November 26, 2025 • 39 mins
Chuck Zodda and Paul Lane discuss how a divided Fed could come to the decision to cut rates in December. Consumer confidence continues to decline as retail growth cools. Grim retail sales data fuels concerns about health of US economy. Google, the Sleeping Giant in Global AI Race, Now ‘Fully Awake’. How much will Thanksgiving dinner cost? It depends on whom you ask.
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Episode Transcript
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Speaker 1 (00:00):
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(00:20):
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(00:42):
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(01:06):
and Paul Lame.
Speaker 2 (01:08):
Chuck prop chuker with you here on the Wednesday before Thanksgiving,
And if you happen to be on the road to
grandma and Grandpa's, if you happen to be Grandma and
Grandpa on the road to your kid's.
Speaker 3 (01:22):
House, or if you just happen to be, you know,
like us, still working on the day before Thanksgiving, then
we're happy to have you listening, because still quite a
bit to get to with a shortened week. Again, you're
not gonna have trading happening tomorrow. You've got a half
day of trading on Friday, but we still have, you know,
quite a bit that is going on and quite a
(01:45):
bit to sort through. And the place that we're going
to start today, Paul is with the FED, since we
are now at this point just a couple weeks out
from that December meeting, which is on December tenth, two
week from today, and the intrigue that's out there has
(02:05):
kind of decreased in the last few days where it
seems like you're getting more members of the FED signaling
the idea that yes, we are likely to get a
rate cut in December, but then kind of a hawkish
push towards Hey, we'd need to see a lot more
before we cut further in January, which I think makes
more sense than what I've seen, you know, prior to this,
(02:27):
but still some question as to, hey, is the Fed
really going to you know, follow through with that and
go for a third straight meeting with a quarter percent cut.
Speaker 4 (02:36):
Yeah, it's been interesting to follow the last couple of weeks, Chuck.
As you mentioned the last call it three to five
business days, and not so much as it seems to
be crystallized a little bit more clearly that we will
see that rate cut in that December tenth meeting, but
prior to that it was more of a coin flip
fifty to fifty, and I feel ultimately it was some
commentary from whether it's New York Fed president on William's
(03:00):
coming out and sort of reiterating the Fed's course to cut,
as well as the jobs report that you could argue
for the month of September that wasn't fantastic. I mean,
there was a good headline growth in jobs numbers, but
we can we've seen how those can be revised down.
The unemployment rate did tick up to four point four percent,
So where we sit today like you had mentioned eighty
(03:23):
three percent probability looking at CMA futures right now that
we do see that rate cup on December tenth. So
it seems as if the policy trajectory is going to be,
like you said, making this cut in December, but also
creating a very high bar for future cuts. And it
seems to be logical. There's really more risks probably that
(03:45):
you run, chuck, if you just say, you know what,
We're gonna stand pat here and wait another six or
seven weeks until our next meeting before we make a call.
There's a lot of data that come out could come
out during that time span that could make it that
you probably should have cut in December. So why not
go another quarter percent? Here?
Speaker 3 (04:03):
Yeah, And look, as as I've been saying for the
last couple of weeks, I hold both of these views simultaneously.
That look, if you if you cut in September and October,
I don't know that anything's happened in the interim where
you say, no, we're not going to cut in December, right,
But I also say, look, whether the FED does or
(04:25):
does not cut in December, I also don't think it
really matters because it's a quarter percent after the FED
has already cut interest rates by one and a half
percent over the last year and two months since last September.
And so my view on this is, look, if you're not,
you know, seeing enough movement in the economy or seeing
(04:47):
what you want to see from the one hundred and
fifty basis points in an interest rate cuts that the
Fed's already pushed through. I don't think that last quarter
percent is gonna be the thing that does it for you.
Speaker 4 (04:58):
No, it's not gonna be the straw that that breaks
the camel's back. It's hard to figure out what your
argument would be if you were so insistent on not cutting.
If someone was in that camp, I guess it would
be this idea that inflation's going to persist and be
stickier than projected for the next few months here, But
(05:18):
it's hard to do that. I mean, three percent. Yeah,
it's over the target of the feds two percent inflation goal,
but I don't think enough evidence to keep it where
it is on a rape perspective here.
Speaker 3 (05:29):
Yeah, the case that I think you could make and
I'm not saying this is where I am because I again,
I really think they should be cutting in December. The
case to be made if you say, look, we shouldn't
be doing any additional cuts is we've done this one
hundred and fifty basis points and cuts now. The last
(05:50):
fifty basis points was in the last few months, and
based on the fact that inflation is still above where
we'd like to see it, we need to see more
evidence in order to have it get to the point
where I'd be comfortable with more cuts.
Speaker 5 (06:04):
That's the hypothetical case.
Speaker 3 (06:07):
I don't know that I agree with it, because ultimately,
like when you look at the economic data that we
have out there right now.
Speaker 5 (06:18):
It shows that housing is still really struggling.
Speaker 3 (06:21):
And that's on the construction side, that's on the existing
home sales side, it's on the renovation side. You're seeing
this whether you're like basically anywhere that you look at it,
you're seeing it. The only place that you are seeing
a bit of a bright spot right now is the
fact that new mortgage applications are picking up a little
bit finally. But the interesting piece is the size of
(06:43):
the mortgage applications is not which indicates that, hey, these
are smaller mortgages that are being taken out, which indicates,
you know, pricing is still under pressure. And the other
thing that I've seen speculated that I don't have the
hard data on right now, is that this could be
happening just because the prevalence of all cash deals is down,
(07:03):
since you just don't have all this extra cash sloshing around.
Speaker 5 (07:06):
Like you did a few years ago.
Speaker 3 (07:08):
And so the additional mortgages is not representative of a
real uptick in activity, but just more purchases moving to
using financing as opposed to using cash. Sure, sure, but otherwise,
like you look at existing home sales data basically been
between like three point nine million and four and a
quarter million for the last three years. No shift, new
(07:32):
construction slowing. We're seeing it unsold inventory of new construction growing.
Home depot coming out saying, yeah, our earnings weren't that
good this quarter. We you know, started to see some
you know, negative trends developing there. They blamed it on
a lack of hurricanes another extreme weather that normally shows
(07:53):
up at the end of Q three, but still something
that you know is kind of troubling. So if if
you're saying, hey, like the Fed's got to cut this
extra quarter percent to help housing, well, the first one
to a half percent of cuts hasn't really helped housing
very much.
Speaker 4 (08:06):
Yeah, that's that's a beast sun to itself. That's gonna
be hard to tame with just the interest rate side
of things here, and then you have a labor market
on top of that that is, you know, not in
a great spot. Yeah, it's Matt and we'll see what
the last the next couple months look like. I do
wonder that you just it seems like Chuck more and
more in the show we're covering stories. HP is another
(08:30):
one yesterday announced that they were going to lay off
three to four thousand employees. It just seems like that
announcement from public companies is more and more prevalent. That
doesn't obviously immediately happen, It's something that phases in over time.
So you know, you wonder what the employment picture looks
like heading in twenty six And that's of paramount concern
for the Federal Reserve and probably prompts this cut that
(08:51):
we've been talking about here.
Speaker 3 (08:53):
Now the other piece that if you want another case
for the Fed not cutting, is it safe to say
that the economy this year has had a decent chunk
of uncertainty thrown at it.
Speaker 5 (09:05):
Oh yeah, right, like it seems.
Speaker 4 (09:08):
Like two years ago. It just it seems like we've
been up down and all around this year.
Speaker 5 (09:12):
There's been some uncertainty out there.
Speaker 3 (09:14):
And the thing that I come back to on in
a lot of these things is what matters isn't whether
the uncertainty is present or not. It's whether companies have
you know, kind of learned to live with it and
basically incorporated into their plans and then figure out how
to how to go from there. It's almost like the
rate of change of the uncertainty is what matters. And
I do look forward to twenty six and I say, look,
(09:38):
the year over year comps in a lot of different
areas are gonna get pretty easy next year. And so
all it takes is a little bit of marginal improvement
and you might see the economy start to pick up,
you know, noticeably, and with that, if it does, that
potentially has you know, an uptick in inflation that would
(10:00):
go along with it. And so the case for not
cutting is, yeah, if a FED member is looking out
at you know, their models for how this all fits
together and says, yeah, we see something you know, potentially
similar happening, then that could be a convincing case also
where they say, yeah, we don't want to be you know,
cutting right to the end of twenty five. If we
(10:21):
think that, you know, starting you know, end of Q
two of next year, maybe we need to start hiking again,
right right. So that's another potential case that's out there.
Let's take a quick break here. When we come back,
we've been talking about interest rates a lot. Let's talk
about the other piece that the FED manages, the FED
balance sheet. Where does it stand now relative to a
(10:43):
couple of years ago.
Speaker 5 (10:44):
Where is it going? We'll discuss when we come back.
Speaker 1 (10:47):
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Speaker 6 (11:18):
The Financial Exchange is a broad partner of the Disabled
American Veterans Department of Massachusetts. This year's race was a
tremendous success, and if you act fast, you can sign
up for next year's race during our early access registration
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DAV fivek dot Boston, Paul.
Speaker 5 (11:49):
The Federal Reserve has a balance sheets? What is it?
Why do they have it, and why are we talking
about it now?
Speaker 4 (11:57):
The Federal Reserve has a balance sheet where basically they
build a contingency of reserves, and it was an issue
that it had become significantly bloated during the post pandemic
period where they were pursuing a significant amount. I believe
it was what are we forty billion a month of
mortgage backed securities back in the heyday of twenty one
(12:17):
or twenty two. It had ballooned to a size of
nine trillion dollars at its peak the balance sheet for
the Frontal Reserve, and so they had made the decision.
Often you could argue maybe too late, that they made
this decision with inflation picking up, to basically let securities
run off their balance sheets. So if they're buying mortage
backed securities or treasuries, whatever, the security vehicle, when you
(12:39):
run them off your balance sheet, basically you're buying bonds
with a maturity date, and rather than reinvesting those proceeds
when the principle comes due to you, you just just
let it run off and you don't buy back the security.
We now sit the Federal Reserve, I should say, their
balance sheet sits at six point five to six trillion,
and they've reached a point basically where they've stated that
(12:59):
they are no longer going to allow the balance sheet
to run if any further. Why is this an area
of concern? When you look at the Federal Reserve, some
of its job obviously is to set the interest rate
that we talk about so frequently, but they're also integral
in the overnight lending that occurs between banks, and the
risk that you run, without getting too overly complicated, is
(13:20):
that the further that it shrinks its balance sheet, the
more susceptible it becomes to having money market interest rate
fluctuations or repo rates rising and just causing issues. I
would guess I would just summarize for banks, and that's
why you see the pivot in policy here going forward
effective December first.
Speaker 3 (13:42):
When you look at this piece by Bill Duddley, who
used to run the Federal Reserve Bank of New York,
anything stand out to you as far as things that
he talks about in here that you might be relevant
to why this matters to the average person.
Speaker 4 (14:00):
He makes a good counterpoint. I don't know if people
are necessarily viewing it this way, but those who are
arguing that if the Federal Reserve balance sheet it needs
to reduce in order to accommodate significantly lower rates on
the federal funds rate side of things, he disputes that notion.
Just given its size and the impact of the shrinking,
(14:23):
the risk far outweigh the potential benefits to having its
runoff for further continue and reduce interest rates. Really the
policy decisions are far more critical. He makes the point
than having this balance sheet run down too tight and
have too small a balance sheet on the books. That
was a fair point that he made, and just sort
(14:45):
of characterizes the money supply that we were in an
abundant period of money supply, a ton of money slashing around.
We now sit as what he quotes us saying an
ample sort of supply that is appropriate going forward.
Speaker 3 (15:00):
Yesterday we received the latest update from the Conference Board
on consumer confidence for the month of November, and this
is another one that, like, I really struggled to reconcile
some of the things that we're seeing right now, where
consumer confidence reading comes in at a reading of eighty
eight point seven, which again like the actual number, like,
(15:23):
don't worry about it, but I think the way that
I would phrase this is it's the lowest reading for
consumer confidence since January of twenty twenty one, aside from
this April when there was just you know, a lot
of teriff uncertainty and stuff like that. And so here's
what I struggle to reconcile on this, Paul. So we've
got really low consumer confidence, right We got consumers saying
(15:47):
they're going to be pulling back on spending, and yet
we just got through retail sales earnings that were remarkably good,
aside from basically Target who's got their own issues. Going one,
we continue to see banks and credit card companies saying, yes,
there's very consistent four to six percent spending growth year
(16:08):
over year.
Speaker 5 (16:09):
There's no change.
Speaker 3 (16:10):
Despite the fact that the job market seems kind of messy,
and you've got corporate earnings in a really good spot
and not really showing any signs of major stress. And
so I guess what I'm trying to figure out here.
And again I've got my hypothesis on this, But why
is consumer sentiment so bad right now? When I will say, okay,
(16:36):
this probably answers it. It's three things, I'll answer my
own question, Paul, Sorry for the roundabout past, K shape economy.
Speaker 4 (16:43):
Let me drop one of the things.
Speaker 5 (16:44):
Yes, K shape economy.
Speaker 3 (16:45):
Okay, Like, there's a big chunk of people that are
feeling bad about the economy because they are in the
lower half of the income spectrum and their incomes are
not keeping up with inflation and the cost of living.
Speaker 5 (16:57):
Yep.
Speaker 3 (16:58):
The other two things that I think are making confidence
feel bad. The housing market still a mess in most
of the country. I know our show is based in
the northeast, but if you talk to people across the
southeast and even into the southwest and west coast, now
you've got housing markets that are not very good and
the job market is bad. So if half the population
is struggling to keep up with inflation, the housing market
(17:20):
in a lot of the country is not good and
the job market is weak. Yeah, Like, I get it
because I'm looking. I'm in the Northeast where the housing
market's strong, and we are in I'm I'm employed, so
I'm not sitting here being like, oh, the labor market's bad.
I've been employed the same place for like sixteen years now,
(17:40):
so like I'm kind of my personal biases, I just
don't notice this stuff. And so yeah, like I get
why this is the case, but it's just the thing
that's so weird is that the overall economy still seems
fine despite these problems, and I think that's the most
while the thing to me is housing's not good, the
(18:02):
labor market's not good, and yet somehow we're still chugging along.
Speaker 4 (18:07):
The stock market seems ever more important than at least
in the last this year. That's been sort of the
biggest takeaway that I've had is in conjunction with us
discussing the KSHAPCAMI, those people on the upper end of
that k are ones who are invested in the market,
and it seems as if that that confidence on that
(18:27):
side of things is backed by this idea that hey,
they've had jeez, twenty three, twenty four, and twenty five
are all you have twenty three and twenty four for
stock market returns over twenty percent, and this year we're
sitting close to knocking on the door of that at
least in excess to fifteen percent. So you've had three
tremendous years for those people who have been participating in
(18:47):
the market are living off of a portfolio. It's hard
these consumer confidence ones. I think it's a mixture of
just perhaps people's you know, pessimism and maybe the case
shape stuff, But it doesn't really do a great job
of encapsulating where the economy stands, the feelings that people have.
(19:09):
It's hard to really glean much from it.
Speaker 3 (19:12):
Yeah, yeah, I think that's a fair summary of where
we stand at this point. It's just still a little
confusing sometimes when you're looking at it. Just take a
quick break here. When we return, we got Wall Street Watch.
Speaker 1 (19:40):
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Speaker 6 (20:01):
What markets are in positive territories Wall Street sifts through
more economic data this morning, including durable goods and jobless claims.
Right now, the Dow is up just over half a percent,
or two one hundred and fifty three points. SMP five
hundred also up over half a percent to thirty six points.
NASDAC up over half a percent as well, or one
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(20:24):
over four cents of a percent. Ten You're Treasure reeled
up one basis point at four point zero two to
one percent, and crude oil up modestly, edging just above
fifty eight dollars a barrel after the stock pulled back
three percent in reaction to optimism around Google's AI, chips
and video shares are rebounding over one percent today and in
(20:45):
response two concerns, the AI and chip giants said in
a post on x that it is a generation ahead
of the industry. Alphabeto, by the way, is down over
one and a half percent today after its a recent rally. Meanwhile,
shares in the technologies rising over four percent after the
computer and software maker raised its full year guidance and
(21:06):
forecasted its AI server shipments would more than double, sticking
with Tech, where HP set it plans to cut up
about cut up to ten percent of its workforce as
it invests further in AIHP stock is down two percent. Elsewhere,
Deer beat earnings and revenue expectations for the previous quarter. However,
(21:27):
the farm equipment maker issued downbeat annual forecast and said
tariff's in uncertainty would pressure earnings, Deer falling by three percent.
Digital design software maker Autodesk raised its annual outlook, sending
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(21:50):
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Speaker 3 (22:18):
Probably want to talk a little bit about the retail
sales data that we got yesterday, just because you get
a couple pieces.
Speaker 5 (22:24):
Here that are all like, hey.
Speaker 3 (22:27):
Retail sales weren't very good for September, and honestly, I
don't care because the actual retail earnings were just fine,
and so I don't know why the retail sales data
for September is relevant in any way, shape or form to.
Speaker 5 (22:46):
Anything.
Speaker 4 (22:47):
No, we had a lot of trouble with this yesterday
when the report came out, Mike and I talking about
on the show, because it was so backward looking. In September,
as you mentioned, some of the retailers had come out
with really strong earnings that sort of can work contradictory
to what we saw from September's report, And in general,
I was just thinking this as an aside check, has
(23:08):
there ever been in your time covering the retail sales
report where you felt it was just incredibly significant were
reporting in one direction and another of where the consumer
is going. I just couldn't think back to a time
where that retail sales report it really was the start
of something.
Speaker 5 (23:28):
Well.
Speaker 3 (23:28):
I do think it is informative because it helps to
give us guidance. Like I'm a big believer still that
traditionally in the business cycle, demand is what leads employment,
and so I do think that the early signs that
you know, demand was going to go screaming higher back
in twenty twenty one was when you know, retail started
(23:50):
moving in that direction, and pretty soon, you know, you
saw inflation just cooking up as a result of it.
Speaker 5 (23:55):
And so I do think it can be.
Speaker 3 (23:58):
You know, informative, but I also think look, aside from
you know, what we saw from you know, twenty twenty
through twenty three, we haven't really seen any major variations
in business cycles in almost twenty years now, you know,
(24:18):
like the US, aside from the COVID recession, hasn't been
in recession since, you know, in almost twenty years now.
It's gonna be twenty twenty six next year, like the
I know it's hard to believe, but the financial crisis
was almost twenty years ago now.
Speaker 5 (24:32):
Right, And so.
Speaker 3 (24:35):
This is kind of what gets it what a lot
of people have been saying about markets and macroeconomics, which
is like, oh, like this stuff like nothing matters, Like
the economy just does what it does. And I get
why there's that sense out there, because basically, aside from COVID,
nothing's really mattered to the economy. In the last twenty
(24:57):
years as far as like will it go into reces
session or not even now, like for all of the
you know, all of the inkspilled on you know, hey,
will there be a recession in twenty twenty three? Will
there be a recession in twenty four? Now it's will
there be one in twenty five? Now it's gonna be
will there be one in twenty six? Sure, the answer
is despite all of the things that have concerned us
(25:19):
over the last few years, you know, high inflation, the
FED hiking rates, Silicon Valley bank blowing up or slowing,
labor market, tariffs, this that whatever, you look at the
broad economic data and like I I don't blame for
people for feeling like none of this matters, Like is
I get it.
Speaker 5 (25:38):
It's you look at the.
Speaker 3 (25:39):
Broad data and it hasn't mattered, But at some point
it will, yep, because you're not just going to never
have another recession again.
Speaker 5 (25:49):
Ever.
Speaker 3 (25:50):
Sure, I think the problem that we you know, that
people tend to get into is they always want to
predict recession and usually it doesn't happen. Like recessions are
not something happens every year or two. You know, there
have to be problems in the business cycle that lead
to them, and that just hasn't been present large enough
quantities in the last fifteen sixteen years.
Speaker 5 (26:09):
For that to be the case sure thing.
Speaker 3 (26:12):
So that's it's kind of where I am on that side.
I do want to talk about something that's kind of
media in markets over the last week or so, which
is the Googs.
Speaker 4 (26:22):
I'm excited about this.
Speaker 5 (26:23):
I am too. So Google's a company.
Speaker 3 (26:24):
If you've been listening to our show for a while,
you know that I've kind of had this feeling about
Google for the last five or six years where it's
kind of just like, what do they do? Like what's
interesting about them? They're basically an online ad not monopoly
because Facebook is out there in that space and Amazon's
big too, but like they're all kind of just you know,
(26:45):
huge in that space. And it's kind of like, Okay,
do you do anything interesting anymore? And the answer is
maybe I'm not willing, Like I don't know enough to
say yes definitively.
Speaker 5 (26:56):
But here's the thing.
Speaker 3 (26:56):
The big Google announcement last week was that they're Gemini
three AI platform uh basically dominates all previous platforms in
terms of how it performs on tests. The bigger news
was under the surface, which is, hey, the training was
done on Google's own self developed chips. Yep, now quick
(27:17):
and dirty, like you know, summary of this, just so
that when you're at you know, Thanksgiving dinner, you can
talk about this and and and sound smart.
Speaker 4 (27:25):
Little TPU GPU chatter.
Speaker 5 (27:27):
Oh boy, we're gonna get there. So uh.
Speaker 3 (27:29):
In Vidia, who makes most of the chips for you know,
AI applications to this point. Their chips are known as GPUs,
which historically been you know, graphics processing units. Back during
you know, the last twenty years or so. If you
wanted to play counter strike or you know, the latest
call of duty and have it look the best, you
needed the strongest graphics processing unit, the strongest GPU to
(27:52):
be able to handle that load. Because it takes a
ton of computing power to render three D graphics in
real time. It's it's a lot for a computer to
do that. So in Video's growth into this company that
uses those GPUs for AI makes a lot of sense
because they've already been developing technology that has a ton
of power to handle large scale computing tasks for years.
(28:16):
It's been their bread and butter. Google alphabet back in
twenty fifteen developed what they call the tensor processing unit
tensor spelled tn SR or the TPU, And basically what
TPUs are designed to do. They're designed to process a
(28:37):
ton of volume in terms of operations, but not with
a ton of precisions. So basically, just get me as
much information as possible and then we can sort through
it on the back end. And they're custom built for
specific uses, generally for machine learning and artificial intelligence. And
so the big thing with this, you know, this announcement
(29:01):
that Google used their own self developed TPUs for training
their latest model, is Hey, if the latest and greatest
model is this much better and they didn't use in
Vidia chips and Google's own chips are a lot cheaper
and you know, both to make and operate than Google's chips, hey,
that's a potentially huge threat to in Vidia's chip business.
(29:24):
Because if companies realize that there's more competition in video
has two options either a like, develop things that are
just so much better than everyone else that people have
to use your stuff, but that doesn't look like the
case here, or in video is going to have to
start cutting its prices in order to compete, which means
that fat margin. That is the reason why in Video's
(29:45):
earnings just keep going up and up and up. Is
going to get eaten into and more competition again means
that not everybody's going to be a winner in the
AI space.
Speaker 5 (29:55):
I think this is fascinating me too.
Speaker 4 (29:57):
This is the story that captivates me the most. When
you talk about markets, I would push back and noticing
that Google's boring. I mean, weaimo itself as a business
that's covered within goal. Google is pretty fascinating. I know
it doesn't really translate to the bottom line if we're
looking at revenue, but also there they've they've got a
They've done a lot of things right, I mean over
the years, for sure, they're all over place. And what's
(30:18):
really happened over the course of the last month or so,
in addition to what you mentioned with with Gemini, and
this is really only in the last week or two,
is now that these TPUs that we just spoke about
are going to be available for other companies to use. Typically,
Google had just developed this in house and used it
for the Gemini three model, training it on its own chips.
(30:39):
Now it's just announced that a million chips are going
to be sold to Anthropic, another artificial intelligence company that
builds a large language model. And then the rumors that
came out over the course of the last few days
was that Meta was considering using Google's chips in its
data centers as early as twenty twenty seven, and perhaps
renting them out as early as next year. Google's positioning
(31:01):
across everything in our official intelligence. It's funny how we
were just talking about them not getting broken up as
a monopoly a month or so ago, and all of
a sudden they're woken up with a lot going here
in their favor.
Speaker 5 (31:14):
Quick break here. When we come back, we're talking turkey
after this.
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Speaker 3 (32:21):
All right, Paul, before we get to talk to Turkey here,
let's let's cover this piece from the Wall Street Journal,
just to wrap up our AI chatter. It's titled is
it really possible to spend too much on AI?
Speaker 5 (32:36):
What's to talk about? And what are your thoughts? Check.
Speaker 4 (32:39):
The reason that this piece is grinding my gears and
I think it's inaccurate is because this goes on in
the piece here to make an example of Intel and
the spending that it did under former CEO Pat Gelsinger
in twenty twenty one, where they committed a significant amount
of capital to build out their capable ability to manufacture chips.
(33:03):
So Intel, historically we were talking about chips in the
second but before had both designed and manufactured chips. The
chip industry has evolved to where typically, for the most part,
you have people who designed the chips or companies that
make them. You're kind of one or the other, and
Intel was kind of caught in between the two. He
came in a CEO and said, we're going to be
(33:23):
behind the manufacturing, and the piece goes on to outline
that they spent all this money and had really nothing
show for it. And the reason that I don't like
the piece and think it's inaccurate is because what Gelsinger
did in twenty twenty one, you can argue it didn't
pay off and they failed at making themselves turn around
on the manufacturing side, But the reason that they were
in that position were from mistakes that go back a
(33:44):
decade plus or more. Really, they lost out in mobile.
They were very concentrated on focusing on their PC business.
They had made the chips that dominated that market for years,
and they sat back while other companies out there, like
Are and others, ate their lunch when it came to
more chips being used for your cell phones rather than
(34:06):
in computers. Same thing applies with the manufacturing side of
things on chips. They got their lunch eaten by Taiwan's
semiconductor back in twenty seventeen or twenty nineteen, where chips
were being made small and smaller. They missed the boat there.
So it really was a product of missing technology ways
where you could argue that they didn't spend enough to
(34:27):
innovate there and sat back cashing their fat checks from
their computer business and those chips that led them to
that position. So that's what the frustration. Maybe he's right,
they're right in this piece that some companies will overspend
and they'll fall in their face and fail with artificial intelligence.
But Intel's really more an example of not someone who's
spent too much and failed. It's just they missed and
(34:48):
probably didn't spend enough to keep up with technology that
continues to evolve.
Speaker 6 (34:53):
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Speaker 3 (36:01):
Piece in the New York Times that ask the question
that I'm completely sick of at this point. How much
well Thanksgiving dinner cost? It depends who you ask. So
here's the deal. All of the major stores, grocery stores
are being like, yeah, like things are like cheaper than
last year. Targets saying it, Walmart's saying it. You go
down the list, and it's the case because obviously you
(36:23):
want to attract shoppers by saying that you have the
best prices. On the other hand, you look at the
CPI data just you know, off the top, and you say, okay,
grocery prices are up a few percentage points since last year.
Then you go and you look at Purdue University who
says wholesale turkey prices are up seventy five percent from
last year. Because remember the time when grocery stores are
(36:45):
ordering turkeys for the next year is generally last winter,
because they order in advance to not have to pay
spot prices when actually buying in the open market. You've
got Deloitte who's saying that Thanksgiving prices are point six
percent higher.
Speaker 5 (37:00):
And quite honestly like.
Speaker 3 (37:04):
The idea that hey, we're gonna accurately judge what people
are feeling on inflation from what Thanksgiving dinner costs really
bothers me.
Speaker 4 (37:14):
I don't understand why it's become the focus point over
the course of the last week here that the Thanksgiving
dinner is where we have to measure pricing changes. And
why and how you know the White House has to
hang their hat on lower prices, or.
Speaker 3 (37:32):
I get why politicians of anywhere want to say, hey,
prices are you know, lower. I totally get it, But
like this battle ground that Thanksgiving dinner is now, it's like,
oh my goodness, Like the conversation over Thanksgiving dinner should
not be which index are using to track the price
of Thanksgiving dinner.
Speaker 4 (37:54):
It's impossible. And the metrics they're using here, everybody's shifting
around the different items in the package with you know,
oh this this meal was you know, fifteen items, this
one's ten. If you take out these things, it's more expensive.
It's just made my head spind this whole sort of
chatter over the course of the last few days here
on the cost of Thanksgiving meal.
Speaker 5 (38:12):
So let's cut through it all. Paul, what's your favorite
side dish?
Speaker 4 (38:16):
Stuffing?
Speaker 6 (38:17):
Tucker, I don't even think like it's a debate really,
like I think stuffing should be excluded.
Speaker 5 (38:23):
That question is number two. So stuffing.
Speaker 3 (38:26):
I've always had the point that it should be a
four season side dish, not.
Speaker 5 (38:30):
Just a Thanksgiving I go green bean cast role for
number two.
Speaker 1 (38:35):
Not bad, hmm.
Speaker 6 (38:37):
I mean I gotta go mashed potatoes.
Speaker 4 (38:39):
I was gonna goto cravy, smothering covered and gravy again.
Speaker 3 (38:43):
You can have that anytime, any time, deal quick break,
Your hour too coming up in a little bit.
The Financial Exchange is produced by Money Matters Radio and
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(01:06):
and Paul Lame.
Speaker 2 (01:08):
Chuck prop chuker with you here on the Wednesday before Thanksgiving,
And if you happen to be on the road to
grandma and Grandpa's, if you happen to be Grandma and
Grandpa on the road to your kid's.
Speaker 3 (01:22):
House, or if you just happen to be, you know,
like us, still working on the day before Thanksgiving, then
we're happy to have you listening, because still quite a
bit to get to with a shortened week. Again, you're
not gonna have trading happening tomorrow. You've got a half
day of trading on Friday, but we still have, you know,
quite a bit that is going on and quite a
(01:45):
bit to sort through. And the place that we're going
to start today, Paul is with the FED, since we
are now at this point just a couple weeks out
from that December meeting, which is on December tenth, two
week from today, and the intrigue that's out there has
(02:05):
kind of decreased in the last few days where it
seems like you're getting more members of the FED signaling
the idea that yes, we are likely to get a
rate cut in December, but then kind of a hawkish
push towards Hey, we'd need to see a lot more
before we cut further in January, which I think makes
more sense than what I've seen, you know, prior to this,
(02:27):
but still some question as to, hey, is the Fed
really going to you know, follow through with that and
go for a third straight meeting with a quarter percent cut.
Speaker 4 (02:36):
Yeah, it's been interesting to follow the last couple of weeks, Chuck.
As you mentioned the last call it three to five
business days, and not so much as it seems to
be crystallized a little bit more clearly that we will
see that rate cut in that December tenth meeting, but
prior to that it was more of a coin flip
fifty to fifty, and I feel ultimately it was some
commentary from whether it's New York Fed president on William's
(03:00):
coming out and sort of reiterating the Fed's course to cut,
as well as the jobs report that you could argue
for the month of September that wasn't fantastic. I mean,
there was a good headline growth in jobs numbers, but
we can we've seen how those can be revised down.
The unemployment rate did tick up to four point four percent,
So where we sit today like you had mentioned eighty
(03:23):
three percent probability looking at CMA futures right now that
we do see that rate cup on December tenth. So
it seems as if the policy trajectory is going to be,
like you said, making this cut in December, but also
creating a very high bar for future cuts. And it
seems to be logical. There's really more risks probably that
(03:45):
you run, chuck, if you just say, you know what,
We're gonna stand pat here and wait another six or
seven weeks until our next meeting before we make a call.
There's a lot of data that come out could come
out during that time span that could make it that
you probably should have cut in December. So why not
go another quarter percent? Here?
Speaker 3 (04:03):
Yeah, And look, as as I've been saying for the
last couple of weeks, I hold both of these views simultaneously.
That look, if you if you cut in September and October,
I don't know that anything's happened in the interim where
you say, no, we're not going to cut in December, right,
But I also say, look, whether the FED does or
(04:25):
does not cut in December, I also don't think it
really matters because it's a quarter percent after the FED
has already cut interest rates by one and a half
percent over the last year and two months since last September.
And so my view on this is, look, if you're not,
you know, seeing enough movement in the economy or seeing
(04:47):
what you want to see from the one hundred and
fifty basis points in an interest rate cuts that the
Fed's already pushed through. I don't think that last quarter
percent is gonna be the thing that does it for you.
Speaker 4 (04:58):
No, it's not gonna be the straw that that breaks
the camel's back. It's hard to figure out what your
argument would be if you were so insistent on not cutting.
If someone was in that camp, I guess it would
be this idea that inflation's going to persist and be
stickier than projected for the next few months here, But
(05:18):
it's hard to do that. I mean, three percent. Yeah,
it's over the target of the feds two percent inflation goal,
but I don't think enough evidence to keep it where
it is on a rape perspective here.
Speaker 3 (05:29):
Yeah, the case that I think you could make and
I'm not saying this is where I am because I again,
I really think they should be cutting in December. The
case to be made if you say, look, we shouldn't
be doing any additional cuts is we've done this one
hundred and fifty basis points and cuts now. The last
(05:50):
fifty basis points was in the last few months, and
based on the fact that inflation is still above where
we'd like to see it, we need to see more
evidence in order to have it get to the point
where I'd be comfortable with more cuts.
Speaker 5 (06:04):
That's the hypothetical case.
Speaker 3 (06:07):
I don't know that I agree with it, because ultimately,
like when you look at the economic data that we
have out there right now.
Speaker 5 (06:18):
It shows that housing is still really struggling.
Speaker 3 (06:21):
And that's on the construction side, that's on the existing
home sales side, it's on the renovation side. You're seeing
this whether you're like basically anywhere that you look at it,
you're seeing it. The only place that you are seeing
a bit of a bright spot right now is the
fact that new mortgage applications are picking up a little
bit finally. But the interesting piece is the size of
(06:43):
the mortgage applications is not which indicates that, hey, these
are smaller mortgages that are being taken out, which indicates,
you know, pricing is still under pressure. And the other
thing that I've seen speculated that I don't have the
hard data on right now, is that this could be
happening just because the prevalence of all cash deals is down,
(07:03):
since you just don't have all this extra cash sloshing around.
Speaker 5 (07:06):
Like you did a few years ago.
Speaker 3 (07:08):
And so the additional mortgages is not representative of a
real uptick in activity, but just more purchases moving to
using financing as opposed to using cash. Sure, sure, but otherwise,
like you look at existing home sales data basically been
between like three point nine million and four and a
quarter million for the last three years. No shift, new
(07:32):
construction slowing. We're seeing it unsold inventory of new construction growing.
Home depot coming out saying, yeah, our earnings weren't that
good this quarter. We you know, started to see some
you know, negative trends developing there. They blamed it on
a lack of hurricanes another extreme weather that normally shows
(07:53):
up at the end of Q three, but still something
that you know is kind of troubling. So if if
you're saying, hey, like the Fed's got to cut this
extra quarter percent to help housing, well, the first one
to a half percent of cuts hasn't really helped housing
very much.
Speaker 4 (08:06):
Yeah, that's that's a beast sun to itself. That's gonna
be hard to tame with just the interest rate side
of things here, and then you have a labor market
on top of that that is, you know, not in
a great spot. Yeah, it's Matt and we'll see what
the last the next couple months look like. I do
wonder that you just it seems like Chuck more and
more in the show we're covering stories. HP is another
(08:30):
one yesterday announced that they were going to lay off
three to four thousand employees. It just seems like that
announcement from public companies is more and more prevalent. That
doesn't obviously immediately happen, It's something that phases in over time.
So you know, you wonder what the employment picture looks
like heading in twenty six And that's of paramount concern
for the Federal Reserve and probably prompts this cut that
(08:51):
we've been talking about here.
Speaker 3 (08:53):
Now the other piece that if you want another case
for the Fed not cutting, is it safe to say
that the economy this year has had a decent chunk
of uncertainty thrown at it.
Speaker 5 (09:05):
Oh yeah, right, like it seems.
Speaker 4 (09:08):
Like two years ago. It just it seems like we've
been up down and all around this year.
Speaker 5 (09:12):
There's been some uncertainty out there.
Speaker 3 (09:14):
And the thing that I come back to on in
a lot of these things is what matters isn't whether
the uncertainty is present or not. It's whether companies have
you know, kind of learned to live with it and
basically incorporated into their plans and then figure out how
to how to go from there. It's almost like the
rate of change of the uncertainty is what matters. And
I do look forward to twenty six and I say, look,
(09:38):
the year over year comps in a lot of different
areas are gonna get pretty easy next year. And so
all it takes is a little bit of marginal improvement
and you might see the economy start to pick up,
you know, noticeably, and with that, if it does, that
potentially has you know, an uptick in inflation that would
(10:00):
go along with it. And so the case for not
cutting is, yeah, if a FED member is looking out
at you know, their models for how this all fits
together and says, yeah, we see something you know, potentially
similar happening, then that could be a convincing case also
where they say, yeah, we don't want to be you know,
cutting right to the end of twenty five. If we
(10:21):
think that, you know, starting you know, end of Q
two of next year, maybe we need to start hiking again,
right right. So that's another potential case that's out there.
Let's take a quick break here. When we come back,
we've been talking about interest rates a lot. Let's talk
about the other piece that the FED manages, the FED
balance sheet. Where does it stand now relative to a
(10:43):
couple of years ago.
Speaker 5 (10:44):
Where is it going? We'll discuss when we come back.
Speaker 1 (10:47):
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(11:07):
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Speaker 6 (11:18):
The Financial Exchange is a broad partner of the Disabled
American Veterans Department of Massachusetts. This year's race was a
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up for next year's race during our early access registration
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DAV fivek dot Boston, Paul.
Speaker 5 (11:49):
The Federal Reserve has a balance sheets? What is it?
Why do they have it, and why are we talking
about it now?
Speaker 4 (11:57):
The Federal Reserve has a balance sheet where basically they
build a contingency of reserves, and it was an issue
that it had become significantly bloated during the post pandemic
period where they were pursuing a significant amount. I believe
it was what are we forty billion a month of
mortgage backed securities back in the heyday of twenty one
(12:17):
or twenty two. It had ballooned to a size of
nine trillion dollars at its peak the balance sheet for
the Frontal Reserve, and so they had made the decision.
Often you could argue maybe too late, that they made
this decision with inflation picking up, to basically let securities
run off their balance sheets. So if they're buying mortage
backed securities or treasuries, whatever, the security vehicle, when you
(12:39):
run them off your balance sheet, basically you're buying bonds
with a maturity date, and rather than reinvesting those proceeds
when the principle comes due to you, you just just
let it run off and you don't buy back the security.
We now sit the Federal Reserve, I should say, their
balance sheet sits at six point five to six trillion,
and they've reached a point basically where they've stated that
(12:59):
they are no longer going to allow the balance sheet
to run if any further. Why is this an area
of concern? When you look at the Federal Reserve, some
of its job obviously is to set the interest rate
that we talk about so frequently, but they're also integral
in the overnight lending that occurs between banks, and the
risk that you run, without getting too overly complicated, is
(13:20):
that the further that it shrinks its balance sheet, the
more susceptible it becomes to having money market interest rate
fluctuations or repo rates rising and just causing issues. I
would guess I would just summarize for banks, and that's
why you see the pivot in policy here going forward
effective December first.
Speaker 3 (13:42):
When you look at this piece by Bill Duddley, who
used to run the Federal Reserve Bank of New York,
anything stand out to you as far as things that
he talks about in here that you might be relevant
to why this matters to the average person.
Speaker 4 (14:00):
He makes a good counterpoint. I don't know if people
are necessarily viewing it this way, but those who are
arguing that if the Federal Reserve balance sheet it needs
to reduce in order to accommodate significantly lower rates on
the federal funds rate side of things, he disputes that notion.
Just given its size and the impact of the shrinking,
(14:23):
the risk far outweigh the potential benefits to having its
runoff for further continue and reduce interest rates. Really the
policy decisions are far more critical. He makes the point
than having this balance sheet run down too tight and
have too small a balance sheet on the books. That
was a fair point that he made, and just sort
(14:45):
of characterizes the money supply that we were in an
abundant period of money supply, a ton of money slashing around.
We now sit as what he quotes us saying an
ample sort of supply that is appropriate going forward.
Speaker 3 (15:00):
Yesterday we received the latest update from the Conference Board
on consumer confidence for the month of November, and this
is another one that, like, I really struggled to reconcile
some of the things that we're seeing right now, where
consumer confidence reading comes in at a reading of eighty
eight point seven, which again like the actual number, like,
(15:23):
don't worry about it, but I think the way that
I would phrase this is it's the lowest reading for
consumer confidence since January of twenty twenty one, aside from
this April when there was just you know, a lot
of teriff uncertainty and stuff like that. And so here's
what I struggle to reconcile on this, Paul. So we've
got really low consumer confidence, right We got consumers saying
(15:47):
they're going to be pulling back on spending, and yet
we just got through retail sales earnings that were remarkably good,
aside from basically Target who's got their own issues. Going one,
we continue to see banks and credit card companies saying, yes,
there's very consistent four to six percent spending growth year
(16:08):
over year.
Speaker 5 (16:09):
There's no change.
Speaker 3 (16:10):
Despite the fact that the job market seems kind of messy,
and you've got corporate earnings in a really good spot
and not really showing any signs of major stress. And
so I guess what I'm trying to figure out here.
And again I've got my hypothesis on this, But why
is consumer sentiment so bad right now? When I will say, okay,
(16:36):
this probably answers it. It's three things, I'll answer my
own question, Paul, Sorry for the roundabout past, K shape economy.
Speaker 4 (16:43):
Let me drop one of the things.
Speaker 5 (16:44):
Yes, K shape economy.
Speaker 3 (16:45):
Okay, Like, there's a big chunk of people that are
feeling bad about the economy because they are in the
lower half of the income spectrum and their incomes are
not keeping up with inflation and the cost of living.
Speaker 5 (16:57):
Yep.
Speaker 3 (16:58):
The other two things that I think are making confidence
feel bad. The housing market still a mess in most
of the country. I know our show is based in
the northeast, but if you talk to people across the
southeast and even into the southwest and west coast, now
you've got housing markets that are not very good and
the job market is bad. So if half the population
is struggling to keep up with inflation, the housing market
(17:20):
in a lot of the country is not good and
the job market is weak. Yeah, Like, I get it
because I'm looking. I'm in the Northeast where the housing
market's strong, and we are in I'm I'm employed, so
I'm not sitting here being like, oh, the labor market's bad.
I've been employed the same place for like sixteen years now,
(17:40):
so like I'm kind of my personal biases, I just
don't notice this stuff. And so yeah, like I get
why this is the case, but it's just the thing
that's so weird is that the overall economy still seems
fine despite these problems, and I think that's the most
while the thing to me is housing's not good, the
(18:02):
labor market's not good, and yet somehow we're still chugging along.
Speaker 4 (18:07):
The stock market seems ever more important than at least
in the last this year. That's been sort of the
biggest takeaway that I've had is in conjunction with us
discussing the KSHAPCAMI, those people on the upper end of
that k are ones who are invested in the market,
and it seems as if that that confidence on that
(18:27):
side of things is backed by this idea that hey,
they've had jeez, twenty three, twenty four, and twenty five
are all you have twenty three and twenty four for
stock market returns over twenty percent, and this year we're
sitting close to knocking on the door of that at
least in excess to fifteen percent. So you've had three
tremendous years for those people who have been participating in
(18:47):
the market are living off of a portfolio. It's hard
these consumer confidence ones. I think it's a mixture of
just perhaps people's you know, pessimism and maybe the case
shape stuff, But it doesn't really do a great job
of encapsulating where the economy stands, the feelings that people have.
(19:09):
It's hard to really glean much from it.
Speaker 3 (19:12):
Yeah, yeah, I think that's a fair summary of where
we stand at this point. It's just still a little
confusing sometimes when you're looking at it. Just take a
quick break here. When we return, we got Wall Street Watch.
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 6 (20:01):
What markets are in positive territories Wall Street sifts through
more economic data this morning, including durable goods and jobless claims.
Right now, the Dow is up just over half a percent,
or two one hundred and fifty three points. SMP five
hundred also up over half a percent to thirty six points.
NASDAC up over half a percent as well, or one
hundred and twenty points. RUSS two thousand is up just
(20:24):
over four cents of a percent. Ten You're Treasure reeled
up one basis point at four point zero two to
one percent, and crude oil up modestly, edging just above
fifty eight dollars a barrel after the stock pulled back
three percent in reaction to optimism around Google's AI, chips
and video shares are rebounding over one percent today and in
(20:45):
response two concerns, the AI and chip giants said in
a post on x that it is a generation ahead
of the industry. Alphabeto, by the way, is down over
one and a half percent today after its a recent rally. Meanwhile,
shares in the technologies rising over four percent after the
computer and software maker raised its full year guidance and
(21:06):
forecasted its AI server shipments would more than double, sticking
with Tech, where HP set it plans to cut up
about cut up to ten percent of its workforce as
it invests further in AIHP stock is down two percent. Elsewhere,
Deer beat earnings and revenue expectations for the previous quarter. However,
(21:27):
the farm equipment maker issued downbeat annual forecast and said
tariff's in uncertainty would pressure earnings, Deer falling by three percent.
Digital design software maker Autodesk raised its annual outlook, sending
shares up three percent higher. In apparel, retailer Urban Outfitters
posted stronger than expected quarterly results, boosted by its namesake brand,
(21:50):
that stock rallying by fifteen percent. I'm Tucker Silva and
that is Wall Street Watch. And remember you can watch
the Financial Exchange Show live every day day on YouTube.
We'll have breaking business news and all of our content
is also archived, so if you want to see an
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(22:12):
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Speaker 3 (22:18):
Probably want to talk a little bit about the retail
sales data that we got yesterday, just because you get
a couple pieces.
Speaker 5 (22:24):
Here that are all like, hey.
Speaker 3 (22:27):
Retail sales weren't very good for September, and honestly, I
don't care because the actual retail earnings were just fine,
and so I don't know why the retail sales data
for September is relevant in any way, shape or form to.
Speaker 5 (22:46):
Anything.
Speaker 4 (22:47):
No, we had a lot of trouble with this yesterday
when the report came out, Mike and I talking about
on the show, because it was so backward looking. In September,
as you mentioned, some of the retailers had come out
with really strong earnings that sort of can work contradictory
to what we saw from September's report, And in general,
I was just thinking this as an aside check, has
(23:08):
there ever been in your time covering the retail sales
report where you felt it was just incredibly significant were
reporting in one direction and another of where the consumer
is going. I just couldn't think back to a time
where that retail sales report it really was the start
of something.
Speaker 5 (23:28):
Well.
Speaker 3 (23:28):
I do think it is informative because it helps to
give us guidance. Like I'm a big believer still that
traditionally in the business cycle, demand is what leads employment,
and so I do think that the early signs that
you know, demand was going to go screaming higher back
in twenty twenty one was when you know, retail started
(23:50):
moving in that direction, and pretty soon, you know, you
saw inflation just cooking up as a result of it.
Speaker 5 (23:55):
And so I do think it can be.
Speaker 3 (23:58):
You know, informative, but I also think look, aside from
you know, what we saw from you know, twenty twenty
through twenty three, we haven't really seen any major variations
in business cycles in almost twenty years now, you know,
(24:18):
like the US, aside from the COVID recession, hasn't been
in recession since, you know, in almost twenty years now.
It's gonna be twenty twenty six next year, like the
I know it's hard to believe, but the financial crisis
was almost twenty years ago now.
Speaker 5 (24:32):
Right, And so.
Speaker 3 (24:35):
This is kind of what gets it what a lot
of people have been saying about markets and macroeconomics, which
is like, oh, like this stuff like nothing matters, Like
the economy just does what it does. And I get
why there's that sense out there, because basically, aside from COVID,
nothing's really mattered to the economy. In the last twenty
(24:57):
years as far as like will it go into reces
session or not even now, like for all of the
you know, all of the inkspilled on you know, hey,
will there be a recession in twenty twenty three? Will
there be a recession in twenty four? Now it's will
there be one in twenty five? Now it's gonna be
will there be one in twenty six? Sure, the answer
is despite all of the things that have concerned us
(25:19):
over the last few years, you know, high inflation, the
FED hiking rates, Silicon Valley bank blowing up or slowing,
labor market, tariffs, this that whatever, you look at the
broad economic data and like I I don't blame for
people for feeling like none of this matters, Like is
I get it.
Speaker 5 (25:38):
It's you look at the.
Speaker 3 (25:39):
Broad data and it hasn't mattered, But at some point
it will, yep, because you're not just going to never
have another recession again.
Speaker 5 (25:49):
Ever.
Speaker 3 (25:50):
Sure, I think the problem that we you know, that
people tend to get into is they always want to
predict recession and usually it doesn't happen. Like recessions are
not something happens every year or two. You know, there
have to be problems in the business cycle that lead
to them, and that just hasn't been present large enough
quantities in the last fifteen sixteen years.
Speaker 5 (26:09):
For that to be the case sure thing.
Speaker 3 (26:12):
So that's it's kind of where I am on that side.
I do want to talk about something that's kind of
media in markets over the last week or so, which
is the Googs.
Speaker 4 (26:22):
I'm excited about this.
Speaker 5 (26:23):
I am too. So Google's a company.
Speaker 3 (26:24):
If you've been listening to our show for a while,
you know that I've kind of had this feeling about
Google for the last five or six years where it's
kind of just like, what do they do? Like what's
interesting about them? They're basically an online ad not monopoly
because Facebook is out there in that space and Amazon's
big too, but like they're all kind of just you know,
(26:45):
huge in that space. And it's kind of like, Okay,
do you do anything interesting anymore? And the answer is
maybe I'm not willing, Like I don't know enough to
say yes definitively.
Speaker 5 (26:56):
But here's the thing.
Speaker 3 (26:56):
The big Google announcement last week was that they're Gemini
three AI platform uh basically dominates all previous platforms in
terms of how it performs on tests. The bigger news
was under the surface, which is, hey, the training was
done on Google's own self developed chips. Yep, now quick
(27:17):
and dirty, like you know, summary of this, just so
that when you're at you know, Thanksgiving dinner, you can
talk about this and and and sound smart.
Speaker 4 (27:25):
Little TPU GPU chatter.
Speaker 5 (27:27):
Oh boy, we're gonna get there. So uh.
Speaker 3 (27:29):
In Vidia, who makes most of the chips for you know,
AI applications to this point. Their chips are known as GPUs,
which historically been you know, graphics processing units. Back during
you know, the last twenty years or so. If you
wanted to play counter strike or you know, the latest
call of duty and have it look the best, you
needed the strongest graphics processing unit, the strongest GPU to
(27:52):
be able to handle that load. Because it takes a
ton of computing power to render three D graphics in
real time. It's it's a lot for a computer to
do that. So in Video's growth into this company that
uses those GPUs for AI makes a lot of sense
because they've already been developing technology that has a ton
of power to handle large scale computing tasks for years.
(28:16):
It's been their bread and butter. Google alphabet back in
twenty fifteen developed what they call the tensor processing unit
tensor spelled tn SR or the TPU, And basically what
TPUs are designed to do. They're designed to process a
(28:37):
ton of volume in terms of operations, but not with
a ton of precisions. So basically, just get me as
much information as possible and then we can sort through
it on the back end. And they're custom built for
specific uses, generally for machine learning and artificial intelligence. And
so the big thing with this, you know, this announcement
(29:01):
that Google used their own self developed TPUs for training
their latest model, is Hey, if the latest and greatest
model is this much better and they didn't use in
Vidia chips and Google's own chips are a lot cheaper
and you know, both to make and operate than Google's chips, hey,
that's a potentially huge threat to in Vidia's chip business.
(29:24):
Because if companies realize that there's more competition in video
has two options either a like, develop things that are
just so much better than everyone else that people have
to use your stuff, but that doesn't look like the
case here, or in video is going to have to
start cutting its prices in order to compete, which means
that fat margin. That is the reason why in Video's
(29:45):
earnings just keep going up and up and up. Is
going to get eaten into and more competition again means
that not everybody's going to be a winner in the
AI space.
Speaker 5 (29:55):
I think this is fascinating me too.
Speaker 4 (29:57):
This is the story that captivates me the most. When
you talk about markets, I would push back and noticing
that Google's boring. I mean, weaimo itself as a business
that's covered within goal. Google is pretty fascinating. I know
it doesn't really translate to the bottom line if we're
looking at revenue, but also there they've they've got a
They've done a lot of things right, I mean over
the years, for sure, they're all over place. And what's
(30:18):
really happened over the course of the last month or so,
in addition to what you mentioned with with Gemini, and
this is really only in the last week or two,
is now that these TPUs that we just spoke about
are going to be available for other companies to use. Typically,
Google had just developed this in house and used it
for the Gemini three model, training it on its own chips.
(30:39):
Now it's just announced that a million chips are going
to be sold to Anthropic, another artificial intelligence company that
builds a large language model. And then the rumors that
came out over the course of the last few days
was that Meta was considering using Google's chips in its
data centers as early as twenty twenty seven, and perhaps
renting them out as early as next year. Google's positioning
(31:01):
across everything in our official intelligence. It's funny how we
were just talking about them not getting broken up as
a monopoly a month or so ago, and all of
a sudden they're woken up with a lot going here
in their favor.
Speaker 5 (31:14):
Quick break here. When we come back, we're talking turkey
after this.
Speaker 1 (31:19):
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Speaker 4 (31:32):
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Speaker 7 (31:35):
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Speaker 1 (32:03):
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Speaker 3 (32:21):
All right, Paul, before we get to talk to Turkey here,
let's let's cover this piece from the Wall Street Journal,
just to wrap up our AI chatter. It's titled is
it really possible to spend too much on AI?
Speaker 5 (32:36):
What's to talk about? And what are your thoughts? Check.
Speaker 4 (32:39):
The reason that this piece is grinding my gears and
I think it's inaccurate is because this goes on in
the piece here to make an example of Intel and
the spending that it did under former CEO Pat Gelsinger
in twenty twenty one, where they committed a significant amount
of capital to build out their capable ability to manufacture chips.
(33:03):
So Intel, historically we were talking about chips in the
second but before had both designed and manufactured chips. The
chip industry has evolved to where typically, for the most part,
you have people who designed the chips or companies that
make them. You're kind of one or the other, and
Intel was kind of caught in between the two. He
came in a CEO and said, we're going to be
(33:23):
behind the manufacturing, and the piece goes on to outline
that they spent all this money and had really nothing
show for it. And the reason that I don't like
the piece and think it's inaccurate is because what Gelsinger
did in twenty twenty one, you can argue it didn't
pay off and they failed at making themselves turn around
on the manufacturing side, But the reason that they were
in that position were from mistakes that go back a
(33:44):
decade plus or more. Really, they lost out in mobile.
They were very concentrated on focusing on their PC business.
They had made the chips that dominated that market for years,
and they sat back while other companies out there, like
Are and others, ate their lunch when it came to
more chips being used for your cell phones rather than
(34:06):
in computers. Same thing applies with the manufacturing side of
things on chips. They got their lunch eaten by Taiwan's
semiconductor back in twenty seventeen or twenty nineteen, where chips
were being made small and smaller. They missed the boat there.
So it really was a product of missing technology ways
where you could argue that they didn't spend enough to
(34:27):
innovate there and sat back cashing their fat checks from
their computer business and those chips that led them to
that position. So that's what the frustration. Maybe he's right,
they're right in this piece that some companies will overspend
and they'll fall in their face and fail with artificial intelligence.
But Intel's really more an example of not someone who's
spent too much and failed. It's just they missed and
(34:48):
probably didn't spend enough to keep up with technology that
continues to evolve.
Speaker 6 (34:53):
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Speaker 3 (36:01):
Piece in the New York Times that ask the question
that I'm completely sick of at this point. How much
well Thanksgiving dinner cost? It depends who you ask. So
here's the deal. All of the major stores, grocery stores
are being like, yeah, like things are like cheaper than
last year. Targets saying it, Walmart's saying it. You go
down the list, and it's the case because obviously you
(36:23):
want to attract shoppers by saying that you have the
best prices. On the other hand, you look at the
CPI data just you know, off the top, and you say, okay,
grocery prices are up a few percentage points since last year.
Then you go and you look at Purdue University who
says wholesale turkey prices are up seventy five percent from
last year. Because remember the time when grocery stores are
(36:45):
ordering turkeys for the next year is generally last winter,
because they order in advance to not have to pay
spot prices when actually buying in the open market. You've
got Deloitte who's saying that Thanksgiving prices are point six
percent higher.
Speaker 5 (37:00):
And quite honestly like.
Speaker 3 (37:04):
The idea that hey, we're gonna accurately judge what people
are feeling on inflation from what Thanksgiving dinner costs really
bothers me.
Speaker 4 (37:14):
I don't understand why it's become the focus point over
the course of the last week here that the Thanksgiving
dinner is where we have to measure pricing changes. And
why and how you know the White House has to
hang their hat on lower prices, or.
Speaker 3 (37:32):
I get why politicians of anywhere want to say, hey,
prices are you know, lower. I totally get it, But
like this battle ground that Thanksgiving dinner is now, it's like,
oh my goodness, Like the conversation over Thanksgiving dinner should
not be which index are using to track the price
of Thanksgiving dinner.
Speaker 4 (37:54):
It's impossible. And the metrics they're using here, everybody's shifting
around the different items in the package with you know,
oh this this meal was you know, fifteen items, this
one's ten. If you take out these things, it's more expensive.
It's just made my head spind this whole sort of
chatter over the course of the last few days here
on the cost of Thanksgiving meal.
Speaker 5 (38:12):
So let's cut through it all. Paul, what's your favorite
side dish?
Speaker 4 (38:16):
Stuffing?
Speaker 6 (38:17):
Tucker, I don't even think like it's a debate really,
like I think stuffing should be excluded.
Speaker 5 (38:23):
That question is number two. So stuffing.
Speaker 3 (38:26):
I've always had the point that it should be a
four season side dish, not.
Speaker 5 (38:30):
Just a Thanksgiving I go green bean cast role for
number two.
Speaker 1 (38:35):
Not bad, hmm.
Speaker 6 (38:37):
I mean I gotta go mashed potatoes.
Speaker 4 (38:39):
I was gonna goto cravy, smothering covered and gravy again.
Speaker 3 (38:43):
You can have that anytime, any time, deal quick break,
Your hour too coming up in a little bit.
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