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  Speaker 3: by Myron over the past six months that seemed really disingenuous.
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  Speaker 4: About his views on the economy.
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  Speaker 3: So that part I found genuinely interesting here that there
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  Speaker 3: was such actual agreement on what to do at this
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  Speaker 3: point in time.
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  Speaker 2: So that is kind of min and Mike's summary of
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  Speaker 2: the FED meeting. Why don't we take a quick break,
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  Speaker 2: and when we'll come back, we'll talk about one of
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  Speaker 2: the questions that Powell didn't want to answer. Will he
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  Speaker 2: or won't he stay on the Board of Governors after
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  Speaker 2: his term as chair expires? That is coming up right after.
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• 10:10
  Speaker 2: One of the questions that Jay Powell was asked a
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  Speaker 2: couple times. Actually I think it was twice. Was a
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  Speaker 2: variation of Hey, Jay, we know you're not gonna be
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  Speaker 2: FED chair after May. But here's the thing. Chairs. You
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  Speaker 2: get a four year term and then you also get
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  Speaker 2: a separate fourteen year term as governor, which means that
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  Speaker 2: even though j. Powell's term as FED chairs up right
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  Speaker 2: now because he was already on the Board of Governors before,
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  Speaker 2: basically what happens is his governor seat doesn't expire until
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  Speaker 2: twenty twenty eight, so he has potentially two more years
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  Speaker 2: if he wants to. And he was pretty much asked,
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  Speaker 2: you know, hey, are you gonna stay on and out?
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  Speaker 2: And he said, well, I'm not gonna get into this.
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  Speaker 2: He's like, I'm not answering that question. And Nick tim
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  Speaker 2: Rose from the Wall Street Journal, who again we've talked
• 11:02
  Speaker 2: about him before. You you have to understand the people
• 11:04
  Speaker 2: that are writing about the topic in order to understand
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  Speaker 2: what message they're trying to send through their writing. Timorros
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  Speaker 2: is effectively the mouthpiece for the FED. I don't know
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  Speaker 2: if like him and Jay have dinner together or anything
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  Speaker 2: like that, but if the FED wants to convey a
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  Speaker 2: message prior to a FED meeting. You usually see a
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  Speaker 2: Nick Timrose piece like the week or two before the
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  Speaker 2: FED meeting that helps to give you an idea of
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  Speaker 2: what they're thinking. So this one comes immediately afterwards. Timros
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  Speaker 2: filed it at ten pm last night, and I'm gonna
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  Speaker 2: quote from it just because I think he says it
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  Speaker 2: better than I can. Powell's decision is the last and
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  Speaker 2: only card he holds against an administration that has spent
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  Speaker 2: months trying to pressure the FED. The Grand Jury's penis
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  Speaker 2: served on the Central Bank earlier this month have only
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  Speaker 2: strengthened his reasons not to show it. The Justice Department's
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  Speaker 2: investigation nominally concerns Powell's congressional testimony about the Fed's two
• 11:58
  Speaker 2: point five billion dollar headquarters renovation. Powell said it's really
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  Speaker 2: about interest rates, and part of the administration's pressure is
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  Speaker 2: to get them to cut them faster, as Trump is
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  Speaker 2: repeatedly demanded. People who know Powell say that after nearly
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  Speaker 2: fourteen years of the FED in eight years as chair,
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  Speaker 2: he is more than ready to return to private life,
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  Speaker 2: but the timing of the investigation is trapped him. Powell,
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  Speaker 2: whod turned seventy three next week, isn't looking to extend
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  Speaker 2: his career in government, but agreeing to leave an exchange
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  Speaker 2: for the investigation going away, even implicitly, would validate the
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  Speaker 2: very pressure campaign he has spent the past year avoiding.
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  Speaker 2: So what Timrose is saying, again better than I think
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  Speaker 2: I could, is, in a normal situation, Powell will just
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  Speaker 2: step down from everything right now. But Powell believes that
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  Speaker 2: the FED has not engaged in any wrongdoing, and he
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  Speaker 2: does believe that if he steps down, it would be
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  Speaker 2: an admission that the FED did in order to get
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  Speaker 2: the investigation to go away. So what timros is telling
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  Speaker 2: you is he doesn't think Powell's gonna step down. And
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  Speaker 2: tim Rose tends to be pretty plugged into this stuff.
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  Speaker 3: Is he saying that or is he saying that he
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  Speaker 3: won't step down so long as the investigation continues? Because
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  Speaker 3: the way I read it is Powell will stay there
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  Speaker 3: so long as he thinks there's a credible threat to
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  Speaker 3: the independence of the Federal Reserve. And I think that
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  Speaker 3: that could be rectified by May, but not at the
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  Speaker 3: current pace.
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  Speaker 2: Yeah, do you think.
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  Speaker 3: The there's a lot of pressure from lawmakers right now
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  Speaker 3: on the DOJ to say what are you doing here?
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  Speaker 4: And get this stuff out right.
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  Speaker 3: We had threats from members at the Senate Finance Committee
• 13:41
  Speaker 3: saying we're not going to vote on your nomination. I
• 13:44
  Speaker 3: guess there was initially. You know, I'm a painting the
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  Speaker 3: news cycle. Maybe there's not at this stage, but I
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  Speaker 3: don't know. I remain unconvinced that Jay Powell ends up
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  Speaker 3: staying I.
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  Speaker 2: Don't know that he will or won't, but I think
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  Speaker 2: Powell is clear not Powell. I think MS is clearly
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  Speaker 2: putting down a marker for Powell, saying, hey, this is
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  Speaker 2: going to be something that likely prevents him from leaving.
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  Speaker 3: Right in terms of why this would be typically be
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  Speaker 3: quite bad, and why Powell wouldn't do this in a
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  Speaker 3: normal circumstances, because again, this is a voting committee of members,
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  Speaker 3: and they look to the chair to lead that committee
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  Speaker 3: and drive the direction of the Federal Reserve and make
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  Speaker 3: compelling arguments about what should be done next.
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  Speaker 2: If you have.
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  Speaker 4: It's akin to having the president and then.
• 14:35
  Speaker 3: The former president serving in the administration of the president,
• 14:39
  Speaker 3: right in the cabinet. Right, who are you going to
• 14:41
  Speaker 3: turn to for, you know, questions about what you think
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  Speaker 3: the right path is going to be. You'll have competing
• 14:47
  Speaker 3: views on what should be done next for the Federal Reserve,
• 14:50
  Speaker 3: which is why historically every previous chairs so far as
• 14:53
  Speaker 3: I know, has just resigned and said, Okay, I'm not
• 14:55
  Speaker 3: going to be on the committee anymore. And ideally I
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  Speaker 3: think j Powell wants that. But to next point here,
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  Speaker 3: he will not do so if it leaves the FED
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  Speaker 3: in a more vulnerable place in his mind. And I
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  Speaker 3: think that's the key point here is so long as
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  Speaker 3: he believes there's a credible threat to the FED, he's
• 15:15
  Speaker 3: going nowhere.
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  Speaker 2: I saw something interesting yesterday. I can't remember where I
• 15:19
  Speaker 2: saw it, but it was from a credible source. It's
• 15:22
  Speaker 2: one of those things where it's like I wish I
• 15:23
  Speaker 2: had bookmarked it, but not ye someone was talking about this,
• 15:27
  Speaker 2: and again it was someone in the know, like who
• 15:31
  Speaker 2: actually follows the FED closely. And apparently Greenspan had intended
• 15:36
  Speaker 2: to stay on after his term was set to expire,
• 15:40
  Speaker 2: but was renominated for a second term. Now, he had
• 15:42
  Speaker 2: already been on the Board of Governors, so there would
• 15:45
  Speaker 2: have been you know, alignment after that and everything. Sure,
• 15:48
  Speaker 2: but apparently Greenspan was going to stay on as a
• 15:53
  Speaker 2: governor after his first FED chair term. And so that
• 15:59
  Speaker 2: I found to be kind of interesting as well. Yeah,
• 16:03
  Speaker 2: so overall I think that it's something where yesterday's FED
• 16:09
  Speaker 2: meeting was ultimately uninteresting for the most part, which, by
• 16:13
  Speaker 2: the way, is good, right.
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  Speaker 3: I think that's a key point here, is the ideal
• 16:19
  Speaker 3: position for the FED is doing nothing.
• 16:22
  Speaker 4: Almost nobody pays attention to what they're doing.
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  Speaker 2: Is, hey, we don't need to do anything because it's
• 16:26
  Speaker 2: in the right place.
• 16:27
  Speaker 3: Yeah, that's the ideal position for the FED. That's where
• 16:29
  Speaker 3: they want to be. As an investor, That's where I
• 16:32
  Speaker 3: want the FED to be is in a position where
• 16:35
  Speaker 3: they do not need to go and influence the direction
• 16:38
  Speaker 3: of markets in the economy. And we're getting closer to
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  Speaker 3: that right now. I think Jay's concern is that that
• 16:45
  Speaker 3: could be dramatically thrown off depending on the direction of
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  Speaker 3: what comes next. In what is it The June meeting
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  Speaker 3: will be the first one that he is not chair of. Uh, yeah,
• 16:53
  Speaker 3: that'll be the first one.
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  Speaker 2: In terms of what's priced in to markets right now,
• 17:00
  Speaker 2: not much. Again, you look at it. There is a
• 17:03
  Speaker 2: cut potentially priced in June, there's another cutting out potentially
• 17:07
  Speaker 2: priced in October, and that's it for the year, right,
• 17:10
  Speaker 2: And if the labor market does start to perk up,
• 17:14
  Speaker 2: it's kind of hard to make a case of, hey,
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  Speaker 2: fed funds rates at you know, three and a half,
• 17:19
  Speaker 2: inflation's running two and a half, and unemployment is falling
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  Speaker 2: to four we need to cut. It's kind of a
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  Speaker 2: tough putt to get there, right, you know, it's and again,
• 17:32
  Speaker 2: even if you do, it's like, okay, there's maybe room
• 17:34
  Speaker 2: for like one or two cuts. It's you're not getting
• 17:39
  Speaker 2: Fed funds rate down to two percent. No, there's no
• 17:42
  Speaker 2: plausible path to get there. Because this is not the
• 17:45
  Speaker 2: twenty tens economy. It's fundamentally different. And the other thing,
• 17:50
  Speaker 2: the other thing to watch out for if the labor
• 17:52
  Speaker 2: market reaccelerates, remember J. Powell, and this is not just him,
• 17:57
  Speaker 2: this is you know, all kinds of labor economists. They're
• 17:59
  Speaker 2: basically telling you that the labor supply is not growing
• 18:01
  Speaker 2: right now. If you are a company Mike, Let's say
• 18:05
  Speaker 2: that you are running Mike's lemonade. Fine, you're running Mike's
• 18:13
  Speaker 2: hard lemonade. Natural chad is You're running Mike's hard lemonade,
• 18:18
  Speaker 2: and all of a sudden you need more labor, and
• 18:22
  Speaker 2: labor supply is not increasing.
• 18:25
  Speaker 4: Pay more for it.
• 18:26
  Speaker 2: You say, okay, I can't pay you know, fifteen dollars
• 18:29
  Speaker 2: an hour for someone to you know, squish the lemons.
• 18:33
  Speaker 2: I gotta pay fifteen to twenty five.
• 18:35
  Speaker 4: Yeah, we do that in house.
• 18:37
  Speaker 2: You do it's with your feet, right, Corre're just stomping
• 18:40
  Speaker 2: on them. So ultimately you then say, okay, I'm paying
• 18:43
  Speaker 2: you know, an extra you know, one in three quarters
• 18:45
  Speaker 2: percent an hour for my lemons squishers. Hey, that's going
• 18:49
  Speaker 2: to impact my margins. Well, my margins are pretty thin.
• 18:51
  Speaker 2: I'm a I'm a drink producer. Those aren't, you know,
• 18:54
  Speaker 2: fat margins. Usually I got to raise the price of
• 18:57
  Speaker 2: the hard lemonade and I got him that up. And
• 19:01
  Speaker 2: that's the concern that you have with a tight labor
• 19:03
  Speaker 2: market is if labor supply is not increasing, but labor
• 19:07
  Speaker 2: demand starts to that's where you get wage increases coming
• 19:11
  Speaker 2: through that. Initially you might be like, oh great, I'm
• 19:13
  Speaker 2: going to get paid more. But the problem is then
• 19:15
  Speaker 2: the very company that's raising your pay is also raising
• 19:17
  Speaker 2: the price of what you're making, right, And so that
• 19:21
  Speaker 2: is the piece to watch for quick break here when
• 19:24
  Speaker 2: we come back, We've got Wall Street watch, and then
• 19:26
  Speaker 2: we're talking Microsoft after this, Like us.
• 19:39
  Speaker 1: On Facebook and follow us on Twitter at TFE show.
• 19:42
  Speaker 1: Breaking business news.
• 19:44
  Speaker 5: Is always first right here on the Financial Exchange Radio Network.
• 19:49
  Speaker 1: Time now for Wall Street.
• 19:51
  Speaker 5: Watch a complete look at what's moving market so far
• 19:54
  Speaker 5: today right here on the Financial Exchange Radio Network.
• 19:58
  Speaker 6: Becausey Dan wall Street is investors active. FED Chairman Jerome
• 20:01
  Speaker 6: Poll's remarks at the conclusion of the FEDS meeting yesterday
• 20:04
  Speaker 6: with a Central Bank kept interest rates steady. Traders are
• 20:07
  Speaker 6: also digesting big tech earnings from the likes of Microsoft, Meta,
• 20:12
  Speaker 6: and Tesla. Right now, we are seeing a tech sell off.
• 20:15
  Speaker 6: The Dow down by half a percent, SMP five hundred
• 20:19
  Speaker 6: down by one percent, and the tech heavy Nasdaq is
• 20:23
  Speaker 6: sinking nearly two percent lower four hundred and sixty four points,
• 20:26
  Speaker 6: RUSS two thousand down about a half a percent. Ten
• 20:29
  Speaker 6: Your Treasury yield is down one basis point at four
• 20:32
  Speaker 6: point two three nine percent, and crude oil jumping three
• 20:35
  Speaker 6: percent higher today trading above sixty five dollars a barrel.
• 20:40
  Speaker 6: Meta among the big tech winners on the day after
• 20:43
  Speaker 6: the social media giant reported record quarterly sales, where it
• 20:46
  Speaker 6: saw a twenty four percent increase year over year. Meta
• 20:49
  Speaker 6: also reported a massive increase in projected twenty twenty six spending,
• 20:54
  Speaker 6: that stock jumping over seven percent higher. On the other hand,
• 20:58
  Speaker 6: Microsoft shares ranking eleven percent after the tech giant posted
• 21:02
  Speaker 6: a solid quarterly revenue but higher than expected spending on
• 21:07
  Speaker 6: data centers. Meanwhile, Tesla posted better than expected fourth quarter results. However,
• 21:12
  Speaker 6: the EV maker's revenue for the year dropped three percent,
• 21:15
  Speaker 6: marking the first time on record the company is recorded
• 21:19
  Speaker 6: in annual decline. Tesla also announced to cancel two EV
• 21:23
  Speaker 6: models and said it would shift toward robotics. Tesla's stock
• 21:27
  Speaker 6: is down by two percent. IBM jumping six percent after
• 21:30
  Speaker 6: it notch higher quarterly revenue as businesses moved to implement
• 21:34
  Speaker 6: AI in more areas. Caterpillar stock rising one percent after
• 21:38
  Speaker 6: the machinery maker posted stronger than expected quarterly results. Royal
• 21:42
  Speaker 6: Caribbean shares rallying fifteen percent after the cruise line operators
• 21:46
  Speaker 6: adjusted earnings forecast beat estimates as on board spending rows.
• 21:50
  Speaker 6: And after today's closing bell, we'll see more tech earnings
• 21:54
  Speaker 6: from Apple and Visa will also post their quarterly results.
• 21:58
  Speaker 6: I'm Tucker Silva and that is Wallstree watch Mike.
• 22:02
  Speaker 2: Yesterday we saw Microsoft report earnings, and I got to
• 22:05
  Speaker 2: tell you Microsoft is not doing great today. It's an understatement.
• 22:13
  Speaker 2: If you are a Daniel Tiger fan, you'll say they're
• 22:16
  Speaker 2: not doing goarrific.
• 22:18
  Speaker 4: But in general, Daniel Tiger stage right now.
• 22:20
  Speaker 2: Okay, no, we were a while ago, but it's I've
• 22:24
  Speaker 2: I've always enjoyed goarrific. I just think it's it's a
• 22:27
  Speaker 2: it's a good one. But in any case, what we
• 22:30
  Speaker 2: have here right now is a company that is still
• 22:35
  Speaker 2: making a lot of money.
• 22:37
  Speaker 4: The Microsoft.
• 22:38
  Speaker 2: Yes, their net income was thirty eight point five billion dollars.
• 22:43
  Speaker 2: Uh So that's a lot. You know, that's basically half
• 22:46
  Speaker 2: a billion dollars a day, not quite but almost for
• 22:49
  Speaker 2: the quarter.
• 22:50
  Speaker 3: Uh.
• 22:52
  Speaker 2: The that was also on revenue, by the way of
• 22:53
  Speaker 2: eighty one point three billion dollars, So the margins are fat.
• 22:58
  Speaker 2: The two issues that you have with Microsoft in this
• 23:01
  Speaker 2: earnings report are that, number one, you are seeing margins
• 23:07
  Speaker 2: being projected to come down, and their cloud growth is slowing.
• 23:12
  Speaker 2: So this in turn has Microsoft selling off, you know,
• 23:15
  Speaker 2: eleven percent today. And I think it's interesting to look
• 23:20
  Speaker 2: at Microsoft in terms of, you know, just where the
• 23:26
  Speaker 2: business is and where it can go, because ultimately, here's
• 23:31
  Speaker 2: what we have that I think is interesting. This company
• 23:35
  Speaker 2: right now is trading about twenty five times forward earnings.
• 23:39
  Speaker 2: That's where it sits today. That's actually the cheapest that
• 23:43
  Speaker 2: it's been on a forward earnings basis in the last
• 23:46
  Speaker 2: few years. The lowest other than that, we've gotten down
• 23:50
  Speaker 2: around like twenty six a couple times. So Microsoft, you
• 23:54
  Speaker 2: could say, right now is cheaper than it's been in
• 23:56
  Speaker 2: the last couple of years. Yes, the stock price is higher,
• 23:58
  Speaker 2: but that's because the earnings have gone up pretty dramatically.
• 24:02
  Speaker 2: The revenue growth that they're seeing is continuing to ratchet
• 24:08
  Speaker 2: up pretty consistently. Like it's it's a growing pie. It's
• 24:11
  Speaker 2: not like the company's revenue is shrinking, so there's no
• 24:13
  Speaker 2: problem there. Net income on a trailing twelve month basis
• 24:19
  Speaker 2: is starting to roll over a little bit, okay, And
• 24:24
  Speaker 2: this is where ultimately you're going to get to the
• 24:28
  Speaker 2: problem here on this which is that you've got depreciation
• 24:35
  Speaker 2: that is growing because of all this capex, and that's
• 24:38
  Speaker 2: going to continue to happen. So, just to put this
• 24:42
  Speaker 2: in perspective, if you look at and I don't have
• 24:47
  Speaker 2: all of the I don't have the third quarter numbers
• 24:49
  Speaker 2: here yet, or the fiscal whatever the fiscal quarter is
• 24:52
  Speaker 2: for them. But basically what we have here is that
• 24:58
  Speaker 2: if you're looking at the way that depreciation has been increasing,
• 25:04
  Speaker 2: it's pretty much gone from about four and a half
• 25:07
  Speaker 2: billion dollars a quarter in the middle of twenty three
• 25:10
  Speaker 2: up to about eleven and a half now. And this
• 25:12
  Speaker 2: hits right on the income statement as a cost of
• 25:16
  Speaker 2: good sold, like that's where it actually, No, that doesn't
• 25:19
  Speaker 2: hit there. It hits on it's separate from cost of
• 25:22
  Speaker 2: good soul, but it's gonna hit there anyways. So pretty
• 25:25
  Speaker 2: much what happens is as you build all of this stuff,
• 25:29
  Speaker 2: you obviously have to pay for it. But the way
• 25:31
  Speaker 2: it actually hits your earnings isn't hey, we spent this now.
• 25:34
  Speaker 2: It's no, you depreciate it over the useful life of
• 25:38
  Speaker 2: the stuff that you bought. And so as your capex
• 25:41
  Speaker 2: ramps up dramatically, that depreciation does as well. And if
• 25:45
  Speaker 2: it ramps faster than your revenue growth is coming from
• 25:48
  Speaker 2: that product, then it impacts your ability to grow your earnings.
• 25:53
  Speaker 2: It's not a creative to earnings, it's something that is
• 25:55
  Speaker 2: creating drag on them. And we're getting to the point
• 25:59
  Speaker 2: now where again We've talked about this for the last
• 26:01
  Speaker 2: couple of quarters. In the next year or two, they're
• 26:04
  Speaker 2: going to have to start generating significant, meaningful revenue from
• 26:08
  Speaker 2: this because if you want to keep pouring, you know,
• 26:10
  Speaker 2: as Meta is gonna do one hundred and twenty five
• 26:12
  Speaker 2: billion dollars a year into this stuff, the depreciation adds
• 26:16
  Speaker 2: up quickly, Like most people estimate, there's like a six
• 26:19
  Speaker 2: to eight year useful life, like average useful life on
• 26:22
  Speaker 2: this stuff. So if all of a sudden, you're adding
• 26:25
  Speaker 2: twenty billion dollars to your depreciation for the year, but
• 26:27
  Speaker 2: you're adding like an additional twenty billion every year, Now
• 26:30
  Speaker 2: you've got like another sixty billion dollars in depreciation. Are
• 26:34
  Speaker 2: you getting the revenue that's you know, helping to offset that.
• 26:38
  Speaker 2: That's what you have to get to, is can I
• 26:39
  Speaker 2: generate the revenue to offset that, because otherwise this is
• 26:43
  Speaker 2: not a useful business for me?
• 26:45
  Speaker 3: And again, Microsoft has plenty of useful businesses.
• 26:48
  Speaker 4: It's just a question of what they're valued.
• 26:49
  Speaker 2: A and Microsoft will not go out of business if
• 26:52
  Speaker 2: this goes badly for them, And I.
• 26:53
  Speaker 3: Think they are very clearly going to remain a front
• 26:57
  Speaker 3: runner on providing the data infra structure, the cloud infrastructure
• 27:01
  Speaker 3: for all sorts of businesses in the future, including AI
• 27:05
  Speaker 3: app development and the expansion there that they're going to see, right.
• 27:09
  Speaker 3: I mean, it's not just like Microsoft is going to
• 27:11
  Speaker 3: disappear as one of the top contenders from that space.
• 27:14
  Speaker 3: But I bring Microsoft back to a couple of years
• 27:16
  Speaker 3: ago when we were sitting here in the infancy of
• 27:19
  Speaker 3: artificial intelligence and trying to hypothesize out there like where
• 27:23
  Speaker 3: will the use cases come from? And I don't think
• 27:26
  Speaker 3: you or anybody else necessarily necessarily agreed with me on this,
• 27:29
  Speaker 3: But looking at Microsoft, do you look at them and say, wow,
• 27:32
  Speaker 3: a bunch of automation tools to make using Microsoft's tools
• 27:38
  Speaker 3: easier and faster seems like low hanging fruit.
• 27:41
  Speaker 4: And quite frankly, they have been.
• 27:44
  Speaker 3: One of the worst major companies out there of actually
• 27:46
  Speaker 3: developing usable AI tools.
• 27:48
  Speaker 2: Right.
• 27:48
  Speaker 3: The co pilot program that they have has some users,
• 27:51
  Speaker 3: but is not all that is not all that great.
• 27:54
  Speaker 3: They have not done the things I thought they would
• 27:56
  Speaker 3: have in PowerPoint or Excel or any of these business tools.
• 27:59
  Speaker 4: And instead where they're making all their.
• 28:01
  Speaker 3: Money is what we just talked about, the is your
• 28:04
  Speaker 3: cloud infrastructure build that which is which is great, but
• 28:09
  Speaker 3: if you're looking for a company that's going to innovate
• 28:13
  Speaker 3: and create the product that sits on that infrastructure, Microsoft
• 28:16
  Speaker 3: is not taking the lead on that right now.
• 28:20
  Speaker 2: Yeah, and again, I just think as someone who you
• 28:25
  Speaker 2: know has tried to play around with the copilot stuff
• 28:27
  Speaker 2: just to see what it can do, the biggest problem
• 28:30
  Speaker 2: that you have with it is just like it's not
• 28:32
  Speaker 2: intuitive when you're trying to make it do stuff right,
• 28:35
  Speaker 2: you know, like you you'll be sitting there with the
• 28:38
  Speaker 2: example that I'll come back to that I tried over
• 28:40
  Speaker 2: and over. I had. I had a page. I had
• 28:43
  Speaker 2: like a twelve page document of notes that I had
• 28:46
  Speaker 2: written on what had gone on economically during a certain month,
• 28:51
  Speaker 2: and it was all bullet points. But it was again
• 28:53
  Speaker 2: like twelve pages, probably I don't know, a few thousand words,
• 28:58
  Speaker 2: and I said, make me a power point out of
• 29:03
  Speaker 2: this document, and you know, make it look like this,
• 29:08
  Speaker 2: make it do that, blah blah blah. And no matter
• 29:11
  Speaker 2: how I instructed it, it kept coming back, first of all,
• 29:14
  Speaker 2: with like twenty five page power points, so it couldn't
• 29:17
  Speaker 2: abide the length requirement that I gave it, and it
• 29:21
  Speaker 2: didn't summarize it just kept taking my stuff and just
• 29:24
  Speaker 2: putting it in different orders, and I was like, this
• 29:26
  Speaker 2: is useless, Like this is fundamentally unseerious. Now there are
• 29:32
  Speaker 2: uses that it has been very good for. If you
• 29:34
  Speaker 2: talk to anyone in the tech space, in the coding space,
• 29:37
  Speaker 2: they'll be like, this stuff is revolutionizing what we can do.
• 29:40
  Speaker 2: In particular, the latest release I guess of claud Code
• 29:43
  Speaker 2: from Anthropic has you know, tech people just like salivating
• 29:47
  Speaker 2: and while simultaneously like being scared for their lives because
• 29:50
  Speaker 2: they're like, I'm not going to be able to make
• 29:51
  Speaker 2: money anymore because this is so powerful.
• 29:54
  Speaker 3: But that's precisely my point is that Microsoft does not have,
• 29:57
  Speaker 3: other than their giant investment in open Ai, does not
• 30:00
  Speaker 3: seem to me to have any leadership in AI related tools.
• 30:03
  Speaker 2: And this is the fascinating thing because you want to
• 30:06
  Speaker 2: know what this is reminiscent of Michael.
• 30:08
  Speaker 4: All of the infrastructure companies that built the Internet.
• 30:11
  Speaker 2: No, but good guess do you remember a little tiny
• 30:15
  Speaker 2: company called Skype. Yeah, they were a video conferencing platform
• 30:21
  Speaker 2: and Microsoft bought them I think back in like twenty
• 30:23
  Speaker 2: fifteen or twenty sixteen, and a few years later there
• 30:28
  Speaker 2: was it was this thing was. It was a global pandemic.
• 30:30
  Speaker 2: A bunch of people got sick. You may or may
• 30:32
  Speaker 2: not have heard of it, right, and everyone decided to
• 30:36
  Speaker 2: start using video conferencing technology. And so hey, you're Microsoft.
• 30:39
  Speaker 2: You're in every you know computer on the planet for companies. Wow,
• 30:44
  Speaker 2: like Skype must be so valuable for you. Wait what Zoom?
• 30:49
  Speaker 2: Why is everyone using Zoom? And this is what it
• 30:52
  Speaker 2: feels like. It's like, Okay, so you're Microsoft. You've got word,
• 30:55
  Speaker 2: you've got Excel, you've got PowerPoint, You've got all these
• 30:57
  Speaker 2: different things. You've got all, like all the stuff. And
• 31:02
  Speaker 2: yet the people that are actually choosing to use AI
• 31:05
  Speaker 2: for business uses specifically like coding and tech related stuff,
• 31:10
  Speaker 2: they're saying, no, you don't have the best stuff, We're
• 31:12
  Speaker 2: picking something else. Again. Yeah, like it's they're not a
• 31:18
  Speaker 2: badly run company, which is the strange thing. Like again,
• 31:22
  Speaker 2: like you look at what Satni Nadella has done for them,
• 31:24
  Speaker 2: and he's built a monster for a company that didn't
• 31:27
  Speaker 2: really do much the couple decades before he was running
• 31:30
  Speaker 2: the place. But the fascinating thing is when presented twice
• 31:34
  Speaker 2: now in a span of five years, with areas where
• 31:36
  Speaker 2: they have the potential to be cutting edge, and you know,
• 31:39
  Speaker 2: supposedly the best product to start off, they're not winning
• 31:43
  Speaker 2: with it, and that's interesting to me. Let's take a
• 31:48
  Speaker 2: quick break. When we come back, we'll talk about the
• 31:50
  Speaker 2: other big tech earnings from yesterday with Meta right after this.
• 31:54
  Speaker 5: This is You're home for the most comprehensive coverage of
• 31:57
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• 32:01
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• 32:05
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• 32:14
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• 32:22
  Speaker 2: Mike, so we talked about Meta. I'm sorry, we talked
• 32:25
  Speaker 2: about Microsoft Star and let's talk about Meta because they
• 32:27
  Speaker 2: are moving in the opposite direction of Microsoft today. In fact,
• 32:31
  Speaker 2: they're up about eight percent and one of the few
• 32:35
  Speaker 2: things kind of keeping this market somewhat afloat today. Why
• 32:39
  Speaker 2: the optimism over a company that had been kind of
• 32:43
  Speaker 2: struggling from a stock perspective over the last four to
• 32:48
  Speaker 2: five months since late summer of last year.
• 32:50
  Speaker 3: They are one of the few giant tech companies who
• 32:54
  Speaker 3: are claiming a lot of revenue responsibility that's attributable to
• 32:59
  Speaker 3: artificial and coellogens. So first and foremost, their AD revenue
• 33:04
  Speaker 3: year of your growth is twenty four percent, which is
• 33:07
  Speaker 3: just bunkers.
• 33:09
  Speaker 2: And it's dynamite like, that's that's wild. Uh.
• 33:12
  Speaker 3: The investors are seemingly willing to, you know, understand that
• 33:15
  Speaker 3: they need to spend one hundred and thirty five billion
• 33:18
  Speaker 3: dollars in capex next year, which is way higher than
• 33:21
  Speaker 3: the year. Sorry this year, right, it's twenty twenty six,
• 33:26
  Speaker 3: and are saying, look, you know, if you continue to
• 33:28
  Speaker 3: put up these numbers, we don't really mind the the Again,
• 33:31
  Speaker 3: for me, it's really difficult to sit here and say, oh, yeah,
• 33:34
  Speaker 3: I can clearly see how Meta is executing on this
• 33:38
  Speaker 3: because I don't build advertising, I don't sell advertising, and
• 33:42
  Speaker 3: I don't use AIS or metas tools to create ads.
• 33:46
  Speaker 3: But again they keep pointing to this to say, look,
• 33:48
  Speaker 3: our ad performance is better, the cost of our ads
• 33:51
  Speaker 3: is rising. The UH AD creation using our AI tools
• 33:55
  Speaker 3: is getting a lot of good reception, and so you know,
• 33:59
  Speaker 3: whether it's on in instag whether it's on Facebook itself,
• 34:02
  Speaker 3: we are seeing the power of these AI tools. I
• 34:06
  Speaker 3: also think it's creating a whole bunch of garbage on
• 34:07
  Speaker 3: their platform that you know is deceptive and misleading and
• 34:13
  Speaker 3: tough to really tell the truth from fiction.
• 34:15
  Speaker 4: But they don't care about that.
• 34:17
  Speaker 3: They care about the revenue piece of things, and investors
• 34:19
  Speaker 3: care about that too, and it is just a kind
• 34:23
  Speaker 3: of crazy pace of growth.
• 34:25
  Speaker 2: The interesting piece on that capex boost from about one
• 34:28
  Speaker 2: hundred and ten billion up to one hundred and thirty five.
• 34:32
  Speaker 2: Even with that, you've got Nvidia, Broadcom, Oracle, all those
• 34:37
  Speaker 2: companies Core, We've all selling off today. And I think
• 34:41
  Speaker 2: a reasonable read could be, hey, yes, your capex is increasing,
• 34:45
  Speaker 2: but is it increasing because you're going to be building
• 34:49
  Speaker 2: more stuff or did the cost of building it memory
• 34:54
  Speaker 2: chips and things like that go up and that's why
• 34:56
  Speaker 2: you have to commit more money to it.
• 34:59
  Speaker 4: Fair point.
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• 35:59
  Speaker 2: Mike we All, he's said Tesla report earnings yesterday, and
• 36:04
  Speaker 2: I gotta say, like Tesla earnings reports normally, it's kind
• 36:06
  Speaker 2: of like the big thing for the day. Now. Maybe
• 36:10
  Speaker 2: it's just because you've got these big moves from Meta
• 36:12
  Speaker 2: and Microsoft happening, but very clearly feels like third Banana now,
• 36:17
  Speaker 2: which has not been the case for I don't know
• 36:20
  Speaker 2: the last five or six years. Tesla's stocked down a
• 36:23
  Speaker 2: few percent today market selling off as a whole, So
• 36:25
  Speaker 2: you kind of looking at it, you're like, Okay, is
• 36:26
  Speaker 2: it really doing much of anything?
• 36:28
  Speaker 4: Has Elon lost his groove?
• 36:30
  Speaker 2: I don't think he's lost his groove? I mean again,
• 36:33
  Speaker 2: I don't. Look, he announced yesterday that they were gonna
• 36:36
  Speaker 2: stop making the Model S and X in order to
• 36:38
  Speaker 2: start making robots this year. Yeah, so I don't think
• 36:41
  Speaker 2: he's lost his groove. But the interesting things are no
• 36:46
  Speaker 2: longer in the car business, which is kind of flat
• 36:48
  Speaker 2: to down year over year, it's much more. Hey, Tesla's
• 36:53
  Speaker 2: trying to invest a couple billion in Xai, Tesla's trying
• 36:56
  Speaker 2: to build robots, and look, you wanna think is always
• 37:00
  Speaker 2: he's had a very good ability to kind of skate
• 37:01
  Speaker 2: where the puck is going, and so I think he
• 37:03
  Speaker 2: sees that the question is are any of these things
• 37:07
  Speaker 2: going to pay off? And that's where it's it's going
• 37:10
  Speaker 2: to be for the next couple of years for him.
• 37:11
  Speaker 4: Yeah.
• 37:12
  Speaker 3: I mean, their core business of selling evs is struggling
• 37:16
  Speaker 3: in the same way that every other car business that
• 37:19
  Speaker 3: sells EV's is right now. They reported sixty one percent
• 37:22
  Speaker 3: drop in profit of the fourth quarter. Their deliveries have
• 37:24
  Speaker 3: been way down since the expiration of the EV tax credit,
• 37:27
  Speaker 3: and so again to your point, he's acknowledging that and
• 37:31
  Speaker 3: canceling some of their higher end and more profitable vehicles
• 37:34
  Speaker 3: in order to focus on this robotics sector. And I,
• 37:38
  Speaker 3: like with many other things that he has proposed, there's
• 37:41
  Speaker 3: very little evidence that is going.
• 37:43
  Speaker 4: To be successful for Tesla.
• 37:44
  Speaker 3: But that's kind of the bet that investors consistently make
• 37:47
  Speaker 3: on Elon.
• 37:48
  Speaker 2: Yeah, it is. It's, uh, you don't invest in Elon's
• 37:52
  Speaker 2: companies if you can't stomach the volatility. It's he's always
• 37:57
  Speaker 2: kind of riding that edge of is this gonna work
• 38:01
  Speaker 2: or completely blow up in my face? And quite honestly,
• 38:04
  Speaker 2: a lot of times it doesn't up working. Occasionally it
• 38:06
  Speaker 2: blows up, and it doesn't it doesn't go so well,
• 38:08
  Speaker 2: But it's kind of the deal with him. Let's take
• 38:11
  Speaker 2: a quick break here. When we return, we got hour
• 38:14
  Speaker 2: two in just a little bit