November 11, 2025 • 38 mins
Paul Lane and Marc Fandetti discuss a better way to think about the AI bubble. How long will investors continue to be patient on AI? Corey Adams (Robert Half) joins the show to chat about year-end bonuses. Where do investors think Apple should be spending their money? First Brands new CEO uncovers major fraud at the company. Reverse mortgages edge up as US economy squeezes older Americans.
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Episode Transcript
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Speaker 1 (00:00):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:12):
A happy Veterans Day to all of our listeners out there,
and a big thanks to all those who have served
and protected our country. Here we kick off the second
hour of the program here taking a look around at
markets in relatively mixed territory. The Veterans Day holiday only
impacts the bond markets. They are close today. However, the
(01:32):
stock market is open and the S and P five
hundred off about a quarter percent. The Dow Jones up
about one hundred and eighty points, so not too big
of movement there. We'll kick off our start here with
a subject that we've covered probably add nauseum, but it
is the most important story when you're talking about the
stock market and the growth that we've seen this year,
(01:54):
is the idea of the AI bubble. I'm not the
first to bring it up, I won't be the last
to bring up the subject, but over the course of
the last probably six months or so, there has been
a lot more scrutiny on the amount of expense that
has been lined up to build out the infrastructure to
develop artificial intelligence in this country. The cycle sort of
(02:17):
kicked off with the release in November of twenty twenty
two were coming up on three years now when chat
chpt or a version of it was unveiled, that just
got mass popularity and adoption. I believe chatchpt sits around
seven hundred million plus weekly users at this point, so
it has become much more part of many people's day
to day usage. Now, what you had as a result
(02:39):
is many companies out there scrambling to become the dominant
player in the space. And as a result of that,
it takes billions and billions of dollars to build out
the infrastructure that is required to harness and sort of
materialize the computing power that's required here to make these
large language models or anything else on the software side
(03:03):
that deals with our official intelligence effective. And there's a
piece here that was done by Russell Brandham that sort
of reframes the way that you should think about the
AI bubble, that a bubble doesn't have to be something
that we talk about as an apocalypse, the sort of
the end of the world, that if this bubble is
(03:24):
to pop, that it would be some huge problem. What
we saw to make the parallel comparison to the Internet
age in the late nineties, there were some companies that
came out of that very successful and were built on
the backs of all that infrastructure investment. Think the Googles
and Amazons of the world, But there were many others
that crashed and burned and never really saw a material
(03:46):
gain from that build out. But also note that it
took time before everyone had laptops on their desk and
the Wi Fi connectivity was as widespread as is this country.
It's taken a long time to get there. The same
thing could be said here out of artificial intelligence and
it's built out. The question is just going to be
how long are investors going to willing to be patient
(04:08):
to see any sort of material development on the revenue
growth side of things for all of the money that's
going to be invested in building this thing out and
will profits.
Speaker 3 (04:17):
The most interesting take on this, I think is by
Michael Burry and other famous speculators, people who are known
for their short selling acumen, meaning they make a bet
at a share price or a market will will fall.
We don't have to get into the specifics of that,
but there are people who made a lot of money
in the financial crisis of two thousand and eight and
(04:39):
nine who are now sounding warnings about the way companies
are doing their accounting for the stuff they're buying. All
these hundreds of billions three trillion dollars will be needed
to invest, will be needed by the so called hyper scalers,
these people building these big data centers over the next
several years. That's ten percent of one year's worth of
(05:00):
GDP so on. An enormous amount of money is going to
go into this. How are they going to account for that?
And there's this interesting take by some of these short
prominent short sellers that excuse me, earnings will of Meta
and others will be overstated significantly because they've extended the
depreciation schedule, if you will. It's watching the terminology a
(05:21):
little bit here. They've extended the estimated useful life for
accounting purposes of some of these assets. Chips become obsolete
really fast, right.
Speaker 2 (05:27):
Three to five years, maybe on some of these new ones.
Speaker 3 (05:30):
Like at Best. I think Nvidia makes the joke now
that they can't give away last year's chip. Yes, so
is that worthless if you bought them? And if so,
should that count against your earnings? Companies like Meta and
others are saying no. Some have made the point that
their earnings may be overstated significantly. Twenty thirty percent of
these are short sellers who may be talking up their
(05:52):
own book, but earnings may be significantly overstated for the
next several years. All l sequel is a result of
this accounting. I'll call it a sleight of hand that
may not be fair.
Speaker 2 (06:03):
What we've seen is valuations have soared in most any
company that is touching this space, but there is a
huge fork in the road of software continues to be
developed and iterate very quickly. When you look at artificial intelligence,
there's a lot of work done there. But on the
computing side of things, when you're building out computing capacity,
(06:24):
it is much more the traditional slow crawl of construction
and you know power and utility use that takes a
long period of time to get online. So you have
hundreds of billions of dollars committed to building out these
data centers that are faced with the challenges that the
technology sector typically doesn't have to deal with as much.
(06:47):
That they're able to develop and innovate a lot quicker.
But when you're waiting on a data center down Louisiana
that's you know, ten home depots long, there are a
lot of pitfalls that you can bump into on the
construction side on the amount of resources that are dedicated
for that type of plan.
Speaker 3 (07:05):
So they're not exaggerating either, these enormous completed data centers
that don't have juice exactly.
Speaker 2 (07:11):
Yeah, and you have to be electrical demand for to
get hooked up to the grid. That can take time,
and there's a lot of money be invested in the
other pieces that I have had trouble. And I don't
know if you've ever found a story that indicates this,
that one company adopting artificial intelligence and transforming its business.
And I listen to a lot of material that is
(07:34):
pro this technology, whether it be podcasts or things of
that nature that are on the cutting edge of technology
that in their own best interests really hype up its
potential benefit. But I just wish I had a concrete
example of and I'm talking about the newer artificial intelligence,
because to be clear, Google and Facebook have already cashed
(07:56):
big checks from it. This in a different way. Machine
learning that kind of thing our official in towns, but
the newer iterations of it, I just have not heard.
Speaker 3 (08:03):
Machine learning is definitely not new.
Speaker 2 (08:05):
Yeah, they are the algorithms and what you see when
you log into your Instagram account or YouTube. Those are
things that were built out from machine learning and algorithms
that are of yesteryear. But so I just want to
be clear that I know that they've benefited from that.
But on the newer side of things, where companies have
said this has been transformative and it has shifted our business,
I just haven't heard enough of those stories yet. McKinsey
(08:27):
and others have done a lot of hot analysis where
there has been cost cutting that has been done as
a result of the use of our official in talents,
but nothing that has transformed the business. So that's where
I have the most trouble. I'm not downplaying the technology,
but I just wish I had some more conc.
Speaker 3 (08:46):
We should be skeptical. I mean, in our jay day jobs,
we're fiduciaries. We safeguard people's money. It's our job to
be skeptical and not jump on every bandwagon. So that's
just that's in our nature. But MIT, a group of
researchers at MIT early in the year did a study
and they concluded that just five percent of integrated I'm
reading directly from it from the executive summary, just five
(09:07):
percent of integrated aipilots are extracting value, while the vast
majority remain stuck with no measurable P and L impact
ie they can't figure out how to deploy this stuff profitably.
Ask yourself, have you used Microsoft Office lately? Of course
you have PowerPoint, Excel, Word. We all use the suite.
It is my experience using Office is not materially different.
(09:28):
And I'll throw out Look in there too, And some
of these programs had different names in the nineties. Is
not materially different than it was in the nineteen nineties,
and I would defend that statement. Excel does not do
much more functionally if you don't know how to do
data analytics yourself. It's got some helpers in there now.
But other than that, Excel experience is the same. The
word experience is mostly the same, other than those annoying
(09:49):
prompts about how to finish a freaking sentence like I
don't know what's in my head when I'm writing, when
I'm midstream writing, and I don't, and I need them
to distract me a with a prompt so called co pilot.
I'm going to be a little cruel here, but blunt
and say it's useless right now. That is not additive
to mine or anybody's productivity. I would welcome people pointing
(10:10):
out cases of it being productive and additive to helping
them do their job more quickly. But to this point
I have not experienced that, and I'm a pretty intense
user of it. I like exploring new features. I'd welcome
it largely. You ask excels, Chat, GPT, copilot add on
to build you a table. It struggles with very basic
(10:30):
instructions when you're very specific. I've heard some coders say, well,
chat GPT is good for coding, you tell it what
you but you have to spend all this time cleaning
up their crap code. In my experience that, I mean,
maybe it's better than a newbie right out of college
helping you, but it's not going to replace anybody anytime soon.
My point here, sorry for rambling, is that think about
(10:52):
your own experience now versus the nineties and the nineties.
This stuff was life changing. We went from primitive word
processors to Microsoft World to being able to use Office
from Home and video com All this happened within a
few years. In the nineteen nineties. Sending attachments by email,
they got bigger and better. We've been stalled since then.
(11:12):
In my view, someone who's used the word the office
suite consistently for thirty years, which I think is where
the bulk of the life changing experiences for those of
us in desk jobs has been.
Speaker 2 (11:22):
I think that's fair. We're going to take a quick
break here on the Financial Exchange. When we come back,
when we be talking with Corey Adams from Robert haf
going over some of the talking points on their recent
survey on year end bonuses. We're also going to have
trivia here too right after this break here on the
Financial Exchange. Stick with us.
Speaker 1 (11:42):
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Speaker 4 (12:19):
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Speaker 2 (12:34):
As promised, we are joined by Corey Adams from Robert
Half to talk a little bit about year end bonuses. Corey,
thank you so much for joining us today.
Speaker 5 (12:46):
Good morning, Paul, Thanks for having me.
Speaker 1 (12:48):
Corey.
Speaker 2 (12:48):
So, you guys did a survey of two thousand US
professionals and got feedback regarding what they anticipated that their
bonuses would be for this upcoming year. What were some
of the major takeaways that you had And another question
there is was a significant percentage of these that were
(13:08):
surveyed with companies that do give your end bonuses, Like
how prevalent is that within the workspace in the country here?
Speaker 5 (13:17):
Sure so, according to research let's start here, nearly half
of workers, about forty six percent said that they received
a small bonus and they expected or no bonus at
all in twenty twenty four. Now, the other side of
this is a separate Robert Half research and story that
we conducted. It found that fifty three percent of workers
said that they'd be willing to switch employers for one
(13:39):
offering stronger bonuses incentives And so to answer the second
part of the question, Yes, the dataset that we use
was tailored towards employees across the domestic us who as
part of their compensation package we received some form of
bonus option.
Speaker 2 (13:54):
Gotcha for heading into twenty twenty six, what is sort
of the the year end bonuses? What does that mean
for business confidence going forward? Are you seeing that employers
are a little more hesitant to give as big bonuses
as they did previously in twenty four and sort of
(14:15):
what does that mean for the labor market and perhaps
consumption going into twenty twenty six year?
Speaker 5 (14:20):
Sure, so a little bit of both on this, So
I mean thinking about last year. Last year truly was
kind of a mixed bag for bonuses. As I just
stated from our research, nearly half said that their bonus
was significantly smaller or was non existent. So clearly it's
a sign that some employers are being a bit more
cautious with variable compensation. Now that being said, many companies
(14:41):
still rewarded their top performers, signaling that retention remains a
top priority even when their budgets are tight. So we
all know that ultimately, bonuses are often a clear indicator
of how companies feel about their financial position, their financial performance,
as well as their future prospects. So anytime you see
that that gets scaled back, it can certainly suggests some
(15:02):
level of uncertainty or tighter margins. But you know, here's
the other thing. We're also seeing some signs of optimism.
Our recent twenty twenty six SAUR guide shows that some
companies are actually focusing on total compensation. This is a
big theme here, so it's not about just pay. It's
also about offering flexibility, career development, and recognition, and all
of this is being done in an attempt and a
(15:22):
design to keep morale high as companies are heading into
twenty twenty six.
Speaker 2 (15:26):
What would be some of those example there with flexibility,
career development, and recognition. You know, those are kind of
words that are throw around, but is it more remote work,
Like what does that actually materialize into on the employer
side of things? Do you think?
Speaker 5 (15:38):
Sure? I'll give you a few examples. So obviously, around
this time of the year, a number of conversations are
going to play out, and some of them might not
go as well as some employees would like just the
reality of the kind of the market and the climate
that we're in. So smart companies are taking a little
bit more of a holistic approach in this area, particularly
as it pertains to retention. So when cash bonuses are
(15:58):
not feasible, they're not an option out in play. There's
a few things that we're seeing that many companies and
organizations are offering instead. So the first one to your
question is additional paid time off and flexible schedules, which
we know with flexible schedules that's certainly important more nowadays,
particularly those with families and young kids. The second thing
that we're seeing is professional development stipends, and by the way,
(16:21):
this has come in the form of online certification and
online class and this is sort of a double win
because if you think about it, if you're paying for
your employee develop a new skill set and you're upscaling them,
they're going to have the opportunity to sort of bring
that back and pour that into the organization. So it's
a win win for both sides there. And then the
last thing that we're seeing in the absence of cash
bonuses is expanded benefits like wellness incentives or even remote
(16:44):
work options, and so obviously the remote work we've talked
about for a number of years here, and this could
be an incentive that could be offered to an employee
and the absence of a bonus that might not have
been affwarded the option to do any sort of remote
work in the past.
Speaker 2 (16:58):
Great information there, Corey Adams from Robert Haff, Thanks so
much for the time today, Corey, Thanks ball, every good day.
Speaker 4 (17:04):
All right, time for trivia here on the Financial Exchange
and on this day. Back in twenty twenty two, cryptocurrency FTX,
founded by Sam Bankmanfreed filed for bankruptcy amid accusations of
financial mismanagement and criminal misconduct. Bankmanfreed was convicted of fraud
and conspiracy and sentenced to prison in November of twenty
(17:25):
twenty three. So our cheer of your question today, how
long is Sam break Bankman Freed's prison sentence? Once again,
how long is Sam Bankman Freed's prison sentence? Be the
fourth person today to text us at six one, seven three,
six two thirteen eighty five with the correct answer, and
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(17:46):
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Speaker 2 (17:57):
Apple's restraint finds fans as AI faces scrutiny. Here a
piece from Bloomberg. Apple is one of the companies of
sort of these magnificent seven that we talk about so
frequently on the show that hasn't spent a significant amount
on developing artificial intelligence. I think perhaps speaking for them,
they could be the beneficiary of its development, as they
(18:19):
are a huge player on the hardware side of things.
Many of us walk around with their iPhones every single day,
so if these apps continue to develop and are successful,
you'd think that Apple benefits from being the host on
the platform. But their capital expenditures this year are fourteen billion,
compared to its peers such as Microsoft that will spend
up to ninety four billion, and Meta, which is half
(18:42):
the size of Apple, is set to have expenditures of
more than seventy billion in twenty twenty five. So as
a result of that, Apple has sort of sat on
the sidelines of this trade that hurt them earlier in
the year, where a lot of the companies that were
heavy in our official intelligence got a significant run oot
up in their stock price, but more recently it's benefited
(19:03):
them a bit as there's been some concerns that have
arisen regarding all of those capital expenditures that I alluded
to there. So we'll be interesting to see if Apple
makes more investment in our official intelligence. But sort of
taking a wait and see approach here at the moment,
we're going to take a quick break here on the
Financial Exchange. When we come back, we're gonna have the
(19:24):
answer to our trivia question and Wall Street watching much
much more right after this break.
Speaker 1 (19:39):
Bringing the latest financial news straight to your radio. Every day.
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Time now for Wall Street Watch a complete look at
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Financial Exchange Radio Network.
Speaker 4 (19:58):
After yesterday' strong rebound markets, today our mixed territory after
the Senate officially passed a bill to envy historic government shutdown,
sending it to the House. Right now, the Dow is
up by nearly half a percent or two hundred and
seventeen points, SMP five hundreds down about a quarter percent
or eighteen points, NASDAC down about three quarters of a percent.
(20:21):
Or one hundred and eighty four points rusted two thousands,
down about a quarter of a percent. Bond market closed
today in an observance of the Veterans Day holiday, and
crew to Oil up nearly two percent higher, trading at
sixty one dollars in seventeen cents a barrel. In Nvidia
retreating three percent after soft Bank disclosed it sold its
entire five point eight billion dollar stake in the chip
(20:44):
maker and AI giant, where the firm set it looks
to capitalize on its all in bet on chat GPT
maker Open Ai, sticking with AI, where Core Weave stock
is plunging thirteen percent after the company posted a disappointing
full year guidance and cited a delay by a third
party data center developer. Core We've saw its revenue more
(21:05):
than double in the previous quarter, driven by the AI boom,
while its net loss narrowed. Meanwhile, Plant based protein company
in recent meme stock Beyond Meat, saw it's loss widen
and sales declined last quarter as demand from customers and
restaurants fell beyond Now down eight percent. Elsewhere, Paramount reported
(21:25):
growth from its streaming division in its first quarterly report
since its merger with sky Dance. Paramount also raised its
cost cutting target to at least three billion dollars. That
stock is jumping ten percent, and Occidental Petroleum reported mixed
third quarter results, beating on adjusted earnings but missing on
revenue estimates. However, the shares are up over two percent.
(21:48):
I'm Tucker Silva and that is Wall Street Watch. And
in the previous segment we asked you the trivia question
how long is Sam Bankman Freed's prison sentence? That will
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(22:09):
Show dot com.
Speaker 2 (22:10):
In the previous segment, we were talking a little bit
about Apple's positioning as it comes to the artificial intelligence wave,
how they perhaps have not invested or they haven't invested
as significantly as some of their megacap peers. But Mark,
you had a follow up question for me.
Speaker 3 (22:27):
You follow these stories closely, so where do its critics
think Apple should be spending more? Because these articles when
I come across them, are always very vague. Is there
a particular area where they think they're falling behind their competitors.
Speaker 2 (22:40):
One would be on You could say that perhaps that
they should be developing their own large language model and
they that should be incorporated with Siri, which is just
useless in my view at this point on their devices.
Speaker 3 (22:55):
So Siri inferior to the Google operating software operating systems
version of an aisyst.
Speaker 2 (23:03):
The general feedback and Siri from personal experience and also
I believe for many other users out there, is that
it lags behind the large language model capabilities of our
I mean the speaking aspect different is differentiated from chat,
Gibt or Gemini or some of these others, but it
pales in comparison the user experience using that versus some
(23:25):
of these other large lengths.
Speaker 3 (23:26):
And is that moving people to somebody else's operating system though?
Or is it just kind of a nice thing to.
Speaker 2 (23:31):
Have or nice thing to have, you know?
Speaker 3 (23:32):
I think that, well then why would they?
Speaker 2 (23:34):
Yeah that that's one the benefit the reason that they
could be a beneficiary, and perhaps that your skepticism is
right by saying do they really have to do they
really have to invest the significant amount? Ultimately they could
create what is the walled garden here of any type
of app innovation that comes about through our official intelligence
is going to have to be hosted on one of
(23:55):
Apple's platforms, whether it's the iPhone or any of the
other hardware devices that you use. So ultimately, their services division,
which is going to take that twenty five percent revenue
cut of anything that's launched on their system, on their
io system for applications download, you could argue that, hey,
(24:15):
they're going to sit right there as sort of the
entry way into where all of these innovative apps would
be posted in the first place, So why do they
need to spend the billions of dollars to do it?
The counter argument would be the reason that open ai
went out and hired It's Bonnie, what's the developed the
one who designed jony I Thank you, is because they
(24:39):
want to create their own hardware system that would supplement
or not would supplant the iPhone there. So that's sort
of the pros and cons of the position that they
sit in at the moment. But other than the seri front,
I can't really think of anything. Also, it's design of
its own chips, you know, that's another aspect here that
(25:03):
if they could utilize that to sort of further enhance
their position with the custom chifts that they have in place.
Maybe that that's their play there.
Speaker 3 (25:12):
Yeah, okay, I think you've done a great job of
explaining it. It's just still very non specific criticisms, not
based on what you just told me, but based on
the articles that I occasionally read on this subject. They
seem very non specific. Well, yeah, Apple hasn't jumped on
the bandwagon and they're being punished. Well, what do you
think they're missing out on specifically and how is that
likely to hurt them in two, three or five years?
Speaker 2 (25:35):
And to be fair, in their history, a lot of
times they have come in late to the party on
technology trends, but come out with the best product after
the fact. The iPhone is an example of that. The PCs,
the mac pieces that they develop at some points of
time were better than the competitors out there, and then
they took a foothold after the fact. They weren't the first,
but they became the best. Okay, we'll see, that's.
Speaker 3 (25:57):
Helpful, thank you.
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Speaker 2 (27:05):
First Brands a little known company that has got a
lot of negative notoriety over the course of the last
few months. Here regarding its business practices and sort of
shining a further spotlight on the private credit market. The
new CEO who's taken over for First Brands for listeners
out there, that it's an auto parts store that got
(27:27):
all tied up in a massive scandal with over leveraging
themselves to many different creditors out there. The new CEO
who's taken on the First Brand's role, Charles Moore, testified
that the founder of First Brands Or did the transfer
of hundreds of millions of dollars of corporate cash to
his personal bank account and businesses that he controlled. He
(27:50):
also testified more this is that he uncovered evidence of
massive financial fraud at the company, including fake invoices and
double pledging of collateral, so basically taking an asset and
pledging it for two different loans out there. Three members
of the management team have admitted to doctoring invoices to
the new chief executive, Charles Moore, in order to secure financing.
(28:14):
So mark clearly a significant amount of fraud it appears
under the hood here at First Brands, and that would
be the argument that you could have if you are
not concerned about the glut of private credit out there
that perhaps this is just one bad actor and an
example of financial fraud, just a one off. But others
have just raised concern that perhaps this is more prevalent
(28:36):
in the space because of the just explosion of the
private credit market over the last five to ten years.
Speaker 3 (28:42):
Yeah, I think it's the latter. There will be other
end Jamie Diamond used the cockroach analogy. I think he's
probably right financial conditions. We don't know if this, if
this James Fellow is guilty. The anecdotes are a little
comical because they're they're so uh, they're so audacious and
(29:03):
and and and flavorant, and it was it seems like
he wanted to get caught doubleching of invoices, using them
as collateral to get loans, using multiple getting multiple loans
on the same collateral, but like gett multiple mortgages on
the same house.
Speaker 5 (29:16):
Yeah, on these can actually do.
Speaker 3 (29:18):
Maybe that's not a great example, but lying lying to
you're just lenders of it.
Speaker 2 (29:21):
If you're doing if you were going through these business practices,
you're just waiting for it to blow, You're waiting for
it to catch up.
Speaker 3 (29:27):
We're definitely getting bolder, it seems like. But I think
that the the The key point others have made this
point is that financial conditions are quite loose. I naturally
blame the FED for that, because they're responsible for financial conditions,
and when you create frothy conditions, and they almost certainly have.
We spent the first hour talking part of it anyway
about a potential bubble in AI and elsewhere. Invariably that
(29:51):
attracts bad actors and you get stuff like this. What's
equally puzzling is how U big institutions that lent them
money or otherwise pronounced on the credit worthiness of these
loans missed all this stuff. So there's always that aspect
of stories like this too. Who was doing the due
(30:11):
diligence on this stuff, meaning who was making sure that
in this case First Brands collateral was actually existed, which
apparently it didn't.
Speaker 2 (30:22):
Yeah, whenever you have froth, there are a lot of
demand in a market. It always seems like you're able
to companies are able to manipulate that demand and start
to get a little less scrupulous with some of their business.
Speaker 3 (30:34):
Yeah, the accounting scannels of late nineties happened during a boom.
You would think, well, times are good, you don't need
to cut corners. No, for some reason, these people who
are kind of sociopathic, I guess to begin with, the
temptation just becomes too great greed.
Speaker 2 (30:48):
Yeah, that's the story. We're going to take a quick
break here on the Financial ex Scenes. When we come
back room, you're doing a little bit of stack roulette
right after this.
Speaker 1 (30:58):
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Speaker 2 (31:52):
All right, we are back for a little bit of
stack roulette, Mark, I will let you bad lead off.
I know you've got some zin kooky story for us,
or perhaps some more shatter about the FED.
Speaker 3 (32:07):
Now, a story about reverse mortgages in the Financial Times
caught my eye. For what it's worth, not something we
talk about a lot, not something I know much about. Frankly,
so I found this interesting for what it is worth
cash strapped American seniors. The Financial Times reports are turning
to reverse mortgages a controversial type of loan. Do you
(32:28):
agree with that statement? Are they controversial?
Speaker 2 (32:29):
Yes, They've been sold under manipulative pretenses in the past.
Speaker 3 (32:34):
Okay, so people not knowing what they were getting into,
not understanding what is the biggest oak. So the point
of this story is that demand for these suckers ticked
up rose more than six percent the number of federally
insured mortgages did, the Financial Time says in the last
in the twelve months ending September thirtieth, It doesn't appear,
by the way. That's the number of reverse mortgages is
(32:56):
well below it's all time high, which was hit in
the late two thousands. Maybe that was when the oldest
of the baby boomers just began to enter retirement and
needed that additional income, and the use of these has
just been trending. That's not too strong a word, trending
down way down. It's just a fraction of what it
(33:17):
was now, of what it was in the late two
thousands today. But manipulative practices, you mean people are getting
people were goaded into getting into these things, not realizing
that what they lose their house at the end of
the term, like when you die, the house goes to
the lender.
Speaker 2 (33:34):
Yeah, there's a lot of costs regarding the setup of
these these loans, so closing costs, origination fees, mortgage and
mortgage insurance premiums. So there was manipulation historically by those
who were preying on seniors and selling them by perhaps
not disclosing some of the higher than normal closing costs
(33:55):
and some of the other issues that went in with closing.
Speaker 3 (33:58):
Like any mortgage, there are fees.
Speaker 2 (34:00):
There are a lot of fees that are associated with it.
It's complex in terms of the age, the ocimcies, some
of the rules surrounding it. There's some complexities there that
just people would have to be aware of. You also
have just the general financial principles that interest continues to snowball, right,
You're borrowing against your equity at a interest rate in
the house, and so you're not making payments on that
(34:24):
interest that accrues, and so as a result, you're eroding
way at your equity. That that should be understandable for
anyone who's taking that out. That's not a new concept,
but that is certainly an issue that people just have
to be aware of. And of course the risk of
the impact it has on your state or your heirs,
but all those things are you would think that they
(34:45):
would be understood. Just something that there's been instances of,
you know, problems within the past, just and how it's sold.
Not to say it can't work for some folks, but
every everyone's situation is different. But usually it does have
a bad name that makes advisors of people's you know,
(35:05):
kind of recoil a little bit. It should be often
an area of last resort. You don't want to typically
leverage your home, your equity in your home because you
always need a place to sleep. So you don't want
to put yourself in jef brave if you don't have to.
There updated news on credit cards, and I'm starting to
get a little nervous about this Visa and MasterCards settlement here.
(35:29):
So there's been a long battle regarding interchange, which is basically,
if you or I go to swipe our card at
the local gas station, there is a fee that is
assessed to that gas station for me using a Visa
or MasterCard, can be anywhere from two and a half
to three percent, depending on what card you're talking about. Now,
Visa or MasterCard, they don't net that whole two and
(35:51):
a half or three percent. They take a very small
percentage of that called interchange. There has been a lot
of push by merchants for years to lower that fee,
and now it appears that there is a settlement that
still needs cort approval that could have negative implications to
what different merchants accept in terms of Visa credit cards.
(36:13):
Now typically is somewhere like Costco says we accept Visa
credit cards. That means they accept all Visa credit cards.
But there's the possibility that you, if I have a
Chase Sapphire rewards card, would pay a higher cost for
an item mark than you would with a lower version
of that card. For example, basically they would break out
(36:35):
tears of charge based on rewards card versus a more
basic version of a credit card, and that would just
drive me insane to have to worry about do I
have the right type of card that.
Speaker 5 (36:46):
Works not here.
Speaker 2 (36:47):
But the downside to the merchant doing that is I say,
all right, Costco's not going to accept my you know,
Chase rewards card, then I'm less likely to shop there
because they're going to nickel and dye me every single time.
So there would be counter forces in place if this
were to be the ripple effects of this settlement in place.
(37:08):
So there's still a lot to be sorted out here,
but that plus potential for rewards to be clawed back
a little bit, because this settlement does require a point
one percent reduction and Interchase fees paid over five years,
So that would mean that you know, some of these
rewards program maybe they'd have to peel back some of
(37:28):
their offerings a little bit, depending on what the card
issuer looks like. So I just hope it doesn't get
to that complexity of you know, certain cards you can't
use at certain places, or you're charge more for using
certain cards. It's much easier to just be you accept Visa,
or you accept MasterCard, or you don't, rather than breaking
out each different tier of card and charging differently for those.
Speaker 3 (37:51):
So yeah, I feel like it's a pretty good racket
right now for some of us. I'd hate to have
that disrupted.
Speaker 1 (37:56):
Yeah.
Speaker 2 (37:56):
I'll never forget when I was almost too good to
be true, that out on a date and I at
a place that I didn't expect American Express. That really
left me in a bad spot. That's all the time
that we have for this edition of the Financial Exchange,
but we'll be right back at it tomorrow at ten am.
A happy Terands Day to all our listeners out there.
Thank you so much for your service and for joining us.
(38:17):
We appreciate it.
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
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the hosts, do not reflect the opinions of Armstrong Advisory
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(00:20):
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(01:06):
and Mark Vandetti.
Speaker 2 (01:12):
A happy Veterans Day to all of our listeners out there,
and a big thanks to all those who have served
and protected our country. Here we kick off the second
hour of the program here taking a look around at
markets in relatively mixed territory. The Veterans Day holiday only
impacts the bond markets. They are close today. However, the
(01:32):
stock market is open and the S and P five
hundred off about a quarter percent. The Dow Jones up
about one hundred and eighty points, so not too big
of movement there. We'll kick off our start here with
a subject that we've covered probably add nauseum, but it
is the most important story when you're talking about the
stock market and the growth that we've seen this year,
(01:54):
is the idea of the AI bubble. I'm not the
first to bring it up, I won't be the last
to bring up the subject, but over the course of
the last probably six months or so, there has been
a lot more scrutiny on the amount of expense that
has been lined up to build out the infrastructure to
develop artificial intelligence in this country. The cycle sort of
(02:17):
kicked off with the release in November of twenty twenty
two were coming up on three years now when chat
chpt or a version of it was unveiled, that just
got mass popularity and adoption. I believe chatchpt sits around
seven hundred million plus weekly users at this point, so
it has become much more part of many people's day
to day usage. Now, what you had as a result
(02:39):
is many companies out there scrambling to become the dominant
player in the space. And as a result of that,
it takes billions and billions of dollars to build out
the infrastructure that is required to harness and sort of
materialize the computing power that's required here to make these
large language models or anything else on the software side
(03:03):
that deals with our official intelligence effective. And there's a
piece here that was done by Russell Brandham that sort
of reframes the way that you should think about the
AI bubble, that a bubble doesn't have to be something
that we talk about as an apocalypse, the sort of
the end of the world, that if this bubble is
(03:24):
to pop, that it would be some huge problem. What
we saw to make the parallel comparison to the Internet
age in the late nineties, there were some companies that
came out of that very successful and were built on
the backs of all that infrastructure investment. Think the Googles
and Amazons of the world, But there were many others
that crashed and burned and never really saw a material
(03:46):
gain from that build out. But also note that it
took time before everyone had laptops on their desk and
the Wi Fi connectivity was as widespread as is this country.
It's taken a long time to get there. The same
thing could be said here out of artificial intelligence and
it's built out. The question is just going to be
how long are investors going to willing to be patient
(04:08):
to see any sort of material development on the revenue
growth side of things for all of the money that's
going to be invested in building this thing out and
will profits.
Speaker 3 (04:17):
The most interesting take on this, I think is by
Michael Burry and other famous speculators, people who are known
for their short selling acumen, meaning they make a bet
at a share price or a market will will fall.
We don't have to get into the specifics of that,
but there are people who made a lot of money
in the financial crisis of two thousand and eight and
(04:39):
nine who are now sounding warnings about the way companies
are doing their accounting for the stuff they're buying. All
these hundreds of billions three trillion dollars will be needed
to invest, will be needed by the so called hyper scalers,
these people building these big data centers over the next
several years. That's ten percent of one year's worth of
(05:00):
GDP so on. An enormous amount of money is going to
go into this. How are they going to account for that?
And there's this interesting take by some of these short
prominent short sellers that excuse me, earnings will of Meta
and others will be overstated significantly because they've extended the
depreciation schedule, if you will. It's watching the terminology a
(05:21):
little bit here. They've extended the estimated useful life for
accounting purposes of some of these assets. Chips become obsolete
really fast, right.
Speaker 2 (05:27):
Three to five years, maybe on some of these new ones.
Speaker 3 (05:30):
Like at Best. I think Nvidia makes the joke now
that they can't give away last year's chip. Yes, so
is that worthless if you bought them? And if so,
should that count against your earnings? Companies like Meta and
others are saying no. Some have made the point that
their earnings may be overstated significantly. Twenty thirty percent of
these are short sellers who may be talking up their
(05:52):
own book, but earnings may be significantly overstated for the
next several years. All l sequel is a result of
this accounting. I'll call it a sleight of hand that
may not be fair.
Speaker 2 (06:03):
What we've seen is valuations have soared in most any
company that is touching this space, but there is a
huge fork in the road of software continues to be
developed and iterate very quickly. When you look at artificial intelligence,
there's a lot of work done there. But on the
computing side of things, when you're building out computing capacity,
(06:24):
it is much more the traditional slow crawl of construction
and you know power and utility use that takes a
long period of time to get online. So you have
hundreds of billions of dollars committed to building out these
data centers that are faced with the challenges that the
technology sector typically doesn't have to deal with as much.
(06:47):
That they're able to develop and innovate a lot quicker.
But when you're waiting on a data center down Louisiana
that's you know, ten home depots long, there are a
lot of pitfalls that you can bump into on the
construction side on the amount of resources that are dedicated
for that type of plan.
Speaker 3 (07:05):
So they're not exaggerating either, these enormous completed data centers
that don't have juice exactly.
Speaker 2 (07:11):
Yeah, and you have to be electrical demand for to
get hooked up to the grid. That can take time,
and there's a lot of money be invested in the
other pieces that I have had trouble. And I don't
know if you've ever found a story that indicates this,
that one company adopting artificial intelligence and transforming its business.
And I listen to a lot of material that is
(07:34):
pro this technology, whether it be podcasts or things of
that nature that are on the cutting edge of technology
that in their own best interests really hype up its
potential benefit. But I just wish I had a concrete
example of and I'm talking about the newer artificial intelligence,
because to be clear, Google and Facebook have already cashed
(07:56):
big checks from it. This in a different way. Machine
learning that kind of thing our official in towns, but
the newer iterations of it, I just have not heard.
Speaker 3 (08:03):
Machine learning is definitely not new.
Speaker 2 (08:05):
Yeah, they are the algorithms and what you see when
you log into your Instagram account or YouTube. Those are
things that were built out from machine learning and algorithms
that are of yesteryear. But so I just want to
be clear that I know that they've benefited from that.
But on the newer side of things, where companies have
said this has been transformative and it has shifted our business,
I just haven't heard enough of those stories yet. McKinsey
(08:27):
and others have done a lot of hot analysis where
there has been cost cutting that has been done as
a result of the use of our official in talents,
but nothing that has transformed the business. So that's where
I have the most trouble. I'm not downplaying the technology,
but I just wish I had some more conc.
Speaker 3 (08:46):
We should be skeptical. I mean, in our jay day jobs,
we're fiduciaries. We safeguard people's money. It's our job to
be skeptical and not jump on every bandwagon. So that's
just that's in our nature. But MIT, a group of
researchers at MIT early in the year did a study
and they concluded that just five percent of integrated I'm
reading directly from it from the executive summary, just five
(09:07):
percent of integrated aipilots are extracting value, while the vast
majority remain stuck with no measurable P and L impact
ie they can't figure out how to deploy this stuff profitably.
Ask yourself, have you used Microsoft Office lately? Of course
you have PowerPoint, Excel, Word. We all use the suite.
It is my experience using Office is not materially different.
(09:28):
And I'll throw out Look in there too, And some
of these programs had different names in the nineties. Is
not materially different than it was in the nineteen nineties,
and I would defend that statement. Excel does not do
much more functionally if you don't know how to do
data analytics yourself. It's got some helpers in there now.
But other than that, Excel experience is the same. The
word experience is mostly the same, other than those annoying
(09:49):
prompts about how to finish a freaking sentence like I
don't know what's in my head when I'm writing, when
I'm midstream writing, and I don't, and I need them
to distract me a with a prompt so called co pilot.
I'm going to be a little cruel here, but blunt
and say it's useless right now. That is not additive
to mine or anybody's productivity. I would welcome people pointing
(10:10):
out cases of it being productive and additive to helping
them do their job more quickly. But to this point
I have not experienced that, and I'm a pretty intense
user of it. I like exploring new features. I'd welcome
it largely. You ask excels, Chat, GPT, copilot add on
to build you a table. It struggles with very basic
(10:30):
instructions when you're very specific. I've heard some coders say, well,
chat GPT is good for coding, you tell it what
you but you have to spend all this time cleaning
up their crap code. In my experience that, I mean,
maybe it's better than a newbie right out of college
helping you, but it's not going to replace anybody anytime soon.
My point here, sorry for rambling, is that think about
(10:52):
your own experience now versus the nineties and the nineties.
This stuff was life changing. We went from primitive word
processors to Microsoft World to being able to use Office
from Home and video com All this happened within a
few years. In the nineteen nineties. Sending attachments by email,
they got bigger and better. We've been stalled since then.
(11:12):
In my view, someone who's used the word the office
suite consistently for thirty years, which I think is where
the bulk of the life changing experiences for those of
us in desk jobs has been.
Speaker 2 (11:22):
I think that's fair. We're going to take a quick
break here on the Financial Exchange. When we come back,
when we be talking with Corey Adams from Robert haf
going over some of the talking points on their recent
survey on year end bonuses. We're also going to have
trivia here too right after this break here on the
Financial Exchange. Stick with us.
Speaker 1 (11:42):
Find daily interviews and full shows of the Financial Exchange
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This is the Financial Exchange Radio Network. The Financial Exchange
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(12:03):
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Speaker 4 (12:19):
This segment of the Financial Exchange is powered by Circle
K Convenience Store. Circle K is now the official convenience
store of the Davy Department of Massachusetts. On behalf of
Circle K. Thank you veterans for all you've done.
Speaker 2 (12:34):
As promised, we are joined by Corey Adams from Robert
Half to talk a little bit about year end bonuses. Corey,
thank you so much for joining us today.
Speaker 5 (12:46):
Good morning, Paul, Thanks for having me.
Speaker 1 (12:48):
Corey.
Speaker 2 (12:48):
So, you guys did a survey of two thousand US
professionals and got feedback regarding what they anticipated that their
bonuses would be for this upcoming year. What were some
of the major takeaways that you had And another question
there is was a significant percentage of these that were
(13:08):
surveyed with companies that do give your end bonuses, Like
how prevalent is that within the workspace in the country here?
Speaker 5 (13:17):
Sure so, according to research let's start here, nearly half
of workers, about forty six percent said that they received
a small bonus and they expected or no bonus at
all in twenty twenty four. Now, the other side of
this is a separate Robert Half research and story that
we conducted. It found that fifty three percent of workers
said that they'd be willing to switch employers for one
(13:39):
offering stronger bonuses incentives And so to answer the second
part of the question, Yes, the dataset that we use
was tailored towards employees across the domestic us who as
part of their compensation package we received some form of
bonus option.
Speaker 2 (13:54):
Gotcha for heading into twenty twenty six, what is sort
of the the year end bonuses? What does that mean
for business confidence going forward? Are you seeing that employers
are a little more hesitant to give as big bonuses
as they did previously in twenty four and sort of
(14:15):
what does that mean for the labor market and perhaps
consumption going into twenty twenty six year?
Speaker 5 (14:20):
Sure, so a little bit of both on this, So
I mean thinking about last year. Last year truly was
kind of a mixed bag for bonuses. As I just
stated from our research, nearly half said that their bonus
was significantly smaller or was non existent. So clearly it's
a sign that some employers are being a bit more
cautious with variable compensation. Now that being said, many companies
(14:41):
still rewarded their top performers, signaling that retention remains a
top priority even when their budgets are tight. So we
all know that ultimately, bonuses are often a clear indicator
of how companies feel about their financial position, their financial performance,
as well as their future prospects. So anytime you see
that that gets scaled back, it can certainly suggests some
(15:02):
level of uncertainty or tighter margins. But you know, here's
the other thing. We're also seeing some signs of optimism.
Our recent twenty twenty six SAUR guide shows that some
companies are actually focusing on total compensation. This is a
big theme here, so it's not about just pay. It's
also about offering flexibility, career development, and recognition, and all
of this is being done in an attempt and a
(15:22):
design to keep morale high as companies are heading into
twenty twenty six.
Speaker 2 (15:26):
What would be some of those example there with flexibility,
career development, and recognition. You know, those are kind of
words that are throw around, but is it more remote work,
Like what does that actually materialize into on the employer
side of things? Do you think?
Speaker 5 (15:38):
Sure? I'll give you a few examples. So obviously, around
this time of the year, a number of conversations are
going to play out, and some of them might not
go as well as some employees would like just the
reality of the kind of the market and the climate
that we're in. So smart companies are taking a little
bit more of a holistic approach in this area, particularly
as it pertains to retention. So when cash bonuses are
(15:58):
not feasible, they're not an option out in play. There's
a few things that we're seeing that many companies and
organizations are offering instead. So the first one to your
question is additional paid time off and flexible schedules, which
we know with flexible schedules that's certainly important more nowadays,
particularly those with families and young kids. The second thing
that we're seeing is professional development stipends, and by the way,
(16:21):
this has come in the form of online certification and
online class and this is sort of a double win
because if you think about it, if you're paying for
your employee develop a new skill set and you're upscaling them,
they're going to have the opportunity to sort of bring
that back and pour that into the organization. So it's
a win win for both sides there. And then the
last thing that we're seeing in the absence of cash
bonuses is expanded benefits like wellness incentives or even remote
(16:44):
work options, and so obviously the remote work we've talked
about for a number of years here, and this could
be an incentive that could be offered to an employee
and the absence of a bonus that might not have
been affwarded the option to do any sort of remote
work in the past.
Speaker 2 (16:58):
Great information there, Corey Adams from Robert Haff, Thanks so
much for the time today, Corey, Thanks ball, every good day.
Speaker 4 (17:04):
All right, time for trivia here on the Financial Exchange
and on this day. Back in twenty twenty two, cryptocurrency FTX,
founded by Sam Bankmanfreed filed for bankruptcy amid accusations of
financial mismanagement and criminal misconduct. Bankmanfreed was convicted of fraud
and conspiracy and sentenced to prison in November of twenty
(17:25):
twenty three. So our cheer of your question today, how
long is Sam break Bankman Freed's prison sentence? Once again,
how long is Sam Bankman Freed's prison sentence? Be the
fourth person today to text us at six one, seven three,
six two thirteen eighty five with the correct answer, and
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(17:46):
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Speaker 2 (17:57):
Apple's restraint finds fans as AI faces scrutiny. Here a
piece from Bloomberg. Apple is one of the companies of
sort of these magnificent seven that we talk about so
frequently on the show that hasn't spent a significant amount
on developing artificial intelligence. I think perhaps speaking for them,
they could be the beneficiary of its development, as they
(18:19):
are a huge player on the hardware side of things.
Many of us walk around with their iPhones every single day,
so if these apps continue to develop and are successful,
you'd think that Apple benefits from being the host on
the platform. But their capital expenditures this year are fourteen billion,
compared to its peers such as Microsoft that will spend
up to ninety four billion, and Meta, which is half
(18:42):
the size of Apple, is set to have expenditures of
more than seventy billion in twenty twenty five. So as
a result of that, Apple has sort of sat on
the sidelines of this trade that hurt them earlier in
the year, where a lot of the companies that were
heavy in our official intelligence got a significant run oot
up in their stock price, but more recently it's benefited
(19:03):
them a bit as there's been some concerns that have
arisen regarding all of those capital expenditures that I alluded
to there. So we'll be interesting to see if Apple
makes more investment in our official intelligence. But sort of
taking a wait and see approach here at the moment,
we're going to take a quick break here on the
Financial Exchange. When we come back, we're gonna have the
(19:24):
answer to our trivia question and Wall Street watching much
much more right after this break.
Speaker 1 (19:39):
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 market so far today right here on the
Financial Exchange Radio Network.
Speaker 4 (19:58):
After yesterday' strong rebound markets, today our mixed territory after
the Senate officially passed a bill to envy historic government shutdown,
sending it to the House. Right now, the Dow is
up by nearly half a percent or two hundred and
seventeen points, SMP five hundreds down about a quarter percent
or eighteen points, NASDAC down about three quarters of a percent.
(20:21):
Or one hundred and eighty four points rusted two thousands,
down about a quarter of a percent. Bond market closed
today in an observance of the Veterans Day holiday, and
crew to Oil up nearly two percent higher, trading at
sixty one dollars in seventeen cents a barrel. In Nvidia
retreating three percent after soft Bank disclosed it sold its
entire five point eight billion dollar stake in the chip
(20:44):
maker and AI giant, where the firm set it looks
to capitalize on its all in bet on chat GPT
maker Open Ai, sticking with AI, where Core Weave stock
is plunging thirteen percent after the company posted a disappointing
full year guidance and cited a delay by a third
party data center developer. Core We've saw its revenue more
(21:05):
than double in the previous quarter, driven by the AI boom,
while its net loss narrowed. Meanwhile, Plant based protein company
in recent meme stock Beyond Meat, saw it's loss widen
and sales declined last quarter as demand from customers and
restaurants fell beyond Now down eight percent. Elsewhere, Paramount reported
(21:25):
growth from its streaming division in its first quarterly report
since its merger with sky Dance. Paramount also raised its
cost cutting target to at least three billion dollars. That
stock is jumping ten percent, and Occidental Petroleum reported mixed
third quarter results, beating on adjusted earnings but missing on
revenue estimates. However, the shares are up over two percent.
(21:48):
I'm Tucker Silva and that is Wall Street Watch. And
in the previous segment we asked you the trivia question
how long is Sam Bankman Freed's prison sentence? That will
be twenty five years. Chris from Wakefield Masses are winner
today taking them a Financial Exchange Show t shirt. Congrats
to Chris, and we play trivia every day here in
the Financial Exchange See complete contest rules at Financial Exchange
(22:09):
Show dot com.
Speaker 2 (22:10):
In the previous segment, we were talking a little bit
about Apple's positioning as it comes to the artificial intelligence wave,
how they perhaps have not invested or they haven't invested
as significantly as some of their megacap peers. But Mark,
you had a follow up question for me.
Speaker 3 (22:27):
You follow these stories closely, so where do its critics
think Apple should be spending more? Because these articles when
I come across them, are always very vague. Is there
a particular area where they think they're falling behind their competitors.
Speaker 2 (22:40):
One would be on You could say that perhaps that
they should be developing their own large language model and
they that should be incorporated with Siri, which is just
useless in my view at this point on their devices.
Speaker 3 (22:55):
So Siri inferior to the Google operating software operating systems
version of an aisyst.
Speaker 2 (23:03):
The general feedback and Siri from personal experience and also
I believe for many other users out there, is that
it lags behind the large language model capabilities of our
I mean the speaking aspect different is differentiated from chat,
Gibt or Gemini or some of these others, but it
pales in comparison the user experience using that versus some
(23:25):
of these other large lengths.
Speaker 3 (23:26):
And is that moving people to somebody else's operating system though?
Or is it just kind of a nice thing to.
Speaker 2 (23:31):
Have or nice thing to have, you know?
Speaker 3 (23:32):
I think that, well then why would they?
Speaker 2 (23:34):
Yeah that that's one the benefit the reason that they
could be a beneficiary, and perhaps that your skepticism is
right by saying do they really have to do they
really have to invest the significant amount? Ultimately they could
create what is the walled garden here of any type
of app innovation that comes about through our official intelligence
is going to have to be hosted on one of
(23:55):
Apple's platforms, whether it's the iPhone or any of the
other hardware devices that you use. So ultimately, their services division,
which is going to take that twenty five percent revenue
cut of anything that's launched on their system, on their
io system for applications download, you could argue that, hey,
(24:15):
they're going to sit right there as sort of the
entry way into where all of these innovative apps would
be posted in the first place, So why do they
need to spend the billions of dollars to do it?
The counter argument would be the reason that open ai
went out and hired It's Bonnie, what's the developed the
one who designed jony I Thank you, is because they
(24:39):
want to create their own hardware system that would supplement
or not would supplant the iPhone there. So that's sort
of the pros and cons of the position that they
sit in at the moment. But other than the seri front,
I can't really think of anything. Also, it's design of
its own chips, you know, that's another aspect here that
(25:03):
if they could utilize that to sort of further enhance
their position with the custom chifts that they have in place.
Maybe that that's their play there.
Speaker 3 (25:12):
Yeah, okay, I think you've done a great job of
explaining it. It's just still very non specific criticisms, not
based on what you just told me, but based on
the articles that I occasionally read on this subject. They
seem very non specific. Well, yeah, Apple hasn't jumped on
the bandwagon and they're being punished. Well, what do you
think they're missing out on specifically and how is that
likely to hurt them in two, three or five years?
Speaker 2 (25:35):
And to be fair, in their history, a lot of
times they have come in late to the party on
technology trends, but come out with the best product after
the fact. The iPhone is an example of that. The PCs,
the mac pieces that they develop at some points of
time were better than the competitors out there, and then
they took a foothold after the fact. They weren't the first,
but they became the best. Okay, we'll see, that's.
Speaker 3 (25:57):
Helpful, thank you.
Speaker 4 (25:58):
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Speaker 2 (27:05):
First Brands a little known company that has got a
lot of negative notoriety over the course of the last
few months. Here regarding its business practices and sort of
shining a further spotlight on the private credit market. The
new CEO who's taken over for First Brands for listeners
out there, that it's an auto parts store that got
(27:27):
all tied up in a massive scandal with over leveraging
themselves to many different creditors out there. The new CEO
who's taken on the First Brand's role, Charles Moore, testified
that the founder of First Brands Or did the transfer
of hundreds of millions of dollars of corporate cash to
his personal bank account and businesses that he controlled. He
(27:50):
also testified more this is that he uncovered evidence of
massive financial fraud at the company, including fake invoices and
double pledging of collateral, so basically taking an asset and
pledging it for two different loans out there. Three members
of the management team have admitted to doctoring invoices to
the new chief executive, Charles Moore, in order to secure financing.
(28:14):
So mark clearly a significant amount of fraud it appears
under the hood here at First Brands, and that would
be the argument that you could have if you are
not concerned about the glut of private credit out there
that perhaps this is just one bad actor and an
example of financial fraud, just a one off. But others
have just raised concern that perhaps this is more prevalent
(28:36):
in the space because of the just explosion of the
private credit market over the last five to ten years.
Speaker 3 (28:42):
Yeah, I think it's the latter. There will be other
end Jamie Diamond used the cockroach analogy. I think he's
probably right financial conditions. We don't know if this, if
this James Fellow is guilty. The anecdotes are a little
comical because they're they're so uh, they're so audacious and
(29:03):
and and and flavorant, and it was it seems like
he wanted to get caught doubleching of invoices, using them
as collateral to get loans, using multiple getting multiple loans
on the same collateral, but like gett multiple mortgages on
the same house.
Speaker 5 (29:16):
Yeah, on these can actually do.
Speaker 3 (29:18):
Maybe that's not a great example, but lying lying to
you're just lenders of it.
Speaker 2 (29:21):
If you're doing if you were going through these business practices,
you're just waiting for it to blow, You're waiting for
it to catch up.
Speaker 3 (29:27):
We're definitely getting bolder, it seems like. But I think
that the the The key point others have made this
point is that financial conditions are quite loose. I naturally
blame the FED for that, because they're responsible for financial conditions,
and when you create frothy conditions, and they almost certainly have.
We spent the first hour talking part of it anyway
about a potential bubble in AI and elsewhere. Invariably that
(29:51):
attracts bad actors and you get stuff like this. What's
equally puzzling is how U big institutions that lent them
money or otherwise pronounced on the credit worthiness of these
loans missed all this stuff. So there's always that aspect
of stories like this too. Who was doing the due
(30:11):
diligence on this stuff, meaning who was making sure that
in this case First Brands collateral was actually existed, which
apparently it didn't.
Speaker 2 (30:22):
Yeah, whenever you have froth, there are a lot of
demand in a market. It always seems like you're able
to companies are able to manipulate that demand and start
to get a little less scrupulous with some of their business.
Speaker 3 (30:34):
Yeah, the accounting scannels of late nineties happened during a boom.
You would think, well, times are good, you don't need
to cut corners. No, for some reason, these people who
are kind of sociopathic, I guess to begin with, the
temptation just becomes too great greed.
Speaker 2 (30:48):
Yeah, that's the story. We're going to take a quick
break here on the Financial ex Scenes. When we come
back room, you're doing a little bit of stack roulette
right after this.
Speaker 1 (30:58):
Here the Financial Exchange every day from eleven to noon
Non Serious XM's Business radio channel one thirty two. Keep
it here for the latest business and financial news and
the trends on Wall Street. The Financial Exchange is now
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(31:19):
streams live on YouTube. Subscribe to our page and stay
up to date on breaking business news all morning long
Faces the Financial Exchange Radio Network.
Speaker 4 (31:31):
Remember, you can watch the show live every day on
our YouTube page. We'll have breaking business news and all
of our content is also archived, so if you want
to see an interview or a discussion about a specific topic,
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Speaker 2 (31:52):
All right, we are back for a little bit of
stack roulette, Mark, I will let you bad lead off.
I know you've got some zin kooky story for us,
or perhaps some more shatter about the FED.
Speaker 3 (32:07):
Now, a story about reverse mortgages in the Financial Times
caught my eye. For what it's worth, not something we
talk about a lot, not something I know much about. Frankly,
so I found this interesting for what it is worth
cash strapped American seniors. The Financial Times reports are turning
to reverse mortgages a controversial type of loan. Do you
(32:28):
agree with that statement? Are they controversial?
Speaker 2 (32:29):
Yes, They've been sold under manipulative pretenses in the past.
Speaker 3 (32:34):
Okay, so people not knowing what they were getting into,
not understanding what is the biggest oak. So the point
of this story is that demand for these suckers ticked
up rose more than six percent the number of federally
insured mortgages did, the Financial Time says in the last
in the twelve months ending September thirtieth, It doesn't appear,
by the way. That's the number of reverse mortgages is
(32:56):
well below it's all time high, which was hit in
the late two thousands. Maybe that was when the oldest
of the baby boomers just began to enter retirement and
needed that additional income, and the use of these has
just been trending. That's not too strong a word, trending
down way down. It's just a fraction of what it
(33:17):
was now, of what it was in the late two
thousands today. But manipulative practices, you mean people are getting
people were goaded into getting into these things, not realizing
that what they lose their house at the end of
the term, like when you die, the house goes to
the lender.
Speaker 2 (33:34):
Yeah, there's a lot of costs regarding the setup of
these these loans, so closing costs, origination fees, mortgage and
mortgage insurance premiums. So there was manipulation historically by those
who were preying on seniors and selling them by perhaps
not disclosing some of the higher than normal closing costs
(33:55):
and some of the other issues that went in with closing.
Speaker 3 (33:58):
Like any mortgage, there are fees.
Speaker 2 (34:00):
There are a lot of fees that are associated with it.
It's complex in terms of the age, the ocimcies, some
of the rules surrounding it. There's some complexities there that
just people would have to be aware of. You also
have just the general financial principles that interest continues to snowball, right,
You're borrowing against your equity at a interest rate in
the house, and so you're not making payments on that
(34:24):
interest that accrues, and so as a result, you're eroding
way at your equity. That that should be understandable for
anyone who's taking that out. That's not a new concept,
but that is certainly an issue that people just have
to be aware of. And of course the risk of
the impact it has on your state or your heirs,
but all those things are you would think that they
(34:45):
would be understood. Just something that there's been instances of,
you know, problems within the past, just and how it's sold.
Not to say it can't work for some folks, but
every everyone's situation is different. But usually it does have
a bad name that makes advisors of people's you know,
(35:05):
kind of recoil a little bit. It should be often
an area of last resort. You don't want to typically
leverage your home, your equity in your home because you
always need a place to sleep. So you don't want
to put yourself in jef brave if you don't have to.
There updated news on credit cards, and I'm starting to
get a little nervous about this Visa and MasterCards settlement here.
(35:29):
So there's been a long battle regarding interchange, which is basically,
if you or I go to swipe our card at
the local gas station, there is a fee that is
assessed to that gas station for me using a Visa
or MasterCard, can be anywhere from two and a half
to three percent, depending on what card you're talking about. Now,
Visa or MasterCard, they don't net that whole two and
(35:51):
a half or three percent. They take a very small
percentage of that called interchange. There has been a lot
of push by merchants for years to lower that fee,
and now it appears that there is a settlement that
still needs cort approval that could have negative implications to
what different merchants accept in terms of Visa credit cards.
(36:13):
Now typically is somewhere like Costco says we accept Visa
credit cards. That means they accept all Visa credit cards.
But there's the possibility that you, if I have a
Chase Sapphire rewards card, would pay a higher cost for
an item mark than you would with a lower version
of that card. For example, basically they would break out
(36:35):
tears of charge based on rewards card versus a more
basic version of a credit card, and that would just
drive me insane to have to worry about do I
have the right type of card that.
Speaker 5 (36:46):
Works not here.
Speaker 2 (36:47):
But the downside to the merchant doing that is I say,
all right, Costco's not going to accept my you know,
Chase rewards card, then I'm less likely to shop there
because they're going to nickel and dye me every single time.
So there would be counter forces in place if this
were to be the ripple effects of this settlement in place.
(37:08):
So there's still a lot to be sorted out here,
but that plus potential for rewards to be clawed back
a little bit, because this settlement does require a point
one percent reduction and Interchase fees paid over five years,
So that would mean that you know, some of these
rewards program maybe they'd have to peel back some of
(37:28):
their offerings a little bit, depending on what the card
issuer looks like. So I just hope it doesn't get
to that complexity of you know, certain cards you can't
use at certain places, or you're charge more for using
certain cards. It's much easier to just be you accept Visa,
or you accept MasterCard, or you don't, rather than breaking
out each different tier of card and charging differently for those.
Speaker 3 (37:51):
So yeah, I feel like it's a pretty good racket
right now for some of us. I'd hate to have
that disrupted.
Speaker 1 (37:56):
Yeah.
Speaker 2 (37:56):
I'll never forget when I was almost too good to
be true, that out on a date and I at
a place that I didn't expect American Express. That really
left me in a bad spot. That's all the time
that we have for this edition of the Financial Exchange,
but we'll be right back at it tomorrow at ten am.
A happy Terands Day to all our listeners out there.
Thank you so much for your service and for joining us.
(38:17):
We appreciate it.
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