December 17, 2025 • 38 mins
Chuck Zodda and Marc Fandetti discuss Micron earnings coming under the spotlight after Broadcom and Oracle debacles. Mike Simonsen (Compass Chief Economist) joins the show for a conversation with Chuck about the housing markets outlook for 2026. Warner rejects Paramount's hostile bid, saying Netflix deal still superior.
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Speaker 1 (00:00):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:10):
Chuck, Mark and Tucker with you, and uh, look, I gotta.
Speaker 3 (01:14):
Tell you, normally year end is pretty quiet.
Speaker 2 (01:18):
When we start getting these little wiggles heading into year end,
it makes my intenna perk up a little bit, only
because again just looking at recent history, and I'm not
doing anything other than that, but just as an example,
you take a look at, you know, the last several
years and the end of twenty twenty one, just as
(01:41):
an example, we saw a couple of wiggles in I
think it was late. We saw one in September, We
saw one in November and one in December, and each
of them were you know, like five to seven percent pullbacks.
And then twenty twenty two turned kind of ugly. And
(02:02):
you take a look at you know, twenty two and
the end of twenty two. Yeah, you had this rally
that started in October is where market's bottomed. There there
was a little bit of chop, but then ultimately it
was okay, we're on our way. In twenty twenty three
was all clear, no, no weird wiggles. At the end
of twenty three, at all twenty four, again a couple
(02:23):
of weird wiggles, one in late November one in late December.
Speaker 3 (02:27):
Markets made new all time highs in January and February, but.
Speaker 2 (02:31):
We're you know, wiggling the whole way, and then March
and April we're rather ugly. And so I just can't
help but think when you start to get weird stuff
happening at the end of a calendar year, and by weird,
I just mean, you know, volatility, because there are mechanical
reasons why the end of the year tends to be
less volatile, the biggest one simply being you have two
(02:52):
and a half fewer trading days for stuff to go wrong,
and that has all kinds of implications for volatility calculations,
you know, using the VIX, which you know focuses on
a thirty calendar day period, not trading day period. And
so when I start to see little wiggles happening at
the end of the year, it perks my intenta up
just a little bit. So today nothing big, but again
(03:14):
just a wiggle. You got the S ANDP off about
half percent, thirty nine points the Nasdaq again kind of
in in you know, dangerous territory down another one percent,
about two hundred and eighty points or so. And so
you've got you know, tech stocks not really able to
make new highs. And here's the problem for the last
(03:35):
couple of years when tech stocks have not been able
to lead, the stuff that tries to take the baton
has not been successful doing it. I know we all
want like a broad rally and everything, but today is
an example. There are one hundred and six more S
and P five hundred stocks up right now than down
right now, and the S ANDP is down thirty seven
points because gee, the big ones Oracle down five five percent,
(04:00):
Broadcom down five percent, and Video down three percent, Google
down two percent, Tesla down two percent. You can't rally
when you have like thirty percent of the index down
two plus percent. It's just mathematically really challenging for Chipotle
and you know, marry it to make it up like
they just they can't do it. So I think that
(04:23):
ultimately you've got a market right now that's chopping some wood.
And the big question is these AI data centers like
that is I don't want to say the only thing
that matters, but we've had lots of other questions the
last couple of years, and really like the AI piece.
Every time AI's gotten in trouble. We've had issues with markets.
Speaker 4 (04:44):
There's a lot.
Speaker 5 (04:45):
You've said this, You and Mike Armstrong have said there's
a lot hanging on AI. The economic story of the
stock market story I've never seen you know that sounds pretentious. Okay,
late nineties the bet was a little more diverse. It
was tech, but it seemed a little bit more diverse.
Everybody is hanging there, every and most ardent hope on
AI working out for economic growth, for stock returns, solving
(05:09):
all societies ills. I mean, you name it AI, whatever
that means to who's ever making the claim has got
a lot of heavy lifting to do.
Speaker 2 (05:18):
So you've got again, stock indices off modestly today. You've
got the tenure treasury excuse me, tenure treasury is up
six basis point, no, sorry, six tensive basis point to
four point one five to five percent right now. So
(05:39):
you've got yields moving up again, very modestly, nothing big,
but they've been in a little bit of an up
trend for the last week or two. And so that's
also a reason why, quite honestly, I don't really buy
that like small caps and more cyclical sectors can lead
when yields are moving up because historically they just don't.
Speaker 3 (05:57):
It's not how it really works.
Speaker 2 (06:00):
Dollar Index up point one two percent to ninety seven
point nine one, Gold is up twenty nine forty uh
an ounce to forty three sixty one and seventy cents.
Crude oil West Texts Intermediate up eighty five cents of
barrel to fifty six twelve. The triple A national averageur
gas prices sliding another two tenths of ascent to two
ninety and five tenths at the moment. Uh, let's see.
(06:23):
Let's let's go right to talking about AI. Here, we've
got Micron reporting earnings after the bell today. When you
talk about Micron, they are primarily a memory the memory
chip producer, and they specialize in something called high bandwidth memory,
which is memory that is high in bandwidth.
Speaker 3 (06:45):
Is it not?
Speaker 2 (06:47):
That's That's what I gather tell you again, tells you
how much I know about you know the specifics of it.
Speaker 1 (06:52):
Uh.
Speaker 2 (06:52):
The interesting thing with Micron, memory prices have moved up
dramatically this year to the point where you're actually seeing
projections now for non AI computer sales falling next year
because memory costs have pushed the prices of PCs and
other you know, related equipment up as a result of
(07:13):
all this memory demand from AI. So the question for Micron,
I think is twofold, is look, what do you see,
you know, your AI business looking like? And then what
about everything else? Because that non AI computer business is
starting to come under threat because of how high memory
prices are being driven by AI spending.
Speaker 3 (07:33):
So there's that.
Speaker 5 (07:34):
Yeah, I'm sorry, I don't have a lot. I just
don't have anything to add here.
Speaker 3 (07:38):
It's is this you big memory guy?
Speaker 5 (07:43):
What do they make the RAM? I'm sorry for my ignorance.
Here do they make the RAM chips that I put
in my computer when I need to beef it up?
Speaker 3 (07:48):
Is that? Basically?
Speaker 4 (07:49):
Okay?
Speaker 5 (07:49):
So that's the the the active memory as opposed to
the processors that do.
Speaker 3 (07:55):
They are not do the tasks correct they are. They
are not a processor manufacturer.
Speaker 5 (08:00):
When I tell my computer to do something, that goes
to my Intel chip or my amdcho that's the problem.
Speaker 4 (08:04):
When you added add one plus one.
Speaker 2 (08:06):
They are memories, hard drives, flash memory, solid state drives.
Like that's Micron's bread and butter soquating.
Speaker 4 (08:12):
And I save it.
Speaker 5 (08:13):
And this may not mean anything but you save an
object that gets saved in your in your RAM, your
sort of short term memory that the computer needs to
access quickly. It can't go digging around for it because
you're gonna draw on the object you just saved quickly.
Speaker 2 (08:27):
And the same thing is needed in AI because obviously
you want to be able to pull out it.
Speaker 5 (08:32):
So that's that's the relationship to the AI frenzy.
Speaker 2 (08:35):
Yes, correct, there's a lot of memory that's needed because
you're moving an awful lot of data back and forth
in these neural networks that the AI processors use that
they make up.
Speaker 3 (08:44):
Okay, uh so.
Speaker 2 (08:46):
Micron actually a couple of weeks ago they have a
sub brand called Crucial, which is a horrible name, like
any like how can you just name any brand Crucial?
That just sounds like kind of pretentious. They actually announced
that their consumer facing brand they were halting sales of
that next year. They're closing the brand down because they
don't have enough stuff to sell anymore because AI is
(09:08):
taking all the volume.
Speaker 3 (09:09):
Let's take a quick break.
Speaker 2 (09:10):
Mike Simonson, chief economistic Compass, joins us right after this,
talking about the twenty twenty six housing market outlook.
Speaker 1 (09:19):
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Speaker 3 (09:56):
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Speaker 2 (10:10):
As promised from now joined by Mike Simonson. He is
the chief economist at Compass, who recently published their twenty
twenty six housing market.
Speaker 3 (10:18):
Outlook and Forecast. Mike, I appreciate you joining us today.
How you doing.
Speaker 6 (10:23):
Jack's always great to be.
Speaker 3 (10:24):
Here, absolutely, Mike, can you give our listeners a quick
summary of Let's talk home prices next year, What are
expectations for kind of the range that we could fall in.
Speaker 6 (10:35):
So we're expecting home prices nationally to be pretty close
to flat next year, up maybe just half a percent
across the country on average. That's down from recent pace
of four percent or five percent or even much more
a few years ago. So the price expectations are really
(10:58):
flat for the coming year.
Speaker 2 (11:00):
Is this a continuation of the inventory growth story that
we've seen this year or is there something else afoot?
Speaker 6 (11:07):
No, that's really it. We've had inventory growth for three
almost four straight years now, and there's a lot more
homes available on the country as a whole. That varies locally,
but because there are more homes available across the country,
the price implications are starting to be more national. So
(11:32):
even though inventory is tight in the Northeast and prices
are holding up better in the Northeast than say Florida
across the Sunbelt, the inventory is ample sufficiently big that
there are no upward pressures on prices really across the country.
Speaker 3 (11:55):
The inventory growth that we've seen throughout the Southeast now
over to the south Northwest and the West Coast, is
that inventory growth expected to come to the Midwest and
Northeast over the next year or two, or are there
other factors that will prevent it from happening.
Speaker 6 (12:10):
There is a little bit of inventory growth finally happening. So,
for example, in the New York Tri state area is
about ten percent more homes on the market now than
a year ago, So a little bit of that growth
is happening. It is in general, we're still very very
restricted mobility. In other words, we're still not doing much
(12:34):
of the north to south move where because hiring is
really slow. We are not, for example, quitting our job
in Connecticut to move to Orlando to buy a home
and get a new job in Orlanta. We're not doing
that move nearly as much. And therefore inventory stays tight
in the Northeast and Midwest and is still growing in
(12:57):
the South. So that trend is still basic underway. If
we're lucky this year and maybe lower interest rates help
spur corporate hiring, maybe that starts that mobility starts to
move up. We've been delaying those moves for four years now,
so maybe that starts to loosen up a little bit.
Speaker 1 (13:15):
Mike.
Speaker 2 (13:15):
When we look at the southeast and southwest, this is
the area of the country that's seen, you know, pretty
robust inventory growth. It's also the area of the country
that tends to have the most construction. Is it a
fair read through that if that if builders are now
forced to compete with more inventory, they're going to be
coming under more pressure.
Speaker 6 (13:36):
Yeah, I think that's that's true. Builders have had a
real advantage for several years in terms of pricing and
in terms of interest rates buydowns, and that appears to
be softening a little bit because there is enough existing
supply on the market that price competition can go back
(13:57):
and forth. You have the the trade off. So in
the across the Sun Belt, we have ample inventory all
the way across any of those those markets like Phoenix
or Denver, or the Texas markets across Florida and Georgia,
like the ample inventory across the Sun Belt, such that
the that you can see those pressures happening to across
(14:22):
all Now, there's nothing in the data that says massive
price declines, but the flat and slightly down in in
some markets down pretty notably.
Speaker 3 (14:35):
Is common.
Speaker 2 (14:37):
When we look at sales volume. Historically, I've always been
told inventory leads to sales, and that's kind of what
we've seen in general, the last couple of years, despite
higher inventory, sales has kind of been stuck at this
you know, four million annual unit pace for existing home sales.
Is twenty six of the year that we finally start
(14:58):
to see a little bit of a tick up in
sales volume.
Speaker 3 (15:02):
Yeah, we think.
Speaker 1 (15:02):
So.
Speaker 6 (15:03):
We look at twenty twenty six as really the start
of the next phase of the housing market. So the
last phase, the last era, has been the last four years,
home sales have been very slow, stuck around four million
deep freeze, and home prices have pushed relentlessly higher, so
affordability has been getting worse, sort of intractably worse. What
(15:25):
we're seeing for twenty twenty six is that inventory is
now ample enough that sales can increase. So, for example,
if inventory increases by ten percent in the New York
metro area, that means sales can increase in that area.
And inventory is already higher in Florida, and the weekly
(15:46):
pending sales numbers of watching the homes going into contract
each week in Florida are up about ten or fifteen
percent each week now over twenty twenty four. So that's
partly a function of having more homes on the market.
So we can see twenty twenty six as maybe a
four or five percent growth from say four point one
(16:08):
million pace to four point two five million pace. Not
not a massive growth, but growth across the country, and
that's encouraging for the industry.
Speaker 3 (16:19):
Mike.
Speaker 2 (16:19):
When we go through different publications out there, inevitably I
come across something that says, oh, foreclosures are going up,
and you know, this is a problem. And I tell
our listeners, look, it's it's off a very low baseline rate,
and this isn't something that's going to be the proximate
cause of any real problem for you, someone who's actually
in this industry and understands way better than I do.
(16:42):
Is that a fair view to have? Or are there
actually problems building on the foreclosure side of things?
Speaker 6 (16:49):
You're going to hear in twenty twenty six. I think
a lot of headlines about foreclosures increasing in in new
highs or more and foreclosures, and and you're going to
hear those headlines, and I think your perspective is exactly Redick.
It's like those we still have very few people who
are of any amount of distress on their mortgage.
Speaker 3 (17:12):
We still have.
Speaker 6 (17:15):
Most of the country has ultra cheap mortgages. But as
we go on, there are now ten million people who
have mortgages over six percent, and those people, when you
lose your job, are much more likely to go into
a distressed scenario than if you have a rate under
three percent, and so there are more people so that
(17:39):
you can imagine that as for example, the employment rate
deteriorates and we get a weakening jobs market, which is
currently seems to be underway, that that would result in
some of those folks having more more foreclosure process, more delinquency,
and those metrics we should expect them to climb. For
(18:01):
the most part, it's it is isolated parts of the market.
FHA loans where you have very low down payments for
ex ad lower income qualifications, those have elevated levels like
ten percent of of those borrowers are in some sort
of distress, but that's fifteen percent of the market, So
(18:22):
it's like one percent of borrowers are in that in
that any any form of distress. It's rising, but it's
not that much.
Speaker 2 (18:33):
Very good Mike, appreciate you joining us as always great
information for our listeners. Hope you have a great finish
to the year and look forward to chatting with you
in twenty twenty six.
Speaker 6 (18:44):
Thanks check look forward to it.
Speaker 2 (18:45):
That is Mike Simonson, the chief economist at Compass, talking
about their twenty twenty six housing market outlook and forecast.
As we head to the bottom of the hour, Dow
Jones Industrial Average is off forty points. The S and
P also off forty points. But hey, the S Andp's
off half percent. The Dow is off a tenth of
a percent. NASDAK is off north of two hundred and
(19:06):
twenty points right now, about one percent, and so you've
got a slide in markets today.
Speaker 3 (19:12):
This would be four down days in a row, but
still only.
Speaker 2 (19:15):
A couple percentage points off all time highs from last
week's Thursday close.
Speaker 3 (19:21):
So that's where we stand right now. Quick break. When
we come back, we've got trivia after this.
Speaker 1 (19:32):
Okay, bringing the latest financial news straight to your radio
every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time now for Wall Street watch a complete
look at what's moving markets so far today right here
(19:55):
on the Financial Exchange Radio Network.
Speaker 3 (19:58):
The markets are now selling off with yet another pullback
in the tech sector, leaving the SMP five hundred on pace.
For its fourth straight losing session. Right now, the Dow
is off two tenths of one percent or one hundred
and one points lower, SMP five hundred down over three
quarters of a percent or fifty three points lower, Nasdaq
(20:19):
selling off one point two percent or two hundred and
eighty seven points. RUSSA two thousand is down four tenths
of a percent. Ten Your Treasreel is flat at four
point one five to seven percent, and crude oil up
nearly two percent higher, trading a fifty six dollars and
twenty six cents a barrel. Warner Brothers Discovery Board unanimously
recommended shareholders reject Paramount's hostile takeover bid, saying it believes
(20:44):
that the offer from Netflix for its studios in HBO
Max streaming service is still superior. Netflix shares are climbing
over one percent higher, Warner stock is down one percent,
and Paramount shairs falling nearly five percent. Meanwhile, according to
several outland It's Open AI is in discussions with Amazon
about a potential ten billion dollar investment in agreement to
(21:06):
use its AI chips. Amazon stock is up over half
or percent, Oracles stock is sliding almost five percent falling
report from the Financial Times that Blue Owl Capital won't
back Oracles ten billion dollar data center for Open AI. Elsewhere,
home builder Lenar reported lower than expected earnings as the
housing market remained stagnant. Lenarstock is down six percent, and
(21:31):
after today's closing bell, we'll see more tech earnings from
Micron Technology. I'm Tucker Silva and that is Wall Street
Watch and we get to do trivia. So let's get
to it. And we're going to continue our Christmas movie
trivia theme here up up to the holiday. So here
we go. In nineteen sixty four's Rudolph the Red Nose reindeer,
Hermie stood out from his fellow elves because he did
(21:55):
not like making toys. He had another profession in mind.
Trivia question today, what profession did hermit the elf wish
he had? Once again, what profession did Hermit the elf
wish he had? Be the seventh person today text us
at six one seven thirty six, two thirteen eighty five
with the correct answer along with the keyword trivia, do
(22:17):
you win a financial exchange? Showed t shirt once again
the seventh correct response to textas to the number six one,
seven three six, two thirteen eighty five with the correct
answer along with the keyword trivia will win that T shirt.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:35):
The latest in UH what is going to be a
fascinating media story to follow in twenty twenty six UH
is Warner Brothers rejecting or recommending that shareholders reject Paramount's
unsolicited bid for the company, saying that they believe the
Netflix proposal is superior. In their recommendation, they basically say
(22:59):
that the Paramount offer relies on an awful lot of debt,
a lot of different parties, and basically has a whole
bunch of things that may prevent it from closing in
a rapid fashion to satisfaction of shareholders, and that Netflix
comes with a stronger balance sheet, a larger market cap,
and a bunch of other features that would make it
(23:21):
a preferred buyer for the company. So now we're in,
we'll get into, you know, kind of the next leg,
which is does Paramount come back and say, oh, in fact,
you know, instead of doing thirty dollars a share, we'll
do thirty two, and do we see you know, Netflix
then try to counter with the higher offer, or you know,
do these problems still persist. But this is, you know,
(23:43):
something that I don't think is just going to go
quietly over the next week or two.
Speaker 5 (23:47):
So who's really interested in this? Netflix subscribers because of
the new content if they simply combine it with their
existing content.
Speaker 3 (23:56):
Or like, who cares? Do you mean? Like from a
content perspective.
Speaker 4 (23:59):
Well, who care? Like the story?
Speaker 5 (24:01):
If you follow business news, I guess this is you know,
they're not big companies And is it an interesting industry? Well,
I guess we all watch, we all consume this stuff.
But who's you know, like whose life will change depending
on who what suitor is successful? Other than the principles involved.
Speaker 2 (24:19):
So there's an interesting question to ask on this, which
is is the company that loses the bidding for this
actually going to be in a better spot? And the
only reason that I ask that is and I think
I have the answer, but I'm going to get there
kind of round about fashion the weave. Warner Brothers has
(24:40):
been sold a.
Speaker 3 (24:41):
Couple times in the last decade.
Speaker 2 (24:42):
Now has it worked out well for either of the
companies that bought them? The answer is no, there's a
reason why they're on the market again. Now, granted we
can look at AT and T and at the time. Again,
Tucker can pull the beta max or whatever it is
the we store the shows on and we can pull that,
(25:04):
and you'll hear us saying, yeah, this seems like a
bad fit. A bunch of basically utility operators trying to
buy you know, HBO is like this crown creative jewel
doesn't seem like a good fit. And sure enough, like
it ended up having to be unwound a couple of
years later, same thing happens. Okay, Like you go through
(25:24):
this again. I guess where I come to on this,
to a certain extent is look, if this company were
so valuable, how come it can't generate enough cash flow
and profit to cover the deal and to keep its
acquirer wanting to.
Speaker 3 (25:43):
Own it longer term?
Speaker 2 (25:45):
Because even if you make the argument that AT and
T paid too much for it, if the company is
that good, they'd be able to figure out, okay, like,
we can make this work because we still want to
own this long term, Like we don't want to sell
that asset off.
Speaker 3 (26:01):
So why have they been sold off twice? Now? Isn't
that an interesting question?
Speaker 4 (26:07):
It's it's alluring.
Speaker 5 (26:08):
Like you said, maybe content isn't king Well, it depends
on the opportunity cost, what did what was? What else
could AT and T have done with their cap I
guess my point is nothing.
Speaker 3 (26:19):
This is not a cheap deal that is being taught.
Speaker 2 (26:21):
I mean, we're talking about an eighty to one hundred
billion dollar deal, and how do you make that money back?
You know that you look at the deals that have
worked out in the media space. It's Disney buying Star
Wars for four billion dollars just because George Lucas was like,
I've had.
Speaker 3 (26:38):
It, I'm out.
Speaker 2 (26:40):
No one liked my prequels, even though in hindsight a
couple of them fare better upon you know, reviewed watching
twenty years later.
Speaker 4 (26:47):
Not as easy as it looks.
Speaker 3 (26:48):
But like you know, this is.
Speaker 2 (26:50):
Something where when you're paying eighty to one hundred billion
dollars for a media company, how do you make that
money back? Like it's it's that's a lot of coin
to put out there. I mean to put this in perspective.
(27:11):
If we look at Netflix, bless you. If we look
at Netflix and their financials right now, and you say, okay,
their revenue for the last year was forty three billion dollars,
Warner Brothers Discovery. You pull up their financials. Their revenue
(27:32):
for the last year was thirty eight billion dollars. How
am I going to make my money back on this
if their revenue is half of what I'm spending.
Speaker 3 (27:47):
Not their their earnings their their earnings were three hundred
and fifty six.
Speaker 2 (27:50):
Million dollars was their net income for the last twelve months.
And I'm going to pay seventy to one hundred billion
dollars for this? How do I make that back?
Speaker 1 (28:04):
Well?
Speaker 4 (28:04):
Over, how long does it take to make it back?
Speaker 2 (28:06):
Well, I liked to in my lifetime, but the math
doesn't work out if we're still you know, so it's okay,
how much can I slim this down? And how much
can I you know, repackage these assets is what you
get into. But I don't know that's It's a tough
one in that media space that is evolving rapidly, and
as Netflix's own Read Hastings has said, multiple times, the
(28:29):
biggest competition that we face isn't from other movie studios
or other TV studios. It's from gaming, It's from TikTok,
it's from all these other things pulling at your eyeballs
and is buying Warner Brothers Discovery actually in the best
interest of either of these companies at this price, I
(28:51):
gotta be honest. That's the question that I'll ask, Like,
is the loser going to actually make out better? Is
this an example of the winner's curse?
Speaker 4 (28:57):
What are they intended for this deal? Yeah?
Speaker 5 (28:59):
What are they intended to do with it? And how
does that strike you guys as customers? Are they just
going to add the content and leave the fee the
same for the monthly service?
Speaker 3 (29:09):
I mean, if I were a media exec.
Speaker 2 (29:13):
I'm not, and I don't really know anything about it,
but I like to pretend I do. Tucker, let me
run this by you. Sure, let's say that I'm Netflix. Okay,
I'm going to absorb most of the Warner Brothers Discovery
content right into Netflix, but I'm going to keep HBO
as a separate outlet from my premium content, and I'm
(29:36):
going to put it on that because then I can
charge you once for Netflix and for the people that
want that highbrow stuff you'll pay for HBO.
Speaker 3 (29:47):
You will, And that's a great brand from a money perspective. Yeah,
that's probably the way they'll go. But if I want
to please the consumer, I praising the consumer. That's so
nineteen that's so nineteen fifty seven. I would just have
a completely separate section on Netflix for HBO, kind of
similar to what Disney Plus does. If you go into
(30:11):
Disney Plus, they have a separate section for nat Geo
or Pixar or go down the list. I mean, that's
that's what I would love as a consumer. But you're
probably right, it's not gonna go that way because they'll
just get more money if they leave HBO as is.
Speaker 2 (30:27):
And Plus then you can also say, hey, Netflix is
what what's Netflix now? Like fifteen dollars seventeen dollars.
Speaker 3 (30:33):
For I think it's like fifteen ninety nine a month,
So you got fifteen ninety nine there, but you've got
seventeen ninety nine on HBO. But if you bundle, we'll
do it for twenty five. And that's more attractive for
a steeper discount for the consumer. If it's twenty ninety
nine for HBO and Netflix, but they're still getting next
(30:54):
to eight dollars and more subscribers. Like that's that's where
I think we're going.
Speaker 2 (30:58):
Yeah, in any case, this is gonna be an exciting
one again, As Mark said, like these are not huge companies.
Speaker 3 (31:06):
They're they're big, but they're not huge.
Speaker 2 (31:09):
But it's stuff that we see every day, you know,
in our in our lives, and so we understand more
about this than like a merger of you know, to
copper producers.
Speaker 5 (31:19):
And the Ellisons have come upon the scene and ai
and dramatic fact like in the past year a couple
of months. Yeah, year, all of a sudden, the Ellisons
are taking over the world. So it's an interesting, I
guess story from that point of view. Of course, they're
getting overextended. There's a story this morning about a private
credit manager pulling funding for an Oracle data center. It's
(31:43):
becoming the whole thing dramatic.
Speaker 3 (31:46):
I did then see that Elison?
Speaker 2 (31:47):
Larry Ellison said, yeah, actually we decided we didn't want
to work with them, so it's you can't fire me.
Speaker 3 (31:52):
I quit.
Speaker 2 (31:54):
Okay, fine, you know, in any case, let's take a
quick break and when we come back, let's do a
little bit of stack roulettes.
Speaker 1 (32:02):
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Speaker 3 (32:36):
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Trivia question today was what profession did hermity elf wish
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See complete contest rules at Financial Exchange Show dot com. Mark,
What do you got for stack Roulex?
Speaker 5 (33:37):
I thought I should elaborate on what we closed out with.
In the last segment I mentioned the story first reported
by the Financial Times about Blue Owl Capital, which is
providing a lot of funding for data centers to Oracles.
Specifically in this context, the story as as follows. I'll
just read briefly from the Financial Times, Oracle's largest data
center partner, that's Blue Owl Capital will not back the
(33:59):
ft pointed this morning. Since all the media outlets have
picked this up, you may have heard it already not
back to will not back a ten billion dollar deal
for its next facility. But hard to read into this?
Are they just getting better terms from somebody else? There
is Blue Owl realizing that some of this might be
overhyped and they don't want to get overextended. Hard to
(34:20):
know what, if anything to conclude from this.
Speaker 2 (34:22):
For me, I think what's interesting is that they had
previously committed to it and now are no longer committed
to it. And to me that comes off as, hey,
we've got a lot of balls in this court already,
let's maybe not throw another one in and.
Speaker 3 (34:41):
See how things go for a little bit.
Speaker 2 (34:43):
And this is one of the like un I think
untalked about undiscussed risks for next year is Look, when
we talk about all this capex, the money has to
come from somewhere, and a lot of it's been borrowing,
where like you need to keep wrangling up increasing f
in order to make this work because the money just
(35:03):
isn't there from operations, especially when you're talking open Ai
and Oracle, they don't have cash flow from operations to
fund this. Oracle's cash flow was what negative ten billion
dollars for I want to make sure I get this right.
If it's the last year or last quarter, so let
me just get this right free cash fo Yeah, negative
thirteen billion dollars for the last year. Oracle cannot pay
(35:29):
for this exponential increase in capex with their own money.
They have to borrow it, which means that you need
an exponentially increasing source of funds for them to borrow
from in order to do so, that's a real risk
that's out there because there's not just this limitless source
of funds.
Speaker 3 (35:49):
It's I'm a big track and field.
Speaker 2 (35:52):
Guy, just because my my, my dad was a big
track guy, like all through you know, his life and everything,
and like we would have you know, track and field
news would be what's sitting on the back of our
toilet and you know, the bathrooms in our house, and
I'm reading through like world record times for you know,
the five thousand meters. So the analogy I make is, look,
if you start off running, it's pretty easy for you
(36:14):
to say, hey, I'm going to improve my mile time
from fifteen minutes to fourteen minutes. It's a little harder
to go from fourteen to thirteen, and a little harder
to go from thirteen to twelve. By the time you're
trying to go from seven to six, it's pretty hard.
By the time you're trying to go from six to five,
it's almost impossible, and basically no one can improve from
five to four.
Speaker 3 (36:34):
It gets exponentially harder.
Speaker 2 (36:36):
All this capex that these companies have been doing, they've
basically gone from running ten minute miles to seven minute miles,
and now they're trying to get from seven down to four.
Do you have like the Actually in this case, it's
do you have the literal energy to be able to
do that, cause you've got to build you know, your
(36:58):
power plants and your energy supply addition to actually the facilities.
So that's that's kind of where we're where we are
right now on this stuff. And I don't know the
answer to it, but I know that it gets harder
and harder to run faster the faster you've already run.
It's just, uh, it's physics in that case, or physiology
in that case, but in this case, it's just basic math.
(37:20):
There's only so much money out there. There's a reason
why we're not called the United States of General Electric
It's because Jack Welts tried this over a twenty year
period and it didn't work. Like, there's only so much
money and so many people who need you know, what
GE was selling at the time.
Speaker 5 (37:38):
It's a much more concentrated gambit though it is gam it,
maybe it.
Speaker 3 (37:42):
Is, but it's it's got shades of like the GE
stuff in it. Now with the financial machinations and everything
we do have like four or five different bubbles combined
into one. But the best way I've seen this described recently,
it's a turduccan of risk.
Speaker 4 (37:58):
I'm not familiar with the word tur ducan.
Speaker 3 (38:00):
You take a chicken, a turkey, and a duck mix
them together to make like.
Speaker 4 (38:04):
Now, I'm not a shame that it's a.
Speaker 2 (38:06):
Turd ducan of risk is kind of how I've heard
it explained. Let's take a quick break for the rest
of the day, but.
Speaker 3 (38:13):
We're gonna be back tomorrow.
Speaker 2 (38:14):
We'll see you that on the Financial Exchange
The Financial Exchange is produced by Money Matters Radio and
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and Mark Vandetti.
Speaker 2 (01:10):
Chuck, Mark and Tucker with you, and uh, look, I gotta.
Speaker 3 (01:14):
Tell you, normally year end is pretty quiet.
Speaker 2 (01:18):
When we start getting these little wiggles heading into year end,
it makes my intenna perk up a little bit, only
because again just looking at recent history, and I'm not
doing anything other than that, but just as an example,
you take a look at, you know, the last several
years and the end of twenty twenty one, just as
(01:41):
an example, we saw a couple of wiggles in I
think it was late. We saw one in September, We
saw one in November and one in December, and each
of them were you know, like five to seven percent pullbacks.
And then twenty twenty two turned kind of ugly. And
(02:02):
you take a look at you know, twenty two and
the end of twenty two. Yeah, you had this rally
that started in October is where market's bottomed. There there
was a little bit of chop, but then ultimately it
was okay, we're on our way. In twenty twenty three
was all clear, no, no weird wiggles. At the end
of twenty three, at all twenty four, again a couple
(02:23):
of weird wiggles, one in late November one in late December.
Speaker 3 (02:27):
Markets made new all time highs in January and February, but.
Speaker 2 (02:31):
We're you know, wiggling the whole way, and then March
and April we're rather ugly. And so I just can't
help but think when you start to get weird stuff
happening at the end of a calendar year, and by weird,
I just mean, you know, volatility, because there are mechanical
reasons why the end of the year tends to be
less volatile, the biggest one simply being you have two
(02:52):
and a half fewer trading days for stuff to go wrong,
and that has all kinds of implications for volatility calculations,
you know, using the VIX, which you know focuses on
a thirty calendar day period, not trading day period. And
so when I start to see little wiggles happening at
the end of the year, it perks my intenta up
just a little bit. So today nothing big, but again
(03:14):
just a wiggle. You got the S ANDP off about
half percent, thirty nine points the Nasdaq again kind of
in in you know, dangerous territory down another one percent,
about two hundred and eighty points or so. And so
you've got you know, tech stocks not really able to
make new highs. And here's the problem for the last
(03:35):
couple of years when tech stocks have not been able
to lead, the stuff that tries to take the baton
has not been successful doing it. I know we all
want like a broad rally and everything, but today is
an example. There are one hundred and six more S
and P five hundred stocks up right now than down
right now, and the S ANDP is down thirty seven
points because gee, the big ones Oracle down five five percent,
(04:00):
Broadcom down five percent, and Video down three percent, Google
down two percent, Tesla down two percent. You can't rally
when you have like thirty percent of the index down
two plus percent. It's just mathematically really challenging for Chipotle
and you know, marry it to make it up like
they just they can't do it. So I think that
(04:23):
ultimately you've got a market right now that's chopping some wood.
And the big question is these AI data centers like
that is I don't want to say the only thing
that matters, but we've had lots of other questions the
last couple of years, and really like the AI piece.
Every time AI's gotten in trouble. We've had issues with markets.
Speaker 4 (04:44):
There's a lot.
Speaker 5 (04:45):
You've said this, You and Mike Armstrong have said there's
a lot hanging on AI. The economic story of the
stock market story I've never seen you know that sounds pretentious. Okay,
late nineties the bet was a little more diverse. It
was tech, but it seemed a little bit more diverse.
Everybody is hanging there, every and most ardent hope on
AI working out for economic growth, for stock returns, solving
(05:09):
all societies ills. I mean, you name it AI, whatever
that means to who's ever making the claim has got
a lot of heavy lifting to do.
Speaker 2 (05:18):
So you've got again, stock indices off modestly today. You've
got the tenure treasury excuse me, tenure treasury is up
six basis point, no, sorry, six tensive basis point to
four point one five to five percent right now. So
(05:39):
you've got yields moving up again, very modestly, nothing big,
but they've been in a little bit of an up
trend for the last week or two. And so that's
also a reason why, quite honestly, I don't really buy
that like small caps and more cyclical sectors can lead
when yields are moving up because historically they just don't.
Speaker 3 (05:57):
It's not how it really works.
Speaker 2 (06:00):
Dollar Index up point one two percent to ninety seven
point nine one, Gold is up twenty nine forty uh
an ounce to forty three sixty one and seventy cents.
Crude oil West Texts Intermediate up eighty five cents of
barrel to fifty six twelve. The triple A national averageur
gas prices sliding another two tenths of ascent to two
ninety and five tenths at the moment. Uh, let's see.
(06:23):
Let's let's go right to talking about AI. Here, we've
got Micron reporting earnings after the bell today. When you
talk about Micron, they are primarily a memory the memory
chip producer, and they specialize in something called high bandwidth memory,
which is memory that is high in bandwidth.
Speaker 3 (06:45):
Is it not?
Speaker 2 (06:47):
That's That's what I gather tell you again, tells you
how much I know about you know the specifics of it.
Speaker 1 (06:52):
Uh.
Speaker 2 (06:52):
The interesting thing with Micron, memory prices have moved up
dramatically this year to the point where you're actually seeing
projections now for non AI computer sales falling next year
because memory costs have pushed the prices of PCs and
other you know, related equipment up as a result of
(07:13):
all this memory demand from AI. So the question for Micron,
I think is twofold, is look, what do you see,
you know, your AI business looking like? And then what
about everything else? Because that non AI computer business is
starting to come under threat because of how high memory
prices are being driven by AI spending.
Speaker 3 (07:33):
So there's that.
Speaker 5 (07:34):
Yeah, I'm sorry, I don't have a lot. I just
don't have anything to add here.
Speaker 3 (07:38):
It's is this you big memory guy?
Speaker 5 (07:43):
What do they make the RAM? I'm sorry for my ignorance.
Here do they make the RAM chips that I put
in my computer when I need to beef it up?
Speaker 3 (07:48):
Is that? Basically?
Speaker 4 (07:49):
Okay?
Speaker 5 (07:49):
So that's the the the active memory as opposed to
the processors that do.
Speaker 3 (07:55):
They are not do the tasks correct they are. They
are not a processor manufacturer.
Speaker 5 (08:00):
When I tell my computer to do something, that goes
to my Intel chip or my amdcho that's the problem.
Speaker 4 (08:04):
When you added add one plus one.
Speaker 2 (08:06):
They are memories, hard drives, flash memory, solid state drives.
Like that's Micron's bread and butter soquating.
Speaker 4 (08:12):
And I save it.
Speaker 5 (08:13):
And this may not mean anything but you save an
object that gets saved in your in your RAM, your
sort of short term memory that the computer needs to
access quickly. It can't go digging around for it because
you're gonna draw on the object you just saved quickly.
Speaker 2 (08:27):
And the same thing is needed in AI because obviously
you want to be able to pull out it.
Speaker 5 (08:32):
So that's that's the relationship to the AI frenzy.
Speaker 2 (08:35):
Yes, correct, there's a lot of memory that's needed because
you're moving an awful lot of data back and forth
in these neural networks that the AI processors use that
they make up.
Speaker 3 (08:44):
Okay, uh so.
Speaker 2 (08:46):
Micron actually a couple of weeks ago they have a
sub brand called Crucial, which is a horrible name, like
any like how can you just name any brand Crucial?
That just sounds like kind of pretentious. They actually announced
that their consumer facing brand they were halting sales of
that next year. They're closing the brand down because they
don't have enough stuff to sell anymore because AI is
(09:08):
taking all the volume.
Speaker 3 (09:09):
Let's take a quick break.
Speaker 2 (09:10):
Mike Simonson, chief economistic Compass, joins us right after this,
talking about the twenty twenty six housing market outlook.
Speaker 1 (09:19):
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Speaker 3 (09:56):
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Speaker 2 (10:10):
As promised from now joined by Mike Simonson. He is
the chief economist at Compass, who recently published their twenty
twenty six housing market.
Speaker 3 (10:18):
Outlook and Forecast. Mike, I appreciate you joining us today.
How you doing.
Speaker 6 (10:23):
Jack's always great to be.
Speaker 3 (10:24):
Here, absolutely, Mike, can you give our listeners a quick
summary of Let's talk home prices next year, What are
expectations for kind of the range that we could fall in.
Speaker 6 (10:35):
So we're expecting home prices nationally to be pretty close
to flat next year, up maybe just half a percent
across the country on average. That's down from recent pace
of four percent or five percent or even much more
a few years ago. So the price expectations are really
(10:58):
flat for the coming year.
Speaker 2 (11:00):
Is this a continuation of the inventory growth story that
we've seen this year or is there something else afoot?
Speaker 6 (11:07):
No, that's really it. We've had inventory growth for three
almost four straight years now, and there's a lot more
homes available on the country as a whole. That varies locally,
but because there are more homes available across the country,
the price implications are starting to be more national. So
(11:32):
even though inventory is tight in the Northeast and prices
are holding up better in the Northeast than say Florida
across the Sunbelt, the inventory is ample sufficiently big that
there are no upward pressures on prices really across the country.
Speaker 3 (11:55):
The inventory growth that we've seen throughout the Southeast now
over to the south Northwest and the West Coast, is
that inventory growth expected to come to the Midwest and
Northeast over the next year or two, or are there
other factors that will prevent it from happening.
Speaker 6 (12:10):
There is a little bit of inventory growth finally happening. So,
for example, in the New York Tri state area is
about ten percent more homes on the market now than
a year ago, So a little bit of that growth
is happening. It is in general, we're still very very
restricted mobility. In other words, we're still not doing much
(12:34):
of the north to south move where because hiring is
really slow. We are not, for example, quitting our job
in Connecticut to move to Orlando to buy a home
and get a new job in Orlanta. We're not doing
that move nearly as much. And therefore inventory stays tight
in the Northeast and Midwest and is still growing in
(12:57):
the South. So that trend is still basic underway. If
we're lucky this year and maybe lower interest rates help
spur corporate hiring, maybe that starts that mobility starts to
move up. We've been delaying those moves for four years now,
so maybe that starts to loosen up a little bit.
Speaker 1 (13:15):
Mike.
Speaker 2 (13:15):
When we look at the southeast and southwest, this is
the area of the country that's seen, you know, pretty
robust inventory growth. It's also the area of the country
that tends to have the most construction. Is it a
fair read through that if that if builders are now
forced to compete with more inventory, they're going to be
coming under more pressure.
Speaker 6 (13:36):
Yeah, I think that's that's true. Builders have had a
real advantage for several years in terms of pricing and
in terms of interest rates buydowns, and that appears to
be softening a little bit because there is enough existing
supply on the market that price competition can go back
(13:57):
and forth. You have the the trade off. So in
the across the Sun Belt, we have ample inventory all
the way across any of those those markets like Phoenix
or Denver, or the Texas markets across Florida and Georgia,
like the ample inventory across the Sun Belt, such that
the that you can see those pressures happening to across
(14:22):
all Now, there's nothing in the data that says massive
price declines, but the flat and slightly down in in
some markets down pretty notably.
Speaker 3 (14:35):
Is common.
Speaker 2 (14:37):
When we look at sales volume. Historically, I've always been
told inventory leads to sales, and that's kind of what
we've seen in general, the last couple of years, despite
higher inventory, sales has kind of been stuck at this
you know, four million annual unit pace for existing home sales.
Is twenty six of the year that we finally start
(14:58):
to see a little bit of a tick up in
sales volume.
Speaker 3 (15:02):
Yeah, we think.
Speaker 1 (15:02):
So.
Speaker 6 (15:03):
We look at twenty twenty six as really the start
of the next phase of the housing market. So the
last phase, the last era, has been the last four years,
home sales have been very slow, stuck around four million
deep freeze, and home prices have pushed relentlessly higher, so
affordability has been getting worse, sort of intractably worse. What
(15:25):
we're seeing for twenty twenty six is that inventory is
now ample enough that sales can increase. So, for example,
if inventory increases by ten percent in the New York
metro area, that means sales can increase in that area.
And inventory is already higher in Florida, and the weekly
(15:46):
pending sales numbers of watching the homes going into contract
each week in Florida are up about ten or fifteen
percent each week now over twenty twenty four. So that's
partly a function of having more homes on the market.
So we can see twenty twenty six as maybe a
four or five percent growth from say four point one
(16:08):
million pace to four point two five million pace. Not
not a massive growth, but growth across the country, and
that's encouraging for the industry.
Speaker 3 (16:19):
Mike.
Speaker 2 (16:19):
When we go through different publications out there, inevitably I
come across something that says, oh, foreclosures are going up,
and you know, this is a problem. And I tell
our listeners, look, it's it's off a very low baseline rate,
and this isn't something that's going to be the proximate
cause of any real problem for you, someone who's actually
in this industry and understands way better than I do.
(16:42):
Is that a fair view to have? Or are there
actually problems building on the foreclosure side of things?
Speaker 6 (16:49):
You're going to hear in twenty twenty six. I think
a lot of headlines about foreclosures increasing in in new
highs or more and foreclosures, and and you're going to
hear those headlines, and I think your perspective is exactly Redick.
It's like those we still have very few people who
are of any amount of distress on their mortgage.
Speaker 3 (17:12):
We still have.
Speaker 6 (17:15):
Most of the country has ultra cheap mortgages. But as
we go on, there are now ten million people who
have mortgages over six percent, and those people, when you
lose your job, are much more likely to go into
a distressed scenario than if you have a rate under
three percent, and so there are more people so that
(17:39):
you can imagine that as for example, the employment rate
deteriorates and we get a weakening jobs market, which is
currently seems to be underway, that that would result in
some of those folks having more more foreclosure process, more delinquency,
and those metrics we should expect them to climb. For
(18:01):
the most part, it's it is isolated parts of the market.
FHA loans where you have very low down payments for
ex ad lower income qualifications, those have elevated levels like
ten percent of of those borrowers are in some sort
of distress, but that's fifteen percent of the market, So
(18:22):
it's like one percent of borrowers are in that in
that any any form of distress. It's rising, but it's
not that much.
Speaker 2 (18:33):
Very good Mike, appreciate you joining us as always great
information for our listeners. Hope you have a great finish
to the year and look forward to chatting with you
in twenty twenty six.
Speaker 6 (18:44):
Thanks check look forward to it.
Speaker 2 (18:45):
That is Mike Simonson, the chief economist at Compass, talking
about their twenty twenty six housing market outlook and forecast.
As we head to the bottom of the hour, Dow
Jones Industrial Average is off forty points. The S and
P also off forty points. But hey, the S Andp's
off half percent. The Dow is off a tenth of
a percent. NASDAK is off north of two hundred and
(19:06):
twenty points right now, about one percent, and so you've
got a slide in markets today.
Speaker 3 (19:12):
This would be four down days in a row, but
still only.
Speaker 2 (19:15):
A couple percentage points off all time highs from last
week's Thursday close.
Speaker 3 (19:21):
So that's where we stand right now. Quick break. When
we come back, we've got trivia after this.
Speaker 1 (19:32):
Okay, bringing the latest financial news straight to your radio
every day. It's the Financial Exchange on the Financial Exchange
Radio Network. Time now for Wall Street watch a complete
look at what's moving markets so far today right here
(19:55):
on the Financial Exchange Radio Network.
Speaker 3 (19:58):
The markets are now selling off with yet another pullback
in the tech sector, leaving the SMP five hundred on pace.
For its fourth straight losing session. Right now, the Dow
is off two tenths of one percent or one hundred
and one points lower, SMP five hundred down over three
quarters of a percent or fifty three points lower, Nasdaq
(20:19):
selling off one point two percent or two hundred and
eighty seven points. RUSSA two thousand is down four tenths
of a percent. Ten Your Treasreel is flat at four
point one five to seven percent, and crude oil up
nearly two percent higher, trading a fifty six dollars and
twenty six cents a barrel. Warner Brothers Discovery Board unanimously
recommended shareholders reject Paramount's hostile takeover bid, saying it believes
(20:44):
that the offer from Netflix for its studios in HBO
Max streaming service is still superior. Netflix shares are climbing
over one percent higher, Warner stock is down one percent,
and Paramount shairs falling nearly five percent. Meanwhile, according to
several outland It's Open AI is in discussions with Amazon
about a potential ten billion dollar investment in agreement to
(21:06):
use its AI chips. Amazon stock is up over half
or percent, Oracles stock is sliding almost five percent falling
report from the Financial Times that Blue Owl Capital won't
back Oracles ten billion dollar data center for Open AI. Elsewhere,
home builder Lenar reported lower than expected earnings as the
housing market remained stagnant. Lenarstock is down six percent, and
(21:31):
after today's closing bell, we'll see more tech earnings from
Micron Technology. I'm Tucker Silva and that is Wall Street
Watch and we get to do trivia. So let's get
to it. And we're going to continue our Christmas movie
trivia theme here up up to the holiday. So here
we go. In nineteen sixty four's Rudolph the Red Nose reindeer,
Hermie stood out from his fellow elves because he did
(21:55):
not like making toys. He had another profession in mind.
Trivia question today, what profession did hermit the elf wish
he had? Once again, what profession did Hermit the elf
wish he had? Be the seventh person today text us
at six one seven thirty six, two thirteen eighty five
with the correct answer along with the keyword trivia, do
(22:17):
you win a financial exchange? Showed t shirt once again
the seventh correct response to textas to the number six one,
seven three six, two thirteen eighty five with the correct
answer along with the keyword trivia will win that T shirt.
See complete contest rules at Financial Exchange Show dot com.
Speaker 2 (22:35):
The latest in UH what is going to be a
fascinating media story to follow in twenty twenty six UH
is Warner Brothers rejecting or recommending that shareholders reject Paramount's
unsolicited bid for the company, saying that they believe the
Netflix proposal is superior. In their recommendation, they basically say
(22:59):
that the Paramount offer relies on an awful lot of debt,
a lot of different parties, and basically has a whole
bunch of things that may prevent it from closing in
a rapid fashion to satisfaction of shareholders, and that Netflix
comes with a stronger balance sheet, a larger market cap,
and a bunch of other features that would make it
(23:21):
a preferred buyer for the company. So now we're in,
we'll get into, you know, kind of the next leg,
which is does Paramount come back and say, oh, in fact,
you know, instead of doing thirty dollars a share, we'll
do thirty two, and do we see you know, Netflix
then try to counter with the higher offer, or you know,
do these problems still persist. But this is, you know,
(23:43):
something that I don't think is just going to go
quietly over the next week or two.
Speaker 5 (23:47):
So who's really interested in this? Netflix subscribers because of
the new content if they simply combine it with their
existing content.
Speaker 3 (23:56):
Or like, who cares? Do you mean? Like from a
content perspective.
Speaker 4 (23:59):
Well, who care? Like the story?
Speaker 5 (24:01):
If you follow business news, I guess this is you know,
they're not big companies And is it an interesting industry? Well,
I guess we all watch, we all consume this stuff.
But who's you know, like whose life will change depending
on who what suitor is successful? Other than the principles involved.
Speaker 2 (24:19):
So there's an interesting question to ask on this, which
is is the company that loses the bidding for this
actually going to be in a better spot? And the
only reason that I ask that is and I think
I have the answer, but I'm going to get there
kind of round about fashion the weave. Warner Brothers has
(24:40):
been sold a.
Speaker 3 (24:41):
Couple times in the last decade.
Speaker 2 (24:42):
Now has it worked out well for either of the
companies that bought them? The answer is no, there's a
reason why they're on the market again. Now, granted we
can look at AT and T and at the time. Again,
Tucker can pull the beta max or whatever it is
the we store the shows on and we can pull that,
(25:04):
and you'll hear us saying, yeah, this seems like a
bad fit. A bunch of basically utility operators trying to
buy you know, HBO is like this crown creative jewel
doesn't seem like a good fit. And sure enough, like
it ended up having to be unwound a couple of
years later, same thing happens. Okay, Like you go through
(25:24):
this again. I guess where I come to on this,
to a certain extent is look, if this company were
so valuable, how come it can't generate enough cash flow
and profit to cover the deal and to keep its
acquirer wanting to.
Speaker 3 (25:43):
Own it longer term?
Speaker 2 (25:45):
Because even if you make the argument that AT and
T paid too much for it, if the company is
that good, they'd be able to figure out, okay, like,
we can make this work because we still want to
own this long term, Like we don't want to sell
that asset off.
Speaker 3 (26:01):
So why have they been sold off twice? Now? Isn't
that an interesting question?
Speaker 4 (26:07):
It's it's alluring.
Speaker 5 (26:08):
Like you said, maybe content isn't king Well, it depends
on the opportunity cost, what did what was? What else
could AT and T have done with their cap I
guess my point is nothing.
Speaker 3 (26:19):
This is not a cheap deal that is being taught.
Speaker 2 (26:21):
I mean, we're talking about an eighty to one hundred
billion dollar deal, and how do you make that money back?
You know that you look at the deals that have
worked out in the media space. It's Disney buying Star
Wars for four billion dollars just because George Lucas was like,
I've had.
Speaker 3 (26:38):
It, I'm out.
Speaker 2 (26:40):
No one liked my prequels, even though in hindsight a
couple of them fare better upon you know, reviewed watching
twenty years later.
Speaker 4 (26:47):
Not as easy as it looks.
Speaker 3 (26:48):
But like you know, this is.
Speaker 2 (26:50):
Something where when you're paying eighty to one hundred billion
dollars for a media company, how do you make that
money back? Like it's it's that's a lot of coin
to put out there. I mean to put this in perspective.
(27:11):
If we look at Netflix, bless you. If we look
at Netflix and their financials right now, and you say, okay,
their revenue for the last year was forty three billion dollars,
Warner Brothers Discovery. You pull up their financials. Their revenue
(27:32):
for the last year was thirty eight billion dollars. How
am I going to make my money back on this
if their revenue is half of what I'm spending.
Speaker 3 (27:47):
Not their their earnings their their earnings were three hundred
and fifty six.
Speaker 2 (27:50):
Million dollars was their net income for the last twelve months.
And I'm going to pay seventy to one hundred billion
dollars for this? How do I make that back?
Speaker 1 (28:04):
Well?
Speaker 4 (28:04):
Over, how long does it take to make it back?
Speaker 2 (28:06):
Well, I liked to in my lifetime, but the math
doesn't work out if we're still you know, so it's okay,
how much can I slim this down? And how much
can I you know, repackage these assets is what you
get into. But I don't know that's It's a tough
one in that media space that is evolving rapidly, and
as Netflix's own Read Hastings has said, multiple times, the
(28:29):
biggest competition that we face isn't from other movie studios
or other TV studios. It's from gaming, It's from TikTok,
it's from all these other things pulling at your eyeballs
and is buying Warner Brothers Discovery actually in the best
interest of either of these companies at this price, I
(28:51):
gotta be honest. That's the question that I'll ask, Like,
is the loser going to actually make out better? Is
this an example of the winner's curse?
Speaker 4 (28:57):
What are they intended for this deal? Yeah?
Speaker 5 (28:59):
What are they intended to do with it? And how
does that strike you guys as customers? Are they just
going to add the content and leave the fee the
same for the monthly service?
Speaker 3 (29:09):
I mean, if I were a media exec.
Speaker 2 (29:13):
I'm not, and I don't really know anything about it,
but I like to pretend I do. Tucker, let me
run this by you. Sure, let's say that I'm Netflix. Okay,
I'm going to absorb most of the Warner Brothers Discovery
content right into Netflix, but I'm going to keep HBO
as a separate outlet from my premium content, and I'm
(29:36):
going to put it on that because then I can
charge you once for Netflix and for the people that
want that highbrow stuff you'll pay for HBO.
Speaker 3 (29:47):
You will, And that's a great brand from a money perspective. Yeah,
that's probably the way they'll go. But if I want
to please the consumer, I praising the consumer. That's so
nineteen that's so nineteen fifty seven. I would just have
a completely separate section on Netflix for HBO, kind of
similar to what Disney Plus does. If you go into
(30:11):
Disney Plus, they have a separate section for nat Geo
or Pixar or go down the list. I mean, that's
that's what I would love as a consumer. But you're
probably right, it's not gonna go that way because they'll
just get more money if they leave HBO as is.
Speaker 2 (30:27):
And Plus then you can also say, hey, Netflix is
what what's Netflix now? Like fifteen dollars seventeen dollars.
Speaker 3 (30:33):
For I think it's like fifteen ninety nine a month,
So you got fifteen ninety nine there, but you've got
seventeen ninety nine on HBO. But if you bundle, we'll
do it for twenty five. And that's more attractive for
a steeper discount for the consumer. If it's twenty ninety
nine for HBO and Netflix, but they're still getting next
(30:54):
to eight dollars and more subscribers. Like that's that's where
I think we're going.
Speaker 2 (30:58):
Yeah, in any case, this is gonna be an exciting
one again, As Mark said, like these are not huge companies.
Speaker 3 (31:06):
They're they're big, but they're not huge.
Speaker 2 (31:09):
But it's stuff that we see every day, you know,
in our in our lives, and so we understand more
about this than like a merger of you know, to
copper producers.
Speaker 5 (31:19):
And the Ellisons have come upon the scene and ai
and dramatic fact like in the past year a couple
of months. Yeah, year, all of a sudden, the Ellisons
are taking over the world. So it's an interesting, I
guess story from that point of view. Of course, they're
getting overextended. There's a story this morning about a private
credit manager pulling funding for an Oracle data center. It's
(31:43):
becoming the whole thing dramatic.
Speaker 3 (31:46):
I did then see that Elison?
Speaker 2 (31:47):
Larry Ellison said, yeah, actually we decided we didn't want
to work with them, so it's you can't fire me.
Speaker 3 (31:52):
I quit.
Speaker 2 (31:54):
Okay, fine, you know, in any case, let's take a
quick break and when we come back, let's do a
little bit of stack roulettes.
Speaker 1 (32:02):
The Financial Exchange streams live on YouTube. Subscribe to our
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All morning. Long Face is the Financial Exchange Radio network.
The Financial Exchange is now available every day from eleven
to noon on Serious XMS Business Radio Channel one thirty two.
Stay informed about the latest from Wall Street, fiscal policy,
(32:23):
and breaking business news. Every day, The Financial Exchange is
live on Serious XM's Business Radio channel one thirty two.
This is the Financial Exchange Radio Network.
Speaker 3 (32:36):
This segment of the Financial Exchange is brought to you
by the US Virgin of Islands Department of Tourism. There's
still time to book your holiday vacation to Saint Croix,
Saint Thomas, or Saint John Joy one or all three
and if you act fast, you could be in Saint
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(32:57):
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now at visit USVII dot com. That's visit USVII dot com.
Trivia question today was what profession did hermity elf wish
(33:18):
he had In Rudolph the red nose reindeer that would
of course be a dentist. We all know that Mark
from Manchester, New Hampshire is our winner today taking on
the Financial Exchange Show t shirt. Congrats to Mark and
we play trivia every day here on the Financial Exchange.
See complete contest rules at Financial Exchange Show dot com. Mark,
What do you got for stack Roulex?
Speaker 5 (33:37):
I thought I should elaborate on what we closed out with.
In the last segment I mentioned the story first reported
by the Financial Times about Blue Owl Capital, which is
providing a lot of funding for data centers to Oracles.
Specifically in this context, the story as as follows. I'll
just read briefly from the Financial Times, Oracle's largest data
center partner, that's Blue Owl Capital will not back the
(33:59):
ft pointed this morning. Since all the media outlets have
picked this up, you may have heard it already not
back to will not back a ten billion dollar deal
for its next facility. But hard to read into this?
Are they just getting better terms from somebody else? There
is Blue Owl realizing that some of this might be
overhyped and they don't want to get overextended. Hard to
(34:20):
know what, if anything to conclude from this.
Speaker 2 (34:22):
For me, I think what's interesting is that they had
previously committed to it and now are no longer committed
to it. And to me that comes off as, hey,
we've got a lot of balls in this court already,
let's maybe not throw another one in and.
Speaker 3 (34:41):
See how things go for a little bit.
Speaker 2 (34:43):
And this is one of the like un I think
untalked about undiscussed risks for next year is Look, when
we talk about all this capex, the money has to
come from somewhere, and a lot of it's been borrowing,
where like you need to keep wrangling up increasing f
in order to make this work because the money just
(35:03):
isn't there from operations, especially when you're talking open Ai
and Oracle, they don't have cash flow from operations to
fund this. Oracle's cash flow was what negative ten billion
dollars for I want to make sure I get this right.
If it's the last year or last quarter, so let
me just get this right free cash fo Yeah, negative
thirteen billion dollars for the last year. Oracle cannot pay
(35:29):
for this exponential increase in capex with their own money.
They have to borrow it, which means that you need
an exponentially increasing source of funds for them to borrow
from in order to do so, that's a real risk
that's out there because there's not just this limitless source
of funds.
Speaker 3 (35:49):
It's I'm a big track and field.
Speaker 2 (35:52):
Guy, just because my my, my dad was a big
track guy, like all through you know, his life and everything,
and like we would have you know, track and field
news would be what's sitting on the back of our
toilet and you know, the bathrooms in our house, and
I'm reading through like world record times for you know,
the five thousand meters. So the analogy I make is, look,
if you start off running, it's pretty easy for you
(36:14):
to say, hey, I'm going to improve my mile time
from fifteen minutes to fourteen minutes. It's a little harder
to go from fourteen to thirteen, and a little harder
to go from thirteen to twelve. By the time you're
trying to go from seven to six, it's pretty hard.
By the time you're trying to go from six to five,
it's almost impossible, and basically no one can improve from
five to four.
Speaker 3 (36:34):
It gets exponentially harder.
Speaker 2 (36:36):
All this capex that these companies have been doing, they've
basically gone from running ten minute miles to seven minute miles,
and now they're trying to get from seven down to four.
Do you have like the Actually in this case, it's
do you have the literal energy to be able to
do that, cause you've got to build you know, your
(36:58):
power plants and your energy supply addition to actually the facilities.
So that's that's kind of where we're where we are
right now on this stuff. And I don't know the
answer to it, but I know that it gets harder
and harder to run faster the faster you've already run.
It's just, uh, it's physics in that case, or physiology
in that case, but in this case, it's just basic math.
(37:20):
There's only so much money out there. There's a reason
why we're not called the United States of General Electric
It's because Jack Welts tried this over a twenty year
period and it didn't work. Like, there's only so much
money and so many people who need you know, what
GE was selling at the time.
Speaker 5 (37:38):
It's a much more concentrated gambit though it is gam it,
maybe it.
Speaker 3 (37:42):
Is, but it's it's got shades of like the GE
stuff in it. Now with the financial machinations and everything
we do have like four or five different bubbles combined
into one. But the best way I've seen this described recently,
it's a turduccan of risk.
Speaker 4 (37:58):
I'm not familiar with the word tur ducan.
Speaker 3 (38:00):
You take a chicken, a turkey, and a duck mix
them together to make like.
Speaker 4 (38:04):
Now, I'm not a shame that it's a.
Speaker 2 (38:06):
Turd ducan of risk is kind of how I've heard
it explained. Let's take a quick break for the rest
of the day, but.
Speaker 3 (38:13):
We're gonna be back tomorrow.
Speaker 2 (38:14):
We'll see you that on the Financial Exchange
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