Wall Street hopes earnings season helps the market rally continue

Chuck Zodda and Marc Fandetti discuss why there is a widening divergence between the Fed and the ECB. The price of gold, seen as a hedge against inflation, soars to new heights. Wall Street hopes earnings propel defiant stock rally onward. Delta's outlook tops estimates on revival of business travel. Boeing engineer says company used shortcuts to fix 787 jets. Despite recent rulings, the 6% commission is likely here to stay.

Episode Transcript

(00:00):
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The DAV five K Boston is presentedby Veterans Development corporation face. He's the
Financial Exchange with Chuck Zada and MarkFandetti. It is Chuck, Mark and
Tucker with you. A little bitafter eleven here on the day of the
release of the March Consumer Price IndexCPI data, and it came in hotter

(01:23):
than expected. It point four percentfor the month for headline and point four
percent for the month for core,which excludes food and fuel. And so
even if you stopped buying food andfuel this month, if you're one of
the people that said, hey,I'm gonna beat the system, it didn't
help you this month. As aresult, the Dow Jones is now off
one point one percent about four hundredand thirty points. The SMP is down
one percent, about fifty two points. NASDAG is down one point h nine

(01:47):
percent one hundred and seventy seven points. So you got a broad based sell
off going on in the bondarooney market. We've got the ten year US Treasury
down twelve point nine basis points tofour I'm sorry, up twelve point nine
based points to four point four ninefive percent. We've got gold. We're
gonna talk about gold a little bitmore today, but we've got gold up

(02:10):
four dollars and ounce to twenty threesixty six and forty cents. And we've
got oil unchanged for West Texas Intermediaat eighty five dollars and twenty three cents.
You good, Mark. I'm stilllaughing at bond to Roney because fixed
income investors are so stuffy. It'sit's it sounds like I don't know a

(02:34):
snack. Here's the worst snack you'veever had. I love to tweak the
fixed income guys because they think they'reso much smarter than everyone else. Well,
they actually among investors, they theymight be among the smarter, but
they're always wrong. They shouldn't takemacro views they don't have. At least
the market is well. Yes,so if you're just if you're talking about
that, I mean projected, yes, the interest rates. Fixed income investors,

(02:55):
the good ones at least make moneyin really boring ways using great masters.
They borrowed to They lend a creditworthy companies or governments. They don't
try to make interest rate calls.Yes, exactly. What I rather like
to critique is this money, thisidea that oh, the bond market's the
smart money. The bond market's tellingyou the truth. But for the last
three years, the bond market hasbeen a flaming dumpster fire that hasn't told

(03:17):
us anything. If the bond marketactually knew the truth in early twenty twenty
two, then why was the tenyear treasury at one point seven percent?
It didn't know, Like they didn'tknow. Yeah, you know, nobody
knows it's true. As evidenced bythe cell off in stocks today, if

(03:38):
you were diversified, you thought,well, I've got some ballast, as
you put it in the last hour. As it turns out, both segments
of the capital market, the mainstays of capital markets, fixed income and
equities, were pricing in so tospeak, Fed target rate reductions this year
cuts in the FED funds, right, that looks like ain't going to materialize.
So I've also had a chance toI've scoured Twitter now for all of

(04:01):
the best and worst takes as itrelates to this inflation report, and man,
there's some bad ones because everyone's tryingto justify, oh, well,
maybe it's not really that bad,and the answer is it kind of is
it? It really sucks quite honestly. So the first thing that you're seeing
is people saying, well, look, auto insurance is now up twenty two

(04:24):
percent year over year, which isreally hot. I mean, anyone who's
getting there rate renewed right now,Like you're looking at and you're like,
oh man, that's not great.But as a result, for the last
twelve months, CPI is running threepoint four to eight percent point five six
of that is just because of autoinsurance rates going up. So the thing

(04:46):
that's going around I is, hey, if you strip out auto insurance over
the last twelve months, inflation isonly two point nine percent. And to
that, I say, well,look, if you strip out you know,
the rest of my hair, thenI really am just a cue ball.
You can just put me on apool table and roll me around it.
It'll be fantastic. Or if youjust focus on a segment, I'm
actually well endowed hair wise. Ifyou just look at the middle, which

(05:12):
is what I try to do withyeah, comb over, it looks great.
It looks better than you wouldn't now, I mean, I mean,
mark, hello, but you havean honest look. Some of us try
to mask it. I guess Mypoint is, Oh, by the way,
statisticians figured this out decades ago.That's why they trim outliers using things
like the median measure, not justpulling out one thing. You don't pull

(05:34):
out the thing that did worse.That's moving the goalposts or cheating, for
lack of a better way to putit. Do You can trim outliers,
you can filter out the big swings, but you have to do it using
asistence and what a statistician will calla robust methodology, a methodology that's not
sensitive to cherry picking, because youdon't want that. So you can't just

(05:54):
get rid of auto insurance because look, if we're going to do this,
then here's my view. Hey,if you us get rid of the first
three months of CPI this year,things look pretty good. Things look pretty
good if you get rid of thelast three months of CPI, which obviously
we can't do, which is whywe don't talk about it, because we
don't talk about doing dumb things otherthings that are actually concerning good take.

(06:17):
In my opinion, This is fromMike McDonough from Bloomberg. Sixty six percent
of items in the CPI this monthhad month over month differences that equate to
more than four percent on an annualizedbasis. Pre pandemic, you were typically
seeing around twenty five to thirty percentof items in this range. During the

(06:39):
peak of inflation in twenty twenty two, he got up to around seventy five
percent of items running this hot.So the problem that you have is that
inflation is broadening out. Last Junethis was you only had around fifty five
percent of items that were running atfour percent or hotter. It's now up
to sixty six. So inflation isbroadening out. This is not just Hey,

(07:00):
auto insurances is hot, and ifyou get rid of that then we
could have cooler CPI. Okay,why don't we all just stop driving?
And I bet that was cool CPItoo. No, that that's just Oh
that's your dull market participant voice.Yes, ah, yes, that is
all. Well, if we justdo that here, yeah, or is
that the dog in the well?Now I'm kind of going scooby do with

(07:23):
it. Oh well, we couldget ridden. Margan needs a Scooby snack.
That inflation is broadening out, soif yeah, go ahead. The
median captures this. Oh my god, we figured this out for researchers figured

(07:44):
this out forty years ago. Idon't expect everybody to dive into monetary economics
literature, but it does give youa simple glode star and prevents you from
getting distracted by this stuff. Thereare measures that filter out in a consistent
way, in an objective way.The stuff that isn't the fault of the
FED from month to month, thoughthey don't want to let it bring expectations

(08:05):
up, so they do have arole to play. But Swedian and trimmeane
do that nicely. And median camein at point four percent again month over
mine, we have median already do. Yeah, we have just released that
came in at point three, soa little better but still sure elevated relative
to the Fed's goal. If youannualize the last few months of these things
as you like to do, Chuck, because it's probably more indicative of the
current trend, you get somewhere between. As we've been saying, geez for

(08:26):
a while, and I'm not pattingus on the back, because these are
not methods that I made up orthat we stumbled upon. Researchers know them
well. But they've been pointing tofour to five percent underlying inflation. Inflation
that's a result of the economy runningand excess of its productive capacity, pushing
pushing beyond its speed limit if youlike, four to five percent underlying inflation.
These signals have been pointing there fora while. People, really careful

(08:48):
observers really shouldn't be surprised. Let'stake a quick break here. When we
come back, talk a little bitabout the FED and ECB and the divergence
that's now building between their upcoming Polseyactions. The Financial Exchange is now available
on your Alexis smart speaker has toplay the Financial Exchange and catch up on
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(09:13):
us six one seven three six twothirteen eighty five with your comments and questions
about today's show, and let usknow what you think about the stories we
are covering. This is the FinancialExchange Radio Network. I want to talk
about this piece from Bloomberg here.And I said this last week, but
Mohammad al Arian, who spent largechunk of his career at PIMCO, he's

(09:37):
now at Alliance and I wasn't reallya huge fan of him earlier in his
career. He's a little squishy.By that, I mean he doesn't come
out with explicit recommendations. He he'svery even handed. He's grown on me
recently though, And part of thismight just be because I agree with what
he's saying. Contrary, it mightjust be that I'm feeling, you know,

(09:58):
a little sympatical with him. Youknow, I'm kind of I'm there.
So he's talking about the fact thatthere is this divergence that's building between
the FED and the ECB, andthat divergence is that, hey, the
FED is not really in a positionwhere they're going to be able to cut,
which we've been talking about, whichis part of why I like him.
I guess the ECB, on theother hand, is guiding that,
yeah, we're probably going to beable to cut starting in the next couple

(10:20):
of months. And they're right.And this is one of the things that
I find really interesting, which iswhen we talk about the transitoriness of inflation,
the transit the transitoriety may as well. I mean, they're winging it,
so why can't we when we talkabout the transitoriety of inflation over the

(10:43):
last couple of years in various markets, there is it's no, it's great,
this is what Shakespeare did. Hehad a radio show too. Uh.
The ECB is looking at their inflationdata and saying, guys, the
stuff that a f the US isnot the same stuff that affected us.
We got whacked by inflation because wewere dependent on imported natural gas, largely

(11:09):
from Russia, and when Russia invadedUkraine, all of our energy bills went
up like five hundred percent, likeours went up a lot like ours in
the US went up, you know, forty fifty percent. Europe they went
up four hundred to one thousand percent, quite honestly, and that has now
passed through the system kind of likea very painful stone for the European banking

(11:33):
system. What you end up withis a case where the stuff that's still
impacting the US here, hey,there's you know, really you know,
there's rapid you know growth in theUS economy that's you know, pushing things
forward and driving a second wave ofinflation that doesn't really exist in Europe.
It's not the same baseline level ofactivity. Earlier, we were talking about

(11:54):
persistent, the persistent component of inflation, the part that's due to demand exceeding
supply. Yeah, I'm oversimplifying,and the temporary component that could be due
to special factors like supply shocks.As it turns out their version, I'm
just gonna put it within that framework, because that's the way I try to
make sense of the world. Theirversion was due more to the temporary factors
supply shocks, if you like,one of which a couple of which you

(12:16):
just explained Ours was due more toan economy running an excess of its natural
limits. Europe doesn't have that,and so in Europe's case, inflation it
very much is this transitory type ofinflation that was mostly due to these disruptions
related to energy, which have sincepassed. They still have problems, obviously,

(12:37):
but they're better than they were acouple of years ago. And so
you've got this divergence in policy that'sbuilding where the FED may be able may
not be able to cut this youknow this half of you. This you
know in the first half of theyear or and all this year quite honestly,
but the ECB might have plenty ofroom to do so. And the
implication is, hey, that potentiallymakes the dollars stronger, which if you

(12:58):
are a US company who's making moneyoverseas, that makes your earnings weaker because
of the exchange rate fluctuations that youthen see. And so this has implications
for the US equity markets. Alsofor US companies trying to export, what
happens to their export orders and thingslike that. These are things that are
going to matter and are not necessarilysomething that a lot of people were thinking

(13:20):
about a year or so. Yeah, we lived through this before. It
was the early to mid nineteen eighties. FED policy stayed tight because fiscal policy
we ran big deficits, partly becausewe had to, partly because of the
Reagan build up, God bless himmilitary build up. So fiscal monetary policy
stayed tight. That resulted in dollarinflows into things denominated in dollars. Dollar

(13:41):
got pushed way up, trade deficitexploded. So all these things were connected.
I'm not saying that this pattern willrepeat, but we have sort of
been here before. It came toa head in nineteen eighty five and the
major Western powers had to get togetherand effectively agree on a way to get
the dollar down because the situation wasunsustainable. It will be interesting to see
how the these various forces play out. So I think this is gonna be

(14:01):
something that's really interesting to watch.I want to hop over to this story
on gold from the New York Timesas well. Gold has seen a bunch
of renewed interests. It's it's gottento the point where you don't quite have
cab drivers talking about it, butyou're getting close. It seems like everyone's
talking about gold right now because it'sbroken out to new all time highs after

(14:22):
kind of languishing for you know,a couple of years right around two thousand
and still not even getting up tothe highs that we hit back in what
was it twenty eleven or twenty twelvewhen we got a little over two thousand
for the first time. And thepiece that I had a couple of people
asking me about this in the lastday or so, and the question was,

(14:43):
look, you know you've got thisrenewed inflation. Does that mean that
there's you know that this is thetime to go out and buy gold?
And I come back to ay like, I don't know that there's any you
know, perfect time to do it, but because you just you never know.
But gold you have to think ofas being something that is influenced most
by what we call real interest rates. And real interest rates are current interest

(15:05):
rate. You can pick your timeframe whatever you want to look at,
but fed funds rates is you know, a pretty good spot to be or
the tenuere treasury either one, andreal interest rates are. Take that interest
rate and subtract inflations from it,and that's what real rates are. Gold
tends to do best when real ratesare lower. So if the FED is
behind the curve on something, orif the FED is you know, unnecessarily

(15:28):
easy on rates, that is whereyou typically see the best performance from gold
historically. If you now have amarket that is waking up to the fact
that the FED is behind the curveand is starting to push interest rates higher
in response, you know, theten years up thirteen basis points today,
that might not be the most accommodativeenvironment for gold, actually, which is

(15:50):
why today if you look at whereit is, it's actually down ten dollars
and forty cents now, even witha hotter inflation report, because interest rates
are moving off. I've not foundI've not seen research that suggests others have
found that gold is a reliable hedgeoutside the nineteen seventies against most types of
inflation that we've experienced since then.Let me say that better, there are

(16:11):
different types of inflation. We've alreadymade this point. There's persistent and there's
temporary. Gold is probably not agood hedge against supply shock related inflation,
because since the seventies, when youhad two big supply shocks that were combined
with underlying high underlying inflation when golddid well, you've just not had a
repeat of those forces. So goldhas been a lousy inflation hedge since the

(16:33):
seventies and has gone nowhere in realterms. In fact, it peaked in
inflation adjusted terms in January. Mikeand I went through this yesterday in January
of nineteen eighty. It's since beenoutperformed by equities by a factor of like
forty to fifty fold. It's notgenerative, so you wouldn't expect it to
keep up with equities long term.And it's also a questionable short term inflation
hedge unless you're talking about dug inunderlying inflation like we had in the seventies,

(16:56):
in which case it was a goodinflation hedge. So I guess that's
my comment here is whether or notgold is a good inflation hedge depends on
the type of inflation you're talking about. Take a look at markets, as
we had towards the bottom of thehour we just talked about goal, but
the Dow is still off four hundredand fifty two points, about one point
one five percent. SMP is downfifty one points about one percent, and

(17:17):
the Nasdaq down one percent. Iswell one hundred and fifty eight points at
the moment. Ten year Treasury,as I mentioned, now off a one
hundred no buh, thirteen point fivebasis points. It was off one hundred
and thirty five basis points, thenthat would be some real news that we
have to talk about. But no, it's down thirteen point five basis points
to four point five oh one.Biggest move percentage wise that's happening in the

(17:42):
bond market is on a three yearUS Treasury, which is up twenty basis
points now to four point seventy fivepercent. So again it's that kind of
two to three year range that isseeing the biggest move up in rates at
the moment. And we've got oiltoday West Texas Intermediate now down fifty two
cents of barreled eighty four to seventyone. Bringing the latest financial news straight

(18:15):
to your radio every day, it'sthe Financial Exchange on the Financial Exchange Radio
Network. Missed one of our shows, catch up anytime by asking your Alexis
smart speaker to play the Financial Exchange. This is the Financial Exchange radio network.
Mark, there's a piece from BloombergWall Street sees earnings propelling defiant stock

(18:37):
rally onward. What do you makeof this piece, Mark, Well,
they earnings better hold up because stocksare already up this year about not counting
today's action about as much as earningsare projected to rise. So if stocks
continue to rise and earnings don't needlessto say multiples, that is, the

(18:57):
price of stocks relative to earnings peis one shorthand way of expressing that will
go up. And they're already prettyelevated. So I hesitate to say this,
but I think markets need earnings togo up to justify the run up
we've seen so far this year,and to justify any hopes have continued rising

(19:18):
stock prices through the end of theyear. Again, all else equal,
the obviously the inflation number this morningcomplicates calculation, says evidenced by the market's
reaction. I think that this hasme very interested to see what companies tell
us in their Q one earnings,which really kick off this Friday with a
lot of the big banks that aregetting into the swing of things this Friday.

(19:40):
Just in terms of what's coming upearnings wise, Friday got JP,
Morgan, Wells, Fargo, andCity Group. On Tuesday of next week,
you get Bank of American, Morgan, Stanley, Goldman Sachs. So
it's okay, all the big guysare out by Tuesday of next week,
and then you're right into the heavyhitters starting on Thursday of next week with
Netflix, who reports after the bellthen and then you're, you know,

(20:02):
right into the middle of earning season. So what I am interested in seeing
here is what companies are telling usabout how they are addressing inflation and managing
it within their earnings report. Isit something where they're still able to pass
these costs on to end buyers?And if that is the case, that

(20:23):
makes me even more nervous from aninflationary perspective. If they're just you know,
not getting the kind of pushback thatyou would expect, if they are
getting more pushback. And the examplethat I'll give is pepsi. Just as
an example, pepsi was I thinkit was a month or two ago the
French grocery chain care For reported thatthey were going to stop carrying pepsi products

(20:45):
because they weren't comfortable with the pricepoint that Pepsi was trying to sell at.
And so if you start to seecompanies getting pushed back from their distribution
networks on the pricing they're trying topush through, Okay, A, that's
a vol problem that they have.Then if you actually see the products pulled,
But b what does that mean interms of how they try to manage

(21:06):
their margins? Is it through headcount reductions? And at what point did
those head count reductions start to becomea problem for the broader economy. This
is why sustained disinflations falls in therate of inflation, and we had a
big one, but it's sort ofstalled out, and we've got a problem.
As evidenced by today's in the pastfew months worth of data, to
the extent that they represent a trend, sustained disinflations have required a recession for

(21:30):
the most part, with the exceptionof ninety four to ninety six when growth
got a little hot, inflation wasperking up, and the FED successfully navigated
a soft landing. Very very veryvery few episodes like that in our history
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(22:37):
That's visit USVII dot com. Deltahits a quarterly profit for the quarter with
better than expected sales. They arealso guiding that profits are going to be
stronger than expected for the current quarter, and their continuing to see strong demand
and are now just trying to managethings to be more efficient within their business.

(23:00):
Overall, I continue to think thatairlines are just one of the worst
businesses to try to operate for thelong term. But if you have times
like this where people really want totravel still, then especially if you've got
rivals that are having to cut flightsbecause of a lack of Boeing inventory in
their hangars, hey, company likeDelta should be able to benefit from that

(23:22):
if they can keep their planes flying, which they seem to be doing right
what extent can we generalize from this? We know spending overall has remained reasonably
strong. We talked about recession risks, or at least I alluded to them
in the last segment, but overall, spending remains strong, the economy remains
robust. That should trickle down toall but the worst managed companies. But
to your point, transportation companies theircapital intensive, they're just their atypical in

(23:47):
so many ways that makes it hardfor them to consistently earn high profits.
I know that's just an incredibly generaland probably useless statement, but that's it's
true the way I've always looked atit. And now let's go over to
Boeing. And I preface this bysaying, this is a story that is
still very early in its reporting cycle, and I I'll be the first to

(24:08):
say I do not know if there'sany truth to it. But what I
will say on the back half ofthat is if there is, then boy,
this is not great. I'll quotehere from the Wall Street Journal.
A veteran Boeing engineer has filed acomplaint with federal regulators, alleging that the
company dismissed quality and safety concerns duringproduction of its troubled seven eight seven Dreamliner
jets. Now, the seven eightto seven is not a plane where they

(24:30):
have been having meaningful problems recently.In terms of actual issues with planes that
have been produced and sold to customers, they have had some production issues historically.
The seven eight to seven is oneof the coolest airplanes. It's one
of the last great airplanes designed byBoeing, air most innovative airplanes designed by
Boeing, in my opinion, becauseit's largely built with a composite body instead

(24:52):
of metal. Which no commercial airlinerwas was built that way previously, just
because it's it's never been done.When you're building commercial airliners, you want
them to be you know, kindof by the book. But the benefits
of this are, Hey, ifyou can use more composite materials, carbon
fiber and things like that, youcan make the plane lighter and doing so,
get big fuel efficiency savings and thingslike that. So I think that

(25:15):
the seven eight to seven, whichI believe was first released in like twenty
ten, so it started being designedin like the early two thousands. It's
one of the last great planes designedby Boeing. In my opinion, it
might be the last great plane designedby Boeing. Uh. But the issue
here is that the fuselage components,they're built by different suppliers in different places.

(25:37):
And what is alleged here is thatyou ever have a you ever get
something from Ikea or a similar storeand have to put it together at home.
Sure, you ever have two piecesthat don't quite fit the way you
want them to, and so you'rekind of like leaning on it together and
you super glue them, said Chuck, is kind of that that's what Boeing

(26:02):
was doing here, is that Hey, a couple of these fuselage pieces didn't
really fit great together, and Boeingjust kind of said, well, if
we just push hard enough and youknow, not staple them, but you
know, if we can you know, put these together, you know hard
enough. Okay, we can makethis work. You imagine that meeting bunch
of engineers explaining this to MBA typesand the NBA types coming back with could

(26:25):
you just push harder? So it'sapparently somebody said yes. He also said
that in twenty twenty one he observedBoeing using shortcuts during the seven eight seven
assembly process that placed excessive stress onimportant joints and embedded drilling debris between joints
on more than a thousand planes.They could be difficult to detect. These
were small gaps where the plane comestogether, and the company's internal reports reportedly

(26:47):
show the gaps were not fixed atall in some sections and could eventually cause
the planes fuselage to break apart.I think we can test that now,
So that's you want to test it? Well, can't you can't? You
get up there, well the nextray gun and look at the joints.
Absolutely, I'm sure they're doing thattoday, right, So I think we're
gonna know within the next month orso whether this is anything fractured so far

(27:10):
correct, because what you can betis that every single airline that took delivery
these planes is now inspecting these joints. Because that's what I mean. You're
out there today looking at I said, X ray gun. I don't know
what it actually is, but it'san X ray or I don't think it's
an ultrasound but whatever technology they useto lanes having a baby to peer underneath.
Yeah, the old Boeing sort oflooked like that, right, with
the bubble on top. But anyway, that wasn't your point. But yeah,

(27:30):
I imagine they're all over. They'reswarming all over these planes today with
the proper equipment to detect imperfections andthe joints. Right. So the interesting
thing, the seven eight to sevenis actually kind of born like a human
having a baby. I say Boeingactually, because they shipped the fuselage parts
in from different suppliers, they designeda special plane called the dream Lefter because
the plane is called the Dreamliner,and what it is, it's a cargo

(27:53):
plane with like the belly of itis basically expanded out and so it's bigger,
and then they slide the fuselage componentsin in order to ship it,
and then they just pop out ofthis you know, expanded plane, so
it looks like one plane having ababy when they deliver these actually not the
whole plane, but the fuselage piecesgot it. So yeah, I don't

(28:15):
know. It's it's kind of cool. So what is it? Just these
are this is just more evidence ofsystemic rot at Boeing? Or is this
a one off? It's hard toput all these things. It's it's hard
to figure out how all these theseanecdotes and allegations fit together. You know,
I I don't know on this again. I think we need to know
more here first. I it's notthat I want to give Boeing the benefit

(28:36):
of the doubt, because I've kindof slammed them for the last six few
months with you. I want togive their engineers the benefit of the doubt,
and the people on the lines thatare assembling these things, I want
to give them the benefit. Surelythey would point something out if it was
so defective. Is to be dangerousso much? Maybe I'm just naive.
I think it's it's we all thinkthat if we were put into a challenging

(28:59):
situation that we would do the rightthing. But I think it's tough when
you're in that environment and you're sittingthere and you're saying, Gee, my
livelihood depends on this, and Idon't know if I can get another job
that pays this way, and thisis the only aerospace company that's you know,
I'd like to think that I couldbe better. That's a good point,
But I think when faced with reality, a lot of times human beings

(29:22):
struggle with it. When they're putin high pressure situation lust there's uncertainty,
much like with the Challenger, theclassic disaster, where it was actually two
pieces that didn't fit perfectly together becausethey had to be that rocket booster had
to be shipped on a rail forsome reason. There were good men who
were persuaded, maybe through motivated reasoningor bullying, to suppress their concerns.

(29:42):
Yeah, maybe that's a phenomenon.Here. Let's take a quick break.
When we come back, we'll doa little bit of stack roulette. Business
and financial news affecting the markets andyour wallet. We've got it all straight
from Wall Street right here on theFinancial Exchange Radio Network Financial Exchange Show podcast
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(30:06):
then leave us a five star review. You're listening to the Financial Exchange
Radio Network. All right, Mark, what do you got from me for

(30:26):
stack roo lax opinion piece in Bloomberg? Sorry, home sellers, the six
percent commission isn't going anywhere. Ohyeah. The thrust of this was,
Yes, it's true, brokers can'tengage in what might amount to collusive or
collusion. I was gonna say callusivebehavior. I'm not even sure if that's
a red verb. But anyway,what I found most interesting about this article

(30:48):
was number one, the point thatthe custom can still persist as long as
there's not some sort of now accordingto this rolling underhanded agreement to fix commissions
at that level. So that thatpoint is a good one. If realtors
don't want to lower their commission,they don't have to. It's still a
contract, voluntary contract. The otherinteresting day to point or points in this

(31:11):
article compare our commissions to those inother developed countries like Germany, where fees
I guess this is an average fourpoint five percent, as opposed to our
I guess standard or average six Australiatwo point five percent and the UK just
one point three percent. I didn'tknow ours were so out of whack.
I think the other the other piecethat I mentioned, Mike and I were
talking about this a week or twoago. How often do you buy a

(31:36):
house mark Uh so far once ina lifetime. This is kind of what
I'm getting at. It's not somethingwhere you say, gee, I bought
this house this month. The nextmonth when I when I buy my next
one, I'm gonna I'm gonna negotiatebetter. I'm gonna you basically you might
buy like one or two houses overthe course of your lifetime. You know,
you got the way they look atit, like at most you're probably

(31:59):
doing three for like a really topend family where you're like, hey,
I bought my starter home, thenI bought, you know, the house
where I'm raised my family, andthen I bought my downsizing home. Maybe
you do it three times, butit's like every fifteen years, even in
that situation. So I kind oflook at this now, I'm going,
why do we think that the personwho's buying the home once every fifteen to

(32:23):
thirty years is going to have anyskill negotiating how much they pay compared to
an agent who's selling or buying twentyfive homes a year. Why do we
think that that? Why don't weWhy do we think that the principle is
going to have any power in thatrelationship to set the pricing as opposed to

(32:43):
the agent. So I kind oflanded there as well. I just I
couldn't get past that. I wantto talk a little bit about artificial intelligence
because I'm becoming increasingly convinced that artificialintelligence is going to be both more important
and less important than we think itis right now. And what I mean

(33:07):
by that is there's a piece inthe Wall Street Journal talking about how Elon
Musk and Jamie Diamond say that artificialintelligence is going to be smarter than humans,
you know, very very soon,And I think it's important to talk
about I don't think artificial intelligence asit stands today is anywhere close to being

(33:30):
smarter than humans. I think ithas access to a wide range of information
that it can access immediately. ButI also think that humans, if they
know how to look for it,can access the wide range of information pretty
quickly as well. They just wearen't really skilled at doing that. What
we see is that these models,these artificial intelligence models, are pretty much

(33:52):
trained on data that's supplied by humans. It's really the exact same way that
you teach a little kid how touse language is how you teach these AI
models to do so as well.And it's fascinating. Maybe it's just because
I have, you know, athree year old who's talking, but you
see these AI models making the samelanguage mistakes that toddlers make, and it's

(34:15):
kind of interesting, not in thatlike they build good sentences, but also
when when you press a toddler on, you know, your toddler wakes up
and you say, hey, what'syou dream about? And they say,
you know, oh I dreamt about, you know, a purple dinosaur,
and you can see they're making itup as they're like thinking about it.
These AI models do the same thingswhen pressed about things they're not sure if

(34:37):
they just make stuff up that they'renot sure of. And I think that
when we talk about you know,this move towards what's called artificial general intelligence
from these AI models. General intelligenceis more being able to think as opposed
to being able to recite facts,and that is a totally different thing from

(34:58):
what these models can do right now, And that is what I view as
actual intelligence is can you think abouta topic and then come up with something
new and novel and these can't rightnow. All they do is they associate
words the way that they used to. They mimic what they've heard previously.
And it's really impressive mimicry. Andit has huge uses too. Like I'm

(35:21):
not to say that it doesn't,but in terms of you know, is
AI going to be smarter than you? That's different. In my opinion,
it's still going to be impactful evenif it's not smarter, And I think
we need to get past that conversationbecause it's not whether or not it's smarter.
You know, the a drill isnot smarter than you or I,

(35:42):
Mark, but it can put screwsinto a wall better than you or I
can. Manually. AI is justanother drill at this point, and that's
just fine. It can still havereally good uses that way. That's all
I got. I'm gonna think aboutthat. Let's take a quick break.
When we come back, it'll betomorrow, and so make sure you're tune
in and listen to us. Thenon the Financial Exchange,