May 9, 2024 • 38 mins
Chuck Zodda and Mike Armstrong discuss the weekly jobless claims that jumped to its highest level since last August. Corporate America is on a spending spree, buying back shares. Arm slides as tepid outlook fuels concerns over AI slowdown. Billions in chips grants are expected to fuel industry growth. Lenders are seeing a bottom for consumers.
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five K Boston is presented by VeteransDevelopment Corporation. This is the Financial Exchange
with Chuck Zada and Mike Armstrong.Chuck, Mike and Tucker with you here
on a Thursday. Before we getto a little bit of discussion about stock
buybacks, I do want to touchon some economic data that came out this
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morning. That's right, just alittle while ago. The initial job has
claims for the week published at eightthirty am, and they came in at
two hundred and thirty one thousand andfour of the week. That was up
from the prior week of two hundrednine thousand, and the estimates were,
you know, in the two tento two eleven range. So anytime you
have twenty thousand more jobbles claims ina week than you expect to say,
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Okay, what's going on here?And by the way, to all of
the freaking morons out there who havebeen saying no, I'm going aggressive on
this. Yes, to all ofthe morons out there who've been saying,
oh, like the jobless claims numbersare fick, they're manipula. Why would
you get a surprise like this tothe upside if they were manipulate like you
think the government was, just like, no, like, this is the
week we'll take off like we're justnot gonna do it this week. Yeah,
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that would be done. That's nothow any of this works. Okay,
you can talk all you want about, Hey, I you know this
data, we're not getting good surveyresponses or this and that, you know,
blah blah blah. Fine, thegovernment's not making do The government is
not if they were, okay,they would make up the inflation data so
that it looks good. Yeah,that's what they want you to think,
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all right. If if the governmentwere actually making up the data to look
good, they would make it lookbetter than it does. Millennial, you
don't know anything, don't what you'retalking about, Chuck, I'm or they
just wouldn't publish anything like China.You know, Oh gee, you don't
like that data point. That datapoint is a race. He's unemployments high
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not anymore. It's gone. Soto anyone out there who quite honestly has
been dumb saying, oh gee,like the jobbles claims have just been too
consistent for the last couple months becausepeople haven't been filing for unemployments. Nobody's
been losing the job. And guesswhat now they did And we're gonna talk
about this because I think this isactually a really interesting inflection point when it
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comes to jobbles claims. So twohundred and thirty one thousand jobbles claims for
the week, that is the highestnumber that we have seen since last August
nineteenth. So you gotta go backnine months to the last time that we
had jobbles claims in this ballpark.And remember the summer of last year.
I had a couple of different concerns. The first was, you know,
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shortly after the Silicon Valley bank blowup, was hey, are you gonna
get some kind of recession coming outof this? And jobos claims actually jumped
all the way up to about twohundred and sixty five thousand dollars for the
people people for the week of Julyseventeenth of last year. They then declined
and basically spent the last six monthsbetween about two hundred thousand and two hundred
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and twenty thousand. They didn't reallyget outside that range. Again, it
doesn't mean that the numbers are madeup, it's just where it was.
Otherwise they would have made up lowernumbers earlier. I'm sorry, it just
grinds your gears a little bit.Really bothers me it's when the conspiracy theory
is so dumb that it doesn't makesense. I can't deal with it.
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Yeah, that's right. You know, it's like, oh, we fudge
the numbers for so long, butnot this week? But why not this
week? And also, again toyour point, if you were going to
fudge the numbers, these are thesame numbers that get produced by government agencies
that produce a whole bunch of othernumbers about the labor market, inflation.
And so if you wanted to makethe economy look good, you would fudge
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all the numbers to make them lookgood. Rather than saying that inflation has
been running at four to five percentof the last three months, Yes,
you would prefer to not have that, obviously. So what's interesting to me
here is we're starting to get somedata points clustering over the last four to
six weeks that are showing a slowdown in the US economy. Now,
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slow down does not mean recession.I'm not crying recession here. But here's
what I do want to talk about. On this Citybank, they publish what's
called their economic surprise indecks, andit's pretty much a measure of Hey,
when the economic data comes out,did analysts miss too high, too low
or just right? And we're talkingspecifically economic data, not earnings, not
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other stuff. Yes, And whatwe saw is that in January through kind
of early April, the City EconomicSurprise INDECKS was saying, Hey, the
data is consistently coming in much betterthan economists were expecting. The economy was
stronger than people thought. And thisis part of the reason why inflation was
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starting the rebound, was that thedata the economy was just hotter than people
thought it was going to be.So there was consistency here. In the
last four to six weeks, you'veseen the City Economic Surprise INDCKS turned down
and now just slightly but again stillno notable. It is shown that the
economic data is coming in weaker thaneconomists are anticipating, which means that economists
are likely projecting too much strength inthe economy at this very moment in time.
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So would an example be the jobsreport from last Friday, exactly we
were expecting two hundred and ten thousandjobs. We got one hundred and seventy
five thousand. Another one, thisunemployment report today or this jobbles claims expecting
two hundred ten thousand, Hey,you came in with two hundred and thirty
one thousand. To remind people ofwhat this is. This is the initial
reading that you get from the federalgovernment, which is a compilation of all
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the state governments of how many peoplefiled for unemployment in the previous week.
Typically, some pretty big revisions withthis too, because you have all sorts
of potential reporting issues by the state, especially back in COVID days, when
was it Massachusetts that screwed up reallybadly in California and California really really screwed
the pooch on their reporting on jobs. California was the worstest because the magnitude
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of it. Right when you're astate of fifty million people, it's a
bigger impact than a state of sevenmillion. Yeah, you know, it's
of how numbers work. But inany case, this is a this is
a second jobs related report showing weakerthan anticipated status of the labor market.
Yeah, there's there's something there.Whether it develops into something larger, I
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don't know. We'll have to see. But it's worth noting another thing,
just when we talk about the jobsthe labor market, the quits rate has
been falling rather rapidly over the lastyear and a half in general, before
the pandemic, in any given month, you know, kind of looking at
not the financial crisis, but liketwenty fifteen through twenty nineteen, you generally
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had between one point eight and twopoint two percent of people quitting their jobs
in any given month. Got itafter the pandemic. In twenty twenty one
and twenty two, you got itto almost I'm sorry, not almost.
You got up to a few monthsof three percent of people quitting their jobs
on a monthly basis. The quitsrate went up by like sixty percent.
Can you just clarify something for me, Chuck, Because if one point eight
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to two point two percent of peopleare wating their job every month, that
would imply twenty four percent of theassuming someone wasn't getting their job twice any
turning over. Is that right,Assuming someone wasn't quitting their job twice in
a year. Yeah, you generallyhad thinking about it In a company like
ours, twenty five people generally haveyou know, five or six turnover in
a year. Okay, reasonable?Reasonable? Yeah, okay, Yeah,
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so that's what you were seeing prepandemic. It jumped up to you know,
three percent on a monthly basis duringthe pandemic. It's now back down
to two point one percent in themost recent month. The quits rate is
pretty strongly correlated with wage growth.The Atlanta Fed runs a wage tracker,
and this leads the wage tracker usuallyby about six to twelve months, and
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so as the quits rate comes down, wage growth comes down as well.
So you're seeing this and this issomething again kind of indicating a slowing of
some of the factors that we've seenin the last year or two. Finally
sticking with the labor market here,the National Federation of Independent Businesses a bunch
of small businesses, so not IBM, not Coca Cola, not Apple,
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not Amazon, NFIB. NFIB notto be confused with APHIB, which is
very very different. NFIB publishes amonthly survey of their constituents and one of
the questions that they ask is,hey, are you considering hiring in the
next few months. And there's beena pretty close tracking of this data set
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to the actual payroll numbers that we'vegotten for the last couple of years.
And what this hiring intentions survey issuggesting is that if this correlation continues then
heading into the summer, we mayactually get to a point in the next
three to four months where we startto see job grow slow even further,
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potentially approaching kind of stall speed rightaround zero in the middle of the summer.
I don't know if we're going toget there or not. Again,
this is a correlation that has beenpresent for the last couple of years.
It may break down, it mayfall apart, you never know. But
we've got a few data points inthe labor market now that are starting to
point towards things slowing down a littlebit. And I don't know if they
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end up heading towards recession or not. I'm not capable of predicting that just
based on the data that we havehere. But what I will say is,
this is a shift in the datathat was pretty consistent for the last
six months pointing towards renewed strength andyou know, some pretty good stuff on
that side. So I think theinteresting question to ask is, Hey,
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if there is a slow down thatis indeed building here, does it,
you know, start to impact inflationas well and cut things on that side?
Does it correspond with or lead toa decrease in inflation, or do
you get the worst of both worlds, which would be stagflation, a slow
down in employment or a loss ofemployment, combined with people love to talk
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about uncomfortably high inflation. People lovedIt's It's kind of like the people that
you know, watch a hurricane comingin they're like, oh, I hope
it's going to be a category five, and it's like, no, you
don't. Do you know how manypeople die when that happens. Yeah,
Like, likewise, stagflation, Oh, stagflation's coming. When it actually hits,
you don't want to go through it, because we had a very brief
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stagflationary period in the first half oftwenty twenty two. Sucked. It sucked.
Yeah, It's like, you don'troot for bad things to happen,
right, you just don't. Soif you're like, oh, stagflation's coming,
I hope you're wrong. That's allI have to say. Just take
a quick break. When we comeback, we'll talk about stock buybacks after
this. Breaking business and financial newsfirst throughout the day only here on the
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Financial Exchange Radio Network. The FinancialExchange streams live on YouTube. Like our
page and stay up to date onbreaking business news all morning long. This
is the Financial Exchange Radio Network.Yes, Michael, so we're gonna talk
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about buybacks, and you may havedone this recap already, but just in
terms of where we are with earnings, I thought worthwhile mentioning for the first
quarter of twenty twenty four. Thiswas as of six days ago. From
fact sets Earnings in Sight, eightypercent of companies had reported by that point
in time, which six days agois what last Friday. Yes, seventy
seven percent of SMP five hundred companieshave reported a positive earnings per share surprise.
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Sixty one percent of SMP five hundredcompanies have reported a positive revenue surprise.
That's about in line. I thinkon average over the last decades,
seventy percent have beat on earnings.Is that about right? Yeah, so
a little bit above expectations. Theactual news here, in my view,
is that the so far for thefirst quarter, the blended year over your
year over year earnings growth rate hasbeen about five percent, And if that's
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sticks for the rest of earning season, then that will be the fastest year
of your growth rate that we've seensince Q two of twenty twenty two,
which came in at five point eightpercent. So there's been a lot of
questions this year about, hey,if rates are coming down, how much
stronger do earnings need to be tojustify stock prices? And so far,
granted, they always revise these thingsto beat, but I think the number
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that's important is the five percent growthrate, and that has been quite strong
in well, really really any pointof perspective. The counterpoint to it,
and this is data from Kevin Gordonthat I just saw this morning. Kevin
is let's see what he does.Oh, here you go. He is
the senior investment strategist at Charles Swab, So yeah, he's a big mucky
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muck. And here's what he showedfor companies that are beating on both earnings
per share and sales. So,companies that are beating on both of those
numbers, the return that they've generatedearnings period so far in excess of the
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S and P five hundred has beenabout half a percent. If you look
at the last three quarters as anexample, it's been above one percent in
each of those quarters. So companiesthat have beaten on earnings the last three
quarters have seen more outperformance than thisone. Also, companies that are missing
on EPs and sales that you know, smaller subset. That is, they
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are seeing their returns lag the Sand P five hundred by about five percent
this quarter compared to between two andfour percent in each of the last three
quarters. So misses are being punishedmore, it makes and beats are not
being rewarded. So it is speakingto the valuation question, I think,
which is, hey, these stockshave been bid up significantly. Even if
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you're beating your numbers, there's nottoo much more room for you to move,
and if you're missing, you're gettingpunished right now. The only quarter
that we've had in the last sevenyears that has had missing companies get punished
more was the third quarter of twentytwenty two, which we all remember kind
of leading into to year end,which was just an absolutely brutal quarter there.
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And so I think that actually linesup nicely with the overall narrative here,
which is, hey, companies rateswere thought that they were going to
come down this year, they nolonger are, and so if you're going
to justify your stock price, you'regoing to need to beat even more than
you previously needed to. Yeah,that's my interpretation of that. That really
kind of interesting analysis there. Youwant to talk about buybacks. So thank
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you Kevin Gordon for putting that togetherfor us. Thanks keV. Let's talk
about buybacks because corporate America is ona spending spree. That's the headline in
the Wall Street Journal and S andP. Five hundred companies have disclosed buying
back one hundred and two one hundredand eighty one point two billion dollars of
their shares during the Q one period, of sixteen percent from the same period
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a year ago. And in particular, it's been big tech that's been kind
of driving it. Meta re purchasedfourteen and a half billion dollars, Apple,
Nvidia, Netflix obviously buying a ton. Apple announced a new one hundred
and ten billion dollars buy back overthe rest of this year. And what
is interesting to me is you're tryingto figure out, Hey, does this
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mean that companies think their stock ischeap and that's why they're buying it back,
or do they just not have enoughgood investment opportunities and that's why they're
buying it back? Yeah, becausethose are the two reasons why you would
do so. Yeah. I meantough to look at a lot of these
share prices and say, oh,I think this is fundamentally cheap, and
Warren Buffett's big about this, likehe has certain thresholds at which he won't
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buy back his own company stock,and other companies don't follow that type of
discipline. I think what is prettyclear to me is that companies are being
more strategic about when they will makebig R and D investments. And that's
an interesting piece here is like youknow, Facebook buying backstock, they're also
spending forty four billion dollars on Rand D this year, if I'm not
(17:00):
mistaken, and we're in regards toartificial intelligence, and so it's not just
one versus the other. But Ithink clearly, in the same way that
investors are looking for more earnings,they are not exactly rewarding the types of
investments that companies have made over thelast decade that are purely designed to grow
their user base and want to seeintelligence, intelligent investments that are going to
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have a short runway for payoff,and so to that end, if if
you don't have that type of investmentlined up that you can make, then
they're defaulting to the age old strategyof give shareholders more money. So this
is again kind of the thing wherethings stand right now, my headset just
(17:44):
cut out completely. No, Idon't know why is it gone? Gone?
No? But I'll just take theseoff, yeah, because I guess
I'll talk like, I'll yell atyou if the music starts. Okay,
I'll just start singing to you ifthe music starts, Yeah, can you
just hum a couple of bars?Sure? I think that'd be great,
actually, because I can't hear anything. Uh. One of the components of
the Inflation Reduction Act back in twentytwenty two was a stock buyback tax.
(18:07):
If you remember, right, there'sa one percent stock buyback tax. Does
it seem to have affected stock buybacksin any way, shape or form.
I can't tell from just looking atthis right, Like, no have Let's
be honest. Stock buybacks again,they're up eight sixteen percent from a year
ago. When did the last yearwas the first year. But like,
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companies are not stopping stock buybacks.Certainly they're not stopped because of this.
It's again, they're not stopping,they're not redirecting. Because keep in mind,
if you want to return capital shareholders, you don't have to do buybacks.
You can do a dividends, youcan do special dividends. You could
do one often, like, there'sall kinds of stuff that you can do.
And at least on the surface,it does not appear to be affecting
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companies in terms of their preference forbuybacks versus dividends. We've seen some companies
like Facebook, which is doing buybacksand dividends now yep Apple as well,
massive buyback, massive, massive dollarwise dividend, not on a per share
basis. Obviously, Google announcing theirfirst ever dividend, I believe in the
most read I thought it was metato Google. Also, I could be
(19:12):
wrong about that. Can we callthem by their proper name alphabet? Alphabet
and Meta? Sorry yet the nameout? I just I can't. I
can't get with meta. At leastyou can say, okay, they were
trying to make a product about themetaverse. All right, I guess we're
gonna go to break. We'll beback in just a little bit with Wall
(19:34):
Street. Watch after this. Likeus on Facebook and follow us on Twitter
at TFE show. Breaking business newsis always first right here on the Financial
Exchange Radio Network. Time Now forWall Street. Watch a complete look and
(19:56):
what's moving market so far today?Right here on the Financial exchange radio network
well markets are in mixed territory asthe Dow is trying to extend its winning
streak to seven where Wall Street reactsto several first quarter earnings reports that missed
the mark. Furthermore, jobless claimscame in at two hundred and thirty one
thousand above forecasts, in also markingtheir highest level since August of twenty twenty
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three. Right now, the Dowis up by about a half a percent,
or one hundred and seventy one points, SMP five hundred is up by
ten points, and the NASDAC offby merely three points. Russell two thousand
is up a quarter percent. Tenyear Treasure reeled mostly flat at four point
four to nine percent, and crudeoil is up two thirds of a percent,
trading just below eighty dollars a barrel. Warner Brothers Discovery reported ahead of
(20:48):
the opening bell this morning, missingon both the top and bottom lines for
the first quarter, despite strength inits streaming unit. The media Giant,
which owned streaming service Max and cableTV networks including TNT and Discovery. Sad's
revenue slump seven percent to nine pointninety six billion dollars compared to a year
ago. Chuck and Mike will havemore on Warner Brothers Discovery and its latest
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streaming services bundle announcement in the nexthour. That stock off by about a
half a percent. Meanwhile, Airbnbdown by six and a half percent after
the vacation properties rental company beat firstquarter earnings in revenue forecasts, but did,
however, offer weaker than expected guidancefor the current quarter. Airbnb did
note that it is already experiencing robustdemand for travel ahead of the peak summer
(21:36):
season. Elsewhere, robin Hood reportedquarterly revenue and profit that served pass analysts
expectations, sending shares in the onlinebroker's firm up by about a third of
a percent, and beyond Meat sharesdown by over thirteen and a half percent
after the plant based meat company posteda decline in first quarter revenue. I'm
Tucker, Silvan, that's Wall StreetWatch, Mike. Last year, the
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semiconductor company arm Arm not to beconfused with FLEG, went public and they
had seen some absolutely monster gains.This year, they had a very brief
two day period I'm sorry, fourday period in February where the stock doubled
after reporting earnings. Well, theyreported earnings again, and the earnings were
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fine, but because expectations got bakedin so high. It's one of these
situations like we were discussing earlier inthe show, where hey, if everyone's
expecting you to do great things andyou just do good things, your stock's
not going to do well. Sothat the stock peaked at one hundred and
sixty four bucks a share earlier thisyear, it's now trading at one hundred
and three, so down over thirtyfive percent. And it's not because this
(22:49):
is some horrible company that's fallen apartin the last you know, few months
or something like that. It's justthat they got caught up in all this
semiconductor hype and things are kind ofcoming back to earth in that space in
particular. Now. Yeah, onething that I've been, I guess just
thinking about when it comes to ARM. I mean, ARM is a very
(23:10):
specific company, right. They licenseWall Street or Bloomberg puts as well.
They license the fundamental set of instructionsthat software uses to communicate with the chips
that they produce. They provide,you know, design blocks that companies such
as Qualcom used to use the buildingthe mobile space and what I fail to
and this is just probably my ownpersonal lack of understanding, but I'm sure
(23:33):
I'm not alone in this is thenumber of companies that are seeing big gains
from the artificial intelligence boom. HereI fail to understand where their moats are
and how deep their moats are.It's fairly easy for me to understand how
Apple or Facebook, or Google orMicrosoft have a pretty built in, uh
(24:00):
deeply entrenched moat with their customer base, and how it would be very difficult
for some new startup to come andcompete with Microsoft. I currently just don't
have the understanding of why arm specificset of instructions that that are used to
code software in the AI space makesit so that they will still be the
leader in the clubhouse ten years fromnow or anybody else I know. They're
(24:23):
not the still leader in the clubhouse, I guess. And this is you
know, look, this is trueof any new emerging technology sector, which
my guess would be the vast majorityof people out there don't have a firm
fundamental understanding of just how deep thecurrent moats are of these companies, and
I don't think we will know fordecades to come. No, and The
(24:44):
thing that you've got to remember onthis is that if you are any one
of these large tech companies that's showingout tens of billions of dollars to in
Video right now on an annual basis, you're looking at that and you're saying,
Okay, my tens of bills millionsof dollars that I am sending to
Invidia, fifty four percent of thatis margin. It's profit for Nvidia.
(25:08):
Yeah, that is fifty four percent. If every dollar I send to Nvidia,
if I am Microsoft, i amAmazon, if I am Meta,
if I'm Google, whoever i am, fifty four cents out of every dollar
that I send to in Vidia isprofit. So there's a reason why a
number of these companies have said,look, we're going to try to start
(25:29):
designing our own chips. And bythe way, Apple already does this.
So I'm not saying they're going tomanufacture them because they don't. Like Apple
doesn't manufacture chips. But if youlook at all of Apple's phones, laptops,
iPads, whatever they have now,they don't even check fact, manufacture
iPhones for that matter. No,they don't make anything. They just give
the designs to a third party andthe third party makes it, which is
fine, Like that's that's great,Like if that's your business model, fine.
(25:52):
But Apple has a track record nowof making chips for their own products
that do exactly what they need todo in those products. And one of
the things I'm using Apple here justas an example, but one of the
things that Apple has indicated they maytry to do is right now, the
AI applications that we're seeing. Ifyou want to use open ai and chat
(26:14):
GPT, it's all based in thecloud. So you open up the open
ai app, it goes to theyou type in you know, send me,
you know, generate me a pictureof a dog wearing a Kentucky Derby
hat, and it goes to thecloud and then it comes back and blah
blah blah that what that means isvery simply, it's not happening on your
phone. The computer processing of thatimage generation is not occurring on your phone,
(26:37):
not occurring on your laptop, ornot occurring on the server that you
connect to at work. No,it's happening at chat GPT's computers. And
then they send it back to you. Their indications that what Apple wants to
do is different, which is hey, what if we start building chips that
are able to conduct AI operations ondevice, on your phone, on your
(27:00):
iPad, so on and so forth. Now, obviously they're not gonna have
the raw computing power of you know, five thousand in Vidio GPUs that are
hooked up together. But it's somethingwhere Apple says, look, we don't
need to do that because we've figuredout a better way to do this on
platform, on device. Okay,and video is not going to have Apple
as a customer. And this isjust one iteration of it. If Meta,
(27:25):
who's announced they're trying to design theirown chips, says, yeah,
we figured out how to do this, and we can send the design direct
to Taiwan, Semi or Intel orwhoever we want to build this. Okay,
Now instead of spending you know,fifty percent of every dollar on margin,
great, maybe we've cut that downto twenty and so we're still saving
thirty percent in the aggregate. There. These are the kinds of things that
(27:48):
I don't know if they are goingto work, sure, but fat margins
rarely last in most businesses. Yeah, I think that would be the conclusion
is, rarely do you have companiesthat maintain fifty percent margins for a decade,
especially in a hardware business. It'sone thing if if you're talking you
(28:08):
know, certain software niches, yeahyou can, you can do that.
But the hardware business, oh,I mean, it's just a brutal business
to compete in in the tech space. Speaking of which, great piece here
from uh what is this New YorkTimes. Yeah, billions in chip grants
expected to fuel industry industry growth inthe United States. The US, based
(28:33):
on the commitments that are now inhand and that the construction that is starting,
are expected to see domestic chip manufacturingwithin the United States triple by twenty
thirty two. And that would meanthat America's share of world computer chip manufacturing
would rise from about ten percent todayup to fourteen percent by twenty thirty two.
(28:56):
This would be the fastest growth outof any country in the world world.
And while I'm the first to admitthat it might not make the most
economic sense to do this, Ido think from a national security perspective,
this is one of those industries whereI say, I don't really care how
much it costs you need to buildit here, I do wonder about that
calculation on percentage of market share.I believe the the idea that they'll triple
(29:19):
output and that'll be a very fastincrease the what's what's the saying in uh
in Apple keeps your doctor away?Your your enemies make plans to And I'm
not speaking about our enemies here,but you have other governments, including the
EU, Japan, China, whohave also offered pretty massive subsidies to go
(29:41):
and develop semiconductor manufacturing in their ownwithin their own borders. And so we
are seeing it on the like godrive through northern Phoenix right now and you
can see the impact of the stimulusfunds being or the the infrastructure investment funds
being spent on semiconductors right now.First, the question is how much of
(30:03):
that is also occurring in other partsof the world, and will the United
States actually increase market share based onthe size of our investment compared to the
other countries. Don't know, andI don't know either. And part of
this when you talk about some ofthe facilities that are going up, have
any of you read I don't knowif we even covered it the pieces about
the Taiwan semiconductor plants that are goingup in Arizona. I have read and
(30:26):
listened to a fair bit about that. One of the things that they're running
up against is this culture clash betweenTaiwanese workers and the US workers where the
ones who you know again workers comeover from Taiwan and they're like, Okay,
we're gonna, you know, helpbuild it and open this plant in
Arizona. And they come over andthey're like, what the heck. You
guys don't sleep at the factory here. You guys don't work sixteen hour days.
(30:51):
What are you doing? Like thisis because for them it's this like
Taiwan Semiconductors, this whole point ofnational products, like that, this is
what we do. We are thebest in the world at this, and
to work at Taiwan Semiconductor is anhonor and like the greatest thing I can
do in my life. And thenthey come over here and they're like,
Jimmy, why are you cocking outit too? Again? What the heck?
(31:14):
So there's some culture things that aregoing on that are that are kind
of interesting there. The other problemthat they are running into that they're kind
of working through is part of theprovisions for building these facilities was that it
might even be that all of theconstruction and work has to end up being
done by union labor, not nearlyenough, and there's not enough and be
it. It's driving the cost wayhigher than they projected. Sure, so
(31:37):
just another thing where hey, look, Ultimately, if you want to build
computer chips here in the United States, stop worrying about the union thing.
You can do that somewhere else.There's other places where you can focus on
that that aren't as critical to nationalsecurity. That's the politics of the situation,
Jock, I know it's wild.Let's take a quick break. I
think we've done enough semiconductor at thispoint, right, Let's instead start talking
(31:59):
a little bit about what banks andother lenders are seeing from consumers. Right
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(32:22):
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(32:45):
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K Boston is presented by Veterans DevelopmentCorporation. Venders are seeing a bottom for
consumers. What are they seeing,Michael. They are seeing that the pace
of credit deterioration is slowing. Thisis I think a very important distinction here.
Like when we talk about inflation.When we say that inflation is improving,
(33:28):
what we talk about is the factthat the pace of cost increases is
slowing down. Right. In twentytwenty two we hit nearly nine percent year
of year inflation and now it's somewherein the three and a half to four
percent range. That is an improvement. Likewise, when we talk about the
number of delinquent status loans that areout there on say, credit cards and
(33:50):
auto loans, those were moving intodelinquent status at the fastest pace in several
years. Last year, data oncard loans collected by analysts at Jefferyes showed
the delink and see rates slipping zeropoint one eight percentage points from February to
March, basically indicating that yes,consumers are still getting worse, but at
a much slower pace than we wereat the end of last year, which
(34:13):
I would agree does seem like agood sign here because when we covered this
last if you recall, the storywas, hey, this is increasing rapidly,
but it's at still a fairly lowrate of delinquency when you compare to
other periods of time of economic strife. I want to talk about one other
thing related to delinquencies as well,not covered in this piece, but in
the housing sector, always good justto say, hey, what's going on
(34:37):
with mortgage delinquencies? And nationally rightnow three point three four percent of mortgages
are currently delinquent. I can okay, I couldn't find delinquent mortgage. Okay,
delinquent mortgages okay, first mortgages mightadd, I don't have any data
on second, the record low wasright around three percent, and that was
(35:00):
set about a year ago, justbefore a Silicon Valley bank blew up.
Normally at this time of year,if you look at the data from two
thousand through two thousand and five,which again it's a short period in time,
but it basically cuts out the wholeproblematic portion of mortgages from like you
know, two thousand and six throughtwenty fifteen, Normally at this time of
(35:22):
year, four point five to fourpercent of mortgages were delinquent if you were
looking at it seasonally, because thereis a seasonal component to delinquencies. I
don't know why there is, butfor some reason, they tend to peak
in the winter. Don't know why. I'm sure someone can, you know,
educate me on that. But you'realso even if you compare it to
(35:43):
twenty sixteen through twenty nineteen, you'restill running about zero point seventy five percent
below the delinquency rate. There,mortgage delinquencies are not a problem at all
right now, at least nationally.Could there be isolated markets maybe I have
not seen any data on a stateby state basis, but nationally you are
(36:05):
still running very close to all timelows for mortgage delinquencies according to the Saint
Louis Federal Reserve. By the way, so the delinquency rate on credit cards,
according to Saint Louis FED was sittingat three point one percent in the
fourth quarter of twenty twenty three,and that rapid increase that we're talking about
is because it went from below onepoint six percent in the fourth quarter of
(36:29):
twenty twenty one, very rapid increaseover a period of two years. The
other point that I will make aboutthis, however, is that credit card
delinquency rates in Q two of twothousand and nine hit nearly seven percent.
For the entire nineteen nineties through twothousand and ten decade, it was at
a low of three and a quarterand a high of five percent, and
(36:52):
then didn't really dip below three percentfor the first time that we have data
on until early after the financial crisis, when there was a well probably a
lot of bankruptcies and wiping out ofcredit card debt, plus a big pushback
on credit card debt. So importantthat we track and see when things like
delinquencies rapidly increase because it speaks toa deterioration in the just credit quality of
(37:19):
the average consumer and concerns that mightbe sparked. But I think even more
important to understand the context in whichwe're talking about this, which is this
rate of delinquency is still well wellbelow what we were seeing anytime around the
Great Financial Crisis. Mike, areyou a fan of Hot Honey? I
am. There's a brand of hotHoney named after me? Do you make
(37:39):
hot Honey? No? I amnot the mic from Mike's Hot Honey.
In fact, apparently the stuffs shownup everywhere. Now. My wife and
I have been fans of this fora few years now, so much like
you know, seeing the band beforethey made it big. Yeah, we
kind of feel like shock typical hipsterhaving the hot Honey before it was cool.
Don't hate it, don't hate it. But it's shown up everywhere.
(38:02):
You got it on pizzas, yougot it in ice cream, on chips,
on pretzels, It's all over theplace. There's a hot Honey bananza
going on, and I'm here forit. It's sweet and hot. You
gonna need more bees? What elsedo you? What else do you want
me here? Starbucks is doing stuffwith it? Then, Yeah, apparently
we might have too many bees nowactually we've been reading we've gone from too
(38:22):
few to too many. Let's takea quick break. Hour two's coming up
in a bit
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(01:02):
five K Boston is presented by VeteransDevelopment Corporation. This is the Financial Exchange
with Chuck Zada and Mike Armstrong.Chuck, Mike and Tucker with you here
on a Thursday. Before we getto a little bit of discussion about stock
buybacks, I do want to touchon some economic data that came out this
(01:23):
morning. That's right, just alittle while ago. The initial job has
claims for the week published at eightthirty am, and they came in at
two hundred and thirty one thousand andfour of the week. That was up
from the prior week of two hundrednine thousand, and the estimates were,
you know, in the two tento two eleven range. So anytime you
have twenty thousand more jobbles claims ina week than you expect to say,
(01:46):
Okay, what's going on here?And by the way, to all of
the freaking morons out there who havebeen saying no, I'm going aggressive on
this. Yes, to all ofthe morons out there who've been saying,
oh, like the jobless claims numbersare fick, they're manipula. Why would
you get a surprise like this tothe upside if they were manipulate like you
think the government was, just like, no, like, this is the
week we'll take off like we're justnot gonna do it this week. Yeah,
(02:10):
that would be done. That's nothow any of this works. Okay,
you can talk all you want about, Hey, I you know this
data, we're not getting good surveyresponses or this and that, you know,
blah blah blah. Fine, thegovernment's not making do The government is
not if they were, okay,they would make up the inflation data so
that it looks good. Yeah,that's what they want you to think,
(02:31):
all right. If if the governmentwere actually making up the data to look
good, they would make it lookbetter than it does. Millennial, you
don't know anything, don't what you'retalking about, Chuck, I'm or they
just wouldn't publish anything like China.You know, Oh gee, you don't
like that data point. That datapoint is a race. He's unemployments high
(02:53):
not anymore. It's gone. Soto anyone out there who quite honestly has
been dumb saying, oh gee,like the jobbles claims have just been too
consistent for the last couple months becausepeople haven't been filing for unemployments. Nobody's
been losing the job. And guesswhat now they did And we're gonna talk
about this because I think this isactually a really interesting inflection point when it
(03:14):
comes to jobbles claims. So twohundred and thirty one thousand jobbles claims for
the week, that is the highestnumber that we have seen since last August
nineteenth. So you gotta go backnine months to the last time that we
had jobbles claims in this ballpark.And remember the summer of last year.
I had a couple of different concerns. The first was, you know,
(03:36):
shortly after the Silicon Valley bank blowup, was hey, are you gonna
get some kind of recession coming outof this? And jobos claims actually jumped
all the way up to about twohundred and sixty five thousand dollars for the
people people for the week of Julyseventeenth of last year. They then declined
and basically spent the last six monthsbetween about two hundred thousand and two hundred
(03:59):
and twenty thousand. They didn't reallyget outside that range. Again, it
doesn't mean that the numbers are madeup, it's just where it was.
Otherwise they would have made up lowernumbers earlier. I'm sorry, it just
grinds your gears a little bit.Really bothers me it's when the conspiracy theory
is so dumb that it doesn't makesense. I can't deal with it.
(04:19):
Yeah, that's right. You know, it's like, oh, we fudge
the numbers for so long, butnot this week? But why not this
week? And also, again toyour point, if you were going to
fudge the numbers, these are thesame numbers that get produced by government agencies
that produce a whole bunch of othernumbers about the labor market, inflation.
And so if you wanted to makethe economy look good, you would fudge
(04:42):
all the numbers to make them lookgood. Rather than saying that inflation has
been running at four to five percentof the last three months, Yes,
you would prefer to not have that, obviously. So what's interesting to me
here is we're starting to get somedata points clustering over the last four to
six weeks that are showing a slowdown in the US economy. Now,
(05:02):
slow down does not mean recession.I'm not crying recession here. But here's
what I do want to talk about. On this Citybank, they publish what's
called their economic surprise indecks, andit's pretty much a measure of Hey,
when the economic data comes out,did analysts miss too high, too low
or just right? And we're talkingspecifically economic data, not earnings, not
(05:25):
other stuff. Yes, And whatwe saw is that in January through kind
of early April, the City EconomicSurprise INDECKS was saying, Hey, the
data is consistently coming in much betterthan economists were expecting. The economy was
stronger than people thought. And thisis part of the reason why inflation was
(05:45):
starting the rebound, was that thedata the economy was just hotter than people
thought it was going to be.So there was consistency here. In the
last four to six weeks, you'veseen the City Economic Surprise INDCKS turned down
and now just slightly but again stillno notable. It is shown that the
economic data is coming in weaker thaneconomists are anticipating, which means that economists
are likely projecting too much strength inthe economy at this very moment in time.
(06:10):
So would an example be the jobsreport from last Friday, exactly we
were expecting two hundred and ten thousandjobs. We got one hundred and seventy
five thousand. Another one, thisunemployment report today or this jobbles claims expecting
two hundred ten thousand, Hey,you came in with two hundred and thirty
one thousand. To remind people ofwhat this is. This is the initial
reading that you get from the federalgovernment, which is a compilation of all
(06:31):
the state governments of how many peoplefiled for unemployment in the previous week.
Typically, some pretty big revisions withthis too, because you have all sorts
of potential reporting issues by the state, especially back in COVID days, when
was it Massachusetts that screwed up reallybadly in California and California really really screwed
the pooch on their reporting on jobs. California was the worstest because the magnitude
(06:54):
of it. Right when you're astate of fifty million people, it's a
bigger impact than a state of sevenmillion. Yeah, you know, it's
of how numbers work. But inany case, this is a this is
a second jobs related report showing weakerthan anticipated status of the labor market.
Yeah, there's there's something there.Whether it develops into something larger, I
(07:14):
don't know. We'll have to see. But it's worth noting another thing,
just when we talk about the jobsthe labor market, the quits rate has
been falling rather rapidly over the lastyear and a half in general, before
the pandemic, in any given month, you know, kind of looking at
not the financial crisis, but liketwenty fifteen through twenty nineteen, you generally
(07:36):
had between one point eight and twopoint two percent of people quitting their jobs
in any given month. Got itafter the pandemic. In twenty twenty one
and twenty two, you got itto almost I'm sorry, not almost.
You got up to a few monthsof three percent of people quitting their jobs
on a monthly basis. The quitsrate went up by like sixty percent.
Can you just clarify something for me, Chuck, Because if one point eight
(07:58):
to two point two percent of peopleare wating their job every month, that
would imply twenty four percent of theassuming someone wasn't getting their job twice any
turning over. Is that right,Assuming someone wasn't quitting their job twice in
a year. Yeah, you generallyhad thinking about it In a company like
ours, twenty five people generally haveyou know, five or six turnover in
a year. Okay, reasonable?Reasonable? Yeah, okay, Yeah,
(08:22):
so that's what you were seeing prepandemic. It jumped up to you know,
three percent on a monthly basis duringthe pandemic. It's now back down
to two point one percent in themost recent month. The quits rate is
pretty strongly correlated with wage growth.The Atlanta Fed runs a wage tracker,
and this leads the wage tracker usuallyby about six to twelve months, and
(08:43):
so as the quits rate comes down, wage growth comes down as well.
So you're seeing this and this issomething again kind of indicating a slowing of
some of the factors that we've seenin the last year or two. Finally
sticking with the labor market here,the National Federation of Independent Businesses a bunch
of small businesses, so not IBM, not Coca Cola, not Apple,
(09:07):
not Amazon, NFIB. NFIB notto be confused with APHIB, which is
very very different. NFIB publishes amonthly survey of their constituents and one of
the questions that they ask is,hey, are you considering hiring in the
next few months. And there's beena pretty close tracking of this data set
(09:28):
to the actual payroll numbers that we'vegotten for the last couple of years.
And what this hiring intentions survey issuggesting is that if this correlation continues then
heading into the summer, we mayactually get to a point in the next
three to four months where we startto see job grow slow even further,
(09:48):
potentially approaching kind of stall speed rightaround zero in the middle of the summer.
I don't know if we're going toget there or not. Again,
this is a correlation that has beenpresent for the last couple of years.
It may break down, it mayfall apart, you never know. But
we've got a few data points inthe labor market now that are starting to
point towards things slowing down a littlebit. And I don't know if they
(10:11):
end up heading towards recession or not. I'm not capable of predicting that just
based on the data that we havehere. But what I will say is,
this is a shift in the datathat was pretty consistent for the last
six months pointing towards renewed strength andyou know, some pretty good stuff on
that side. So I think theinteresting question to ask is, Hey,
(10:33):
if there is a slow down thatis indeed building here, does it,
you know, start to impact inflationas well and cut things on that side?
Does it correspond with or lead toa decrease in inflation, or do
you get the worst of both worlds, which would be stagflation, a slow
down in employment or a loss ofemployment, combined with people love to talk
(10:54):
about uncomfortably high inflation. People lovedIt's It's kind of like the people that
you know, watch a hurricane comingin they're like, oh, I hope
it's going to be a category five, and it's like, no, you
don't. Do you know how manypeople die when that happens. Yeah,
Like, likewise, stagflation, Oh, stagflation's coming. When it actually hits,
you don't want to go through it, because we had a very brief
(11:16):
stagflationary period in the first half oftwenty twenty two. Sucked. It sucked.
Yeah, It's like, you don'troot for bad things to happen,
right, you just don't. Soif you're like, oh, stagflation's coming,
I hope you're wrong. That's allI have to say. Just take
a quick break. When we comeback, we'll talk about stock buybacks after
this. Breaking business and financial newsfirst throughout the day only here on the
(11:41):
Financial Exchange Radio Network. The FinancialExchange streams live on YouTube. Like our
page and stay up to date onbreaking business news all morning long. This
is the Financial Exchange Radio Network.Yes, Michael, so we're gonna talk
(12:11):
about buybacks, and you may havedone this recap already, but just in
terms of where we are with earnings, I thought worthwhile mentioning for the first
quarter of twenty twenty four. Thiswas as of six days ago. From
fact sets Earnings in Sight, eightypercent of companies had reported by that point
in time, which six days agois what last Friday. Yes, seventy
seven percent of SMP five hundred companieshave reported a positive earnings per share surprise.
(12:37):
Sixty one percent of SMP five hundredcompanies have reported a positive revenue surprise.
That's about in line. I thinkon average over the last decades,
seventy percent have beat on earnings.Is that about right? Yeah, so
a little bit above expectations. Theactual news here, in my view,
is that the so far for thefirst quarter, the blended year over your
year over year earnings growth rate hasbeen about five percent, And if that's
(13:00):
sticks for the rest of earning season, then that will be the fastest year
of your growth rate that we've seensince Q two of twenty twenty two,
which came in at five point eightpercent. So there's been a lot of
questions this year about, hey,if rates are coming down, how much
stronger do earnings need to be tojustify stock prices? And so far,
granted, they always revise these thingsto beat, but I think the number
(13:20):
that's important is the five percent growthrate, and that has been quite strong
in well, really really any pointof perspective. The counterpoint to it,
and this is data from Kevin Gordonthat I just saw this morning. Kevin
is let's see what he does.Oh, here you go. He is
the senior investment strategist at Charles Swab, So yeah, he's a big mucky
(13:43):
muck. And here's what he showedfor companies that are beating on both earnings
per share and sales. So,companies that are beating on both of those
numbers, the return that they've generatedearnings period so far in excess of the
(14:03):
S and P five hundred has beenabout half a percent. If you look
at the last three quarters as anexample, it's been above one percent in
each of those quarters. So companiesthat have beaten on earnings the last three
quarters have seen more outperformance than thisone. Also, companies that are missing
on EPs and sales that you know, smaller subset. That is, they
(14:26):
are seeing their returns lag the Sand P five hundred by about five percent
this quarter compared to between two andfour percent in each of the last three
quarters. So misses are being punishedmore, it makes and beats are not
being rewarded. So it is speakingto the valuation question, I think,
which is, hey, these stockshave been bid up significantly. Even if
(14:46):
you're beating your numbers, there's nottoo much more room for you to move,
and if you're missing, you're gettingpunished right now. The only quarter
that we've had in the last sevenyears that has had missing companies get punished
more was the third quarter of twentytwenty two, which we all remember kind
of leading into to year end,which was just an absolutely brutal quarter there.
(15:07):
And so I think that actually linesup nicely with the overall narrative here,
which is, hey, companies rateswere thought that they were going to
come down this year, they nolonger are, and so if you're going
to justify your stock price, you'regoing to need to beat even more than
you previously needed to. Yeah,that's my interpretation of that. That really
kind of interesting analysis there. Youwant to talk about buybacks. So thank
(15:30):
you Kevin Gordon for putting that togetherfor us. Thanks keV. Let's talk
about buybacks because corporate America is ona spending spree. That's the headline in
the Wall Street Journal and S andP. Five hundred companies have disclosed buying
back one hundred and two one hundredand eighty one point two billion dollars of
their shares during the Q one period, of sixteen percent from the same period
(15:52):
a year ago. And in particular, it's been big tech that's been kind
of driving it. Meta re purchasedfourteen and a half billion dollars, Apple,
Nvidia, Netflix obviously buying a ton. Apple announced a new one hundred
and ten billion dollars buy back overthe rest of this year. And what
is interesting to me is you're tryingto figure out, Hey, does this
(16:15):
mean that companies think their stock ischeap and that's why they're buying it back,
or do they just not have enoughgood investment opportunities and that's why they're
buying it back? Yeah, becausethose are the two reasons why you would
do so. Yeah. I meantough to look at a lot of these
share prices and say, oh,I think this is fundamentally cheap, and
Warren Buffett's big about this, likehe has certain thresholds at which he won't
(16:37):
buy back his own company stock,and other companies don't follow that type of
discipline. I think what is prettyclear to me is that companies are being
more strategic about when they will makebig R and D investments. And that's
an interesting piece here is like youknow, Facebook buying backstock, they're also
spending forty four billion dollars on Rand D this year, if I'm not
(17:00):
mistaken, and we're in regards toartificial intelligence, and so it's not just
one versus the other. But Ithink clearly, in the same way that
investors are looking for more earnings,they are not exactly rewarding the types of
investments that companies have made over thelast decade that are purely designed to grow
their user base and want to seeintelligence, intelligent investments that are going to
(17:21):
have a short runway for payoff,and so to that end, if if
you don't have that type of investmentlined up that you can make, then
they're defaulting to the age old strategyof give shareholders more money. So this
is again kind of the thing wherethings stand right now, my headset just
(17:44):
cut out completely. No, Idon't know why is it gone? Gone?
No? But I'll just take theseoff, yeah, because I guess
I'll talk like, I'll yell atyou if the music starts. Okay,
I'll just start singing to you ifthe music starts, Yeah, can you
just hum a couple of bars?Sure? I think that'd be great,
actually, because I can't hear anything. Uh. One of the components of
the Inflation Reduction Act back in twentytwenty two was a stock buyback tax.
(18:07):
If you remember, right, there'sa one percent stock buyback tax. Does
it seem to have affected stock buybacksin any way, shape or form.
I can't tell from just looking atthis right, Like, no have Let's
be honest. Stock buybacks again,they're up eight sixteen percent from a year
ago. When did the last yearwas the first year. But like,
(18:30):
companies are not stopping stock buybacks.Certainly they're not stopped because of this.
It's again, they're not stopping,they're not redirecting. Because keep in mind,
if you want to return capital shareholders, you don't have to do buybacks.
You can do a dividends, youcan do special dividends. You could
do one often, like, there'sall kinds of stuff that you can do.
And at least on the surface,it does not appear to be affecting
(18:51):
companies in terms of their preference forbuybacks versus dividends. We've seen some companies
like Facebook, which is doing buybacksand dividends now yep Apple as well,
massive buyback, massive, massive dollarwise dividend, not on a per share
basis. Obviously, Google announcing theirfirst ever dividend, I believe in the
most read I thought it was metato Google. Also, I could be
(19:12):
wrong about that. Can we callthem by their proper name alphabet? Alphabet
and Meta? Sorry yet the nameout? I just I can't. I
can't get with meta. At leastyou can say, okay, they were
trying to make a product about themetaverse. All right, I guess we're
gonna go to break. We'll beback in just a little bit with Wall
(19:34):
Street. Watch after this. Likeus on Facebook and follow us on Twitter
at TFE show. Breaking business newsis always first right here on the Financial
Exchange Radio Network. Time Now forWall Street. Watch a complete look and
(19:56):
what's moving market so far today?Right here on the Financial exchange radio network
well markets are in mixed territory asthe Dow is trying to extend its winning
streak to seven where Wall Street reactsto several first quarter earnings reports that missed
the mark. Furthermore, jobless claimscame in at two hundred and thirty one
thousand above forecasts, in also markingtheir highest level since August of twenty twenty
(20:22):
three. Right now, the Dowis up by about a half a percent,
or one hundred and seventy one points, SMP five hundred is up by
ten points, and the NASDAC offby merely three points. Russell two thousand
is up a quarter percent. Tenyear Treasure reeled mostly flat at four point
four to nine percent, and crudeoil is up two thirds of a percent,
trading just below eighty dollars a barrel. Warner Brothers Discovery reported ahead of
(20:48):
the opening bell this morning, missingon both the top and bottom lines for
the first quarter, despite strength inits streaming unit. The media Giant,
which owned streaming service Max and cableTV networks including TNT and Discovery. Sad's
revenue slump seven percent to nine pointninety six billion dollars compared to a year
ago. Chuck and Mike will havemore on Warner Brothers Discovery and its latest
(21:11):
streaming services bundle announcement in the nexthour. That stock off by about a
half a percent. Meanwhile, Airbnbdown by six and a half percent after
the vacation properties rental company beat firstquarter earnings in revenue forecasts, but did,
however, offer weaker than expected guidancefor the current quarter. Airbnb did
note that it is already experiencing robustdemand for travel ahead of the peak summer
(21:36):
season. Elsewhere, robin Hood reportedquarterly revenue and profit that served pass analysts
expectations, sending shares in the onlinebroker's firm up by about a third of
a percent, and beyond Meat sharesdown by over thirteen and a half percent
after the plant based meat company posteda decline in first quarter revenue. I'm
Tucker, Silvan, that's Wall StreetWatch, Mike. Last year, the
(22:00):
semiconductor company arm Arm not to beconfused with FLEG, went public and they
had seen some absolutely monster gains.This year, they had a very brief
two day period I'm sorry, fourday period in February where the stock doubled
after reporting earnings. Well, theyreported earnings again, and the earnings were
(22:26):
fine, but because expectations got bakedin so high. It's one of these
situations like we were discussing earlier inthe show, where hey, if everyone's
expecting you to do great things andyou just do good things, your stock's
not going to do well. Sothat the stock peaked at one hundred and
sixty four bucks a share earlier thisyear, it's now trading at one hundred
and three, so down over thirtyfive percent. And it's not because this
(22:49):
is some horrible company that's fallen apartin the last you know, few months
or something like that. It's justthat they got caught up in all this
semiconductor hype and things are kind ofcoming back to earth in that space in
particular. Now. Yeah, onething that I've been, I guess just
thinking about when it comes to ARM. I mean, ARM is a very
(23:10):
specific company, right. They licenseWall Street or Bloomberg puts as well.
They license the fundamental set of instructionsthat software uses to communicate with the chips
that they produce. They provide,you know, design blocks that companies such
as Qualcom used to use the buildingthe mobile space and what I fail to
and this is just probably my ownpersonal lack of understanding, but I'm sure
(23:33):
I'm not alone in this is thenumber of companies that are seeing big gains
from the artificial intelligence boom. HereI fail to understand where their moats are
and how deep their moats are.It's fairly easy for me to understand how
Apple or Facebook, or Google orMicrosoft have a pretty built in, uh
(24:00):
deeply entrenched moat with their customer base, and how it would be very difficult
for some new startup to come andcompete with Microsoft. I currently just don't
have the understanding of why arm specificset of instructions that that are used to
code software in the AI space makesit so that they will still be the
leader in the clubhouse ten years fromnow or anybody else I know. They're
(24:23):
not the still leader in the clubhouse, I guess. And this is you
know, look, this is trueof any new emerging technology sector, which
my guess would be the vast majorityof people out there don't have a firm
fundamental understanding of just how deep thecurrent moats are of these companies, and
I don't think we will know fordecades to come. No, and The
(24:44):
thing that you've got to remember onthis is that if you are any one
of these large tech companies that's showingout tens of billions of dollars to in
Video right now on an annual basis, you're looking at that and you're saying,
Okay, my tens of bills millionsof dollars that I am sending to
Invidia, fifty four percent of thatis margin. It's profit for Nvidia.
(25:08):
Yeah, that is fifty four percent. If every dollar I send to Nvidia,
if I am Microsoft, i amAmazon, if I am Meta,
if I'm Google, whoever i am, fifty four cents out of every dollar
that I send to in Vidia isprofit. So there's a reason why a
number of these companies have said,look, we're going to try to start
(25:29):
designing our own chips. And bythe way, Apple already does this.
So I'm not saying they're going tomanufacture them because they don't. Like Apple
doesn't manufacture chips. But if youlook at all of Apple's phones, laptops,
iPads, whatever they have now,they don't even check fact, manufacture
iPhones for that matter. No,they don't make anything. They just give
the designs to a third party andthe third party makes it, which is
fine, Like that's that's great,Like if that's your business model, fine.
(25:52):
But Apple has a track record nowof making chips for their own products
that do exactly what they need todo in those products. And one of
the things I'm using Apple here justas an example, but one of the
things that Apple has indicated they maytry to do is right now, the
AI applications that we're seeing. Ifyou want to use open ai and chat
(26:14):
GPT, it's all based in thecloud. So you open up the open
ai app, it goes to theyou type in you know, send me,
you know, generate me a pictureof a dog wearing a Kentucky Derby
hat, and it goes to thecloud and then it comes back and blah
blah blah that what that means isvery simply, it's not happening on your
phone. The computer processing of thatimage generation is not occurring on your phone,
(26:37):
not occurring on your laptop, ornot occurring on the server that you
connect to at work. No,it's happening at chat GPT's computers. And
then they send it back to you. Their indications that what Apple wants to
do is different, which is hey, what if we start building chips that
are able to conduct AI operations ondevice, on your phone, on your
(27:00):
iPad, so on and so forth. Now, obviously they're not gonna have
the raw computing power of you know, five thousand in Vidio GPUs that are
hooked up together. But it's somethingwhere Apple says, look, we don't
need to do that because we've figuredout a better way to do this on
platform, on device. Okay,and video is not going to have Apple
as a customer. And this isjust one iteration of it. If Meta,
(27:25):
who's announced they're trying to design theirown chips, says, yeah,
we figured out how to do this, and we can send the design direct
to Taiwan, Semi or Intel orwhoever we want to build this. Okay,
Now instead of spending you know,fifty percent of every dollar on margin,
great, maybe we've cut that downto twenty and so we're still saving
thirty percent in the aggregate. There. These are the kinds of things that
(27:48):
I don't know if they are goingto work, sure, but fat margins
rarely last in most businesses. Yeah, I think that would be the conclusion
is, rarely do you have companiesthat maintain fifty percent margins for a decade,
especially in a hardware business. It'sone thing if if you're talking you
(28:08):
know, certain software niches, yeahyou can, you can do that.
But the hardware business, oh,I mean, it's just a brutal business
to compete in in the tech space. Speaking of which, great piece here
from uh what is this New YorkTimes. Yeah, billions in chip grants
expected to fuel industry industry growth inthe United States. The US, based
(28:33):
on the commitments that are now inhand and that the construction that is starting,
are expected to see domestic chip manufacturingwithin the United States triple by twenty
thirty two. And that would meanthat America's share of world computer chip manufacturing
would rise from about ten percent todayup to fourteen percent by twenty thirty two.
(28:56):
This would be the fastest growth outof any country in the world world.
And while I'm the first to admitthat it might not make the most
economic sense to do this, Ido think from a national security perspective,
this is one of those industries whereI say, I don't really care how
much it costs you need to buildit here, I do wonder about that
calculation on percentage of market share.I believe the the idea that they'll triple
(29:19):
output and that'll be a very fastincrease the what's what's the saying in uh
in Apple keeps your doctor away?Your your enemies make plans to And I'm
not speaking about our enemies here,but you have other governments, including the
EU, Japan, China, whohave also offered pretty massive subsidies to go
(29:41):
and develop semiconductor manufacturing in their ownwithin their own borders. And so we
are seeing it on the like godrive through northern Phoenix right now and you
can see the impact of the stimulusfunds being or the the infrastructure investment funds
being spent on semiconductors right now.First, the question is how much of
(30:03):
that is also occurring in other partsof the world, and will the United
States actually increase market share based onthe size of our investment compared to the
other countries. Don't know, andI don't know either. And part of
this when you talk about some ofthe facilities that are going up, have
any of you read I don't knowif we even covered it the pieces about
the Taiwan semiconductor plants that are goingup in Arizona. I have read and
(30:26):
listened to a fair bit about that. One of the things that they're running
up against is this culture clash betweenTaiwanese workers and the US workers where the
ones who you know again workers comeover from Taiwan and they're like, Okay,
we're gonna, you know, helpbuild it and open this plant in
Arizona. And they come over andthey're like, what the heck. You
guys don't sleep at the factory here. You guys don't work sixteen hour days.
(30:51):
What are you doing? Like thisis because for them it's this like
Taiwan Semiconductors, this whole point ofnational products, like that, this is
what we do. We are thebest in the world at this, and
to work at Taiwan Semiconductor is anhonor and like the greatest thing I can
do in my life. And thenthey come over here and they're like,
Jimmy, why are you cocking outit too? Again? What the heck?
(31:14):
So there's some culture things that aregoing on that are that are kind
of interesting there. The other problemthat they are running into that they're kind
of working through is part of theprovisions for building these facilities was that it
might even be that all of theconstruction and work has to end up being
done by union labor, not nearlyenough, and there's not enough and be
it. It's driving the cost wayhigher than they projected. Sure, so
(31:37):
just another thing where hey, look, Ultimately, if you want to build
computer chips here in the United States, stop worrying about the union thing.
You can do that somewhere else.There's other places where you can focus on
that that aren't as critical to nationalsecurity. That's the politics of the situation,
Jock, I know it's wild.Let's take a quick break. I
think we've done enough semiconductor at thispoint, right, Let's instead start talking
(31:59):
a little bit about what banks andother lenders are seeing from consumers. Right
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(32:22):
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K Boston is presented by Veterans DevelopmentCorporation. Venders are seeing a bottom for
consumers. What are they seeing,Michael. They are seeing that the pace
of credit deterioration is slowing. Thisis I think a very important distinction here.
Like when we talk about inflation.When we say that inflation is improving,
(33:28):
what we talk about is the factthat the pace of cost increases is
slowing down. Right. In twentytwenty two we hit nearly nine percent year
of year inflation and now it's somewherein the three and a half to four
percent range. That is an improvement. Likewise, when we talk about the
number of delinquent status loans that areout there on say, credit cards and
(33:50):
auto loans, those were moving intodelinquent status at the fastest pace in several
years. Last year, data oncard loans collected by analysts at Jefferyes showed
the delink and see rates slipping zeropoint one eight percentage points from February to
March, basically indicating that yes,consumers are still getting worse, but at
a much slower pace than we wereat the end of last year, which
(34:13):
I would agree does seem like agood sign here because when we covered this
last if you recall, the storywas, hey, this is increasing rapidly,
but it's at still a fairly lowrate of delinquency when you compare to
other periods of time of economic strife. I want to talk about one other
thing related to delinquencies as well,not covered in this piece, but in
the housing sector, always good justto say, hey, what's going on
(34:37):
with mortgage delinquencies? And nationally rightnow three point three four percent of mortgages
are currently delinquent. I can okay, I couldn't find delinquent mortgage. Okay,
delinquent mortgages okay, first mortgages mightadd, I don't have any data
on second, the record low wasright around three percent, and that was
(35:00):
set about a year ago, justbefore a Silicon Valley bank blew up.
Normally at this time of year,if you look at the data from two
thousand through two thousand and five,which again it's a short period in time,
but it basically cuts out the wholeproblematic portion of mortgages from like you
know, two thousand and six throughtwenty fifteen, Normally at this time of
(35:22):
year, four point five to fourpercent of mortgages were delinquent if you were
looking at it seasonally, because thereis a seasonal component to delinquencies. I
don't know why there is, butfor some reason, they tend to peak
in the winter. Don't know why. I'm sure someone can, you know,
educate me on that. But you'realso even if you compare it to
(35:43):
twenty sixteen through twenty nineteen, you'restill running about zero point seventy five percent
below the delinquency rate. There,mortgage delinquencies are not a problem at all
right now, at least nationally.Could there be isolated markets maybe I have
not seen any data on a stateby state basis, but nationally you are
(36:05):
still running very close to all timelows for mortgage delinquencies according to the Saint
Louis Federal Reserve. By the way, so the delinquency rate on credit cards,
according to Saint Louis FED was sittingat three point one percent in the
fourth quarter of twenty twenty three,and that rapid increase that we're talking about
is because it went from below onepoint six percent in the fourth quarter of
(36:29):
twenty twenty one, very rapid increaseover a period of two years. The
other point that I will make aboutthis, however, is that credit card
delinquency rates in Q two of twothousand and nine hit nearly seven percent.
For the entire nineteen nineties through twothousand and ten decade, it was at
a low of three and a quarterand a high of five percent, and
(36:52):
then didn't really dip below three percentfor the first time that we have data
on until early after the financial crisis, when there was a well probably a
lot of bankruptcies and wiping out ofcredit card debt, plus a big pushback
on credit card debt. So importantthat we track and see when things like
delinquencies rapidly increase because it speaks toa deterioration in the just credit quality of
(37:19):
the average consumer and concerns that mightbe sparked. But I think even more
important to understand the context in whichwe're talking about this, which is this
rate of delinquency is still well wellbelow what we were seeing anytime around the
Great Financial Crisis. Mike, areyou a fan of Hot Honey? I
am. There's a brand of hotHoney named after me? Do you make
(37:39):
hot Honey? No? I amnot the mic from Mike's Hot Honey.
In fact, apparently the stuffs shownup everywhere. Now. My wife and
I have been fans of this fora few years now, so much like
you know, seeing the band beforethey made it big. Yeah, we
kind of feel like shock typical hipsterhaving the hot Honey before it was cool.
Don't hate it, don't hate it. But it's shown up everywhere.
(38:02):
You got it on pizzas, yougot it in ice cream, on chips,
on pretzels, It's all over theplace. There's a hot Honey bananza
going on, and I'm here forit. It's sweet and hot. You
gonna need more bees? What elsedo you? What else do you want
me here? Starbucks is doing stuffwith it? Then, Yeah, apparently
we might have too many bees nowactually we've been reading we've gone from too
(38:22):
few to too many. Let's takea quick break. Hour two's coming up
in a bit
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