February 6, 2026 • 38 mins
Chuck Zodda and Mike Armstrong break down Amazon’s earnings stumble and the shockwave from $200 billion in AI capital spending, questioning whether massive data-center buildouts are racing far ahead of real demand. The hour also examines software commoditization, private credit exposure to tech, growing risks inside insurance balance sheets, and why “doing nothing” only works if portfolios were built with intention in the first place.
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Speaker 1 (00:00):
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(01:06):
and Mike Armstrong.
Speaker 2 (01:10):
It's a Friday here on the Financial Exchange. Chuck, Mike,
and Tucker with you, and we're gonna kick things off
with a discussion of Amazon, who reported earnings after the
bell yesterday, And even though the vast majority of my
board is showing green on it, there's a big red
(01:31):
dot right in the consumer cyclical sector with the ticker
AMZN down eight point nine to three percent. And it
means one of two things in my mind, Michael. It
either means that Amazon had a horrible earnings miss or
something about their guidance upset markets. So let's talk first
about their actual earnings, which were fine ish, Like they
(01:56):
weren't great. They weren't amazing, they weren't horrible, they were
were fine. They had a slight miss on earnings for
the quarter.
Speaker 3 (02:06):
Road services growth wasn't as good as some of their competitors.
Speaker 2 (02:10):
Nope, revenue was fine, like they beat expectations on revenue.
So ultimately, there's nothing in the actual earnings data that
I think is hugely problematic. No, nothing problematic.
Speaker 3 (02:22):
But I will also say that the last couple of
quarters when tech companies report, if they don't absolutely knock
the cover off the ball. Their stock has been beaten
up a little bit, and they did not, by any
means not the cover off the ball.
Speaker 2 (02:34):
No, the more problematic issue that they have is the
fact that they have now joined Google in back to
back days in being like, oh, you think that we're
gonna do X and capex, No, we're actually gonna do
X plus like forty percent.
Speaker 3 (02:53):
So CAPEX guidance for twenty twenty six for Amazon now
came in at two hundred billion dollars, which is the
top of the list when you look at everybody out
there between Amazon, Alphabet, Microsoft, and Meta. Amazon wants to
spend more than any of them.
Speaker 2 (03:09):
And when you add all of them up, and again
this is a moving target, but we're now at about
six hundred and fifty billion dollars between the four of them.
Speaker 3 (03:17):
Yeah, that would be towards the top end of the
ranges that they've all provided, which I thought an interesting exercise,
like what do we as a country spend on spend
money on in terms of a product that even comes
close to the type of spending. I was looking at
gasoline sales across the entire country. The latest date I
could get was twenty twenty two. But in twenty twenty two,
(03:37):
total US consumer spending on gasoline was estimated to be
about five.
Speaker 2 (03:41):
Hundred and sixty billion.
Speaker 3 (03:43):
So just like for some scale there what we're talking
because nobody can fathom what two thirds of a trillion
dollars actually means.
Speaker 2 (03:50):
I can I can't, I don't. I can't do it
all the time. I don't really understand what that means.
Speaker 3 (03:55):
And this was some helpful context that like, add every
American out there in terms of their gasoline perch is
that they do every other day every week, and you
get to around close to what they're talking about spending
on AI CAPEX.
Speaker 2 (04:10):
I mean, here, here's the way to phrase this. There's
about two hundred million adult Americans. Okay, if every one
of them spend three thousand dollars a year on AI,
that would equal this, Yes, guys, like preposterous dollars. I'm
really sorry that I finally like have gotten to this point.
(04:33):
It ain't gonna work because remember this is just one
year of CAPEX. They're talking about doing this year after
year and continuing to agree. No one's gonna use this
stuff to this extent.
Speaker 3 (04:44):
Well, and also I think it kind of raises the
question of whether or not they could spend this much
money if they actually wanted to. I don't know that
they can spend it on enough chips and ram to
be able to do.
Speaker 2 (04:55):
The part of the problem is they're trying to build
so much that all they're doing is driving the cost
up and not actually building more. Like, yes, there is
more that's being built, but some of this is being
driven by additional cost and so it also gets to
the point where Amazon is not going to be able
to cover this out of free cash flow. They're not.
Amazon's free cash flow in the trailing twelve months then
(05:17):
the quarter before was about ten billion dollars. This kind
of increase here means they're probably gonna have to borrow
or dip into their cash pile. They do have about
one hundred billion in cash on hand, but either way,
you're talking about somewhere between like forty and sixty billion
dollars that they are going to have to dip into,
(05:38):
either their cash pile or the borrowing markets. I really
am at the point I don't know where this money's
going to come from, and I think that's kind of
what investors are saying here is you're starting to write
checks that your body can't cash. And this is going
to be a problem, especially because these models are increasingly
(06:01):
looking like they're commoditized. There's not that much difference between
all of them. They're all releasing new versions every couple weeks,
Like this is what commoditization looks like when you see
it happening in real time.
Speaker 3 (06:17):
I guess I want to clarify there. I'm with you
about the commoditization of the models. I don't know how
anyone would sit here and judge whether six months from now,
chat apt Gemini, anthropic Anthropist Claude, or some new model
is going to be the best and brightest out there.
But am I wrong in stating that all of them
will need compute power from the likes of what Amazon
(06:41):
is attempting to do?
Speaker 2 (06:42):
So couple things. The first is that the general thinking
as to why you need these bigger and bigger computing cousters,
there's two reasons for him. The first is to train
the models, and I think we've reached the point of
diminishing returns there. Quite honestly, it's like, do I really
want to pay eighty percent more for a model that's
(07:03):
two percent better?
Speaker 4 (07:05):
No?
Speaker 2 (07:05):
Like what's what's the point, Like for the average person,
you don't need that, yeah, sure. The second is you
need it for what's called inference, which is the actual
demand side, which is I'm throwing stuff into the model,
spit it back out, and maybe the demands there. Maybe
it's not like I don't know, but I do know
that none of this is profitable at this point. And
(07:28):
the reason that I know this is because, you know,
open ai likes to be like, oh, we've got like,
you know, X hundred million users. Yeah, like eight of
them pay for your product right now, go go said
the same thing.
Speaker 3 (07:38):
They've got three quarters of a billion users on Gemini.
Speaker 2 (07:42):
But and look it's an exaggeration because open ai, I
do think their run rate for revenue is now up
to like fifteen or twenty billion dollars a year. That
doesn't cover two hundred billion dollars a year in capex. Sure,
I've done the math. Twenty billion is less than two
hundred and it's got in order of magnitude to go
to make that up. And remember this is one year
(08:04):
of construction for Amazon. So even if you think this
has a useful life of ten years, now you've got
twenty billion dollars in depreciation from this year, hitting your
income statement going forward. Then you're gonna have twenty five
billion from next year, then another thirty All of a sudden,
you got like one hundred billion dollars in depreciation each year.
That's hitting your financial statements. You have to at some
(08:28):
point get the revenue. And I feel like the buildout
is just happening so fast that it's happening without the revenue.
And here's the other piece that I think is missing
in this. Right now, the inference is being done on
these central servers. What I am starting to hear from
(08:49):
people in the AI space is that that might not
be necessary as you get to more efficient models that
are the next iteration. And what I mean by that is,
right now, there's a ton of compute powder that is
needed in order to power this. But some of the
stuff that's being done with open source models and things
(09:10):
that are you know, able to be modified and easily seen,
Like you know, in terms of what people are doing
are getting to the point where you can run them
locally on a computer, and then you don't need a
two hundred billion dollar data center commitment in order to
do this stuff. And especially what's to stop let's say
that I am company, Let's say i'm JP Morgan who
(09:32):
said they're gonna spend you know, two billion dollars or
whatever it is on AI this year. What's to stop
JP Morgan from saying, Hey, you know what, instead of
paying whoever to run this data center for us, Hey,
we're just gonna put one in our building in New
York and we don't need to worry like it's all
self contained, it's all controlled by us. They have the
(09:54):
resources to do it, and it probably is going to
be a lot cheaper, faster, and easier for them to
change what they want to on it. I'm not sure
I buy that piece.
Speaker 3 (10:03):
I'm not sure if you're a New York bank, you
want to run a data center in your New York headquarters.
They already do, I know they do, But I can
see the value in running it in Wyoming or Wisconsin.
Speaker 2 (10:13):
If you are JP Morgan, cho we don't put it
in New York like you can understand wherever, but you
don't need these companies to do it. Yeah.
Speaker 3 (10:20):
Here's where I kind of look at this is I
think all of these CEOs genuinely believe that they are
going to that the industry itself is going to need
much more compute power over the course of the next
five to ten years. And I think that they are
right about that. What I also think could be very
possible is they are overestimating how much compute power is needed.
(10:43):
And I think, but I don't think there will be
somebody out there that comes out and says, oh, we
can do what Amazon's doing in terms of building data
center capacity better than them. I do think there's actually
a mote here in the way that there is not
in the models themselves.
Speaker 2 (10:58):
But my point is you don't need data like the
right that average person doesn't need. You can run a
local model on your computer and it never has to
touch any of those servers. Yeah, that would be My
concern is that they overestimate it. And I don't know.
Speaker 3 (11:12):
I don't know how to estimate how much of this
compute power is actually necessary. But historic tech buildouts have
been defined by major powerful companies overestimating how much infrastructure
is needed, and that would not be shocking this time around.
Speaker 2 (11:29):
But I'm trying to find it.
Speaker 3 (11:30):
You know, devil's advocate point of view on all this,
and the devil's adate point of view would be maybe
these aren't going to get much more efficient, and maybe
this compute power is necessary, and if that's the case,
then these four will be pretty much the only games
in town to be able to provide it. But that
does not really line up with how, for instance, the
(11:51):
Internet was built out.
Speaker 2 (11:52):
Or railroads or airlines or radio or any other transformative
technology that did change the world. Yeah, but ultimately resulted
in huge speculative bubbles and massive losses like these. I've
said it the whole time. These two things can be true.
At the same time. We will be using way more
AI ten years from now than we are today, and
(12:14):
we're also likely to see a huge excess of capital
flowing in that's going to be destroyed.
Speaker 3 (12:19):
We talked a little bit about the software blowout in
markets this week. I want to take a step back
next and really talk about what everyone's talking about with
vibe coding.
Speaker 2 (12:31):
What the heck it is?
Speaker 3 (12:32):
Because we talked about it yesterday, I don't think we
did a great job defining it.
Speaker 2 (12:35):
I want to talk.
Speaker 3 (12:35):
About the week that was destruction in the software market.
That's next on the Financial Exchange.
Speaker 1 (12:42):
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Speaker 2 (13:13):
All right, Mike, what do you got on software for me?
Speaker 3 (13:17):
Well, I wanted to talk just about what this release
from Anthropic really was and why people cared about it
so much. So we talked about the topic of vibe
coding yesterday on the show. And I don't know if
you can define it better than I can, but I'll
take a swing at with Anthropics new tools. It attempts
(13:37):
to make it so that the pretty much layman can
go in there and build things fairly easily without needing
a full coding background. From what I've heard, it's also
very valuable for actual coders who know what they're doing.
But in plain English terms, you can type in a
prompt and say, hey, this is what I am attempting
to design. Please write the code and design the website
(13:59):
to do X, Y and Z, and so even you know,
a complete and utter coding moron like me might be
able to build a website that frankly probably looks like
it was built in two thousand and five, but it
is something that would actually be able to be created
with these tools, and for those that actually know their.
Speaker 2 (14:17):
Stuff, it just makes them a lot faster.
Speaker 3 (14:20):
I know that that's kind of been used to describe
AI generally, but this was seen as a bit of
a breakthrough. So do you have something to add to
it to explain why it was seen as more of
a breakthrough than what I just described, or is it
just another iteration of what other companies had already been doing.
Speaker 2 (14:35):
No, it's another iteration where apparently the latest version of
cloud code is just really good at getting people at
being able to generate productive applications with inputs that are
basically just like you speaking.
Speaker 1 (14:52):
You know.
Speaker 2 (14:52):
It's yeah, think of it this way. Previously, Let's say
that you wanted to build an app that Let's say
you wanted to build an app that recorded like the
time that you woke up every day. You had a
camera in your room, and you just wanted to be
like when did I wake up every day? Sure, you'd
have to like figure out, you know, okay, what do
(15:13):
I need? Like what language do I need to program
this in? Learn the language and then be able to
actually program it to do that. Today, you could say
you could go into cloud code and say, I'm using
camera XYZ, please build me an app for this operating
system that you know can analyze the frames in that
picture to determine when I get up in the morning.
(15:36):
You'd have to put in you know, a little bit
more than that, obviously, but that's the premise, and then
it builds it for you. Now, where I think is
what I think is completely hogwash is the average person
isn't going to do this for all of their uses.
Like I've seen people being like, oh, like the great
thing about this is you can build like a custom
application for something and then throw it away so you
(15:57):
never have to pay for it. And it's like, guys,
I'm filing my taxes like in a mon Sure, I'm
not going to build a custom tax filing app for
a few reasons, the first being that A Like if
I mess this up, it's a real problem. B. I
just don't trust myself to do that, and so I like,
(16:19):
we're just not gonna do that. What I do think
is possible is hey, someone can come along and basically
build like let's say that someone gets laid off from
into it who runs TurboTax Someone can an engineer from
there can be like, Hey, I'm gonna get four of
my friends together. We'll build a cheaper turbo tax alternative
because we don't have all the overhead. And yeah, we're
(16:41):
not gonna take all turbotaxes business. But TurboTax is not
gonna have a twenty percent annual revenue growth rate anymore.
It might be ten. And that has implications for how
profitable they are in the future, and that's why the
stock gets punished. And I really think that.
Speaker 3 (16:57):
You know, if you think through like what software applications
do you use on a regular basis, I'm not sure
which ones this doesn't apply to, right, I mean, even
I'm thinking through video game design, does that become faster
and easier for non established players to jump in there
and say, yeah, we can build the next.
Speaker 2 (17:17):
Whatever. It might be faster than the established players. The
reason why software and tech businesses have had high margins
historically is because there's relatively low capex that's required and
there are significant bearers to entry, like you have to
know how to do X, Y and Z today. What's
(17:40):
potentially being priced in is the commoditization of existing tech
players software specifically, It's not that like, if you use
Redtail as your company CRM, you're not going to go
and hire a thirteen year old to vibe code a
new CRM for you. But there might be a bunch
(18:02):
of ex salesforce engineers that get together and say, hey,
we can build something cheaper than any of these CRMs
that are out there.
Speaker 3 (18:09):
We have the expertise, we previously didn't have the capital
to be able to do this.
Speaker 2 (18:15):
We don't need any capital now. And here's the new
enterprise level replacement or the other piece, if you want
to get more insidious about it, is Microsoft. Is there
any company that just loves getting its tentacles into everything
more than Microsoft? Maybe Google, yah, one of those two.
(18:36):
What happens if those guys come out and say, look,
previously we couldn't justify the development cost of a CRM
for businesses because it's just it's too much to throw
at it. Hey, let's take ten engineers and have them
build a CRM platform. And by the way, if you
sign up for Windows right now, you're gonna get that
CRM thrown in for free. Like that's the thread also
(18:58):
is that the giant get gianter, which is a word
we should use.
Speaker 3 (19:03):
Yeah, it's that does kind of suck to think about,
because on one degree, you hope that there's a bunch
of new disruptors, new small companies that get created as
a result of this. But the other possible result would
be Google saying, oh, we don't need our Gmail customers
to use salesforce anymore.
Speaker 2 (19:19):
We're just going to create our own and look how
fast we can do it. The next five years. The
first three years of the AI boom have been everyone's
a winner. The next five years we're going to actually
see who the winners and losers are. And we still
don't know for sure. By the way, quick break here.
We got Wall Street Watch next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
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 on the Financial Exchange Radio Network.
Speaker 4 (19:59):
Market seeing rebound today after this week's tech sell off
as investors have been concerned about significant spending on a I.
Right now, the Dow is up one point seven percent,
or eight hundred and thirty points higher, SMP five hundred
up one and a quarter percent or eighty five points higher,
Nasdaq up one point two percent or two hundred and
(20:20):
sixty five points, RUSS two thousand rallying two percent higher.
Ten your treas reeled up one basis point at four
point two to two percent, and crude oil up about
one percent higher, trading just below sixty four dollars barrel.
Amazon stock is sinking eight percent after the e commerce
and tech China now is a near sixty percent increase
(20:43):
this year on AI capital spending to two hundred billion dollars. Furthermore,
Amazon web services revenue grew slower than its competitors Microsoft
and Google's Alphabet. Meanwhile, jeep maker Stilantis reported chargers of
about twenty six billion dollars as a scales back push
into electric vehicles, to Lantis shares tanking twenty four percent. Elsewhere,
(21:07):
Roadblock shares are rallying nearly seven percent after the video
game companies said revenue could grow by as much as
twenty nine percent this year, lifted by higher bookings and
daily active users. Molina Healthcare stock sinking twenty six percent
after the health insurance company missed earnings expectations as it
was weighed down by premium adjustments in Medicaid and Medicare
(21:30):
cost pressures. The company's revenue outlook also disappointed, and Reddit
beat fourth quarter earnings forecasts. The social network also offered
an optimistic twenty twenty six guidance and announced a one
billion dollar share buyback program. However, shares are down by
four percent at the moment. I'm Tucker Silva and that
is Wallstreet Watch talk.
Speaker 2 (21:51):
A little bit about what we're seeing in private markets.
There's a piece from the Wall Street Journal talking about this.
I'll read you the important part. The end of last year,
almost nine percent of private equity back to companies were
in the software space, which, as we detailed the last segment,
has some questions about you know, it's it's future. The
exposure is even more significant on the loan side. Within
(22:12):
the private credit universe. Tracked by ratings from KBRA, the
firm classify seventeen percent of borrowers a software companies, representing
about twenty two percent of the one trillion plus debt
exposure in the universe overall. So for people wondering in
the last you know, a couple of days. Hey, software
is getting beaten up, and I'm just looking at like
(22:33):
one week performance here, software is getting beaten up. But
why is Blackstone down ten percent? Why is KKR down
ten Why is Blue Owl down you know, fifteen percent?
Whyse Aries down thirteen percent? The answer is, Hey, these
are big asset managers who operate primarily in the private space,
and they've got questions as to what their portfolios look
(22:54):
like because they own a lot of this stuff.
Speaker 3 (22:59):
Good and these companies, if you listen to the program frequently,
probably sound familiar to you because we started talking them
about them last summer. Last summer, the issue that was
plaguing them was a few very public fraud slash bankruptcy
cases that plagued these companies, and everybody was laft scratching
(23:20):
their heads saying, hmm, well, if three companies can rip
you off and lie about receipts or you know, self
deal and come up with finicky accounting maneuvers to get
more loans, how many more might have done similar things.
This is a completely separate issue. This is not any
allegations of fraud on the side of software companies. It's
(23:41):
a question of whether or not their business model is sustainable,
but the private credit space has kind of worked its
tentacles into every different area of the market. And so
this again, until this week, did I know that private
credit space is one of their biggest borrowers from those
company but it is were software companies. I did not,
(24:01):
I'll raise my hand. Didn't know, But we're finding out now.
And once again, these companies are under a lot of pressure.
Blue Oul Capital one that you mentioned, by the way,
over the course of the last year, they've erased half
of their half of their stock value.
Speaker 2 (24:15):
Is that bad? Usually you want to go in the
other direction. Yeah, I mean you can go through like
a lot of these Apollo Global Management has gone from
you know, one hundred and sixty five bucks down to
one hundred touched one twenty two earlier this week, so
it's a quarter ares. Who's another big one that plays
in that space. They have gone from one eighty seven
(24:38):
down to one twenty eight. So it's again it's kind
of across the board that you're seeing this. The other
place that I got to tell you, and I hope
we don't get to this point, But the other place
that is dodgy is there is a ton of potential
exposure in the insurance space.
Speaker 3 (24:55):
Yeah, I was gonna say, I wanted to bring this back.
Most people probably don't own shares in any of the
companies we just mentioned.
Speaker 2 (25:01):
Well, if you own the S and P five hundred,
you do, you do.
Speaker 3 (25:04):
But by my point is, you know, most investors that
are listening right now probably do not directly own shares
in any of these companies that we just mentioned, unless
they are you know, specialized individual stock investors. But that's
the next point that you make, is Okay, these companies
originate the loans, oftentimes package them and sell them off
they're under pressure. But the people the companies that buy
(25:26):
these packaged loans from these finance companies are companies that
we all interact with very regularly.
Speaker 2 (25:33):
It's a lot of insurance companies, and some of them
might even be captive insurance companies held by the private
like they might be in the portfolio of the private
equity firm where it's Hey, we own insurance company XYZ,
and we're going to have insurance company XYZ buy the
private debt from our private debt arm And this is
(25:55):
potentially something to watch in the next six to twelve months.
Uh I have no idea whether it actually becomes a
problem or not, because you it's it's such an opaque
market that unless you're actually holding this stuff and know
what it is, you don't know where the problem could be.
Have we seen insurance companies under pressure this past week? Uh,
(26:17):
let me take a look one week. Uh, the publicly
traded ones. Know you've seen like a couple Actually some
of the life insurance ones have been a little bit dodgy,
not like a ton, but you've got, you know, some
mid single digit declines that you have there, whereas if
you look at like the P and C guys, you
(26:39):
don't have those those issues. Those guys are all up
in the last week. Sure it's the life insurance companies,
like that's where you're seeing the issues. Which makes sense,
by the way, because like, let's say that you're a
P and C company, Like if you are property and casualty,
so yeah, sorry property. If you're a car insurance company,
(27:01):
you're not holding that cash long term. It's a one
year set of claims that you're dealing with.
Speaker 3 (27:06):
You're likely not investing a ton of the reserves into
this type of thing.
Speaker 2 (27:10):
In the first you can't do a ton of it.
If you are a life insurance company, you're sitting there saying, huh, well,
my actuary has told me that I'm gonna need to
have X ready to pay out in ten years and
we just had a bond. Come do, Jimmy, Can you
go and see what the private credit guys have to
offer there? That's where the concern is on the life
insurance guys. And again, it's not there yet because, like
(27:34):
it's quite honestly, you're not going to know it's a
problem until it's a problem. Because this is opaque stuff.
It's not publicly traded. You can't see when it's going bad.
All you can do is infer it based on what
you're seeing from the companies that are publicly traded that
may own it. But that's the kind of stuff that
potentially causes problems in the life insurance market. I don't
(27:58):
know if it will, but it's got the potential. To
take a quick break. When we return, let's talk about
this piece from the New York Times. It's titled It's
time to rethink the standard investment advice but not too much.
We'll talk about what that means after this.
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Speaker 4 (28:41):
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Speaker 2 (29:17):
Mike, we got a piece here. It's time to rethink
the standard investment advice, but not too much. What does
that mean? I don't know what the title of the
article means.
Speaker 3 (29:29):
But they're running through something that I think we've tried
to bring up here on the show before. And I'm
not one hundred percent sure that people are fully aware
of the S and P five hundred is a lot
less diversified than it was ten years ago. Yeah, Like
that's a critical piece of information to know. In fact,
(29:51):
the index no longer actually meets the S and P. Sorry,
the Security Exchange Commissions traditional definition of a diverse index
based on how concentrated it is now, and so that
is the piece that they are pointing out.
Speaker 2 (30:06):
They also they also go into.
Speaker 3 (30:09):
A lot of other things, But here is I guess
one take that I would bring up. I frequently hear
people talking about how doing nothing is oftentimes the best solution,
and I'm I do believe that oftentimes doing nothing, especially
in times of rapid change and panic, is the right decision.
Speaker 2 (30:30):
But it's based on a.
Speaker 3 (30:31):
Very important first premise, which is that you have built
out that portfolio with intention prior to doing nothing. Right, Like,
it's not good enough to do nothing if you have
completely misaligned your portfolio with your cash needs.
Speaker 2 (30:52):
It's not okay, It's not.
Speaker 3 (30:53):
Necessarily the great idea to do nothing if you have
spent all of your last three years bidding up a
specific area of the market and betting on that continued success,
and then you're saying, well, you know, suddenly volatility, maybe
I should do nothing. You know, if, for instance, you
have been investing all in one hundred percent in the
(31:16):
S and P five hundred over the course of the
last ten years and have been using your gains off
of that to pay your everyday living expenses and that's
worked out perfectly for you, guess what it might not
next time, and doing nothing might not be a successful
strategy there.
Speaker 2 (31:30):
And so I think people.
Speaker 3 (31:34):
Actually in times of crisis are oftentimes pretty good at
sitting aside and understanding that, hey, every time in history
something like this has happened, it's come back. But they
oftentimes ignore the fact that if you're heavily concentrated, eventually
coming back can take more than a decade. How long
did it take the NASDAK to recover all of its
(31:55):
losses after the dot com bubble?
Speaker 2 (31:56):
It was like fifteen years?
Speaker 3 (31:58):
Can you wait fifteen years? Most people can't. I mean, yeah,
if you're thirty you probably can. Uh, do you want
to if you're fifty, can you wait fifteen years for
your portfolio to rebound to where it was prior to
the next crisis.
Speaker 2 (32:13):
The other piece that I think is important to point
out on this is just because something has behaved a
certain way in the past doesn't mean it's how it
will behave in the future. Yeah. And you know, when
we talk about you know, markets and how long they
take to come back, generally, with the S and P
five hundred, you generally have gotten back to, you know,
(32:33):
kind of where you've been previously within three to four years. Yeah,
corrections are generally shorter than what you see in that
Nasdaq tech bubble example. Yeah, S and P in the
eight crisis took what five and that was one of
the longer ones, right, right, worst recessions. Sin is a
great depression. But you don't know that that's how it's
(32:56):
going to behave in the future just because it's acted
this way during the course of your lifetime. These are
not immutable facts that can't change. If you go and
look at different international markets, they don't behave in that
way in any way, shape or form. You know, you
take a look at what we've seen from European markets,
take a look at like EM and what you see
(33:17):
there where. Look, if you invested in EM for like
the last twenty years basically until last year, you basically
had no return. I mean you were making like low
single digits per year just because the return was so bad.
So I think it's important to understand every decision that
you're making, from every decision that you're making on your investments,
(33:37):
has a basis that you use to make that investment.
You've got to identify what that basis is and what
the risks are that could change it, because these are
not fixed things that are set in stone, and they
can change over time as markets evolved.
Speaker 3 (33:54):
Very clearly, this market is evolving. It's evolving rapidly alongside
the technology that everyone is speculating about how it's going
to change the world. Doing nothing in terms in times
of dramatic market change, honestly can be the right thing
to do. But it is built on that premise that
you have started with a logical approach to your portfolio.
Speaker 2 (34:18):
To begin with.
Speaker 3 (34:20):
If you want some help developing that logical approach based
on your particulars, not your neighbors, not your cousins, not
your brothers, wives, brother's wife's situation not wives wife's then
please call the Armstrong Advisor Group let us help you
assess that for your specific circumstances.
Speaker 2 (34:42):
The number is eight hundred three nine three for zero
zero one.
Speaker 3 (34:46):
You can check us out book time for us to
call you back at Armstrong Advisory dot com as well,
But that number eight hundred three nine three for zero
zero one.
Speaker 1 (34:54):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide to specific financial, legal, or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
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Speaker 2 (35:10):
According to data from AARP, in the past six months,
seven percent of retirees have re entered the labor force.
That's up from six percent who said the same in
summer of twenty twenty five. The top reason they cited,
with about half of them was that they needed money
or had a poor economic outlook.
Speaker 3 (35:26):
This isn't useful to me unless you can tell me
what percentage of people were re entering the labor force
back in the twenty tens, right, Like, it's just that
sounded abnormal to you to have less than one in
ten people no re enter the labor force.
Speaker 2 (35:39):
I'm guessing that if again, I don't even think they've
done this survey over time, but I'm guessing if you
had this going back, I'm guessing it's probably ranged between
like three and ten percent generally, and we're probably somewhere
in the middle.
Speaker 3 (35:52):
I think we do know that the labor force participation
rate for sixty five plus year olds is up over time, yep.
But so is life expectancy, So I don't find that
immensely surprising. I would imagine this data is not abnormal
for any general economy outside of I would imagine it
(36:14):
was a lot higher, for instance, in twenty ten, But
I don't find this data to be surprising.
Speaker 2 (36:19):
Fifteen percent of those unretiring cited boredom. Well, that's bad, right, Like.
Speaker 3 (36:27):
We talk about this frequently, but I do try and
point out to people when they're talking about retirement. It
surprises people a lot because they expect me to ask
them about the numbers. But usually my first question is
not about the numbers. It's great, what are you going
to your plans?
Speaker 2 (36:45):
What are you going to do?
Speaker 3 (36:45):
What do you have in mind, and they've gotten used
to it at this point because I talk about it
so much, But you do really need to put that
thought process first. It also affects all of the financial
stuff too. But like the unsuccessful retirees that I talk
about all the time are not unsuccessful usually because they
run out of money. They're usually unsuccessful because they retire.
(37:07):
They retire because they're sick of their job, rather than
the fact that they have a hobby they want to
spend more time on and then they get bored.
Speaker 2 (37:14):
I gotta say, we got to work on some of
the names of these companies. There's just a headline on
Chiron on Bloomberg it was Novo targets Hymns we Go
v Copy and like you're reading it because Hymns is
the name of the company, but it's like, don't you
mean his we go vy company? No, Hyms we go
v Copy is what they're targeting and hers.
Speaker 3 (37:35):
By the way, also, you just named like three other
companies in that statement that could have got me confused.
Are we talking about Target or Nova Nordeskin here? Because
I'm confused, did you see like what's going on here?
Speaker 2 (37:44):
By the way, No, so Hyms and Hers is a
Internet based drug company. They like provide stuff. I don't
really know what, but I guess some of it is
weight loss uh, And there was novad Orders came out
with their new oral weight loss pill instead of having
(38:05):
to do the injections. HIMS apparently is saying, because we
customize the amount to each person, we can make this
even though it's not off patent yet and Novah's like, guys,
I don't think so, We'll have to see how it
plays out. Quick break here. Hour two coming up in
a bit
The Financial Exchange is produced by Money Matters Radio and
is hosted by employees of the Armstrong Advisory Group, a
registered investment advisor. All opinions expressed are solely those of
the hosts. Do not reflect the opinions of Armstrong Advisory
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(01:06):
and Mike Armstrong.
Speaker 2 (01:10):
It's a Friday here on the Financial Exchange. Chuck, Mike,
and Tucker with you, and we're gonna kick things off
with a discussion of Amazon, who reported earnings after the
bell yesterday, And even though the vast majority of my
board is showing green on it, there's a big red
(01:31):
dot right in the consumer cyclical sector with the ticker
AMZN down eight point nine to three percent. And it
means one of two things in my mind, Michael. It
either means that Amazon had a horrible earnings miss or
something about their guidance upset markets. So let's talk first
about their actual earnings, which were fine ish, Like they
(01:56):
weren't great. They weren't amazing, they weren't horrible, they were
were fine. They had a slight miss on earnings for
the quarter.
Speaker 3 (02:06):
Road services growth wasn't as good as some of their competitors.
Speaker 2 (02:10):
Nope, revenue was fine, like they beat expectations on revenue.
So ultimately, there's nothing in the actual earnings data that
I think is hugely problematic. No, nothing problematic.
Speaker 3 (02:22):
But I will also say that the last couple of
quarters when tech companies report, if they don't absolutely knock
the cover off the ball. Their stock has been beaten
up a little bit, and they did not, by any
means not the cover off the ball.
Speaker 2 (02:34):
No, the more problematic issue that they have is the
fact that they have now joined Google in back to
back days in being like, oh, you think that we're
gonna do X and capex, No, we're actually gonna do
X plus like forty percent.
Speaker 3 (02:53):
So CAPEX guidance for twenty twenty six for Amazon now
came in at two hundred billion dollars, which is the
top of the list when you look at everybody out
there between Amazon, Alphabet, Microsoft, and Meta. Amazon wants to
spend more than any of them.
Speaker 2 (03:09):
And when you add all of them up, and again
this is a moving target, but we're now at about
six hundred and fifty billion dollars between the four of them.
Speaker 3 (03:17):
Yeah, that would be towards the top end of the
ranges that they've all provided, which I thought an interesting exercise,
like what do we as a country spend on spend
money on in terms of a product that even comes
close to the type of spending. I was looking at
gasoline sales across the entire country. The latest date I
could get was twenty twenty two. But in twenty twenty two,
(03:37):
total US consumer spending on gasoline was estimated to be
about five.
Speaker 2 (03:41):
Hundred and sixty billion.
Speaker 3 (03:43):
So just like for some scale there what we're talking
because nobody can fathom what two thirds of a trillion
dollars actually means.
Speaker 2 (03:50):
I can I can't, I don't. I can't do it
all the time. I don't really understand what that means.
Speaker 3 (03:55):
And this was some helpful context that like, add every
American out there in terms of their gasoline perch is
that they do every other day every week, and you
get to around close to what they're talking about spending
on AI CAPEX.
Speaker 2 (04:10):
I mean, here, here's the way to phrase this. There's
about two hundred million adult Americans. Okay, if every one
of them spend three thousand dollars a year on AI,
that would equal this, Yes, guys, like preposterous dollars. I'm
really sorry that I finally like have gotten to this point.
(04:33):
It ain't gonna work because remember this is just one
year of CAPEX. They're talking about doing this year after
year and continuing to agree. No one's gonna use this
stuff to this extent.
Speaker 3 (04:44):
Well, and also I think it kind of raises the
question of whether or not they could spend this much
money if they actually wanted to. I don't know that
they can spend it on enough chips and ram to
be able to do.
Speaker 2 (04:55):
The part of the problem is they're trying to build
so much that all they're doing is driving the cost
up and not actually building more. Like, yes, there is
more that's being built, but some of this is being
driven by additional cost and so it also gets to
the point where Amazon is not going to be able
to cover this out of free cash flow. They're not.
Amazon's free cash flow in the trailing twelve months then
(05:17):
the quarter before was about ten billion dollars. This kind
of increase here means they're probably gonna have to borrow
or dip into their cash pile. They do have about
one hundred billion in cash on hand, but either way,
you're talking about somewhere between like forty and sixty billion
dollars that they are going to have to dip into,
(05:38):
either their cash pile or the borrowing markets. I really
am at the point I don't know where this money's
going to come from, and I think that's kind of
what investors are saying here is you're starting to write
checks that your body can't cash. And this is going
to be a problem, especially because these models are increasingly
(06:01):
looking like they're commoditized. There's not that much difference between
all of them. They're all releasing new versions every couple weeks,
Like this is what commoditization looks like when you see
it happening in real time.
Speaker 3 (06:17):
I guess I want to clarify there. I'm with you
about the commoditization of the models. I don't know how
anyone would sit here and judge whether six months from now,
chat apt Gemini, anthropic Anthropist Claude, or some new model
is going to be the best and brightest out there.
But am I wrong in stating that all of them
will need compute power from the likes of what Amazon
(06:41):
is attempting to do?
Speaker 2 (06:42):
So couple things. The first is that the general thinking
as to why you need these bigger and bigger computing cousters,
there's two reasons for him. The first is to train
the models, and I think we've reached the point of
diminishing returns there. Quite honestly, it's like, do I really
want to pay eighty percent more for a model that's
(07:03):
two percent better?
Speaker 4 (07:05):
No?
Speaker 2 (07:05):
Like what's what's the point, Like for the average person,
you don't need that, yeah, sure. The second is you
need it for what's called inference, which is the actual
demand side, which is I'm throwing stuff into the model,
spit it back out, and maybe the demands there. Maybe
it's not like I don't know, but I do know
that none of this is profitable at this point. And
(07:28):
the reason that I know this is because, you know,
open ai likes to be like, oh, we've got like,
you know, X hundred million users. Yeah, like eight of
them pay for your product right now, go go said
the same thing.
Speaker 3 (07:38):
They've got three quarters of a billion users on Gemini.
Speaker 2 (07:42):
But and look it's an exaggeration because open ai, I
do think their run rate for revenue is now up
to like fifteen or twenty billion dollars a year. That
doesn't cover two hundred billion dollars a year in capex. Sure,
I've done the math. Twenty billion is less than two
hundred and it's got in order of magnitude to go
to make that up. And remember this is one year
(08:04):
of construction for Amazon. So even if you think this
has a useful life of ten years, now you've got
twenty billion dollars in depreciation from this year, hitting your
income statement going forward. Then you're gonna have twenty five
billion from next year, then another thirty All of a sudden,
you got like one hundred billion dollars in depreciation each year.
That's hitting your financial statements. You have to at some
(08:28):
point get the revenue. And I feel like the buildout
is just happening so fast that it's happening without the revenue.
And here's the other piece that I think is missing
in this. Right now, the inference is being done on
these central servers. What I am starting to hear from
(08:49):
people in the AI space is that that might not
be necessary as you get to more efficient models that
are the next iteration. And what I mean by that is,
right now, there's a ton of compute powder that is
needed in order to power this. But some of the
stuff that's being done with open source models and things
(09:10):
that are you know, able to be modified and easily seen,
Like you know, in terms of what people are doing
are getting to the point where you can run them
locally on a computer, and then you don't need a
two hundred billion dollar data center commitment in order to
do this stuff. And especially what's to stop let's say
that I am company, Let's say i'm JP Morgan who
(09:32):
said they're gonna spend you know, two billion dollars or
whatever it is on AI this year. What's to stop
JP Morgan from saying, Hey, you know what, instead of
paying whoever to run this data center for us, Hey,
we're just gonna put one in our building in New
York and we don't need to worry like it's all
self contained, it's all controlled by us. They have the
(09:54):
resources to do it, and it probably is going to
be a lot cheaper, faster, and easier for them to
change what they want to on it. I'm not sure
I buy that piece.
Speaker 3 (10:03):
I'm not sure if you're a New York bank, you
want to run a data center in your New York headquarters.
They already do, I know they do, But I can
see the value in running it in Wyoming or Wisconsin.
Speaker 2 (10:13):
If you are JP Morgan, cho we don't put it
in New York like you can understand wherever, but you
don't need these companies to do it. Yeah.
Speaker 3 (10:20):
Here's where I kind of look at this is I
think all of these CEOs genuinely believe that they are
going to that the industry itself is going to need
much more compute power over the course of the next
five to ten years. And I think that they are
right about that. What I also think could be very
possible is they are overestimating how much compute power is needed.
(10:43):
And I think, but I don't think there will be
somebody out there that comes out and says, oh, we
can do what Amazon's doing in terms of building data
center capacity better than them. I do think there's actually
a mote here in the way that there is not
in the models themselves.
Speaker 2 (10:58):
But my point is you don't need data like the
right that average person doesn't need. You can run a
local model on your computer and it never has to
touch any of those servers. Yeah, that would be My
concern is that they overestimate it. And I don't know.
Speaker 3 (11:12):
I don't know how to estimate how much of this
compute power is actually necessary. But historic tech buildouts have
been defined by major powerful companies overestimating how much infrastructure
is needed, and that would not be shocking this time around.
Speaker 2 (11:29):
But I'm trying to find it.
Speaker 3 (11:30):
You know, devil's advocate point of view on all this,
and the devil's adate point of view would be maybe
these aren't going to get much more efficient, and maybe
this compute power is necessary, and if that's the case,
then these four will be pretty much the only games
in town to be able to provide it. But that
does not really line up with how, for instance, the
(11:51):
Internet was built out.
Speaker 2 (11:52):
Or railroads or airlines or radio or any other transformative
technology that did change the world. Yeah, but ultimately resulted
in huge speculative bubbles and massive losses like these. I've
said it the whole time. These two things can be true.
At the same time. We will be using way more
AI ten years from now than we are today, and
(12:14):
we're also likely to see a huge excess of capital
flowing in that's going to be destroyed.
Speaker 3 (12:19):
We talked a little bit about the software blowout in
markets this week. I want to take a step back
next and really talk about what everyone's talking about with
vibe coding.
Speaker 2 (12:31):
What the heck it is?
Speaker 3 (12:32):
Because we talked about it yesterday, I don't think we
did a great job defining it.
Speaker 2 (12:35):
I want to talk.
Speaker 3 (12:35):
About the week that was destruction in the software market.
That's next on the Financial Exchange.
Speaker 1 (12:42):
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Speaker 2 (13:13):
All right, Mike, what do you got on software for me?
Speaker 3 (13:17):
Well, I wanted to talk just about what this release
from Anthropic really was and why people cared about it
so much. So we talked about the topic of vibe
coding yesterday on the show. And I don't know if
you can define it better than I can, but I'll
take a swing at with Anthropics new tools. It attempts
(13:37):
to make it so that the pretty much layman can
go in there and build things fairly easily without needing
a full coding background. From what I've heard, it's also
very valuable for actual coders who know what they're doing.
But in plain English terms, you can type in a
prompt and say, hey, this is what I am attempting
to design. Please write the code and design the website
(13:59):
to do X, Y and Z, and so even you know,
a complete and utter coding moron like me might be
able to build a website that frankly probably looks like
it was built in two thousand and five, but it
is something that would actually be able to be created
with these tools, and for those that actually know their.
Speaker 2 (14:17):
Stuff, it just makes them a lot faster.
Speaker 3 (14:20):
I know that that's kind of been used to describe
AI generally, but this was seen as a bit of
a breakthrough. So do you have something to add to
it to explain why it was seen as more of
a breakthrough than what I just described, or is it
just another iteration of what other companies had already been doing.
Speaker 2 (14:35):
No, it's another iteration where apparently the latest version of
cloud code is just really good at getting people at
being able to generate productive applications with inputs that are
basically just like you speaking.
Speaker 1 (14:52):
You know.
Speaker 2 (14:52):
It's yeah, think of it this way. Previously, Let's say
that you wanted to build an app that Let's say
you wanted to build an app that recorded like the
time that you woke up every day. You had a
camera in your room, and you just wanted to be
like when did I wake up every day? Sure, you'd
have to like figure out, you know, okay, what do
(15:13):
I need? Like what language do I need to program
this in? Learn the language and then be able to
actually program it to do that. Today, you could say
you could go into cloud code and say, I'm using
camera XYZ, please build me an app for this operating
system that you know can analyze the frames in that
picture to determine when I get up in the morning.
(15:36):
You'd have to put in you know, a little bit
more than that, obviously, but that's the premise, and then
it builds it for you. Now, where I think is
what I think is completely hogwash is the average person
isn't going to do this for all of their uses.
Like I've seen people being like, oh, like the great
thing about this is you can build like a custom
application for something and then throw it away so you
(15:57):
never have to pay for it. And it's like, guys,
I'm filing my taxes like in a mon Sure, I'm
not going to build a custom tax filing app for
a few reasons, the first being that A Like if
I mess this up, it's a real problem. B. I
just don't trust myself to do that, and so I like,
(16:19):
we're just not gonna do that. What I do think
is possible is hey, someone can come along and basically
build like let's say that someone gets laid off from
into it who runs TurboTax Someone can an engineer from
there can be like, Hey, I'm gonna get four of
my friends together. We'll build a cheaper turbo tax alternative
because we don't have all the overhead. And yeah, we're
(16:41):
not gonna take all turbotaxes business. But TurboTax is not
gonna have a twenty percent annual revenue growth rate anymore.
It might be ten. And that has implications for how
profitable they are in the future, and that's why the
stock gets punished. And I really think that.
Speaker 3 (16:57):
You know, if you think through like what software applications
do you use on a regular basis, I'm not sure
which ones this doesn't apply to, right, I mean, even
I'm thinking through video game design, does that become faster
and easier for non established players to jump in there
and say, yeah, we can build the next.
Speaker 2 (17:17):
Whatever. It might be faster than the established players. The
reason why software and tech businesses have had high margins
historically is because there's relatively low capex that's required and
there are significant bearers to entry, like you have to
know how to do X, Y and Z today. What's
(17:40):
potentially being priced in is the commoditization of existing tech
players software specifically, It's not that like, if you use
Redtail as your company CRM, you're not going to go
and hire a thirteen year old to vibe code a
new CRM for you. But there might be a bunch
(18:02):
of ex salesforce engineers that get together and say, hey,
we can build something cheaper than any of these CRMs
that are out there.
Speaker 3 (18:09):
We have the expertise, we previously didn't have the capital
to be able to do this.
Speaker 2 (18:15):
We don't need any capital now. And here's the new
enterprise level replacement or the other piece, if you want
to get more insidious about it, is Microsoft. Is there
any company that just loves getting its tentacles into everything
more than Microsoft? Maybe Google, yah, one of those two.
(18:36):
What happens if those guys come out and say, look,
previously we couldn't justify the development cost of a CRM
for businesses because it's just it's too much to throw
at it. Hey, let's take ten engineers and have them
build a CRM platform. And by the way, if you
sign up for Windows right now, you're gonna get that
CRM thrown in for free. Like that's the thread also
(18:58):
is that the giant get gianter, which is a word
we should use.
Speaker 3 (19:03):
Yeah, it's that does kind of suck to think about,
because on one degree, you hope that there's a bunch
of new disruptors, new small companies that get created as
a result of this. But the other possible result would
be Google saying, oh, we don't need our Gmail customers
to use salesforce anymore.
Speaker 2 (19:19):
We're just going to create our own and look how
fast we can do it. The next five years. The
first three years of the AI boom have been everyone's
a winner. The next five years we're going to actually
see who the winners and losers are. And we still
don't know for sure. By the way, quick break here.
We got Wall Street Watch next.
Speaker 1 (19:40):
Like us on Facebook and follow us on Twitter at
TFE show. Breaking business news is always first right here
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 on the Financial Exchange Radio Network.
Speaker 4 (19:59):
Market seeing rebound today after this week's tech sell off
as investors have been concerned about significant spending on a I.
Right now, the Dow is up one point seven percent,
or eight hundred and thirty points higher, SMP five hundred
up one and a quarter percent or eighty five points higher,
Nasdaq up one point two percent or two hundred and
(20:20):
sixty five points, RUSS two thousand rallying two percent higher.
Ten your treas reeled up one basis point at four
point two to two percent, and crude oil up about
one percent higher, trading just below sixty four dollars barrel.
Amazon stock is sinking eight percent after the e commerce
and tech China now is a near sixty percent increase
(20:43):
this year on AI capital spending to two hundred billion dollars. Furthermore,
Amazon web services revenue grew slower than its competitors Microsoft
and Google's Alphabet. Meanwhile, jeep maker Stilantis reported chargers of
about twenty six billion dollars as a scales back push
into electric vehicles, to Lantis shares tanking twenty four percent. Elsewhere,
(21:07):
Roadblock shares are rallying nearly seven percent after the video
game companies said revenue could grow by as much as
twenty nine percent this year, lifted by higher bookings and
daily active users. Molina Healthcare stock sinking twenty six percent
after the health insurance company missed earnings expectations as it
was weighed down by premium adjustments in Medicaid and Medicare
(21:30):
cost pressures. The company's revenue outlook also disappointed, and Reddit
beat fourth quarter earnings forecasts. The social network also offered
an optimistic twenty twenty six guidance and announced a one
billion dollar share buyback program. However, shares are down by
four percent at the moment. I'm Tucker Silva and that
is Wallstreet Watch talk.
Speaker 2 (21:51):
A little bit about what we're seeing in private markets.
There's a piece from the Wall Street Journal talking about this.
I'll read you the important part. The end of last year,
almost nine percent of private equity back to companies were
in the software space, which, as we detailed the last segment,
has some questions about you know, it's it's future. The
exposure is even more significant on the loan side. Within
(22:12):
the private credit universe. Tracked by ratings from KBRA, the
firm classify seventeen percent of borrowers a software companies, representing
about twenty two percent of the one trillion plus debt
exposure in the universe overall. So for people wondering in
the last you know, a couple of days. Hey, software
is getting beaten up, and I'm just looking at like
(22:33):
one week performance here, software is getting beaten up. But
why is Blackstone down ten percent? Why is KKR down
ten Why is Blue Owl down you know, fifteen percent?
Whyse Aries down thirteen percent? The answer is, Hey, these
are big asset managers who operate primarily in the private space,
and they've got questions as to what their portfolios look
(22:54):
like because they own a lot of this stuff.
Speaker 3 (22:59):
Good and these companies, if you listen to the program frequently,
probably sound familiar to you because we started talking them
about them last summer. Last summer, the issue that was
plaguing them was a few very public fraud slash bankruptcy
cases that plagued these companies, and everybody was laft scratching
(23:20):
their heads saying, hmm, well, if three companies can rip
you off and lie about receipts or you know, self
deal and come up with finicky accounting maneuvers to get
more loans, how many more might have done similar things.
This is a completely separate issue. This is not any
allegations of fraud on the side of software companies. It's
(23:41):
a question of whether or not their business model is sustainable,
but the private credit space has kind of worked its
tentacles into every different area of the market. And so
this again, until this week, did I know that private
credit space is one of their biggest borrowers from those
company but it is were software companies. I did not,
(24:01):
I'll raise my hand. Didn't know, But we're finding out now.
And once again, these companies are under a lot of pressure.
Blue Oul Capital one that you mentioned, by the way,
over the course of the last year, they've erased half
of their half of their stock value.
Speaker 2 (24:15):
Is that bad? Usually you want to go in the
other direction. Yeah, I mean you can go through like
a lot of these Apollo Global Management has gone from
you know, one hundred and sixty five bucks down to
one hundred touched one twenty two earlier this week, so
it's a quarter ares. Who's another big one that plays
in that space. They have gone from one eighty seven
(24:38):
down to one twenty eight. So it's again it's kind
of across the board that you're seeing this. The other
place that I got to tell you, and I hope
we don't get to this point, But the other place
that is dodgy is there is a ton of potential
exposure in the insurance space.
Speaker 3 (24:55):
Yeah, I was gonna say, I wanted to bring this back.
Most people probably don't own shares in any of the
companies we just mentioned.
Speaker 2 (25:01):
Well, if you own the S and P five hundred,
you do, you do.
Speaker 3 (25:04):
But by my point is, you know, most investors that
are listening right now probably do not directly own shares
in any of these companies that we just mentioned, unless
they are you know, specialized individual stock investors. But that's
the next point that you make, is Okay, these companies
originate the loans, oftentimes package them and sell them off
they're under pressure. But the people the companies that buy
(25:26):
these packaged loans from these finance companies are companies that
we all interact with very regularly.
Speaker 2 (25:33):
It's a lot of insurance companies, and some of them
might even be captive insurance companies held by the private
like they might be in the portfolio of the private
equity firm where it's Hey, we own insurance company XYZ,
and we're going to have insurance company XYZ buy the
private debt from our private debt arm And this is
(25:55):
potentially something to watch in the next six to twelve months.
Uh I have no idea whether it actually becomes a
problem or not, because you it's it's such an opaque
market that unless you're actually holding this stuff and know
what it is, you don't know where the problem could be.
Have we seen insurance companies under pressure this past week? Uh,
(26:17):
let me take a look one week. Uh, the publicly
traded ones. Know you've seen like a couple Actually some
of the life insurance ones have been a little bit dodgy,
not like a ton, but you've got, you know, some
mid single digit declines that you have there, whereas if
you look at like the P and C guys, you
(26:39):
don't have those those issues. Those guys are all up
in the last week. Sure it's the life insurance companies,
like that's where you're seeing the issues. Which makes sense,
by the way, because like, let's say that you're a
P and C company, Like if you are property and casualty,
so yeah, sorry property. If you're a car insurance company,
(27:01):
you're not holding that cash long term. It's a one
year set of claims that you're dealing with.
Speaker 3 (27:06):
You're likely not investing a ton of the reserves into
this type of thing.
Speaker 2 (27:10):
In the first you can't do a ton of it.
If you are a life insurance company, you're sitting there saying, huh, well,
my actuary has told me that I'm gonna need to
have X ready to pay out in ten years and
we just had a bond. Come do, Jimmy, Can you
go and see what the private credit guys have to
offer there? That's where the concern is on the life
insurance guys. And again, it's not there yet because, like
(27:34):
it's quite honestly, you're not going to know it's a
problem until it's a problem. Because this is opaque stuff.
It's not publicly traded. You can't see when it's going bad.
All you can do is infer it based on what
you're seeing from the companies that are publicly traded that
may own it. But that's the kind of stuff that
potentially causes problems in the life insurance market. I don't
(27:58):
know if it will, but it's got the potential. To
take a quick break. When we return, let's talk about
this piece from the New York Times. It's titled It's
time to rethink the standard investment advice but not too much.
We'll talk about what that means after this.
Speaker 1 (28:14):
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(28:35):
Exchange Radio Network.
Speaker 4 (28:41):
This segment of The Financial Exchange is brought to you
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Speaker 2 (29:17):
Mike, we got a piece here. It's time to rethink
the standard investment advice, but not too much. What does
that mean? I don't know what the title of the
article means.
Speaker 3 (29:29):
But they're running through something that I think we've tried
to bring up here on the show before. And I'm
not one hundred percent sure that people are fully aware
of the S and P five hundred is a lot
less diversified than it was ten years ago. Yeah, Like
that's a critical piece of information to know. In fact,
(29:51):
the index no longer actually meets the S and P. Sorry,
the Security Exchange Commissions traditional definition of a diverse index
based on how concentrated it is now, and so that
is the piece that they are pointing out.
Speaker 2 (30:06):
They also they also go into.
Speaker 3 (30:09):
A lot of other things, But here is I guess
one take that I would bring up. I frequently hear
people talking about how doing nothing is oftentimes the best solution,
and I'm I do believe that oftentimes doing nothing, especially
in times of rapid change and panic, is the right decision.
Speaker 2 (30:30):
But it's based on a.
Speaker 3 (30:31):
Very important first premise, which is that you have built
out that portfolio with intention prior to doing nothing. Right, Like,
it's not good enough to do nothing if you have
completely misaligned your portfolio with your cash needs.
Speaker 2 (30:52):
It's not okay, It's not.
Speaker 3 (30:53):
Necessarily the great idea to do nothing if you have
spent all of your last three years bidding up a
specific area of the market and betting on that continued success,
and then you're saying, well, you know, suddenly volatility, maybe
I should do nothing. You know, if, for instance, you
have been investing all in one hundred percent in the
(31:16):
S and P five hundred over the course of the
last ten years and have been using your gains off
of that to pay your everyday living expenses and that's
worked out perfectly for you, guess what it might not
next time, and doing nothing might not be a successful
strategy there.
Speaker 2 (31:30):
And so I think people.
Speaker 3 (31:34):
Actually in times of crisis are oftentimes pretty good at
sitting aside and understanding that, hey, every time in history
something like this has happened, it's come back. But they
oftentimes ignore the fact that if you're heavily concentrated, eventually
coming back can take more than a decade. How long
did it take the NASDAK to recover all of its
(31:55):
losses after the dot com bubble?
Speaker 2 (31:56):
It was like fifteen years?
Speaker 3 (31:58):
Can you wait fifteen years? Most people can't. I mean, yeah,
if you're thirty you probably can. Uh, do you want
to if you're fifty, can you wait fifteen years for
your portfolio to rebound to where it was prior to
the next crisis.
Speaker 2 (32:13):
The other piece that I think is important to point
out on this is just because something has behaved a
certain way in the past doesn't mean it's how it
will behave in the future. Yeah. And you know, when
we talk about you know, markets and how long they
take to come back, generally, with the S and P
five hundred, you generally have gotten back to, you know,
(32:33):
kind of where you've been previously within three to four years. Yeah,
corrections are generally shorter than what you see in that
Nasdaq tech bubble example. Yeah, S and P in the
eight crisis took what five and that was one of
the longer ones, right, right, worst recessions. Sin is a
great depression. But you don't know that that's how it's
(32:56):
going to behave in the future just because it's acted
this way during the course of your lifetime. These are
not immutable facts that can't change. If you go and
look at different international markets, they don't behave in that
way in any way, shape or form. You know, you
take a look at what we've seen from European markets,
take a look at like EM and what you see
(33:17):
there where. Look, if you invested in EM for like
the last twenty years basically until last year, you basically
had no return. I mean you were making like low
single digits per year just because the return was so bad.
So I think it's important to understand every decision that
you're making, from every decision that you're making on your investments,
(33:37):
has a basis that you use to make that investment.
You've got to identify what that basis is and what
the risks are that could change it, because these are
not fixed things that are set in stone, and they
can change over time as markets evolved.
Speaker 3 (33:54):
Very clearly, this market is evolving. It's evolving rapidly alongside
the technology that everyone is speculating about how it's going
to change the world. Doing nothing in terms in times
of dramatic market change, honestly can be the right thing
to do. But it is built on that premise that
you have started with a logical approach to your portfolio.
Speaker 2 (34:18):
To begin with.
Speaker 3 (34:20):
If you want some help developing that logical approach based
on your particulars, not your neighbors, not your cousins, not
your brothers, wives, brother's wife's situation not wives wife's then
please call the Armstrong Advisor Group let us help you
assess that for your specific circumstances.
Speaker 2 (34:42):
The number is eight hundred three nine three for zero
zero one.
Speaker 3 (34:46):
You can check us out book time for us to
call you back at Armstrong Advisory dot com as well,
But that number eight hundred three nine three for zero
zero one.
Speaker 1 (34:54):
The proceeding was paid for by Armstrong Advisory Group, a
registered investment advisor. Nothing in the ad or in any
Armstrong guide to specific financial, legal, or tax advice. Consult
your own financial tax into state planning advisors before making
any investment decisions. Armstrong make contact you to offer investment
advisory services.
Speaker 2 (35:10):
According to data from AARP, in the past six months,
seven percent of retirees have re entered the labor force.
That's up from six percent who said the same in
summer of twenty twenty five. The top reason they cited,
with about half of them was that they needed money
or had a poor economic outlook.
Speaker 3 (35:26):
This isn't useful to me unless you can tell me
what percentage of people were re entering the labor force
back in the twenty tens, right, Like, it's just that
sounded abnormal to you to have less than one in
ten people no re enter the labor force.
Speaker 2 (35:39):
I'm guessing that if again, I don't even think they've
done this survey over time, but I'm guessing if you
had this going back, I'm guessing it's probably ranged between
like three and ten percent generally, and we're probably somewhere
in the middle.
Speaker 3 (35:52):
I think we do know that the labor force participation
rate for sixty five plus year olds is up over time, yep.
But so is life expectancy, So I don't find that
immensely surprising. I would imagine this data is not abnormal
for any general economy outside of I would imagine it
(36:14):
was a lot higher, for instance, in twenty ten, But
I don't find this data to be surprising.
Speaker 2 (36:19):
Fifteen percent of those unretiring cited boredom. Well, that's bad, right, Like.
Speaker 3 (36:27):
We talk about this frequently, but I do try and
point out to people when they're talking about retirement. It
surprises people a lot because they expect me to ask
them about the numbers. But usually my first question is
not about the numbers. It's great, what are you going
to your plans?
Speaker 2 (36:45):
What are you going to do?
Speaker 3 (36:45):
What do you have in mind, and they've gotten used
to it at this point because I talk about it
so much, But you do really need to put that
thought process first. It also affects all of the financial
stuff too. But like the unsuccessful retirees that I talk
about all the time are not unsuccessful usually because they
run out of money. They're usually unsuccessful because they retire.
(37:07):
They retire because they're sick of their job, rather than
the fact that they have a hobby they want to
spend more time on and then they get bored.
Speaker 2 (37:14):
I gotta say, we got to work on some of
the names of these companies. There's just a headline on
Chiron on Bloomberg it was Novo targets Hymns we Go
v Copy and like you're reading it because Hymns is
the name of the company, but it's like, don't you
mean his we go vy company? No, Hyms we go
v Copy is what they're targeting and hers.
Speaker 3 (37:35):
By the way, also, you just named like three other
companies in that statement that could have got me confused.
Are we talking about Target or Nova Nordeskin here? Because
I'm confused, did you see like what's going on here?
Speaker 2 (37:44):
By the way, No, so Hyms and Hers is a
Internet based drug company. They like provide stuff. I don't
really know what, but I guess some of it is
weight loss uh, And there was novad Orders came out
with their new oral weight loss pill instead of having
(38:05):
to do the injections. HIMS apparently is saying, because we
customize the amount to each person, we can make this
even though it's not off patent yet and Novah's like, guys,
I don't think so, We'll have to see how it
plays out. Quick break here. Hour two coming up in
a bit
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